<PAGE>
- ------------------------------------------------------------------------------
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 December 31, 1998
Commission File Number 0-11895
KUALA HEALTHCARE, INC.
Formerly known as 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
incorporation or organization) Identification Number)
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 February 5, 1999, the Registrant had outstanding 3,409,730
shares of its $.06 par value Common Stock.
- ------------------------------------------------------------------------------
<PAGE>
KUALA HEALTHCARE, INC.
Index
<TABLE>
<CAPTION>
Part I - Financial Information:
Page
<S> <C>
Item 1
Consolidated Balance Sheets at December 31, 1998 (Unaudited)
and June 30, 1998...................................................................... 3
Consolidated Statements of Operations (Unaudited) for the three months
ended December 31, 1998 and 1997....................................................... 4
Consolidated Statements of Operations (Unaudited) for the six months ended
December 31, 1998 and 1997............................................................. 5
Consolidated Statements of Cash Flows (Unaudited) for the six months
ended December 31, 1998 and 1997....................................................... 6 - 7
Notes to Unaudited Consolidated Financial Statements..................................... 8 - 9
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 10- 13
Part II - Other Information....................................................................... 14
Signatures............................................................................... 15
2
<PAGE>
KUALA HEALTHCARE, INC.
Consolidated Balance Sheets
(Dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 183 $ 395
Patients' funds ........................................................................ 188 204
Accounts receivable, net of allowances for uncollectible accounts
of $4,202 and $3,681 ................................................................. 14,794 13,763
Inventories ............................................................................ 1,818 1,987
Deferred income taxes .................................................................. 551 551
Prepaid expenses and other current assets .............................................. 1,363 993
-------- --------
Total current assets ............................................................... 18,897 17,893
Property and equipment, at cost, net of accumulated depreciation
and amortization of $6,638 and $5,937 .................................................. 44,350 44,724
Goodwill, net of accumulated amortization ................................................. 117 125
Other assets .............................................................................. 2,640 3,775
-------- --------
Total assets....................................................................... $ 66,004 $ 66,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt...................................................... $ 3,043 $ 3,916
Income taxes payable ................................................................... 243 180
Accounts payable ....................................................................... 12,425 10,389
Other current liabilities .............................................................. 3,510 4,708
-------- --------
Total current liabilities .......................................................... 19,221 19,193
Long-term debt, net of current portion .................................................... 41,881 40,916
Mandatorily redeemable preferred stock .................................................... 676 1,114
-------- --------
Total liabilities .................................................................. 61,778 61,223
========
Minority interest in subsidiary ........................................................... 2,665 2,578
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; 5,000,000 shares authorized; 3,409,730
and 3,409,299 shares outstanding ..................................................... 206 208
Additional paid-in capital ............................................................. 23,572 23,571
Accumulated deficit .................................................................... (22,252) (21,098)
-------- --------
Total stockholders' equity ......................................................... 1,561 2,716
-------- --------
Total liabilities and stockholders' equity......................................... $ 66,004 $ 66,517
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
KUALA HEALTHCARE, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Revenues:
Nursing home services................................................................ $ 9,149 $ 8,720
Infusion therapy and other medical services.......................................... 7,306 7,584
----------- -----------
Total revenues............................................................ 16,455 16,304
------------ -----------
Personnel......................................................................... 6,426 7,035
Medical and nutritional product................................................... 4,493 4,100
Health care and lodging........................................................... 2,095 1,919
Selling, general and administrative............................................... 1,597 1,536
Provision for uncollectible accounts.............................................. 790 153
Depreciation and amortization..................................................... 389 408
----------- -----------
Total operating expenses.................................................. 15,790 15,151
--------- -----------
Income from operations.................................................... 665 1,153
Interest and dividend income......................................................... 52 16
Interest and other financing costs................................................... (1,152) (1,266)
Other income (expense), net.......................................................... (277) 159
Minority interest in earnings of subsidiary.......................................... (42) (70)
------------ ------------
Income (loss) before income taxes, extraordinary gains...................... (754) (8)
Provision for income taxes........................................................... 85 115
----------- -----------
Income (loss) before extraordinary gains.................................... (839) (123)
------------ ------------
Extraordinary gains.................................................................. -- 150
----------- -----------
Net (loss) income........................................................... (839) 26
Preferred dividends.................................................................. -- --
----------- ----------
Net income (loss) available to common shareholders........................ $ (839) $ 26
=========== ==========
Income (loss) per share:
Basic
Income (loss) before extraordinary gains...................................... $ (0.25) $ (.01)
Extraordinary gains........................................................... -- 0.01
----------- -----------
Net income (loss) available to common shareholders........................ $ (0.25) $ 0.00
============ ===========
Diluted
Income (loss) before extraordinary items...................................... $ (0.25) (.01)
Extraordinary gains........................................................... -- 0.01
----------- -----------
Net income (loss) available to common shareholders........................ $ (0.25) $ 0.00
============ ===========
Basic weighted average number of common shares....................................... 3,409,730 3,373,950
Diluted weighted average number of common shares..................................... 3,409,730 3,534,763
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
KUALA HEALTHCARE, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1998 1997
---- ----
<S> <C> <C>
(Unaudited)
Revenues:
Nursing home services............................................................... $ 18,153 $ 17,975
Infusion therapy and other medical services......................................... 13,736 14,586
----------- -----------
Total revenues........................................................... 31,889 32,561
----------- -----------
Personnel........................................................................ 13,203 14,016
Medical and nutritional product.................................................. 8,143 7,745
Health care and lodging.......................................................... 4,179 4,157
Selling, general and administrative.............................................. 3,194 3,283
Provision for uncollectible accounts............................................. 884 268
Depreciation and amortization.................................................... 801 770
----------- -----------
Total operating expenses................................................. 30,404 30,239
----------- -----------
Income from operations................................................... 1,485 2,322
Interest and dividend income........................................................ 114 32
Interest and other financing costs.................................................. (2,312) (2,551)
Other income (expense), net......................................................... (276) 490
Minority interest in earnings of subsidiary......................................... (76) (136)
----------- -----------
Income (loss) before income taxes, extraordinary gains................... (1,065) 157
Provision for income taxes.......................................................... 90 227
----------- -----------
Income (loss) continuing operations before extraordinary gains........... (1,155) (70)
----------- ------------
Extraordinary gains................................................................. -- 150
----------- -----------
Net income (loss)........................................................ (1,155) 80
Preferred dividends................................................................. (35) (35)
----------- -----------
Net income (loss) available to common shareholders....................... $ (1,190) $ 45
============ ===========
Income (loss) per common share:
Basic
Income (loss) before extraordinary gains.......................................$ (0.35) $ (0.01)
Extraordinary gains............................................................ -- 0.01
----------- -----------
Net income available to common shareholders................................$ (0.35) $ 0.00
============ ===========
Diluted
Income (loss) before extraordinary gains.......................................$ (0.35) $ (0.01)
Extraordinary gains............................................................ -- 0.01
----------- -----------
Net income available to common shareholders................................$ (0.35) $ 0.00
============ ===========
Basic weighted average number of common shares........................................ 3,409,730 3,373,950
Diluted weighted average number of common shares...................................... 3,409,730 3,534,763
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
KUALA HEALTHCARE, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Operating activities:
Net income (loss).............................................................. $ (1,155)$ 80
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization expense.................................... 809 770
Amortization of deferred financing costs................................. 72 86
Provision for uncollectible accounts..................................... 884 268
(Gain) loss on translation of foreign currency debt...................... 10 --
Minority interest........................................................ 76 136
Increase (decrease) in cash from changes in:
Patient funds.......................................................... 16 38
Accounts receivable.................................................... (1,915) (125)
Inventories............................................................ 159 64
Prepaid expenses and other current assets.............................. 457 (649)
Other assets........................................................... 235 (442)
Taxes payable.......................................................... 65 (31)
Accounts payable....................................................... 2,036 24
Other current liabilities.............................................. (1,222) (679)
Other liabilities...................................................... 539 --
------------- --------------
Net cash provided by (used in) operating activities........................ 1,066 (460)
------------- --------------
Investing activities:
Investment in Bach Pharmacy ................................................... -- 75
Expenditures for property and equipment ....................................... (427) (592)
-------------- --------------
Net cash used in investing activities...................................... (427) (517)
-------------- --------------
Financing activities:
Payment on mandatorily redeemable preferred stock.............................. (436) (437)
Payments on debt............................................................... (449) (1,329)
Net proceeds from exercise of common stock options............................. 34 16
Payment of preferred dividends................................................. -- (35)
------------- --------------
Net cash provided by (used in ) financing activities....................... (851) (1,785)
-------------- --------------
</TABLE>
(Continued on next page)
6
<PAGE>
KUALA HEALTHCARE, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Net (decrease ) increase in cash and cash equivalents............................ $ (212) $ (2,762)
Cash and cash equivalents, beginning of period................................... 395 3,796
-------------- --------------
Cash and cash equivalents, end of period......................................... $ 183 $ 1,034
============== =============
Supplemental disclosure of cash flow data:
Interest paid............................................................... $ 1,124 $ 1,158
============== ==============
Income taxes paid........................................................... $ -- $ 105
=============== ===============
Non cash investing and financing activity:
Debt to equity conversion................................................... $ -- $ --
Dividend conversion......................................................... $ -- $ --
Stock issued in connection with investment.................................. $ -- $ 210
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
KUALA HEALTHCARE, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. The Company
Kuala Healthcare, Inc.'s (the "Company" or "KUAL") present 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. However, the Company
has commenced development of three assisted living projects in New
Jersey, totaling 320 beds, and is seeking to focus on developing,
acquiring and operating assisted living facilities and other forms of
senior housing, primarily in the northeastern United States. The Company
has begun construction on an assisted living project in Midland Park, New
Jersey scheduled for completion later this year.
The information below includes forward looking statements. Forward
looking statements are subject to risks and uncertainties. In particular,
the Company is subject to certain risks and uncertainties as a result of
changes that could occur in the healthcare industry, including changes in
Medicare and Medicaid reimbursement rates.
2. Basis of Presentation
The consolidated financial statements include the accounts of Kuala
Healthcare, Inc, ("KUAL") and its subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated
in consolidation.
Kuala owns 57% of the common stock of Infu-Tech, Inc. ("Infu-Tech"); 43%
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.
Operating results for the six month period ended December 31, 1998, are
not necessarily indicative of the result that may be expected for full
year ending June 30, 1999.
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,
1998.
8
<PAGE>
KUALA HEALTHCARE, INC.
Notes to Consolidated Financial Statements
(Unaudited)
3. Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1998 and June 30, 1998 includes
$56,000 and $163,000 respectively, held by Infu-Tech. A management and
non-competition agreement between KUAL and Infu-Tech, which, as extended,
expires September 30, 2000, prohibits Infu-Tech from lending money to (or
borrowing money from) KUAL.
The Company classifies all highly liquid investments with maturities of
three months or less when purchased as cash equivalents.
4. Other
The previously announced exclusive period for Care One, LLC to attempt to
negotiate a contract with the Company has expired and substantive
discussions with other interested principals regarding alternative
transactions are underway.
9
<PAGE>
KUALA HEALTHCARE, 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 December 31, 1998 Compared with Three Months Ended December
31, 1997
Total revenues were $151,000, or 1% higher for 1998 compared with 1997,
indicating no significant aggregate revenue changes.
Infusion therapy and other medical services revenues decreased by $278,000 or
4%, from $7,584,000 in 1997 to $7,306,000 in 1998. However, nursing home
services revenues increased by $429,000 from $8,720,000 in 1997 to $9,149,000
in 1998.
Personnel costs decreased by $609,000, or 9%. The reduction is primarily
attributable to overall reduction in staff in the nursing home division.
Costs of medical and nutritional products sold to patients and other customers
increased by $393,000 or 10%, from $4,100,000 in 1997 to $4,493,000 in 1998.
As a percentage of infusion therapy and other medical services revenues,
medical and nutritional product costs were 61% in 1998 and 54% 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, 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, increased by $176,000 or 10%, primarily as a result of
increased related revenues.
Selling, general and administrative costs increased by $61,000 or 4% as a
result of modest increased costs at Infu-Tech.
The provision for uncollectible accounts was 5% of revenues in 1998 and 2% in
1997.
Other expense, net of $277,000 resulted principally from the assessment of
Federal and State tax penalties and interest.
Minority interest in earnings of subsidiary of $42,000 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 $85,000 in 1998 and $115,000 in 1997
reflects a full tax charge for Infu-Tech (except for a significant non
deductible expense in 1998), a 57% owned subsidiary which files its own
federal tax return.
The net loss realized by common shareholders in 1998 was $839,000 or ($.25)
cents per share compared to a net profit applicable to common shareholders in
1997 of $26,000 or $.00 cents per share.
10
<PAGE>
KUALA HEALTHCARE, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Six Months ended December 31, 1998 Compared with Six Months Ended December 31,
1997
Total revenues were $672,000, or 2% lower for 1998 compared with 1997,
primarily due to a reduction in infusion therapy revenues.
Infusion therapy and other medical services revenues decreased by $850,000 or
6%, from $14,586,000 in 1997 to $13,736,000 in 1998.
Personnel costs decreased by $813,000, or 6%. The reduction is primarily
attributable to targeted reduction in staff in the nursing home division.
Costs of medical and nutritional products sold to patients and other customers
increased by $398,000 or 5%, from $7,745,000 in 1997 to $8,143,000 in 1998. As
a percentage of infusion therapy and other medical services revenues, medical
and nutritional product costs were 59% in 1998 and 53% 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, 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, increased by $22,000 or about 1% indicating no
significant events.
Selling, general and administrative costs decreased by $89,000 or 3% as a
result of greater efficiencies being implemented.
The provision for uncollectible accounts was 2% of revenues in 1998 and 1% in
1997.
Other expense, net of $276,000 includes an expense of $200,000 associated with
the assessment of Federal and State tax penalties and related interest. The
Company has filed appeals in this regard.
There remain outstanding Federal and State income tax returns for previous
years which are presently being completed. The Company believes that no
additional Federal taxes are due. The Company has Federal and State tax
liabilities and claims outstanding including claims related to late filing of
tax returns.
Minority interest in earnings of subsidiary of $76,000 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 $58,000
represents the portion of net income of Infu-Tech allocable to minority
stockholders.
The provision for income taxes of $90,000 in 1998 and $227,000 in 1997
reflects a full tax charge for Infu-Tech (increased because of a significant
non-deductible expense in 1998), a 57% owned subsidiary which files its own
federal tax return.
The net loss realized by to common shareholders in 1998 was $1,190,000 or
($.35) cents per share compared to net income available to common shareholders
in 1997 of $45,000 or $.00 cents per share.
11
<PAGE>
KUALA HEALTHCARE, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had stockholders' equity of approximately
$1.8 million and total liabilities of approximately $61.6 million, of which
approximately $44.9 million related to debt. The majority of the debt
represents mortgages on three facilities, aggregating $36.6 million, as well
as a $2.4 million mortgage, refinanced in May 1998, due June 1, 2005 and
secured by another facility. Other debt includes: a) SFr 643,820
(approximately $443,000) principal amount of 6% Swiss franc denominated bonds
which remain unpaid although they matured on June 27, 1995 (the "Bonds"); b)
SFr 619,500 (approximately $426,000) principal amount of 8% Swiss franc
denominated bonds due June 27, 1998, the maturity of which has been
renegotiated and as to which the Company is making partial payments; c)
$1,213,000 principal amount of 8% notes due 1999; and d) $3,400,000 principal
amount of 6% notes due 2003.
In October, 1995, subsidiaries of the Company sold redeemable preferred stock
for a total of $3.5 million. In June 1997 when one of the subsidiaries sold
the facility it had owned some of the proceeds were used to redeem a portion
of the preferred stock. As of December 31, 1998 the preferred stock
outstanding was $896,000. Of this, $875,000 is due within 12 months.
In October, 1995, the Company negotiated terms to convert $1,464,000, and in
October 1996 negotiated to convert $143,000, in payables owed to a major
service provider of the Company into notes with interest at a rate of 10%. In
September 1998, this agreement was amended to allow for 24 equal monthly
payments of the balance due on the notes, along with additional amounts due,
commencing September, 1998. The liability at December 31, 1998 is
approximately $1.5 million. The Company has at times not paid this obligation
timely but subsequently became current. However, it is presently delinquent on
these obligations since December 26, 1998.
The Company's cash and cash equivalents balance decreased from $395,000 at
June 30, 1998 to $183,000 at December 31, 1998, which includes, at December
31, 1998, $56,000 held by Infu-Tech. A management and non-competition
agreement with Infu-Tech, which expires July, 2000, prohibits Infu-Tech from
lending money to (or borrowing money from) KUAL. However, KUAL owes $2.5
million to Infu-Tech for products and services purchased.
Net cash provided by operating activities during the six months ended December
31, 1998 was approximately $1.1 million as compared to approximately $.5
million used in the 1997 period. Cash was provided primarily by an increase in
payables of $2 million, a reduction in prepaid and other assets of $.5 million
and inventory $.2 million, offset by an increase in accounts receivable of
$1.9 million and operating loss of $1.2 million.
At December 31, 1998, the Company had a working capital deficiency of
approximately $.9 million. Excluding Infu-Tech, which had working capital of
approximately $3.5 million, the Company's working capital deficiency would be
$4.4 million. While the Company continues to experience significant cash flow
constraints including delinquency in meeting certain company obligations, it
continues to use a combination of operating cash flow and realization of
assets into cash as a means of seeking to satisfy ongoing obligations. It has
significant marketable assets which can be used for this purpose.
During the six months ended December 31, 1998, the Company repaid $449,000 of
debt, redeemed $436,000
12
<PAGE>
KUALA HEALTHCARE, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
of mandatorily redeemable preferred stock and accrued preferred stock
dividends of $35,000 .
While the Company has had essentially no arrangements under which it can make
borrowings, recently two nursing home companies, Cape May Care Center, Inc.
and TNS Nursing Homes of Pennsylvania, Inc., both which are subsidiaries of
TNS Nursing Homes, Inc. (a wholly-owned subsidiary of the Company), have
closed on Accounts Receivable Financings providing for borrowing on a
continuing and revolving basis, secured by the healthcare receivables it
originates. The aggregate loans cannot exceed $1,500,000 in total.
Medicare procedures requires that subsequent to the year during which
expenditures are made, cost reports are filed. The Company is preparing to
file its 1998 Medicare Cost Reports shortly, and anticipates receiving
payments due from Medicare estimated to aggregate $735,000 and which has been
reflected in income. These proceeds are normally paid in substantial part
within 60 days of receipt of the Report, with the balance payable subsequent
to finalization by Medicare.
Impact of Year 2000
The Company is in the process of conducting a review of its business systems,
including its computer systems, and has sent written inquiries to its
customers, distributors and vendors as to their progress in identifying and
addressing problems that their systems may face in correctly interpreting and
processing date information as the year 2000 approaches and is reached. This
review is expected to be completed by March 1999. Based on this review, the
Company will implement a plan to achieve Year 2000 compliance. The Company
believes that it will achieve year 2000 compliance in a manner which will be
non-disruptive to its operations. In addition, the Company has commenced work
on various types of contingency planning to address potential problem areas
with internal systems, suppliers and other third parties. Year 2000 compliance
should not have a material adverse effect on the Company, including the
Company's financial condition, results of operations or cash flow. The Company
has incurred no direct costs to date due to Year 2000 problems. The Company
estimates the cost of its year 2000 efforts to be approximately $650,000. The
total cost estimate is based on management's current assessment and is subject
to change.
However, the Company may encounter problems with supplier and or revenue
sources which could adversely affect the Company's financial condition,
results of operations or cash flow. The Company cannot accurately predict the
occurrence and or outcome of any such problems, nor can the dollar amount of
such problem be estimated. In addition, there can be no assurance that the
failure of third parties to achieve year 2000 compliance would not have a
material adverse effect on the Company.
13
<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, 1998.
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. Reports on Form 8-K during the quarter
ended December 31, 1998
None
14
<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: February 22, 1999 /s/ JACK ROSEN
----------------- --------------
Jack Rosen
Chairman and Director
(Chief Executive Officer)
Date: February 22, 1999 /s/ JOSEPH ROSEN
----------------- ----------------
Joseph Rosen
Vice President
Interim Principal Accounting Officer
15
