-----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, Ac7O4YHtx6idqpTgDLeJdGMEKf9EeYwSXGwN2MChn5WviM49quNWWfk7j0W+Bjvu zlIFc/bkfySwGJOCR+jVAA== 0000354761-97-000003.txt : 19970222 0000354761-97-000003.hdr.sgml : 19970222 ACCESSION NUMBER: 0000354761-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970219 SROS: NASD 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: 97538797 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 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 OR 15 (d) of the Securities Exchange Act of 1934 For the quarter ended December 31, 1996 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) Registrant's telephone number, including area code (201) 567 - 4600 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 February 7, 1997, the Registrant had outstanding 9,517,401 shares of its $.01 par value Common Stock. CONTINENTAL HEALTH AFFILIATES, INC. Index Page Number PART I - FINANCIAL INFORMATION: Item 1 Consolidated Balance Sheets December 31, 1996 (Unaudited) and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated Statements of Operations (Unaudited) for the three months ended December 31, 1996 and 1995 . . . . . . . . . . . . . . 3 Consolidated Statements of Operations (Unaudited) for the six months ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows (Unaudited) for the six months ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 5 Notes to Unaudited Consolidated Financial Statements . . . . . . . . 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . .7 - 12 PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 CONTINENTAL HEALTH AFFILIATES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, June 30, Assets 1996 1996 (Unaudited) Current assets: Cash and cash equivalents $1,819 $2,900 Patients' funds 188 184 Accounts receivable, net of allowances for uncollectible accounts of $4,316 and $4,193 12,564 10,177 Inventories 1,930 1,996 Deferred income taxes 822 822 Prepaid expenses and other current assets 1,738 1,151 Total current assets 19,061 17,230 Property and equipment, at cost, net of accumulated depreciation and amortization of $5,408 and $4,363 53,669 54,453 Deferred income taxes 52 52 Other assets 3,623 3,837 Total assets $76,405 $75,572 Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $106 $128 Current portion of long-term debt 1,541 3,355 Mortgage debt due within one year 6,250 0 Accounts payable 8,736 7,913 Other current liabilities 6,418 5,789 Total current liabilities 23,051 17,185 Long-term debt, net of current portion 44,908 50,574 Deferred income 9 72 Other liabilities 11 16 Minority interest in subsidiary 2,260 2,029 Manditorily redeemable preferred stock (includes $875 current portion) 3,427 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 0 Common stock, $.02 par value; 15,000,000 shares authorized; 9,511,901 and 9,286,216 shares outstanding 190 186 Additional paid-in capital 21,877 21,470 Accumulated deficit (19,363) (19,461) Total stockholders' equity 2,739 2,196 Total liabilities and stockholders' equity $76,405 $75,572
See accompanying notes to consolidated financial statements. CONTINENTAL HEALTH AFFILIATES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited) Three months ended December 31, 1996 1995 Revenues: Nursing home services $11,035 $11,617 Infusion therapy and other medical services 6,724 6,335 Total revenues 17,759 17,952 Operating expenses: Personnel 8,794 8,478 Medical and nutritional product 2,971 3,222 Health care and lodging 2,387 2,871 Selling, general and administrative 2,011 1,346 Provision for uncollectible accounts 333 590 Depreciation and amortization 586 353 Total operating expenses 17,082 16,860 Income from operations 677 1,092 Interest and dividend income 26 39 Interest and other financing costs (1,441) (958) Other income (expense), net (74) 126 Minority interest in earnings of subsidiary (118) (132) Income (loss) before income taxes, extraordinary items (930) 167 Provision for income taxes 199 0 Income (loss) from continuing operations before extraordinary items (1,129) 167 Extraordinary items: Gain on forfeited deposit 300 0 Gain on disposal of assets 875 0 Net income 46 167 Preferred dividends (60) 0 Net income (loss) available to common shareholders ($14) $167 Income (loss) per share: Income (loss) before extraordinary items ($0.12) $0.02 Extraordinary items 0.12 0 Net income available to common shareholders $0.00 $0.02 Weighted average number of common and common equivalent shares 9,941,012 7,913,337
See accompanying notes to consolidated financial statements. CONTINENTAL HEALTH AFFILIATES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited) Six months ended December 31, 1996 1995 Revenues: Nursing home services $23,017 $20,952 Infusion therapy and other medical services 13,505 12,637 Total revenues 36,522 33,589 Operating expenses: Personnel 17,570 15,919 Medical and nutritional product 6,094 6,440 Health care and lodging 4,951 5,607 Selling, general and administrative 3,665 2,847 Provision for uncollectible accounts 582 1,023 Depreciation and amortization 1,077 529 Total operating expenses 33,939 32,365 Income from operations 2,583 1,224 Interest and dividend income 54 130 Interest and other financing costs (3,160) (1,199) Other income , net 65 440 Minority interest in earnings of subsidiary (231) (219) Income (loss) before income taxes and extraordinary items (689) 376 Provision for income taxes 388 0 Income (loss) from continuing operations before extraordinary items (1,077) 376 Extraordinary items: Gain on forfeited deposit 300 0 Gain on disposal of asset 875 0 Net income 98 376 Preferred dividends (95) (35) Net income available to common shareholders $3 $341 Income (loss) per share: Income (loss) before extraordinary items ($0.12) $0.04 Extraordinary items 0.12 0 Net income available to common shareholders ($0.00) $0.04 Weighted average number of common and common equivalent shares 9,887,430 7,871,698
See accompanying notes to consolidated financial statements. CONTINENTAL HEALTH AFFILIATES, INC. Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) Six months ended December 31, 1996 1995 Operating activities: Net income $98 $376 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,077 529 Amortization of deferred financing costs 145 50 Provision for uncollectible accounts 582 1,023 Amortization of deferred income 63 (480) Gain in translation of foreign currency debt (80) (23) Minority interest 231 219 Net gains on extinguishment of debt 0 50 Increase (decrease) in cash due to changes in: Patients' funds 4 0 Accounts receivable (2,969) (2,817) Inventories 66 (63) Prepaid expenses and other current assets (587) (235) Other assets 69 (2,724) Accounts payable 823 (1,235) Other current liabilities 553 957 Other liabilities (5) (152) Net cash provided by (used in) operating activities 70 (4,525) Investing activities: Expenditures for property and equipment (293) (39,082) Net cash provided by (used in) investing activities (293) (39,082) Financing activities: Conversion of trade payables into notes 904 0 Net proceeds from long-term borrowings 0 47,592 Payments of short-term borrowings (647) (774) Payments of long-term borrowings (1,560) (643) Payment of preferred dividends (48) (35) Debt to equity conversion 474 0 Net proceeds from exercise of common stock options 19 115 Net cash used in financing activities (858) 46,255 Net increase (decrease) in cash and cash equivalents (1,081) 2,648 Cash and cash equivalents, beginning of the period 2,900 546 Cash and cash equivalents, end of the period $1,819 $3,194 Supplemental disclosure of cash flow data: Interest paid $2,831 $0 Income taxes paid $53 $100 Non cash investing and financing activity: Property and equipment obtained under capital lease obligation -- $216 Acquisition of property and equipment for foregiveness of receivable -- $7,399 Debt to equity conversion $474 -- Dividend conversion $47 --
See accompanying notes to consolidated financial statements. CONTINENTAL HEALTH AFFILIATES, INC. (Unaudited) Notes to Consolidated Financial Statements 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 six months, management reviewed various estimates of certain liabilities and the adequacy of bad debt provisions and recorded an aggregate of $416,408 as credits. Significant items are discussed in the management discussion and analysis section. Operating results for the six month period ended December 31, 1996, are not necessarily indicative of the results 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. CONTINENTAL HEALTH AFFILIATES, INC. (Unaudited) Notes to Consolidated Financial Statements 3. Cash and Cash Equivalents Cash and cash equivalents at December 31, 1996 and June 30, 1996 includes $1,098,000 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. 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 % 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 totalling 110% 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 totalling 100% of the liquidation preference of the Preferred Stock. Holders of the Preferred Stock will be entitled to dividends totalling $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 quarter, $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 December 31, 1996. CONTINENTAL HEALTH AFFILIATES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 December 31, 1996 and 1995 (Unaudited) Total revenues were $193,000, or 1% lower for 1996 compared to 1995. Revenues were negatively impacted by $913,000 attributable to the continuing low census at the West Palm Beach, Florida nursing home. Revenues in the prior period included $600,000 attributable to the Hilltop facility sold in May 1996. Infusion therapy and other medical services revenues increased by $389,000, or 6%, from $6,335,000 in 1995 to $6,724,000 in 1996, partially due to a $164,000, or 11%, increase in contract service division revenues. These revenues are comprised of enteral nutrition therapy and other products provided to patients in long-term care facilities. Home infusion division revenues increased by $147,000 or 3% partially attributed to a 27% increase in the number of patients serviced. These patients experienced shorter terms of therapy as well as discounted pricing negotiated with managed care companies. Due to the passage of time, it appeared that claims, against which the Company had established reserves, would not be made. Accordingly, during the quarter, the Company extinguished the reserves, resulting in $66,000 in revenue in the quarter. Personnel costs increased by $316,000, or 4% partially attributable to expansion of the home infusion sales force and to support the 27% increase in the number of home infusion patients serviced. Excluding the Heritage facility that was acquired with the October 1995 Nomura financing, personnel costs decreased by $284,000. In addition, 24% of the total increase is attributable to executive incentive compensation, paid with respect to the prior year. Costs of medical and nutritional products sold to patients and other customers decreased by $251,000, or 8%, from $3,222,000 in 1995 to $2,971,000 in 1996. As a percentage of infusion therapy and other medical services revenues, medical and nutritional product costs was 44% in 1996 and 51% in 1995. The improvement is partially attributable to Infu-Tech s participating in group purchasing programs that make bulk purchases more economical. Health care and lodging expenses, which are incurred in connection with nursing home services, decreased by $484,000 or 17% partially due to a reduction in rent expense as a result of the acquisition of nursing homes which were previously leased. As a corollary, interest expense has increased (see below). Selling, general and administrative costs increased by $665,000 or 49% primarily due to increased insurance and other related costs attributable to the acquisition of four facilities on October 31, 1995, increases in legal fees, the engagement of an investor relations firm and distribution costs incurred to support the 27% increase in home infusion patients serviced. The provision for uncollectible accounts was 2% of revenues in 1996 and 3% in 1995. CONTINENTAL HEALTH AFFILIATE, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations As a result of the acquisition of four facilities in the October 31, 1995 refinancing, depreciation and amortization expenses increased by $233,000 and interest and other financing costs increased by $483,000. Other income (expense) net, of $74,000 in 1996 consisted of amortization of deferred income of $32,000 and an unrealized foreign currency translation gain of $3,000 offset by $115,000 of legal settlements. Other income (expense) net, of $126,000 in 1995 consisted of amortization of deferred income of $77,000 and gains on bonds repurchased of $50,000 offset by an unrealized translation loss. Minority interest in profit of subsidiary of $118,000 in 1996 and $132,000 in 1995 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 $199,000 in 1996 reflects a full tax charge for Infu-Tech, a 59% owned subsidiary which files its own federal tax return. 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 loss applicable to common shareholders in 1996 was $14,000 or 0 cents per share compared to net income available to common shareholders in 1995 of $167,000 or 2 cents per share. Six Months Ended December 31, 1996 and 1995 (Unaudited) Total revenues were $2,933,000, or 9% higher in the 1996 period compared to the same period of the prior year. This is due to an improved patient mix yielding higher reimbursement while being partially offset by lower occupancy at the West Palm Beach facility. Infusion therapy and other medical services revenues increased by $868,000, or 7%, from $12,637,000 in 1995 to $13,505,000 in 1996, primarily due to a $315,000, or 3%, increase in home infusion division revenues. This increase is primarily attributed to a 19% increase 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 $1,651,000. Excluding the Heritage facility that was acquired with the October 1995 Nomura financing, personnel costs decreased by $386,000. Primarily attributed to 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 19% increase in home infusion patients serviced, increased Infu-Tech pharmacy payroll, as well as an increasing geographical coverage through Infu-Tech sales force expansion and executive incentive compensation, paid with respect to the prior year. Costs of medical and nutritional products sold to patients and other customers decreased by $346,000, or 5%, from $6,440,000 in 1995 to $6,094,000 in 1996. As a percentage of infusion therapy and other medical services revenues, medical and nutritional product costs decreased from 51% in 1995 to 45% in 1996. The improvement in the nutritional product costs as a percentage of sales is partially attributable to Infu-Tech s participation in group purchasing programs. CONTINENTAL HEALTH AFFILIATES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Health care and lodging expenses, which are incurred in connection with nursing home services, decreased by $656,000 or 12%. This was primarily because the Company began performing services which previously had been performed by outside consultants. This moved the cost from health care and lodging to personnel costs. Selling, general and administrative costs increased by $818,000, or 29%, primarily as a result of increased insurance and other related costs attributable to the acquisition of four facilities on October 31, 1995, increases in legal fees, the engagement of an investor relations firm and distribution costs incurred to support the 19% increase in home infusion patients serviced. The provision for uncollectible accounts was 2% of revenues in 1996 and 3% of revenues in 1995. Due to an October 31, 1995 refinancing for the acquisition of four facilities, depreciation and amortization expenses increased by $548,000 and interest and other financing costs increased by $1,961,000. Other income, net of $65,000 in 1996 primarily consisted of $63,000 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, and an unrealized foreign currency translation gain of $80,000 offset by $115,000 of legal settlements. Other income, net of $440,000 in 1995 consisted of amortization of deferred income of $367,000, $50,000 gains on bonds repurchased and an unrealized foreign currency translation gain of $23,000. Minority interest in earnings of subsidiary of $231,000 in 1996 and $219,000 in 1995 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 $388,000 in 1996 reflects a full tax charge for Infu-Tech, a 59% owned subsidiary which files its own federal tax return. 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 1996 was $3,000 or 0 cents per share compared to a net income available to common shareholders in 1995 of $341,000 or $.04 per share. Liquidity and Capital Resources At December 31, 1996, the Company had stockholders' equity of $2,739,000 and total liabilities of $71,406,000. At December 31, 1996 debt amounted to $56,126,000, the majority of which arose from the acquisition of four facilities under the Nomura refinancing. Other debt included SFr 699,005 (approximately $522,000) 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 $462,000) principal amount of 8% Swiss franc denominated bonds due June 27, 1998; $207,000 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. CONTINENTAL HEALTH AFFILIATES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 % Subordinated Debentures due September 1, 1996 expired. $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 December 31, 1996 $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 $1,819,000 at December 31, 1996. Included in the December 31, 1996 balance is $1,098,000 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. The Company in total provided $70,000 of cash from operating activities primarily due to an increase in accounts receivable of $2,969,000 and an increase in prepaid and other current assets of $587,000, offset by an increase in accounts payable of $823,000, increase in other current liabilities of $553,000 and net income of $98,000. Of the $2,969,000 increase in accounts receivable, $1,129,000 is attributable to Infu-Tech. At December 31, 1996, the balance in net accounts receivable for Infu-Tech was 10% 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 88 days sales at December 31, 1996, 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 CONTINENTAL HEALTH AFFILIATES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations accrual of retroactive Medicare payments resulting from anticipated rate adjustments. The Company (excluding Infu-Tech) used $401,000 of cash in operating activities. The Company has no arrangements under which it can make borrowings. At December 31, 1996, the Company had a working capital deficit of $3,990,000. Excluding Infu-Tech, which had working capital of $5.2 million, the Company had a working capital deficit of $9,177,000. Further, at December 31, 1996, Infu-Tech's cash and cash equivalents of $1,098,000 were $407,000 more than the balance of $691,000 at June 30, 1996 and its accounts payable of $3,374,000 were $595,000 higher than the $2,779,000 at June 30, 1996. During the six months ended December 31, 1996, the Company repaid $1,560,000 of long-term borrowings and paid preferred dividends of $48,000. At December 31, 1996, the Company had approximately $7.8 million of debt due in 1997 including $6.2 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 is experiencing 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. 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 - six months ended December 31, 1996. .2 Calculation of earnings per share - six months ended December 31, 1995. B. Reports on Form 8-K during the quarter ended December 31, 1996: NONE 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 February 19, 1997 /s/ Jack Rosen Jack Rosen Chairman and Director (Chief Executive Officer) Date February 19, 1997 /s/ S. Colin Neill S. Colin Neill Vice President and Chief Financial Officer Exhibit A.1 CONTINENTAL HEALTH AFFILIATES, INC. Calculation of Earnings Per Share (Unaudited) Six Months ended December 31, 1996 Primary Net income available to common shareholders $ 3,000 Adjustment of shares outstanding: Weighted average number of shares outstanding 9,341,797 Average net additional equivalent shares issuable 545,633 Weighted average number of common shares and common shares equivalent 9,887,430 Earnings per share $ 0.00 Exhibit A.2 CONTINENTAL HEALTH AFFILIATES, INC. Calculation of Earnings Per Share (Unaudited) Six Months ended December 31, 1995 Primary Net income available to common shareholders $ 341,000 Adjustment of shares outstanding: Weighted average number of shares outstanding 7,871,698 Average net additional equivalent shares issuable --- Weighted average number of common shares and common shares equivalent 7,871,698 Earnings per share $ .04 EX-27 2
5 6-MOS JUN-30-1996 DEC-31-1996 1,819,000 0 16,880,000 4,316,000 1,930,000 19,061,000 59,077,000 5,408,000 7,640,000 23,051,000 56,126,000 3,427,000 35,000 196,000 2,704,000 76,405,000 36,522,000 36,522,000 6,094,000 33,939 0 582,000 3,015,000 (689,000) 388,000 (1,077,000) 0 1,175,000 0 3,000 0 0
-----END PRIVACY-ENHANCED MESSAGE-----