SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended MAY 31, 1997
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from............. to ...............
Commission File No. 0-16964
CANCER TREATMENT HOLDINGS, INC.
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(Name of small business issuer in its charter)
Nevada 87-0410907
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
4491 South State Road Seven, Suite 200, Fort Lauderdale, Florida 33314
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (954) 321-9555
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Securities registered pursuant to Section 12(b) of the Exchange Act:
American Stock Exchange
Common Stock, $.003 Par Value Emerging Company Marketplace
- ----------------------------- ------------------------------------------
(Title of Each Class) (Name of Each Exchange on which Registered)
Securities Registered pursuant to Section 12(g) of the Exchange Act: None
----
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)
Issuer's revenues for the fiscal year ended May 31, 1997 were $16,952,000.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average high and low sales price of such stock, as of August
18, 1997, was $5,223,466. As of such date, the average high and low sales price
was $1.6875.
The number of shares outstanding of the Issuer's common stock, par value $.003
per share, as of August 18, 1997, was 3,336,476.
Transitional Small Business Disclosure Format (check one) Yes No x
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Documents incorporated by reference: Part of form 10-KSB to which incorporated:
1. Selected pages from the Issuer's Part III (Items 9, 10, 11 and 12)
Proxy Statement for its 1997
Annual Meeting of Shareholders
Certain exhibits listed in Part III of this Annual Report on Form 10-KSB are
incorporated by reference from the Registrant's Registration Statement on Form
S-18 and from the Registrant's Annual Reports on Form 10-K or 10-KSB for the
1990, 1992, 1995 and 1996 fiscal years.
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CANCER TREATMENT HOLDINGS, INC.
Form 10-KSB ANNUAL REPORT - 1997
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 3
Item 2. Description of Property 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote
of Security Holders 11
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters 11
Item 6. Management's Discussion and Analysis or
Plan of Operation 12
Item 7. Financial Statements 18
Item 8. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 39
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act 39
Item 10. Executive Compensation 39
Item 11. Security Ownership of Certain Beneficial
Owners and Management 39
Item 12. Certain Relationships and Related Transactions 39
Item 13. Exhibits and Reports on Form 8-K 39
SIGNATURES 42-43
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business
-------------------------------
Cancer Treatment Holdings, Inc. ("CTH"), a Nevada corporation,
through its subsidiaries (collectively, the "Company"), is primarily engaged in
(i) providing home health, home infusion and nursing services, (ii) establishing
and administering businesses for the ambulatory treatment of cancer using a
variety of modalities, including radiation therapy and bone marrow
transplantation, and (iii) providing management, consulting and billing and
collection services for free standing radiation therapy centers (the "Centers").
In home health and nursing services, the Company owns and operates
Leader Health Care Center, Inc. ("Leader"). Leader owns 100% of the equity
interest of both Med Tech Services of South Florida, Inc. ("Med Tech") and
Southern Cross Home Health, Inc. ("Southern Cross"). Leader, Med Tech and
Southern Cross are providers of home health and nursing services in Southeastern
Florida. Leader also provides home infusion therapy and physical rehabilitation
services.
In radiation therapy, the Company provides management/consulting as
well as billing and collection services for various centers. The Company has an
ownership interest in one of these facilities. During fiscal 1995, the Company
sold its equity interests in four free-standing centers (located in Tampa, Coral
Springs and Boca Raton, Florida, and Macon, Georgia), but retained long-term
management/consulting and/or billing and collection service contracts with all
of them.
Home Health and Nursing Services
--------------------------------
The Company, through Leader and its subsidiaries Med Tech and
Southern Cross (all of which are located in Southeast Florida), is specifically
licensed to provide home health and home nursing services to patients suffering
from various illnesses, primarily in the home setting. Of particular importance
is a certificate-of-need which enables Med Tech to render home health services
to Medicare patients in Broward, Palm Beach, Okeechobee, Indian River, Martin
and St. Lucie counties in Southeastern Florida. See "Certificate of Need."
The business of home health and nursing-care has grown in recent
years in response to the continued increase in health care costs. As the cost of
health care continues to rise, health care payors find home care an economically
favorable alternative to more costly hospital based care. In addition, many
patients prefer to be treated in the privacy of their homes.
The Company employs or contracts with registered nurses, high-tech
nurses, home health aides, physical, occupational and speech therapists, and
medical social workers. Services provided include, without being limited to,
wound care, intravenous administration, and pediatric care. The principal
therapies provided by the Company are home intravenous chemotherapy, home
intravenous antibiotic therapy, enteral therapies and total parenteral
nutrition. Home health services are provided under a plan of care and orders
from physicians. Services are available at any time, in case of an emergency.
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Approximately 93% and 86% of net patient service revenues for fiscal
1997 and fiscal 1996, respectively, were derived from services provided to home
health care patients who are Medicare beneficiaries. All of the payments for
these services are made by the Medicare program based on reimbursable costs
incurred in rendering the services. Payments are made via an interim payment
rate as services are rendered. Cost reports are filed with Medicare on an annual
basis, which are subject to audit and retroactive adjustment by Medicare. The
Company reports revenue only for those costs that it believes are probable of
recovery under the applicable Medicare statutes and regulations and reports its
accounts receivable balances at net realizable value. The Company employs
personnel with significant Medicare reimbursement experience to prepare its cost
reports and to monitor its operations on an ongoing basis to identify and seek
to minimize those costs which are not reimbursed. As a part of its system of
internal controls, the Company uses a detailed analysis process in calculating
its Medicare revenue at the time services are rendered. This process considers
the nature and amounts of the costs along with several authoritative, legal and
historical sources of information including:
o Applicable statutes and regulations, such as those contained
in the Title XVIII of the Social Security Act, particularly
Sec. 1861(V)(1)(A) "Reasonable Cost" and 42 C.F.R. 413.9
"Cost Related to Patient Care," Health Care Financial
Administration ("HCFA") Publication 11 "Home Health Agency
Manual," applicable sections of HCFA Publication 15-1
"Provider Reimbursement Manual" and intermediary letters and
program memoranda issued by HCFA.
o Administrative decisions and rulings on related issues by the
Provider Reimbursement Review Board and Administrative Law
Judges.
o Judicial decisions from Federal District Courts on relevant
cases.
o Consultation with independent industry experts such as
Medicare Cost Reimbursement Consultants.
o Opinions of outside consultants who specialize in dealing with
Medicare reimbursement issues.
o Historic knowledge gained internally from past Medicare
audits.
o Meetings and other communications with Medicare Intermediaries
and HCFA.
This detailed analysis process is updated on a quarterly basis,
taking into account any new information (such as decisions relating to the
Company's costs, and administrative and judicial decisions relating to similar
issues) that may affect the determination of the net realizable value of
accounts receivable or of liabilities to repay amounts received for disallowed
costs. Results of this detailed analysis process are extrapolated to other
unaudited cost reporting years of all of the Company's operations, including
operations that have not yet been audited by Medicare, to estimate the gross
amount of reimbursement that would be affected.
Proposals have been made by legislators to change the current
Medicare cost reimbursement system by substituting a prospective payment plan.
Most prospective payment proposals would phase-in a payment system under which
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providers would ultimately receive payment on a "per episode" basis, with
overall payment limits as well as the opportunity for providers to share in
savings to the extent program payments to providers are less than annual
aggregate limits. There can be no assurance that any such proposals will be
implemented, nor any assurance as to the final form or effects of such
legislation. The attempt to include prospective payment in the recently enacted
federal reconciliation bill was dropped in the latter stages of negotiation. It
appears that no viable legislation vehicle currently exists that would provide
serious consideration of prospective payment in the time between now and the
anticipated early adjournment of the 105th Congress. The Company does not
anticipate any adverse impact from such changes if enacted.
Radiation Therapy Services
--------------------------
Radiation therapy is most often used in the treatment of cancer.
Patients with cancer will typically experience a multi-step process in the
course of the diagnosis and treatment of their illness. First, the patient's
primary physician will diagnose the disease and refer the patient to a radiation
oncologist or medical oncologist. Second, the oncologist will confirm the
diagnosis through additional testing and then prescribe treatment. A patient may
utilize the services of a radiation therapist of his choice at any point in the
process but most typically chooses the physicians and facilities recommended by
his primary doctor and oncologist. Finally, the patient is treated for the
disease. Treatment may include a combination of surgery, chemotherapy and
radiation therapy. Assuming optimum patient care, about 60% of patients with
cancer require radiation therapy at some time during the course of the disease.
In addition, some patients will require extension of their treatments due to
recurrence or metastatic disease.
Traditionally, medical services such as radiation therapy were
provided by general acute care hospitals. There is a trend, however, toward more
specialized providers of medical services in free-standing, non-hospital based
facilities. To the extent that the centers are not burdened with the overhead
and expenses of a complete health care facility, they may be able to offer their
services at lower costs than those incurred by hospitals.
Physicians are often reluctant to utilize medical services that are
not affiliated with the local medical community. Historically, the Company had
developed centers through partnerships with referring physicians serving as
partners. Due to changes in federal laws and regulations relating to physician
referral, the Company has restructured or divested itself from these previously
allowable ventures. During fiscal 1995, the Company sold its equity interest in
four facilities (located in Coral Springs, Boca Raton and Tampa, Florida and
Macon, Georgia). (For details see below under "Regulations of Physician
Ownership" and "Management's Discussion and Analysis or Plan of Operation.")
As a result of the new regulations, centers are now being structured
through wholly-owned subsidiaries of the Company or through partnerships
primarily with hospitals or unaffiliated investors. During fiscal 1998, the
Company will continue its efforts to establish additional centers in Logan, West
Virginia, and Lakewood, New Jersey. The Company expects these centers to be
operational during fiscal 1998, subject to certain conditions. In addition, the
Company has secured a certificate-of-need to establish a center in Martinsburg,
West Virginia which is expected to commence operations in fiscal 1999.
Billing/Collection and Management Services
------------------------------------------
The Company provides billing/collection, management and consulting
services for various radiation centers in Florida and Georgia. Fees for
billing/collection services are based on a percentage of the net collections of
each center. Fees for management and consulting services vary for each center
managed.
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The most significant agreements the Company currently has relate to
the centers sold in fiscal 1995. Under these agreements, the Company receives
approximately $25,000 - 30,000 per month in billing/collection fees, $348,000
annually in management fees over the next three years, and $150,000 annually in
consulting fees over the subsequent eight years.
Bone Marrow Transplant Centers
------------------------------
The Company perceives an area of business growth and expansion in
the field of developing bone marrow transplant operations. The Company has set
up its first such operation in Memorial Regional Hospital in Hollywood, Florida
and expects to open additional operations in fiscal 1998. These operations will
perform peripheral bone marrow transplants, typically in conjunction with
high-dose chemotherapy. This procedure is widely accepted within the medical
community as an aggressive and successful method of treating certain types and
stages of cancer. It involves harvesting "stem cells," which are embedded in the
bone marrow and are precursor cells for various blood cells such as red cells,
white cells, and platelets. The stem cells are harvested through the blood
stream, not by the traditional procedure of puncturing the bones of the pelvis.
Government Regulation and Recent Developments
---------------------------------------------
The establishment and operation of the Company's business are
subject to federal and state laws. These laws may include statutes and
regulations governing state Certificate of Need ("CON") programs, the licensure
of health care facilities, services and equipment, and physician investments and
compensation arrangements in health care entities to which they refer patients.
The Company believes that its plan for the establishment and operation of its
business substantially complies with applicable laws and regulations, but the
Company has not sought an interpretative ruling or opinion from any applicable
regulatory agency, and in some cases, such a process for obtaining a ruling or
advisory opinion is not available. There can be no assurance that subsequent
adoption of laws, interpretations and application of existing laws, promulgation
of additional regulations or enforcement actions in state or federal
administrative and judicial forums will not restrict or otherwise adversely
affect the Company's business. The Company believes that all the businesses the
Company currently owns and/or operates comply with the applicable federal and
state laws and regulations.
Certificate of Need
-------------------
CON programs most often control and regulate the construction of
health care facilities, the acquisition of health care facilities and the
purchasing of medical equipment. Although such programs vary from state to
state, generally an entity must obtain a CON before constructing a health care
facility, acquiring major medical equipment or providing certain services.
Normally, a grant of a CON is based on various criteria relating to need, giving
consideration to the extent to which facilities, equipment or services are
available to a specified geographical area and the population of such area. The
Company's present businesses are either exempt from the requirement of obtaining
a CON or have been granted a CON in that particular state or location. The
Company has been granted a CON for the anticipated center in Logan, West
Virginia and another one for a center in Martinsburg, West Virginia. In New
Jersey, the other state where the Company plans to establish a new center, the
Company has satisfied the CON requirements through utilizing grandfather clauses
and by functioning as a subcontractor to a medical practice. The Company's
Medicare certified home health agencies are subject to Florida CON requirements
which were satisfied either by purchasing an already certified agency or by
obtaining a new CON.
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Licensure
---------
Leader, Med Tech and Southern Cross are subject to certain federal
and state licensure and certification requirements and regulations. Each of the
therapies offered by Med Tech, Southern Cross and Leader, except enteral
nutrition, are prescription-based and, accordingly, each must employ or contract
with pharmacists and registered nurses who are duly licensed by the State of
Florida. State pharmacy license laws and regulations generally impose standards
relating to physical layout, cleanliness, inventory controls and record keeping
and require that each pharmacy be operated under the supervision of a licensed
pharmacist. In addition, the pharmacies are required to be registered with
appropriate state authorities under laws relating to distribution of any
controlled substances. The home health agencies, which provide nursing services
and nutritional counseling, are licensed and must comply with standards
established by the State of Florida.
Regulation of Physician Ownership
---------------------------------
Increasing federal and state regulatory attention is being directed
toward arrangements whereby physicians are compensated, directly or indirectly,
for referring patients for health care goods or services. Currently, physicians
who refer patients to the Company are subject to the Medicare and Medicaid Anti-
Kickback provisions of the Social Security Act (the "Medicare/Medicaid Statute")
which prohibit the offer or solicitation, payment or receipt, in cash or in
kind, of any remuneration in return for the referral of Medicare or Medicaid
patients or the ordering of services for which Medicare or Medicaid payments may
be made. The Medicare/Medicaid Statute is extremely broad and carries both
criminal and civil penalties for violations.
In 1989, Congress also passed a bill entitled "Physician Ownership
of and Referrals to Health Care Entities" (the "Stark Law"). The Stark Law
prohibits physician referrals to any clinical laboratory in which a physician
has an ownership interest, with very limited exceptions. In 1994, the Stark Law
was expanded to prohibit physician referrals to entities that provide designated
health services in which a physician has a financial relationship ("Stark II").
Designated health services include radiation therapy services.
In order to comply with Stark II the Company, in fiscal 1995, sold two of
its centers (Tampa, Florida and Macon, Georgia) but continues to render
management, consulting and billing/collecting services. At a third location
(West Palm Beach, Florida), the Company and a community hospital bought out
referring physicians and became joint general partners.
Competition
-----------
The health care industry, including the segments of home health,
home nursing and cancer treatment, is very competitive. In home health, the
Company competes against many other certified home health agencies in each of
Florida's District 9 (Counties of Palm Beach, Martin, St. Lucie, Okeechobee and
Indian River) and District 10 (Broward County). Many of these offer the exact
same type of services as the Company's home health operation. In addition, the
Company competes against hospitals, national specialized home care providers and
other independent home care companies which have their own home health
operations. It is possible that in the future the CON requirements may change
which would enable many more home health agencies to provide the services the
Company currently provides. Should this happen, it could have a material adverse
impact on the operations of the home health business. In cancer treatment, the
Company faces substantial competition from local hospitals, other free-standing
treatment facilities, private physicians and publicly and privately owned
companies for patients. Primary care physicians often refer patients to
facilities or companies which employ the physicians as employees or to a
hospital with which the physicians have staff privileges.
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Marketing
---------
Home health providers are usually referred to potential clients by
other health care professionals. The Company seeks to build strong relationships
with these professionals. The Company has identified many potential referral
sources for home health services. These referral sources include physicians,
hospitals, nursing homes, managed care organizations, community organizations,
and other home care agencies. Word of mouth is also responsible for a
significant number of home care referrals. One of the Company's goals is to
broaden the referral base among managed care organizations, hospitals, nursing
homes, physicians and health insurance payors by establishing and maintaining
strong working relationships with them and providing quality patient care.
In cancer treatment, the Company provides radiation therapy services
and home health services. These services are marketed primarily to insurance
companies, health maintenance organizations and physicians. The Company believes
that its success in this area is based on providing quality care at a lower cost
than competing hospitals and other facilities.
Employees
---------
As of May 31, 1997, the Company had a total of 286 employees, 182 of
which were full-time. All employees of Palm Beach Radiotherapy Associates, Ltd.
(the "Palm Beach Partnership"), which is accounted for on the equity basis, are
employees of the Palm Beach Partnership and not of the Company. Physicians and
other medical professionals render services as independent contractors to the
Company. The Company is not a party to any collective bargaining agreements and
considers its relationship with its employees to be good.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company and its affiliates own or lease the following
properties:
Approximate Land and Lease Date
Entity Size Building Expiration Equipment
- -------------------------- ------------ -------- ---------- ---------
Corporate office
Fort Lauderdale, Florida 4,700 sq. ft Leased 06-30-99 Owned/Leased
Office condominium unit(1)
Hollywood, Florida 3,500 sq. ft. Owned N/A None
Med Tech Services of
South Florida, Inc.
Davie, Florida 9,600 sq. ft. Leased 02-28-00 Owned/Leased
Med Tech Services of
South Florida, Inc.
Tamarac, Florida 1,708 sq. ft. Leased 09-30-98 Owned/Leased
Med Tech Services of
South Florida, Inc.
Fort Lauderdale, Florida 3,500 sq. ft. Leased 10-1-05 Owned/Leased
Med Tech Services of
South Florida, Inc.
Palm Beach, Florida 6,327 sq. ft. Leased 11-30-98 Owned/Leased
Leader Home Health
Care Center, Inc.
Boca Raton, Florida 1,200 sq. ft. Leased 05-1-02 Owned/Leased
Palm Beach Center
Palm Beach, Florida 4,700 sq. ft. Leased 03-18-01 Owned/Leased
AOS of South Broward, Inc.
Hollywood, Florida 1,275 sq. ft. Leased 09-29-05 Owned/Leased
(1) Owned subject to mortgage and leased to a third-party.
In Management's opinion, the Company's corporate and subsidiaries'
offices and the facilities in which each business is located are suitable for
the purposes for which they are used.
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ITEM 3. LEGAL PROCEEDINGS
The Company, through its subsidiary CTI of Palm Beach, Inc.
("CTIPB"), is involved in four separate legal proceedings arising from a dispute
between CTIPB, as managing general partner of Palm Beach Radiotherapy
Associates, Ltd., a Florida limited partnership (the "Palm Beach Partnership")
and the other general partner of the Palm Beach Partnership, Good Samaritan
Hospital, Inc. ("Good Samaritan"). As a result of a buyout of limited partners
in 1995, the only remaining partners of the Palm Beach Partnership are CTIPB and
Good Samaritan, with each holding an interest as a general partner and as a
limited partner. Each owns an aggregate 50% interest in the Palm Beach
Partnership. The existing proceedings are as follows:
1. On June 12, 1996, the Palm Beach Partnership, by and through CTIPB
as its managing general partner, filed a suit against Good Samaritan
in Palm Beach County, Florida, Circuit Court seeking declaratory
judgment concerning the terms of the facility lease and radiation
agreement for the Palm Beach Partnership and prohibiting Good
Samaritan from evicting the Palm Beach Partnership from its premises
at Good Samaritan Hospital. Good Samaritan has filed a counterclaim
seeking eviction, unspecified monetary damages and other injunctive
relief against the Palm Beach Partnership.
2. On June 18, 1996, the Palm Beach Partnership, by and through CTIPB
as managing general partner, filed suit against Good Samaritan in
Palm Beach County Circuit Court seeking unspecified monetary
damages, together with injunctive relief, based on Good Samaritan's
alleged violation of a non-competition agreement with the Palm Beach
Partnership relating to radiation therapy equipment.
3. On June 26, 1996, the Palm Beach Partnership, by and through CTIPB
as managing general partner, filed a demand for arbitration against
Good Samaritan with the American Arbitration Association in Palm
Beach County, Florida, seeking a determination of the amount of base
rent due under the Palm Beach Partnership's equipment lease and an
award of all amounts already paid which exceed this amount. Good
Samaritan has filed a counterclaim based upon a claimed breach of an
equipment lease seeking damages of approximately $400,000 against
the Palm Beach Partnership.
4. On July 15, 1996, Good Samaritan filed suit in Palm Beach County
Circuit Court seeking a judicial dissolution of the Palm Beach
Partnership.
The above-described legal proceedings are all interrelated and arise
from the decision of Good Samaritan to conduct its radiation therapy business
through its own affiliates rather than through the Palm Beach Partnership with
CTIPB. CTIPB disputes Good Samaritan's right to do so under the applicable
provisions of the partnership agreement and Florida partnership law. The Company
believes that CTIPB's position in these cases is meritorious and intends to
litigate vigorously while at the same time seeking a favorable negotiated
resolution; however, these cases are in a very preliminary stage and in the
opinion of management of the Company, the ultimate outcome with respect to these
actions will not materially affect the financial position, results of operations
or cash flows of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal
year ended May 31, 1997, to a vote of security holders of the Company through
the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock
------------
The Company's Common Stock commenced trading on the American Stock
Exchange Emerging Company Marketplace ("AMEX.ECM") on March 18, 1992, under the
symbol "CTH.EC". The quotations set forth below do not necessarily represent
actual transactions and do not reflect retail mark ups, mark downs or
commissions.
The following table sets forth for the fiscal periods indicated the
high and low reported sales price for the Company's Common Stock on the AMEX.ECM
System.
Fiscal Years Ended May 31,
---------------------------------------
1997 1996
--------------- ---------------
Quarter High Low High Low
------- ---- --- ---- ---
First Quarter 3-3/16 1-13/16 2-1/2 1-7/8
Second Quarter 2-1/2 1-5/8 4-5/16 2-1/8
Third Quarter 2-1/16 1-1/4 2-5/8 2
Fourth Quarter 1-7/8 1-1/16 3-1/8 1-11/16
As of August 18, 1997, the Company's Common Stock was held by 241
shareholders of record. In addition, the Company believes that there are an
additional 1,051 holders of its Common Stock who hold the shares in "street
name."
In fiscal 1997, the Company paid no dividends on its Common Stock
nor does it anticipate paying cash dividends on its Common Stock in the
foreseeable future. In the event that the Company changes this policy, future
payment of dividends on its Common Stock would depend, among other things, upon
the operations and financial condition of the Company.
The Company has not sold any of its securities within the past three
years.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere herein.
The Company is engaged in (i) providing home health, home infusion
and nursing services, (ii) establishing and administering businesses for the
ambulatory treatment of cancer using a variety of modalities including radiation
therapy and bone marrow transplantation, and (iii) providing management,
consulting and billing and collection services for free-standing radiation
therapy centers. Approximately 93% and 86% of net patient service revenues for
1997 and 1996, respectively, were derived from services provided to home health
patients who are Medicare beneficiaries. All payments for these services were
made by the Medicare program based on reimbursable costs incurred in rendering
the services.
Home Health and Nursing Services
--------------------------------
In an effort to increase its ability to provide home healthcare
services and to position itself for proposals by legislators to change the
current Medicare cost reimbursement system (see "Description of Business") the
Company took the following steps in 1997:
o The Company hired a new management team to oversee the
operations of the home health division. As part of the new
management team's strategic implementation plan, the Company
was able to broaden the base of clinical employees and lesson
its reliance on the utilization of independent contracting
services to fulfill its patient staffing needs. The Company
believes this to be a very important step in positioning
itself for future growth and a prospective payment system if
such a system were implemented through legislation.
o In July 1996, the Company was granted a Certificate of Need
("CON") to operate a licensed certified Medicare home health
agency in Florida's District 9 which consists of Palm Beach,
Okeechobee, Indian River, Martin and St. Lucie counties. As a
result of being awarded the new CON, the Company is now able
to provide home health services in six counties in Southeast
Florida. During the year, the Company performed approximately
34,000 visits through its new operation in District 9 and by
the end of the year was performing over 60,000 visits on an
annualized basis. Management believes that the District 9
operation will continue to grow during the year and total
visits for fiscal 1998 should approach 100,000. The Company's
operation in District 10 (Broward County) performed
approximately 137,000 visits in 1997 as compared to 105,000 in
1996 and management believes this business will continue to
grow, although at a slower rate than the District 9 operation.
o During the year, the Company expanded the offices of both home
health operations. In District 9, the Company doubled the
space of its administrative offices in Palm Beach County to
6,327 square feet and is planning to open another office in
September 1997 in Delray Beach, Florida, which is located
equidistant between Fort Lauderdale and West Palm Beach. This
office is planned to be approximately 11,000 square feet in
size and will enable the Company to more efficiently service
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its patients in both Districts 9 and 10. The Company also
relocated its District 10 operation to a new 9,600 square
foot facility to accommodate the increase in personnel as a
result of management's new strategic plan. Finally, the
Company plans to open an office in the "Treasure Coast" of
Florida which includes the counties of Martin, St. Lucie and
Indian River, Florida during the fourth quarter of fiscal
1998.
o In November 1996, the Company received a renewal of its
accreditation from the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO") for its home health and
home infusion operations. JCAHO is a nationally recognized
organization which develops standards for various healthcare
industry segments and monitors compliance with those standards
through voluntary surveys of participating providers. As the
home health industry has grown, the need for objective quality
measurements has increased. JCAHO accreditation entails a
lengthy review process which is conducted every three years.
Accreditation is increasingly being considered a prerequisite
for entering into contracts with providers and physicians at
every level. Because accreditation is expensive and time
consuming, not all providers choose to undergo the process. In
part because of its leadership role in establishing quality
patient care standards for home healthcare and its active and
early participation in this process, the Company's home
healthcare operations, Med Tech, are viewed favorably by
referring physicians.
Radiation Therapy Services
--------------------------
Physicians are often reluctant to utilize medical services that are
not affiliated with the local medical community. Historically, the Company had
developed radiation therapy centers through partnerships with referring
physicians serving as partners. Due to recent changes in federal laws and
regulations relating to physician referral, the Company has restructured or
divested itself from these previously allowable ventures. During fiscal 1995,
the Company sold its equity interest in four facilities (located in Coral
Springs, Boca Raton and Tampa, Florida and Macon, Georgia).
In May 1996, the Company sold all of its interest in a radiation
therapy center under development in Yonkers, New York. The Company will receive
$300,000 in cash as a reimbursement for expenses incurred associated with the
development of the facility. Such amount is due in equal monthly installments
over a one-year period beginning seven months after the facility opens which
occurred in June 1997. As part of the transaction, the Company also entered into
a three-year non-competition agreement, a five-year consulting agreement, a
turn-key license agreement and an option agreement allowing the buyer to
participate as an equity owner in future transactions of a similar nature. Such
amounts are payable beginning 18 months after the center opens and are limited,
on a monthly basis, to a percentage of the fees collected by the center. These
payments will be recorded in income when contingencies regarding collectability
of such amounts are resolved.
The development of future centers will be structured through
wholly-owned subsidiaries of the Company or through partnerships primarily with
hospitals or unaffiliated investors. During fiscal 1998, the Company continued
its efforts to establish radiation therapy centers in Logan, West Virginia, and
Lakewood, New Jersey. The Company expects these centers to be operational during
fiscal 1998, subject to certain conditions. In addition, the Company has secured
a certificate-of-need to establish a radiation center in Martinsburg, West
Virginia which is expected to commence operations in fiscal 1999.
13
<PAGE>
Bone Marrow Transplantation Services
------------------------------------
The Company perceives an area of business growth and expansion in
the field of developing bone marrow transplant centers. The Company has set up
its first such center in Memorial Regional Hospital in Hollywood, Florida and
expects to open additional centers in fiscal 1998. These centers will perform
peripheral bone marrow transplants, typically in conjunction with high-dose
chemotherapy.
Management, Consulting and Billing and Collection Services
----------------------------------------------------------
The Company provides billing/collection, management and consulting
services for various radiation therapy centers in Florida and Georgia. Fees for
billing/collection services are based on a percentage of the net collections of
each center. Fees for management services vary for each center managed.
The most significant agreements the Company currently has relate to
the centers sold in fiscal 1995. Under these agreements, the Company receives
approximately $25,000 - 30,000 per month in billing /collection fees, $348,000
annually in management fees over the next three years, and $150,000 annually in
consulting fees over the subsequent eight years.
Results of Operations:
----------------------
Comparison of the Fiscal Year Ended May 31, 1997 to the Fiscal Year
--------------------------------------------------------------------
Ended May 31, 1996
------------------
Revenues for fiscal 1997 increased $5,087,000, or 43%, over fiscal
1996, from $11,865,000 in 1996 to $16,952,000 in 1997. This increase was
principally attributable to the increase in revenues from home health and
nursing services.
Patient service revenues which are derived principally
from the operations of Med Tech and Leader increased
$5,257,000 from $10,287,000 in 1996 to $15,544,000 in
1997. The increase in revenues is primarily the result
of an increase in visits performed by the home health
and nursing services operation from 105,000 in 1996 to
178,000 in 1997. The increase in the number of visits
performed is the result of the opening of the new home
health operation in District 9 which performed
approximately 34,000 visits during the year and an
increase in the number of visits performed by the
operation in District 10 of 32,000.
Other revenues, which consist principally of
management/consulting and billing and collection
revenues and interest income, decreased $170,000 from
$1,578,000 in 1996 to $1,408,000 in 1997. This decrease
is primarily attributed to the expiration of a
management contract with a hospital in November of 1996
and a decrease in interest income of $58,000 as a result
of the maturing of notes receivable.
14
<PAGE>
The Company receives payment for its services from various sources.
The following summarizes the Company's revenues by payor sources:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Medicare, on a cost reimbursement basis $14,465,000 93.0 $ 8,816,000 85.7
Commercial Insurance 695,000 4.5 872,000 8.5
Other (primarily Medicaid) 384,000 2.5 599,000 5.8
----------- ----- ----------- -----
Net patient service revenue 15,544,000 100.0 10,287,000 100.0
===== =====
Billing,Collection,Management and
Consulting Fees 1,109,000 1,207,000
Other Miscellaneous Revenues 299,000 371,000
------------ -----------
$16,952,000 $11,865,000
============ ===========
</TABLE>
Changes in the current mix of payors, specifically those which would
result in a decrease in the percentage of revenues from Medicare or third-party
payors, may adversely effect the Company's future results of operations.
Operating expenses in fiscal 1997 increased $6,274,000, or 56% from
$11,198,000 in 1996 to $17,472,000 in 1997. This increase was primarily
attributable to the increases in the direct cost of patient services and general
and administrative expenses, as detailed below.
Direct cost of patient services, which includes primarily payroll
costs and contracted medical services increased $3,591,000 or 64% from
$5,650,000 in 1996 to $9,241,000 in 1997. The majority of these costs relate to
the Company's home health operation. On a per visit basis, these costs increased
from $49.67 per visit in 1996 to $50.58 per visit in 1997. The slight change in
the cost is consistent with the increase in the consumer price index. As a
percentage of total revenues, direct costs of patient service increased from 55%
in 1996 to 60% in 1997. This increase reflects a decline in the reimbursement
from non- Medicare home health business.
General and administrative expenses, which include all general and
administrative expenses of the Company's subsidiaries, increased $2,444,000 or
49% from $5,013,000 in 1996 to $7,457,000 in 1997. The majority of these costs
relate to the Company's home health operation. On a per visit basis, these costs
increased from $20.63 per visit in 1996 to $24.90 in 1997. During the year, the
Company significantly increased its base of administrative clinical employees,
to a level to support significantly more visits than the Company performed in
fiscal 1997, in anticipation of future growth. The Company believes the average
cost per visit for general and administrative expenses will decrease in the
future. As a percentage of total revenues, general and administrative expenses
increased from 42% in 1996 to 44% in 1997. This increase reflects an increase in
costs associated with non-Medicare home health business.
Interest expense increased during the year by $228,000 primarily as
a result of an increase in borrowings under the revolving credit facility of
$1,173,000.
15
<PAGE>
Liquidity and Capital Resources:
--------------------------------
As of May 31, 1997, the Company had working capital of $4,344,000,
including cash of $1,325,000 as compared to working capital of $3,224,000 at May
31, 1996.
The nature of the Company's primary business, home healthcare
requires weekly and/or bi-monthly payments to its personnel and contracted labor
at the time they render services, while it receives payment from Medicare for
services rendered over an extended period of time (60 to 75 days or longer.) At
May 31, 1997 and 1996, the Company's accounts receivable from Medicare were
$2,328,000 and $2,533,000, respectively, representing 15.0% and 24.6% of the
Company's net patient revenues for each of the respective years then ended. The
decrease in the accounts receivable is a result of the Company's interim
reimbursement rate more closely approximating its actual costs per visit. In
addition, the Company provided for an additional $300,000 reserve for potential
cost reimbursement disallowances.
Historically, the Company had financed its operations through cash
generated by operating activities. As a result of the significant increase in
the home healthcare operations, the Company secured a $2,000,000 revolving
credit facility, collateralized by its Medicare accounts receivable in the
latter part of fiscal 1996. This facility was increased to $4,000,000 in 1997 to
support the growth of the home healthcare operation. Borrowings under the
facility increased by $1,173,000 during the year. The increase in borrowings was
used in part to help fund the start up of the District 9 home health operation.
The Company believes that it will be able to increase this facility as
necessary, as its home health business grows. The facility expires on March 22,
2001.
During fiscal 1997, cash increased $459,000. Cash used in operating
activities amounted to $582,000 in 1997 compared to $734,000 in 1996. The
principal components resulting in the use of cash in operating activities was
the payment of taxes of $254,000 and the reduction in accounts payable and
accrued expenses of approximately $281,000. The Company's current ratio (current
assets over current liabilities) was 5.15 for 1997 and 3.23 for 1996. Cash used
in investing activities was $67,000 in 1997, compared to $329,000 in 1996 and
was primarily the result of $561,000 invested in the development of new
ventures, offset by cash collections received under notes receivable of $371,000
and payments of $203,000 received from the Palm Beach Partnership. Cash provided
by financing activities was $1,109,000 in 1997 compared to $562,000 in 1996 and
was the result of additional borrowings under the revolving credit which
borrowings were used in part to fund the operations of the new home health
operations.
The Company guarantees certain financing agreements of the Palm
Beach, Lakewood and Logan partnerships.
As of May 31, 1997, the Company has guaranteed the following
amounts:
Partnership Amount Description
----------- ------ -----------
Palm Beach $ 119,000 (1) Equipment leased and leasehold
improvements; (2) Term loan
Lakewood 1,310,000 (1) Equipment leased and leasehold
improvements
Logan 1,049,000 Equipment leased
-----------
$ 2,478,000
===========
16
<PAGE>
Except for those items discussed above, there are no existing
material sources of liquidity available to the Company or material commitments
for capital expenditures. There are no material trends, favorable or
unfavorable, in the Company's capital resources. Management is unaware, except
for those items discussed above, of any trends, demands, commitments, events or
uncertainties that will result in or that are reasonably likely to result in the
Company's liquidity increasing or decreasing in any material way.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
Page
Report of Independent Accountants 19
Consolidated Balance Sheets as of May 31, 1997 and 1996 20
Consolidated Statements of Operations for the
Years Ended May 31, 1997 and 1996 21
Consolidated Statements of Stockholders' Equity for the
Years Ended May 31, 1997 and 1996 22
Consolidated Statements of Cash Flows for the
Years Ended May 31, 1997 and 1996 23 - 24
Notes to Consolidated Financial Statements 25 - 38
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Cancer Treatment Holdings, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Cancer Treatment
Holdings, Inc. and subsidiaries as of May 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cancer Treatment
Holdings, Inc. and subsidiaries as of May 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Fort Lauderdale, Florida
August 22, 1997
19
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,324,745 $ 865,265
Accounts receivable, net of allowance for doubtful accounts
of approximately $101,000 in 1997 and $124,000 in 1996 3,076,429 3,072,823
Current portion of long-term notes receivable, net of a
discount of $27,857 in 1997 and $94,758 in 1996 466,217 348,574
Income taxes receivable 227,369 --
Other current assets 296,602 380,222
----------- -----------
Total current assets 5,391,362 4,666,884
Long-term notes receivable, net of current portion and a
discount of $33,415 in 1997 and $169,764 in 1996 1,123,378 1,574,684
Property and equipment, net 968,331 1,115,214
Investments in and advances to partnerships and ventures 1,072,944 880,858
Intangible assets, net 844,868 956,809
Other assets 133,148 131,464
----------- -----------
Total assets $ 9,534,031 $ 9,325,913
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 207,309 $ 67,876
Accounts payable 387,251 527,926
Accrued payroll and related benefits 452,562 593,313
Income taxes payable -- 254,000
----------- -----------
Total current liabilities 1,047,122 1,443,115
Long-term debt, net of current portion 2,124,611 1,155,400
Deferred income taxes 107,400 140,400
----------- -----------
Total liabilities 3,279,133 2,738,915
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock; $.003 par value, 50,000,000
shares authorized, 3,495,760 shares issued 10,487 10,487
Capital in excess of par value 5,163,105 5,163,105
Retained earnings 1,361,387 1,693,487
----------- -----------
6,534,979 6,867,079
Treasury stock: 159,284 shares, at cost (280,081) (280,081)
----------- -----------
Total stockholders' equity 6,254,898 6,586,998
----------- -----------
Total liabilities and stockholders' equity $ 9,534,031 $ 9,325,913
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
20
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net patient service revenues $ 15,543,649 $ 10,286,657
Other revenues 1,408,387 1,578,422
------------ ------------
Total revenues 16,952,036 11,865,079
------------ ------------
Operating expenses:
Direct cost of patient services 9,241,194 5,649,524
(primarily payroll and contracted medical services)
General and administrative 7,456,988 5,012,737
Interest expense 354,585 126,884
Depreciation and amortization 418,911 409,072
------------ ------------
Total operating expenses 17,471,678 11,198,217
------------ ------------
Income (loss) before loss in earnings of partnerships
and income taxes (519,642) 666,862
Equity in loss of partnerships (67,458) (5,230)
------------ ------------
Income (loss) before income taxes (587,100) 661,632
Benefit (provision) for income taxes 255,000 (310,000)
------------ ------------
Net income (loss) $ (332,100) $ 351,632
============ ============
Per share data:
Net income (loss) per share $ (.10) $ .11
============ ============
Weighted average number of shares outstanding 3,336,476 3,336,476
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
21
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1997 AND 1996
__________________
<TABLE>
<CAPTION>
Common Stock Capital Total
------------------------- In Excess Retained Treasury Stockholders'
Shares Amount of Par Earnings Stock Equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance May 31, 1995 3,495,760 $ 10,487 $ 5,163,105 $ 1,341,855 $ (280,081) $ 6,235,366
Net income -- -- -- 351,632 -- 351,632
----------- ----------- ----------- ----------- ----------- -----------
Balance May 31, 1996 3,495,760 10,487 5,163,105 1,693,487 (280,081) 6,586,998
Net loss -- -- -- (332,100) -- (332,100)
----------- ----------- ----------- ----------- ----------- -----------
Balance May 31, 1997 3,495,760 $ 10,487 $ 5,163,105 $ 1,361,387 $ (280,081) $ 6,254,898
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
22
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (332,100) $ 351,632
------------ ------------
Adjustments to reconcile net income (loss) cash
used in operating activities:
Accretion of discount on notes receivable (89,918) (107,465)
Depreciation and amortization 418,911 409,072
Unrecoverable capitalized costs and loss on sale of assets 37,292 59,452
Equity in loss of unconsolidated partnerships 67,458 5,230
Deferred tax expense (33,000) 16,800
Change in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable 35,085 (1,125,108)
Income taxes receivable (227,369) --
Other current and non-current assets 76,861 134,813
Accounts payable, accrued expenses and accrued
payroll and related benefits (281,426) 93,864
Due to Medicare -- (826,319)
Income taxes payable (254,000) 254,000
------------ ------------
Net cash used in operating activities (582,206) (734,029)
------------ ------------
Cash flows from investing activities:
Collections of notes receivable 371,427 433,332
Advances to related parties -- (105,428)
Payments from Partnerships on advances 203,491 --
Investments in Partnerships and ventures (560,838) (305,309)
Acquisitions -- (125,000)
Distributions received from Partnerships -- 12,500
Acquisition of property and equipment (81,038) (239,033)
------------ ------------
Net cash used in investing activities (66,958) (328,938)
------------ ------------
Cash flows from financing activities:
Repayments of long-term debt, including revolving
credit agreements (12,666,162) (2,662,020)
Borrowings for long-term debt, including revolving
credit agreements 13,774,806 3,224,111
------------ ------------
Net cash provided by financing activities 1,108,644 562,091
------------ ------------
Net increase (decrease) in cash and cash equivalents 459,480 (500,876)
Cash and cash equivalents at beginning of year 865,265 1,366,141
------------ ------------
Cash and cash equivalents at end of year $ 1,324,745 $ 865,265
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
23
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
Supplemental disclosures:
1997 1996
----------- ---------
<S> <C> <C>
Interest paid $ 351,000 $ 127,000
Income taxes paid $ 259,000 $ 61,500
</TABLE>
Non-cash financing and investing activities:
In 1997, the Company contributed a receivable of $130,000 due from
its 50% owned partnership, as an additional investment in the partnership.
In 1997, the Company sold a note receivable installment obligation
obtained in prior years as a result of the sale of a radiation center to a third
party for $825,000. The installment obligation had a net book value of $838,463
at the date of sale.
See accompanying Notes to Consolidated Financial Statements
24
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________
1. Business:
---------
Cancer Treatment Holdings, Inc. ("CTH"), a Nevada corporation, through its
subsidiaries (collectively, the "Company"), is engaged in (i) providing
home health, home infusion and nursing services, (ii) establishing and
administering businesses for the ambulatory treatment of cancer using a
variety of modalities, including radiation therapy and bone marrow
transplantation, and (iii) providing management/consulting and billing and
collection services for free-standing radiation therapy centers.
Home Health and Nursing Services
--------------------------------
In home health and nursing services, the Company owns and operates Leader
Health Care Center, Inc. ("Leader"). Leader owns 100% of the equity
interest of both Med Tech Services of South Florida, Inc. ("Med Tech") and
Southern Cross Home Health, Inc. ("Southern Cross"). Leader, Med Tech and
Southern Cross are providers of home health and nursing services in
Southeastern Florida. Leader also provides home infusion therapy and
physical rehabilitation services.
Radiation Therapy Services
--------------------------
In radiation therapy, the Company provides management/consulting as well
as billing and collection services for various facilities. The Company has
an ownership interest in one of these facilities. During fiscal 1995, the
Company sold its equity interests in four free-standing facilities
(located in Tampa, Coral Springs and Boca Raton, Florida, and Macon,
Georgia), but retained long-term management/consulting and/or billing and
collection contracts in all of them.
2. Significant Accounting Policies:
--------------------------------
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
all subsidiaries and partnerships in which the Company owns more than 50%.
All significant intercompany investments, accounts and transactions have
been eliminated. Investments in partnerships in which the ownership
interest is 50% or less and the Company exercises significant influence
over operating and financial policies are accounted for using the equity
method.
Use of Estimates
----------------
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 and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
25
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
2. Significant Accounting Policies: (continued)
--------------------------------
Cash Equivalents
----------------
The Company considers all highly-liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Revenue Recognition
-------------------
Net patient service revenues are derived from home health and nursing
services.
Home health care services are provided to primarily Medicare patients.
Approximately 93% and 86% of net patient service revenues for fiscal 1997
and fiscal 1996, respectively, were derived from services provided to home
healthcare patients who are Medicare beneficiaries. The Company
participates in the Medicare program under which services rendered to
Medicare program beneficiaries are reimbursed based on cost-reimbursement
principles and are subject to audit and retroactive adjustment by the
respective Medicare program fiscal intermediary. Differences between the
estimated settlements and final amounts are recognized as increases or
decreases in net patient service revenues in the year of settlement.
Over the past years, Medicare auditors employed by the Medicare fiscal
intermediaries have, in connection with their retrospective audit process,
taken certain positions with respect to certain types of costs, claiming
that they are not reimbursable and thus not recoverable by the Company
from the Medicare program. These positions are based on interpretations
promulgated after the period covered by the cost reports and applied
retroactively, interpretations of cost reimbursement principles that are
contrary to the Company's interpretations, or on what the Company believes
to be misapplications of specific reimbursement principles, that could not
have been foreseen at the time services were rendered and revenue
recorded. These positions taken by Medicare auditors are usually
determined from Medicare's Notice of Program Reimbursement ("NPR") which
typically are not received until two to three years after the services are
rendered. In those situations where the Company decides to not challenge
an NPR finding, any revenue relating to these costs, as well as the
extrapolated impact, if any, on other open costs reporting years, if not
written off or provided for earlier, is written off as a revenue reduction
at that time. In the opinion of management, retroactive adjustments, if
any, would not be material to the financial position or results of
operations of the Company.
Other revenues include billing/collection, management and consulting
services for various radiation therapy centers management and/or
consulting fees from the centers which the Company manages or for which
the Company provides consulting services. Management fees are principally
based on a percentage of collections with annual maximum fees. Consulting
fees are recognized over the term of the consulting agreement. The Company
also provides centralized billing and collection services for various
centers. Billing and collection fees are principally based on a percentage
of collections with annual maximum fees. Other revenues also include
interest income of $228,000 and $286,000 in 1997 and 1996, respectively.
26
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
2. Significant Accounting Policies: (continued)
--------------------------------
Property and Equipment
----------------------
Property and equipment is stated at cost and depreciated over its
estimated useful lives ranging from five to forty years using the
straight-line method. Leasehold improvements and assets held under capital
leases are amortized on a straight-line basis over the shorter of the
estimated useful life or the lease term. Upon disposition, the cost and
accumulated depreciation of property and equipment are removed from the
accounts and any gain or loss is reflected in the statement of operations.
Capitalized Development Costs
-----------------------------
The Company capitalizes costs including legal fees, architectural fees,
rent payments and lease deposits related to the development of new
radiation centers which are expected to benefit future periods. Costs are
capitalized until the center begins to generate revenues or when the
Company abandons its plans to establish the center or such establishment
is no longer possible.
Intangible Assets
-----------------
Costs in excess of the estimated fair value of net identifiable assets of
acquired business ("goodwill") are amortized on a straight-line basis over
twenty years. Other intangible assets consist of licenses which are
amortized over ten years and amounts attributable to certain consulting
agreements obtained in connection with the sale of two centers which are
amortized over the life of such agreements.
The following table summarizes intangible assets, net of accumulated
amortization of $511,888 and $351,525 at May 31, 1997 and 1996,
respectively:
1997 1996
-------- --------
Goodwill $319,108 $345,554
Other 525,760 611,255
-------- --------
$844,868 $956,809
======== ========
Impairment of Long-Lived Assets
-------------------------------
Effective June 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed
Of." The statement requires that long-lived assets, such as property and
equipment, and certain identifiable intangible assets (including goodwill)
be reviewed for impairment whenever events or changes in circumstances
27
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
2. Significant Accounting Policies: (continued)
--------------------------------
indicate that the carrying amount of an asset may not be recoverable based
on estimated future cash flows expected to result from the use of the
asset and its eventual disposition. Based on the expected recovery from
cash flows, the Company believes there is no impairment to such assets.
The adoption of this statement did not have a material impact on the
Company's financial statements.
Income Taxes
------------
Deferred income taxes are provided based on the estimated future tax
effects of differences between financial statement carrying amounts and
the tax bases of existing assets and liabilities. A valuation allowance is
provided if, based on the weight of available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
Stock-Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation
expense for qualified and non-qualified stock options granted under the
Company's stock option plans is generally measured as the difference
between the quoted market price of the Company's stock at the date of
grant and the amount an employee must pay to acquire the stock.
Per Share Data
--------------
Per share data is based on the weighted average number of common shares
outstanding during each year after considering dilution of stock options.
In computing the income per share for 1997 and 1996, and stock options are
not considered because they have an anti-dilutive effect.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which establishes new standards for
computing and presenting earnings per share ("EPS"). The statement
replaces the current presentation of primary EPS and will require a dual
presentation of basic and diluted EPS on the face of the statements of
operations. SFAS No. 128 requires restatement of all prior period EPS data
presented and is effective for the Company in fiscal 1998. The Company
does not expect that adoption of SFAS No. 128 will have a significant
impact on the Company's financial statements.
Reclassifications
-----------------
During 1997, the Company has elected to classify the indirect cost of
patient services as general and administrative expenses. The Company's
1996 financial statements have been reclassified to conform to this
presentation. In addition, certain other amounts have also been
reclassified in the 1996 financial statements to conform to the 1997
presentation.
28
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
3. Asset Acquisitions and Disposals:
---------------------------------
In May 1996, the Company sold all of its interest in a radiation therapy
center under development in Yonkers, New York. The Company will receive
$300,000 in cash as a reimbursement for expenses incurred associated with
the development of the facility. Such amount is due in equal monthly
installments over a one-year period beginning in January of 1998. As part
of the transaction, the Company also entered into a three-year
non-competition agreement, a five-year consulting agreement, a turn-key
license agreement and an option agreement allowing the buyer to
participate as an equity owner in future transactions of a similar nature.
The aggregate proceeds for these respective agreements total $1,950,000.
Such amounts are payable beginning 18 months after the center opens and
are limited, on a monthly basis, to a percentage of the fees collected by
the center. Such amounts will be recorded in income when contingencies
regarding collectability of such amounts are resolved.
In June 1996, the Company acquired, for $125,000 in cash, the operations
which included certain assets of a physical therapy operation. As a result
of the transaction, the Company recorded goodwill in the amount of
$112,250.
In May 1997, the Company sold its wholly-owned subsidiary, CTI of West
Broward, Inc. ("CTIB") and CTIB's sole asset, a long-term note receivable,
for an aggregate price of $825,000, payable in a 39-month promissory note
bearing interest at 6%. The loss on disposal amounted to $13,463. CTIB
originally obtained the long-term note receivable as part of the sale of a
radiation center. The Company's ability to collect on the new note
receivable will continue to be dependent upon the results of the
underlying radiation center.
4. Property and Equipment:
-----------------------
Property and equipment consists of the following at May 31, 1997 and 1996:
1997 1996
Land $ 33,000 $ 33,000
Buildings and leasehold improvements 1,167,429 1,122,979
Office furniture and equipment 437,007 388,034
Medical equipment 169,852 163,853
----------- -----------
1,807,288 1,707,866
Less accumulated depreciation 838,957 592,652
----------- -----------
$ 968,331 $ 1,115,214
=========== ===========
29
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
4. Property and Equipment: (continued)
-----------------------
The Company owns an office condominium unit with a net book value of
$458,967 which is leased under a lease agreement which expires in fiscal
year 1998. Rental income for the years ended May 31, 1997 and 1996,
amounted to $95,555 and $59,192, respectively. The Company incurred rental
property expense of $37,342 and $32,690 during fiscal years 1997 and 1996,
respectively, which includes depreciation expense of $16,677 each year.
Under the terms of the lease, the Company expects to receive future
minimum leasing gross income of $39,000 in fiscal year 1998.
5. Investments in and Advances to Partnerships and Ventures:
---------------------------------------------------------
The Company's investments in and advances to partnerships and ventures
consists of the following at May 31, 1997 and 1996:
1997 1996
----------- --------
Investment in Palm Beach (a) $ 248,639 $ 171,634
Advances to Palm Beach 280,416 419,879
Development of new centers 543,889 289,345
--------- ---------
$1,072,944 $ 880,858
========== =========
(a) Represents the Company's 50% investment in Palm Beach Radiotherapy
Associates, Ltd. ("Palm Beach"). The Company receives a management
fee equal to 8% of patient revenues collected, not to exceed
$116,400 annually, subject to adjustments upward for increases in
the consumer price index, not to exceed 5% annually. The Company
also provides billing and collection services and receives
compensation equal to 5% of patient revenues collected, not to
exceed $87,300 annually. The maximum annual fee is subject to
adjustments upward for increases in the consumer price index, not to
exceed 5% annually.
30
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
5. Investments in and Advances to Partnerships and Ventures: (continued)
---------------------------------------------------------
The condensed summary of financial information for Palm Beach as of and
for the year ended May 31, 1997 and 1996, is as follows:
Financial Position: 1997 1996
------------------ ----------- -----------
Current assets $ 355,020 $ 595,185
Land, building, leasehold
improvements and equipment, net 425,781 655,187
Other assets 2,631 3,568
----------- -----------
Total assets $ 783,432 $ 1,253,940
=========== ===========
Current liabilities including amounts
due to the Company of $280,416
in 1997 and $419,879 in 1996 $ 448,601 $ 1,088,396
Long-term portion of mortgage
and notes payable 118,750 118,750
----------- -----------
Total liabilities 567,351 1,207,146
----------- -----------
Partners' capital $ 216,081 $ 46,794
=========== ===========
Results of Operations:
Net revenues $ 1,647,912 $ 1,626,329
Operating expenses 1,767,732 1,607,459
----------- -----------
Income (loss) from operations (119,820) 18,870
Other income (expenses), net 29,107 (29,330)
----------- -----------
Net loss $ (90,713) $ (10,460)
=========== ===========
At May 31, 1997, the difference between the Company's investment and its
equity in the net assets of Palm Beach was $140,000. This amount is being
amortized to income over a period of twenty years.
31
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
5. Investments in and Advances to Partnerships and Ventures: (continued)
---------------------------------------------------------
The Company has an interest in two partnerships which are in the process
of establishing radiation centers in Logan, West Virginia ("Logan") and
Lakewood, New Jersey ("Lakewood") both of which are expected to be
operational in fiscal 1998. The Company's general partner interests in
Logan and Lakewood amount to 24.75% and 50%, respectively. Development
costs (including investments and advances) for the partnerships total
$450,592 at May 31, 1997. The Company's equity in the loss of these two
partnerships for the year ended May 31, 1997 was $22,101.
6. Long-term Debt:
---------------
Long-term debt at May 31, 1997 and 1996, consists of the following:
1997 1996
---------- -----------
$4,000,000 ($2,000,000 in 1996)
revolving credit facility,
interest at LIBOR plus 8% (13.69%
at May 31, 1997 and 13.43%at May
31, 1996) due weekly, maturing in
March 2001, collateralized by
accounts receivable. Borrowings
limited to 80% of allowable
accounts receivable. $1,951,760 $ 778,123
Mortgage payable, interest at
8.5%, interest and principal due
monthly, maturing in January 1998,
collateralized by office
condominium with a net carrying
value of $458,967. 154,208 174,167
Capitalized lease obligations,
interest at 13.05%, interest and
principal due monthly, maturing
March 2001. 212,029 244,649
Other borrowings 13,923 26,337
---------- -----------
2,331,920 1,223,276
Less current portion 207,309 67,876
---------- -----------
$2,124,611 $ 1,155,400
========== ===========
32
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
6. Long-term Debt: (continued)
---------------
Future principal payments of debt classified as long-term are as follows:
Year Ending May 31,
-------------------
1999 $ 58,304
2000 59,093
2001 2,007,214
------------
$ 2,124,611
============
7. Income Taxes:
-------------
The provision (benefit) for income taxes for the years ended May 31, 1997
and 1996, consist of the following:
1997 1996
--------- ---------
Current:
Federal $(227,000) $ 230,000
State 5,000 63,200
--------- ---------
(222,000) 293,200
--------- ---------
Deferred:
Federal (37,000) 15,500
State 4,000 1,300
--------- ----------
(33,000) 16,800
--------- ---------
Provision (benefit) for income taxes $(255,000) $ 310,000
========= =========
33
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
7. Income Taxes: (continued)
-------------
The reconciliation between the statutory charge (34%) for income taxes and
the actual charge (benefit) for income taxes from operations for the years
ended May 31, 1997 and 1996, is shown in the following table:
1997 1996
--------- ---------
Computed expected tax expense: $(199,600) $ 225,000
State income taxes 8,800 61,900
Change in valuation allowance 106,000 133,400
Investment in subsidiary (172,600) (151,500)
Goodwill and other nondeductible expenses 26,000 21,500
Other, net (23,600) 19,700
--------- ---------
Effective provision (benefit) for income taxes $(255,000) $ 310,000
========= =========
The significant components of the deferred tax assets and liabilities as
of May 31, 1997 and 1996, were as follows:
1997 1996
--------- ---------
Deferred tax assets:
Allowance for doubtful accounts $ 49,100 $ 74,800
Property and equipment 65,800 44,400
Investment in subsidiary -- 308,000
NOL carryforward 182,400 --
Valuation allowance (182,400) (133,400)
--------- ---------
114,900 293,800
--------- ---------
Deferred tax liabilities:
Deferred gains 84,800 288,000
Intangible assets 109,700 143,400
Investments 7,700 --
Other 20,100 2,800
--------- ---------
223,300 434,200
--------- ---------
Net deferred tax liability $(107,400) $(140,400)
========= =========
As of May 31, 1997, the Company had federal and state net operating loss
carryforwards of $350,000 and $1,150,000, respectively, which expire in
2012. The Company provides a valuation allowance against deferred tax
assets if, based upon the weight of available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
The Company has established a valuation allowance against deferred tax
assets of $182,400 and $133,400 at May 31, 1997 and 1996, respectively.
The increase in the valuation allowance for the year ended May 31, 1997
results from the uncertainty of the realization of the operating loss
carryforwards which may expire unused.
34
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
8. Commitments and Contingencies:
------------------------------
The Company leases office space under five-year operating lease
agreements. Future minimum annual lease commitments under these leases are
as follows:
Year Ending May 31
------------------
1998 $463,000
1999 388,000
2000 230,000
2001 94,000
Thereafter 380,000
Rent expense for fiscal years ended 1997 and 1996, amounted to
approximately $398,000 and $239,000, respectively.
As a general partner, the Company is jointly and severally liable for the
liabilities concerning the actions of the Palm Beach, Lakewood and Logan
partnerships and has guaranteed certain liabilities of these partnerships
amounting to $2,478,000 at May 31, 1997. In this connection, the Company
could be held responsible for any and all liabilities arising from the
actions of such partnerships.
The Company is involved in several legal proceedings arising from a
dispute between the Company, as managing general partner of the Palm Beach
Partnership, and the other general partner of the Palm Beach Partnership.
The dispute relates to the decision of the other general partner to
conduct its radiation therapy business through its own affiliates rather
than through the Palm Beach Partnership. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or cash
flows of the Company.
9. Employee Benefit Plans:
-----------------------
The Company has established an Employee Benefit Plan (the "Plan") under
Section 401(k) of the Internal Revenue Code. The Plan allows all full time
employees to defer up to 15% of their income on a pre-tax basis through
contributions to the Plan. Employer contributions are matched by the
Company as deemed advisable by the Executive Compensation Committee. For
fiscal years 1997 and 1996, the Company's expense related to matching
contributions amounted to approximately $40,000 and $33,000, respectively.
35
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
9. Employee Benefit Plans: (continued)
-----------------------
The Company has established a deferred fringe benefit plan for the
employees of Med Tech. The plan is administered by the Board of Directors
of Med Tech and provides for contributions based upon achievements of
specific goals by Med Tech and the participating employees. Vesting begins
at 20% after two years of service, and from the third through the sixth
years, vesting increases by 20% each year until full vesting occurs. Each
year, contributions, if any, are determined by the Board of Directors of
the Company. No amounts were contributed in fiscal year 1997 or 1996.
10. Warrants, Stock Options and Treasury Stock:
-------------------------------------------
The Company has established an employee stock option plan which provides
for the issuance of up to 100,000 shares of common stock. The exercise
price is determined by a committee of the Board but may not be less than
100% of the fair market value of the common stock on the date of the grant
of the option. The term of each option is also determined by the
committee, but in no event may the term of an option be longer than ten
years from the date of grant. Such options will expire upon termination of
employment with the Company.
The Company has also granted stock options to officers and directors. All
options were granted at or above prevailing market prices and are
exercisable over terms of up to six years.
During fiscal year 1996, the Company extended the term of 250,000 options
previously issued to the Chairman of the Board to August 6, 2005. In
addition on August 6, 1995, the Chairman was granted an additional 250,000
non-qualified options at $3.50 per share which are exercisable in
installments of 83,334 shares per year on August 7, 1995, 1996 and 1997.
These non-qualified options expire on August 6, 2005. The exercise price
per share of the options at the date of the modification of the option
term was in excess of the fair market value of the stock underlying the
option, therefore, no compensation expense was recorded by the Company as
a result of the modification of these options.
In October 1995, SFAS No. 123 was issued by the FASB and, if fully
adopted, changes the methods for recognition of compensation expense for
stock-based compensation plans similar to those of the Company. Adoption
of SFAS No. 123 is optional with respect to the Company's stock option
plans; however, pro forma disclosures as if the Company adopted the cost
recognition requirements under SFAS No. 123 are presented below.
The fair value of each option granted under the Company's stock option
plans is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used
for grants in fiscal 1997 and 1996: no dividend yield based on the
Company's current dividend policy; expected volatility of the underlying
stock of 89%; risk-free interest rates ranging from 6.3% to 7.0% covering
the related option periods; and expected lives of the options of 4.4 to 10
years based on the related vesting periods.
36
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
10. Warrants, Stock Options and Treasury Stock: (continued)
-------------------------------------------
A summary of the status of the Company's stock option plans as of May 31,
1997 and 1996 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ----------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,197,500 $4.32 782,500 $4.69
Granted 30,000 2.99 665,000 4.14
Expired (60,000) 5.00 (250,000) 5.00
--------- ---------
Outstanding at end of year 1,167,500 4.25 1,197,000 4.32
========== =========
Options exercisable at year-end 940,167 4.39 847,834 4.62
========== =========
Weighted-average fair value of
options granted during the year $ 1.58 $ 1.72
========== =========
At May 31, 1997, the Company had reserved 1,167,500 shares of its Common Stock for issuance
upon the exercise of all outstanding options.
</TABLE>
37
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
________________
10. Warrants, Stock Options and Treasury Stock: (continued)
-------------------------------------------
Had compensation cost for awards under the Company's stock option plans
been determined based on the fair value at the grant dates consistent with
the methodology prescribed by SFAS No. 123, the Company's net income
(loss) and earnings (loss) per share in fiscal 1997 and 1996 would have
been reduced to the pro forma amounts indicated below:
1997 1996
--------- ---------
Pro forma net income (loss):
As reported $(332,100) $ 351,632
Pro forma (620,993) (266,401)
Pro forma net income (loss) per common share:
As reported $ (0.10) $ 0.11
Pro forma (0.19) (0.08)
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. The Company anticipates that additional
awards will be granted in future years.
11. Financial Instruments:
----------------------
Concentrations of Credit Risk
-----------------------------
Financial instruments which subject the Company to concentrations of
credit risk consist principally of cash equivalents, accounts receivable
and notes receivable. The Company maintains its cash and cash equivalents
in bank accounts with highly-rated financial institutions, which may, at
times, exceed federally insured limits. The Company has not experienced
any losses in such accounts. Concentrations of credit risk with respect to
accounts receivable are minimized as such amounts are principally due from
Medicare. Approximately 76% and 82% of the Company's accounts receivable
at May 31, 1997 and 1996, respectively, are due from Medicare. The
Company's credit risk with respect to notes receivable is minimized as the
notes are collateralized by equipment and property of a radiation therapy
facility. Additionally, the notes have been paid in accordance with their
respective terms through May 31, 1997.
Fair Value of Financial Instruments
-----------------------------------
The carrying value of long-term notes receivable and debt, including the
current portion, approximated fair value as of May 31, 1997 and 1996,
based on current rates for similar types of borrowing arrangements.
38
<PAGE>
PART II
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item with respect to the executive
officers and directors of the Company is incorporated herein by reference to the
section entitled "Compensation of Directors and Executive Officers" and
"Election of Directors" in the Company's proxy statement for its 1997 Annual
Meeting of Shareholders (the "1997 Proxy Statement").
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item with respect to executive
compensation is incorporated herein by reference to the section entitled
"Compensation of Directors and Executive Officers" in the Company's 1997 Proxy
Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item with respect to security
ownership is incorporated herein by reference to the section entitled "Voting
Securities and Principal Holders Thereof" in the Company's 1997 Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item with respect to security
ownership is incorporated herein by reference to the section entitled "Voting
Securities and Principal Holders Thereof" in the Company's 1997 Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits
Financial Statements
--------------------
The consolidated financial statements of the Company and its
subsidiaries filed as a part of this Annual Report on Form
10-KSB are listed it Item 7 of this Annual Report on Form
10-KSB, which listing is hereby incorporated herein by
reference.
39
<PAGE>
<TABLE>
<CAPTION>
Exhibits
--------
Exhibit
No. Description of Items
------- --------------------
<S> <C> <C>
3.1 Articles of Incorporation of the Company (as amended)(1)
3.2 By-Laws(3)
10.1 Asset Sales Agreement between RTI and SBHD, including
amendments (without exhibits)(1)
10.2 Third Amendment to Asset Purchase Agreement between CTI and SBHD(2)
10.3 Employment contract between CTH and Ullrich Klamm, Ph.D.(4)
10.4 Agreements between CTI of West Broward, Inc. and Coral Springs Radiation
Therapy Regional Center, Inc.(4)
10.5 Agreements between Boca Raton Radiotherapy Associates, Ltd. and Boca Raton
Radiation Therapy Regional Center, Inc.(4)
10.6 Asset Purchase Agreement between Tampa Radiotherapy Associates, Ltd. and
Oncology Services Associates, P.A., dated January 1, 1995.(5)
10.7 Consulting Agreement between Oncology Services Corporation and its
affiliates, and Cancer Treatment Holdings, Inc., dated January 1, 1995(5)
10.8 Agreements between Cancer Treatment Holdings, Inc., CTI of New York and
Yonkers Radiation Medical Practice, P.C.(6)
10.9 Loan and Security Agreement between Med Tech Funding Corporation and
COPELCO/American Healthfund, Inc.(6)
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule (Electronic filing only)
(1) Incorporated by reference to Form S-18 as filed with
the Securities and Exchange Commission on April 14,
1988, File No. 33-21269-A.
(2) Incorporated by reference to the Registrant's Form
10-K for fiscal year ended May 31, 1990, as filed with
the Securities and Exchange Commission on August 28,
1990.
(3) Incorporated by reference to the Registrant's Form
10-K for the fiscal year ended May 31, 1992, as filed
with the Securities and exchange Commission on August
28, 1992.
(4) Incorporated by reference to the Registrant's Form
10-K for the fiscal year ended May 31, 1995, as filed
with the securities and Exchange Commission on August
25, 1995.
</TABLE>
40
<PAGE>
Exhibits (continued)
--------
Exhibit
No. Description of Items
------- --------------------
(5) Incorporated by reference to the Registrant's
Amendment No. 1 to Form S-3 as filed with the
Securities and Exchange Commission on February 13,
1995.
(6) 10-KSB - 1996.
(b) Reports on Form 8-K filed during the three months ended May 31,
1997.
There were no reports on Form 8-K filed during the three
months ended May 31, 1997.
41
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CANCER TREATMENT HOLDINGS, INC.
by: /s/ Ullrich Klamm, Ph.D.
-------------------------------------
Ullrich Klamm, Ph.D.
Chairman and Chief Executive Officer
August 27, 1997
42
<PAGE>
SIGNATURES
----------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated:
Signatures Position Dated
/s/ Ullrich Klamm, Ph.D. Chairman of the Board August 27, 1997
- ------------------------ Chief Executive Officer
Ullrich Klamm, Ph.D.
/s/ Louis W. Boisvert, III Chief Financial Officer August 27, 1997
- -------------------------- and Vice President of Finance
Louis W. Boisvert, III
/s/ Carol Befanis O'Donnell, Esq. Corporate Secretary August 27, 1997
- ---------------------------------
Carol Befanis O'Donnell, Esq.
/s/ Kenneth L. Neeley Corporate Controller August 27, 1997
- ---------------------
Kenneth L. Neeley
/s/ Salvatore Russo, Ph.D. Director August 27, 1997
- --------------------------
Salvatore Russo, Ph.D.
/s/ Jack Mull, M.D. Director August 27, 1997
- -------------------
Jack Mull, M.D.
/s/ Jack W. Buechner Director August 27, 1997
- --------------------
Jack W. Buechner
/s/ John P. Rosenthal Director August 27, 1997
- ---------------------
John P. Rosenthal
43
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CANCER TREATMENT HOLDINGS, INC. FOR THE FISCAL YEAR
ENDED MAY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 1,325
<SECURITIES> 0
<RECEIVABLES> 3,871
<ALLOWANCES> 101
<INVENTORY> 0
<CURRENT-ASSETS> 5,391
<PP&E> 1,807
<DEPRECIATION> 839
<TOTAL-ASSETS> 9,534
<CURRENT-LIABILITIES> 1,047
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 6,245
<TOTAL-LIABILITY-AND-EQUITY> 9,534
<SALES> 16,952
<TOTAL-REVENUES> 16,952
<CGS> 9,241
<TOTAL-COSTS> 17,117
<OTHER-EXPENSES> 67
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355
<INCOME-PRETAX> (587)
<INCOME-TAX> 255
<INCOME-CONTINUING> (332)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (332)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
