U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from:
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 (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
6000 Lake Forrest Drive, Suite 200, Atlanta, Georgia 30328
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (404) 255-7500
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.0001 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.0001 Par Value
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 reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
As of September 18, 1996, 13,180,918 shares of common stock were outstanding.
The aggregate market value of the common stock of the Registrant held by
nonaffiliates on that date was approximately $67,925,000.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Documents incorporated by reference: Part III is incorporated by reference to
the Registrant's Proxy Statement relating to the Annual Meeting of
Shareholders to be held in December 1996.
PART I
ITEM 1. BUSINESS.
THE COMPANY
Retirement Care Associates, Inc. is a leading provider in the
southeastern United States of senior residential care services, which include
long-term care, assisted living and independent living services. The
Company's long-term care facilities provide skilled nursing care, specialty
care services and ancillary services to patients, while its
assisted/independent living centers provide services to residents in need of
varying degrees of assistance with the activities of daily living. Its
facilities are located primarily in rural and non-urban areas in the United
States, and it is the largest provider of senior residential care services in
Georgia. As of August 20, 1996, the Company operated 69 facilities which it
owned or leased, and managed an additional 24 facilities for others.
The Company's headquarters are located in Atlanta, Georgia. Its
executive offices are located at 6000 Lake Forrest Drive, Suite 200, Atlanta,
Georgia 30328. Its telephone number at that address is (404) 255-7500.
The Company was formed under the laws of the State of Colorado on
March 24, 1986, under the name "New Frontiers Investments, Inc." to create a
corporate vehicle to seek and acquire a business opportunity.
In February, 1987, the Company completed a public offering of units
consisting of shares and warrants. The gross proceeds to the Company from the
offering were approximately $236,455.
On April 2, 1987, the Company acquired 100% of the outstanding shares of
Retirement Care Associates, Inc. ("RetireCare") in exchange for shares of the
Company's Common Stock. RetireCare is a corporation formed in 1987 to engage
in the business of consulting to, marketing and managing retirement centers.
RetireCare eventually planned to expand its operations to include acquisition
and syndication of retirement centers.
At the time of the acquisition, the Company changed its name to
"Retirement Care Associates, Inc." Also as a result of the acquisition, there
was a complete change in control of the Company.
The Company attempted to operate in several facets of the retirement
industry including development, contract management, acquisition and
consulting. Although the Company had some success turning around distressed
properties, it was not able to retain long-term management contracts. In
September, 1988, the Company narrowed its goals to focus on long-term
marketing and management contracts of distressed properties.
In October, 1988, the Company purchased The Paxton Manor, a 250 unit
retirement facility located in Omaha, Nebraska. This property, constituting
essentially all of the assets of the Company at the time, was subsequently
sold on November 12, 1991, with shareholder approval. In September 1991,
Chris Brogdon and Edward E. Lane agreed to become Directors of the Company and
the existing directors and several major shareholders of the Company verbally
agreed that if Messrs. Brogdon and Lane would invest $50,000 in the Company,
the Company would issue to them 1,447,031 shares of the Company's Common
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Stock. The $50,000 was used to pay the expenses of preparing and filing the
Company's delinquent SEC reports and tax returns, and paying the state and
federal taxes owed as a result of the sale of the Paxton Manor during 1991.
During this period of time, the Company's Officers and Directors resigned and
Chris Brogdon and Edward Lane became Officers and Directors of the Company.
From November 1991 to November 1992, the Company had no significant
activities other than the filing of delinquent SEC reports and tax returns.
In November 1992, the Company merged with Capitol Care Management
Company, Inc. ("CCMC"), a Georgia corporation engaged in the business of
providing management services to retirement facilities, personal care
facilities and nursing homes. In connection with the merger the Company
issued 964,688 shares of the Company's Common Stock and Promissory Notes in
the aggregate amount of $1,000,000 to the CCMC shareholders. Simultaneously
with the merger, all of the assets, liabilities and operations of CCMC were
placed into a newly formed Georgia corporation named Capitol Care Management
Company, Inc. ("Capitol Care") which is a wholly-owned subsidiary of the
Company. On December 31, 1992, the promissory notes aggregating $1 million
were canceled and in consideration therefor the holders of the promissory
notes were issued 1,000,000 shares of Series C Convertible Preferred Stock
which were subsequently converted into 964,688 shares of Common Stock.
In December 1993, the Company acquired Retirement Management
Corporation, a Nevada corporation engaged in the business of providing
management and marketing services to retirement care facilities, in a merger
transaction in which it was merged into Capitol Care. Immediately after the
merger, all of the assets, liabilities and operations of Retirement Management
Corporation were transferred into Retirement Management Corporation ("RMC"), a
newly formed Georgia corporation which is a subsidiary of Capitol Care. In
this transaction, the Company issued 92,610 shares of its Common Stock and
shares of preferred stock which were later converted into 115,763 shares of
Common Stock and $100,000 in cash in exchange for all of the outstanding stock
of RMC. During the period from January 1, 1993 to December 10, 1993, RMC had
$668,861 in revenue and net income of $85,511.
On September 30, 1994, the Company acquired approximately 63% of the
outstanding stock of Contour Medical, Inc., a publicly-held Nevada corporation
located in St. Petersburg, Florida, which manufactures a full line of
orthopedic care and rehabilitation products. The Company currently owns
approximately 60% of the outstanding stock of Contour Medical, Inc.
In July, 1993, the Company effected a 1 for 12 reverse stock split of
the shares of the Company's outstanding Common Stock. The Company paid 5%
stock dividends on its outstanding Common Stock in February 1994, February
1995 and May 1996. All financial information and share data in this Report
give retroactive effect to the reverse split and stock dividends.
INTRODUCTION
The Company is a leading provider in the southeastern United States of
senior residential care services, which include long-term care, assisted
living and independent living services. The Company's long-term care
facilities provide skilled nursing care, specialty care services and ancillary
services to patients while the Company's assisted/independent living centers
provide services to residents in need of varying degrees of assistance with
the activities of daily living. Most of the Company's facilities are located
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in rural and non-urban areas in the southeastern United States, and the
Company is the largest provider of senior residential long term care services
in Georgia.
The Company's strategy is to increase the number of facilities that it
operates (i) primarily by acquiring by purchase or lease independently-owned
long-term care facilities and assisted/independent living centers located in
the Southeast and (ii) secondarily by developing assisted/independent living
centers adjacent or complementary to it existing facilities. Upon the
acquisition of a facility, the Company implements its management information
and control systems and provides capital for necessary physical plant
improvements to enable its professionals to increase occupancy and attain the
Company's standards for quality of care.
The Company's operating strategy with respect to its
assisted/independent living centers is to increase its center occupancy rates
by maintaining high quality social and support services for its residents, to
develop relationships with community leaders and other referral sources and to
implement a strong marketing program, including direct mail marketing and
advertising and special events. Assisted living is an increasingly popular
form of senior housing which offers seniors who need or desire help with the
activities of daily living and limited health care services a residential
alternative which allows them more independence and is less costly than a
long-term care facility. The Company's independent living centers offer
residents complete independence and provide basic support services as well as
customized services to meet their individual needs.
The Company's operating strategy with respect to its long-term care
facilities is to improve its payer mix by (i) making capital improvements
which the Company believes are necessary to attract more private pay
residents, (ii) aggressively marketing such facilities to prospective private
pay residents and (iii) seeking Medicare certification for newly acquired
facilities. The Company seeks to enhance the revenue of its existing
facilities by offering its long-tem care patients physical, speech,
occupational and respiratory therapy, wound care and other ancillary services.
At June 30, 1996, all of the Company's long-term care facilities were Medicare
certified.
SENIOR RESIDENTIAL CARE INDUSTRY
GENERAL. The senior residential care industry encompasses a broad range
of residential and health care services provided to the elderly and to
patients who can be cared for outside the acute care hospital environment. The
Company believes that demand for the services provided by long-term care
facilities and assisted/independent living centers will increase substantially
during the next decade primarily due to demographic and social trends and, to
a lesser extent, the growth of private insurance and governmental payment
sources for assisted living services. Other factors which affect the senior
residential care industry are (i) the limited supply of long-term care
facilities, (ii) the effects of government cost containment measures and (iii)
the fragmentation of the long-term care industry. Furthermore, given the cost
containment pressure at the federal, state and local levels, government and
private payers are attracted to, and motivated to support, long-term care
facilities as a more cost effective alternative to subacute care facilities
and to hospitals and assisted living centers as a less expensive and still
effective alternative to traditional long-term care facilities when ongoing
care is needed.
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DEMOGRAPHIC AND SOCIAL TRENDS. The consumers of the Company's senior
residential care services are persons generally over 65 years of age. In the
United States, the number of individuals over 65 years of age has increased
from approximately 25 million in 1980 to more than 31 million in 1990. The
number of persons 65 years of age and over is expected to grow to
approximately 35 million in 2000.
GROWTH OF LONG-TERM CARE INSURANCE. Numerous insurance companies
currently offer long-term care insurance which provides the beneficiary
coverage for expenses associate with long-term care and assisted/independent
living services. Furthermore, the number of long-term care policies in
existence is increasing rapidly. According to the Health Insurance
Association of America, approximately 2.4 million long-term care policies were
in existence as of December 1991, representing a compound average annual
growth rate of 31.5% from 1987 to 1991. In calendar 1994, 1.4 million
long-term
care policies were purchased as compared to 0.6 million in 1991. In
addition, employers have started to offer long-term care insurance in their
"cafeteria plans," and Congress is considering a proposal to make long-term
care insurance premiums tax deductible. Based upon these factors and the
demographic and social trends of the United States population, the Company
expects more people to be covered by long-term care insurance.
LIMITED SUPPLY OF LONG-TERM CARE BEDS. The Company believes that certain
factors impacting the available supply of long-term care beds will favorably
impact the demand for the services offered by the Company in the future. All
of the states in the southeastern United States, including the states in which
the Company operates, have enacted certificate of need ("CON") or similar
legislation which restricts the supply of licensed long-term care facility
beds. These laws generally limit the construction of long-term care
facilities, and the addition of beds or services to existing long-term care
facilities, and hence tend to limit the available supply of traditional long-
term care beds. In addition, some long-term care facilities have started to
convert traditional long-term care beds into sub-acute beds.
FRAGMENTED INDUSTRY. Market share data indicate that the long-term care
industry is a highly fragmented and competitive industry in which the 30
largest providers operate approximately 352,000 beds, or 22% of total industry
beds. Competitive dynamics in the industry, including increasing complexity of
medical needs, growing regulatory and compliance requirements and increasingly
complicated reimbursement systems, have resulted in smaller operators (who
lack the sophisticated management information systems, operating efficiencies
and financial resources necessary to compete effectively) selling their
businesses and operations to companies, such as the Company, that have the
management information systems, operating efficiencies and financial resources
necessary to compete effectively.
The result of these factors is a relative increase in the demand for
long-term facility care, which, in turn, increases the demand for residential
options, such as assisted living facilities, to serve patients historically
served by long-term care facilities. In addition, long-term care facility
operators are continuing to focus on expanding services to sub-acute patients
requiring very high levels of nursing care. As such, the supply of long-term
care beds likely will be increasingly occupied by patients with higher acuity
levels, thereby increasing the supply of lower acuity patients who may be
served by assisted living facilities. The Company believes that, as a result
of these trends, there will be opportunities for assisted living to more cost
effectively provide accommodation and service facilities to provide
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accommodations and services on a cost-effective basis to residents requiring
lower levels of care than is generally provided to patients in long-term care
facilities.
STRATEGY
The Company's strategy is to increase the number of facilities that it
operates primarily by (i) acquiring by purchase or lease independently-owned
long-term care facilities and assisted/independent living centers located in
the southeastern United States and secondarily by (ii) developing
assisted/independent living centers adjacent or complementary to its existing
facilities. Key elements of this strategy include: (i) acquiring and
developing additional long-term care and assisted/independent living
facilities; (ii) increasing facility occupancy rates; (iii) improving the
payer mix at the Company's long-term care facilities; and (iv) achieving
operating efficiencies.
ACQUIRE AND DEVELOP FACILITIES. The Company intends to acquire and
develop additional long-term care facilities and assisted/independent living
facilities in its existing markets and contiguous areas. Management believes
that such expansion will allow the Company to take better advantage of its
existing expertise and organizational resources and improve margins by
reducing overhead costs. As a result of the growing complexity of regulatory
requirements and the continued pressure on reimbursement rates, the Company
believes that other smaller, independent providers may be more willing to
consider selling or leasing their facilities on terms acceptable to the
Company. The Company believes it is well positioned to make acquisitions
because of its reputation and established geographic presence. In addition,
the Company intends to offer a broad range of senior residential care
services. Towards that end, the Company has recently implemented a strategy
to develop assisted living centers adjacent to its long-term care facilities
or independent living centers, thereby creating senior residential care
campuses which offer a greater variety of senior residential care services in
one location. At August 31, 1996, the Company had nine of these senior
residential care campuses.
In evaluating an existing facility for acquisition, the Company
primarily considers the facility's historical occupancy rates and payor mix,
reputation and compliance history, physical condition and appearance, labor
force stability, the availability of financing on acceptable terms and, in the
case of assisted/independent living facilities, the demographics of the
surrounding area. In evaluating a development project, the Company primarily
considers the strength of the market demand for the senior residential care
services.
Upon the acquisition of a facility, the Company implements its
management information and control systems and provides capital for necessary
physical plant improvements to enable its professionals to increase occupancy
and attain the Company's standards for quality of care. The Company's
strategy with respect to its long-term care facilities is to seek Medicare
certification while simultaneously marketing the facility to attract more
Medicare and private pay residents. The Company believes that with effective
cost controls, the Company's facilities can continue to be profitable with a
highly concentrated Medicaid payer mix.
INCREASE FACILITY OCCUPANCY RATES. The Company believes its occupancy
rates in existing assisted/independent living centers should increase
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primarily due to three factors: (I) an enhanced emphasis on facility-specific
marketing efforts; (ii) the continued growth of the elderly segment of the
population in the Company's markets; and (iii) the limited supply of long-term
care beds and assisted/independent living units. Increasing occupancy rates
will allow the Company to further reduce its fixed costs per patient day.
IMPROVE PAYOR MIX. The Company seeks to improve its payer mix at its
long-term care facilities by making capital improvements which management
believes are necessary to attract more private pay residents, by aggressively
marketing such facilities to prospective private pay residents and by seeking
Medicare certification for newly acquired facilities. The Company has
recently implemented a strategy to develop assisted living centers adjacent to
its long-term care facilities or independent living centers, thereby creating
a senior residential care campus which offers a greater variety of senior
residential care services in one location. Management believes that providing
a "continuum of care" to its residents enhances the marketing efforts of its
assisted/independent living centers and that these centers should provide a
referral source to the other facilities on the same campus. The Company also
has intensified efforts to provide the full range of Medicare services to
eligible patients and is increasingly concentrating its marketing efforts on
private third party payers, such as managed care and insurance companies, as
well as hospital discharge planners, thereby developing referral sources for
both its long-term care and assisted/independent living centers.
ACHIEVE OPERATING EFFICIENCIES. The Company seeks to reduce its ratio
of general and administrative expenses to total operating revenue as a result
of economies of scale resulting from acquisitions and as a result of efforts
to more efficiently control and manage its businesses. The effective
operation of the Company's managerial and financial information and control
systems are fundamental to its performance. These systems allow the Company,
among other things, to assimilate acquisitions and control costs by achieving
reductions of administrative staff, economies in purchasing, efficient
management of patient care personnel and reduced use of nurses from employment
agencies.
LONG-TERM CARE SERVICES. Basic resident services are those traditionally
provided to elderly patients in long-term care facilities with respect to
daily living activities and general medical needs. The Company provides in
all of its facilities room and board, 24 hour skilled nursing care by
registered nurses, licensed practical nurses and certified nursing aides, and
a broad range of support services, including dietary services, therapeutic
recreational activities, social services, housekeeping and laundry services,
pharmaceutical and medical supplies, physical, speech, occupational and
respiratory therapy, wound care and other ancillary services.
ASSISTED LIVING SERVICES. The Company's assisted living centers are
designed to assist those persons generally 75 years of age or over who may
require assistance with any of the five basic activities of daily life (i.e.,
bathing, dressing, eating, walking and toileting). The Company assesses
incoming residents and develops an individualized care plan based on their
acuity level. The Company reassesses each of its residents on a regular basis
to determine if they require additional care. Each of the Company's assisted
living facilities offers its residents with private or semi-private
accommodations, ongoing health assessments, three meals per day and snacks
approved by a registered dietician, as well as 24-hour assistance with
activities of daily life, housekeeping service, linen and personal laundry
service, organized social activities and transportation. The Company's
assisted living services are provided in freestanding assisted living centers
and in certain units in each of the Company's independent living centers.
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INDEPENDENT LIVING SERVICES. The Company's independent living centers
offer independent living to seniors. Each center offers a standard package of
services that typically include meal service, laundry and linen service,
housekeeping, organized social activities and transportation. In addition,
each of the Company's independent living facilities offers a menu of
separately priced additional services available at the option of the resident.
LONG-TERM CARE OPERATIONS
FACILITY OPERATIONS. The Company's facilities are currently divided
into eight regions, each of which is supervised by a regional director of
operations and contains four to eight facilities. The regional director of
operations monitors and supervises all aspects of operations of the facilities
in the region and acts as liaison between such facilities and corporate
headquarters. The regional director of operations is responsible for, among
other things, ensuring compliance with federal, state and local regulations,
reviewing and monitoring compliance with corporate policies and procedures and
monitoring adherence to budgets. In addition, each region has a quality
assurance nurse and a dietary consultant who meet regularly with their
regional director of operations and report to the vice president of
compliance.
The regional and facility personnel are supported by a corporate staff
based at the Company's headquarters. Corporate personnel work with regional
directors of operations and facility administrators with respect to the
establishment of facility goals and strategies; quality assurance oversight;
reimbursement, accounting, cash management and treasury functions; development
of monitoring systems and operational procedures; human resources management;
and development and implementation of new programs.
Each facility is managed by an on-site, state licensed administrator who
is responsible for the overall operation of the facility, including quality of
care, marketing and financial performance. The administrator is assisted by
various professional and nonprofessional personnel (some of whom may be
independent contractors), including a medical director, nurses and nursing
assistants, social workers, dietary personnel, therapeutic recreation staff
and housekeeping, laundry and maintenance personnel.
The medical treatment of residents is the responsibility of the
residents' attending physicians, who are not employed by the Company and bill
their patients directly for services. The support services provided by the
Company, including therapeutic recreation, speech, occupational, respiratory
and physical therapy, wound care and other ancillary services, are provided
primarily by independent providers under contractual commitments with the
facility.
MARKETING. The Company engages in facility-specific marketing efforts
to maintain and improve occupancy rates and to promote the services, including
a full range of medical services offered by the Company's long-term care
facilities. The Company's marketing activities are conducted primarily by
each facility's admissions director and administrator who together seek to
establish relationships with potential referral sources, such as hospital
discharge planners and managed health care organizations. The Company
believes that many of the services and programs provided by its facilities in
the normal course of business supplement formal marketing efforts by promoting
the reputation of each facility in the community as a provider of quality
care. Each facility offers a variety of community programs and activities
which are designed primarily as a service to the community and as a means to
enhance the quality of patient life.
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QUALITY ASSURANCE. The Company's quality assurance program with respect
to its long-term care facilities involves personnel at all levels. The
Company has established a quality assurance team comprised of the facility's
administrator and the facility's senior medical professionals that
periodically visits and inspects each of the Company's long-term care
facilities and evaluates all aspects of the facility's operations, including
patient care, physical environment, patients' rights, patient activities and
dietary regimen. The Company's corporate director of nursing receives
quarterly quality assurance reports from each facility, reviews them against
prior quarterly reports and against applicable state survey results for the
facility, and works with the relevant regional director of operations and the
facility's quality assurance committee to address any deficiencies and work
toward continual improvement. All regional directors of operations, medical
and other consulting personnel are required to prepare and submit reports at
the end of each scheduled visit identifying any patient care or other quality
related issues.
ASSISTED/INDEPENDENT LIVING OPERATIONS
CENTER OPERATIONS. The Company's assisted/independent living centers
are currently divided into five regions, each of which is supervised by a
regional director of operations and contains four to seven centers. The
regional director of operations monitors and supervises all aspects of
operations of the centers in the region and acts as liaison between such
facilities and corporate headquarters. The regional director of operations is
responsible for, among other things, ensuring compliance with applicable
federal, state and local regulations, reviewing and monitoring compliance with
corporate policies and procedures and monitoring adherence to budgets.
Each of the Company's assisted/independent living centers is managed by
an executive director who is responsible for monitoring the day-to-day
operations of the center and the resident assistants who provide the personal
care to the center's residents. Each center also has a social activities
coordinator, a community service representative, a kitchen manager and dietary
staff. The regional and center personnel are supported by a corporate staff
based at the Company's headquarters. Corporate personnel work with regional
directors of operations and the executive director of each center with respect
to the establishment of goals and strategies; quality assurance oversight;
budgeting, accounting, cash management and treasury functions; development of
monitoring systems and operational procedures; human resources management; and
development and implementation of new marketing programs.
In connection with the Company's delivery of services to its assisted
living residents, a resident assistant is responsible for the personal care,
medication supervision (when state law so permits), meal service,
housekeeping, laundry and linen service and social activities of a small
number of residents. In addition, management believes that its method of
service delivery permits the care-giver to establish a better relationship
with the resident and in some cases become an extension of the resident's
family.
The Company's Extended Care Program reassesses each of its assisted
living residents on a regular basis to develop a daily care plan that provides
each of the residents with the appropriate level of care and assistance. The
Company has adopted an objective assessment system whereby each resident
receives points based upon his or her acuity level. The Company is then able
to determine the appropriate level of care based on this point acuity
assessment.
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MARKETING. The Company develops a comprehensive marketing plan for each
of its assisted/independent living centers. The marketing plan identifies the
strengths and weaknesses of the center, the demographic and competitive
profile of the geographic area in which the center is located and provides a
strategy for marketing the center in light of these factors. The plan
consists of a combination of advertising, primarily directed to the adult
children of potential residents, special events, direct mail and community
networking, all of which are designed to generate a sufficient number of
inquiries to fill the center.
The Company's marketing effort sets goals for the number of inquiries,
facility tours, deposits and new residents resulting from such efforts on a
monthly basis. With this targeted marketing approach, management believes that
it has been successful in marketing its assisted/independent living centers.
QUALITY ASSURANCE. The Company's quality assurance program with respect
to its assisted independent living centers involves personnel at all levels.
The Company has established a quality assurance team that periodically visits
and inspects each of the Company's assisted/independent living centers and
evaluates all aspects of the center's operations, including resident care,
physical environment, staff appearance, residents' rights, resident activities
and dietary regimen. The management receives the reports from the quality
assurance team, reviews them against prior reports, and works with the
relevant regional director of operations and the facility's administrators to
address any deficiencies and work toward continual improvement.
GENERAL FACILITY OPERATION
MANAGEMENT AND FINANCIAL CONTROLS. The Company has developed integrated
management and financial information systems and controls intended to maximize
operating efficiency. These systems enable management to monitor key
operations and financial data on a timely basis. Key operating data, such as
payables and billing data, cash collections and admissions/discharge data, are
entered into the system daily. This information forms the basis for a variety
of management and financial reports, including monthly financial statements,
for each facility.
PURCHASING. The Company's focus in purchasing is to develop national
pricing contracts for nursing supplies and dietary, housekeeping and laundry
products. Each facility, however, is responsible for purchasing the required
supplies and products pursuant to those contracts.
MANAGEMENT AND MARKETING SERVICES
The Company provides management services to all its owned or leased
facilities, as well as to 17 assisted/independent living centers and long-term
care facilities owned by its affiliates and 7 assisted/independent living
centers owned by unaffiliated third parties. See "ITEM 2. PROPERTIES."
Pursuant to its management agreements with the owners of each facility,
the Company supervises the management of the facility as to staffing,
accounting, billing, collections, rate setting and general administration, and
provides marketing services, which include identifying target markets,
developing appropriate marketing strategies and procedures, hiring, training
and supervising qualified leasing counselors as employees of the manager and
budgeting and controlling costs. The Company is responsible for hiring, on
behalf of the owner, all staff, including a facility administrator or
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executive director. The management agreements provide for management fees of
a flat rate per month, a percentage of net operating revenues (total revenues
less deductions and allowances for contractual adjustments to third party
payors and charitable allowances) or a combination of a flat rate and a
percentage of net operating revenues. For long-term care facilities, which
require the greatest amount of management services, the Company charges
management fees of $6,000 to $24,000 per month, depending primarily on the
number of beds, or, in some cases, 6% of net operating revenues. For
assisted/independent living centers, which involve fewer management services,
the Company charges $1,000 to $15,000 per month, depending primarily on the
amount of revenues of the center. The management agreements also provide a
separate fee for the marketing services provided by the Company to
assisted/independent living centers.
The obligations to pay management fees to the Company are general
obligations of the owners of the facilities. In many cases the facilities
have incurred substantial debt in the form of municipal bonds, debentures or
similar debt instruments. The payment of management fees to the Company is
generally subordinated to the payment of these obligations.
SOURCES OF REVENUES
The Company derives its patient service revenue primarily from a
combination of state Medicaid programs, the federal Medicare program and
private payment sources. The Company's revenues are determined by a number of
factors, including the licensed bed capacity of its facilities, occupancy
rates at the facilities and the payer mix. While management believes that it
has been successful in obtaining reimbursement, there can be no assurance that
reimbursement rates will remain at present levels or increase at rates
necessary to offset the effects of inflation. In particular, cost containment
proposals at both the state and federal levels may impact the Company's
ability to recover its costs of providing services to Medicaid and Medicare
patients. See "-- Governmental Regulation.".
MEDICAID. Medicaid refers to the various state-administered
reimbursement programs that are eligible for matching federal funds. Each of
the Company's long-term care facilities participates in the Medicaid program
of the state in which it is located. Under the federal Medicaid statute and
regulations, state Medicaid programs must provide reimbursement rates that are
reasonable and adequate to cover the costs that would be incurred by
efficiently and economically-operated facilities in providing services in
conformity with state and federal laws, regulations and quality and safety
standards. Furthermore, payments must be sufficient to enlist enough
providers so that services under the state's Medicaid plan are available to
recipients at least to the extent that those services are available to the
general population.
The Medicaid programs in which the Company's facilities participate pay
a per diem rate based on each facility's reasonable allowable costs incurred
in providing services, subject to cost ceilings applicable to both operating
and fixed costs, plus a return on equity. Reimbursement rates are typically
determined by the state, on a prospective or retrospective basis, from cost
reports filed by each facility. Under a prospective system, per diem rates
are established (generally on an annual basis) based on certain historical
costs of providing services during the prior year, adjusted to reflect factors
such as inflation and any additional services required to be performed; no
subsequent adjustment is made to reflect variations in actual costs from the
-11-
rates established. All of the Company's long-term care facilities are
reimbursed on a prospective rate system. Providers must accept reimbursement
from Medicaid as payment in full for the services rendered. The Georgia and
Tennessee Medicaid programs currently include incentive allowances for
providers whose costs are less than certain ceilings and who meet other
requirements. See "-- Governmental Regulation."
All Medicaid programs conduct periodic financial audits of participating
facilities. To date, adjustments from Medicaid audits have not had a material
adverse effect on the Company. While there can be no assurance that future
adjustments will not have such an effect, the Company believes that the actual
reimbursable amounts determined after audit will approximate the estimated
reimbursable amounts at which Medicaid revenue has been recorded.
MEDICARE. Medicare is a federally-funded and administered health
insurance program primarily designed for individuals who are age 65 or over
and are entitled to receive Social Security benefits. The Medicare program
consists of two parts: Part A covers in-patient hospital services and services
furnished by other institutional health care providers, such as long-term care
facilities; Part B covers the services of doctors, suppliers of medical items
and services, and various types of outpatient services. Part B services
include physical, speech and occupational therapy, pharmaceuticals and medical
supplies, certain intensive rehabilitation and psychiatric services and
ancillary diagnostic and other services of the type provided by long-term care
or acute care facilities. Part A coverage is limited to a specified term
(generally 100 days in a long-term care facility) and requires beneficiaries
to share some of the cost of covered services through the payment of a
deductible and a co-insurance payment. There are no limits on duration of
coverage for Part B services, but there is a co-insurance requirement for most
services covered by Part B.
All of the Company's long-term care beds are certified for Medicare
services. Generally, the Company's Medicare participating facilities receive
monthly reimbursement payments during the year at interim rates based on
historical costs. These rates are later adjusted to reflect actual allowable
direct and indirect costs of services based on the submission of a cost report
at the end of each year. Actual costs incurred and reported by each facility
are subject to retrospective audits which can result in upward or downward
adjustments of payments received. To date, adjustments from Medicare audits
have not had a material adverse effect on the Company. While there can be no
assurance that future adjustments will not have such an effect, the Company
believes that the actual reimbursable amounts determined after audit will
approximate the estimated reimbursable amounts at which Medicare revenue has
been recorded.
PRIVATE PAY. Private pay revenues include payments from individuals who
pay directly for services without governmental assistance and include payments
from commercial insurers, Blue Cross organizations, health maintenance
organizations, preferred provider organizations, workers' compensation
programs and other similar payment sources. The Company's rates for private
pay residents are typically higher than rates for patients eligible for
assistance under governmental reimbursement programs. The amount the Company
charges to private pay residents is not subject to regulatory control in any
state in which the Company operates. However, the private pay rates charged
by the Company are influenced primarily by the rates charged by other
providers in the local market and by Medicaid and Medicare reimbursement
rates.
-12-
All of the Company's patient service revenue attributable to its
assisted/independent living centers is derived exclusively from private pay
sources. Monthly resident fees for the Company's independent living centers
typically range from approximately $1,250 to $1,800 and monthly resident fees
for the Company's assisted living centers typically range from $1,500 to
$3,000 based upon the resident's level of required care. Government payments
for assisted living services have been limited and are not material to the
Company's assisted/independent living operations.
ANCILLARY BUSINESSES
On September 30, 1994, the Company acquired approximately 63% of the
outstanding capital stock of Contour Medical, Inc. ("Contour") from certain
shareholders of Contour. In exchange for such shares, the Company issued
125,000 shares of the Company Common Stock and 300,000 shares of the Company's
Series AA Convertible Preferred Stock. The Company currently owns
approximately 60% of Contour's outstanding capital stock.
Contour is a publicly-held company based in St. Petersburg, Florida
which manufactures and sells a full line of orthopedic care and rehabilitation
products. These products range from braces designed for reconstructive
rehabilitation of patients after surgery to finger and leg spreaders, leg
positioning devices (designed to prevent muscle atrophy and speed recovery
after surgery) and a full line of proprietary orthopedic devices used in
rehabilitative therapy procedures. Some of these products are utilized for
the care of wheelchair or bed-bound patients in the hospital, long-term care
facility and the home. Contour also manufactures and sells disposable
surgical procedure products for outpatient surgery, X-ray, radiology, and
other imaging technology within the hospital, emergency room, integrated care
facilities and clinic markets. These products, such as pads, bags, equipment
covers and drapes, are used to protect equipment, patients and attending
personnel in the surgery or emergency room environment, and are designed to
meet the requirements of infection control for medical, industrial and
institutional applications. In addition, Contour markets its REDINURSE
SYSTEMS product line, which provides custom-packaged procedural trays for use
in clinics and long-term care centers as well as by home health care nurses,
and distributes medical supplies and equipment produced by other
manufacturers.
In March 1996, Contour acquired AmeriDyne Corporation, a bulk medical
supply company based in Jackson, Tennessee, which has annual sales of
approximately $10 million.
In August 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. Contour paid $1,400,000 in
cash and promissory notes totaling $10,500,000 for the 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 (Retirement Care Associates, Inc.).
Retirement Care holds approximately 27% of the outstanding capital stock
of Perennial Development Corporation, a publicly held company based in
Louisville, Kentucky, whose wholly owned subsidiary, In-House Rehab, Inc.,
provides rehabilitation services to approximately 26 of Retirement Care's
long-term care facilities.
-13-
COMPETITION
The senior residential care industry is highly competitive. The Company
competes with other providers of senior residential care on the basis of the
breadth and quality of its services, the quality of its facilities and, with
respect to private pay patients or residents, price. The Company also
competes in the acquisition and development of additional facilities. The
Company's current and potential competitors include national, regional and
local operators of long-term care facilities, acute care hospitals and
rehabilitation hospitals, extended care centers, assisted/independent living
centers, retirement communities, home health agencies and similar
institutions, many of which have significantly greater financial and other
resources than the Company. In addition, the Company competes with a number
of tax-exempt nonprofit organizations which can finance capital expenditures
on a tax-exempt basis or receive charitable contributions unavailable to the
Company and which are generally exempt from paying income tax. There can be no
assurance that the Company will not encounter increased competition which
could adversely affect the Company's operating results.
While the Company's competitive standing varies from market to market,
management believes that the Company competes favorably in substantially all
of the markets it serves based on key competitive factors such as the breadth
and quality of services it offers, the quality of its facilities, its
recruitment and retention of qualified health care personnel and its
reputation among local referral sources.
Competition for the acquisition of long-term care facilities has
remained steady in recent years, but is expected to increase as the demand for
long-term care increases. Construction of new long-term care facilities near
the Company's facilities could adversely affect its business. However, state
laws generally require a CON, which is only issued if the applicant proves
that the need for additional long-term care beds exists under the state
devised formula, before a new long-term care facility can be built or beds can
be added to existing facilities. The Company believes that these laws reduce
the possibility of overbuilding and promote higher utilization of existing
facilities. CON laws are in place in all states where the Company operates.
While such measures may limit the Company's expansion of current facilities
and possible future acquisitions, they may also reduce competition in the
affected service area.
The Company competes with other health care providers for both
professional and nonprofessional employees and with non-health care providers
for non-professional employees. In recent years the health care industry has
experienced a shortage of qualified health care personnel. While the Company
has been able to retain the services of an adequate number of qualified
personnel to staff its facilities appropriately and maintain its standards of
quality care, there can be no assurance that continued shortages will not
affect the ability of the Company to maintain the desired staffing levels. A
lack of qualified personnel at any facility could result in significant
increases in labor costs or otherwise adversely affect the operations at that
facility. Any of these developments could adversely affect the Company's
operating results or expansion plans.
GOVERNMENT REGULATION
The federal government and all states in which the Company operates
regulate various aspects of the Company's business. In addition to the
-14-
regulation of rates by governmental payer sources, the development and
operation of long-term care and assisted living facilities and the provision
of long-term care services are subject to federal, state and local licensure
and certification laws which regulate with respect to a facility, among other
matters, the number of beds, the services provided, the distribution of
pharmaceuticals, the condition and use of medical equipment, staffing
requirements, operating policies and procedures, fire prevention measures and
compliance with building and safety codes and environmental laws. There can be
no assurance that federal, state or local governments will not impose
additional restrictions which might impact the Company's business.
LICENSURE AND CERTIFICATION. All of the facilities operated by the
Company are licensed under applicable state laws and have all required CONs
from responsible state authorities. All of the Company's long-term care
facilities are certified or approved as providers under the Medicaid program,
and all of its long-term care facilities are certified or approved as
providers under the Medicare program. Both initial and continuing
qualification of a long-term care facility to participate in the Medicaid and
Medicare programs depend on many factors, including accommodations, equipment,
services, non-discrimination policies against indigent patients, patient care,
quality of life, residents' rights, safety, personnel, physical environment
and adequacy of policies, procedures and controls. Licensing, certification
and other applicable standards vary from jurisdiction to jurisdiction and are
revised periodically. State agencies survey or inspect all long-term care
facilities on a regular basis to determine whether such facilities are in
compliance with the requirements for participation in government-sponsored
third party payer programs. In some cases or upon repeat violations, the
reviewing agency has the authority to take various adverse actions against a
facility, including the imposition of fines, temporary suspension of admission
of new patients to the facility, suspension or decertification from
participation in the state Medicaid or the Medicare program, denial of payment
under Medicaid for new admissions, reduction of payments, and, in extreme
circumstances, revocation of a facility's license or closure of a facility.
The compliance history of a prior operator may be used by state or federal
regulators in determining possible action against a successor operator.
REGULATORY COMPLIANCE AND ENFORCEMENT. The Company believes that its
facilities comply in all material respects with all applicable statutes,
regulations, standards and requirements, including applicable Medicaid and
Medicare regulatory requirements. However, in the ordinary course of its
business, the Company's long-term care facilities are surveyed from time to
time for regulatory compliance and receive notices of deficiencies for failure
to comply with various regulatory requirements. In most cases, the Company
and the reviewing agency will agree upon corrective measures to be taken to
bring the facility into compliance. To date, statements of deficiency
received by the Company have not had any material adverse effect on its
operations, and there is no pending or threatened decertification of or
moratorium on admissions at any of its facilities. While there can be no
assurance that future surveys will not have a material adverse effect on the
Company, based on its operating policies and compliance procedures, quality
assurance programs and past experience, the Company does not expect to receive
any statements of deficiency which would, either individually or in the
aggregate, have a material adverse effect on its operations.
FRAUD AND ABUSE LAWS. Various federal and state laws regulate the
relationship between providers of health care services and physicians,
including employment or service contracts and investment relationships. These
-15-
laws include the broadly-worded fraud and abuse provisions of the Medicaid and
Medicare statutes, which prohibit payments for the referral of Medicaid or
Medicare patients. Violations of these provisions may result in civil or
criminal penalties for individuals or entities or exclusion from participation
in the Medicaid and Medicare programs. Management believes that in the past
the Company has been, and in the future it will be, able to arrange its
business relationships so as to comply with these provisions.
OBRA - 87. Effective October 1, 1990, the Omnibus Budget Reconciliation
Act of 1987 ("OBRA") eliminated the different certification standards for
"skilled" and "intermediate care" nursing facilities under the Medicaid
program in favor of a single "nursing facility standard. This standard
requires, among other things, that the Company have at least one registered
nurse on each day shift and one licensed nurse on each other shift and
increases training requirements for nurse's aides by requiring a minimum
number of training hours and a certification test before a nurse's aide can
commence work. States must continue to certify that nursing facilities
provide "skilled care" in order to obtain Medicare reimbursement. Management
is unable to predict how individual state licensure laws win conform to this
change but believes that the Company will not be materially adversely
affected.
RESTRICTIONS ON ACQUISITIONS, CONSTRUCTION AND ADDITIONS. All states in
which the Company operates have adopted CON or similar laws which generally
require that, with respect to long-term care facilities, a state agency
determine that a need exists prior to the addition or reduction of beds or
services, the implementation of other changes, the incurrence of certain
capital expenditures or, in certain states, the closure of a facility. State
approvals are generally issued for a specified maximum expenditure and require
implementation of the proposal within a specified period of time. Failure to
obtain the necessary state approval can result in the inability of the
facility to provide the service, operate the facility or complete the
acquisition, addition or other change in a facility and in the imposition of
sanctions or other adverse action on the facility's license and reimbursement
eligibility.
GOVERNMENTAL BUDGETARY RESTRAINTS. Both the federal government and
venous states are considering imposing limitations on the amount of funding
available for various health care services. Among the proposals being
considered by the United States Congress is a "block grant" funding mechanism
for the disbursement of the federal share of Medicaid payments to the
individual states. If enacted, this could cause a reduction in the
availability of Medicaid funds in future years to the states which, in turn,
provide reimbursement to Medicaid-certified long-term care facilities. In
addition, various states are themselves considering reduced levels of spending
in various areas which also could affect the amount of available Medicaid
funding. In November 1995, the United States Senate and House of
Representatives passed a budget reconciliation bill which would establish a
framework for balancing the federal budget in seven years. While the
President vetoed the bill, the Administration has agreed to achieve a balanced
budget in this time frame. The bill passed by the Senate and House would have
resulted in a major restructuring of the current Medicaid program. Rather
than operating as an entitlement program, the new "MediGrant" program would
provide federal block grants to the states for medical assonance prodded to
low income individuals and families. While the states would be subject to
certain federal requirements, states would also have broad flexibility to
establish their coverage, eligibility and payment standards. Given the fixed
-16-
federal funds that would be available to support state MediGrant programs,
there would be no assurance that, if enacted, these provisions would not have
a material adverse effect on the results of operations of the Company. While
Medicare and Medicaid reimbursements may not continue at the current levels or
rates of increase, it is not possible to predict with certainty the effect of
any legislation upon the Company's operations.
EMPLOYEES. As of August 31, 1996, the Company employed in the aggregate
approximately 6,900 employees, including 95 employees at the Company's
executive offices. The Company believes that its relationship with its
employees is satisfactory. The Company has collective bargaining agreements
with unions representing two of the facilities that the Company operates. The
Company is currently negotiating an agreement with the union representing
employees at one other facilities operated by the Company. The employees at
the remaining facilities operated by the Company have not elected to be
covered by collective bargaining agreements.
The Company believes that the attraction and retention of dedicated,
skilled and experienced nursing and other professional staff has been and will
continue to be a critical factor in the successful development of its
business. In response to this challenge, a compensation program which provides
for regular merit and cost-of-living reviews and a variety of financial and
other incentives have been implemented to promote facility staff motivation
and productivity and to reduce turnover rates. The Company believes that its
wage rates for nursing and other professional staff are commensurate with
market rates.
INSURANCE
Providing health care services entails an inherent risk of liability.
The Company maintains liability insurance providing coverage which it believes
to be adequate. In addition, the Company maintains property, business
interruption and workers' compensation insurance covering all facilities in
amounts deemed adequate by the Company. The Company carries malpractice
insurance coverage for each of the facilities that it owns, operates or
manages in the amount of $1 million per incident per facility and $3 million
annual aggregate per facility. The Company also carries an umbrella excess
liability insurance policy which has a $20 million per incident limit with an
aggregate limit of $20 million. There can be no assurance that any future
claims will not exceed applicable insurance coverage or that the Company will
be able to continue its present insurance coverage on satisfactory terms, if
at all.
ITEM 2. PROPERTIES.
The Company currently leases approximately 20,000 square feet of office
space for its corporate offices at 6000 Lake Forrest Drive, Suite 200,
Atlanta, Georgia, from an unaffiliated party. This lease expires in October
2000, and currently requires base monthly lease payments of approximately
$25,304. The Company believes that these facilities are suitable and adequate
to meet its present and anticipated needs.
The following table summarizes certain information regarding facilities
leased, owned and managed by the Company as of August 20, 1996. With regard
to facilities managed for affiliated companies, the name of the affiliate is
indicated using the following abbreviations: Winter Haven Homes, Inc. - WHH;
Gordon Jensen Health Care Associates, Inc. - GJ; National Assistance Bureau,
Inc. - NAB; Southeastern Cottages, Inc. - SCI; and Chamber Health Care Society
- - CHCS.
-17-
Leased/
Owned/ Occupancy
Number Managed As of
Type of of Beds (Name of August 20,
Name Location of Facility or Units Affiliate) 1996
- ------------------ ---------- ----------- -------- --------- ----------
GEORGIA
Twin View Health Twin City Long-Term 110 Managed 98%
Care Center Care (GJ)
Griffin Health Griffin Long-Term 148 Owned 99%
Care Center Care
Midway Health Midway Long-Term 169 Managed 93%
Care Center Care (GJ)
Dearfield Nursing Columbus Long-Term 210 Owned 96%
Facility Care
Summer's Landing- Vidalia Assisted/ 24 Managed 100%
Vidalia Independent (SCI)
Living
Summer's Landing- Cordele Assisted/ 36 Owned 97%
Cordele Independent
Living
Summer's Landing- Douglas Assisted/ 58 Managed 97%
Douglas Independent (GJ)
Living
Summer's Landing- Dublin Assisted/ 56 Owned 86%
Dublin Independent
Living
Summer's Landing- Dahlonega Assisted/ 24 Leased 88%
Dahlonega Independent
Living
Summer's Landing- Griffin Assisted/ 30 Owned Under
Griffin Independent Con-
Living struc-
tion
Summer's Landing- Plains Assisted/ 40 Owned Under
Plains Independent Con-
Living struc-
tion
Twelve Oaks Health Riverdale Long-term 152 Leased 97%
Care Care
Cedartown Health Cedartown Long-term 116 Leased 98%
Care Center Care
Floyd Health Care Rome Long-term 100 Leased 97%
Center Care
-18-
Friendship Health Cleveland Long-term 89 Leased 99%
Care Center Care
Gateway Health Cleveland Long-term 60 Leased 98%
Care Center Care
Gold City Health Dahlonega Long-term 102 Leased 100%
Care Center Care
Mountain View Clayton Long-term 117 Leased 97%
Health Care Center Care
Sandmont Health Trenton Long-term 71 Leased 97%
Care Center Care
Rome Health Care Rome Long-term 100 Leased 95%
Center Care
Sun Mountain Rome Long-term 100 Leased 99%
Health Care Center Care
Arrowhead Nursing Jonesboro Long-term 115 Owned 96%
Center Care
Roberta Nursing Roberta Long-term 100 Leased 96%
Home Care
West View Health Port Long-term 99 Leased 99%
Care Center Wentworth Care
Peachbelt Health Warner Long-term 106 Leased 96%
Care Center Robins Care
Dogwood Retirement Warner Assisted/ 18 Leased 79%
Village Robins Independent
Living
Riverside Health Covington Long-term 157 Managed 99%
Care Center Care (CHCS)
Springdale Conva- Atlanta Long-term 109 Owned 96%
lescent Center of Care
Atlanta
Springdale Conva- Carters- Long-term 118 Leased 98%
lescent Center ville Care
of Bartow County
Summer's Landing- Carters- Long-term 50 Owned 70%
Cartersville ville Care
Brunswick Nursing Brunswick Long-term 204 Leased 100%
Center Care
Tattnall Nurse Reidsville Long-term 92 Leased 87%
Care Center Care
Altamaha Conva- Jesup Long-term 62 Leased 95%
lescent Center Care
-19-
Summer's Landing- Rome Assisted/ 30 Owned 77%
Rome Independent
Living
Manor on the Roswell Assisted/ 24 Managed 93%
Square Independent
Living
Riverview Nursing Rome Long-term 100 Owned 99%
Home Care
Summer's Landing- Rome Assisted/ 15 Owned 80%
Riverview Independent
Living
Marietta Health Marietta Long-term 119 Leased 98%
Care Care
Brown's Nursing Statesboro Long-term 63 Leased 100%
Home Care
Clinch Healthcare Homerville Long-term 92 Leased 92%
Center Care
Total for Georgia 3,564 (38 facilities)*
- ---------------
* Excludes facilities under construction.
FLORIDA
Renaissance of Sebring Assisted/ 170 Owned 79%
Sebring Independent
Living
The Garden at Green Cove Assisted/ 28 Managed 61%
Magnolia Manor Springs Independent (GJ)
Living
Magnolia Manor Green Cove Long-term 60 Managed 97%
Nursing Center Springs Care (GJ)
Lake Forrest Jackson- Long-term 60 Leased 95%
Health Care ville Care
Center
Summer's Landing- Lynn Haven Assisted/ 51 Managed 80%
Lynn Haven Independent (NAB)
Living
The Renaissance Titusville Assisted/ 93 Managed 89%
Independent (WHH)
Living
Renaissance of Sanford Assisted/ 94 Managed 94%
Sanford Independent (WHH)
Living
-20-
The Atrium Jackson- Assisted/ 178 Managed 95%
ville Independent and 75%
Care Owned
The Atrium Jackson- Long-term 84 Managed Under
Nursing Home ville Care and 75% Con-
Owned struc-
tion
The Preserve Pompano Assisted/ 297 Managed 99%
Beach Independent
Living
The Renaissance Destin Assisted/ 116 Owned 82%
of Sandestin Independent
Living
The Edwinola Dade City Assisted/ 214 Owned 85%
Independent
Living
Oak Bluff Clearwater Assisted/ 251 Managed 80%
Independent
Living
Westwood Retire- Fort Walton Assisted/ 208 Owned 95%
ment Independent
Living
Southside Nursing Jackson- Long-term 116 Leased 60%
Center ville Care
The Renaissance Lakeland Assisted/ 104 Owned 56%
of Lakeland Independent
Living
The Renaissance Pensacola Assisted/ 106 Leased 50%
of Pensacola Independent
Living
Oak Bluff Clearwater Long-term 60 Managed 95%
Care
Westwood Nursing Fort Walton Long-term 60 Owned 95%
Center Care
Oak Cove Clearwater Long-term 56 Managed 95%
Care
Summer's Landing- Jackson- Assisted/ 39 Managed 97%
Atrium ville Independent and 75%
Living Owned
Summer's Landing- Titusville Assisted/ 28 Managed Under
of Titusville Independent (WHH) Con-
Living struc-
tion
Total for Florida 2,361 (20 facilities)*
-21-
- ---------------
*Excludes facilities under construction.
TENNESSEE
Marshall C. Voss Harriman Long-term 139 Managed 99%
Health Care Care (NAB)
Trenton Health Trenton Long-term 58 Managed 98%
Care Center Care (GJ)
Summer's Landing- Trenton Assisted/ 22 Managed 100%
Trenton Independent (GJ)
Living
Jackson Oaks Jackson Assisted/ 178 Leased 97%
Retirement Independent
Living
Cumberland Green Henderson- Assisted/ 140 Managed 93%
Retirement ville Independent (WHH)
Living
Winchester Health Winchester Long-term 80 Leased 96%
Care Care
Health Care Ardmore Long-term 79 Leased 98%
Center of Care
Ardmore
Fayetteville Fayetteville Long-term 79 Leased 100%
Health Care Care
Center
River Park Health Nashville Long-term 78 Leased 88%
Care Center Care
Palmyra Inter- Palmyra Long-term 75 Leased 88%
mediate Care Care
Center
Milan Health Milan Long-term 66 Leased 96%
Care Center County Care
Pleasant View Bolivar Long-term 67 Leased 99%
Health Care Care
Center
Lauderdale Ripley Long-term 71 Owned 89%
Healthcare Care
Oak Manor Health McKenzie Long-term 66 Leased 99%
Care Center Care
Parkway Health Memphis Long-term 120 Managed 0%*
and Rehab Care (CHCS)
-22-
Hillview Nursing Dresden Long-term 70 Owned 96%
Home Care
Crestwood Nursing Manchester Long-term 59 Owned 93%
Home Care
Reelfoot Manor Tiptonville Long-term 120 Leased 85%
Care
Woodbury Nursing Woodbury Long-term 101 Leased 100%
Home Care
Total for Tennessee 1,668 (19 facilities)
- ---------------
* This facility became licensed on August 12, 1996.
ALABAMA
Gardendale Gardendale Long-term 148 Leased 98%
Health Care Care
Center
Summer's Landing- Gardendale Assisted/ 26 Leased 100%
Gardendale Independent
Living
Summer's Landing- Hanceville Assisted/ 46 Leased 50%
Hanceville Independent
Living
Sea Breeze Mobile Long-term 120 Managed 96%
Health Care Care (WHH)
Center
Summer's Landing- Mobile Assisted/ 20 Managed 10%
Sea Breeze Independent (WHH)
Living
Total for Alabama 360 (5 facilities)
SOUTH CAROLINA
The Calhoun Anderson Assisted/ 90 Managed 64%
Independent
Living
Total for South 90 (1 facility)
Carolina
NORTH CAROLINA
Pine Manor Fayette- Long-term 100 Managed 65%
ville Care
Wilkinson Health Gastonia Long-term 50 Leased 98%
Care Center Care
-23-
Total for North 150 (2 facilities)
Carolina
VIRGINIA
Libbie Convales- Richmond Long-term 195 Owned 95%
cent Center Care
Highland Manor Dublin Long-term 132 Leased 92%
Nursing Center Care
Tappahannock Tappahannock Long-term 60 Owned 100%
Manor Care
Summer's Landing- Tappahannock Assisted/ 58 Owned 91%
Tappahannock Independent
Living
Brentlox Hall Chesapeake Long-term 120 Owned 98%
Care
Total for Virginia 565 (5 facilities)
OHIO
Hamlet Chagrin Assisted/ 222 Owned 90%
Retirement Falls Independent
Care
Hamlet Nursing Chagrin Long-term 88 Owned 81%
Manor Falls Care
Total for Ohio 310 (2 facilities)
ARIZONA
The Carillons Sun City Assisted/ 75 Owned 96%
Independent
Care
Total for Arizona 75 (1 facility)
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to litigation arising in the ordinary course of
business. The Company and its subsidiaries are not currently parties to any
litigation that management believes would have a material adverse effect on
the financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-24-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) MARKET INFORMATION. Since December 18, 1995, the Company's Common
Stock has been listed on the New York Stock Exchange under the symbol "RCA".
The Company's Common Stock was previously traded in the over-the-counter
market, and from April 7, 1994 through December 15, 1995, it was quoted on
the NASDAQ National Market System. Prior to April 7, 1994, quotations were
carried on the NASD's OTC Bulletin Board.
The following table sets forth the high and low sale prices for the
Company's Common Stock as reported on the NASDAQ National Market System
through December 15, 1995, and on the New York Stock Exchange after that date,
for the periods indicated:
QUARTER ENDED HIGH* LOW*
September 30, 1994 $ 8.05 $ 5.44
December 31, 1994 $ 8.11 $ 6.12
March 31, 1995 $ 9.29 $ 6.79
June 30, 1995 $12.86 $ 6.43
September 30, 1995 $16.65 $10.12
December 31, 1995 $12.74 $ 8.15
March 31, 1996 $11.31 $ 9.46
June 30, 1996 $13.25 $10.00
______________________
* As adjusted to give retroactive effect to a 5% stock dividend that was
effected on February 15, 1995, and a 5% stock dividend that was effected on
May 1, 1996.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The number of
record holders of the Company's $.0001 par value common stock at September 18,
1996, was 417, and the number of beneficial holders is estimated to be
approximately 2,500.
(c) DIVIDENDS. The Company has paid no cash dividends on its Common
Stock and has no present intention of paying cash dividends in the foreseeable
future. In February 1994, the Company declared a 5% stock dividend on its
outstanding Common Stock, in January 1995, the Company declared an additional
5% stock dividend on its outstanding Common Stock, and in April 1996, the
Company declared an additional 5% stock dividend on its outstanding Common
Stock. It is the present policy of the Board of Directors to retain all
earnings to provide for the growth of the Company. Payment of cash dividends
in the future will depend, among other things, upon the Company's future
earnings, requirements for capital improvements and financial condition. The
Company does, however, intend to consider additional stock dividends in the
future. The Company's ability to pay any cash dividends on the Company's
Common Stock in the future will be limited by the dividend and redemption
requirements of the Company's Series AA Convertible Preferred Stock.
-25-
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information for the fiscal year ended
June 30, 1996, is derived from financial statements of the Company audited by
Coopers & Lybrand, LLP, independent certified public accountants. The
selected financial information for the fiscal years ended June 30, 1995, 1994
and 1993, is derived from financial statements of the Company audited by BDO
Seidman, independent certified public accountants. The selected information
for the fiscal year ended June 30, 1992, is derived from financial statements
of the Company audited by Laney, Boteler & Killinger, independent certified
public accountants. As described more fully in the Company's financial
statements, financial information prior to the date of the Company's merger
with Capitol Care Management Company, Inc. reflects the financial information
of Capitol Care Management Company, Inc.
BALANCE SHEET DATA:
AT JUNE 30,
1996 1995 1994 1993 1992
<FN1><FN2> <FN1><FN2> <FN1><FN2> <FN1><FN2> <FN1>
Current Assets $ 30,761,075 $25,782,546 $12,449,522 $1,404,228 $240,088
Total Assets 179,557,647 80,257,546 31,230,025 2,453,241 359,397
Current Liabili-
ties 26,187,331 22,857,244 9,328,989 1,677,250 215,255
Working Capital
(Deficit) 4,573,744 2,925,302 3,120,533 (273,022) 24,833
Long-Term Debt 110,375,799 32,426,023 8,199,915 -0- 11,164
Redeemable Pre-
ferred Stock 2,400,000 3,000,000 -0- -0- -0-
Shareholders'
Equity 34,689,123 19,733,254 13,399,751 775,991 132,978
<FN>
<FN1>
Effective November 30, 1992, the Company acquired the stock of CCMC in a
reverse acquisition in which CCMC's stockholders acquired voting control of
the Company. The transaction was accounted for as a purchase with CCMC as the
acquiring company because CCMC's stockholders acquired a majority of the
voting rights in the combined company. Accordingly, the results of operations
prior to November 30, 1992, are those of CCMC. See Note 2 to the Company's
financial statements.
<FN2>
On May 1, 1993, the Company entered into operating lease agreements for seven
licensed nursing homes and one personal care facility. Prior to May 1, 1993,
the Company and its predecessor, Capitol Care Management Company, Inc., were
engaged exclusively in the management of retirement facilities and nursing
homes. Subsequent to May 1, 1993, the Company, through the operating leases
on the eight facilities, began to operate facilities resulting in the
recognition of $2,399,906 of patient service revenues and $222,610 of other
revenues for the year ended June 30, 1993. During the year ended June 30,
1993, the eight facilities incurred $2,037,694 of operating expenses resulting
in an operating margin of $584,822. During the year ended June 30, 1994, the
Company continued its expansion into the operation of facilities, with the
acquisition of two retirement facilities and two nursing home facilities
accounted for using the purchase method of accounting and new operating lease
commitments for eleven nursing homes and one retirement facility. The
-26-
addition of these sixteen facilities either through direct acquisition or
operating leases increased patient service revenues by $16,520,401, total
revenues by $136,124 and operating expenses by $12,774,764. During the year
ended June 30, 1995, the Company purchased three nursing homes and two
retirement facilities and leased seven more nursing homes. During the fiscal
year ended June 30, 1996, the Company purchased seven nursing homes and four
retirement facilities and leased eight nursing homes and three retirement
facilities.
</FN>
STATEMENT OF INCOME DATA:
FOR THE YEARS ENDED JUNE 30,
1996 1995 1994 1993 1992
------------ ----------- ----------- ---------- --------
Revenues $134,011,369 $79,616,053 $37,971,052 $4,553,666 $610,981
Operating
Expenses 117,887,133 70,598,837 32,993,562 3,615,109 585,535
Net Income 5,569,811 5,058,503 2,917,642 573,557 18,951
Net Income Per
Common and
Common Equi-
valent
Share<FN1> $ .39 $ .38 $ .30 $ .11 $ .02
Weighted
Average
Shares<FN1> 13,586,003 12,616,835 9,839,993 5,010,354 964,688
Cash Dividends
Per Common
Share $ -0- $ -0- $ -0- $ -0- $ -0-
<FN>
<FN1>
The Company has retroactively restated net income per share and weighted
average shares outstanding for the effect of stock dividends, stock splits and
reverse stock splits. See "Notes to Financial Statements."
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
The Company's total revenues for the year ended June 30, 1996, were
$134,011,369 compared to $79,616,053 for the year ended June 30, 1995.
Management fee revenue decreased from $4,169,694 in the year ended June
30, 1995, to $3,781,433 in the year ended June 30, 1996. The Company
purchased or leased six facilities in the year ended June 30, 1996, that it
managed in the year ended June 30, 1995. Included in the Company's management
fee revenue is $3,472,900 and $3,517,500 from affiliates during the years
ended June 30, 1996 and 1995, respectively.
-27-
Due to the increased number of facilities owned or leased by the
Company, patient service revenue increased from $69,949,822 for the year ended
June 30, 1995 to $119,499,849 for the year ended June 30, 1996. The cost of
patient services in the amount of $77,776,292 for the year ended June 30,
1996, represent 65% of patient service revenue, as compared to $47,778,410, or
68% of patient service revenue during the year ended June 30, 1995. The
decrease in the percentage is attributed to an increase in the ratio of
retirement facilities to nursing facilities operated during the current year.
Retirement facilities require less patient services than nursing homes.
During the year ended June 30, 1996, the Company had revenue from
medical supply sales of $14,542,421 of which $4,717,169 was intercompany sales
which were eliminated in consolidation. These sales reflect the operations of
Contour Medical, Inc., of which the Company acquired a majority interest on
September 30, 1994. The Cost of goods sold for the year ended June 30, 1996,
was $5,773,934.
General and administrative expenses for the year ended June 30, 1996,
were $23,886,877, representing 18% of total revenues, as compared to
$12,769,582 representing 16% of total revenues, for the year ended June 30,
1995.
During the year ended June 30, 1996, the Company recorded a $1,027,593
provision for bad debts. The Company recorded no similar provision during the
prior year.
During the year ended June 30, 1996, the Company had $1,847,868 in
interest income and financing fees as compared to $658,215 in interest income
and financing fees for the year ended June 30, 1995. Financing fees, which
totaled $150,000 for the year ended June 30, 1996, represents fees received by
the Company for assisting other companies to obtain financing for nursing
homes and retirement facilities. The increase in interest income is a result
of the increased amount of advances to related parties during the current
year.
For the year ended June 30, 1996, the Company incurred expenses for
income taxes of $4,228,307 which represents an effective tax rate of 45% as
compared to expenses for income taxes of $3,419,092 which represents an
effective tax rate of 40% for the year ended June 30, 1995. The increase in
the effective tax rate is mainly the result of a non-deductable tax penalty of
approximately $400,000 which was assessed during the year ended June 30, 1996.
The net income of $5,569,811 for the year ended June 30, 1996, is higher
than the net income of $5,058,503 for the year ended June 30, 1995, due to the
increased number of facilities operated during the most recent fiscal year.
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. These fees represent
2.82% and 5.24% of total revenues of the Company for the years ended June 30,
1996 and 1995, respectively.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
-28-
The Company's total revenues for the year ended June 30, 1995, were
$79,616,053 compared to $37,971,052 for the year ended June 30, 1994.
Management fees increased from $3,292,949 in the year ended June 30,
1994, to $4,169,694 in the year ended June 30, 1995, due to the increased
number of facilities which the Company manages as well as the renegotiation of
management agreements resulting in higher management fees. Included in the
Company's management fee revenue is $3,517,500 and $3,034,445 from affiliates
during the years ended June 30, 1995 and 1994, respectively.
Due to the increased number of facilities owned or leased by the
Company, patient service revenue increased from $34,340,394 for the year ended
June 30, 1994, to $69,949,822 for the year ended June 30, 1995. The cost of
patient services in the amount of $47,778,410 for the year ended June 30,
1995, represented 68% of patient service revenue, as compared to $23,088,387,
or 67% of patient service revenue during the year ended June 30, 1994.
During the year ended June 30, 1995, the Company had revenue from
medical supply sales of $3,617,439. These sales reflect the operations of
Contour Medical, Inc., of which the Company acquired a 63% interest on
September 30, 1994. As a result, these sales only reflect nine months of
operations. The cost of goods sold for the year ended June 30, 1995, was
$3,153,430, or 87% of medical supply sales.
General and administrative expenses for the year ended June 30, 1995,
were $12,769,582 representing 16% of total revenues, as compared to $5,953,793
representing 16% of total revenues, for the year ended June 30, 1994.
During the year ended June 30, 1995, the Company had $658,215 in
interest income and financing fees. The Company had no similar revenue during
the year ended June 30, 1994.
For the year ended June 30, 1995, the Company incurred expenses for
income taxes of $3,419,092 which represents an effective tax rate of 40% as
compared to expenses for income taxes of $1,827,483 which represents an
effective tax rate of 39% for the year ended June 30, 1994.
The net income of $5,058,503 for the year ended June 30, 1995, is higher
than the net income of $2,917,642 for the year ended June 30, 1994, due to the
increased number of facilities operated and managed during 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had $4,573,744 in working capital compared
to $2,925,302 at June 30, 1995. The increase was primarily due to the net
income recorded for the year ended June 30, 1996.
During the year ended June 30, 1996, cash provided by operating
activities was $5,708,460 as compared to $4,208,048 for the year ended June
30, 1995. The $1,500,412 increase was primarily due to the increased accounts
payable associated with acquiring facilities in the year ended June 30, 1996
and an increase in depreciation from 1,128,183 for the year ended June 30,
1995 to $3,223,543 for the year ended June 30, 1996.
Cash used in investing activities during the year ended June 30, 1996,
was $45,195,665. The expenditures primarily related to acquisitions to
purchases of property and equipment of $8,826,151, and advances to affiliates
of $8,855 686 due to capital expenditures and working capital deficits of the
affiliates.
-29-
At June 30, 1996, advances to affiliates had increased to $14,316,661
from $7,328,222 at June 30, 1995, due to additional capital expenditures and
working capital deficits of the affiliates. These advances were repaid
subsequent to year end. The repayment transactions included the transfer of
two facilities to the Company at fair market value, as established by an
independent appraisal. The proceeds of this transfer reduced the balance to
approximately $2.8 million. The balance was eliminated by the contribution of
shares of the Company's common stock by affiliated shareholders. The stock
will be retired.
Cash provided by financing activities during the year ended June 30,
1996, totaled $34,325,385. Sources of cash included capital investment by
minority shareholders of a subsidiary of $2,088,492, proceeds from issuance of
preferred stock of $9,300,000, proceeds from stock options and warrants
exercised of $630,098, and proceeds from long-term debt and lines of credit of
$35,329,244. Cash used in financing activities primarily consisted of
$9,443,626 in payments of long-term debt, $2,419,783 in payments of debt
issuance costs, and $600,000 in redemption of preferred stock, $274,040 in
purchaser of treasury stock, and $285,000 for dividends on preferred stock.
During the year ended June 30, 1995, cash provided by operating
activities was $4,208,048 as compared to $1,523,311 for the year ended June
30, 1994. The $2,684,737 increase was primarily due to the increased net
income for the year ended June 30, 1995.
Cash used in investing activities during the year ended June 30, 1995,
was $(10,644,726). The expenditures primarily related to purchases of
property and equipment of $6,079,610, purchases of bonds receivable of
$4,487,936, increases in investments and advances to The Atrium Ltd. of
$2,985,833 and advances to affiliates of $1,742,147 due to capital
expenditures and working capital deficits of the affiliates. These were
partially offset by the proceeds from a sale-leaseback transaction of
$4,500,000.
At June 30, 1995, advances to affiliates had increased to $7,328,222
from $5,605,250 at June 30, 1994, due to additional capital expenditures and
working capital deficits of the affiliates.
Cash provided by financing activities during the year ended June 30,
1995, totalled $10,683,801. Sources of cash included capital investment by
minority shareholders of a subsidiary of $1,729,469, net borrowings under
lines of credit of $1,745,316 and proceeds from long-term debt of $9,564,670.
Cash used in financing activities primarily consisted of $2,130,654 in
payments of long-term debt and $225,000 for dividends on preferred stock.
Management's objective is to acquire only those facilities it believes
will be able to generate sufficient revenue to pay all operating costs,
management fees, lease payments or debt service, and still return a 3% to 4%
cash flow. Management believes that the Company's cash flow from operations,
together with lines of credit and the sale of securities described below, will
be sufficient to meet the Company's liquidity needs for the current year.
The Company maintains various lines of credit with interest rates
ranging from prime plus .25% to prime plus 1.25%. At June 30, 1996, the
Company had approximately $1,500,000 in unused credit available under such
lines.
-30-
Subsequent to year end, the Company raised approximately $9,340,000 in
net proceeds from the sale of convertible preferred stock in a private
offering to foreign investors. The proceeds of this offering are being used
for working capital purposes.
On September 30, 1994, the Company purchased a majority of the stock of
Contour Medical, Inc. 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 the five years for $3,000,000 in cash.
$600,000 was paid on September 30, 1996 pursuant to this obligation.
Management intends to fund these 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 intends to use long-term debt financing in connection with
the purchase of additional retirement care facilities and nursing homes on
terms which can be paid out of the cash flow generated by the property.
The Company intends to continue to lease or purchase additional
retirement care and/or nursing home facilities in the future.
IMPACT OF INFLATION AND PENDING FEDERAL HEALTH CARE LEGISLATION
Management does not expect inflation to have a material impact on the
Company's revenues or income in the foreseeable future so long as inflation
remains below the 9% level. The Company's business is labor intensive and
wages and other labor costs are sensitive to inflation. Management believes
that any increases in labor costs in its management services segment can be
offset over the long term by increasing the management fees. With respect to
the operations segment, approximately 52% of the Company's net patient service
revenue is received from state Medicaid programs. The two states which make
Medicaid payments to the Company have inflation factors built into the rates
which they will pay. Georgia's inflation factor is nine percent and
Tennessee's inflation is eleven percent. Therefore, increases in operating
costs due to inflation should be covered by increased Medicaid reimbursements.
Management is uncertain what the final impact will be of pending federal
health care reform packages 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 these programs.
Also, the timing of payments made under the 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.
-31-
ACCOUNTING PRONOUNCEMENT
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 affect the Company's financial statements for the year ended
June 30, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Independent Auditors' Report appears at page F-1, and the Financial
Statements and Notes to Financial Statements appear at pages F-3 through F-32
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No response required.
-32-
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by these Items is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held in December 1996.
-33-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS. The following financial statements are
filed as part of this report:
Page(s)
Reports of Independent Certified Public Accountants............ F-1 - F-2
Consolidated Balance Sheets as of June 30, 1996 and 1995....... F-3 - F-4
Consolidated Statements of Income for the years ended
June 30, 1996, 1995 and 1994................................. F-5 - F-6
Consolidated Statements of Shareholders' Equity for the
years ended June 30, 1996, 1995 and 1994..................... F-7 - F-8
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994................................. F-9 - F-10
Notes to Financial Statements.................................. F-11 - F-32
(a) 2. FINANCIAL STATEMENT SCHEDULES. All schedules have been omitted,
as the required information is inapplicable or the information is presented in
the financial statements or the notes thereto.
(a) 3. EXHIBITS:
EXHIBIT
NO. DESCRIPTION LOCATION
3.1 Articles of Incor- Incorporated by reference
poration, as amended to Exhibit No. 3.1 to the
Company's Form S-18 Regis-
tration Statement No. 33-7666-D
3.2 Bylaws, as amended Incorporation by reference
to Exhibit No. 3.2 to the
Company's Form S-18 Regis-
tration Statement No. 33-7666-D
3.3 Articles of Amendment Incorporated by reference
to Articles of Incor- to Exhibit 3.3 to the
poration Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1993
3.4 Statements Establish- Incorporated by reference
ing Series A and Series to Exhibit 3.4 to the
D Convertible Preferred Company's Annual Report on
Stock Form 10-K for the fiscal year
ended June 30, 1994
3.5 Articles of Amendment to Incorporated by reference
Articles of Incorporation to Exhibit 3.5 to the
(Series AA Convertible Company's Annual Report on
Preferred Stock) Form 10-K for the fiscal year
ended June 30, 1994
-34-
3.6 Articles of Amendment to Filed herewith electronically
Incorporation (Series E
Convertible Preferred
Stock)
3.7 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
(Series F Convertible Pre-
ferred Stock) and Certif-
icate of Correction to
same
10.1 Employment Agreement Filed herewith electronically
with Darrell C. Tucker
10.2 Management and Marketing Filed herewith electronically
Agreement with Affiliates
10.3 Nursing Home Management Filed herewith electronically
Agreements with Affiliates
10.4 Lease Agreements with Filed herewith electronically
Affiliates
10.5 Loan Agreement between Incorporated by reference
Residential Care Facilities to Exhibit 10.1 to the
for the Elderly Authority of Company's Current Report
the City of Dublin and the on Form 8-K dated February 3,
Company 1994
10.6 Deed to Secured Debt and Incorporated by reference
Security between Residen- to Exhibit 10.2 to the
tial Care Facilities for Company's Current Report
the Elderly Authority of on Form 8-K dated February 3,
the City of Dublin and 1994
the Company
10.7 Trust Indenture between Incorporated by reference
Residential Care Facili- to Exhibit 10.3 to the
ties for the Elderly Company's Current Report
Authority of the City of on Form 8-K dated February 3,
Dublin and the Sentinel 1994
Trust Company
10.8 Loan Agreement between Incorporated by reference
Highlands County (Florida) to Exhibit 10.2 to the
Industrial Development Company's Current Report
Authority and the Company on Form 8-K dated March 3,
1994
10.9 Trust Indenture between Incorporated by reference
Highlands County (Florida) to Exhibit 10.3 to the
Industrial Development Company's Current Report
Authority and the Company on Form 8-K dated March 3,
1994
-35-
10.10 Asset Purchase Agreement Incorporated by reference
between the Company and to Exhibit 10.1 to the
Springdale Convalescent Company's Current Report
Center of Atlanta, Ltd., et on Form 8-K dated April 29,
al., and Springdale Conva- 1994
lescent Center Purchase
Agreement between the
Company and Bartow
River L.L.C.
10.11 Promissory Note from the Incorporated by reference
Company to Winter Haven to Exhibit 10.46 to the
Homes Company's Annual Report
on Form 10-K for the fiscal
year ended June 30, 1994
10.12 Promissory Note from the Incorporated by reference
Company to Tiffany Indus- to Exhibit 10.3 to the
tries, Inc. Company's Current Report
on Form 8-K dated April 29,
1994
10.13 Loan Agreement with Cave Incorporated by reference
Spring Housing Develop- to Exhibit 10.57 to the
ment Corporation Company's Annual Report
on Form 10-K for the fiscal
year ended June 30, 1994
10.14 Trust Indenture between Incorporated by reference
Cave Spring Housing to Exhibit 10.58 to the
Development Corporation Company's Annual Report
and Sentinel Trust Company on Form 10-K for the fiscal
year ended June 30, 1994
10.15 Transfer and Assignment of Incorporated by reference to
Loan Asset and Forbearance to Exhibit 10.67 to the
Agreement with R. Wayne Company's Annual Report
Lowe, et al. on Form 10-K for the fiscal
year ended June 30, 1994
10.16 Promissory Note from South- Incorporated by reference
eastern Cottages, Inc. and to Exhibit 10.67 to the
related Mortgage and Company's Registration
Security Agreement Statement on Form S-1
File No. 33-85886
10.17 Promissory Note from Gordon Incorporated by reference
Jensen Health Care, Inc. to Exhibit 10.68 to the
and related Deed to Secure Company's Registration
Debt Statement on Form S-1
File No. 33-85886
10.18 Promissory Note from Incorporated by reference
Renaissance Retirement, to Exhibit 10.69 to the
Ltd. and related Mortgage Company's Registration
and Security Agreement Statement on Form S-1
File No. 33-85886
-36-
10.19 Promissory Note from Incorporated by reference
Retirement Village of to Exhibit 10.70 to the
Jackson, Ltd. and related Company's Registration
Deed of Trust Statement on Form S-1
File No. 33-85886
10.20 Promissory Note from Incorporated by reference
Hendersonville Retirement to Exhibit 10.71 to the
Village, Ltd. and related Company's Registration
Deed of Trust Statement on Form S-1
File No. 33-85886
10.21 Agreement and Amendment Incorporated by reference
to Agreement with The to Exhibit 10.77 to the
Atrium of Jacksonville, Company's Annual Report
Ltd. and Assignment to on Form 10-K for the fiscal
the Company year ended June 30, 1994
10.22 Guaranties and Stock Pledge Incorporated by reference
and Maintenance Agreements to Exhibit 10.80 to the
with Edward E. Lane and Company's Registration
Connie B. Brogdon Statement on Form S-1
File No. 33-85886
10.23 Dearfield Nursing Home Incorporated by reference
Purchase Agreement to Exhibit 10.1 to the Com-
pany's Report on Form 8-K
dated April 28, 1995
10.24 Loan Agreement Incorporated by reference
to Exhibit 10.2 to the Com-
pany's Report on Form 8-K
dated April 28, 1995
10.25 Promissory Note Secured by Incorporated by reference
Security Deed to Exhibit 10.3 to the Com-
pany's Report on Form 8-K
dated April 28, 1995
10.26 Security Agreement Incorporated by reference
to Exhibit 10.4 to the Com-
pany's Report on Form 8-K
dated April 28, 1995
10.27 Deed to Secure Debt, Incorporated by reference
Security Agreement, to Exhibit 10.5 to the Com-
Assignment of Rents and pany's Report on Form 8-K
Filing for Dearfield dated April 28, 1995
Nursing Home
10.28 Edwinola Retirement Incorporated by reference
Community Purhase Agree- to Exhibit 10.93 to the
ment Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
-37-
10.29 Loan Agreement between Incorporated by reference
Dade City, Florida and to Exhibit 10.94 to the
the Company Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.30 Promissory Note from The Incorporated by reference
Atrium Nursing Home, Inc. to Exhibit 10.95 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.31 Promissory Note from Incorporated by reference
Hendersonville Retirement to Exhibit 10.96 to the
Village, Ltd. Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.32 Second Amendment to Incorporated by reference
Agreement with The Atrium to Exhibit 10.97 to the
of Jacksonville, Ltd. Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.33 Promissory Note from Incorporated by reference
National Assistance to Exhibit 10.98 to the
Bureau Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.34 Letter Agreement with Incorporated by reference
R. Wayne Lowe, et al., to Exhibit 10.99 to the
Amending Forebearance Company's Annual Report on
Agreement Form 10-K for the fiscal
year ended June 30, 1995
10.35 Hillview Nursing Home Incorporated by reference
Purchase Agreement to Exhibit 10.100 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.36 Crestwood Nursing Home Incorporated by reference
Purchase Agreement and to Exhibit 10.101 to the
Lease Assignment Agree- Company's Annual Report on
ment Form 10-K for the fiscal
year ended June 30, 1995
10.37 Florida Retirement Villa Incorporated by reference
Purchase Agreement to Exhibit 10.102 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.38 Loan Agreement dated Incorporated by reference
September 29, 1995, with to Exhibit 10.103 to the
LTC Properties, Inc. Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
-38-
18 Letter re changes in Filed herewith electronically
accounting principles
21 Subsidiaries of the Filed herewith electronically
Registrant
27 Financial Data Schedule Filed herewith electronically
(b) No Reports on Form 8-K were filed during the last quarter of the
period covered by this Report.
-39-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of
Retirement Care Associates, Inc.
We have audited the accompanying consolidated balance sheet of Retirement Care
Associates, Inc. and subsidiaries as of June 30, 1996 and the related
consolidated statements of income, shareholders' equity and cash flows for the
year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Retirement
Care Associates, Inc. and subsidiaries as of June 30, 1996 and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
As described in Note 6 to the consolidated financial statements, the Company
changed its method of accounting for certain costs in inventory.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
September 27, 1996
except for Note 19, as to which the date is October 14, 1996
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of
Retirement Care Associates, Inc.
We have audited the accompanying consolidated balance sheet of Retirement
Care Associates, Inc. and Subsidiaries as of June 30, 1995 and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the two years in the period ended June 30, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Retirement
Care Associates, Inc. and Subsidiaries as of June 30, 1995, and the results of
their operations and their cash flows for each of the two years in the period
ended June 30, 1995 in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Atlanta, Georgia
October 9, 1995, except for Note 1
which is as of May 1, 1996
F-2
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
1996 1995
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 45,365 $ 5,207,185
Patient accounts receivable, net 20,556,920 11,282,467
Notes and advances due from affiliates - 2,314,250
Inventories 4,849,819 1,364,569
Note and accrued interest receivable 713,750 2,396,667
Deferred income taxes 461,214 -
Restricted bond funds 2,342,565 719,175
Prepaid expenses and other assets 1,791,442 2,498,233
Total current assets 30,761,075 25,782,546
Property and equipment, net of accumulated
depreciation 114,682,082 37,233,506
Marketable equity securities 33,645 99,510
Investments in unconsolidated affiliates 496,800 4,431,235
Deferred lease and loan costs 7,665,891 3,732,197
Goodwill, net of accumulated amortization 3,976,675 1,798,881
Notes and advances due from non-affiliates 1,422,247 -
Notes and advances due from affiliates 14,316,661 5,013,972
Restricted bond funds 3,514,969 418,312
Other assets 2,687,602 1,747,387
Total assets $179,557,647 80,257,546
(Continued)
F-3
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, 1996 and 1995
1996 1995
------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 1,456,535 $ -
Current maturities of long-term debt 2,055,880 8,640,871
Accounts payable 11,201,976 7,699,640
Accrued expenses 7,543,131 3,184,233
Income taxes payable 3,889,809 3,158,000
Deferred income taxes - 134,500
Deferred gain 40,000 40,000
Total current liabilities 26,187,331 22,857,244
Deferred gain 371,370 261,370
Deferred income taxes 1,465,877 -
Long-term debt, less current maturities 110,375,799 32,426,023
Minority interest 4,068,147 1,979,655
Commitments and contingencies
Redeemable convertible preferred stock 2,400,000 3,000,000
Shareholders' equity
Common stock, $.0001 par value; 300,000,000
shares authorized; 12,145,875 and 10,317,083
shares issued, respectively 1,215 1,031
Preferred stock 8,765,250 -
Additional paid-in capital 26,972,655 18,555,677
Retained earnings (deficit) (929,877) 1,176,546
Treasury stock, at cost (120,120) -
Total liabilities and
shareholders' equity 34,689,123 19,733,254
$179,557,647 $80,257,546
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended June 30, 1996, 1995 and 1994
1996 1995 1994
Revenues: ------------ ----------- -----------
Net patient service revenue $119,499,849 $69,949,822 $34,340,394
Medical supply revenue 9,825,252 3,617,439 -
Management fee revenue:
From affiliates 3,472,900 3,517,500 3,034,445
From others 308,533 652,194 258,504
Other revenue 904,835 1,879,098 337,709
Total revenues 134,011,369 79,616,053 37,971,052
Expenses:
Cost of patient services 77,776,292 47,778,410 23,088,387
Cost of medical supplies sold 5,773,934 3,153,430 -
Lease expense 6,198,948 5,769,232 3,714,105
General and administrative 23,886,877 12,769,582 5,953,793
Depreciation and amortization 3,223,543 1,128,183 237,277
Provision for bad debts 1,027,539 - -
Total expenses 117,887,133 70,598,837 32,993,562
Operating income 16,124,236 9,017,216 4,977,490
Other income (expense):
Interest income 1,847,868 658,215 -
Interest expense (7,948,091) (1,179,052) (232,365)
Income before minority
interest, income taxes and
cumulative effect of change
in accounting principle 10,024,013 8,496,379 4,745,125
Minority interest (597,895) (18,784) -
Income before income taxes and
cumulative effect of change in
accounting principle 9,426,118 8,477,595 4,745,125
Income taxes 4,228,307 3,419,092 1,827,483
Income before cumulative effect
of change in accounting principle 5,197,811 5,058,503 2,917,642
Cumulative effect of change in
accounting principle, net of
income tax provision of $228,000 372,000 - -
Net income 5,569,811 5,058,503 2,917,642
Preferred stock dividend 270,000 225,000 -
Net income applicable to
common stock $ 5,299,811 $ 4,833,503 $ 2,917,642
(Continued)
F-5
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
for the years ended June 30, 1996, 1995 and 1994
1996 1995 1994
------------ ----------- -----------
Income per common and common
equivalent share:
Income before cumulative
effect of change in account-
ing principle $ .36 $ .38 $ .30
Cumulative effect of change
in accounting principle .03 - -
Net income $ .39 $ .38 $ .30
Weighted average shares
outstanding 13,586,003 12,616,835 9,839,993
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended June 30, 1996, 1995 and 1994
PREFERRED STOCK COMMON STOCK
-------------------------- ---------------
SERIES A SERIES C SERIES E SHARES AMOUNT
-------- -------- -------- --------- ------
Balance, June 30, 1993 $670,642 $833,000 $ - 5,391,896 $ 539
Issuance of common stock
upon conversion of Series
Series A preferred stock (670,563) - - 558,802 56
Issuance of common stock
upon conversion of Series
Series C preferred stock - (833,000) - 833,333 83
Private placement Reg D - - - 1,494,165 149
Expenses on private placement - - - - -
Reg D
Acquisition of Retirement
Management Corporation - - - 80,000 8
Stock dividend, 5% - - - 417,970 42
Private placement Reg S - - - 750,000 75
Expenses on private placement
Reg S - - - - -
Recognition of convertibility
of Series A preferred stock 364,004 - - - -
Net income - - - - -
Balance, June 30, 1994 364,083 - - 9,526,166 952
Issuance of common stock
upon conversion of Series
A preferred stock (364,083) - - 69,508 7
Issuance of common stock
upon conversion of Series
D preferred stock - - - 105,000 11
Issuance of common stock
upon Contour Medical,
Inc. acquisition - - - 125,000 12
Preferred stock, 10% dividend - - - - -
Stock dividend, 5% - - - 491,409 49
Net income - - - - -
Balance, June 30, 1995 $ - $ - $ - 10,317,083 $1,031
Issuance of Series E pre-
ferred stock - - 9,300,000 - -
Issuance of common stock
upon conversion of Series
E preferred stock - - (534,750) 54,516 6
Treasury stock purchased - - - - -
Retirement of treasury stock - - - (15,000) (2)
Stock issued in exchange for
cancellation of warrants and
stock warrants exercised - - - 1,198,391 120
Stock options exercised - - - 22,076 2
Preferred stock, 10% dividend - - - - -
Stock dividend, 5% - - - 568,809 58
Net income - - - - -
Balance, June 30, 1996 $ - $ - $8,765,250 12,145,875 $1,215
(Continued)
F-7
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
For the years ended June 30, 1996, 1995 and 1994
ADDITIONAL RETAINED
PAID-IN EARNINGS TREASURY
CAPITAL (DEFICIT) STOCK
Balance, June 30, 1993 $(1,433,725) $ 705,535 $ -
Issuance of common stock upon con-
version of Series A preferred stock 670,507 - -
Issuance of common stock upon con-
version of Series C preferred stock 832,917 - -
Private placement Reg D 5,047,349 - -
Expenses on private placement Reg D (520,580) - -
Acquisition of Retirement Management
Corporation 399,992 - -
Stock dividend, 5% 2,980,092 (2,980,134) -
Private placement Reg S 5,249,925 - -
Expenses on private placement Reg S (470,800) - -
Recognition of convertibility of
Series A preferred stock (364,004) - -
Net income - 2,917,642 -
Balance, June 30, 1994 12,391,673 643,043 -
Issuance of common stock upon con-
version of Series A preferred stock 364,076 - -
Issuance of common stock upon con-
version of Series D preferred stock 499,989 - -
Issuance of common stock upon Contour
Medical, Inc. acquisition 999,988 - -
Preferred stock, 10% dividend - (225,000) -
Stock dividend, 5% 4,299,951 (4,300,000) -
Net income - 5,058,503 -
Balance, June 30, 1995 $18,555,677 $1,176,546 $ -
Issuance of Series E preferred stock - - -
Issuance of common stock upon con-
version of Series E preferred stock 534,744 - -
Treasury stock purchased - - (274,040)
Retirement of treasury stock - (153,918) 153,920
Stock issued in exchange for cancel-
lation of warrants and stock
warrants exercised 473,673 - -
Stock options exercised 156,303 - -
Preferred stock, 10% dividend - (270,000) -
Stock dividend, 5% 7,252,258 (7,252,316) -
Net income - 5,569,811 -
Balance, June 30, 1996 $26,972,655 $ (929,877) $(120,120)
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1996, 1995 and 1994
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 5,569,811 $ 5,058,503 $ 2,917,642
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,223,543 1,128,183 237,277
Loss on sale of marketable equity
securities 29,085 - -
Cumulative effect of change in
accounting principle (372,000) - -
Amortization of deferred gain (40,000) (40,000) (40,000)
Provision for bad debts 1,027,539 - -
Equity in income from investees 146,800 - -
Amortization of deferred lease and
loan costs 698,785 - -
Minority interest 597,895 18,784 -
Deferred income taxes (148,886) 261,092 (91,237)
Changes in assets and liabilities
net of effects of acquisitions:
Accounts receivable (9,988,047 ) (6,012,900) (4,071,251)
Inventories (3,096,022) (996,139) -
Prepaid expenses and other assets 703,690 (642,013) (1,373,827)
Accrued interest receivable 77,917 (196,667) -
Accounts payable and accrued
expenses 7,278,350 6,608,148 5,509,837
Deferred lease and loan costs - (978,943) (1,565,130)
Net cash provided by operating
activities 5,708,460 4,208,048 1,523,311
Cash flows from investing activities:
Purchases of property and equipment (8,826,151) (6,079,610) (5,093,344)
Proceeds from sale leaseback trans-
action - 4,500,000 -
Proceeds from repayment of notes
receivable 2,200,000 - -
Issuance of notes receivable and
advances to affiliates and non-
affiliates (8,855,686) (1,742,147) (5,142,182)
Purchase of bonds receivable - (4,487,936) -
Purchase of note receivable - - (2,200,000)
Investments in unconsolidated
affiliates 3,787,635 (3,335,833) (783,904)
Restricted bond funds (4,419,184) (17,317) 913,857
Proceeds from sale of fixed assets - - 2,481,370
Cash acquired in acquisition of
Contour Medical, Inc. - 73,254 -
Decrease (increase) in marketable
equity securities - 444,863 (544,373)
Proceeds from sale of marketable
equity securities 36,780 - -
(Continued)
F-9
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the years ended June 30, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ---------
Goodwill paid in acquisitions (2,327,736) - (93,422)
Acquisitions, net of cash acquired (26,197,853) - -
Payment of deferred lease costs (593,470) - -
Net cash used in investing
activities (45,195,665) (10,644,726) (10,461,998)
Cash flows from financing activities:
Capital investment by minority
shareholders of subsidiary 2,088,492 1,729,469 -
Redemption of preferred stock (600,000) - -
Purchase of treasury stock (274,040) - -
Dividends on preferred stock (285,000) (225,000) -
Proceeds from issuance of
preferred stock 9,300,000 - -
Proceeds from stock options and
warrants exercised 630,098 - 9,306,118
Proceeds from long-term debt and
net borrowings under line of
credit 35,329,244 11,309,986 112,754
Payments on long-term debt (9,443,626) (2,130,654) -
Payments of deferred loan (2,419,783) - -
Net cash provided by financing
activities 34,325,385 10,683,801 9,418,872
Net increase (decrease) in cash and
cash equivalents (5,161,820) 4,247,123 480,185
Cash and cash equivalents,
beginning of year 5,207,185 960,062 479,877
Cash and cash equivalents,
end of year $ 45,365 $ 5,207,185 $ 960,062
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Retirement Care Associates, Inc. ("RCA" or the "Company") operates 64 leased
and
owned nursing and retirement facilities and manages, for both related and
unaffiliated third parties, an additional 28 nursing and retirement
facilities. The Company also owns a majority interest in Contour Medical,
Inc. ("Contour") whose principal operations consist of distributing medical
supplies to healthcare facilities.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, as well as its majority-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of financial statement presentation, the Company considers all
highly liquid investments with maturity of three months or less at issuance to
be cash equivalents.
INVENTORIES
Inventories, consisting mainly of medical supplies, are valued at the lower of
cost (first-in, first-out) or market.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Company periodically reviews the adequacy of the allowance for possible
loan losses on affiliate notes receivable by considering various factors,
among others, such as the fair value of the underlying facility collateral in
excess of prior and senior liens, the periodic results of operations of the
underlying collateral, the fair value of other collateral or guarantees
pledged as security for the notes receivable, and the Company's ability to
foreclose, if necessary, against prior and senior liens to protect the
collateral value.
During 1996, the Company adopted Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114).
All affiliated notes receivable were liquidated subsequent to June 30, 1996
(see Note 19).
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation, which includes amortization of assets under capital leases, is
computed using the straight-line method over the estimated useful lives of the
related assets (five to thirty years). Maintenance and repairs are charged to
F-11
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:
expense as incurred. Upon sale, retirement or other disposition of these
assets, the cost and the related accumulated depreciation are removed from the
respective accounts and any gain or loss on the disposition is included in
income.
INVESTMENT IN UNCONSOLIDATED AFFILIATES
During the year ended June 30, 1995, the Company acquired a 35% interest in
In-House Rehab, Inc. ("In-House"), a therapy service company, for $350,000.
The Company accounts for their investment in In-House on the equity method.
The Company's share of In-House's net income was $146,800 and $0 for the years
ended June 30, 1996 and 1995, respectively.
Investment in affiliates included the investment in In-House and The Atrium of
Jacksonville, Ltd. ("Atrium") as of June 30, 1995. The accounts of Atrium are
consolidated with those of the Company as of June 30, 1996.
DEFERRED LEASE AND LOAN COSTS
Deferred lease and loan costs, consisting of lease acquisition fees paid to
lessors and loan commitment fees and related expenditures, are amortized over
the respective terms of the lease or loan using the effective rate method.
The related amortization of the lease and loan cost is recorded as lease and
interest expense, respectively.
RESTRICTED BOND FUNDS
Current restricted bond funds include principal and interest funds which are
used for payment of principal and interest on or before the dates required by
the trust indenture. Non-current restricted bond funds include debt service
reserve funds (used for payment of principal and interest when principal and
interest funds are insufficient) and project funds (used for payment of
construction, improvement and equipment costs at facilities under
construction).
GOODWILL
Goodwill arises in connection with business combinations accounted for as
purchases where the purchase price exceeds the fair value of the net assets of
the acquired businesses. Goodwill is amortized on a straight-line basis over
15 years. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on undiscounted cash
flows of the acquired entity over the remaining amortization period, the
Company's carrying value of the goodwill is reduced by the estimated shortfall
of cash flows. Accumulated amortization of goodwill totaled $233,014 and
$110,911 as of June 30, 1996 and 1995, respectively.
DEFERRED GAIN
Deferred gain on a sale-leaseback transaction is recorded at cost and is
amortized into income on a straight-line basis over 10 years, the life of the
lease. The related amortization is recorded as a reduction of lease expense.
F-12
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:
STOCK DIVIDENDS
During February 1994, January 1995 and April 1996, the Company declared 5%
stock dividends which were payable on March 1, 1994, February 15, 1995 and May
15, 1996, respectively, to shareholders of record on February 15, 1994 and
1995 and May 1, 1996, respectively. All common stock information presented
has been retroactively restated to reflect these stock dividends.
NET PATIENT SERVICE REVENUE
Net patient service revenue is derived primarily from services to retirement
center residents and nursing home patients. Retirement center residents
typically pay rent in advance of the month for which it is due. Nursing home
patients are predominately beneficiaries of the Medicare and Medicaid
programs.
The Medicare program reimburses nursing homes on the basis of allowable costs,
subject to certain limits. Payments are received throughout the year at
amounts estimated to approximate costs. Following year end, cost reports are
filed with the Medicare program and final settlements are made. Provisions
for Medicare settlements are provided in the financial statements in the
period the related services are rendered. Differences between amounts accrued
and final settlements are reported in the year of settlement.
State Medicaid programs pay nursing homes primarily on a per diem basis with
no retroactive settlement. Revenues from services to Medicaid patients are
recorded at payment rates established by the various state programs in the
period services are rendered.
There have been, and the Company expects that there will continue to be, a
number of proposals to limit Medicare and Medicaid payments for long-term and
rehabilitative services. The Company cannot predict at this time whether any
of these proposals will be accepted or, if adopted and implemented, what
effect such proposals would have on the Company.
TAXES ON INCOME
Deferred income taxes are recognized for the tax consequences of temporary
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
NET INCOME PER SHARE
Net income per share is computed on the basis of net income applicable to
common stock and the weighted average number of common and common equivalent
shares outstanding during each year, retroactively adjusted to give effect to
the stock dividends. Shares used in the calculation consists of the weighted
average number of shares actually outstanding as well as the weighted average
number of common share equivalents which include dilutive convertible
F-13
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued:
preferred stock, stock options and warrants. Primary weighted average number
of common and common equivalent shares outstanding approximated the fully
diluted weighted average number of common and common equivalent shares
outstanding for the year ended June 30, 1996.
Shares used in the calculation for the year ended June 30, 1995 consisted of
the weighted average number of shares actually outstanding (10,798,292) as
well as the weighted average number of common share equivalents (1,818,543)
which include dilutive stock options and warrants as described below. Shares
used in the calculation for the year ended June 30, 1994 consisted of the
weighted average number of shares actually outstanding (8,292,882) together
with the weighted average numbers outstanding of common shares expected to be
issued upon the conversion of all of the Series A convertible preferred stock
(672,497 shares) issued in the merger since the income levels required to
permit conversion were currently being attained. Shares used in the
calculation also included the weighted average number of common share
equivalents (874,614) which include dilutive stock options and warrants as
described below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform with the 1996
presentations.
2. BUSINESS ACQUISITIONS:
Effective November 30, 1992, the Company acquired the stock of Capitol Care
Management Company, Inc. ("CCMC") in a reverse acquisition in which CCMC's
stockholders acquired voting control of the Company. For financial reporting
purposes, CCMC was deemed to be the acquiring entity.
The acquisition was recorded using the purchase method of accounting. Since
RCA had no significant operations or assets at the acquisition date, as
required by the Securities and Exchange Commission, the accounts of RCA have
been recorded at the predecessor's cost basis.
CONTOUR
On September 30, 1994, the Company acquired a 63% interest in Contour through
the acquisition of preferred and common stock from the existing shareholders
of Contour. Contour is a publicly held company based in St. Petersburg,
Florida, which manufactures a full line of orthopedic care and rehabilitation
F-14
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. BUSINESS ACQUISITIONS, continued:
products. In connection with the acquisition of the 63% interest in Contour,
the Company paid $4,000,000, consisting of 137,813 shares of its common stock
and 300,000 shares of a new series of redeemable convertible preferred stock
(see Note 9).
The acquisition of Contour was accounted for under the purchase method of
accounting. The excess of the purchase price over the fair value of
identifiable tangible and intangible assets of $899,792 was allocated to
goodwill and is being amortized over 15 years.
ENCORE
On December 15, 1995, the Company obtained both a sole general and a limited
partnership interest, totaling a 74.25% interest, in Encore Partners, L.P.
("Encore") in exchange for a capital contribution to Encore of $3.5 million.
Encore owns three retirement facilities, totaling 527 beds, and two nursing
homes, totaling 157 beds. The acquisition was accounted under the purchase
method of accounting.
Profits and losses of Encore are allocated 74.25% to the Company and 25.75% to
other partners. Available cash, if any, is distributed 74.25% to the Company
and 25.75% to the other partners.
ATRIUM
During the year ended June 30, 1995, Winter Haven Homes, Inc. ("Winter
Haven"), an affiliated entity, assigned to the Company its rights under an
agreement between Atrium and Winter Haven. The agreement granted Winter Haven
the right to acquire up to a 75% ownership interest in Atrium in exchange for
and upon meeting certain performance requirements.
In addition to the assignment, Winter Haven and the Company entered into a
separate Compensation Agreement requiring the Company to pay Winter Haven an
amount equal to 25% of the appraised values of Atrium upon each transfer of a
25% interest in Atrium to the Company.
At June 30, 1995, a 50% interest in Atrium had been transferred to the Company
at a carrying value of $1,913,000 plus advances made by the Company to Atrium
of $2,149,060. This investment was accounted for under the equity method. In
May 1996, the Company obtained an additional 25% interest for $1,230,000,
bringing the total investment to $3,143,000 plus advances made by the Company
to Atrium of $2,602,942, and the total ownership interest to 75%. Effective
May 1996, the accounts of Atrium have been consolidated with those of the
Company.
The minority partners of Atrium are allocated 25% of the profits and losses
and 25% of available cash flow, if any, is distributed to the minority
partners.
F-15
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. BUSINESS ACQUISITIONS, continued:
OTHER
During the year ended June 30, 1996, the Company purchased a number of other
facilities. Such purchases included both nursing and retirement facilities.
The data related to these purchases is as follows:
1996
-----------
Number of Facilities Purchased:
Nursing 7
Retirement 4
-----------
Total 11
-----------
-----------
Cost of acquired facilities:
Cash paid $ 775,000
Debt incurred 22,736,000
-----------
Total $23,511,000
-----------
-----------
During the year ended June 30, 1995, the Company purchased three nursing
facilities and two retirement facilities.
The Company typically obtains financing in excess of the purchase price paid
for acquired facilities. The excess funds are used to cover certain closing
costs associated with the transactions with any residual amounts retained by
the Company.
The acquisitions referred to above have been accounted for using the purchase
method of accounting. The operating results of those acquired facilities have
been included in the consolidated statement of operations from the date of
acquisition.
The following table presents unaudited pro forma results of operations data as
if the acquisitions described above had occurred on July 1, 1994.
For the year ended June 30,
----------------------------
1996 1995
(Unaudited)
----------------------------
Revenue $148,466,000 $127,671,000
Net income 5,652,000 5,568,000
Net income per share .40 .42
The pro forma information includes adjustments for interest expense that would
have been incurred to finance the acquisitions, additional depreciation based
on the fair market value of the facilities and other adjustments, together
with related income tax effects. The pro forma financial information is not
necessarily indicative of the results of operations as they would have been
had the transactions been effected on the assumed dates.
F-16
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. RELATED PARTY TRANSACTIONS:
The Company provides management and administrative services for 19 facilities
owned by affiliates and also leases one facility from an affiliate. The
facilities are owned and controlled by two individuals who are officers and
directors of the Company. These services are provided pursuant to agreements
which have five-year terms and are cancelable with sixty days written notice
by either party. The agreements provide for monthly fees ranging from $6,000
to $40,000 per facility and expire through 1999. Revenue from these
management services totaled $3,472,900, $3,517,500 and $3,034,445 for the
years ended June 30, 1996, 1995 and 1994.
CCMC maintains a cash management account where all operating cash funds of the
managed facilities are pooled into one bank account and invested daily. Notes
and advances due from affiliates consist of advances to facilities, net of
advances from facilities, owned by the following affiliated entities:
June 30,
--------------------------
1996 1995
----------- ----------
Gordon Jensen Health Care Association, Inc. $ 2,982,975 $2,117,562
Winter Haven Homes, Inc. 8,887,833 4,966,589
Southeastern Cottages, Inc. 679,144 105,533
National Assistance Bureau, Inc. 1,326,391 748,801
Chamber Health Care Society, Inc. 336,857 (610,263)
Senior Care, Inc. 84,095 -
Other Affiliates 19,366 -
----------- ----------
14,316,661 7,328,222
Less current portion - 2,314,250
----------- ----------
$14,316,661 $5,013,972
----------- ----------
----------- ----------
During 1995 and 1994, the Company received notes as consideration for advances
totaling $5,360,000. These notes require quarterly interest payments at 8%
per annum with all principal and accrued interest due on or before June 30,
1998. The notes are collateralized by second mortgages on facilities owned by
affiliates and certain notes receivables are guaranteed by the principals of
Winter Haven, who are shareholders of the Company. All notes and advances due
from affiliates were liquidated subsequent to year end (see Note 19).
FACILITY ACQUISITIONS AND LEASES
On April 28, 1995, the Company purchased a 210-unit nursing home from an
affiliate. The purchase price was $5,650,000 and was financed with $500,000
from the Company and a $5,150,000 mortgage loan from an unrelated third-party
real estate investment trust.
On February 27, 1996, the Company purchased a 36-unit retirement facility from
an affiliate. The purchase price was $2,000,000 and was financed with $400,000
F-17
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. RELATED PARTY TRANSACTIONS, continued:
from the Company and a $1,600,000 mortgage loan from an unrelated third-party
real estate investment trust.
On May 5, 1996, the Company entered into a lease agreement with an affiliate
to rent a 60-unit nursing home. Terms of the agreement are ten years at
$300,000 per year beginning on June 1, 1996.
ADDITIONAL TRANSACTIONS
The Company paid amounts to affiliates for obtaining financing of $190,000 for
the year ended June 30, 1995. During 1994, the Company paid amounts to
affiliates for lease acquisition and buyout costs, financing fees and
financial advisory fees of $350,000, $300,000, and $70,000, respectively.
These amounts are deferred and included in deferred lease and loan costs in
the accompanying balance sheets.
The Company was paid fees of $150,000 and $400,000 by affiliates in connection
with locating financing for three facilities in 1996 and two facilities in
1995, respectively. These fees were included in interest income on the
accompanying statements of income.
4. PATIENT ACCOUNTS RECEIVABLE:
Patient accounts receivable and net patient service revenue include amounts
estimated by management to be payable by Medicaid and Medicare under the
provisions of payment formulas in effect. Medicaid and Medicare programs
accounted for approximately 71% and 72% of net patient service revenue during
1996 and 1995, respectively.
The Company grants credit without collateral to its patients most of whom are
local residents of the respective nursing home and retirement facilities and
are insured under third-party payor agreements. The mix of receivables from
patients and third party payors is as follows:
June 30,
---------------------------
1996 1995
----------- -----------
Medicaid $ 8,248,590 $ 5,485,610
Medicare 7,943,371 5,088,571
Other third-party payors 3,139,919 697,402
Patients 1,225,040 10,884
----------- -----------
$20,556,920 $11,282,467
----------- -----------
----------- -----------
The allowance for doubtful accounts was approximately $1,000,000 and $0 as of
June 30, 1996 and 1995, respectively.
F-18
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. NOTE RECEIVABLE:
On February 7, 1996, the Company loaned $500,000 to an unaffiliated company.
The note, plus interest at 9% per annum, is due on February 7, 1997 and is
collateralized by a first lien on a 38-bed nursing home in Atlanta, Georgia.
6. CHANGE IN ACCOUNTING FOR SUPPLIES INVENTORY:
During the year ended June 30, 1996, the Company changed methods of accounting
for facility supplies inventory from expensing when purchased to capitalizing
and expensing as used. The Company believes that this change is preferable in
the circumstances because it more closely matches inventory costs with net
patient service revenue. In connection with the capitalization of facility
supplies inventory at June 30, 1996, the Company recorded additional inventory
and reduced supplies expense by approximately $1.8 million, of which
approximately $600,000 related to inventory on hand as of June 30, 1995.
Accordingly, the cumulative effect of this change in accounting principle on
beginning retained earnings has been shown, net of tax, as a separate
component of the statement of operations for the year ended June 30, 1996.
Although the cumulative effect on retained earnings at June 30, 1995 resulting
from the change can be determined, the pro forma effects of retroactive
application cannot be computed for individual prior periods. Accordingly, net
income and income per common share computed on a pro forma basis have not been
presented for the years ended June 30, 1995 and 1994.
7. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
Estimated
Useful
Lives 1996 1995
--------- ------------ -----------
Land -- $ 7,432,502 $ 2,237,133
Buildings 30 85,615,764 28,917,590
Equipment 5-10 12,216,740 5,702,897
Leasehold improvements 5-10 2,193,227 1,110,666
Buildings and equipment under
capital leases 5-30 8,111,801 -
---- ------------ -----------
115,570,034 37,968,286
Less accumulated depreciation 8,517,213 990,968
------------ -----------
107,052,821 36,977,318
Construction in progress 7,629,261 256,188
------------ -----------
Net property and equipment $114,682,082 $37,233,506
------------ -----------
------------ -----------
F-19
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. PROPERTY AND EQUIPMENT, continued:
Construction in progress, consisting of the development of four facilities,
includes approximately $605,000 and $4,600 of capitalized interest costs as of
June 30, 1996 and 1995, respectively.
Substantially all property and equipment is pledged as collateral for
long-term
debt.
8. DEFERRED LEASE AND LOAN COST:
In connection with the execution of certain lease transactions and financing
of acquisitions, the Company incurred lease and loan commitment fees, which
are included in deferred lease and loan costs in the accompanying balance
sheets, as follows:
June 30,
-------------------------
1996 1995
---------- -----------
Lease cost:
Affiliated $ 500,000 $ 500,000
Non-affiliated 1,801,619 1,283,149
Loan cost:
Affiliated 410,000 410,000
Non-affiliated 5,800,288 1,897,403
---------- ----------
8,511,907 4,090,552
Less accumulated amortization 846,016 358,355
---------- ----------
Net deferred lease and loan cost $7,665,891 $3,732,197
---------- ----------
---------- ----------
9. SHAREHOLDERS' EQUITY:
STOCK PURCHASE WARRANTS
In prior years, the Company issued warrants to an investment banker and
consultants to purchase 1,137,899 shares of its common stock at prices ranging
from $1.554 to $6.543 per share. All exercise prices approximated the market
price at the date of grant. The warrants were exercisable at varying dates
through June 1998. During the year ended June 30, 1996, the Company issued
799,090 shares of its common stock in exchange for the cancellation of all of
these warrants.
The Company has issued Class A warrants in connection with a private offering
and Class B and Class C warrants in connection with an offer to Class A
warrant holders to convert their warrants. The Class A and C warrants are
exercisable at $.864 per share of common stock and the Class B warrants are
exercisable at $5.442 per share of common stock. At any time during the
period the warrants are exercisable, the Company may redeem the warrants at
$.05 per warrant upon 45 days written notice in the event certain listing and
registration requirements are achieved, and the closing bid price of the
common stock exceeds $7.00 per share for the Class A and Class C Warrants, and
$10.00 per share for the Class B
F-20
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. SHAREHOLDERS' EQUITY, continued:
Warrants, for 20 of 30 consecutive trading days. During the year ended June
30, 1996, Class A and Class C Warrants were exercised to purchase
approximately 402,541 shares of common stock and Class B Warrants were
exercised to purchase approximately 50,853 shares of common stock. As of June
30, 1996, there were Class A and Class C warrants outstanding which entitles
the holders to purchase 377,964 shares of common stock and Class B warrants
outstanding which entitles the holders to purchase 392,116 shares of common
stock.
STOCK OPTIONS
In December 1993, the Company adopted the 1993 Stock Option Plan (the "Plan").
A total of 1,682,625 shares of the Company's common stock have been reserved
for issuance under the Plan. Under the Plan, options are granted at an
exercise price of not less than 100% of the fair market value of the shares on
the date of grant. Certain options are exercisable immediately, while others
are subject to vesting provisions as specified by the Board of Directors on
the date of grant. Each option grant under the Plan automatically expires ten
years after the date of grant or at such earlier time as may be determined by
the Board of Directors.
Stock option transactions are summarized as follows:
Exercise Price
Shares Per Share
--------- --------------
Balance at June 30, 1993 - -
Granted 882,110 $4.65 - $ 6.75
--------- --------------
Balance at June 30, 1994 882,110 4.65 - 6.75
Granted 228,113 6.46 - 8.57
--------- --------------
Balance at June 30, 1995 1,110,223 4.65 - 8.57
Granted 478,800 9.76 - 10.24
Exercised (22,076) 4.65 - 9.76
Canceled (68,579) 4.65 - 9.76
--------- --------------
Balance at June 30, 1996 1,498,368 $4.65 - $10.24
--------- --------------
--------- --------------
PREFERRED STOCK
As of June 30, 1996, the Company has authorized 40,000,000 shares of preferred
stock and has designated the following series of preferred stock:
- SERIES AA REDEEMABLE CONVERTIBLE PREFERRED STOCK
300,000 shares of Series AA Redeemable Convertible Preferred Stock are
authorized. These shares were issued in connection with the acquisition of a
majority interest in Contour. Holders of the Series AA Redeemable Convertible
Preferred Stock are entitled to receive cumulative dividends of $1.00 per
share (10%) annually, and are convertible into common stock at any time at the
F-21
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. SHAREHOLDERS' EQUITY, continued:
rate of 5.5125 shares of common stock for each six shares of Series AA
Redeemable Convertible Preferred Stock. Each share is entitled to one vote
and has a preferred rate of $10.00 per share upon voluntary or involuntary
liquidation, dissolution, or winding up of affairs of the Company.
The Company may redeem shares of Series AA Redeemable Convertible Preferred
Stock, in whole or in part, at any time at its option at a price of $10.00 per
share plus any unpaid dividends (the "Redemption Price"). In addition, to the
extent that such funds are legally available, the Company is required to
redeem, at the Redemption Price, at least 20% of each holder's initial number
of shares of Series AA Redeemable Convertible Preferred Stock by September 30,
1995; 40% by September 30, 1996; 60% by September 30, 1997; 80% by September
30, 1998; and 100% by September 30, 1999. In the event that a holder of
Series AA Redeemable Convertible Preferred Stock shall have converted a
portion of his shares into common stock, such converted shares shall be
counted toward the redemption requirement and shall be deemed redeemed for the
purposes of the mandatory redemption requirement.
In addition, in the event that the Company fails to pay any dividend on the
Series AA Redeemable Convertible Preferred Stock within 30 days of the due
date, the Company is required to redeem all of the outstanding Series AA
Redeemable Convertible Preferred Stock. During the year ended June 30, 1996,
the Company redeemed 60,000 shares of Series A Redeemable Preferred Stock.
- SERIES A CONVERTIBLE PREFERRED STOCK
2,000,000 shares of Series A Convertible Preferred Stock, par value $.10 per
share, are authorized. Each share is entitled to 10 votes and has a
preference rate of $.01 per share with no dividend rights.
750,000 shares of Series A Preferred Stock were issued in connection with the
RCA merger and converted into common stock in 1994 and 1995.
- SERIES C CONVERTIBLE PREFERRED STOCK
1,000,000 shares of Series C Convertible Preferred Stock are authorized. Each
share is entitled to one vote per share and had a preference rate of $1.00 per
share with no dividend rights.
The shares of Series C Convertible Preferred Stock were converted in 1994 into
common stock.
- SERIES E CONVERTIBLE PREFERRED STOCK
1,000,000 shares of Series E Convertible Preferred Stock are authorized.
These shares were sold in an offering to foreign investors in April 1996 at
$10.00 per share. Holders of the Series E Preferred Stock have no voting
rights except as required by law, and have a liquidation preference of $10.00
per share plus 4% per annum from the date of issuance. The shares of Series E
Preferred Stock are convertible into shares of common stock at a conversion
price of $12.4025 or 85% of the average closing bid price for the five trading
days prior to the date of conversion, whichever is lower (but no lower than
$5.00).
F-22
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. SHAREHOLDERS' EQUITY, continued:
At the time of conversion, the holder is also entitled to additional shares
equal to $10.00 per share of Series E Preferred Stock converted multiplied by
8% per annum from the date of issuance divided by the applicable conversion
price. As of June 30, 1996, 57,500 shares of Series E Convertible Preferred
Stock had been converted into 54,516 shares of common stock.
TREASURY STOCK
In November 1995, the Company purchased and retired 15,000 shares of its
common stock at an aggregate cost of $153,920. In December 1995, the Company
purchased 10,000 shares of its common stock at an aggregate cost of $120,120.
10. LONG-TERM DEBT:
Long-term debt at June 30, 1996 and 1995 is summarized as follows:
1996 1995
------------ -----------
Non-affiliates:
Notes payable to a real estate investment
trust ("REIT") $ 39,848,938 $12,930,347
Industrial development revenue bonds 20,066,000 9,345,000
Municipal revenue bonds 18,170,000 13,350,000
Housing development mortgage revenue bonds 21,750,000 1,660,000
Notes payable to banks
(8.5% or prime plus 1% to 10% due
through 2003) 4,548,160 2,966,065
Capitalized lease obligations 8,048,581 -
Affiliates:
Note payable to an affiliate (12% due on
July 31, 1996) - 1,000,000
Less discount on bonds payable - 184,518
------------ -----------
112,431,679 41,066,894
Less current maturities 2,055,880 8,640,871
------------ -----------
$110,375,799 $32,426,023
------------ -----------
------------ -----------
Future maturities of debt and capital lease obligations are as follows:
F-23
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. LONG-TERM DEBT, Continued:
Capital
Year Lease Debt Total
- ---------- ----------- ------------ ------------
1997 $ 989,657 $ 1,986,380 $ 2,976,037
1998 3,859,557 4,377,081 8,236,638
1999 656,240 2,364,807 3,021,047
2000 662,136 2,840,171 3,502,307
2001 667,960 2,866,566 3,534,526
Thereafter 7,317,105 89,948,093 97,265,198
----------- ------------ ------------
Total 14,152,655 104,383,098 118,535,753
Less amount representing imputed
interest at ll% to 12% 6,104,074 - 6,104,074
----------- ------------ ------------
Total obligations $ 8,048,581 $104,383,098 $112,431,679
----------- ------------ ------------
----------- ------------ ------------
The notes payable to the REIT consist of mortgage notes on eight facilities.
Principal amounts are amortized over a 25-year period with monthly
installments payable through 2008. Interest ranges on these notes from 9.75%
to 11.25% and increases annually at rates ranging from 0.1% to 0.25%. The
notes are collateralized by property and equipment of the eight facilities.
The industrial development revenue bonds consist of bonds on two facilities:
a retirement community located in San Destin, Florida and Atrium, a nursing
and retirement community located in Jacksonville, Florida. The San Destin
facility serves as collateral for $9,225,000 of bonds payable to the Walton
County Industrial Development Authority. Principal payments range from
$120,000 to $1,000,000 annually through 2017 and interest accrues at 10.5%.
The Atrium facility serves as collateral for three City of Jacksonville
Industrial Development Revenue Refunding bonds totaling $10,841,000.
Principal payments range from $150,000 to $370,000 annually through 2024 and
interest accrues at rates ranging from 6.38% to 11.5%.
The housing development mortgage revenue bonds include approximately
$18,525,000 of bond debt assumed by the Company in connection with the
acquisition of Encore. The bond debt, which is collateralized by property and
equipment of four facilities, includes Okaloosa County, Florida Retirement
Rental Housing Revenue Series A bonds totaling $8,425,000 with semi-annual
interest payments at 10.75% due in 2003 and Ohio Rental Housing Revenue Series
A bonds totaling $10,000,000 with semi-annual interest at 10.38% due in 2009.
The remainder of the housing development mortgage revenue bonds consist of
bonds totaling $3,225,000 collateralized by two facilities with interest
ranging from 8% to 11.0%. The housing development mortgage revenue bonds
require annual principal payments ranging from $10,000 to $2,000,000.
The municipal revenue bonds, which are collateralized by property and
equipment of five facilities and require annual principal payments ranging
from $15,000 to $540,000, consist of the following:
F-24
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. LONG-TERM DEBT, Continued:
- Dade City, Florida Series A and B bonds totaling $6,455,000, with
principal payments due through 2025 and interest ranging from 6.75% to 8%.
- Highland County Series A and B bonds totaling $4,275,000, with principal
payments due through 2024 and interest ranging from 8.5% to 9.5%.
- City of Dublin Series A and B bonds totaling $2,780,000, with principal
payments due through 2024 and interest ranging from 8.5% to 10.5%.
- Rome-Floyd County Development Authority Revenue Series A and B bonds
totaling $2,760,000, with principal payments due through 2011 and interest
rates ranging from 7.5% to 9.5%.
- Americus-Sumter Series A and B bonds totaling $1,900,000, with principal
payments due through 2026 and interest rates ranging from 8.0% to 10.25%.
11. LINES OF CREDIT:
The Company maintains various lines of credit with interest rates ranging from
prime plus .25% to prime plus 1.25%. Available borrowings under the lines of
credit totaled $5,075,000 and $1,750,000 for the years ended June 30, 1996 and
1995, respectively. Total borrowings against the lines of credit were
$3,556,535 and $1,745,316 at June 30, 1996 and 1995, respectively, which have
been included in long-term debt. Included in these amounts were borrowings of
$2,100,000 and $1,745,316 at June 30, 1996 and 1995, respectively, which have
been included in long-term debt.
12. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases nursing homes and retirement care facilities from
unaffiliated entities (in addition to leasing one nursing home from an
affiliated entity). The lease agreements commenced on various dates with
terms extending through February 2016. The Company has options to extend most
of the leases for an additional five to ten years. The Company also leases
certain facilities under agreements classified as capital leases. These
agreements include purchase options exercisable at the Company's discretion
during, or at the end of, each of the lease terms. The capital lease
agreements commenced on various dates with terms extending through January
2006.
Included in the above agreements are three leases whereby a sale to the lessor
preceded the lease agreement ("sale/leaseback transaction"). The Company has
accounted for two of these sale/leaseback transactions as sales with no gains
or losses recognized on the transactions. The remaining sale/leaseback
transaction was capitalized and included a deferred gain of $381,370 to be
amortized over the term of the lease. Future minimum payments, by year and in
the aggregate, under noncancelable operating leases with initial or remaining
terms of one year or more consist of the following at June 30, 1996:
F-25
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. COMMITMENTS AND CONTINGENCIES, Continued:
Year Amount
----------- -----------
1997 $ 7,958,940
1998 7,733,171
1999 6,332,600
2000 6,181,636
2001 6,247,504
Future years 26,890,709
-----------
Total $61,344,560
-----------
-----------
The Company's rental expense under operating leases for nursing homes and
retirement care facilities amounted to approximately $5,890,000, $5,750,000
and $3,000,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
The Company leases office space under a noncancelable operating lease which
expires in October 2000. At June 30, 1996, minimum future rental payments
under the noncancelable lease were as follows:
Year Amount
----------- --------
1997 $303,647
1998 325,450
1999 341,680
2000 358,670
2001 120,508
Total amounts paid for rental of office facilities totaled approximately
$305,000, $60,000 and $35,000 for the years ended June 30, 1996, 1995 and
1994, respectively.
OTHER
The Company has guaranteed the debt of two facilities owned by affiliates
totaling approximately $6,000,000. Additionally, the Company has guaranteed
20% of the debt on five facilities owned by unaffiliated entities totaling
$9,370,000 that are currently operated by the Company under operating leases.
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. 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.
F-26
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. INCOME TAXES:
The components of the provision for income taxes were as follows:
Year ended June 30,
----------------------------------
1996 1995 1994
---------- ---------- ----------
Current:
Federal $3,918,693 $2,659,000 $1,630,900
State 686,500 499,000 287,820
---------- ---------- ----------
4,605,193 3,158,000 1,918,720
---------- ---------- ----------
Deferred:
Federal (80,660) 221,928 (77,600)
State (68,226) 39,164 (13,637)
---------- ---------- ----------
(148,886) 261,092 (91,237)
---------- ---------- ----------
Total income tax provision $4,456,307 $3,419,092 $1,827,483
---------- ---------- ----------
---------- ---------- ----------
The income tax provision is included in the statements of operations as
follows:
1996 1995 1994
---------- ---------- ----------
Income before cumulative effect of
change in accounting principle $4,228,307 $3,419,092 $1,827,483
Cumulative effect of change in
accounting principle 228,000 - -
---------- ---------- ----------
$4,456,307 $3,419,092 $1,827,483
---------- ---------- ----------
---------- ---------- ----------
Deferred income taxes are provided to reflect temporary differences between
financial and income tax reporting. The sources of the temporary differences
and their effect on the net deferred tax liability at June 30, 1996 and 1995
are as follows:
F-27
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. INCOME TAXES, Continued:
1996 1995
---------- ----------
Deferred tax assets:
Provision for losses on accounts receivable $ 379,600 $ -
Worker's compensation accrual 66,430
Deferred gain 99,216 120,590
---------- ----------
Total deferred tax assets 545,246 120,590
Deferred tax liabilities:
Property and equipment 1,434,719 255,090
Equity in undistributed earnings of subsidiaries 115,190 -
---------- ---------
Total deferred tax liabilities 1,549,909 255,090
---------- ---------
Net deferred tax liabilities $1,004,663 $ 134,500
---------- ---------
---------- ---------
The provision for income taxes for the year ended June 30, 1996 varies from
the amount determined by applying the Federal statutory rate to pretax income
as a result of the following:
Income tax expense at federal statutory rate $3,409,045
Nondeductible tax penalties 417,658
State income taxes, net of federal tax benefit 384,864
Dividend exclusion of subsidiary earnings 59,464
Other 185,276
----------
$4,456,307
----------
----------
The primary difference between the actual income tax rate of approximately 40%
and 39% for the years ended June 30, 1995 and 1994, respectively, and the
Federal income tax rate of 34% is the amount paid for state income taxes.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS AND INVESTMENTS:
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates fair value because of the short maturity of these
instruments.
MARKETABLE EQUITY SECURITIES
The carrying amount reported in the balance sheet for marketable equity
securities approximates fair value. All marketable equity securities are
F-28
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. FAIR VALUES OF FINANCIAL INSTRUMENTS AND INVESTMENTS, Continued:
classified as "available for sale" for accounting purposes and, therefore, are
carried at fair value with unrealized gains and losses recorded directly in
equity. There were no significant unrealized gains or losses at June 30,
1996.
SHORT- AND LONG-TERM DEBT
The fair value of all debt has been estimated based on the present value of
expected cash flows related to existing borrowings discounted at rates
currently available to the Company for debt with similar terms and remaining
maturities.
The cost basis and estimated fair values of the Company's financial
instruments at June 30 are as follows:
June 30, 1996
-----------------------------
Carrying Fair
Amount Value
Financial assets:
Cash and cash equivalents $ 45,365 $ 45,365
Marketable equity securities 33,645 33,645
Financial liabilities:
Short-term debt 3,512,415 3,512,415
Long-term debt 110,375,799 111,117,000
As of June 30, 1995, the carrying amount of all financial instruments
approximated fair value.
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
In connection with the purchase of Contour in September 1994, the Company
issued $1,000,000 of common stock, and $3,000,000 of redeemable convertible
preferred stock. Total assets and liabilities acquired were $5,146,493 and
$1,146,493, respectively.
In June 1995, the Company acquired for $4,488,000 through foreclosure a
116-unit property which secured bonds that the Company held.
Total debt of $20,830,000 was incurred during the year ended June 30, 1995, to
purchase property and equipment totaling $17,825,642, pay loan costs of
$1,004,358, and pay off an existing note for $2,000,000.
As described in Note 2, the Company acquired certain businesses during 1996.
The fair value of assets acquired was $67,155,500 and the fair value of
liabilities assumed was $40,957,647 which resulted in net cash payments of
$26,197,853.
Total debt of $10,200,000 was incurred during the year ended June 30, 1994 to
purchase property and equipment totaling $7,736,490, pay loan costs of
$429,483 and fund bond reserves of $2,034,027.
F-29
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION, Continued:
Through the acquisition of a company in December 1993, the Company recorded
$500,000 as goodwill and additional paid-in capital in 1995 based on the fair
value of 105,000 shares of common stock issued in connection with the
conversion of Series D preferred stock.
In conjunction with the Series C preferred stock conversion in September 1993,
$833,000 of preferred stock was capitalized as $87 in common stock and
$832,913 in additional paid-in capital.
Cash paid for interest during the years ended June 30, 1996, 1995 and 1994 was
$6,561,954, $1,172,883 and $11,172, respectively.
Cash paid for income taxes during the years ended June 30, 1996, 1995 and 1994
was $3,561,089, $829,292 and $1,360,720, respectively.
Dividends on preferred stock of $15,000 were accrued but not paid at June 30,
1996.
During 1996, approximately $8,112,000 of lease assets and obligations were
capitalized.
16. ACCRUED EXPENSES:
Accrued expenses consisted of the following as of June 30:
1996 1995
---------- ----------
Payroll and payroll taxes $3,152,795 $1,936,927
Interest 1,872,658 452,173
Other 2,517,678 795,133
---------- ----------
Total $7,543,131 $3,184,233
---------- ----------
---------- ----------
17. EMPLOYEE RETIREMENT PLAN:
During the year ended June 30, 1996, the Company company established a defined
contribution retirement plan. Employees qualify for the plan upon the
completion of three months of service with the Company and reaching the age of
twenty-one. Company contributions to the plan represent a matching percentage
of certain employee contributions. The matching percentage is subject to
management's discretion based upon consolidated financial performance. For
the year ended June 30, 1996, the Company has not made any contributions to
the plan.
F-30
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
18. BUSINESS SEGMENT INFORMATION:
Retirement Care Associates, Inc. and Subsidiaries is a long-term health care
provider which engages in two distinct business segments. The Retirement Care
Associates entity operates and manages nursing homes and retirement facilities
throughout the Southeast. As of June 30, 1996, approximately 10,400 beds were
owned or operated by this entity.
The Contour entity manufacturers a full line of orthopedic care and
rehabilitation products and distributes them to nursing facilities throughout
the Southeast. The Contour entity was acquired in 1995. The following
represents business segment information for the years ended June 30, 1996 and
1995.
1996 1995
------------ -----------
Operating revenues:
Retirement Care Associates $124,951,954 $76,656,829
Contour Medical 9,059,415 3,617,439
------------ -----------
$134,011,369 $80,274,268
------------ -----------
------------ -----------
Depreciation and amortization expense:
Retirement Care Associates $ 2,623,194 $ 1,051,842
Contour Medical 600,349 76,341
------------ -----------
$ 3,223,543 $ 1,128,183
------------ -----------
------------ -----------
Identifiable assets:
Retirement Care Associates $167,159,896 $72,644,179
Contour Medical 12,397,751 7,613,367
------------ -----------
$179,557,647 $80,257,546
------------ -----------
------------ -----------
Capital expenditures:
Retirement Care Associates $ 8,076,988 $ 5,763,553
Contour Medical 749,163 316,057
------------ -----------
$ 8,826,151 $ 6,079,610
------------ -----------
------------ -----------
19. SUBSEQUENT EVENT:
Subsequent to year end, 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.
F-31
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
19. SUBSEQUENT EVENT, Continued:
The following is a summary of the transactions:
- Winter Haven assumed the liability for all amounts, totaling $2,426,487,
due to the Company from NAB, Southeastern, Chamber and Senior.
- On October 14, 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.
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 RCA.
During the period from September 26 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 a 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.
F-32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
RETIREMENT CARE ASSOCIATES, INC.
Dated: October 15, 1996 By /s/ Chris Brogdon
Chris Brogdon, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Chris Brogdon President and Director October 15, 1996
Chris Brogdon
/s/ Edward E. Lane Secretary and Director October 15, 1996
Edward E. Lane
/s/ Darrell C. Tucker Treasurer (Chief Finan- October 15, 1996
Darrell C. Tucker cial Officer and Prin-
cipal Accounting Officer)
and Director
/s/ Julian S. Daley Director October 15, 1996
Julian S. Daley
- ------------------------- Director October __, 1996
Harlan Mathews