-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SmDhAtCUVo7Iyk8RTKH7L42n3w0ZP7DKdPlWatF7DrNZ2oSs2gI8cDBHwtE8+0zl NtietR3jd/ckmr6AwJtZow== 0000354761-97-000012.txt : 19970521 0000354761-97-000012.hdr.sgml : 19970521 ACCESSION NUMBER: 0000354761-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970520 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL HEALTH AFFILIATES INC CENTRAL INDEX KEY: 0000354761 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 222362097 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09255 FILM NUMBER: 97612118 BUSINESS ADDRESS: STREET 1: 900 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 BUSINESS PHONE: 2015674600 MAIL ADDRESS: STREET 1: 900 SYLVAN AVENUE CITY: ENGLEWOOD STATE: NJ ZIP: 07632 10-Q 1 FORM 10-Q FOR CONTINENTAL HEALTH AFFILIATES, INC. - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1997 Commission File Number 0-11895 CONTINENTAL HEALTH AFFILIATES, INC. (Exact name of registrant as specified in its charter) Delaware 22-2362097 (State of other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 910 Sylvan Avenue, Englewood Cliffs, NJ 07632 (Address of principal executive offices) (201) 567-4600 Registrant's telephone number, including area code 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 short 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 As of May 13, 1996, the Registrant had outstanding 10,120,151 shares of its $.02 par value Common Stock. - ----------------------------------------------------------------------------- 1 CONTINENTAL HEALTH AFFILIATES, INC. Index Part I - Financial Information: Page Item 1 Consolidated Balance Sheets at March 31, 1997 (Unaudited) and June 30, 1996............................................ 3 Consolidated Statements of Operations (Unaudited) for the three months and nine months ended March 31, 1997 and 1996................ 4 Consolidated Statements of Cash Flows (Unaudited) for the nine months ended March 31, 1997 and 1996................................ 5 - 6 Notes to Unaudited Consolidated Financial Statements........... 7 - 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 9 - 13 Part II - Other Information.......................................... 14 Signatures..................................................... 17 2
CONTINENTAL HEALTH AFFILIATES, INC. Consolidated Balance Sheets (Dollars in thousands) March 31, June 30, 1997 1996 ---- ---- (Unaudited) ASSETS Current assets: Cash and cash equivalents..............................................................$ 691 $ 2,900 Patients' funds........................................................................ 188 184 Accounts receivable, net of allowances for uncollectible accounts of $3,958 and $3,712................................................................. 13,265 10,177 Inventories............................................................................ 1,664 1,996 Deferred income taxes.................................................................. 822 822 Prepaid expenses and other current assets.............................................. 1,358 1,151 ------------ ----------- Total current assets............................................................... 17,988 17,230 Property and equipment, at cost, net of accumulated depreciation and amortization of $5,926 and $4,363.................................................. 53,261 54,453 Deferred income taxes..................................................................... 52 52 Goodwill, net............................................................................. 142 -- Other assets.............................................................................. 4,288 3,837 ------------ ----------- Total assets.......................................................................$ 75,731 $ 75,572 ============= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term borrowings..................................................................$ 105 $ 128 Current portion of long term debt...................................................... 8,107 3,355 Income Taxes payable................................................................... 461 -- Accounts payable....................................................................... 9,224 7,913 Other current liabilities.............................................................. 4,646 5 ,789 ------------ ----------- Total current liabilities.......................................................... 22,543 17,185 Long-term debt, net of current portion ................................................... 42,958 50,574 Deferred income........................................................................... -- 72 Other liabilities......................................................................... -- 16 Minority interest in subsidiary ........................................................ 2,345 2,029 Mandatorily redeemable preferred stock (includes $875 current portion).................... 3,208 3,500 Commitments and contingencies Stockholders' equity: Preferred stock, $.02 par value; $100 liquidation preference; 1,000,000 shares authorized; 13,884 shares outstanding ........................................ 1 1 Series A 11% Convertible Preferred stock $.02 par value, $1,000 liquidation preference, 34 shares outstanding.................................................... 34 -- Common stock, $.02 par value; 15,000,000 shares authorized; 10,120,151 and 9,286,216 shares outstanding .................................................... 202 186 Additional paid-in capital............................................................. 23,401 21,470 Accumulated deficit.................................................................... (18,961) (19,461) -------------- ------------ Total stockholders' equity......................................................... 4,677 2,196 ------------ ----------- Total liabilities and stockholders' equity.........................................$ 75,731 $ 75,572 ============= ===========
See accompanying notes to consolidated financial statements 3
CONTINENTAL HEALTH AFFILIATES, INC. Consolidated Statements of Operations (Dollars in thousands, except per share amounts) Three Months Ended March 31, Nine Months Ended March 31, ---------------------------- --------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- (Unaudited) Revenues: Nursing home services......................................$ 10,159 $ 11,465 $ 33,177 $ 32,417 Infusion therapy and other medical services................ 6,935 6,314 20,439 18,951 ------------- ------------ ----------- ----------- Total revenues..................................... 17,094 17,779 53,616 51,368 ------------- ------------ ----------- ----------- Operating expenses: Personnel ................................................ 8,357 8,518 25,927 24,437 Medical and nutritional product............................ 3,355 3,139 9,449 9,579 Health care and lodging.................................... 2,480 2,250 7,431 7,857 Selling, general and administrative........................ 1,680 1,770 5,461 4,617 Provision for uncollectible accounts....................... 163 230 746 1,253 Depreciation and amortization.............................. 534 490 1,610 1,019 ------------- ------------- ----------- ----------- Total operating expenses........................... 16,569 16,397 50,624 48,762 ------------- --------------- ----------- ----------- Income from operations.......................... 525 1,382 2,992 2,606 Interest and dividend income.................................. 14 38 68 168 Interest and other financing costs............................ (1,333) (1,472) (4,492) (2,671) Other income (expense), net................................... 236 220 416 660 Minority interest in earnings of subsidiary................... (85) (109) (316) (328) ------------- ------------ ----------- ----------- Income (loss) before income taxes and extraordinary items......................... (643) 59 (1,332) 435 Provision for income taxes.................................... 147 -- 535 -- ------------- ----------- ----------- ---------- Income (loss) from continuing operations before extraordinary items.................. (790) 59 (1,867) 435 ------------- ----------- ----------- ----------- Extraordinary items: Gain on extinguishment of liabilities ................ 1,192 -- 1,192 -- Gain on forfeited deposit.................................. -- -- 300 Gain on disposal of assets................................. -- -- 875 -- ------------- ----------- ----------- ---------- Net income...................................... 402 59 500 435 Preferred dividends........................................... (35) (35) (130) (70) ------------- ----------- ----------- ----------- Net income available to common shareholders................................$ 367 $ 24 $ 370 $ 365 ============= =========== =========== =========== Income (loss) per share: Income (loss) before extraordinary items.................$ (0.08) $ .01 $ (.19) $ .05 Extraordinary items...................................... 0.12 .23 ------------- ----------- ----------- Net income available to common shareholders..............$ 0.04 $ 0.01 $ 0.04 $ 0.05 ============= =========== =========== =========== Weighted average number of common and common equivalent shares........................................ 10,210,109 7,948,851 10,089,197 7,897,416
See accompanying notes to consolidated financial statements 4
CONTINENTAL HEALTH AFFILIATES, INC. Consolidated Statements of Cash Flows (Dollars in thousands) Nine Months Ended March 31, --------------------------- 1997 1996 ---- ---- (Unaudited) Operating activities: Net income.......................................................................$ 500 $ 435 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation expense....................................................... 1,610 1,019 Warrants issued for services............................................... 98 -- Amortization of deferred financing costs................................... 209 85 Provision for uncollectible accounts....................................... 746 1,253 Amortization of deferred income............................................ (72) (512) Gain on translation of foreign currency debt............................... (154) (68) Minority interest.......................................................... 316 328 Extraordinary gain......................................................... (1,192) -- Net gains on extinguishment of debt........................................ -- (83) Increase (decrease) from changes in: Patients funds........................................................... (4) -- Accounts receivable...................................................... (3,734) (5,705) Inventories.............................................................. 332 59 Prepaid expenses and other current assets................................ (207) 149 Other assets............................................................. (612) (2,424) Taxes payable............................................................ 461 Accounts payable......................................................... 407 (2,137) Other current liabilities................................................ 1,399 1,712 Other liabilities........................................................ (16) (243) ------------- -------------- Net cash provided by (used in) operating activities.......................... 87 (6,132) ------------- -------------- Investing activities: Expenditures for property and equipment ......................................... (418) (39,151) Acquisition of Universal Home Infusion .......................................... (190) -- ------------- ------------- Net cash used in investing activities........................................ (608) (39,151) ------------- -------------- Financing activities: Conversion of trade payables into notes.......................................... 904 -- Net proceeds from long-term borrowings ......................................... -- 47,592 Payments on debt................................................................. (2,551) (1,673) Payment of preferred dividends................................................... (83) (70) Net proceeds from exercise of common stock options............................... 42 115 ------------- -------------- Net cash (used in ) provided by financing activities......................... (1,688) 45,964 -------------- --------------
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CONTINENTAL HEALTH AFFILIATES, INC. Consolidated Statements of Cash Flows (Dollars in thousands) Nine Months Ended March 31, --------------------------- 1997 1996 ---- ---- (Unaudited) Net (decrease ) increase in cash and cash equivalents..............................$ (2,209)$ 681 Cash and cash equivalents, beginning of period..................................... 2,900 546 --------------- --------------- Cash and cash equivalents, end of period...........................................$ 691 $ 1,227 ============== =============== Supplemental disclosure of cash flow data: Interest paid.................................................................$ 4,145 $ -- =============== ============== Income taxes paid............................................................. 53 -- ============== ============== Non cash investing and financing activity: Property and equipment obtained under capital lease obligation..................$ -- $ 230 Acquisition of property and equipment for forgiveness of receivable............. -- 7,399 Debt to equity conversion....................................................... 1,824 -- Dividend conversion............................................................. 47 --
See accompanying notes to consolidated financial statements 6 CONTINENTAL HEALTH AFFILIATES, INC. Notes to Consolidated Financial Statements (Unaudited) 1. The Company The Company's operations consist primarily of nursing home services and infusion therapy and other medical services. Nursing home services include the ownership, leasing, operation and management of nursing homes. Infusion therapy and other medical services include enteral and other medical services, primarily for patients in nursing homes, and intravenous and other infusion therapies for patients at home and in nursing homes. The Company is subject to certain risks and uncertainties as a result of changes that could occur in the healthcare industry, including Medicare and Medicaid reimbursement rates. 2. Basis of Presentation The consolidated financial statements include the accounts of Continental Health Affiliates, Inc, ("Continental") and its subsidiaries (the "company"). All significant intercompany accounts and transactions have been eliminated in consolidation. Continental owns 59% of the common stock of Infu-Tech, Inc. ("Infu-Tech"); the other 41% is publicly traded. The minority interest in the consolidated financial statements represents the minority stockholders' proportionate share of equity in Infu-Tech. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accrual adjustments, considered necessary for a fair presentation have been included. In addition, during the nine months, management reviewed various estimates of certain liabilities and the adequacy of bad debt provisions and recorded an aggregate of $889,000 as credits, Of which $473,000 was recorded in the quarter. Significant items are discussed in the management discussion and analysis section. Operating results for the nine month period ended March 31, 1997, are not necessarily indicative of the result that may be expected for year end June 30, 1997. These financial statements and notes should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1996. 3. Cash and Cash Equivalents Cash and cash equivalents at March 31, 1997 and June 30, 1996 includes $43,000 and $691,000 respectively, held by Infu-Tech. In connections with Infu-Tech's initial public offering, a management and non-competition agreement between Continental and its 59% owned subsidiary, Infu-Tech, expiring September 30, 1997, prohibits Infu-Tech from lending money to (or borrowing money from) Continental and its other subsidiaries subsequent to December 31, 1992. 7 The Company classifies all highly liquid investments with maturities of three months or less when purchased as cash equivalents. 4. Exchange Offer On October 4, 1996, the Company completed an exchange offer to holders of its 14 1/8% Subordinated Debentures that were due on September 1, 1996. The Company offered for each $1,000 principal amount of subordinated debentures a share of a new 11% convertible Preferred Stock with a liquidation preference of $1,000. Of the total of $1.2 million subordinated debentures outstanding, $474,000 principal elected to exchange into Series A 11% Convertible Preferred Stock. The new Preferred Stock will be convertible for three years into Continental Health common stock which, at the time of conversion, has a market value totaling 100% of the liquidation preference of the Preferred Stock. After the three years, the Preferred Stock will be convertible into common stock which has a market value totaling 110% of the liquidation preference of the Preferred Stock. Holders of the Preferred Stock will be entitled to dividends totaling $110 per share per year, equal to 11% of the liquidation preference of the Preferred Stock. After three years, Continental Health will have the right either to (1) redeem the Preferred Stock for 1,000 per share or (2) convert the outstanding Preferred Stock into Continental Health common stock which has a market value at the time of conversion equal to 100% of the liquidation preference of the Preferred Stock. During the period ended December 31, $440,000 face amount of the Series A Convertible Preferred Stock converted into common stock of the Company, leaving $34,000 face amount of the Series A Convertible Preferred Stock outstanding at March 31, 1997. 5. Extraordinary Item In March 1997, the Company exchanged 600,000 shares of common stock to extinguish liabilities of $2,542,000 of which $1,192,000 is reflected as an extraordinary gain in the results of operations for the three months ended March 31, 1997. The extraordinary gains of $2,367,000 for the nine months ended March 31, 1997 include the above referred to gain in addition to a gain on disposal of assets and a gain on a forfeited deposit. The Company is obligated to issue a further 100,000 shares of common stock should the share price fall below an average of $2.50 per share for 6 months during the twelve month period immediately following the removal of the restriction against resale. 6. Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("EPS"), which is effective as of December 31, 1997. This standard changes the way companies compute EPS to require all companies to show "basic" and "dilutive" EPS and is to be retroactively applied, including each 1997 interim quarter. The statement is not expected to have a material effect on the calculation of EPS. 8 CONTINENTAL HEALTH AFFILIATES, INC. Item 2. Management 's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto. RESULTS OF OPERATIONS Three Months ended March 31, 1997 Compared with Three Months Ended March 31, 1996 Total revenues were $685,000 or 4% lower for 1997 compared with 1996. Revenues in the prior period included $593,000 attributable to the Hilltop facility sold in May 1996. Further, the King David West Palm Beach, Florida facility was down 10% in occupancy over the comparable quarter. Infusion therapy and other medical services revenues increased by $621,000 or 10%, from $6,314,000 in 1996 to $6,935,000 in 1997, primarily due to a $725,000, or 17% increase in home infusion division revenues. Contract service division revenues increased by $334,000 or 24%. These revenues are comprised of enteral nutrition therapy and other products provided to patients in long-term care facilities. Personnel costs decreased by $161,000, or 2%. The reduction is due to the absence of the Hilltop facility, sold in May 1996, together with a credit resulting from the reconciliation of payroll accounts. Costs of medical and nutritional products sold to patients and other customers increased by $216,000 or 7%, from $3,139,000 in 1996 to $3,355,000 in 1997. As a percentage of infusion therapy and other medical services revenues, medical and nutritional product costs was 48% in 1997 and 50% in 1996. Health care and lodging expenses, which are incurred in connection with nursing home services, increased by $230,000 or 10%. Selling, general and administrative costs decreased by $90,000 or 5%. Increases from Infu-Tech include expenses attributable to investment banking retainer fees in connection with acquisitions work, engagement of an investor relations firm, costs connected with the development of a disease state management program and distribution costs increases. In addition, the opening of a Florida pharmacy and costs associated with setting up the Humana Health Plans capitation contract added to the increase in selling, general and administrative expenses offset by the write off of certain trade payables and exclusion of the Hilltop facility. The provision for uncollectible account approximates 1% of revenues in both During the quarter, Infu-Tech pursued a focused effort on cash collections. This project has resulted in improved cash flows and enabled the Company to conduct a review of its allowance for uncollectible accounts. As a result of the review the Company determined that the existing allowance at March 31, 1997 was excessive and a reduction from the existing allowance of $46,000 was made. periods. Other income (expense) net, of $236,000 in 1997 consisted of an unrealized foreign currency translation gain of $74,000 and the balance is due to the re-evaluation of accruals. Other income (expense) net, of $220,000 in 1996 consisted of amortization of deferred income of $142,000 and an unrealized foreign currency translation of $44,000. Minority interest in profit of subsidiary of $85,000 in 1997 and $109,000 in 1996 represents the portion of the net income of Infu-Tech allocable to minority stockholders and reflects the exhaustion of net operating loss carryforwards which were available in 1995. The provision for income taxes of $147,000 in 1997 reflects a full tax charge for Infu-Tech, a 59% owned subsidiary which files its own federal tax return. In March 1997, the Company agreed to convert certain liabilities into Common Stock of the Company. The 9 transaction resulted in an increase to shareholders equity of $2,542,000 of which $1,192,000 is reflected as an extraordinary gain in the results of operations for the three months ended March 31, 1997. The preferred stock dividend does not include the mandatorily redeemable preferred stock issued as part of the October 31, 1995 refinancing which is accounted for under interest and financing costs. The net income available to common shareholders in 1997 was $367,000 or .04 cents per share compared to net income available to common shareholders in 1996 of $24,000 or .01 cent per share. Nine Months ended March 31,1997 Compared with Nine Months Ended March 31, 1996 Total revenues were $2,248,000 or 4% higher in the 1997 period compared to the same period of the prior year. This is due to an improved patient mix yielding higher reimbursement, the inclusion of the Heritage Facility, for nine months compared to five months in the prior period while being partially offset by lower occupancy at the West Palm Beach facility, and the exclusion of the Hilltop facility for the current nine months. Infusion therapy and other medical services revenues increased by $1,488,000 or 8%, from $18,951,000 in 1996 to $20,439,000 in 1997, primarily due to a $1,040,000, or 24% increase in home infusion division revenues. This increase is primarily attributed to a 12% increased in the number of patients serviced. These patients experienced shorter terms of therapy as well as discounted pricing negotiated with managed care companies. Personnel costs increased by $1,490,000. Primarily attributed to the inclusion of the Heritage Facility for nine months compared to five months in the prior period, normal cost of living increases, use of Company personnel to perform some services previously performed by outside consultants, higher Infu-Tech nursing costs incurred to support the 12% increase in home infusion patients serviced, increased Infu-Tech pharmacy payroll, as well as an increasing geographical coverage through Infu-Tech sales force expansion. Costs of medical and nutritional products sold to patients and other customers decreased by $130,000 or 1%, from $9,579,000 in 1996 to $9,449,000 in 1997. As a percentage of infusion therapy and other medical services revenues, medical and nutritional product costs decreased from 51% in 1996 to 46% in 1997. The improvement in the nutritional product costs as a percentage of sales is partially attributable to Infu-Tech's participation in group purchasing programs. Health care and lodging expenses, which are incurred in connection with nursing home services, decreased by $426,000 or 5%, this was primarily due to the inclusion of the Heritage Facility for nine months compared to five months in the prior period and the exclusion of the Hilltop Facility for the current nine months. Selling, general and administrative costs increased by $844,000, or 18%, primarily as a result of increased insurance and other related costs attributable to the acquisition of four facilities on October 31, 1995. Of the increase $529,000 can be attributable to Infu-Tech. These expenses are largely attributable to investment banking retainer fees in connection with acquisition work, engagement of an investor relations firm, costs connected with the development of a disease state management program and distribution cost increases. In addition, the opening of a Florida pharmacy and costs associated with setting up the Humana Health Plans capitation contract added to the increase in selling, general and administrative expenses. 10 The provision for uncollectible accounts was 1% of revenues in 1997 and 2% of In January 1997, Infu-Tech commenced a focused effort on cash collections. This project has resulted in improved cash flows and enabled the Company to conduct a review of its allowance for uncollectible accounts. As a result of the review the Company determined that the existing allowance at March 31, 1997 was excessive and a reduction from the existing allowance of $46,000 was made. revenues in 1996. Due to an October 31, 1995 refinancing for the acquisition of four facilities, depreciation and amortization expenses increased by $588,000 and interest and other financing costs increased by $1,821,000. Other income, net of $416,000 in 1997 primarily consisted of $72,000 of amortization of a $628,000 payment received by the Company in 1992 as consideration for Infu-Tech releasing the buyer of the Company's former Home Nursing Division from an agreement not to sell infusion therapy services and the Company's agreeing not to provide nursing services in California, Arizona or Tennessee for a period of five years; an unrealized foreign currency translation gain of $154,000 and the re-evaluation of accruals. Other income, net of $660,000 in 1996 consisted of amortization of deferred income of $512,000, and an unrealized foreign currency translation gain of $68,000. Minority interest in earnings of subsidiary of $316,000 in 1997 and $328,000 in 1996 represents the portion of the net income of Infu-Tech allocable to minority stockholders and reflects the exhaustion of net operating loss carryforwards which were available in 1995. The provision for income taxes of $535,000 in 1997 reflects a full tax charge for Infu-Tech, a 59% owned subsidiary which files its own federal tax return. In March 1997, the Company agreed to convert certain liabilities into Common Stock of the Company. The transaction resulted in an increase to shareholders equity of $2,542,000 of which $1,192,000 is reflected as an extraordinary gain in the results of operations for the three months ended March 31, 1997. The extraordinary gains of $2,367,000 for the nine months ended March 31, 1997 include the above referred to gain in addition to a gain on disposal of assets and a gain on a forfeited deposit. The preferred stock dividend does not include the mandatorily redeemable preferred stock issued as part of the October 31, 1995 refinancing which is accounted for under interest and financing costs. The net income available to common shareholders in 1997 was $370,000 or .04 cents per share compared to a net income available to common shareholders in 1996 of $365,000 or .05 cents per share. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had stockholders' equity of $4,677,000 and total liabilities of $68,711,000. At March 31, 1997 debt amounted to $54,273,000, the majority of which arose from the acquisition of four facilities under the Nomura refinancing. Other debt included SFr 680,610 (approximately $470,000) principal amount of 6% Swiss franc denominated convertible bonds which remain unpaid although they matured on June 27, 1995 (the "Bonds"); SFr 619,500 (approximately $428,000) principal amount of 8% Swiss franc denominated bonds due June 27, 1998; $184,000 principal amount of a secured loan ("Secured Loan") due November 1997; $1,213,000 principal amount of 8% notes due 1999; and $3,400,000 principal amount of 6% notes due 2003. On October 4, 1996 an Exchange Offer made by the Company to exchange shares of a new 11% convertible Preferred Stock for all its remaining 14 1/8% subordinated Debentures due September 1, 1996 expired. 11 $474,000 face amount of debentures were exchanged and $474,000 was returned to the Company from the escrow account which had been established with the Trustee to repay the holders. As of March 31, 1997 $440,000 face amount had been converted into common shares of the Company, leaving $34,000 face amount of the Series A Convertible Preferred Stock outstanding. On October 31, 1995, the Company made a 15 year borrowing of $41.0 million secured by mortgages on four of the company's nursing homes and a five year borrowing of $1.5 million secured by 8 acres of land in West Orange, New Jersey. In addition, four subsidiaries of the Company sold preferred stock for a total of $3.5 million. The $46.0 million borrowing allowed the Company to purchase 4 nursing homes (three of which previously had been operated by the Company under leases and the fourth of which the Company had sold in 1990 and managed under a management contract since then) and to repay $301,000, and extend the balance of a $601,000 secured note which would have matured in December 1995. At the same time, the company converted $1,476,000 of trade payables into a three year note. In September 1996 the Company converted an additional $904,467 of trade payables into one to three year notes. The Company sold the 8 acres of land which secured a five year $1.5 million loan and utilized the proceeds to pay-down that borrowing, leaving a balance of $454,000. The company has the right to prepay that loan in full by December 31, 1997 and take a $150,000 credit, which it intends to do. When the Bonds matured on June 27, 1995, SFr 2,900,000 (approximately $2,525,000) principal amount, together with accrued interest of SFr 174,000 (approximately $152,000), was outstanding. Between June 30, 1995 and June 30, 1996, the Company acquired SFr 2,164,000 principal amount of Bonds, including accrued interest on those Bonds, for a total of SFr 1,122,375 and $315,000 plus a SFr 619,500 note maturing in June 1998. As of December 31, 1996, the Company had acquired an additional SFr 85,000 principal amount of bonds (with interest) for $78,000. The Company's cash and cash equivalents balance decreased from $2,900,000 at June 30, 1996 to $691,000 at March 31, 1997. Included in the March 31, 1997 balance is $43,000 held by Infu-Tech. In connections with the initial public offering of Infu-Tech common stock, the Company entered into a management and non-competition agreement with Infu-Tech, expiring September 30, 1997, which prohibits Infu-Tech from lending money to (or borrowing money from) the remainder of the Company. Operating activities provided $87,000 of cash primarily due to an increase in net accounts receivable of $2,988,000 offset by an increase in payables and other current liabilities of $1,860,000 and net income of $500,000. Of the $3,734,000 increase in accounts receivable, $1,616,000 is attributable to Infu-Tech. At March 31, 1997, the balance in net accounts receivable for Infu-Tech was 21% higher than the balance at June 30, 1996. Infu-Tech's net accounts receivable has increased from 84 days sales at June 30, 1996 to 92 days sales at March 31, 1997, primarily as a result of continued slow payments from Medicare and managed care companies. Medicare payments have been delayed due to changes in reimbursement policies, while managed care companies have experienced delays in processing payments due to a higher volume of claims. As a result, Infu-Tech has experienced increased delays in having its claims processed as well as an increase in the number of initial claims rejected. The increase in accounts receivable attributable to the nursing home division was due to an accrual of retroactive Medicare payments resulting from anticipated rate adjustments. The Company (excluding Infu-Tech) provided $432,000 of cash in operating activities. The Company has no arrangements under which it can make borrowings. At March 31, 1997, the Company 12 had a working capital deficit of $4,555,000. Excluding Infu-Tech, which had working capital of $4.9 million, the Company had a working capital deficit of $9,501,000. Further, at March 31, 1997, Infu-Tech's cash and cash equivalents of $43,000 were $648,000 less than the balance of $691,000 at June 30, 1996 and its accounts payable of $2,934,000 were $155,000 higher than the $2,779,000 at June 30, 1996. During the nine months ended March 31, 1997, the Company repaid $2,551,000 of debt and paid preferred dividends of $83,000. At March 31, 1997, the Company had approximately $8.1 million of debt due in 1997 including $6.3 million of mortgage debt which it intends to prepay or refinance in 1997. In December 1996, the Company began to make mandatory principal redemption payments of its subsidiaries' Preferred Stock of $73,000 per month. The Company does not have any material commitments for capital expenditures. While the Company continues to experience tight cash flow constraints, it is focused on generating sufficient funds through operating cash flow or the realization of assets into cash to meet ongoing obligations. 13 CONTINENTAL HEALTH AFFILIATES, INC. Part II - Other Information Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K A. Exhibits The following exhibits are filled herewith or incorporated herein. 1 Calculation of earnings per share - nine months ended March 31, 1997. 2 Calculation of earnings per share - nine months ended March 31, 1996. B. Reports on Form 8-K during the quarter ended March 31, 1997 None 14
Exhibit A.1 CONTINENTAL HEALTH AFFILIATES, INC. Calculation of Earnings Per Share Nine months ended March 31, 1997 (Unaudited) Primary Net income available to common shareholders......................................................$ 370,000 ============= Adjustment of shares outstanding: Weighted average number of shares outstanding............................................... 9,426,823 Average net additional equivalent shares issuable........................................... 662,374 ------------ Weighted average number of common shares and common shares equivalent ........................... 10,089,197 ================ Earnings per share...............................................................................$ 0.04 =============
15
Exhibit A.2 CONTINENTAL HEALTH AFFILIATES, INC. Calculation of Earnings Per Share Nine months ended March 31, 1996 (Unaudited) Primary Net income available to common shareholders......................................................$ 365,000 ============= Adjustment of shares outstanding: Weighted average number of shares outstanding............................................... 7,897,416 --------------- Weighted average number of common shares and common shares equivalent ........................... 7,897,416 =============== Earnings per share...............................................................................$ 0.05 =============
16 CONTINENTAL HEALTH AFFILIATES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Continental Health Affiliates, Inc. Date: May 20, 1997 /S/ JACK ROSEN --------------------------- -------------- Jack Rosen Chairman and Director (Chief Executive Officer) Date: May 20, 1997 /S/ S. COLIN NEILL --------------------------- ------------------ S. Colin Neill Vice President and Chief Financial Officer 17 EX-27 2 FDS --
5 0000354761 CONTINENTAL HEALTH AFFILIATES, INC. 1,000 9-MOS JUN-30-1997 JUL-01-1996 MAR-31-1997 691 0 17,223 3,958 1,664 17,988 59,187 5,926 75,731 22,543 0 3,208 35 202 4,440 75,731 53,616 53,616 9,449 49,878 (100) 746 4,424 (1,332) 535 (1,867) 0 2,367 0 370 0.04 0
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