<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Amending Part I- Items 1 and 2)
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended December 31, 1996
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
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(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 December 31, 1996, 13,474,995 shares of Common Stock were outstanding.
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RETIREMENT CARE ASSOCIATES AND SUBSIDIARIES
Form 10-Q/A For the Quarter Ended December 31, 1996
INDEX Page(s)
PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction 3
Consolidated Statements of Operations
(Unaudited) - Three Months Ended
December 31, 1996 and December 31, 1995 4
Consolidated Statements of Operations
(Unaudited) - Nine Months Ended
December 31, 1996 and December 31, 1995 5
Consolidated Balance Sheets - (Unaudited)
December 31, 1996 and (Audited) June 30, 1995 6-7
Consolidated Statements of Cash Flows
(Unaudited) - Six Months Ended December 31,
1996 and December 31, 1995 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
Signatures 17
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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, Retirement Care
Associates, Inc. (the "Company") for the fiscal year ended June 30, 1996, File
No. 1-14114.
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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Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
for the Three Months Ended December 31, 1996 and 1995
December 31, December 31,
1996 1995
Revenues
Patient service revenue: $ 47,950,464 $ 28,342,120
Medical supply revenue 11,631,336 1,605,242
Management fee revenue:
From affiliates 446,334 783,669
From others 112,241 112,247
Other operating revenue 1,246,894 386,899
61,387,269 31,230,177
Expenses
Cost of patient services 31,638,661 17,608,280
Cost of medical supplies sold 7,745,113 1,831,267
Lease expense 3,233,666 1,729,516
General and administrative 11,539,580 4,314,937
Depreciation and amortization 1,320,618 588,175
Interest 2,807,304 1,343,981
58,284,942 27,416,156
Income before minority interest and
income taxes 3,102,327 3,814,021
Minority interest (157,500) (31,412)
Income before income taxes and
extraordinary item 2,944,287 3,782,609
Income taxes 1,119,034 1,462,598
Income before extraordinary item 1,825,793 2,320,011
Extraordinary item, less applicable
income taxes of ($516,240) (842,580) --
Net Income $ 983,213 $ 2,320,011
Income per common and common equiva-
lent share before extraordinary item .12 .19
Net income per common and common equivalent
share .06 .19
Weighted average shares outstanding 15,420,468 12,386,290
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Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations for
the Six Months Ended December 31, 1996 and 1995
December 31, December 31,
1996 1995
Revenues
Patient service revenue: $ 89,935,031 $ 54,177,449
Medical supply revenue 22,856,118 3,194,315
Management fee revenue:
From affiliates 1,252,501 1,581,171
From others 240,120 222,624
Other operating revenue 2,243,130 694,795
116,526,900 59,870,354
Expenses
Cost of patient services 62,119,227 33,652,390
Cost of medical supplies sold 15,212,286 3,420,339
Lease expense 5,855,218 3,480,931
General and administrative 21,146,069 8,770,518
Depreciation and amortization 2,421,211 1,077,789
Interest 5,182,905 2,272,833
111,936,916 52,674,800
Income before minority interest and
income taxes 4,589,984 7,195,554
Minority interest (352,500) (68,960)
Income before income taxes and
extraordinary item 4,237,484 7,126,594
Income taxes 1,610,244 2,747,863
Income before extraordinary item 2,627,240 4,378,731
Extraordinary item, less applicable
income taxes of ($516,240) (842,580) --
Net Income $ 1,784,660 $ 4,378,731
Income per common and common equiva-
lent share before extraordinary item .18 .35
Net income per common and common
equivalent share .12 .35
Weighted average shares outstanding 14,996,887 12,386,290
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Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets as of
December 31, 1996 and Audited at June 30, 1996
Unaudited Audited
December 31, June 30,
1996 1996
Assets
Current
Cash and cash equivalents $ 328,924 $ 45,365
Accounts receivable 36,296,497 20,556,920
Inventory 10,193,585 4,849,819
Deferred income taxes 470,193 461,214
Note and accrued interest receivable 636,250 713,750
Restricted Bond Fund 5,513,728 2,342,565
Prepaid expenses and other 2,975,460 1,791,442
Total current assets 56,414,637 30,761,075
Property and equipment 138,485,928 114,682,082
Other assets
Marketable equity securities 1,101,393 33,645
Investments in unconsolidated affiliates 645,249 496,800
Deferred lease and loan costs 9,797,224 7,665,891
Goodwill, net of accumulated amortiza-
tion 11,550,103 3,976,675
Notes and advances due from non-
affiliates 2,307,682 1,422,247
Notes and advances due from affiliates -- 14,316,661
Restricted bond funds 4,400,000 3,514,969
Other assets 2,751,108 2,687,602
Total other assets 32,552,759 34,114,490
$227,453,324 $179,557,647
-6-
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Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets as of
December 31, 1996 and Audited at June 30, 1996
Unaudited Audited
December 31, June 30,
1996 1996
Liabilities and Shareholders' Equity
Current liabilities
Lines of credit $ 3,500,000 $ 1,456,535
Current maturities of long-term de 16,491,228 2,055,880
Accounts payable 19,981,410 11,201,976
Accrued expenses 7,296,601 7,543,131
Income taxes payable -- 3,889,809
Deferred gain 40,000 40,000
Total current liabilities 47,309,239 26,187,331
Deferred gain 201,370 371,370
Deferred income taxes 1,387,000 1,465,877
Long-term debt, less current maturities 129,983,611 110,375,799
Minority interest 4,793,056 4,068,147
Redeemable convertible preferred stock 1,800,000 2,400,000
Shareholders' equity
Common stock, $.0001 par value;
300,000,000 shares authorized;
13,786,278 and 12,145,875 shares
outstanding 1,379 1,215
Preferred stock 6,230,000 8,765,250
Additional paid-in capital 38,918,417 26,972,655
Retained earnings (2,629,318) (929,877)
Treasury stock (541,430) (120,120)
Total shareholders' equity 41,979,048 34,689,123
Total Liabilities and shareholders'
equity $227,453,324 $179,557,647
-7-
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Retirement Care Associates, Inc.
Unaudited Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 1996 and 1995
December 31, December 31,
1996 1995
Operating activities
Net income $ 1,784,660 $ 4,378,731
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 2,421,211 1,077,789
Amortization of deferred gain (170,000) --
Minority interest 352,500 181,716
Deferred income taxes (87,856) --
Changes in current assets and liabilities
net of effects of acquisitions:
Accounts receivable (15,739,577) (12,491,771)
Inventory (5,343,766) (338,280)
Prepaid expense and other assets (1,247,524) (2,477,168)
Accounts payable and accrued expenses 4,643,095 8,427,971
Increase in deferred lease and loan
costs (2,711,399) (1,017,781)
Cash (used in) operating activities (16,098,656) (2,258,793)
Investing activities
Purchase of property and equipment (25,644,991) (39,301,488)
Issuance of notes receivable and
advances to affiliates 14,316,661 (2,018,200)
Investment in and advances to Atrium
Ltd. -- (655,253)
Restricted bond funds (4,056,194) --
Changes in marketable equity securities (1,067,748) (459,239)
Change in receivable (807,935) 1,141,900
Investment in unconsolidated subsidiaries (148,449) --
Cash (used in) investing activities (17,408,656) (41,292,280)
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Retirement Care Associates, Inc.
Unaudited Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 1996 and 1995
December 31, December 31,
1996 1995
Financing activities
Dividends on preferred stock (105,000) (150,000)
Redemption of preferred stock (600,000) --
Net proceeds from issuance of:
Line of credit 2,043,465 --
Common stock 70,676 295,198
Long-term debt 28,110,035 40,427,251
Preferred stock 9,340,000 --
Payments on long-term debt (1,267,894) (1,210,667)
Purchase and retirement of common stock (3,800,411) --
Cash provided by financing activities 33,790,871 39,361,782
Net (decrease) in cash and cash equiva-
lents 283,559 (4,189,291)
Cash and cash equivalents, beginning of
year 45,365 5,207,185
Cash and cash equivalents, end of year $ 328,924 $ 1,017,894
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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.
The Financial Accounting Standard Board has adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115). The Company has adopted this standard in
fiscal 1995. In management's opinion, adopting SFAS No. 115 did not materially
effect the Company's financial statements for the three months ended December
1995.
For purposes of computing earnings per share, net income is reduced for the 10%
cumulative preferred dividend on the Series AA preferred stock.
NOTE 2. 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.
NOTE 3. INVENTORIES
Inventories consist of the following at December 31, 1996:
Raw material $ 330,823
Work in process 62,985
Finished goods 9,799,777
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$10,193,585
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RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4: NOTES RECEIVABLE AND ADVANCES TO AFFILIATES
At December 31, 1996 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 Companies stock held by the
affiliates. (See Note 6)
NOTE 5: LONG-TERM DEBT
Long-term debt payable consisted of the following:
December 31, June 30,
1996 1996
Amounts outstanding under
Revenue Bonds secured by
retirement facilities $ 65,110,000 $ 59,986,000
Other debt secured by
retirement and nursing
facilities 54,123,531 39,848,938
Other debt 27,241,308 12,596,741
Totals 146,474,839 112,431,679
Current maturities 16,491,228 2,055,880
Total long-term debt $129,983,611 $110,375,799
NOTE 6: 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:
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RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 6: FACILITY ACQUISITION (Continued)
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 stockholders'
equity of the Company by $3,000,000.
NOTE 7: OTHER TRANSACTIONS
On August 6, 1996, Contour acquired all of the outstanding stock of Atlantic
Medical Supply Company, Inc. ("Atlantic Medical"), 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 Medical. 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 RCA. On January 10, 1997, Contour retired all
outstanding notes due to sellers of Atlantic Medical 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 RCA, with the balance funded from
Contour's existing line of credit with Barnett Bank. The loan from RCA 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, RCA exercised this conversion
right.
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RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7: 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 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 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 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
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
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.
For purposes of computing earnings per share, the Series F Preferred Stock has
been determined to be a common stock equivalent. Accordingly, weighted average
shares outstanding includes the common shares issuable upon conversion of these
shares after consideration of accumulated dividends.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
The Company's total revenues for the three months ended December 31, 1996, were
$61,387,269 compared to $31,230,177 for the three months ended December 31,
1995.
Due to the increased number of facilities owned or leased by the Company,
patient service revenue increased from $28,342,120 for the quarter ended
December 31, 1995, to $47,950,464 for the quarter ended December 31, 1996. The
Company was operating 81 facilities for the quarter ended December 31, 1996
compared to 42 for the quarter ended December 31, 1995. The cost of patient
services in the amount of $31,638,661 for the quarter ended December 31, 1996,
represented 65% of patient service revenue, as compared to $17,608,280 or 63% of
patient service revenue during the quarter ended December 31, 1995. 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 revenue increased from $1,605,242 during the quarter ended
December 31, 1995, to $11,631,336 during the quarter ended December 31, 1996.
These revenues, which are revenues of Contour Medical, Inc. ("Contour"), a
majority-owned subsidiary, increased primarily as a result of two acquisitions
made by Contour. Contour acquired AmeriDyne Corporation ("AmeriDyne") effective
March 1, 1996, and Atlantic Medical Supply Company, Inc. ("Atlantic") effective
July 1, 1996. Cost of medical supplies sold as a percentage of medical supply
revenue decreased to approximately 66.5% during the quarter ended December 31,
1996, 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.
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Management fees decreased from $895,916 in the quarter ended December 31, 1995
to $558,575 in the quarter ended December 31, 1996, due to the number of
facilities which the Company manages. As of December 31, 1995, the Company was
managing 25 facilities, and as of December 31, 1996, the Company was managing 18
facilities. The Company has leased or purchased 8 facilities it managed at
December 31, 1995. 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 December 31, 1996
were $11,539,580 representing 19% of total revenues, as compared to $4,314,937
representing 14% of total revenues, for the three months ended December 31,
1995. 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 quarter ended December 31, 1996, the Company incurred expense for income
taxes of $1,119,034 which represents an effective tax rate of 38%, as compared
to expenses for income taxes of $1,462,598 which represents an effective tax
rate of 39% for the quarter ended December 31, 1995.
The net income of $983,213 for the quarter ended December 31, 1996, is lower
than the net income of $2,320,011 for the quarter ended December 31, 1995. The
decrease in net income for the quarter ended December 31, 1996, is a result of
(1) an extraordinary charge relating to a restructure of debt, and (2) 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 increase 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.
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 subject to
termination on 60 days notice, after the end of the third year of the 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.
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SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
1995
The Company's total revenues for the six months ended December 31, 1996, were
$116,526,900 compared to $59,870,354 for the six months ended December 31, 1995.
Due to the increased number of facilities owned or leased by the Company,
patient service revenue increased from $54,177,449 for the six months ended
December 31, 1995, to $89,935,031 for the six months ended December 31, 1996.
The Company was operating 81 facilities in the six months ended December 31,
1996 compared to 42 for the six months ended December 31, 1995. The cost of
patient services in the amount of $62,119,227 for the six months ended December
31, 1996, represented 69% of patient service revenue, as compared to $33,652,390
or 67% of patient service revenue during the six months ended December 31, 1995.
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 $3,194,315 during the quarter ended
December 31, 1995, to $22,856,118 during the quarter ended December 31, 1996.
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 Corporation ("AmeriDyne") effective March 1, 1996, and
Atlantic Medical effective July 1, 1996. Cost of medical supplies sold as a
percentage of medical supply revenue decreased to approximately 66.5% during the
quarter ended December 31, 1996, 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 Medical.
Management fees decreased from $1,803,795 in the six months ended December 31,
1995 to $1,492,621 in the six months ended December 31, 1996 because the Company
purchased or leased 8 facilities it managed at December 31, 1995. As of December
31, 1995, the Company was managing 25 facilities, and as of December 31, 1996
the Company was managing 18 facilities.
General and administrative expenses for the six months ended December 31, 1996
were $21,146,069 representing 18% of total revenues, as compared to $8,770,518
representing 15% of total revenues, for the six months ended December 31, 1995.
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 six months ended December 31, 1996, the Company incurred expenses for
income taxes of $1,610,244 which represents an effective tax rate of 38%, as
compared to expenses for income taxes of $2,747,863 which represents an
effective rate of 39% for the six months ended December 31, 1995.
The net income of $1,784,660 for the six months ended December 31, 1996, is less
than the net income of $4,378,731 for the six months ended December 31, 1995.
The net income for the six months ended December 31, 1996, is a result of an
extraordinary charge relating to a restructuring of debt and the 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.
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<PAGE> 16
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 December 31. 1996, the Company had $4,105,398 in working capital compared to
$4,573,744 at June 30, 1996.
During the six months ended December 31, 1996, cash used by operating activities
was (16,098,656) as compared to (2,258,793) for the quarter ended December 31,
1995. The (13,839,863) decrease was primarily due to the increase in accounts
receivable for the six months ended December 31, 1996 of $11,739,577. These
increases in non-cash assets were partially offset by increases in accounts
payable and accrued expense of $4,643,095.
Cash used in investing activities during the six months ended December 31, 1996
was 17,408,656. The expenditures related to purchases of equipment, securities,
investments in subsidiaries and advances to affiliates.
Cash provided by financing activities during the six months ended December 31,
1996 consisted of $28,110,035 in long term loans and $9,340,000 in issuance of
preferred stock. Cash used in financing activities consisted of ($1,267,894) in
payments of long term debt and the purchase and retirement of common stock of
(3,800,411).
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.
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.
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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: July 29, 1997 By: /s/ Darrell C. Tucker
--------------------------------
Darrell C. Tucker, Treasurer
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