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, 2000
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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
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Commission File Number 0-24542
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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.)
44 ASPEN DRIVE
LIVINGSTON, NEW JERSEY 07039
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, Including Area Code (973) 422-1666
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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 _____
Applicable only to corporate issuers.
Shares outstanding as of August 10, 2000, 3,636,878 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
JUNE 30, 2000
This Report on Form 10-QSB contains "forward-looking statements" that
are based on management's assumptions, estimates and projections. Although these
statements may appear throughout this report, we specifically direct your
attention to the portion of this report entitled "Management's Discussion and
Analysis." Forward looking statements are generally accompanied by words such as
"believe", "intend", "anticipate", "estimate", "expect" and similar words. 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 June 30, 2000 and for the three and six-month periods ended
June 30, 2000 and 1999 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 Form
10-KSB/A filed with the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS JUNE 30, 2000 DEC. 31, 1999
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Current Assets:
<S> <C> <C>
Cash and cash equivalents ............................................... $ 2,158,563 $ 118,245
Investments in U.S. Government securities ............................... 100,000 1,580,220
Accounts receivable, less allowance for doubtful accounts of $7,119
at June 30, 2000 and $13,543 at December 31, 1999 ................. 86,914 83,038
Other current assets .................................................... 209,866 223,239
Notes receivable ........................................................ -0- 1,027,000
Pine Tree escrow deposit ................................................ -0- 915,000
----------- -----------
Total current assets .............................................. 2,555,343 3,946,742
Amounts due from affiliates ............................................. 548,082 504,567
Note receivable ......................................................... 527,000 -0-
Amounts due from officer ................................................ 330,000 330,000
Investment in Little Universe, LLC ...................................... 231,922 -0-
Property and equipment, at cost, less accumulated depreciation .......... 120,458 134,592
Goodwill and other intangibles, less accumulated amortization ........... 190,178 198,214
Other assets ............................................................ 62,307 50,579
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$ 4,565,290 $ 5,164,694
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit .......................................................... $ 102,500 $ 70,000
Accounts payable ........................................................ 399,545 771,773
Accrued expenses ........................................................ 742,450 1,560,429
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Total current liabilities ...................................... 1,244,495 2,402,202
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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,
3,635,878 shares issued and outstanding at June 30, 2000
and 3,267,500 at December 31, 1999 ................................ 7,104,311 5,645,061
Paid-in capital ......................................................... 399,000 --
Accumulated deficit ..................................................... (4,182,516) (2,882,569)
----------- -----------
Total stockholders' equity ........................................ 3,320,795 2,762,492
----------- -----------
$ 4,565,290 $ 5,164,694
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</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
2
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<TABLE>
<CAPTION>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
Revenues from continuing operations
<S> <C> <C> <C> <C>
Dry cleaning services .......... $ 270,081 $ 412,833 $ 585,998 $ 843,081
Consulting services ............ 83,331 83,331 166,662 166,662
----------- ----------- ----------- -----------
353,412 496,164 752,660 1,009,743
Costs of services ......................... 226,264 318,590 454,226 640,198
General and administrative expenses ....... 704,552 673,926 1,359,634 1,430,179
Stock based compensation expense .......... 105,000 -0- 1,108,500 -0-
Depreciation and amortization ............. 11,830 50,160 24,302 100,012
Settlement costs .......................... -0- -0- 322,609 -0-
Interest income, net ...................... (35,276) (13,424) (63,896) (38,558)
Other income .............................. (737,686) -0- (737,686) -0-
----------- ----------- ----------- -----------
Total costs and expenses ....... 274,684 1,029,252 2,467,689 2,131,831
----------- ----------- ----------- -----------
Income (loss) from continuing operations .. 78,728 (533,088) (1,715,029) (1,122,088)
Income from discontinued operations, less
applicable income taxes of $-0- for three
and six months ended June 30, 2000
and 1999, respectively .................. -0- -0- 415,082 -0-
----------- ----------- ----------- -----------
Net income (loss) ......................... 78,728 (533,088) (1,299,947) (1,122,088)
(Accumulated deficit) retained earnings,
Beginning of period .................... (4,261,244) (588,011) (2,882,569) 989
----------- ----------- ----------- -----------
End of period .......................... $(4,182,516) $(1,121,099) $(4,182,516) $(1,121,099)
=========== ============ =========== ===========
Basic and diluted income (loss)
per share:
Continuing operations .................. $ .02 $ (.16) $ (.50) $ (.34)
Discontinued operations ................ -0- -0- .12 -0-
----------- ----------- ----------- -----------
Net income (loss) per share ............ $ .02 $ (.16) $ (.38) $ (.34)
=========== ============ =========== ===========
Basic weighted average shares
outstanding ............................ 3,595,181 3,267,500 3,459,267 3,257,224
=========== ============ =========== ===========
Diluted weighted average shares
outstanding ............................ 4,399,284 3,267,500 3,459,267 3,257,224
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL CHOICE CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
2000 1999
---- ----
(unaudited) (unaudited)
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss ....................................... $(1,299,947) $(1,122,088)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................. 32,789 124,769
Loss on equity investment ...................... 18,078 -0-
Income from discontinued operations ............ (415,082) -0-
Stock based compensation expense ............... 1,527,000 120,500
Stock issued in settlement ..................... 325,000 -0-
Changes in operating assets and liabilities:
Increase in accounts receivable, net .... (3,876) (73,452)
Decrease (increase) in other assets ..... 1,645 (245,126)
Increase in amounts due from affiliates . (43,515) (43,950)
(Decrease) increase in accounts payable . (372,228) 438,657
Decrease in accrued expenses ............ (817,979) (79,554)
----------- -----------
Net cash used in operating activities ................ (1,048,115) (880,244)
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Cash Flows From Investing Activities:
Repayment of notes receivable .................. 500,000 -0-
Repayment of PineTree deposit .................. 915,000 -0-
Amounts repaid by consulting customers ......... 415,082 -0-
Investment in Little Universe, LLC ............. (250,000) -0-
Issuance of notes receivable ................... -0- (707,000)
Amounts held in escrow ......................... -0- (915,000)
Purchases of U.S. Government securities ........ -0- (2,995,442)
Proceeds from sale of U.S. Government securities 1,480,220 3,500,000
Purchases of property and equipment ............ (10,619) (9,452)
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Net cash provided by (used in) investing activities .. 3,049,683 (1,126,894)
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Cash Flows From Financing Activities:
Net borrowings under line of credit ............ 32,500 175,000
Proceeds from exercise of stock options ........ 6,250 -0-
Principal payments on notes payable ............ -0- (8,840)
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Net cash provided by financing activities ............ 38,750 166,160
----------- -----------
Net increase (decrease) in cash and cash equivalents . 2,040,318 (1,840,978)
Cash and cash equivalents, beginning of year ......... 118,245 3,058,676
----------- -----------
Cash and cash equivalents, end of period ............. $ 2,158,563 $ 1,217,698
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes ..................... $ 5,682 $ 5,141
=========== ===========
Cash paid for interest ......................... $ 2,870 $ 5,885
=========== ===========
</TABLE>
Non-Cash Disclosures:
The Company issued 30,000 shares of common stock to an outside consultant
valued at $180,000 and 150,000 warrants to financial services providers in
consideration of professional services valued at $238,500.
The Company issued 181,485 shares of common stock valued at $1,108,500 in
connection with the cashless exercise of stock options.
The Company issued 100,000 shares of common stock valued at $325,000 in
connection with a settlement of a failed acquisition.
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:
Continental Choice Care, Inc., (the "Company"), is currently engaged in
the dry cleaning service industry and provides consulting services under
agreement.
(2) INCOME (LOSS) PER SHARE:
Basic income (loss) per share represents net income (loss) divided by the
weighted average shares outstanding. Diluted income (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.
For the three months ended June 30, 2000, the basic weighted average
common shares outstanding were 3,595,181, and the weighted average common shares
outstanding assuming dilution is 4,399,284. The difference of 804,103 relates to
incremental shares issuable relating to dilutive stock options and warrants. For
the three months ended June 30, 1999, the basic and diluted weighted average
common shares outstanding were 3,627,500. For the six months ended June 30, 2000
and 1999, respectively, the basic and diluted weighted average common shares
outstanding were 3,459,267 and 3,257,224. For the three months ended June 30,
2000, there were 40,000 of outstanding stock options issued to Directors of the
Company, which were excluded from basic and diluted net income (loss) per share
for the period because the effect would be antidilutive.
(3) RELATED PARTY TRANSACTIONS:
As of December 31, 1999, the Company had advanced $504,567 to TechTron,
Inc. ("TechTron") During 2000, an additional $43,515 was advanced to TechTron.
The Company has obtained notes from TechTron for all of the advances. The
majority of the notes issued in connection with these advances bear interest at
a rate of 8% per annum and are payable upon demand. Payments on the notes are
not anticipated in 2000 due to the fact that TechTron does not expect to earn
sufficient revenues to make payment.
Several promissory notes and associated guarantees of related parties were
in default under the original terms of the notes. As of June 30, 2000, amounts
due the Company from TechTron totaled $548,082. Of this amount, $125,868 was
secured by a promissory note dated August 9, 1994. Under the original terms of
this note, principal and interest were due and payable by December 31, 1996. The
terms of the note were amended by the Company to become due and payable on
demand. All amounts due from TechTron are guaranteed by Certain Executive
Officers as defined below. Any demand for payment under the personal guarantees
will have to be made by the Company's Board of Directors. The Company's Board of
Directors does not currently intend to make demand for payment.
On November 16, 1999, the Company sold its majority interest in United Dry
Cleaning, LLC ("United") to UDC Acquisition Corp, Inc. ("UDC"), an Arizona
corporation, pursuant to terms of a Stock Purchase Agreement. The majority of
the outstanding common stock of UDC is owned by Jeffrey M. Trenk, brother of
Steven L. Trenk, son of Alvin S. Trenk and nephew of Martin G. Jacobs,
collectively, the Certain Executive Officers. The aggregate purchase price for
the Company's stock interest, $10,000, was offset against amounts due to Jeffrey
M. Trenk from the Company.
5
<PAGE>
Under the terms of the sale, UDC acquired substantially all of the assets
and liabilities of United at the time of sale. The Company recognized a gain
related to the transaction of $755,764 in the second quarter of 2000, not
previously recognized due to pending litigation by Ultimate Cleaners, Inc. to
foreclose on the assets which it sold to United. The Company has been notified
by UDC that they have executed a settlement agreement with Ultimate Cleaners,
Inc. The sale to UDC included net fixed assets of $199,292, a write-off of net
goodwill of $588,959 offset by a relief from liabilities of $1,544,015. The gain
of $755,764 is included in Other income in the accompanying Consolidated
Statements of Operations. As of June 30, 2000, the Company has advanced $57,616
to UDC. The Company has obtained demand promissory notes for the advances. The
notes bear interest at a rate of 8% per annum and have been guaranteed by
Jeffrey M. Trenk, President of UDC.
On March 21, 2000, the Company awarded 30,000 shares of the Company's
common stock, valued at $180,000, as additional compensation to Jeffrey M.
Trenk. Jeffrey M. Trenk currently provides consulting services to the Company's
dry cleaning operation. The Company has recorded $180,000 in general and
administrative expenses relating to the issuance of these shares in the
accompanying Consolidated Statements of Operations.
(4) FAILED MERGER:
On February 5, 1999, the Company and TelaLink Network, Ltd., a privately
held Delaware corporation ("TelaLink") executed an Agreement and Plan of Merger
("Merger Agreement") to merge the two companies in a stock-for-stock transaction
(the "Merger"). On September 21, 1999, the Company terminated the Merger
Agreement upon determining that financing for the proposed transactions would
not be available on terms acceptable to the Company. During 1999, the Company
recorded $272,173 in failed acquisition costs consisting primarily of legal and
accounting expenses relating to the merger.
As of the date of termination, the Company had loaned a total of
$1,027,000 to TelaLink and its affiliates to provide working capital pursuant to
promissory notes. The notes bore interest at a rate of 12% per annum and were
due and payable on April 30, 2000.
In addition to amounts loaned to TelaLink, the Company also entered into a
Stock Purchase Agreement (the "Stock Purchase Agreement") by and among the
Company, Pine Tree Telephone and Telegraph Company ("PTTC") and the principal
(95%) stockholder of PTTC, whereby the Company agreed to purchase not less than
95% of PTTC's issued and outstanding capital stock. PTTC is a telecommunication
services provider to areas near Lewiston and Portland, Maine. To secure the
Company's rights under the Stock Purchase Agreement, the Company deposited the
sum of $915,000 in an escrow account. The deposit was to be treated as a
non-refundable deposit against the purchase price to be paid by the Company at
closing, or otherwise in accordance with the Stock Purchase Agreement.
6
<PAGE>
At a closing on January 19, 2000, the Company received $1,463,800 and
subsequent payment of $1,538 pursuant to the terms of an Inter-Party Agreement
by and among the Company, Quorum Communications, Inc., TelaLink, Country Road
Communications, Inc. ("Country Road"), Prudential Insurance Company of America
and various other third parties. Under the terms of the agreement, the Company
sold its interest in the various TelaLink notes totaling $1,027,000 to Country
Road for a purchase price of up to $1,100,000 of which $500,000 was paid at
closing and the balance paid in the form of a promissory note. The note bears
interest at a rate of 6.5% per annum and matures January 19, 2005. Interest is
due and payable in annual installments on January 19, 2001 and on each
anniversary thereafter up to and including the maturity date. Country Road has
the right to prepay the note. If Country Road makes aggregate payments equal to
$500,000 plus accrued and unpaid interest thereon prior to the second
anniversary of the note date, then the obligation will be deemed satisfied in
full. Under certain conditions, Country Road may be required to prepay a
principal amount of $500,000 plus accrued and unpaid interest.
At the closing, the Company also received reimbursement of the $915,000
PTTC deposit plus accrued interest of $50,338 in exchange for the Company
assigning all of its rights and obligations under the PTTC Stock Purchase
Agreement.
In connection with the above, the Company became obligated at the time of
closing to issue 100,000 shares of the Company's common stock to a third party
equity investor of TelaLink Network, Ltd. in exchange for the release of any and
all claims and liens that it may have the right to assert against TelaLink and
the Company. The 100,000 shares of common stock were issued by the Company on
April 21, 2000 and valued at $325,000 based on the fair market value of the
common stock issued.
(5) ALLIANCE WITH ALLIANT TECHNOLOGIES, INC.
On March 22, 2000, the Company formed a strategic alliance with Alliant
Technologies, Inc. ("Alliant"). Through this alliance, the Company will invest
in early stage Internet companies. Alliant is a provider of Internet technology
solutions for business that offers a complete range of services, including
strategic business consulting, e-commerce application development, business
process engineering and infrastructure engineering.
On April 24, 2000, the Company completed its first investment resulting in
the acquisition of 25% of the equity of Little Universe, LLC ("LU"). The all
cash purchase price for the Company's interest was $250,000. LU is a web
resource which allows people, business, civic and government organizations to
interact with and participate in their communities. It ties municipal
governments, public safety, planning and zoning agencies, libraries, schools and
other civic organizations to local merchants, clubs, sports teams, religious
groups, baby sitting co-ops and residents. Revenues are generated by selling
advertising space ranging from single page sites through banner advertisements
to the local community and in contiguous communities.
(6) PURCHASE AGREEMENT
Effective June 7, 2000, the Company entered into a Purchase Agreement (the
"Purchase Agreement") with Lazar & Company I.G., LLC ("Lazar"), a New York
limited liability company. Pursuant to the terms of the Purchase Agreement, the
Company agreed to sell to Lazar 200,000 shares of the Company's common stock and
a warrant to purchase 6,800,000 additional shares of the Company's common stock
at an exercise price of $3.00 per share. The rights to purchase the shares vest
in five portions based upon targets relating to the market capitalization of the
Company.
7
<PAGE>
The purchase price for the 200,000 shares of common stock is $750,000, or
$3.75 per share, which was the fair market value of the stock on the effective
date of the agreement. The purchase price for the warrant is $350,000, for an
aggregate purchase price of $1,100,000 (the "Purchase Price"). On the closing
date, Lazar is expected to deliver to the Company $50,000 in cash, or other
immediately available US funds, and a $1,050,000 secured promissory note with an
interest rate of 7% per annum as payment of the Purchase Price.
The transaction is expected to be consummated no later than the fifth
business day following the date the Company obtains Shareholder approval.
In addition to the Purchase Agreement, and subject to Shareholder
approval, the Company agreed to issue warrants to purchase up to an aggregate of
1,350,000 shares of common stock at an exercise price of $3.00 per share to
Certain Executive Officers. The rights to purchase the shares vest in five
portions based upon targets relating to the market capitalization of the
Company.
(7) OTHER MATTERS
On January 3, 2000, the Company granted a warrant to purchase up to an
aggregate of 100,000 shares of its common stock to a financial services provider
in which the Chairman is a founding partner at an exercise price of $2.00, which
was the fair market value on the date of grant. The warrant has an estimated
value of $62,300 based on the Black-Scholes option pricing model and such amount
has been expensed in the accompanying Consolidated Statements of Operations.
On March 22, 2000, the Company granted a warrant to purchase up to an
aggregate of 50,000 shares of its common stock to Alliant, at an exercise price
of $3.00. The warrant has an estimated value of $176,200 based on the
Black-Scholes option pricing model and such amount has been expensed in the
accompanying Consolidated Statements of Operations.
During 2000, the Company issued 181,485 shares in connection with the
cashless exercise of stock options issued under the Company's 1994 Long-Term
Incentive Award Plan and the 1997 Equity Incentive Plan as well as 53,393 shares
in connection with the exercise of warrants issued to a professional services
provider in 1997. The Company recorded $1,108,500 in stock option compensation
expense relating to the issuance of these shares in the accompanying
Consolidated Statements of Operations.
On May 3, 2000, the Company received an additional payment of $415,082
from Upper Manhattan Dialysis Center, Inc. ("UMDC"), a New York corporation to
which the Company provided consulting and administrative services. The Company
recorded such amount as additional revenues from UMDC, not previously recorded
due to realization uncertainties. Such amount has been included in income from
discontinued operations in the accompanying Consolidated Statements of
Operations.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Six Months Ended June 30, 2000 Compared with Six Months Ended June 30,
1999.
On October 8, 1997, the Company completed the sale of substantially all
its New Jersey, New York, Connecticut and Pennsylvania dialysis business assets
to IHS of New York, a New York corporation ("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, at a rate of $27,777 per
month. For the six months ended June 30, 2000 and 1999, respectively, the
Company recognized a total of $166,662 each year for consulting services under
this agreement.
Beginning in May 1998, the Company began acquiring dry cleaning businesses
through a newly formed subsidiary, United Dry Cleaning, L.L.C. ("United") in the
Phoenix, Arizona area. This area was selected for its rapid growth in
construction and development and increase in population, which provided United
with growth potential. United's objective was to capitalize on the trend toward
consolidation of small closely held companies where critical mass could be
achieved with limited capital expenditure.
During the first three quarters of 1999, United closed six of the eleven
retail facilities it had acquired or formed during 1998. During the same period,
United sold three retail facilities back to the original sellers. The sales were
made in consideration of the release of United's obligations under the purchase
price promissory notes executed in connection with the original purchases. On
November 16, 1999, the Company sold its majority interest in United to UDC
Acquisition Corp., Inc., pursuant to terms of a Stock Purchase Agreement.
In November 1999, the Company formed a new subsidiary, Valet-USA, Inc.
("Valet"), to provide dry cleaning services to focus primarily on the
hospitality industry in the Phoenix, Arizona area. As of July 31, 2000, Valet
provides guest, drapery and linen dry cleaning services to approximately 133
hotel customers in the Phoenix area. The Company believes that it can generate
higher revenues from the hospitality business than it derived from the retail
business. Further, management believes the Company will benefit due to a
reduction in personnel, supplies, capital equipment lease obligations and real
property leases as a result of the sale of the retail business. Valet currently
operates a single plant and drop store from a leased location.
REVENUES
The Company's dry cleaning operation recognized revenues of $585,998 and
$843,081 in 2000 and 1999, respectively. Revenues in 2000 are lower than in 1999
due to the Company divesting itself of the retail dry cleaning business during
1999. Of these amounts, approximately $107,027 and $422,595 or 18% and 50% in
2000 and 1999, respectively, related to dry cleaning services provided relating
to the retail operation. The remaining $478,971 and $420,486 related to dry
cleaning services provided to hotel customers. The Company anticipates that
hotels will continue to be the major source of revenue. Valet continues to
target additional businesses in the Phoenix, Arizona area to maximize plant
capacity as well as broaden the Company's revenue base.
9
<PAGE>
In 2000, the Company recorded $415,082 in additional revenues related to
payments from UMDC, not previously recorded due to realization uncertainties.
Such amount has been included in income from discontinued operations in the
accompanying Consolidated Statements of Operations.
COST OF SERVICES
Cost of services was $454,226 and $640,198 or 78% and 76% of revenues
attributable to the Company's dry cleaning business in 2000 and 1999,
respectively. Expenses in 2000 are lower than in 1999, due to the Company
divesting itself of the retail dry cleaning business during 1999. Cost of
services is mostly comprised of $322,024 and $512,220 in salaries and other
payroll expenses as well as $66,429 and $92,559 for supplies in 2000 and 1999,
respectively. Management continues to seek ways to reduce Valet's costs and to
increase revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled $1,359,634 in 2000, as
compared with $1,430,179 for the six months ended June 30, 1999. The net
decrease of $70,545 is primarily comprised of a decrease of $310,090 related to
the Company's closing and sale of dry cleaning businesses in 1999, a reduction
of $107,312 in salaries and other office expenses due to a reduction in
corporate staff resulting from the IHS transaction, offset by the issuance of
30,000 shares of common stock valued at $180,000 to an outside consultant (See
Note 3 to the Consolidated Financial Statements) and warrants to financial
services providers valued at $238,500.
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 receivables. The
Company reviews individual accounts and a reserve is established to reflect any
amounts considered doubtful of collection based on the Company's knowledge of
specific payors, an analysis of the aging of the accounts, as well as past
experience with the accounts under review. As of June 30, 2000, the allowance
for doubtful accounts was $7,119 as compared with $13,543 at December 31, 1999.
As of June 30, 2000 and December 31, 1999, the Company's dry cleaning
business had accounts receivable of $94,033 and $96,581, respectively. As a
percentage of receivables outstanding, such allowance was 8% at June 30, 2000
and 14% at December 31, 1999, respectively. Management continues to evaluate the
collectibility of all accounts and believes the stated allowance as of June 30,
2000 is adequate to absorb possible losses resulting from uncollectible
receivables.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for 2000 and 1999 totaled $32,789
and $124,769. The decrease of $91,980 from 1999 resulted from the sale of assets
in connection with the sale of dry cleaning stores and plants to their original
owners in 1999, as well as the sale of the Company's majority interest in United
to UDC Acquisition in November, 1999.
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INTEREST INCOME AND INTEREST EXPENSE
Net interest income was $63,896 and $38,558 for the six months ended June
30, 2000 and 1999, respectively. The net increase of $25,338 from 1999 resulted
from the release of obligations under the purchase price promissory notes
executed in connection with the original purchase of retail dry cleaning
facilities.
INCOME TAXES
All of the Company's deferred tax assets as of June 30, 2000 have been
offset by a valuation allowance as a result of the Company's operating results.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a positive net cash flow of $2,040,318 in 2000.
Net cash used in operating activities of $1,048,115 related primarily to
corporate general and administrative expenses. Net cash provided by investing
activities of $3,049,683 reflects the proceeds from the sale of U.S. Government
securities as well as repayments of amounts loaned to TelaLink and receipt of
amounts held in escrow relating to the Pine Tree Stock Purchase Agreement. Net
cash provided by financing activities of $38,750 related primarily to net
proceeds from borrowings on Valet's line of credit.
The Company has made advances to certain affiliates and consulting
customers. As of December 31, 1999, the Company had advanced $504,567 to
TechTron. During 2000, the Company advanced an additional $43,515 to TechTron.
The Company has obtained demand promissory notes from TechTron for all of the
advances, of which the majority of notes issued bear an 8% rate of interest.
Interest of approximately $95,000 has accrued through June 30, 2000, but has not
been recorded due to TechTron's lack of sufficient revenues to make payment.
Payments on the notes are not anticipated in 2000 due to the fact that TechTron
does not expect to earn sufficient revenue to make payment. All amounts due from
TechTron are unsecured and are guaranteed by Certain Executive Officers.
The Company expects that its cash, cash equivalents and investments in
U.S. Government securities will be sufficient to fund the Company's operations
through June 30, 2001.
In 1998, the Company committed an aggregate of $1,000,000 to fund United's
initial operations. During 1999, the Company arranged for a $200,000 line of
credit with a bank to provide additional financing. This line was primarily
secured by all of United's assets and further secured by assets of a company in
which the Chairman of the Company is a founding partner. In 1999, all amounts
due under the line of credit were repaid by the liquidation of the assets
underlying the guarantee which secured the line. In 1999, the Company arranged
for a $100,000 line of credit to fund the daily operations. The line bore
interest at a rate of 8% per annum and was payable on demand. The line of credit
was with a company owned by the Chairman of the Company. In 1999, the Company
arranged for a $250,000 line of credit for Valet to fund the daily operations.
The line bears interest at a rate of 8% per annum and is payable on demand. The
line of credit is also with a company owned by the Chairman of the Company. As
of June 30, 2000, $147,500 of debt availability remained on the line.
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PART II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No exhibits are filed with this report or are incorporated herein by
reference.
(b) No reports on Form 8-K were filed by the Company during the
fiscal quarter of the Company ending June 30, 2000.
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SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONTINENTAL CHOICE CARE, INC.
Date: August 14, 2000 By: /s/Steven L. Trenk
-----------------------------------
Steven L. Trenk
President, and Chief Operating Officer
Date: August 14, 2000 /s/ Mark N. Raab
------------------------------------
Mark N. Raab
Chief Financial Officer
Principal Financial Officer
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