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 June 30, 1995
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
incorporation or organization) Number)
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
August 11, 1995: 7,830,059
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Index
-----
Page Number
-----------
PART I FINANCIAL INFORMATION:
Item 1 Consolidated Balance Sheets (Unaudited)
at June 30, 1995 and December 31, 1994. . . 2
Consolidated Statements of Operations
(Unaudited) for the six months ended
June 30, 1995 and 1994. . . . . . . . . . . 3
Consolidated Statements of Operations
(Unaudited) for the three months
ended June 30, 1995 and 1994 . . . . . . . . 4
Consolidated Statements of Cash Flows
(Unaudited) for the six months ended
June 30, 1995 and 1994 . . . . . . . . . . . 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
1
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
Assets 1995 1994
------ --------- ------------
Current assets:
Cash and cash equivalents $546,000 $1,161,000
Patients' funds 200,000 205,000
Accounts receivable, net of allowances
for uncollectible accounts of
$3,712,000 and $3,137,000 6,038,000 6,264,000
Inventories 1,686,000 1,407,000
Deferred income taxes 849,000 849,000
Prepaid expenses and other current assets 1,116,000 1,231,000
---------- ----------
Total current assets 10,435,000 11,117,000
Property and equipment, at cost,
net of accumulated depreciation and
amortization of $3,875,000 and $3,564,000 9,934,000 9,903,000
Mortgage note receivable 7,399,000 7,399,000
Goodwill, net of accumulated amortization
of $601,000 and $558,000 339,000 382,000
Deferred income taxes 220,000 220,000
Other assets 1,348,000 1,464,000
---------- ----------
Total assets $29,675,000 $30,485,000
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt (note 2) $ 3,424,000 $ 3,165,000
Accounts payable 8,660,000 7,451,000
Other current liabilities 4,411,000 4,893,000
---------- ----------
Total current liabilities 16,495,000 15,509,000
Long-term debt, net of current portion 10,766,000 10,806,000
Deferred income 615,000 1,194,000
Other liabilities 243,000 471,000
Minority interest in subsidiary 1,524,000 1,877,000
Commitments 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;
7,830,059 and 7,825,059 shares
outstanding 156,000 156,000
Additional paid-in capital 20,192,000 20,226,000
Accumulated deficit (20,317,000) (19,755,000)
------------ ------------
Total stockholders' equity 32,000 628,000
------------ ------------
Total liabilities and stockholders'
equity $29,675,000 $30,485,000
============ ============
See accompanying notes to consolidated financial statements.
2
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30,
-------------------------
1995 1994
------------ -----------
Revenues:
Nursing home services $18,248,000 $20,065,000
Infusion therapy and other
medical services 10,476,000 6,993,000
----------- -----------
Total revenues 28,724,000 27,058,000
----------- -----------
Operating expenses:
Personnel 14,493,000 14,484,000
Medical and nutritional product 5,300,000 2,870,000
Health care and lodging 5,496,000 5,908,000
Selling, general and administrative 3,014,000 2,734,000
Provision for uncollectible accounts 979,000 875,000
Depreciation and amortization 366,000 501,000
----------- -----------
Total operating expenses 29,648,000 27,372,000
----------- -----------
Loss from operations (924,000) (314,000)
Interest and dividend income 183,000 52,000
Interest and other financing costs (632,000) (920,000)
Other income, net 458,000 340,000
Minority interest in loss of subsidiary 353,000 190,000
----------- -----------
Loss before income taxes and
extraordinary gains (562,000) (652,000)
Benefit for income taxes -- (487,000)
----------- -----------
Loss before extraordinary gains (562,000) (165,000)
Extraordinary gains on extinguishment
of debt (net of income taxes of
$171,000) -- 1,058,000
----------- -----------
Net income (loss) (562,000) 893,000
Preferred dividends (35,000) (35,000)
----------- -----------
Net income (loss) applicable to
common shareholders ($597,000) $858,000
=========== ===========
Earnings (loss) per share:
Before extraordinary items ($0.08) ($0.02)
Extraordinary items -- 0.13
----------- -----------
Net income (loss) applicable to
common shareholders $0.08 $0.11
=========== ===========
See accompanying notes to financial statements.
3
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30,
--------------------------
1995 1994
------------ -----------
Revenues:
Nursing home services $9,291,000 $8,991,000
Infusion therapy and other medical services 5,472,000 3,725,000
---------- ----------
Total revenues 14,763,000 12,716,000
---------- ----------
Operating expenses:
Personnel 7,420,000 6,882,000
Medical and nutritional product 2,765,000 1,515,000
Health care and lodging 2,742,000 2,645,000
Selling, general and administrative 1,397,000 1,394,000
Provision for uncollectible accounts 481,000 415,000
Depreciation and amortization 184,000 191,000
Total operating expenses 14,989,000 13,042,000
---------- ----------
Loss from operations (226,000) (326,000)
Interest and dividend income 91,000 23,000
Interest and other financing costs (313,000) (364,000)
Other income, net 340,000 169,000
Minority interest in loss of subsidiary 121,000 94,000
---------- ----------
Income (loss) before income taxes 13,000 (404,000)
Benefit for income taxes -- (157,000)
---------- ----------
Net income (loss) applicable to common
shareholders $13,000 ($247,000)
========== ===========
Earnings (loss) per share applicable to
common shareholders $0.00 ($0.03)
========== ===========
See accompanying notes to financial statements.
4
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
--------------------------
1995 1994
---------- -----------
Operating activities:
Net income (loss) ($562,000) $893,000
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 366,000 501,000
Amortization of deferred financing costs 32,000 48,000
Provision for uncollectible accounts 979,000 875,000
Amortization of deferred income (579,000) (582,000)
Loss on translation of foreign currency debt 309,000 225,000
Minority interest (353,000) (190,000)
Extraordinary gains -- (1,058,000)
Deferred income taxes -- (96,000)
Increase (decrease) from changes in:
Accounts receivable (753,000) (600,000)
Inventories (279,000) 56,000
Prepaid expenses and other current assets 115,000 (60,000)
Other assets 71,000 55,000
Accounts payable 1,209,000 211,000
Other current liabilities (476,000) (565,000)
Other liabilities 228,000 (303,000)
---------- -----------
Net cash used in operating activities (149,000) (590,000)
---------- -----------
Investing activities:
Expenditures for property and equipment (294,000) (282,000)
Purchase by Infu-Tech of treasury stock -- (53,000)
---------- -----------
Net cash used in investing activities (294,000) (335,000)
---------- -----------
Financing activities:
Net proceeds from not-for-profit borrowings -- 12,905,000
Net proceeds from long-term borrowings -- 790,000
Payments of short-term borrowings -- (13,570,000)
Payments of long-term borrowings (138,000) (140,000)
Payment of preferred dividends (35,000) (35,000)
Cost of debt exchange offers -- (19,000)
Net proceeds from exercise of common stock options 1,000 --
---------- -----------
Net cash used in financing activities (172,000) (249,000)
---------- -----------
Net decrease in cash and cash equivalents (615,000) (1,174,000)
Cash and cash equivalents, beginning of period 1,161,000 3,527,000
---------- -----------
Cash and cash equivalents, end of period $546,000 $2,353,000
========== ===========
See accompanying notes to consolidated 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 June 30,
1995, and the results of its operations and changes in cash
flows for the six-month periods ended June 30, 1995 and 1994.
These consolidated financial statements should be read in
conjunction with the annual consolidated financial statements
of the Company. The results of operations for the six months
ended June 30, 1995 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 as of June
30, 1995 and has not made such payments as of August 14, 1995.
Non-payment of these obligations did not result in a default
under any other financing agreements.
6
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 Compared with
--------------------------------------------
Six Months Ended June 30, 1994
------------------------------
Total revenues increased by $1,666,000, or 6%, even though revenues
of the Heritage Facility were included through March 16, 1994, but
1995 revenues include only fees for managing the Heritage Facility.
Excluding revenues pertaining to the Heritage Facility in both
years, total revenues increased by $3,392,000, or 14%.
Nursing home services revenues decreased by $1,817,000, or 9%.
Excluding revenues pertaining to the Heritage Facility in both
years, nursing home services revenues decreased by $91,000, or 1%.
Excluding the Heritage Facility in both years, total patient days
decreased 1%, primarily due to a 40 bed reduction in the number of
available beds at one of the Company's nursing homes, partially
offset by a 3% increase in patient days at the other facilities.
The occupancy percentage increased from 91.4% in 1994 to 94.1% in
1995.
Infusion therapy and other medical services revenues increased by
$3,483,000, or 50%, primarily due to a $3,800,000, or 110%,
increase in home infusion division revenues. This increase is
partially attributed to a 75% increase in the number of patients
serviced. Most of the additional home infusion patients were
obtained through marketing efforts directed at managed care
companies. These patients are normally serviced under agreements
with significant price discounts or under other arrangements which
substantially reduce prices. The increase in home infusion
revenues was also affected by the Company's beginning to provide in
early 1994 Ceredase(R) enzyme and Cerezyme(TM) infusion therapy
("Ceredase(R)") to patients with Gaucher's disease. Sales of
Ceredase(R) in 1995 were $1,945,000, compared to $175,000 in 1994.
Ceredase(R) is a very high priced drug therapy (approximately $20,000
per month per patient), but due to its high product cost per
revenue dollar, it has a very low gross profit margin percentage.
Personnel costs increased by $9,000. Excluding the Heritage
Facility, personnel costs increased by $1,053,000, or 8%, primarily
attributed to normal cost of living increases, higher Infu-Tech
nursing costs incurred to support the 75% increase in home infusion
patients serviced and increased Infu-Tech pharmacy payroll costs
due to new pharmacy operations and the higher number of home
infusion patients serviced.
Costs of medical and nutritional products sold to patients and
other customers increased by $2,430,000, or 85%. As a percentage
of infusion therapy and other medical services revenues, medical
and nutritional product costs increased from 41% in 1994 to 51% in
1995. The increase is primarily attributed to the lower home
infusion pricing and the Ceredase(R) sales discussed above.
Health care and lodging expenses, which are incurred in connection
with nursing home services, decreased by $412,000, or 7%.
Excluding the Heritage Facility, health care and lodging expenses
increased by $59,000, or 1%.
Selling, general and administrative costs increased by $280,000, or
10%. Excluding the Heritage Facility, selling, general and
administrative costs increased by $330,000, or 12%, primarily
attributed to higher Infu-Tech distribution costs incurred to
support the 75% increase in home infusion patients serviced, start-
up costs associated with new businesses and higher rent, travel and
entertainment costs.
The provision for uncollectible accounts was 3% of revenues in both
1995 and 1994.
Depreciation and amortization expenses decreased by $135,000.
Excluding the Heritage Facility, depreciation and amortization
expenses decreased by $17,000, because certain leasehold
improvements became fully amortized during the second quarter of
1994.
7
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Interest and dividend income increased by $131,000, primarily due
to $148,000 of interest income earned on a $7.4 million mortgage
note receivable in 1995. Interest on this note receivable was not
recorded as income in 1994 because agreements of the obligor
prevented it from paying that interest.
Interest and other financing costs decreased by $288,000, primarily
due to lower debt balances.
Other income of $458,000 in 1995 and $340,000 in 1994 primarily
consists of amortization of deferred income of $579,000 in both
1995 and 1994 and $188,000 of income in 1995 resulting from an
adjustment to accruals related to the deconsolidation of the
Heritage Facility, partially offset by unrealized foreign currency
translation losses of $309,000 in 1995 and $225,000 in 1994.
Minority interest in loss of subsidiary of $353,000 in 1995 and
$190,000 in 1994 represents the portion of the net loss of Infu-
Tech allocable to minority stockholders.
The benefit for income taxes of $487,000 in 1994 consists of the
benefit of the $171,000 income tax provision related to the
extraordinary gains and a $316,000 benefit for income taxes for
Infu-Tech, a 59% owned subsidiary which files its own Federal
income tax return. No tax benefit was recorded in 1995 related to
1995 Infu-Tech operating losses due to the uncertainty related to
recognizing the benefit of these operating losses. In the opinion
of management, Infu-Tech anticipates taxable income in the future
to the extent necessary to recover the deferred tax assets recorded
at June 30, 1995.
The 1995 loss was $562,000 ($.08 per share) compared to the prior
year loss before extraordinary gains of $165,000 ($.02 per share).
The extraordinary gains of $1,058,000 in 1994 represented the
amounts by which bank loans were satisfied for less than their
principal amounts, net of transaction costs and income taxes.
The preferred stock dividend related to the 5% exchangeable
preferred stock.
The net loss applicable to common shareholders in 1995 was $597,000
($.08 per share) compared to net income applicable to common
shareholders in 1994 of $858,000 ($.11 per share).
Three Months Ended June 30, 1995 Compared with
----------------------------------------------
Three Months Ended June 30, 1994
--------------------------------
Total revenues increased by $2,047,000, or 16%.
Nursing home services revenues increased by $300,000, or 3%,
primarily attributed to higher management fee income and higher per
diem rates. Total patient days remained at the prior year level,
as a 40 bed reduction in the number of available beds at one of the
Company's nursing homes during the third quarter of 1994 was offset
by a 4% increase in patient days at the other facilities. The
total occupancy percentage increased from 90.3% in 1994 to 94.1% in
1995.
Infusion therapy and other medical services revenues increased by
$1,747,000, or 47%, primarily due to a $2,062,000, or 111%,
increase in home infusion division revenues. This increase is
partially attributed to a 78% increase in the number of patients
serviced. Most of the additional home infusion patients were
obtained through marketing efforts directed at managed care
companies. These patients are normally serviced under agreements
with significant price discounts or under other arrangements which
substantially reduce prices. The increase in home infusion
revenues was also affected by the Company's beginning to provide in
early 1994 Ceredase(R) enzyme and Cerezyme(TM) infusion therapy
("Ceredase(R)") to patients with Gaucher's disease. Sales of
Ceredase(R) in 1995 were $1,091,000, compared to $129,000 in 1994.
Ceredase(R) is a very high priced drug therapy (approximately $20,000
per month per patient), but due to its high product cost per
revenue dollar, it has a very low gross profit margin percentage.
8
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Personnel costs increased by $538,000, or 8%, primarily attributed
to normal cost of living increases and higher Infu-Tech nursing and
pharmacy costs incurred to support the 78% increase in home
infusion patients serviced. These increases were 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 $1,250,000, or 83%. As a percentage
of infusion therapy and other medical services revenues, medical
and nutritional product costs increased from 41% in 1994 to 51% in
1995. The increase is primarily attributed to the lower home
infusion pricing and the Ceredase(R) sales discussed above.
Health care and lodging expenses, which are incurred in connection
with nursing home services, increased by $97,000, or 4%, primarily
attributed to general cost increases.
Selling, general and administrative costs increased by $3,000.
The provision for uncollectible accounts was 3% of revenues in both
1995 and 1994.
Depreciation and amortization expenses decreased by $7,000, because
certain leasehold improvements became fully amortized during the
second quarter of 1994.
Interest and dividend income increased by $68,000, primarily due to
$74,000 of interest income earned on the $7.4 million mortgage note
receivable in 1995. Interest on this note receivable was not
recorded as income in 1994 because agreements of the obligor
prevented it from paying that interest.
Interest and other financing costs decreased by $51,000, primarily
due to lower debt balances.
Other income of $340,000 in 1995 and $169,000 in 1994 primarily
consists of amortization of deferred income of $289,000 in both
1995 and 1994, and unrealized foreign currency translation gains of
$51,000 in 1995 and losses of $120,000 in 1994.
Minority interest in loss of subsidiary of $121,000 in 1995 and
$94,000 in 1994 represents the portion of the net loss of Infu-Tech
allocable to minority stockholders.
The benefit for income taxes of $157,000 in 1994 represents 41% of
the loss before income taxes for Infu-Tech, a 59% owned subsidiary
which files its own Federal tax return. No tax benefit was
recorded in 1995 related to 1995 Infu-Tech operating losses due to
the uncertainty related to recognizing the benefit of these
operating losses. In the opinion of management, Infu-Tech
anticipates taxable income in the future to the extent necessary to
recover the deferred tax assets recorded at June 30, 1995.
The net income applicable to common shareholders in 1995 was
$13,000 ($.00 per share) compared to a net loss applicable to
common shareholders in 1994 of $247,000 ($.03 per share).
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had stockholders' equity of $32,000
and total liabilities of $28,119,000. The total liabilities at
June 30, 1995 included debt of $14,190,000, which included SFr
2,900,000 (approximately $2,525,000) principal amount of 6% Swiss
franc denominated convertible bonds which were due June 27, 1995
(the "Bonds"); $686,000 principal amount of a secured loan
("Secured Loan") due August 31, 1995 as amended; $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 $5,006,000 principal amount of 6% notes and 6%
convertible notes due 2003.
9
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Although the SFr 2,900,000 (approximately $2,525,000) principal
amount of Bonds matured on June 27, 1995, the Company has not paid
that principal, or accrued interest of SFr 174,000 (approximately
$152,000) which was also due on that date. The Company is
attempting to negotiate an arrangement under which it would issue
new debt securities, with an increased interest rate, in exchange
for the Bonds.
Pursuant to a management agreement entered into in January 1994,
the Company is entitled to fees for managing the Heritage Facility.
However, the mortgage loan entered into by Senior Care Foundation,
Inc. ("SCF"), the owner of the Heritage Facility, prohibits any
payments to the Company (including management fees and principal
and interest on a second mortgage note held by the Company) unless
the Heritage Facility has attained specified financial levels
(coverage ratio of 1.25 to 1, current ratio of 1.1 to 1 and a net
worth of $100,000). In 1994, the Company did not receive any
payments from SCF and the Company waived all management fees and
interest through December 31, 1994. Because the Heritage Facility
attained the specified financial levels at December 31, 1994 and
March 31, 1995, the Company received and recorded in the first half
of 1995 management fees of $261,000 and interest income of
$148,000. Based upon current and anticipated operating levels of
the Heritage Facility, SCF should be able to pay the management
fees and interest which become due for the remainder of 1995. At
June 30, 1995 the Company was not in compliance with certain
financial covenants of the SCF mortgage loan (of which the Company
had guaranteed $2.0 million), which were waived by the lender.
The Company's cash and cash equivalents balance decreased from
$1,161,000 at December 31, 1994 to $546,000 at June 30, 1995, all
of which is held by Infu-Tech. 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.
Therefore, at June 30, 1995, the Company (excluding Infu-Tech) had
no cash or cash equivalents.
During 1995, the Company used $149,000 of cash in operating
activities, primarily due to the net loss of $562,000, an increase
in inventories of $279,000 and an increase in net receivables of
$226,000. This was partially offset by a $733,000 net increase in
accounts payable and other current liabilities.
Although the Company in total used $149,000 of cash in operating
activities, Infu-Tech used $527,000 of cash in operating
activities. The Company (excluding Infu-Tech) generated $378,000
of cash from operating activities. The Infu-Tech use of cash in
operating activities was primarily due to the net loss of $849,000
and an increase of $279,000 in inventories, partially offset by a
$660,000 increase in accounts payable.
The increase in Infu-Tech's inventories is primarily to support the
higher Infu-Tech sales levels. The increase in Infu-Tech's
accounts payable is primarily attributed to the higher Infu-Tech
inventory purchases and an improved mix of payment terms.
As of June 30, 1995, Infu-Tech's working capital was $3.6 million,
which was substantially lower than the December 31, 1994 working
capital of $4.5 million. Further, at June 30, 1995, Infu-Tech's
cash and cash equivalents of $546,000 were $550,000 less than the
nearly $1.1 million at December 31, 1994 and its accounts payable
of $2,342,000, as discussed above, were $660,000 higher than the
approximately $1.7 million at December 31, 1994. Based upon
preliminary discussions with potential lenders, Infu-Tech believes
that it would be able to secure adequate financing, if necessary,
to cover its cash requirements for the foreseeable future.
During 1995, the Company invested $294,000 in property and
equipment, consisting mostly of nursing home facility improvements.
During 1995, the Company repaid $138,000 of long-term borrowings
and paid preferred dividends of $35,000.
Excluding Infu-Tech, the Company generated $378,000 of cash from
operating activities, which was invested in property and equipment
($280,000) and used in financing activities ($163,000), resulting
in a $65,000 decrease in cash and cash equivalents, from $65,000 at
December 31, 1994.
10
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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. As a
result of that audit, Pennsylvania has sent a letter to the Company
dated May 1995 requesting the recoupment of $494,000 from the
nursing home. The Company disputes the results of the audit and
has filed an appeal with respect to the periods covered by the
audit. The Company is requesting that Pennsylvania refrain from
immediately beginning to hold back Medicaid payments due to the
nursing home to satisfy the recoupment. If they proceed to hold
back Medicaid payments due to the nursing home, the Company would
be deprived of a significant source of funds upon which it relies
to meet its operating expenses and cash needs. Based upon
discussions with counsel, the Company is confident that it will
ultimately prevail in its appeal of these audits.
While 1993 and 1994 debt transactions significantly improved the
Company's financial condition and decreased its interest costs, the
loss of cash flow from the Heritage Facility in 1994 adversely
effected the Company's liquidity. Because the Heritage Facility
had attained the specified financial levels at December 31, 1994
and March 31, 1995 required to begin making payments to the
Company, the Company began receiving payments from the Heritage
Facility in January 1995. Based upon current and anticipated
operating levels of the Heritage Facility, the Company estimates it
will receive approximately $830,000 in management fees and interest
income in 1995, of which $409,000 was received in the first half of
1995. Additional cash flow generated by the Heritage Facility, if
any, will be used to repay principal on its $7.4 million debt to
the Company. If the Heritage Facility is able to pay interest and
management fees throughout 1995, the cash flow from the Heritage
Facility, together with proceeds of an expected sale of eight acres
of land in New Jersey, should increase the Company's cash flow to
the point where the Company (excluding Infu-Tech) will be able to
meet its ongoing obligations, other than debt maturities, without
requiring dividends from Infu-Tech.
At June 30, 1995, the Company had approximately $3.3 million of
debt due in 1995 (consisting primarily of the Bonds and Secured
Loan) and approximately $1.4 million of debt due in 1996
(consisting primarily of the Subordinated Debentures). Beyond
1996, the next significant required debt repayment is not until
1999.
The Company has no arrangements under which it can make borrowings.
At June 30, 1995, the Company had a working capital deficit of
$6,060,000. Excluding Infu-Tech, which had working capital of
$3,571,000, the Company's working capital deficit was $9,631,000.
The Company has extended the maturity of a $686,000 Secured Loan
until August 31, 1995. The Company is pursuing financing to
replace the Secured Loan on terms more favorable to the Company,
including the release of the security interest in accounts
receivable.
The Company does not have any material commitments for capital
expenditures.
11
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Part II Other Information
Item 1 Legal Proceedings
There are no presently pending material legal proceedings
other than as reported in the Company's 1994 Form 10K.
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 covertible bonds (the "Bonds")
was due on June 27, 1995. The Company did not make these
payments as of June 30, 1995 and has not made such
payments as of August 14, 1995. Non-payment of these
obligations did not result in a default under any other
financing agreements.
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 June
30, 1995.
.2 Calculation of earnings per
share - six months ended June
30, 1994.
B. Reports on Form 8-K during the quarter ended June 30,
1995: None.
12
Exhibit A.1
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Calculation of Loss Per Share
Six Months ended June 30, 1995
(Unaudited)
Primary
-------
Net loss applicable to common shareholders $ (597,000)
==========
Adjustment of shares outstanding:
Weighted average number of shares outstanding 7,826,309
Average net additional equivalent shares
issuable --
----------
Weighted average number of common shares and common
shares equivalent 7,826,309
Loss per share $(.08)
==========
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.
13
Exhibit A.2
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
Calculation of Earnings Per Share
Six Months ended June 30, 1994
(Unaudited)
Primary
-------
Net income available to common shareholders $ 858,000
=========
Adjustment of shares outstanding:
Weighted average number of shares outstanding 7,741,999
Average net additional equivalent shares issuable --
---------
Weighted average number of common shares and common
shares equivalent 7,741,999
=========
Earnings per share $ .11
=========
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.
14
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 August 14, 1995 JACK ROSEN
---------------------- -----------------------------------
Jack Rosen
Chairman, and Director
(Chief Executive Officer)
Date August 14, 1995 GARY S. FINKEL
---------------------- -----------------------------------
Gary S. Finkel
Vice President and Chief
Financial Officer
15