UNITED STATES SECURITIES AND EXCHANGE
COMMISSION Washington, D.C.
20549 Form 10-KSB
Annual Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended March 31, 1998
Commission File Number 0-18727
CARC, Inc.
(Name of small business issuer in its charter)
South Carolina 57-0641693
(State or other jurisdiction (I.R.S.Employer Identification No.)
of incorporation of organization)
500 Downs Loop, Clemson, South Carolina 29631
(Address of principal executive offic (Zip Code)
Issuer's telephone number, including
area code: (864) 654-1155
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
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 by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB [x]
The issuer's revenues for its most recent fiscal year: $3,284,946
The aggregate market value of the voting stock held by nonaffiliates of the
registrant is unknown and the stock is not currently being traded.
The number of shares outstanding of each of the registrant's classes of
common stock, as of June 1, 1998:
Common stock, $1 par value 536,000
Documents Incorporated by Reference
Portions of registrant's definitive proxy statement (to be filed pursuant to
Regulation 14A) or definitive information statement (to be filed pursuant to
Regulation 14C) for registrant's 1998 annual meeting are incorporated by
reference in Part III.
PART 1
Item 1. Business.
CARC, Inc., the registrant, was organized under the laws of the State of
South Carolina on December 20, 1976 to plan, develop, construct and operate
a retirement community ("Clemson Downs") in the Clemson, South Carolina area
to include residential apartments, an accredited health care center and
related recreational and social facilities. The Company's present office
is located at 500 Downs Loop, Clemson, South Carolina 29631, and its
telephone number is (864) 654-1155.
The principal services rendered by the registrant are retirement community
services. They include the operation of a health care center, apartment
rentals and providing recreational and other associated services. For
the last two fiscal years, the percentage of total revenue contributed by
each of these services which provided 15% or more of consolidated revenue
are as follows:
1998 1997
1. Health care center - 51.9% 50.3%
2. Apartment rentals - 46.6% 47.7%
The apartment buildings at Clemson Downs provide a choice of seven floor
plans. The apartments rent for between $859 and $1,715 per month,
depending on which floor plan is chosen and whether the apartment is rented
by one person or a couple. One meal per day for each resident is included
in the rental fee. In addition, residents may select a catered living
program. Apartment rates for the catered living program range between
$1,590 and $3,214 per month, depending on the floor plan chosen and number
of occupants per apartment. The catered living program provides special
services and three meals per day to residents in the program. Each
apartment has a patio deck, and each floor of each building has its own washer
and dryer room. All buildings have entrances at ground level. Some buildings
are also served by elevators. Doors are electric with wheelchair level door
openers. There are thermalpane windows in patio doors. All halls have
assist rails and wide doorways. Each apartment unit has individual heating
and airconditioning systems and an individual hot water heater. All the
apartments and public areas in the apartment wings are carpeted, with
the exception of the kitchen and bathroom areas. The kitchens are fully
equipped with a range and oven, refrigerator, dishwasher and disposal.
There is an emergency response call system to the health care center in each
apartment and smoke and heat detectors are located throughout the property.
Item 1. Business. (continued)
The health care center provides convalescent and rehabilitative treatment
to inpatient adults, including those who are admitted after hospitalization
and before returning to their homes, and is designed to supplement general
hospital care, rather than compete directly with general hospitals. The
services furnished by the health care center include room, board,
nursing care, drugs, supplies, medical equipment, other medical services,
social activities and physical, speech and recreational therapy. The health
care center contains private and semi-private rooms. It also has laundry
facilities and a reception area. The admission, treatment and discharge of
each health care center resident are under the direction of the resident's
attending physician. Although no full-time staff physicians are retained,
the health care center has a part time-medical director as well as consulting
and on-call physicians as required.
The health care center receives payments for resident care directly on a
private pay basis, including payments from private health insurance,
and from governmental reimbursement programs such as the federal Medicare
program. Within the statutory framework of the Medicare program, there are
substantial areas subject to administrative rulings, interpretations and
discretion which affect payments made under those programs.
Health care facility operations are subject to federal, state and local
government regulations. Health care facilities are subject to periodic
inspection by state licensing agencies to determine whether the standards
necessary for continued licensure are maintained. In granting and renewing
licenses, the state agencies consider, among other things, the buildings,
furniture and equipment; the qualifications of the administrative personnel
and staff; the quality of care; and the compliance with the laws and
regulations relating to operation of the facilities. State licensure of
a health care facility is a prerequisite to certification for participation
in the Medicare program. Management believes that the health care center at
Clemson Downs is presently in substantial compliance with all applicable
federal, state and local regulations with respect to licensure requirements.
However, because those standards are subject to change, there can be no
assurance that the health care center will be able to maintain its licenses
upon a change in standards, and future changes in those standards could
necessitate substantial expenditures by the registrant to comply with them.
Clemson Downs competes with other local and regional retirement communities
on the basis of reputation and physical appearance and in the case of its
health care center on the basis of the quality of care provided. The primary,
secondary and tertiary service areas for Clemson Downs are as follows:
Primary Service Area - the City of Clemson;
Secondary Service Area - an 18 mile radius extending from the City of
Clemson; and
Tertiary Service Area - All other areas.
Item 1. Business. (continued)
Approximately 60% of the current patients in the health care center resided
in the Primary Service Area immediately before being admitted to the health
care center. The Secondary Service Area accounted for almost 30% of the
current patients last residence and the remaining 10% of the patients at the
health care center were from areas outside of the 18 mile radius, or the
Tertiary Service Area.
There are many health care institutions and corporations that furnish
services similar to those offered by the registrant. Some competitors
operate nationally and have substantially greater resources than the
registrant.
The registrant also experiences competition in the search for nurses,
technicians, aides and other high-quality professional and non-professional
employees.
The registrant maintains professional liability, comprehensive general
liability and other typical insurance coverage on all its facilities. The
registrant believes that its insurance is adequate in amount and coverage.
The registrant employees approximately 75 persons in its business and
believes its relations with its employees are good.
Item 2. Properties.
The only property owned by the registrant is Clemson Downs, a retirement
community located in Clemson, South Carolina, which consists of 96
apartments, 52 nursing home beds and a community center which includes a
dining room, library, recreation areas and administrative offices. The
buildings are suitable and adequate for which they were designed and are in
good state of repair. In management's opinion, all properties are adequately
covered by insurance.
There is a mortgage balance of $2,099,468 at March 31, 1998 that is
collateralized by land and buildings. The Center also has a construction
loan with a balance of $2,392,874 at March 31, 1998 for the construction of
a new apartment building and activity center. The construction is 95%
complete at March 31, 1998.
Item 3. Legal Proceedings.
Registrant is not currently engaged in legal proceedings of material
consequence other than ordinary routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Shareholders.
No matters were submitted to a vote of shareholders during the fourth
quarter of 1998.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
There is no established public trading market for the registrant's common
stock. The Center has served as agent in transferring shares from
stockholders to new residents interested in obtaining shares and has received
fees for these services. At March 31, 1998, there are approximately 536
holders of the registrant's common stock. There have been no cash dividends
declared or paid during the past two fiscal years to the holders of the
registrant's common stock.
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The discussion and analysis that follow discusses the financial condition,
results of operations, liquidity and capital resources of the registrant.
Financial Condition
At March 31, 1998 and 1997, assets were $7.4 million and $4.7 million,
respectively. The increase of $2.7 million is a result of construction in
progress of $2.5 million and a deferred tax asset for net operating loss
carryforwards of $200,000. During the second quarter of the current year,
the Center exercised an option stated in its mortgage agreement with a
bank to make an additional $150,000 payment against the outstanding principal
without penalty. A construction loan has been utilized for a new apartment
building and activity center and has a $2.4 million balance outstanding at
March 31, 1998. All other assets and liabilities remained relatively
unchanged.
Results of Operations
Net income for the year ended March 31, 1998 and 1997 was $610,000 and
$241,000, respectively.
Operating Revenues
Operating revenues for the year ended March 31, 1998 and 1997 totaled
$3.3 million and $3.2 million, respectively. The overall increase in
operating revenues of $108,000 was due primarily to rate increases in
health care center revenues and apartment revenues.
Operating Expenses
Operating expenses remained relatively stable overall for the years ended
March 31, 1998 and 1997 at $2.9 million each year. Within the categories of
expenses, apartment and dietary decreased which was offset by increases
in healthcare, housekeeping, and administrative and general. Apartment
expenses decreased $8,000 due to a decrease in salary and maintenance costs.
Dietary expenses decreased approximately $29,000 due to a decrease in food
and beverage costs and labor costs. Health care center costs increased
$7,000 due to an increase in the use of temporary employees and salary
increases. Housekeeping expenses increased approximately $6,000 due to
additional employees and an increase in salary and supply costs.
Administrative and general expenses increased approximately $10,000
due primarily to an increase in wages.
Nonoperating revenue
Net nonoperating revenues for the year ended March 31, 1998 increased
approximately $29,000 over the same period in 1997, primarily due to a
larger loss on the disposal of equipment recognized for the year ended
March 31, 1997.
Liquidity
The Center generated $810,000 in cash flows from operating activities.
The operating cash flows were used to fund $459,000 in financing activities,
which was primarily repayments of long-term debt.
Future Commitments for Capital Expenditures
During the year ended March 31, 1998, the Center entered into a contract
with a construction company for the construction of a twenty unit
two-bedroom apartment building and an activity center at an estimated cost of
$2,599,000.
The Center received a maximum construction loan of $2,800,000 from Wachovia
Bank. This loan is secured by the real estate and future apartment
rents. Interest is at prime less .25% and payments of interest only are due
through October 1998. Beginning in November 1998, monthly principal and
interest payments will be made through April 2007. The monthly payment and
applicable interest rate will be determined at a later date.
The Center is establishing a plan to address Year 2000 issues. Successful
implementation of this plan will eliminate any extraordinary expenses related
to Year 2000 issue. The Center plans to purchase software updates from
its sole data processing company regarding their Year 2000 plans and
compliance. The Center will also contact other vendors and suppliers that
its operations are dependent on to ensure Year 2000 compliance. The Center
has a reasonable basis to conclude that the Year 2000 issues will not
materially affect future financial results, or cause reported financial
information not to be necessarily indicative of future operating
results or future financial condition.
Item 7. Financial Statements.
The financial statements required to be filed here under are attached hereto
following the signature page.
Item 8. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure. - None.
PART III
Item 9. Directors and Executive Officers of the Registrant.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
The information called for by Items 9, 10, 11, and 12 has been omitted
because the registrant will file with the SEC no later than 120 days after the
close of its fiscal year a definitive proxy pursuant to Regulation 14A. Such
information is hereby incorporated by reference from registrants definitive
proxy statement.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
A. (1) Financial Statements
Balance Sheets--March 31, 1998
Statements of Operations--Years Ended March31, 1998 and 1997
Statements of Stockholders' Equity--Years Ended March 31, 1998 and 1997
Statements of Cash Flows--Years Ended March 31, 1998 and 1997
Notes to Financial Statements
(2) Schedules to the financial statements have been omitted as the
required information is inapplicable.
B. Reports on Form 8-K - None.
C. Exhibits
(27) Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CARC, INC.
Date: June 17, 1998 by: /s/ Anita Davis
Anita Davis
Executive Officer
<TABLE>
<CAPTION>
Exhibit 27 Financial Data
Schedule
<S> <C>
Period type Year
Fiscal year end
March 31, 1998
Period - start
April 1, 1997
Period - end
March 31, 1998
Cash $292,918
Securities $199,596
Receivables $110,237
Allowables $(5,000)
Inventory $ 11,120
Current assets $842,878
Property, plant and equipment
$10,208,976
Depreciation
$3,931,527
Total assets
$7,357,476
Current liabilities $646,568
Bonds -
Preferred - mandatory -
Preferred -
Common $536,000
Other - SE
$1,873,497
Total liabilities and equity
$7,357,476
Sales -
Total revenues
$3,284,946
Cost of goods sold -
Total costs
$2,680,176
Other - expenses -
Loss-provision -
Interest-expense $209,724
Income-pretax $420,658
Income-tax (189,100)
Income-continuing $609,758
Discontinued -
Extraordinary -
Changes -
Net - income $609,758
EPS - primary $ 1.14
EPS - dilutes 0.00%
</TABLE>
Independent Auditors' Report
The Board of Directors
CARC, Inc.
Clemson, South Carolina
We have audited the accompanying balance sheets of CARC, Inc. (the Center)
as of March 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Center'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 CARC, Inc. as of
March 31, 1998 and 1997 and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Greenville, South Carolina
June 1, 1998
<TABLE>
<CAPTION>
CARC, INC.
Balance Sheets
March 31, 1998 and 1997
Assets
<S> <C> <C>
1998 1997
Current assets
Cash and cash equivalents $ 292,918 $ 236,236
Investments 199,596 207,344
Accounts receivable, net of allowance
for doubtful accounts of $5,000 in
1998 and 1997 105,237 118,349
Accrued interest receivable 13,958 15,343
Prepaid insurance 9,449 11,792
Inventory 11,120 10,799
Deferred tax asset 210,600 -
Total current assets 842,878 599,863
Property, buildings, and equipment, net 6,277,449 3,857,751
Entrance fees in escrow 112,817 105,918
Other assets 124,332 105,498
Total assets $ 7,357,476 $ 4,669,030
(continued)
CARC, INC.
Balance Sheets
March 31, 1998 and 1997
Liabilities and Stockholders' Equity
1998 1997
Current liabilities
Current installments of long-term debt $ 325,248 $ 270,564
Accounts payable 169,253 53,965
Accrued payroll 50,421 48,463
Accrued payroll and property taxes 24,855 20,559
Accrued interest 13,534 16,503
Other accrued liabilities 53,763 39,332
Unearned revenue 9,494 26,520
Total current liabilities 646,568 475,906
Refundable entrance fees and deposits 112,817 105,918
Long-term debt, excluding current installments 4,167,094 2,287,467
Deferred tax liability 21,500 -
Total liabilities 4,947,979 2,869,291
Stockholders' equity:
Common stock, $1 par value. Authorized
600,000 shares; issued and outstanding
536,000 shares 536,000 536,000
Additional paid-in capital 2,111,886 2,111,886
Accumulated deficit (238,389) (848,147)
Total stockholders' equity 2,409,497 1,799,739
Total liabilities and stockholders'
Equity $7,357,476 $4,669,030
</TABLE>
[CAPTION]
<TABLE>
CARC, INC.
Statements of Operations
Years Ended March 31, 1998 and 1997
<S> <C> <C>
1998 1997
Operating revenues:
Apartments $ 1,530,828 $ 1,517,084
Health care center, net 1,705,095 1,597,757
Dietary 39,258 45,881
Residential services 4,823 6,860
Miscellaneous 4,942 9,594
Net operating revenues 3,284,946 3,177,176
Operating expenses:
Apartments 209,186 217,189
Health care center 832,759 826,168
Dietary 585,516 614,780
Residential services 894 6,100
Maintenance and repair 108,420 107,076
Housekeeping 131,141 126,272
Administrative and general 296,475 286,629
Depreciation and Amortization 275,457 283,784
Utilities 156,073 168,569
Interest 209,724 209,998
Property taxes 84,255 82,265
Total operating expenses 2,889,900 2,928,830
Income from operations 395,046 248,346
Nonoperating revenues (expenses):
Interest and investment income 31,368 26,585
Loss on sale of equipment (5,756) (33,858)
Nonoperating revenues (expenses) 25,612 (7,273)
Income before income tax benefit 420,658 241,073
Income tax benefit 189,100 -
Net income $ 609,758 $ 241,073
Weighted common shares outstanding $ 536,000 $ 536,000
Basic earnings per share $ 1.14 $ .45
</TABLE>
[CAPTION]
<TABLE>
CARC, INC.
Statements of Stockholders' Equity
Years Ended March 31, 1998 and 1997
<S> <C> <C> <C> <C>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
Balances at
March 31, 1996 $ 536,000 $ 2,111,886 $ (1,089,220) $ 1,558,666
Net income - - 241,073 241,073
Balances at
March 31, 1997 536,000 2,111,886 (848,147) 1,799,739
Net income - - 609,758 609,758
Balances at
March 31, 1998 $ 536,000 $ 2,111,886 $ (238,389) $ 2,409,497
</TABLE>
[CAPTION]
<TABLE>
CARC, INC.
Statements of Cash Flows
Years Ended March 31, 1998 and 1997
<S> <C> <C>
1998 1997
Cash flows from operating activities:
Net income $ 609,758 $ 241,073
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 275,457 283,784
Loss on sale of equipment 5,756 33,858
Decrease (increase) in:
Accounts receivable, net 13,112 (1,216)
Accrued interest receivable 1,385 (8,113)
Prepaid insurance 2,343 8,821
Inventory (321) 4,125
Other assets (30,834) (2,500)
Deferred income taxes (189,100) -
Increase (decrease) in:
Accounts payable 115,288 48,084
Accrued payroll 1,958 6,441
Accrued payroll and property taxes 4,296 (7,193)
Accrued interest payable (2,969) (2,762)
Other accrued liabilities 14,431 30,265
Unearned revenue (17,026) 5,436
Entrance fee proceeds 6,899 6,855
Net cash provided by
operating activities 810,433 646,958
Cash flows from investing activities:
Purchases of investments $ (312,413) $ (313,262)
Maturities of investments 313,262 321,325
Proceeds from sale of equipment - 50
Capital expenditures (2,688,911) (219,602)
Net cash used in
investing activities (2,688,062) (21,489)
Cash flows from financing activities:
Principal payments of long-term debt (458,563) (424,942)
Proceeds from construction loan 2,392,874 -
Net cash provided by (used
in) financing activities 1,934,311 (424,942)
Net increase in cash
and cash equivalents 56,682 10,527
Cash and cash equivalents,
at beginning of year 236,236 225,709
Cash and cash equivalents,
at end of year $ 292,918 $ 236,236
</TABLE>
CARC, INC.
Notes to Financial Statements
March 31, 1998 and 1997
1. Summary of Significant Accounting Policies
CARC, Inc. (the "Center") is a corporation existing for the
purpose of operating a retirement community in the Clemson, South
Carolina area with an accredited health care facility, residential
apartments and other facilities. The following are the significant
accounting policies used in preparation of the accompanying
financial statements.
Operating Revenues - Apartment revenues consist of rental, meals
and miscellaneous other income. Health Care Center revenues
consist primarily of room and board fees, and also include fees for
medical supplies and physical therapy. Dietary revenues consist of
fees charged for meals and catered functions.
Resident Revenue - Resident revenue is reported at the estimated net
realizable amounts from residents, third-party payors, and others for
service rendered.
Revenue received under the South Carolina Medicare program is subject to
audit and retroactive adjustment. Settlements, if any, are included as
contractual revenue adjustments in the year of determination.
Refundable Fees and Deposits - Refundable application fees are refunded
upon demand by the original applicant. Refundable security deposits are
refunded upon termination of the rental agreement less the cost of
repairs.
Investments - The Center accounts for investments according to Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investment in Debt and Equity Securities (SFAS 115). Under SFAS 115,
investment securities held for investment are stated at amortized cost
since the Center has both the ability and intent to hold such securities
to maturity. Premiums and discounts on the investments are amortized
into income over the contractual terms of the security using a level
yield interest method. Gains and losses on the sale of these
securities would be calculated on the specific identification method.
Other Assets - Other assets consist of loan refinancing cost and closing
costs on a construction loan. The refinancing costs are amortized over
the life of the loan, which is twelve years. The closing costs will be
amortized over the life of the construction loan, when the loan is fully
settled.
Property, Buildings, and Equipment - Property, buildings, and equipment
are stated at cost or, if donated, at fair market value at date of
receipt less accumulated depreciation. Depreciation on buildings and
equipment is calculated on the straight-line method over the estimated
useful lives of the assets. Equipment held under capital leases is
amortized using the straight-line method over the shorter of the lease
term or estimated useful life of the asset.
Inventory - Inventory consists of food and medical supplies and is
carried at cost (first-in, first-out).
Accounts Receivable - Accounts receivable consist of unsecured balances
from residents and patients for monthly apartment and health care center
charges. The Center uses the allowance method to account for
uncollectible accounts receivable. The allowance for bad debt accounts
is based upon prior years' experience and management's analysis of
possible bad debts.
Income Taxes - The Center accounts for income taxes according to
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" (SFAS 109). Under SFAS 109, deferred income assets and
liabilities are recognized for the tax consequences of "temporary
differences" by applying enacted statutory rates applicable for future
years to differences between the financial statement carrying amounts
and the tax basis of existing assets and liabilities. In the event the
future tax consequences of differences between financial reporting bases
and the tax bases of the Center's assets and liabilities results in a
deferred tax asset, an evaluation of the probability of being able to
realize the future benefits of such an asset is made. A valuation
allowance is provided for the portion of the deferred tax asset when it
is more likely than not that some portion or all of the deferred tax
asset will not be realized.
Statements of Cash Flows - For purposes of the statements of cash flows,
the Center considers unrestricted highly liquid investments with an
original maturity ofthree months or less when purchased to be cash or
cash equivalents.
As supplemental disclosure to the statements of cash flows, the Center
paid interest amounting to $212,872 in 1998 and $212,760 in 1997. The
Center paid no income taxes in 1998 or 1997.
Unearned Revenue - Unearned revenue represents advance payment of gross
room rates.
Earnings Per Share - The Center adopted the provisions of SFAS No. 128,
"Earnings Per Share", during fiscal year 1998. The Statement established
standards for computing and presenting earnings per share (EPS). SFAS
No. 128 simplifies the standards for computing EPS previously found in
APB Opinion No. 15 and makes them comparable to international EPS
standards. The new statement requires the presentation of basic and
diluted earnings per share amounts. In accordance with SFAS No. 128, all
prior periods EPS data has been restated. Basic earnings per share were
computed by dividing earnings available to shareholders by the weighted
average number of common shares outstanding. There are no securities
outstanding that represent potential common stock that would require
presentation of diluted earnings per share.
Estimates - The presentation 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.
2. Health Care Center Revenues
A portion of Health Care Center revenue is generated by patients who
qualify for the Medicare program. The approximate percentage of such
revenue was 4% in 1998 and 3% in 1997. The remainder of the revenues are
from private paying patients. Patient service revenue is recorded at
established rates with provisions made for differences between patient
service revenue at the Center's established rates and the related
Medicare reimbursement.
3. Cash, Cash Equivalents and Investments
A summary ofthe Center's cash, cash equivalents and investments at
March 31 follows:
1998 1997
Cash $ 292,918 $ 236,236
Investments:
U. S. Treasury obligations 312,413 313,262
$ 605,33 $ 549,498
The carrying amounts and approximate market value of investment
securities are:
Estimated
Amortized Unrealized Market
Cost Gains Value
March 31, 1998 $ 312,413 $ 13,764 $ 326,177
March 31, 1997 $ 313,262 $ 15,343 $ 328,605
There were no unrealized losses on securities or realized
gains or losses on securities in 1998 or 1997.
The aggregate of these investments are presented in the accompanying
balance sheets as follows:
1998 1997
Investments $199,596 $ 207,344
Entrance fees in escrow 112,817 105,918
$312,413 $ 313,262
The Center maintains cash accounts at one financial institution. At
times throughout the year, the Center may have balances in excess of FDIC
insured limits. Due to the strong credit rating of this financial
institution, management believes there is no significant credit risk
related to these accounts.
4. Property, Building, and Equipment
A summary of property, buildings, and equipment at March 31 follows:
1998 1997
Land and land improvements $ 550,220 $ 550,220
Buildings 6,314,414 6,308,892
Equipment 565,188 538,168
Vehicles 53,079 53,079
Construction in progress 2,726,075 98,974
--------- --------
10,208,976 7,549,333
Less accumulated depreciation 3,931,527 3,691,582
Property, buildings and equipment, net $6,277,449 $3,857,751
5. Long-term Debt
Long-term debt consists of a mortgage note due in October 2005 and a
construction loan. The mortgage note has monthly payments of $40,626,
including interest at 7.5% which are to be made during the first six
years of the loan period. During the second six years, the interest rate
will equal the yield of the bank's cost of issuing a large certificate of
deposit in the secondary market and having a maturity most proximate to
six years plus 2.5% per annum. The note had an outstanding balance of
$2,099,468 at March 31, 1998 and $2,558,031 at March 31, 1997. The note
is collateralized by land and buildings with a depreciated cost of
approximately $3,420,000 at March 31, 1998.
The mortgage note has certain restrictive covenants pertaining to its
current ratio, working capital, cash flow coverage ratio, and tangible
worth. The Center is also limited as to property and equipment purchases.
As of March 31, 1998, the Center was in compliance with such covenants or
on June 2, 1998, received a waiver for events of noncompliance.
The Center received a maximum construction loan of $2,800,000 from
Wachovia Bank. This loan is secured by the real estate and apartment
rents. Interest is at prime less .25% and payments of interest only are
due through October 1998. Beginning in November 1998, monthly principal
and interest payments will be made through April 2007. The monthly
payment and applicable interest rate will be determined at a later date.
At March 31, 1998, $2,392,874 has been drawn on this loan. Interest of
approximately $43,500 has been capitalized at March 31, 1998.
The aggregate annual maturities of long-term debt for each of the five
years subsequent to March 31, 1998 and thereafter are as follows:
1999 $325,248
2000 363,445
2001 316,033
2002 343,290
2003 372,901
Thereafter 2,771,425
$4,492,342
6. Income Taxes
As of March 31, 1998, the Center has net operating loss carryforwards of
approximately $525,000 available to offset future taxable income which
expire as follows: 2005, $129,000; 2006, $269,000; and 2007, $127,000.
The components of the net deferred income tax assets are as follows:
1998 1997
Deferred income tax asset:
Net operating loss carryovers $ 205,000 $ 368,700
Accrued expense not currently
deductible for tax purposes 9,300 8,600
Valuation allowance - (340,000)
Deferred income tax liability:
Tax depreciation greater than
book depreciation (21,500) (27,000)
Accrued revenue not currently
recognized for tax purposes (3,700) (10,300)
Net deferred income tax asset $ 189,100 $ -
The components giving rise to the net deferred tax asset described above
have been included in the accompanying balance sheets as of March 31,
1998 and 1997 as follows:
1998 1997
Current assets $ 210,600 $ -
Noncurrent liabilities (21,500) -
$ 189,100 $ -
The effective tax rate on income before income taxes was different than
amounts computed by applying the statutory Federal tax rate of 34% to
income before income taxes. The reasons for these differences are as
follows:
1998 1997
Income taxes at statutory rate $ 143,000 $ 82,000
Increase (decrease) in taxes resulting from:
State taxes, net of Federal tax benefit 14,000 8,000
Utilization of net operating loss carryforwards (157,000) (90,000)
Recognition of future income tax benefit
of net operating loss carryforwards (189,100) -
Actual tax benefit $(189,100) $ -
Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that deductible temporary differences are
expected to be available to reduce taxable income.
7. Retirement Plan
The Center has a 401(k) Retirement Plan for all employees who have
completed one year of service. Active participants may elect to have the
Center make salary reduction contributions on their behalf based on a
percentage of their earnings, not to exceed 15%. The Center has the
option of making an annual discretionary contribution and can also match
each employees' contribution to the plan up to a predetermined limit.
The Center's combined contribution totaled $13,582 and $26,290 for the
years ended March 31,1998 and 1997, respectively.
8. Commitments
The Center entered into a contract with a construction company in April
1997 for the construction of a new apartment building and an activity
center at an estimated cost of $2,599,000. As of March 31, 1998, the
construction is 95% complete.
9. Financial Instruments
Generally accepted accounting principles require disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value.
Instruments such as accounts receivable, accounts payable, accrued
expenses, notes payable that are currently due, and cash equivalents are
of a short-term nature and carrying value approximates fair value. The
estimated fair value of long-term notes payable is based on discounting
amounts at contractual rates using current market rates for similar
instruments. The Center estimates the fair value of these items to be the
same as their carrying value.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 292,918
<SECURITIES> 199,596
<RECEIVABLES> 110,237
<ALLOWANCES> (5,000)
<INVENTORY> 11,120
<CURRENT-ASSETS> 842,878
<PP&E> 10,208,976
<DEPRECIATION> 3,931,527
<TOTAL-ASSETS> 7,357,476
<CURRENT-LIABILITIES> 646,568
<BONDS> 0
0
0
<COMMON> 536,000
<OTHER-SE> 1,873,497
<TOTAL-LIABILITY-AND-EQUITY> 7,357,476
<SALES> 0
<TOTAL-REVENUES> 3,284,946
<CGS> 0
<TOTAL-COSTS> 2,680,176
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209,724
<INCOME-PRETAX> 420,658
<INCOME-TAX> (189,100)
<INCOME-CONTINUING> 609,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 609,758
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 0.000
</TABLE>
