SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended March 31, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _______ to _______
.
Commission File Number: 0-19815
-------
CAREMATRIX CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-3069586
---------------------------- ----------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
197 First Avenue, Needham, MA 02194
---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(617) 433-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
The Standish Care Company
Six New England Executive Park, Burlington, MA 01803
----------------------------------------------------
(Former name and address of Registrant)
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]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 2, 1997
----- --------------------------
Common Stock, $.05 par value 17,110,022 shares
<PAGE>
CAREMATRIX CORPORATION
Table of Contents
PART I - FINANCIAL INFORMATION
Page
FINANCIAL STATEMENTS ----
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 3
Statements of Operations for the quarters ended
March 31, 1997 and March 31, 1996 4
Statements of Cash Flows for the quarters ended
March 31, 1997 and March 31, 1996 5
Notes to Consolidated Financial Statements 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 11
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 11
-2-
<PAGE>
CAREMATRIX CORPORATION
CONSOLIDATED BALANCE SHEETS (unaudited)
as of March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
ASSETS
- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 54,371,495 $ 57,966,360
Restricted cash 1,625,879 836,745
Receivables:
Accounts receivable, net 6,343,092 3,959,233
Accounts receivable-related party 2,479,085 938,910
Other receivables 316,113 309,613
Prepaid expenses and other current assets 1,539,877 1,772,995
Assets held for sale 901,845 576,573
------------ ------------
Total current assets 67,577,386 66,360,429
Lease acquisition costs, net 4,500,277 2,753,332
Property and equipment, net 9,567,555 9,503,011
Due from stockholder -- 356,740
Deposits and other assets 3,356,211 3,129,974
Goodwill, net 25,701,945 25,961,658
------------ ------------
Total assets $110,703,374 $108,065,144
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 2,620,552 $2,776,522
Accounts payable 902,212 1,346,140
Accrued compensation 634,518 693,120
Accrued liabilities 5,025,218 4,565,503
Other current liabilities 1,668,271 539,265
------------ ------------
Total current liabilities 10,850,771 9,920,550
Long-term debt 8,911,221 8,903,156
Due to stockholder 1,382,874 --
Other long-term liabilities 656,895 1,152,960
Minority interest 53,355 52,921
Commitments and contingencies -- --
Stockholders' equity 88,848,258 88,035,557
------------ ------------
Total liabilities and stockholders' equity $110,703,374 $108,065,144
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
CAREMATRIX CORPORATION
STATEMENTS OF OPERATIONS
for the quarters ended March 31, 1997 and March 31, 1996
<TABLE>
<CAPTION>
Consolidated Combined
-------------- --------------
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenue:
Resident operations $ 9,455,101 $ 1,187,392
Resident operations---related party 406,668 --
Development fee income 1,394,678 --
Development fee income---related party 1,835,071 --
---------- ----------
Total revenue 13,091,518 1,187,392
---------- ----------
Expenses:
Facility operating expenses 6,611,389 1,042,776
Facility lease expense 564,920 274,244
Facility lease expense---related party 882,370 --
General and administrative 3,648,934 --
General and administrative---related party -- 1,753,545
Depreciation and amortization 509,822 26,761
---------- ----------
Total expenses 12,217,435 3,097,326
---------- ----------
Income (loss) from operations 874,083 (1,909,934)
Interest income (expense):
Interest income 773,658 --
Interest expense (275,442) --
Interest expense-related party -- (298,050)
---------- ----------
Total interest income (expense) 498,216 (298,050)
---------- ----------
Earnings (loss) before income taxes and preferred dividends 1,372,299 (2,207,984)
Income taxes 551,474 --
---------- ----------
Earnings (loss) before preferred dividends 820,825 (2,207,984)
Preferred dividends 6,225 --
---------- ----------
Net earnings (loss) applicable to common stockholders $ 814,600 $(2,207,984)
=========== ===========
Primary earnings (loss) per share applicable to common stockholders $ 0.05 $ (0.22)
=========== ===========
Weighted average shares outstanding 17,315,872 10,000,000*
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
* Reflects pro forma shares outstanding prior to combination of entities
under common control (see Note 1)
-4-
<PAGE>
CAREMATRIX CORPORATION
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1997 and March 31, 1996
<TABLE>
<CAPTION>
Consolidated Combined
-------------- --------------
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 814,600 $ (2,207,984)
Noncash items included in net earnings (loss):
Minority interest in net earnings 434 --
Depreciation of fixed assets 157,053 26,761
Amortization of intangible assets 352,769 --
Accretion of deferred rent liability 17,642 --
Accretion of bargain purchase option 84,101 --
Changes in current assets (3,676,820) 97,097
Changes in current liabilities (733,171) (348,852)
Changes in other assets 3,612 67,720
---------- ----------
Net cash used by operating activities (2,979,780) (2,365,258)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (221,597) (389,976)
Net change in assets held for sale (325,272) --
Change in other long-term assets (50,717) --
Increase in notes receivable (6,500) --
Change in restricted cash (146,785) --
Increase in lease acquisition costs (41,945) --
Lease acquisitions, net of cash acquired (331,973) --
---------- ----------
Net cash used by investing activities (1,124,789) (389,976)
---------- ----------
Cash flows from financing activities:
Net increase in amounts due stockholder 736,501 2,700,603
Repayment of debt (224,898) --
Other, net (1,899) --
---------- ----------
Net cash provided by financing activities 509,704 2,700,603
---------- ----------
Decrease in cash and cash equivalents (3,594,865) (54,631)
Cash and cash equivalents, beginning of period 57,966,360 144,643
---------- ----------
Cash and cash equivalents, end of period $ 54,371,495 $ 90,012
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
CareMatrix Corporation (the "Company") develops, manages and operates
assisted living facilities and various other health care facilities.
Prior to the merger described below, the Company consisted of a combination
of business entities which were operated since their date of inception (June 24,
1994) under common control by Abraham D. Gosman ("Mr. Gosman"), principal
stockholder of the Company, directly or through trusts.
On October 4, 1996, twelve wholly-owned subsidiaries of The Standish Care
Company ("Standish") were merged into certain business entities (the "CareMatrix
Affiliates") controlled by Mr. Gosman with the stockholders of the CareMatrix
Affiliates receiving approximately 92% (10,000,000 shares) of Standish common
stock (the "Merger"). Following the Merger, Standish changed its name to
CareMatrix Corporation. The Merger was accounted for as a reverse acquisition,
whereby the CareMatrix Affiliates were treated as the acquirer for accounting
purposes. Accordingly, the financial information for the quarter ended March 31,
1996 is that of the CareMatrix Affiliates prior to the Merger.
The accompanying interim unaudited financial statements have been prepared
by the Company 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 omitted pursuant to such regulations. The
financial statements reflect all adjustments and disclosures which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. All such
adjustments are of a normal recurring nature. The interim financial statements
should be read in conjunction with the Company's Form 10-K and Form 10-K/A for
the fiscal year ended December 31, 1996, for additional disclosures. The results
of operations for the interim period presented are not necessarily indicative of
the results that may be achieved for the full year. Certain reclassifications
have been made on the current quarter financial statements to conform to prior
quarter presentations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
-6-
<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. BASIS OF PRESENTATION (continued)
PRINCIPLES OF CONSOLIDATION (continued)
Effective January 1, 1997, the Company entered into management contracts
with a related party for two long-term care facilities. In addition, on January
1, 1997, the Company exercised its options to lease from a related party two
facilities that it had been managing. In February, the Company entered into a
lease with an unrelated third party to operate an assisted living facility in
Maryland.
2. ASSETS HELD FOR SALE
In connection with the Merger, the Company initiated a plan to dispose of
certain of the acquired Standish facilities. The net assets associated with
these facilities and the estimated costs to dispose of the facilities have been
separately recorded on the balance sheet.
The assets held for sale are comprised of two operating facilities
containing 179 beds which were previously owned by Standish. The net assets
include fixed assets and various other operating assets and current liabilities
and long-term debt associated with the facilities. The Company estimated the
fair market value of the facilities assuming an orderly disposal, less costs to
sell the facilities as well as an estimate of the results of the facilities'
operations through the expected date of disposition. The Company expects to
dispose of the facilities during 1997. During the first quarter of fiscal 1997,
the facilities generated $88,866 of losses which have been excluded from the
Company's consolidated statement of operations and accounted for as an
adjustment to the carrying amount of the assets.
3. RELATED PARTY TRANSACTIONS
As used herein, a related party is Chancellor Senior Housing Group, Inc. or
a company in which Mr. Gosman and/or members of the Company's senior management
and stockholders have an ownership interest in excess of 90%.
During the first quarter of 1997, the Company exercised its option, at a
cost of $1,800,000, to lease from a joint venture, of which Mr. Gosman is a
partner, a senior living facility in Connecticut which it had been managing.
General and administrative expenses for the first quarter of 1997 includes
rent expense of $81,198 for the Company's principal office space in Needham,
Massachusetts. The lessor of the office space is an entity principally owned by
Mr. Gosman.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a provider of assisted living services to the elderly. At
March 31, 1997, the Company operated 22 facilities in 7 states with a capacity
of approximately 1,700 residents, including 15 facilities owned or leased by the
Company or in which it has ownership interests and seven facilities managed for
third parties. In addition, the Company currently has under development 48
facilities with a capacity of approximately 5,200 residents. The Company
provides assistance with the activities of daily living and other personalized
support services in a residential setting for elderly residents who cannot live
independently but who do not need the level of medical care provided in a
skilled nursing facility. The Company also provides additional specialized care
and services to residents with certain low acuity medical needs and residents
with Alzheimer's disease or other forms of dementia. By offering this full range
of services, the Company is able to accommodate the changing needs of residents
as they age within a facility and develop further physical or cognitive
frailties.
The Company derives its revenues from three primary sources: (i) resident
fees for the delivery of assisted living services; (ii) management services
income for management of facilities; and (iii) fee income from the development
and construction of facilities. Resident fees typically are paid monthly by
residents, their families or other responsible parties. Resident fees and
management fees are recognized as revenues when services are provided.
Development fee revenue is recognized on the percentage of completion basis.
The Company classifies its operating expenses into the following
categories: (i) facility operating expenses; (ii) facility lease expense; (iii)
general and administrative expenses, which primarily include headquarters and
regional staff expenses and other overhead costs; and (iv) depreciation and
amortization. In anticipation of its growth plans, the Company has made
significant investments in its infrastructure through the addition of
headquarters and regional staff.
The following discussion, as well as other portions of this document,
includes certain statements which are or may be construed as forward looking
about the Company's business, sales and expenses, and operating and capital
requirements. Any such statements are subject to risks that could cause the
actual results or requirements to vary materially.
THE QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER ENDED MARCH 31,
1996
REVENUES. Net revenues for the first quarter of 1997 increased $11.9
million compared to the same period in 1996. The increase is due to increases of
$7.7 million in resident operations revenue primarily from new facilities, $3.2
million in development fee income and $1.0 million in management fee income.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
THE QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER ENDED MARCH 31, 1996
(continued)
Resident operations revenue increased $7.7 million in the first quarter of
fiscal 1997 compared to the same period in 1996. New facilities contributed $7.4
million of this increase. During the quarter ended March 31, 1996, the Company's
revenues were derived solely from the operation of an extended care facility in
Maryland.
Development fee income was $3.2 million in the first quarter of fiscal 1997
versus none in the same period in 1996 as the Company did not begin development
activity until the fourth quarter of 1996.
Management fee revenue for the first quarter of fiscal 1997 was $1.0
million compared to none in the same period in 1996 as the Company did not enter
into any management contracts until the second quarter of 1996.
FACILITY EXPENSES. Facility expenses for the first quarter of 1997
increased by $6.7 million compared to the same period in fiscal 1996. New
facilities contributed $6.5 million of this increase.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
first quarter of 1997 increased to $3.6 million from $1.8 million in the same
period of fiscal 1996. As a percentage of operating revenue, general and
administrative expenses in the first quarter of 1997 declined to 27.9% from
147.7% in the first quarter of 1996. The increase in expense is primarily due to
an increase in salary and benefits expenses relating to the hiring of additional
corporate staff in anticipation of the Company's growth plans.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first
quarter of 1997 increased $483,000 compared to the same period in fiscal 1996.
The increase is due primarily to $260,000 of amortization of goodwill incurred
as a result of the Merger and $207,000 related to new facilities.
INTEREST INCOME. Interest income for the first quarter of 1997 was $774,000
compared to none for the same period in fiscal 1996. The interest income was
primarily due to $656,000 earned as a result of investing cash balances from the
proceeds of the Company's secondary offering in October 1996 (see Note 9 of the
Notes to Financial Statements contained in the Company's 1996 Annual Report on
Form 10-K/A).
INTEREST EXPENSE. Interest expense for the first quarter of 1997 decreased
to $275,000 from $298,000 for the same period in 1996. The decrease is primarily
due to a $1.5 million decrease in average borrowings during 1997 compared to
1996.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
THE QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER ENDED MARCH 31, 1996
(continued)
INCOME TAXES. The Company's effective tax rate during the first quarter of
1997 was 40.2%. During the same period in 1996, the entities included in these
financial statements were S corporations or partnerships; accordingly, any
income tax liabilities were the responsibility of the respective owners or
partners. Provisions for income taxes and deferred assets and liabilities of the
taxable entities were not reflected since there was no taxable income on a
combined basis.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 1997 were $54.4 million compared to
$58.0 million at December 31, 1996, a decrease of approximately $3.6 million.
Cash used by operations was $3.0 million in the first quarter of fiscal
1997 compared to a use of $2.4 million for the same period in fiscal 1996. The
increase in the use of cash is due primarily to an increase in accounts
receivable due to new facilities and an increase in development fees receivable
of $3.2 million.
Cash used in investing activities was $1.1 million in the first quarter of
fiscal 1997 compared to a use of $390,000 for the same period in fiscal 1996.
The increase in the use of cash is due primarily to an increase of $325,000 in
assets held for sale and $332,000 invested in the acquisition of newly leased
facilities.
Cash flows provided by financing activities were $510,000 in the first
quarter of fiscal 1997 compared to $2.7 million for the same period in fiscal
1996. This decrease is due primarily to a decrease of $2.0 million in the net
obligation owed to the Company's principal stockholder and the repayment of debt
of $225,000.
The Company will require resources in the future to fund the planned
acquisition and development of additional assisted living, supportive
independent and extended care facilities as well as its working capital
requirements. The Company expects to fund these resource requirements with its
cash on hand as well as related party or third-party financing of assisted
living facilities. The Company and certain related parties are presently in
discussions with a number of third parties to secure commitments regarding
sources of additional financing. Furthermore, the Company intends to seek bank
borrowings and other debt or equity financings to provide additional sources of
capital in the future.
-10-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). The following documents are filed as part of this report:
11. Statement re computation of per share earnings
27. Financial Data Schedule
(b). Reports on Form 8-K
No report on Form 8-K was filed by the Registrant during the quarter ended March
31, 1997.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities and Exchange Act of 1934, as amended, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAREMATRIX CORPORATION
By: /s/ Robert M. Kaufman
----------------------------
Robert M. Kaufman
President
-12-
Exhibit 11
CAREMATRIX CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ended
-------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Weighted average primary shares outstanding
- -------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 17,109,959 10,000,000
Assumed conversion of preferred stock 24,986 --
Assumed exercise of stock options 180,927 --
Assumed exercise of warrants -- --
------------ ----------
17,315,872 10,000,000
============ ==========
Weighted average fully-diluted shares outstanding
- -------------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 17,109,959 10,000,000
Assumed conversion of preferred stock 24,986 --
Assumed exercise of stock options 229,482 --
Assumed exercise of warrants -- --
------------ ----------
17,364,427 10,000,000
============ ==========
</TABLE>
Note: This calculation is presented in accordance with Item 602 of Regulation
S-K although it is not required by APB Opinion No. 15.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 55,997,374
<SECURITIES> 0
<RECEIVABLES> 10,390,628
<ALLOWANCES> (1,252,338)
<INVENTORY> 0
<CURRENT-ASSETS> 67,577,386
<PP&E> 9,974,841
<DEPRECIATION> (407,286)
<TOTAL-ASSETS> 110,703,374
<CURRENT-LIABILITIES> 10,850,771
<BONDS> 8,911,221
0
249,000
<COMMON> 854,954
<OTHER-SE> 87,744,304
<TOTAL-LIABILITY-AND-EQUITY> 110,703,374
<SALES> 13,091,518
<TOTAL-REVENUES> 13,091,518
<CGS> 0
<TOTAL-COSTS> 8,058,679
<OTHER-EXPENSES> 4,158,756
<LOSS-PROVISION> 91,339
<INTEREST-EXPENSE> 275,442
<INCOME-PRETAX> 1,372,299
<INCOME-TAX> 551,474
<INCOME-CONTINUING> 814,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 814,600
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
