================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
As amended on November 13, 1998
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 15, 1998
CAREMATRIX CORPORATION
----------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 0-19815 04-3069586
- --------------------- --------------------------- ------------------------
<S> <C> <C>
State or other Commission File Number IRS Employer
jurisdiction of Identification No.
incorporation
</TABLE>
197 First Avenue
Needham, MA 02494
-----------------
(Address of principal executive offices)
(781) 433-1000
--------------
(Registrant's telephone number,
including area code)
================================================================================
<PAGE>
CAREMATRIX CORPORATION
ITEM 7. Financial Statements and Exhibits.
a) Financial statements of businesses acquired
The following historical statements are attached as Exhibits:
1. Audited Combined Financial Statements of the SeniorCare Group, Ltd.
and Affiliates for the three years in the period ended December 31,
1997, with Independent Auditors' Report Thereon.
2. Unaudited Combined Financial Statements of the SeniorCare Group,
Ltd. and Affiliates for the six month period ended June 30, 1998.
The Audited Combined Financial Statements referred to above include
the accounts of AllCare Pharmacy, Inc. which is an entity that will
not be acquired by the Company. The Unaudited Combined Financial
Statements include only those entities acquired or to be acquired by
the Company.
b) Pro forma financial information
The following tables set forth certain unaudited pro forma combined
financial information of the Company and the Sellers, after giving effect to the
Purchase Agreement, as if the Purchase Agreement had occurred at January 1,
1997, for income statement data and as if it had occurred at June 30, 1998, for
the balance sheet data. In addition, the pro forma financial information
reflects the following effects of the Purchase Agreement: (i) increased
amortization resulting from goodwill generated in the purchase accounting
treatment of the acquisition; (ii) increased depreciation from recording the
Sellers' assets at fair market value; (iii) the elimination of the results of
operations of an entity that will not be acquired from the Sellers; (iv) an
adjustment to the Company's interest income to reflect the assumed acquisition
as of January 1, 1997; and (v) adjustments to interest expense to reflect an
assumed increase in borrowings and the adjustment of the debt to fair value. The
pro forma financial information also includes the financial data of a facility
remaining to be acquired since it is expected that this transaction will be
completed before year-end.
The unaudited pro forma combined financial information does not purport
to be indicative of the results of operations that actually would have occurred
had the Purchase Agreement taken place on January 1, 1997, or that may be
expected to occur in the future. The unaudited pro forma combined financial
information should be read in conjunction with the historical CareMatrix
Corporation Form 10-K/A for the year ended December 31, 1997, dated April 10,
1998, and Form 10-Q for the quarter ended June 30, 1998, dated August 12, 1998,
and the SeniorCare Group, Ltd. and Affiliates financial statements which are
included in Item 7a) above.
2
<PAGE>
CAREMATRIX CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of June 30, 1998
<TABLE>
<CAPTION>
SeniorCare Pro forma Pro forma
CareMatrix Group, Ltd. adjustments combined
--------------- --------------- ------------------ ----------------
ASSETS
- ------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 130,950,458 $ 374,064 (1) $ (105,386,763) $ 25,937,759
Investment securities -- 1,946,752 (2) (1,946,752) --
Restricted cash 20,295,701 304,902 20,600,603
Receivables:
Accounts receivable, net 15,625,983 225,877 (1) 979,040 16,830,900
Accounts receivable-related party 12,721,398 -- 12,721,398
Prepaid expenses and other current assets 8,241,731 717,969 8,959,700
--------------- --------------- ------------------ ----------------
Total current assets 187,835,271 3,569,564 (106,354,475) 85,050,360
Lease acquisition costs, net 11,809,678 -- 11,809,678
Property and equipment, net 5,767,638 36,028,731 (3) 115,771,269 157,567,638
Other long-term assets, net 22,837,054 1,004,249 (3) (1,004,249) 22,837,054
Goodwill, net 21,314,278 -- (3) 17,470,187 38,784,465
--------------- --------------- ------------------ ----------------
Total assets $ 249,563,919 $ 40,602,544 $ 25,882,732 $ 316,049,195
=============== =============== ================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
Current portion of long-term debt -- $ 454,207 $ 454,207
Notes payable -- 577,422 577,422
Accounts payable $ 5,157,544 546,389 5,703,933
Accrued compensation 1,415,818 -- 1,415,818
Accrued liabilities 11,226,787 270,365 (3) $ 6,000,000 17,497,152
Other current liabilities 2,053,270 1,207,676 3,260,946
--------------- ------------------ ------------------ ----------------
Total current liabilities 19,853,419 3,056,059 6,000,000 28,909,478
Mortgages and notes payable -- 40,833,534 (3) 8,227,067 49,060,601
Convertible subordinated notes 115,000,000 -- 115,000,000
Other long-term liabilities 1,789,487 -- (1) 4,400,000 6,189,487
Shareholders' equity (deficit) 112,921,013 (3,287,049)(4) 3,287,049
(1) 3,968,616 116,889,629
--------------- ------------------ ------------------ ----------------
Total liabilities and
shareholders' equity $ 249,563,919 $ 40,602,544 $ 25,882,732 $ 316,049,195
=============== ================== ================== ================
</TABLE>
See accompanying notes to unaudited pro forma combined
financial statements.
3
<PAGE>
CAREMATRIX CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
For the six months ended June 30, 1998
<TABLE>
<CAPTION>
SeniorCare Pro forma Pro forma
CareMatrix Group, Ltd. adjustments combined
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Resident operations $ 51,990,896 $ 11,980,583 $ 63,971,479
Development fee income 11,821,453 -- 11,821,453
-------------- --------------- -------------- --------------
Total revenue 63,812,349 11,980,583 -- 75,792,932
-------------- --------------- -------------- --------------
Expenses:
Facility operating expenses 33,009,898 7,472,018 (1) (100,000) 40,381,916
Facility lease expense 7,725,901 -- 7,725,901
General and administrative 9,551,440 753,118 (2) (753,118) 9,551,440
Depreciation and amortization 1,600,844 618,850 (3) 1,164,922
(4) 249,574 3,634,190
-------------- --------------- --------------- --------------
Total expenses 51,888,083 8,843,986 561,378 61,293,447
-------------- --------------- --------------- --------------
Earnings from operations 11,924,266 3,136,597 (561,378) 14,499,485
Interest income (expense):
Interest income 4,491,346 -- (5) (2,845,443) 1,645,903
Interest expense (3,666,710) (1,813,617) (6) 170,512 (5,309,815)
-------------- --------------- --------------- --------------
Total interest income 824,636 (1,813,617) (2,674,931) (3,663,912)
-------------- --------------- --------------- --------------
Earnings before income taxes and preferred
dividends 12,748,902 1,322,980 (3,236,309) 10,835,573
Income taxes 5,226,777 -- (7) 529,192
(8) (1,294,523) 4,461,446
-------------- --------------- --------------- --------------
Earnings before preferred dividends 7,522,125 1,322,980 (2,470,978) 6,374,127
Preferred dividends 6,400 -- -- 6,400
-------------- --------------- --------------- --------------
Net earnings $ 7,515,725 $ 1,322,980 $ (2,470,978) $ 6,367,727
============== =============== =============== ==============
Basic shares outstanding 17,521,463 17,521,463
============== ==============
Basic earnings per share $ 0.43 $ 0.36
============== ==============
Diluted shares outstanding 18,095,732 (11) 18,242,636
============== ==============
Diluted earnings per share $ 0.42 $ 0.35
============== ==============
</TABLE>
See accompanying notes to unaudited pro forma combined
financial statements.
4
<PAGE>
CAREMATRIX CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
SeniorCare Pro forma Pro forma
CareMatrix Group, Ltd. adjustments combined
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues:
Resident operations $ 55,556,759 $ 23,774,631 (9) $ (2,054,333) $ 77,277,057
Development fee income 17,636,329 -- 17,636,329
-------------- -------------- -------------- ---------------
Total revenue 73,193,088 23,774,631 (2,054,333) 94,913,386
-------------- -------------- -------------- ---------------
Expenses:
Cost of sales -- 1,502,726 (9) (1,502,726) --
Facility operating expenses 38,385,616 14,248,856 (9) (527,785)
(1) (235,835) 51,870,852
Facility lease expense 8,515,197 -- 8,515,197
General and administrative 15,003,514 1,178,000 (2) (1,178,000) 15,003,514
Depreciation and amortization 2,315,189 1,126,608 (9) (3,566)
(3) 2,329,843
(4) 499,148 6,267,222
-------------- -------------- -------------- ---------------
Total expenses 64,219,516 18,056,190 (618,921) 81,656,785
-------------- -------------- -------------- ---------------
Earnings (loss) from operations 8,973,572 5,718,441 (1,435,412) 13,256,601
Other income (expense):
Interest income 5,421,078 202,509 (5) (2,104,848) 3,518,739
Interest expense (3,357,716) (3,487,923) (9) 40
(10) (4,150,506)
(6) 479,158 (10,516,947)
-------------- -------------- -------------- ---------------
Total other expense 2,063,362 (3,285,414) (5,776,156) (6,998,208)
-------------- -------------- -------------- ---------------
Earnings (loss) before income taxes and
preferred dividends 11,036,934 2,433,027 (7,211,568) 6,258,393
Income taxes 4,436,847 -- (7) 973,211
(8) (2,884,627) 2,525,431
-------------- -------------- -------------- ---------------
Earnings (loss) before preferred dividends 6,600,087 2,433,027 (5,300,152) 3,732,962
Preferred dividends 23,700 -- -- 23,700
-------------- -------------- -------------- ---------------
Net earnings (loss) $ 6,576,387 $ 2,433,027 $ (5,300,152) $ 3,709,262
============== ============== ============== ===============
Basic shares outstanding 17,144,338 17,144,338
============== ===============
Basic earnings (loss) per share $ 0.38 $ 0.22
============== ===============
Diluted shares outstanding 17,536,173 (11) 17,617,310
============== ===============
Diluted earnings (loss) per share $ 0.38 $ 0.21
============== ===============
</TABLE>
See accompanying notes to unaudited pro forma combined
financial statements.
5
<PAGE>
CAREMATRIX CORPORATION
Notes To Unaudited Pro Forma Financial Information
Notes to Unaudited Pro Forma Combined Balance Sheet
(1) To record the payment for all of the facilities to be acquired:
<TABLE>
<S> <C>
Cash $ 105,386,763
Issuance of stock options 3,968,616
Deferred purchase price 4,400,000
Working capital purchase price adjustment (979,040)
--------------
$ 112,776,339
==============
</TABLE>
(2) To eliminate assets not acquired.
(3) To adjust the assets and liabilities of SeniorCare Group, Ltd.
("SeniorCare") to their estimated fair value and recognize other
liabilities in connection with the purchase:
<TABLE>
<S> <C>
Net assets of SeniorCare at June 30, 1998,
less assets not acquired $ (5,233,801)
Write-up of fixed assets to fair market value 115,771,269
Write-off of deferred financing costs (1,004,249)
Legal and other acquisition related costs (6,000,000)
Adjustment to reflect debt at fair market value (8,227,067)
Goodwill recorded 17,470,187
-------------
$112,776,339
=============
</TABLE>
(4) To eliminate SeniorCare equity in accordance with purchase accounting.
Notes To Unaudited Pro Forma Combined Statement Of Earnings
<TABLE>
<S> <C>
(1) To eliminate certain direct expenses incurred by the Sellers which will
not be required to operate SeniorCare on an ongoing basis.
(2) To eliminate rent and fees charged by SeniorCare not included in the
combination and direct non-recurring expenses of the Sellers related to
the sale of SeniorCare.
(3) To reflect the net increase in depreciation and amortization due to the
adjustment of SeniorCare's assets to fair market value.
(4) To reflect the amortization of goodwill over a period of 35 years.
(5) Adjustment to reflect a reduction in interest income due to the assumed
use of $105.4 million in cash.
(6) Adjustment to reflect a decrease in interest expense due to the
adjustment of the acquired debt to fair market value.
(7) Adjustment to record taxes to reflect the change from S Corporations
to C Corporations.
(8) Tax effect of the adjustments.
(9) To eliminate the operations of a SeniorCare entity not acquired.
</TABLE>
6
<PAGE>
CAREMATRIX CORPORATION
<TABLE>
<S> <C>
(10) Adjustment to reflect an increase in interest expense due to an assumed
increase in borrowings.
(11) To reflect the dilutive impact of options issued in connection with the
Purchase Agreement.
</TABLE>
<TABLE>
<S> <C> <C>
c) Exhibits
20.01 Audited Combined Financial Statements of the SeniorCare
Group, Ltd. and Affiliates for the three years in the
period ended December 31, 1997, with Independent Auditors'
Report Thereon.
20.02 Unaudited Combined Financial Statements of the SeniorCare
Group, Ltd. and Affiliates for the six month period ended
June 30, 1998.
23.01 Consent of KPMG Peat Marwick LLP.
</TABLE>
7
<PAGE>
CAREMATRIX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAREMATRIX CORPORATION
By: /s/ Robert M. Kaufman
-------------------------
Robert M. Kaufman
Chief Executive Officer
Dated: November 12, 1998
8
EXHIBIT 20.01
Independent Auditors' Report
Board of Directors
SeniorCare Group, Ltd. and Affiliates:
We have audited the accompanying combined balance sheets of SeniorCare Group,
Ltd. and Affiliates (collectively referred to as the "Company") as of December
31, 1997 and 1996 and the related combined statements of earnings, stockholders'
and members' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of SeniorCare Group,
Ltd. and Affiliates as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick, LLP
June 9, 1998
Jericho, New York
<PAGE>
SENIORCARE GROUP, LTD. AND AFFILIATES
COMBINED BALANCE SHEETS
as of December 31, 1997
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,030,136 $ 1,641,071
Investment securities 1,530,685 1,235,598
Account receivable, net of allowance for doubtful
accounts of $62,846 in 1997 and $36,560 in 1996 494,554 314,800
Inventory 79,250 79,250
Restricted cash 522,169 230,291
Prepaid expenses 537,348 499,969
------------- ----------------
Total current assets 4,191,142 4,000,979
Property and equipment, net 31,219,683 26,572,888
Restricted cash - construction loan 1,500,000 --
Deferred financing costs, net 1,055,625 689,497
Intangible assets, net of accumulated amortization of
$5,925 in 1997 and $2,850 in 1996 12,075 15,150
------------- ----------------
Total assets $37,981,525 $ 31,278,514
============= ================
LIABILITIES AND STOCKHOLDERS' AND
MEMBERS' EQUITY
Current liabilities:
Notes payable $ 177,466 $ 364,158
Current installments of long-term debt 495,993 483,988
Accounts payable 711,445 769,506
Accrued expenses 445,338 269,336
Resident security deposits 1,428,429 1,336,956
------------- ----------------
Total current liabilities 3,258,671 3,223,944
Long-term debt, less current installments 37,741,019 32,122,647
-------------- ----------------
Total liabilities 40,999,690 35,346,591
-------------- ----------------
Stockholders' and members' equity:
Common stock 5,100 5,100
Additional paid-in capital 929,170 889,170
Retained earnings 18,290 (29,615)
Members' capital (3,970,725) (4,932,732)
------------- ----------------
Total stockholders' and members' equity (3,018,165) (4,068,077)
------------- ----------------
Total liabilities and stockholders' and members' equity $37,981,525 $ 31,278,514
============= ================
</TABLE>
See accompanying notes to combined
financial statements.
<PAGE>
SENIORCARE GROUP, LTD. AND AFFILIATES
COMBINED STATEMENTS OF EARNINGS
Years ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ----------------
<S> <C> <C> <C>
Revenues:
Assisted living revenues $ 21,639,385 $ 18,379,262 $ 15,811,144
Sales - pharmacy 2,049,307 1,334,692 --
Other 85,939 297,433 233,350
-------------- -------------- ----------------
Total revenue 23,774,631 20,011,387 16,044,494
-------------- --------------- ----------------
Cost of sales - pharmacy 1,502,726 975,739 --
-------------- -------------- ----------------
Facility operating expenses:
Residential operations 15,106,592 13,124,479 11,490,191
Facility development expenses 320,264 103,049 --
Depreciation and amortization 1,126,608 1,149,156 975,928
-------------- -------------- ----------------
Total facility operating expenses 16,553,464 14,376,684 12,466,119
-------------- -------------- ----------------
Income from operations 5,718,441 4,658,964 3,578,375
-------------- -------------- ----------------
Other income (expense):
Interest income 202,509 154,403 142,074
Interest expense (3,487,923) (3,184,828) (2,786,723)
-------------- -------------- ----------------
Total other expense, net (3,285,414) (3,030,425) (2,644,649)
-------------- -------------- ----------------
Net income $ 2,433,027 $ 1,628,539 $ 933,726
============== ============== ================
</TABLE>
See accompanying notes to combined
financial statements.
<PAGE>
SENIORCARE GROUP, LTD. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY
Years ended December 31
<TABLE>
<CAPTION>
Common Stock
-----------------------
Out- No Par Paid in Retained Members'
standing Value Capital Earnings Capital Total
----------- --------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 200 $ 100 $ 3,775 $ 397,737 $ (3,633,405) $ (3,231,793)
Capital contributions -- -- 288,194 -- 1,284,908 1,573,102
Distributions to owners -- -- -- -- (1,858,917) (1,858,917)
Distributions to affiliated entities -- -- -- -- (1,560,472) (1,560,472)
Net income (loss) -- -- -- (270,423) 1,204,149 933,726
----------- ----------- ----------- ------------- -------------- ---------------
Balance, December 31, 1995 200 100 291,969 127,314 (4,563,737) (4,144,354)
Capital contributions 200 5,000 597,201 -- 1,957,500 2,559,701
Distributions to owners -- -- -- -- (3,007,500) (3,007,500)
Distributions to affiliated entities -- -- -- -- (1,104,463) (1,104,463)
Net income (loss) -- -- -- (156,929) 1,785,468 1,628,539
----------- ----------- ----------- ------------- -------------- ----------------
Balance, December 31, 1996 400 5,100 889,170 (29,615) (4,932,732) (4,068,077)
Capital contributions -- -- 40,000 -- -- 40,000
Distributions to owners -- -- -- -- (894,061) (894,061)
Distributions to affiliated entities -- -- -- (11,769) (517,285) (529,054)
Net income -- -- -- 59,674 2,373,353 2,433,027
----------- ----------- ----------- ------------- -------------- ----------------
Balance, December 31, 1997 400 $ 5,100 $ 929,170 $ 18,290 $ (3,970,725) $ (3,018,165)
=========== =========== =========== ============= ============== ================
</TABLE>
See accompanying notes to combined
financial statements.
<PAGE>
SENIORCARE GROUP, LTD. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,433,028 $ 1,628,539 $ 933,726
Adjustment to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 1,126,608 1,149,156 975,928
Provision (benefit) for bad debts 26,286 5,800 (17,922)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (206,040) (248,015) 29,579
Increase in inventory -- (79,250) --
(Increase) decrease in prepaid expenses (37,379) (385,872) 269,494
Decrease in accounts payable (58,061) (43,394) (244,293)
Increase (decrease) in accrued liabilities 176,002 (680,164) 179,870
Increase (decrease) in customer deposits 91,473 311,025 (213,729)
(Increase) decrease in restricted cash - escrow (291,878) 1,008,416 (961,505)
-------------- ------------- -------------
Net cash provided by operating activities 3,260,039 2,666,241 951,148
-------------- ------------- -------------
Cash flows from investing activities:
Purchase of investment securities (3,554,613) (2,671,537) (2,283,327)
Maturities of investment securities 3,259,526 3,510,346 1,533,000
Purchase of land, buildings and equipment (5,618,399) (4,011,563) (6,574,517)
(Increase) in deferred financing costs (518,058) (196,725) (77,844)
(Increase) in capitalized intangible -- (18,000) --
-------------- ------------- -------------
Net cash used in investing activities (6,431,544) (3,387,479) (7,402,688)
-------------- ------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt 9,846,507 6,000,000 11,372,040
Repayments of long-term debt (4,152,838) (3,593,213) (7,614,723)
Proceeds from note borrowings -- 150,646 204,602
Repayments of note borrowing (249,984) (44,013) (44,000)
Restricted cash - construction loan (1,500,000) -- --
Capital contributions 40,000 2,559,701 632,194
Distributions to owners (894,061) (3,007,500) (1,858,917)
Distributions to affiliated entities (529,054) (1,104,463) 2,524,258
-------------- ------------- -------------
Net cash provided by financing activities 2,560,570 961,158 5,215,454
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (610,935) 239,920 (1,236,086)
Cash and cash equivalents at beginning at year 1,641,071 1,401,151 2,637,237
-------------- ------------- -------------
Cash and cash equivalents at end of the year $ 1,030,136 $ 1,641,071 $ 1,401,151
============== ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 3,518,664 $ 3,224,511 $ 2,810,290
============== ============= =============
</TABLE>
See accompanying notes to combined
financial statements.
<PAGE>
SeniorCare Group, Ltd. and Affiliates
Notes to Combined Financial Statements
December 31, 1997 and 1996
(1) Organization and Presentation
SeniorCare, Group, Ltd. and Affiliates (the Company) was incorporated in New
York in March 1992. SeniorCare Group, Ltd. was formed to develop name
recognition and promote the adult homes owned and operated by affiliates, all
under common ownership. The Company owns and operates six licensed adult homes,
a pharmacy, a home health care license in the metropolitan New York area and has
several adult homes under development. The residents for whom services are
provided are predominately private pay residents.
The entities included in the combined financial statements are as follows;
Westbury Home Operating Company LLC, Island Manor Operating Company LLC, Alandco
Development Corp. (S Corp), The Islandia Community for Seniors Operating Company
LLC d/b/a The Islandia Home, and The Islandia East, Shirlbart Real Estate
Operating Company LLC, All-Care Pharmacy, Inc. (S Corp), South Shore Associates,
LLC, and certain parcels of undeveloped land, construction in progress and
vehicles held by other entities not combined in these financial statements. The
undeveloped land, construction in progress and vehicles are owned by other
entities which are owned by principals who have common ownership of the Company.
These assets are expected to be transferred to the Company as capital
contributions in 1998.
The principals of the Company are also owners of other entities not included in
the aforementioned combination, since these other entities have no significant
assets, liabilities and/or operations to combine or the assets, liabilities
and/or operations are unrelated to the operating of the adult homes and related
services.
(2) Summary of Significant Accounting Policies
(a) Principles of Combination
The financial statements of SeniorCare Group, Ltd. and Affiliates are
combined, as each company is substantially owned and controlled by
common shareholders. All significant intercompany accounts and
transactions have been eliminated in the combination.
(b) Use of Estimates
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles. The preparation of the
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
<PAGE>
SeniorCare Group, Ltd. and Affiliates
Notes to Combined Financial Statements
December 31, 1997 and 1996
date of the financial statements and the reported amounts of revenue and
expenses during the period reported. Actual results could differ from
those estimates.
(c) Resident Agreements
Agreements with residents are on a month to month basis and are
cancelable by the residents with thirty days notice. The Company
typically obtains one month of rent as a security deposit. Such amounts
are reflected as resident security deposits in the accompanying balance
sheets.
(d) Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash or cash equivalents. Cash
equivalents at December 31, 1997 and 1996 consist of money market funds
and U.S. treasury bills with original maturities of less than 90 days.
(e) Inventory
Inventory is recorded at the lower of cost or market utilizing the LIFO
method (last-in first-out).
(f) Deferred Financing Costs
Costs incurred in connection with obtaining permanent financing for the
adult homes have been deferred and are amortized over the term of the
financing using the straight-line method which approximates the
effective interest method since all of the financings mature within
seven years of the funding date.
Deferred financing fees and accumulated amortization are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred financing fees $ 1,376,632 $ 858,574
Less: accumulated amortization (321,007) (169,077)
------------- ---------
$ 1,055,625 $ 689,497
============= =========
</TABLE>
(g) Property and Equipment
Property and equipment are recorded at the lower of cost or net
realizable value and include pre-acquisition costs, interest and
property taxes capitalized on long-term construction projects during the
construction period, as well as other costs directly related to the
development and construction of facilities. Depreciation is computed
using the straight-line method for buildings and improvements over the
estimated useful lives of the related assets ranging from 20 to 40
years.
<PAGE>
SeniorCare Group, Ltd. and Affiliates
Notes to Combined Financial Statements
December 31, 1997 and 1996
Depreciation is computed using an accelerated method for equipment,
vehicles and furniture over the estimated useful lives of the related
assets ranging from 5 to 10 years.
(h) Long-Lived Assets
The Company reviews long-lived assets and certain identifiable
intangibles to be held and used or disposed of for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(i) Income Taxes
The shareholders' have elected to be taxed pursuant to either the
provision of subchapter "S" of the Internal Revenue Service Code (IRC)
and New York State Tax Code or as limited liability corporations
(LLC's). Accordingly, no federal income taxes are imposed on the
Company. The taxable income from the Company is taxed directly to the
stockholders. Under subchapter "S" New York State imposes a tax based
upon the difference between individual and corporate tax rates. Such
amounts were immaterial in each of the years in the three-year period
ended December 31, 1997.
(j) Intangibles
Intangible assets are recorded at cost, less accumulated amortization.
The excess of purchase price over tangible assets of the Company's
pharmacy is being amortized on a straight-line basis over six years.
(3) Restricted Cash
In accordance with mortgage loan agreements described in note 6, the Company is
required to maintain escrow deposits for real estate taxes. As of December 31,
1997 and 1996, the Company has escrow balances of $522,169 and $230,291,
respectively.
Another $1,500,000 of restricted cash representing mortgage loan proceeds is
recorded as a long-term asset since such funds are restricted for the
construction of an addition to an adult home.
<PAGE>
SeniorCare Group, Ltd. and Affiliates
Notes to Combined Financial Statements
December 31, 1997 and 1996
(4) Investment Securities
Investment securities are debt securities which are expected to be held to
maturity, consisting primarily of U.S. Treasury obligations. These securities
are carried at amortized cost which approximate fair market value at December
31, 1997 and 1996. Substantially all of the Company's portfolio of investment
securities matures within six months.
(5) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and land improvements $ 2,504,772 $ 2,504,772
Building and building improvements 31,585,714 28,191,233
Furniture, equipment, and vehicles 3,783,465 3,451,019
Constructions in progress 2,122,885 224,439
------------- -------------
39,996,836 34,371,463
Less: accumulated depreciation (8,777,153) (7,798,575)
------------- -------------
$ 31,219,683 $ 26,572,888
============= =============
</TABLE>
In 1997, capitalized interest and capitalized real estate taxes amounted to
$1,632 and $200,000, respectively. During 1996, no amounts were capitalized for
interest and real estate taxes.
Included in land and land improvements, building and building improvements,
construction in progress and furniture, equipment and vehicles at December 31,
1997 and 1996 are assets held by uncombined affiliates of the Company. It is the
intention of management to transfer these assets to the Company as a capital
contribution in 1998. The assets are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 859,734 $ 859,734
Building, net 55,604 64,879
Construction in process 1,729,136 157,284
Vehicles, net 39,394 65,657
----------- ----------
$ 2,683,868 $1,147,554
=========== ==========
</TABLE>
<PAGE>
SeniorCare Group, Ltd. and Affiliates
Notes to Combined Financial Statements
December 31, 1997 and 1996
(6) Notes Payable
Notes payable is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Insurance payable (a) $ 102,466 $ 89,158
Notes payable - individual (b) 75,000 275,000
---------- ---------
$ 177,466 $ 364,158
========== =========
</TABLE>
(a) Insurance payable represents the remaining amounts due on the
financing of the Company's insurance over twelve months.
(b) Notes payable - individual represents amounts due on demand to an
employee of the Company secured by the residence of one of the
principals of the Company bearing, interest at 15% per annum.
(7) Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Notes payable - former partner represents amounts due to a former partner payable
in monthly payments of $2,098 bearing interest at 7% per annum due
September 1, 2001. One of the principals of the Company has
guaranteed the payment of this note $ 81,206 $ 99,978
Notes payable - vehicles represents amounts due on the purchase of vehicles payable
in monthly installments ranging from $1,036 to $1,114 bearing interest
from 8.75% to 10.4% maturing through February 1999 48,825 93,345
Five first mortgage loans secured by the respective adult home
property with monthly payments ranging from $51,798 to
$111,573 bearing interest from 9% to 10.8% with due dates
ranging from December 31, 2001 to August 1, 2006 with balloon
payments at maturity 37,660,474 32,413,312
</TABLE>
<PAGE>
SeniorCare Group, Ltd. and Affiliates
Notes to Combined Financial Statements
December 31, 1997 and 1996
<TABLE>
<S> <C> <C>
Temporary construction mortgage credit lines of $6,500,000
bearing interest at 1.5% over prime due November 4, 1999 with
monthly payments of interest only 446,507 --
----------------------------
Total long-term debt 38,237,012 32,606,635
Less current installments 495,993 483,988
----------------------------
$ 37,741,019 $32,122,647
============================
</TABLE>
The aforementioned mortgages have various covenants including limited personal
guarantees from a principal, cross-collateralization of properties between the
adult homes, prepayment terms on three mortgages which expire between December
1998 and July 2000, one-time mortgage transfer restrictions and fees and
prepayment penalties.
Principal maturities of debt are as follows:
<TABLE>
<S> <C>
1998 $ 495,993
1999 949,961
2000 547,881
2001 11,611,412
2002 12,539,776
Thereafter 12,091,989
==========
</TABLE>
(8) Capital Structure
The capital structure of the two S Corporations at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
Shares
Common issued
shares and out- Par
authorized standing Value
---------- -------- -----
<S> <C> <C> <C>
Alandco Development Corp. 200 200 None
All-Care Pharmacy, Inc. 200 200 None
-- ---
None
400 400
=== ===
</TABLE>
(9) Related Party Transactions
(a) Included in the residential operations in the accompanying
statements of earnings are rent and management fees of $ 1,194,000,
$629,000 and $518,000
<PAGE>
SeniorCare Group, Ltd. and Affiliates
Notes to Combined Financial Statements
December 31, 1997 and 1996
for the years ended December 31, 1997, 1996 and 1995, respectively. Such
fees represent the allocation of estimated corporate overhead of the
Company incurred by a related entity not included in the combined
financial statements.
(b) The licenses to operate the adult homes, pharmacy and home health
care services are in the names of the principals individually. The adult
home licenses enable each adult home to provide services to a maximum of
200 residents per adult home.
(c) The net effect of all intercompany advances with affiliates included
and excluded from the combined financial statements have been recorded
as a reduction of stockholders' and members' equity as distributions to
affiliated entities.
(d) The statement of operations of the Company excludes any compensation
expense to the principals. Distributions to the principals has been
presented as a reduction of members' equity in the statements of
stockholders' and members' equity as distributions to owners.
(10) Commitments and Contingencies
The Company has entered into contracts for expansions to its existing adult
homes and the construction of new adult homes with numerous contractors. Actual
costs incurred to date have been recorded as construction in process for these
adult homes. The costs for these contracts will be financed from restricted cash
(construction loan) and the unused temporary construction mortgage lines of
credit (note 7).
The Company is a defendant in several actions which arose in the normal course
of business. These matters are generally covered under insurance policies and,
in the opinion of management, the eventual outcome of these actions, to the
extent not covered by insurance, will not have a material effect on the
Company's financial position, results of operations or liquidity.
EXHIBIT 20.02
SENIORCARE GROUP, LTD. and AFFILIATES
UNAUDITED COMBINED BALANCE SHEET
As of June 30, 1998
<TABLE>
<CAPTION>
June 30, 1998
---------------
ASSETS
- ------
<S> <C>
Current assets:
Cash and cash equivalents $ 374,064
Investment securities 1,946,752
Restricted cash 304,902
Accounts receivable, net 225,877
Prepaid expenses and other current assets 717,969
---------------
Total current assets 3,569,564
Property and equipment, net 36,028,731
Other long-term assets, net 1,004,249
---------------
Total assets $ 40,602,544
===============
LIABILITIES AND SHAREHOLDERS'/MEMBERS' EQUITY (DEFICIT)
- -------------------------------------------------------
Current liabilities:
Current portion of long-term debt $ 454,207
Notes payable 577,422
Accounts payable 546,389
Accrued liabilities 270,365
Other current liabilities 1,207,676
---------------
Total current liabilities 3,056,059
Mortgages and notes payable 40,833,534
Shareholders'/members' equity (deficit) (3,287,049)
---------------
Total liabilities and shareholders'/members' equity $ 40,602,544
===============
</TABLE>
<PAGE>
SENIORCARE GROUP, LTD. and AFFILIATES
UNAUDITED COMBINED STATEMENT OF EARNINGS
For the six months ended June 30, 1998
<TABLE>
<CAPTION>
Six months ended
June 30, 1998
----------------
<S> <C>
Revenues:
Resident operations $ 11,980,583
---------------
Total revenue 11,980,583
---------------
Expenses:
Facility operating expenses 7,472,018
General and administrative 753,118
Depreciation and amortization 618,850
---------------
Total expenses 8,843,986
---------------
Earnings from operations 3,136,597
Interest expense (1,813,617)
---------------
Net earnings $ 1,322,980
===============
</TABLE>
<PAGE>
SENIORCARE GROUP, LTD. AND AFFILIATES
UNAUDITED COMBINED STATEMENT OF CASH FLOWS
For the Six Month Period Ended June 30, 1998
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
Cash flows from operating activities:
Net income $ 1,322,980
Adjustment to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 618,850
Changes in operating assets and liabilities:
Decrease in accounts receivable 8,930
Increase in prepaid expenses (180,261)
Decrease in accounts payable (111,356)
Decrease in accrued liabilities (174,973)
Decrease in customer deposits (220,753)
Decrease in restricted cash - escrow 215,067
-----------
Net cash provided by operating activities 1,478,484
-----------
Cash flows from investing activities:
Purchase of investment securities (1,946,752)
Maturities of investment securities 1,530,685
Purchase of land, buildings and equipment (5,346,389)
Increase in deferred financing costs (31,717)
-----------
Net cash used in investing activities (5,794,173)
-----------
Cash flows from financing activities:
Proceeds from long-term debt 3,408,732
Repayments of long-term debt (358,003)
Proceeds from note borrowings 577,422
Repayments of note borrowing (177,466)
Restricted cash - construction loan 1,500,000
Capital contributions 3,946,330
Distributions to owners (315,500)
Distributions to affiliated entities (4,878,835)
-----------
Net cash provided by financing activities 3,702,680
-----------
Net increase (decrease) in cash and cash equivalents (613,009)
Cash and cash equivalents at beginning at year 987,073
-----------
Cash and cash equivalents at end of the year $ 374,064
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,813,617
===========
</TABLE>
<PAGE>
SENIORCARE GROUP, LTD. and AFFILIATES
UNAUDITED STATEMENT OF CHANGES IN EQUITY AND MEMBERS' CAPITAL
For the Six Month Period Ended June 30, 1998
<TABLE>
<CAPTION>
Common Stock Additional
No Par Pain-In Retained Members'
Shares Value Capital Earnings Capital Total
----------- ------------ --------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 200 $ 100 $ 575,351 $ 33,250 $ (3,970,725) $ (3,362,024)
Contributions by owners 3,630,830 3,630,830
Distributions to affiliated entities (4,878,835) (4,878,835)
Net income 108,614 1,214,366 1,322,980
----------- ------------ --------------- -------------- ----------------- ----------------
Balance at June 30, 1998 200 $ 100 $ 575,351 $ 141,864 $ (4,004,364) $ (3,287,049)
=========== ============ =============== ============== ================= ================
</TABLE>
Independent Auditors' Consent
The Board of Directors
SeniorCare Group, Ltd.:
We consent to the inclusion of our report dated June 9, 1998, with respect to
the combined balance sheets of SeniorCare Group, Ltd. and affiliates as of
December 31, 1997 and 1996, and the related combined statements of earnings,
stockholders' and members' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, which report appears in the Form
8-K/A of CareMatrix Corp. dated November 13, 1998.
/s/ KPMG PEAT MARWICK LLP
Melville, New York
November 13, 1998
