-----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, Gj8TPXwNY2y8KJPKOkKrg3kpKR2K7zQvUhJC+WUDXDBhN90lw8tpcK22uU3gY0sB i9SAiUTM0IuoOwmgoeO4RQ== 0000897204-96-000060.txt : 19960518 0000897204-96-000060.hdr.sgml : 19960518 ACCESSION NUMBER: 0000897204-96-000060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL HEALTH AFFILIATES INC CENTRAL INDEX KEY: 0000354761 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] 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: 96568051 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 CONTINENTAL HEALTH AFFILIATES, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ______________________ Commission file number 0-11895 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) (Zip Code) 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 Number of Shares of Registrant's Common Stock Outstanding May 13, 1996: 7,948,851 CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES INDEX PAGE NUMBER PART I FINANCIAL INFORMATION: Item 1 Consolidated Balance Sheets (Unaudited) at March 31, 1996 and June 30, 1995 2 Consolidated Statements of Operations (Unaudited) for the nine months ended March 31, 1996 and 1995 3 Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 1996 and 1995 4 Consolidated Statements of Cash Flows (Unaudited) for the nine months ended March 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 PART II - OTHER INFORMATION 12 Signatures 16
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) Assets March 31, June 30, ______ 1996 1995 ---------- ---------- Current assets: Cash and cash equivalents (note 4) $1,227,000 $546,000 Patients' funds 218,000 200,000 Accounts receivable, net of allowances for uncollectible accounts of $4,024,000 and $3,712,000 10,490,000 6,038,000 Inventories 1,627,000 1,686,000 Deferred income taxes 849,000 849,000 Prepaid expenses and other current assets 967,000 1,116,000 ---------- ---------- Total current assets 15,378,000 10,435,000 Property and equipment, at cost, net of accumulated depreciation and amortization of $4,725,000 and $3,875,000 55,752,000 9,934,000 Mortgage note receivable --- 7,399,000 Goodwill, net of accumulated amortization of $639,000 and $600,000 300,000 339,000 Deferred income taxes 220,000 220,000 Other assets 3,669,000 1,348,000 ---------- ---------- Total assets $75,319,000 $29,675,000 =========== =========== Liabilities and Stockholders' Equity ____________________________________ Current liabilities: Current portion of long-term debt $3,319,000 $3,424,000 Accounts payable 7,209,000 8,660,000 Other current liabilities 6,141,000 4,411,000 ---------- ---------- Total current liabilities 16,669,000 16,495,000 Long-term debt, net of current portion 52,683,000 10,766,000 Deferred income 103,000 615,000 Other liabilities ---- 243,000 Minority interest in subsidiary 1,852,000 1,524,000 Mandatorily redeemable preferred stock 3,500,000 --- (including $220,000 current portion) Committments and contingencies Stockholders' equity: Preferred stock, $.02 par value; $100 liquidation preference; 1,000,000 shares authorized; 13,884 shares outstanding 1,000 1,000 Common stock, $.02 par value; 15,000,000 shares authorized; 7,948,851 and 7,830,059 shares outstanding 160,000 156,000 Additional paid-in capital 20,233,000 20,192,000 Accumulated deficit (19,882,000) (20,317,000) ------------ ---------- Total stockholders' equity 512,000 32,000 ------------ ---------- Total liabilities and stockholders' equity $75,319,000 $29,675,000 ============= ===========
See accompanying notes to consolidated financial statements 2
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine Months Ended March 31 -------------------------- 1996 1995 ------------ ------------- Revenues: Nursing home services $32,417,000 $27,074,000 Infusion therapy and other medical services 18,951,000 14,207,000 ----------- ---------- Total revenues 51,368,000 41,281,000 ----------- ---------- Operating expenses: Personnel 24,437,000 21,278,000 Medical and nutritional product 9,579,000 6,379,000 Health care and lodging 7,857,000 8,357,000 Selling, general and administrative 4,617,000 4,814,000 Provision for uncollectible accounts 1,253,000 1,245,000 Depreciation and amortization 1,019,000 509,000 ---------- ---------- Total operating expenses 48,762,000 42,582,000 ---------- ---------- Income (loss) from operations 2,606,000 (1,301,000) Interest and dividend income 168,000 138,000 interest and other financing costs (2,671,000) (880,000) Other income, net 660,000 655,000 Mintority interest in (income) loss of subsidiary (328,000) 417,000 ---------- ---------- Profit (loss) before income taxes 435,000 (971,000) Provision for income taxes 146,000 ---------- ---------- Net income (loss) 435,000 (1,117,000) Preferred dividends (70,000) (69,000) ---------- ---------- Net income (loss) applicable to common shareholders $365,000 ($1,186,000) ========== ============ Earnings (loss) per share applicable to common shareholders $0.05 ($0.15) ========== ========== Weighted average number of shares 7,897,416 7,823,809
See accompanying notes to financial statements. 3
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31 -------------------------- 1996 1995 ____ ____ Revenues: Nursing home services $11,465,000 $8,957,000 Infusion thereapy and other medical services 6,314,000 5,004,000 ----------- ---------- Total revenues 17,779,000 13,961,000 ----------- ---------- Operating expenses: Personnel 8,518,000 7,073,000 Medical and nutritional product 3,139,000 2,535,000 Health care and lodging 2,250,000 2,754,000 Selling, general and administrative 1,770,000 1,617,000 Provision for uncollectible accounts 230,000 498,000 Depreciation and amortization 490,000 182,000 ---------- ---------- Total operating expenses 16,397,000 14,659,000 ---------- ---------- Income from operations 1,382,000 (698,000) Interest and dividend income 38,000 92,000 interest and other financing costs (1,472,000) (319,000) Other income, net 220,000 118,000 Mintority interest in (income) loss of subsidiary (109,000) 232,000 ---------- ---------- Net income (loss) 59,000 (575,000) Preferred dividends (35,000) (35,000) ---------- ---------- Net income (loss) applicable to common shareholders $24,000 ($610,000) ========== =========== Earnings (loss) per share applicable to common shareholders: $0.01 ($0.08) ========== =========== Weighted average number of shares 7,948,851 7,825,059 ========== ==========
See accompanying notes to financial statements. 4 PAGE
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended March 31 -------------------------- 1996 1995 ------------- ------------ Operating activities: Net income(loss) $435,000 ($1,117,000) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,019,000 509,000 Amortization of deferred financing costs 85,000 72,000 Provision for uncollectible accounts 1,253,000 1,245,000 Amortization of deferred income (512,000) (866,000) Loss on translation of foreign currency debt (68,000) 402,000 Minority interest 328,000 (417,000) Net gains on extinguishment of debt (83,000) (171,000) Deferred income taxes --- 96,000 Increase (decrease) from changes in: Accounts receivable (5,705,000) (1,796,000) Inventories 59,000 (487,000) Prepaid expenses and other current assets 149,000 176,000 Other assets (2,424,000) (233,000) Accounts payable (2,137,000) 1,963,000 Other current liabilities 1,712,000 419,000 Other liabilities (243,000) (329,000) ---------- ----------- Net cash used in operating activities (6,132,000) (534,000) ---------- ----------- Investing activities: Expenditures for property and equipment (39,151,000) (909,000) Purchase by Infu-Tech of treasury stock ---- (20,000) ---------- ----------- Net cash used in investing activities (39,151,000) (929,000) ---------- ----------- Financing activities: Net proceeds from long-term borrowings 47,592,000 --- Payments of short-term borrowings (1,030,000) --- Payments of long-term borrowings (643,000) (254,000) Payment of preferred dividends (70,000) (69,000) Cost of debt exchange offers ---- (52,000) Net proceeds from exercise of common stock options 115,000 --- ---------- ----------- Net cash provided by (used in) financing activities 45,964,000 (375,000) ---------- ----------- Net increase (decrease) in cash and cash equivalents 681,000 (1,838,000) Cash and cash equivalents, beginning of period 546,000 3,514,000 ---------- ----------- Cash and cash equivalents, end of period $1,227,000 $1,676,000 ========== =========== Non cash investing and financing activity: Property and equipment obtained under capital lease obligation $230,000 $ --- Acquisition of property and equipment for forgiveness of receivable $7,399,000 $ ---
See accompanying notes to financial statements. 5 CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) UNAUDITED INFORMATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of March 31, 1996, and the results of its operations and changes in cash flows for the nine month periods ended March 31, 1996 and 1995. These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the transition period January 1, 1995 through June 30, 1995. The results of operations for the nine months ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year. (2) DEBT The principal balance of SFr 2,900,000 (approximately $2,525,000) and accrued interest of SFr 174,000 (approximately $152,000) pertaining to the Company's 6% Swiss franc denominated convertible bonds (the "Bonds") was due on June 27, 1995. The Company did not make these payments. Non- payment of these obligations did not result in a default under any other financing agreements. Since June 27, 1995, the Company has acquired SFr 1,765,000 principal amount of Bonds, including accrued interest on those Bonds, for a total of SFr 723,170 and $315,000 plus a SFr 619,500 note maturing in June 1998. (3) FINANCING On October 31, 1995, the Company obtained mortgage loans of $41.0 million and $1.5 million and subsidiaries issued $3.5 million of preferred stock. The proceeds of this financing were used to purchase three nursing homes which had been sold and leased back in 1988, to reacquire the Heritage Facility, which the Company had sold in 1990 to a non-profit corporation and had been operating under a management agreement, and to retire debt. The $41.0 million mortgage loan bears interest at 9.86% per annum and requires payments of principal and interest totalling $4.28 million per year for 15 years. If the Company is unable to pay the balance of $28.19 million which will remain due at the end of 15 years, the interest rate on the mortgage loan will increase, and all cash flow from the mortgaged facilities will have to be used to amortize the balance of the mortgage loan. The $1.5 million mortgage loan bears interest at 2% per annum above the prime rate and requires principal payments of $384,000 per year. The $3.5 million of subsidiary preferred stock requires cumulative dividends equal to the liquidation preference of the preferred stock (initially $3.5 million times LIBOR plus 13% of the liquidation preference of the preferred stock and is mandatorily redeemable in monthly installments at the rate of $876,000 per year in 1997 through 2000. Based upon the 8.5% per annum prime rate and the 5-7/16% per annum LIBOR rate on December 29, 1995, the payments during the period from October 31, 1995 to June 30, 1996 with regard to the $42.5 million of mortgage loans and the $3.5 million subsidiary preferred stock would total approximately $3.6 million. Under the terms of the $41 million loan and $3.5 million subsidiary preferred stock, the cash receipts of the four facilities are restricted to: mortgage payments, real estate taxes, insurance and carrying charges, operating expenses, and payment of preferred stock dividends, with any excess retained by the facility. Aggregate maturities of debt relating to the October 31, 1995 refinancing in each of five-year periods ending June 30 subsequent to June 30, 1995 are as follows: 1996 - $404,000; 1997 - $1,695,000; 1998 -$1,952,000; 1999 - $2,126,000 and 2000 - $956,000. (3) CASH AND CASH EQUIVALENTS Included in the March 31, 1996 balance is $337,000 held by Infu-Tech and $250,000 is held by the Heritage Facility. Of the remaining cash of $640,000 held by the Company, $607,000 is held in escrow. In connection 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 advancing money to (or borrowing money from) the remainder of the Company. The cash held by the Heritage may only be used for the operation of that facility. CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS NINE MONTHS ENDED MARCH 31, 1996 COMPARED WITH NINE MONTHS ENDED MARCH 31, 1995 Total revenues were $10,087,000, or 24% higher in the 1996 period compared to the same period of the prior year in part because of revenues of $4,474,000 pertaining to the Heritage Facility (which was acquired on October 31, 1995) for the five month period from November 1, 1995 to March 31, 1996. Revenues were reduced by $331,000, offset by a reduction of expenses of approximately $100,000, in the third quarter attributable to suspension of admissions at one of the Company's nursing homes since December 1995. Nursing home services revenues increased by $5,343,000, or 20%. Excluding revenues pertaining to the Heritage Facility, nursing home services revenues increased by $869,000, or 3%. Infusion therapy and other medical services revenues increased by $4,744,000, or 33%, from $14,207,000 in 1995 to $18,951,000 in 1996, primarily due to a $4,448,000, or 48%, increase in home infusion division revenues which was caused by a 39% increase in the number of patients serviced with improved therapy pricing mix. Personnel costs increased by $3,159,000, or 15%. Excluding the Heritage Facility, personnel costs increased by $1,024,000, or 5%, 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 39% increase in home infusion patients serviced and increased Infu-Tech pharmacy payroll, partially offset by reductions in Infu-Tech sales and administrative personnel. Costs of medical and nutritional products sold to patients and other customers increased by $3,200,000, or 50%. As a percentage of infusion therapy and other medical services revenues, medical and nutritional product costs increased from 45% in 1995 to 51% in 1996. The increase is primarily attributed to lower home infusion pricing. Health care and lodging expenses, which are incurred in connection with nursing home services, decreased by $500,000 or 6% due to a $1,200,000 decrease of rent expense as a result of the acquisition of nursing homes which were previously leased, offset by expenses of the Heritage facility. Excluding the Heritage Facility, health care and lodging expenses decreased by $1,358,000, or 16%. This included approximately $150,000 of costs shifted from health care and lodging to personnel costs because the Company began performing some services previously performed by outside consultants. Selling, general and administrative costs decreased by $197,000, or 4%. Excluding the Heritage Facility, selling, general and administrative costs decreased by $388,000, or 8%, primarily attributed to reduction in Infu-Tech professional fees and selling related travel, which offset increases in distribution costs incurred to support the 39% increase in home infusion patients serviced. The provision for uncollectible accounts was 2% of revenues in 1996 and 3% of revenues in 1995. As a result of the acquisition of four facilities in the October 31, 1995 refinancing, depreciation and amortization expenses increased by $510,000 and interest and other financing costs increased by $1,791,000. This was partially offset by an increase in interest and dividend income of $30,000. Other income of $660,000 in 1996 consisted of amortization of deferred income of $512,000, an unrealized foreign currency translation gain of $68,000. Other income of $655,000 in 1995 consisted of amortization of deferred income of $866,000, $188,000 of income resulting from an adjustment to accruals related to the deconsolidation of the Heritage facility, offset by a foreign currency translation loss of $402,000. CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Minority interest in profit of subsidiary of $328,000 in 1996 and minority interest in loss of subsidiary of $417,000 in 1995 represents the portion of the net income or loss of Infu-Tech allocable to minority stockholders. The provision for income taxes of $146,000 in 1995 represents primarily an adjustment to a previous benefit of $487,000 taken in the first half of 1995 relating to extraordinary gains, partially offset by a $316,000 benefit for income taxes for Infu-Tech, a 59% owned subsidiary which files its own Federal tax return. Based on earnings trends for the nine month period ending March 31, 1996, Infu-Tech expects to have taxable income which will enable Infu-Tech to utilize a portion of its net operating loss carryforwards. The deferred tax expense associated with utilization of these carryforwards is offset by a reduction in the deferred tax valuation allowance. The deferred tax asset remains at a level that Infu-Tech believes will be realizable. The preferred stock dividend related to 5% exchangeable preferred stock. Dividends on subsidiaries preferred stock issued as part of the October 31, 1995 refinancing are accounted for under interest and financing costs. The net income available to common shareholders in 1996 was $365,000 or $.05 per share compared to a net loss applicable to common shareholders in 1995 of $1,186,000 or $.15 per share. THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1995 Total revenues were $3,818,000, or 27% higher in the 1996 period compared to the same period of the prior year in part because of revenues of $2,717,000 pertaining to the Heritage Facility (which was acquired on October 31, 1995). Revenues were reduced by $331,000, offset by a reduction of expenses of approximately $100,000, in the third quarter as a result of suspension of admissions at one of the Company's nursing homes. Nursing home services revenues increased by $2,508,000, or 28%. Excluding revenues pertaining to the Heritage Facility of $2,260,000, nursing home services revenues increased by $248,000, or 3%, primarily attributed to higher per diem rates partially offset by an occupancy percentage decrease of 3.2% from 93.8% in 1995 to 90.6% in 1996. Infusion therapy and other medical services revenues increased by $1,310,000, or 26%, from $5,004,000 in 1995 to $6,314,000 in 1996, primarily due to a $917,000, or 27%, increase in home infusion division revenues which was caused by a 32% increase in the number of patients serviced. This increase was offset by shorter periods of therapy per patient combined with a lower pricing mix of bundled services. Personnel costs increased by $1,445,000, or 20%. Excluding the Heritage Facility, personnel costs increased by $177,000, or 3%, primarily attributed to normal cost of living increases, higher Infu-Tech nursing costs incurred to support the 32% increase in home infusion patients serviced and increased pharmacy payroll, partially offset by reductions in Infu-Tech sales and administrative personnel. Costs of medical and nutritional products sold to patients and other customers increased by $604,000, or 24%. As a percentage of infusion therapy and other medical services revenues, medical and nutritional product costs decreased from 51% in 1995 to 50% in 1996. CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Health care and lodging expenses, which are incurred in connection with nursing home services, decreased by a net $504,000, or 18%, due partially to a decrease of $750,000 in rent expense as a result of the acquisition of three nursing homes which were previously leased, offset by an increase in health care and lodging expenses of $246,000 primarily attributed to an increase in ancillary services. Excluding the Heritage Facility, health care and lodging expenses decreased by $1,054,000, or 38%. This included approximately $50,000 of costs moved from health care and lodging to personnel costs because the Company began performing some services previously performed by outside consultants. Selling, general and administrative costs increased by $153,000, or 9%. Excluding the Heritage Facility, selling, general and administrative costs increased by $12,000, or 1%, primarily attributed to increases in Infu-Tech distribution costs incurred to support the 32% increase in home infusion patients serviced partially offset by reduction in professional fees and selling related travel. The provision for uncollectible accounts was 1% of revenues in 1996 and 4% of revenues in 1995. The reduced provision was due to an over-accrual in prior periods of the reserve for nursing home receivables. As a result of the acquisition of four facilities in the October 31, 1995 refinancing, depreciation and amortization expenses increased by $308,000 and interest and other financing costs increased by $1,153,000. Other income of $220,000 in 1996 primarily consisted of amortization of deferred income of $142,000, an unrealized foreign currency translation gain of $44,000. Other income of $118,000 in 1995 consists of amortization of deferred income of $290,000 and $188,000 of income resulting from an adjustment to accruals related to the deconsolidation of the Heritage Facility, partially offset by an unrealized foreign currency translation loss of $360,000. Minority interest in income of subsidiary of $109,000 in 1996 and minority interest in loss of $232,000 in 1995 represents the portion of the net income or loss of Infu-Tech allocable to minority stockholders. Based on earnings trends for the three month period ending March 31, 1996, no tax provision was recorded for Infu-Tech, a 59% owned subsidiary which files its own tax return. Infu-Tech expects to have taxable income which will enable Infu-Tech to utilize at least a portion of its net operating loss carryforwards. The deferred tax expense associated with utilization of these carryforwards is offset by a reduction in the deferred tax valuation allowance. The deferred tax asset remains at a level that Infu-Tech feels will be realizable. The net income available to common shareholders in 1996 was $24,000 or $.01 per share compared to a net loss applicable to common shareholders in 1995 of $610,000 or $.08 per share. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1996, the Company had stockholders' equity of $512,000 and total liabilities of $69,455,000. The total liabilities at March 31, 1996 included debt of $56,002,000, which included SFr 1,135,000 (approximately $953,000) principal amount of 6% Swiss franc denominated convertible bonds which had not been paid when they matured on June 27, 1995 (the "Bonds"); SFr 619,500 (approximately $520,000) principal amount of 8% Swiss franc denominated bonds due June 27, 1998; $272,000 principal amount of a secured loan ("Secured Loan") due November 1997; $1,200,000 principal amount of 14 1/8 % subordinated debentures due September 1996 (the "Subordinated Debentures"); $1,213,000 principal amount of 8% notes due 1999; and $4,662,000 principal amount of 6% notes and 6% convertible bonds due 2003. 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 proceeds of those transactions were used to purchase the four nursing homes which secure the $41.0 million borrowing (three of which previously had been operated by the Company under leases CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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. The current portion of the total borrowings issued on October 31, 1995 totals $1.2 million. 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 March 31, 1996, the Company acquired SFr 1,765,000 principal amount of Bonds, including accrued interest on those Bonds, for a total of SFr 723,170 and $315,000 plus a SFr 619,500 note maturing in June 1998. The Company's cash and cash equivalents balance increased from $546,000 at June 30, 1995 to $1,227,000 at March 31, 1996. Included in the March 31, 1996 balance is $337,000 held by Infu-Tech and $250,000 is held by the Heritage Facility. Of the remaining cash of $640,000 held by the Company, $607,000 is held in escrow. In connection 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 advancing money to (or borrowing money from) the remainder of the Company. The cash held by the Heritage may only be used for the operation of that facility. The Company in total used $6,132,000 of cash in operating activities during the nine months, primarily due to an increase accounts receivable of $5,705,000, an increase in accounts payable of $2,302,000, and an increase in other assets of $2,424,000 offset by an increase in other current liabilities of $1,712,000 and net income of $435,000. Of the $5,705,000 increase in accounts receivable, $3,218,000 is attributable to Infu-Tech. At March 31, 1996, the balance in net accounts receivable for Infu-Tech was 63% higher than the balance at June 30, 1995. Of this increase, 17% occurred during the three months ended March 31, 1996. Infu-Tech's overall outstanding net accounts receivable has increased from 69 days' sales at December 31, 1995 to 89 days' sales at March 31, 1996, primarily as a result of a slow-down in 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 well as confusion due to consolidation within the managed care industry. 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. This is an industry-wide problem and Infu-Tech believes that claims processing will improve and the days' sales outstanding of accounts receivable will decrease as these problems are resolved. 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) used $6,133,000 of cash in operating activities. The Infu-Tech use of cash in operating activities was primarily due to an increase of $2,282,000 in accounts receivable, partially offset by a $507,000 increase in accounts payable and net income of $789,000. The increase in Infu-Tech's accounts payable is primarily attributed to an improved mix of payment terms that the Company has been able to obtain from suppliers to take account of the increase in accounts receivable. The Company has no arrangements under which it can make borrowings. At March 31, 1996, the Company had a working capital deficit of $1,291,000. Excluding Infu-Tech, which had working capital of $4,203,000, the Company's working capital deficit was $5,494,000. Further, at March 31, 1996, Infu-Tech's cash and cash equivalents of $337,000 were $209,000 less than the balance of $546,000 at June 30,1995 and its accounts payable of $2,849,000 were, as discussed above, $507,000 higher than the $2,342,000 at June 30, 1995. During the nine months ended March 31, 1996, the Company invested $39,151,000 in property, plant and equipment, consisting mostly of the nursing home facilities purchased as a result of the October 31, 1995 financing and nursing home facility improvements. During the nine months ended March 31, 1996, the Company repaid $1,030,000 of short-term borrowings and CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) $643,000 of long-term borrowings and paid preferred dividends of $70,000. The Commonwealth of Pennsylvania conducted an audit with respect to the Medicaid reimbursements for the Philadelphia, Pennsylvania nursing home for the periods ended June 30, 1991 and 1992. Pennsylvania has initiated the recoupment of $494,000 from the nursing home. As of March 31, 1996, $436,000 had been recouped. The Company disputes the results of the audit and has filed an appeal with respect to the periods covered by the audit. Based upon discussions with counsel, the Company is confident that it will ultimately prevail in its appeal of these audits and recover the monies recouped. At March 31, 1996, the Company had approximately $2.5 million of debt due in 1996 (consisting primarily of the outstanding Bonds, which had already matured, a $272,000 secured loan, $1.2 million of Subordinated Debentures due in September and $.5 million of a note issued in payment of trade payables). Beyond 1996, the next significant required debt repayment (other than the current portion of the debt described above) is not until 1998. The Company does not have any material commitments for capital expenditures. CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES Part II Other Information Item 1 Legal Proceedings Infu-Tech, a 59% owned subsidiary of CHA, has been notified that the government intends to seek reimbursement for alleged overpayments from Medicare relating to approximately $3 million of sales between 1991 and 1993 of a product which was discontinued in late 1993. The government believes that Infu-Tech was paid under a higher reimbursement code than that which should have been applicable. Infu-Tech believes that it billed the product properly and was paid under the appropriate code. Infu-Tech has cooperated with the government and intends to continue to do so in its effort to reach an appropriate resolution of this matter. Item 2 Changes in Securities None Item 3 Defaults Upon Senior Securities The principal balance of SFr 2,900,000 (approximately $2,525,000) and accrued interest of SFr 174,000 (approximately $152,000) pertaining to the Company's 6% Swiss franc denominated convertible bonds (the "Bonds") was due on June 27, 1995. The Company did not make these payments. Non-payment of these obligations did not result in a default under any other financing agreements. Since June 27, 1995, the Company has acquired SFr 1,765,000 principal amount of Bonds, including accrued interest on those Bonds, for a total of $315,000 and a SFr 619,500 in note maturing in June 1998. 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, 1996. .2 Calculation of loss per share - nine months ended March 31, 1995. B. Reports on Form 8-K during the quarter ended March 31, 1996: None. Exhibit A.1 CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES 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 $ .05 ==============
The above does not give effect to the assumed conversion of the Swiss franc denominated convertible bonds issued on June 27, 1985 since the effect would be antidilutive. Exhibit A.2 CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES Calculation of Loss Per Share Nine Months ended March 31, 1995 (Unaudited) PRIMARY
Net loss applicable to common shareholders $ (1,186,000)
Adjustment of shares outstanding: Weighted average number of shares outstanding 7,823,809 Weighted average number of common shares and common shares equivalent 7,823,809
Loss per share $ ( .15)
The above does not give effect to the assumed conversion of the Swiss franc denominated convertible bonds issued on June 27, 1985 since the effect would be antidilutive. CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amended Report to be signed on its behalf by the undersigned thereunto duly authorized. Continental Health Affiliates, Inc. Date May 15, 1996 JACK ROSEN Jack Rosen Chairman, and Director (Chief Executive Officer) Date May 15, 1996 ALLISON KURUS ALLEN Allison Kurus Allen Chief Accounting Officer CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES 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 15, 1996 Jack Rosen Chairman, and Director (Chief Executive Officer) Date May 15, 1996 Allison Kurus Allen Chief Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 1 9-MOS JUN-30-1996 JAN-01-1996 MAR-31-1996 1,227,000 0 14,514,000 4,024,000 1,627,000 15,378,000 60,477,000 4,725,000 75,319,000 16,669,000 52,683,000 3,500,000 1,000 160,000 512,000 75,319,000 51,368,000 51,368,000 9,579,000 48,762,000 0 1,253,000 2,586,000 365,000 0 365,000 0 0 0 365,000 0.05 0.00
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