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 December 31, 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
February 2, 1996: 7,948,851
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Index
------
Page Number
PART I FINANCIAL INFORMATION:
Item 1 Consolidated Balance Sheets (Unaudited) at
December 31, 1995 and June 30, 1995 . . . . . . . . . 2
Consolidated Statements of Operations (Unaudited)
for the six months ended December 31,
1995 and 1994. . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations (Unaudited)
for the three months ended December 31, 1995 and 1994 . 4
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended December 31, 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
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1995 1995
Assets ------------ ---------
------ (Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $3,194,000 $ 546,000
Patients' funds 218,000 200,000
Accounts receivable, net of allowances for
uncollectible accounts of $4,157,000 and
$3,712,000 7,832,000 6,038,000
Inventories 1,749,000 1,686,000
Deferred income taxes 849,000 849,000
Prepaid expenses and other current assets 1,351,000 1,116,000
--------- ---------
Total current assets 15,193,000 10,435,000
Property and equipment, at cost, net of accumulated
depreciation and amortization of $4,444,000 and
$3,875,000 55,997,000 9,934,000
Mortgage note receivable 0 7,399,000
Goodwill, net of accumulated amortization of $644,000 and
$601,000 296,000 339,000
Deferred income taxes 220,000 220,000
Other assets 4,022,000 1,348,000
---------- -----------
Total assets $75,728,000 $29,675,000
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $4,023,000 $3,424,000
Accounts payable 7,425,000 8,660,000
Other current liabilities 5,386,000 4,411,000
---------- ----------
Total current liabilities 16,834,000 16,495,000
Long-term debt, net of current portion 52,936,000 10,766,000
Deferred income 135,000 615,000
Other liabilities 92,000 243,000
Minority interest in subsidiary 1,743,000 1,524,000
Mandatorily redeemable preferred stock 3,500,000 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.02 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; 7,948,851 and 7,830,059
shares outstanding 159,000 156,000
Additional paid-in captial 20,269,000 20,192,000
Accumulated deficit (19,941,000) (20,317,000)
------------ ------------
Total stockholders' equity 488,000 32,000
------------ ------------
Total liabilities and stockholders' equity $75,728,000 $29,675,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended December 31,
------------------------------
1995 1994
------------ ---------
<S> <C> <C>
Revenues:
Nursing home services $20,952,000 $18,117,000
Infusion therapy and other medical services 12,637,000 9,203,000
--------- ---------
Total revenues 33,589,000 27,320,000
------------ -----------
Operating expenses:
Personnel 15,919,000 14,205,000
Medical and nutritionial product 6,440,000 3,844,000
Health care and lodging 5,607,000 5,603,000
Selling, general and administrative 2,847,000 3,197,000
Provision for uncollectible accounts 1,023,000 747,000
Depreciation and amortization 529,000 327,000
---------- -----------
Total operating expenses 32,365,000 27,923,000
----------- -----------
Income (loss) from operations 1,224,000 (603,000)
Interest and dividend income 130,000 46,000
Interest and other financing costs (1,199,000) (561,000)
Other income, net 440,000 537,000
Minority interest in (income) loss of subsidiary (219,000) 185,000
---------- -----------
Profit (loss) before income taxes 376,000 (396,000)
Provision for income taxes -- 146,000
----------- ------------
Net income (loss) 376,000 (542,000)
Preferred dividends (35,000) (34,000)
------------ ------------
Net income (loss) available (applicable) to common
shareholders $341,000 ($576,000)
============= =============
Earnings (loss) per share available (applicable) to common
shareholders $0.04 ($0.07)
============== ==============
Weighted average number of shares 7,871,698 7,823,184
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
-------------------------------
1995 1994
------------ ---------
<S> <C> <C>
Revenues:
Nursing home services $11,617,000 $ 8,917,000
Infusion therapy and other medical services 6,335,000 4,557,000
--------- ---------
Total revenues 17,952,000 13,474,000
------------ -----------
Operating expenses:
Personnel 8,478,000 7,119,000
Medical and nutritionial product 3,222,000 1,978,000
Health care and lodging 2,871,000 2,851,000
Selling, general and administrative 1,346,000 1,743,000
Provision for uncollectible accounts 590,000 390,000
Depreciation and amortization 353,000 171,000
---------- -----------
Total operating expenses 16,860,000 14,252,000
----------- -----------
Income (loss) from operations 1,092,000 (778,000)
Interest and dividend income 39,000 30,000
Interest and other financing costs (958,000) (229,000)
Other income, net 126,000 325,000
Minority interest in (income) loss of subsidiary (132,000) 194,000
---------- -----------
Income (loss) before income taxes 167,000 (458,000)
Provision for income taxes -- 128,000
----------- ------------
Net income (loss) available (applicable) to common
shareholders $167,000 ($586,000)
============ =============
Earnings (loss) per share available (applicable) to common
shareholders $0.02 ($0.07)
============== ==============
Weighted average number of shares 7,913,337 7,823,809
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended December 31,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 376,000 ($ 542,000)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 529,000 327,000
Amortization of deferred financing costs 50,000 56,000
Provision for uncollectible accounts 1,023,000 747,000
Amortization of deferred income (480,000) (576,000)
Loss (gain) on translation of foreign currency debt (23,000) 42,000
Minority interest 219,000 (185,000)
Net gain (loss) on extinguishment of debt 50,000 (171,000)
Deferred income taxes 96,000
Increase (decrease) from changes in:
Accounts receivable (2,817,000) (1,102,000)
Inventories (63,000) (203,000)
Prepaid expenses and other current assets (235,000) (98,000)
Other assets (2,724,000) (278,000)
Accounts payable (1,235,000) 1,307,000
Other current liabilities 957,000 638,000
Other liabilities (152,000) (218,000)
------------- ------------
Net cash provided by (used in) operating activities (4,525,000) (160,000)
------------- ------------
Investing activities:
Expenditures for property and equipment (39,082,000) (739,000)
Purchase by Infu-Tech of treasury stock -- (20,000)
------------- -------------
Net cash provided by (used in) investing activities (39,082,000) (759,000)
------------- -------------
Financing activities:
Net proceeds from long-term borrowings 47,592,000 0
Payments of short-term borrowings (774,000) 0
Payments of long-term borrowings (643,000) (187,000)
Payment of preferred dividends (35,000) (34,000)
Cost of debt exchange offers -- (52,000)
Net proceeds from exercise of common stock options 115,000 --
-------------- -------------
Net cash provided by (used in) financing activities 46,255,000 (273,000)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 2,648,000 (1,192,000)
Cash and cash equivalents, beginning of period 546,000 2,353,000
-------------- --------------
Cash and cash equivalents, end of period $3,194,000 $1,161,000
============== ==============
Non cash investing and financing activity:
Property and equipment obtained under captial lease obligations$ 216,000 $ --
Acquisition of property and equipment for forgiveness
of receivable $7,399,000 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<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 December 31, 1995, and the results of its
operations and changes in cash flows for the six month periods ended
December 31, 1995 and 1994. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements of the Company for the transition period January 1, 1995
through June 30, 1995. The results of operations for the six months
ended December 31, 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 Company's 6% Swiss franc denominated convertible bonds (the
"Bonds") was due on June 27, 1995. The Company did not make these
payments. Non-payment of these obligations did not result in a
default under any other financing agreements. Since June 27, 1995
the Company has acquired SFr 1,530,000 principal amount of
Bonds, including accrued interest on those Bonds, for a total of
SFr 488,170 in cash, SFr 619,500 in a note maturing in June 1998,
$150,000 in cash and a $165,000 note due February 20, 1996.
Subsequent to January 1996 the Company agreed to acquire SFr 255,000
Bonds, including interest, for SFr 218,000.
(3) Financing
---------
The Company obtained a $41.0 million mortgage loan on October
31, 1995 (as part of a financing to purchase four nursing homes -
see discussion below). The loan bears interest at 9.86% per annum and
requires payments of principal and interest totalling $4.28 million per
year for 15 years. The Company is in the process of executing an
agreement that if the Company is unable to pay the balance of $28.19
million which will remain due at the end of 15 years, the interest rate
on the mortgage loan will increase, and all cash flow from the mortgaged
facilities will have to be used to amortize the balance of the
mortgage loan. The $1.5 million mortgage loan incurred on October 31,
1995 bears interest at 2% per annum above the prime rate and requires
principal payments of $384,000 per year. The $3.5 million of
subsidiary preferred stock requires cumulative dividends equal to the
liquidation preference of the preferred stock (initially $3.5 million
times LIBOR plus 13% of the liquidation preference of the preferred
stock and is mandatorily redeemable in monthly installments at the
rate of $876,000 per year in 1997 through 2000. Based upon the 8.5%
per annum prime rate and the 5-7/16% per annum LIBOR rate on December
29, 1995, the payments during the period from October 31, 1995 to
June 30, 1996 with regard to the $42.5 million of mortgage loans and
the $3.5 million of preferred stock would total approximately $3.6
million. Under the terms of the $41 million loan and $3.5 million
subsidiary preferred stock, the cash receipts of the four facilities
are restricted to: mortgage payments, real estate taxes, insurance and
carrying charges, operating expenses, and payment of preferred stock
dividends, with any excess retained by the facility.
Aggregate maturities of debt relating to the October 31, 1995
refinancing in each of five-year periods ending June 30 subsequent
to June 30, 1995 are as follows: 1996 - $404,000; 1997 - $1,695,000;
1998 - $1,952,000; 1999 - $2,126,000 and 2000 - $956,000.
-6-
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Six Months Ended December 31, 1995 Compared with
------------------------------------------------
Six Months Ended December 31, 1994
----------------------------------
Total revenues were $6,269,000, or 23% higher in the 1995 period compared to the
same period of the prior year in part because of revenues of $1,814,000
pertaining to the Heritage Facility (which was acquired in the October 31, 1995
transaction) for the two month period from November 1, 1995 to December 31,
1995. In December 1995, one of the Company's nursing homes was required to
suspend admissions. This will affect revenues at least in the third quarter
of fiscal 1996.
Nursing home services revenues increased by $2,835,000, or 16%. Excluding
revenues pertaining to the Heritage Facility, nursing home services revenues
increased by $1,021,000, or 6%.
Infusion therapy and other medical services revenues increased by $3,434,000,
or 37%, from $9,203,000 in 1994 to $12,637,000 in 1995, primarily due to a
$3,532,000, or 60%, increase in home infusion division revenues. This increase
is partially attributed to a 42% 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 an increase in Ceredase(R) enzyme and Cerezyme(TM)
infusion therapy ("Ceredase(R)") provided by the Company to patients with
Gaucher's disease. Sales of Ceredase(R) in 1995 were $2,585,000, compared to
$705,000 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 $1,714,000. Excluding the Heritage Facility,
personnel costs increased by $847,000, or 6%, primarily attributed to normal
cost of living increases, use of Company personnel to perform some services
previously performed by outside consultants, higher Infu-Tech nursing costs
incurred to support the 42% increase in home infusion patients serviced
and increased Infu-Tech pharmacy payroll, 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 $2,596,000, or 67%. As a percentage of infusion therapy and other
medical services revenues, medical and nutritional product costs increased
from 42% 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 slightly despite an increase in revenues. Excluding
the Heritage Facility, health care and lodging expenses decreased by $303,000,
or 5%. This was primarily because the Company began performing services which
previously had been performed by consultants. This moved the cost from
health care and lodging to personnel costs.
Selling, general and administrative costs decreased by $350,000, or 11%.
Excluding the Heritage Facility, selling, general and administrative costs
decreased by $400,000, or 13%, primarily attributed to a reduction in
Infu-Tech professional fees and selling related travel which was partially
offset by increases in distribution costs incurred to support the 42% increase
in home infusion patients serviced.
The provision for uncollectible accounts was 3% of revenues in both periods.
Due to an October 31, 1995 refinancing for the acquisition of four
facilities, depreciation and amortization expenses increased by $202,000 and
interest and other financing costs increased by $638,000. This was partially
offset by an increase in interest and dividend income of $84,000.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Other income of $440,000 in 1995 and $537,000 in 1994
primarily consisted of amortization of deferred income of
$579,000 in both 1995 and 1994 and an unrealized foreign
currency translation gain of $23,000 in 1995 and a loss of
$42,000 in 1994.
Minority interest in profit of subsidiary of $219,000 in 1995 and
minority interest in loss of subsidiary of $185,000 in 1994
represents the portion of the net income or loss of Infu-Tech
allocable to minority stockholders.
The provision for income taxes of $146,000 in 1994 represents
primarily an adjustment to a previous benefit of $487,000 taken
in the first half of 1994 relating to extraordinary gains, partially
offset by a $316,000 benefit for income taxes for Infu-Tech, a
59% owned subsidiary which files its own Federal tax return.
No tax provision was recorded in 1995 related to 1995 Infu-Tech
operating income, as taxable income will be offset by net
operating loss carry forwards.
The preferred stock dividend related to 5% exchangeable
preferred stock. Dividends on subsidiaries preferred stock
issued as part of the October 31, 1995 refinancing are
accounted for under interest and financing costs.
The net income available to common shareholders in 1995 was
$341,000 ($.04 per share) compared to a net loss applicable to
common shareholders in 1994 of $576,000 ($.07 per share).
Three Months Ended December 31, 1995 Compared with
---------------------------------------------------
Three Months Ended December 31, 1994
------------------------------------
Total revenues were $4,478,000, or 33% higher in the 1995
period compared to the same period of the prior year in part
because of revenues of $1,814,000 pertaining to the Heritage
Facility (which was acquired in the October 31, 1995 transaction)
for the two month period from November 1, 1995 to
December 31, 1995. In December 1995, one of the Company's nursing
homes was required to suspend admissions. This will affect
revenues at least in the third quarter of fiscal 1996.
Nursing home services revenues increased by $2,700,000, or
30%. Excluding revenues pertaining to the Heritage Facility of
$1,814,000, nursing home services revenues increased by
$886,000, or 10%, primarily attributed to higher per diem rates
partially offset by an occupancy percentage decrease of 3% from
92% in 1994 to 89% in 1995.
Infusion therapy and other medical services revenues increased
by $1,778,000, or 39% from $4,557,000 in 1994 to
$6,335,000 in 1995, primarily due to a $1,186,000, or 34%,
increase in home infusion division revenues. This increase is
partially attributed to a 30% 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 increase in
Ceredase(R) provided by the Company to patients with Gaucher's
disease. Sales of Ceredase(R) in 1995 were $1,288,000,
compared to $517,000 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.
-7-
<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 $1,359,000 or 19%. Excluding the Heritage
facility, personnel costs increased by $492,000, or 7%, primarily
attributed to normal cost of living increases, higher Infu-Tech
nursing costs incurred to support the 30% increase in home
infusion patients serviced and increased pharmacy payroll,
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 $1,244,000, or 63%. As a
percentage of infusion therapy and other medical services
revenues, medical and nutritional product costs increased from
43% 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 slightly
despite an increase in revenues. Excluding the Heritage Facility,
health care and lodging expenses decreased by $287,000, or
10%. This was primarily because the Company began
performing services which previously had been performed by
consultants. This moved the cost from Health care and lodging to
personnel costs.
Selling, general and administrative costs decreased by $397,000,
or 23%. Excluding the Heritage Facility, selling, general and
administrative costs decreased by $447,000, or 26%, primarily
attributed to reduction in Infu-Tech professional fees and selling
related travel which was partially offset by increases in
distribution costs incurred to support the 30% increase in home
infusion patients serviced.
The provision for uncollectible accounts was 3% of revenues in
both 1995 and 1994.
Due to an October 31, 1995 refinancing for the
acquisition of four facilities, depreciation and amortization
expenses increased by $182,000 and interest and other
financing costs increased by $729,000. This was partially offset
by an increase in interest and dividend income of $9,000.
Other income of $126,000 in 1995 and $325,000 in 1994
primarily consists of amortization of deferred income of
$289,000 in both 1995 and 1994, and unrealized foreign
currency translation gains of $50,000 in 1995 and a loss of
$120,000 in 1994.
Minority interest in income of subsidiary of $132,000 in 1995
and minority interest in loss of $194,000 in 1994 represents the
portion of the net income or loss of Infu-Tech allocable to
minority stockholders.
The provision for income taxes of $128,000 in 1994 represents
an adjustment to a previous benefit taken for Infu-Tech, a 59%
owned subsidiary which files its own Federal tax return. No tax
provision was recorded in 1995 related to 1995 Infu-Tech
operating income, as taxable income will be offset by net
operating loss carry forwards.
The net income available to common shareholders in 1995 was
$167,000 ($.02 per share) compared to a net loss applicable to
common shareholders in 1994 of $586,000 ($.07 per share).
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had stockholders' equity
of $488,000 and total liabilities of $69,997,000. The total
liabilities at December 31, 1995 included debt of $56,959,000,
which included SFr 1,390,000 (approximately $1,202,000)
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 bonds due June 27, 1998; $290,000
principal amount of a secured loan ("Secured Loan") due
November 1997; $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 $4,911,000 principal amount of 6%
notes and 6% convertible bonds due 2003.
-8-
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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 (three of which previously had been
operated by the Company under leases and the fourth of 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 $1,476,000 of trade payables into a three
year note. The current portion of the total borrowings issued on
October 31, 1995 totals $1.2 million.
As of December 31, 1995 there was a balance of Sfr 1,390,000
(approximately $1,202,000) of Bonds outstanding. Although
the SFr 2,900,000 (approximately $2,525,000) principal amount
of Bonds matured on June 27, 1995, the Company did not pay the
principal or accrued interest of SFr 174,000 (approximately
$152,000), which was due on that date. Between June 30, 1995 and
December 31, 1995, the Company had acquired SFr 1,510,000
principal amount of Bonds, including accrued interest on those
Bonds, for a total of SFr 470,150 in cash, SFr 619,500 in a note
maturing in June 1998, $150,000 in cash and a $165,000 note
due February 20, 1996. In January 1996, the Company acquired
SFr 20,000 principal amount of Bonds, including accrued interest,
for SFr 18,020. Subsequently the Company agreed to acquire
SFr 255,000 Bonds, including interest, for SFr 218,000.
Pursuant to a management agreement entered into in January
1994, the Company earned fees through October 31, 1995 for
managing the Heritage Facility of $425,000 and interest income
of $265,000 on a second mortgage note held by the Company.
As a result of the purchase of the Heritage Facility on
October 31, 1995, the Company began receiving rental payments
and management fees as of November 1, 1995 and received rental
payments of $400,000 and management fees of $76,000
through December 31, 1995.
The Company's cash and cash equivalents balance increased
from $546,000 at June 30, 1995 to $3,194,000 at December
31, 1995. Of the $3,194,000 cash held at December 31, 1995,
$598,000 is held by Infu-Tech and $555,000 is held by the
Heritage Facility. The remaining cash of $2,041,000 is held by
the Company. 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. The cash held by the Heritage is solely for the
operation of that facility.
During the six months ended December 31, 1995, the Company
increased its cash and cash equivalents balance by $2,648,000
of which $52,000 was attributable to Infu-Tech and $89,000
was attributable to the Heritage Facility (which was restricted
from Company use), the remainder, $2,507,000, was attributable
to the Company. That included $2,726,690 from the October
31, 1995 refinancing. Excluding the cash generated from the
October 31, 1995 financing, the Company's cash decreased by
$4,525,000 from operating activities, primarily due to a
$1,387,000 net decrease in accounts payable and other current
liabilities, an increase in inventories of $63,000, an increase
in net receivables of $2,817,000, and an increase in prepaid
expenses and other current assets of $235,000. The net
decrease in accounts payable and other liabilities was
primarily due to the conversion of $1,467,000 of trade
debt into a three year note.
The Company in total used $4,525,000 of cash in operating
activities, offset by the generation of cash of $108,000 by Infu-
Tech and $99,000 by the Heritage Facility. The Company
(excluding Infu-Tech) used $4,633,000 of cash in operating
activities. The Infu-Tech generation of cash in operating
activities was primarily due to the net income of $528,000 and
an increase of $1,427,000 in net accounts receivable, partially
offset by a $889,000 increase in accounts payable.
The increase in Infu-Tech's accounts payable is primarily
attributed to higher Infu-Tech inventory purchases to support an
increase in volume of sales and an improved mix of payment
terms.
As of December 31, 1995, Infu-Tech's working capital was $3.9
million, which was higher than the June 30, 1995 working
capital of $3.6 million. Further, at December 31, 1995, Infu-
Tech's cash and cash equivalents of $598,000 were $52,000
more than the balance of $546,000 at June 30, 1995 and its
accounts payable of $3,231,000 were, as discussed above,
$889,000 higher than the $2,342,000 at June 30, 1995.
-9-
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
During the six months ended December 31, 1995, the Company
invested $39,082,000 in property, plant and equipment,
consisting mostly of the nursing home facilities purchased as a
result of the October 31, 1995 financing and nursing home
facility improvements.
During the six months ended December 31,1995, the Company
repaid $774,000 of short-term borrowings and $643,000 of long-term
borrowings and paid preferred dividends of $35,000.
The Commonwealth of Pennsylvania conducted an audit with
respect to the Medicaid reimbursements for the Philadelphia,
Pennsylvania nursing home for the periods ended June 30, 1991
and 1992. Pennsylvania has initiated the recoupment of
$494,000 from the nursing home. As of December 31, 1995,
$436,000 had been recouped. 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.
The Heritage Facility made payments to, and the
Company recorded, management fees of $425,000 and interest
income of $247,000 through October 31, 1995. As a result
of the purchase of the Heritage Facility on October 31, 1995, the
Company will be receiving rental payments and management
fees.
At December 31, 1995, the Company had approximately $3.2
million of debt, excluding mortgage debt, due in 1996 (consisting
primarily of the outstanding Bonds, which had already
matured, a $290,000 secured loan, $1.2 million of Subordinated
Debentures and $.5 million of a note issued in payment of trade
payables). Beyond 1996, the next significant required debt principal
repayment is not until 1998.
The Company has no arrangements under which it can make
borrowings. At December 31, 1995, the Company had a
working capital deficit of $1,641,000. Excluding Infu-Tech,
which had working capital of $3,955,000, the Company's
working capital deficit was $5,596,000.
The Company does not have any material commitments for
capital expenditures.
-10-
<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 Form 10K for the transition period
January 1, 1995 to June 30, 1995.
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
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 Company's 6% Swiss franc
denominated covertible bonds (the "Bonds") was
due on June 27, 1995. The Company did not
make these payments. Non-payment of these
obligations did not result in a default under any
other financing agreements. Since June 27,
1995, the Company has acquired SFr 1,530,000
principal amount of Bonds, including accrued
interest on those Bonds, for a total of SFr
488,170 in cash, SFr 619,500 in a note maturing
in June 1998, $150,000 in cash and a $165,000
note due February 20, 1996. Subsequently the
Company agreed to acquire SFr 255,000 Bonds,
including interest, for SFr 218,000.
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 - six
months ended December 31 1995.
.2 Calculation of earnings per share - six
months ended December 31 1994.
B. Reports on Form 8-K during the quarter
ended December 31 1995: None.
-11-
<PAGE>
Exhibit A.1
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Calculation of Earnings Per Share
Six Months ended December 31, 1995
(Unaudited)
Primary
-------
Net income available to common shareholders $341,000
========
Adjustment of shares outstanding:
Weighted average number of shares outstanding 7,871,698
---------
Weighted average number of common shares and common
shares equivalent 7,871,698
=========
Earnings per share $ .04
==========
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.
-12-
<PAGE>
Exhibit A.2
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Calculation of Loss Per Share
Six Months ended December 31, 1994
(Unaudited)
Primary
Net loss applicable to common shareholders $ (576,000)
===========
Adjustment of shares outstanding:
Weighted average number of shares outstanding 7,823,184
---------
Weighted average number of common shares and common
shares equivalent 7,823,184
============
Loss per share $ (.07)
============
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.
-13-
<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 February 20, 1996
JACK ROSEN
Jack Rosen
Chairman, and Director
(Chief Executive Officer)
Date February 20, 1996
ALLISON KURUS ALLEN
Allison Kurus Allen
Chief Accounting Officer
<PAGE>
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