FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1996
Commission file number 0-15893
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Nevada 91-1256470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
38 Pond Street, Suite 305
Franklin, Massachusetts 02038
(Address of principal executive offices) (Zip Code)
(508) 520-2422
Registrant's telephone number, including area code
Not applicable
Former name, former address and former fiscal year,
if changed since last report.
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 shorter periods that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of September 30, 1996.
Common Stock, $.012 Par Value -- 15,573,535
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2
INDEX
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements (Unaudited)
- -------
Condensed consolidated balance sheets -- September 30, 1996 and December 31,
1995
Condensed consolidated statements of operations -- Three months and nine months
ended September 30, 1996 and 1995
Condensed consolidated statements of cash flows -- Nine months ended September
30, 1996 and 1995
Notes to Condensed consolidated financial statements -- September 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- of Operations
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
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3
<TABLE>
<CAPTION>
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CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
====================================================================================================================================
Condensed Consolidated Balance Sheets
====================================================================================================================================
(unaudited)
ASSETS: 09/30/96 12/31/95
- ------- -------- --------
<S> <C> <C>
Current assets:
Cash $ 90,782 $ 85,557
Accounts receivable (net of allowance for doubtful accounts of $655,000 in
1996 and $815,000 in 1995) 2,256,434 2,016,846
Other current assets 268,099 218,316
----------- -----------
Total current assets 2,615,315 2,320,719
----------- -----------
Property and equipment, at cost:
Equipment 1,314,342 1,292,487
Less accumulated depreciation and amortization (813,334) (694,903)
----------- -----------
Property and equipment, net 501,008 597,584
----------- -----------
Other assets:
Goodwill (net of accumulated amortization of $366,000 in 1996 and $284,000
in 1995) 2,447,213 2,503,515
Other 235,446 144,979
----------- -----------
Total other assets 2,682,659 2,648,494
----------- -----------
TOTAL $ 5,798,982 $ 5,566,797
=========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -------------------------------------
Current liabilities:
Short-term debt, current portion of long-term debt, and lease obligations $ 371,454 $ 521,248
Accounts payable 714,990 799,888
Accrued personnel costs 526,578 326,468
Accrued expenses and other liabilities 256,286 214,583
----------- -----------
Total current liabilities 1,869,308 1,862,187
----------- -----------
Long-term debt 1,852,563 1,699,360
Other liabilities 0 26,998
----------- -----------
Total liabilities 3,721,871 3,588,545
----------- -----------
Stockholders' equity:
Common stock, $.012 par value, 50,000,000 shares authorized; issued
16,273,500 in 1996 and 14,702,306 in 1995 195,282 176,428
Preferred stock, 10,000,000 shares authorized; issued 1,727,305 in 1996 and
1995 1,727,305 1,727,305
Additional paid-in capital 8,199,390 7,661,116
Accumulated deficit (7,957,366) (7,499,097)
----------- -----------
2,164,611 2,065,752
Less-treasury stock, 700,000 shares, at cost (87,500) (87,500)
----------- -----------
Total stockholders' equity 2,077,111 1,978,252
----------- -----------
TOTAL $ 5,798,982 $ 5,566,797
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
Note:The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date. See notes to Condensed consolidated
financial statements.
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4
<TABLE>
<CAPTION>
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
====================================================================================================================================
Condensed Consolidated Statements of Operations (Unaudited)
====================================================================================================================================
Three Months Ended Nine Months Ended
September 30, September 30,
====================================================================================================================================
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue, net $ 2,281,626 $ 2,169,234 $ 6,901,137 $ 6,668,024
------------ ------------ ------------ ------------
Cost and expenses:
Operating costs 1,856,126 2,016,142 5,258,124 5,653,815
Administrative and selling costs 823,858 283,071 1,662,655 829,147
Depreciation and amortization 59,930 63,000 175,486 189,000
------------ ------------ ------------ ------------
Total operating costs 2,739,914 2,362,213 7,096,265 6,671,962
------------ ------------ ------------ ------------
Operating loss (458,288) (192,979) (195,128) (3,938)
Interest expense, net 83,645 34,791 207,356 132,137
------------ ------------ ------------ ------------
Loss before taxes (541,933) (227,770) (402,484) (136,075)
Tax provision 49,502 2,500 55,788 7,500
------------ ------------ ------------ ------------
Net loss $ (591,435) $ (230,270) $ (458,272) $ (143,575)
============ ============ ============ ============
Net loss per share: $ (0.03) $ (0.02) $ (0.03) $ (0.01)
============ ============ ============ ============
Average shares outstanding 15,861,722 12,750,118 15,035,889 12,635,359
- ------------------------------------------------------------------------------------------------------------------------------------
See notes to Condensed Consolidated Financial Statements.
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</TABLE>
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5
<TABLE>
<CAPTION>
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CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
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Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30,1996 and 1995
====================================================================================================================================
1996 1995
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<S> <C> <C>
Cash Flows From Operating Activities:
- -------------------------------------
Net loss $(458,272) $(143,575)
Adjustments to reconcile net loss to net cash from (used by)
operatin gactivities:
Depreciation and amortization 174,733 189,000
Non-cash expenses 154,645 0
Decrease (increase) in accounts receivable (239,588) (191,156)
Decrease (increase) in other current assets (49,783) (7,262)
Decrease (increase) in other assets and deferred costs (12,109) 16,973
Increase (decrease) in accounts payable and accrued expenses 262,668 32,693
--------- ---------
Net cash used by operating activities (167,706) (103,327)
--------- ---------
Cash Flows From Investing Activities:
- -------------------------------------
Purchases of equipment (21,855) (112,016)
--------- ---------
Net cash used in investing activities (21,855) (112,016)
--------- ---------
Cash Flows From Financing Activities:
- -------------------------------------
Proceeds from issuance of debt 180,000 408,652
Proceeds from exercise of stock options 10,000 0
Non-cash proceeds from issuance of common stock 248,374 125,000
Principal payments on debt and lease obligations (243,588) (518,897)
--------- ---------
Net cash provided by (used in) financing activities 194,786 14,755
--------- ---------
Net increase (decrease) in cash 5,225 (200,588)
Cash, beginning of year 85,557 213,141
--------- ---------
Cash, end of period 90,782 $ 12,553
========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
See notes to Condensed Consolidate Financial Statements.
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</TABLE>
Footnote: The Company issued 827,342 shares of common stock in conjunction
with the conversion of debt, in satisfaction of cost associated with
financing activities, and in satisfaction of cost associated with
Board of Directors compensation.
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6
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-B. 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 accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1995.
<PAGE>
7
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Net Revenues increased by 5.2% and 3.5% or $112,392 and $233,113 respectively
during the quarter and nine months ended September 30, 1996 as compared to the
same period of 1995. Out-patient net revenues continue to increase, despite the
continued impact of managed care, as a result of the on-going integration of the
Contract Services Division in the Company owned out-patient clinics, as well as
to a lesser extent, more efficient billing procedures in the clinical
operations.
Operating costs represented 81.4% and 76.2% of net revenue during the quarter
and nine months ended September 30, 1996 as compared to 92.9% and 84.8% for the
same periods of 1995. The $160,016 decrease in operating costs during the
quarter and $395,691 decrease for the nine months ended September 30, 1996 was
principally due to the continued integration of the Company's Contract Services
Division in the out-patient clinics and the resulting reduction in subcontract
labor expenses. Additionally, the Company continues to achieve lower recruiting,
travel and fringe benefit cost resulting from this integration of services.
Administrative and selling costs constituted $823,858 and $1,662,655 or 36.1%
and 24.1% respectively of net revenue during the quarter and for the nine months
ended September 30, 1996 as compared to $283,071 and $829,147 or 13.1% and 12.4%
for the same periods of 1995. The increase reflects administrative and selling
expenses that were higher by $540,787 and $833,508 for the quarter and nine
months ended September 30,1996 compared to the prior year periods. A significant
portion of the increase relates to non-operational expenses that include legal
and accounting costs associated with the filing of a registration statement for
the sale of shares by certain stockholders, stock grant expense associated with
financing activities and Board of Directors compensation, and costs associated
with a proposed underwriting. To a lesser extent, higher administrative cost
resulted from expenses for a Chief Executive Officer where there was no
comparable compensation expense during the first, second, and third quarter of
1995. In late October, 1996 the Company closed its New York office and has
eliminated certain other administrative positions which are expected to result
in an annual reduction of approximately $500,000 in expenses.
Depreciation and amortization decreased by $3,070 and $13,514 during the quarter
and nine months ended September 30, 1996 as compared to the same periods of
1995. The decrease is attributable to lower amortization expense as well as the
result of fewer clinics in operation during 1996. In 1995, the Company closed
two non-performing clinics. One non-performing clinic was closed in early 1996.
Interest expense increased by $48,854 and $75,219 for the quarter and nine
months ended September 30, 1996, respectively, as compared to the same periods
in 1995. The increase is
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8
primarily the result of the Company's continued need to use its factoring
arrangement to support its operations, and to a lesser extent, higher interest
rates incurred on renegotiated term debt.
The Company's tax provision is substantially the result of state income tax
accruals for current and previous fiscal years.
As a result of the above factors, the Company incurred net losses of $591,435
for the quarter and $458,272 for the nine months ended September 30,1996 as
compared to a net losses of $230,270 and $143,576 for the same periods during
1995.
Liquidity and Capital Resources
- -------------------------------
The Company acquired therapy equipment and office equipment totaling $11,091 and
$21,855 for the quarter and nine months ended September 30, 1996.
Financial Position
- ------------------
The Company's liquidity, as measured by its cash and working capital, increased
by $5,224 and $287,475 respectively, for the nine months ended September 1996 as
compared to the same period in 1995. As the Company incurred losses during the
third quarter, its available cash declined. This decline in cash was offset by
additional borrowing, and to a lesser extent, by the Company extending the time
needed to satisfy its obligation with certain vendors. The increase in working
capital is primarily the result of successful renegotiated term debt resulting
in the conversion of short term debt to long term debt, and to a lesser extent,
the satisfaction of certain accounts payable and deferred liabilities through
the issuance of common stock.
The Company continues to factor a certain portion of its accounts receivable and
remains substantially dependent upon its factoring arrangements. The increase in
accounts receivable of $239,588 for the nine months ended September 30,1996 is
primarily the result of an increase in the Company's non-factored accounts
receivables resulting from increased volume and improved billing procedures.
Accounts payable and accrued expenses increased by $156,915. A significant
portion of this increase represents certain accounting and legal expenses, and
to a lesser extent, state income taxes.
Total long-term debt and capital lease obligations increased by $126,205,
primarily as a result of additional borrowings from the Company's major
stockholder, conversion of some accounts payable and short-term debt to
long-term debt, and renegotiated term debt resulting in longer maturities.
Stockholders' equity increased $98,859 due to the issuance of common stock to
the Company's 401(K) Profit Sharing Plan of $59,676, conversion of certain
accounts payable or debt to common stock totaling $407,455, renegotiation of
certain convertible promissory notes through the issuance of common stock of
$80,000, exercise of options by a member of the Board of Directors of
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9
$10,000, and net loss $458,272.
In July of 1996, the Company converted a convertible promissory note previously
issued in connection with a business acquisition. Under the conversion, the
outstanding balance of approximately $182,305 of the convertible promissory note
and certain accounts payable due the note holder of $6,399, were converted to
common stock at a conversion price of $.45 per share.
PART II. OTHER INFORMATION
Items 1 through 4
- -----------------
Not applicable.
Item 5 Other Information
- ------ -----------------
The Company elected September 25, 1996 to withdraw a non-binding Letter of
Intent for a proposed public offering to be underwritten by Lew Lieberbaum &
Co., Inc. The Company continues to pursue additional financing, however no
assurances can be given that any additional financing may be available, or if
available, that it will be on terms acceptable to the Company.
The Company had signed a non-binding Letter of Intent to acquire Total Rehab,
Inc. which provided for a closing date of August 15, 1996. This date has not
been extended and the Company is not currently pursuing such acquisitions.
Effective November 1, 1996, the Company announced the election of James Kenney
as Chairman of the Board of Directors and Raymond L. LeBlanc as Secretary of the
Corporation. Additionally the Company accepted the resignations of Joel Friedman
and Alan M. Mantell as Officers of Consolidated Health Care Associates, Inc. Mr
Friedman, who remains a member of the Board of Directors, served as Chairman of
the Board and Secretary of the Corporation. Mr. Mantell served as a Director,
Vice Chairman and Chief Executive Officer prior to his resignation.
On October 29, 1996, Price Waterhouse LLP, resigned as the Company's certifying
accountants. On November 6, 1996 the Company filed a current report on Form 8 -
K reflecting this resignation.
Item 6
- ------
Not applicable.
<PAGE>
10
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.
CONSOLIDATED HEALTH CARE
------------------------
ASSOCIATES, INC.
----------------
Dated: November 14,1996 By: /s/ Robert M. Whitty
---------------- -----------------------------------
Robert M. Whitty
President
By: /s/ Raymond L. LeBlanc
-----------------------------------
Raymond L. LeBlanc
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Consolidated Health Care Associates, Inc.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 90,782
<SECURITIES> 0
<RECEIVABLES> 2,911,434
<ALLOWANCES> (655,000)
<INVENTORY> 0
<CURRENT-ASSETS> 2,615,315
<PP&E> 1,314,342
<DEPRECIATION> 813,334
<TOTAL-ASSETS> 5,798,982
<CURRENT-LIABILITIES> 1,869,308
<BONDS> 0
0
1,727,305
<COMMON> 195,282
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,798,982
<SALES> 9,345,805
<TOTAL-REVENUES> 6,901,137
<CGS> 5,258,124
<TOTAL-COSTS> 7,096,265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207,356
<INCOME-PRETAX> (402,484)
<INCOME-TAX> 55,788
<INCOME-CONTINUING> (458,272)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (458,272)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.02)
</TABLE>
