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 March 31, 1997
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- 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.
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(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY 22-3276736
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
25-B VREELAND ROAD
FLORHAM PARK, NEW JERSEY 07932
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, Including Area Code (201) 593-0500
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N.A.
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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
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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
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Applicable only to corporate issuers.
Shares outstanding as of May 14, 1997
3,237,500 shares of common stock, no par value.
Transitional Small Business Disclosure Format: Yes No X
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<PAGE>
Continental Choice Care, Inc. and Subsidiaries
Form 10-QSB
March 31, 1997
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 March 31, 1997 and for the three-month periods ended March 31,
1997 and 1996 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 included in its Form10- KSB
filed with the Securities and Exchange Commission.
<PAGE>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS Mar. 31, 1997 Dec. 31, 1996
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(unaudited)
<S><C>
Current Assets:
Cash including restricted cash of $200,000................................... $1,186,768 $1,418,054
Accounts receivable, less allowance for doubtful accounts of $597,000
at March 31, 1997 and $517,000 at December 31, 1996...................... 995,127 989,363
Supplies inventories......................................................... 44,204 52,028
Deferred tax asset........................................................... 125,000 125,000
Other current assets......................................................... 88,556 129,163
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Total current assets ..................................................... 2,439,655 2,713,608
Amounts due from affiliates.................................................. 757,375 779,273
Amounts due from consulting customers........................................ 3,004,514 2,872,468
Property and equipment, at cost, less accumulated depreciation............... 646,239 691,237
Other assets................................................................. 61,675 57,907
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$6,909,458 $7,114,493
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................................. $1,414,836 $1,408,939
Accrued expenses ............................................................ 805,580 611,344
Current portion of notes payable and obligations under
capital leases............................................................ 44,391 57,643
Income taxes payable......................................................... 20,000 48,939
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Total current liabilities ................................................ 2,284,807 2,126,865
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Notes payable and obligations under capital leases,
less current portion...................................................... 55,906 64,319
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Commitments and Contingencies
Stockholders' Equity:
Preferred stock, 5,000,000 shares authorized, none issued or outstanding..... --- ---
Common stock, no par value, 10,000,000 shares authorized
3,237,500 shares issued and outstanding
at March 31, 1997 and December 31, 1996................................... 5,464,061 5,464,061
Paid-in capital.............................................................. 500 500
Accumulated deficit.......................................................... (895,816) (541,252)
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Total stockholders' equity................................................... 4,568,745 4,923,309
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$6,909,458 $7,114,493
============= ============
</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
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
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(unaudited) (unaudited)
<S><C>
Net Patient Revenues:
Equipment and supplies.............................................. $ 725,498 $ 815,835
Services............................................................ 515,628 829,515
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Total net patient revenues ................................... 1,241,126 1,645,350
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Costs and Expenses:
Cost of goods sold ................................................. 305,142 300,104
Cost of services ................................................... 163,345 254,426
Provision for doubtful accounts..................................... 72,978 205,145
Selling, general and administrative ................................ 1,016,242 1,116,944
Depreciation and amortization....................................... 48,057 34,120
Interest income, net................................................ (14,835) (6,824)
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Total costs and expenses...................................... 1,590,929 1,903,915
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Loss from operations .................................................. (349,803) (258,565)
Gain on sale of former New Jersey in-center facility and certain
other assets......................................................... -0- 1,749,080
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Income (loss) before income taxes...................................... (349,803) 1,490,515
Provision for income taxes............................................. 4,761 110,939
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Net income (loss)............................................. $ (354,564) $1,379,576
========== ==========
Net income (loss) per share............................................ $ (.11) $ .43
========== ==========
Weighted average number of shares outstanding................................... 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>
Three Months Ended March 31,
1997 1996
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(unaudited) (unaudited)
<S><C>
Cash Flows From Operating Activities:
Net income (loss) .................................................. $ (354,564) $ 1,379,576
Adjustments to reconcile net income (loss) to net cash
used in operating activities --
Depreciation and amortization................................... 48,057 34,120
Provision for doubtful accounts................................... 72,978 205,145
Gain on sale of former New Jersey in-center facility.............. -0- (1,749,080)
(Increase) decrease in accounts receivable.......................... (78,742) 123,776
Decrease in supplies inventories.................................... 7,824 2,001
(Increase) decrease in other assets................................. 36,839 (8,279)
(Increase) decrease in amounts due from affiliates.................. 21,898 (10,000)
Increase (decrease) in accounts payable............................. 5,897 (343,750)
Increase (decrease) in accrued expenses............................. 194,236 (97,971)
Increase (decrease) in income taxes payable......................... (28,939) 101,161
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Net cash used in operating activities........................... (74,516) (363,301)
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Cash Flows From Investing Activities:
Proceeds from sale of former New Jersey in-center facility.......... -0- 2,010,330
Amounts loaned or advanced to consulting customers.................. (211,090) (611,274)
Amounts repaid by consulting customers.............................. 79,044 250,000
Purchases of property and equipment................................. (3,059) (15,725)
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Net cash provided by (used in) investing activities........... (135,105) 1,633,331
---------- -----------
Cash Flows From Financing Activities:
Principal payments on notes payable and obligations
under capital leases............................................ (21,665) (15,434)
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Net increase (decrease) in cash........................................ (231,286) 1,254,596
Cash, beginning of year................................................ 1,418,054 1,341,955
---------- -----------
Cash, end of period.................................................... $1,186,768 $ 2,596,551
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for income taxes........................ $ 1,626 $ 5,939
========== ===========
Cash paid during the period for interest............................ $ 356 $ 354
========== ===========
</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 owns and operates a training center 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.
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. 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 1997 and 1996, approximately 25% and 31%,
respectively, of the Company's cash receipts were received under the Medicare
program, while approximately 75% and 69%, respectively, of cash receipts were
received from commercial insurance companies or contracted entities and Medicaid
programs.
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.
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<PAGE>
(2) Earnings per share:
On March 31, 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share" ("Statement 128"). Statement 128 is effective for
fiscal years ending after December 15, 1997, and, when adopted, it will require
restatement of prior years' earnings per share. If the Company had adopted
Statement 128 for the period ending March 31, 1997, there would have been no
effect on net loss per common share, on either the basic or diluted basis.
(3) Related Party transactions:
As of March 31, 1997 and December 31, 1996, $227,347 and $205,300,
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"), completed its acquisition of the Bronx Facility as of
April 3, 1997.
The Company has also advanced funds to Continental Dialysis of the
Bronx, Inc. ("CDBI"), a company owned by Certain Executive Officers, for the
construction and start-up operations of a new In-Center Dialysis Facility in the
Bronx, New York. At March 31, 1997 and December 31, 1996, $1,286,984 and
$1,176,985, respectively, was due from CDBI and has been included in amounts due
from consulting customers. The Company is also the guarantor of a lease for
CDBI. CDBI commenced operations in January 1997.
The Company, as well as Certain Executive Officers, guaranteed certain
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 were originally comprised of a $500,000 credit facility (the
"Revolver") and separate loans originally totalling $1,900,000. As of March 31,
1997, an aggregate of $1,160,000 was outstanding under the credit facilities.
Under the terms of the "Revolver", which was renewed and will mature on December
31, 1997, certain amounts due 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 credit facilities. Certain Executive Officers acquired an aggregate of
50% of the common stock of UMDC as of March 31, 1996. 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 March 31, 1997.
The Company currently intends to extend the due dates pending completion of the
IHS transaction. (See Note 4.) In addition, the Company provided
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<PAGE>
equipment and supplies to UMDC aggregating $898,868 through March 31, 1997 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 $1,490,183 as of both March 31, 1997 and December 31, 1996 are
net of certain transactions not recorded due to realization uncertainties. The
Company is the guarantor of a lease for UMDC.
(4) Agreement to Sell Assets:
On February 12, 1997, the Company and substantially all of its
subsidiaries, other than RMI, signed a definitive agreement to sell
substantially all of their respective operating assets to IHS of New York, Inc.,
a privately held company ("IHS"). In addition, Alpha and CDBI signed the
definitive agreement, thereby agreeing to sell substantially all of their
respective operating assets to IHS. UMDC, which is 50% owned by Certain
Executive Officers, is a signatory to the definitive agreements but has not
executed the same. The Certain Executive Officers owning 50% of UMDC have
granted an option (the "UMDC Option") to IHS to acquire their interests in UMDC
if UMDC does not approve the transaction, subject to restrictions contained in
certain existing agreements.
The maximum aggregate purchase price for the assets to be sold,
including the assets of the consulting customers, is $13,120,000. In the event
IHS exercises the UMDC Option, the Purchase Price shall be reduced by
$5,750,000. The sellers will retain substantially all of their cash, accounts
receivable and liabilities. The purchase price will be reduced by the amount of
any liabilities assumed by IHS other than real estate leases. The purchase price
will be allocated among the Company and the consulting customers and all amounts
due from consulting customers, which total $3,004,514 as of March 31, 1997, are
anticipated to be repaid at the closing of the transaction. In addition, the
Company and IHS will enter into a consulting agreement pursuant to which certain
officers of the Company will provide consulting services to IHS over the
three-year term of the agreement. The Company will also enter into a covenant
not to compete with IHS. A hospital which has an affiliation agreement with UMDC
has asserted a right of first refusal with respect to any transfer of the assets
or stock of UMDC. Although the Company and Certain Executive Officers of the
Company who hold 50% of the outstanding voting shares of UMDC do not agree that
the position taken by the hospital has merit, the parties are negotiating an
amendment (the "Proposed Amendment") to the definitive agreements. The Proposed
Amendment currently provides that, if the Proposed Amendment is executed and the
transactions contemplated thereby are consummated, the purchase price for the
assets, exclusive of the assets of UMDC will be $5,120,000. If the assets
("Manhattan Assets") of UMDC or another dialysis facility which is located in
Manhattan and is acceptable to IHS are later transferred to IHS, IHS will pay
not less than $6,000,000 nor more than $8,000,000 for those assets and IHS may
pay a market penetration bonus to the Company. The amount of the market
penetration bonus is $2,000,000, less amounts in excess of $6,000,000 paid by
IHS for the Manhattan Assets, if any. In addition, IHS shall pay the purchase
price (as adjusted for the
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<PAGE>
inclusion or exclusion of the Manhattan Assets in the transaction) into escrow.
The escrow shall be released to the Company in the event IHS obtains all
governmental approvals on or before November 30, 1997. The escrow shall be
released to IHS in the event IHS does not obtain all governmental approvals on
or before such date. During the pendency of the escrow, the parties intend to
enter into a consulting and services agreement with IHS with respect to the
operation of the assets. No assurance can be given that IHS will receive any or
all of the state licenses and approvals required to permit the consummation of
the proposed transactions.
The definitive agreements are subject to approval by the shareholders
of the Company. The closing of the transaction is subject to certain conditions,
including without limitation, completion of due diligence by IHS, governmental
approvals, completion of certain transactions involving consulting customers and
the continuing accuracy of certain representations and warranties contained in
the definitive agreement among the parties. In the event the transaction is not
consummated, IHS is not in breach of the definitive agreement, among other
things, and the Company enters into a similar transaction at a higher aggregate
price with a third party, the Company may be obligated to pay a $500,000
break-up fee to IHS.
The Company continues to operate in a highly competitive market and has
experienced a decrease in patients served. In addition, the Company has incurred
operating losses in the past ten quarters. In light of the above, management has
decided to sell substantially all assets. As described above, a definitive sale
agreement has been signed which would provide for realization of certain
recorded net asset values and provide cash for the Company's operating needs.
Such sale is expected to close in the second or third quarter of 1997. The
closing of the transaction is subject to various conditions, and no assurance
can be given that the transaction will be consummated. In the event such sale is
not consummated, the Company may be forced to seek additional sources of
financing; however, no assurance can be given that such sources will be
available. The Company's 1997 operating plan contains assumptions regarding
revenue and margins consistent with historical levels and planned reductions to
the Company's cost structure. The achievement of the operating plan depends
heavily on maintaining existing patients and the timely reduction of costs. An
inability to maintain existing patients and to reduce costs could have an
adverse impact on the Company's ability to fully execute its operating plan and
maintain adequate cash flow. In the event actual results do not meet the
operating plan, management believes it could execute contingency plans to
mitigate such effects. The contingency plans include consideration of the sale
of assets and additional cost reductions. Considering the cash on hand and based
on the achievement of the operating plan and management's actions taken to date,
management believes it has the ability to continue to generate sufficient cash
to satisfy its operating requirements in the normal course of business for the
remainder of 1997. However, no assurance can be given that sufficient cash will
be generated from operations, that sufficient cost reductions can be achieved or
that the Company will be able to sell assets on terms acceptable to the Company.
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<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS
------------------------------------
Results of Operations
Three months ended March 31, 1997 Compared With Three Months Ended March
31, 1996.
Net Patient Revenues
Net patient revenues of the Company are derived from providing
equipment and supplies to patients (58% for 1997 and 50% for 1996) and services
(42% for 1997 and 50% for 1996), 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 1997 and 1996, 25% and 31%,
respectively, of the Company's cash receipts were received under the Medicare
program, while approximately 75% and 69%, 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 1997 and 1996. The
continuing profitability of the Company is also dependent upon such factors as
substantial government regulation and the ability to grow and remain profitable
in a highly competitive industry.
Competition for patients and referral sources in the dialysis business
is highly contentious. 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 sales and
marketing efforts will be successful in increasing the Company's net patient
revenues.
Net patient revenues were $1,241,126 in 1997 as compared with
$1,645,350 in 1996. The decrease of $404,224 is attributable to a decrease of
$314,521 due to the sale of the Company's former New Jersey in-center facility
in March 1996, as well as to reductions in the Company's
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<PAGE>
former southern New Jersey equipment and supplies revenues of $86,702 partially
offset by $96,563 from the Company's Connecticut operation.
The Company is not permitted to operate, own or control health care
facilities licensed under New York law and has, accordingly, determined to
provide service in New York through consulting, administrative, or
subcontracting service arrangements with Consulting Customers in New York. The
Consulting Customers are partially or 100% owned by the Certain Executive
Officers.
In addition, Alpha has assumed the obligations of the National
Nephrology Foundation under the terms of the Bronx Facility Agreement. The Bronx
Facility Agreement provides that for a maximum annual consulting fee of
$240,000, the Company will provide 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. For the three months ended March 31,
1997, the Company recognized $60,000 in consulting fees from the Bronx Facility
compared to $0 for the three months ended March 31, 1996 due to realization
uncertainties. Effective August 1994 and January 1997, the Company entered into
agreements to provide administrative and consulting services to UMDC and CDBI
for monthly fees of $33,333 and $20,000, respectively. The agreements with UMDC
and CDBI similarly provide 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 the UMDC nor the CDBI consulting fee has been
recorded in 1997 or 1996 due to realization uncertainties.
Cost of Goods Sold/Cost of Services
Cost of goods sold was $305,142 or 42% of net patient revenues
attributable to equipment and supplies in the three months ended March 31, 1997
as compared with $300,104 or 37% of net patient revenues attributable to
equipment and supplies in 1996. This increase in cost of goods sold as a
percentage of revenues is primarily due to price increases for equipment and
supplies.
The cost of services totaled $163,345 or 32% of net patient revenues
attributable to services in 1997, as compared with $254,426 or 31% of net
patient revenues in 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses totaled $1,016,241 or 82%
of net patient revenues for the three months of 1997 as compared with $1,116,944
or 68% of net patient revenues in 1996. The net decrease of $100,703 is
primarily comprised of a decrease in salaries, rent and other office expenses
due to the sale of the Company's former Cape May Court House, New Jersey
in-center facility in March 1996.
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Provision for Doubtful Accounts
The provision for doubtful accounts was $72,978 for the first three
months of 1997 as compared with $205,145 in 1996 due primarily to a decrease in
patient revenues. The provision for doubtful accounts is recorded to the extent
deemed to be adequate to absorb possible losses resulting from uncollectible
receivables. The Company reviews each individual account in detail to determine
the collectibility of each item in the account. A reserve is established to
reflect any amounts considered doubtful of collection. The calculation of
doubtful accounts is based on the Company's knowledge of specific payors, past
experience with the account under review and historic experience with accounts
having characteristics similar to the one being reviewed. Due to the unusually
long third-party reimbursement process, especially as to secondary and tertiary
payors and self-pay patients, the Company often does not write off receivables
for a year or more.
As of March 31, 1997, the allowance for doubtful accounts was $597,000
as compared with $517,000 at December 31, 1996. As a percentage of receivables
outstanding, such allowance was 37% at March 31, 1997, and 34% at December 31,
1996. Management continues to evaluate the collectibility of all accounts and
believes the stated allowance as of March 31, 1997 is adequate to absorb
possible losses resulting from uncollectible receivables. As of March 31, 1997,
$372,000 or 37% of net receivables were greater than 90 days past due.
Depreciation and Amortization Expense
Depreciation and amortization expense in 1997 totaled $48,057, an
increase of $13,937 from the three months of 1996.
Net Interest Income
Net interest income was $14,835 in the three months ended March 31,
1997 and $6,824 in 1996. Interest expense on the Company's debt obligations in
both periods was more than offset by interest earned on the remaining proceeds
from the 1996 sale of assets and rights in the Cape May Court House, New Jersey
area.
Provision for Income Taxes
The Federal income tax provision was $0 in 1997 and $30,000 in 1996.
The state income tax provision was $4,761 in 1997 and $80,939 in 1996.
Liquidity and Capital Resources
The Company experienced a negative net cash flow of $231,286 during the
first three months of 1997 comprised of $74,516 used in operating activites,
$135,105 used in investing activities, and $21,665 used in financing activities.
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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 was due and payable in full no later than December 31, 1996. Payment
was not made, and the borrower has executed a new note which is due and payable
on demand. The note has been guaranteed by Certain Executive Officers. Through
March 31, 1997, 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 $898,868 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,
1997. The Company, Certain Executive Officers and the shareholders of UMDC have
guaranteed UMDC's credit facilities aggregating $2,400,000, of which
approximately $1,160,000 is outstanding as of March 31, 1997. 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 March 31, 1997, $227,347 was due from the Bronx facility. Total
repayments made by the Bronx Facility in 1997 were $79,044. Additional 1997
advances to the Bronx Facility totaled 101,090, primarily for supplies and
equipment.
The Company has also advanced funds to CDBI for the construction and
start-up costs of a new in-center dialysis facility in the Bronx, New York. At
March 31, 1997, $1,286,984 had been advanced to CDBI. CDBI commenced operations
in January 1997.
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.
The Company expects that the cash flow from operations and from the
sale of assets as more fully described in Note 4 to the Financial Statements
will be sufficient to fund its operations at least through 1997. 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.
- 12 -
<PAGE>
Part II.
Item 6. Exhibits and Reports on Form 8-K.
(a) No Exhibits accompany this Form 10-QSB
(b) A report on Form 8-K was filed by the Company on February 28,
1997 concerning the execution of a definitive agreement to sell
substantially all of the operating assets of the Company and
certain of the Company's Consulting Customers to IHS of New
York, Inc.
- 13 -
<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: May 14, 1997 By: __________________________________
STEVEN L. TRENK
President and Chief Operating
Officer and Director
Date: May 14, 1997 By: __________________________________
RONALD A. LEFKON
Chief Financial Officer
- 14 -
<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: May 14, 1997 By: /s/ Steven L. Trenk
-------------------
STEVEN L. TRENK
President and Chief Operating
Officer and Director
Date: May 14, 1997 By: /s/ Ronald A. Lefkon
--------------------
RONALD A. LEFKON
Chief Financial Officer
- 15 -
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
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