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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1996
Commission file number 0-15893
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Nevada 91-1256470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
38 Pond Street, Suite 305
Franklin, Massachusetts 02038
(Address of principal executive offices) (Zip Code)
(508) 520-2422
Registrant's telephone number, including area code
Not applicable
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of June 30, 1996.
Common Stock, $.012 Par Value -- 14,746,199
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INDEX
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations -- Three Months and six months
ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows -- Six months ended June 30,
1996 and 1995
Notes to Condensed Consolidated Financial Statements -- June 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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Part 1. Financial Information
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CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
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Condensed Consolidated Balance Sheets
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(unaudited)
ASSETS: 06/30/96 12/31/95
- ------- ---------- ----------
Current Assets:
Cash $ 23,800 $ 85,557
Accounts receivable (net of allowance for doubtful accounts of $787,000 in
1996 and $876,000 in 1995) 2,156,168 2,016,846
Other current assets 130,607 218,316
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Total Current Assets 2,310,575 2,320,719
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Property and Equipment, at Cost:
Equipment 1,303,251 1,292,487
Less accumulated depreciation and amortization (772,904) (694,903)
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Property and equipment, net 530,347 597,584
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Other Assets:
Goodwill (net of accumulated amortization of $347,000 in 1996 and
$284,000 in 1995) 2,465,963 2,503,515
Other 257,725 144,979
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Total Other Assets 2,723,688 2,648,494
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TOTAL $5,564,610 $5,566,797
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term debt, current portion of long-term debt and Lease obligations $ 528,023 $ 521,248
Accounts payable 667,378 799,888
Accrued personnel costs 358,675 326,468
Accrued expenses and other liabilities 23,209 214,583
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Total Current Liabilities 1,577,285 1,862,187
Long-term debt 1,637,976 1,699,360
Other liabilities 22,511 26,998
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Total liabilities 3,237,772 3,588,545
Stockholders' Equity:
Common stock, $.012 par value, 50,000,000 shares authorized; issued
15,446,199 in 1996 and 14,702,306 in 1995 185,354 176,428
Preferred stock, 10,000,000 shares authorized; issued 1,727,305 in
1996 and 1995 1,727,305 1,727,305
Additional paid-in capital 7,867,614 7,661,116
Accumulated deficit (7,365,935) (7,499,097)
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2,414,338 2,065,752
Less-Treasury stock, 700,000 shares, at cost (87,500) (87,500)
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Total Stockholders' Equity 2,326,838 1,978,252
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TOTAL $ 5,564,610 $ 5,566,797
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Note: The Balance Sheet at December 31, 1995 has been derived from the Audited Financial Statements at that date. See
notes to Condensed Consolidated Financial Statements.
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CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
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Condensed Consolidated Statements of Operations (Unaudited)
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Three Months Ended Six Months Ended
June 30, June 30,
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1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenue, Net $2,256,379 $2,277,429 $4,619,511 $4,498,790
---------- ---------- ---------- ----------
Operating costs 1,666,047 1,844,624 3,401,998 3,637,673
Administrative and selling costs 439,109 285,414 838,797 546,076
Depreciation and amortization 57,753 67,052 115,556 126,000
---------- ----------- ---------- ----------
Total operating costs 2,162,909 2,197,090 4,356,351 4,309,749
---------- ----------- ---------- ---------
Operating income 93,470 80,339 263,160 189,041
Interest expense, net 69,828 46,843 123,711 97,347
Other (income)/expense 0 0 1,611 0
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69,828 46,843 125,322 97,347
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Income before income taxes 23,642 33,496 137,838 91,694
Income tax provision 2,175 2,500 4,675 5,000
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Net income from continuing 21,467 30,996 133,163 86,694
operations
Discontinued Operations 0 0 0 0
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Net Income $ 21,467 $ 30,996 $ 133,163 $ 86,694
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Net income per share: $0.00 $0.00 $0.01 $0.01
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Average shares outstanding 14,403,604 12,784,236 14,202,955 12,741,433
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See notes to Condensed Consolidated Financial Statements.
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CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
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Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30,
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1996 1995
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Cash Flows From Operating Activities:
Net income $ 133,163 $ 86,694
Adjustments to reconcile net income to net cash from (used
by)operating activities:
Depreciation and amortization 115,553 126,000
Non-cash interest expense 1,644 0
Decrease (increase) in accounts receivable (139,322) (279,912)
Decrease (increase) in other current assets 87,709 (72,677)
Decrease (increase) in other assets and deferred costs (1) (34,390) 13,614
Increase in accounts payable and accrued expenses (2) (185,924) 9,270
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Net cash from (used by) operating activities (21,567) (117,011)
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Cash Flows From Investing Activities:
Purchases of equipment (10,764) (73,621)
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Net cash used in investing activities (10,764) (73,621)
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Cash Flows From Financing Activities:
Proceeds from issuance of debt 100,000 275,000
Proceeds from exercise of stock options 10,000 0
Non-cash proceeds from issuance of common stock (3) 59,670 0
Principal payments on debt and lease obligations (199,096) (259,020)
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Net cash provided by (used in) financing activities (29,426) 15,980
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Net increase (decrease) in cash (61,757) (174,652)
Cash, beginning of year 85,557 213,141
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Cash, end of period $ 23,800 $ 38,489
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See notes to Condensed Consolidated Financial Statements.
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Footnotes: (1) Deferred cost incurred in conjunction with renegotiated debt, being
amortized over life of new Note Payable.
(2) Includes common stock issued in satisfaction of liability of like amount.
(3) Includes common stock issued in satisfaction of employer 401(k) liability and
Stock bonus awards.
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CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-B. 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 accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Form 10-KSB
for the year ended December 31, 1995.
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PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net Revenues increased by 2.7% or $120,721 during the six months ended June 30,
1996 compared to the same period of 1995. Despite the ongoing impact of managed
care, out-patient net revenues increased by $46,409, primarily as a result of
the integration of the Contract Services Division in the Company owned
out-patient clinics.
Operating costs represented 73.8% and 73.6% of revenue during the quarter and
six months ended June 30, 1996 compared to 81.0% and 80.9% for the same periods
of 1995. The $178,577 decrease in operating costs during the quarter and
$235,675 decrease for the six months ended June 30,1996 was principally due to
the continued integration of the Company's Contract Services Division in the
out-patient clinics and the resulting reduction in sub-contract labor expenses.
Additionally, as the result of the integration, the Company has achieved lower
recruiting, travel and fringe benefit cost by replacing subcontracted physical
therapy labor cost with internal staff physical therapists.
Administrative and selling costs constituted 19.5% and 18.1% of net revenue
during the quarter and for the six months ended June 30, 1996 as compared to
12.5% and 12.1% for the same periods of 1995. The increase reflects
administrative and selling costs that were higher by $153,695 and $292,721 for
the quarter and six months ended June 30,1996 compared to the prior year
periods. A significant portion of the increase relates to compensation expense
for the Chief Operating Officer hired in the late fourth quarter of 1995, and to
a lesser extent, increased legal and accounting fees. There was no comparable
compensation expense during the first quarter and second quarter of 1995. In an
unrelated matter, the Company incurred additional separation cost associated
with the 1995 termination of the Company's former President and Chief Financial
Officer.
Depreciation and amortization decreased by $9,299 and $10,444 during the quarter
and six months ended June 30, 1996 as compared to the same periods of 1995. The
decrease is attributable to lower amortization expense as well as the result of
fewer clinics in operation during 1996. In 1995, the Company closed two
non-performing clinics. One non-performing clinic was closed in early 1996.
Interest expense increased by $22,985 and $26,364 for the quarter and six months
ended June 30, 1996, respectively, as compared to the same periods in 1995. The
increase is primarily the result of the Company's increased use of its factoring
arrangement to support its operations, and to a lesser extent, higher interest
rates incurred on renegotiated term debt.
The Company's tax provision is substantially the result of state income tax
accruals.
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As a result of the above factors, the Company earned net income of $133,163 for
the six months of 1996 as compared to a net income of $86,694 for the same
period of 1995.
Liquidity and Capital Resources
The Company acquired therapy equipment and office equipment totaling $7,166 and
$10,764 for the quarter and six months ended June 30, 1996.
Financial Position
The Company's liquidity, as measured by its cash and working capital, decreased
by $61,757 and increased by $274,758 respectively in the first six months of
1996 as compared to the same period in 1995. The decrease in cash is primarily
the result of an increase in non-factored accounts receivable, and to a lesser
extent, a decrease in accounts payable. The increase in working capital is
primarily the result of successful renegotiated term debt resulting in the
conversion of short term debt to long term debt, and to a lesser extent, the
satisfaction of some accounts payable and deferred liabilities through the
issuance of common stock.
The Company continues to factor a certain portion of its accounts receivable.
The increase in accounts receivable of $139,322 during the six months of 1996 is
primarily the result of an increase in the Company's non-factored accounts
receivables.
Accounts payable and accrued expenses decreased by $291,677. A significant
portion of this decrease represented certain accounts payable and accrued
liabilities satisfied through the issuance of the Company's common stock.
Total long-term debt and capital lease obligations decreased by a net amount of
$ 65,871, primarily as a result of the conversion to stock of certain promissory
notes, principal payments made during the year, renegotiated term debt resulting
in longer maturities, and additional borrowings.
Stockholders' equity increased $348,586 due to the issuance of common stock to
the Company's 401(K) Profit Sharing Plan ($59,670), conversion of certain debt
to common stock ($65,750), renegotiation of certain convertible promissory notes
through the issuance of common stock ($80,000), exercise of options ($10,000),
and net income ($133,163).
In April of 1996, the Company renegotiated a promissory note, issued in
connection with a business acquisition. Under the renegotiated agreement, the
outstanding balance, approximately $413,000, was recast as a five year loan to
the Company at 10% interest, but payable interest only in the first two years,
and self liquidating over the remaining three years. In consideration, the
noteholder was issued $30,000 of the Company's common stock.
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PART II. OTHER INFORMATION
Items 1 through 3
Not applicable.
Item 4 Submission of matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on June 14, 1996, the following
matters were proposed and a majority of stockholders were in favor of:
a) Authorization of the Board of Directors to effect a reverse split of
the common stock of the Company without further shareholder action, of
not less than 1 for 2 nor greater than 1 for 10.
b) Electing six Directors to hold office until the next Annual
Meeting of Stockholders .
The number of votes cast for and against the authorization of
the reverse split and the election of each Director, and the
number of abstentions with respect thereto, were as follows:
FOR AGAINST ABSTAIN
Reverse Stock Split 7,131,117 202,991 211,683
Election of:
Sidney Dworkin 7,255,969 289,932
Paul Frankel 7,255,969 289,932
Joel Friedman 7,255,969 289,932
James Kenney 7,255,969 289,932
Alan Mantell 7,255,526 290,265
Goodhue W. Smith III 7,255,969 289,932
Item 5 Other Information
The Company announced that it had signed a non-binding Letter of Intent to
acquire Total Rehab, Inc. Total Rehab, Inc. is a provider of rehabilitation
staffing on a contract basis for nursing homes, long-term care and sub-acute
facilities, with recent expansion into hospitals and home care in Ohio and West
Virginia. The Letter of Intent contemplates a purchase price of $3 million in
cash and 8 million shares of common stock (before giving any effect to any
reverse split). The agreement is subject to a number of conditions including
financing.
The Company also announced that Alan M Mantell, formerly the Chief Operating
Officer of the Company, has been appointed Vice Chairman and Chief Executive
Officer of the Company. Mr. Mantell replaces Mr. Joel Friedman, who remains
Chairman of the Company.
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The Company also announced that it intends, subject to stockholder approval, to
change the name of the Company to Managed Rehabilitation Services, Inc. to more
adequately reflect the new direction of the Company.
Item 6
Not applicable.
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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.
CONSOLIDATED HEALTH CARE
ASSOCIATES, INC.
Dated: August 2, 1996 By: /S/ Robert M. Whitty
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Robert M. Whitty
President
By: /S/ Raymond L. LeBlanc
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Raymond L. LeBlanc
Treasurer
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