<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 March 31, 1999
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 (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 10, 1999, the Registrant had outstanding 3,409,729 shares of
its $.06 par value Common Stock.
- -------------------------------------------------------------------------------
1
<PAGE>
KUALA HEALTHCARE, INC.
Index
<TABLE>
<CAPTION>
Part I - Financial Information:
Page
----
<S> <C> <C>
Item 1
Consolidated Balance Sheets at March 31, 1999 (Unaudited)
and June 30, 1998......................................................................... 3
Consolidated Statements of Operations (Unaudited) for the three months
ended March 31, 1999 and 1998............................................................. 4
Consolidated Statements of Operations (Unaudited) for the nine months ended
March 31, 1999 and 1998...................................................................5
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended March 31, 1999 and 1998............................................................. 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
</TABLE>
2
<PAGE>
KUALA HEALTHCARE, INC.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---- ----
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 451 $ 395
Patients' funds ........................................................... 188 204
Accounts receivable, net of allowances for uncollectible accounts
of $4,064 and $3,681 .................................................... 15,943 13,763
Inventories ............................................................... 2,052 1,987
Deferred income taxes ..................................................... 551 551
Prepaid expenses and other current assets ................................. 1,831 993
-------- --------
Total current assets .................................................. 21,016 17,893
Property and equipment, at cost, net of accumulated depreciation
and amortization of $6,793 and $5,937 ..................................... 44,279 44,724
Goodwill, net of accumulated amortization .................................... 114 125
Other assets ................................................................. 3,940 3,775
- ------------------------------------------------------------------------------ -------- --------
Total assets .......................................................... $ 69,349 $ 66,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt ......................................... $ 4,214 $ 3,916
Income taxes payable ...................................................... 186 180
Accounts payable .......................................................... 14,538 10,389
Other current liabilities ................................................. 4,099 4,708
-------- --------
Total current liabilities ............................................. 23,037 19,193
Long-term debt, net of current portion ....................................... 43,057 40,916
Mandatorily redeemable preferred stock ....................................... -- 1,114
-------- --------
Total liabilities ..................................................... 66,094 61,223
======== ========
Minority interest in subsidiary .............................................. 2,671 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; 3,409,729
and 3,409,299 shares outstanding ........................................ 206 208
Additional paid-in capital ................................................ 23,570 23,571
Accumulated deficit ....................................................... (23,227) (21,098)
-------- --------
Total stockholders' equity ............................................ 584 2,716
-------- --------
Total liabilities and stockholders' equity ............................ $ 69,349 $ 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 March 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Revenues:
Nursing home services ....................................... $ 8,125 $ 8,799
Infusion therapy and other medical services ................. 7,311 7,013
----------- -----------
Total revenues ................................... 15,436 15,812
----------- -----------
Personnel ................................................ 6,926 6,855
Medical and nutritional product .......................... 4,628 3,715
Health care and lodging .................................. 2,007 2,042
Selling, general and administrative ...................... 1,492 1,740
Provision for uncollectible accounts ..................... 152 (169)
Depreciation and amortization ............................ 392 407
----------- -----------
Total operating expenses ......................... 15,597 14,590
----------- -----------
Income from operations ........................... (161) 1,222
Interest and dividend income ................................ 119 55
Interest and other financing costs .......................... (1,147) (1,183)
Other income (expense), net ................................. 173 96
Minority interest in earnings of subsidiary ................. 15 (77)
----------- -----------
Income (loss) before income taxes .................. (1001) 113
Provision for income taxes .................................. (59) 108
----------- -----------
Net income (loss) .................................. (942) 5
Preferred dividends ......................................... -- (39)
----------- -----------
Net income (loss) available to common shareholders $ (942) $ (34)
=========== ===========
Earnings (loss) per share:
Basic
Income (loss) before extraordinary gains ............. $ (0.28) $ (0.01)
Extraordinary gains .................................. -- --
----------- -----------
Net income (loss) available to common shareholders $ (0.28) $ (0.01)
=========== ===========
Diluted
Income (loss) before extraordinary items ............. $ (0.28) (0.01)
Extraordinary gains .................................. -- --
----------- -----------
Net income (loss) available to common shareholders $ (0.28) $ (0.01)
=========== ===========
Basic weighted average number of common shares .............. 3,409,729 3,376,409
Diluted weighted average number of common shares ............ 3,409,729 3,579,126
</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>
Nine Months Ended March 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Revenues:
Nursing home services .................................................... $ 26,278 $ 26,774
Infusion therapy and other medical services .............................. 21,047 21,599
----------- -----------
Total revenues ................................................ 47,325 48,373
----------- -----------
Personnel ............................................................. 20,129 20,870
Medical and nutritional product ....................................... 12,771 11,460
Health care and lodging ............................................... 6,186 6,199
Selling, general and administrative ................................... 4,686 5,023
Provision for uncollectible accounts .................................. 1,036 100
Depreciation and amortization ......................................... 1,193 1,177
----------- -----------
Total operating expenses ...................................... 46,001 44,829
----------- -----------
Income from operations ........................................ 1,324 3,544
Interest and dividend income ............................................. 233 87
Interest and other financing costs ....................................... (3,459) (3,734)
Other income (expense), net .............................................. (103) 586
Minority interest in earnings (loss) of subsidiary ....................... (61) (213)
----------- -----------
Income (loss) before income taxes, extraordinary gains ........ (2,066) 270
Provision for income taxes ............................................... 31 335
----------- -----------
Income (loss) continuing operations before extraordinary gains. (2,097) (65)
-----------
Extraordinary gains ...................................................... -- 150
----------- -----------
Net Income (loss) ............................................. (2,097) 85
Preferred dividends ...................................................... (35) (74)
----------- -----------
Net income (loss) available to common shareholders ............ $ (2,132) $ 11
=========== ===========
Income (loss) per common share:
Basic
Income (loss) before extraordinary gains .......................... $ (0.63) $ (0.04)
Extraordinary gains ............................................... -- 0.04
----------- -----------
Net income available to common shareholders ................... $ (0.63) $ 0.00
=========== ===========
Diluted
Income (loss) before extraordinary gains .......................... $ (0.63) $ 0.04
Extraordinary gains ............................................... -- (0.04)
----------- -----------
Net income available to common shareholders ................... $ (0.63) $ 0.00
=========== ===========
Basic weighted average number of common shares ........................... 3,409,729 3,375,254
Diluted weighted average number of common shares ......................... 3,409,729 3,460,669
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
KUALA HEALTHCARE, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Operating activities:
Net income (loss) ...................................................... $(2,132) $ 85
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization expense ............................ 1,193 1,177
Amortization of deferred financing costs ......................... 11 188
Provision for uncollectible accounts ............................. 1,036 100
(Gain) loss on translation of foreign currency debt .............. (34)
Minority interest ................................................ 93 213
Increase (decrease) in cash from changes in:
Patient funds .................................................. 16 41
Accounts receivable ............................................ (3,216) (739)
Inventories .................................................... (65) (471)
Prepaid expenses and other current assets ...................... (838) (693)
Other assets ................................................... (164) (428)
Taxes payable .................................................. 6 76
Accounts payable ............................................... 4,149 720
Other current liabilities ...................................... (311) (177)
Other liabilities .............................................. 2,740 --
------- -------
Net cash provided by (used in) operating activities ................ 2,518 58
------- -------
Investing activities:
Investment in Bach Pharmacy ............................................ -- 83
Expenditures for property and equipment ................................ (748) (1,201)
------- -------
Net cash used in investing activities .............................. (748) (1,118)
------- -------
Financing activities:
Payment on mandatorily redeemable preferred stock ...................... (1,114) (655)
Payments on debt ....................................................... (600) (1,668)
Net proceeds from exercise of common stock options ..................... -- 34
Payment of preferred dividends ......................................... -- (74)
------- -------
Net cash provided by (used in) financing activities ................ (1,714) (2,363)
------- -------
</TABLE>
(Continued on next page)
6
<PAGE>
KUALA HEALTHCARE, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Net (decrease) increase in cash and cash equivalents... $ 56 $(3,423)
Cash and cash equivalents, beginning of period ........ 395 3,796
------- -------
Cash and cash equivalents, end of period .............. $ 451 $ 373
======= =======
Supplemental disclosure of cash flow data:
Interest paid .................................... $ 3,459 $ 2,251
======= =======
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 nine month period ended March 31, 1999, are not
necessarily indicative of the results 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
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KUALA HEALTHCARE, INC.
Notes to Consolidated Financial Statements
(Unaudited)
3. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 1999 and June 30, 1998 includes
$229,000 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. Subsequent Event
On May 11, 1999 a subsidiary of KUAL sold its 75% interest in Bach's
Pharmacy Services, L.L.C. to a subsidiary of Omnicare, Inc.
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 March 31, 1999 Compared with Three Months Ended March
31, 1998
Total revenues decreased by $376,000, or 2%, for 1999 compared with 1998,
principally due to a decline in nursing home services.
Infusion therapy and other medical services revenues increased by $298,000 or
4%, from $7,013,000 in 1998 to $7,311,000 in 1999. However, nursing home
services revenues decreased by $674,000 from $8,799,000 in 1998 to $8,125,000 in
1999. As a result of changes in Medicare reimbursement procedures, including
implementation of the Prospective Payment System ("PPS"), the nursing homes are
now being reimbursed based upon 1995 Medicare costs adjusted for acuity levels.
The PPS reimbursement system is negatively impacting the entire nursing home
industry, including the Company's facilities. The impact of PPS has led the
Company to reduce the number of Medicare patients it is willing to accept, thus
resulting in lowered census. Additionally, the emerging growth of assisted
living competition is resulting in lower nursing home census, impacting Company
revenue and net income. The effect of these factors could result in some of the
nursing homes not meeting certain loan covenants.
Personnel costs increased by $71,000, or 1%. Increased personnel costs are
primarily associated with unionized facilities reflecting contractual wage
increases.
Costs of medical and nutritional products sold to patients and other customers
increased by $913,000 or 25%, from $3,715,000 in 1998 to $4,628,000 in 1999. As
a percentage of infusion therapy and other medical services revenues, medical
and nutritional product costs were 63% in 1999 and 53% in 1998. The increase in
the medical and nutritional product costs as a percentage of sales is
attributable to increased revenues of specialty pharmaceuticals like Cerezyme
and Synagis (which are high priced products with gross margins less than company
average), 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 $35,000 or 2%, primarily as a result of declining
revenues.
Selling, general and administrative costs decreased by $248,000 or 14% as a
result of decreased costs at Infu- Tech and nursing home services..
The provision for uncollectible accounts was 1% of revenues in 1999 and (1%) in
1998.
Other income, net, was $173,000 in 1999 compared with other income net of
$96,000 in 1998.
Minority interest in earnings of subsidiary of $15,000 in 1999 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 ($59,000) in 1999 and $108,000 in 1998
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.
10
<PAGE>
KUALA HEALTHCARE, INC
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The net loss realized by common shareholders in 1999 was $942,000 or ($0.28)
cents per share compared to a net loss realized by common shareholders in 1998
of $34,000 or ($0.01) cents per share.
Nine Months ended March 31, 1999 Compared with Nine Months Ended March 31, 1998
Total revenues declined $1,048,000, or 2%, for 1999 compared with 1998,
primarily due to a reduction in infusion therapy revenues and nursing home
services. As a result of changes in Medicare reimbursement procedures, including
implementation of the Prospective Payment System ("PPS"), the nursing homes are
now being reimbursed based upon 1995 Medicare costs adjusted for acuity levels.
The PPS reimbursement system is negatively impacting the entire nursing home
industry, including the Company's facilities. The impact of PPS has led the
Company to reduce the number of Medicare patients it is willing to accept, thus
resulting in lowered census. Additionally, the emerging growth of assisted
living competition is resulting in lower nursing home census, impacting Company
revenue and net income. The effect of these factors could result in some of the
nursing homes not meeting certain loan covenants.
Infusion therapy and other medical services revenues decreased by $552,000 or
3%, from $21,599,000 in 1998 to $21,047,000 in 1999.
Personnel costs decreased by $741,000, or 4%. 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 $1,311,000 or 11%, from $11,460,000 in 1998 to $12,771,000 in 1999.
As a percentage of infusion therapy and other medical services revenues, medical
and nutritional product costs were 61% in 1999 and 53% in 1998. The increase in
the medical and nutritional product costs as a percentage of sales is
attributable to Infu-Tech's increased revenues of specialty pharmaceuticals like
Cerezyme and Synagis (which are high priced products with gross margins which
are less then company average), 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 $13,000 primarily due to a $35,000 decrease in the
third quarter because of a decreased census.
Selling, general and administrative costs decreased by $337,000 or 6% as a
result of greater efficiencies being implemented.
The provision for uncollectible accounts was 2% of revenues in 1999 and less
than 1% in 1998.
Other expense, net, of $103,000 includes an expense of $100,000 associated with
the assessment of Federal and State tax penalties and related interest. The
Company has filed appeals from the imposition of these penalties.
There are Federal and State income tax returns for previous years which were not
filed when due. The Company has completed a substantial portion of those
outstanding Federal and State income tax returns for
11
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KUALA HEALTHCARE, INC
previous years. It is contemplated that all prior year returns will be completed
and filed shortly. 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 loss of subsidiary of $61,000 represents the portion of the
net loss of Infu-Tech and net income from Bach's Pharmacy Services allocable to
minority stockholders.
The provision for income taxes of $31,000 in 1999 and $335,000 in 1998 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 1999 was $2,132,000 or
($0.63) cents per share compared to net income available to common shareholders
in 1998 of $11,000 or $.00 cents per share.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had stockholders' equity of approximately
$584,000 and total liabilities of approximately $66.1 million, of which
approximately $47.3 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 has made 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.
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 into notes with interest at 10% per annum. 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 March 31, 1999 was approximately $1.9 million. The Company has at
times not paid this obligation timely but subsequently become current. However,
while the Company believes it is current with regard to the notes, it is
delinquent with regard to amounts owed for services.
The Company's cash and cash equivalents balance increased from $395,000 at June
30, 1998 to $413,000 at March 31, 1999, which includes, at March 31, 1999,
$229,000 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. The Company owes $2.7 million to Infu-Tech,
inclusive of interest charges.
Net cash provided by operating activities during the nine months ended March 31,
1999 was approximately $2.5 million as compared to approximately $.1 million
used in the 1998 period. Cash was provided primarily
12
<PAGE>
KUALA HEALTHCARE, INC
by an increase in payables of $4.1 million, an increase in other liabilities of
$2.8 million and an increase in the provision for uncollectible accounts of $1.0
million, offset by an increase in accounts receivable of $3.2 million and an
operating loss of $2.1 million.
At March 31, 1999, the Company had a working capital deficiency of approximately
$2.0 million. Excluding Infu-Tech, which had working capital of approximately
$2.9 million, the Company's working capital deficiency would be $4.9 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 nine months ended March 31, 1999, the Company repaid $600,000 of
debt, redeemed $1,114,000 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, earlier this year two nursing home companies, Cape May Care Center,
Inc. and TNS Nursing Homes of Pennsylvania, Inc., both of 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 require 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 from
Medicare estimated to aggregate $735,000. That sum 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 June 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
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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 March
31, 1999
None
14
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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 17, 1999 /S/ JACK ROSEN
------------ ----------------------------------------------
Jack Rosen
Chairman and Director
(Chief Executive Officer)
Date: May 17, 1999 /S/ JOSEPH ROSEN
------------ ----------------------------------------------
Joseph Rosen
Vice President
Interim Principal Accounting Officer
15
