NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September
30, 2007 and 2006
NOTE
1 - ORGANIZATION, RECENT DEVELOPMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Organization
and Basis of Consolidation:
New
York Health Care, Inc. (“New York Health Care”) was organized under the laws of
the State of New York in 1983. New York Health Care provides services of
registered nurses and paraprofessionals to patients throughout New York. The
BioBalance Corp (“BioBalance”) a Delaware corporation was formed in May 2001.
BioBalance is a biopharmaceutical company focused on the development of
treatments for gastrointestinal diseases that are poorly addressed by current
therapies. BioBalance is pursuing prescription drug development of its lead
product, PROBACTRIX® for the prevention of pouchitis. On March 24, 2006, the
Company received approval from the FDA to start Phase II clinical trials. There
can be no assurance that BioBalance will complete the clinical trials or be
successful in marketing any such products. The consolidated entity, collectively
referred to, unless the context otherwise requires, as the “Company”, “we”,
“our” or similar pronouns, includes New York Health Care and its wholly-owned
subsidiary BioBalance.
The
accompanying interim consolidated financial statements have been prepared by
the
Company without audit, in accordance with the instructions for Form 10-Q
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”) and therefore do not include all information and notes normally provided
in the annual financial statements and should be read in conjunction with the
audited financial statements and the notes thereto included in Form 10-K of
New
York Health Care, Inc. for the year ended December 31, 2006 as filed on April
19, 2007 with the SEC.
The
accompanying interim consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company's
recurring losses and negative working capital raises substantial doubt about
its
ability to continue as a going concern. The consolidated financial statements
do
not include any adjustments that might result from the outcome of this
uncertainty.
Management’s plans in connection with this matter includes continued cost
cutting measures in BioBalance in connection with the temporary scaling back
of
operations and seeking additional capital to fund BioBalance
operations.
In
the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (which consist of normal and recurring adjustments)
necessary for a fair presentation of the financial statements. The results
of
operations for the three and nine months ended September 30, 2007 are not
necessarily indicative of the results to be expected for the full
year.
Recent
Developments:
On
March 30, 2006, the Company was served with a shareholder derivative complaint
captioned Jay Glatzer v. Yitz Grossman, Emerald Asset Management, Murray
Englard, Michael Nafash, Stuart Ehrlich, and Dennis O'Donnell and New York
Health Care, Inc., (Supreme Court of State of New York County of Nassau, (Index
No. 5125/06). The lawsuit alleged that the directors breached their fiduciary
duty by approving the Emerald Settlement Agreement disclosed in the Company's
Form 8-K (Date of Report March 6, 2006) filed with the Securities Exchange
Commission on March 10, 2006. The lawsuit claimed that such breach was a product
of their respective relationships with Mr. Grossman. The lawsuit also alleged
that Mr. Grossman and Emerald Asset Management injured the Company by engaging
in the actions underlying the November 2004 criminal conviction of Mr. Grossman.
The lawsuit was dismissed in September 2006. A notice of appeal was filed by
the
plaintiff in October 2006 and the plaintiff filed its appeal brief in April
2007.
As
of September 30, 2007, BioBalance had cash on hand of $30,595, all of which
was
available to fund operations. BioBalance estimates that its capital requirements
for 2007 would be approximately $5,000,000 if it had not scaled back operations.
This estimate includes the cost of an initial $3,000,000 up front payment for
the Phase I/II clinical trial for the Company's lead product. The balance of
approximately $2,000,000 would be required for product development and
maintenance and administrative overhead. However, management has temporarily
scaled back operations because of a lack of available funds and adjusted the
2007 budget to reflect that its capital requirements for the remainder of 2007
will be approximately $300,000. This budget assumes that BioBalance will
continue to operate using existing funds, proceeds from the health care
operations and/or the sale of additional securities. It will be necessary for
the Company to secure additional funding in order for BioBalance to begin the
Phase I/II clinical trial, which was approved by FDA on March 24, 2006. The
Company has not been able to obtain such additional funding up to the present
time, and the BioBalance subsidiary has been operating solely by utilizing
funds
from the health care operations, which are insufficient for BioBalance's 2007
capital needs.
The
Company is in continuing discussions with potential funding sources to fund
BioBalance operations, but no agreements with any such funding sources have
been
entered into. Accordingly, since additional funding from outside sources has
not
been obtained, the Company began scaling back the operations of BioBalance
at
the end of November 2006, and BioBalance has been operating on a substantially
reduced budget starting in June 2007. BioBalance management has taken steps
to
secure the data from clinical trials and has authorized the production of a
duplicate of the biological strain of ProBactrix to maintain its viability,
pending the receipt of funding for the clinical studies discussed above.
Additionally, BioBalance surrendered its office space to the landlord in March
2007 in exchange for lease cancellation, incurring exit costs of approximately
$36,000. Management is negotiating temporary cutbacks in consultant compensation
until such time as additional funds or a strategic partner can be found. There
can be no assurance that the Company will be able to raise additional capital
in
the near term to allow BioBalance to resume full operations and undertake the
Phase I/II clinical trial.
Effective
August 20, 2007, the Board of Directors appointed Murry Englard Chief Executive
Officer of the Company. Prior to such appointment, Mr. Englard was serving
as
Acting Chief Executive Officer and a Director. Mr. Englard will continue to
serve as a Director of the Company. Mr. Englard will receive a monthly salary
of
$8,333 for his services as Chief Executive Officer. The term for Mr. Englard’s
service as Chief Executive Officer will be one year, renewable monthly, and
the
Company will continue its search for a full-time Chief Executive Officer.
Effective
August 20, 2007, Mr. Englard was granted, as part of his compensation for his
services as Chief Executive Officer and a Director, the option to acquire up
to
150,000 shares of the Company’s common stock pursuant to the Company’s 2004
Stock Incentive Plan, which options shall vest and be exercisable on the date
of
grant, at an exercise price of $0.15 per share. The Company recorded an expense
of $12,000 in connection with this grant.
Effective
August 20, 2007, the Board of Directors appointed Dr. Howard Berg to the
newly-created non-executive position of Chairman for Product Development. Dr.
Berg will receive compensation of $2,000 per month for his services in such
position. This position includes oversight and maintenance of BioBalance's
ProBactrix studies, oversight of product development studies, and oversight
of
clinical research. Dr. Berg will continue to serve as a Director of the Company.
No written employment agreement has been entered into between Dr. Berg and
the
Company.
Effective
as of August 20, 2007, Dr. Berg was granted, as part of his compensation for
his
services as Chairman of Product Development and a Director, the option to
acquire up to 75,000 shares of the Company’s common stock pursuant to the
Company’s 2004 Stock Incentive Plan, which options shall vest and be exercisable
on the date of grant, in accordance with the Plan at an exercise price of $0.15
per share. The Company recorded an expense of $6,000 in connection with this
grant.
Estimates:
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recently
Issued Accounting Pronouncements:
In
February, 2007, FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities
including an amendment of FAS 115, or FAS 159. This statement provides companies
with an option to report selected financial assets and liabilities at fair
value. This statement is effective for fiscal years beginning after November
15,
2007 with early adoption permitted. We are assessing FAS No. 159 and have not
yet determined the impact that the adoption of FAS No. 159 will have
on our results of operations or financial position, if any.
In
September 2006, the FASB issued SFAS No. 158 Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - an Amendment of FASB
Statements No. 87, 88, 106, and 132(R). This statement requires a company
to recognize the funded status of a benefit plan as an asset or a liability
in
its statement of financial position. In addition, a company is required to
measure plan assets and benefit obligations as of the date of its fiscal
year-end statement of financial position. The recognition provision of this
statement, along with additional disclosure requirements, is effective for
fiscal years ending after December 15, 2006, while the measurement date
provision is effective for fiscal years ending after December 15, 2008.
Management does not believe that adoption of this statement will have a material
impact on the financial position of the Company.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 clarifies the
definition of fair value, establishes a framework for measuring fair value,
and
expands on required disclosures about fair value measurement. SFAS 157 will
be
effective for the Company on January 1, 2008 and will be applied
prospectively. The Company is currently assessing whether adoption of SFAS
157
will have an impact on our financial statements but does not believe the
adoption of SFAS 157 will have a material impact on the Company’s financial
position, cash flows, or results of operations.
In
June, 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109, Accounting for Income Taxes
(FIN48), to create a single model to address accounting for uncertainty in
tax
positions. FIN 48 clarifies the accounting for income taxes by prescribing
a
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest, and penalties, accounting
in interim periods, disclosure and transition. The Company adopted FIN 48 as
of
January 1, 2007 and the adoption did not have a material impact to the
Company's consolidated financial statements or effective tax rate and did not
result in any unrecognized tax benefits.
Interest
costs and penalties related to income taxes are classified as interest expense
and general and administrative costs, respectively, in the Company's
consolidated financial statements. For the nine months ended September 30,
2007
and 2006, the Company did not recognize any interest or penalty expense related
to income taxes. The Company is currently subject to a three year statue of
limitations by major tax jurisdictions. The Company and its subsidiaries file
income tax returns in the U.S. federal jurisdiction, New York State, New York
City and New Jersey.
NOTE
2 - EARNINGS/LOSS PER SHARE:
Basic
loss per share excludes dilution and is computed by dividing net loss available
to common shareholders by the weighted average number of common shares
outstanding for the period.
Diluted
earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for
the
period, adjusted to reflect potentially dilutive securities. For the three
months ended September 30, 2007, common stock attributable to options and
warrants outstanding of
8,882,046
were not included in the computation of diluted earnings per share because
their
exercise prices were all greater than the average market price of the common
shares. Due to losses for the nine months ended September 30, 2007 as well
as
the three and nine months ended September 30, 2006, potential common stock
attributable to options and warrants outstanding of
8,882,046
for
the nine months ended September 30, 2007 and, 8,950,112 for the three and nine
months ended September 30, 2006, were not included in the computation of diluted
earnings per share, because to do so would be antidilutive.
NOTE
3 - INTANGIBLE ASSETS:
The
major classifications of intangible assets and their respective estimated useful
lives are as follows:
|
|
|
September
30, 2007
|
|
|
|
|
Gross
Carrying Cost
|
|
Accumulated
Amortization
|
|
Net
Carryng Cost
|
|
Estimated
Useful
Life in Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual
Property
|
|
$
|
2,036,500
|
|
$
|
1,255,795
|
|
$
|
780,705
|
|
|
10
|
|
|
Patents/trademarks
|
|
|
875,842
|
|
|
259,301
|
|
|
616,541
|
|
|
10
|
|
|
Customer
base
|
|
|
316,000
|
|
|
300,229
|
|
|
15,771
|
|
|
5
|
|
|
|
|
$
|
3,228,342
|
|
$
|
1,815,325
|
|
$
|
1,413,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
|
|
Gross
Carrying Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Carryng Cost
|
|
|
Estimated
Useful
Life in Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual
Property
|
|
$
|
2,036,500
|
|
$
|
1,103,053
|
|
$
|
933,447
|
|
|
10
|
|
|
Patents/trademarks
|
|
|
775,260
|
|
|
196,296
|
|
|
578,964
|
|
|
10
|
|
|
Customer
base
|
|
|
316,000
|
|
|
252,916
|
|
|
63,084
|
|
|
5
|
|
|
|
|
$
|
3,127,760
|
|
$
|
1,552,265
|
|
$
|
1,575,495
|
|
|
|
|
NOTE
4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts
payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
September
30, 2007
|
|
December
31, 2006
|
|
|
Accounts
payable
|
|
$
|
406,336
|
|
$
|
561,445
|
|
|
Accrued
expenses
|
|
|
1,347,229
|
|
|
765,150
|
|
|
Accrued
settlement per consulting agreement
|
|
|
1,131,100
|
|
|
1,131,100
|
|
|
Accrued
employee benefits
|
|
|
2,157,369
|
|
|
3,505,894
|
|
|
|
|
$
|
5,042,034
|
|
$
|
5,963,589
|
|
NOTE
5 - LINE OF CREDIT:
On
September 20, 2007, the Company entered into a Loan and Security Agreement
with
CIT Healthcare LLC, as lender (“
Lender
”).
The term of the Loan and Security Agreement is three years. The Loan and
Security Agreement provides for a revolving line of credit facility under which
the Company may borrow, repay and re-borrow an amount not exceeding the lesser
of $5,000,000 or the borrowing base, which is an amount that may not exceed
85.00% of the estimated net value of the Company's Eligible Accounts, as defined
in the agreement. As of September 30, 2007, approximately $3,800,000 of the
line
was available for borrowing by the Company.
Interest
is payable on the outstanding principal balance of the credit facility at an
annual rate equal to 30-day LIBOR plus three and one-half percent (3.50%),
adjusted monthly in accordance with changes in 30-day LIBOR.
The
Company's obligations to Lender under the Loan and Security Agreement are
secured by a first priority lien on all of the Company's accounts receivable,
general intangibles, instruments and documents, and the proceeds thereof.
However, no collateral will consist of any assets or property of
BioBalance.
Beginning
with the quarter ended September 30, 2007, the Company is subject to meeting
periodic financial covenants contained in the Loan and Security Agreement.
As of
September 30, 2007, the Company was in compliance with all of the specified
financial covenants.
The
Company is prohibited from making dividends, distributions and other withdrawals
during the term of the credit facility. However, the Company is permitted to
make loans, advances or contributions to its subsidiary, BioBalance provided
that certain liquidity requirements are met. The Company is further restricted
from mergers and acquisitions, as well as asset sales or dispositions outside
the ordinary course of business, provided that such sale restrictions are not
applicable to the sale of the stock or assets of BioBalance.
NOTE
6 - STOCK OPTIONS/WARRANTS:
On
January 1, 2006 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS
123(R)”). SFAS 123(R) requires the Company to recognize expense related to the
fair value of employee stock option awards and to measure the cost of employee
services received in exchange for an award of equity instruments based on the
grant date fair value of the award. This eliminated the exception to account
for
such awards using the intrinsic method previously allowable under Accounting
Principles Board Opinion No. 25, “Accounting for Stock issued to Employees”
(“APB 25”). Prior to January 1, 2006, we accounted for the stock based
compensation plans under the recognition and measurement provisions of APB
25,
as permitted by SFAS No. 123, “Accounting for Stock-Based
Compensation.”
Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of SFAS 123(R), using the modified-prospective-transition method. Under that
transition method, compensation cost recognized in 2006 and beyond includes:
(a) compensation cost for all share-based payments granted prior to, but
not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No. 123, and
(b) compensation cost for all stock-based payments granted subsequent to
January 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123(R). Results for prior periods have not been
restated and there is no cumulative effect upon adoption of SFAS
123(R).
During
the nine months ended September 30, 2007, the following non-qualified options
were issued to directors.
|
Grant
Date
|
|
Number
of Options
|
|
Exercise
Price
|
|
Expiration
Term
|
|
|
February
28, 2007
|
|
|
50,000
|
|
$
|
0.13
|
|
|
5
yrs
|
|
|
August
20, 2007
|
|
|
225,000
|
|
$
|
0.15
|
|
|
10
yrs
|
|
The
options' assumptions used to estimate these values are as follows:
|
|
For
the Three
Months Ended
September 30, 2007
|
|
For
the Nine
Month Ended
September 30, 2007
|
|
|
|
|
|
|
Risk
free interest rate
|
4.64%
|
|
4.64%
to 4.81%
|
|
Expected
volatility of common stock
|
183%
|
|
183%
to 371%
|
|
Dividend
yield
|
0%
|
|
0%
|
|
Expected
option term
|
10
yrs
|
|
10
yrs
|
Total
stock based compensation recognized on the consolidated statement of operations
for the three and nine months ended September 30, 2007 was $18,000 and $24,500
respectively.
Performance
Incentive Plan:
On
August 31, 2005, the shareholders approved the Company's 2004 Incentive Plan,
(the “Incentive Plan”). Under the terms of the Incentive Plan, up to 3,175,000
shares of common stock may be granted at September 30, 2007. The Incentive
Plan
is administered by the Compensation Committee which is appointed by the Board
of
Directors. The Committee determines which key employee, officer or director
on
the regular payroll of the Company, or outside consultants shall receive stock
options. Granted options are exercisable after the date of grant in accordance
with the terms of the grant up to ten years after the date of the grant. The
exercise price of any incentive stock option or nonqualified option granted
under the Incentive Plan may not be less than 100% of the fair market value
of
the shares of common stock of the Company at the time of the grant.
On
March 26, 1996, the Company's Board of Directors adopted the Performance
Incentive Plan, (the “Option Plan”). The option plan has substantially the same
terms as the Incentive Plan above.
Activity
in stock options and warrants, including those outside the Performance Incentive
Plan, for the nine months ended September 30, 2007, is summarized as follows:
|
|
|
Shares
Under
Options/ Warrants
|
|
Weighted
Average
Exercise Price
|
|
|
Balance
at January 1,2007
|
|
|
8,996,212
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
275,000
|
|
|
0.14
|
|
|
Options
cancelled/expired
|
|
|
(389,166
|
)
|
|
0.82
|
|
|
Options
exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30,2007
|
|
|
8,882,046
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
Options
eligible for exercise at September 30,2007
|
|
|
8,882,046
|
|
$
|
0.88
|
|
The
following table summarizes information about options and warrants outstanding
and exercisable at September 30, 2007.
|
|
|
Options/Warrants
Outstanding
|
|
Options/Warrants
Exercisable
|
|
|
Range
of Exercise Price
|
|
Options
Warrants Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
Options
Warrants Exercisable
|
|
Weighted
Average Options Warrants Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.69
|
|
|
100,000
|
|
|
0.96
|
|
$
|
3.69
|
|
|
100,000
|
|
$
|
3.69
|
|
|
$3.22-3.47
|
|
|
48,387
|
|
|
0.25
|
|
|
3.31
|
|
|
48,387
|
|
$
|
3.31
|
|
|
$3.14
|
|
|
160,000
|
|
|
5.44
|
|
|
3.14
|
|
|
160,000
|
|
$
|
3.14
|
|
|
$2.55
|
|
|
75,333
|
|
|
0.67
|
|
|
2.55
|
|
|
75,333
|
|
$
|
2.55
|
|
|
$2.44
|
|
|
6,667
|
|
|
0.67
|
|
|
2.44
|
|
|
6,667
|
|
$
|
2.44
|
|
|
$1.50
|
|
|
51,333
|
|
|
1.23
|
|
|
1.50
|
|
|
51,333
|
|
$
|
1.50
|
|
|
$1.21
|
|
|
150,000
|
|
|
2.92
|
|
|
1.21
|
|
|
150,000
|
|
$
|
1.21
|
|
|
$1.21
|
|
|
50,000
|
|
|
3.26
|
|
|
1.21
|
|
|
50,000
|
|
$
|
1.21
|
|
|
$1.20
|
|
|
80,000
|
|
|
2.92
|
|
|
1.20
|
|
|
80,000
|
|
$
|
1.20
|
|
|
$1.00
|
|
|
200,000
|
|
|
3.67
|
|
|
1.00
|
|
|
200,000
|
|
$
|
1.00
|
|
|
$0.97
|
|
|
66,667
|
|
|
2.12
|
|
|
0.97
|
|
|
66,667
|
|
$
|
0.97
|
|
|
$0.89
|
|
|
133,333
|
|
|
3.26
|
|
|
0.92
|
|
|
133,333
|
|
$
|
0.92
|
|
|
$0.84
|
|
|
50,000
|
|
|
7.68
|
|
|
0.84
|
|
|
50,000
|
|
$
|
0.84
|
|
|
$0.78
|
|
|
5,726,993
|
|
|
2.40
|
|
|
0.78
|
|
|
5,726,993
|
|
$
|
0.78
|
|
|
$0.78
|
|
|
30,000
|
|
|
3.51
|
|
|
0.78
|
|
|
30,000
|
|
$
|
0.78
|
|
|
$0.78
|
|
|
1,100,000
|
|
|
2.43
|
|
|
0.78
|
|
|
1,100,000
|
|
$
|
0.78
|
|
|
$0.75
|
|
|
133,333
|
|
|
2.83
|
|
|
0.75
|
|
|
133,333
|
|
$
|
0.75
|
|
|
$0.75
|
|
|
200,000
|
|
|
3.02
|
|
|
0.75
|
|
|
200,000
|
|
$
|
0.75
|
|
|
$0.60
|
|
|
20,000
|
|
|
9.08
|
|
|
0.60
|
|
|
20,000
|
|
$
|
0.60
|
|
|
$0.37
|
|
|
225,000
|
|
|
4.22
|
|
|
0.37
|
|
|
225,000
|
|
$
|
0.37
|
|
|
$0.13
|
|
|
50,000
|
|
|
4.42
|
|
|
0.13
|
|
|
50,000
|
|
$
|
0.13
|
|
|
$0.15
|
|
|
225,000
|
|
|
9.65
|
|
|
0.15
|
|
|
225,000
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,882,046
|
|
|
2.52
|
|
$
|
0.88
|
|
|
8,882,046
|
|
$
|
0.88
|
|
As
of
September 30, 2007, there was no intrinsic value for all of the options/warrants
listed above as their exercise prices are all greater than the market price
of
the Company’s common shares.
NOTE
7 - COMMITMENTS AND CONTINGENCIES:
On
March 6, 2006, the Company entered into a settlement agreement (the “Emerald
Settlement Agreement”) with Emerald Asset Management, Inc. (“Emerald”) and Yitz
Grossman related to the resolution of disputes under a consulting agreement
dated June 1, 2001 between the Company and Emerald.
Pursuant
to the Emerald Settlement Agreement and in order avoid the cost and uncertainty
of litigation, the Company agreed to (i) the immediate payment of $700,000
to
Emerald, (ii) payment of $22,000 per month for eighteen months beginning January
1, 2006, (iii) the issuance of 400,000 shares of common stock, (iv) options
to
purchase 1,100,000 shares of common stock at $0.78 per share until March 1,
2010
and (v) health insurance for Grossman and his family for the eighteen month
period ending June 30, 2007 amounting to approximately $35,100. In return,
Emerald and Grossman have executed a general release of all claims they may
have
against the Company. The Company has not paid any of this liability and has
expensed $1,545,931 for the above settlement during the year ended December
31,
2005. The Company has recorded a liability of $1,131,100 and common stock and
options to be issued valued at $774,220 as of December 31, 2005.
On
March 9, 2006, the Company entered into a final settlement agreement (the
“Corval Settlement Agreement”) with Mark Olshenitsky related to the resolution
of disputes under a consulting agreement dated April 14, 2003, between the
Company and Corval International, Inc. (“Corval”).
Pursuant
to the Corval Settlement Agreement and in order to avoid the cost and
uncertainty of litigation, the Company agreed to issue 300,000 shares of Common
Stock to Olshenitsky in return for a general release of all claims Corval and
Olshenitsky may have against the Company. The Company issued these shares on
December 15, 2006.
On August
21, 2006, the Company unilaterally rescinded the settlement between the Company
and Emerald Asset and Yitz Grossman. The rescission of the settlement by the
Company was done without the consent of Emerald Asset and Yitz Grossman.
Accordingly there may be future litigation brought against the Company by
Emerald Asset and Yitz Grossman to seek enforcement of the agreement. The
Company continues to retain the accrual for the settlement agreement on its
books in its entirety. If there is litigation brought by Emerald Asset and
Yitz
Grossman to enforce the settlement agreement, there can be no assurance that
at
a future time the accrual that was recorded would be sufficient to offset
amounts resulting from the future litigation.
NOTE
8 - INCOME TAXES:
The
temporary differences that give rise to deferred tax assets are impairment
of
intangible assets for financial statement book purposes over tax purposes,
the
direct write-off method for receivables, using accelerated methods of
amortization and depreciation for property and equipment for tax purposes,
and
using statutory lives for intangibles for tax purposes. Also included in the
deferred tax asset is a net operating loss carryforward. At September 30, 2007
and December 31, 2006, the Company has computed a deferred tax asset in the
amount of approximately
$8,699,000
and $7,481,000, respectively. A full valuation allowance has been recorded
against the net deferred tax assets because it is not, more likely than not,
that those assets will be realized in the foreseeable future. The valuation
allowance increased by $1,218,000 during the nine m
onths
ended September 30, 2007.
NOTE
9 - SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
|
|
For
the Nine Months Ended September 30
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
10,642
|
|
$
|
7,863
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
11,630
|
|
$
|
35,268
|
|
NOTE
10 - SEGMENT REPORTING:
The
Company has two reportable business segments: New York Health Care, a home
health care agency that provides a broad range of health care support services
to patients in their homes, and BioBalance, a segment that is developing a
probiotic agent for the treatment of gastrointestinal disorders. BioBalance
has
not generated any revenue as of September 30, 2007.
|
|
|
New
York
|
|
Bio-
|
|
Total
|
|
|
|
|
Health
Care
|
|
Balance
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Net
patient service revenue
|
|
$
|
32,760,415
|
|
$
|
-
|
|
$
|
32,760,415
|
|
|
Sales
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
revenue
|
|
$
|
32,760,415
|
|
$
|
-
|
|
$
|
32,760,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,290,035
|
|
$
|
(1,632,846
|
)
|
$
|
(342,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,939,847
|
|
$
|
1,481,027
|
|
$
|
12,420,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Net
patient service revenue
|
|
$
|
34,080,229
|
|
$
|
-
|
|
$
|
34,080,229
|
|
|
Sales
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
revenue
|
|
$
|
34,080,229
|
|
$
|
-
|
|
$
|
34,080,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,250,696
|
|
$
|
(3,748,131
|
)
|
$
|
(2,497,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
12,288,203
|
|
$
|
2,910,277
|
|
$
|
15,198,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Net
patient service revenue
|
|
$
|
10,773,937
|
|
$
|
-
|
|
$
|
10,773,937
|
|
|
Sales
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
revenue
|
|
$
|
10,773,937
|
|
$
|
-
|
|
$
|
10,773,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
662,407
|
|
$
|
(607,372
|
)
|
$
|
55,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Net
patient service revenue
|
|
$
|
11,095,345
|
|
$
|
-
|
|
$
|
11,095,345
|
|
|
Sales
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
revenue
|
|
$
|
11,095,345
|
|
$
|
-
|
|
$
|
11,095,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
126,350
|
|
$
|
(1,154,870
|
)
|
$
|
(1,028,520
|
)
|