SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 OR 15 (d) of
the Securities Exchange Act of 1934
For the quarter ended December 31, 1996
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)
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
As of February 7, 1997, the Registrant had outstanding 9,517,401
shares of its $.01 par value Common Stock.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
Index
Page Number
PART I - FINANCIAL INFORMATION:
Item 1 Consolidated Balance Sheets December 31, 1996 (Unaudited)
and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations (Unaudited) for the three
months ended December 31, 1996 and 1995 . . . . . . . . . . . . . . 3
Consolidated Statements of Operations (Unaudited) for the six months
ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited) for the six months
ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . . . . 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . .7 - 12
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<S> <C> <C>
December 31, June 30,
Assets 1996 1996
(Unaudited)
Current assets:
Cash and cash equivalents $1,819 $2,900
Patients' funds 188 184
Accounts receivable, net of allowances for
uncollectible accounts of $4,316 and $4,193 12,564 10,177
Inventories 1,930 1,996
Deferred income taxes 822 822
Prepaid expenses and other current assets 1,738 1,151
Total current assets 19,061 17,230
Property and equipment, at cost,
net of accumulated depreciation
and amortization of $5,408 and $4,363 53,669 54,453
Deferred income taxes 52 52
Other assets 3,623 3,837
Total assets $76,405 $75,572
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $106 $128
Current portion of long-term debt 1,541 3,355
Mortgage debt due within one year 6,250 0
Accounts payable 8,736 7,913
Other current liabilities 6,418 5,789
Total current liabilities 23,051 17,185
Long-term debt, net of current portion 44,908 50,574
Deferred income 9 72
Other liabilities 11 16
Minority interest in subsidiary 2,260 2,029
Manditorily redeemable preferred stock
(includes $875 current portion) 3,427 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 0
Common stock, $.02 par value; 15,000,000
shares authorized; 9,511,901 and
9,286,216 shares outstanding 190 186
Additional paid-in capital 21,877 21,470
Accumulated deficit (19,363) (19,461)
Total stockholders' equity 2,739 2,196
Total liabilities and stockholders'
equity $76,405 $75,572
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<S> <C> <C>
(Unaudited)
Three months ended
December 31,
1996 1995
Revenues:
Nursing home services $11,035 $11,617
Infusion therapy and other medical services 6,724 6,335
Total revenues 17,759 17,952
Operating expenses:
Personnel 8,794 8,478
Medical and nutritional product 2,971 3,222
Health care and lodging 2,387 2,871
Selling, general and administrative 2,011 1,346
Provision for uncollectible accounts 333 590
Depreciation and amortization 586 353
Total operating expenses 17,082 16,860
Income from operations 677 1,092
Interest and dividend income 26 39
Interest and other financing costs (1,441) (958)
Other income (expense), net (74) 126
Minority interest in earnings of subsidiary (118) (132)
Income (loss) before income taxes,
extraordinary items (930) 167
Provision for income taxes 199 0
Income (loss) from continuing operations
before extraordinary items (1,129) 167
Extraordinary items:
Gain on forfeited deposit 300 0
Gain on disposal of assets 875 0
Net income 46 167
Preferred dividends (60) 0
Net income (loss) available to common
shareholders ($14) $167
Income (loss) per share:
Income (loss) before extraordinary items ($0.12) $0.02
Extraordinary items 0.12 0
Net income available to common
shareholders $0.00 $0.02
Weighted average number of common and common
equivalent shares 9,941,012 7,913,337
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<S> <C> <C>
(Unaudited)
Six months ended December 31,
1996 1995
Revenues:
Nursing home services $23,017 $20,952
Infusion therapy and other
medical services 13,505 12,637
Total revenues 36,522 33,589
Operating expenses:
Personnel 17,570 15,919
Medical and nutritional product 6,094 6,440
Health care and lodging 4,951 5,607
Selling, general and administrative 3,665 2,847
Provision for uncollectible accounts 582 1,023
Depreciation and amortization 1,077 529
Total operating expenses 33,939 32,365
Income from operations 2,583 1,224
Interest and dividend income 54 130
Interest and other financing costs (3,160) (1,199)
Other income , net 65 440
Minority interest in earnings of subsidiary (231) (219)
Income (loss) before income taxes and
extraordinary items (689) 376
Provision for income taxes 388 0
Income (loss) from continuing operations
before extraordinary items (1,077) 376
Extraordinary items:
Gain on forfeited deposit 300 0
Gain on disposal of asset 875 0
Net income 98 376
Preferred dividends (95) (35)
Net income available to common shareholders $3 $341
Income (loss) per share:
Income (loss) before extraordinary items ($0.12) $0.04
Extraordinary items 0.12 0
Net income available to common
shareholders ($0.00) $0.04
Weighted average number of common and
common equivalent shares 9,887,430 7,871,698
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<S> <C> <C>
(Unaudited)
Six months ended
December 31,
1996 1995
Operating activities:
Net income $98 $376
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,077 529
Amortization of deferred financing costs 145 50
Provision for uncollectible accounts 582 1,023
Amortization of deferred income 63 (480)
Gain in translation of foreign currency debt (80) (23)
Minority interest 231 219
Net gains on extinguishment of debt 0 50
Increase (decrease) in cash due to changes in:
Patients' funds 4 0
Accounts receivable (2,969) (2,817)
Inventories 66 (63)
Prepaid expenses and other current assets (587) (235)
Other assets 69 (2,724)
Accounts payable 823 (1,235)
Other current liabilities 553 957
Other liabilities (5) (152)
Net cash provided by (used in) operating
activities 70 (4,525)
Investing activities:
Expenditures for property and equipment (293) (39,082)
Net cash provided by (used in) investing
activities (293) (39,082)
Financing activities:
Conversion of trade payables into notes 904 0
Net proceeds from long-term borrowings 0 47,592
Payments of short-term borrowings (647) (774)
Payments of long-term borrowings (1,560) (643)
Payment of preferred dividends (48) (35)
Debt to equity conversion 474 0
Net proceeds from exercise of common stock options 19 115
Net cash used in financing activities (858) 46,255
Net increase (decrease) in cash and cash
equivalents (1,081) 2,648
Cash and cash equivalents, beginning of the period 2,900 546
Cash and cash equivalents, end of the period $1,819 $3,194
Supplemental disclosure of cash flow data:
Interest paid $2,831 $0
Income taxes paid $53 $100
Non cash investing and financing activity:
Property and equipment obtained under capital
lease obligation -- $216
Acquisition of property and equipment for
foregiveness of receivable -- $7,399
Debt to equity conversion $474 --
Dividend conversion $47 --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
(Unaudited)
Notes to Consolidated Financial Statements
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 six months, management reviewed various
estimates of certain liabilities and the adequacy of bad debt
provisions and recorded an aggregate of $416,408 as credits.
Significant items are discussed in the management discussion and
analysis section.
Operating results for the six month period ended December 31, 1996,
are not necessarily indicative of the results 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.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
(Unaudited)
Notes to Consolidated Financial Statements
3. Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1996 and June 30, 1996
includes $1,098,000 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.
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 % 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 totalling 110% 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
totalling 100% of the liquidation preference of the Preferred
Stock. Holders of the Preferred Stock will be entitled to
dividends totalling $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 quarter, $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 December 31, 1996.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 December 31, 1996 and 1995 (Unaudited)
Total revenues were $193,000, or 1% lower for 1996 compared to 1995.
Revenues were negatively impacted by $913,000 attributable to the
continuing low census at the West Palm Beach, Florida nursing home.
Revenues in the prior period included $600,000 attributable to the
Hilltop facility sold in May 1996.
Infusion therapy and other medical services revenues increased by
$389,000, or 6%, from $6,335,000 in 1995 to $6,724,000 in 1996,
partially due to a $164,000, or 11%, increase in contract service
division revenues. These revenues are comprised of enteral nutrition
therapy and other products provided to patients in long-term care
facilities. Home infusion division revenues increased by $147,000 or
3% partially attributed to a 27% increase in the number of patients
serviced. These patients experienced shorter terms of therapy as well
as discounted pricing negotiated with managed care companies.
Due to the passage of time, it appeared that claims, against which the
Company had established reserves, would not be made. Accordingly,
during the quarter, the Company extinguished the reserves, resulting
in $66,000 in revenue in the quarter.
Personnel costs increased by $316,000, or 4% partially attributable to
expansion of the home infusion sales force and to support the 27%
increase in the number of home infusion patients serviced. Excluding
the Heritage facility that was acquired with the October 1995 Nomura
financing, personnel costs decreased by $284,000. In addition, 24% of
the total increase is attributable to executive incentive
compensation, paid with respect to the prior year.
Costs of medical and nutritional products sold to patients and other
customers decreased by $251,000, or 8%, from $3,222,000 in 1995 to
$2,971,000 in 1996. As a percentage of infusion therapy and other
medical services revenues, medical and nutritional product costs was
44% in 1996 and 51% in 1995. The improvement is partially
attributable to Infu-Tech s participating in group purchasing
programs that make bulk purchases more economical.
Health care and lodging expenses, which are incurred in connection
with nursing home services, decreased by $484,000 or 17% partially due
to a reduction in rent expense as a result of the acquisition of
nursing homes which were previously leased. As a corollary, interest
expense has increased (see below).
Selling, general and administrative costs increased by $665,000 or 49%
primarily due to increased insurance and other related costs
attributable to the acquisition of four facilities on October 31,
1995, increases in legal fees, the engagement of an investor relations
firm and distribution costs incurred to support the 27% increase in
home infusion patients serviced.
The provision for uncollectible accounts was 2% of revenues in 1996
and 3% in 1995.
<PAGE>
CONTINENTAL HEALTH AFFILIATE, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
As a result of the acquisition of four facilities in the October 31,
1995 refinancing, depreciation and amortization expenses increased by
$233,000 and interest and other financing costs increased by $483,000.
Other income (expense) net, of $74,000 in 1996 consisted of
amortization of deferred income of $32,000 and an unrealized foreign
currency translation gain of $3,000 offset by $115,000 of legal
settlements. Other income (expense) net, of $126,000 in 1995
consisted of amortization of deferred income of $77,000 and gains on
bonds repurchased of $50,000 offset by an unrealized translation loss.
Minority interest in profit of subsidiary of $118,000 in 1996 and
$132,000 in 1995 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 $199,000 in 1996 reflects a full tax
charge for Infu-Tech, a 59% owned subsidiary which files its own
federal tax return.
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 loss applicable to common shareholders in 1996 was $14,000 or
0 cents per share compared to net income available to common
shareholders in 1995 of $167,000 or 2 cents per share.
Six Months Ended December 31, 1996 and 1995 (Unaudited)
Total revenues were $2,933,000, or 9% higher in the 1996 period
compared to the same period of the prior year. This is due to an
improved patient mix yielding higher reimbursement while being
partially offset by lower occupancy at the West Palm Beach facility.
Infusion therapy and other medical services revenues increased by
$868,000, or 7%, from $12,637,000 in 1995 to $13,505,000 in 1996,
primarily due to a $315,000, or 3%, increase in home infusion division
revenues. This increase is primarily attributed to a 19% increase 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 $1,651,000. Excluding the Heritage
facility that was acquired with the October 1995 Nomura financing,
personnel costs decreased by $386,000. 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 19% increase in home infusion
patients serviced, increased Infu-Tech pharmacy payroll, as well as an
increasing geographical coverage through Infu-Tech sales force
expansion and executive incentive compensation, paid with respect to
the prior year.
Costs of medical and nutritional products sold to patients and other
customers decreased by $346,000, or 5%, from $6,440,000 in 1995 to
$6,094,000 in 1996. As a percentage of infusion therapy and other
medical services revenues, medical and nutritional product costs
decreased from 51% in 1995 to 45% in 1996. The improvement in the
nutritional product costs as a percentage of sales is partially
attributable to Infu-Tech s participation in group purchasing
programs.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Health care and lodging expenses, which are incurred in connection
with nursing home services, decreased by $656,000 or 12%. This was
primarily because the Company began performing services which
previously had been performed by outside consultants. This moved the
cost from health care and lodging to personnel costs.
Selling, general and administrative costs increased by $818,000, or
29%, primarily as a result of increased insurance and other related
costs attributable to the acquisition of four facilities on October
31, 1995, increases in legal fees, the engagement of an investor
relations firm and distribution costs incurred to support the 19%
increase in home infusion patients serviced.
The provision for uncollectible accounts was 2% of revenues in 1996
and 3% of revenues in 1995.
Due to an October 31, 1995 refinancing for the acquisition of four
facilities, depreciation and amortization expenses increased by
$548,000 and interest and other financing costs increased by
$1,961,000.
Other income, net of $65,000 in 1996 primarily consisted of $63,000 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, and an unrealized foreign currency translation gain of $80,000
offset by $115,000 of legal settlements. Other income, net of
$440,000 in 1995 consisted of amortization of deferred income of
$367,000, $50,000 gains on bonds repurchased and an unrealized foreign
currency translation gain of $23,000.
Minority interest in earnings of subsidiary of $231,000 in 1996 and
$219,000 in 1995 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 $388,000 in 1996 reflects a full tax
charge for Infu-Tech, a 59% owned subsidiary which files its own
federal tax return.
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 1996 was $3,000 or
0 cents per share compared to a net income available to common
shareholders in 1995 of $341,000 or $.04 per share.
Liquidity and Capital Resources
At December 31, 1996, the Company had stockholders' equity of
$2,739,000 and total liabilities of $71,406,000. At December 31, 1996
debt amounted to $56,126,000, the majority of which arose from the
acquisition of four facilities under the Nomura refinancing. Other
debt included SFr 699,005 (approximately $522,000) 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 $462,000) principal amount of 8% Swiss franc
denominated bonds due June 27, 1998; $207,000 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.
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 % Subordinated Debentures due September 1, 1996 expired. $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 December 31, 1996 $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 $1,819,000 at December 31, 1996.
Included in the December 31, 1996 balance is $1,098,000 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.
The Company in total provided $70,000 of cash from operating
activities primarily due to an increase in accounts receivable of
$2,969,000 and an increase in prepaid and other current assets of
$587,000, offset by an increase in accounts payable of $823,000,
increase in other current liabilities of $553,000 and net income of
$98,000. Of the $2,969,000 increase in accounts receivable,
$1,129,000 is attributable to Infu-Tech. At December 31, 1996, the
balance in net accounts receivable for Infu-Tech was 10% 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 88 days sales at
December 31, 1996, 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
<PAGE>
CONTINENTAL HEALTH AFFILIATES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
accrual of retroactive Medicare payments resulting from anticipated
rate adjustments. The Company (excluding Infu-Tech) used $401,000 of
cash in operating activities.
The Company has no arrangements under which it can make borrowings.
At December 31, 1996, the Company had a working capital deficit of
$3,990,000. Excluding Infu-Tech, which had working capital of $5.2
million, the Company had a working capital deficit of $9,177,000.
Further, at December 31, 1996, Infu-Tech's cash and cash equivalents
of $1,098,000 were $407,000 more than the balance of $691,000 at June
30, 1996 and its accounts payable of $3,374,000 were $595,000 higher
than the $2,779,000 at June 30, 1996.
During the six months ended December 31, 1996, the Company repaid
$1,560,000 of long-term borrowings and paid preferred dividends of
$48,000.
At December 31, 1996, the Company had approximately $7.8 million of
debt due in 1997 including $6.2 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 is experiencing 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.
<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 - six months
ended December 31, 1996.
.2 Calculation of earnings per share - six months
ended December 31, 1995.
B. Reports on Form 8-K during the quarter ended
December 31, 1996: NONE
<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 February 19, 1997 /s/ Jack Rosen
Jack Rosen
Chairman and Director
(Chief Executive Officer)
Date February 19, 1997 /s/ S. Colin Neill
S. Colin Neill
Vice President and
Chief Financial Officer
<PAGE>
Exhibit A.1
CONTINENTAL HEALTH AFFILIATES, INC.
Calculation of Earnings Per Share (Unaudited)
Six Months ended December 31, 1996
Primary
Net income available to common shareholders $ 3,000
Adjustment of shares outstanding:
Weighted average number of shares outstanding 9,341,797
Average net additional equivalent shares issuable 545,633
Weighted average number of common shares and common
shares equivalent 9,887,430
Earnings per share $ 0.00
<PAGE>
Exhibit A.2
CONTINENTAL HEALTH AFFILIATES, INC.
Calculation of Earnings Per Share (Unaudited)
Six Months ended December 31, 1995
Primary
Net income available to common shareholders $ 341,000
Adjustment of shares outstanding:
Weighted average number of shares outstanding 7,871,698
Average net additional equivalent shares issuable ---
Weighted average number of common shares and common shares
equivalent 7,871,698
Earnings per share $ .04
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,819,000
<SECURITIES> 0
<RECEIVABLES> 16,880,000
<ALLOWANCES> 4,316,000
<INVENTORY> 1,930,000
<CURRENT-ASSETS> 19,061,000
<PP&E> 59,077,000
<DEPRECIATION> 5,408,000
<TOTAL-ASSETS> 7,640,000
<CURRENT-LIABILITIES> 23,051,000
<BONDS> 56,126,000
3,427,000
35,000
<COMMON> 196,000
<OTHER-SE> 2,704,000
<TOTAL-LIABILITY-AND-EQUITY> 76,405,000
<SALES> 36,522,000
<TOTAL-REVENUES> 36,522,000
<CGS> 6,094,000
<TOTAL-COSTS> 33,939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 582,000
<INTEREST-EXPENSE> 3,015,000
<INCOME-PRETAX> (689,000)
<INCOME-TAX> 388,000
<INCOME-CONTINUING> (1,077,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,175,000
<CHANGES> 0
<NET-INCOME> 3,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
