<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 3
(Amending Part I- Items 1, 2 and 6)
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1997
Commission File No. 1-14114
RETIREMENT CARE ASSOCIATES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Colorado 43-1441789
- ------------------------------ ----------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
6000 Lake Forrest Drive, Suite 200, Atlanta, Georgia 30328
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(Address of Principal Executive Offices)
(404) 255-7500
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(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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of March 31, 1997, 14,284,977 shares of Common Stock were outstanding.
<PAGE> 2
RETIREMENT CARE ASSOCIATES AND SUBSIDIARIES
Form 10-Q/A For the Quarter Ended March 31, 1997
<TABLE>
<CAPTION>
INDEX Page(s)
<S> <C> <C>
PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction 3
Consolidated Statements of Operations
(Unaudited) - Three Months Ended
March 31, 1997 and March 31, 1996 4
Consolidated Statements of Operations
(Unaudited) - Nine Months Ended
March 31, 1997 and March 31, 1996 5
Consolidated Balance Sheets - (Unaudited)
March 31, 1997 and (Audited) June 30, 1996 6-7
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended March 31,
1997 and March 31, 1996 8-9
Notes to Consolidated Financial Statements
(Unaudited) 10-13
Item 2. Managements' Discussion and Analysis of
Results of Operations and Financial
Condition 13-16
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, all
adjustments, which were of a normal recurring nature, necessary to present
fairly the consolidated financial position and results of operations and cash
flows for the periods presented have been included. These consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Annual Report on Form 10-K for Retirement Care
Associates, Inc. (the "Company") for the fiscal year ended June 30, 1996, File
No. 1-14114.
The Company has restated its financial information for periods commencing June
30, 1996 through the nine months ended March 31, 1997, as reflected in
amendments to the Company's Quarterly Reports on Forms 10-Q for the quarters
ended September 30, 1996, December 31, 1996 and March 31, 1997. Adjustments and
reclassifications were necessary to correct entries relating to (i) receivables
due from third-party payors, (ii) the Company's inventory for such periods,
(iii) provisions for doubtful accounts, (iv) provisions for contractual
allowances for third-party payors, (v) provisions for accrued liabilities, and
(vi) pre-recorded operating leases (collectively, "Restated Entries").
To show the impact of the Restated Entries with respect to previously reported
amounts for each period restated, the Company has provided a description of the
Restated Entries and a reconciliation of historical results for each period as
previously reported in the filed quarterly report to restated results.
Certain statements in this Form 10-Q are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks and
uncertainties. Factors which may cause the Company's actual results in future
periods to differ materially from forecast results include, but are not limited
to: general economic and business conditions, both nationally and in the regions
in which the Company operates; industry capacity; demographic changes; existing
government regulations and changes in, or the failure to comply with, government
regulations; legislative proposals for reform; the ability to enter into lease
and management contracts and arrangements on acceptable terms; changes in
Medicare and Medicaid reimbursement levels; liability and other claims asserted
against the Company; competition; changes in business strategy or development
plans; the ability to attract and retain qualified personnel; the significant
indebtedness of the Company; and the availability and terms of capital to fund
the expansion of the Company's business, including the acquisition of additional
facilities.
The financial information included in this report has been prepared by the
Company, without audit, and should not be relied upon to the same extent as
audited financial statements.
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<PAGE> 4
Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
for the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Revenues
Patient service revenue $ 53,044,270 $ 32,004,561
Medical supply revenue 11,815,392 2,100,600
Management fee revenue:
From affiliates 525,001 957,000
From others 107,579 73,882
Other operating revenue 307,614 486,370
65,799,856 35,622,413
Expenses
Cost of patient services 36,301,053 18,814,605
Cost of medical supplies sold 8,023,127 2,751,524
Lease expense 3,668,546 1,542,445
General and administrative 10,026,455 6,848,798
Depreciation and amortization 1,668,117 926,608
Interest 3,424,921 1,837,484
Provision for bad debts 848,000
63,960,219 32,721,464
Income before minority interest and
income taxes 1,839,637 2,900,949
Minority interest (125,900) (58,097)
Income before income taxes 1,713,737 2,842,852
Income taxes 420,000 1,106,272
Net Income $ 1,293,737 $ 1,736,580
Preferred stock dividends 90,000 --
Income applicable to common stock 1,203,737 1,736,580
Net income per common and common equivalent
share .08 .15
Weighted average shares outstanding 14,075,232 11,861,885
</TABLE>
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<PAGE> 5
Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations for
the Nine Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Revenues
Patient service revenue: $142,969,704 $ 86,182,010
Medical supply revenue 34,592,701 5,294,915
Management fee revenue:
From affiliates 1,777,500 2,538,171
From others 347,701 296,506
Other operating revenue 2,493,323 1,181,165
182,180,929 95,492,767
Expenses
Cost of patient services 101,622,310 52,466,995
Cost of medical supplies sold 23,356,604 6,171,863
Lease expense 9,683,743 5,023,376
General and administrative 32,630,996 15,619,316
Depreciation and amortization 4,181,243 2,004,397
Interest 8,576,528 4,110,317
Provision for bad debts 2,148,000 --
182,199,424 85,396,264
Income (loss) before minority interest
and income taxes (18,495) 10,096,503
Minority interest (139,400) (127,057)
Income (loss) before income taxes and
extraordinary item (157,895) 9,969,446
Income tax provision (benefit) (40,000) 3,854,135
Income (loss) before extraordinary item (117,895) 6,115,311
Extraordinary item, less applicable
income taxes (490,000) --
Net Income (loss) $ (607,895) $ 6,115,311
Preferred stock dividend 2,236,777 --
Income (loss) applicable to common stock (2,844,672) 6,115,311
Income (loss) per common and common
equivalent share before extraordinary item (.17) .52
Net income per common and common
equivalent share (.21) .52
Weighted average shares outstanding 13,484,106 11,861,885
</TABLE>
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<PAGE> 6
Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets as of
March 31, 1997 and Audited at June 30, 1996
<TABLE>
<CAPTION>
Unaudited Audited
March 31, June 30,
1997 1996
<S> <C> <C>
Assets
Current
Cash and cash equivalents $ 356,197 $ 45,365
Accounts receivable 38,012,600 18,845,780
Inventory 8,211,753 3,998,991
Deferred income taxes 3,150,000 2,008,430
Note and accrued interest receivable 627,500 613,750
Restricted Bond Fund 3,400,000 2,342,565
Prepaid expenses and other 4,589,134 1,623,679
Total current assets 58,347,184 29,478,560
Property and equipment 149,505,579 111,420,486
Other assets
Marketable equity securities 895,846 33,645
Investments in unconsolidated affiliates 734,514 496,800
Deferred lease and loan costs 11,232,824 7,665,891
Goodwill, net of accumulated amortiza-
tion 12,582,436 6,636,675
Notes and advances due from non-
affiliates 1,649,191 1,372,247
Notes and advances due from affiliates -- 14,316,661
Restricted bond funds 6,136,604 3,514,969
Other assets 3,150,805 2,556,353
Total other assets 36,382,220 36,593,241
$244,234,983 $177,492,287
</TABLE>
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<PAGE> 7
Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets as of
March 31, 1997 and Audited at June 30, 1996
<TABLE>
<CAPTION>
Unaudited Audited
March 31, June 30,
1997 1996
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Lines of credit $ 9,598,902 $ 3,556,535
Current maturities of long-term debt 11,622,020 2,220,491
Accounts payable 23,862,246 10,115,347
Accrued expenses 14,454,260 11,316,030
Income taxes payable -- 3,726,317
Deferred gain 40,000 40,000
Total current liabilities 59,577,428 30,974,720
Deferred gain 191,370 371,370
Deferred income taxes 1,098,929 277,000
Long-term debt, less current maturities 140,051,551 108,481,040
Minority interest 4,735,556 4,122,039
Redeemable convertible preferred stock 1,800,000 2,400,000
Shareholders' equity
Common stock, $.0001 par value;
300,000,000 shares authorized;
14,284,977 and 12,145,875 shares
outstanding 1,429 1,214
Preferred stock 3,767,000 7,408,279
Additional paid-in capital 42,391,319 28,329,625
Retained earnings (9,379,599) (4,752,880)
Treasury stock ( -- ) (120,120)
Total shareholders' equity 36,780,149 30,866,118
Total Liabilities and shareholders'
equity $244,234,983 $177,492,287
</TABLE>
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<PAGE> 8
Retirement Care Associates, Inc.
Unaudited Consolidated Statements of Cash Flows for
the Nine Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Operating activities
Net income $ (607,895) $ 6,115,311
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 4,181,243 1,947,411
Provision for bad debt 2,148,000
Amortization of deferred gain (180,000) --
Minority interest 139,400 127,057
Deferred income taxes (319,641) --
Changes in current assets and liabili-
ties net of effects of acquisitions:
Accounts receivable (21,314,820) (12,552,151)
Inventory (4,212,762) (1,494,627)
Prepaid expense and other assets (3,559,907) (6,814,868)
Accounts payable and accrued expenses 13,158,812 6,299,946
Increase in deferred lease and loan
costs (4,067,891) (1,916,123)
Cash (used in) operating activities (14,635,461) (8,288,044)
Investing activities
Purchase of property and equipment (41,765,378) (41,025,608)
Issuance of notes receivable and
advances to affiliates 14,316,661 (2,285,205)
Investment in and advances to Atrium
Ltd. -- (1,278,684)
Restricted bond funds (3,679,070) --
Changes in marketable equity securities (862,201) (574,766)
Change in receivable (290,694) 2,396,667
Investment in unconsolidated subsidiaries (237,714) --
Cash (used in) investing activities (32,518,396) (42,767,596)
</TABLE>
-8-
<PAGE> 9
Retirement Care Associates, Inc.
Unaudited Consolidated Statements of Cash Flows for
the Nine Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Financing activities
Dividends on preferred stock (150,000) (225,000)
Redemption of preferred stock (600,000) (600,000)
Net proceeds from issuance of:
Line of credit 6,042,367 --
Common stock 1,080,628 355,161
Long-term debt 37,196,676 48,036,000
Preferred stock 9,340,000 --
Payments on long-term debt (1,644,579) (1,377,466)
Purchase and retirement of common stock (3,800,403) --
Cash provided by financing activities 47,464,689 46,188,695
Net increase (decrease) in cash and
cash equivalents 310,832 (4,866,945)
Cash and cash equivalents, beginning of
year 45,365 5,207,185
Cash and cash equivalents, end of year $ 356,197 $ 340,240
</TABLE>
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<PAGE> 10
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These consolidated financial
statements and the notes thereto should be read in conjunction with the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996, File No. 1-14114.
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all necessary adjustments to present
fairly the financial position, the results of operations and cash flows for the
periods reported. All adjustments are of a normal recurring nature.
NOTE 2: RESTATEMENT
The consolidated financial statements for the nine months ended March 31, 1997,
as reported in Amendment No. 2 to the Company's Quarterly Report on Form 10-Q,
reflect certain accounting policies and estimates which were subsequently
determined to be incorrect and, accordingly, the consolidated financial
statements for the nine months ended March 31, 1997 have been restated as
follows (in thousands):
<TABLE>
<CAPTION>
As Previously Reported As Restated
<S> <C> <C>
Revenues $182,181 $182,181
Operating Expenses $188,365 $182,199*
Net Earnings (Loss) $ (4,369) $ (608)
Shareholders' Equity $ 36,790 $ 36,780
</TABLE>
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* Restated Operating Expenses include (in thousands) (i) a reduction
in the accrual for employee benefits of $3,700, (ii) restated
inventory of $1,955, (iii) a reduction in the provision for
doubtful accounts of $580, and (iv) restated general and
administrative expenses of $69.
NOTE 3. ACCOUNTS RECEIVABLE AND COST REIMBURSEMENTS
Accounts receivable and operating revenue include net amounts reimbursed by
Medicaid under the provisions of cost reimbursement formulas in effect. The
Company operates under a prospective payment system with Medicare, under which
annual rates are assigned based on estimated reimbursements. Differences between
estimated provisions and final settlement are reflected as adjustments to future
rates.
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<PAGE> 11
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. INVENTORIES
Inventories consist of the following at March 31, 1997:
<TABLE>
<S> <C>
Raw material $ 352,485
Work in process 84,181
Finished goods 7,775,087
-----------
$ 8,211,753
</TABLE>
NOTE 5: NOTES RECEIVABLE AND ADVANCES TO AFFILIATES
At March 31, 1997 and June 30, 1996, the Company had notes and advances to
affiliates totaling approximately $0 and $14,316,661, respectively. The notes
were repaid by the sale of two retirement homes to the Company at fair market
value and the retirement of 399,992 shares of the Company's common stock held by
affiliates. (See Note 8)
NOTE 6: LONG-TERM DEBT
Long-term debt payable consisted of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
<S> <C> <C>
Amounts outstanding under
Revenue Bonds secured by
retirement facilities $ 64,295,000 $59,986,000
Other debt secured by
retirement and nursing
facilities 52,127,681 39,848,938
Other debt 16,402,309 10,866,593
Capital leases 18,848,581
Totals 151,673,571 110,701,531
Current maturities 11,622,020 2,220,491
Total long-term debt $ 140,051,551 $108,481,040
</TABLE>
NOTE 7: COMMITMENTS AND CONTINGENCIES
The Company is involved in legal proceedings arising in the ordinary course of
business. In addition, the Company is in dispute with the Internal Revenue
Service ("IRS") concerning the application of certain income and payroll tax
liabilities and payments. The IRS contends that the Company is delinquent in the
payment of certain taxes and has charged penalties and interest in connection
with the alleged underpayments. The Company contends that the IRS has misapplied
payments between income and payroll taxes and between the Company and its
affiliates. The Company has estimated in the accompanying financial statements
amounts for ultimate settlement of this dispute, and has recorded an accrual of
$600,000, which is based upon the best available information after consulting
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<PAGE> 12
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
with the Company's advisors concerning this matter. Further, the Company has
filed lawsuits against the IRS related to this matter. In the opinion of
management, the ultimate resolution of pending legal proceedings and the IRS
dispute will not have a material effect on the Company's financial positions or
results of operations.
NOTE 8: FACILITY ACQUISITIONS
During the quarter ended December 31, 1996, the Company entered into a series of
transactions with Winter Haven, Gordon Jensen Health Care Association, Inc.
("Gordon Jensen"), National Assistance Bureau, Inc. ("NAB"), Southeastern
Cottages, Inc. ("Southeastern"), Chamber Health Care Society, Inc. ("Chamber"),
and Senior Care, Inc. ("Senior"); all are entities which principal shareholders
of the Company either own or control. The result of the transactions was to
eliminate all notes receivable and advances due to the Company from affiliates.
The following is a summary of the transactions:
On September 30, 1996, Winter Haven sold to the Company two retirement
facilities for their fair value, based on independent appraisal, totaling
$19,200,000. The facilities were acquired by the Company subject to bond debt of
$7,670,000, resulting in debt due to Winter Haven from the Company of
$11,530,000. As part of the sales agreement, the Company and Winter Haven agreed
that the debt of $11,530,000 would be applied to eliminate the receivable,
totaling $11,214,320, due to the Company by Winter Haven.
On September 27, 1996, Gordon Jensen contributed to the treasury of the Company
400,000 shares of stock in the Company which had a fair market value of
$3,000,000. This transaction results in the elimination of the debt, totaling
$2,982,000, due to the Company by Gordon Jensen and a reduction of shareholders'
equity of the Company by $3,000,000.
NOTE 9: OTHER TRANSACTIONS
On August 6, 1996, Contour acquired all of the outstanding stock of Atlantic
Medical Supply Company, Inc. ("Atlantic"), a distributor of disposable medical
supplies and a provider of third-party billing services to the nursing home and
home health care markets. The acquisition was made retroactively to July 1,
1996. Contour paid $1.4 million in cash and $10.5 million in promissory notes
for all of the outstanding stock of Atlantic. The promissory notes bear interest
at 7% per annum and were due in full on January 10, 1997. In the event of a
default in the payment of the promissory notes, they were convertible into
shares of Common Stock of the Company. On January 10, 1997, Contour retired all
outstanding notes due to sellers of Atlantic in the aggregate principal amount
of $10,850,000, along with accrued interest. The retirement of these notes was
funded by a loan of $9,750,000 from the Company, with the balance funded from
Contour's existing line of credit with Barnett Bank. The loan from the Company
was evidenced by a convertible promissory note bearing interest at 9% per annum
and payable upon demand. This note was convertible into 1,950,000 shares of
Contour's common stock, and on January 10, 1997, the Company exercised this
conversion right.
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<PAGE> 13
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 9: OTHER TRANSACTIONS (Continued)
During the period from September 27 through October 2, 1996, the Company sold
1,000,000 shares of Series F Convertible Preferred Stock in an offering to
foreign investors at $10.00 per share. Holders of the Series F Convertible
Preferred Stock have no voting rights except as required by law, and have
liquidation preference of $10.00 per share plus 4% per annum from the date of
issuance. The shares of Series F Convertible Preferred Stock are convertible
into shares of common stock at a conversion price of the lessor of (a)
$7.665625, or (b) 85% of the average closing bid price for the five trading days
prior to the date of conversion. The maximum number of shares of common stock
which can be issued upon conversion of the Series F Convertible Preferred Stock
is 2,588,000. At the time of conversion, the holder is also entitled to
additional shares equal to $10.00 per share of Series F Convertible Preferred
Stock converted multiplied by 8% per annum from the date of issuance divided by
the applicable conversion price. Each holder of the Series F Convertible
Preferred Stock has the option to convert up to one-third of such holder's
shares at any time from and after the 60th day following the date of issuance,
up to an additional one-third of the shares from and after the 90th day
following the date of issuance, and all remaining shares may be converted from
and after the 120th day following the date of issuance.
NOTE 10: EXTRAORDINARY ITEMS
During the quarter ended December 31, 1996, the Company recorded an
extraordinary charge of $490,000, net of taxes of $300,000. The gross
extraordinary charge consists of $790,000 of charges associated with the early
extinguishment of approximately $9.2 million of long term debt associated with
the Company's retirement facilities located in Destin, Florida.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
The Company's total revenues for the three months ended March 31, 1997, were
$65,799,856 compared to $35,622,413 for the three months ended March 31, 1996.
Due to the increased number of facilities owned or leased by the Company,
patient service revenue increased from $32,004,561 for the quarter ended March
31, 1996, to $53,044,270 for the quarter ended March 31, 1997. The Company was
operating 86 facilities for the quarter ended March 31, 1997 compared to 54 for
the quarter ended March 31, 1996. The cost of patient services in the amount of
$18,814,605 for the quarter ended March 31, 1996 represented 59% of patient
service revenue, as compared to $36,301,053 or 68% of patient service revenue
during the quarter ended March 31, 1997. This increase is attributed to the
Company acquiring skilled nursing facilities which require more skilled care and
to delays in Medicaid rate increases discussed in the comparison of the nine
month periods ended March 31 below.
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<PAGE> 14
Medical supply revenue increased from $2,100,600 during the quarter ended March
31, 1996, to $11,815,392 during the quarter ended March 31, 1997. These
revenues, which are revenues of Contour, increased primarily as a result of two
acquisitions made by Contour. Contour acquired AmeriDyne Corporation
("AmeriDyne") effective March 1, 1997, and Atlantic effective July 1, 1996. Cost
of medical supplies sold as a percentage of medical supply revenue decreased to
approximately 67.6% during the quarter ended March 31, 1997, as compared to
approximately 100% of such revenue during the same period last year. The reduced
percentage is primarily a result of higher gross profit margins on the products
sold by AmeriDyne and Atlantic.
Management fees decreased from $1,030,882 in the quarter ended March 31, 1996 to
$632,580 in the quarter ended March 31, 1997, due to the number of facilities
which the Company manages. As of March 31, 1996, the Company was managing 24
facilities, and as of March 31, 1997, the Company was managing 11 facilities.
The Company has leased or purchased 13 facilities it managed at March 31, 1996.
Management anticipates that the number of facilities only managed by the company
will continue to decline as a result of acquisition of such facilities by the
Company.
Owning or leasing a facility is distinctly different from managing a facility
with respect to operating results and cash flows. For an owned or leased
facility, the entire revenue/expense stream of the facility is recorded on the
Company's income statement. In the case of a management agreement, only the
management fee is recorded. The expenses associated with management revenue are
somewhat indirect as the infrastructure is already in place to manage the
facility. Therefore, the profitability of managing a facility appears more
lucrative on a margin basis than that of an owned/leased facility. However, the
risk of managing a facility is that the contract generally can be canceled on a
relatively short notice, which results in loss of all revenue attributable to
the contract. Furthermore, with an owned or leased property the Company benefits
from the increase in value of the facility as its performance increases. With a
management contract, the owner of the facility maintains the equity value. From
a cash flow standpoint, a management contract is more lucrative because the
Company does not have to support the ongoing operating cash flow of the
facility.
General and administrative expenses for the three months ended March 31, 1997
were $10,026,455, representing 15% of total revenues, as compared to $6,848,798,
representing 19% of total revenues, for the three months ended March 31, 1996.
This increase in the dollar amount is due to the general and administrative
expenses related to operating the additional facilities owned or leased by the
Company and the acquisition by Contour of Atlantic and AmeriDyne.
For the quarter ended March 31, 1997, the Company incurred expense for income
taxes of $420,000, which represents an effective tax rate of 24%, as compared to
expenses for income taxes of $1,106,272, which represents an effective tax rate
of 39%, for the quarter ended March 31, 1996.
During the quarter ended December 31, 1996, the Company recorded an
extraordinary charge of $490,000, net of taxes of $300,000. The gross
extraordinary charge consists of $790,000 of charges associated with the early
extinguishment of approximately $9.2 million of long term debt.
The net income of $1,293,737 for the quarter ended March 31, 1997, decreased
from the net income of $1,736,580 for the quarter ended March 31, 1996. The
decrease of net income for the quarter ended March 31, 1997 is a result of the
increase in the cost of patient services as described above.
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<PAGE> 15
Most of the revenue from the management services division of the Company's
business is received pursuant to management agreements with entities controlled
by Messrs. Brogdon and Lane, two of the Company's officers and directors. These
management agreements have five year terms. However, each such agreement is
subject to termination on 60 days notice after the end of the third year of each
such agreement with or without cause by either the Company or the owners.
Therefore, Messrs. Brogdon and Lane have full control over whether or not these
management agreements, and thus the management service revenue, continue in the
future.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
1996
The Company's total revenues for the nine months ended March 31, 1997, were
$182,180,929 compared to $95,492,767 for the nine months ended March 31, 1996.
Due to the increased number of facilities owned or leased by the Company,
patient service revenue increased from $86,182,000 for the nine months ended
March 31, 1996, to $142,969,704 for the nine months ended March 31, 1997. The
Company was operating 86 facilities in the nine months ended March 31, 1997
compared to 54 for the nine months ended March 31, 1996. The cost of patient
services in the amount of $101,622,310 for the nine months ended March 31, 1997,
represented 71% of patient service revenue, as compared to $52,466,995 or 61% of
patient service revenue during the nine months ended March 31, 1996. This
increase is attributed to the Company acquiring skilled nursing facilities which
require more skilled care and to delays in Medicaid rate increases discussed
below.
Medical supply revenues increased from $5,294,915 during the quarter ended March
31, 1996, to $34,592,701 during the quarter ended March 31, 1997. These
revenues, which are revenues of Contour, a majority-owned subsidiary, increased
primarily as a result of two acquisitions made by Contour. Contour acquired
AmeriDyne effective March 1, 1996, and Atlantic effective July 1, 1996. Cost of
medical supplies sold as a percentage of medical supply revenue decreased to
approximately 67.5% during the quarter ended March 31, 1997, as compared to
approximately 100% of such revenue during the same period last year. The reduced
percentage is primarily a result of higher gross profit margins on the products
sold by AmeriDyne and Atlantic.
Management fees decreased from $2,834,677 in the nine months ended March 31,
1996 to $2,125,201 in the nine months ended March 31, 1997 because the Company
purchased or leased 13 facilities it managed at March 31, 1996. As of March 31,
1996, the Company was managing 24 facilities, and as of March 31, 1997 the
Company was managing 11 facilities.
General and administrative expenses for the nine months ended March 31, 1997
were $32,630,996, representing 18% of total revenues, as compared to
$15,619,316, representing 16% of total revenues, for the nine months ended March
31, 1996. This increase is due to the general and administrative expenses
related to operating the additional facilities owned or leased by the Company,
and the acquisition by Contour of Atlantic Medical.
For the nine months ended March 31, 1997, the Company received an income tax
benefit of $40,000 which represents an effective tax benefit of 25%, as compared
to expenses for income taxes of $3,854,135 which represents an effective rate of
39% for the nine months ended March 31, 1996.
-15-
<PAGE> 16
The net loss of $607,895 for the nine months ended March 31, 1997, compares to
net income of $6,115,311 for the nine months ended March 31, 1996. The net loss
for the nine months ended March 31, 1997, is a result of (1) an extraordinary
charge relating to a restructuring of debt, and (2) the increase in the cost of
patient services as described above, and the result of delays in annual Medicaid
rate increases, which are usually in effect on July 1 of each year. This year
the rate increases in Georgia were delayed until August 16, 1996, and the rate
increases in Tennessee were delayed until November 1, 1996. Most of the
long-term care facilities operated by the Company are located in these two
states. The delays in Medicaid rate increases are not related to the
extraordinary charge.
During the quarter ended December 31, 1996, the Company recorded an
extraordinary charge of $490,000, net of taxes of $300,000. The gross
extraordinary charge consists of $790,000 of charges associated with the early
extinguishment of approximately $9.2 million of long term debt.
Most of the revenue from the management services division of the Company's
business is received pursuant to management agreements with entities controlled
by Messrs. Brogdon and Lane, two of the Company's officers and directors. These
management agreements have five year terms, however, they are all subject to
termination on 60 days notice, with or without cause by either the Company or
the owners. Therefore, Messrs. Brogdon and Lane have full control over whether
or not these management agreements, and thus the management services revenue,
continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had a deficit of $1,230,244 in working capital
compared to a deficit of $1,496,160 at June 30, 1996.
During the nine months ended March 31, 1997, cash used by operating activities
was $14,635,461 as compared to $8,288,044 for the quarter ended March 31, 1996.
The $6,347,417 increase was primarily due to the increase in accounts receivable
for the nine months ended March 31, 1997 of $21,314,820. These increases in
non-cash assets were partially offset by increases in accounts payable and
accrued expense of $13,158,812.
Cash used in investing activities during the nine months ended March 31, 1997
was 32,518,396. The expenditures related to purchases of equipment, securities,
investments in subsidiaries and advances to affiliates.
Cash provided by financing activities during the nine months ended March 31,
1997 consisted of $37,196,676 in long term loans and $9,340,000 in issuance of
preferred stock. Cash used in financing activities consisted of $1,644,579 in
payments of long term debt and the purchase and retirement of common stock of
3,800,403.
The Company has no commitments to make material capital expenditures.
IMPACT OF PENDING FEDERAL HEALTH CARE LEGISLATION
Management is uncertain what the financial impact will be of the pending federal
health care reform package since the legislation has not been finalized.
However, based on information which has been released to the public thus far,
management does not believe that there will be cuts in reimbursements paid to
nursing homes.
-16-
<PAGE> 17
Legislative and regulatory action at the state and federal level has resulted in
continuing changes in the Medicare and Medicaid reimbursement programs. The
changes have limited payment increases under those programs. Also, the timing of
payments made under Medicare and Medicaid programs are subject to regulatory
action and governmental budgetary constraints. Within the statutory framework of
the Medicare and Medicaid programs, there are substantial areas subject to
administrative rulings and interpretations which may further affect payments
made under these programs. Further, the federal and state governments may reduce
the funds available under those programs in the future or require more stringent
utilization and quality review of health care facilities.
-17-
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Restated Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
RETIREMENT CARE ASSOCIATES, INC.
DATED: October 20, 1997 By: /s/ Darrell C. Tucker
-----------------------------------
Darrell C. Tucker, Treasurer
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 4-7 OF THE COMPANY'S FORM
10-Q FOR THE YEAR TO DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 356,197
<SECURITIES> 0
<RECEIVABLES> 38,012,600
<ALLOWANCES> 0
<INVENTORY> 8,211,753
<CURRENT-ASSETS> 58,347,184
<PP&E> 149,505,579
<DEPRECIATION> 0
<TOTAL-ASSETS> 244,234,983
<CURRENT-LIABILITIES> 59,577,428
<BONDS> 0
0
3,767,000
<COMMON> 1,429
<OTHER-SE> 33,011,720
<TOTAL-LIABILITY-AND-EQUITY> 244,234,983
<SALES> 179,687,606
<TOTAL-REVENUES> 182,180,929
<CGS> 124,978,914
<TOTAL-COSTS> 124,978,914
<OTHER-EXPENSES> 48,643,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,576,528
<INCOME-PRETAX> (157,895)
<INCOME-TAX> (40,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (490,000)
<CHANGES> 0
<NET-INCOME> (607,895)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
