-----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, VilI55hGVJxmUsneKGR82Rgw0CSAfWlwXaNPYm6OuIQ4yJqizmzEyKb/DnXnTaf+ 92rS8+CNUCdypTwcViaEOA== 0000948830-97-000021.txt : 19970222 0000948830-97-000021.hdr.sgml : 19970222 ACCESSION NUMBER: 0000948830-97-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RETIREMENT CARE ASSOCIATES INC /CO/ CENTRAL INDEX KEY: 0000798540 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 431441789 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14114 FILM NUMBER: 97534372 BUSINESS ADDRESS: STREET 1: 6000 LAKE FORREST DR STE 200 CITY: ATLANTA STATE: GA ZIP: 30328 BUSINESS PHONE: 4042557500 MAIL ADDRESS: STREET 1: 6000 LAKE FORREST DR STREET 2: STE 200 CITY: ATLANTA STATE: GA ZIP: 30328 10-Q 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended December 31, 1996 Commission File No. 1-14114 RETIREMENT CARE ASSOCIATES, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Colorado 43-1441789 - ------------------------------ ---------------------------------- (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 6000 Lake Forrest Drive, Suite 200, Atlanta, Georgia 30328 ---------------------------------------------------------- (Address of Principal Executive Offices) (404) 255-7500 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) 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 period that the Registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of December 31, 1996, 13,474,995 shares of Common Stock were outstanding. RETIREMENT CARE ASSOCIATES AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1996 INDEX Page(s) PART I. Financial Information Item 1. Consolidated Financial Statements Introduction 3 Consolidated Statements of Operations (Unaudited) - Three Months Ended December 31, 1996 and December 31, 1995 4 Consolidated Statements of Operations (Unaudited) - Nine Months Ended December 31, 1996 and December 31, 1995 5 Consolidated Balance Sheets - (Unaudited) December 31, 1996 and (Audited) June 30, 1995 6-7 Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended December 31, 1996 and December 31, 1995 8-9 Notes to Consolidated Financial Statements (Unaudited) 10-12 Item 2. Managements' Discussion and Analysis of Results of Operations and Financial Condition 13-16 PART II. Other Information Item 1. None Item 2. None Item 3. None Item 4. None Item 5. Other information Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 -2- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, all adjustments, which were of a normal recurring nature, necessary to present fairly the consolidated financial position and results of operations and cash flows for the periods presented have been included. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Annual Report on Form 10-K, Retirement Care Associates, Inc. (the "Company") for the fiscal year ended June 30, 1996, File No. 1-14114. The Financial information included in this report has been prepared by the Company, without audit, and should not be relied upon to the same extent as audited financial statements. -3- Retirement Care Associates, Inc. and Subsidiaries Unaudited Consolidated Statements of Operations for the Three Months Ended December 31, 1996 and 1995 December 31, December 31, 1996 1995 Revenues Patient service revenue: $ 47,950,464 $ 28,342,120 Medical supply revenue 11,631,336 1,605,242 Management fee revenue: From affiliates 446,334 783,669 From others 112,241 112,247 Other operating revenue 1,246,894 386,899 61,387,269 31,230,177 Expenses Cost of patient services 31,638,661 17,608,280 Cost of medical supplies sold 7,745,113 1,831,267 Lease expense 3,233,666 1,729,516 General and administrative 11,539,580 4,314,937 Depreciation and amortization 1,320,618 588,175 Interest 2,807,304 1,343,981 58,284,942 27,416,156 Income before minority interest and income taxes 3,102,327 3,814,021 Minority interest (157,500) (31,412) Income before income taxes and extraordinary item 2,944,287 3,782,609 Income taxes 1,119,034 1,462,598 Income before extraordinary item 1,825,793 2,320,011 Extraordinary item, less applicable income taxes of ($516,240) (842,580) -- Net Income $ 983,213 $ 2,320,011 Income per common and common equiva- lent share before extraordinary item .12 .19 Net income per common and common equivalent share .06 .19 Weighted average shares outstanding 15,420,468 12,386,290 -4- Retirement Care Associates, Inc. and Subsidiaries Unaudited Consolidated Statements of Operations for the Six Months Ended December 31, 1996 and 1995 December 31, December 31, 1996 1995 Revenues Patient service revenue: $ 89,935,031 $ 54,177,449 Medical supply revenue 22,856,118 3,194,315 Management fee revenue: From affiliates 1,252,501 1,581,171 From others 240,120 222,624 Other operating revenue 2,243,130 694,795 116,526,900 59,870,354 Expenses Cost of patient services 62,119,227 33,652,390 Cost of medical supplies sold 15,212,286 3,420,339 Lease expense 5,855,218 3,480,931 General and administrative 21,146,069 8,770,518 Depreciation and amortization 2,421,211 1,077,789 Interest 5,182,905 2,272,833 111,936,916 52,674,800 Income before minority interest and income taxes 4,589,984 7,195,554 Minority interest (352,500) (68,960) Income before income taxes and extraordinary item 4,237,484 7,126,594 Income taxes 1,610,244 2,747,863 Income before extraordinary item 2,627,240 4,378,731 Extraordinary item, less applicable income taxes of ($516,240) (842,580) -- Net Income $ 1,784,660 $ 4,378,731 Income per common and common equiva- lent share before extraordinary item .18 .35 Net income per common and common equivalent share .12 .35 Weighted average shares outstanding 14,996,887 12,386,290 -5- Retirement Care Associates, Inc. and Subsidiaries Unaudited Consolidated Balance Sheets as of December 31, 1996 and Audited at June 30, 1996 Unaudited Audited December 31, June 30, 1996 1996 Assets Current Cash and cash equivalents $ 328,924 $ 45,365 Accounts receivable 36,296,497 20,556,920 Inventory 10,193,585 4,849,819 Deferred income taxes 470,193 461,214 Note and accrued interest receivable 636,250 713,750 Restricted Bond Fund 5,513,728 2,342,565 Prepaid expenses and other 2,975,460 1,791,442 Total current assets 56,414,637 30,761,075 Property and equipment 138,485,928 114,682,082 Other assets Marketable equity securities 1,101,393 33,645 Investments in unconsolidated affiliates 645,249 496,800 Deferred lease and loan costs 9,797,224 7,665,891 Goodwill, net of accumulated amortiza- tion 11,550,103 3,976,675 Notes and advances due from non- affiliates 2,307,682 1,422,247 Notes and advances due from affiliates -- 14,316,661 Restricted bond funds 4,400,000 3,514,969 Other assets 2,751,108 2,687,602 Total other assets 32,552,759 34,114,490 $227,453,324 $179,557,647 -6- Retirement Care Associates, Inc. and Subsidiaries Unaudited Consolidated Balance Sheets as of December 31, 1996 and Audited at June 30, 1996 Unaudited Audited December 31, June 30, 1996 1996 Liabilities and Shareholders' Equity Current liabilities Lines of credit $ 3,500,000 $ 1,456,535 Current maturities of long-term de 16,491,228 2,055,880 Accounts payable 19,981,410 11,201,976 Accrued expenses 7,296,601 7,543,131 Income taxes payable -- 3,889,809 Deferred gain 40,000 40,000 Total current liabilities 47,309,239 26,187,331 Deferred gain 201,370 371,370 Deferred income taxes 1,387,000 1,465,877 Long-term debt, less current maturities 129,983,611 110,375,799 Minority interest 4,793,056 4,068,147 Redeemable convertible preferred stock 1,800,000 2,400,000 Shareholders' equity Common stock, $.0001 par value; 300,000,000 shares authorized; 13,786,278 and 12,145,875 shares outstanding 1,379 1,215 Preferred stock 6,230,000 8,765,250 Additional paid-in capital 38,918,417 26,972,655 Retained earnings (2,629,318) (929,877) Treasury stock (541,430) (120,120) Total shareholders' equity 41,979,048 34,689,123 Total Liabilities and shareholders' equity $227,453,324 $179,557,647 -7- Retirement Care Associates, Inc. Unaudited Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1996 and 1995 December 31, December 31, 1996 1995 Operating activities Net income $ 1,784,660 $ 4,378,731 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 2,421,211 1,077,789 Amortization of deferred gain (170,000) -- Minority interest 352,500 181,716 Deferred income taxes (87,856) -- Changes in current assets and liabili- ties net of effects of acquisitions: Accounts receivable (15,739,577) (12,491,771) Inventory (5,343,766) (338,280) Prepaid expense and other assets (1,247,524) (2,477,168) Accounts payable and accrued expenses 4,643,095 8,427,971 Increase in deferred lease and loan costs (2,711,399) (1,017,781) Cash (used in) operating activities (16,098,656) (2,258,793) Investing activities Purchase of property and equipment (25,644,991) (39,301,488) Issuance of notes receivable and advances to affiliates 14,316,661 (2,018,200) Investment in and advances to Atrium Ltd. -- (655,253) Restricted bond funds (4,056,194) -- Changes in marketable equity securities (1,067,748) (459,239) Change in receivable (807,935) 1,141,900 Investment in unconsolidated subsidiaries (148,449) -- Cash (used in) investing activities (17,408,656) (41,292,280) -8- Retirement Care Associates, Inc. Unaudited Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1996 and 1995 December 31, December 31, 1996 1995 Financing activities Dividends on preferred stock (105,000) (150,000) Redemption of preferred stock (600,000) -- Net proceeds from issuance of: Line of credit 2,043,465 -- Common stock 70,676 295,198 Long-term debt 28,110,035 40,427,251 Preferred stock 9,340,000 -- Payments on long-term debt (1,267,894) (1,210,667) Purchase and retirement of common stock (3,800,411) -- Cash provided by financing activities 33,790,871 39,361,782 Net (decrease) in cash and cash equiva- lents 283,559 (4,189,291) Cash and cash equivalents, beginning of year 45,365 5,207,185 Cash and cash equivalents, end of year $ 328,924 $ 1,017,894 -9- RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements and the notes thereto should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, File No 1-14114. In the opinion of management of the Company, the accompanying unaudited consolidated financial statements contain all necessary adjustments to present fairly the financial position, the results of operations and cash flows for the periods reported. All adjustments are of a normal recurring nature. The Financial Accounting Standard Board has adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). The Company has adopted this standard in fiscal 1995. In management's opinion, adopting SFAS No. 115 did not materially effect the Company's financial statements for the three months ended December 31, 1995. For purposes of computing earnings per share, net income is reduced for the 10% cumulative preferred dividend on the Series AA preferred stock. NOTE 2. ACCOUNTS RECEIVABLE AND COST REIMBURSEMENTS Accounts receivable and operating revenue include net amounts reimbursed by Medicaid under the provisions of cost reimbursement formulas in effect. The Company operates under a prospective payment system with Medicare, under which annual rates are assigned based on estimated reimbursements. Differences between estimated provisions and final settlement are reflected as adjustments to future rates. NOTE 3. INVENTORIES Inventories consist of the following at December 31, 1996: Raw material $ 330,823 Work in process 62,985 Finished goods 9,799,777 ----------- $10,193,585 -10- RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4: NOTES RECEIVABLE AND ADVANCES TO AFFILIATES At December 31, 1996 and June 30, 1996, the Company had notes and advances to affiliates totaling approximately $0 and $14,316,661, respectively. The notes were repaid by the sale of two retirement homes to the Company at fair market value and the retirement of 399,992 shares of the Companies stock held by the affiliates. (See Note 6) NOTE 5: LONG-TERM DEBT Long-term debt payable consisted of the following: December 31, June 30, 1996 1996 Amounts outstanding under Revenue Bonds secured by retirement facilities $65,110,000 $59,986,000 Other debt secured by retirement and nursing facilities 54,123,531 39,848,938 Other debt 27,241,308 12,596,741 Totals 146,474,839 112,431,679 Current maturities 16,491,228 2,055,880 Total long-term debt $129,983,611 $110,375,799 NOTE 6: FACILITY ACQUISITIONS During the quarter ended December 31, 1996, the Company entered into a series of transactions with Winter Haven, Gordon Jensen Health Care Association, Inc. ("Gordon Jensen"), National Assistance Bureau, Inc. ("NAB"), Southeastern Cottages, Inc. ("Southeastern"), Chamber Health Care Society, Inc. ("Chamber"), and Senior Care, Inc. ("Senior"); all are entities which principal shareholders of the Company either own or control. The result of the transactions was to eliminate all notes receivable and advances due to the Company from affiliates. The following is a summary of the transactions: -11- RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 6: FACILITY ACQUISITION (Continued) On September 30, 1996, Winter Haven sold to the Company two retirement facilities for their fair value, based on independent appraisal, totaling $19,200,000. The facilities were acquired by the Company subject to bond debt of $7,670,000, resulting in debt due to Winter Haven from the Company of $11,530,000. As part of the sales agreement, the Company and Winter Haven agreed that the debt of $11,530,000 would be applied to eliminate the receivable, totaling $11,214,320, due to the Company by Winter Haven. On September 27, 1996, Gordon Jensen contributed to the treasury of the Company 400,000 shares of stock in the Company which had a fair market value of $3,000,000. This transaction results in the elimination of the debt, totaling $2,982,000, due to the Company by Gordon Jensen and a reduction of stockholders' equity of the Company by $3,000,000. NOTE 7: OTHER TRANSACTIONS On August 6, 1996, Contour acquired all of the outstanding stock of Atlantic Medical Supply Company, Inc. ("Atlantic Medical"), a distributor of disposable medical supplies and a provider of third-party billing services to the nursing home and home health care markets. The acquisition was made retroactively to July 1, 1996. Contour paid $1.4 million in cash and $10.5 million in promissory notes for all of the outstanding stock of Atlantic Medical. The promissory notes bear interest at 7% per annum and were due in full on January 10, 1997. In the event of a default in the payment of the promissory notes, they were convertible into shares of common stock of RCA. On January 10, 1997, Contour retired all outstanding notes due to sellers of Atlantic Medical in the aggregate principal amount of $10,850,000, along with accrued interest. The retirement of these notes was funded by a loan of $9,750,000 from the Company, with the balance funded from Contour's existing line of credit with Barnett Bank. The loan from the Company was evidenced by a convertible promissory note bearing interest at 9% per annum and payable upon demand. This note was convertible into 1,950,000 shares of Contour's Common Stock, and on January 10, 1997, the Company exercised this conversion right. During the period from September 27 through October 2, 1996, the Company sold 1,000,000 shares of Series F Convertible Preferred Stock in an offering to foreign investors at $10.00 per share. Holders of the Series F Preferred Stock have no voting rights except as required by law, and have liquidation preference of $10.00 per share plus 4% per annum from the date of issuance. The shares of Series F Preferred Stock are convertible into shares of common stock at a conversion price of the lessor of (a) $9.6525 or 110% of the average closing bid price for the twenty consecutive trading days commencing September 30, 1996, whichever is lower, or (b) 85% of the average closing bid price for the five trading days prior to the date of conversion. The maximum number of shares of common stock which can be issued upon conversion of the Series F Preferred Stock is 2,588,000. At the time of conversion, the holder is also entitled to additional shares equal to $10.00 per share of Series F Preferred Stock converted multiplied by 8% per annum from the date of issuance divided by the applicable conversion price. -12- RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1995 The Company's total revenues for the three months ended December 31, 1996, were $61,387,269 compared to $31,230,177 for the three months ended December 31, 1995. Due to the increased number of facilities owned or leased by the Company, patient service revenue increased from $28,342,120 for the quarter ended December 31, 1995, to $47,950,464 for the quarter ended December 31, 1996. The Company was operating 81 facilities for the quarter ended December 31, 1996 compared to 42 for the quarter ended December 31, 1995. The cost of patient services in the amount of $31,638,661 for the quarter ended December 31, 1996, represented 65% of patient service revenue, as compared to $17,608,280 or 63% of patient service revenue during the quarter ended December 31, 1995. This increase is attributed to the Company acquiring skilled nursing facilities which require more skilled care and to delays in Medicaid rate increases discussed below. Medical supply revenue increased from $1,605,242 during the quarter ended December 31, 1995, to $11,631,336 during the quarter ended December 31, 1996. These revenues, which are revenues of Contour Medical, Inc. ("Contour"), a majority-owned subsidiary, increased primarily as a result of two acquisitions made by Contour. Contour acquired AmeriDyne Corporation ("AmeriDyne") effective March 1, 1996, and Atlantic Medical Supply Company, Inc. ("Atlantic") effective July 1, 1996. Cost of medical supplies sold as a percentage of medical supply revenue decreased to approximately 66.5% during the quarter ended December 31, 1996, as compared to approximately 100% of such revenue during the same period last year. The reduced percentage is primarily a result of higher gross profit margins on the products sold by AmeriDyne and Atlantic. Management fees decreased from $895,916 in the quarter ended December 31, 1995 to $558,575 in the quarter ended December 31, 1996, due to the number of facilities which the Company manages. As of December 31, 1995, the Company was managing 25 facilities, and as of December 31, 1996, the Company was managing 18 facilities. The Company has leased or purchased 8 facilities it managed at December 31, 1995. Management anticipates that the number of facilities only managed by the company will continue to decline as a result of acquisition of such facilities by the Company. General and administrative expenses for the three months ended December 31, 1996 were $11,539,580 representing 19% of total revenues, as compared to $4,314,937 representing 14% of total revenues, for the three months ended December 31, 1995. This increase is due to the general and administrative expenses related to operating the additional facilities owned or leased by the Company, and the acquisition by Contour of Atlantic Medical. -13- RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For the quarter ended December 31, 1996, the Company incurred expense for income taxes of $1,119,034 which represents an effective tax rate of 38%, as compared to expenses for income taxes of $1,462,598 which represents an effective tax rate of 39% for the quarter ended December 31, 1995. The net income of $983,213 for the quarter ended December 31, 1996, is lower than the net income of $2,320,011 for the quarter ended December 31, 1995. The net income for the quarter ended December 31, 1996, is a result of an extraordinary charge relating to a restructure of debt and the result of delays in annual Medicaid rate increases, which are usually in effect on July 1 of each year. This year the rate increases in Georgia were delayed until August 16, 1996, and the rate increase in Tennessee were delayed until November 1, 1996. Most of the long-term care facilities operated by the Company are located in these two states. Most of the revenue from the management services division of the Company's business is received pursuant to management agreements with entities controlled by Messrs. Brogdon and Lane, two of the Company's officers and directors. These management agreements have five year terms, however, they are subject to termination on 60 days notice, after the end of the third year of the Agreement with or without cause by either the Company or the owners. Therefore, Messrs. Brogdon and Lane have full control over whether or not these management agreements, and thus the management service revenue, continue in the future. SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 1995 The Company's total revenues for the six months ended December 31, 1996, were $116,526,900 compared to $59,870,354 for the six months ended December 31, 1995. Due to the increased number of facilities owned or leased by the Company, patient service revenue increased from $54,177,449 for the six months ended December 31, 1995, to $89,935,031 for the six months ended December 31, 1996. The Company was operating 81 facilities in the six months ended December 31, 1996 compared to 42 for the six months ended December 31, 1995. The cost of patient services in the amount of $62,119,227 for the six months ended December 31, 1996, represented 69% of patient service revenue, as compared to $33,652,390 or 67% of patient service revenue during the six months ended December 31, 1995. This increase is attributed to the Company acquiring skilled nursing facilities which require more skilled care and to delays in Medicaid rate increases discussed below. -14- RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Medical supply revenues increased from $3,194,315 during the quarter ended December 31, 1995, to $22,856,118 during the quarter ended December 31, 1996. These revenues, which are revenues of Contour, a majority-owned subsidiary, increased primarily as a result of two acquisitions made by Contour. Contour acquired AmeriDyne Corporation ("AmeriDyne") effective March 1, 1996, and Atlantic Medical effective July 1, 1996. Cost of medical supplies sold as a percentage of medical supply revenue decreased to approximately 66.5% during the quarter ended December 31, 1996, as compared to approximately 100% of such revenue during the same period last year. The reduced percentage is primarily a result of higher gross profit margins on the products sold by AmeriDyne and Atlantic Medical. Management fees decreased from $1,803,795 in the six months ended December 31, 1995 to $1,492,621 in the six months ended December 31, 1996 because the Company purchased or leased 8 facilities it managed at December 31, 1995. As of December 31, 1995, the Company was managing 25 facilities, and as of December 31, 1996 the Company was managing 18 facilities. General and administrative expenses for the six months ended December 31, 1996 were $21,146,069 representing 18% of total revenues, as compared to $8,770,518 representing 15% of total revenues, for the six months ended December 31, 1995. This increase is due to the general and administrative expenses related to operating the additional facilities owned or leased by the Company, and the acquisition by Contour of Atlantic Medical. For the six months ended December 31, 1996, the Company incurred expenses for income taxes of $1,610,244 which represents an effective tax rate of 38%, as compared to expenses for income taxes of $2,747,863 which represents an effective rate of 39% for the six months ended December 31, 1995. The net income of $1,784,660 for the six months ended December 31, 1996, is less than the net income of $4,378,731 for the six months ended December 31, 1995. The net income for the six months ended December 31, 1996, is a result of an extraordinary charge relating to a restructuring of debt and the and the result of delays in annual Medicaid rate increases, which are usually in effect on July 1 of each year. This year the rate increases in Georgia were delayed until August 16, 1996, and the rate increases in Tennessee were delayed until November 1, 1996. Most of the long-term care facilities operated by the Company are located in these two states. Most of the revenue from the management services division of the Company's business is received pursuant to management agreements with entities controlled by Messrs. Brogdon and Lane, two of the Company's officers and directors. These management agreements have five year terms, however, they are all subject to termination on 60 days notice, with or without cause by either the Company or the owners. Therefore, Messrs. Brogdon and Lane have full control over whether or not these management agreements, and thus the management services revenue, continue in the future. -15- RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) LIQUIDITY AND CAPITAL RESOURCES At December 31. 1996, the Company had $4,105,398 in working capital compared to $4,573,744 at June 30, 1996. During the six months ended December 31, 1996, cash used by operating activities was (16,098,656) as compared to (2,258,793) for the quarter ended December 31, 1995. The (13,839,863) decrease was primarily due to the increase in accounts receivable for the six months ended December 31, 1996 of $11,739,577. These increases in non-cash assets were partially offset by increases in accounts payable and accrued expense of $4,643,095. Cash used in investing activities during the six months ended December 31, 1996 was 17,408,656. The expenditures related to purchases of equipment, securities, investments in subsidiaries and advances to affiliates. Cash provided by financing activities during the six months ended December 31, 1996 consisted of $28,110,035 in long term loans and $9,340,000 in issuance of preferred stock. Cash used in financing activities consisted of ($1,267,894) in payments of long term debt and the purchase and retirement of common stock of (3,800,411). IMPACT OF PENDING FEDERAL HEALTH CARE LEGISLATION Management is uncertain what the financial impact will be of the pending federal health care reform package since the legislation has not been finalized. However, based on information which has been released to the public thus far, management does not believe that there will be cuts in reimbursements paid to nursing homes. Legislative and regulatory action at the state and federal level, has resulted in continuing changes in the Medicare and Medicaid reimbursement programs. The changes have limited payment increases under those programs. Also, the timing of payments made under Medicare and Medicaid programs are subject to regulatory action and governmental budgetary constraints. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings and interpretations which may further affect payments made under these programs. Further, the federal and state governments may reduce the funds available under those programs in the future or require more stringent utilization and quality review of health care facilities. -16- RETIREMENT CARE ASSOCIATES, INC 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 Management continues to look for acquisitions in the retirement and nursing home field for the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial Data Schedule Filed herewith electronically (b) Reports on Form 8-K. None. -17- SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. RETIREMENT CARE ASSOCIATES, INC. DATED: February 14, 1997 By:/s/ Chris Brogdon Chris Brogdon, President DATED: February 14, 1997 By:/s/ Darrell C. Tucker Darrell C. Tucker, Treasurer (Chief Financial Officer and Principal Accounting Officer) -18- EXHIBIT INDEX EXHIBIT METHOD OF FILING - ------- ------------------------------ 27. Financial Data Schedule Filed herewith electronically EX-27 2
5 This schedule contains summary financial information extracted from the balance sheets and statements of operations found on pages 4-7 of the Company's Form 10-Q for the year to date, and is qualified in its entirety by reference to such financial statements. 0000798540 RETIREMENT CARE ASSOCIATES, INC. 6-MOS JUN-30-1996 DEC-31-1996 328,924 0 36,296,497 0 10,193,585 56,414,637 138,485,928 0 227,453,324 47,309,239 0 1,379 0 6,230,000 35,747,669 227,453,324 22,856,118 116,526,900 77,331,513 77,331,513 106,754,008 0 5,182,905 4,237,484 1,610,244 0 0 (842,587) 0 1,784,660 .12 .00
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