UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of the earliest event reported): August 1, 1996
October 15, 1996
STERLING HOUSE CORPORATION
(Exact name of Registrant as specified in its charter)
1-14022
(Commission File Number)
Kansas 48-1097141
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
453 S. Webb Road, Suite 500
Wichita, Kansas 67207
(Address of principal executive offices, including zip code)
316-684-8300
(Registrant's telephone number, including area code)
<PAGE>
Sterling House Corporation
Index to Current Report 8-K/A
Item 2: Acquisition or Disposition of Assets 3
Item 7: Financial Statements, Pro Forma Financial Information
and Exhibits 3
Signatures 4
High Plains Senior Living, Inc. Financial Statements F-1
Sterling House Corporation Pro Forma Financial Information F-12
Exhibits F-18
2
<PAGE>
Item 2. Acquisition or Disposition of Assets
On August 12, 1996, Sterling House Corporation (the "Company") filed a
Form 8-K announcing the closing of the purchase of Woodland Terrace (the
"Residence") from High Plains Senior Living, Inc., an unrelated entity.
The closing date was originally reported as August 1, 1996, which was
incorrect. The actual closing date of the purchase was July 31, 1996, with
an effective date of August 1, 1996. The Residence is a two-year old
retirement and assisted living residence, located in Liberal, Kansas, with
45 private units ranging from studios to two-bedroom apartments. The
Residence was purchased for approximately $2.2 million in cash and is being
accounted for as a purchase.
The required financial statements of High Plains Senior Living, Inc.
and pro forma financial information are included in Item 7 of this amended
Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
1. Financial Statements of High Plains Senior Living, Inc.
as of December 31, 1995 and 1994.
(b) Pro Forma Financial Information
1. Pro Forma Consolidated Financial Statements (Unaudited)
of Sterling House Corporation taking into consideration
the acquisition by Sterling House Corporation of certain
assets and the operations of the Residence previously
owned by High Plains Senior Living, Inc.
(c) Exhibits
Exhibit Exhibit
Number Description
- ------- -----------
23 Consent of Ernst & Young LLP
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Sterling House Corporation
By: /s/Timothy J. Buchanan
----------------------
Timothy J. Buchanan
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Dated: October 15, 1996
4
<PAGE>
Item 7(a)1
High Plains Senior Living, Inc.
Financial Statements
Years ended December 31, 1995 and 1994
Contents
Report of Independent Auditors F-2
Financial Statements
Balance Sheets as of December 31, 1995 and 1994
and (Unaudited) as of June 30, 1996 F-3
Statements of Revenues, Expenses, and Changes in
Unrestricted Net Deficit for the Years Ended December
31, 1995 and 1994 and (Unaudited) for the Six Months
Ended June 30, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended December
31, 1995 and 1994 and (Unaudited) for the Six Months
Ended June 30, 1996 and 1995 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
High Plains Senior Living, Inc.
We have audited the accompanying balance sheets of High Plains Senior
Living, Inc. as of December 31, 1995 and 1994, and the related statements
of revenues, expenses and changes in unrestricted net deficit and cash
flows for the years then ended. These 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 financial statements referred to above present fairly,
in all material respects, the financial position of High Plains Senior
Living, Inc. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
September 27, 1996
Wichita, Kansas
F-2
<PAGE>
High Plains Senior Living, Inc.
Balance Sheets
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
December 31, June 30, 1996
1995 1994 (Unaudited)
Assets __________________________________________
Current assets:
Cash $ 10,789 $ --- $ 5,833
Accounts receivable 200 8,393 ---
Prepaid expenses and other 6,341 6,399 2,381
Prerental costs --- 69,788 ---
Principal and interest funds in trust 95,956 --- 95,956
---------- --------- ----------
Total current assets 113,286 84,580 104,170
Property and equipment (Notes 2 and 3):
Land 20,778 20,778 20,778
Land improvements 175,175 129,867 175,635
Building 2,896,183 2,895,476 2,898,393
Furniture, fixtures and equipment 281,197 269,036 281,518
---------- ---------- ----------
3,373,333 3,315,157 3,376,324
Less accumulated depreciation (180,392) (59,740) (242,528)
---------- ---------- ----------
Net property and equipment 3,192,941 3,255,417 3,133,796
Other assets:
Financing costs, net of accumulated
amortization of $7,454, $3,781 and $9,276 38,928 42,601 37,106
Other 401 381 406
---------- ---------- ----------
Total other assets 39,329 42,982 37,512
---------- ---------- ----------
Total assets $3,345,556 $3,382,979 $3,275,478
========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
High Plains Senior Living, Inc.
Balance Sheets
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
December 31, June 30, 1996
1995 1994 (Unaudited)
Liabilities and net deficit __________________________________________
Current liabilities:
Note payable to bank (Notes 2 and 4) $1,328,913 $1,011,658 $1,338,913
Overdraft payable --- 608 ---
Accounts payable 10,689 10,401 9,587
Refundable deposits 1,044,865 886,418 1,047,865
Accrued expenses:
Interest 59,031 36,373 190,802
Payroll and benefits 14,370 12,265 12,976
Other 4,143 1,881 1,771
Current portion of bond payable (Notes 3 and 4) 1,750,000 50,000 1,750,000
--------- ---------- ---------
Total current liabilities 4,212,011 2,009,604 4,351,914
Bonds payable (Notes 3 and 4) --- 1,750,000 ---
Net deficit:
Unrestricted (866,455) (376,625) (1,076,436)
---------- ---------- ----------
Total liabilities and net deficit $3,345,556 $3,382,979 $3,275,478
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
High Plains Senior Living, Inc.
Statements of Revenues, Expenses and
Changes in Unrestricted Net Deficit
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
Years Ended Six Months Ended
December 31, June 30,
1995 1994 1996 1995
_________________________ ________________________
Revenues: (Unaudited)
Residence rental $ 314,383 $ 88,670 $ 191,051 $ 148,210
Service 31,509 10,159 12,661 9,042
---------- ---------- ---------- ----------
345,892 98,829 203,712 157,252
Operating expenses:
Residence operating expenses 423,645 231,729 217,922 189,443
Depreciation and amortization 194,113 133,310 64,004 97,056
---------- ---------- ---------- ----------
617,758 365,039 281,926 286,499
---------- ---------- ---------- ----------
Excess of operating expenses
over revenues (271,866) (266,210) (78,214) (129,247)
Other expenses:
Interest expense, net (net of
interest capitalized during
1994 of $73,584) 216,493 110,415 131,767 107,619
Other 1,471 --- --- 1,471
---------- ---------- ---------- ----------
Excess of expenses over revenues (489,830) (376,625) (209,981) (238,337)
Unrestricted net deficit at beginning
of year (376,625) --- (866,455) (376,625)
---------- ---------- ---------- ----------
Unrestricted net deficit at end
of year $ (866,455) $ (376,625) $(1,076,436) $ (614,962)
========== ========== =========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
High Plains Senior Living, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
Year Ended December 31, Six Months Ended June 30,
1995 1994 1996 1995
________________________ _________________________
Operating activities: (Unaudited)
Excess of expenses over revenues $ (489,830) $ (376,625) $ (209,981) $ (238,337)
Adjustments to reconcile excess
expenses over revenues to net
cash provided by (used in)
operating activities:
Depreciation and amortization 194,113 133,310 64,004 97,056
Net change in operating assets
and liabilities:
Accounts receivable 8,193 (8,393) 200 8,393
Prepaid expenses and other 58 (6,399) 3,960 6,399
Prerental costs --- (33,331) --- ---
Overdraft payable (608) 608 --- ---
Accounts payable 288 10,401 (1,102) 1,588
Refundable deposits 158,447 766,468 3,000 7,000
Accrued expenses 27,025 37,999 128,005 49,392
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities (102,314) 524,038 (11,914) (68,509)
Investing activities:
Purchases of property and equipment (58,176) (1,793,188) (3,037) (1,225)
---------- ---------- ---------- ----------
Net cash used in investing
activities (58,176) (1,793,188) (3,037) (1,225)
Financing activities:
Proceeds from short-term borrowings 494,000 1,322,135 10,000 190,579
Payments on short-term borrowings (176,745) (750,477) --- (14,700)
Payments on bonds (50,000) --- --- (50,000)
Net change in principal and interest
funds in trust (95,956) --- --- (53,156)
Net change in project funds in trust --- 694,130 --- ---
Other (20) --- (5) (9)
---------- ---------- ---------- ----------
Net cash provided by financing
activities 171,279 1,265,788 9,995 72,714
Net increase (decrease) in cash 10,789 (3,362) (4,956) 2,980
Cash at beginning of period --- 3,362 10,789 ---
---------- ---------- ---------- ----------
Cash at end of period $ 10,789 $ --- $ 5,833 $ 2,980
========== ========== ========== ==========
Supplemental disclosure of
cash flow information:
Cash paid during the period for:
Interest 196,020 150,361 --- 63,670
</TABLE>
See accompanying notes.
F-6
<PAGE>
High Plains Senior Living, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
1. Significant Accounting Policies
Basis of Presentation
The accompanying financial statements include the historic assets,
liabilities and operations associated with High Plains Senior Living, Inc.
(the "Company"). The Company was formed to develop and operate a housing
and general care facility for senior citizens. The Company was formed in
August 1991 and opened the residence in June 1994. On July 31, 1996,
Sterling House Corporation acquired the land, building and other assets of
Woodland Terrace (the "Residence") from the Company.
Cash
For purposes of the statement of cash flows, the Company considers cash to
include currency on hand, demand deposits and short-term investments with
maturities of three months or less.
Principal and Interest Funds in Trust
Principal and interest funds in trust, if any, consist of funds held in
escrow by a trustee to pay future principal and interest payments due under
the multifamily housing revenue bonds.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related
assets. Useful lives are as follows:
Land improvements 15 years
Building 40 years
Furniture, fixtures and equipment 5-10 years
F-7
<PAGE>
High Plains Senior Living, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
(continued)
1. Significant Accounting Policies (continued)
Property and equipment include interest costs and property taxes incurred
during the construction period, as well as development fees and other costs
directly related to the development and construction of the Residence.
Maintenance and repairs are charged to income as incurred and significant
renewals and betterments are capitalized. Deductions are made for
retirements resulting from renewals or betterments.
Prerental Costs
Costs incurred in connection with pre-opening marketing, employee
recruitment and training, and other start-up expenditures necessary to
prepare the Residence for occupancy have been capitalized. These Prerental
costs are amortized over 12 months beginning when the residence is
available for occupancy. Accumulated amortization at December 31, 1995 and
1994 was $139,577 and $69,789, respectively.
Financing Costs
Costs incurred in connection with obtaining permanent financing for the
Residence have been capitalized and are amortized over the term of the
financing using the effective interest method.
Revenues
Revenues are recorded when services are rendered and consist of resident
fees for basic housing and support services.
Income Tax Status
The Company, a not-for-profit corporation, is a qualified organization
under the provisions of Section 501(c)(3) of the Internal Revenue Code of
1986, as amended. Not-for-profit organizations are not taxed on certain
exempt income under the Internal Revenue Code. Accordingly, no provision
has been made by the Company.
F-8
<PAGE>
High Plains Senior Living, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
(continued)
1. Significant Accounting Policies (continued)
Uses of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash - The carrying amount reported in the balance sheet for cash approximates
its fair value.
Note Payable to Bank - The carrying amount of the Company's borrowings
under its variable rate line of credit approximates fair value.
Bonds Payable - The carrying amount of the Company's borrowings under its
long-term debt agreement approximates fair value.
Advertising and Promotion Expense
Advertising and promotion costs incurred prior to the opening of the
Residence are capitalized as prerental costs. All advertising and
promotion costs incurred subsequent to opening the Residence are expensed
as incurred. The total amount of advertising and promotion expense
capitalized as prerental costs was $34,912 and the total amount of
advertising and promotion expense incurred during the years ended December
31, 1995 and 1994, was $18,721 and $17,800, respectively.
F-9
<PAGE>
High Plains Senior Living, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
(continued)
1. Significant Accounting Policies (continued)
Refundable Deposits
The Company requires each tenant to pay a fully refundable deposit ranging
from $1,000 to $100,000 on or before the commencement of the tenant's
residency. Tenants paying a deposit in excess of $50,000 are entitled to
certain reduced rental rates as determined by the Company. In the event a
tenant terminates their residency, they are entitled to a full refund of
the deposit at the time a new resident signs a residency agreement and pays
the applicable deposit for the vacated unit.
Unaudited Interim Financial Data
The interim financial data at June 30, 1996, and for the six-month periods
ended June 30, 1996 and 1995, included herein, are unaudited and, in the
opinion of management, reflect all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of financial
position and the results of operations and cash flows for such interim
periods.
2. Note Payable to Bank
At December 31, 1995, the Company had available a line of credit of
$1,400,000 with a bank which had outstanding borrowings of $1,328,913 and
$1,011,658 for 1995 and 1994, respectively. Borrowings bear interest at the
New York (Citibank) Lending rate (8.75% at December 31, 1995). There are no
compensating balance requirements and the note is secured by substantially
all assets of the Company and the refundable tenant deposits. In addition,
should the Company default on either the line of credit or the multifamily
housing revenue bonds described in Note 3, it is to be considered a default
on both credit obligations.
F-10
<PAGE>
High Plains Senior Living, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
(continued)
3. Bonds Payable
Bonds payable consist of Multifamily Housing Revenue Bonds Series A, 1993
issued by the City of Liberal, Kansas with maturities occurring at various
dates through 2013. The interest rate on the bonds is adjusted annually
to equal the rate on the one year United States Treasury Note as quoted in
The Wall Street Journal plus 2.75% (8.56% at December 31, 1995). The
principal and interest on the bonds is serviced by payments made by the
Company to the trustee. In addition, certain of the proceeds from the
bonds have been deposited with the trustee and, to the extent that these
funds will be used for payment of principal and interest in the next year,
such funds are reflected as current assets in the accompanying balance
sheets. The bonds are secured by substantially all assets of the
Residence.
The amount of bonds outstanding at December 31, 1995 and 1994, was
$1,750,000 and $1,800,000, respectively. The aggregate annual maturities
of the bonds at December 31, 1995, are $55,000, $55,000 $60,000,
$65,000 and $70,000 for years 1996 through 2000, respectively.
4. Subsequent Event
Subsequent to December 31, 1995, the Company was granted a six-month grace
period during which no principal and interest payments on the line of
credit and the multifamily housing revenue bonds were required by the
lending institution and the bond owner. During such period, the Company
was to submit a proposal to restructure its debt service payments on each
obligation. On July 31, 1996, prior to the end of such grace period, the
Company sold the land, building, and other assets of the Residence to
Sterling House Corporation for a sales price of $2.2 million.
Contemporaneously with the sale, the Company paid $1,200,000 to the owner of
the bonds as payment in full for the outstanding balance, and the
outstanding balance of $1,328,913 on the line of credit was forgiven by the
issuing bank. Accordingly, the outstanding balance on both obligations as
of December 31, 1995 has been classified as a current liability in the
accompanying balance sheets. In addition, the Company refunded
substantially all existing tenant deposits on the date of such sale.
F-11
<PAGE>
Item 7(b) 1
STERLING HOUSE CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
Sterling High Plains
House Senior Pro Forma Pro Forma
Corporation Living, Inc. Adjustments Consolidated
_____________________________________________________________
Assets
Current Assets:
Cash and cash equivalents $36,052,316 $ 5,833 $(2,205,833)(A)(C) $33,852,316
Accounts receivable
Construction receivable
due from REIT 7,877,505 --- 7,877,505
Trade 427,834 --- 427,834
Affiliates 11,370 --- 11,370
Other 107,234 --- 107,234
Prerental costs 554,935 --- 554,935
Deferred income taxes 151,987 --- 151,987
Principal and interest funds
in trust 360,890 95,956 (95,956)(C) 360,890
Other 344,917 2,381 (2,381)(C) 344,917
---------- ---------- ---------- ----------
Total current assets 45,888,988 104,170 (2,304,170) 43,688,988
Property and equipment:
Land and improvements 1,033,128 196,413 (66,511)(A) 1,163,030
Buildings 6,925,896 2,898,393 (981,482)(A) 8,842,807
Leasehold rights and improvements 2,149,301 --- 2,149,301
Vehicles and equipment 447,354 --- 447,354
Furniture, fixtures and
office equipment 902,222 281,518 (95,331)(A) 1,088,409
Construction in progress 12,204,855 --- 12,204,855
----------- ---------- --------- -----------
23,662,756 3,376,324 (1,143,324) 25,895,756
Less accumulated depreciation (558,211) (242,528) 242,528(A) (558,211)
----------- ---------- ----------- -----------
Net property and equipment 23,104,545 3,133,796 (900,796) 25,337,545
Other assets:
Deferred income taxes 468,715 --- 468,715
Deferred financing costs 1,577,665 37,106 (37,106)(C) 1,577,665
Other 1,333,102 406 (406)(C) 1,333,102
----------- ---------- ----------- -----------
Total other assets 3,379,482 37,512 (37,512) 3,379,482
----------- ---------- ----------- -----------
Total assets $72,373,015 $3,275,478 $(3,242,478) $72,406,015
=========== ========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
F-12
STERLING HOUSE CORPORATION
PROFORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
Sterling High Plains
House Senior Pro Forma Pro forma
Corporation Living, Inc. Adjustments Consolidated
_______________________________________________________________
Liabilities and stockholders' equity
Current liabilities:
Note payable
Due to affiliates $ --- $ --- $ $ ---
Short-term borrowings --- 1,338,913 (1,338,913)(C) ---
Accounts payable 4,231,843 9,587 (9,587)(C) 4,231,843
Accrued expenses
Salaries and benefits 419,323 12,976 (7,976)(B)(C) 424,323
Interest 440,151 190,802 (190,802)(C) 440,151
Other 326,278 1,771 (1,771)(C) 326,278
Deferred income taxes 153,655 --- 153,655
Deferred rent and refundable deposits 192,826 1,047,865 (1,019,865)(B)(C) 220,826
Current maturities of bonds payable
and long-term debt 201,966 1,750,000 (1,750,000)(C) 201,966
---------- ---------- ---------- -----------
Total current liabilities 5,966,042 4,351,914 (4,318,914) 5,999,042
Non-current liabilities
Bonds payable and long-term debt 4,702,125 --- 4,702,125
Convertible debt 35,000,000 --- 35,000,000
Deferred income taxes 1,404,094 --- 1,404,094
Deferred compensation 391,215 --- 391,215
Investment in unconsolidated affiliates --- --- ---
Other 28,100 --- 28,100
---------- --------- ---------- -----------
Total non-current liabilities 41,525,534 --- 41,525,534
Total liabilities 47,491,576 4,351,914 (4,318,914) 47,524,576
Stockholders' equity
Preferred stock --- --- ---
Common stock 28,191,965 28,191,965
Accumulated deficit (3,310,526) (1,076,436) 1,076,436(C) (3,310,526)
----------- ----------- ----------- -----------
Total stockholders' equity 24,881,439 (1,076,436) 1,076,436 24,881,439
Total liabilities and stockholders'
equity $72,373,015 $ 3,275,478 $(3,242,478) $72,406,015
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-13
<PAGE>
STERLING HOUSE CORPORATION
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
Sterling High Plains
House Senior Pro Forma Pro Forma
Corporation Living, Inc. Adjustments Consolidated
____________________________________________________________
Revenue:
Residence rental $ 5,754,476 $ 203,712 $ 5,958,188
Initial franchise and royalty fees 80,523 80,523
Management and service fees 52,966 52,966
Construction services 63,123 63,123
----------- ---------- ---------- -----------
Total revenue 5,951,088 203,712 --- 6,154,800
Operating expenses:
Residence operating expenses 3,796,559 217,922 4,014,481
General and administrative 1,191,283 1,191,283
Cost of construction services 28,245 28,245
Building rental 1,115,523 1,115,523
Depreciation and amortization 470,879 64,004 (21,285)(D) 513,598
----------- ---------- --------- -----------
Total operating expenses 6,602,489 281,926 (21,285) 6,863,130
Loss from operations (651,401) (78,214) 21,285 (708,330)
Other income (expenses):
Interest income 534,262 5 (56,105)(E) 478,162
Interest expense (332,800) (131,772) 131,772 (F) (332,800)
Minority interest --- ---
Other (20,257) --- (20,257)
--------- ---------- --------- -----------
Total other income (expenses) 181,205 (131,767) 75,667 125,105
--------- ---------- --------- -----------
Loss before income taxes and
extraordinary item (470,196) (209,981) 96,952 (583,225)
Benefit for income item 139,285 0 33,482(G) 172,767
---------- ---------- --------- -----------
Net Loss $ (330,911) $ (209,981) $ 130,434 $ (410,458)
=========== ========== ========= ===========
Net loss per common share:
Loss before extraordinary item $ (0.07) $ (0.08)
Extraordinary item 0.00 0.00
----------- -----------
Net loss $ (0.07) $ (0.08)
=========== ===========
Average number of common shares
outstanding 5,035,421 5,035,421
=========== ===========
</TABLE>
F-14
<PAGE>
STERLING HOUSE CORPORATION
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
Sterling High Plains
House Senior Pro Forma Pro Forma
Corporation Living, Inc. Adjustments Consolidated
______________________________________________________________
Revenue:
Residence rental $ 2,296,994 $ 345,892 $ $ 2,642,886
Development fees 302,871 --- 302,871
Initial franchise and royalty fees 290,963 --- 290,963
Management and service fees 489,683 --- 489,683
Construction services 1,217,124 --- 1,217,124
----------- ---------- --------- -----------
Total revenue 4,597,635 345,892 --- 4,943,527
Operating expenses:
Residence operating expenses 1,553,309 423,645 1,976,954
General and administrative 1,766,476 --- 1,766,476
Stock compensation expense 412,550 --- 412,550
Cost of construction services 1,069,270 --- 1,069,270
Building rental 55,147 --- 55,147
Depreciation and amortization 460,074 194,113 (38,857)(D) 615,330
Equity in net loss from
unconsolidated affiliates 278,636 --- 278,636
----------- ---------- --------- -----------
Total operating expenses 5,595,462 617,758 (38,857) 6,174,363
----------- ---------- --------- -----------
Loss from operations (997,827) (271,866) 38,857 (1,230,836)
Other income (expenses):
Interest income 204,476 2,185 (20,518)(E) 186,143
Interest expense (375,165) (218,678) 218,678 (F) (375,165)
Minority interest 47,757 --- 47,757
Other 38,833 (1,471) 37,362
--------- -------- --------- ---------
Total other income (expenses) (84,099) (217,964) 198,160 (103,903)
--------- -------- --------- ---------
Loss before income taxes and
extraordinary item (1,081,926) (489,830) 237,017 (1,334,739)
Benefit for income item 74,512 --- 12,246(G) 86,758
---------- -------- --------- -----------
Loss before extraordinary item (1,007,414) (489,830) 249,263 (1,247,981)
---------- -------- --------- -----------
Extraordinary item:
Loss from early retirement of
financing agreements, net of
tax benefit of $747,098 (1,175,933) --- (1,175,933)
----------- --------- --------- -----------
Net loss $(2,183,347) $(489,830) $249,263 $(2,423,914)
=========== ========= ========= ===========
Net loss per common share:
Loss before extraordinary item $ (0.36) $ (0.45)
Extraordinary item (0.42) (0.42)
----------- -----------
Net loss $ (0.78) $ (0.87)
=========== ===========
Average number of common shares
outstanding 2,786,868 2,786,868
=========== ===========
</TABLE>
See accompanying notes. F-15
<PAGE>
STERLING HOUSE CORPORATION
Notes to Pro Forma Consolidated Financial Statements (Unaudited)
June 30, 1996 and December 31, 1995
1) Basis For Financial Statement Presentation
On July 31, 1996, the Company entered into an agreement, effective August
1, 1996, with High Plains Senior Living, Inc. to purchase the land,
building, furniture and equipment of Woodland Terrace, an assisted living
residence located in Liberal, Kansas (the "Residence"). The Residence is
two years old and has 45 private units ranging from studios to two-bedroom
apartments. The Residence was purchased for approximately $2.2 million in
cash.
The acquisition was accounted for as a purchase. The fair market values of
the assets and liabilities have been pro-rated from the purchase price based
upon their historical carrying values. Final allocations will be made on the
basis of appraisals and valuations giving effect to various economic and
market factors. Any purchase price adjustments will be made within one year
from the acquisition date and are not expected to be material to the pro forma
financial information taken as a whole.
The pro forma financial information has been prepared giving effect to the
acquisition of the Residence as if the transaction had taken place at June
30, 1996 for the pro forma consolidated balance sheet, and January 1, 1995
for the pro forma consolidated statement of operations for the year ended
December 31, 1995, and for the six months ended June 30, 1996.
The unaudited pro forma consolidated balance sheet and statement of
operations for the six months ended June 30, 1996, and for the statement of
operations for the year ended December 31, 1995, are not necessarily
indicative of the results of operations or the financial position which
would have been attained had the acquisition been consummated at the date
presented. The unaudited pro forma consolidated balance sheet and
statement of operations should be read in conjunction with the historical
financial statements of High Plains Senior Living, Inc.
F-16
<PAGE>
STERLING HOUSE CORPORATION
Notes to Pro Forma Consolidated Financial Statements (Unaudited)
June 30, 1996 and December 31, 1995
(continued)
2) Pro Forma Adjustments
(A) Represents adjustments to the carrying value of the assets purchased,
based on fair market value of the allocated purchase price of
$2,233,000, writing off of accumulated deprecation at the time of
purchase, and reducing the cash balance by the cash payment of
$2,200,000.
(B) The Company assumed liabilities of High Plains Senior Living, Inc.
amounting to $5,000 of accrued vacation owed to employees of the
Residence retained by the Company, and $28,000 in refundable resident
deposits owed to the residents living at the Residence at the time
of the acquisition.
(C) Represents elimination of all the assets and liabilities that were not
acquired or assumed by the Company in the purchase of the Residence.
(D) Represents a decrease in depreciation expense due to the fair market
value reduction in book value of High Plains Senior Living, Inc.'s
fixed assets at the date of acquisition. Pro forma depreciation
expense was approximately $82,000 at December 31, 1995 and $41,000 at
June 30, 1996.
(E) To give effect of the interest revenue that would not have been earned
if the company's cash would have been used to purchase the Residence
as of January 1, 1995, rather than being available to earn interest
over the same period. Also eliminated was the interest income earned
on High Plains Senior Living, Inc.'s cash balances that were not
acquired by the Company.
(F) To eliminate the interest expense on High Plains Senior Living, Inc.'s
debt that was not assumed by the Company as part of the acquisition.
(G) Represents adjustment to the income tax benefit after giving effect to
the other pro forma adjustments relating to the acquisition of the
Residence.
F-17
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 333-03687) pertaining to the 1995 Stock Option Plan and
Director's Stock Option Agreements of Sterling House Corporation of our
report dated September 27, 1996, with respect to the financial statements
of High Plains Senior Living, Inc. included in Sterling House Corporation's
Current Report on Form 8-K/A dated October 15, 1996, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Wichita, Kansas
September 27, 1996
F-18
<PAGE>
