<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-10875
NOVACARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3247827
(State of incorporation) (I.R.S. Employer Identification No.)
1016 W. NINTH AVENUE, KING OF PRUSSIA, PA 19406
(Address of principal executive office) (Zip code)
Registrant's telephone number: (610) 992-7200
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 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 January 31, 2000, NovaCare, Inc. had 63,343,263 shares of common stock,
$.01 par value, outstanding.
<PAGE> 2
NOVACARE, INC. AND SUBSIDIARIES
FORM 10-Q - QUARTER ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
PART NO. ITEM NO. DESCRIPTION PAGE NO.
- -------- -------- ----------- --------
<S> <C> <C> <C>
I FINANCIAL INFORMATION
1 Financial Statements
- Condensed Consolidated Balance Sheets as of
December 31, 1999 and June 30, 1999 1
- Condensed Consolidated Statements of Operations
for the Three Months Ended December 31, 1999 and 1998 2
- Condensed Consolidated Statements of Operations
for the Six Months Ended December 31, 1999 and 1998 3
- Condensed Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 1999 and 1998 4
- Notes to Condensed Consolidated Financial
Statements 5-12
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-16
II OTHER INFORMATION
5 Other Information 17
6 Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
i
<PAGE> 3
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND JUNE 30, 1999
(In thousands, except per share data)
(Unaudited)
(See Note 1)
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
1999 1999
---- ----
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents ................................................... $ 106,233 $ 17,110
Income taxes receivable ..................................................... -- 25,255
Deferred income taxes ....................................................... 6,150 37,422
Net assets of discontinued operations - current portion ..................... 14,513 877,548
Restricted cash - current portion ........................................... 3,300 --
Other current assets ........................................................ 4,784 4,803
--------- ---------
Total current assets .................................................... 134,980 962,138
Property and equipment, net .................................................... -- 3,372
Deferred income taxes .......................................................... -- 1,669
Net assets of discontinued operations - non-current portion .................... 11,709 22,200
Restricted cash - non-current portion .......................................... 15,406 --
Escrow receivable .............................................................. 30,300 --
Other assets, net .............................................................. -- 5,216
--------- ---------
$ 192,395 $ 994,595
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of financing arrangements ................................... $ 84,748 $ 522,543
Accounts payable and accrued expenses ....................................... 34,637 39,366
--------- ---------
Total current liabilities ............................................... 119,385 561,909
Financing arrangements, net of current portion ................................. -- 336
Deferred income taxes .......................................................... 6,150 39,091
Other liabilities .............................................................. 9,233 --
--------- ---------
Total liabilities ....................................................... 134,768 601,336
Commitments and contingencies .................................................. -- --
Shareholders' equity:
Common stock, $.01 par value; authorized 200,000 shares; issued 68,672 shares
at December 31, 1999 and issued 68,561 shares at June 30, 1999 ............ 687 686
Additional paid-in capital .................................................. 274,644 274,603
(Accumulated deficit) retained earnings ..................................... (175,030) 160,644
--------- ---------
100,301 435,933
Less:Common stock in treasury (at cost), 5,308 shares at December 31, 1999
and at June 30, 1999 ...................................................... (42,674) (42,674)
--------- ---------
Total shareholders' equity .............................................. 57,627 393,259
--------- ---------
$ 192,395 $ 994,595
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
1
<PAGE> 4
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
(See Note 1)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Net revenues ................................................................. $ -- $ --
Cost of services ............................................................. -- --
-------- --------
Gross profit ............................................................. -- --
Selling, general and administrative expenses ................................. 8,667 22,086
(Credit) provision for restructure ........................................... -- --
-------- --------
(Loss) from operations ................................................... (8,667) (22,086)
Investment and other income, net ............................................. 2,084 71
Gain on sale of property and equipment........................................ -- --
Interest expense ............................................................. (2,145) (7,058)
-------- --------
(Loss) before income taxes ............................................... (8,728) (29,073)
Income taxes ................................................................. -- 10,175
-------- --------
(Loss) from continuing operations before extraordinary item .............. (8,728) (18,898)
Income from discontinued operations, net of tax .............................. 454 400
(Loss) on disposal of discontinued operations, net of tax .................... (7,710) --
Extraordinary item - gain on repurchase of financing arrangements ............ 598 --
-------- --------
Net (loss) ............................................................... $(15,386) $(18,498)
======== ========
(Loss) per share from continuing operations before extraordinary item -
basic and assuming dilution ............................................ $ (0.14) $ (0.30)
======== ========
(Loss) per share from continuing operations -
basic and assuming dilution ............................................ $ (0.13) $ (0.30)
======== ========
(Loss) per share - basic and assuming dilution .......................... $ (0.24) $ (0.29)
======== ========
Weighted average number of shares outstanding-
basic and assuming dilution............................................. 63,343 62,735
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
2
<PAGE> 5
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
(See Note 1)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Net revenues ................................................................. $ -- $ --
Cost of services ............................................................. -- --
--------- ---------
Gross profit ............................................................. -- --
Selling, general and administrative expenses ................................. 22,401 42,159
(Credit) provision for restructure ........................................... (1,987) --
--------- ---------
(Loss) from operations ................................................... (20,414) (42,159)
Investment and other income, net ............................................. 2,490 155
Gain on sale of property and equipment ....................................... 1,528 --
Interest expense ............................................................. (6,635) (13,905)
--------- ---------
(Loss) before income taxes ............................................... (23,031) (55,909)
Income taxes ................................................................. -- 19,568
--------- ---------
(Loss) from continuing operations before extraordinary item .............. (23,031) (36,341)
Income from discontinued operations, net of tax .............................. 11,902 23,516
(Loss) on disposal of discontinued operations, net of tax .................... (325,143) --
Extraordinary item - gain on repurchase of financing arrangements ............ 598 --
--------- ---------
Net (loss) ............................................................... $(335,674) $ (12,825)
========= =========
(Loss) per share from continuing operations before extraordinary item -
basic and assuming dilution ............................................ $ (0.36) $ (0.58)
========= =========
(Loss) per share from continuing operations -
basic and assuming dilution ............................................ $ (0.35) $ (0.58)
========= =========
(Loss) per share - basic and assuming dilution ........................... $ (5.30) $ (0.20)
========= =========
Weighted average number of shares outstanding -
basic and assuming dilution ............................................ 63,308 62,642
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
<PAGE> 6
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
(Unaudited)
(See Note 1)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31,
------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) .......................................................... $(335,674) $ (12,825)
Adjustments to reconcile net (loss) to net cash flows
from operating activities of continuing operations:
(Income) from discontinued operations, net of tax ................... (11,902) (23,516)
Loss on disposal of discontinued operations, net of tax ............. 325,143 --
Extraordinary item - gain on repurchase of financing arrangements ... (598) --
(Credit) provision for restructure .................................. (1,987) --
(Gain) on sale of property and equipment ............................ (1,528) --
Depreciation and amortization ....................................... 1,336 4,158
Deferred income taxes ............................................... -- 617
Changes in assets and liabilities, net of effects from
acquisitions and dispositions:
Other current assets ........................................... 2,583 (1,018)
Accounts payable and accrued expenses .......................... (9,614) 11
Current income taxes ........................................... 28,799 22
Escrow receivable .............................................. (30,300) --
Other, net ..................................................... 12,049 (1,255)
--------- ---------
Net cash flows (used in) continuing operations ................. (21,693) (33,806)
Net cash flows provided by discontinued operations ............. 11,563 15,946
--------- ---------
Net cash flows (used in) operating activities .................. (10,130) (17,860)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Continuing operations - proceeds from sale of property and equipment 4,934 --
Discontinued operations:
Net proceeds from sales of businesses ........................... 564,811 --
Deposits of restricted cash ..................................... (18,706) --
Payments for businesses acquired, net of cash acquired .......... (5,007) (54,315)
Additions to property and equipment ............................. (5,249) (19,066)
Other, net .......................................................... -- (344)
--------- ---------
Net cash flows provided by (used in) investing activities ........... 540,783 (73,037)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and credit arrangements - continuing operations .. -- 249,780
Payment of debt and credit arrangements - continuing operations ..... (437,533) (166,002)
Proceeds from debt and credit arrangements - discontinued operations. 1,654 7,500
Payment of debt and credit arrangements - discontinued operations ... (5,693) (19,193)
Proceeds from common stock issued ................................... 42 1,290
--------- ---------
Net cash flows (used in) provided by financing activities ..... (441,530) 73,375
--------- ---------
Net increase (decrease) in cash and cash equivalents ................ 89,123 (17,522)
Cash and cash equivalents, beginning of period ...................... 17,110 32,760
--------- ---------
Cash and cash equivalents, end of period ............................ $ 106,233 $ 15,238
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE> 7
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(In thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
On July 1, 1999, NovaCare, Inc. (The "Company") completed the sale of
its Orthotic and Prosthetic ("O&P") business to Hanger Orthopedic Group, Inc.
("Hanger").
On September 21, 1999, the stockholders of the Company approved three
proposals submitted as part of a Special Meeting of Stockholders. The first
proposal recommended the sale of the Company's Physical Rehabilitation and
Occupational Health ("PROH") division, the second proposal recommended the sale
of the Company's 64% interest in NovaCare Employee Services, Inc. ("NCES") and
the third proposal recommended the adoption of a proposal to restructure the
Company. Under the third proposal if, by no later than December 31, 2000, the
Company is unable to find suitable acquisition candidates in which to reinvest
the proceeds from the PROH and NCES sales, after the payment of its convertible
subordinated debentures (see Note 3) and other liabilities, it will liquidate.
On October 19, 1999, the Company completed the sale of its 64% interest
in NCES to a subsidiary of Plato Holdings, Inc. ("Plato") as part of a tender
offer by Plato for all of NCES's outstanding shares at a price of $2.50 per
share, or a total of $48,500.
On November 19, 1999, the Company completed the sale of the PROH
business to Select Medical Corporation ("Select") for $200,000.
The Company's former long-term care services operating segment was
disposed in fiscal 1999 with the shutdown of certain of its operations in the
Western United States during the third fiscal quarter and the sale of the
remaining operations on June 1, 1999. The Company's former employee services
segment was disposed through the Company's sale of its interest in NCES. The
Company's former outpatient services segment was disposed through the sales of
O&P and PROH. As a result of these transactions, the Company has disposed of all
of its operating segments. The Company's remaining holding company activities
consist of the winding up of its affairs with respect to the disposed segments,
the search for potential acquisition candidates and the preparation for
potential liquidation.
Accordingly, the accompanying condensed consolidated financial
statements reflect all the Company's assets and liabilities, results of
operations and cash flows as discontinued operations, except for its remaining
holding company activities which are treated as continuing operations. Results
of operations and cash flows for the three and six months ended December 31,
1998 have been reclassified to reflect the current period presentation. The
accompanying financial statements as of December 31, 1999 and for the three and
six months ended December 31, 1999 and 1998 are unaudited. The balance sheet as
of June 30, 1999 is condensed from the audited balance sheet of the Company at
that date, and has been reclassified to present the assets and liabilities of
all businesses sold as "net assets of discontinued operations". Management
believes readers of these financial statements should focus their attention on
the "Liquidation Analysis and Estimates" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations since, in the opinion
of management, that presents the most relevant financial information about the
Company.
These statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto for the year ended June 30, 1999.
5
<PAGE> 8
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(In thousands, except per share data)
(Unaudited)
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of Company management, the condensed consolidated financial statements
for the unaudited interim periods include all adjustments necessary for a fair
statement of the results for such interim periods.
2. DISCONTINUED OPERATIONS
On July 1, 1999, the Company sold its O&P business to Hanger for
$445,000. Of the purchase price, the Company placed $15,000 in escrow in
conjunction with a guarantee of a minimum $94,000 of working capital, as defined
in the agreement of sale. The final working capital amount is expected to be
settled by no later than June 30, 2000.
The gain on the sale of O&P consists of the following:
<TABLE>
<S> <C>
Cash received ................................. $ 392,695
Debt assumed by the buyer ..................... 37,305
Less: transaction costs and related liabilities (17,175)
---------
Net transaction amount ........................ 412,825
Book basis of net assets of O&P ............... (362,905)
---------
Gain on sale of O&P ........................... $ 49,920
=========
</TABLE>
The gain on the sale of O&P is included in net loss on disposal of
discontinued operations and is based on preliminary information and may require
adjustment. For income tax purposes any tax liability resulting from this
transaction will be offset by net operating losses and the losses on the sales
of NCES and PROH.
In connection with the working capital guarantee, Hanger has presented
the Company with a calculation of working capital that indicates an adjustment
of approximately $29 million. In recognizing the gain on the sale of O&P,
management has considered the amount presented by Hanger and has made its best
estimate of the amount which may ultimately be required to settle the guaranteed
amount with Hanger. The Company has presented to Hanger its objections to
Hanger's working capital calculation, to which Hanger does not agree. In
accordance with the purchase and sale agreement, an independent arbitrator will
be engaged by both parties to resolve the matter by binding arbitration.
Management cannot presently determine the amount, if any, of additional
liability under the working capital guarantee as a result of these future
actions.
On October 19, 1999, the Company completed the sale of its interest in
NCES at the tender offer price of $2.50 per share. In connection with the tender
offer, the Company placed approximately $13,400 in escrow related to its
guarantee of a four-year agreement with NCES to provide employee services to
PROH (the "PROH Subscriber Agreement") of which $13,103 remains in escrow at
December 31, 1999.
6
<PAGE> 9
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(In thousands, except per share data)
(Unaudited)
The loss on disposal of NCES consists of the following:
<TABLE>
<S> <C>
Cash received ................................. $ 48,500
Less: transaction costs and related liabilities (3,857)
--------
Net transaction amount ........................ 44,643
Book basis of net assets of NCES .............. (47,791)
--------
Loss on disposal of NCES ...................... $ (3,148)
========
</TABLE>
The loss on disposal of NCES is included in the net loss on disposal of
discontinued operations and is based on preliminary information and may require
adjustment.
On November 19, 1999, the Company completed the sale of PROH. The sales
price for PROH was $200,000, the cash proceeds of which were reduced by the
amount of PROH debt assumed by Select. Of the remainder, $36,800 has been placed
in escrow for two years related to certain representations made by the Company,
including minimum working capital of approximately $86,000, collectibility of
approximately $96,500 in accounts receivable, net of reserves, as of closing and
certain contingent earnout payments and certain litigation matters. At December
31, 1999, the Company has established a reserve of $6,500 for the escrow account
related to the Company's estimate of amounts which may be due under the working
capital representation. Transaction costs include a $12,800 liability related to
the PROH Subscriber Agreement as well as $5,000 related to severance costs to be
paid by the Company as a result of terminations which may be made by the
purchaser within the first twelve months following closing. The loss on disposal
of PROH consists of the following:
<TABLE>
<S> <C>
Cash received ................................. $ 123,616
Amount placed in escrow ....................... 36,800
Debt assumed by the buyer ..................... 39,584
Less: transaction costs and related liabilities (26,656)
---------
Net transaction amount ........................ 173,344
Book basis of net assets of PROH .............. (522,661)
---------
Loss on disposal of PROH before escrow reserve (349,317)
Escrow reserve ................................ (6,500)
---------
Loss on disposal of PROH ...................... $(355,817)
=========
</TABLE>
The loss on disposal of PROH is included in the net loss on disposal of
discontinued operations and is based on preliminary information and may require
adjustment. The loss on disposal of PROH increased by $7,710 during the three
months ended December 31, 1999 as result of the $6,500 escrow reserve and
additional net investments in PROH to fund its operations and capital
expenditures during the period from October 1, 1999 through the date of sale.
The Company's representation of net accounts receivable as of the
closing date of the PROH sale involves a quarterly comparison of actual cash
collections, on a cumulative basis from the closing date, to historical
collection patterns specified in the purchase and sale agreement. If cash is
collected at a rate slower than historically experienced, the escrow can be
drawn, with the Company's approval, to satisfy the shortfall. If actual
collections exceed historical patterns, no escrow draw occurs. If cumulative
cash collections indicate that excess escrow has been drawn, Select must return
the excess to escrow. The Company retains audit privileges with regard to actual
cash collection data to be used in the quarterly calculation, as well as
Select's cash collection practices with regard to closing date accounts
receivable.
7
<PAGE> 10
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(In thousands, except per share data)
(Unaudited)
Included in the net assets of discontinued operations below are
accounts receivable of the long-term care services Western operations, which
were closed in fiscal 1999, and accounts receivable related to the operations
sold in fiscal 1999 to Chance Murphy, Inc. ("Chance Murphy"). Pursuant to the
agreement, the Company provided a working capital guarantee of $30,000 and
Chance Murphy agreed to pay to the Company the amount, if any, of working
capital as of June 1, 1999 in excess of $30,000 or, as applicable, to transfer
to the Company any remaining accounts receivable relating to periods prior to
June 1, 1999 once the working capital guarantee has been satisfied. On November
11, 1999, the Company was released from the commitment under the guarantee and
the remaining accounts receivable reverted back to the Company.
In conjunction with the November 11, 1999 release, the Company and
Chance Murphy established an escrow account in support of indemnifications made
by the Company relating to cost report settlements with Medicare, Medicaid and
other third party payers for the Company's services provided prior to selling
the business to Chance Murphy. The escrow account will be funded up to a maximum
of $3,000, from cash collections of receivables due directly from these payers.
The escrow agreement expires 30 days after the end of the period of limitations
for which the filed cost reports may be subject to audit, approximately three
years. At that time, any funds in excess of outstanding claims are to be
released to the Company. At December 31, 1999, the Company has $474 in escrow
and approximately $1,651, net of reserves, of accounts receivable due from third
party payers.
In the first quarter of fiscal 2000, as a result of the overall
continued deterioration of the financial condition of providers of long-term
care services as a consequence of the Balanced Budget Act of 1997, the Company
recorded an additional loss on the disposal of its long-term care services
operating segment of $13,098. This loss relates to a provision for uncollectible
accounts for certain remaining accounts receivable. Of this amount, $4,300
relates to amounts due to the Company for its indemnification of customers for
disallowed Medicare charges, and the remainder relates to trade accounts
receivable.
In the first quarter of fiscal 2000, a lawsuit was filed against the
Company seeking payment of approximately $13,000 with respect to certain
Medicare cost report settlements related to its medical rehabilitation hospital
division, which was sold in fiscal 1995. The Company recorded an additional
provision of $3,000 for this matter and has included such amount in the loss on
the disposal of the long-term care services segment.
In connection with the sales of businesses, the purchasers have
asserted certain claims under indemnifications made by the Company in connection
with the sales. The amount of such claims in excess of amounts provided by the
Company in the accompanying financial statements totals $16,800. This additional
amount has not been provided because the ultimate amount of liability, if any,
is not presently determinable.
Results of operations for all of the Company's discontinued operations
(consisting of the outpatient services, employee services and long-term care
services operating segments) were as follows for the three and six months ended
December 31, 1999 and 1998. In the three and six months ended December 31, 1999,
there were no operations for O&P or long-term care services. The Company has not
included any results of operations for NCES after September 30, 1999 due to the
immaterial effect of such results from that date to October 19, 1999, the date
of sale. The Company has not included any results of operations for PROH after
November 19, 1999, the date of sale of PROH.
8
<PAGE> 11
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues ................. $ 46,693 $ 483,322 $ 408,475 $ 961,523
Income before income taxes ... 554 12,630 5,507 50,566
Income tax benefit (provision) (100) (12,230) 6,395 (27,050)
--------- --------- --------- ---------
Net income ................... $ 454 $ 400 $ 11,902 $ 23,516
========= ========= ========= =========
</TABLE>
The income tax provision related to discontinued operations for the
three months ended December 31, 1999 results from state income taxes that cannot
be offset by loss carryforwards. The income tax benefit for the six months ended
December 31, 1999 results from a reversal of accrued income tax liabilities in
conjunction with the sales of the Company's operating businesses, net of state
income taxes provided.
Net assets of discontinued operations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
1999 1999
---- ----
<S> <C> <C>
Cash and cash equivalents ................................. $ -- $ 6,167
Accounts receivable, net .................................. 22,073 249,769
Inventories ............................................... -- 44,651
Property and equipment, net ............................... -- 56,530
Excess cost of net assets acquired, net ................... -- 729,947
Investment in joint ventures .............................. -- 15,120
Medicare indemnification receivables, net ................. 11,400 21,906
Other assets .............................................. -- 22,037
Accounts payable and accrued expenses ..................... (7,251) (101,445)
Working capital guarantee, long-term care services ........ -- (28,800)
Financing arrangements .................................... -- (82,678)
Minority interests ........................................ -- (28,425)
Other liabilities ......................................... -- (5,031)
--------- ---------
Net assets of discontinued operations ..................... 26,222 899,748
Less current portion ...................................... (14,513) (22,200)
--------- ---------
Net assets of discontinued operations - non-current portion $ 11,709 $ 877,548
========= =========
</TABLE>
Net assets of discontinued operations by operating segment consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
1999 1999
---- ----
<S> <C> <C>
Long-term care services $ 26,222 $ 42,088
Employee services ..... -- 47,904
Outpatient services ... -- 809,756
-------- --------
$ 26,222 $899,748
======== ========
</TABLE>
9
<PAGE> 12
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(In thousands, except per share data)
(Unaudited)
3. FINANCING ARRANGEMENTS
Financing arrangements consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
1999 1999
-------- --------
<S> <C> <C>
Revolving credit facility .................................. $ -- $347,000
Convertible subordinated debentures (5.5%), due January 2000 84,748 175,000
Other ...................................................... -- 879
-------- --------
84,748 522,879
Less: current portion ..................................... 84,748 522,543
-------- --------
$ -- $ 336
======== ========
</TABLE>
The Company has a revolving credit facility with a syndicate of
lenders. The facility is collateralized by substantially all the common stock of
the Company's subsidiaries. Amounts outstanding under the facility at June 30,
1999 were entirely repaid on July 1, 1999 from the proceeds of the sale of O&P.
At December 31, 1999, the amount available has been reduced to approximately
$13,000, which amount exists solely to collaterize standby letters of credit
issued in support of certain guarantees provided by the Company in conjunction
with the sales of its operating businesses.
During the second quarter of fiscal 2000, the Company repurchased
$90,252 par value, plus accrued interest, of the convertible subordinated
debentures through a series of transactions on the open market. The Company
recorded an extraordinary gain of $598 associated with these repurchases. The
Company repaid the remaining outstanding convertible subordinated debentures in
their entirety, including accrued interest, on January 18, 2000.
4. PROVISION FOR RESTRUCTURE
In the fourth quarter of fiscal 1999, the Company recorded a provision
for restructure of $12,260 related to a program to reduce its selling, general
and administrative costs incurred at its corporate headquarters. The program
involved the termination of 74 employees of which 38 employees were terminated
as of December 31, 1999. This provision consisted of the following:
<TABLE>
<S> <C>
Employee severance and related costs .... $ 3,060
Lease and technology agreement mitigation 8,515
Write-down of property and equipment .... 685
-------
Total ................................... $12,260
=======
</TABLE>
In the first quarter of fiscal 2000, the Company reversed $1,987 of
this provision based on the current costs expected to complete this program. The
reversal is the net amount of additional severance and related costs of $2,400
and reduction of lease and technology agreement mitigation of $4,387. The
Company expects that all of these amounts will be expended by June 30, 2000.
10
<PAGE> 13
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(In thousands, except per share data)
(Unaudited)
Activity in the accrued liability for this provision consisted of the
following:
<TABLE>
<S> <C>
Provision for restructure ......................... $ 12,260
Less: non cash write-down of property and equipment (685)
Reversal of provision ............................. (1,987)
Payments and other reductions ..................... (4,067)
--------
Balance, December 31, 1999 ........................ $ 5,521
========
</TABLE>
5. NET (LOSS) INCOME PER SHARE
The following table sets forth the computation and reconciliation of
net (loss) income per share-basic and net (loss) income per share-assuming
dilution:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
(LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM ...................... $ (8,728) $ (18,898) $ (23,031) $ (36,341)
INCOME FROM DISCONTINUED OPERATIONS, NET
OF TAX .................................. 454 400 11,902 23,516
(LOSS) ON DISPOSAL OF DISCONTINUED
OPERATIONS, NET OF TAX .................. (7,710) -- (325,143) --
EXTRAORDINARY ITEM ........................ 598 -- 598 --
--------- --------- --------- ---------
NET (LOSS) ................................ $ (15,386) $ (18,498) $(335,674) $ (12,825)
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC ................................. 63,343 62,735 63,308 62,642
STOCK OPTIONS ........................... -- -- -- --
WEIGHTED AVERAGE SHARES OUTSTANDING -
ASSUMING DILUTION ..................... 63,343 62,735 63,308 62,642
========= ========= ========= =========
(LOSS) PER SHARE FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY ITEM -
BASIC AND ASSUMING DILUTION ............ $ (0.14) $ (0.30) $ (0.36) $ (0.58)
INCOME PER SHARE FROM DISCONTINUED
OPERATIONS - BASIC AND ASSUMING
DILUTION .............................. 0.01 0.01 0.19 0.38
(LOSS) PER SHARE ON DISPOSAL OF
DISCONTINUED OPERATIONS, NET OF TAX -
BASIC AND ASSUMING DILUTION ........... (0.12) -- (5.14) --
EXTRAORDINARY ITEM PER SHARE - BASIC AND
ASSUMING DILUTION ..................... 0.01 -- 0.01 --
--------- --------- --------- ---------
NET (LOSS) PER SHARE - BASIC AND ASSUMING
DILUTION .............................. $ (0.24) $ (0.29) $ (5.30) $ (0.20)
========= ========= ========= =========
</TABLE>
11
<PAGE> 14
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(In thousands, except per share data)
(Unaudited)
The Company did not include convertible subordinated debentures,
equivalent to 6,567 shares of common stock or options to purchase 7,054 and
1,029 or 7,444 and 991 shares, in the three and six months ended December 31,
1999 and 1998, respectively because their effects are antidilutive. There were
no transactions subsequent to December 31, 1999 that would have materially
changed the number of shares used in computing (loss) from continuing operations
per share - basic and assuming dilution or net income per share - basic and
assuming dilution.
6. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. Also, in conjunction with the sales of its
businesses, the Company has indemnified the purchasers for certain obligations.
In the opinion of management, the amount of ultimate liability, if any, with
respect to these actions and indemnifications will not have a materially adverse
effect on the financial position or results of operations of the Company.
12
<PAGE> 15
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
On July 1, 1999, NovaCare, Inc. (the "Company") completed the sale of
its orthotic and prosthetic ("O&P") business to Hanger Orthopedic Group, Inc.
("Hanger").
On September 21, 1999, the stockholders of the Company approved three
proposals submitted as part of a Special Meeting of Stockholders. The first
proposal recommended the sale of the Company's Physical Rehabilitation and
Occupational Health ("PROH") division, the second proposal recommended the sale
of the Company's 64% interest in NovaCare Employee Services, Inc. ("NCES") and
the third proposal recommended the adoption of a proposal to restructure the
Company. Under the third proposal, if, by no later than December 31, 2000, the
Company is unable to find suitable acquisition candidates to reinvest the
proceeds from the PROH and NCES sales, after the payment of its convertible
subordinated debentures and other liabilities, it will liquidate.
On October 19, 1999, the Company completed the sale of its 64% interest
in NCES to a subsidiary of Plato Holdings, Inc. ("Plato") as part of a tender
offer by Plato for all of NCES's outstanding shares at a price of $2.50 per
share or a total of $48.5 million.
On November 19, 1999, the Company completed the sale of the PROH
business to Select Medical Corporation ("Select") for $200.0 million.
The Company's former long-term care operating services segment was
disposed in fiscal 1999 with the shutdown of certain of its operations in the
Western United States during the third fiscal quarter and the sale of the
remaining operations on June 1, 1999. The Company's former employee services
segment was disposed through the Company's sale of its interest in NCES. The
Company's former outpatient services segment was disposed through the sales of
O&P and PROH. As a result of these transactions, the Company has disposed of all
of its operating segments. The Company's remaining holding company activities
consist of the winding up of its affairs with respect to the disposed segments,
the search for potential acquisition candidates and the preparation for
potential liquidation.
Accordingly, the Company has reflected substantially all of its assets
and liabilities, results of operations and cash flows for the current and all
prior periods as discontinued operations, except for its remaining general and
administrative activities which are treated as continuing operations.
On January 18, 2000, the Company fully satisfied its obligations to
subordinated debenture holders by paying the outstanding principal amount of
$84.7 million together with accrued interest. Prior to December 31, 1999, the
Company had repurchased $90.3 million of subordinated debentures, plus accrued
interest and has recognized a gain of $0.6 during the three- and six-month
periods ended December 31, 1999. Accordingly, all convertible subordinated
debentures have been repaid.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 VS. DECEMBER
31, 1998
Continuing Operations
The loss before income taxes from continuing operations was $8.7
million for the three months ended December 31, 1999 compared to $29.1 million
for the same period last year, which reflects the wind-down of the Company's
administrative functions as a result of the sale of its businesses. The primary
reason for the decrease in the loss was a decrease in selling, general and
administrative costs of approximately $13.4 million. Also, interest expense
decreased by approximately $5.0 million and investment income increased $2.0
million as a result of the payment of the Company's line of credit and
investment of excess cash generated by the sale of the Company's operating
businesses, respectively.
There is no provision for or benefit from income taxes for the three
months ended December 31, 1999 as the Company could not utilize, for income tax
purposes, the loss incurred in the period. For the same period last year, the
Company recognized a tax benefit of $10.2 million for the carryback of net
operating losses to prior periods.
13
<PAGE> 16
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Discontinued Operations
Income from discontinued operations, net of tax for the three months
ended December 31, 1999 ($0.5 million) was flat when compared to the three
months ended December 31, 1998 ($0.4 million). During the three months ended
December 31, 1999, the Company recorded an additional loss on disposal of
discontinued operations primarily as a result of an analysis of the closing
date balance sheet from the PROH sale on November 19, 1999, and the Company's
estimate of amounts which may be due under the working capital representation.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 VS. DECEMBER
31, 1998
Continuing Operations
The loss before income taxes from continuing operations was $23.0 million
for the six months ended December 31, 1999 compared to $55.9 million for the
same period last year, which reflects the wind-down of the Company's
administrative functions as a result of the sale of its businesses. The primary
reason for the decrease in the loss was a decrease in selling, general and
administrative costs of approximately $19.8 million and the reversal of a
provision for restructure of $2.0 million during the current fiscal year. Also,
interest expense decreased by approximately $7.3 million and investment income
increased $2.3 million as a result of the payment of the Company's line of
credit and investment of excess cash generated by the sale of the Company's
operating businesses.
There is no provision for or benefit from income taxes for the six
months ended December 31, 1999 as the Company could not utilize, for income tax
purposes, the loss incurred in the period. The Company has a net operating loss
carryforward in the range of $90.0 million to $120.0 million as of December 31,
1999. For the same period last year the Company recognized a tax benefit of
$19.6 million for the carryback of net operating losses to prior periods.
Discontinued Operations
Income from discontinued operations, net of tax for the six months
ended December 31, 1999 ($11.9 million) decreased by approximately $11.6
compared to the six months ended December 31, 1998 ($23.5 million). This
decrease is due principally from the inclusion in the full period of the prior
year of the results of operations of the Company's businesses sold compared to
the inclusion in the current year of results of operations only through the
respective dates of sale of these businesses.
Loss on disposal of discontinued operations reflects a loss on the sale
of PROH and NCES ($359.0 million) and adjustments related to changes in
estimates of long-term care services discontinued operations stemming from
deteriorating industry conditions ($16.0 million), offset partially by the gain
on the sale of O&P ($49.9 million).
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
At December 31, 1999, cash and cash equivalents totaled $106.2 million
compared to $17.1 million at June 30, 1999. The net increase in cash and cash
equivalents from June 30, 1999 of $89.1 million resulted principally from
proceeds from the sale of the Company's operating businesses ($546.1 million,
net of restricted cash deposits) which were used to retire the outstanding
balance on the Company's line of credit ($347.0 million), repurchase a portion
of the convertible subordinated debentures ($90.3 million), fund capital
expenditures and earnouts prior to the sale dates ($10.3 million) and fund
operations ($10.1 million).
14
<PAGE> 17
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
On January 18, 2000, the Company repaid convertible subordinated
debenture holders the remaining outstanding principal amount of $84.7 million
together with accrued interest. Prior to December 31, 1999, the Company had
repurchased $90.3 million of the convertible subordinated debentures, plus
accrued interest.
Liquidation Analysis and Estimates
Management has estimated the following potential realizable values or
range of values for its assets and estimated liabilities and estimated cost of
liquidation. The maximum, or high end of the estimated realizable values of the
assets and liabilities of the Company, as reflected in the Company's December
31, 1999 condensed consolidated balance sheet, is based on the assumption that
these values are fully realizable. The minimum, or low end, of the estimated
realizable values is estimated on the same basis as the maximum or high end,
except that the estimated realizable values for the sale of the Company's
operating businesses have been reduced by the amount of escrowed funds or
potential maximum liability, if such amount could be determined, in accordance
with the respective purchase and sale agreements.
The liquidation period and the estimated operating costs during
liquidation for the period from December 31, 1999 through December 31, 2000, the
assumed liquidation date, have been based on the Company's internal estimates.
Except for the historical transactions, some of which are based on
preliminary information, there can be no assurance that the Company will realize
the value of the assets below, or liquidate the amounts of any of the
liabilities below, for or within the indicated values or ranges (or at all).
<TABLE>
<CAPTION>
($ IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
-------------------------
<S> <C>
(i) ESTIMATED REALIZABLE VALUES OF ASSETS OF THE COMPANY
Cash and cash equivalents at December 31, 1999......................... $ 106.2
Restricted cash, net of liability to NCES for guarantee of
PROH contract........................................................ 6.2
Long-term care services net assets in excess of
market exit costs.................................................... 26.2
Other current assets, including escrow from sale of PROH.............. 4.8 - 35.1
----------------
Total estimated assets................................................ 143.4 - 173.7
----------------
(ii) ESTIMATED LIABILITIES OF THE COMPANY
Convertible subordinated debentures................................... (84.8)
Accounts payable and accrued expenses................................. (42.6) - (25.8)
Severance and facility exit costs..................................... (5.5)
----------------
Total estimated liabilities........................................... (132.9) - (116.1)
----------------
(iv) ESTIMATED OPERATING COSTS DURING LIQUIDATION
Investment income during liquidation.................................. .7
Interest on convertible subordinated debentures....................... (.4)
Payroll and benefits for liquidation personnel........................ (2.8)
Legal, audit and other professional costs............................. (3.0) - (2.5)
Other costs........................................................... (1.0) - (0.5)
----------------
Total estimated operating costs....................................... (6.5) - (5.5)
----------------
(iii) ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION
TO STOCKHOLDERS..................................................... $ 4.0 - 52.1
================
(iv) ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION
PER OUTSTANDING COMMON SHARE........................................ $ 0.06 -0.82
================
</TABLE>
15
<PAGE> 18
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
In connection with its proxy statement dated August 13, 1999, the
Company estimated that funds available for distribution to stockholders could
range from $111.0 million to $263.6 million ($1.76 - $3.94 per share). As a
result of industry and financial market conditions, both the sales of PROH and
NCES, the largest factors in the proxy statement liquidation analysis, were at
the minimum anticipated values for those transactions. Further, a number of
actual or probable events as of December 31, 1999, which were not known or
anticipated at the time of the proxy statement estimates or the Company's
shareholder meeting on September 21, 1999, resulted in an additional reduction
in the potential realizable value to $52.1 million, the revised maximum
estimated realizable value. These include: (i) an $18.0 million reduction in
proceeds from the sale of the O&P business arising from the buyer's assertion of
claims under the working capital guarantee, (ii) a $13.1 million decline in the
anticipated collections of long-term care receivables stemming from
deteriorating industry conditions, (iii) a $12.8 million obligation guaranteed
by NovaCare for NCES services to the PROH business, which was not assumed by the
purchaser of PROH, and (iv) a $6.5 million reduction in proceeds from the sale
of the PROH business arising from claims under the working capital
representation. Possible contingencies could further reduce the realizable value
available for distribution to stockholders to $4.0 million, the revised minimum
realizable value. These possible contingencies include primarily the potential
for additional claims against the remaining $30.3 million escrow, after
reduction for the $6.5 million working capital representation described above,
associated with the sale of PROH and claims asserted in connection with certain
other divestitures.
The following table sets forth a reconciliation of the low end of the
range of the estimates set forth above under "Liquidation Analysis and
Estimates" with the Company's stockholders' equity, as set forth in its
unaudited Consolidated Balance Sheet as of December 31, 1999:
<TABLE>
<CAPTION>
($ IN MILLIONS)
------------------
<S> <C>
Total stockholders' equity as of December 31, 1999....................... $ 57.6
Additional maximum amounts due in connection with sales of businesses.... (47.1)
Estimated operating costs during liquidation............................. (6.5)
----------------
ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION
TO STOCKHOLDERS......................................................... $ 4.0
================
</TABLE>
THE METHODS USED BY MANAGEMENT IN ESTIMATING THE VALUES AND VALUE
RANGES OF THE COMPANY'S ASSETS ARE INEXACT AND MAY NOT APPROXIMATE VALUES
ACTUALLY REALIZED. THESE ESTIMATES ARE SUBJECT TO NUMEROUS UNCERTAINTIES BEYOND
THE COMPANY'S CONTROL AND ALSO DO NOT REFLECT ALL CONTINGENT LIABILITIES THAT
MAY MATERIALIZE. FOR ALL THESE REASONS, THERE CAN BE NO ASSURANCE THAT THE
ACTUAL NET PROCEEDS DISTRIBUTED TO STOCKHOLDERS IN LIQUIDATION WILL NOT BE LESS
THAN THE ESTIMATED AMOUNTS SHOWN. MOREOVER, NO ASSURANCE CAN BE GIVEN THAT ANY
AMOUNTS TO BE RECEIVED BY THE COMPANY'S STOCKHOLDERS IN LIQUIDATION WILL EQUAL
OR EXCEED THE PRICE OR PRICES AT WHICH THE COMMON STOCK HAS RECENTLY TRADED OR
MAY TRADE IN THE FUTURE.
YEAR 2000 READINESS
The Company had no significant issues to date with respect to Year 2000
and does not expect any significant further expenditures with respect to this
matter. However, there can be no assurance that the Company will not experience
ongoing issues with respect to Year 2000 matters.
CAUTIONARY STATEMENT
Except for historical information, matters discussed above including,
but not limited to, statements concerning future operations and estimates of
values to be received in liquidation, are forward-looking statements that are
based on management's estimates, assumptions and projections. Important factors
that could cause results to differ materially from those expected by management
include potential claims related to businesses sold, the ability of the Company
to realize its remaining assets in cash, the cost to wind up the Company's
affairs in preparation for a potential liquidation, the ability of the Company
to identify potential acquisition targets and to successfully complete such
potential acquisitions and the Company's ability to retain management and
professional employees during its wind-down period.
16
<PAGE> 19
NOVACARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
On November 24, 1999, the Company's common stock was delisted by the
New York Stock Exchange, Inc. The Company stock ticker symbol had been NOV. On
December 3, 1999, the Company's common stock commenced trading on the National
Association of Securities Dealers ("NASD") Over-the-Counter Bulletin Board
("OTCBB") trading system using the stock ticker symbol NAHC.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit
Number Exhibit Description Page Number
------ ------------------- -----------
27 Financial Data Schedule
(B) Reports on Form 8-K
On November 2, 1999, the Company filed a Current Report on Form 8-K
dated October 19, 1999 with the Securities and Exchange Commission announcing
the sale of NCES under item 2, Acquisition or Disposition of Assets.
On December 3, 1999, the Company filed a Current Report on
Form 8-K dated November 19, 1999 with the Securities and Exchange
Commission announcing the completion of the sale of PROH under Item 2,
Acquisition or Disposition of Assets.
17
<PAGE> 20
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.
NOVACARE, INC.
--------------
(REGISTRANT)
FEBRUARY 18, 2000 BY /s/ ROBERT E. HEALY, JR.
----------------------------------
ROBERT E. HEALY, JR.,
PRESIDENT AND
CHIEF FINANCIAL OFFICER
BY /s/ BARRY E. SMITH
----------------------------------
BARRY E. SMITH,
VICE PRESIDENT, CONTROLLER AND
CHIEF ACCOUNTING OFFICER
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENT IN FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999.
</LEGEND>
<CIK> 0000802843
<NAME> NOVACARE, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 106,233
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,747
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 192,395
<CURRENT-LIABILITIES> 119,385
<BONDS> 0
0
0
<COMMON> 687
<OTHER-SE> 56,940
<TOTAL-LIABILITY-AND-EQUITY> 192,395
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 22,401<F1>
<OTHER-EXPENSES> (6,005)<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,635
<INCOME-PRETAX> (23,031)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,031)
<DISCONTINUED> (313,241)
<EXTRAORDINARY> 598
<CHANGES> 0
<NET-INCOME> (335,674)
<EPS-BASIC> (5.30)<F3>
<EPS-DILUTED> (5.30)<F3>
<FN>
<F1>CONSIST OF SELLING AND ADMINISTRATIVE EXPENSES
<F2>CONSIST OF CREDIT FOR RESTRUCTURE, INVESTMENT AND OTHER INCOME AND GAIN ON
SALE OF PROPERTY AND EQUIPMENT.
<F3>IS CALCULATED USING NET INCOME, EPS FROM CONTINUING OPERATIONS ONLY IS $(0.36).
</FN>
</TABLE>
