SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
-------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 21, 1998
RECKSON SERVICE INDUSTRIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
1-14183 11-3383642
(Commission File Number) (IRS Employer Id. Number)
225 Broadhollow Road 11747
Melville, New York (Zip Code)
(Address of principal executive offices)
(516) 719-7400
(Registrant's telephone number, including area code)
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant hereby amends the following items, financial statements,
exhibits or other portions of its Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on September 8, 1998, as set forth in the
pages attached hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) and (b) Financial Statements and Pro Forma Financial Information
ACQUISITION PROPERTY
Report of Independent Public Accountants
Balance Sheets as of December 31, 1996 and 1997, and June 30, 1998
(unaudited).
Statements of Operations for the period from inception (June 27, 1996)
to December 31, 1996, for the year ended December 31, 1997,
and for the six months ended June 30, 1997 and 1998
(unaudited).
Statements of Members' (Deficit) Equity for the period from inception
(June 27, 1996) to December 31, 1996, for the year ended
December 31, 1997, and for the six months ended June 30, 1998
(unaudited).
Statements of Cash Flows for the period from inception (June 27, 1996)
to December 31, 1996, for the year ended December 31, 1997,
and for the six months ended June 30, 1997 and 1998
(unaudited).
Notes to Financial Statements
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Condensed Consolidating Balance Sheet as of June 30, 1998
(unaudited).
Pro Forma Condensed Consolidating Statement of Operations for the
six months ended June 30, 1998 (unaudited).
Pro Forma Condensed Consolidating Statement of Operations for the
year ended December 31, 1997 (unaudited).
Notes to Pro Forma Financial Statements
ASSISTED LIVING INVESTMENTS, LLC
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Assisted Living Investments LLC:
We have audited the accompanying balance sheets of ASSISTED LIVING INVESTMENTS
LLC (a Delaware limited liability company) as of December 31, 1997 and 1996, and
the related statements of operations, members' equity and cash flows for the
period from inception (June 27, 1996) to December 31, 1996 and for the year
ended December 31, 1997. 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 Assisted Living Investments LLC
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the period from inception (June 27, 1996) to December 31, 1996 and for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
April 10, 1998.
ASSISTED LIVING INVESTMENTS LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1996 1997 1998
(unaudited)
-------------------------------------------------------------- --------------- --------------- --------------------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 308,994 $ 430,378 $ 2,003,449
Restricted cash - 144,868 147,949
Accounts receivable - 53,895 239,622
Note receivable from member - 708,000 -
Prepaid expenses and other current assets 8,675 39,428 62,092
------------- ------------- ------------
Total current assets 317,669 1,376,569 2,453,112
PROPERTY AND EQUIPMENT:
Land and land improvements - 1,144,330 3,670,432
Buildings and building improvements - 7,717,255 28,090,781
Furniture, equipment and other - 625,974 2,669,809
-------------- -------------- --------------
- 9,487,559 34,431,022
Less: accumulated depreciation - (97,325) (548,765)
-------------- -------------- --------------
- 9,390,234 33,882,257
Construction in progress 10,091,548 35,649,236 28,149,444
-------------- -------------- --------------
Property and equipment, net 10,091,548 45,039,470 62,031,701
DEFERRED FINANCING AND ORGANIZATION
COSTS, net 184,901 581,866 693,890
PRE-OPENING COSTS, net - 251,558 890,454
-------------- -------------- --------------
Total assets $10,594,118 $47,249,463 $66,069,157
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Construction and other accounts payable $ 532,635 $ 3,747,284 $ 3,197,242
Construction and other accrued liabilities 478,474 2,285,243 3,019,016
Capital lease obligation - - 30,252
-------------- -------------- --------------
Total current liabilities 1,011,109 6,032,527 6,246,510
Revolving line-of-credit--related party 9,271,951 32,755,934 44,282,177
Note payable - 8,702,954 19,451,877
Capital lease obligation - - 161,288
-------------- -------------- --------------
Total liabilities 10,283,060 47,491,415 70,141,852
-------------- -------------- --------------
MEMBERS' (DEFICIT) EQUITY 311,058 (241,952) (4,072,695)
-------------- -------------- --------------
Total liabilities and members' (deficit) equity $10,594,118 $47,249,463 $66,069,157
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
ASSISTED LIVING INVESTMENTS LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
From
Inception
(June 27, 1996) to Year Ended Six-months
December 31, December 31, Ended June 30,
1996 1997 1997 1998
------------------ ----------------------- --------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
OPERATING REVENUE $ - $ 125,467 $ - $ 857,940
---------- ------------- ---------- -------------
OPERATING EXPENSES:
Facility operating - 430,569 - 2,376,270
Abandoned projects 31,320 650,436 72,542 -
Professional fees 9,000 146,524 59,998 88,685
Depreciation and amortization 7,100 246,588 15,022 1,017,119
Other 51 63,537 22,329 30,886
---------- ------------- ---------- -------------
Total operating expenses 47,471 1,537,654 170,456 3,512,960
---------- ------------- ---------- -------------
Loss from operations (47,471) (1,412,187) (170,456) (2,655,000)
---------- ------------- ---------- -------------
OTHER INCOME (EXPENSE):
Interest income - 37,404 6,806 65,856
Interest expense - (393,429) (23,329) (1,241,579)
---------- ------------- ---------- -------------
Total other income (expense)
- (356,025) (16,523) (1,175,723)
---------- ------------- ---------- -------------
Net loss $(47,471) $(1,768,212) $(186,979) $(3,830,743)
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
ASSISTED LIVING INVESTMENTS LLC
STATEMENTS OF MEMBERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
HC-ALI SunBridge
LLC Inc. Total
----------- ----------- -----
<S> <C> <C> <C>
MEMBERS' EQUITY, inception (June 27, 1996) $ - $ - $ -
Initial capital contributions 322,676 35,853 358,529
Net loss (42,724) (4,747) (47,471)
----------- ----------- -----------
MEMBERS' EQUITY, December 31, 1996 279,952 31,106 311,058
Capital contribution 1,108,000 107,202 1,215,202
Net loss (1,591,391) (176,821) (1,768,212)
----------- ---------- -----------
MEMBERS' DEFICIT, December 31, 1997 (203,439) (38,513) (241,952)
Net loss (unaudited) (3,447,669) (383,074) (3,830,743)
----------- ---------- -----------
MEMBERS' DEFICIT, June 30, 1998 (unaudited) $(3,651,108) $(421,587) $(4,072,695)
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
ASSISTED LIVING INVESTMENTS LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
From
Inception
(June 27, 1996) to Year Ended Six-months
December 31, December 31, Ended June 30,
1996 1997 1997 1998
-------------------- -------------- -------------- --------------
(unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $ (47,471) $ (1,768,212) $ (186,979) $ (3,830,743)
Adjustments to reconcile net loss to net
cash flows from operating activities-
Depreciation and amortization 7,100 252,224 15,022 1,030,414
Changes in assets and liabilities-
Increase in restricted cash - (144,868) - (3,081)
Increase in accounts receivable - (53,895) (45) (185,727)
Increase in prepaid expenses (8,675) (30,753) (296) (22,664)
Increase in organization costs (142,001) - - -
Increase in accounts payable
and accrued liabilities - 23,376 - 1,129,078
------------- -------------- -------------- --------------
Net cash flows from operating
activities (191,047) (1,722,128) (172,298) (1,882,723)
------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (9,080,439) (30,047,205) (13,346,296) (20,717,026)
Payments for pre-opening costs - (372,421) (1,203,938)
------------- -------------- -------------- --------------
Net cash flows from investing
activities (9,080,439) (30,419,626) (13,346,286) (21,920,964)
------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line-of-credit 9,271,951 32,233,224 13,509,088 18,188,798
Repayments of revolving line-of-credit - (8,642,039) - (4,115,220)
Proceeds from note payable - 8,702,954 - 10,748,923
Capital leases - - - (14,224)
Capital contribution from members 358,529 400,000 - 708,000
Payment for deferred financing cost (50,000) (431,001) (254,329) (139,519)
------------- -------------- -------------- --------------
Net cash flows from financing
activities 9,580,480 32,263,138 13,254,759 25,376,758
------------- -------------- -------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 308,994 121,384 (263,835) 1,573,071
CASH AND CASH EQUIVALENTS,
beginning of period - 308,994 308,994 430,378
------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS,
end of period $ 308,994 $ 430,378 $ 45,159 $ 2,003,449
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
ASSISTED LIVING INVESTMENTS LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) OPERATIONS AND ORGANIZATION
Assisted Living Investments LLC, (the "Company" or "ALI") is a Delaware limited
liability company formed on June 27, 1996. The Company was organized to develop,
operate and provide long-term financing for the continued operation of assisted
living facilities. The operations of assisted living facilities include
providing services to elderly residents such as housing, meals and non-medical
assistance, for a monthly fee. The Company's services are generally not covered
by health insurance and, therefore, are payable by the residents, their family
or another responsible party. As of December 31, 1997, ALI was owned by HC - ALI
LLC ("Hammes Company") (90%) and SunBridge, Inc. ("SunBridge") (10%), together
the "Members".
At December 31, 1997, the Company had five assisted living facilities under
construction. The first facility was completed and began operations during the
second half of 1997 in Denver, Colorado, and subsequent to yearend, the Company
completed construction and placed into operation facilities located in Tucson,
Arizona and Roswell, Georgia. In addition to the facilities under construction,
the Company has also purchased the land for several additional facilities with
construction expected to begin in 1998 and beyond.
The Company has generated net losses and operating cash flow deficits since
inception. Such losses and operating cash flow deficits have been, and will
continue to be, funded through borrowings on debt arrangements and capital
contributions from Members. In management's opinion, ALI has sufficient
financial resources to fund its losses and operating cash flow deficits.
Capital Contributions and Distributions (Note 5)
The Members have committed to make total capital contributions of $3,333,333
($3,000,000 from Hammes Company and $333,333 from SunBridge). Such amounts are
to be contributed to ALI on a pro-rata basis. Any distributions will be made in
accordance with the Members' ownership interest at the time of the distribution.
During 1997, the Members made contributions totaling $1,215,202. SunBridge's
contribution of $107,202 was made in the form of a reduction of the amount
outstanding under the revolving line-of-credit. The Hammes Company contribution
of $1,108,000 was made by a combination of a cash payment of $400,000 and
issuance of a note of $708,000. Subsequent to yearend, the note receivable was
paid in full.
Allocation of Profits and Losses
All profits and losses of the Company are allocated among the Members in
accordance with their respective ownership interests.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers unrestricted
cash in checking accounts and investments with original maturities of three
months or less to be cash and cash equivalents.
During the unaudited six months ended June 30, 1998, the Company purchased some
equipment and incurred a capital lease obligation for such equipment of
approximately $205,000. In addition, the Company sold some undeveloped land to
an affiliate of SunBridge and reduced the amounts outstanding under the
revolving line-of-credit for the Company's cost of approximately $3,874,000.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
The financial statements do not include a provision or benefit for income taxes
because the Company is treated as a partnership for tax purposes and does not
incur federal or state income taxes. Instead, its earnings or losses are
included in the Members' income tax returns.
Revenue Recognition
Operating revenue consists of resident fee revenue. The Company recognizes
revenue in the period in which it is earned.
Deferred Financing and Organization Costs
Organization costs are amortized on a straight-line basis over five years.
Financing costs are deferred and amortized over the life of the related debt
instrument. As of December 31, 1997 and 1996, the accumulated amortization of
these costs was $41,136 and $7,100, respectively.
Pre-Opening Costs
Pre-opening costs include costs to prepare the facilities for operation and
other costs incurred prior to opening, and are amortized over 12 months. As of
December 31, 1997, the Company had $372,421 of capitalized pre-opening costs and
$120,863 of accumulated amortization.
Reclassification
Certain prior year amounts in the financial statements have been reclassified to
conform to the current year presentation.
Property and Equipment
Property and equipment are recorded at cost. In connection with the development
of projects, the Company has entered into land purchase contracts, agreements
with architects, financing agreements and construction contracts which are
administered by the Company. All costs related to the development of facilities
are capitalized during the construction period. Construction in progress
includes preacquisition costs and other direct costs related to acquisition,
development and construction of facilities. If a project is abandoned, any costs
previously capitalized are expensed. Depreciation is computed when assets are
placed in service, using the straight-line method over the respective useful
lives of each class of asset which generally are as follows:
Buildings 40 years
Furnishings and equipment 3 - 10 years
Capitalized interest for the year ended December 31, 1997 and during the period
from inception (June 27, 1996) to December 31, 1996 was $1,449,745 and $169,301,
respectively. During 1997, $1,273,684 of the capitalized interest resulted in an
increase in long-term debt as such amount became part of the outstanding
principal balance. The Company paid $195,017 and $0 in interest during 1997 and
1996, respectively, net of amounts capitalized. For the unaudited six months
ended June 30, 1997 and 1998, the Company paid $10,912 and $461,385 in interest,
respectively, net of amounts capitalized.
As of December 31, 1997 and 1996 the Company had $6,009,151 and $1,011,109,
respectively in accounts payable and accrued liabilities related to real estate
construction in progress. As of June 30, 1998, the Company had $5,063,804 in
accounts payable and accrued liabilities related to real estate construction in
progress.
Restricted cash represents amounts securing completion of a certain facility and
the amounts will be released upon completion.
New Accounting Pronouncements
On April 3, 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-Up
Activities". This statement requires the costs of all start-up activities
including organization costs to be expensed as incurred. SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. The Company currently
capitalizes its start-up costs and will be required to expense such costs
beginning in fiscal 1999.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 requires that all items recognized as comprehensive income be
reported in the financial statements. Comprehensive income items include
unrealized holding gains/losses on securities classified as available for sale,
foreign currency translation adjustments and minimum pension liability
adjustments which will be shown as an increase or decrease to net income or loss
to arrive at comprehensive income. The Company adopted SFAS 130 in the first
quarter of 1998, however, the Company did not have any transactions which would
require additional disclosure under SFAS 130.
Unaudited Interim Financial Statements
The financial statements as of June 30, 1998, and for the six months ended June
30, 1997 and 1998, are unaudited and include all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the results for such interim periods.
(3) AGREEMENTS
Development Agreement
The Company has a development agreement whereby Hammes Company will identify
appropriate sites for assisted living facilities and assist ALI in the
acquisition of such sites and develop and construct the facilities. In return,
ALI will reimburse Hammes Company for various expenses incurred and pay a fee of
$25,000 for each site identified by Hammes and acquired by ALI. Hammes Company
will develop each facility and receive a development fee, which, in general, is
calculated based on development costs incurred, payable in installments over the
construction period. Fees paid to Hammes under the development agreement during
1997 and 1996 were $1,535,627 and $331,228, respectively.
Operating Agreement
Under the operating agreement, the Company pays a management fee to Hammes
Company, as long as Hammes Company retains at least 50% ownership in ALI, and
the fees paid are as follows:
- - Payment of $3,000 per month to cover overhead costs.
- - Reimbursement of expenses incurred with managing the Company.
- - Payment of $1,000 per month for each facility which is substantially
completed until the facility is sold.
- - Payment of $75,000 for obtaining a senior loan.
Fees paid to Hammes Company during 1997 and 1996, under the operating agreement,
were $116,000 and $9,000, respectively.
Purchase Option Agreement
The Company has a purchase option agreement with SunBridge whereby the Company
locates, acquires, develops and constructs assisted living facilities (all in
consultation with SunBridge) and will grant SunBridge an option to purchase
certain facilities either separately or in groups, after a specified time
period, at the greater of estimated fair market value or total amount invested
by the Company. SunBridge will in turn pay the Company $50,000 for the option to
purchase the facility. However, SunBridge is under no obligation to acquire the
facilities. In the event SunBridge elects not to acquire the facilities, the
Company would have the option of selling or leasing the facilities to a third
party or separately contracting for the operation of the facilities with a third
party. At December 31, 1997, purchase option agreements had been executed on all
five of the facilities being constructed.
Management Service Agreement
Under a management service agreement between ALI and SunBridge, SunBridge will
operate the facilities upon completion until the time the facility or facilities
are purchased if subject to the purchase option described above. If not subject
to the purchase option agreement, SunBridge will manage and operate the
facilities upon completion. ALI will in turn pay SunBridge a specified
percentage of the gross revenue from each facility.
(4) LONG-TERM DEBT
Note Payable (Note 5)
During May 1997, the Company obtained a $50,000,000 senior loan from a financial
institution. The loan will be used to finance the development of facilities and
will be set up in separate project loans with the total of all project loans not
exceeding $50,000,000. During the construction period for each project loan,
interest payments are due monthly based on LIBOR. The construction loan may, at
the borrower's option, be converted to a term loan at the date upon which the
facility related to such loan achieves a debt service coverage ratio of 1.3 to
1.0 for three consecutive months; however, the project loans will be converted
to a term loan upon the third anniversary of the date upon which substantial
completion of the facility related to such loan occurs. All unpaid principal and
accrued interest are due in full April 28, 2003. The loan is secured by all the
Company's projects and improvements, contracts, licenses or permits concerning
the projects, all personal property in or upon the projects, utility and
security deposits, and the Company's interest in escrows for taxes and
insurance. The Company must maintain a debt service coverage ratio of 1.4 to 1.0
both in the aggregate and on a facility-by-facility basis after a facility has
been opened in excess of 18 months. The Company is currently not subject to the
debt service coverage ratio as no facility has been open for 18 months. As of
December 31, 1997, the Company had $8,702,954 outstanding on the note.
Revolving Line-of-Credit--Related Party (Note 5)
The Company has a $47,000,000 subordinated revolving line-of-credit payable to
the parent of SunBridge. The line-of-credit bears interest at 9% or 13%,
depending on the tranche and is due in full at November 1, 2001. The
line-of-credit is secured by all assets of the Company and is subordinate to any
senior borrowings.
Interest on amounts drawn under this line-of-credit accrue monthly on the
outstanding principal balance. As of December 31, 1997 and 1996, the Company had
drawn $32,755,934 and $9,271,951, respectively, under the line-of-credit.
The carrying value of the Company's long-term debt approximates fair value due
to the variable nature of the interest rates.
(5) Events Subsequent to Date of Independent Public
Accountants Report (Unaudited)
In July 1998 the Company entered into two credit facility arrangements with
financial institutions. The senior loan agreement, which will supersede the
existing senior loan, provides for a maximum of $100,000,000 in total
borrowings. The loan will be used to finance development of facilities and will
be set up in separate project loans with the total loans under this facility not
to exceed 50% of the total project cost. During the construction period for each
project, interest payments are due monthly based on LIBOR. The construction loan
will convert to a term loan upon the third anniversary of the date of project
loan funding. The balance of the loan will be repaid in monthly interest and
principal payments amortized over a period of 25 years, with a maturity date 60
months after the project loan closing date for each project loan. The loan,
which is senior to all other indebtedness, is secured by the assets of the
Company. The Company must maintain a debt service coverage ratio of 1.4 to 1.0
both in the aggregate and on a facility by facility basis after a facility has
been open for 18 months. The mezzanine credit facility provides for loans up to
a maximum of $40,000,000. The proceeds will be used to finance development of
facilities and will be made in the form of project loans. The total of the loans
will not exceed 20% of the total cost of the projects. The facility, which has
an interest rate of LIBOR plus 4.375%, will expire on August 1, 2000.
The Company amended its related party revolving line-of-credit on August 12,
1998. The amended related party line-of-credit will provide for $40,000,000 of
subordinated debt. The line-of-credit bears interest at a rate of 10% annually.
The line-of-credit will provide a portion of the financing necessary for
development of facilities and is subordinate to any senior borrowings.
In August 1998 the Company entered into a new Lease Option Agreement with
SunBridge. Under the terms of the agreement, ALI will develop the facilities and
SunBridge will have the right to lease or, under certain circumstances, purchase
the facilities, after a specified period of time from the completion of the
facility. The agreement provides for an initial lease term of 15 years and also
provides for four renewal periods of 5 years each. SunBridge will pay ALI
$250,000 for the option to lease or purchase the facility. Related to this
payment, SunBridge will earn a development fee of $180,000 at the time a project
obtains its certificate of occupancy. In addition, SunBridge can apply $65,000
towards the lease or purchase of a facility. In the event SunBridge elects not
to lease or acquire the facilities, the Company will have the option to sell or
lease the facilities to a third party.
In August 1998 the Company entered into an Amended and Restated Operating
Agreement (the "Agreement") whereby RSVP ALI Baba, LLC, a Delaware limited
liability company ("RSVP") a controlled affiliate of Reckson Strategic Venture
Partners, LLC, a Delaware limited liability company ("Reckson") acquired 45% of
the ownership interest in the Company from Hammes Company. RSVP has committed to
make capital contributions of $16,000,000 to the Company of which approximately
$5,182,000 has been paid to date. The Agreement also modifies the committed
capital contributions from Hammes Company and SunBridge such that both are
committed to contribute $2,000,000 each. As a result, SunBridge contributed
$504,695 and ALI made a distribution to Hammes Company of $782,926 so that both
SunBridge and Hammes Company have contributed a total of $647,750 each. As a
result of this transaction, ownership of the Company will be Hammes Company 45%,
RSVP 45% and SunBridge 10%. The Agreement also provides for cash distributions
to be made initially based upon contributed cash, which is RSVP 80%, Hammes
Company 10% and SunBridge 10%. Upon RSVP achieving certain internal rates of
return, as defined, the RSVP and Hammes Company percentages will decrease and
increase, respectively, to various levels and ultimately to 45% each.
Unaudited Pro Forma Consolidated Financial Statements
The following unaudited pro forma financial statements are presented for
illustrative purposes only and are not indicative of the financial position or
results of operations of future periods or the results that actually would have
been realized had Assisited Living Investment LLC ("ALI") joint venture been
formed and RSI through RSVP had made an investment in ALI during the specified
periods. The pro forma financial statements, including the notes thereto, are
qualified in their entirety by reference to, and should be read in conjuction
with, the historical financial statements of RSI as filed in Form S-1 for the
period from July 15, 1997 (commencement of operations) to December 31, 1997, the
historical financial statements of RSI as filed on Form 10-Q for the six months
ended June 30, 1998, and the historical financial statements of ALI included
elsewhere herein.
The following pro forma financial statements of RSI give effect to the proposed
joint venture of ALI using the purchase method of accounting. The pro forma
financial statements are based on the historical financial statements and the
notes thereto of RSI and ALI. The pro forma adjustments are preliminary and
based on management's estimates of the value of the tangible and intangible
assets acquired.
The pro forma balance sheet of RSI assumes that the joint venture commenced on
June 30,1998 The pro forma statements of operations of RSI for the six months
ended June 30,1998 and for the year ended December 31, 1997 assume that the
joint venture commenced as of January 1, 1997.
<TABLE>
<CAPTION>
Reckson Service Industries, Inc.
Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 1998
(Unaudited)
Pro Forma
Adjustments
RSI Assisted Living
Historical Investment, LLC (1) Pro Forma
----------------- ----------------------- -----------------
<S> <C> <C> <C>
Assets
Cash $ 48,398 $ - $ 48,398
Investment in and advances to RSVP Holdings, LLC 14,941,828 3,728,500 (1) 18,670,328
Investment in and advances to Reckson Executive
Centers, LLC 1,066,816 - 1,066,816
Equipment 35,281 - 35,281
Affiliate receivable 1,616,283 - 1,616,283
Investment and advances to On-Site Ventures, LLC 3,429,599 - 3,429,599
Receivable from Transfer Agent 13,828,244 - 13,828,244
Organization and pre-acquisition costs 996,620 - 996,620
Other assets 284,687 - 284,687
================= ==================== ==================
Total Assets $ 36,247,756 $ 3,728,500 $ 39,976,256
================= ==================== ==================
Liabilities and Shareholders' Equity
Accounts payable and accrued expenses $ 558,900 $ - $ 558,900
Loan payable to affiliates 19,464,889 3,728,500 (1) 23,193,389
Total Liabilities ----------------- -------------------- -----------------
20,023,789 3,728,500 23,752,289
----------------- -------------------- -----------------
Shareholders' Equity
Common stock 246,855 - 246,855
Additional paid-in capital 24,685,843 - 24,685,843
Common stock subscription (7,325,159) - (7,325,159)
Retained earnings (1,383,572) - (1,383,572)
----------------- -------------------- -----------------
Total Shareholders' Equity 16,223,967 - 16,223,967
----------------- -------------------- -----------------
Total Liabilities and Shareholders' Equity $ 36,247,756 $ 3,728,500 $ 39,976,256
================= ==================== ==================
</TABLE>
<TABLE>
<CAPTION>
Reckson Services Industries, Inc.
Pro Forma Condensed Consolidating Statement of Operations
Six Months Ended June 30, 1998
(Unaudited)
Pro Forma
Adjustments
RSI Assisted Living Pro Forma
Historical Investment, LLC (1) Adjustments Pro Forma
--------------- --------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Equity in loss of ACC $ (51,508) $ - $ - $ (51,508)
Equity in earnings of RO Partners Management LLC 170,567 - - 170,567
Equity in loss of RSVP Holdings, LLC (618,474) (1,197,108) (1) (77,500) (3) (1,893,082)
Equity in loss of Reckson Executive Centers LLC (2,511) - - (2,511)
Equity in loss of On-Site Venture LLC (4,733) - - (4,733)
Other income 166,666 - - 166,666
Interest income 140,932 - - 140,932
--------------- -------------------- ------------------ --------------
Total Revenues (199,061) (1,197,108) (77,500) (1,473,669)
--------------- -------------------- ------------------ --------------
Expenses:
General and administrative expenses 464,706 - - 464,706
--------------- -------------------- ------------------ --------------
Total Operating Expenses 464,706 - - 464,706
--------------- -------------------- ------------------ --------------
Interest 20,992 - 223,710 (2) 244,702
Depreciation and amortization 440,926 - - 440,926
--------------- -------------------- ------------------ --------------
Total Expenses 926,624 - 223,710 1,150,334
--------------- -------------------- ------------------ --------------
Net Loss $ (1,125,685) $ (1,197,108) $ (301,210) $ (2,624,003)
=============== ==================== ================== ==============
Basic and diluted net loss per share $ (0.23) $ (0.54)
=============== ==============
Basic and diluted weighted average common
share outstanding 4,834,240 4,834,240
=============== ==============
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
<TABLE>
<CAPTION>
Reckson Services Industries, Inc.
Pro Forma Condensed Consolidating Statement of Operations
Year ended December 31, 1997
(Unaudited)
Pro Forma
Adjustments December
RSI Assisted Living Pro Forma 31, 1997
Historical Investment, LLC (1) Adjustments Pro Forma
------------- --------------------- ------------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Equity in earnings of RO Partners Management, LLC $ 245,593 $ - $ - $ 245,593
Equity in loss of ACLC (22,156) - - (22,156)
Interest income 30,383 - - 30,383
Equity in loss of RSVP Holdings, LLC - (552,566) (1) (155,000) (3) (707,566)
------------- -------------------- ------------------ --------------
Total Revenues 253,820 (552,566) (155,000) (453,746)
------------- -------------------- ------------------ --------------
Expenses:
General and administrative expenses 479,113 - - 479,113
------------- -------------------- ------------------ --------------
Total Operating Expenses 479,113 - - 479,113
------------- -------------------- ------------------ --------------
Interest 24,380 - 447,420 (3) 471,800
Amortization 8,214 - - 8,214
------------- -------------------- ------------------ --------------
Total Expenses 511,707 - 447,420 959,127
------------- -------------------- ------------------ --------------
Net loss $ (257,887) $ (552,566) $ (602,420) $ (1,412,873)
------------- -------------------- ------------------ --------------
Basic and diluted net loss per share $ (0.06) $ (0.34)
Basic and diluted weighted average common ============= ==============
shares outstanding 4,111,426 4,111,426
============= ==============
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
Reckson Service Industries, Inc.
Notes to pro-forma financial statements
(unaudited)
(1) The pro-forma results of Assisted Living Investments LLC ("ALI") are as if
the Company had completed its equity investment on January 1, 1997. RSI's pro
forma equity in losses in RSVP Holdings represents their equity in losses of
these pro forma results. In accordance with the operating agreement, RSVP
Holdings receives 62.5% of operating losses from ALI in which RSI has a 50%
equity interest. Historical results of Assisted Living Investments LLC are as
follows:
<TABLE>
<CAPTION>
Year ended Six Month Period
December 31, 1997 Ended June 30, 1998
----------------- -----------------------
<S> <C> <C>
REVENUES:
Operating Revenues $ 125,467 $ 857,940
OPERATING EXPENSES:
Facility operating 430,569 3,391,600
Abandoned projects 650,436 -
Professional fees 146,524 88,685
Depreciation and amortization 246,588 15,085
Other 63,537 30,886
----------------- ---------------------
Total cost of revenues earned 1,537,654 3,526,256
----------------- ---------------------
Loss from Operations (1,412,187) (2,668,316)
OTHER INCOME (EXPENSE)
Interest income 37,404 65,856
Interest expense (393,429) (1,228,284)
Other income (expense) (356,025) (1,162,428)
----------------- ---------------------
Pro forma net loss $ (1,768,212) $ (3,830,744)
================= =====================
RSVP Holdings share of pro forma net loss $ (1,105,133) $ (2,394,215)
================= =====================
RSI share of RSVP Holdings pro forma net loss $ (552,566) $ (1,197,108)
================= =====================
</TABLE>
(2) To record interest expense for RSI borrowings from Reckson Operating
Partnership, L.P., which borrowings bear interest at a fixed rate of 12% per
annum, of $223,710 and $447,420 for the six months ended June 30, 1998 and the
year ended December 31, 1997, respectively.
(3) To record amortization expense on goodwill and depreciation associated with
the step-up in accounting basis of real estate as a result of the formation of
ALI. The goodwill is being amortized over a 25 year life and the real estate,
other than land, over a 30 year life.
(c) Exhibits
None.
SIGNATURES
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 thereunto duly authorized.
RECKSON SERVICE INDUSTRIES, INC.
/s/ Michael Maturo
_________________________________________
Michael Maturo
Executive Vice President, Chief Financial
Officer and Treasurer
Date: November 9, 1998
