-----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, MmdvnqthTXgxOaQqCgdheuVVrbo/HsjOv1/rhOcQNgdtRuRanaMyo4qJ/2nhL2+p z3abr57p5DJSNeMbqxiJ+g== 0000950144-97-011160.txt : 19971024 0000950144-97-011160.hdr.sgml : 19971024 ACCESSION NUMBER: 0000950144-97-011160 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19971023 SROS: NYSE 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/A SEC ACT: SEC FILE NUMBER: 001-14114 FILM NUMBER: 97699921 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/A 1 RETIREMENT CARE ASSOCIATE, INC 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A Amendment No. 3 (Amending Part I- Items 1, 2 and 6) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 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 [ ] There were 13,474,995 shares of the Registrant's $.0001 par value Common Stock outstanding as of September 30, 1996. 2 RETIREMENT CARE ASSOCIATES AND SUBSIDIARIES FORM 10-Q/A FOR THE QUARTER ENDED SEPTEMBER 30, 1996 INDEX
Page(s) PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Introduction. . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations (Unaudited) - Three Months Ended September 30, 1996 and September 30, 1995 . . . . . 4 Consolidated Balance Sheets - (Unaudited) September 30, 1996 and (Audited) June 30, 1996. . . 5 - 6 Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended September 30, 1996 and September 30, 1995. . . .. . . . . . . . . 7 Notes to Consolidated Financial Statements (Unaudited). . . . . . . . . . . . . . . 8 - 10 Item 2. Managements' Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . . 11 - 14 Item 6. Exhibits and Reports on Form 8-K 15 Signature . . . . . . . . . . . . . . . . . . . . . 15
-2- 3 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 for Retirement Care Associates, Inc. (the "Company") for the fiscal year ended June 30, 1996, File No. 1-14114. The Company has restated its financial information for periods commencing June 30, 1996 through the nine months ended March 31, 1997, as reflected in amendments to the Company's Quarterly Reports on Forms 10-Q for the quarters ended September 30, 1996, December 31, 1996 and March 31, 1997. Adjustments and reclassifications were necessary to correct entries relating to (i) receivables due from third-party payors, (ii) the Company's inventory for such periods, (iii) provisions for doubtful accounts, (iv) provisions for contractual allowances for third-party payors, (v) provisions for accrued liabilities, and (vi) pre-recorded operating leases (collectively, the "Restated Entries"). To show the impact of the Restated Entries with respect to previously reported amounts for each period restated, the Company has provided a description of the Restated Entries and a reconciliation of historical results for each period as previously reported in the filed quarterly report to restated results. Certain statements in this Form 10-Q are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties. Factors which may cause the Company's actual results in future periods to differ materially from forecast results include, but are not limited to: general economic and business conditions, both nationally and in the regions in which the Company operates; industry capacity; demographic changes; existing government regulations and changes in, or the failure to comply with, government regulations; legislative proposals for reform; the ability to enter into lease and management contracts and arrangements on acceptable terms; changes in Medicare and Medicaid reimbursement levels; liability and other claims asserted against the Company; competition; changes in business strategy or development plans; the ability to attract and retain qualified personnel; the significant indebtedness of the Company; and the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities. 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- 4 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
September 30, September 30, 1996 1995 REVENUES Patient service revenue $41,974,970 $25,835,329 Medical supply revenue 11,306,195 1,589,073 Management fee revenue: From affiliates 796,500 797,502 From others 137,546 110,377 Other operating revenue 957,404 307,896 55,172,615 28,640,177 EXPENSES Cost of patient services 31,905,623 16,044,110 Cost of medical supplies sold 7,667,200 1,589,072 Lease expense 3,026,791 1,751,415 General and administrative 9,501,727 4,455,581 Depreciation and amortization 1,118,462 489,614 Interest 2,397,636 928,852 Provision for bad debt 1,020,000 -- 56,637,439 25,258,644 INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME TAXES (1,464,824) 3,381,533 Minority interest 80,000 (37,548) Income (loss) before income taxes (1,384,824) 3,343,985 Income tax provision (benefit) (345,000) 1,285,265 NET INCOME (LOSS) ($1,039,824) $ 2,058,720 Preferred stock dividends 744,806 -- Income (loss) applicable to common stock (1,784,630) 2,058,720 NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (.14) .16 WEIGHTED AVERAGE SHARES OUTSTANDING 13,075,978 12,612,040
-4- 5 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND AUDITED AT JUNE 30, 1995
Unaudited Audited September 30, June 30, 1996 1996 ASSETS CURRENT Cash and cash equivalents $ 3,071,179 $ 45,365 Accounts receivable 27,113,599 18,845,780 Inventory 7,532,030 3,998,991 Deferred income taxes 2,600,000 2,008,430 Note and accrued interest receivable 775,000 613,750 Restricted Bond Fund 2,167,000 2,342,565 Prepaid expenses and other 2,150,816 1,623,679 Total current assets 45,409,624 29,478,560 PROPERTY AND EQUIPMENT 143,274,304 111,420,486 OTHER ASSETS Marketable equity securities 33,645 33,645 Investments in unconsolidated affiliates 545,294 496,800 Deferred lease and loan costs 9,567,370 7,665,891 Goodwill 13,169,781 6,636,675 Notes and advances due from non-affiliates 895,076 1,372,247 Notes and advances due from affiliates -- 14,316,661 Restricted bond funds 2,758,455 3,514,969 Other assets 4,051,975 2,556,353 Total other assets 31,021,596 36,593,241 $219,705,524 $177,492,287
-5- 6 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND AUDITED AT JUNE 30, 1996
Unaudited Audited September 30, June 30, 1996 1996 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Lines of credit $ -- $ 3,556,535 Current maturities of long-term debt 12,873,452 2,220,491 Accounts payable 17,181,327 10,115,347 Accrued expenses 15,325,948 11,316,030 Income taxes payable 1,572,546 3,726,317 Deferred gain 40,000 40,000 Total current liabilities 46,993,273 30,974,720 Deferred gain 211,370 371,370 Deferred income taxes 1,098,929 277,000 Long-term debt and capitalized leases, less current maturities 131,299,070 108,481,040 Minority interest 4,436,411 4,122,039 Redeemable convertible preferred stock 2,400,000 2,400,000 Shareholders' equity Common stock, $.0001 par value; 300,000,000 shares authorized; 13,474,995 and 12,145,875 shares outstanding 1,047 1,214 Preferred stock 8,660,250 7,408,279 Additional paid-in capital 33,676,002 28,329,625 Retained earnings (9,026,233) (4,752,880) Treasury stock (44,595) (120,120) Total shareholders' equity 33,266,471 30,866,118 Total liabilities and shareholders= equity $219,705,524 $177,492,287
-6- 7 RETIREMENT CARE ASSOCIATES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
September 30, September 30, 1996 1995 OPERATING ACTIVITIES Net income (loss) $ (1,039,824) $ 2,058,720 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,118,462 489,614 Provision for bad debts 1,020,000 -- Amortization of deferred gain (160,000) (10,000) Minority interest (80,000) 37,728 Deferred income taxes 230,359 15,500 Changes in current assets and liabilities net of effects of acquisitions: Accounts receivable (9,287,819) (4,190,550) Inventory (3,533,039) (204,789) Prepaid expense and other assets (2,022,759) 633,412 Accounts payable and accrued expenses 8,922,127 3,036,882 Increase in deferred lease and loan costs -- (615,720) Cash provided by (used in) operating activities (4,832,493) 1,250,797 INVESTING ACTIVITIES Purchase of property and equipment (32,703,818) (8,622,131) Issuance of notes receivable and advances to affiliates 14,793,832 (1,645,903) Investment in and advances to Atrium Ltd. -- (972,873) Restricted bond funds 932,079 -- Changes in marketable equity securities -- (111,878) Change in receivable (161,250) 854,795 Deferred lease cost (2,169,941) -- Investment in unconsolidated subsidiaries (48,494) -- Cash (used in) investing activities (19,357,592) (10,497,990) FINANCING ACTIVITIES Dividends on preferred stock (60,000) (75,000) Net proceeds from issuance of: Line of credit (3,556,535) -- Common stock -- 257,989 Long-term debt 27,776,507 8,436,000 Preferred Stock 6,598,181 -- Payments on long-term debt (444,250) (1,729,693) Purchase and retirement of common stock (3,098,004) -- Cash provided by financing activities 27,215,899 6,889,296 Net increase (decrease) in cash and cash equivalents 3,025,814 (2,357,897) Cash and cash equivalents, beginning of year 45,365 5,207,185 Cash and cash equivalents, end of year $ 3,071,179 $ 2,849,288
-7- 8 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 adopted this standard in fiscal 1995. In management's opinion, adopting SFAS No. 115 did not materially affect the Company's financial statements for the three months ended December 31, 1995. NOTE 2: RESTATEMENT The consolidated financial statements for the three months ended September 30, 1996, as reported in Amendment No. 2 to the Company's Quarterly Report on Form 10-Q, reflect certain accounting policies and estimates which were subsequently determined to be incorrect and, accordingly, the consolidated financial statements for the three months ended September 30, 1996 have been restated as follows (in thousands):
As Previously Reported As Restated Revenues $ 55,130 $ 55,173 Operating Expenses $ 62,982 $ 56,637* Net Earnings (Loss) applicable to common stock $ (4,742) $ (1,785) Shareholders' Equity $ 33,109 $ 33,266
- ---------------------- * Restated Operating Expenses include (in thousands) (i) a reduction in the accrual for employee benefits of $3,700, (ii) restated inventory of $1,955, (iii) a reduction in the provision for doubtful accounts of $580, and (iv) restated general and administrative expenses of $110. NOTE 3. 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. -8- 9 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 4. INVENTORIES Inventories consist of the following at September 30, 1996: Raw material $ 284,463 Work in process 70,604 Finished goods 7,176,963 $ 7,532,030
NOTE 5: NOTES RECEIVABLE AND ADVANCES TO AFFILIATES At September 30, 1996 and June 30, 1996, the Company had notes and advances to affiliates totaling approximately $0.00 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 Company's common stock held by affiliates. (See Note 8) NOTE 6. LONG-TERM DEBT Long-term debt consisted of the following:
September 30, June 30, 1996 1996 Amounts outstanding under Revenue Bonds secured by retirement facilities $ 68,050,000 $ 59,986,000 Other debt secured by retirement and nursing facilities 42,671,148 39,848,938 Other debt 17,852,792 10,866,593 Capitalized leases 15,598,582 -- Totals 144,172,522 110,701,531 Current maturities 12,873,452 2,220,491 Total long-term debt $131,299,070 $108,481,040
NOTE 7: COMMITMENTS AND CONTINGENCIES The Company is involved in legal proceedings arising in the ordinary course of business. In addition, the Company is in dispute with the Internal Revenue Service ("IRS") concerning the application of certain income and payroll tax liabilities and payments. The IRS contends that the Company is delinquent in the payment of certain taxes and has charged penalties and interest in connection with the alleged underpayments. The Company contends that the IRS has misapplied payments between income and payroll taxes and between the Company and its affiliates. The Company has estimated in the accompanying financial statements amounts for ultimate settlement of this dispute, and has recorded an accrual of $600,000, which is based upon the best available information after consulting with the Company's advisors concerning this matter. Further, the Company has filed lawsuits against the IRS related to this matter. In the opinion of management, the ultimate resolution of pending legal proceedings and the IRS dispute will not have a material effect on the Company's financial positions or results of operations. -9- 10 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 8: FACILITY ACQUISITIONS During the quarter ended September 30, 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: 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 shareholders' equity of the Company by $3,000,000. NOTE 9: 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 are due in full on January 10, 1997. In the event of a default in the payment of the promissory notes, they are convertible into shares of common stock of the Company. 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 Convertible Preferred Stock have no voting rights except as required by law, and have liquidation preference of $10.00 per share plus 4% per amount from the date of issuance. The shares of Series F Convertible Preferred Stock are convertible into shares of common stock at a conversion price of the lesser of (a) $7.665625, 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 Convertible 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 Convertible Preferred Stock converted multiplied by 8% per annum from the date of issuance divided by the applicable conversion price. Each holder of the Series F Convertible Preferred Stock has the option to convert up to one-third of such holder's shares at any time from and after the 60th day following the date of issuance, up to an additional one-third of the shares from and after the 90th day following the date of issuance, and all remaining shares may be converted from and after the 120th day following the date of issuance. -10- 11 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995. The Company's total revenues for the three months ended September 30, 1996, were $55,172,615 compared to $28,640,177 for the three months ended September 30, 1995. Due to the increased number of facilities owned or leased by the Company, patient service revenue increased from $25,835,329 for the quarter ended September 30, 1995, to $41,974,970 for the quarter ended September 30, 1996. The Company was operating 75 facilities for the quarter ended September 30, 1996, compared to 42 for the quarter ended September 30, 1995. The cost of patient services in the amount of $31,905,623 for the quarter ended September 30, 1996 represented 76% of patient service revenue as compared to $16,044,110, or 62%, of patient service revenue during the quarter ended September 30, 1995. This increase is attributed to the Company's acquisition of skilled nursing facilities (which have higher personnel costs), delays in Medicaid rate increases discussed below, and increased reserves for employees benefits. Medical supply revenue increased from $1,589,073 during the quarter ended September 30, 1995, to $11,306,195 during the quarter ended September 30, 1996. These revenues, which are revenues of Contour, 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 68% during the quarter ended September 30, 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 increased from $907,879 in the quarter ended September 30, 1995 to $934,046 in the quarter ended September 30, 1996. As of September 30, 1995, the Company was managing 26 facilities, and as of September 30, 1996, the Company was only managing 20 facilities. Although the number of managed facilities declined, revenues increased slightly as a result of increased management fees charged by the Company. The reduced number of facilities managed by the Company is due to the fact that the Company has acquired, by lease or purchase, a number of facilities which it previously only managed. Management anticipates that the number of facilities only managed by the Company will continue to decline as a result of the acquisition of such facilities by the Company. Owning or leasing a facility is distinctly different from managing a facility with respect to operating results and cash flows. For an owned or leased facility, the entire revenue/expense stream of the facility is recorded on the Company's income statement. In the case of a management agreement, only the management fee is recorded. The expenses associated with management revenue are somewhat indirect as the infrastructure is already in place to manage the facility. Therefore, the profitability of managing a facility appears more lucrative on a margin basis than that of an owned/leased facility. However, the risk of managing a facility is that the contract generally can be canceled on a relatively short notice, which results in loss of all revenue attributable to the contract. Furthermore, with an owned or leased property the Company benefits from the increase in value of the facility as its performance increases. With a management contract, the owner of the facility maintains the equity value. From a cash flow standpoint, a management contract is more lucrative because the Company does not have to support the ongoing operating cash flow of the facility. -11- 12 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, each such agreement is subject to termination on 60 days notice, after the end of the third year of eac such 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. Other operating revenue increased from $307,896 during the quarter ended September 30, 1995, to $957,404 during the quarter ended September 30, 1996. The increase was primarily a result of one-time referral fees of $300,000 received from a building contractor, and approximately $180,000 in interest income. General and administrative expenses for the three months ended September 30, 1996 were $9,501,727, representing 17% of total revenues, as compared to $4,455,581, representing 16% of total revenues, for the three months ended September 30, 1995. The increase in the dollar amount is primarily due to the general and administrative expenses related to operating the additional facilities owned or leased by the Company. The increased percentage is attributed to higher payroll costs of general and administrative personnel which took effect at the beginning of the fiscal year. Interest expense rose from $928,852 during the quarter ended September 30, 1995 to $2,397,636 during the quarter ended September 30, 1996 as a result of the increased amount of debt carried by the Company as a result of acquisitions made over the preceding twelve months. At September 30, 1995, the Company had approximately $47 million in long-term debt, as compared to approximately $144 million in long-term debt at September 30, 1996. For the quarter ended September 30, 1996, the Company received an income tax benefit of $345,000, which represents an effective tax benefit of 25%, as compared to expenses for income taxes of $1,285,265, which represents an effective tax rate of 39%, for the quarter ended September 30, 1995. The net loss of $1,039,824 for the quarter ended September 30, 1996, compares to net income of $2,058,720 for the quarter ended September 30, 1995. The loss for the quarter ended September 30, 1996 is primarily a result of increases in the cost of patient services as described above and 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 mid-August, 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. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1996, the Company had a deficit of $1,583,649 in working capital compared to $1,496,160 at June 30, 1996. During the quarter ended September 30, 1996, cash used by operating activities was $4,438,121 as compared to $1,250,797 provided by operating activities during the quarter ended September 30, 1995. The cash used during the current period was primarily a result of an increase in accounts receivable of $9,287,819, and an increase in inventory of $3,533,039. These increases are partially a result of Contour's acquisition of Atlantic Medical effective July 1, 1996. The increases in non-cash assets were partially offset by increases in accounts payable and accrued expense of $8,922,127. -12- 13 Cash flows used in investing activities during the quarter ended September 30, 1996 totaled $19,357,592, as compared to $10,497,990 during the quarter ended September 30, 1995. During the current period, the Company expended $32,703,818 on the purchase of property and equipment, primarily through acquisitions, and incurred $2,169,941 in deferred lease costs. These expenditures were partially offset by repayments of advances from affiliates of $14,793,832. Cash provided by financing activities during the quarter ended September 30, 1996 totaled $27,215,899, as compared to $6,889,296 during the same period last year. During the current period, the Company received $6,598,181 from the sale of preferred stock and the placement of $27,776,507 in long-term debt. These receipts were partially offset by the purchase and retirement of common stock in the amount of $3,098,004, payments on long-term debt of $444,250, a reduction of line of credit borrowings of $3,556,535 and payment of $60,000 in dividends on preferred stock. On September 30, 1994, the Company purchased a majority of the stock of Contour in exchange for shares of the Company's common stock and preferred stock. The Company is obligated to redeem the preferred stock issued in the transaction over five years for $3,000,000 in cash. $600,000 was paid on October 11, 1996 pursuant to this obligation. Management intends to fund future redemptions from cash flow generated from operations. The Company believes that its long-term liquidity needs will generally be met by income from operations. If necessary, the Company believes that it can obtain an extension of its current line of credit and/or other lines of credit from commercial sources. Except as described above, the Company is not aware of any trends, demands, commitments or understandings that would impact its liquidity. The Company maintains various lines of credit with interest rates ranging from prime plus .25% to prime plus 1.25%. At September 30, 1996, the Company had approximately $3,500,000 in unused credit available under such lines. On August 6, 1996, Contour acquired all of the outstanding stock of Atlantic Medical, a distributor of disposable medical supplies and provider of third-party billing services to the nursing home and home health care markets. The acquisition was made effective retroactively to July 1, 1996. Contour paid $1,400,000 in cash and promissory notes totaling $10,500,000 for the stock of Atlantic, and subsequently paid an additional $50,000 in cash and issued a promissory note for $350,000 to acquire a minority interest in a subsidiary of Atlantic. The promissory notes bear interest at 7% per annum and are due in full on January 10, 1997. In the event of a default in the payment of the promissory notes, they are convertible into shares of common stock of Retirement Care Associates, Inc. The cash for this transaction came from a $5 million debenture placement by Contour that was completed on July 12, 1996. Contour intends to pay the promissory notes from the proceeds of an offering of securities to be conducted by Contour. However, if Contour is unable to pay these promissory notes, a default could occur and the holders could exercise their conversion rights. In such event, the Company could be required to issue shares of its common stock equal to $10,850,000 based on a conversion price of 85% of the average daily closing price on the New York Stock Exchange for the five consecutive trading days prior to the conversion date. In such event, the Company has agreed to register such shares for resale under the Securities Act of 1933, as amended. -13- 14 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 doesn't 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 healthcare facilities. -14- 15 Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 Restated Financial Data Schedule 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: October 20, 1997 By: /s/ Darrell C. Tucker ---------------------------------- Darrell C. Tucker, Treasurer -15- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 4-6 OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JUN-30-1996 SEP-30-1996 3,071,179 0 27,113,599 0 7,532,030 45,409,624 143,274,304 0 219,705,524 46,993,273 0 0 8,660,250 1,047 24,605,174 219,705,524 54,215,211 55,172,615 39,572,823 39,572,823 14,666,980 0 2,397,636 (1,384,824) (345,000) 0 0 0 0 (1,784,630) (0.14) (0.14)
-----END PRIVACY-ENHANCED MESSAGE-----