<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21910
CONTINUCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-2716023
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
100 SOUTHEAST SECOND STREET
36TH FLOOR
MIAMI, FLORIDA 33131
(Address of principal executive offices)
(Zip Code)
(305) 350-7515
(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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
At November 13, 1997, the Registrant had 11,444,388 shares of $0.0001 par value
common stock outstanding.
<PAGE> 2
CONTINUCARE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - September 30, 1997 (Unaudited) and June 30, 1997 ...... 3
Consolidated Statements of Income - Three Months Ended September 30, 1997 (Unaudited)
and 1996 (Unaudited) ................................................................ 4
Consolidated Statements of Cash Flows - Three Months Ended
September 30, 1997 (Unaudited) and 1996 (Unaudited) ................................. 5
Notes to Consolidated Financial Statements - September 30, 1997 (Unaudited) ......... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................... 10
PART II - OTHER INFORMATION ......................................................... 14
SIGNATURE PAGE ...................................................................... 15
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONTINUCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 4,507,552 $ 6,989,580
Accounts receivable, net of allowance
for doubtful accounts of $1,150,551 and $1,061,468,
respectively 3,534,682 2,829,426
Prepaid expenses and other current assets 525,522 401,814
------------ ------------
Total current assets 8,567,756 10,220,820
Other receivables 5,600,000 5,000,000
Property and equipment, net 1,230,491 1,176,049
Goodwill, net 3,249,523 1,452,557
Other intangible assets, net 2,568,314 980,910
Other assets, net 574,300 515,274
Deferred tax asset, net 505,699 505,699
------------ ------------
Total assets $ 22,296,083 $ 19,851,309
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 929,817 $ 285,518
Accrued expenses 1,113,848 924,018
Accrued interest payable 32,372 37,295
Current portion of notes payable 5,042,500 811,133
Current portion of capital lease obligation 45,126 44,055
Income and other taxes payable 79,647 619,445
------------ ------------
Total current liabilities 7,243,310 2,721,464
Long-term debt 209,546 181,551
Long-term accrued expenses 150,000 --
Notes payable -- 2,330,367
------------ ------------
Total liabilities 7,602,856 5,233,382
------------ ------------
Commitments and contingencies -- --
Shareholders' equity
Common stock; $.0001 par value; authorized
100,000,000 shares; issued and outstanding
10,888,993 at September 30, 1997 and
at June 30, 1997 1,089 1,089
Treasury stock, 2,930,000 shares (2,284,330) (2,284,330)
Additional paid-in-capital 14,549,884 14,549,884
Retained earnings 2,426,584 2,351,284
------------ ------------
Total shareholders' equity 14,693,227 14,617,927
------------ ------------
Total liabilities and shareholders' equity $ 22,296,083 $ 19,851,309
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Revenues
Fees for medical services, net $ 2,205,165 $ --
Management fees 1,458,619 2,923,446
------------ ------------
Total Revenues 3,663,784 2,923,446
------------ ------------
Expenses
Payroll and employee benefits 2,309,207 1,367,910
Provision for bad debt 89,083 226,211
Professional fees 115,954 189,740
General and administrative 949,575 44,555
Depreciation and amortization 103,563 7,160
------------ ------------
Total expenses 3,567,382 1,835,576
------------ ------------
Income from operations 96,402 1,087,870
------------ ------------
Other income (expenses)
Interest income, net 28,575 17,152
Minority interest -- (79,047)
------------ ------------
Other expenses 28,575 (61,895)
------------ ------------
Income before taxes 124,977 1,025,975
Provision for income taxes 49,677 381,717
------------ ------------
Net income $ 75,300 $ 644,258
============ ============
Weighted average common shares used in the per share
computation - primary 10,888,993 7,099,121
============ ============
Earnings per common share and common equivalent share $ 0.01 $ 0.09
============ ============
Weighted average common shares used in the per share
computation -fully diluted 10,906,956 7,534,321
============ ============
Earnings per common share and common equivalent
share - fully diluted $ 0.01 $ 0.09
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 75,300 $ 644,258
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization 103,563 7,160
Bad debt expense 89,083 226,211
Income applicable to minority interest -- 79,047
Changes in assets and liabilities, excluding the effect
of acquisitions:
(Increase) in accounts receivable (601,251) (1,405,990)
(Increase) in prepaid expenses and other current assets (72,269) (77,072)
Decrease (increase) in intangible assets 237,137 (45,329)
(Increase) decrease in other assets (50,761) 7,102
(Increase) in other receivables (600,000) --
Increase in accounts payable and accrued expenses . 444,295 743,191
(Decrease) in accrued interest payable (4,923) (16,739)
Increase in unearned revenue -- 33,000
(Decrease) increase in income and other taxes payable (539,798) 374,995
----------- -----------
Net cash (used) provided by operating activities (919,624) 569,834
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (46,373) (258,267)
Cash paid for acquisitions (3,406,411) --
----------- -----------
Net cash used by investing activities (3,452,784) (258,267)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Beechwood Repurchase -- (375,000)
Proceeds from First Union Note 2,500,000 --
Principal repayment of Note Payable to Stockholder (599,000) --
Principal repayments of obligation under capital lease .. (10,620) --
Cash received from pre-Merger Zanart -- 6,600,000
Costs incurred associated with Private Placement &
Merger -- (225,000)
Proceeds from issuance of common stock -- 2,196,000
----------- -----------
Net cash provided by financing activities 1,890,380 8,196,000
----------- -----------
Net (decrease) increase in cash and cash equivalents (2,482,028) 8,507,567
Cash and cash equivalents at beginning of period 6,989,580 819,066
----------- -----------
Cash and cash equivalents at end of period $ 4,507,552 $ 9,326,633
=========== ===========
</TABLE>
5
<PAGE> 6
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<S> <C> <C>
Cash paid for income taxes $ 607,671 $ --
============ ============
Cash paid for interest $ 68,297 $ --
============ ============
</TABLE>
On September 19, 1997, the Company purchased all of the capital stock of
Maxicare, Inc., ("Maxicare") for $3,000,000 of which $2,700,000 was paid in
cash. The remaining $300,000 is due in equal installments at the end of years
two and three and is contingent on various factors. The acquisition was recorded
under the purchase method of accounting. The fair values of Maxicare's assets
and liabilities at the date of acquisition are presented below:
<TABLE>
<S> <C>
Fair value of assets acquired $ 196,757
Intangible assets 2,995,269
Accounts payable and accrued expenses (492,026)
----------
Cash paid $2,700,000
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
CONTINUCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1 - UNAUDITED INTERIM INFORMATION
The accompanying interim consolidated financial data for Continucare Corporation
("Continucare" or the "Company") are unaudited; however, in the opinion of
management, the interim data include all adjustments necessary for a fair
presentation of the results for the interim period. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
The results of operations for the three months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the year ending June
30, 1998.
The interim unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended June 30, 1997 as set forth in the Company's Form 10-KSB.
NOTE 2 - BUSINESS COMBINATION
On September 19, 1997, the Company acquired the stock of Maxicare, Inc.
("Maxicare"), a Florida based home health agency, for a purchase price of
$3,000,000. At closing, $2,700,000 was paid in cash, of which $2,500,000 was
borrowed by the Company under a term note which was paid in full on October
30,1997. The remaining $300,000 is due in equal installments at the end of years
two and three and is contingent on various factors. Maxicare is certified by the
Healthcare Financing Administration and is licensed in the state of Florida as a
Medicare and Medicaid home health agency. The acquisition is being accounted for
under the purchase method of accounting. The purchase price in excess of the
fair value of the net tangible assets acquired was approximately $3.0 million
and is being amortized using the straight line method over a weighted average
life of twenty years. As of September 30, 1997, the consolidated financial
statements include the accounts of Maxicare. The Consolidated Statements of
Income include their operations from the purchase date.
The following unaudited pro forma statements of income reflect adjustments to
Continucare's historical financial position and results of operations to give
effect to the acquisition of Maxicare as if such had occurred as of the
beginning of the following periods, after giving effect to certain pro forma
adjustments as described below:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Total revenues $ 3,663,784 $ 5,780,038
============ ===========
Income from operations $ 96,402 $ 1,012,712
============ ===========
Net Income $ 75,300 $ 570,519
============ ===========
Earnings per common share
and common equivalent share
Primary $ 0.01 $ 0.08
============ ===========
Fully diluted $ 0.01 $ 0.08
============ ===========
</TABLE>
7
<PAGE> 8
Pro forma adjustments reflect the amortization of the resulting goodwill and the
accrual for interest expense on the funds borrowed to consummate the
acquisition.
NOTE 3 - CONVERTIBLE NOTES OFFERING
On October 30, 1997, the Company issued $46.0 million of 8% convertible
subordinate notes due 2002 in a private offering not required to be registered
under the Securities Act of 1933, as amended. The notes, which are not
redeemable until October 31, 2000, will be convertible into shares of common
stock of the Company at a conversion price of $7.25 per share at any time after
60 days. Interest on the notes is payable semiannually beginning April 30, 1998.
Continucare intends to use the net proceeds of the offering for acquisitions,
working capital and other general corporate purposes.
NOTE 4 - SHAREHOLDERS' EQUITY
During the three months ended September 30, 1997, options to purchase 620,000
shares of common stock, none of which are currently vested, have been granted at
an exercise price equal to the fair market value on the day of grant of $5.125
per option.
The Company will adopt Financial Accounting Standards Board Statement No. 128,
"Earnings per Share" ("SFAS 128") in the second quarter of the fiscal year. The
earnings per share calculated under SFAS 128 are not materially different from
the calculations as presented on the face of the financial statements.
NOTE 5 - ASSIGNMENT OF REVENUE CONTRACTS
On September 10, 1997, the Company assigned certain of its Medicare behavioral
health management contracts with freestanding centers to a third party. In
connection with this transaction, the Company discounted the related receivables
by approximately $742,000 which the Company recorded against its bad debt
reserve in the prior fiscal year. The net balance of $5.6 million was converted
to a note receivable to be paid by the programs over a five year term with
interest to accrue at 9% per annum (included as other receivables in the
enclosed balance sheets). The note receivable is secured by all the assets of
the business.
The Company is currently negotiating new managed care opportunities under this
line of business. Accordingly, the Company believes that this assignment does
not qualify as discontinued operations.
NOTE 6 - SUBSEQUENT EVENTS
On October 31, 1997, the Company acquired the following Florida based related
companies as an asset and stock purchase, respectively: HealthNet Maritime
Services II, Inc. and an affiliate, which are companies that provide numerous
healthcare related management services to healthcare facilities and healthcare
services to the cruise line industry; and Allied Medical Centers, Inc. which is
a company that provides healthcare services at outpatient centers primarily
through managed care contracts. The total purchase price for these related
entities was $2.5 million of which 20% was paid in cash and 80% was paid in
common stock of the Company. An amount up to $2.5 million will be paid in common
stock of the Company upon completion of one year from the closing date if
certain financial targets are met. The acquisitions will be accounted for under
the purchase method of accounting.
8
<PAGE> 9
On October 31, 1997, the Company purchased the assets of Doctors Health Group, a
company that provides healthcare services at outpatient centers through managed
care contracts. The total purchase price for the acquisition was approximately
$14.5 million, of which $1.5 million was paid in common stock of the Company and
$13.0 million was paid in cash.
NOTE 7- RECENT DEVELOPMENT
The Company is currently engaged in discussions with a potential investor
regarding the possible sale to such investor of common stock or warrants to
purchase common stock for an aggregate purchase price of between $10.0 million
and $15.0 million. The Company has not entered into any definitive agreement
with respect to the financial terms and other terms of this possible investment.
Accordingly, no assurance can be given that such transaction will be
consummated, or if consummated, as to the financial and other terms thereof.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain Factors Affecting Future Operating Results
This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this Form 10-QSB, the words "believe,"
"anticipate," "think," "intend," "plan," "will be," and similar expressions,
identify such forward-looking statements. Such statements regarding future
events and/or the future financial performance of the Company are subject to
certain risks and uncertainties which could cause actual events or the actual
future results of the Company to differ materially from any forward-looking
statement. Certain factors that might cause such a difference include the
following: (1) limited operating history of Continucare in current business, (2)
various risks associated with the acquisition of businesses including the
expenses associated with the integration of the acquired businesses,
difficulties in assimilating the operations of the acquired entities, and
diversion of management resources; (3) statutory and regulatory changes,
retroactive and prospective rate adjustments, administrative rulings and funding
restrictions, any of which could limit or reduce reimbursement levels; (4)
ability to attract and retain a sufficient number of qualified medical
professionals; and (5) fluctuations in the volume of services rendered and/or
the number of patients using the Company's services.
General
The Company provides a continuum of outpatient and ancillary healthcare services
with a primary focus on outpatient treatment of musculoskeletal injuries and
diseases, such as arthritis, osteoporosis, stroke and traumatic injuries. The
Company's services include physical rehabilitation, physician practice
management, home healthcare, behavioral health management and laboratory
services within its physician practices.
Results of Operations
The following discussion and analysis should be read in conjunction with the
unaudited consolidated statements and notes thereto appearing elsewhere in this
Form 10-QSB. The following table sets forth, for the periods indicated, certain
items from the statements of income as a percentage of total revenues. The
statements of income include the operations of acquisitions made during the
three months ended September 30, 1997 from the acquisition dates.
<TABLE>
<CAPTION>
Percentage of Total Revenues
for the Three Months Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Revenues:
Fees for medical services, net 60.2% 0.0%
Management fees 39.8 100.0
------- -------
Total revenues 100.0 100.0
Expenses:
Payroll and employee benefits 63.1 46.8
Provision for bad debt 2.4 7.7
Professional fees 3.2 6.5
General and administrative 25.9 1.5
Depreciation and amortization 2.8 0.3
------- -------
Total expenses 97.4 62.8
------- -------
Income from operations 2.6 37.2
------- -------
Other income (expenses):
Interest income (expense), net 0.8 0.6
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C>
Minority interest 0.0 (2.7)
------- -------
Other income (expenses) 0.8 (2.1)
------- -------
Income before taxes 3.4 35.1
Provision for income taxes 1.4 13.1
------- -------
Net income 2.0% 22.0%
======= =======
</TABLE>
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Revenues - Total revenues increased 25.4% to $3,664,000 for the three months
ended September 30, 1997 from $2,923,000 for the three months ended September
30, 1996. The increase was primarily due to the acquisition of various physician
practices and home health agencies during the latter part of the prior fiscal
year and during the current quarter. This was offset with a shift in focus by
the Company from the Medicare behavioral health area to the healthcare services
noted above, which resulted in the assignment of certain of these Medicare
behavioral health management contracts with freestanding community mental health
centers during the three months ended September 30, 1997. The effect of this
assignment on operations was reflected in the statement of income for the prior
fiscal year.
The Company's revenues for the three months ended September 30, 1997 were
derived primarily from fees for medical services provided by the physician
practices, home health agencies and the comprehensive outpatient rehabilitation
facility ("CORF") owned by the Company. These revenues, $2,205,000 for the three
months ended September 30, 1997, represent 60.2% of total revenues for the
quarter. The remaining revenue for the quarter of $1,459,000, representing 39.8%
of total revenues for the quarter, was generated primarily under contracts to
manage and provide staffing and billing services to Medicare behavioral health
programs in hospitals and freestanding centers.
Revenues for the three months ended September 30, 1996 were comprised
exclusively from Medicare behavioral health management contracts with
freestanding centers and hospitals.
Expenses - Payroll and employee benefits increased from 46.8% of total revenues
for the three months ended September 30, 1996, or $1,368,000, to 63.1% of total
revenues, or $2,309,000, for the three months ended September 30, 1997. This
68.8% increase was primarily due to the payroll and employee benefits related to
the physician practices, home health agencies and the CORF acquired by the
Company since the three months ended September 30, 1996. The physician
practices, home health agencies and the CORF accounted for $1,098,000, or 47.5%
of total payroll and employee benefits for the three months ended September 30,
1997. For the three months ended September 30, 1996, payroll and employee
benefits was comprised primarily of payroll and benefits related to the
employees of the Company's employee leasing operation, which comprised 71.0% of
total payroll and benefits for that quarter, and provided clinical staffing
services to behavioral health programs in hospital and freestanding
rehabilitation centers. This operation comprised 12.6% of total payroll and
employee benefits for the three months ended September 30, 1997.
The provision for bad debt decreased to 2.4% of total revenues for the three
months ended September 30, 1997 from 7.7% of total revenues for the three months
ended September 30, 1996 due to the shift in revenue source from management fees
to fees for medical services. Fees for medical services, which comprised 60.2%
of total revenues for the quarter ended September 30, 1997, are recorded net of
discounts and contractual allowances whereas management fee revenues require the
recording of a provision for bad debt to record the related receivable at net
realizable value as determined by management's judgment.
11
<PAGE> 12
Professional fees for the three months ended September 30, 1997 were $116,000,
or 3.2% of total revenues, and include consulting, legal and other professional
fees. Professional fees for the three months ended September 30, 1996 were
$190,000, or 6.5% of total revenues. Of total consolidated professional fees for
each of the quarters, $105,000 represent fees under a subcontract agreement with
a third-party.
General and administrative expenses ("G&A") were approximately $950,000, or
25.9% of total revenues, for the three months ended September 30, 1997 as
compared to $45,000 or 1.5% of total revenues for the three months ended
September 30, 1996. The increase of $905,000 was primarily attributable to the
following: (1) increase in rent and utilities due to the expansion of
operations, the addition of the physician practices, home health and CORF
acquisitions, and the move of the corporate offices to a larger space in Miami,
Florida; (2) increase in office and medical supplies due to the expansion of
operations and services and the integration and assimilation of the
acquisitions; and (3) increase in purchased staff and services due to the home
health acquisitions which use contract staff to meet demands for its services.
Depreciation and amortization increased to $104,000, or 2.8% of total revenues,
for the three months ended September 30,1997 from $7,000, or 0.3% of total
revenues, for the three months ended September 30, 1996 primarily as a result of
the amortization of goodwill and other intangibles related to the acquisitons.
Interest - Net interest income as a percentage of total revenues remained
relatively constant at 0.8% for the three months ended September 30, 1997 as
compared to 0.6% for the three months ended September 30, 1996.
Minority Interest - Minority interest for the three months ended September 30,
1996 was $79,000, or 2.7% of total revenues and represented a 25% interest held
by a third-party in the earnings of a Continucare subsidiary. Effective December
31, 1996, the Company purchased the interest held by the third-party owner for
40,000 shares of Company Common Stock. As a result, the three months ended
September 30, 1997 reflects no minority interest.
Net Income - Continucare's consolidated net income for the three months ended
September 30, 1997 was approximately $75,000, or 2.0% of total revenues,
compared to $644,000, or 22.0% of total revenues, for the three months ended
September 30, 1996.
Earnings Before Interest, Taxes, Depreciation and Amortization - Earnings before
interest, taxes, depreciation and amortization ("EBITDA") is not presented as an
alternative to operating results or cash flow from operations as determined by
Generally Accepted Accounting Principles ("GAAP"), but rather to provide
additional information related to the ability of the Company to meet current
trade obligations and debt service requirements. EBITDA should not be considered
in isolation from, or construed as having greater importance than, GAAP
operating income or cash flows from operations as a measure of an entity's
performance.
EBITDA was approximately $200,000 and $1,016,000 for the three months ended
September 30, 1997 and 1996, respectively.
Liquidity and Capital Resources
For the three months ended September 30, 1997, net cash used in operating
activities was approximately $920,000, primarily as a result of the following:
(1) increase in accounts receivable of approximately $601,000 related primarily
to accounts receivable obtained in the acquisitions consummated during the
current quarter, and (2) increase of $600,000 in other receivables related to
the renegotiated payment terms of receivables from certain of the mental health
rehabilitation programs in connection with the assignment of the contracts to
manage those
12
<PAGE> 13
programs. For the three months ended September 30, 1997, net cash used in
investing activities was approximately $3,453,000 primarily related to the
purchase of various home health agencies and physician practices, including the
$2,700,000 paid for the acquisition of Maxicare, a Florida based home health
agency in September 1997. Net cash provided by financing activities for the
three months ended September 30, 1997 was approximately $1,890,000, comprised
primarily of the $2,500,000 received under the First Union Term Loan which was
used for the Maxicare acquisition offset primarily by the payment of the
Shareholder Note.
The Company's working capital was approximately $1,324,000 at September 30,
1997, compared to $7,499,000 at September 30, 1996. The decrease in working
capital is primarily attributable to use of cash for the various acquisitions
since September 30, 1996. In addition, as of September 30, 1997, the Company's
current liabilities included $5,000,000 borrowed under the Revolving and Term
Loans from First Union National Bank of Florida for various acquisitions. This
balance was repaid on October 30, 1997 from the proceeds of the Notes as
discussed below.
On October 30, 1997, the Company completed an offering of $46,000,000 of 8%
Convertible Subordinated Notes due September 30, 2002 (the "Notes"). The Notes
are convertible into Common Stock at any time after 60 days following the date
of initial issuance thereof and prior to maturity, unless previously redeemed,
at a conversion price of $7.25 per share. Interest on the Notes is payable
semiannually beginning April 30, 1998. The Notes are redeemable, in whole or in
part, at the option of the Company at any time on or after September 30, 2000.
In October 1997, the Company used approximately $14,000,000 of the net proceeds
of the Notes for several acquisitions of healthcare related companies. The
Company intends to use the remainder of the proceeds for additional
acquisitions, working capital and other general corporate purposes.
The Company anticipates that the cash flow from operations, together with funds
raised through the offering of the Notes will be used to make acquisitions in
order to grow its operations and pursue its business strategy. Based upon
current expectations, the Company believes that cash flow from operations will
be sufficient to meets its working capital requirements for fiscal year 1998,
although there can be no assurance that it will be able to do so.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated September 19, 1997. The Form 8-K
reported under Item 2 the acquisition of a Medicare certified home
health agency engaged in the business of providing home health services
to patients in Broward County, Florida.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CONTINUCARE CORPORATION
Dated: November 13, 1997 By: /s/ CHARLES M. FERNANDEZ
-------------------------------------------
Charles M. Fernandez, Chairman, Chief
Executive Officer and President
Dated: November 13, 1997 By: /s/ MARIA T. SOSA
-------------------------------------------
Maria T. Sosa, Principal Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CONTINUCARE CORPORATION FOR THE THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,507,552
<SECURITIES> 0
<RECEIVABLES> 4,685,233
<ALLOWANCES> 1,150,551
<INVENTORY> 95,851
<CURRENT-ASSETS> 8,567,756
<PP&E> 1,663,874
<DEPRECIATION> 433,383
<TOTAL-ASSETS> 22,296,083
<CURRENT-LIABILITIES> 7,243,310
<BONDS> 359,546
0
0
<COMMON> 1,089
<OTHER-SE> 14,692,138
<TOTAL-LIABILITY-AND-EQUITY> 22,296,083
<SALES> 0
<TOTAL-REVENUES> 3,663,784
<CGS> 0
<TOTAL-COSTS> 2,309,207
<OTHER-EXPENSES> 1,169,092
<LOSS-PROVISION> 89,083
<INTEREST-EXPENSE> 35,753
<INCOME-PRETAX> 124,977
<INCOME-TAX> 49,677
<INCOME-CONTINUING> 75,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,300
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
