- -------------------------------------------------------------------------------
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, 1998
Commission File Number 0-11895
KUALA HEALTHCARE, INC.
Formerly named Continental Health Affiliates, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-2362097
(State of other jurisdiction (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 14, 1998, the Registrant had outstanding 3,408,000 shares of its
$.06 par value Common Stock.
<PAGE>
KUALA HEALTHCARE, INC.
Index
Part I - Financial Information:
Page
Item 1
Consolidated Balance Sheets at March 31, 1998 (Unaudited)
and June 30, 1997..........................................................3
Consolidated Statements of Operations (Unaudited) for the three months
ended March 31, 1998 and 1997............................................. 4
Consolidated Statements of Operations (Unaudited) for the nine months ended
March 31, 1998 and 1997....................................................5
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended March 31, 1998 and 1997......................................... 6 - 7
Notes to Unaudited Consolidated Financial Statements................... 8 - 10
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................11- 14
Part II - Other Information.................................................. 15
Signatures................................................................. 16
<PAGE>
<TABLE>
<CAPTION>
KUALA HEALTHCARE, INC.
Consolidated Balance Sheets
(Dollars in thousands)
March 31, June 30,
1998 1997
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...............................................$ 373 $ 3,796
Patients' funds......................................................... 147 188
Accounts receivable, net of allowances for uncollectible accounts
of $3,005 and $4,252.................................................. 13,985 13,346
Inventories............................................................. 2,332 1,861
Deferred income taxes................................................... 702 702
Prepaid expenses and other current assets............................... 1,496 803
----------- ---------
Total current assets................................................ 19,035 20,696
Property and equipment, at cost, net of accumulated depreciation
and amortization of $6,064 and $4,916................................... 47,119 46,991
Goodwill, net of accumulated amortization................................. 128 139
Other assets.............................................................. 3,889 3,524
----------- --------
Total assets........................................................$ 70,171 $ 71,350
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings...................................................$ 51 $ 105
Current portion of long term debt....................................... 4,072 5,686
Income taxes payable.................................................... 513 437
Accounts payable........................................................ 10,416 9,696
Other current liabilities............................................... 4,083 4,260
----------- ---------
Total current liabilities........................................... 19,135 20,184
Long-term debt, net of current portion ................................... 41,095 41,129
Mandatorily redeemable preferred stock (includes $512 current portion).... 1,334 1,989
----------- ---------
Total liabilities................................................... 61,564 63,302
----------- ---------
Minority interest in subsidiary ........................................ 2,720 2,424
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 34
Common stock, $.06 par value; 15,000,000 shares authorized; 3,408,000
and 3,373,033 shares outstanding ..................................... 208 206
Additional paid-in capital.............................................. 23,577 23,401
Accumulated deficit..................................................... (17,933) (18,018)
----------- ---------
Total stockholders' equity.......................................... 5,887 5,624
----------- ---------
Total liabilities and stockholders' equity..........................$ 70,171 $ 71,350
=========== =========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KUALA HEALTHCARE, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Three Months Ended March 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Revenues:
Nursing home services..................................................$ 8,799 $ 10,159
Infusion therapy and other medical services............................ 7,013 6,935
---------- ---------
Total revenues................................................ 15,812 17,094
---------- ---------
Personnel............................................................ 6,855 8,357
Medical and nutritional product...................................... 3,715 3,355
Health care and lodging.............................................. 2,042 2,480
Selling, general and administrative.................................. 1,740 1,680
Provision for uncollectible accounts................................. (169) 163
Depreciation and amortization........................................ 407 534
--------- ---------
Total operating expenses...................................... 14,590 16,569
--------- ---------
Income from operations........................................ 1,222 525
Interest and dividend income........................................... 55 14
Interest and other financing costs..................................... (1,183) (1,333)
Other income (expense), net............................................ 96 236
Minority interest in earnings of subsidiary............................ (77) (85)
--------- ---------
Income (loss) before income taxes, extraordinary gains......... 113 (643)
Provision for income taxes............................................. 108 147
--------- --------
Income (loss) before extraordinary gains....................... 5 (790)
--------- ----------
Extraordinary gains.................................................... -- 1,192
--------- ---------
Net income..................................................... 5 402
Preferred dividends.................................................... (39) (35)
--------- ---------
Net income available to common shareholders...................$ (34) $ 367
========== =========
Income (loss) per share:
Basic
Loss before extraordinary gains..................................$ (.01) $ (.26)
Extraordinary gains.............................................. -- .37
--------- ---------
Net income (loss) available to common shareholders............$ (0.01) $ 0.11
========= =========
Diluted
Loss before extraordinary items..................................$ (.01) (.26)
Extraordinary gains.............................................. -- .37
--------- ---------
Net income (loss) available to common shareholders............$ (0.01) $ 0.11
========= =========
Basic weighted average number of common shares........................ 3,376,409 3,198,958
Diluted weighted average number of common shares...................... 3,579,126 3,198,958
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KUALA HEALTHCARE, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Nine Months Ended March 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Revenues:
Nursing home services..................................................$ 26,774 $ 33,177
Infusion therapy and other medical services............................ 21,599 20,439
----------- ----------
Total revenues................................................ 48,373 53,616
----------- ----------
Personnel............................................................ 20,870 25,927
Medical and nutritional product...................................... 11,460 9,449
Health care and lodging.............................................. 6,199 7,431
Selling, general and administrative.................................. 5,023 5,461
Provision for uncollectible accounts................................. 100 746
Depreciation and amortization........................................ 1,177 1,610
----------- ----------
Total operating expenses...................................... 44,829 50,624
----------- ----------
Income from operations........................................ 3,544 2,992
Interest and dividend income........................................... 87 68
Interest and other financing costs..................................... (3,734) (4,492)
Other income (expense), net............................................ 586 416
Minority interest in earnings of subsidiary............................ (213) (316)
--------- ----------
Income (loss) before income taxes, extraordinary gains......... 270 (1,332)
Provision for income taxes............................................. 335 535
--------- ----------
Loss from continuing operations before extraordinary gains..... (65) (1,867)
---------- ----------
Extraordinary gains.................................................... 150 2,367
--------- ----------
Net income.................................................... 85 500
Preferred dividends.................................................... (74) (130)
--------- ----------
Net income available to common shareholders...................$ 11 $ 370
========= ==========
Income (loss) per share:
Basic
Loss before extraordinary gains..................................$ (.04) $ (.65)
Extraordinary gains.............................................. .04 .77
--------- ----------
Net income (loss) available to common shareholders............$ .00 $ .12
========= ==========
Diluted
Loss before extraordinary gains..................................$ (.04) $ (.65)
Extraordinary gains.............................................. .04 .77
--------- ----------
Net income (loss) available to common shareholders........... $ 0.00 $ .12
========= ==========
Basic weighted average number of common shares........................ 3,375,254 3,082,274
Diluted weighted average number of common shares...................... 3,460,669 3,082,274
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KUALA HEALTHCARE, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine Months Ended March 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Operating activities:
Net income.........................................................$ 85 $ 500
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization expense........................ 1,177 1,610
Warrants issued for services................................. -- 98
Amortization of deferred financing costs..................... 188 209
Provision for uncollectible accounts......................... 100 746
Amortization of deferred income.............................. -- (72)
(Gain) loss on translation of foreign currency debt.......... (34) (154)
Minority interest............................................ 213 316
Increase (decrease) in cash from changes in:
Patient funds............................................... 41 (4)
Accounts receivable......................................... (739) (3,734)
Inventories................................................. (471) 332
Prepaid expenses and other current assets................... (693) (207)
Other assets................................................ (428) (612)
Taxes payable............................................... 76 461
Accounts payable............................................ 720 407
Other current liabilities................................... (177) 1,399
Other liabilities........................................... -- (16)
----------- -----------
Net cash provided by operating activities...................... 58 87
----------- -----------
Investing activities:
Investment in Bach Pharmacy ....................................... 83 --
Expenditures for property and equipment............................ (1,201) (418)
Acquisition of Universal Home Infusion............................. -- (608)
----------- -----------
Net cash used in investing activities.......................... (1,118) (608)
------------ -----------
Financing activities:
Conversion of trade payables into notes............................ -- 904
Payment on mandatorily redeemable preferred stock.................. (655) --
Payments on debt................................................... (1,668) (2,551)
Net proceeds from exercise of common stock options................. 34 42
Payment of preferred dividends..................................... (74) (83)
----------- -----------
Net cash (used in ) provided by financing activities........... (2,363) (1,688)
----------- -----------
Net (decrease ) increase in cash and cash equivalents................$ (3,423) $ (2,209)
Cash and cash equivalents, beginning of period....................... 3,796 2,900
------------ ------------
Cash and cash equivalents, end of period.............................$ 373 $ 691
=========== ===========
Supplemental disclosure of cash flow data:
Interest paid....................................................$ 2,251 $ 4,145
============ ===========
Income taxes paid................................................$ 105 $ 53
=========== ===========
Non cash investing and financing activity:
Debt to equity conversion........................................$ --- $ 1,824
Dividend conversion..............................................$ --- $ 47
Stock issued in connection with investment.......................$ 210 $ ---
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
KUALA HEALTHCARE, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. The Company
The Company's operations consist primarily of nursing home and assisted
living services, infusion therapy and other medical services. Nursing home
and assisted senior housing services include the ownership, leasing,
operation and management of nursing homes and assisted senior housing
facilities. 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.
On December 1, 1997, the Company acquired a 75% interest in a limited
liability company (LLC) to provide institutional pharmacy services. The
minority interest is held by Bach's Drug Store, a Hackettstown, New Jersey
Corporation ("Bach's") which contributed its existing business to the LLC.
The Company paid $210,000 in Kuala stock to a principal of Bach's in
consideration for a four-year employment agreement (at $120,000/year) with
the pharmacist of Bach's (the manager of the LLC) and (b) a four-year lease
with the shareholders of Bach's to lease the premises (at $18,000/year)
where the LLC operates. The Company has guaranteed the employment and lease
agreements.
On January 27, 1998 shareholders approved a one-for-three reverse split of
the Company's common stock. In conjunction with the reverse split, the
Company has changed its name to Kuala Healthcare, Inc. and will be listed on
the Nasdaq Small Cap market under the symbol "KUAL".
Common share and per share amounts in the financial statements reflect the
impact of the reverse stock split in all periods.
2. Basis of Presentation
The consolidated financial statements include the accounts of Kuala
Healthcare, Inc, ("Kuala") and its subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Kuala owns 58% of the common stock of Infu-Tech, Inc. ("Infu-Tech"); 42% of
the common stock of Infu-Tech 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 recognized
a $607,000 benefit in the statements of operations, of which $342,000 was
recognized in the current quarter. Furthermore, the Company wrote down the
carrying value of its liability for its 6% Swiss franc debt, reflecting
unlikelihood of the balance having to be paid. Accordingly, the Company
recorded an additional $118,000 adjustment in income.
Operating results for the nine month period ended March 31, 1998, are not
necessarily indicative of the result that may be expected for year end
June 30, 1998.
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, 1997.
3. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 1998 and June 30, 1997 includes
$242,000 and $512,000 respectively, held by Infu-Tech. A management and
non-competition agreement between Continental and Infu-Tech, which, as
extended, expires September 30, 2000, prohibits Infu-Tech from lending money
to (or borrowing money from) Kuala.
The Company classifies all highly liquid investments with maturities of
three months or less when purchased as cash equivalents.
4. Earnings Per Share
Options excluded from the computation of diluted earnings per share since
such options would not have a diluted effect as the exercise price is above
the average market price for the period were as follows:
1998 1997
---- ----
Options excluded for the three month period ending....... 151,702 716,767
March 31,
Options excluded for the nine month period ending
March 31,............................................... 313,847 716,767
5. Accounting Pronouncements
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities
(SOP 98-5). This statement requires that the costs of start-up activities,
including organization costs be expensed as incurred. SOP 98-5 is effective
for financial statements for fiscal years beginning after December 15, 1998.
The Company will have to implement SOP 98-5 in its financial statements for
the fiscal year ending June 30, 2000.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
Three Months ended March 31,1998 Compared with Three Months Ended March 31, 1997
Total revenues were $1,282,000, or 8% lower for 1998 compared with 1997,
primarily due to the sale of two facilities whose revenues were included in the
prior period and slightly lower occupancy at the existing facilities.
Infusion therapy and other medical services revenues increased by $78,000 or 1%,
from $6,935,000 in 1997 to $7,013,000 in 1998, primarily due to the inclusion of
Bach's pharmacy in 1998 offset by decreased revenues at Infu-Tech.
Personnel costs decreased by $1,502,000, or 18%. The reduction is primarily
attributable to the sale of two facilities in June 1997, together with overall
reduction in staff in the nursing home division.
Costs of medical and nutritional products sold to patients and other customers
increased by $360,000 or 11%, from $3,355,000 in 1997 to $3,715,000 in 1998. As
a percentage of infusion therapy and other medical services revenues, medical
and nutritional product costs were 53% in 1998 and 48% in 1997. The increase in
the medical and nutritional product costs as a percentage of sales is primarily
attributable to Infu-Tech's increased revenues associated with Ceredase, a high
cost drug, and margin reductions from operating in a managed care environment.
Health care and lodging expenses, which are incurred in connection with nursing
home services, decreased by $438,000 or 18%, primarily as a result of the sale
of the two facilities.
Selling, general and administrative costs increased by $60,000 or 4% as a result
of increased legal fees partially offset by savings due to the sale of the two
facilities.
Following a focused effort to collect old receivables, there was a review of the
existing allowance. As a result of the review, the company determined that the
existing allowance at March 31, 1998 exceeded anticipated collections and
reduced the allowance by $342,000.
Other income, net, of $96,000 resulted from the write down of the carrying value
of certain liabilities of $62,000 and an unrealized foreign currency translation
gain of $34,000. Other income, net of $236,000 in 1997 consisted of the
re-evaluation of accruals of $162,000 and an unrealized foreign currency
translation gain of $74,000.
Minority interest in earnings of subsidiary of $77,000 in 1998 represents the
portion of the net income of Infu-Tech and Bach's Pharmacy Services allocable
to minority stockholders.
The provision for income taxes of $108,000 in 1998 and $147,000 in 1997 reflects
a full tax charge for Infu- Tech, a 58% 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
for the three months ended March 31, 1997.
The net loss applicable to common shareholders in 1998 was $34,000 or $.01 per
share compared to a net income available to common shareholders in 1997 of
$367,000 or $.11 per share.
Nine Months ended March 31, 1998 Compared with Nine Months Ended March 31, 1997
Total revenues were $5,243,000, or 10% lower for 1998 compared with 1997,
primarily due to the sale of two facilities whose revenues were included in the
prior period and slightly lower occupancy at the existing facilities.
Infusion therapy and other medical services revenues increased by $1,160,000 or
6%, from $20,439,000 in 1997 to $21,599,000 in 1998 primarily due to the
inclusion of Bach's Pharmacy Services in 1998.
Personnel costs decreased by $5,057,000, or 20%. The reduction is primarily
attributable to the sale of two facilities in June 1997, together with overall
reduction in staff in the nursing home division.
Costs of medical and nutritional products sold to patients and other customers
increased by $2,011,000 or 21%, from $9,449,000 in 1997 to $11,460,000 in 1998.
As a percentage of infusion therapy and other medical services revenues, medical
and nutritional product costs were 53% in 1998 and 46% in 1997. The increase in
the medical and nutritional product costs as a percentage of sales is primarily
attributable to the inclusion of Bach's Pharmacy Services and Infu-Tech's
increased revenues associated with Ceredase, a high cost drug, a capitation
agreement, and margin reductions from operating in a managed care environment.
Health care and lodging expenses, which are incurred in connection with nursing
home services, decreased by $1,232,000 or 17%, primarily as a result of the sale
of the two facilities.
Selling, general and administrative costs decreased by $438,000 or 8% as a
result of the sale of the two facilities partially offset by increased legal
fees.
Following a focused effort to collect old receivables, there was a review of the
existing allowance. As a result of the review, the company determined that the
existing allowance at March 31, 1998 exceeded anticipated collections and
reduced the allowance by $607,000.
Other income , net, of $586,000 resulted from the write-off of accounts payable
of $460,000, the re-evaluation of certain liabilities of $98,000 and an
unrealized foreign currency translation gain of $34,000. Other income, net of
$416,000 in 1997 primarily consisted of an unrealized foreign currency
translation gain of $154,000; amortization of $72,000 of a $628,000 payment
received by the Company in 1992 as consideration not to provide nursing services
in California, Arizona or Tennessee for a period of five years and the
re-evaluation of accruals.
Minority interest in earnings of subsidiary of $213,000 in 1998 represents the
portion of the net income of Infu-Tech and Bach's Pharmacy Services allocable to
minority stockholders. Minority interest in earnings of subsidiary of $316,000
in 1997 represents the portion of net income of Infu-Tech allocable to minority
stockholders.
The provision for income taxes of $335,000 in 1998 and $535,000 in 1997 reflects
a full tax charge for Infu- Tech, a 58% 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
during the three months ended March 31, 1997.
The net income available to common shareholders in 1998 was $11,000 or $.00 per
share compared to net income available to common shareholders in 1997 of
$370,000 or $.12 per share.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had stockholders' equity of $5,887,000 and total
liabilities of $61,566,000. At March 31, 1998 debt amounted to $46,501,000 of
which approximately $35,000,000 relates to mortgages on three of the nursing
homes.
Debt also includes a mortgage secured by a facility of $2,196,000 due October 1,
1997. This mortgage has been extended while refinancing is completed.
Other debt included SFr 582,030 (approximately $382,000) carrying value of the
principal amount of 6% Swiss franc denominated bonds which remain unpaid
although they matured on June 27, 1995 (the "Bonds"); SFr 619,500 (approximately
$407,000) principal amount of 8% Swiss franc denominated bonds due June 27,
1998; $1,213,000 principal amount of 8% notes due 1999; and $3,400,000 principal
amount of 6% notes due 2003.
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, 1997 the Company
had acquired an additional SFr 110,000 principal amount of bonds (with interest)
for $88,500. Reflective of management's view that it is unlikely the entire
principle amount of the Swiss Francs balance will be presented for payment,since
approximately three years have elapsed, the Company wrote down this liability by
approximately one-third in fiscal 1998. As a result, $118,000 of additional
income was recorded in the nine months ending March 31, 1998, $94,000 of which
was recorded in the current quarter.
The Company's cash and cash equivalents balance decreased from $3,796,000 at
June 30, 1997 to $373,000 at March 31, 1998. Included in the March 31, 1998
balance is $242,000 held by Infu-Tech. A management and non-competition
agreement with Infu-Tech, which, as extended, expires September 30, 2000,
prohibits Infu-Tech from lending money to (or borrowing money from) the
remainder of the Company.
Net cash of $58,000 was provided by operating activities.
At March 31, 1998, the balance in net accounts receivable for Infu-Tech was 5%
higher than the balance at June 30, 1997 attributed to higher revenues.
Infu-Tech's net accounts receivable has increased from 102 days sales at June
30, 1997 to 105 days sales at March 31, 1998, 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 their higher
volume of claims.
The Company has no arrangements under which it can make borrowings. At March 31,
1998, the Company had a working capital deficit of $100,000. In addition, the
Company was required to pay $512,000 to redeem preferred stock. Excluding
Infu-Tech, which had working capital of $5,251,000, the Company had a working
capital deficit of $5,351,000. Further, at March 31, 1998, Infu-Tech's cash and
cash equivalents of $242,000 were $270,000 less than the balance of $512,000 at
June 30, 1997.
During the nine months ended March 31, 1998, the Company repaid $1,668,000 of
debt, redeemed $655,000 of mandatorily redeemable preferred stock and paid
preferred stock dividends of $74,000.
While the Company continues to experience cash flow constraints, it continues to
use the sale of assets as a means of meeting ongoing obligations. It has certain
assets which can be used for this purpose if needed.
<PAGE>
KUALA HEALTHCARE, INC.
Part II - Other Information
Item 1. Legal Proceedings
Presently, there are no pending material legal proceedings
other than as reported in the Company's Form 10-K for the
year ended June 30, 1997.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
On January 27, 1998 shareholders approved a one-for-three
reverse split of the Company's common stock. In conjunction
with the reverse split, the Company has changed its name to
Kuala Healthcare, Inc. and will be listed on the Nasdaq Small
Cap market under the symbol "KUAL".
The number of shares of common stock of the Corporation which
were voted for nominees for election to the Board of
Directors were as follows:
Nominee Number of Shares
------- ----------------
Joseph M. Giglio 9,919,785
Israel Ingberman 9,919,785
Jack Rosen 9,915,003
Joseph Rosen 9,919,585
Bruce Slovin 9,919,785
Carl D. Glickman 9,919,785
No shares were voted for anyone else.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A.Reports on Form 8-K during the quarter ended March 31, 1998
-------------------------------------------------------------
None
<PAGE>
KUALA HEALTHCARE, 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.
Kuala Healthcare, Inc.
Date: May 15, 1998 /S/ JACK ROSEN
---------------------------------- --------------
Jack Rosen
Chairman and Director
(Chief Executive Officer)
Date: May 15, 1998 /S/ ISRAEL INGBERMAN
---------------------------------- --------------------
Israel Ingberman
Secretary, Treasurer and Director
Date: May 15, 1998 /S/ ALLISON K. ALLEN
---------------------------------- --------------------
Allison K. Allen
Principal Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000354761
<NAME> KUALA HEALTHCARE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 373
<SECURITIES> 0
<RECEIVABLES> 16,990
<ALLOWANCES> 3,055
<INVENTORY> 2,332
<CURRENT-ASSETS> 19,035
<PP&E> 53,183
<DEPRECIATION> 6,064
<TOTAL-ASSETS> 70,171
<CURRENT-LIABILITIES> 19,135
<BONDS> 0
1,334
35
<COMMON> 208
<OTHER-SE> 5,852
<TOTAL-LIABILITY-AND-EQUITY> 70,171
<SALES> 48,373
<TOTAL-REVENUES> 48,373
<CGS> 11,460
<TOTAL-COSTS> 44,729
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</TABLE>
