<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
F O R M 10 - Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
------------------------------------------
For Quarter Ended June 30, 1997 Commission file number 0-17821
The Care Group, Inc.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 1-2962027
-------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 HOLLOW LANE, LAKE SUCCESS, NEW YORK, N.Y. 11042
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 516-869-8383
N/A
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed from
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES [X] NO [ ]
As of August 5, 1997, the registrant had 14,197,053 shares of common
stock, $.001 par value per share, outstanding.
Page 1 of 16 pages
<PAGE>
THE CARE GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
3-7 Financial Information
8-10 Notes to Consolidated Financial Statements
11-13 Management's Discussion and Analysis of Financial
Condition and Results of Operations
14-15 Other Information
16 Signature
Page 2 of 16 pages
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THE CARE GROUP, INC.
AND
SUBSIDIARIES
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
PART I
FINANCIAL INFORMATION
Page 3 of 16 pages
<PAGE>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONDENSEDCONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------- JUNE 30, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 55 $ 24
Marketable securities 15 21
Accounts receivable, net of allowances
of $4,791 at June 30, 1997 and $5,637 at
December 31, 1996 12,166 12,163
Inventories 844 887
Recoverable income taxes 1,901 1,875
Prepaid expenses and other current assets 264 366
-------- --------
Total Current Assets 15,245 15,336
-------- --------
PROPERTY AND EQUIPMENT - at cost 5,608 5,457
LESS - Accumulated depreciation 2,794 2,424
-------- --------
Net property and equipment 2,814 3,033
-------- --------
INTANGIBLES - Net 11,918 12,249
-------- --------
OTHER ASSETS 234 190
-------- --------
TOTAL ASSETS $ 30,211 $ 30,808
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,133 $ 1,546
Accounts payable 868 1,673
Accrued expenses 451 1,103
Other short-term debt 404 891
Note payable to bank -- 5,192
-------- --------
Total Current Liabilities 2,856 10,405
NOTE PAYABLE TO BANK 5,513 --
LONG-TERM DEBT, excluding current portion 1,920 1,974
-------- --------
TOTAL LIABILITIES 10,289 12,379
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value per share; 2,000
shares authorized; no shares issued and outstanding -- --
Common Stock, $.001 par value per share; 50,000 shares authorized; 14,197
and 12,998 shares issued and outstanding at June 30, 1997 and December 31,
1996, respectively 14 13
Additional Paid-In-Capital 25,861 23,905
Accumulated Deficit (5,812) (5,348)
-------- --------
20,063 18,570
Common Stock held in treasury, at cost - (40
shares at June 30, 1997 and December 31, 1996) (141) (141)
-------- --------
Total Stockholders' Equity 19,922 18,429
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,211 $ 30,808
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 16 pages
<PAGE>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
(In thousands, except per share data) 1997 1996
(Unaudited) (Unaudited)
---------- ----------
<S> <C> <C>
Net revenues $ 14,013 $ 17,929
Cost of revenues 7,705 9,782
-------- --------
Gross Profit 6,308 8,147
-------- --------
Operating expenses:
Selling, general and administrative expenses 6,300 7,688
Provision for doubtful accounts 1,098 5,710
Write-off of intangible and certain other assets -- 2,975
-------- --------
Total operating expenses 7,398 16,373
-------- --------
Operating loss (1,090) (8,226)
Other income (expense):
Gain on sale of Atlanta office 1,006 --
Interest income 1 7
Interest expense (381) (332)
-------- --------
Total other income and (expense) 626 (325)
Loss before benefit from income taxes (464) (8,551)
Benefit from income taxes -- (2,797)
-------- --------
Net loss $ (464) $ (5,754)
======== ========
Net loss per common and common
equivalent shares $ (.03) $ (.68)
======== ========
Weighted average common and
common equivalent shares outstanding 13,344 8,463
======== ========
</TABLE>
See notes to the condensed consolidated financial statements.
Page 5 of 16 pages
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THE CARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
1997 1996
(In thousands, except per share data) (Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
Net revenues $ 6,637 $ 8,694
Cost of revenues 3,465 5,481
------------ -------------
Gross profit 3,172 3,213
------------ -------------
Operating expenses:
Selling, general and administrative expenses 3,012 3,694
Provision for doubtful accounts 975 5,095
Write-off of intangible and certain other assets - 2,975
-------------- -------------
Total operating expenses 3,987 11,764
------------ -------------
Operating loss (815) (8,551)
Other income (expense):
Gain on sale of Atlanta Office 1,006 -
Interest income - 4
Interest expense (168) (171)
-------------- ---------------
Total other income and expense 838 (167)
Income (loss) before benefit from income taxes 23 (8,718)
Benefit from income taxes - (2,903)
--------------- --------------
Net income (loss) $ 23 $ (5,815)
============== ==============
Net income (loss) per common and
common equivalent shares $ - $ (.70)
============== ===============
Weighted average common and
common equivalent shares outstanding 14,008 8,311
============ =============
</TABLE>
See notes to the condensed consolidated financial statements.
Page 6 of 16 pages
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THE CARE GROUP, INC. AND SUBSIDIARIES
CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
(IN THOUSANDS) 1997 1996
- -------------- (UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (464) $(5,754)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 510 1,015
Provision for contractual allowances and bad debts 252 6,969
Provision for obsolete inventory and equipment -- 559
Write-off of intangible and certain other assets -- 2,654
Deferred income tax benefit -- (62)
Unrealized loss (gain) on marketable securities 6 (36)
Loss on sale of marketable securities -- 38
Changes in assets and liabilities;
Marketable securities -- 469
Accounts receivable (255) (2,898)
Inventories (7) 219
Recoverable income taxes (26) (2,999)
Prepaid expenses and other current assets 98 207
Other assets (44) (35)
Accounts payable (805) 786
Accrued expenses (652) (260)
Net purchases of rental equipment (250) (446)
------- -------
Net cash (used in) provided by operating activities (1,637) 426
------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment (10) (217)
Payments for intangible assets acquired -- (112)
Organization costs (23) (84)
Sale of Assets 377 --
------- -------
Net cash provided by (used in) investing activities 344 (413)
------- -------
FINANCING ACTIVITIES:
Proceeds from bank loan 1,258 150
Repayments on bank loan (937) (450)
Proceeds from other short-term debt 527 --
Repayment of other short-term debt (1,072) --
Proceeds from long-term debt -- 1,008
Repayment of long-term debt (409) (763)
Proceeds from issuance of common stock 1,957 --
Purchases of treasury stock -- (1,119)
Sale of treasury stock -- 600
------- -------
Net cash provided by (used in) financing activities 1,324 (574)
------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 31 (561)
CASH AND CASH EQUIVALENTS, beginning of period 24 561
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 55 $ --
======= =======
Supplemental disclosure of cash flow information:
Interest Paid $ 372 $ 315
======= =======
Taxes Paid $ 38 $ 157
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
Page 7 of 16 pages
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THE CARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The principal business of The Care Group, Inc. and its wholly-owned
subsidiaries (the "Company") is providing home health care, including infusion,
respiratory and other therapies, to patients with HIV (Human Immunodeficiency
Virus) Disease, AIDS (Acquired Immune Deficiency Syndrome), cancer, and other
diseases requiring high technology intermittent therapies. The Company engages
in mail order distribution of pharmaceuticals through Mail Order Meds, Inc., a
wholly owned subsidiary.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of The Care Group,
Inc. and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
1996 Annual Report on Form 10-K.
(A) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B) REVENUE RECOGNITION
Revenues are recognized at the time the service is provided to the patient. A
substantial majority of the Company's revenues are billed to third-party
payors. These revenues are recognized net of known contractual adjustments.
Payment from third-party payors is dependent upon the specific benefits
included in the patient's policy. The Company provides an allowance to cover
the difference between the Company's billable charges and expected collections
from third-party payors and patients.
(C) INCOME TAXES
The Company's deferred tax provision is determined under the liability method.
Under this method, deferred tax assets and liabilities are recognized based on
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which differences
are expected to reverse. Income tax expense is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax
assets or liabilities.
Page 8 of 16 pages
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(D) NET INCOME PER COMMON AND COMMON EQUIVALENT SHARES
Net income per common and common equivalent shares is computed by dividing net
income by the weighted average number of common and common stock equivalents
outstanding. Common stock equivalents result from dilutive stock options and
warrants.
(E) RECLASSIFICATIONS
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform to the 1997 presentation.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of investments in cash and cash
equivalents, short-term investments, trade accounts receivable, accounts
payable and debt obligations. At June 30, 1997 and December 31, 1996, the fair
value of the Company's financial instruments approximated the carrying value.
(G) CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term highly liquid investments which are
readily convertible into cash, and have maturities of three months or less.
(H) MARKETABLE SECURITIES
At June 30, 1997 and December 31, 1996, marketable securities consisted of
equity securities. The provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), requires a positive intent and ability to hold debt
securities to maturity as a precondition for reporting those securities at
amortized cost. Securities not meeting the condition are considered either
available-for-sale or trading, as defined, and are reported at fair value.
Trading securities are reported at fair value with adjustments recorded through
the consolidated statements of income. The investments owned by the Company are
considered trading securities as they are bought and held principally for the
purpose of selling them in the near term to generate a profit on short-term
differences in price.
(I) ACCOUNTS RECEIVABLE, NET
Accounts receivable, net, is comprised principally of amounts expected to be
collected from insurance companies for services provided.
(J) INVENTORIES
Inventories, consisting of supplies, durable medical equipment and
pharmaceuticals are stated at the lower of cost (first-in, first-out) or
market.
(K) PROPERTY AND EQUIPMENT
Leasehold improvements, furniture, equipment and equipment acquired under
capitalized leases are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the furniture and
equipment. Leasehold improvements are amortized over the period of the
respective leases or the estimated useful lives of the assets, whichever is
shorter. Equipment acquired under capitalized leases are depreciated on a
straight-line basis over the estimated useful lives or the lease term,
whichever is shorter.
Page 9 of 16 pages
<PAGE>
(L) INTANGIBLES
Intangible assets resulting from acquisitions primarily consist of the excess
of the acquisition cost over the fair value of the net assets acquired
(goodwill). Goodwill is amortized on a straight-line basis over twenty or forty
years. Other intangible assets are amortized over the estimated life of the
related asset.
NOTE 3 - NOTE PAYABLE BANK
As of June 30, 1997, the Company was in default of certain financial convenants
contained in the Loan Agreement, dated December 31, 1996 (the "Credit
Agreement"), between the Company and Key Bank of New York (the "Lender"). The
Lender waived the violation, but such waiver did not permit the Company to
borrow amounts in excess of the lesser of $6,450,000 or a certain formula,
which equaled $6,153,000 as of June 30, 1997. On July 31, 1997, the Company
terminated the Credit Agreement and entered into a new three (3) year revolving
credit agreement with Healthcare Financial Partners, Inc. (See Note 6 -
Subsequent Event).
NOTE 4 - LITIGATION
On March 5, 1997, the Company was served with a complaint from an investor
alleging breach of contract and breach of fiduciary duty. On or about June 19,
1996, the investor purchased 150,000 shares of the Company's common stock and
had a right to a demand registration 75 days after June 19, 1996. The Company
received a demand registration request on October 18, 1996. The investor, among
other things, is suing the Company for not registering the shares in a timely
manner. Management intends to vigorously defend such litigation and believes
that the outcome of such litigation will not have a material adverse effect on
the Company's financial position or results of operations.
The Company is a party to other litigation arising in the normal course of its
operations. It is the opinion of management of the Company that it has
meritorious defenses against all outstanding claims and that the outcome of
such litigation will not have a significant adverse effect on the Company's
financial position or results of operations. Further, management intends to
vigorously defend all such litigations.
NOTE 5 - SALE OF ATLANTA, GEORGIA OPERATION
On May 23, 1997, the Company sold certain assets of its Atlanta, Georgia office
including all licenses relating to its operations in Atlanta, Georgia. As a
result, the Company has discontinued all its operations in Atlanta, Georgia as
of June 30, 1997. The proceeds of the sale were approximately $1,585,000. The
carrying value of the assets sold was $377,000. In addition, the broker and
legal fees related to the sale amounted to approximately $202,000. The
operating losses of the Georgia operations for the three and six-month periods
ended June 30, 1997 were $646,000 and $309,000 and are included in operating
expenses for the quarter and the six month period.
NOTE 6 - SUBSEQUENT EVENT
On July 24, 1997, the Company entered into a three (3) year revolving term
credit agreement (the "New Credit Agreement") with HealthCare Financial
Partners, Inc. ("HCFP") and terminated the Credit Agreement with Key Bank of
New York. The New Credit Agreement provides for borrowings of up to $10
million. The borrowing base is equal to the lesser of $10 million or 80 percent
of eligible accounts receivable and other assets which as of July 31, 1997,
would equate to $6.9 million. Interest is computed at prime (8.50% at July 24,
1997) plus 2 percent. The New Credit Agreement is secured by certain assets of
the Company. Pursuant to the terms of the New Credit Agreement, the Company is
required to pay a monthly loan management fee.
On July 11, 1997, the Company converted a balloon note that was due on July 18,
1997 into a $575,000 three year term note with interest payable at 8 percent
per annum. The balloon note represented the final payment for an acquisition
the Company made in 1994.
Page 10 of 16 pages
<PAGE>
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Quarterly Report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and in other filings made by the
Company with the Securities and Exchange Commission, including without
limitation, the factors described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, under the heading "Certain Factors
Affecting Operations and Market Price of Securities." The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements which are made pursuant to the Private Securities Litigation Reform
Act of 1995, and, as such, speak only as of the date made.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three and six months ended June 30, 1997, should be read in
conjunction with the Management's Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 1996,
included in the Company's Annual Report on Form 10-K.
RESULTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30, 1997
Net revenues from operations for the six months ended June 30, 1997 decreased
to $14,013,000 as compared to $17,929,000 for the comparable period last year.
The decrease of $3,916,000 or 22 percent is attributable to the decrease in net
revenues in our Dallas and New York offices which accounted for about
$2,288,000 and $3,007,000 of the decrease, respectively. These decreases were
partially offset by an increase in net revenues in our Houston office and our
Mail Order Meds operation.
Cost of Revenues for the six months ended June 30, 1997 was 55%. This is a 6%
increase over the adjusted prior year cost of revenues of 49%. The increase is
due to the continued pricing pressure from managed care entities.
The Company's selling, general and administrative ("SG&A") costs as a
percentage of net revenues for the six months ended June 30, 1997 increased to
45 percent as compared to 43 percent for the same period in 1996. This increase
is primarily due to the decrease in revenues coupled with a smaller decrease in
SG&A costs. SG&A expenses of $859,000 related to the discontinued operations in
Georgia were incurred during this period.
The Company realized a $1,006,000 net gain from the sale of our Atlanta
operations. The gross sales price was $1,585,000. The broker and legal fees
related to this sale amounted to approximately $202,000, and the assets
carrying value was $377,000.
The net loss for the six months ended June 30, 1997 was $464,000 ($(.03) per
share) as compared with a net loss of $5,754,000 ($(.68) per share) for the
same period in 1996. Last year, the Company recorded a write-off of accounts
receivable, goodwill and other intangibles of $6,045,000, net of a tax benefit.
Page 11 of 16 pages
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RESULTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30, 1997
Net revenues for the three months ended June 30, 1997 decreased to $6,637,000
as compared to $8,694,000 for the comparable period last year. The decrease of
$2,057,000 or 24 percent is attributable to the decrease in net revenues in our
Dallas and New York offices which accounted for about $822,000 and $1,507,000
of the decrease, respectively, and the decrease in net revenues in our Atlanta
office which was sold in May 1997. The decrease was partially offset by an
increase in net revenues in our Houston office and Mail Order Meds operations.
Cost of revenues for the three months ended June 30, 1997 as a percentage of
net revenues was 52 percent as compared to 63 percent for the same period in
1996. The decrease in cost of revenue is due primarily to the write-off of
obsolete inventory in June of 1996 in the amount of $559,000 and adjustments
and write-offs of sales which reduced net revenues by $1,000,000.
The Company's selling, general and administrative ("SG&A") costs as a
percentage of net revenues for the three months ended June 30, 1997 increased
to 45 percent as compared to 42 percent for the same period in 1996. This
increase is due to the decrease in revenues coupled with no comparable decrease
in SG&A costs.
The Company realized a $1,006,000 net gain from the sale of our Atlanta,
Georgia operations. The gross sales price was $1,585,000. The broker and legal
fee related to this sale amounted to approximately $202,000. The carrying value
of assets sold was at $377,000. Our Atlanta operation showed an operating loss
for the quarter of $646,000.
The net profit for the three months ended June 30, 1997 was $23,000 ($0.00 per
share) as compared with a net loss of $5,815,000 ($(.70) per share) for the
same period in 1996. Last year, the Company recorded a write-off of accounts
receivable, goodwill and other intangibles of $6,045,000, net of a tax benefit.
Page 12 of 16 pages
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FINANCIAL CONDITION AND LIQUIDITY
Current assets have decreased to $15,245,000 at June 30, 1997 from $15,336,000
at December 31, 1996. The decrease of $91,000 in current assets is due
primarily to the decrease in prepaid expenses and other current assets.
At June 30, 1997, working capital was $12,389,000 as compared to $4,931,000 at
December 31, 1996. The increase of $7,458,000 is due to the reclassification of
a bank loan from current to long-term debt due to the New Credit Agreement
(see Note 3 and Note 6), the decrease in accounts payable of $805,000, decrease
in accrued expenses of $652,000 and the decrease in short-term debt of
$487,000.
On May 23, 1997, the Company sold its Georgia branch for approximately $1.6
million. The Georgia branch generated losses of $646,000 during the second
quarter of 1997. The proceeds from the sale of the Georgia branch were used to
repay debt. In addition, the Company is entering into a management agreement
for its California branch pursuant to which a third party will manage the
branch and will retain any profits or losses form such branch. The Management
Agreement will also provide that the third party will be able to purchase the
branch for nominal consideration. During the second quarter of 1997, the
California branch generated losses of $58,000.
The Company received a tax refund with respect to its 1996 loss, for fiscal
years 1995, 1994 and 1993, in the amount of $2.0 million on August 8, 1997
agreed to bank transaction report.
On July 24, 1997, the Company entered into a three (3) year revolving term
credit agreement with HealthCare Financial Partners, Inc. and terminated the
Credit Agreement with Key Bank of New York, the former Lender. The New Credit
Agreement (the "New Credit Agreement") provides for borrowing of up to $10
million. The borrowing base is equal to the lesser of $10 million or 80 percent
of eligible accounts receivable and other assets. Interest is computed at prime
(8.50% at July 24, 1997) plus 2 percent. Pursuant to such formula, the Company
may borrow a maximum of approximately $5.1 million, of which the Company
has already borrowed approximately $4.3 million. The New Credit Agreement is
secured by certain assets of the Company. Pursuant to the terms of the New
Credit Agreement, the Company is required to pay a monthly loan management fee.
On July 11, 1997, the Company converted a balloon note that was due on July 18,
1997 into a $575,000 three year term note with interest payable at 8 percent
per annum. The balloon note represented the final payment of an acquisition the
Company made in 1994.
Based on the historic rate of introduction of oral medications, as well as the
number of such products awaiting final approval from the Food and Drug
Administration, the Company expects that additional oral medications will be
brought to the market. The introduction of such medications may replace a
number of medications that are currently administered intravenously. If this
happens, the Company may see a decrease in net revenues from home infusion
therapies, which management believes may be offset by an increase in its mail
order medication operations.
Although all of the Company's revenues are currently being used to fund its
operations, the Company believes that the combination of the following items
could enable it to satisfy its debt and cash flow requirements in the
immediate future:
o The Company has entered into a new credit agreement with HealthCare
Financial Partners, Inc.
o The Company has raised an additional $2,000,000 through the
issuance of stock since December 31, 1996.
o On August 8, 1997, the Company received a tax refund of
approximately $2,000,000 attributable to the carryback of its 1996
loss to the tax years 1995, 1994 and 1993.
o The results of operations for the remainder of 1997 are anticipated
to provide ample cash flow for operations.
Page 13 of 16 pages
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 5, 1997, the Company was served with a complaint from an investor
alleging breach of contract and breach of fiduciary duty. On or about June 19,
1996, the investor purchased 150,000 shares of the Company's common stock and
had a right to a demand registration 75 days after June 19, 1996. The Company
received a demand registration request on October 18, 1996. The investor, among
other things, is suing the Company for not registering the shares in a timely
manner. Management intends to vigorously defend such litigation and believes
that the outcome of such litigation will not have a material adverse effect on
the Company's financial position or results of operations.
The Company is a party to other litigation arising in the normal course of its
operations. It is the opinion of management of the Company that it has
meritorious defenses against all outstanding claims and that the outcome of
such litigation will not have a significant adverse effect on the Company's
financial position or results of operations. Further, management intends to
vigorously defend all such litigations.
ITEM 2. CHANGE IN SECURITIES
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of June 30, 1997, the Company was in violation of certain financial
covenants contained in the credit agreement with Key Bank of New York, which
violations were waived. The Company, however was unable to borrow additional
funds. On July 31, 1997, the Company entered into a new credit agreement with
HealthCare Financial Partners, Inc. and terminated the Credit Agreement with
Key Bank of New York.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 Annual Meeting of the Stockholders of the Registrant was held on June
25, 1997 for the purpose of (i) electing one Class III director of the
Registrant for a period of three years, (ii) ratifying the selection of
Deloitte & Touche LLP as independent public accountants for the Registrant for
the fiscal year ending December 31, 1997, (iii) approving the amendment to the
Registrant's Certificate of Incorporation to increase the total number of
authorized shares of Common Stock from 30,000,000 to 50,000,000.
ELECTION OF DIRECTOR. With respect to the election of director, the
nominee was elected according to the following votes:
For Votes Against
--------- -------------
Derace Lan Schaffer MD 9,570,849 239,389
RATIFICATION OF AUDITORS. The ratification of the selection of Deloitte &
Touche LLP as independent public accountants for the Registrant for the fiscal
year ending December 31, 1997 was ratified according to the following votes:
For Against Abstentions
--------- ------- -----------
9,694,480 83,248 32,510
Page 14 of 16 pages
<PAGE>
EXHIBITS (CONTINUED)
AMENDMENT TO THE CERTIFICATE OF INCORPORATION. The proposal to amend the
Registrant's Certificate of Incorporation to increase the total number of
authorized shares of Common Stock from 30,000,000 to 50,000,000 was ratified
according to the following votes:
For Against Abstentions Non-Votes
--------- ------- ----------- ---------
9,240,835 460,242 109,161 4,186,815
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
a. EXHIBITS
(10) (i) Asset Purchase Agreement, dated May 14, 1997, by
and among CareSouth Home Services, Inc., The Care
Group, Inc., Careline of Georgia, Inc. and The Care
Group of Georgia, Inc.(a)
- ---------------------
a) Filed as an exhibit to the registrants current report on Form 8-K dated
May 23, 1997. Exhibit is incorporated herein by reference and Current
Report.
b. REPORTS ON FORM 8-K
The Company filed the following Current Reports on Form 8-K
during the quarter ended June 30, 1997. Form 8-K, dated May
23, 1997, was filed with the Securities and Exchange
Commission on June 1, 1997.
Page 15 of 16 pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Care Group, Inc.
(Registrant)
Dated: August 12, 1997
/s/ Pat H. Celli
-----------------------------
Pat H. Celli
Chief Financial Officer
(Principal Financial Officer) &
duly Authorized Signatory
Page 16 of 16 pages
