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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
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)
(201) 567-4600
Registrant's telephone number, including area code
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
As of May 13, 1996, the Registrant had outstanding 10,120,151 shares of
its $.02 par value Common Stock.
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1
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CONTINENTAL HEALTH AFFILIATES, INC.
Index
Part I - Financial Information:
Page
Item 1
Consolidated Balance Sheets at March 31, 1997 (Unaudited)
and June 30, 1996............................................ 3
Consolidated Statements of Operations (Unaudited) for the three months
and nine months ended March 31, 1997 and 1996................ 4
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended March 31, 1997 and 1996................................ 5 - 6
Notes to Unaudited Consolidated Financial Statements........... 7 - 8
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 9 - 13
Part II - Other Information.......................................... 14
Signatures..................................................... 17
2
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<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC.
Consolidated Balance Sheets
(Dollars in thousands)
March 31, June 30,
1997 1996
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..............................................................$ 691 $ 2,900
Patients' funds........................................................................ 188 184
Accounts receivable, net of allowances for uncollectible accounts
of $3,958 and $3,712................................................................. 13,265 10,177
Inventories............................................................................ 1,664 1,996
Deferred income taxes.................................................................. 822 822
Prepaid expenses and other current assets.............................................. 1,358 1,151
------------ -----------
Total current assets............................................................... 17,988 17,230
Property and equipment, at cost, net of accumulated depreciation
and amortization of $5,926 and $4,363.................................................. 53,261 54,453
Deferred income taxes..................................................................... 52 52
Goodwill, net............................................................................. 142 --
Other assets.............................................................................. 4,288 3,837
------------ -----------
Total assets.......................................................................$ 75,731 $ 75,572
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings..................................................................$ 105 $ 128
Current portion of long term debt...................................................... 8,107 3,355
Income Taxes payable................................................................... 461 --
Accounts payable....................................................................... 9,224 7,913
Other current liabilities.............................................................. 4,646 5 ,789
------------ -----------
Total current liabilities.......................................................... 22,543 17,185
Long-term debt, net of current portion ................................................... 42,958 50,574
Deferred income........................................................................... -- 72
Other liabilities......................................................................... -- 16
Minority interest in subsidiary ........................................................ 2,345 2,029
Mandatorily redeemable preferred stock (includes $875 current portion).................... 3,208 3,500
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.02 par value; $100 liquidation preference; 1,000,000
shares authorized; 13,884 shares outstanding ........................................ 1 1
Series A 11% Convertible Preferred stock $.02 par value, $1,000 liquidation
preference, 34 shares outstanding.................................................... 34 --
Common stock, $.02 par value; 15,000,000 shares authorized; 10,120,151
and 9,286,216 shares outstanding .................................................... 202 186
Additional paid-in capital............................................................. 23,401 21,470
Accumulated deficit.................................................................... (18,961) (19,461)
-------------- ------------
Total stockholders' equity......................................................... 4,677 2,196
------------ -----------
Total liabilities and stockholders' equity.........................................$ 75,731 $ 75,572
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
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<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Three Months Ended March 31, Nine Months Ended March 31,
---------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Nursing home services......................................$ 10,159 $ 11,465 $ 33,177 $ 32,417
Infusion therapy and other medical services................ 6,935 6,314 20,439 18,951
------------- ------------ ----------- -----------
Total revenues..................................... 17,094 17,779 53,616 51,368
------------- ------------ ----------- -----------
Operating expenses:
Personnel ................................................ 8,357 8,518 25,927 24,437
Medical and nutritional product............................ 3,355 3,139 9,449 9,579
Health care and lodging.................................... 2,480 2,250 7,431 7,857
Selling, general and administrative........................ 1,680 1,770 5,461 4,617
Provision for uncollectible accounts....................... 163 230 746 1,253
Depreciation and amortization.............................. 534 490 1,610 1,019
------------- ------------- ----------- -----------
Total operating expenses........................... 16,569 16,397 50,624 48,762
------------- --------------- ----------- -----------
Income from operations.......................... 525 1,382 2,992 2,606
Interest and dividend income.................................. 14 38 68 168
Interest and other financing costs............................ (1,333) (1,472) (4,492) (2,671)
Other income (expense), net................................... 236 220 416 660
Minority interest in earnings of subsidiary................... (85) (109) (316) (328)
------------- ------------ ----------- -----------
Income (loss) before income taxes and
extraordinary items......................... (643) 59 (1,332) 435
Provision for income taxes.................................... 147 -- 535 --
------------- ----------- ----------- ----------
Income (loss) from continuing operations
before extraordinary items.................. (790) 59 (1,867) 435
------------- ----------- ----------- -----------
Extraordinary items:
Gain on extinguishment of liabilities ................ 1,192 -- 1,192 --
Gain on forfeited deposit.................................. -- -- 300
Gain on disposal of assets................................. -- -- 875 --
------------- ----------- ----------- ----------
Net income...................................... 402 59 500 435
Preferred dividends........................................... (35) (35) (130) (70)
------------- ----------- ----------- -----------
Net income available to common
shareholders................................$ 367 $ 24 $ 370 $ 365
============= =========== =========== ===========
Income (loss) per share:
Income (loss) before extraordinary items.................$ (0.08) $ .01 $ (.19) $ .05
Extraordinary items...................................... 0.12 .23
------------- ----------- -----------
Net income available to common shareholders..............$ 0.04 $ 0.01 $ 0.04 $ 0.05
============= =========== =========== ===========
Weighted average number of common and common
equivalent shares........................................ 10,210,109 7,948,851 10,089,197 7,897,416
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine Months Ended March 31,
---------------------------
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Operating activities:
Net income.......................................................................$ 500 $ 435
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation expense....................................................... 1,610 1,019
Warrants issued for services............................................... 98 --
Amortization of deferred financing costs................................... 209 85
Provision for uncollectible accounts....................................... 746 1,253
Amortization of deferred income............................................ (72) (512)
Gain on translation of foreign currency debt............................... (154) (68)
Minority interest.......................................................... 316 328
Extraordinary gain......................................................... (1,192) --
Net gains on extinguishment of debt........................................ -- (83)
Increase (decrease) from changes in:
Patients funds........................................................... (4) --
Accounts receivable...................................................... (3,734) (5,705)
Inventories.............................................................. 332 59
Prepaid expenses and other current assets................................ (207) 149
Other assets............................................................. (612) (2,424)
Taxes payable............................................................ 461
Accounts payable......................................................... 407 (2,137)
Other current liabilities................................................ 1,399 1,712
Other liabilities........................................................ (16) (243)
------------- --------------
Net cash provided by (used in) operating activities.......................... 87 (6,132)
------------- --------------
Investing activities:
Expenditures for property and equipment ......................................... (418) (39,151)
Acquisition of Universal Home Infusion .......................................... (190) --
------------- -------------
Net cash used in investing activities........................................ (608) (39,151)
------------- --------------
Financing activities:
Conversion of trade payables into notes.......................................... 904 --
Net proceeds from long-term borrowings ......................................... -- 47,592
Payments on debt................................................................. (2,551) (1,673)
Payment of preferred dividends................................................... (83) (70)
Net proceeds from exercise of common stock options............................... 42 115
------------- --------------
Net cash (used in ) provided by financing activities......................... (1,688) 45,964
-------------- --------------
</TABLE>
(Continued on next page)
5
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL HEALTH AFFILIATES, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine Months Ended March 31,
---------------------------
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Net (decrease ) increase in cash and cash equivalents..............................$ (2,209)$ 681
Cash and cash equivalents, beginning of period..................................... 2,900 546
--------------- ---------------
Cash and cash equivalents, end of period...........................................$ 691 $ 1,227
============== ===============
Supplemental disclosure of cash flow data:
Interest paid.................................................................$ 4,145 $ --
=============== ==============
Income taxes paid............................................................. 53 --
============== ==============
Non cash investing and financing activity:
Property and equipment obtained under capital lease obligation..................$ -- $ 230
Acquisition of property and equipment for forgiveness of receivable............. -- 7,399
Debt to equity conversion....................................................... 1,824 --
Dividend conversion............................................................. 47 --
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. The Company
The Company's operations consist primarily of nursing home services and
infusion therapy and other medical services. Nursing home services include
the ownership, leasing, operation and management of nursing homes. Infusion
therapy and other medical services include enteral and other medical
services, primarily for patients in nursing homes, and intravenous and other
infusion therapies for patients at home and in nursing homes.
The Company is subject to certain risks and uncertainties as a result of
changes that could occur in the healthcare industry, including Medicare and
Medicaid reimbursement rates.
2. Basis of Presentation
The consolidated financial statements include the accounts of Continental
Health Affiliates, Inc, ("Continental") and its subsidiaries (the "company").
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Continental owns 59% of the common stock of Infu-Tech, Inc. ("Infu-Tech");
the other 41% is publicly traded. The minority interest in the consolidated
financial statements represents the minority stockholders' proportionate
share of equity in Infu-Tech.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accrual adjustments,
considered necessary for a fair presentation have been included. In
addition, during the nine months, management reviewed various estimates of
certain liabilities and the adequacy of bad debt provisions and recorded an
aggregate of $889,000 as credits, Of which $473,000 was recorded in the
quarter. Significant items are discussed in the management discussion and
analysis section.
Operating results for the nine month period ended March 31, 1997, are not
necessarily indicative of the result that may be expected for year end June
30, 1997.
These financial statements and notes should be read in conjunction with the
Company's audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.
3. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 1997 and June 30, 1996 includes
$43,000 and $691,000 respectively, held by Infu-Tech. In connections with
Infu-Tech's initial public offering, a management and non-competition
agreement between Continental and its 59% owned subsidiary, Infu-Tech,
expiring September 30, 1997, prohibits Infu-Tech from lending money to (or
borrowing money from) Continental and its other subsidiaries subsequent to
December 31, 1992.
7
<PAGE>
The Company classifies all highly liquid investments with maturities of three
months or less when purchased as cash equivalents.
4. Exchange Offer
On October 4, 1996, the Company completed an exchange offer to holders of its
14 1/8% Subordinated Debentures that were due on September 1, 1996. The
Company offered for each $1,000 principal amount of subordinated debentures a
share of a new 11% convertible Preferred Stock with a liquidation preference
of $1,000. Of the total of $1.2 million subordinated debentures outstanding,
$474,000 principal elected to exchange into Series A 11% Convertible
Preferred Stock.
The new Preferred Stock will be convertible for three years into Continental
Health common stock which, at the time of conversion, has a market value
totaling 100% of the liquidation preference of the Preferred Stock. After the
three years, the Preferred Stock will be convertible into common stock which
has a market value totaling 110% of the liquidation preference of the
Preferred Stock. Holders of the Preferred Stock will be entitled to dividends
totaling $110 per share per year, equal to 11% of the liquidation preference
of the Preferred Stock. After three years, Continental Health will have the
right either to (1) redeem the Preferred Stock for 1,000 per share or (2)
convert the outstanding Preferred Stock into Continental Health common stock
which has a market value at the time of conversion equal to 100% of the
liquidation preference of the Preferred Stock.
During the period ended December 31, $440,000 face amount of the Series A
Convertible Preferred Stock converted into common stock of the Company,
leaving $34,000 face amount of the Series A Convertible Preferred Stock
outstanding at March 31, 1997.
5. Extraordinary Item
In March 1997, the Company exchanged 600,000 shares of common stock to
extinguish liabilities of $2,542,000 of which $1,192,000 is reflected as an
extraordinary gain in the results of operations for the three months ended March
31, 1997.
The extraordinary gains of $2,367,000 for the nine months ended March 31,
1997 include the above referred to gain in addition to a gain on disposal of
assets and a gain on a forfeited deposit.
The Company is obligated to issue a further 100,000 shares of common stock
should the share price fall below an average of $2.50 per share for 6 months
during the twelve month period immediately following the removal of the
restriction against resale.
6. Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("EPS"), which
is effective as of December 31, 1997. This standard changes the way companies
compute EPS to require all companies to show "basic" and "dilutive" EPS and
is to be retroactively applied, including each 1997 interim quarter. The
statement is not expected to have a material effect on the calculation of
EPS.
8
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
Item 2. Management 's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
Three Months ended March 31, 1997 Compared with Three Months Ended March
31, 1996
Total revenues were $685,000 or 4% lower for 1997 compared with 1996. Revenues
in the prior period included $593,000 attributable to the Hilltop facility sold
in May 1996. Further, the King David West Palm Beach, Florida facility was down
10% in occupancy over the comparable quarter.
Infusion therapy and other medical services revenues increased by $621,000 or
10%, from $6,314,000 in 1996 to $6,935,000 in 1997, primarily due to a $725,000,
or 17% increase in home infusion division revenues. Contract service division
revenues increased by $334,000 or 24%. These revenues are comprised of enteral
nutrition therapy and other products provided to patients in long-term care
facilities.
Personnel costs decreased by $161,000, or 2%. The reduction is due to the
absence of the Hilltop facility, sold in May 1996, together with a credit
resulting from the reconciliation of payroll accounts.
Costs of medical and nutritional products sold to patients and other customers
increased by $216,000 or 7%, from $3,139,000 in 1996 to $3,355,000 in 1997. As a
percentage of infusion therapy and other medical services revenues, medical and
nutritional product costs was 48% in 1997 and 50% in 1996.
Health care and lodging expenses, which are incurred in connection with nursing
home services, increased by $230,000 or 10%.
Selling, general and administrative costs decreased by $90,000 or 5%. Increases
from Infu-Tech include expenses attributable to investment banking retainer fees
in connection with acquisitions work, engagement of an investor relations firm,
costs connected with the development of a disease state management program and
distribution costs increases. In addition, the opening of a Florida pharmacy and
costs associated with setting up the Humana Health Plans capitation contract
added to the increase in selling, general and administrative expenses offset by
the write off of certain trade payables and exclusion of the Hilltop facility.
The provision for uncollectible account approximates 1% of revenues in both
During the quarter, Infu-Tech pursued a focused effort on cash collections. This
project has resulted in improved cash flows and enabled the Company to conduct a
review of its allowance for uncollectible accounts. As a result of the review
the Company determined that the existing allowance at March 31, 1997 was
excessive and a reduction from the existing allowance of $46,000 was made.
periods.
Other income (expense) net, of $236,000 in 1997 consisted of an unrealized
foreign currency translation gain of $74,000 and the balance is due to the
re-evaluation of accruals. Other income (expense) net, of $220,000 in 1996
consisted of amortization of deferred income of $142,000 and an unrealized
foreign currency translation of $44,000.
Minority interest in profit of subsidiary of $85,000 in 1997 and $109,000 in
1996 represents the portion of the net income of Infu-Tech allocable to minority
stockholders and reflects the exhaustion of net operating loss carryforwards
which were available in 1995.
The provision for income taxes of $147,000 in 1997 reflects a full tax charge
for Infu-Tech, a 59% owned subsidiary which files its own federal tax return.
In March 1997, the Company agreed to convert certain liabilities into
Common Stock of the Company. The
9
<PAGE>
transaction resulted in an increase to shareholders equity of $2,542,000 of
which $1,192,000 is reflected as an extraordinary gain in the results of
operations for the three months ended March 31, 1997.
The preferred stock dividend does not include the mandatorily redeemable
preferred stock issued as part of the October 31, 1995 refinancing which is
accounted for under interest and financing costs.
The net income available to common shareholders in 1997 was $367,000 or .04
cents per share compared to net income available to common shareholders in 1996
of $24,000 or .01 cent per share.
Nine Months ended March 31,1997 Compared with Nine Months Ended March 31, 1996
Total revenues were $2,248,000 or 4% higher in the 1997 period compared to the
same period of the prior year. This is due to an improved patient mix yielding
higher reimbursement, the inclusion of the Heritage Facility, for nine months
compared to five months in the prior period while being partially offset by
lower occupancy at the West Palm Beach facility, and the exclusion of the
Hilltop facility for the current nine months.
Infusion therapy and other medical services revenues increased by $1,488,000 or
8%, from $18,951,000 in 1996 to $20,439,000 in 1997, primarily due to a
$1,040,000, or 24% increase in home infusion division revenues. This increase is
primarily attributed to a 12% increased in the number of patients serviced.
These patients experienced shorter terms of therapy as well as discounted
pricing negotiated with managed care companies.
Personnel costs increased by $1,490,000. Primarily attributed to the inclusion
of the Heritage Facility for nine months compared to five months in the prior
period, 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 12% increase in home infusion patients
serviced, increased Infu-Tech pharmacy payroll, as well as an increasing
geographical coverage through Infu-Tech sales force expansion.
Costs of medical and nutritional products sold to patients and other customers
decreased by $130,000 or 1%, from $9,579,000 in 1996 to $9,449,000 in 1997. As a
percentage of infusion therapy and other medical services revenues, medical and
nutritional product costs decreased from 51% in 1996 to 46% in 1997. The
improvement in the nutritional product costs as a percentage of sales is
partially attributable to Infu-Tech's participation in group purchasing
programs.
Health care and lodging expenses, which are incurred in connection with nursing
home services, decreased by $426,000 or 5%, this was primarily due to the
inclusion of the Heritage Facility for nine months compared to five months in
the prior period and the exclusion of the Hilltop Facility for the current nine
months.
Selling, general and administrative costs increased by $844,000, or 18%,
primarily as a result of increased insurance and other related costs
attributable to the acquisition of four facilities on October 31, 1995. Of the
increase $529,000 can be attributable to Infu-Tech. These expenses are largely
attributable to investment banking retainer fees in connection with acquisition
work, engagement of an investor relations firm, costs connected with the
development of a disease state management program and distribution cost
increases. In addition, the opening of a Florida pharmacy and costs associated
with setting up the Humana Health Plans capitation contract added to the
increase in selling, general and administrative expenses.
10
<PAGE>
The provision for uncollectible accounts was 1% of revenues in 1997 and 2% of In
January 1997, Infu-Tech commenced a focused effort on cash collections. This
project has resulted in improved cash flows and enabled the Company to conduct a
review of its allowance for uncollectible accounts. As a result of the review
the Company determined that the existing allowance at March 31, 1997 was
excessive and a reduction from the existing allowance of $46,000 was made.
revenues in 1996.
Due to an October 31, 1995 refinancing for the acquisition of four facilities,
depreciation and amortization expenses increased by $588,000 and interest and
other financing costs increased by $1,821,000.
Other income, net of $416,000 in 1997 primarily consisted of $72,000 of
amortization of a $628,000 payment received by the Company in 1992 as
consideration for Infu-Tech releasing the buyer of the Company's former Home
Nursing Division from an agreement not to sell infusion therapy services and the
Company's agreeing not to provide nursing services in California, Arizona or
Tennessee for a period of five years; an unrealized foreign currency translation
gain of $154,000 and the re-evaluation of accruals. Other income, net of
$660,000 in 1996 consisted of amortization of deferred income of $512,000, and
an unrealized foreign currency translation gain of $68,000.
Minority interest in earnings of subsidiary of $316,000 in 1997 and $328,000 in
1996 represents the portion of the net income of Infu-Tech allocable to minority
stockholders and reflects the exhaustion of net operating loss carryforwards
which were available in 1995.
The provision for income taxes of $535,000 in 1997 reflects a full tax charge
for Infu-Tech, a 59% owned subsidiary which files its own federal tax return.
In March 1997, the Company agreed to convert certain liabilities into Common
Stock of the Company. The transaction resulted in an increase to shareholders
equity of $2,542,000 of which $1,192,000 is reflected as an extraordinary gain
in the results of operations for the three months ended March 31, 1997.
The extraordinary gains of $2,367,000 for the nine months ended March 31, 1997
include the above referred to gain in addition to a gain on disposal of assets
and a gain on a forfeited deposit.
The preferred stock dividend does not include the mandatorily redeemable
preferred stock issued as part of the October 31, 1995 refinancing which is
accounted for under interest and financing costs.
The net income available to common shareholders in 1997 was $370,000 or .04
cents per share compared to a net income available to common shareholders in
1996 of $365,000 or .05 cents per share.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had stockholders' equity of $4,677,000 and total
liabilities of $68,711,000. At March 31, 1997 debt amounted to $54,273,000, the
majority of which arose from the acquisition of four facilities under the Nomura
refinancing. Other debt included SFr 680,610 (approximately $470,000) principal
amount of 6% Swiss franc denominated convertible bonds which remain unpaid
although they matured on June 27, 1995 (the "Bonds"); SFr 619,500 (approximately
$428,000) principal amount of 8% Swiss franc denominated bonds due June 27,
1998; $184,000 principal amount of a secured loan ("Secured Loan") due November
1997; $1,213,000 principal amount of 8% notes due 1999; and $3,400,000 principal
amount of 6% notes due 2003.
On October 4, 1996 an Exchange Offer made by the Company to exchange shares of a
new 11% convertible Preferred Stock for all its remaining 14 1/8% subordinated
Debentures due September 1, 1996 expired.
11
<PAGE>
$474,000 face amount of debentures were exchanged and $474,000 was returned to
the Company from the escrow account which had been established with the Trustee
to repay the holders. As of March 31, 1997 $440,000 face amount had been
converted into common shares of the Company, leaving $34,000 face amount of the
Series A Convertible Preferred Stock outstanding.
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 borrowing allowed the Company to purchase 4
nursing homes (three of which previously had been operated by the Company under
leases and the fourth of which the Company had sold in 1990 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.
In September 1996 the Company converted an additional $904,467 of trade payables
into one to three year notes.
The Company sold the 8 acres of land which secured a five year $1.5 million loan
and utilized the proceeds to pay-down that borrowing, leaving a balance of
$454,000. The company has the right to prepay that loan in full by December 31,
1997 and take a $150,000 credit, which it intends to do.
When the Bonds matured on June 27, 1995, SFr 2,900,000 (approximately
$2,525,000) principal amount, together with accrued interest of SFr 174,000
(approximately $152,000), was outstanding. Between June 30, 1995 and June 30,
1996, the Company acquired SFr 2,164,000 principal amount of Bonds, including
accrued interest on those Bonds, for a total of SFr 1,122,375 and $315,000 plus
a SFr 619,500 note maturing in June 1998. As of December 31, 1996, the Company
had acquired an additional SFr 85,000 principal amount of bonds (with interest)
for $78,000.
The Company's cash and cash equivalents balance decreased from $2,900,000 at
June 30, 1996 to $691,000 at March 31, 1997. Included in the March 31, 1997
balance is $43,000 held by Infu-Tech. In connections 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 lending money to (or borrowing money from) the
remainder of the Company.
Operating activities provided $87,000 of cash primarily due to an increase in
net accounts receivable of $2,988,000 offset by an increase in payables and
other current liabilities of $1,860,000 and net income of $500,000. Of the
$3,734,000 increase in accounts receivable, $1,616,000 is attributable to
Infu-Tech. At March 31, 1997, the balance in net accounts receivable for
Infu-Tech was 21% higher than the balance at June 30, 1996. Infu-Tech's net
accounts receivable has increased from 84 days sales at June 30, 1996 to 92 days
sales at March 31, 1997, primarily as a result of continued slow payments from
Medicare and managed care companies. Medicare payments have been delayed due to
changes in reimbursement policies, while managed care companies have experienced
delays in processing payments due to a higher volume of claims. As a result,
Infu-Tech has experienced increased delays in having its claims processed as
well as an increase in the number of initial claims rejected. The increase in
accounts receivable attributable to the nursing home division was due to an
accrual of retroactive Medicare payments resulting from anticipated rate
adjustments. The Company (excluding Infu-Tech) provided $432,000 of cash in
operating activities.
The Company has no arrangements under which it can make borrowings. At
March 31, 1997, the Company
12
<PAGE>
had a working capital deficit of $4,555,000. Excluding Infu-Tech, which had
working capital of $4.9 million, the Company had a working capital deficit of
$9,501,000. Further, at March 31, 1997, Infu-Tech's cash and cash equivalents of
$43,000 were $648,000 less than the balance of $691,000 at June 30, 1996 and its
accounts payable of $2,934,000 were $155,000 higher than the $2,779,000 at June
30, 1996.
During the nine months ended March 31, 1997, the Company repaid $2,551,000 of
debt and paid preferred dividends of $83,000.
At March 31, 1997, the Company had approximately $8.1 million of debt due in
1997 including $6.3 million of mortgage debt which it intends to prepay or
refinance in 1997. In December 1996, the Company began to make mandatory
principal redemption payments of its subsidiaries' Preferred Stock of $73,000
per month.
The Company does not have any material commitments for capital expenditures.
While the Company continues to experience tight cash flow constraints, it is
focused on generating sufficient funds through operating cash flow or the
realization of assets into cash to meet ongoing obligations.
13
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
Part II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
The following exhibits are filled herewith or incorporated
herein.
1 Calculation of earnings per share - nine months ended
March 31, 1997.
2 Calculation of earnings per share - nine months ended
March 31, 1996.
B. Reports on Form 8-K during the quarter ended March 31, 1997
None
14
<PAGE>
<TABLE>
<CAPTION>
Exhibit A.1
CONTINENTAL HEALTH AFFILIATES, INC.
Calculation of Earnings Per Share
Nine months ended March 31, 1997
(Unaudited)
Primary
<S> <C>
Net income available to common shareholders......................................................$ 370,000
=============
Adjustment of shares outstanding:
Weighted average number of shares outstanding............................................... 9,426,823
Average net additional equivalent shares issuable........................................... 662,374
------------
Weighted average number of common shares and common shares equivalent ........................... 10,089,197
================
Earnings per share...............................................................................$ 0.04
=============
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Exhibit A.2
CONTINENTAL HEALTH AFFILIATES, INC.
Calculation of Earnings Per Share
Nine months ended March 31, 1996
(Unaudited)
Primary
<S> <C>
Net income available to common shareholders......................................................$ 365,000
=============
Adjustment of shares outstanding:
Weighted average number of shares outstanding............................................... 7,897,416
---------------
Weighted average number of common shares and common shares equivalent ........................... 7,897,416
===============
Earnings per share...............................................................................$ 0.05
=============
</TABLE>
16
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Continental Health Affiliates, Inc.
Date: May 20, 1997 /S/ JACK ROSEN
--------------------------- --------------
Jack Rosen
Chairman and Director
(Chief Executive Officer)
Date: May 20, 1997 /S/ S. COLIN NEILL
--------------------------- ------------------
S. Colin Neill
Vice President and
Chief Financial Officer
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000354761
<NAME> CONTINENTAL HEALTH AFFILIATES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 691
<SECURITIES> 0
<RECEIVABLES> 17,223
<ALLOWANCES> 3,958
<INVENTORY> 1,664
<CURRENT-ASSETS> 17,988
<PP&E> 59,187
<DEPRECIATION> 5,926
<TOTAL-ASSETS> 75,731
<CURRENT-LIABILITIES> 22,543
<BONDS> 0
3,208
35
<COMMON> 202
<OTHER-SE> 4,440
<TOTAL-LIABILITY-AND-EQUITY> 75,731
<SALES> 53,616
<TOTAL-REVENUES> 53,616
<CGS> 9,449
<TOTAL-COSTS> 49,878
<OTHER-EXPENSES> (100)
<LOSS-PROVISION> 746
<INTEREST-EXPENSE> 4,424
<INCOME-PRETAX> (1,332)
<INCOME-TAX> 535
<INCOME-CONTINUING> (1,867)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,367
<CHANGES> 0
<NET-INCOME> 370
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0
</TABLE>
