FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________________
Commission File Number 0-24542
CONTINENTAL CHOICE CARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY 22-3276736
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
25-B VREELAND ROAD
FLORHAM PARK, NEW JERSEY 07932
(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, Including Area Code (201) 593-0500
--------------------
N.A.
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter 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 ____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
Yes _____ No _____
Applicable only to corporate issuers.
Shares outstanding as of August 13, 1996 3,237,500 shares of common
stock, no par value.
Transitional Small Business Disclosure Format: Yes ____ No __X__
<PAGE>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
FORM 10-QSB
JUNE 30, 1996
PART I. FINANCIAL INFORMATION
The comparative consolidated statements of operations, balance sheets
and statements of cash flows for Continental Choice Care, Inc. and Subsidiaries
(the "Company") are presented with management's discussion and analysis of
material changes in operations on the pages which follow.
The consolidated financial statements and accompanying financial
information as of June 30, 1996 and for the three-month and six-month periods
ended June 30, 1996 and 1995 are unaudited but, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments and
accruals) which the Company considers necessary for a fair presentation of the
financial position of the Company at such dates and the operating results and
cash flows for those periods. Results for the interim periods are not
necessarily indicative of results for the entire year. The interim consolidated
financial statements and the related notes should be read in conjunction with
the notes to the consolidated financial statements of the Company as included in
its Form 10-KSB filed with the Securities and Exchange Commission.
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<PAGE>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1996 DEC. 31, 1995
-------------- -------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash........................................................................ $2,462,069 $1,341,955
Accounts receivable, less allowance for doubtful accounts of $404,000
at June 30, 1996 and $728,000 at December 31, 1995...................... 540,747 1,685,888
Supplies inventories........................................................ 40,199 57,134
Deferred tax asset.......................................................... 112,670 112,670
Other current assets........................................................ 480,380 102,466
------------- -----------
Total current assets .................................................... 3,636,065 3,300,113
Amounts due from affiliates................................................. 773,273 763,273
Amounts due from consulting customers....................................... 2,894,936 2,553,475
Property and equipment, at cost, less accumulated depreciation.............. 450,154 615,698
Other assets................................................................ 27,185 10,477
------------- ------------
$7,781,613 $7,243,036
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................................. $1,100,194 $1,444,461
Accrued expenses ............................................................. 317,042 341,003
Current portion of notes payable and obligations under
capital leases............................................................. 42,791 43,082
Income taxes payable.......................................................... 121,111 20,000
----------- ------------
Total current liabilities ................................................. 1,581,138 1,848,546
----------- ------------
Notes payable and obligations under capital leases,
less current portion....................................................... 59,118 83,148
Deferred income taxes and other liabilities................................... 106,911 106,159
----------- -------------
166,029 189,307
----------- -------------
Commitments and Contingencies
Stockholders' Equity:
Common stock, no par value, 10,000,000 shares authorized
3,237,500 shares issued and outstanding
at June 30, 1996 and December 31, 1995..................................... 5,414,061 5,414,061
Preferred stock, 5,000,000 shares authorized, none issued or outstanding...... --- ---
Paid-in capital............................................................... 500 500
Retained earnings (deficit)................................................... 619,885 (209,378)
------------ ------------
Total stockholders' equity.................................................... 6,034,446 5,205,183
----------- -----------
$7,781,613 $7,243,036
=========== ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
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<PAGE>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Patient Revenues:
Equipment and supplies................... $ 748,078 $1,408,767 $1,563,913 $2,897,606
Services................................. 691,341 751,628 1,520,856 1,423,236
-------- ------------ ---------- -----------
Total net patient revenues ........ 1,439,419 2 ,160,395 3,084,769 4,320,842
---------- ---------- --------- -----------
Costs and Expenses:
Cost of goods sold ...................... 315,756 643,141 615,861 1,427,356
Cost of services ........................ 204,513 285,170 458,938 551,256
Provision for doubtful accounts.......... 36,472 252,695 241,617 479,279
Selling, general and administrative ..... 1,417,106 1,235,976 2,534,052 2,453,635
Cost of failed acquisition and discontinuation
of infusion pharmacy................... -0- 365,208 -0- 365,208
Depreciation and amortization............ 32,068 38,139 66,188 75,445
Interest income, net..................... (26,976) (15,489) (33,800) (35,587)
---------- ------------- -------- -----------
Total costs and expenses........... 1,978,939 2,804,840 3,882,856 5,316,592
--------- ------------ --------- -----------
Loss from operations........................ (539,520) (644,445) (798,087) (995,750)
Gain on sale of former New Jersey
in-center facility........................ -0- -0- 1,749,080 -0-
------------ ----------- ----------- -----------
Income (loss) before income taxes.......... (539,520) (644,445) 950,993 (995,750)
Provision for income taxes.................. 10,791 ---- 121,730 ---
------------ ------------ --------- ---------
Net income (loss)........................ $ (550,311) $ (644,445) $ 829,263 $ (995,750)
=========== =========== ========= ===========
Net income (loss) per share................. $ (.17) $ (.20) $ .26 $ (.31)
=============== ========== ========== ===========
Weighted average number of shares
outstanding............................. 3,237,500 3,237,500 3,237,500 3,237,500
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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<PAGE>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ........................................................... $ 829,263 $ (995,750)
Adjustments to reconcile net income (loss) to net cash
provided from (used in) operating activities --
Depreciation and amortization............................................ 66,188 75,445
Provision for doubtful accounts.......................................... 241,617 479,279
Gain on sale of former New Jersey in-center facility..................... (1,749,080) ---
Write-off unamortized pharmacy intangibles............................... -0- 45,208
Decrease (increase) in accounts receivable................................... 903,524 (83,266)
Decrease in supplies inventories............................................. 16,935 46,526
Increase in other assets..................................................... (394,622) (69,503)
Increase in amounts due from affiliates ..................................... (10,000) (8,800)
Increase (decrease) in accounts payable...................................... (344,267) 193,518
Decrease in accrued expenses................................................. (47,419) (71,259)
Increase (decrease) in income taxes payable.................................. 101,111 (30,492)
------- --------
Net cash provided from (used in) operating activities.................... (386,750) (419,094)
--------- ------------
Cash Flows From Investing Activities:
Proceeds from sale of former New Jersey in-center facility................... 2,010,330 -0-
Amounts loaned or advanced to consulting customers........................... (781,778) (1,127,656)
Amounts repaid by consulting customers....................................... 440,317 773,925
Purchases of property and equipment.......................................... (137,684) (116,475)
---------- ------------
Net cash provided from (used in) investing activities.................... 1,531,185 (470,206)
---------- ------------
Cash Flows From Financing Activities:
Principal payments on notes payable and obligations
under capital leases......................................................... (24,321) (26,609)
------------ --------------
Net increase (decrease) in cash................................................. 1,120,114 (915,909)
Cash, beginning of year......................................................... 1,341,955 2,169,250
--------- -----------
Cash, end of period............................................................. 2,462,069 $1,253,341
========= ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for income taxes................................. $121,730 $ 94
========== ==========
Cash paid during the period for interest................................... $ 354 $ 2,356
=========== ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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<PAGE>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS:
Continental Choice Care, Inc. is a New Jersey corporation incorporated
in December 1993 in connection with the reorganization of the health care
related subsidiaries and affiliated companies of TechTron, Inc., a Delaware
corporation ("TechTron"). Continental Choice Care, Inc. and its subsidiaries are
referred to collectively as the "Company." The Company is engaged primarily in
the business of providing dialysis related equipment, services and supplies to
individuals in their homes and other residential alternative sites, including
prisons and nursing homes. The Company owned and operated an in-center facility
in Cape May Court House, New Jersey, ("New Jersey In-Center Facility") for the
provision of in-center dialysis for the Company's clients. The New Jersey
in-center facility and certain other assets were sold by the Company in March
1996 (the "RTC Transaction"). See "Sale of New Jersey In-Center Facility".
During fiscal year 1995, the Company commenced operations at a training center
owned by the Company in Linden, New Jersey. Training centers are freestanding
centers to train individual clients in the self-administration of dialysis
treatments ("Training Centers"). The Company is also engaged in the provision of
consulting and administrative services and acute care dialysis nursing placement
services. The Company discontinued providing infusion services in 1995.
Substantially all of the Company's revenues are dependent upon
reimbursement from third party payors, including the Medicare and Medicaid
programs and commercial insurance companies. Such third party payors maintain
standards which providers must satisfy to remain eligible for participation and
reimbursement, thus the Company's future operating results are dependent on its
ability to remain eligible for participation in such third party payor programs.
A significant portion of the Company's patients are covered by Medicare under
the End Stage Renal Disease Program ("ESRD"). This program began in 1973 through
legislation which extended benefits to qualifying individuals with permanent
kidney failure at rates set from time to time by the government. The Company is
generally reimbursed by Medicare 80% of an allowed rate established by the
government for the services rendered in connection with ESRD. The patient or
third party insurance company is responsible for the remaining 20% of the fee in
these cases. Any change in these regulations or reimbursement could have a
significant impact on the Company's operations. In addition, the continuing
efforts of third party payors to contain or reduce health care costs by lowering
reimbursement rates, increasing case management review of services and
negotiating reduced contract pricing could have a material adverse impact on the
Company's operations. The Company's operations and cash flows are dependent upon
the rate and timeliness of payment for patient services from third party payors.
In 1996 and 1995, approximately 30% and 33%, respectively, of the Company's cash
receipts were received under the Medicare program, while approximately 70% and
67%, respectively, of cash receipts were received from commercial insurance
companies or contracted entities and Medicaid programs.
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<PAGE>
The health care industry is subject to extensive government
regulations. Such regulations are broad and subject to change and
interpretation. Such regulations do not specifically address certain of the
Company's business arrangements and it is possible the Company's past or present
arrangements or business practices could be challenged. Regulations could be
amended or interpreted to require the Company to change its practices or
business arrangements, the impact of which could have a material adverse effect
on the Company's business and prospects.
The Company is dependent upon referrals of patients for treatment by
physicians practicing in communities served by the Company. A limited number of
physicians account for a significant portion of the Company's patient referral
base. The loss of key referring physicians could have a material adverse impact
on the Company's operations.
(2) EARNINGS PER SHARE:
Earnings (loss) per share is computed by dividing the net income by the
weighted average number of common shares outstanding during the periods. The
impact of common stock equivalents is antidilutive and thus not included in the
calculation of earnings (loss) per share in 1996 and 1995.
(3) RELATED PARTY TRANSACTIONS:
As of June 30, 1996 and December 31, 1995, $337,516 and $550,754
respectively, was due from the South Bronx Kidney Center, a dialysis facility
located in the Bronx section of New York (the "Bronx Facility"), and is included
in amounts due from consulting customers in the accompanying consolidated
balance sheets. The amounts are net of certain transactions not recorded due to
realization uncertainties. Alpha Administration Corp. ("Alpha"), an entity owned
by the Company's Chairman, President and Corporate Medical Director ("Certain
Executive Officers"), has the option to purchase the Bronx Facility.
The Company has also advanced funds to Continental Dialysis of the
Bronx, Inc. ("CDBI") for the construction of a new In-Center Dialysis Facility
in the Bronx, New York, a company owned by Certain Executive Officers. At
December 31, 1995, $479,000 had been advanced to CDBI. Additional 1996 advances
to CDBI through June 30, 1996 totaled $531,311. At June 30, 1996, $1,010,311 was
due from CDBI and has been included in amounts due from consulting customers.
The Company also is the guarantor of a lease for CDBI.
The Company, as well as Certain Executive Officers, have guaranteed an
aggregate of $2,400,000 of bank credit facilities of the Upper Manhattan
Dialysis Center, Inc. ("UMDC") to construct the UMDC facility and to provide
working capital to UMDC. The facilities are comprised of a $500,000 Credit
Facility (the "Revolver") and separate loans originally totalling $1,900,000. As
of June 30, 1996, an aggregate of $1,698,000 was outstanding under the credit
facilities. Under the terms of the Revolver, which was renewed and will mature
in August, 1996, certain amounts due
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<PAGE>
the Company are subordinated to UMDC's obligations to the bank. No assurance can
be given that the bank will not call upon the guarantees of the Company or
Certain Executive Officers. In addition, amounts due the Company from UMDC may
not be paid if UMDC is in default under the terms of the $1,900,000 credit
facility. Certain Executive Officers have acquired an aggregate of 50% of the
common stock of UMDC. In 1994, the Company loaned certain principals of UMDC
(who are not affiliated with the Company) $450,000 and UMDC an aggregate of
$304,524 at a designated prime rate less 1%. Certain of these loans are due on
demand and certain of these loans which were due on various stated maturity
dates have been extended by the Company to become due on November 30, 1995.
These notes remain outstanding as of June 30, 1996. The Company intends to
extend the due dates. In addition, the Company provided equipment and supplies
to UMDC aggregating $825,952 through June 30, 1996 at no margin. These amounts
and the previously mentioned loans to UMDC and its principals, are included in
amounts due from consulting customers in the accompanying consolidated balance
sheets. The total amounts due from UMDC and its principals of $1,547,109 and
$1,523,284 as of June 30, 1996 and December 31, 1995, respectively, are net of
certain transactions not recorded due to realization uncertainties. The Company
is the guarantor of a lease for UMDC.
(4) SALE OF NEW JERSEY IN-CENTER FACILITY:
In March 1996, Courthouse Dialysis, Inc., a subsidiary of the Company,
sold substantially all of its assets, including the New Jersey in-center
facility to Renal Treatment Centers - New Jersey, Inc. ("RTC - NJ") and
Continental Dialysis, Inc. sold its rights to provide certain services to
designated patients in the Cape May Court House, New Jersey area to RTC Supply,
Inc. The respective buyers of the assets are subsidiaries of Renal Treatment
Centers, Inc. ("RTC"). The prices paid in the all-cash transaction were
approximately $1,370,000 to Courthouse Dialysis, Inc. and approximately $640,000
to Continental Dialysis, Inc. and resulted in an aggregate net gain of
$1,749,080. A significant portion of the proceeds received by Courthouse
Dialysis, Inc. were used to repay intercompany balances due to other
subsidiaries of the Company. The obligations of the buyers were guaranteed by
RTC and the obligations of the sellers were guaranteed by the Company. In
connection with the transaction, Certain Executive Officers entered into a
Covenant Not to Compete which obligates each of them to refrain from competing
with the buyers and RTC in New Jersey within 35 miles of Cape May Court House,
New Jersey in certain businesses for a term of seven years. The restricted
activities include most of those previously conducted by the Company in the
covered area.
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<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Six months ended June 30, 1996 Compared With Six Months ended
June 30, 1995.
NET PATIENT REVENUES
Net patient revenues of the Company are derived from providing
equipment and supplies to patients (51% for the first six months of 1996 and 67%
for 1995) and services (49% for 1996 and 33% for 1995), which services consist
of contract nursing services and dialysis treatments provided by the Company's
former New Jersey in-center facility and the Training Facility. In 1996 and
1995, 30% and 33%, respectively, of the Company's cash receipts were received
under the Medicare program, while approximately 70% and 67%, respectively, of
cash receipts were received from commercial insurance companies or contracted
entities and Medicaid programs.
The Company anticipates that Medicare payments will continue to be a
major source of revenue. The reimbursement rates for dialysis treatments and for
Epogen, a dialysis medication, are separately determined by Medicare and are
subject to change from time to time. The Medicare reimbursement rate for
dialysis treatments per month per patient was $1,193 in both 1996 and 1995. The
Company is dependent upon such factors as substantial government regulation and
the ability to grow and be profitable in a highly competitive industry.
Competition for patients and referral sources in the dialysis business
is highly competitive. The Company competes with many health care providers
ranging in size from single location in- center facilities and small home health
care providers to regional and national companies, and may face additional
competition from others that may decide to enter into business in the geographic
areas served by the Company. Many of the Company's competitors have
substantially greater financial resources than the Company. In addition, the
Company faces competition from other health care providers seeking acquisition
candidates of the type and size which are or may in the future be sought by the
Company. There is no assurance that the Company can continue to compete
effectively with such providers. In the past, the Company has been successful in
serving the home dialysis market. The combination of increased competition from
the Company's larger competitors and the pressures to reduce reimbursement rates
paid by private insurers make it difficult for the Company to maintain or
improve its revenue base. There is no assurance that the Company's increased
sales and marketing efforts will be successful in increasing the Company's net
patient revenues.
Net patient revenues for the six month periods were $3,084,769 in 1996
as compared with $4,320,842 in 1995. The decrease of $1,236,073 is attributable
to a number of factors. Sales to consulting customers were lower by $495,939 for
the first six months of 1996 as compared to the same period in 1995. As a result
of the sale of the Company's New Jersey in-center facility in March 1996, sales
decreased by $386,899 in the first six months of 1996 as compared to the same
period in 1995. In addition,
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there were no net patient revenues related to the Company's infusion services
business for the first six months of 1996 as compared to $305,640 for 1995 as a
result of the termination of that business in June 1995. Additionally,
reductions in the Company's former southern New Jersey equipment and supplies
revenues of $219,823 and New York sales of equipment and supplies of $378,197
were partially offset by $251,155 due to the opening of the Company's Linden
Training Facility, and revenues of $336,604 relating to the Company's new Renal
Management, Inc. subsidiary.
The Company is not permitted to operate, own or control health care
facilities licensed under New York law and has, accordingly, determined to
provide services in New York through consulting, administrative, or
subcontracting service arrangements with Consulting Customers in New York. The
Consulting Customers are, or are expected to be, partially or 100% owned by the
Certain Executive Officers.
In addition, the Company is the assignee of the Bronx Facility
Agreement between Alpha and the Bronx Facility. The Bronx Facility Agreement
provides that for a maximum annual consulting fee of $240,000, the Company, as
assignee, provides various administrative and consulting services to the Bronx
Facility. The Company has also provided equipment and supplies to the Bronx
Facility under the agreement in exchange for the Company's listed cost for the
equipment and supplies. The $240,000 consulting fee is expressly subordinated to
the payment of operating expenses of the Bronx Facility arising after April 16,
1993. Effective August 1994, the Company entered into an agreement to provide
administrative and consulting services to UMDC for a monthly fee of $33,333. The
agreement with UMDC similarly provides for reimbursement to the Company for
services rendered and for its direct costs of equipment and supplies. The UMDC
agreement was automatically renewed in 1995, extends for a period of two years
and is automatically renewable for successive two year periods unless either
party decides to terminate. Neither consulting fee has been recorded in 1996 or
1995 due to realization uncertainties.
As previously announced, the Company has established a new subsidiary,
Renal Management, Inc. ("RMI"), to expand the scope of its services and enable
it to be more directly involved in renal disease state management and nephrology
practice management. RMI intends to contract with third parties to provide care
to renal patients and to manage the overall care of renal patients for others.
During the second quarter of 1996, RMI prepared and submitted a proposal to the
Health Care Financing Administration ("HCFA") End Stage Renal Disease Managed
Care Demonstration project on behalf of four premier New Jersey healthcare
entities (the "Consortium"). In the event a portion of the project is awarded by
HCFA to the Consortium, RMI is expected to manage the project for the
Consortium. The management agreement with the Consortium is expected to provide
a fee based on profitability and/or reimbursement of certain expenses. Second
quarter 1996 revenues include $336,604 billed to the Consortium by RMI at no
margin. No assurance can be given that any portion of the project will be
awarded to the Consortium or that RMI will enter into an agreement with the
Consortium on terms acceptable to RMI.
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<PAGE>
COST OF GOODS SOLD/COST OF SERVICES
Cost of goods sold was $615,861 or 39% of net patient revenues
attributable to equipment and supplies in the six months ended June 30, 1996 as
compared with $1,427,356 or 49% of net patient revenues attributable to
equipment and supplies in 1995. This decrease in cost of goods sold is primarily
the result of a decrease of equipment and supplies purchased by Consulting
Customers at no margin.
The cost of services totaled $458,938 or 30% of net patient revenues
attributable to services in 1996, a reduction from $551,256 or 39% of net
patient revenues in 1995; this reduction resulted primarily from the use of
lower cost personnel.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses totaled $2,534,052 for the
six months of 1996 as compared with $2,453,635 in 1995. The net increase of
$80,417 is primarily comprised of $491,949 of expenses relating to the start-up
of RMI and $90,775 pertaining to the Company's Linden training facility
partially offset by a decrease of $154,626 due to the sale of the Company's New
Jersey in-center facility and tighter control over payroll and operating costs.
PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts was $241,617 for the first six
months of 1996 as compared with $479,279 in the corresponding period in 1995.
The provision for doubtful accounts is incurred to the extent deemed to be
adequate to absorb possible losses resulting from uncollectible receivables.
Management takes into consideration such factors as business volume, historical
loss experience, regional and economic conditions and industry trends in
developing the allowance for doubtful accounts. At June 30, 1996, the allowance
for doubtful accounts was $404,000 as compared with $728,000 as of December 31,
1995. As a percentage of receivables outstanding, such allowance was 43% at June
30, 1996 and 30% at December 31, 1995. Due to the reduction in current period
revenues discussed above and aggressive collection activity, the patient
accounts receivable have been significantly reduced. As a consequence, the
percentage of older receivables is larger and requires a higher percentage
allowance. Management is continuing to evaluate the collectibility of all
accounts and believes the stated allowance as of June 30, 1996 is adequate to
absorb possible losses resulting from uncollectible receivables.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense in 1996 totaled $66,188, a
decrease of $9,257 from the six months of 1995. This decrease is primarily the
result of the write-off of intangibles related to the 1994 LDL acquisition at
year end 1995 and the sale of the Company's former New Jersey in- center
facility in March 1996.
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INTEREST INCOME, NET
Net interest income was $33,800 in the six months ended June 30, 1996
and $35,587 in 1995. Interest expense on the Company's debt obligations in both
periods was more than offset by interest earned on the remaining proceeds from
the 1994 Offering of common stock and from the sale of assets and rights in the
Cape May Courthouse, New Jersey area. See "Liquidity and Capital Resources" and
"Sale of New Jersey In-Center Facility."
PROVISION FOR INCOME TAXES
The Federal income tax provision was $30,000 in 1996 and $0 in 1995.
The state income tax provision was $91,730 in 1996 and $0 in 1995. During the
first six months of 1996, net operating losses were utilized to reduce Federal
and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a positive net cash flow of $1,120,114 during
the first six months of 1996 comprised of $1,531,185 provided from investing
activities, derived primarily from the proceeds of the sale of certain southern
New Jersey assets of the Company, partially offset by $386,750 used in operating
activities and $24,321 used in financing activities.
The Company has made advances to certain affiliates and Consulting
Customers. In the second quarter of 1994, a note receivable of $125,868 was
created for the amount due from TechTron for costs incurred by the Company on
TechTron's behalf. This note bears interest at an Internal Revenue Service
imputed rate for instruments having a maturity of two or more years and
otherwise without a stated interest rate. Principal and accrued interest under
the note is due and payable in full no later than December 31, 1996; the Company
expects to extend the due date of this note. The note has been guaranteed by
Certain Executive Officers. Through June 30, 1996, the Company had advanced
loans to certain principals of UMDC (who are not affiliated with the Company)
aggregating $450,000 and loans to UMDC in the amount of $622,448, and had
provided $825,952 of equipment and supplies to UMDC for which the Company had
not yet been reimbursed. The loans bear interest at prime less 1% and are not
expected to be repaid before December 31, 1996. The Company, Certain Executive
Officers and the shareholders of UMDC have guaranteed UMDC's credit facilities
aggregating $2,400,000, of which approximately $1,698,000 is outstanding as of
June 30, 1996. Through December 31, 1994, Alpha had funded $565,000 of the cash
requirements of the Bronx Facility with funds provided from the Company. The
advances were converted into loan agreements with Alpha, bearing interest of 8%,
and payable in full in 1999. The Company has loaned $57,405 to Alpha to enable
Alpha to meet its obligations under its agreement with the estate of the former
director of the Bronx Facility. All notes from Alpha have been guaranteed by
Certain Executive Officers. As of June 30, 1996, $337,516 was due from the Bronx
facility. Total repayments made by the Bronx Facility in 1996 were $440,317.
Additional 1996 advances to the Bronx Facility for supplies and equipment
totaled $227,079.
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<PAGE>
The Company has also advanced funds to CDBI for the construction of a
new in-center dialysis facility in the Bronx, New York. At December 31, 1995,
$479,000 had been advanced to CDBI. Additional 1996 advances to CDBI through
June 30, 1996 totaled $531,311.
The RTC Transaction resulted in an aggregate net gain of $1,749,080. A
significant portion of the proceeds received by Courthouse Dialysis, Inc. were
used to repay intercompany balances due to other subsidiaries of the Company.
As of April 30, 1996, the Company had completed the planned use of
proceeds of its 1994 Offering of common stock. The Company expects that the cash
flow from operations and from the sale of the New Jersey in-center facility will
be sufficient to fund its operations at least through 1996. After such time, the
Company may require additional funds. The Company has no current commitments or
arrangements for additional financing and there can be no assurance that
additional financings, through bank borrowings, debt or equity financings or
otherwise, will be available on acceptable terms, if at all.
The Company has also guaranteed leases for UMDC and CDBI for their
respective in-center facilities in New York. Each has a 15 year term at an
annual rental of $145,000 and $138,000, respectively.
PART II.
Item 6. Exhibits and Reports on Form 8-K.
(a) No Exhibits accompany this 10-QSB.
(b) Report filed on Form 8-K, April 3, 1996, reporting a closing
effective March 26, 1996, in which Courthouse Dialysis, Inc.
sold substantially all of its assets to Renal Treatment Centers
- New Jersey for approximately $1,360,000 and Continental
Dialysis, Inc. sold its rights to provide certain services to
designated patients in the Cape May, New Jersey, area to RTC
Supply, Inc. for approximately $640,000 in an all cash
transaction.
- 12 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONTINENTAL CHOICE CARE, INC.
Registrant
Date: August 13, 1996 By: /s/ Steven L. Trenk
-------------------
STEVEN L. TRENK
President and Chief Operating
Officer and Director
Date: August 13, 1996 By: /s/ Ronald A. Lefkon
--------------------
RONALD A. LEFKON
Chief Financial Officer
- 14 -
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