U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
---------- ----------
Commission file number 0-16964
-------
CANCER TREATMENT HOLDINGS, INC.
-------------------------------
(Exact name of small business issuer as
specified in its charter)
Nevada 87-0410907
------ ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
4491 South State Road Seven, Suite 200, Fort Lauderdale, Florida, 33314
-----------------------------------------------------------------------
(Address of principal executive offices)
(954) 321-9555
--------------
(Issuer's telephone number)
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 .
-- --
The number of shares outstanding of each of the issuer's classes of
common equity, as of January 9, 1998 was: 3,336,476
-----------------
Transitional Small Business Disclosure Format
(Check One): Yes No X
----- -----
1
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets
as of November 30, 1997 and May 31, 1997 2
Consolidated Statements of Operations
for the Six Months Ended
November 30, 1997 and 1996 3
Consolidated Statements of Cash Flows
for the Six Months Ended
November 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
PART II -OTHER INFORMATION
ITEM 6. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 10
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
1
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 632,293 $ 1,324,745
Accounts receivable, net of allowance for doubtful accounts
of approximately $240,000 at November 30, 1997 and $101,000
at May 31, 1997 3,937,415 3,076,429
Current portion of long-term notes receivable, net of a discount of
approximately $24,000 at November 30, 1997 and $28,000
at May 31, 1997 324,350 641,217
Income taxes receivable 227,369 227,369
Other current assets 318,272 296,602
----------- -----------
Total current assets 5,439,699 5,566,362
Long-term notes receivable, net of current portion and a
discount of approximately $22,000 at November 30, 1997 and
$33,000 at May 31, 1997 800,241 948,378
Property and equipment, net 895,062 968,331
Investments in and advances to partnerships and ventures 1,245,603 1,072,944
Intangible assets, net 750,168 844,868
Other assets 165,198 133,148
----------- -----------
Total assets $ 9,295,971 $ 9,534,031
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 200,089 $ 207,309
Accounts payable 558,268 387,251
Accrued payroll and related benefits 599,232 452,562
----------- -----------
Total current liabilities 1,357,589 1,047,122
Long-term debt, net of current portion 2,044,471 2,124,611
Deferred income taxes 107,400 107,400
----------- -----------
Total liabilities 3,509,460 3,279,133
----------- -----------
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 893,000 1,361,387
----------- -----------
6,066,592 6,534,979
Treasury stock: 159,284 shares, at cost (280,081) (280,081)
----------- -----------
Total stockholders' equity 5,786,511 6,254,898
----------- -----------
Total liabilities and stockholders' equity $ 9,295,971 $ 9,534,031
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
November 30, November 30,
1997 1996
<S> <C> <C>
Net patient service revenues $ 8,002,109 $ 7,790,049
Other revenues 847,786 746,590
----------- -----------
Total revenues 8,849,895 8,536,639
----------- -----------
Operating expenses:
Direct cost of patient services 3,633,873 3,946,122
(primarily payroll and contracted medical services)
General and administrative 5,089,938 4,191,334
Interest expense 152,525 134,593
Depreciation and amortization 210,415 239,008
----------- -----------
Total operating expenses 9,086,751 8,511,057
----------- -----------
Income (loss) before loss in earnings of partnerships
and income taxes (236,856) 25,582
Equity in loss of partnerships (231,531) (4,132)
----------- -----------
Income (loss) before income taxes (468,387) 21,450
Provision for income taxes -- --
----------- -----------
Net income (loss) $ (468,387) $ 21,450
=========== ===========
Per share data:
Net income (loss) per share $ (.14) .01
=========== ===========
Weighted average number of shares outstanding 3,336,476 3,336,476
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
November 30, November 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (468,387) $ 21,450
Adjustments to reconcile net income (loss) to cash
used in operating activities:
Accretion of discount on notes receivable (15,030) (49,587)
Depreciation and amortization 210,415 239,008
Equity in loss of unconsolidated partnerships 231,531 4,132
Change in operating assets and liabilities:
Accounts receivable (860,986) (1,102,460)
Other current and non-current assets (43,947) (28,533)
Accounts payable, accrued payroll and related benefits 317,687 85,889
Income taxes payable -- (228,000)
----------- -----------
Net cash used in operating activities (628,717) (1,058,101)
----------- -----------
Cash flows from investing activities:
Collections of notes receivable 470,034 216,666
Investments in and advances to Partnerships and ventures (407,856) (43,482)
Acquisitions of property and equipment (38,553) (16,250)
----------- -----------
Net cash provided by investing activities 23,625 156,934
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt, including revolving
credit agreements (3,862,077) (6,046,568)
Borrowings for long-term debt, including revolving
credit agreements 3,774,717 6,903,528
----------- -----------
Net cash provided by (used in) financing activities (87,360) 856,960
----------- -----------
Net decrease in cash and cash equivalents (692,452) (44,207)
Cash and cash equivalents at beginning of year 1,324,745 865,265
----------- -----------
Cash and cash equivalents at end of period $ 632,293 $ 821,058
=========== ===========
Supplemental disclosures:
Interest paid $ 151,669 $ 135,000
=========== ===========
Income taxes paid $ -- $ 228,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
1. Preparation of Financial Statements
The accompanying unaudited consolidated financial statements for
Cancer Treatment Holdings, Inc. and its subsidiaries (the
"Company") have been prepared in accordance with the instructions
of SEC Form 10-QSB and therefore do not include all information
and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with
generally accepted accounting principles. The financial statements
should be read in conjunction with the financial statements and
notes thereto included in the Company's latest SEC Form 10-KSB
for the year ended May 31, 1997. In the opinion of management, the
unaudited consolidated financial statements contain all
adjustments which are of a normal, recurring nature for a fair
statement of the results of operations for such interim periods
presented. The results of operations for the six months ended
November 30, 1997, are not necessarily indicative of the results
which may be expected for the entire fiscal year. The May 31,
1997, consolidated balance sheet was derived from audited
financial statements but does not include all disclosures required
by generally accepted accounting principles.
2. Restructuring of Certain Agreements
During the second quarter, the Company restructured certain
Management, Consulting and Billing and Collection agreements
related to two centers it sold in fiscal 1995 and an interest in
one center it sold in fiscal 1996. As a result of the
restructuring, the Company will receive $172,800
annually in consulting fees through September 30, 2006. In
addition, certain agreements related to the sale of the Company's
interest in a radiation center in Yonkers, New York ("Yonkers
Center") were also restructured. As a result, during the quarter,
the Company received $300,000 as reimbursement for expenses
incurred in the development of the Yonkers Center. The Company
also renegotiated the payment terms of the non-competition and
consulting agreements, whereby the payments are no longer
contingent upon the percentage of fees collected by the Yonkers
Center. As a result, the Company will receive $250,000 annually in
fees over the next three years and $100,000 annually in fees over
the subsequent two years.
Also during the second quarter, the Company sold an option to a
third party (the "Buyer") for $550,000. The option allows the
Buyer to acquire the Company's 50% interest in Ocean Radiation
Oncology Center, Inc. ("Ocean") for $3,500,000 or eight times
one-half of the prior year's net earnings, whichever is greater.
The option expires on May 31, 1999 and is evidenced by a
promissory note which bears interest at 13% and is payable in
monthly installments over three years.
3. Contingencies
In conjunction with the current regulatory scrutiny of the home
health industry and, in particular the industry in South Florida,
the Company was randomly selected for an on-site review of its
Medicare policies, procedures and medical records related to its
Medicare certified home health agency in District 10, Broward
County, Florida. The review is being conducted by representatives
of the Health Care Finance Administration, the Office of Audit of
the Office of the Inspector General for the Department of Health
and Human Services and the Florida Agency for Health Care
Administration. The results of this review have not been
concluded. The ultimate outcome of this review could result in an
assessment against the company for amounts overpaid by the
Medicare system which could have a material adverse impact upon
the Company's financial condition and results of operations. Any
assessment is expected to be appealed by the Company.
As a general partner, the Company is jointly and severally liable
for liabilities concerning the actions of Ocean Radiation Oncology
Center,Inc. ("Ocean"), Palm Beach Radiotherapy Associates, Ltd.
("Palm Beach") and Logan Oncology Care Associates, Ltd. ("Logan")
and has guaranteed certain liabilities of these partnerships
amounting to $2,336,000 at November 30, 1997. Accordingly, the
Company could be held responsible for any and all liabilities
arising from the actions of such partnerships.
<PAGE>
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.
4. Reclassifications
Certain amounts have been reclassified in the financial statements
for the six-month period ended November 30, 1996, to conform to
the presentation in the financial statements for the six-month
period ended November 30, 1997.
6
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Results Of Operations
---------------------
Comparison of the Six Months Ended November 30, 1997, to the Six
-----------------------------------------------------------------
Months Ended November 30, 1996
------------------------------
Revenues for the six-month period ended November 30, 1997, increased
$313,000 or 4% over the six-month period ended November 30, 1996, from
$8,537,000 in 1996 to $8,850,000 in 1997. This increase was principally
attributable to the items discussed below.
Patient service revenues are derived principally from the home health
and nursing service operations of Med Tech Services of South Florida,
Inc. ("Med Tech"), Leader Health Care Center, Inc. ("Leader") and
Southern Cross Home Health, Inc. ("Southern Cross"). Approximately
93% and 94% of net patient service revenues for 1997 and 1996,
respectively, were derived from Med Tech for services provided to
home healthcare patients who are Medicare beneficiaries. Med Tech
participates in the Medicare program under which services rendered to
Medicare program beneficiaries are reimbursed based on
cost-reimbursement principles. Such revenues increased $111,000 from
$7,321,000 in 1996 to $7,432,000 in 1997 primarily due to an increase
in the Medicare reimbursement rate offset by a decrease in visits.
Other revenues, which consist principally of billing, collection,
management and consulting revenues and interest income, increased
$101,000 from $747,000 in 1996 to $848,000 in 1997 as a result of an
increase in revenues from the Company's billing contracts and other
increases in miscellaneous revenues.
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 $7,432,000 92.9 $7,321,000 94.0
Commercial Insurance 466,000 5.8 359,000 4.6
Other 104,000 1.3 110,000 1.4
---------- ------------ ---------- ------------
Net patient service revenue 8,002,000 100 7,790,000 100
========== ============
Billing, collection, management and consulting fees 584,000 551,000
Other miscellaneous revenues 264,000 196,000
---------- ------------
$8,850,000 $ 8,537,000
========== ============
</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 for the six-month period ended November 30, 1997,
increased $576,000 or 7% over the six-month period ended November 30, 1996,
from $8,511,000 in 1996 to $9,087,000 in 1997. This increase was primarily
attributable to the following:
Direct cost of patient services includes primarily payroll costs and
contracted medical services. The majority of these costs relate to the
Company's home health operations. The total number of visits performed
by the Company decreased from 79,342 for the six-month period ended
November 30, 1996 to 68,770 for the six-month period ended November 30,
1997. Although visits decreased on a per visit basis, these costs
increased from $49.74 per visit in 1996 to $52.84 in 1997. In total,
these costs decreased by $312,000 from $3,946,000 in 1996 to $3,634,000
in 1997. During the latter part of fiscal 1997 and continuing through
the six months ended November 30, 1997, the Company, in
7
<PAGE>
anticipation of future growth which has not yet occurred, significantly
increased its base of clinical employees directly involved in rendering
patient services in anticipation of future growth and to lessen the
Company's reliance on contracting for such services. This has resulted
in a higher per visit cost for the period ended November 30, 1997 over
the same period in 1996. The Company believes the average direct cost
per visit for patient services will decrease as the Company increases
the number of patients it services. Subsequent to November 30, 1997,
the Company took steps to reduce its costs as a result of the slower
than anticipated growth in the business.
General and administrative expenses, which include the general and
administrative expenses of all of the Company's subsidiaries, increased
$899,000 or 21% from $4,191,000 in 1996 to $5,090,000 in 1997. The
majority of these costs are attributable to the Company's home health
operation. On a per visit basis, these costs increased from $42.74 per
visit in 1996 to $58.31 in 1997. During the latter part of fiscal 1997
and continuing through the six months ended November 30, 1997, the
Company, in anticipation of future growth which has not yet occurred,
significantly increased its base of administrative clinical employees,
to a level to support significantly more visits than the Company
performed during the current period. The Company believes the average
cost per visit for general and administrative expenses will decrease as
the Company increases the number of patients it services. Subsequent to
November 30, 1997, the Company took steps to reduce its costs as a
result of the slower than anticipated growth in the business.
The equity in losses of partnerships represents the losses incurred at
two of the Company's 50% owned radiation centers. In August of 1997,
the Ocean facility in Lakewood, New Jersey began its operations. For
the six months ended November 30, 1997, the Company's share of the
losses for this partnership were approximately $109,000 which included
$47,000 in the amortization of start-up costs.
The Company's equity in the loss of the Palm Beach Partnership was
approximately $120,000 for the six months ended November 30, 1997. The
loss is the result of lower patient volume related to seasonality and
increased legal fees due to litigation involving the Company and the
other partner.
2. Liquidity and Capital Resources
-------------------------------
As of November 30, 1997, the Company had working capital of $4,082,000,
including cash of $632,000, as compared with working capital of $4,519,000 at
May 31, 1997. As discussed below, the decrease was primarily attributable to a
decrease in cash of $692,000 and increases in accounts payable and accrued
expenses of $318,000 offset by an increase in accounts receivable of $861,000.
During the six months ended November 30, 1997, cash decreased $692,000.
Cash used in operating activities amounted to $629,000 in 1997 compared to
$1,058,000 in 1996. The use of cash in operating activities was primarily
attributable to the net loss, including equity in losses of partnerships of
$232,000, as discussed above, and an increase in accounts receivable of $861,000
offset by increases in accounts payable, accrued payroll and related benefits of
$318,000. The increase in accounts receivable is directly attributable to the
home health agency's receivable from Medicare which increased approximately
$830,000 as a result of an increase in the rate at which the Company is
reimbursed by Medicare. The increases in accounts payable, accrued expenses and
related benefits are directly related to the increase in the number of people
employed at the Company's home health agencies which has resulted in increases
in liabilities for certain personnel costs, such as vacation and pension
expenses (which employees are eligible for after one year of service), and
increases in reserves for worker's compensation costs. The Company's current
ratio (current assets over current liabilities) was 4.01 as of November 30, 1997
and 5.32 as of May 31,1997.
Cash provided by investing activities was $24,000 in 1997, compared to
$157,000 in 1996 and was primarily the result of collections under notes
receivable of $470,000 offset by net investments in and advances to partnerships
of $408,000. During the quarter, the Company received $300,000 as reimbursement
for expenses incurred in the development of the Yonkers Center. The increase in
the investment in and advances to partnerships is primarily the result of
expenses incurred in the start up of two radiation centers (Ocean and Logan) and
cash advances to the Palm Beach Partnership, as discussed above.
8
<PAGE>
Cash used in financing activities was $87,000 in 1997, and was the
result of payments against the Company's revolving credit agreements offset by
borrowings.
The Company guarantees certain financing agreements of Palm Beach,
Ocean and Logan. As a general partner, the Company is jointly and severally
liable for liabilities concerning the actions of Palm Beach, Ocean and Logan.
As of November 30, 1997, the Company has guaranteed the following
amounts:
Partnership Amount Description
---------------------------------------------------------
Palm Beach $ 81,000 (1) Equipment leased and leasehold
improvements; (2) Term loan
Logan 993,000 Equipment leased
Ocean 1,262,000 Equipment leased and leasehold
improvements
----------
$2,336,000
==========
Except for those items discussed above, and in the Company's latest Form
10-KSB for the year ended May 31, 1997, 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 and the review being conducted on the home health agency as
discussed in footnote 3, 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.
3. Forward-looking Statements and Associated Risk
----------------------------------------------
This Form 10-QSB, specifically the Management's Discussion and
Analysis, contains "Forward-looking Statements" within the meaning of the
federal securities laws. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for "Forward-looking Statements." In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
"Forward-looking Statements." Among other things, the following factors that
could cause actual results to differ materially include, but are not limited to,
general economic conditions; competitive factors; changes in federal or state
legislation governing the Company's operations, including the Medicare and
Medicaid reimbursement climate; and an adverse determination in connection with
the review being conducted concerning the Company's home health operations in
Broward County.
9
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
a) The Annual Meeting of Shareholders of the Company was held
on November 20, 1997.
b) Salvatore P. Russo, Ph.D. was reelected as director at the
Company's annual meeting. Jack W. Buechner, Ullrich Klamm,
Ph.D., John C. Mull, M.D. and John P. Rosenthal continue as
board members.
c) The following information is provided with respect to each
matter voted upon at the Annual Meeting of Shareholders:
<TABLE>
<CAPTION>
(i) Election of Directors
Votes Cast For Votes Withheld Abstentions
-------------- -------------- -----------
<S> <C> <C> <C>
Salvatore P. Russo, Ph.D. 1,832,964 897,305 0
(ii) Reappointment of Coopers 2,603,352 83,095 43,822
& Lybrand as the Company's
independent auditors for the
fiscal year ending May 31,
1998
</TABLE>
d) Not applicable
Item 7. EXHIBITS AND REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the six
months ended November 30, 1997.
10
<PAGE>
SIGNATURES
In accordance with the requirements 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.
January 14, 1998 by: /s/ Louis W. Boisvert, III
--------------------------------
Louis W. Boisvert, III
Vice President of Finance and
Chief Financial Officer
(Principal Accounting Officer and Duly Authorized Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements of Cancer Treatment Holdings, Inc. for the
six months ended November 30, 1997, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 632
<SECURITIES> 0
<RECEIVABLES> 4,525
<ALLOWANCES> 264
<INVENTORY> 0
<CURRENT-ASSETS> 5,440
<PP&E> 1,846
<DEPRECIATION> 951
<TOTAL-ASSETS> 9,296
<CURRENT-LIABILITIES> 1,358
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 5,776
<TOTAL-LIABILITY-AND-EQUITY> 9,296
<SALES> 8,002
<TOTAL-REVENUES> 8,850
<CGS> 0
<TOTAL-COSTS> 8,934
<OTHER-EXPENSES> 232
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153
<INCOME-PRETAX> (468)
<INCOME-TAX> 0
<INCOME-CONTINUING> (468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (468)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
