-----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, MX8cjagIwBZ15zI3qg8oqcKkfk/JvVBB3qB4oAXIQuknYBn51XSI1BZ0+PI+y9O0 BLUn98qzOGM/2Hikwzte/A== 0000893877-98-000557.txt : 19980814 0000893877-98-000557.hdr.sgml : 19980814 ACCESSION NUMBER: 0000893877-98-000557 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGENT ASSISTED LIVING INC CENTRAL INDEX KEY: 0001000693 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 931171049 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27108 FILM NUMBER: 98684342 BUSINESS ADDRESS: STREET 1: 121 SW MORRISON ST STREET 2: STE 1000 CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032274000 MAIL ADDRESS: STREET 1: 121 SW MORRISON ST STREET 2: STE 1000 CITY: PORTLAND STATE: OR ZIP: 97204 10QSB 1 FORM 10-QSB - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20459 FORM 10-QSB X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ending June 30, 1998 --- TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from ____ to ____ Commission file number 0-27108 REGENT ASSISTED LIVING, INC. (Exact name of registrant as specified in its charter) OREGON 93-1171049 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Suite 1000 121 SW Morrison St. Portland, Oregon 97204 (Address of principle executive offices) 503-227-4000 (Registrant's telephone number, including area code) Indicated by check mark whether Registrant (1) has filed all reports 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 period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Shares of Registrant's Common Stock, No par value, outstanding at August 1, 1997 - 4,633,000 - -------------------------------------------------------------------------------- REGENT ASSISTED LIVING, INC. FORM 10-QSB June 30, 1998 INDEX ----- Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 . . . . . . . . . . . . . . .. . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis or Plan of Operation . . . 9 PART II- OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 16 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 16 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 16 Page 2
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 1998 December 31, (Unaudited) 1997 ----------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 4,304,137 $ 1,865,576 Accounts receivable 268,730 128,110 Prepaid expenses 440,701 249,708 Construction advances receivable 393,812 123,670 ----------------- ---------------- Total current assets 5,407,380 2,367,064 Property and equipment, net 52,796,287 69,820,324 Investment in joint venture 518,403 401,460 Restricted cash 2,353,543 2,361,993 Other assets 1,760,657 752,932 ---------------- ---------------- Total assets $ 62,836,270 $ 75,703,773 ================ ================ LIABILITIES Current liabilities: Current portion of long-term debt $ 259,461 $ 218,881 Short-term borrowings - 4,500,000 Construction accounts payable 1,578,746 583,043 Accounts payable and other accrued expenses 946,450 685,136 Accrued payroll 810,455 502,568 Accrued interest 124,668 179,963 ----------------- ---------------- Total current liabilities 3,719,780 6,669,591 Long-term debt 35,313,246 51,450,545 Convertible subordinated notes 7,000,000 - Deferred development fees, net 5,052,429 898,802 Other liabilities 1,064,443 517,578 ---------------- ---------------- Total liabilities 52,149,898 59,536,516 ---------------- ---------------- Minority Interest - 250,000 ---------------- ---------------- SHAREHOLDERS' EQUITY Preferred stock, no par value, 5,000,000 shares authorized; 1,666,667 shares issued and outstanding 9,349,841 9,349,841 Common stock, no par value, 25,000,000 shares authorized; 4,633,000 shares issued and outstanding 10,808,703 10,808,703 Accumulated deficit (9,472,172) (4,241,287) ----------------- ---------------- Total shareholders' equity 10,686,372 15,917,257 ---------------- ---------------- Total liabilities and shareholders' equity $ 62,836,270 $ 75,703,773 ================ ================ The accompanying notes are an integral part of these condensed consolidated financial statements.
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REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Unaudited) Three Months Ended Three Months Ended Six Months Ended Six Months Ended June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 ------------------ ------------------ ---------------- ---------------- Revenues: Rental and service $ 6,641,931 $ 3,203,750 $ 10,858,511 $ 6,540,097 Management fee 30,624 44,199 102,249 88,121 ------------------ ------------------ ---------------- ---------------- Total revenues 6,672,555 3,247,949 10,960,760 6,628,218 ------------------ ------------------ ---------------- ---------------- Operating expenses: Residence operating expenses 5,576,480 2,197,624 9,766,616 4,333,901 General and administrative 987,111 650,647 1,954,732 1,362,851 Lease expense 2,020,181 782,151 3,434,899 1,488,351 Depreciation and amortization 241,469 78,063 355,552 146,848 ------------------ ------------------ ---------------- ---------------- Total operating expenses 8,825,241 3,708,485 15,511,799 7,331,951 ------------------ ------------------ ---------------- ---------------- Operating income (loss) (2,152,686) (460,536) (4,551,039) (703,733) Interest income 79,933 73,812 155,922 222,591 Interest expense, net (430,597) - (495,012) (101,228) Equity interest in joint venture (31,971) - (33,057) - Other income, net 11 12,341 (7,699) 17,604 ------------------ ------------------ ---------------- ---------------- Income (loss) before income taxes (2,535,310) (374,383) (4,930,885) (564,766) Income tax benefit - - - 24,500 ------------------ ------------------ ---------------- ---------------- Net income (loss) $ (2,535,310) $ (374,383) $ (4,930,885) $ (540,266) ================== ================== ================ ================ Basic earnings (loss) per common share $ (0.58) $ (0.11) $ (1.13) $ (0.18) ================== ================== ================ ================ Diluted earnings (loss) per common share $ (0.58) $ (0.11) $ (1.13) $ (0.18) ================== ================== ================ ================ Weighted average common shares outstanding: Basic 4,633,000 4,633,000 4,633,000 4,633,000 ================== ================== ================ ================ Diluted 4,633,000 4,633,000 4,633,000 4,633,000 ================== ================== ================ ================ The accompanying notes are an integral part of these condensed consolidated financial statements.
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REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended Six Months Ended June 30, 1998 June 30, 1997 ---------------- ---------------- Cash flows from operating activities: Net income (loss) $ (4,930,885) $ (540,266) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 355,552 146,848 Amortization of deferred gains and development fees (144,821) - Equity interest in joint venture 33,057 - Changes in other assets and liabilities: Accounts receivable (140,620) 37,876 Prepaid expenses (209,392) (109,014) Deferred income taxes - 33,100 Other assets (544,365) 56,643 Accounts payable and other accrued expenses 513,906 (131,880) Other liabilities 546,865 (59,527) ---------------- ---------------- Net cash used in operating activities (4,520,703) (566,220) ---------------- ---------------- Cash flows from investing activities: Maturity of investments, net - 2,939,448 Purchases of property and equipment (22,232,918) (15,826,609) Increase in construction related accounts payable 995,703 3,374,930 Investment in joint venture (150,000) (46,691) Deposits to replacement reserve account, net (22,254) (32,400) ---------------- ---------------- Net cash used in investing activities (21,409,469) (9,591,322) ---------------- ---------------- Cash flows from financing activities: Repayment of short-term borrowings (4,500,000) - Proceeds from issuance of long-term debt 15,079,724 7,280,719 Payments on long-term debt (31,426,443) (74,728) Construction advances (270,142) 1,327,478 Prepayments and deposits for financing arrangements, net (456,381) (177,000) Restricted cash for financing arrangements, net 30,704 (615,835) Deferred fee from financing arrangements 190,000 - Proceeds from financing arrangements 43,021,271 - Proceeds from issuance of convertible subordinated notes 7,000,000 - Preferred stock issuance costs - (600,159) Preferred stock dividends (300,000) (326,230) ---------------- ---------------- Net cash provided by financing activities 28,368,733 6,814,245 ---------------- ---------------- Net increase (decrease) in cash and cash equivalents 2,438,561 (3,343,297) Cash and cash equivalents, beginning of period 1,865,576 8,650,817 ---------------- ---------------- Cash and cash equivalents, end of period % 4,304,137 $ 5,307,520 ================ ================ Supplemental disclosure of cash flow information: Cash paid for interest $ 2,474,074 $ 473,914 ================ ================ Supplemental disclosure of non-cash investing and financing activities: Long-term debt incurred to acquire minority interest $ 250,000 - ================ ================ The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Operations and Summary of Significant Accounting Policies: The Company Regent Assisted Living, Inc. ("the Company") is an owner, operator, and developer of private-pay assisted living communities including stand-alone Alzheimer's communities. Assisted living is part of a spectrum of long-term care services that provide a combination of housing, personal services and health care designed to respond to elderly individuals who require assistance with activities of daily living in a manner that promotes maximum independence. The results of operations for the six months ended June 30, 1998, reflect the operations of thirteen new assisted living communities, one of which was managed for a portion of the period; five stabilized assisted living communities, one of which was managed for a portion of the period; fees from the management of three communities (two which were converted to leases); and pre-opening costs related to two additional newly developed communities that had not yet commenced rental activities during the period. The results of operations for the six months ended June 30, 1997, reflect the operations of one new and three stabilized assisted living communities, fees from the management of two communities, and pre-opening costs related to two additional newly developed communities that had not yet commenced rental activities during the period. As of August 7, 1998, the Company had also commenced operations at its new assisted living communities in Laramie, Wyoming, and Henderson, Nevada; begun providing management services for a 150-bed assisted living community in Salinas, California; completed construction of its new community in Kenmore, Washington; and had an additional 22 assisted living communities (including five Alzheimer's communities) in various stages of construction and development. Basis of Presentation The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiary. All significant inter-company accounts and transactions have been eliminated in consolidation. Page 6 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. Operations and Summary of Significant Accounting Policies, Continued: The accompanying unaudited condensed consolidated financial statements as of June 30, 1998, and for the three month and six month periods ended June 30, 1998 and 1997, have been prepared in conformity with generally accepted accounting principles. The financial information as of December 31, 1997, is derived from the Company's Form 10-KSB for the year ended December 31, 1997. Certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. The accompanying financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 1997, included in the Company's Form 10-KSB for the year ended December 31, 1997. Operating results for the three month and six month periods ended June 30, 1998, are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending December 31, 1998. 2. Property and Equipment: Property and equipment are stated at cost and consist of the following:
June 30, December 31, 1998 1997 ------------ ------------ Land $ 2,225,000 $ 1,730,810 Buildings and improvements 21,634,180 12,713,346 Furniture and equipment 2,410,693 1,512,868 Construction in progress 27,421,929 54,429,412 ------------ ------------ 53,691,802 70,386,443 Less accumulated depreciation and amortization 895,515 566,119 ------------ ------------ Total property and equipment, net $ 52,796,287 $ 69,820,324 ============ ============
Land, buildings and certain furniture and equipment serve as collateral for long-term debt. Page 7 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 3. Administrative Services Agreement: Pursuant to the terms of an Administrative Services Agreement, the Company provides executive assistance, accounting and financial management services, legal and administrative assistance, insurance, management information services, and other management services as required by Bowen Property Management Co., Bowen Financial Services Corp., Bowen Development Company and Bowen Condominium Marketing, Inc., all of which are Oregon corporations and are wholly owned or controlled by Mr. Bowen, the Company's Chairman, President, and Chief Executive Officer. Under the terms of the agreement, the Company will be reimbursed at its cost on a monthly basis for all services provided. 4. Earnings (Loss) Per Common Share: Basic earnings per share (EPS) and diluted EPS are computed using the methods prescribed by Statement of Financial Accounting Standard No. 128, Earnings Per Share (SFAS 128). Basic EPS is calculated using income (loss) attributable to common shares (after deducting preferred dividends) divided by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated using income (loss) attributable to common shares (after deducting preferred dividends and considering the effects of dilutive common equivalent shares) divided by the weighted average number of common shares and dilutive common shares outstanding for the period. Basic and Diluted earnings (loss) per common share includes a deduction of preferred stock dividends declared, which totaled $150,000 and $300,000 for the three month and six month periods ended June 30, 1998 and 1997, respectively 5. Accounting Pronouncements: On April 3, 1998, the AICPA Accounting Standards Executive Committee issued Statement of Position 98-5, Reporting on the Costs of Start-up Activities (SOP 98-5). This statement requires that the costs of start-up activities, including organization costs, be expensed as incurred. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998. Consistent with its past accounting practices, the Company expenses all start up costs and thus the adoption of this statement will have no impact on the Company's reported results. Page 8 ITEM 2. Management's Discussion and Analysis or Plan of Operation. Overview The Company The Company reported a net loss of $2,535,310, or $0.58 per diluted share, on revenues of $6,672,555 for the three months ended June 30, 1998. For the six months ended June 30, 1998, the Company reported a net loss of $4,930,885, or $1.13 per diluted share, on revenues of $10,960,760. Current Communities. The table below sets forth certain information regarding the Company's communities at June 30, 1998.
Operations Community Location Commenced Units(1) Beds(2) Interest - --------- -------- ---------- -------- ------- -------- Oregon Park Place Portland 1986 112 112 Lease(3) Regency Park Portland 1987 122 142 Lease Sheldon Park Eugene 1998 108 124 Lease Washington Sterling Park Redmond 1990 162 192 Lease California Laurel Springs Bakersfield 1998 113 130 Own Orchard Park Clovis 1998 112 128 Lease Summerfield House Vacaville 1998 109 126 Own Sun Oak Citrus Heights 1997 40 50 Manage Sunnyside Court Fremont 1998 40 80 Lease Sunshine Villa Santa Cruz 1990 106 126 Lease The Palms Roseville 1998 93 108 Lease Willow Creek Folsom 1997 104 119 Lease Idaho West Wind Boise 1997 48 52 Lease Willow Park Boise 1997 117 134 Lease New Mexico Sandia Springs Rio Rancho 1998 109 126 Lease Texas Hamilton House San Antonio 1997 116 136 Lease Arizona Canyon Crest Tucson 1998 117 137 Lease Wyoming Aspen Wind Cheyenne 1998 77 77 Lease Meadow Wind Casper 1998 53 53 Lease Totals 1,858 2,152 ===== ===== (1) A "unit" is a studio or a one or two bedroom apartment.
Page 9 (2) "Beds" reflects the actual number of beds used by the Company for census purposes, which in no event is a number greater than the maximum number of licensed beds permitted under the community's license. (3) The Company completed a lease-acquisition of Park Place during the second quarter of 1998. The Company had managed the Community prior to this transaction. As of August 7, 1998, the Company had also commenced operations of communities in the following locations:
Location No. of Units No. of Beds Interest -------- ------------ ----------- -------- Henderson, Nevada 115 133 Owned Laramie, Wyoming 53 53 Leased Salinas, California 150 150 Managed
As of August 7, 1998, the Company had completed construction of a new 85-unit, 98-bed community in Kenmore, Washington. The Company will manage this community and is in the process of obtaining an operating license. A limited liability company in which the Company owns a 50 percent interest owns this community. Also, as of August 7, 1998, the Company had commenced construction on the following new communities:
Projected Expected Quarter Location No. of Beds Opening Interest -------- ----------- ---------------- -------- Austin, Texas 137 3rd-98 Owned Scottsdale, Arizona 48 4th-98 Leased Modesto, California 48 1st-99 Owned Clackamas, Oregon 48 2nd-99 Owned Corvallis, Oregon 48 2nd-99 Owned Kent, Washington 48 2nd-99 Owned Scottsdale, Arizona 115 2nd-99 Owned Mesa, Arizona 132 3rd-99 Owned
The Company is engaged in various stages of development on 14 additional new communities. If these 14 communities are completed, then, together with the communities currently under construction, total operations of the Company will increase by approximately 2,000 beds to a total of approximately 4,600 beds. The Company continues to pursue its primary strategy of developing new communities and is therefore engaged in negotiations to acquire several additional sites and is pursuing joint venture opportunities with parties who control parcels of land in strategic markets. All costs associated with the development of these communities have been capitalized as "Construction in Progress" as disclosed in Note 2 to the condensed consolidated financial statements. Operating results for the three month and six month periods ended June 30, 1998, are not necessarily indicative of future financial performance as the Company intends to expand its operating base of communities. Page 10 Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997 Revenues. For the three month period ended June 30, 1998, revenues were $6,672,555 compared to $3,247,949 in the three month period ended June 30, 1997. The Company operated eighteen communities, one of which was managed for a portion of the period, and managed one additional community in the second quarter of 1998. The Company operated four communities and managed two in the second quarter of 1997. The increase in revenue of $3,424,606, or 105.4 percent, includes $3,309,235 of revenue from newly opened and acquired communities and an increase in revenue of $128,945 at the Company's three stabilized communities. Overall average occupancy at the three stabilized communities increased to 93.7 percent for the three month period ended June 30, 1998, whereas occupancy was 93.2 percent for the same period in 1997. Residence Operating Expenses. Residence operating expenses were $5,576,480 for the three month period ended June 30, 1998, and $2,197,624 for the same period in 1997, an increase of $3,378,856. The current period includes $2,965,437 of start-up and pre-opening costs related to fifteen of the Company's newly developed communities and $485,199 of residence operating expenses related to the acquisition of two stabilized communities, whereas the 1997 period included $214,827 of start-up and pre-opening costs related to three newly developed communities. Residence operating expenses for all stabilized communities totaled 64.0 percent and 62.4 percent of rental and service revenues for the three month periods ended June 30, 1998 and 1997, respectively. General and Administrative Expenses. General and administrative expenses were $987,111 for the three month period ended June 30, 1998, compared to $650,647 for the three month period ended June 30, 1997. The increase of $336,464 is due primarily to an increase in development activities and operations, including payroll, travel, and other overhead related costs related to the implementation of the Company's strategy for rapid growth. Lease Expense. Lease expense for the Company's leased communities was $2,020,181 for the three month period ended June 30, 1998, and was $782,151 for the same period in 1997. The increase of $1,238,030 relates primarily to the opening of nine newly developed communities and the acquisition of five communities since the end of the second quarter of 1997. Depreciation and Amortization. Depreciation and amortization expense was $241,469 for the three month period ended June 30, 1998, compared to $78,063 for the three month period ended June 30, 1997. The increase of $163,406 relates primarily to the capitalization of buildings, furniture and equipment for two newly developed communities, the purchase of vans for newly developed communities and the purchase of furniture and equipment for the Company's headquarters, all in connection with the implementation of the Company's growth plan. Interest Income. Interest income increased slightly in the three month period ended June 30, 1998, to $79,933, from $73,812 for the same period in 1997. Interest income resulted from the investment of cash and cash equivalents in high quality, short term securities placed with institutions with high credit ratings. Interest Expense. Interest expense was $430,597 for the three month period ended June 30, 1998. The Company reported no interest expense for the three months ended June 30, 1997. The Company capitalized $723,736 and $258,771 of interest charges incurred during the three months ended June 30, 1998 and 1997, respectively. The capitalized interest offsets substantially higher interest costs incurred by the Company in the current period arising from increased borrowing for construction purposes and interest related to the convertible subordinated notes. Page 11 Net Income (Loss). Net operating results decreased to a loss of $2,535,310 during the three month period ended June 30, 1998, from a loss of $374,383 for the same period in 1997. The decrease in net results is primarily due to an increase in general and administrative expenses (as discussed above), an increase in lease expense (as discussed above), an increase in interest expense (as discussed above), an increase in depreciation expense (as discussed above), offset by an increase in residence operating profits (rental and service revenue less residence operating expenses) of $59,325. Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997 Revenues. For the six month period ended June 30, 1998, revenues increased by $4,332,542, or 65.4%, to $10,960,760, compared to $6,628,218 in the six month period ended June 30, 1997. The increase in revenue is related primarily to newly developed and acquired communities. Overall average occupancy at the three stabilized communities increased slightly to 93.7 percent for the six month period ended June 30, 1998 from 93.2 percent for the same period in 1997. Residence Operating Expenses. Residence operating expenses were $9,766,616 for the six month period ended June 30, 1998, and $4,333,901 for the same period in 1997. The increase of $5,432,715 is due primarily to $4,941,034 of start-up and pre-opening costs related to fifteen of the Company's new communities and $642,824 related to the acquisition of two stabilized communities, whereas the 1997 period included $245,128 of start-up and pre-opening costs related to three newly developed communities. Residence operating expenses for all stabilized communities totaled 64.4 percent and 62.8 percent of rental and service revenues for the six month periods ended June 30, 1998 and 1997, respectively. General and Administrative Expenses. General and administrative expenses were $1,954,732 for the six month period ended June 30, 1998, compared to $1,362,851 for the six month period ended June 30, 1997. The increase of $591,881 is due primarily to an increase in development activities and operations related to the implementation of the Company's strategy for rapid growth. Lease Expense. Lease expense for the Company's leased communities was $3,434,899 for the six month period ended June 30, 1998, and was $1,488,351 for the same period in 1997. The increase of $1,946,548 relates primarily to the newly developed and acquired communities. Depreciation and Amortization. Depreciation and amortization expense was $355,552 for the six month period ended June 30, 1998, compared to $146,848 for the six month period ended June 30, 1997. The increase of $208,704 primarily relates to the capitalization of buildings, furniture and equipment for two newly developed communities, the purchase of vans for the Company's newly developed communities and the purchase of furniture and equipment for the Company's headquarters, all in connection with the implementation of the Company's growth plan. Interest Income. Interest income decreased in the six month period ended June 30, 1998, to $155,922, from $222,591 for the same period in 1997, a decrease of $66,669. Interest Expense. Interest expense increased in the six month period ended June 30, 1998, to $495,012 from $101,228 for the six month period ended June 30, 1997. The Company capitalized $1,815,925 and $372,192 of interest charges incurred during the six months ended June 30, 1998 and 1997, respectively. Page 12 Net Income (Loss). Net operating results decreased to a loss of $4,930,885 during the six month period ended June 30, 1998, from a loss of $540,266 for the same period in 1997. The decrease in net results is primarily due to an increase in general and administrative expenses (as discussed above), an increase in lease expense (as discussed above), an increase in depreciation expense (as discussed above), an increase in interest expense (as discussed above), and a decrease in residence operating profits (rental and service revenue less residence operating expenses) of $1,114,301. Liquidity and Capital Resources At June 30, 1998, the Company had approximately $1.7 million of working capital compared to a working capital deficit of approximately $4.3 million at December 31, 1997, an increase of $6.0 million of which $7.0 million resulted from the utilization of proceeds from the issuance by the Company of convertible subordinated notes, as described below, to repay short-term borrowings, offset primarily by expenditures related to development activities. Net cash used in operating activities totaled $4,520,703 for the six month period ended June 30, 1998, which resulted primarily from a net loss, adjusted for depreciation and amortization, of $4,575,333. Net cash used in investing activities totaled $21,409,469 for the six month period ended June 30, 1998, substantially all of which was used for land acquisition, development and construction costs. At June 30, 1998, the aggregate purchase price for the Company's options related to nine parcels of land was approximately $7.3 million. The Company has paid initial deposits relating to these sites and is in the process of completing the demographic analysis and other preliminary due diligence necessary to develop assisted living communities at these sites. Net cash provided by financing activities totaled $28,368,733 during the six month period ended June 30, 1998, consisting of construction and equipment financing proceeds totaling $15,079,724, net proceeds from six financing transactions totaled $43,021,271, proceeds from issuance of convertible subordinated notes of $7,000,000, offset by repayment of short-term borrowings of $4,500,000, repayment of long-term debt of $31,426,443, prepayments and deposits for financing arrangements of $456,381, and payment of preferred stock dividends of $300,000. During the remainder of 1998, the Company intends to utilize current working capital resources to develop and construct assisted living communities. The Company intends to finance a substantial portion of the cost of developing each new community through additional sale/leaseback transactions with real estate investment trusts ("REIT"), joint venture arrangements, as well as conventional financing with commercial banks and other financial institutions. The Company has two current construction loans and an agreement with a REIT to provide construction funding for the Austin and two Scottsdale communities currently under construction. The Company has received a letter of intent from a commercial bank to provide construction financing for the Kent, Clackamas, Modesto, and Corvallis communities and the Company is currently discussing with several commercial banks the terms of potential loans with which the Company will construct new communities currently under development. Each of the pending financing transactions is subject to a number of conditions, including the negotiation and execution of definitive documents and the satisfactory completion of due diligence on the Page 13 related properties, and there is no assurance that any of these financing transactions will be completed on the terms proposed, or at all. On March 30, 1998, the Company completed a private placement pursuant to which parties purchased an aggregate of $4.5 million of convertible subordinated notes of the Company and agreed to purchase up to an additional aggregate amount of $6 million of convertible subordinated notes. As of August 7, 1998, a total of $7.0 million of convertible subordinated notes have been issued under this facility. The notes bear interest at 7.5 percent per annum and are convertible into the Company's common stock at an effective price of $7.50 per share. Interest on the notes is payable quarterly and all principal and unpaid interest on the notes is due March 31, 2008. The Company intends to utilize the proceeds to finance the Company's continued rapid expansion of internally developed communities, to repay short-term borrowings, and for general working capital purposes. The Company currently may issue up to an additional $3.5 million of notes under the terms of this facility. The Company anticipates capital expenditures for the remainder of 1998 will include additional land acquisition costs, architectural fees, and other development costs related to at least 13 assisted living communities and construction costs related to at least 15 new assisted living communities. The Company's growth plan for the remainder of 1998 anticipates the completion of construction of its internally developed Regent community in Austin, Texas and one new Regent Court community in Scottsdale, Arizona. The Company has obtained all financing necessary to complete its development plan for 1998. The Company currently anticipates completing construction on nine new Regent communities and five new Regent Court communities in 1999. The total cost to develop and construct the 14 communities planned for 1999, including the estimated initial operating deficits, will likely be between $80-90 million. A portion of these costs will be incurred during 1998. The Company anticipates that it will be able to obtain the financing, upon acceptable terms, necessary to complete the 14 communities planned for 1999 although it has not obtained any commitments for such financing other than a letter of intent to provide financing for four Regent Court communities. Provided that the Company can obtain financing upon acceptable terms, the Company estimates that it has the necessary equity capital to complete construction and to fund the initial operating deficits of the 14 communities planned for 1999. The Company may enter into additional arrangements with one or more unrelated parties regarding the joint development and ownership of one or more of the Company's communities currently under construction or development in order to further leverage the Company's growth. Furthermore, the Company may utilize various forms of financing that would permit a community to be sold to or initially be developed by a third party who would incur the initial operating deficits and permit the Company to manage the community for a customary fee. The Company, under such financing methods, would likely have the option to either purchase the community or enter into a long-term lease at such time as the Company deems appropriate. The Company has not obtained any commitments for this form of financing. If the Company were unable to obtain additional required financing, or if such financing is not available on acceptable terms, the Company expects that its plan to develop an additional nine Regent Communities and five Regent Court communities by the end of 1999 would likely be delayed or curtailed. Furthermore, if the Company expands its growth plan, development activities do not result in the construction of a community on the site, the Company experiences a decline in the operations of its current communities or the Company does not achieve and sustain anticipated occupancy levels at its new communities, then the Company may require Page 14 additional financing to complete its growth plan. Forward-Looking Statements The information set forth in this report in the sections entitled "Overview" and "Liquidity and Capital Resources" regarding the Company's acquisition of sites for development, the Company's development, construction, financing and opening of new assisted living communities, and the Company's plans to develop, construct and operate new Regent Court communities constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and is subject to the safe harbor created by that section. The development of additional assisted living communities will involve a number of risks including, without limitation, the risk that the Company will be unable to locate suitable sites, risks relating to the inability to obtain, or delays in obtaining, necessary zoning, land use, building, occupancy and other required governmental permits and authorizations, risks that financing may not be available on satisfactory terms, environmental risks, risks that construction costs may exceed original estimates, risks that construction and lease-up may not be completed on schedule, and risks relating to the competitive environment for development. The foregoing risks could cause the Company to significantly delay or curtail its planned growth and could cause one or more of the Company's new communities to not be profitable. Additional factors that could cause results to differ materially from those projected in the forward-looking statements include, without limitation, the ability of the Company to raise additional financing upon terms acceptable to the Company, increases in the costs associated with new construction, competition, and acceptance of the Company's prototype community in new geographic markets. The Company's growth strategy is subject to the risk that occupancy rates at newly-developed communities may not be achieved or sustained at expected levels, in which case, the Company will experience greater than anticipated operating losses in connection with the opening of new communities and the Company's need for additional financing to meet its growth plans will likely increase. Furthermore, the Company's growth will place increasing pressure on the Company's management controls and require the Company to locate, train, assimilate, and retain additional community managers and support staff. There is no assurance that the Company will be able to manage this growth successfully. Page 15 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The Company held its 1998 annual meeting of shareholders at 10:30 a.m., PDT, on June 2, 1998, on the 31st Floor of the U.S. Bancorp Tower, 111 S.W. Fifth Avenue, Portland, Oregon. The only matter submitted to a vote of the shareholders was the election of three directors. Proxies were solicited pursuant to Regulation 14A of the Exchange Act. The following persons were elected by the following vote as directors for the stated terms:
FOR ABSTAIN --- ------- Class II Term Expiring in 2001 - ------------------------------ Peter J. Brix 6,028,185 675 Stephen A. Gregg 6,028,185 675 Martha L. Robinson 6,028,185 675
Item 5. Other Information In accordance with amendments adopted on May 21, 1998 to Rule 14a-4 under the Securities Exchange Act of 1934, if notice of a shareholder proposal to be raised at the annual meeting of shareholders is received at the principal executive offices of the Company after March 15, 1999 (45 days prior to the month and date in 1999 corresponding to the date on which the Company mailed its proxy materials for the 1998 annual meeting), proxy voting on that proposal when and if raised at the 1999 annual meeting will be subject to the discretionary voting authority of the designated proxy holders. Any shareholder proposal to be considered for inclusion in proxy materials for the Company' 1999 annual meeting must be received at the principal executive offices of the Company no later than December 2, 1998. Item 6. Exhibits and Reports on Form 8-K. Exhibits: 27 Financial Data Schedule Reports on Form 8-K None Page 16 SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGENT ASSISTED LIVING, INC. By: STEVEN L. GISH ------------------------------------ Date: August 13, 1998 Steven L. Gish Chief Financial Officer Page 17 EXHIBIT INDEX EXHIBIT NO. EXHIBIT DESCRIPTION - ----------- ------------------- 27. Financial Data Schedule EX-27 2 FDS
5 REGENT ASSISTED LIVING, INC. FINANCIAL DATA SCHEDULE 10-Q DATA THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET OF REGENT ASSISTED LIVING, INC. AS OF JUNE 30, 1998, AND THE RELATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS IN THE PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 4,304,137 0 689,542 27,000 0 5,407,380 53,691,802 895,515 62,836,270 3,719,780 42,313,246 10,808,703 0 9,349,841 (9,472,172) 62,836,270 10,858,511 10,960,760 9,766,616 15,511,799 0 0 495,012 (4,930,885) 0 (4,930,885) 0 0 0 (4,930,885) (1.13) (1.13)
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