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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 March 31, 1997
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 _____
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of March 31, 1997.
Common Stock, $.012 Par Value -- 15,759,583
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CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
Table of Contents
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 1997 and 3
December 31, 1996
Condensed Consolidated Statements of Operations -- 4
Three months ended March 31,1997 and 1996
Condensed Consolidated Statements of Cash Flows -- 5
Three months ended March 31,1997 and 1996
Notes to Condensed Consolidated Financial Statements -- 6
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition 7-10
and Results of Operations
PART II. OTHER INFORMATION 11
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
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
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Condensed Consolidated Balance Sheets
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(unaudited)
ASSETS: 03/31/97 12/31/96
- ------- -------- --------
Current assets:
Cash $ 404,499 $ 37,141
Accounts receivable (net of allowance for doubtful accounts of $934,000 in
1997 and $977,000 in 1996) 1,736,980 1,817,036
Other account receivables 550,893 535,225
Other current assets 200,680 176,403
----------- -----------
Total current assets 2,893,052 2,565,805
----------- -----------
Property and equipment, at cost:
Equipment 1,191,333 1,316,166
Less accumulated depreciation and amortization (800,184) (862,305)
----------- -----------
Property and equipment, net 391,149 453,861
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Other assets:
Goodwill (net of accumulated amortization of $404,000 in 1997 and $385,000
in 1996) 2,409,560 2,428,463
Other 275,339 132,437
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Total other assets 2,684,899 2,560,900
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TOTAL $ 5,969,100 $ 5,580,566
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable and current portion long-term debt $ 577,571 $ 353,023
Accounts payable 819,715 778,358
Accrued personnel costs 410,043 377,085
Accrued expenses and other liabilities 98,533 173,038
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Total current liabilities 1,905,862 1,681,504
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Long-term debt 1,148,140 1,804,550
Other liabilities - -
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Total liabilities 3,054,002 3,486,054
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Stockholders' equity:
Preferred stock, 10,000,000 shares authorized; issued 1,727,305 in 1997 and
1996 1,727,305 1,727,305
Common stock, $.012 par value, 50,000,000 shares authorized; issued
16,459,583 in 1997 and 16,369,583 in 1996 197,515 196,435
Additional paid-in capital 8,263,280 8,230,611
Accumulated deficit (7,185,502) (7,972,339)
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3,002,598 2,182,012
Less-treasury stock, 700,000 shares, at cost (87,500) (87,500)
----------- -----------
Total stockholders' equity 2,915,098 2,094,512
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TOTAL $ 5,969,100 $ 5,580,566
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See notes to Condensed Consolidated Financial Statements.
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3
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
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Unaudited Consolidated Statement of Operations
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Three Months Ended
March 31,
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1997 1996
---- ----
----------------------------------------------------
Revenue, net $ 2,505,743 $ 2,363,133
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Cost and expenses:
Operating costs 1,833,274 1,735,951
Administrative and selling costs 602,443 399,688
Depreciation and amortization 52,709 57,803
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Total operating costs 2,488,426 2,193,442
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Operating income 17,317 169,691
Interest expense, net 60,450 53,883
Other expense/(income) (27,959) 1,606
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32,491 55,489
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Income/(loss) before income taxes (15,174) 114,202
Gain/(loss) on sale of clinics 802,724 0
Income tax provision (713) (2,500)
------------ ------------
Net income $ 786,837 $ 111,702
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Net income per share: $ 0.05 $ 0.01
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Average shares outstanding 15,437,208 14,419,125
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See notes to Condensed Consolidated Financial Statements.
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4
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
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Unaudited Consolidated Statements of Cash Flows for the three months
Ended March 31,1997 and 1996
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1997 1996
---- ----
Cash Flows From Operating Activities:
Net income $ 786,837 $ 111,702
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 52,709 57,803
Non-cash expenses 5,375 4,500
Gain on sale of clinics (802,724) 0
Decrease (increase) in accounts receivable (615,128) 100,903
Decrease (increase) in other current assets (15,668) (112,970)
Decrease (increase) in other assets and deferred costs (30,782) (98,358)
Increase (decrease) in accounts payable and accrued expenses 269,430 84,517
--------- ---------
Net cash provided by (used in) operating activities (349,951) 148,097
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Cash Flows From Investing Activities:
Proceeds from sale of clinics 884,364 0
Purchases of equipment (6,388) (3,598)
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Net cash provided by (used in) investing activities 877,976 (3,598)
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Cash Flows From Financing Activities:
Proceeds from issuance of debt 150,000 0
Proceeds from exercise of stock options 0 0
Principal payments on debt and lease obligations (310,667) (106,843)
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Net cash provided used in financing activities (160,667) (106,843)
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Net increase in cash 367,358 37,656
Cash, beginning of period 37,141 85,557
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Cash, end of period $ 404,499 $ 123,213
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See notes to Condensed Consolidate Financial Statements.
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Footnote: The Company issued 90,000 shares of common stock in
conjunction with proceeds from the issuance of debt.
The Company satisfied approximately $462,000 of note
payables incurred in connection with business acquisitions
through the assignment of accounts receivables related to
those businesses.
5
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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 three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. The results should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1996.
6
PART I. FINANCIAL INFORMATION
Item 2. Management's discussion and analysis of financial condition and results
of operations
General
Consolidated Health Care Associates, Inc. "the Company", provides ancillary
health care and outpatient rehabilitation services through a network of
outpatient clinics principally in the Northeast and Mid-Atlantic regions. The
Company owns and operates nine clinics under the name PTS Rehab, Inc.("PTS") of
which five are in Massachusetts, one is in Pennsylvania, and three are in
Delaware. The Company also provides managed ancillary health care rehabilitation
services through contract staffing under the name Consolidated Rehabilitation
Services, Inc ("CRS"), principally in Massachusetts, Pennsylvania, Florida,
Delaware and New York.
In 1996, the Company began development of a program of Managed
Rehabilitation Services ( "MRS"), pursuant to which the Company would furnish
contract development, staffing, administrative, payroll, billing, collection and
management services to local, independently owned community based clinics,
nursing homes and home health agencies. The MRS system provides for the ability
to deliver contractual ancillary health care and rehabilitation services through
the community based locations that in turn, would coordinate the actual
services. The Company expects that over time the MRS business will become the
substantial focus of the Company's operations.
Results of operations
Net revenues increased to $2,505,743 for the three months ended March 31,
1997 from $2,363,133 for the same three month period ended March 31, 1996, an
increase of $142,610 or 6%. Increased net revenues for the Company were achieved
despite a decline in PTS outpatient net revenues of $380,954 resulting primarily
from fewer Company owned clinics in operation during the three month period
ended March 31, 1997 as compared to the same three month period during 1996. In
February 1997, the Company's PTS division sold three of its clinics ("the
Disposition") in Pennsylvania and in March 1997, returned one clinic in Florida
to its Former Owner. The Company also had two fewer clinics in operations as
compared to the same period during 1996 resulting from the closing of one
non-performing clinic in Florida and the merging of two clinics in Massachusetts
into one location. Additionally, lower PTS net revenues during the first quarter
of 1997 are attributable to higher accruals for contractual allowances as
compared to reserves for contractual allowances recorded during the same period
in 1996. In the third quarter of 1996, the Company performed a review of its
reserves for contractual allowances and determined that higher accruals were
required. Higher accruals of approximately $152,000 are reflected in the first
quarter of 1997 and as a result cost are not comparable to those accruals
recorded during the same period in 1996.
Gross revenues of the Company's remaining nine clinics declined by $61,898
during the three month period ended March 31,1997 as compared to the same period
during 1996
7
primarily as a result of a temporary shortage of physical therapy staffing
experienced in the Company's Delaware clinics. Total out-patient clinic visits
for the period ended March 31, 1997 remained at a comparable level of patient
visits experienced during the same period of time in 1996.
Net revenues of the Company's Consolidated Rehabilitation Services division
("CRS") increased to $1,030,782 for the quarter ended March 31, 1997 as compared
to $520,361 for the same period of time during 1996, an increase of $510,421 or
98%. Increased CRS net revenues resulted from the Company's continued
diversification of services, to now include Nursing Home Management, as well as
the continued integration of contract services within the Company's nine
remaining out-patient clinics.
Operating costs represented 73.2% and 73.4% of revenue during the three
months ended March 31, 1997 and March 31, 1996 respectively. The $97,323
increase in operating costs during the three months ended March 31, 1997 as
compared to the same period in 1996 was principally due to higher salaries and
benefit cost associated with the Company's new Nursing Home Management
contracts, and to a lesser extent, additional labor and fringe cost associated
with the start-up of the Company's new Managed Rehabilitation Service Division.
The continued integration of the Company's contract service division in the
Company's out-patient clinics continues to lower fixed overhead costs and as a
result the Company has achieved lower recruiting, travel and housing costs by
replacing subcontracted physical therapy labor cost with internal staff physical
therapists.
Administrative and selling costs constituted 24.0% and 16.9% of net revenue
during the quarter and three months ended March 31, 1997 as compared for the
same periods of 1996. The increase reflects $202,755 in higher administrative
and selling costs for three months ended March 31,1997 as compared to the three
months ended March 31, 1996. A significant portion of the increase relates to
higher accruals for accounting, legal, consulting and financing costs, and to a
lesser extent, start-up cost associated with the Company's MRS division. There
were no comparable accruals during the first quarter of 1996, however the
Company did record a significant accounting and legal charge in the third
quarter of 1996.
Depreciation and amortization decreased by $5,094 during the three months
ended March 31, 1997 as compared to the same periods of 1996. The decrease is
attributable to lower depreciation expenses resulting from the sale of certain
fixed assets in February and March 1997.
Interest expense increased by $6,567 for the three months ended March 31,
1997 as compared to the same period in 1996. The increase is primarily the
result of the Company's increased use of its factoring arrangement to support
its operations, interest expense accrued on term debt, and to a lesser extent
lower interest expense resulting from the use of proceeds from the Disposition
to retire certain current and long-term debt.
Other income increased by $29,565 for the three months ended March 31, 1997
as compared to the same three months in 1996, primarily as a result of the
successful negotiations to lower liabilities of certain outstanding accounts
payable debt.
8
On February 28, 1997, the Company completed the sale of three of its four
Pennsylvania clinics for a purchase price of $1,050,000 in cash and a note,
subject to adjustment. The clinics include those located in Millersburg, PA,
Mechanicsburg, PA and Shermansdale, PA. The Company had purchased these clinics
from "the Buyer" in 1993. The cash portion of the transaction was $900,000 which
at the closing was reduced by the payment of certain operating expenses due the
Buyer of $15,636. The Buyer also assumed up to $230,000 in associated
liabilities. Additionally, in January 1997 the Company agreed to satisfy a note
held by the Buyer issued in connection with the 1993 business acquisition in the
approximate amount of $413,000, by assigning and without guarantee as to the
amount of the collectability to the note holder $484,000 in face amount of
accounts receivable, but only to the extent of collections in the amount due
under the note. The clinics sold accounted for approximately 22% of the
Company's total revenues for the year ended December 31, 1996. The Company is
utilizing the proceeds from the Disposition to pay down debt and for other
general corporate purposes.
In March 1997, the Company returned one non-performing clinic in Florida to
its "Former Owner". The Company assigned approximately $64,000 of net trade
receivables, approximately $4,000 of prepaid assets and approximately $6,000 of
net fixed assets related to the returned clinic to the Former Owner. In
conjunction with the return of the clinic, the Former Owner agreed to forgive
the balance of a Company note held in the amount of $48,000, forfeit accrued
earned time benefits in the approximate amount of $10,000, and assumed certain
accounts payable in the approximate amount of $13,000. The returned clinic
accounted for approximately 4.7% of the Company's total net revenues for the
year ended December 31, 1996. The sale of the Pennsylvania clinics and the
return of the Florida clinic resulted in a net gain on sale of assets for the
period ending March 31, 1997 of $802,724.
The Company elected to sell the Pennsylvania clinics and return the Florida
clinic after determining that current and projected future cash flows of these
operations did not and would not satisfy operating and debt service
requirements. No future consolidations of clinics are planned at this time,
however, no assurances can be given that consolidations will not occur in the
future if a particular clinic is not operating at a satisfactory level.
The Company's tax provision is substantially the result of state income tax
accruals.
As a result of the above factors, the Company earned net income of $786,836
for the three months of 1997 as compared to a net income of $111,702 for the
same period of 1996.
Liquidity and Capital Resources
The Company's liquidity, as measured by its cash increased by $367,358 in
the first three months of 1997. The increase in cash is primarily the result of
the sale of the Pennsylvania clinics and additional proceeds received from the
issuance of new term debt. To a lesser extent, additional cash resulted from an
increase in factored accounts receivable.
9
Net accounts receivable were $1,736,980 at March 31, 1997 compared to
$1,817,036 at December 31, 1996, a decrease of $80,056. In January 1997 the
Company agreed to satisfy a note held by the Buyer issued in connection with the
1993 business acquisition in the approximate amount of $413,000 by assignment to
the note holder of $484,000 in face amount of accounts receivable, but only to
the extent of collections in the amount due under the note. Subsequently,
included in the February 1997 Pennsylvania Disposition were approximately
$230,000 of remaining net accounts receivables related to the clinics included
in the disposition. In the March 1997 return of the Florida clinic to its Former
Owner, net accounts receivable returned were approximately $65,000. Net accounts
receivables further decreased through additional reserves for contractual
allowances of approximately $41,000. The decreases were offset by increased
accounts receivables of approximately $615,000 generated primarily in the CRS
division.
Accounts payable, accrued payroll, taxes and benefits, and accrued other
decreased by $190 in the first three months of 1997 as compared to the balances
at December 31, 1996. The decrease includes the combined assumption of
approximately $269,000 of accounts payable and accrued payroll and related
benefit costs by the Buyer of the Pennsylvania clinics and by the Former Owner
of the Florida clinic, offset by increased accounts payable resulting from
higher operating cost associated with the increase in CRS revenues and to a
lesser extent, increased accounts payable for legal and accounting cost related
to the filing of the Company's Registration Statement on Form SB-2 in February
1997 and the filing of the Company's Annual Report on Form 10-KSB filed in March
1997.
Cash provided by investing activities for the three months ended March 31,
1997 was $877,976, which consisted of net proceeds provided by the sale of
clinics of $884,364 less cash used for the purchases of equipment of $6,388. The
cash portion of the Pennsylvania disposition was $900,000 which at the closing
was reduced by the payment of certain operating expenses due the Buyer of
$15,636.
Financing activities in the first three months of 1997 used cash of
$160,667. Proceeds from the issuance of debt were $150,000 and payments of
$310,667 were made on long-term debt. Due to the shortfalls in working capital
as discussed above, the Company discontinued scheduled principal and interest
payments on several of its note payable obligations during 1996. During 1997, in
conjunction with the assignment of accounts receivables and the utilization of
proceeds from the Dispositions, the Company cured certain defaults in principal
and interest payments by remitting past-due amounts.
At March 31, 1997 and December 31, 1996, the Company had outstanding
approximately $1,725,771 and $2,158,000 in notes payable and long-term debt,
respectively. At December 31, 1996 of such amount, approximately $462,000
related to clinics included in the February Disposition and March 1997 clinic
returned to the Former Owner. During the three months ended March 31, 1997 by
assignment of accounts receivable from the Company to the note holders, the
remaining balance of these notes were satisfied. Net term debt remaining
increased during the three months ended March 31, 1997 primarily as a result of
the issuance of new term debt of $150,000 offset by payments of term debt of
$120,195.
10
Stockholders' equity increased $820,586 during the first three months of
1997 due to the issuance of common stock ($33,749) and net income ($786,837).
In January 1997, the Company negotiated a $150,000 promissory note with
Davstar II Managed Investments Corporation N.V. Pursuant to the promissory note,
the Company is obligated to pay interest on the unpaid monthly balance of the
promissory note at a rate of 10% per annum, computed in arrears, with the entire
principal balance plus any unpaid interest due in full in May 1997. In
consideration of the promissory note, the note holder was issued 90,000 shares
of the Company's common stock at $.375 per share. In early April 1997, the
Company subsequently satisfied in full, the outstanding principal and interest
balance under this promissory note.
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 a Vote of Security Holders
None
Item 5. Other Information
In January 1997, the Company announced that Robert M. Whitty, the Company's
President, was elected a member of the Company's Board of Directors. Mr. Whitty
replaced Mr. Alan M. Mantell, the Company's former Chief Operating Officer who
resigned from the Company in November 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K have been filed for the
quarter for which this report is being filed.
A report on Form 8-K, dated January 27, 1997 was filed with the Securities
and Exchange Commission announcing the appointment of Federman, Lally & Remis
LLC as the Company's new Independent Certifying Accountants. A report on Form
8-K, dated March 14, 1997 was filed with the Securities and Exchange Commission
announcing the Company's the sale of clinics located in the State of
Pennsylvania.
11
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: May 14, 1997 By:_________________________________
Robert M. Whitty
President
Dated: May 14, 1997 By:_________________________________
Raymond L. LeBlanc
Chief Financial Officer
12
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: May 14, 1997 By:/s/ R. Michael Whitty
---------------------------------
Robert M. Whitty
President
Dated: May 14, 1997 By:/s/ Raymond L. LeBlanc
---------------------------------
Raymond L. LeBlanc
Chief Financial Officer
13