<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 1-13845
BALANCED CARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 25-1761898
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1215 MANOR DRIVE, MECHANICSBURG, PA 17055
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(717) 796-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /x/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT NOVEMBER 10, 2000
----- --------------------------------
<S> <C>
Common Stock, $.001 par value 34,172,847
</TABLE>
1
<PAGE> 2
BALANCED CARE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION
ITEM 1:
CONDENSED FINANCIAL STATEMENTS (unaudited)
Consolidated Balance Sheets as of September 30, 2000 and June 30, 2000........................................... 3
Consolidated Statements of Operations for the three months ended September 30, 2000 and 1999..................... 4
Consolidated Statement of Changes in Stockholders' Equity for the three months ended September 30, 2000.......... 5
Consolidated Statements of Cash Flows for the three months ended September 30, 2000 and 1999..................... 6
Notes to Consolidated Financial Statements....................................................................... 7
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................................................................................... 11
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................................... 21
PART II--OTHER INFORMATION
ITEM 6:
EXHIBITS AND REPORTS ON FORM 8-K.................................................................................... 22
(A) Exhibits
(B) Reports on Form 8-K
</TABLE>
2
<PAGE> 3
PART I--FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BALANCED CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 3,523 $ 5,722
Receivables (net of allowance for doubtful receivables)............................... 7,032 5,085
Development contracts in process...................................................... 338 336
Prepaid expenses and other current assets............................................. 5,093 2,329
---------- ----------
Total current assets............................................................ 15,986 13,472
Restricted investments................................................................ 3,925 3,879
Property and equipment, net........................................................... 78,927 79,878
Goodwill, net......................................................................... 14,324 14,469
Purchase option deposits.............................................................. 4,628 4,296
Other assets.......................................................................... 3,430 4,000
---------- ----------
Total assets.................................................................... $ 121,220 $ 119,994
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................................................... $ 13,808 $ 8,888
Accounts payable...................................................................... 3,424 2,664
Accrued payroll....................................................................... 412 1,045
Accrued expenses...................................................................... 4,813 4,423
---------- ----------
Total current liabilities....................................................... 22,457 17,020
Long-term debt, net of current portion................................................... 49,874 60,881
Straight-line lease liability............................................................ 2,715 2,784
Deferred revenue and other liabilities................................................... 2,871 3,003
Convertible debentures................................................................... 14,223 --
---------- ----------
Total liabilities............................................................... 92,140 83,688
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 authorized;
none outstanding................................................................ -- --
Preferred stock, Series A, $.001 par value; 1,150,958 authorized;
none outstanding................................................................ -- --
Preferred stock, Series B, $.001 par value; 5,009,750 authorized;
none outstanding................................................................ -- --
Common stock, $.001 par value; authorized--50,000,000 shares;
issued and outstanding--34,172,847 shares at September 30, 2000
and June 30, 2000............................................................... 35 35
Additional paid-in capital............................................................ 83,333 83,333
Accumulated deficit................................................................... (54,288) (47,062)
---------- ----------
Total stockholders' equity...................................................... 29,080 36,306
---------- ----------
Total liabilities and stockholders equity....................................... $ 121,220 $ 119,994
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
BALANCED CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2000 1999
--------- ---------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Resident services.............................................................. $ 11,432 $ 6,895
Patient services............................................................... 2,357 11,045
Development fees............................................................... 21 397
Management fees................................................................ 45 99
Other revenues................................................................. 110 41
--------- ---------
Total revenues........................................................... 13,965 18,477
--------- ---------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits................................................ 6,500 8,821
Other operating expenses.................................................... 3,720 5,429
General and administrative expenses............................................ 2,630 2,594
Provision for losses under shortfall funding agreements ....................... 2,100 800
Lease expense.................................................................. 3,166 3,439
Depreciation and amortization.................................................. 1,367 740
--------- ---------
Total operating expenses................................................. 19,483 21,823
--------- ---------
Loss from operations..................................................... (5,518) (3,346)
Other income (expense):
Interest and other income...................................................... 102 57
Interest expense............................................................... (1,810) (399)
--------- ---------
Loss before income taxes and extraordinary charge........................... (7,226) (3,688)
Provision for income taxes ....................................................... -- 2
--------- ---------
Loss before extraordinary charge............................................ (7,226) (3,690)
Extraordinary charge for early retirement of debt................................. -- (739)
--------- ----------
Net loss.................................................................... $ (7,226) $ (4,429)
========= ==========
Basic and diluted loss per share:
Loss before extraordinary item.............................................. $ (0.21) $ (0.22)
========= ==========
Net loss.................................................................... $ (0.21) $ (0.26)
========= ==========
Weighted average shares........................................................... 34,173 16,723
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BALANCED CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
(IN THOUSANDS OF DOLLARS AND SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
ISSUED PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
-------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 2000 .... 34,173 $ 35 $ 83,333 $(47,062) $ 36,306
Net Loss .................... (7,226) (7,226)
-------- -------- -------- -------- --------
Balance at September 30, 2000 34,173 $ 35 $ 83,333 $(54,288) $ 29,080
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
BALANCED CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
-------- --------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ...................................................................... $ (7,226) $ (4,429)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization ................................................. 1,367 740
Provision for losses under shortfall funding agreements ....................... 2,100 800
Non cash interest - convertible debt .......................................... 223 --
Extraordinary charge for early retirement of debt ............................. -- 739
Changes in operating assets and liabilities, excluding
effects of acquisitions:
(Increase) in receivables, net .............................................. (4,047) (432)
(Increase) decrease in development contracts in process, net ................ (2) 240
(Increase) decrease in prepaid expenses and other current assets ............ (264) 331
Increase (decrease) in accounts payable, accrued payroll and accrued expenses 517 (153)
-------- --------
Net cash used for operating activities .................................... (7,332) (2,164)
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment ........................................... (98) (1,767)
(Increase) decrease in restricted investments ................................. (46) 171
Restricted investment available for current liabilities........................ (2,500) --
Increase in purchase option deposits and other assets ......................... (4) (1,730)
-------- --------
Net cash used for investing activities .................................... (2,648) (3,326)
-------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of debt ................................................ 5,000 6,403
Payments on debt (including extinguishment costs of $707 in 1999).............. (11,087) (3,914)
Proceeds from issuance of convertible debentures .............................. 14,000 --
Decrease in other liabilities ................................................. (132) (428)
-------- --------
Net cash provided by financing activities ................................. 7,781 2,061
-------- --------
Increase (Decrease) in cash and cash equivalents .............................. (2,199) (3,429)
Cash and cash equivalents at beginning of year ................................... 5,722 8,160
-------- --------
Cash and cash equivalents at end of year ......................................... $ 3,523 4,731
======== ========
Supplemental Cash Flow Information:
Cash paid for interest ........................................................ $ 366 399
======== ========
Cash paid for income taxes .................................................... $ -- 2
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
BALANCED CARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BACKGROUND
Balanced Care Corporation ("BCC" or the "Company") was incorporated in
April 1995 and utilizes assisted living facilities as the primary service
platform to provide an array of healthcare and hospitality services, including
preventive care and wellness, medical rehabilitation, Alzheimer's/dementia care
and, in certain markets, extended care. As of September 30, 2000, the Company
owned, leased or managed 63 assisted living communities and 3 skilled nursing
facilities and had 2 assisted living communities under development contracts.
The Company's operations are located in Pennsylvania, Arkansas, Virginia, Ohio,
North Carolina, Tennessee, West Virginia, Florida, Maryland and Indiana. These
open facilities have a capacity for 4,286 assisted living residents, 169 skilled
nursing patients, and 86 independent living residents.
(b) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries from their respective
acquisition dates. All significant inter-company accounts and transactions have
been eliminated in the consolidated financial statements.
The financial statements as of and for the three-month periods ended
September 30, 2000 and 1999 are unaudited, but in the opinion of management,
have been prepared on the same basis as the audited financial statements and
reflect all adjustments, consisting of normal recurring accruals necessary for a
fair presentation of the information set forth therein. The results of
operations for the three-month period ended September 30, 2000 are not
necessarily indicative of the operating results to be expected for the full year
or any other period. These financial statements and notes should be read in
conjunction with the financial statements and notes included in the audited
consolidated financial statements of the Company for the year ended June 30,
2000 as contained in the Company's Annual Report on Form 10-K.
2. CONVERTIBLE DEBENTURES
On July 31, 2000, HR Investments Limited ("HR"), RH Investments Limited
("RH"), and VXM Investments Limited ("VXM" and together with HR and RH,
collectively, the "Holders," affiliates of IPC, each purchased at par from the
Company, 9.5% unsecured convertible grid debentures (as amended, collectively,
the "Debentures"), in an aggregate principal amount equal to $14,000,000. The
Debentures were purchased in accordance with the terms and conditions or
purchase agreements dated as of June 30, 2000 between the Company and each of
the Holders. Under the Debentures, the Holders have the right, at any time up to
and including the earlier to occur of the Early Termination Date and the
Maturity Date (as such terms are defined below), to convert all or any part of
the Debentures into Common Stock of the Company at the conversion rate of $2.00
per share (subject to adjustment as provided in the Debentures, the "Conversion
Rate"). The Debentures mature on July 1, 2005 (the "Maturity Date"). Interest
under the Debentures accrues at an annual rate of 9.5% and is due and payable
quarterly. The Company, at its option, may pay the interest in cash or in lieu
of payment, may add the interest amount payable to the outstanding principal
amount of the Debentures, subject to certain conditions precedent. The Company
may terminate the Holders' conversion rights at any time after December 31, 2002
if the average closing price per share of Common Stock of the Company for the 20
consecutive trading days ending five trading days preceding the date on which
the notice of termination is given to the Holders by the Company is not less
than 200% of the Conversion Rate (the "Early Termination Date"). The Holders
have no rights with respect to the election of the Company's board of directors
unless and until all or any portion of the Debentures are converted into Common
Stock, at which time the Holders will have the same rights, powers and
privileges as the other holders of the Company's Common Stock. Depending on when
(and if) the Debentures are converted and how the Company elects to pay
interest, the Holders could have the right to convert the Debentures into shares
of Common Stock equal to approximately 17% to 24.7% of the issued and
outstanding shares of the Company after giving effect to the transactions.
7
<PAGE> 8
The Holders and IPC may be deemed to be an affiliated group within the
meaning of Section 13 (d)(3) of the Exchange Act. On a combined basis, the
Holders and IPC (directly or indirectly) may be deemed to beneficially own
approximately 61.2% to 64.8% of the Common Stock of the Company depending on
when (and if) the Debentures are converted and how the Company elects to pay
interest.
For the quarter ended September 30, 2000, the Company elected to pay
the interest payable for the quarter-ended in the form of an increase to the
principal balance outstanding for the convertible debentures.
3. LOAN INCREASE
In September 2000, the Company requested, and Heller Healthcare
Finance, Inc. ("Heller") agreed, to increase an existing $37,000,000 loan by
$5,000,000 to $42,000,000. The $5,000,000 is evidenced by a promissory note
dated September 20, 2000 (the "Heller Note"). The Heller Note is due and payable
on November 15, 2000 and contains certain exit fee provisions. Interest on the
Heller Note accrues at prime plus 2%, and is due and payable in arrears on
November 15, 2000. Approximately $2,500,000 of the proceeds from the Heller Note
provided working capital required for operations. The remaining $2,500,000 was
placed into an interest bearing reserve account to be used by Heller, at its
discretion, to cure any past due interest or other defaults that may arise from
time to time while the loan is still outstanding. In addition, so long as there
are no defaults, the $2,500,000 reserve may be used by the Company to repay the
Heller Note by November 15, 2000. The Heller Note was repaid on November 6, 2000
(refer to Note 6, "Subsequent Events").
4. PRO FORMA RESULTS OF OPERATIONS
The following unaudited summary, prepared on a pro forma basis,
combines the results of operations of acquired and divested businesses with
those of the Company as if the acquisitions and divestitures had been
consummated as of the beginning of the respective periods and after considering
the impact of certain adjustments such as: amortization of goodwill,
depreciation on assets acquired, interest on acquisition financing and lease
payments on the leased facility (in thousands of dollars except EPS). The pro
forma results include 7 businesses acquired in December 1999, 10 businesses
acquired in May 2000, and the divestiture of its Missouri operations in January
2000. Such businesses acquired were the SPE lessees of facilities previously
managed by the Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue ................................................. $ 13,965 $ 11,172
Expenses ................................................ 21,191 16,540
-------- --------
Loss before extraordinary items ......................... (7,226) (5,368)
Loss before extraordinary items per common share ........ (.21) (.32)
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisitions and divestitures had been
completed as of July 1, 2000 and 1999, respectively. In addition, they are not
intended to be a projection of future results of operations.
5. LOSS PER SHARE
Loss per share is computed using the weighted average number of common
shares and common equivalent shares outstanding (using the treasury stock
method). For the three-month periods ended September 30, 2000 and 1999, common
equivalent shares from stock options and warrants are excluded from the
computation, as their effect is anti-dilutive.
6. SUBSEQUENT EVENTS
8
<PAGE> 9
On November 6, 2000, the Company entered into a Letter Agreement (as
defined below), under which the Company requested that HR, RH and VXM make loans
to the Company in the aggregate amount of $8,000,000. On November 6, 2000,
$6,500,000 of the $8,000,000 was loaned to the Company. (the "$6.5M Loan"). The
$6.5M Loan is evidenced by three promissory notes made by the Company, as
follows: (1) a $2,166,667 note in favor of HR , (2) a $2,166,667 note in favor
of RH and (3) a $2,166,666 note in favor of VXM (collectively, the "Notes"). The
Notes have a maturity date of January 31, 2001. Interest accrues under the Notes
at an annual rate of 12%, and is due and payable monthly in arrears commencing
on November 30, 2000. The Notes are secured by a pledge of the stock of 12 of
the Company's subsidiaries (collectively, the "Subsidiaries") pursuant to a
Stock Pledge Agreement dated as of April 18, 2000, as amended by an Amendment
and Joinder to Stock Pledge Agreement dated November 6, 2000 (as amended, the
"Stock Pledge Agreement"). In addition, the Company, the Subsidiaries, IPC, FRR,
HR, RH, VXM and Heller entered into an Amended and Restated Subordination
Agreement dated November 6, 2000 (the "Subordination Agreement"). Under the
Subordination Agreement, IPC, FRR, HR, RH and VXM (collectively, the "Junior
Lender") agreed to subordinate their respective rights and interests in and to
the "Junior Debt" and the "Junior Loan Documents" (as such terms are defined in
the Subordination Agreement) in favor of Heller, including the Junior Lender's
rights under the Stock Pledge Agreement and the Notes. Except for the payment of
interest on the Notes, the Junior Lender has agreed to refrain from taking any
action or from receiving any payment with respect to the Junior Debt and the
Junior Loan Documents until the Company's obligations to Heller are paid in
full. As of November 14, 2000, the Company's outstanding obligations to Heller
include (1) a $37,000,000 loan having a maturity date of December 31, 2001 and
(2) the Company's $12,000,000 revolving line of credit, having a maturity date
of July 29, 2002.
On November 6, 2000, the Company prepaid its obligations to Heller
under the Heller Note. The Heller Note had a maturity date of November 15, 2000.
The Heller Note was prepaid using a portion of the proceeds from the $6.5M Loan
referenced above.
On November 6, 2000, IPC and the Company, based on the considerations
of a special committee of certain of the independent directors of the Board of
Directors of the Company (the "Special Committee"), entered into a letter
agreement (the "Letter Agreement") pursuant to which IPC indicated that it would
consider making an offer of $1.00 per common share in cash for the entire equity
interest in the Company not already owned by IPC, subject to the completion of
due diligence satisfactory to IPC in its sole discretion, and to the negotiation
and execution of mutually satisfactory definitive documentation (the "Proposed
Offer").
Under the Letter Agreement, in consideration of HR, RH and VXM's
willingness to make loans to the Company in the aggregate amount of $8,000,000,
including the $6.5M Loan referenced above, and in further consideration of IPC
incurring time and expense in conducting due diligence, the Company agreed to
amend Section 6.8 of the Subscription Agreement dated as of October 8, 1999
between the Company and IPC to permit IPC to make the Proposed Offer. In
addition, the Company agreed, subject to the fiduciary duties of the Company's
board of directors, not to solicit, participate in discussions or negotiations
concerning or furnish information to any person other than IPC until January 15,
2001. In the event the Company receives an unsolicited request for information
or an unsolicited acquisition proposal, if the Special Committee determines in
its good faith judgment (after receiving the advice of counsel) that if the
Company fails to participate in such discussions or negotiations with or provide
such information to, the person making the acquisition proposal or requesting
information, there is a reasonable probability that the Board of Directors would
be in violation of its fiduciary duties under applicable law, then the Company
must notify IPC and keep IPC fully informed of the status and details of any
such acquisition proposal or inquiry. If such an acquisition proposal is
approved by the Board of Directors prior to January 31, 2000, the Company is
required to reimburse IPC for its documented costs and expenses (including,
without limitation, reasonable attorneys' fees), in connection with the
transactions contemplated by the Letter Agreement, up to an aggregate of
$500,000.
The Special Committee has received an opinion dated November 6, 2000
from Raymond James & Associates, Inc., its financial advisors, to the effect
that, subject to certain assumptions, limitations and qualifications, cash
consideration of $1.00 per share is fair to the stockholders of the Company from
a financial point of view. In addition, the Special Committee of the board of
directors of the Company confirmed that it had determined that the consideration
of $1.00 per share in cash for each share of the Company's outstanding common
stock not owned by IPC and its affiliates was advisable and fair to the
stockholders of the Company and, subject to negotiation of definitive agreements
relating to the Proposed Offer acceptable to the Special Committee, the Special
Committee would recommend that the board of directors of the Company
9
<PAGE> 10
approve and adopt such definitive agreements and the Special Committee would
then recommend that stockholders of the Company tender into and/or vote to
approve and adopt such definitive agreements as applicable, and once
recommended, the Special Committee will not modify, amend or withdraw such
recommendations, unless the Special Committee determines, in its good faith
judgment (after receiving the advice of counsel), that if the Special Committee
fails to modify, amend or withdraw such recommendations, there is a reasonable
probability that the Special Committee would be in violation of its fiduciary
duties under applicable law. In the Letter Agreement, the Company acknowledged
that IPC would not be under any obligation to make such Proposed Offer.
7. SEGMENT REPORTING
In Fiscal 2001 and 2000, the Company had three primary reportable
segments: (i) Resident Services which includes all assisted living and
independent living services, and the management of assisted living facilities,
(ii) Patient Services which includes skilled nursing services, home health
services, and medical rehabilitation services, and (iii) Development, General
and Administrative. No other individual business segment exceeds the 10%
quantitative thresholds of SFAS No. 131.
Balanced Care Corporation management evaluates the performance of its
operating segments on the basis of income from continuing operations before
non-recurring items (representing provisions for losses on development
activities and severance agreements and gains and losses on disposition of
assets, including purchase options), lease expense, interest (net), taxes,
depreciation and amortization.
10
<PAGE> 11
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------
RESIDENT PATIENT GENERAL AND
SERVICES SERVICES ADMINISTRATIVE CONSOLIDATED
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues............................................. $ 11,587 $ 2,357 $ 21 $ 13,965
Facility Operating expenses.......................... 8,320 1,900 -- 10,220
-------------- ------------ ------------ ----------
Contribution Margin.................................. 3,267 457 21 3,745
General and administrative expenses.................. -- -- 2,630 2,630
Provision for losses under shortfall
funding agreements................................ 2,100 -- -- 2,100
-------------- ------------ ------------ ----------
Income (loss) before non-recurring
items, lease expense, interest (net),
taxes, depreciation and amortization.............. $ 1,167 $ 457 $ (2,609) $ (985)
============== ============ ============ ==========
Total Assets......................................... $ 44,841 $ 175 $ 76,204 $ 121,220
============== ============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------
RESIDENT PATIENT GENERAL AND
SERVICES SERVICES ADMINISTRATIVE CONSOLIDATED
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues............................................. $ 7,035 $ 11,045 $ 397 $ 18,477
Facility Operating expenses.......................... 4,438 9,812 -- 14,250
-------------- ------------ ------------ ----------
Contribution Margin.................................. 2,597 1,233 397 4,227
General and administrative expenses.................. -- -- 2,594 2,594
Provision for losses under shortfall
funding agreements................................ 800 -- -- 800
-------------- ------------ ------------ ----------
Income (loss) before non-recurring
and extraordinary items, lease expense,
interest (net), taxes, depreciation
and amortization.................................. $ 1,797 $ 1,233 $ (2,197) $ 833
============== ============ ============ ==========
Total Assets......................................... $ 40,605 $ 11,384 $ 17,142 $ 69,131
============== ============ ============ ==========
</TABLE>
11
<PAGE> 12
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis addresses the Company's results
of operations on a historical basis for the quarters ended September 30, 2000
and 1999 and liquidity and capital resources of the Company. This information
should be read in conjunction with the Company's consolidated financial
statements, and related notes thereto, contained elsewhere in this report. This
report contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those disclosed in the "Risk
Factors" section in the Company's Annual Report on Form 10-K for the year ended
June 30, 2000.
OVERVIEW
The Company was incorporated in April 1995 and utilizes assisted living
facilities as the primary service platform to provide an array of healthcare and
hospitality services, including preventive care and wellness, medical
rehabilitation, Alzheimer's/dementia care and, in certain markets, extended
care.
The Company has grown primarily by designing, developing, operating and
managing its Outlook Pointe(R) signature series assisted living facilities and
through acquisitions. The following table summarizes the Company's operating
facilities at September 30, 2000 and 1999 (excluding the former Missouri
facilities):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------------------------
2000 1999
---------------------------------- ----------------------------------
OWNED LEASED MANAGED TOTAL OWNED LEASED MANAGED TOTAL
----- ------ ------- ----- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Developed Assisted Living Facilities................. 12 11 27 50 -- 6 33 39
Acquired Assisted Living Facilities.................. 5 8 -- 13 5 8 -- 13
Skilled Nursing Facilities........................... -- 3 -- 3 -- 3 -- 3
---- ---- ---- ---- ---- ---- ---- ----
17 22 27 66 5 17 33 55
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
As of September 30, 2000, the Company owned, leased or managed 63
assisted living communities and 3 skilled nursing facilities and had 2 assisted
living communities under development contracts. The Company's operations are
located in Pennsylvania, Arkansas, Virginia, Ohio, North Carolina, Tennessee,
West Virginia, Florida, Maryland and Indiana. These operating facilities have a
capacity for 4,286 assisted living residents, 169 skilled nursing patients and
86 independent living residents.
In addition to the 50 Outlook Pointe(R) signature series assisted
living facilities opened as of September 30, 2000, one additional Outlook
Pointe(R) assisted living facility was opened in October 2000, and the Company
has a signed agreement to develop and manage one additional assisted living
facility currently under construction. This facility under construction is
expected to open January 2001 and will conclude the Company's initial round of
development activity initiated three years ago. Future development may be
conducted on a project-by-project basis subject to available financing on
acceptable terms.
12
<PAGE> 13
The Company generates revenue from three primary sources: resident
services, patient services and management fees. Resident services include all
revenues earned from services provided to assisted living facility residents
except revenues for therapies and home health care services provided by the
Company's licensed agencies which were, prior to the discontinuation of these
services in the September 30, 1999 quarter, included in patient services
revenues. Patient services revenues include charges for room and board,
rehabilitation therapies, pharmacy, medical supplies, sub acute care, home
health, and other programs provided to patients in skilled nursing facilities as
well as rehabilitation and home health services provided to assisted living
facility residents prior to discontinuation of these services. Management fees
are earned for managing assisted living facilities for other owners or lessees.
As a result of strategic changes made in the prior fiscal year including the
divestiture of the Company's Missouri operations, the acquisition of the
operations of developed facilities and the wind-down of development activity,
the mix of the Company's revenues has changed, and revenues from assisted living
resident services represent the predominant component of total revenues.
The Company classifies its operating expenses into the following
categories: (i) facility operating expenses which include labor, food,
marketing, rehabilitation therapy costs and other direct facility expenses; (ii)
general and administrative expenses, which primarily include corporate office
expenses, regional office expenses, and other overhead costs; (iii) provisions
for losses, which include losses relating to working capital advances made under
shortfall funding agreements; (iv) lease expense, which includes rent for the
facilities operated by the Company as well as corporate office and other rent;
and (v) depreciation and amortization.
RECENT DEVELOPMENTS
CHANGE IN CONTROL
On July 31, 2000, HR Investments Limited, a Cayman Islands corporation
("HR"), RH Investments Limited, a Cayman Islands corporation ("RH"), and VXM
Investments Limited, a Cayman Islands corporation ("VXM" and together with HR
and RH, collectively, the "Holders"), each purchased at par from the Company,
9.5% Unsecured Convertible Grid Debentures (collectively, the "Debentures"), as
amended by Amendment No. 1 to 9.5% Unsecured Convertible Grid Debentures dated
as of July 31, 2000 (the "Amendment", and together with the Debentures,
collectively, the "Amended Debentures"), in an aggregate principal amount equal
to $14,000,000. The Amended Debentures were purchased in accordance with the
terms and conditions of three Purchase Agreements dated as of June 30, 2000
between the Company and each of the Holders. The Purchase Agreements and the
form of the Debentures were filed as exhibits to the Company's Current Report on
Form 8-K dated June 30, 2000.
Under the Amended Debentures, the Holders have the right, at any time
up to and including the earlier to occur of the Early Termination Date (as
defined below) and July 1, 2005 (the "Maturity Date"), to convert all or any
part of the Amended Debentures into Common Stock of the Company at the
conversion rate of $2.00 per share (subject to adjustment as provided in the
Amended Debentures, the "Conversion Rate"). Interest under the Amended
Debentures accrues at an annual rate of 9.5% and is due and payable quarterly.
The Company, at its option, may pay the interest in cash or in lieu of payment,
may add the interest amount payable to the outstanding principal amount of the
Amended Debentures, subject to certain conditions precedent. The Company may
terminate the Holders' conversion rights at any time after December 31, 2002 if
the average closing price per share of Common Stock of the Company on the
American Stock Exchange for the 20 consecutive trading days ending five trading
days preceding the date on which the notice of termination is given to the
Holders by the Company is not less than 200% of the Conversion Rate (the "Early
Termination Date").
Depending on when (and if) the Amended Debentures are converted and how
the Company elects to pay interest, the Holders could have the right to convert
the Amended Debentures into shares of Common Stock equal to approximately 17% to
24.7% of the issued and outstanding shares of Common Stock of the Company.
The Holders and IPC Advisors S.a.r.l., a Luxembourg company ("IPC"),
may be deemed to be an affiliated group within the meaning of Section 13 (d)(3)
of the Exchange Act. In December 1999, IPC acquired 49.8% of the issued and
outstanding shares of Common Stock of the Company. See "Equity Transaction"
discussed below. As a result of the Equity
13
<PAGE> 14
Transaction and certain open market purchases, IPC presently beneficially owns
18,212,100 shares of Common Stock of the Company, representing approximately
53.3% of the outstanding shares of Common Stock of the Company. Pursuant to
Schedule 13D (Amendment No. 2) filed with the SEC and dated November 6, 2000, on
a combined basis, IPC and the Holders (directly or indirectly) may be deemed to
beneficially own 61.2% of the Common Stock of the Company. If the Amended
Debentures are outstanding until the Maturity Date and the Company elects, in
lieu of payment, to add the interest amount payable to the outstanding principal
amount of the Amended Debentures until the Maturity Date, on a combined basis,
IPC and the Holders (directly or indirectly) may be deemed to beneficially own
64.8% of the Common Stock of the Company.
On November 6, 2000, IPC and the Company, based on the
considerations of a special committee of certain of the independent directors of
the Board of Directors of the Company (the "Special Committee"), entered into a
letter agreement (the "Letter Agreement") pursuant to which IPC agreed to
consider making an offer of $1.00 per common share in cash for the entire equity
interest in the Company not already owned by IPC, subject to the completion of
due diligence satisfactory to IPC in its sole discretion, and to the negotiation
and execution of mutually satisfactory definitive documentation (the "Proposed
Offer").
Under the Letter Agreement, in consideration of HR, RH and VXM's
willingness to make loans to the Company in the aggregate amount of $8,000,000,
and in further consideration of IPC incurring time and expense in conducting due
diligence, the Company agreed to amend Section 6.8 of the Subscription Agreement
dated as of October 8, 1999 between the Company and IPC to permit IPC to make
the Proposed Offer. In addition, the Company agreed, subject to the fiduciary
duties of the Company's board of directors, not to solicit, participate in
discussions or negotiations concerning or furnish information to any person
other than IPC until January 15, 2001. In the event the Company receives an
unsolicited request for information or an unsolicited acquisition proposal, if
the Special Committee determines in its good faith judgment (after receiving the
advice of counsel) that if the Company fails to participate in such discussions
or negotiations with or provide such information to, the person making the
acquisition proposal or requesting information, there is a reasonable
probability that the Board of Directors would be in violation of its fiduciary
duties under applicable law, then the Company must notify IPC and keep IPC
fully informed of the status and details of any such acquisition proposal or
inquiry. If such an acquisition proposal is approved by the Board of Directors
prior to January 31, 2000, the Company is required to reimburse IPC for its
documented costs and expenses (including, without limitation, reasonable
attorneys' fees), in connection with the transactions contemplated by the Letter
Agreement, up to an aggregate of $500,000.
The Special Committee has received an opinion dated November 6, 2000
from Raymond James & Associates, Inc., its financial advisors, to the effect
that, subject to certain assumptions, limitations and qualifications, cash
consideration of $1.00 per share is fair to the stockholders of the Company from
a financial point of view. In addition, the Special Committee of the board of
directors of the Company confirmed that it had determined that the consideration
of $1.00 per share in cash for each share of the Company's outstanding common
stock not owned by IPC and its affiliates was advisable and fair to the
stockholders of the Company and, subject to negotiation of definitive agreements
relating to the Proposed Offer acceptable to the Special Committee, the Special
Committee would recommend that the board of directors of the Company approve and
adopt such definitive agreements and the Special Committee would then recommend
that stockholders of the Company tender into and/or vote to approve and adopt
such definitive agreements as applicable, and once recommended, the Special
Committee will not modify, amend or withdraw such recommendations, unless the
Special Committee determines, in its good faith judgment (after receiving the
advice of counsel), that if the Special Committee fails to modify, amend or
withdraw such recommendations, there is a reasonable probability that the
Special Committee would be in violation of its fiduciary duties under applicable
law. In the Letter Agreement, the Company acknowledged that IPC would not be
under any obligation to make such Proposed Offer.
OTHER FINANCING
On November 6, 2000, the Company prepaid its obligations to Heller
Healthcare Finance, Inc. ("Heller") under a promissory note dated September 20,
2000 (the "Heller Note") in the original principal amount of $5,000,000,
together with an exit fee of $80,000. The Heller Note had a maturity date of
November 15, 2000, and a maximum exit fee of $600,000 if the note was not repaid
in full by November 15, 2000. Interest accrued at the rate of prime plus 2%. The
Heller Note was prepaid by the
14
<PAGE> 15
Company using (i) $2,500,000 held in reserve by Heller and (ii) a portion of the
proceeds of a $6,500,000 loan made to the Company by HR, RH , and VXM, as
discussed below.
Under the Letter of Agreement with the Company, HR, RH and VXM agreed
to make loans to the Company in the aggregate amount of $8,000,000. On November
6, 2000, $6,500,000 of the $8,000,000 was loaned to the Company (the "$6.5M
Loan"). The $6.5M Loan is evidenced by three promissory notes made by the
Company, as follows: (1) a $2,166,667 note in favor of HR, (2) a $2,166,667 note
in favor of RH and (3) a $2,166,666 note in favor of VXM (collectively, the
"Notes"). The Notes have a maturity date of January 31, 2001. Interest accrues
under the Notes at an annual rate of 12%, and is due and payable monthly in
arrears commencing on November 30, 2000. The Notes are secured by a pledge of
the stock of 12 of the Company's subsidiaries (collectively, the "Subsidiaries")
pursuant to a Stock Pledge Agreement dated as of April 18, 2000, as amended by
an Amendment and Joinder to Stock Pledge Agreement dated November 6, 2000 (as
amended, the "Stock Pledge Agreement"). In addition, the Company, the
Subsidiaries, IPC, FRR, HR, RH, VXM and Heller entered into an Amended and
Restated Subordination Agreement dated November 6, 2000 (the "Subordination
Agreement"). Under the Subordination Agreement, IPC, FRR, HR, RH and VXM
(collectively, the "Junior Lender") agreed to subordinate their respective
rights and interests in and to the "Junior Debt" and the "Junior Loan Documents"
(as such terms are defined in the Subordination Agreement) in favor of Heller,
including the Junior Lender's rights under the Stock Pledge Agreement and the
Notes. Except for the payment of interest on the Notes, the Junior Lender has
agreed to refrain from taking any action or from receiving any payment with
respect to the Junior Debt and the Junior Loan Documents until the Company's
obligations to Heller are paid in full. As of November 14, 2000 the Company's
outstanding obligations to Heller include (1) a $37,000,000 loan having a
maturity date of December 31, 2001 and (2) the Company's $12,000,000 revolving
line of credit, having a maturity date of July 29, 2002.
OPERATING AND CENSUS TRENDS
The Company's core business continues to show improvement in the first
quarter of fiscal year 2001 compared to the first quarter of fiscal year 2000 as
a result of ongoing operating and marketing changes.
The following table sets forth, for the periods indicated, certain
resident capacity and occupancy data for the periods indicated (excluding the
Company's former Missouri facilities) for the Company's 66 owned, leased or
managed facilities at September 30, 2000 and the Company's 55 owned, leased and
managed facilities at September 30, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------------------ ------------------------------------
STABLE STABLE TOTAL STABLE STABLE TOTAL
FACILITIES(1) BEDS(1) BEDS FACILITIES(1) BEDS(1) BEDS
------------- ------- -------- ------------- ------- -------
End of Period Capacity:
<S> <C> <C> <C> <C> <C> <C>
Owned....................................... 17 1,052 1,052 5 332 332
Leased...................................... 21 1,218 1,554 17 1,060 1,060
Managed..................................... 15 954 1,935 7 416 2,217
-------- -------- -------- ------- ------- -------
Total....................................... 53 3,224 4,541 29 1,808 3,609
======== ======== ======== ======= ======= =======
End of Period Occupancy:
Owned....................................... 93% 93% 88% 88%
Leased...................................... 83% 75% 89% 89%
Managed..................................... 80% 64% 75% 47%
-------- -------- ------- -------
Total....................................... 86% 75% 86% 63%
======== ======== ======= =======
</TABLE>
(1) Represents communities or expansions thereof that have (i) achieved
90% occupancy; (ii) have been opened at least 15 months for 75 bed or
less communities; 18 months for 75 to 100 bed communities; and 24
months for 100+ bed communities; or (iii) were acquired as mature
properties. The above data does not include divested communities.
15
<PAGE> 16
To provide information on facility operating performance, the following
table summarizes the operations of all Balanced Care facilities in operation as
of the dates indicated, including facilities owned, leased and managed for
special purpose entities and excluding the divested Missouri operations:
16
<PAGE> 17
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1999 1999 1999 2000 2000 2000
------- ------------ ----------- -------- ------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AT QUARTER END:
Facilities in Operation ......... 50 55 62 64 66 66
Resident Capacity ............... 3,297 3,609 4,118 4,330 4,541 4,541
Census .......................... 1,946 2,278 2,655 2,972 3,199 3,385
FOR THE THREE MONTH PERIOD ENDED:
Revenue ......................... $11,432 $13,209 $15,587 $17,321 $18,860 $20,906
EBITDAR ......................... $ 206 $ 1,624 $ 2,335 $ 2,888 $ 3,337 $ 4,757
</TABLE>
The above summary is presented for the purpose of demonstrating the
operating trends of the Company's overall portfolio of facilities and is not
necessarily indicative of the Company's reported consolidated results of
operations under Generally Accepted Accounting Principles (GAAP). The results of
operations for the managed facilities are not included in the Company's
consolidated financial statements presented in this Quarterly Report.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain data
as a percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
------ ------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Resident services ........................................ 81.8% 37.3%
Patient services ......................................... 16.9 59.8
Development fees ......................................... 0.2 2.2
Management fees .......................................... 0.3 0.5
Other .................................................... 0.8 0.2
------ ------
Total revenue ............................................ 100.0% 100.0%
Operating expenses:
Facility operating expenses ........................... 73.2 77.2
Development, general and administrative expenses ...... 18.8 14.0
Provision for losses under shortfall funding agreements 15.0 4.3
Lease expense ......................................... 22.7 18.6
Depreciation and amortization ......................... 9.8 4.0
------ ------
Loss from operations ..................................... (39.5) (18.1)
Other income (expense) ................................... (12.2) (1.9)
------ ------
Loss before income taxes and extraordinary charge ........ (51.7) (20.0)
Provision for income taxes ............................... -.- -.-
------ ------
Loss before extraordinary charge ...................... (51.7) (20.0)
Extraordinary charge for early retirement of debt ..... -.- (4.0)
------ ------
Net loss ................................................. (51.7)% (24.0)%
====== ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Total Revenue. Total revenue for the three months ended September 30,
2000 decreased by $4,512,000 to $13,965,000 compared to $18,477,000 for three
months ended September 30, 1999. This decrease was primarily the result of: (i)
a decrease in patient service revenues of $8,688,000, which resulted primarily
from the divestiture of the Company's former Missouri operations and (ii)
decreased development fees of $376,000 related to the Company's curtailment of
new development. These decreases were partially offset by additional resident
service revenues of $4,537,000, primarily from SPE facilities acquired
17
<PAGE> 18
during fiscal year 2000. Resident services comprised 82% and 37% of total
revenues for three months ended September 30, 2000 and 1999, respectively. The
increase in this percentage of total revenues was due to the Company's
implementation of its business plan, which focuses on assisted living operations
and acquiring the operations of assisted living facilities from the SPEs,
coupled with the decrease in patient service revenues in the three months ended
September 30, 2000 due to the divestiture of the Missouri operations.
Operating Expenses. Total operating expenses decreased by $2,340,000 to
$19,483,000 for three months ended September 30, 2000 from $21,823,000 for the
three months ended September 30, 1999. This decrease was attributed primarily to
decreased expenses of $10,187,000 resulting from the divestiture of the Missouri
operations. These decreases were partially offset by (i) increased expenses of
$5,497,000 from SPE facilities acquired during fiscal year 2000; (ii) increased
provision for losses under shortfall fundings increased by $1,300,000; and (iii)
depreciation and amortization increased by $627,000.
Facility operating expenses for the three months ended September 30,
2000 decreased by $4,030,000 to $10,220,000 from $14,250,000 for three months
ended September 30, 1999. The decrease was the result of: (i) a decrease of
$8,177,000 resulting from the divestiture of the Missouri operations and (ii) a
decrease of $168,000 resulting from the discontinuation of the Company's own
rehabilitation agencies, which were phased out in the first quarter of fiscal
2000. These decreases were partially offset by an increase of $3,643,000 from
SPE facilities acquired during fiscal year 2000.
General and administrative expenses increased by $36,000 to $2,630,000
for three months ended September 30, 2000 from $2,594,000 for three months ended
September 30, 1999.
The provision for losses under shortfall funding agreements increased
by $1,300,000 to $2,100,000 for three months ended September 30, 2000 from
$800,000 for the three months ended September 30, 1999. The increase is
primarily the result of the depletion of SPE working capital for managed
operations. The Company reports its losses under these shortfall-funding
agreements using the modified equity accounting approach. Information concerning
the provision for losses under shortfall funding agreements is discussed below
under "Liquidity and Capital Resources--Operations."
Lease expense decreased by $273,000 to $3,166,000 for the three months
ended September 30, 2000 from $3,439,000 for the three months ended September
30, 1999. This decrease was primarily the net result of: (i) decreased rents of
$1,484,000 for the divested Missouri operations; (ii) increased rents of
$1,795,000 from SPEs acquired in 2000; (iii) decreased rents of $601,000 as a
result of the purchase of the real estate of five facilities previously leased
in December 1999, and (iv) general increases in annual rents.
Depreciation and amortization increased by $627,000 to $1,367,000 for
the three months ended September 30, 2000 from $740,000 for the three months
ended September 30, 1999. The increase resulted from: (i) an increase of
$548,000 relating to the properties purchased in December 2000; (ii) an increase
of $108,000 for furniture and equipment purchased for the managed operations;
and (iii) a decrease of $102,000 which resulted from the divestiture of the
Missouri operations.
Other Income (Expense). Interest and other income for the three months
ended September 30, 2000 increased by $45,000 to $102,000 from $57,000 for the
three months ended September 30, 1999. Interest expense for the three months
ended September 30, 2000 increased by $1,411,000 to $1,810,000 from $399,000 for
the three months ended September 30, 1999. This was primarily due to the
interest on the Line of Credit, the Heller Note, and the convertible debentures.
Provision for Income Taxes. The provision for income taxes was $2,000
for the three months ended September 30, 1999. No provision for the three months
ended September 30, 2000 was reported
Net Loss. The Company's net loss of $7,226,000 for the three months
ended September 30, 2000 increased by $3,297,000 from a net loss of $4,429,000
for the three months ended September 30, 1999. This increase resulted primarily
from (i) an increase in the provision for losses under shortfall funding
agreements of $1,300,000; (ii) increased depreciation expense of $627,000; (iii)
increased interest expense of $1,411,000, and (iv) decreased development fee
revenues of $397,000. The increases were offset by the extraordinary charge for
early retirement of debt of $797,000 for the three months ended September 30,
1999.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
As the Company has re-directed its focus to operations from development
during the prior and current fiscal year, the Company's capital requirements and
sources also changed. Historically the Company primarily sought development and
acquisition capital, using development fees to support operating losses and
corporate overhead. Since the Company's announcement last fiscal year that it
was curtailing development activities and focusing on operations, the Company
has entered into various financing and capital transactions to access liquidity
in order to provide the funds to support operations.
RECENT DEVELOPMENTS
Change in Control of Registrant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Recent
Developments -- Change in Control."
19
<PAGE> 20
OTHER FINANCING TRANSACTIONS
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Other Financing."
20
<PAGE> 21
OPERATIONS
The Company has opened 50 of its Outlook Pointe(R) signature series
assisted living facilities as of September 30, 2000. At that date, the Company
operated a total of 66 assisted and skilled nursing facilities. In October 2000,
one additional Outlook Pointe(R) assisted living facility was opened. The
Company has adequate financing to complete construction on one facility
currently under construction, which is expected to open in January 2001. This
will conclude the Company's initial round of development activity initiated
three years ago.
The Company's development projects have generally involved entering
into development agreements with third party owners, which are typically REITs
(each, an "Owner"). A third party special purpose entity ("SPE") Operator/Lessee
leases the assisted living facility from the Owner when construction has been
completed and provides funding for the working capital during the initial
occupancy period. The Company manages the assisted living facility pursuant to a
management agreement for a term of two to nine years in return for a management
fee approximating 6% of the net revenue of the facility. The foregoing is an
off-balance sheet financing structure.
For development projects utilizing the SPE structure, the Company has
the option to purchase the equity or assets of the Operator/Lessee at a purchase
price based on a formula set forth in an Option Agreement and a Shortfall
Funding Agreement, respectively. As consideration for the option, which is
exercisable by the Company at any time during the term of the Option Agreement,
the Company pays option payments to the equity owner of the SPE (the "Equity
Owner"). Without the Owner's prior consent, the Equity Owner may not sell the
equity or assets of the SPE to any third party other than the Company. The
Company has closed 51 development projects for which the Company holds or held
the foregoing type of option. As of September 30, 2000, the Company has
exercised its option to purchase 22 SPEs financed under the SPE structure for a
total purchase price of approximately $22.9 million, of which $6.4 million was
paid in cash and $16.5 was financed by increasing the existing facility lease
bases. Payments under the option agreements to buy the equity of the SPEs
affiliated with the 29 Outlook Pointe(R) facilities that remain under the SPE
structure through calendar 2003 are approximately $28 million. The Company has
obtained commitments from certain REITs that currently own developed properties
under the SPE structure to finance the Company's capital requirements to
exercise its purchase options under the aforementioned option agreements.
Generally, this take-out financing will be structured as either an increase to
the existing facility lease base at a blended annual lease rate or through REIT
financing outside of the existing facility lease. This financing structure will
provide approximately $20 million of the estimated $28 million capital
requirement. The Company has not made $800,000 of option payments on the date
they are customarily made. The Company is currently evaluating its position with
respect to future option payments.
Many of the facilities operated or managed by the Company are leased
under long-term operating leases. These lease obligations for the next twelve
months aggregate approximately $13,000,000. The lease documents with all of the
REITS contain certain financial and/or performance covenants and other
restrictions which, unless waived in writing by the REIT, (i) require the
Company, on a consolidated basis, to meet certain financial covenants, such as a
tangible net worth covenant, a current ratio, a debt to equity ratio and/or
minimum cash requirements (measured on a quarterly and year end basis), (ii)
require the tenants, on a facility basis, to meet certain rent coverage ratios
(measured on a quarterly and year end basis), (iii) require the Company and/or
the tenants to maintain certain escrow funds, (iv) limit, among other things,
the ability of the Company, certain of its subsidiaries and/or the tenants to
borrow additional funds, encumber assets, dispose of assets or engage in mergers
or other business combinations, (v) cross-default with certain of the Company's
other obligations and (vi) prohibit the Company and/or the tenants from
operating competing facilities within a designated radius of existing
facilities. Except as set forth below, Management believes the Company is either
in compliance or has obtained the necessary waivers with respect to these lease
covenants.
21
<PAGE> 22
Under certain of the Meditrust REIT lease documents, for the quarter
ended September 30, 2000, (i) the Company did not meet its current ratio
covenant under one lease and (ii) six of the twelve Outlook Pointe tenants did
not satisfy their respective rent coverage ratios. In addition, the Company, as
developer, did not complete the Outlook Pointe at Chesterfield facility financed
by Meditrust by the substantial completion date due to the abandonment of the
project by the general contractor. The Company has entered into a completion
agreement with the surety for the Chesterfield project, and expects to receive
the final certificate of occupancy for the facility by November 30, 2000.
Notwithstanding the foregoing, the Company and/or the tenants are current on
their respective payment obligations to Meditrust, including the payment of all
rent due under the facility leases.
The Company has requested Meditrust to waive the foregoing conditions
in writing. Although historically Meditrust has agreed to provide the necessary
waivers upon the Company's request, Meditrust has imposed certain conditions on
providing the current waivers. If Meditrust does not agree to provide the
necessary waivers, the failure to comply with the foregoing covenant
requirements may, with the passage of time and/or upon the receipt of written
notice from Meditrust, constitute a technical event of default by the Company
and/or the tenants under the applicable lease documents. The Company has not
received any written notices of any events of default from Meditrust at this
time. There can be no assurance that Meditrust will provide the necessary
waivers or that Meditrust will not send written notices of default.
The Company's lease arrangements are generally for initial terms of 9
to 15 years with aggregate renewal terms ranging from 15 to 25 years and provide
for contractually fixed rent plus additional rent, subject to certain limits.
The additional rent is capped at 2% to 3% of the prior year's total rent and is
based on either the annual increase in gross revenues of the facility or the
increase in the consumer price index. The Company's lease arrangements generally
contain an option to purchase the facility at its fair market value at the end
of the initial lease term and each renewal term.
Based on current forecasts, management estimates that approximately $30
million in capital will be required to fully stabilize the Company's portfolio
of assisted living properties, repay notes payable when due, fund necessary
facility capital expenditures and purchase the remaining SPE operations.
The Company has entered into various capital and financing transactions
in Fiscal Years 2000 and 2001 to date in order to provide the funds to support
operations. In addition, the Company is actively negotiating capital funding
alternatives to raise the additional capital required to meet its business plan.
While management has actively sought additional capital to meet the Company's
business plan, capital has not been available to the Company. If additional
capital becomes available or is raised, there can be no assurance that the terms
will be acceptable, or that the terms will not be dilutive to existing
stockholders. The inability of the Company to raise additional capital could
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company's ability to continue as a going concern is
dependent upon, among other things, the ability to comply with the terms of its
debt and lease agreements and the ability to generate sufficient cash from
operations and financing arrangements to meet its obligations.
OPERATING ACTIVITIES
Cash used by operations increased by $5,168,000 to $7,332,000 for the
three months ended September 30, 2000 from cash used by operations of $2,164,000
for the three months ended September 30, 1999. The increase in cash used was due
to funding losses, the increase in receivables, and prepaids and other assets.
INVESTING AND FINANCING ACTIVITIES
Cash used for investing activities decreased by $678,000 to $2,648,000
for the three months ended September 30, 2000 from $3,326,000 for the three
months ended September 30, 1999. Cash provided by financing activities increased
by $5,720,000 to $7,781,000 for the three months ended September 30, 2000 from
$2,061,000 for the three months ended September 30, 1999. Decreases in cash used
for investing activities resulted from reduced purchases of property and
equipment and a reduction in purchase option deposits. Increases in financing
activities resulted from the issuance of convertible debentures and debt, which
was offset partially by the payment of debt.
22
<PAGE> 23
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company did not have any securities subject to market risk as of,
or during, the 3 months ended at September 30, 2000.
ITEM 5: OTHER EVENTS
See Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Developments."
23
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
10.1 Second Amendment to Loan Documents among Balanced Care
Corporation, Balanced Care Realty at State College, Inc.,
Balanced Care Realty at Altoona, Inc., Balanced Care Realty
at Lewistown, Inc., Balanced Care Realty at Reading, Inc.,
Balanced Care Realty at Berwick, Inc., Balanced Care Realty
at Peckville, Inc., Balanced Care Realty at Scranton, Inc.,
Balanced Care Realty at Martinsburg, Inc., Balanced Care
Realty at Maumelle, Inc., Balanced Care Realty at Sherwood,
Inc., Balanced Care Realty at Mountain Home, Inc., Balanced
Care Realty at Mansfield, Inc. and Heller Healthcare
Finance, Inc. formerly known as HCFP Funding, Inc. dated as
of September 20, 2000 (filed herewith)
10.2 Seconded Amended and Restated Promissory Note A made by
Balanced Care Realty at State College, Inc., Balanced Care
Realty at Altoona, Inc., Balanced Care Realty at Lewistown,
Inc., Balanced Care Realty at Reading, Inc., Balanced Care
Realty at Berwick, Inc., Balanced Care Realty at Peckville,
Inc., Balanced Care Realty at Scranton, Inc., Balanced Care
Realty at Martinsburg, Inc., Balanced Care Realty at
Maumelle, Inc., Balanced Care Realty at Sherwood, Inc.,
Balanced Care Realty at Mountain Home, Inc., and Balanced
Care Realty at Mansfield, Inc. in favor of Heller Healthcare
Financing, Inc. dated September 20, 2000 (filed herewith)
10.3 Second Amended and Restated Subordinated Promissory Note B
by Balanced Care Realty at State College, Inc., Balanced
Care Realty at Altoona, Inc., Balanced Care Realty at
Lewistown, Inc., Balanced Care Realty at Reading, Inc.,
Balanced Care Realty at Berwick, Inc., Balanced Care Realty
at Peckville, Inc., Balanced Care Realty at Scranton, Inc.,
Balanced Care Realty at Martinsburg, Inc., Balanced Care
Realty at Maumelle, Inc., Balanced Care Realty at Sherwood,
Inc., Balanced Care Realty at Mountain Home, Inc., and
Balanced Care Realty at Mansfield, Inc. in favor of Heller
Healthcare Financing, Inc. dated September 20, 2000 (filed
herewith)
10.4 Promissory Note C by Balanced Care Realty at State College,
Inc., Balanced Care Realty at Altoona, Inc., Balanced Care
Realty at Lewistown, Inc., Balanced Care Realty at Reading,
Inc., Balanced Care Realty at Berwick, Inc., Balanced Care
Realty at Peckville, Inc., Balanced Care Realty at Scranton,
Inc., Balanced Care Realty at Martinsburg, Inc., Balanced
Care Realty at Maumelle, Inc., Balanced Care Realty at
Sherwood, Inc., Balanced Care Realty at Mountain Home, Inc.,
and Balanced Care Realty at Mansfield, Inc. in favor of
Heller Healthcare Finance, Inc. dated September 20, 2000
(filed herewith)
10.5 Amended and Restated Subordination Agreement by and among
the entities listed on Exhibit A and D, Balanced Care
Corporation, FRR Investments Limited, IPC Advisors S.a.r.l.,
HR Investments Limited, RH Investments Limited, VXM
Investments Limited, and Heller Healthcare Finance, Inc.
dated as of November 6, 2000 (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-k
dated November 13, 2000 (No. 001-13845))
10.6 Amendment and Joinder to Stock Pledge Agreement by and among
Balanced Care Corporation, the parties listed on Schedule 1
and 2, FRR Investments Limited, IPC Advisors, S.a.r.l., HR
Investments Limited, RH Investments Limited, and VXM
Investments Limited dated November 6, 2000 (incorporated by
reference to Exhibit 10.2 of the Company's Current Report on
Form 8-k dated November 13, 2000 (No. 001-13845))
10.7 Promissory Note made by and between Balanced Care
Corporation and VXM Investments Limited dated November 6,
2000 (incorporated by reference to Exhibit 10.3 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
10.8 Promissory Note made by and between Balanced Care
Corporation and HR Investments Limited dated November 6,
2000 (incorporated by reference to Exhibit 10.4 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
10.9 Promissory Note made by and between Balanced Care
Corporation and RH Investments Limited dated November 6,
2000 (incorporated by reference to Exhibit 10.5 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
10.10 Letter Agreement between IPC Advisors S.a.r.l. and Balanced
Care Corporation dated November 6, 2000 (incorporated by
reference to Exhibit 10.6 of the Company's Current Report on
Form 8-k dated November 13, 2000 (No. 001-13845))
10.11 Third Amendment to Loan Documents by and among Heller
Healthcare Finance, Inc., Balanced Care Corporation,
Balanced Care Realty at Berwick, Inc., Balanced Care Realty
at Lewistown, Inc., Balanced Care Realty at Mansfield, Inc.,
Balanced Care Realty at Martinsburg, Inc., Balanced Care
Realty at Maumelle, Inc, Balanced Care Realty at Mountain
Home, Inc., Balanced Care Realty at Peckville, Inc.,
Balanced Care Realty at Reading, Inc., Balanced Care Realty
at Scranton, Inc., Balanced Care Realty at Sherwood, Inc.,
Balanced Care Realty at State College, Inc., BCC at
Darlington, Inc., Balanced Care at Eyers Grove, Inc.,
Balanced Care at Butler, Inc., Balanced Care at Sarver,
Inc., and Balanced Care at North Ridge, Inc. dated November
6, 2000 (incorporated by reference to Exhibit 10.7 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
99.1 Press Release dated November 7, 2000 (incorporated by
reference to Exhibit 99.1 of the Company's Current Report on
Form 8-k dated November 13, 2000 (No. 001-13845))
</TABLE>
(B) Reports on Form 8-K
1. Current Report on Form 8-K dated June 30, 2000 regarding a
Change in Control of the Company.
2. Current Report on Form 8-K dated July 31, 2000 regarding a
Change in Control of the Company.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities and Exchange Act of 1934, as amended, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BALANCED CARE CORPORATION
By: /s/ CLINT T. FEGAN
-----------------------------
Clint T. Fegan
Chief Financial Officer
Date: November 14, 2000
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
10.1 Second Amendment to Loan Documents among Balanced Care
Corporation, Balanced Care Realty at State College, Inc.,
Balanced Care Realty at Altoona, Inc., Balanced Care Realty
at Lewistown, Inc., Balanced Care Realty at Reading, Inc.,
Balanced Care Realty at Berwick, Inc., Balanced Care Realty
at Peckville, Inc., Balanced Care Realty at Scranton, Inc.,
Balanced Care Realty at Martinsburg, Inc., Balanced Care
Realty at Maumelle, Inc., Balanced Care Realty at Sherwood,
Inc., Balanced Care Realty at Mountain Home, Inc., Balanced
Care Realty at Mansfield, Inc. and Heller Healthcare
Finance, Inc. formerly known as HCFP Funding, Inc. dated as
of September 20, 2000 (filed herewith)
10.2 Seconded Amended and Restated Promissory Note A made by
Balanced Care Realty at State College, Inc., Balanced Care
Realty at Altoona, Inc., Balanced Care Realty at Lewistown,
Inc., Balanced Care Realty at Reading, Inc., Balanced Care
Realty at Berwick, Inc., Balanced Care Realty at Peckville,
Inc., Balanced Care Realty at Scranton, Inc., Balanced Care
Realty at Martinsburg, Inc., Balanced Care Realty at
Maumelle, Inc., Balanced Care Realty at Sherwood, Inc.,
Balanced Care Realty at Mountain Home, Inc., and Balanced
Care Realty at Mansfield, Inc. in favor of Heller Healthcare
Financing, Inc. dated September 20, 2000 (filed herewith)
10.3 Second Amended and Restated Subordinated Promissory Note B
by Balanced Care Realty at State College, Inc., Balanced
Care Realty at Altoona, Inc., Balanced Care Realty at
Lewistown, Inc., Balanced Care Realty at Reading, Inc.,
Balanced Care Realty at Berwick, Inc., Balanced Care Realty
at Peckville, Inc., Balanced Care Realty at Scranton, Inc.,
Balanced Care Realty at Martinsburg, Inc., Balanced Care
Realty at Maumelle, Inc., Balanced Care Realty at Sherwood,
Inc., Balanced Care Realty at Mountain Home, Inc., and
Balanced Care Realty at Mansfield, Inc. in favor of Heller
Healthcare Financing, Inc. dated September 20, 2000 (filed
herewith)
10.4 Promissory Note C by Balanced Care Realty at State College,
Inc., Balanced Care Realty at Altoona, Inc., Balanced Care
Realty at Lewistown, Inc., Balanced Care Realty at Reading,
Inc., Balanced Care Realty at Berwick, Inc., Balanced Care
Realty at Peckville, Inc., Balanced Care Realty at Scranton,
Inc., Balanced Care Realty at Martinsburg, Inc., Balanced
Care Realty at Maumelle, Inc., Balanced Care Realty at
Sherwood, Inc., Balanced Care Realty at Mountain Home, Inc.,
and Balanced Care Realty at Mansfield, Inc. in favor of
Heller Healthcare Finance, Inc. dated September 20, 2000
(filed herewith)
10.5 Amended and Restated Subordination Agreement by and among
the entities listed on Exhibit A and D, Balanced Care
Corporation, FRR Investments Limited, IPC Advisors S.a.r.l.,
HR Investments Limited, RH Investments Limited, VXM
Investments Limited, and Heller Healthcare Finance, Inc.
dated as of November 6, 2000 (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-k
dated November 13, 2000 (No. 001-13845))
10.6 Amendment and Joinder to Stock Pledge Agreement by and among
Balanced Care Corporation, the parties listed on Schedule 1
and 2, FRR Investments Limited, IPC Advisors, S.a.r.l., HR
Investments Limited, RH Investments Limited, and VXM
Investments Limited dated November 6, 2000 (incorporated by
reference to Exhibit 10.2 of the Company's Current Report on
Form 8-k dated November 13, 2000 (No. 001-13845))
10.7 Promissory Note made by and between Balanced Care
Corporation and VXM Investments Limited dated November 6,
2000 (incorporated by reference to Exhibit 10.3 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
10.8 Promissory Note made by and between Balanced Care
Corporation and HR Investments Limited dated November 6,
2000 (incorporated by reference to Exhibit 10.4 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
10.9 Promissory Note made by and between Balanced Care
Corporation and RH Investments Limited dated November 6,
2000 (incorporated by reference to Exhibit 10.5 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
10.10 Letter Agreement between IPC Advisors S.a.r.l. and Balanced
Care Corporation dated November 6, 2000 (incorporated by
reference to Exhibit 10.6 of the Company's Current Report on
Form 8-k dated November 13, 2000 (No. 001-13845))
10.11 Third Amendment to Loan Documents by and among Heller
Healthcare Finance, Inc., Balanced Care Corporation,
Balanced Care Realty at Berwick, Inc., Balanced Care Realty
at Lewistown, Inc., Balanced Care Realty at Mansfield, Inc.,
Balanced Care Realty at Martinsburg, Inc., Balanced Care
Realty at Maumelle, Inc, Balanced Care Realty at Mountain
Home, Inc., Balanced Care Realty at Peckville, Inc.,
Balanced Care Realty at Reading, Inc., Balanced Care Realty
at Scranton, Inc., Balanced Care Realty at Sherwood, Inc.,
Balanced Care Realty at State College, Inc., BCC at
Darlington, Inc., Balanced Care at Eyers Grove, Inc.,
Balanced Care at Butler, Inc., Balanced Care at Sarver,
Inc., and Balanced Care at North Ridge, Inc. dated November
6, 2000 (incorporated by reference to Exhibit 10.7 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
99.1 Press Release dated November 7, 2000 (incorporated by
reference to Exhibit 99.1 of the Company's Current Report on
Form 8-k dated November 13, 2000 (No. 001-13845))
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
10.1 Second Amendment to Loan Documents among Balanced Care
Corporation, Balanced Care Realty at State College, Inc.,
Balanced Care Realty at Altoona, Inc., Balanced Care Realty
at Lewistown, Inc., Balanced Care Realty at Reading, Inc.,
Balanced Care Realty at Berwick, Inc., Balanced Care Realty
at Peckville, Inc., Balanced Care Realty at Scranton, Inc.,
Balanced Care Realty at Martinsburg, Inc., Balanced Care
Realty at Maumelle, Inc., Balanced Care Realty at Sherwood,
Inc., Balanced Care Realty at Mountain Home, Inc., Balanced
Care Realty at Mansfield, Inc. and Heller Healthcare
Finance, Inc. formerly known as HCFP Funding, Inc. dated as
of September 20, 2000 (filed herewith)
10.2 Seconded Amended and Restated Promissory Note A made by
Balanced Care Realty at State College, Inc., Balanced Care
Realty at Altoona, Inc., Balanced Care Realty at Lewistown,
Inc., Balanced Care Realty at Reading, Inc., Balanced Care
Realty at Berwick, Inc., Balanced Care Realty at Peckville,
Inc., Balanced Care Realty at Scranton, Inc., Balanced Care
Realty at Martinsburg, Inc., Balanced Care Realty at
Maumelle, Inc., Balanced Care Realty at Sherwood, Inc.,
Balanced Care Realty at Mountain Home, Inc., and Balanced
Care Realty at Mansfield, Inc. in favor of Heller Healthcare
Financing, Inc. dated September 20, 2000 (filed herewith)
10.3 Second Amended and Restated Subordinated Promissory Note B
by Balanced Care Realty at State College, Inc., Balanced
Care Realty at Altoona, Inc., Balanced Care Realty at
Lewistown, Inc., Balanced Care Realty at Reading, Inc.,
Balanced Care Realty at Berwick, Inc., Balanced Care Realty
at Peckville, Inc., Balanced Care Realty at Scranton, Inc.,
Balanced Care Realty at Martinsburg, Inc., Balanced Care
Realty at Maumelle, Inc., Balanced Care Realty at Sherwood,
Inc., Balanced Care Realty at Mountain Home, Inc., and
Balanced Care Realty at Mansfield, Inc. in favor of Heller
Healthcare Financing, Inc. dated September 20, 2000 (filed
herewith)
10.4 Promissory Note C by Balanced Care Realty at State College,
Inc., Balanced Care Realty at Altoona, Inc., Balanced Care
Realty at Lewistown, Inc., Balanced Care Realty at Reading,
Inc., Balanced Care Realty at Berwick, Inc., Balanced Care
Realty at Peckville, Inc., Balanced Care Realty at Scranton,
Inc., Balanced Care Realty at Martinsburg, Inc., Balanced
Care Realty at Maumelle, Inc., Balanced Care Realty at
Sherwood, Inc., Balanced Care Realty at Mountain Home, Inc.,
and Balanced Care Realty at Mansfield, Inc. in favor of
Heller Healthcare Finance, Inc. dated September 20, 2000
(filed herewith)
10.5 Amended and Restated Subordination Agreement by and among
the entities listed on Exhibit A and D, Balanced Care
Corporation, FRR Investments Limited, IPC Advisors S.a.r.l.,
HR Investments Limited, RH Investments Limited, VXM
Investments Limited, and Heller Healthcare Finance, Inc.
dated as of November 6, 2000 (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-k
dated November 13, 2000 (No. 001-13845))
10.6 Amendment and Joinder to Stock Pledge Agreement by and among
Balanced Care Corporation, the parties listed on Schedule 1
and 2, FRR Investments Limited, IPC Advisors, S.a.r.l., HR
Investments Limited, RH Investments Limited, and VXM
Investments Limited dated November 6, 2000 (incorporated by
reference to Exhibit 10.2 of the Company's Current Report on
Form 8-k dated November 13, 2000 (No. 001-13845))
10.7 Promissory Note made by and between Balanced Care
Corporation and VXM Investments Limited dated November 6,
2000 (incorporated by reference to Exhibit 10.3 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
10.8 Promissory Note made by and between Balanced Care
Corporation and HR Investments Limited dated November 6,
2000 (incorporated by reference to Exhibit 10.4 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
10.9 Promissory Note made by and between Balanced Care
Corporation and RH Investments Limited dated November 6,
2000 (incorporated by reference to Exhibit 10.5 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
10.10 Letter Agreement between IPC Advisors S.a.r.l. and Balanced
Care Corporation dated November 6, 2000 (incorporated by
reference to Exhibit 10.6 of the Company's Current Report on
Form 8-k dated November 13, 2000 (No. 001-13845))
10.11 Third Amendment to Loan Documents by and among Heller
Healthcare Finance, Inc., Balanced Care Corporation,
Balanced Care Realty at Berwick, Inc., Balanced Care Realty
at Lewistown, Inc., Balanced Care Realty at Mansfield, Inc.,
Balanced Care Realty at Martinsburg, Inc., Balanced Care
Realty at Maumelle, Inc, Balanced Care Realty at Mountain
Home, Inc., Balanced Care Realty at Peckville, Inc.,
Balanced Care Realty at Reading, Inc., Balanced Care Realty
at Scranton, Inc., Balanced Care Realty at Sherwood, Inc.,
Balanced Care Realty at State College, Inc., BCC at
Darlington, Inc., Balanced Care at Eyers Grove, Inc.,
Balanced Care at Butler, Inc., Balanced Care at Sarver,
Inc., and Balanced Care at North Ridge, Inc. dated November
6, 2000 (incorporated by reference to Exhibit 10.7 of the
Company's Current Report on Form 8-k dated November 13, 2000
(No. 001-13845))
99.1 Press Release dated November 7, 2000 (incorporated by
reference to Exhibit 99.1 of the Company's Current Report on
Form 8-k dated November 13, 2000 (No. 001-13845))
</TABLE>
