<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): APRIL 10, 1997
----------------------------
CONTINUCARE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation
0-21910 59-2716023
- ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
100 SOUTHEAST 2ND STREET, 36TH FLOOR
MIAMI, FLORIDA 33131
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 350-7515
--------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 10, 1997, Continucare Corporation (the "Company") acquired
certain arthritis rehab centers and affiliated physician practices from Sheridan
Healthcorp, Inc. The acquisition included the purchase of AARDS, Inc. ("AARDS"),
a Florida corporation formerly known as Norman B. Gaylis, M.D., Inc., Rosenbaum,
Weitz & Ritter, Inc. ("RWR") and Arthritis & Rheumatic Disease Specialties, Inc.
("AARDS, Inc.") Such entities are located in Dade and Broward counties in South
Florida. The aggregate purchase was approximately $3.3 million.
The source of consideration paid by the Company was approximately
$800,000 from a private placement consummated by the Company in August 1996 and
$2.5 million from a revolving line of credit and term note from First Union
National Bank of Florida.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The audited financial
statements of AARDS (which includes the results of operations of AARDS, Inc.)
and RWR as of and for the years ended December 31, 1996 and December 31, 1995
are attached as Exhibit 7(a) and are incorporated herein by reference.
(b) PRO FORMA FINANCIAL INFORMATION. The unaudited pro forma balance
sheet of the Company as of March 31, 1997, and the unaudited pro forma income
statements for the periods from February 12, 1996 (inception) to June 30, 1996,
and the nine months ended March 31, 1997, are attached as Exhibit 7(b) and are
incorporated herein by reference.
(c) EXHIBITS
10.1 Stock Purchase Agreement dated April 10, 1997 between
Continucare Corporation, Continucare Physician Practice Management, Inc., AARDS,
Inc. and Sheridan Healthcorp, Inc.*
10.2 Stock Purchase Agreement dated April 10, 1997 by and among
Continucare Corporation, Continucare Physician Practice Management, Inc.,
Rosenbaum, Weitz & Ritter, Inc. and Sheridan Healthcorp, Inc.*
10.3 Stock Purchase Agreement dated April 10, 1997 by and among
Continucare Corporation, Continucare Medical Management, Inc., Arthritis &
Rheumatic Disease Specialties, Inc. and Sheridan Healthcare, Inc.*
23.1 Consent of Independent Auditors.
- --------------------
* Previously filed.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONTINUCARE CORPORATION
Date: June 24, 1997 By: /s/Charles M. Fernandez
-----------------------------------------------
Charles M. Fernandez
Chairman, Chief Executive Officer and President
<PAGE> 4
ATTACHMENT AND EXHIBIT INDEX
Attachment Description
---------- -----------
7(a) Audited Financial Statements of
AARDS and RWR as of and for the years
ended December 31, 1996 and December 31,
1995
7(b) Unaudited Pro Forma Balance Sheet of
the Company as of March 31, 1997, and
Unaudited Pro Forma Income Statement of
the Company for the Periods of February
12, 1996 (Inception) to June 30, 1996,
and the Nine Months Ended March 31, 1997
Exhibit Description
------- -----------
23.1 Consent of Independent Auditors
<PAGE> 5
Attachment 7(a)
AARDS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE> 6
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Shareholder of
AARDS, Inc.
Hollywood, Florida
We have audited the accompanying balance sheet of AARDS, Inc. as of December 31,
1996 and 1995, and the related statements of operations and retained earnings
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 AARDS, Inc. as of December 31,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ SPEAR, SAFER, HARMON & CO.
Miami, Florida
April 30, 1997
<PAGE> 7
AARDS, INC.
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash $ -- $ 38,953
Accounts receivable, net of allowances of approximately
$225,000 and $159,000, respectively 396,076 230,799
Other receivable 22,243 --
Prepaid expenses 10,291 1,415
--------- ---------
Total Current Assets 428,610 271,167
Furniture and Equipment, net 122,048 115,861
Deposits and Other Assets 6,370 11,281
--------- ---------
$ 557,028 $ 398,309
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit $ -- $ 120,000
Accounts payable and accrued expenses 92,354 58,326
Income taxes payable -- 29,000
Due to related parties 453,508 --
Deferred income taxes -- 48,662
Other current liabilities 3,020 16,266
--------- ---------
Total Current Liabilities 548,882 272,254
--------- ---------
Shareholders' Equity:
Common stock, $1.00 par value, 10,000 shares
authorized, 1,000 shares issued and outstanding 1,000 1,000
Subscription receivable -- (500)
Retained earnings 7,146 125,555
--------- ---------
Total Shareholders' Equity 8,146 126,055
--------- ---------
$ 557,028 $ 398,309
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
AARDS, INC.
Statements of Operations and Retained Earnings
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Patient Revenue $ 1,512,608 $ 1,701,538
----------- -----------
Operating Expenses:
Payroll and related costs 718,145 1,043,587
General and administrative 993,452 561,591
----------- -----------
1,711,597 1,605,178
----------- -----------
(198,989) 96,360
Other income 80,580 --
----------- -----------
(Loss) Income before provision for income taxes (118,409) 96,360
Provision for income taxes -- 33,200
----------- -----------
Net (Loss) Income (118,409) 63,160
Retained Earnings - Beginning of Year 125,555 62,395
----------- -----------
Retained Earnings - End of Year $ 7,146 $ 125,555
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
AARDS, INC.
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $(118,409) $ 63,160
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 44,446 37,703
(Increase) decrease in -
Accounts receivable, net (165,277) (78,942)
Prepaid expenses (8,876) 8,585
Deposits and other assets (17,332) 1,511
Increase (decrease) in -
Accounts payable and accrued expenses 34,028 (76,752)
Income taxes payable (29,000) 29,000
Due to related parties 453,508 --
Deferred income taxes (48,662) 48,662
Other current liabilities (13,246) (73,157)
--------- ---------
Net Cash Provided by (Used in) Operating Activities 131,180 (40,230)
--------- ---------
Cash Flows from Investing Activities:
Acquisition of property and equipment (50,633) (5,817)
--------- ---------
Cash Flows from Financing Activities:
Net (payments) borrowings on line of credit (120,000) 85,000
Collection of subscription receivable 500 --
--------- ---------
Net Cash (Used in) Provided by Financing Activities (119,500) 85,000
--------- ---------
(Decrease) Increase in Cash (38,953) 38,953
Cash - Beginning of Year 38,953 --
--------- ---------
Cash - End of Year $ -- $ 38,953
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 1,222 $ 8,377
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
AARDS, INC.
Notes to Financial Statements
Years Ended December 31, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - AARDS, Inc. (the "Company") was organized as a Florida
corporation in May 1991 under the name of Norman Gaylis, M.D. P.A.
The Company is a provider of arthritic and rheumatic health care.
ACCOUNTS RECEIVABLE AND REVENUES - Accounts receivable are primarily
amounts due under fee-for-service contracts from third party payors,
such as insurance companies, patients, and government health care
programs. These receivables are presented net of an estimated
allowance for contractual adjustments and uncollectible receivables.
Contractual adjustments result from the difference between the rates
for services performed and reimbursable amounts from government
programs and insurance companies for those services.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is computed using accelerated methods over the estimated
useful lives of the related assets which is five to ten years.
Leasehold improvements are amortized on a straight-line basis over
the lease-term which is five years.
CREDIT RISK - Financial instruments which potentially subject the
Company to concentrations of credit risk consist principally of
receivables from third party payors. The Company performs credit
evaluations of its patients and their insurance carriers, and
establishes allowances for potential losses as considered necessary,
in order to limit concentrations of credit risk and potential credit
losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments ("SFAS 107") requires disclosure of the fair
value of certain financial instruments. Cash, other current assets,
other assets, accounts payable and accrued expenses are reflected in
the accompanying financial statements at cost which approximates fair
value.
INCOME TAXES - The Company accounts for income taxes under Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires that deferred income taxes be recognized for
the tax consequences in future years of differences between the tax
basis of assets and liabilities and their financial reporting basis
at rates based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect
taxable income. For the year ended December 31, 1996, the Company
filed its tax return on a consolidated basis with its parent company.
1
<PAGE> 11
AARDS, INC.
Notes to Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
For that year the Company had a deferred tax asset of $76,500 and an
income tax benefit of $65,000. For the year ended December 31, 1995,
the provision for income taxes consisted of the following:
Current $ 29,000
Deferred 4,200
--------
$ 33,200
========
Federal $ 27,200
State 6,000
--------
$ 33,200
========
USE OF ESTIMATE - The preparation of financial statements in
conformity with generally accepted accounting principles require
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
At December 31, 1996 and 1995, property and equipment consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Furniture and equipment $ 256,217 $ 205,584
Leasehold improvements 10,369 10,369
--------- ---------
266,586 215,953
Accumulated depreciation and amortization (144,538) (100,092)
--------- ---------
$ 122,048 $ 115,861
========= =========
</TABLE>
2
<PAGE> 12
AARDS, INC.
Notes to Financial Statements (Continued)
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, 1996 and 1995, accounts payable and accrued expenses
consisted of the following:
1996 1995
---- ----
Accounts payable $35,311 $16,660
Accrued payroll 33,583 16,406
Deferred rent 23,460 25,260
------- -------
$92,354 $58,326
======= =======
NOTE 4 - LINE-OF-CREDIT
As of December 31, 1995, the Company has a line-of-credit with a bank
which bears interest at prime plus 1% (9.5% at December 31, 1995) and
is renewable annually. In January 1996, the line-of-credit was repaid
and terminated.
NOTE 5 - RELATED PARTY TRANSACTIONS
During 1996, the Company was a member of an affiliated group whereby
management and administrative expenses incurred by an affiliate are
allocated to the Company based on number of visits or physicians
depending on the type of expense. For the year ended December 31,
1996, approximately $176,000 of such costs were allocated to the
Company. In addition, all of the Company's cash receipts and
disbursements were administered by this affiliate for which the
Company was charged a fee of $135,000. These costs are included in
general and administrative expenses on the accompanying 1996
statement of operations and retained earnings. As of December 31,
1996 the total amount due to related parties was approximately
$454,000.
During 1995, all management and administrative expenses were incurred
directly by the Company.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
INSURANCE - The Company maintains insurance coverage for its
professional malpractice claims. Such insurance provides for coverage
to the extent individual claims do not exceed $1,000,000 per incident
and $7,500,000 in the aggregate per year.
3
<PAGE> 13
AARDS, INC.
Notes to Financial Statements (Continued)
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Due to the nature of its business, the Company from time to time
becomes involved as a defendant in medical malpractice lawsuits and
is subject to the attendant risk of substantial damage awards. The
Company maintains professional and general liability insurance on a
claims made basis in amounts deemed appropriate by management, based
upon historical claims and the nature and risks of its business.
There can be no assurance, however, that an existing or future claim
or claims will exceed the limits of available insurance coverage,
that any insurer will remain solvent and able to meet its obligations
to provide coverage for any such claims or that such coverage will
continue to be available at a reasonable cost to adequately and
economically insure the Company's operations in the future. A
judgment against the Company in excess of such coverage could have a
material adverse effect on the Company.
EMPLOYMENT AGREEMENTS - The Company has an employment contract with a
physician. Future annual minimum payments under the employment
contract are as follows:
1997 $ 450,000
1998 450,000
1999 450,000
2000 450,000
2001 450,000
----------
$2,250,000
==========
LEASE COMMITMENTS - The Company leases medical office facilities and
medical equipment under various non-cancelable operating leases.
Rental expense for the years ended December 31, 1996 and 1995 was
$128,674 and $95,623, respectively.
Approximate future annual minimum payments under operating leases are
as follows:
1997 $113,000
1998 111,000
1999 92,000
2000 92,000
2001 92,000
Thereafter 182,000
--------
Total $682,000
========
NOTE 7 - SUBSEQUENT EVENT
In April 1997, the Company sold its net assets to an unrelated party
for $1,900,000 in cash.
4
<PAGE> 14
ROSENBAUM, WEITZ AND RITTER, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE> 15
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Shareholder of
Rosenbaum, Weitz and Ritter, Inc.
Hollywood, Florida
We have audited the accompanying balance sheets of Rosenbaum, Weitz and Ritter,
Inc. as of December 31, 1996 and 1995, and the related statements of operations
and retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rosenbaum, Weitz and Ritter,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ SPEAR, SAFER, HARMON & CO.
Miami, Florida
April 30, 1997
<PAGE> 16
ROSENBAUM, WEITZ AND RITTER, INC.
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash $ -- $ 29,714
Accounts receivable, net of allowances of approximately
$363,000 and $161,000, respectively 453,202 551,740
Prepaid expenses 30,412 27,906
----------- -----------
Total Current Assets 483,614 609,360
Property and Equipment, net 442,221 387,839
Deposits and Other Assets 4,028 5,117
----------- -----------
$ 929,863 $ 1,002,316
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line-of-credit $ -- $ 400,000
Current portion of long-term debt 16,127 --
Accounts payable and accrued expenses 76,070 133,270
Income taxes payable -- 55,879
Due to related parties 578,952 --
Deferred income taxes -- 15,878
Other current liabilities -- 1,000
----------- -----------
Total Current Liabilities 671,149 606,027
Long-Term Debt, less current portion 59,249 --
----------- -----------
730,398 606,027
----------- -----------
Shareholders' Equity:
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding 1,000 1,000
Subscription receivable -- (400)
Retained earnings 198,465 395,689
----------- -----------
Total Shareholders' Equity 199,465 396,289
----------- -----------
$ 929,863 $ 1,002,316
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 17
ROSENBAUM, WEITZ AND RITTER, INC.
Statements of Operations and Retained Earnings
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Patient Revenue $ 2,422,753 $ 2,943,863
----------- -----------
Operating Expenses:
Payroll and related costs 1,362,834 1,556,351
General and administrative 1,258,902 1,215,638
----------- -----------
2,621,736 2,771,989
----------- -----------
(198,983) 171,874
Other income 1,759 --
----------- -----------
(Loss) Income Before Provision for Income Taxes (197,224) 171,874
Provision for Income Taxes -- 71,757
----------- -----------
Net (Loss) Income (197,224) 100,117
Retained Earnings - Beginning of Year 395,689 295,572
----------- -----------
Retained Earnings - End of Year $ 198,465 $ 395,689
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 18
ROSENBAUM, WEITZ AND RITTER, INC.
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $(197,224) $ 100,117
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 48,888 30,443
Decrease (increase) in -
Accounts receivable, net 98,538 (270,942)
Prepaid expenses (2,506) 24,847
Deferred taxes (15,878) 62,878
Deposits and other assets 1,089 20,613
(Decrease) increase in -
Accounts payable and accrued expenses (57,200) (62,200)
Income taxes payable (55,879) 55,879
Due to related parties 578,952 --
Other current liabilities (1,000) 1,000
--------- ---------
Net Cash Provided by (Used in) Operating Activities 397,780 (37,365)
--------- ---------
Cash Flows from Investing Activities:
Acquisition of property and equipment -- (376,589)
--------- ---------
Cash Flows from Financing Activities:
Payments of capital lease obligations (27,894) (44,192)
Net (payments) borrowings on line-of-credit (400,000) 400,000
Collection on subscription receivable 400 --
--------- ---------
Net Cash (Used in) Provided by Financing Activities (427,494) 355,808
--------- ---------
Decrease in Cash (29,714) (58,146)
Cash - Beginning of Year 29,714 87,860
--------- ---------
Cash - End of Year $ -- $ 29,714
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 6,821 $ 8,377
========= =========
Supplemental Disclosure of Non Cash Investing
and Financing Transactions:
Purchase of medical equipment with proceeds of
capital lease obligations $ 103,270 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 19
ROSENBAUM, WEITZ AND RITTER, INC.
Notes to Financial Statements
Years Ended December 31, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Rosenbaum, Weitz and Ritter, Inc. (the "Company") was
organized as a Florida corporation in September 1980 under the name
of Rosenbaum, Weitz and Ritter, P.A. The Company is a provider of
arthritic and rheumatic health care.
ACCOUNTS RECEIVABLE AND REVENUES - Accounts receivable are primarily
amounts due under fee-for-service contracts from third party payors,
such as insurance companies, patients, and government health care
programs. These receivables are presented net of an estimated
allowance for contractual adjustments and uncollectible receivables.
Contractual adjustments result from the difference between the rates
for services performed and reimbursable amounts from government
programs and insurance companies for those services.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is computed using accelerated method over the estimated
useful lives of the related assets which is five to ten years.
CREDIT RISK - Financial instruments which potentially subject the
Company to concentrations of credit risk consist principally of
receivables from third party payors. The Company performs credit
evaluations of its patients and their insurance carriers and
establishes allowance for potential losses as considered necessary in
order to limit concentrations of credit risk and potential credit
losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments ("SFAS 107") requires disclosure of the fair
value of certain financial instruments. Cash, other current assets,
other assets, accounts payable and accrued expenses are reflected in
the accompanying financial statements at cost which approximates fair
value.
INCOME TAXES - The Company accounts for income taxes under Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires that deferred income taxes be recognized for
the tax consequences in future years of differences between the tax
basis of assets and liabilities and their financial reporting basis
at rates based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect
taxable income. For the year ended December 31, 1996, the Company
filed its tax return on a consolidated basis with its parent company.
For that year, the Company had a deferred tax asset of $91,000 and an
income tax benefit of $68,700.
1
<PAGE> 20
ROSENBAUM, WEITZ AND RITTER, INC.
Notes to Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
For the year ended December 31, 1995, the provision for income taxes
consisted of the following:
Current $55,879
Deferred 15,878
-------
$71,757
=======
Federal $62,579
State 9,178
-------
$71,757
=======
USE OF ESTIMATE - The preparation of financial statements in
conformity with generally accepted accounting principles require
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
At December 31, 1996 and 1995, property and equipment consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Furniture and equipment $ 489,808 $ 489,808
Medical equipment 511,930 408,660
Leasehold improvements 274,037 274,037
---------- ----------
1,275,775 1,172,505
Accumulated depreciation and amortization 833,554 784,666
---------- ----------
$ 442,221 $ 387,839
========== ==========
</TABLE>
2
<PAGE> 21
ROSENBAUM, WEITZ AND RITTER, INC.
Notes to Financial Statements (Continued)
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, 1996 and 1995, accounts payable and accrued expenses
consisted of the following:
1996 1995
---- ----
Accounts payable $ 10,539 $ 36,758
Accrued payroll 65,531 96,512
-------- --------
$ 76,070 $133,270
======== ========
NOTE 4 - LINE-OF-CREDIT
As of December 31, 1995, the Company has a line-of-credit with a bank
which bears interest at prime plus 1% (9.5% at December 31, 1995) and
is renewable annually. In January 1996, the line-of-credit was repaid
and terminated.
NOTE 5 - OBLIGATIONS ON CAPITAL LEASES
Capital lease obligations for purchases of medical equipment mature
as follows:
Year Ending
December 31,
------------
1997 $16,128
1998 17,818
1999 19,684
2000 21,747
--------
75,377
Less current maturities 16,128
--------
$ 59,249
========
3
<PAGE> 22
ROSENBAUM, WEITZ AND RITTER, INC.
Notes to Financial Statements (Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS
During 1996, the Company was a member of an affiliated group whereby
management and administrative expenses were incurred by an affiliate
and allocated to the Company based on number of visits or physicians
depending on the type of expense. For the year ended December 31,
1996, approximately $273,000 of such costs were allocated to the
Company. In addition, all of the Company's cash receipts and
disbursements were administered by this affiliate for which the
Company was charged a fee of $273,000. As of December 31, 1996, the
total amount due to related parties was approximately $579,000.
During 1995, all management and administrative costs were incurred
directly by the Company.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
INSURANCE - The Company maintains insurance coverage for its
professional malpractice claims. Such insurance provides for coverage
to the extent individual claims do not exceed $1,000,000 per incident
and $7,500,000 in the aggregate per year.
Due to the nature of its business, the Company from time to time
becomes involved as a defendant in medical malpractice lawsuits and
is subject to the attendant risk of substantial damage awards. The
Company maintains professional and general liability insurance on a
claim made basis in amounts deemed appropriate by management, based
upon historical claims and the nature and risks of its business.
There can be no assurance however, that an existing or future claim
or claims will exceed the limits of available insurance coverage,
that any insurer will remain solvent and able to meet its obligations
to provide coverages for any such claims or that such coverage will
continue to be available at a reasonable cost to adequately and
economically insure the Company's operations in the future. A
judgment against the Company in excess of such coverage could have a
material adverse effect on the Company.
NOTE 8 - SUBSEQUENT EVENT
On April 10, 1997, the Company sold its net assets to an unrelated
party for $1,400,000 in cash.
<PAGE> 23
Attachment 7(b)
INTRODUCTION TO
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
The following unaudited pro forma consolidated balance sheet as of March 31,
1997 and the unaudited pro forma consolidated statements of income for the
period from February 12, 1996 (inception) to June 30, 1996 and for the nine
months ended March 31, 1997 reflect adjustments to Continucare Corporation's
(the "Company") historical financial position and results of operations to give
effect to the transactions discussed below as if such transactions had been
consummated at March 31, 1997, in the case of the consolidated balance sheet,
and at February 12, 1996 and July 1, 1996, respectively, in the case of the
consolidated statements of income. The accompanying unaudited pro forma
consolidated financial statements should be read in connection with the audited
consolidated financial statements and notes thereto of the Company for the
period from February 12, 1996 (inception) to June 30, 1996 as set forth in the
Company's form 10-KSB/A and with the interim unaudited financial statements and
notes thereto for the quarterly period ended March 31, 1997 as set forth in the
Company's form 10-QSB.
The unaudited pro forma consolidated financial statements have been prepared by
the Company based, in part, on the audited financial statements of the
businesses acquired as required under the Securities Exchange Act of 1934, which
financial statements are included in this Form 8-K, adjusted where necessary,
with respect to pre-acquisition periods, to the basis of accounting used in the
Company's consolidated financial statements. These unaudited financial
statements are not intended to be indicative of the results that would have
occurred if the transactions had occurred on the dates indicated or which may be
realized in the future.
ACQUISITION
On April 10, 1997, the Company, through Continucare Physician Practice
Management, Inc., a wholly-owned subsidiary, acquired all of the outstanding
stock of certain arthritis rehabilitation centers and affiliated physician
practices. The acquisition included the purchase of AARDS, INC., a Florida
corporation formerly known as Norman B. Gaylis, M.D., Inc., of Rosenbaum, Weitz
& Ritter, Inc., a Florida corporation, and of Arthritis & Rheumatic Disease
Specialties, Inc., a Florida corporation, from Sheridan Healthcare, Inc.
("Sheridan"). The aggregate purchase price was approximately $3.3 million of
which approximately $2.5 million was borrowed by the Company under the Company's
Revolving Note and Term Note.
As a result of the acquisitions, goodwill of approximately $1.8 million was
recorded, which is being amortized over 20 years.
<PAGE> 24
CONTINUCARE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
Acquisition
Continucare Acquisition Adjustments Pro Forma
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $11,664,505 $ -- $ (800,000)(1) $10,864,505
Accounts receivable, net 6,615,741 955,882 -- 7,571,623
Note receivable 139,333 -- -- 139,333
Prepaid expenses and
other current assets 185,183 22,243 -- 207,426
----------- ----------- ----------- -----------
Total current assets 18,604,762 978,125 (800,000) 18,782,887
Property and equipment, net 670,908 564,269 -- 1,235,177
Intangible assets, net 373,734 -- 1,817,758 (2) 2,191,492
Other assets, net 385,101 10,398 -- 395,499
----------- ----------- ----------- -----------
Total assets $20,034,505 $ 1,552,792 $ 1,017,758 $22,605,055
=========== =========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 35,881 $ 70,550 $ -- $ 106,431
Accrued expenses 1,063,998 -- -- 1,063,998
Accrued interest payable 40,280 -- -- 40,280
Due to related parties -- 1,258,659 (1,258,659)(3) --
Current portion of capital lease 20,491 -- -- 20,491
Income and other taxes payable 1,241,196 -- -- 1,241,196
----------- ----------- ----------- -----------
Total current liabilities 2,401,846 1,329,209 (1,258,659) 2,472,396
Notes payable 641,500 -- 2,500,000 (4) 3,141,500
Obligation under capital lease 215,484 73,873 (73,873)(3) 215,484
----------- ----------- ----------- -----------
Total liabilities 3,258,830 1,403,082 1,167,468 5,829,380
----------- ----------- ----------- -----------
Commitments and contingencies -- -- -- --
Shareholders' equity
Common stock 1,215 2,000 (2,000)(5) 1,215
Additional paid-in capital 14,823,469 -- -- 14,823,469
Retained earnings 1,950,991 147,710 (147,710)(5) 1,950,991
----------- ----------- ----------- -----------
Total shareholders' equity 16,775,675 149,710 (149,710) 16,775,675
----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $20,034,505 $ 1,552,792 $ 1,017,758 $22,605,055
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
<PAGE> 25
CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
The acquisition adjustments reflected on the unaudited pro forma consolidated
balance sheet are as follows:
(1) Represents the cash paid for the acquisition.
(2) Represents the goodwill that would have been recorded if the acquisition
had occurred on March 31, 1997, as follows:
Total purchase price $ 3,300,000
Net assets acquired 1,482,243
-----------
Goodwill $ 1,817,757
===========
(3) Represents the elimination of a liability not assumed by the Company upon
the acquisition.
(4) Represents long-term debt incurred to finance the purchase price.
(5) Represents the elimination of the equity accounts of the acquired entities.
<PAGE> 26
CONTINUCARE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) TO JUNE 30, 1996
<TABLE>
<CAPTION>
Acquisition
Continucare Acquisition Adjustments Pro Forma
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues, net $ 2,507,063 $ 1,475,760 $ -- $ 3,982,823
----------- ----------- ------------- -----------
Expenses
Payroll and employee benefits 973,412 780,367 24,788(1) 1,778,567
Provision for bad debt 242,664 59,408 -- 302,072
Professional fees 203,625 20,329 -- 223,954
General and administrative 54,430 729,896 -- 784,326
Depreciation and amortization 362 35,000 34,861(2) 70,223
----------- ----------- ----------- -----------
Total expenses 1,474,493 1,625,000 59,649 3,159,142
----------- ----------- ----------- -----------
Income (loss) from operations 1,032,570 (149,240) (59,649) 823,682
----------- ----------- ----------- -----------
Other (expenses) income
Interest expense (23,204) -- (85,069)(3) (108,273)
Other income -- 30,878 -- 30,878
Minority interest (32,686) -- -- (32,686)
----------- ----------- ----------- -----------
Total other (expenses) income (55,890) 30,878 (85,069) (110,082)
----------- ----------- ----------- -----------
Income (loss) before taxes 976,680 (118,362) (144,718) 713,600
Provision for income taxes 332,071 -- -- 332,071
----------- ----------- ----------- -----------
Net income (loss) $ 644,609 $ (118,362) $ (144,718) $ 381,529
=========== =========== =========== ===========
Earnings per common share
and common equivalent share $ 0.10 $ 0.06
=========== ===========
Earnings per common share
and common equivalent share
assuming full dilution $ 0.10 $ 0.06
=========== ===========
Weighted average shares
of common stock outstanding
(primary and fully diluted) 6,666,667 6,666,667
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
<PAGE> 27
CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) TO JUNE 30, 1996
The acquisition adjustments reflected on the unaudited pro forma consolidated
statement of income are as follows:
(1) Represents the difference between compensation rates that are effective
post-acquisition, pursuant to employment agreements entered into in
connection with the acquisition, and actual compensation expense recorded
by the acquired entities, as follows:
Compensation per agreements $ 764,058
Actual compensation 739,270
----------
Pro Forma adjustment $ 24,788
==========
(2) Represents amortization of the goodwill resulting from the acquisition
using the straight-line method over a useful life of 20 years as follows:
Goodwill $1,817,757
==========
Amortization period 20 years
Amortization expense for the period
from February 12, 1996 (inception)
to June 30, 1996 $ 34,081
==========
(3) Represents interest expense on the $2.5 million of funds borrowed for the
acquisition at an interest rate of 8.75%.
<PAGE> 28
CONTINUCARE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Acquisition
Continucare Acquisition Adjustments Pro Forma
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues, net $ 9,604,216 $ 2,951,521 $ -- $ 12,555,737
------------ ------------ ------------- ------------
Expenses
Payroll and employee benefits 4,425,929 1,560,734 49,577(1) 6,036,240
Provision for bad debt 833,107 118,816 -- 951,923
Professional fees 1,004,543 40,658 -- 1,045,201
General and administrative 518,417 1,459,792 -- 1,978,209
Depreciation and amortization 83,950 70,001 68,228(2) 222,179
------------ ------------ ------------ ------------
Total expenses 6,865,946 3,250,000 117,805 10,233,751
------------ ------------ ------------ ------------
Income from operations 2,738,270 (298,479) (117,805) 2,321,986
------------ ------------ ------------ ------------
Other (expenses) income
Interest income (expense) 149,648 -- (166,493)(3) (16,845)
Minority interest (162,233) -- -- 162,233)
Other income -- 61,754 -- 61,754
Loss on purchase of minority interest (9,081) -- -- (9,081)
------------ ------------ ------------ ------------
Total other (expenses) income (21,666) 61,754 (166,493) (126,405)
------------ ------------ ------------ ------------
Income (loss) before taxes 2,716,604 (236,725) (284,298) 2,195,581
Provision for income taxes 1,035,471 -- -- 1,035,471
------------ ------------ ------------ ------------
Net income (loss) $ 1,681,133 $ (236,725) $ (284,298) $ 1,160,110
============ ============ ============ ============
Earnings per common share
and common equivalent share $ 0.16 $ 0.11
============ ============
Primary weighted average shares
of common stock outstanding 10,747,596 10,747,596
============ ============
Earnings per common share
and common equivalent share
assuming full dilution $ 0.16 $ 0.11
============ ============
Fully diluted weighted average
shares of common stock outstanding 10,742,435 10,742,435
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
<PAGE> 29
CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1997
The acquisition adjustments reflected on the unaudited pro forma consolidated
statement of income are as follows:
(1) Represents the difference between compensation rates that are effective
post-acquisition, pursuant to employment agreements entered into in
connection with the acquisition, and actual compensation expense recorded
by the acquired entities, as follows:
Compensation per agreements $ 1,528,117
Actual compensation 1,478,540
------------
Pro Forma adjustment $ 49,577
============
(2) Represents amortization of the goodwill resulting from the acquisition
using the straight-line method over a useful life of 20 years as follows:
Goodwill $ 1,817,757
=============
Amortization period 20 years
Amortization expense for the
nine month period ended
March 31, 1997 $ 68,228
=============
(3) Represents interest expense on the $2.5 million of funds borrowed for the
acquisition at an interest rate of 8.75%.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Form 8-K/A being filed under the
Securities Exchange Act of 1934 by Continucare Corporation of our reports dated
April 30, 1997, relating to our examinations of the financial statements of
AARDS, Inc. and Rosenbaum, Weitz and Ritter, Inc. as of December 31, 1996 and
1995 and for the two year period then ended and appearing in the aforementioned
Form 8-K/A.
SPEAR, SAFER, HARMON & CO.
CERTIFIED PUBLIC ACCOUNTANTS
Miami, Florida
June 23, 1997
