SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ___________________
Commission file number 0-11895
--------
CONTINENTAL HEALTH AFFILIATES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2362097
- ------------------------------- -----------------------
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
910 SYLVAN AVENUE, ENGLEWOOD CLIFFS, NJ 07632
- --------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 567-4600
------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such short period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
--- ----
Number of Shares of Registrant's Common Stock Outstanding
November 10, 1995: 7,944,351
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
INDEX
-----
Page Number
-----------
PART I FINANCIAL INFORMATION:
Item 1 Consolidated Balance Sheets (Unaudited) at September 30,
1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations (Unaudited) for the
nine months ended September 30, 1995 and 1994 . . . . . . . . . .3
Consolidated Statements of Operations (Unaudited) for the
three months ended September 30, 1995 and 1994. . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 1995 and 1994. . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . . 6
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1
<PAGE>
<TABLE>
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
Assets 1995 1994
-------- ------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $603,000 $1,161,000
Patients' funds 200,000 205,000
Accounts receivable, net of allowances for uncollectible
accounts of $3,802,000 and $3,137,000 7,000,000 6,264,000
Inventories 1,542,000 1,407,000
Deferred income taxes 849,000 849,000
Prepaid expenses and other current assets 1,550,000 1,231,000
------------ ------------
Total current assets 11,744,000 11,117,000
Property and equipment, at cost, net of accumulated
depreciation and amortization of $4,023,000 and $3,564,000 9,988,000 9,903,000
Mortgage note receivable 7,399,000 7,399,000
Goodwill, net of accumulated amortization of
$622,000 and $558,000 318,000 382,000
Deferred income taxes 220,000 220,000
Other assets 1,346,000 1,464,000
------------ ------------
Total assets $31,015,000 $30,485,000
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt (notes 2 and 3) $4,233,000 $3,165,000
Accounts payable (note 3) 8,524,000 7,451,000
Other current liabilities 5,075,000 4,893,000
----------- -----------
Total current liabilities 17,832,000 15,509,000
Long-term debt, net of current portion (notes 2 and 3) 11,042,000 10,806,000
Deferred income 323,000 1,194,000
Other liabilities -- 471,000
Minority interest in subsidiary 1,611,000 1,877,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.02 par value; $100 liquidation preference;
1,000,000 shares authorized; 13,884 shares outstanding 1,000 1,000
Common stock, $.02 par value; 15,000,000 shares authorized;
7,830,059 and 7,825,059 shares outstanding 156,000 156,000
Additional paid-in capital 20,157,000 20,226,000
Accumulated deficit (20,107,000) (19,755,000)
------------ ------------
Total stockholders' equity 207,000 628,000
------------ ------------
Total liabilities and stockholders' equity $31,015,000 $30,485,000
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1995 1994
-------------------------------
<S> <C> <C>
Revenues:
Nursing home services $27,584,000 $29,265,000
Infusion therapy and other medical services 16,778,000 11,639,000
------------ ------------
Total revenues 44,362,000 40,904,000
------------ ------------
Operating expenses:
Personnel 21,935,000 21,570,000
Medical and nutritional product 8,518,000 4,736,000
Health care and lodging 8,231,000 8,660,000
Selling, general and administrative 4,515,000 4,188,000
Provision for uncollectible accounts 1,411,000 1,232,000
Depreciation and amortization 542,000 657,000
------------ ------------
Total operating expenses 45,152,000 41,043,000
------------ ------------
Loss from operations (790,000) (139,000)
Interest and dividend income 274,000 68,000
Interest and other financing costs (874,000) (1,252,000)
Other income, net 772,000 552,000
Minority interest in loss of subsidiary 266,000 181,000
----------- -----------
Loss before income taxes and extraordinary gains (352,000) (590,000)
Benefit for income taxes --- 469,000
----------- -----------
Loss before extraordinary gains (352,000) (121,000)
Extraordinary gains on extinguishment of debt (net of income
taxes of $171,000) -- 1,058,000
----------- -----------
Net income (loss) (352,000) 937,000
Preferred dividends (70,000) (69,000)
----------- -----------
Net income (loss) applicable to common shareholders ($422,000) $868,000
=========== ===========
Earnings (loss) per share:
Before extraordinary items ($0.06) ($0.02)
Extraordinary items -- 0.13
----------- -----------
Net income (loss) applicable to common shareholders ($0.06) $0.11
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30,
--------------------------------
1995 1994
------- ------
<S> <C> <C>
Revenues:
Nursing home services $9,336,000 $9,200,000
Infusion therapy and other medical services 6,302,000 4,646,000
----------- -----------
Total revenues 15,638,000 13,846,000
----------- -----------
Operating expenses:
Personnel 7,442,000 7,086,000
Medical and nutritional product 3,218,000 1,866,000
Health care and lodging 2,735,000 2,752,000
Selling, general and administrative 1,501,000 1,454,000
Provision for uncollectible accounts 432,000 357,000
Depreciation and amortization 176,000 156,000
----------- -----------
Total operating expenses 15,504,000 13,671,000
----------- -----------
Income from operations 134,000 175,000
Interest and dividend income 91,000 16,000
Interest and other financing costs (242,000) (332,000)
Other income, net 314,000 212,000
Minority interest in income of subsidiary (87,000) (9,000)
------------ ------------
Income before income taxes 210,000 62,000
Provision for income taxes -- 18,000
------------ ------------
Net income 210,000 44,000
Preferred dividends (35,000) (34,000)
------------ ------------
Net income applicable to common shareholders $175,000 $10,000
============ ============
Earnings per share applicable to common shareholders $0.02 $0.00
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1995 1994
--------- -------
<S> <C> <C>
Operating activities:
Net income (loss) ($352,000) $937,000
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 542,000 657,000
Amortization of deferred financing costs 47,000 76,000
Provision for uncollectible accounts 1,411,000 1,232,000
Amortization of deferred income (871,000) (872,000)
Loss on translation of foreign currency debt 285,000 302,000
Minority interest (266,000) (181,000)
Extraordinary gains --- (1,058,000)
Deferred income taxes --- 72,000
Increase (decrease) from changes in:
Accounts receivable (2,147,000) (1,699,000)
Inventories (135,000) (9,000)
Prepaid expenses and other current assets (319,000) (322,000)
Other assets 52,000 82,000
Accounts payable 2,415,000 230,000
Other current liabilities 187,000 10,000
Other liabilities (472,000) (432,000)
---------- ---------
Net cash generated from operating activities 377,000 (1,119,000)
---------- ---------
Investing activities:
Expenditures for property and equipment (393,000) (781,000)
Purchase by Infu-Tech of treasury stock --- 71,000
----------- ----------
Net cash used in investing activities (393,000) (852,000)
----------- ----------
Financing activities:
Net proceeds from not-for-profit borrowings -- 12,905,000
Net proceeds from long-term borrowings 515,000 790,000
Payments of short-term borrowings (736,000) (13,750,000)
Payments of long-term borrowings (252,000) (227,000)
Payment of preferred dividends (70,000) (69,000)
Cost of debt exchange offers --- (19,000)
Net proceeds from exercise of common stock options 1,000 --
----------- ---------
Net cash used in financing activities (542,000) (370,000)
----------- ---------
Net decrease in cash and cash equivalents (558,000) (2,341,000)
Cash and cash equivalents, beginning of period 1,161,000 3,527,000
----------- -----------
Cash and cash equivalents, end of period $603,000 $1,186,000
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Unaudited information
---------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company's financial
position as of September 30, 1995, and the results of its operations
and changes in cash flows for the nine month periods ended September
30, 1995 and 1994. These consolidated financial statements should be
read in conjunction with the annual consolidated financial statements
of the Company. The results of operations for the nine months ended
September 30, 1995 are not necessarily indicative of the results to be
expected for the full year.
(2) Debt
----
The principal balance of Sfr 2,900,000 (approximately $2,525,000) and
accrued interest of Sfr 174,000 (approximately $152,000) pertaining to
the Swiss franc denominated convertible bonds was due on June 27, 1995.
In September 1995, the Company exchanged Sfr 885,000 ($736,000) for a
new three year note at 8% interest due 1998 in the amount of Sfr 619,500
(approximately $515,000) and a cash payment of $221,000. The exchange
included a waiver of interest totalling Sfr 53,100 (approximately
$44,000).
The exchange reduced the outstanding principal balance on the bonds to
Sfr 2,015,000 (approximately $1,744,000) and accrued interest of Sfr
151,000 (approximately $131,000) as of September 30, 1995. The
Company did not make these payments as of September 30, 1995 and has
not made such payments as of November 10, 1995. Non-payment of these
obligations did not result in a default under any other financing
arrangement.
(3) Subsequent Event
----------------
On October 31, 1995, the Company obtained $41.0 million in mortgage
loans secured by four nursing home facilities located in West Orange,
Cedar Grove and Norwood, New Jersey and West Palm Beach, Florida, and
proceeds from the issuance of Floating Rate Series A Cumulative
Preferred Stock totalling $3.5 million. In addition, the Company
obtained a $1.5 million loan secured by a mortgage on approximately 8
acres of land located in West Orange, New Jersey.
The combined proceeds, totalling $46.0 million were used to purchase the
West Orange, Cedar Grove and West Palm Beach facilities which were
previously operated under operating leases and to purchase the real
property of the long term and residential care facility located in
Norwood, NJ (the "Heritage Facility") , which the Company has been
managing since 1988. The transaction in which the Company purchased
the Norwood facility also released a $2.0 million guarantee which the
Company had given to the prior mortgage lender. Proceeds totalling
$301,000 were also used to release pledged receivables and restructure
a secured loan due December 1, 1995 totalling $601,000 for which a new
three year note was issued for the balance of $300,000, secured by a
first mortgage on the Company's nursing home facility in Atlantic City,
New Jersey.
The Company generated $4.4 million in working capital as a result of
these transactions.
The $41.0 million loan is due in 2010 with interest at 9.86%. The
monthly payment of principal and interest totalling $369,000 is based
upon a 25 year amortization period. The balloon payment due in the
year 2010 will be $28,188,000. The current portion of principal due
under the loan agreement is $397,000.
Under the loan agreement, the Company is required to maintain
restricted cash management accounts for each facility.
6
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Continued
---------
The $3.5 million in Floating Rate Series A Cumulative Preferred Stock
("Series A Preferred Stock") is subject to mandatory redemption upon
the earlier of the sale of the Company's nursing home in West Palm
Beach or the year 2000. The Series A Preferred Stock pays a dividend
at the rate of LIBOR plus 13% and is subject to partial redemption on
a monthly self-liquidating basis beginning in the second year based
upon a 48 month amortization.
The $1.5 million loan is payable monthly over five years with interest
at prime plus 2%. The monthly payment of principal and interest is
$32,000. The current portion of principal due under the loan agreement
is $239,000.
On October 31, 1995, following purchase of the Heritage Facility, the
Company entered into an arrangement to lease the facility back to its
operator, Senior Care Foundation, for an initial monthly base rent of
$200,000 per month (net of real estate taxes, insurance, etc.). The
lease term is 25 years. In addition, the Company signed a new
management agreement with the facility and will earn fees under the
agreement equal to 5% of the facility's gross revenues.
On October 31, 1995, the Company negotiated terms to convert $1,464,000
trade accounts payable into a three year note due in 1998. The
interest rate is 10%. The monthly payment of principal and interest
of $47,000 will fully amortize the loan at the end of the term. Current
principal payments due under the terms of the note total $440,000. The
long term portion of the note totalling $938,000 as of September 30,
1995, has been reclassed from accounts payable to long-term debt, net of
current portion. The short-term portion of the note totalling $404,000
as of September 30, 1995, has been classified as the current portion
of long-term debt.
7
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995 Compared with
--------------------------------------------------
Nine Months Ended September 30, 1994
------------------------------------
Total revenues increased by $3,458,000, or 8%, even though revenues of the
Heritage Facility were included through March 16, 1994, but 1995 revenues
include only fees for managing the Heritage Facility. Excluding revenues
pertaining to the Heritage Facility in both years, total revenues increased
by $5,445,000, or 14%.
Nursing home services revenues decreased by $1,681,000, or 6%. Excluding
revenues pertaining to the Heritage Facility in both years, nursing home
services revenues decreased by $54,000. Excluding the Heritage Facility in
both years, total patient days decreased 1%, primarily due to a 40 bed
reduction in the number of available beds at one of the Company's nursing
homes, partially offset by a 3% increase in patient days at the other
facilities. The occupancy percentage increased from 90.6% in 1994 to 94% in
1995.
Infusion therapy and other medical services revenues increased by $5,139,000,
or 44%, primarily due to a $6,110,000, or 104%, increase in home infusion
division revenues. This increase is partially attributed to a 67% increase in
the number of patients serviced. Most of the additional home infusion patients
were obtained through marketing efforts directed at managed care companies.
These patients are normally serviced under agreements with significant price
discounts or under other arrangements which substantially reduce prices. The
increase in home infusion revenues was also affected by the Company's beginning
to provide in early 1994 Ceredase(R) enzyme and Cerezyme(TM) infusion therapy
("Ceredase(R)") to patients with Gaucher's disease. Sales of Ceredase(R) in
1995 were $3,242,000, compared to $363,000 in 1994. Ceredase(R) is a very high
priced drug therapy (approximately $20,000 per month per patient), but due to
its high product cost per revenue dollar, it has a very low gross profit margin
percentage.
Personnel costs increased by $365,000. Excluding the Heritage Facility,
personnel costs increased by $1,409,000, or 7%, primarily attributed to normal
cost of living increases, higher Infu-Tech nursing costs incurred to support
the 67% increase in home infusion patients serviced and increased Infu-Tech
pharmacy payroll costs due to new pharmacy operations and the higher number
of home infusion patients serviced.
Costs of medical and nutritional products sold to patients and other customers
increased by $3,782,000, or 80%. As a percentage of infusion therapy and other
medical services revenues, medical and nutritional product costs increased from
41% in 1994 to 51% in 1995. The increase is primarily attributed to the lower
home infusion pricing and the Ceredase(R) sales discussed above.
Health care and lodging expenses, which are incurred in connection with nursing
home services, decreased by $429,000, or 5%. Excluding the Heritage Facility,
health care and lodging expenses increased by $42,000, or 1%.
Selling, general and administrative costs increased by $327,000, or 8%.
Excluding the Heritage Facility, selling, general and administrative costs
increased by $377,000, or 9%, primarily attributed to higher Infu-Tech
distribution costs incurred to support the 67% increase in home infusion
patients serviced, start-up costs associated with new businesses and higher
rent, travel and entertainment costs.
The provision for uncollectible accounts was 3% of revenues in both 1995 and
1994.
Depreciation and amortization expenses decreased by $115,000. Excluding the
Heritage Facility, depreciation and amortization expenses increased by $3,000.
8
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Interest and dividend income increased by $206,000, primarily due to $222,000
of interest income earned on a $7.4 million mortgage note receivable in 1995.
Interest on this note receivable was not recorded as income in 1994 because
agreements of the obligor prevented it from paying that interest.
Interest and other financing costs decreased by $378,000, primarily due to
lower debt balances.
Other income of $772,000 in 1995 and $552,000 in 1994
primarily consists of amortization of deferred income of $869,000 in both 1995
and 1994 and $188,000 of income in 1995 resulting from an adjustment to
accruals related to the deconsolidation of the Heritage Facility, partially
offset by unrealized foreign currency translation losses of $285,000 in 1995 and
$303,000 in 1994.
Minority interest in loss of subsidiary of $266,000 in 1995 and $181,000 in
1994 represents the portion of the net loss of Infu-Tech allocable to minority
stockholders.
The benefit for income taxes of $469,000 in 1994 consists of the benefit of the
$171,000 income tax provision related to the extraordinary gains and $298,000
benefit for income taxes for Infu-Tech, a 59% owned subsidiary which files its
own Federal income tax return. No tax benefit was recorded in 1995 related to
1995 Infu-Tech operating losses due to the uncertainty related to recognizing
the benefit of these operating losses. In the opinion of management, Infu-Tech
anticipates taxable income in the future to the extent necessary to recover
the deferred tax assets recorded at September 30, 1995.
The 1995 loss was $352,000 ($.06 per share) compared to the prior year loss
before extraordinary gains of $121,000 ($.02 per share). The extraordinary
gains of $1,058,000 in 1994 represented the amounts by which bank loans were
satisfied for less than their principal amounts, net of transaction costs and
income taxes.
The preferred stock dividend related to the 5% exchangeable preferred stock.
The net loss applicable to common shareholders in 1995 was $422,000 ($.06 per
share) compared to net income applicable to common shareholders in 1994 of
$868,000 ($.11 per share).
Three Months Ended September 30, 1995 Compared with
---------------------------------------------------
Three Months Ended September 30, 1994
-------------------------------------
Total revenues increased by $1,792,000, or 13%.
Nursing home services revenues increased by $136,000, or 2%, primarily
attributed to higher management fee income and higher per diem rates.
Total patient days increased by 1% over the prior year level, as a 40 bed
reduction in the number of available beds at one of the Company's nursing
homes during the third quarter of 1994 was offset by a 5% increase in
patient days at the other facilities. The total occupancy percentage
increased from 89% in 1994 to 93.8% in 1995.
Infusion therapy and other medical services revenues increased by
$1,656,000, or 36%, primarily due to a $2,311,000, or 95%, increase in
home infusion division revenues. This increase is partially attributed
to a 54% increase in the number of patients serviced. Most of the
additional home infusion patients were obtained through marketing efforts
directed at managed care companies. These patients are normally serviced
under agreements with significant price discounts or under other
arrangements which substantially reduce prices. The increase in home
infusion revenues was also affected by the Company's beginning to provide
in early 1994 Ceredase(R) enzyme and Cerezyme(TM) infusion therapy
("Ceredase(R)") to patients with Gaucher's disease. Sales of Ceredase(R) in
1995 were $1,298,000, compared to $188,000 in 1994. Ceredase(R) is a very
high priced drug therapy (approximately $20,000 per month per patient),
but due to its high product cost per revenue dollar, it has a very low
gross profit margin percentage.
9
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Personnel costs increased by $356,000, or 5%, primarily attributed to
normal cost of living increases and higher Infu-Tech nursing and pharmacy
costs incurred to support the 54% increase in home infusion patients
serviced. These increases were partially offset by reductions in Infu-
Tech sales and administrative personnel.
Costs of medical and nutritional products sold to patients and other
customers increased by $1,352,000, or 72%. As a percentage of infusion
therapy and other medical services revenues, medical and nutritional
product costs increased from 40% in 1994 to 51% in 1995. The increase
is primarily attributed to the lower home infusion pricing and the
Ceredase(R) sales discussed above.
Health care and lodging expenses, which are incurred in connection with
nursing home services, decreased by $17,000, or 1%.
Selling, general and administrative costs increased by $47,000 or 3%.
The provision for uncollectible accounts was 3% of revenues in both 1995
and 1994.
Depreciation and amortization expenses increased by $20,000 due to
property and equipment additions.
Interest and dividend income increased by $75,000, primarily due to
$74,000 of interest income earned on the $7.4 million mortgage note
receivable in 1995. Interest on this note receivable was not recorded
as income in 1994 because agreements of the obligor prevented it from
paying that interest.
Interest and other financing costs decreased by $90,000, primarily due
to lower debt balances.
Other income of $314,000 in 1995 and $212,000 in 1994 primarily consists
of amortization of deferred income of $290,000 in both 1995 and 1994, and
unrealized foreign currency translation gains of $24,000 in 1995 and
losses of $78,000 in 1994.
Minority interest in earnings of subsidiary of $87,000 in 1995 and $9,000
in 1994 represents the portion of the net income of Infu-Tech allocable
to minority stockholders.
The provision for income taxes of $18,000 in 1994 represents 41% of the
income before income taxes for Infu-Tech, a 59% owned subsidiary which
files its own Federal tax return. No tax provision recorded in 1995
related to 1995 Infu-Tech operating income as the Company anticipates
reporting a tax loss for the year. In the opinion of management, Infu-
Tech anticipates taxable income in the future to the extent necessary to
recover the deferred tax assets recorded at September 30, 1995.
The net income applicable to common shareholders in 1995 was $175,000
($.02 per share) compared to net income applicable to common
shareholders in 1994 of $10,000 ($.00 per share).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company had stockholders' equity of $207,000
and total liabilities of $29,197,000. The total liabilities at September
30, 1995 included debt of $15,275,000, which included SFr 2,015,000
(approximately $1,744,000) principal amount of 6% Swiss franc
denominated convertible bonds which were due June 27, 1995 (the "Bonds");
SFr 619,500 (approximately $536,000) principal amount of 8% Swiss franc
denominated convertible bonds due June 27, 1998; $631,000 principal
amount of a secured loan ("Secured Loan") due December 1, 1995 as
amended; $1,200,000 principal amount of 14 1/8% subordinated debentures due
September 1996 (the "Subordinated Debentures"); $1,213,000 principal
amount of 8% notes due 1999; and $5,006,000 principal amount of 6% notes
and 6% convertible notes due 2003.
10
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Although Sfr 2,900,000 (approximately $2,525,000) of Bonds matured on
June 27, 1995 and the Company did not pay that principal or accrued
interest of Sfr 174,000 (approximately $152,000) as of the maturity date,
an arrangement was negotiated in September 1995 to exchange Sfr 885,000
(approximately $736,000) of Bonds for a new three year 8% note due 1998
totalling $515,000 and a cash payment of $221,000. Interest of Sfr
53,100 (approximately $44,000) was waived. The remaining balance of Sfr
2,015,000 (approximately $1,744,000) of Bonds and accrued interest of Sfr
151,000 (approximately $131,000) had not been paid as of September 30,
1995, nor had any payments been made as of November 10, 1995.
Subsequently, the company agreed to redeem Sfr 380,000 Bonds, including
interest, for a $150,000 cash payment plus a $165,000 note due February
20, 1996.
Pursuant to a management agreement entered into in January 1994, the
Company earned fees through September 30, 1995 for managing the Heritage
Facility of $383,000 and interest income of $222,000 on a second mortgage
note held by the Company. As a result of the purchase of the Heritage
Facility as discussed in note 3, the Company will be receiving rental
payments and management fees.
The Company's cash and cash equivalents balance decreased from $1,161,000
at December 31, 1994 to $603,000 at September 30, 1995, all of which is
held by Infu-Tech. In connection with the initial public offering of
Infu-Tech common stock, the Company entered into a management and non-
competition agreement with Infu-Tech, expiring September 30, 1997, which
prohibits Infu-Tech from advancing money to (or borrowing money from) the
remainder of the Company. Therefore, at September 30, 1995, the Company
(excluding Infu-Tech) had no cash or cash equivalents.
During 1995, the Company generated $377,000 of cash from operating
activities, primarily due to a $2,602,000 net increase in accounts
payable and other current liabilities, partially offset by the net loss
of $352,000, an increase in inventories of $135,000, an increase in net
receivables of $736,000, an increase in prepaid expenses and other
current assets of $319,000, a reduction in other liabilities of $472,000,
and the excess of the amortization of deferred income over depreciation
and amortization expenses of $282,000.
Although the Company in total generated $377,000 of cash from operating
activities, Infu-Tech used $452,000 of cash in operating activities. The
Company (excluding Infu-Tech) generated $829,000 of cash from operating
activities. The Infu-Tech use of cash in operating activities was
primarily due to the net loss of $639,000 and an increase of $871,000 in
accounts receivable, partially offset by a $903,000 increase in accounts
payable.
The increase in Infu-Tech's inventories is primarily to support the
higher Infu-Tech sales levels. The increase in Infu-Tech's accounts
payable is primarily attributed to the higher Infu-Tech inventory
purchases and an improved mix of payment terms.
As of September 30, 1995, Infu-Tech's working capital was $3.7 million,
which was substantially lower than the December 31, 1994 working capital
of $4.5 million. Further, at September 30, 1995, Infu-Tech's cash and
cash equivalents of $603,000 were $493,000 less than the nearly $1.1
million at December 31, 1994 and its accounts payable of $2,585,000, as
discussed above, were $903,000 higher than the approximately $1.7 million
at December 31, 1994. Based upon preliminary discussions with potential
lenders, Infu-Tech believes that it would be able to secure adequate
financing, if necessary, to cover its cash requirements for the
foreseeable future.
During 1995, the Company invested $393,000 in property and equipment,
consisting mostly of nursing home facility improvements.
During 1995, the Company repaid $736,000 of short-term borrowings and
$252,000 of long-term borrowings and paid preferred dividends of $70,000.
11
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Excluding Infu-Tech, the Company generated $829,000 of cash from
operating activities, which was invested in property and equipment
($372,000) and used in financing activities ($524,000), resulting in a
$65,000 decrease in cash and cash equivalents, from $65,000 at December
31, 1994 to none at September 30, 1995.
The Commonwealth of Pennsylvania conducted an audit with respect to the
Medicaid reimbursements for the Company's Philadelphia, Pennsylvania
nursing home for the periods ended June 30, 1991 and 1992. As a result
of the audit, Pennsylvania began efforts to recoup $494,000 from payments
otherwise due to the nursing home. As of September 30, 1995, $288,000
had been recouped, and the balance of $206,000 is to be recouped in equal
monthly installments from November 1995 through September 1996. The
Company disputes the results of the audit and has filed an appeal with
respect to the periods covered by the audit. Based upon discussions with
counsel, the Company is confident that it will ultimately prevail in its
appeal of these audits and recover the monies recouped.
While 1993 and 1994 debt transactions significantly improved the
Company's financial condition and decreased its interest costs, the loss
of cash flow from the Heritage Facility in 1994 adversely effected the
Company's liquidity. Because the Heritage Facility had attained the
financial levels at December 31, 1994, March 31, 1995 and June 30, 1995
required to enable it to make payments to the Company, the Company
recorded management fees of $383,000 and interest income of $222,000
through September 30, 1995. As a result of the purchase of the Heritage
Facility as discussed in note 3, the Company will be receiving rental
payments and management fees.
At September 30, 1995, the Company had approximately $2.6 million of debt
due in 1995 (consisting primarily of the Bonds, which had already
matured, and a $631,000 secured loan) and approximately $1.4 million of
debt due in 1996 (consisting primarily of the Subordinated Debentures).
Beyond 1996, the next significant required debt repayment (other than the
current portion of the debt described below) is not until 1998.
On October 31, 1995, the Company made a 15 year borrowing of $41.0
million secured by mortgages on four of the Company's nursing homes and
a five year borrowing of $1.5 million secured by 8 acres of land in West
Orange, New Jersey. In addition, four subsidiaries of the Company sold
preferred stock for a total of $3.5 million. The $46.0 million proceeds
of those transactions were used to purchase the four nursing homes which
secure the $41.0 million borrowing (and which previously had been
operated by the Company under leases), to repurchase another nursing home
which the Company had sold in 1993 and managed under a management
contract since then, and to repay $301,000, and extend the balance, of
a $601,000 secured note which would have matured in December 1995. At
the same time, the Company converted $1,464,000 of trade payables into
a three year note. The current portion of the total borrowings issued
on October 31, 1995 totals $1.2 million.
The Company has no arrangements under which it can make borrowings. At
September 30, 1995, the Company had a working capital deficit of
$6,088,000. Excluding Infu-Tech, which had working capital of
$3,729,000, the Company's working capital deficit was $9,817,000.
The Company does not have any material commitments for capital
expenditures.
12
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Part II Other Information
Item 1 Legal Proceedings
There are no presently pending material legal proceedings
other than as reported in the Company's 1994 Form 10K.
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
The principal balance of SFr 2,015,000 (approximately
$1,744,000) and accrued interest of SFr 174,000 (approximately
$171,000) pertaining to the Company's 6% Swiss franc
denominated covertible bonds (the "Bonds") was due on June 27,
1995. The Company did not make these payments as of September
30, 1995 and has not made such payments as of November 10,
1995. Non-payment of these obligations did not result in a
default under any other financing agreements. The Company
negotiated an arrangement under which it issued new debt
securities of $515,000 (SFr 619,500) at an interest rate of
8%, in exchange for SFr 885,000 and a cash payment of
$221,000. Interest on SFr 53,100 was waived.
Item 4 Submission of Matters to Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
A. Exhibits - The following exhibits are filled herewith or
incorporated herein.
.1 Calculation of earnings per share - nine months ended
September 30, 1995.
.2 Calculation of earnings per share - nine months ended
September 30, 1994.
B. Reports on Form 8-K during the quarter ended September 30,
1995: None.
13
<PAGE>
Exhibit A.1
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Calculation of Loss Per Share
Nine Months ended September 30, 1995
(Unaudited)
Primary
-------
Net loss applicable to common shareholders $ (422,000)
===========
Adjustment of shares outstanding:
Weighted average number of shares outstanding 7,827,559
Average net additional equivalent shares issuable ---
----------
Weighted average number of common shares and common
shares equivalent 7,827,559
=========
Loss per share $ (.06)
The above does not give effect to the assumed conversion of the Swiss
franc denominated convertible bonds issued on June 27, 1985 since the
effect would be antidilutive.
14
<PAGE>
Exhibit A.2
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Calculation of Earnings Per Share
Nine Months ended September 30, 1994
(Unaudited)
Primary
-------
Net income available to common shareholders $ 868,000
=========
Adjustment of shares outstanding:
Weighted average number of shares outstanding 7,768,852
Average net additional equivalent shares issuable ---
---------
Weighted average number of common shares and common
shares equivalent 7,768,852
=========
Earnings per share $ .11
The above does not give effect to the assumed conversion of the Swiss
franc denominated convertible bonds issued on June 27, 1985 since the
effect would be antidilutive.
15
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amended Report to be signed on its behalf
by the undersigned thereunto duly authorized.
Continental Health Affiliates, Inc.
Date November 14, 1995 JACK ROSEN
------------------ ---------------------------------
Jack Rosen
Chairman, and Director
(Chief Executive Officer)
Date November 14, 1995 ARTHUR SCHWACKE
--------------------- ------------------------------
Arthur Schwacke
Chief Accounting Officer
17
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> SEP-30-1995
<CASH> 603,000
<SECURITIES> 0
<RECEIVABLES> 10,802,000
<ALLOWANCES> 3,802,000
<INVENTORY> 1,542,000
<CURRENT-ASSETS> 11,744,000
<PP&E> 14,011,000
<DEPRECIATION> 4,023,000
<TOTAL-ASSETS> 31,015,000
<CURRENT-LIABILITIES> 17,832,000
<BONDS> 15,275,000
<COMMON> 156,000
0
1,000
<OTHER-SE> 50,000
<TOTAL-LIABILITY-AND-EQUITY> 31,015,000
<SALES> 44,362,000
<TOTAL-REVENUES> 44,362,000
<CGS> 8,518,000
<TOTAL-COSTS> 45,152,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,411,000
<INTEREST-EXPENSE> 600,000
<INCOME-PRETAX> (352,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (352,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (352,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0.00
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