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, 1998
- 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 (973) 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 May 12, 1998 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
March 31, 1998
This Annual Report on Form 10-QSB contains "forward-looking statements"
that are based on management's assumptions, estimates and projections. The
Company's actual results could differ materially from the results anticipated in
such forward-looking statements as a result of known and unknown risks,
uncertainties and other factors.
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, 1998 and for the three-month periods ended March 31,
1998 and 1997 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.
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<PAGE>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS Mar. 31, 1998 Dec. 31, 1997
------------- -------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents including restricted cash of
$250,000 at December 31, 1997 ...................................... $ 361,767 $ 406,909
Investments in U.S. Government securities .............................. 6,605,205 3,595,438
Accounts receivable, less allowance for doubtful accounts of $175,000
at March 31, 1998 and $257,000 at December 31, 1997 ................ 86,994 197,133
Amounts due from consulting customers .................................. 119,880 2,805,105
Other current assets ................................................... 536,850 583,609
---------- ----------
Total current assets ................................................ 7,710,696 7,588,194
Amounts due from affiliates ............................................ 266,864 235,864
Property and equipment, at cost, less accumulated depreciation ......... 85,011 90,962
Other assets ........................................................... 139,419 139,295
---------- ----------
$8,201,990 $8,054,315
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ....................................................... $ 560,784 $ 670,540
Accrued professional fees .............................................. 137,349 162,949
Other accrued expenses ................................................. 889,614 801,151
Income taxes payable ................................................... 74,000 87,000
---------- ----------
Total current liabilities ........................................... 1,661,747 1,721,640
---------- ----------
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, 1998
and December 31, 1997 ............................................... 5,524,161 5,524,061
Paid-in capital ........................................................ 500 500
Retained earnings ...................................................... 1,014,500 782,977
Accumulated other comprehensive income ................................. 1,082 25,137
---------- ----------
Total stockholders' equity .......................................... 6,540,243 6,332,675
---------- ----------
$8,201,990 $8,054,315
========== ==========
</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
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
Three Months ended March 31,
----------------------------------
1998 1997
--------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues from continuing operations........................................ $ 83,331 $ -0-
--------------- ---------------
Costs and Expenses:
General and administrative ............................................ 519,500 580,572
Depreciation and amortization ......................................... 8,356 6,901
Interest income, net .................................................. (99,035) (13,695)
--------------- ---------------
Total costs and expenses ......................................... 428,821 573,778
--------------- ---------------
Benefit for income taxes................................................... (20,038) (8,033)
--------------- ---------------
Loss from continuing operations............................................ (325,452) (565,745)
--------------- ---------------
Income from discontinued operations, less applicable income
taxes of $34,430 in 1998 and $12,794 in 1997 (Note 1)................... 556,975 211,181
--------------- ---------------
Net income (loss)................................................. 231,523 (354,564)
Retained earning (accumulated deficit), beginning of year.................. 782,977 (541,252)
--------------- ---------------
Retained earnings (accumulated deficit), end of period..................... $ 1,014,500 $ (895,816)
--------------- ---------------
Basic and diluted income (loss) per share:
Continuing operations ................................................ $ (.10) $ (.18)
Discontinued operations................................................. .17 .07
--------------- ---------------
Net income (loss) per share............................................. $ .07 $ (.11)
=============== ===============
Basic weighted average shares outstanding.................................. 3,237,500 3,237,500
=============== ===============
Diluted weighted average shares outstanding................................ 3,284,000 3,237,500
=============== ===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-3-
<PAGE>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ................................................... $ 231,523 $ (354,564)
Adjustments to reconcile net income (loss) to net cash
used in operating activities --
Depreciation and amortization ..................................... 8,356 6,901
Accretion on U.S. Government securities ........................... (78,868) 0
Provision for doubtful accounts ................................... 0 72,978
Income from discontinued operations, net .......................... (556,975) (211,181)
Decrease (increase) in accounts receivable ........................ 110,139 (78,742)
Decrease in other assets .......................................... 66,831 44,663
(Increase) decrease in amounts due from affiliates ................ (31,000) 21,898
Increase in accounts payable ...................................... 73,738 5,897
Increase in accrued professional fees and other accrued expenses .. 62,863 194,236
Decrease in income taxes payable .................................. (13,000) (28,939)
----------- -----------
Net cash used in operating activities of continuing
operations ................................................... (126,393) (326,853)
Net cash provided by discontinued operations .................... 0 252,337
----------- -----------
Net cash used in operating activities .................................. (126,393) (74,516)
----------- -----------
Cash Flows From Investing Activities:
Amounts loaned or advanced to consulting customers ................ 0 (211,090)
Amounts repaid by consulting customers ............................ 3,014,555 79,044
Purchases of U.S. Government securities ........................... (4,317,167) 0
Proceeds from sale of U.S. Government securities .................. 1,386,268 0
Purchases of property and equipment ............................... (2,405) (3,059)
----------- -----------
Net cash provided by (used in) investing activities .................... 81,251 (135,105)
----------- -----------
Cash Flows From Financing Activities:
Principal payments on notes payable and obligations
under capital leases ............................................ -0- (21,665)
----------- -----------
Net decrease in cash ................................................... (45,142) (231,286)
Cash, beginning of year ................................................ 406,909 1,418,054
----------- -----------
Cash, end of period .................................................... $ 361,767 $ 1,186,768
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for income taxes .......................... $ 27,017 $ 1,626
=========== ===========
Cash paid during the year for interest .............................. $ 495 $ 356
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-4-
<PAGE>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of business, reorganization and discontinued operations:
Continental Choice Care, Inc. and subsidiaries, (collectively, the
"Company") was primarily engaged in the business of providing dialysis related
services, training, equipment and supplies to patients at home, in prisons and
in hospitals. The Company also provided acute dialysis nursing services and
administrative services. The Company operated primarily in New Jersey and New
York.
Effective October 8, 1997, the Company, other than its 80% owned Renal
Managment, Inc. subsidiary ("RMI"), completed the sale of substantially all of
its dialysis related assets to IHS of New York, Inc., a New York corporation
("IHS"). In addition, Alpha Administration Corp. ("Alpha"), the operator of the
South Bronx Kidney Center, and Continental Dialysis Center of the Bronx, Inc.
("CDBI") sold substantially all of their respective assets to IHS. Prior to the
sale, the Company provided consulting and administrative services to Alpha and
CDBI, each of which are affiliates of the Company. The assets of the Upper
Manhattan Dialysis Center, Inc. ("UMDC"), a New York corporation to which the
Company also provided consulting and administrative services, were not included
in this sale transaction (the "IHS Sale"). The aggregate price paid by IHS at
the closing of the IHS Sale was approximately $5,120,000, of which $500,000 was
placed in an escrow to secure certain contingent obligations of the sellers. As
of March 31, 1998 and December 31, 1997, $375,000 of the escrow is included in
other current assets and $125,000 is included in other assets in the
accompanying consolidated balance sheets. The sellers retained substantially all
of their cash, accounts receivable and liabilities. The Company and IHS entered
into a consulting agreement pursuant to which the Company provides certain
consulting services to IHS over the three-year term of the agreement in
consideration of an aggregate of $1,000,000 payable by IHS to the Company over
the term of the agreement. IHS is currently in default of its payment obligation
under the terms of the consulting agreement. Further, the Company believes that
IHS has failed to obtain a license to operate the Alpha and CDBI facilities and,
accordingly, has been unable to bill for services rendered by those facilities.
The Company believes that Certain Executive Officers, as defined below, remain
the owners and operators of the facilities under New York law. The Company also
entered into a Non-Competition Agreement with IHS pursuant to which the Company,
CDBI, Alpha and certain officers and directors of each of them agreed not to
engage in certain activities in competition with IHS in certain specified areas
for a period of five years following October 8, 1997.
Upper Manhattan Dialysis Center, Inc. ("UMDC") is a New York based dialysis
facility. 50% of UMDC's outstanding common stock is owned by Alvin S. Trenk, the
Company's Chairman, Chief Executive Officer and a Director, Steven L. Trenk, the
Company's President and Chief Operating Officer and a Director, and Martin G.
Jacobs, MD, the Company's Medical Director and a Director ("Certain Executive
Officers"). The remaining common stock is held by two physicians. UMDC was a
consulting customer of the Company.
-5-
<PAGE>
On January 29, 1998, UMDC sold substantially all of its assets to Renal
Research Institute, LLC ("RRI") pursuant to the terms of an Asset Purchase
Agreement (the "RRI Purchase Agreement") among UMDC, RRI and the shareholders of
UMDC for an aggregate purchase price of approximately $7,984,000 (the "RRI
Sale"). RRI is a joint venture between Fresenius Medical Care, N.A. and Beth
Israel Medical Center.
At the January 29, 1998 closing (the "First RRI Closing"), RRI paid
approximately $4,174,000 in partial payment under the RRI Purchase Agreement.
UMDC retained its accounts receivable, cash and cash equivalents in the
transaction, as well as certain liabilities of UMDC outstanding as of the date
of the First RRI Closing.
Under the terms of the RRI Purchase Agreement, Beth Israel Medical Center,
or an alternate designee of RRI, will apply for approval from the New York State
Department of Health (the "NY Approval") to operate the in-center dialysis
facility currently operated by UMDC. In connection with any grant of the NY
Approval, which is currently expected to occur in the fourth quarter of 1998,
RRI is expected to pay UMDC additional amounts aggregating approximately
$3,810,000, less the net value of certain current assets to be retained by UMDC.
Pending the NY Approval, RRI and UMDC have entered into a Consulting and
Administrative Services Agreement (the "RRI Consulting Agreement") pursuant to
which RRI will provide UMDC with the use of the assets sold by UMDC to RRI and
will provide certain other enumerated services to UMDC in exchange for a
consulting fee. RRI's fee is not payable, and accrues to the extent not paid,
during any month in which UMDC does not retain a minimum of $28,000 of cash from
its net income. UMDC expects to earn net income of approximately $252,000
pending the NY Approval if the NY Approval is granted in November 1998. The
amount of monthly net income which UMDC expects to earn during the term of the
RRI Consulting Agreement is subject to substantial variation based on a wide
variety of factors and no assurance can be given that such amount will be
attained or that UMDC will not suffer losses during the relevant periods.
In connection with the First RRI Closing, UMDC paid approximately $628,000
of outstanding bank debt which the Company and Certain Executive Officers
previously guaranteed. The Company previously loaned monies to and incurred
additional non-bank liabilities on behalf of UMDC and its physician
shareholders, of which approximately $3,452,000 was outstanding as of the date
of the First RRI Closing. Further, as of the date of the sale, UMDC owed the
Company approximately $1,389,000 in various accrued consulting and service fees.
Through March 31, 1998, the Company received $2,915,000. The Company has not
recorded certain transactions approximating $1,826,000 related to UMDC due to
realization uncertainties.
Although the Company expects to receive an aggregate of approximately
$4,500,000 from UMDC from the proceeds of the transaction and from the
operations of UMDC, there can be no assurance given that the RRI Second Closing
will occur.
-6-
<PAGE>
In the event the NY Approval is not granted before February 2000 or upon
the occurrence of certain other events, UMDC and RRI may extend the term of the
RRI Consulting Agreement or may enter into a joint sale of UMDC. In addition,
upon the occurrence of certain events, the RRI Consulting Agreement may be
terminated, in which event UMDC will be required to repurchase its assets at a
fixed monthly rate over a term of years, unless sooner paid. In addition, UMDC
and its shareholders, including Certain Executive Officers, have indemnified RRI
against damages arising from certain breaches of the RRI Purchase Agreement.
In connection with the transaction, the Company and certain of its
affiliates have agreed not to engage in the dialysis services business or
certain related businesses within the Borough of Manhattan, New York for a
period of ten years following the First RRI Closing.
No assurance can be given that the NY Approval will be granted or that the
transactions contemplated by the RRI Purchase Agreement or the RRI Consulting
Agreement will otherwise be consummated. No assurance can be given that UMDC
will earn sufficient net income to be able to make payments to the Company
during the term of the RRI Consulting Agreement or that UMDC will not suffer
losses during the term of the RRI Consulting Agreement. In the event of a breach
of the covenant not to compete, no assurance can be given that Certain Executive
Officers will not incur costs, expenses, liabilities or damages which are
subject to indemnity by the Company in connection with the RRI Purchase
Agreement, the RRI Consulting Agreement or any covenant not to compete.
The operating results and the gain on the disposition of the Company's
dialysis-related businesses have been segregated from continuing operations and
reported as separate line items on the Consolidated Statements of Operations.
The Consolidated Financial Statements have been restated to reflect the
discontinued operations.
(2) Income (loss) per share:
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (FAS 128). FAS 128 requires the presentation of basic
earnings per share and diluted earnings per share. "Basic earnings (loss) per
share" represents net income (loss) divided by the weighted average shares
outstanding and is consistent with the Company's historical presentations.
"Diluted earnings (loss) per share" represents net income (loss) divided by the
weighted average shares outstanding adjusted for the incremental dilution of
outstanding employee stock options and awards, if dilutive.
As of March 31, 1998 and 1997, the basic weighted average common shares
outstanding were 3,237,500, and the weighted average common shares outstanding
assuming dilution were 3,284,000 and 3,237,500, respectively. The 1998
difference of 46,500 relates to incremental shares issuable relating to dilutive
stock options and warrants.
-7-
<PAGE>
(3) Related party transactions:
The Company has obtained a $125,868 note from TechTron, Inc. ("TechTron")
for expenses of TechTron paid for by the Company. TechTron holds approximately
47.18% of the Company's outstanding common stock, and approximately 80.7% of
TechTron's outstanding common stock is held by Certain Executive Officers. The
note bears interest at the rate imputed by the Internal Revenue Service for
instruments having a maturity of two or more years and without a stated interest
rate. The principal and accrued interest thereon were due on December 31, 1996;
however, a new note was executed which is payable on demand. During 1998, 1997,
1996 and 1995, an additional $31,000, $78,996, $16,000 and $15,000,
respectively, was advanced to TechTron by the Company. The Company has obtained
notes from TechTron for these additional advances. The notes bear interest at
the rate of 8% and are payable on demand. All notes have been guaranteed by
Certain Executive Officers.
As of March 31, 1998 and December 31, 1997, $(72,622) and $74,878,
respectively, was (payable to) due from Alpha, and is included in accounts
payable or amounts due from consulting customers in the accompanying
consolidated balance sheets. The amounts are net of certain transactions in the
amount of $163,315, not recorded due to realization uncertainties. At March 31,
1998 and December 31, 1997, $19,880 and $64,350, respectively, was due from
CDBI. However, there was inadequate cash flow to pay $200,000 in consulting fees
which have not been recorded by the Company due to realization uncertainties.
In 1994, the Company loaned the principals of UMDC $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 had been extended by the Company to become due on November 30,
1995. As of December 31, 1997, UMDC owed the Company $831,483 and the physician
shareholders of UMDC owed the Company $100,000 in principal plus interest for
loans previously advanced by the Company. As of March 31, 1998, all amounts due
from UMDC under these loans were repaid, and $100,000 of principal plus accrued
interest due from the physician shareholders of UMDC to the Company was still
outstanding. In addition, the Company provided equipment and supplies to UMDC
aggregating $1,048,841 through March 31, 1998 and December 31, 1997 at no
margin. The total amounts due from UMDC and its physician principals of $100,000
and $2,665,677 as of March 31, 1998 and December 31, 1997, respectively, are net
of certain transactions including consulting fees (aggregating $1,388,875 at
March 31, 1998) not recorded due to realization uncertainties.
(4) Other comprehensive income
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
which modifies the financial statement presentation of comprehensive income and
its components. Upon adoption of this Statement, the accumulated net unrealized
gain on the Company's available for-sale investments was
-8-
<PAGE>
$25,139 at December 31, 1997. Adoption of this Statement had no effect on the
Company's financial position or operating results in the periods presented.
Comprehensive income (loss) for the three months ended March 31, 1998 and
1997, representing all changes in stockholders' equity during the period other
than changes resulting from the Company's stock, was $232,605 and $(354,564).
MANAGEMENT'S DISCUSSION AND ANALYSIS.
Results of Operations
Three Months Ended March 31, 1998 Compared With Three Months Ended March
31, 1997.
At the IHS Closing on October 8, 1997, the Company completed the sale of
its New Jersey, Connecticut and Pennsylvania dialysis business assets to IHS.
The Company also conveyed its New York nursing and home and alternate site
businesses and its consulting and service agreements with Alpha and CDBI to IHS.
Following the IHS Closing, the Company's sources of revenue included amounts
payable for consulting services to be provided to IHS through October 2000 and
amounts payable by UMDC pursuant to the UMDC Agreement. Further, in January,
1998, UMDC sold substantially all of its assets to RRI and the Company and UMDC
terminated the UMDC Agreement. As a result of the UMDC transaction, the Company
received repayment of certain sums due the Company from UMDC and certain of
UMDC's shareholders and became entitled to receive repayment of certain other
amounts due from UMDC and its shareholders and to receive amounts to be earned
by UMDC in connection with its continuing business pending the RRI Second
Closing.
In the three months ended March 31, 1998, the Company recognized $83,331
from the IHS Consulting Agreement, which is payable at the rate of approximately
$28,000 per month for its three year term. IHS is currently in default of its
payment obligations under the Consulting Agreement for the months of March,
April, and May 1998. In addition, the Company received $2,665,000 from UMDC as a
result of the First RRI Closing for amounts previously due from this consulting
customer. The remainder of the proceeds from the IHS Closing, the proceeds from
the IHS Consulting Agreement and the proceeds from the RRI Transaction were
invested by the Company in U.S. Government securities and money market funds
pending application. Costs incurred by the Company relating to the RRI
transaction were not significant. No assurance can be given that the Company
will continue to receive income from the IHS Consulting Agreement or from the
continued operations of UMDC.
Revenues
Net patient revenues of the Company in 1997 prior to the IHS Closing were
derived from providing equipment and supplies to patients (51%) and services
(49%), which services consisted of contract nursing services, and dialysis
treatments provided by the Company's Training Facility in
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<PAGE>
Linden, New Jersey. In 1997, 25% of the Company's cash receipts were received
under the Medicare program, while approximately 75% of cash receipts were
received from commercial insurance companies or contracted entities and Medicaid
programs.
Net patient revenues were $1,241,126 in the first quarter of 1997. There
were no such revenues in 1998. The decrease is attributable to the sale of
substantially all of the Company's assets in October, 1997. This decrease in the
Company's operating revenues in 1998 was partially offset by $99,035 in interest
income derived in part from the Company's investment of the proceeds of the IHS
Closing and the RRI Transaction and income of $83,331 derived from the IHS
Consulting Agreement.
The Company provided certain services in New York through consulting,
administrative, or subcontracting service arrangements with the Alpha, CDBI and
UMDC Consulting Customers in New York. Under the Company's agreements with
Alpha, CDBI and UMDC, the Company provided various administrative and consulting
services for a monthly fee of $20,000, $20,000 and $33,333, respectively. The
Company also provided equipment and supplies to the Consulting Customers under
the agreements at the Company's listed cost for the equipment and supplies. As
of the end of the 1997 fiscal year, the Company recorded revenues of $941,000
from Alpha, $62,000 from CDBI and $794,000 from UMDC, of which an aggregate of
approximately $800,000 related to prior periods that was not previously recorded
due to realization uncertainties attributable to services, equipment and
supplies. In the first three months of 1998, the Company recorded $513,691 in
revenues related to UMDC not previously recorded due to realization
uncertainties.
The Company's Renal Management, Inc. ("RMI") subsidiary recognized no
revenue on expenses of $82,173 through March 31, 1997. No expenses were incurred
for RMI in 1998, nor does the Company expect to provide additional substantive
financial support for RMI.
The Company does not expect to receive future operating revenues related to
its former dialysis based businesses or from the business of its former
Consulting Customers other than such amounts as it may receive under its
consulting agreement with IHS and the consulting agreement between RRI and UMDC.
The Company's other revenues will be substantially limited to interest and
investment income pending the commencement or acquisition of other businesses,
if any.
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. The cost of
services totaled $163,345 or 32% of net patient revenues attributable to
services in 1997. In 1998, there was no cost of equipment and supplies and
services due to the termination of business which occurred as a result of the
IHS Closing. The Company also experienced a decrease in personnel costs,
primarily attributable to reductions in workforce resulting from and following
the IHS Closing.
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<PAGE>
General and Administrative Expenses
General and administrative expenses totaled $519,500 for the three months
ended March 31, 1998 as compared with $1,016,241 for the 1997 period. The net
decrease of $496,741 is primarily comprised of a reduction of $82,173 relating
to expenses of RMI and a reduction in salaries, rent and other office expenses
of $339,739 due to a reduction in work force resulting from the IHS transaction.
In connection with the IHS transaction, the Company retained substantially all
of its accounts receivable and accounts payable. Accordingly, during the period
immediately following the IHS Closing, the Company maintained its accounts
receivable and accounts payable personnel. The number of employees employed in
those departments decreased further in 1998. The Company expects to continue to
incur general and administrative expenses of not less than approximately
$1,800,000 per annum, including the salaries of the Company's officers and
professional fees, for so long as the Company is not engaged in additional
businesses.
Allowance for Doubtful Accounts
A provision for doubtful accounts was recorded to the extent deemed to be
adequate to absorb possible losses resulting from uncollectible patient
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, 1998, the allowance for doubtful accounts was $175,000 as
compared with $257,000 at December 31, 1997. As a percentage of receivables
outstanding, such allowance was 67% at March 31, 1998, and 57% at December 31,
1997. Due to the discontinuance of current revenues discussed above and
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 continues to evaluate the
collectibility of all accounts and believes the stated allowance as of March 31,
1998 is adequate to absorb possible losses resulting from uncollectible
receivables. As of March 31, 1998, substantially all receivables were greater
than 90 days past due.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended March 31,
1998 totaled $8,356, a decrease of $20,690 from the 1997 period. The decrease
resulted primarily from the sale of assets included in the IHS transaction.
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<PAGE>
Interest Income, Net
Net interest income was $99,035 and $13,695 in the three months ended March
31, 1998 and 1997, respectively. Interest expense on the Company's debt
obligations in 1997 was more than offset by interest earned on the proceeds from
the sale of assets to IHS, the RRI Transaction and on the remaining proceeds
from the 1996 sale of assets and rights in the Cape May Court House, New Jersey
area. The Company had no debt obligations in 1998.
Provision (benefit) for Income Taxes
The provision (benefit) for Federal income taxes was $0 in 1998 and 1997.
The state income tax provision was $14,392 in 1998 and $4,761 in 1997. All of
the Company's deferred tax asset as of March 31, 1998 has been offset by a
valuation allowance as a result of the Company's operating results.
Liquidity and Capital Resources
The Company experienced a negative net cash flow of $45,142 during the
first three months of 1998. Net cash used in operating activities of continuing
operations was approximately $126,393 relating primarily to corporate general
and administrative expenses. Net cash provided by investing activities of
approximately $81,251 reflects the investment in U.S. Government securities of
available cash arising from the proceeds received directly by the Company from
the sale of discontinued operations, and the repayments by Consulting Customers
of approximately $3,014,555.
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 thereon
were payable on December 31, 1996. Payment was not made. The borrower has
executed a new note which is due and payable on demand. During 1998, 1997, 1996
and 1995, an additional $31,000, $78,996, $16,000 and $15,000, respectively, was
advanced to TechTron by the Company. The Company has obtained notes from
TechTron for these additional advances. The notes bear interest at the rate of
8% and are payable on demand. Payments on the notes are not anticipated in 1998
due to the fact that Techtron does not expect to earn sufficient revenues to
make payment. Although the notes have been guaranteed by Certain Executive
Officers, no assurance can be given that the notes will be repaid. Through
December 31, 1997, the Company had advanced loans to the physician principals of
UMDC not affiliated with the Company aggregating $450,000 and loans to UMDC in
the amount of $622,449, and had provided $1,048,841 of equipment and supplies to
UMDC for which the Company had not yet been reimbursed. The loans bear interest
at prime less 1% and remained outstanding as of December 31, 1997. There were no
repayments made by UMDC during 1997. Advances and supplies and equipment in 1997
to UMDC totaled $1,175,494.
-12-
<PAGE>
The Company expects that the cash received from the sale of the Company's
assets to IHS, the proceeds derived by the Company as repayments of amounts due
from Alpha and CDBI following the IHS Closing and repayments of amounts due the
Company from UMDC resulting from the RRI transaction and from UMDC's continuing
operations will be sufficient to fund the Company's operations through 1998.
In conjunction with the sales of assets to IHS and to RRI, the Company has
been released from its guarantees of leases for UMDC and CDBI for In-Center
Facilities in New York City.
Although the Company is currently investigating prospective merger and
acquisition candidates, the Company has not determined the specific application
of the proceeds from the IHS transaction (including amounts payable pursuant to
the Consulting Agreement) and the amounts paid and payable to the Company from
the sale of UMDC's assets to RRI and from the ongoing operations of UMDC
(collectively, the "Proceeds"). Although the Company does not presently intend
to spend in excess of the net cash Proceeds in any future acquisitions or
investments, it is possible that future transactions could require additional
funds. Sources of funds could include bank and other third party borrowings or
the sale of debt or equity securities. The Company has no current commitments or
arrangements for additional financing and there can be no assurance that the
Company would be successful in obtaining any required additional funds.
SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997.
This statement is effective for the Company's fiscal year ending December 31,
1998. This statement addresses the reporting and displaying of comprehensive
income and its components. The Company has adopted SFAS No. 130 as of January 1,
1998.
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 January 29,
1998 concerning the sale of substantially all of the operating
assets of the Company's Consulting Customer, Upper Manhattan
Dialysis Center, to Renal Research Institute, LLC.
A report on Form 8-K was filed by the company on March 2, 1998
concerning the appointment of Stanley B. Amsterdam as an
independent director of the Company.
-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 12, 1998 By: /s/ Steven L. Trenk
--------------------
STEVEN L. TRENK
President and Chief Operating
Officer and Director
Date: May 12, 1998 By: /s/ Ronald A. Lefkon
---------------------
RONALD A. LEFKON
Chief Financial Officer
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<PERIOD-START> JAN-01-1998
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<SECURITIES> 6,605,205
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