<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
---------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to .
------------------- ----------------
Commission file number 0-24110 .
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NEWCARE HEALTH CORPORATION
--------------------------
(Exact name of small business issuer as specified in its charter)
CAMELBACK CAPITAL, INC.
-----------------------
(Former name of Registrant)
NEVADA
------
(State or other jurisdiction of incorporation or organization)
86-0594391
----------
(IRS Employer Identification Number)
3600 OAK MANOR LANE, BLDG. 4, LARGO, FL 34644
---------------------------------------------
(Address of principal executive offices)
(813) 586-4262
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Number of shares outstanding of issuer's common stock as of August 13, 1996 was
11,042,524.
<PAGE> 2
NewCare Health Corporation
Index
<TABLE>
<CAPTION>
Part I. Financial Information PAGE
- ------- ----
<S> <C> <C>
Item 1: Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3
Notes to the Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information:
- --------
Item 1: Legal Proceedings 16
Item 2: Changes in Securities 16
Item 3: Defaults Upon Senior Securities 16
Item 4: Submission of Matters to a Vote of Security Holders 16
Item 5: Other Information 16
Item 6: Exhibits and Reports on Form 8-K. 16
Signature 17
Index to Exhibits 18
</TABLE>
<PAGE> 3
NewCare Health Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 386,518 $ 201,639
Accounts receivable, net of allowance
for doubtful accounts of $308,330 4,887,959 5,169,231
Inventory 1,160,662 1,169,404
Prepaid expenses 214,270 211,038
----------- -----------
Total current assets 6,649,409 6,751,312
Property and equipment, net 24,689,343 25,070,716
Excess of costs over net assets of businesses
acquired, net of accumulated amortization
of $466,105 6,825,823 6,925,531
Other assets, net 1,277,386 1,233,144
----------- -----------
$39,441,961 $39,980,703
Total assets =========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 6,765,851 $ 9,214,389
Notes payable 1,525,000 1,525,000
Borrowings under line-of-credit 244,491 166,491
Accounts payable 3,064,725 3,234,521
Accrued liabilities 1,871,249 1,891,878
Deferred revenue 64,225 61,246
Estimated third-party payor settlements 57,500 58,000
----------- -----------
Total current liabilities 13,593,041 16,151,525
Estimated third-party payor settlements 180,289 198,639
Deferred income taxes 194,000 ---
Deferred interest payable 126,000 ---
Long-term debt 16,835,663 16,260,560
Shareowners' equity
Common stock, $.02 par value; 50,000,000
shares authorized; 11,042,524 issued
and outstanding 220,850 213,350
Additional paid-in capital 9,573,224 9,055,724
Accumulated deficit (1,231,106) (1,849,095)
----------- -----------
8,562,968 7,419,979
Less treasury shares (70,168 shares), at cost (50,000) (50,000)
----------- -----------
Total shareowners' equity 8,512,968 7,369,979
----------- -----------
Total liabilities and shareowners' equity $39,441,961 $39,980,703
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
NewCare Health Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Three months ended Three months ended Six months ended Six months end
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenues $10,812,504 $ 9,372,200 $22,222,545 $17,406,532
Costs and expenses:
Compensation and related 5,045,700 3,749,984 10,379,841 7,008,184
Operating and administrative 4,772,733 4,610,053 9,860,129 8,608,551
Interest 493,503 418,050 979,676 740,716
Depreciation and amortization 443,694 396,560 842,578 734,538
----------- ----------- ----------- -----------
Total costs and expenses 10,755,630 9,174,647 22,062,224 17,091,989
----------- ----------- ----------- -----------
Net income before income taxes and
gain on restructuring of debt 56,874 197,553 160,321 314,543
Provision for income tax 20,000 --- 40,000 ---
----------- ----------- ----------- -----------
Net income before gain on restructuring
of debt 36,874 197,553 120,321 314,543
Gain on restructuring of debt, net of
income taxes of $194,000 497,668 --- 497,668 ---
----------- ----------- ----------- -----------
Net income $ 534,542 $ 197,553 $ 617,989 $ 314,543
=========== =========== =========== ===========
Income per common share before gain on
restructuring of debt $ 0.00 $ 0.02 $ 0.01 $ 0.03
Gain on restructuring of debt, net of
income taxes 0.05 0.00 0.05 0.00
----------- ----------- ----------- -----------
Earnings per share $ 0.05 $ 0.02 $ 0.06 $ 0.03
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 10,667,524 10,301,381 10,667,524 10,115,372
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
NewCare Health Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 617,989 $ 314,543
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 842,578 734,538
Provision for bad debts 222,086 17,400
Gain on debt restructuring, net of income taxes and
deferred interest payable (623,668) ---
Changes in assets and liabilities
Accounts receivable 59,186 (414,055)
Inventories 8,742 (35,872)
Prepaid expenses (3,232) 60,887
Estimated third party settlements (18,850) (89,711)
Accounts payable (169,796) (272,851)
Changes in other assets and liabilities, net (58,529) 81,579
----------- -----------
Net cash provided by (used in) operating activities 876,506 396,458
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition of affiliates, net
of cash acquired --- (1,612,200)
Net purchases of property and equipment (166,019) (353,782)
----------- -----------
Net cash used in investing activities (166,019) (1,965,982)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of borrowings (1,092,473) (848,916)
Loan proceeds 578,000 1,579,250
Loan costs (11,135) (2,271)
----------- -----------
Net cash provided by (used in) financing activities: (525,608) 728,063
----------- -----------
Net increase (decrease) in cash and cash equivalents 184,879 (841,461)
Cash and cash equivalents at beginning of period 201,639 926,157
----------- -----------
Cash and cash equivalents at end of period $ 386,518 $ 84,696
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
NEWCARE HEALTH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated balance sheet as of June 30,
1996, unaudited condensed consolidated statements of operations for the three
months and six months ended June 30, 1996 and 1995, and unaudited condensed
consolidated statements of cash flows for the six months ended June 30, 1996
and 1995 have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and note disclosures required by generally accepted
accounting principles for complete financial statements. It is suggested that
these financial statements be read in conjunction with the financial statements
and notes thereto included in the company's annual report on Form 10-KSB/A-1
for the year ended December 31, 1995. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements include all
adjustments necessary for a fair presentation of condensed consolidated
financial position and results of operations and cash flows for the periods
presented. The results of operations for the six months ended June 30, 1996 are
not necessarily indicative of the operating results for the full year.
B. EARNING PER SHARE
Earnings per share are based on the weighted average number of common stock
outstanding. Common share equivalents are not considered in the calculation of
per share data when their inclusion would be anti-dilutive.
C. ACQUISITIONS
On May 22, 1995, the Company acquired Cimerron Health Care, Inc. and Affiliates
("Cimerron"), which operates five skilled nursing facilities in Georgia.
On September 15, 1995, NewCare acquired through a lease Padgett Nursing Home, a
100-bed skilled nursing facility located in Tampa, Florida. This facility is
operated as Central Tampa Nursing Home.
D. ACCOUNTS RECEIVABLE
As of June 30, 1996, the Company's accounts receivable was $4,887,959,
including an allowance for doubtful accounts of $308,330.
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<PAGE> 7
E. INVENTORY
Inventory primarily consists of healthcare supplies and is stated at the lower
of cost (FIFO) or market value.
F. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The cost of additions and
substantial betterment of property and equipment is capitalized. The cost of
maintenance and repairs of property and equipment is charged to operating
expenses. Depreciation is provided using the straight-line method to allocate
the cost of property and equipment over estimated lives, generally ranging from
3 to 40 years.
G. OTHER ASSETS
Other assets consist primarily of excess consideration paid over the fair value
of net assets acquired in business combinations (goodwill), organization costs,
deferred financing costs and certain other deferred expenses. Deferred
financing cost are amortized using a method approximating the effective
interest method over the terms of the related borrowing. The other intangible
assets are amortized using the straight-line method over the periods of
expected benefit, generally 5 to 40 years. Goodwill is reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the sum of the expected future cash flows is less
than the carrying amount of the asset, a loss is recognized.
H. CURRENT PORTION OF LONG-TERM DEBT
The Company's current portion of long-term debt consists of $4,225,447 relating
to the Oak Manor facility's first mortgage, $420,000 for Oak Manor's second
mortgage, $1,500,000 notes payable related to the acquisition of Spectrum, and
other debt of $620,404.
I. LINE-OF-CREDIT
Spectrum has a revolving line-of-credit agreement with a financial institution
which provides, among other things, for monthly interest payments at the
financial institution's base rate plus one percent. Borrowing under the
line-of-credit are limited to a maximum of $250,000, of which $244,491 was
borrowed at June 30, 1996. Borrowing under the credit line is due on demand
and is collateralized by Spectrum's accounts receivable, inventory, equipment
and intangible assets.
J. NOTES PAYABLE
The Company did not make payment of $1,333,333 of the Spectrum acquisition
notes payable on January 2, 1996. The acquisition notes were primarily payable
to a Director and significant
5
<PAGE> 8
shareholder of the Company. The Company and the holders of these notes
executed an agreement restructuring the notes on June 25, 1996. This agreement
has been approved by the Board of Directors of the Company. The agreement
provides for a significant reduction of the cash payable and payment terms on
the Spectrum acquisition notes. Total debt of $5,618,672 related to the
Spectrum acquisition has been replaced with $5,000,000 of notes and capital.
The notes are payable as follows: $1,500,000 due September 24, 1996; $450,000
due January 1, 1998; $450,000 due January 1, 1999; and $1,850,000 payable in
quarterly installments commencing January 1997 based on the Spectrum
subsidiary's operating results and cash flow. In addition, the Company issued
375,000 shares of common stock to the holders of the Spectrum notes. The
$1,500,000 and $1,850,00 notes do not bear interest. Both $450,000 notes bear
interest at 8% payable monthly. The quarterly payments relating to the
$1,850,000 payment referred to above is the lesser of (a) 70% of the first
$900,000 of Spectrum's net profits for that quarter; or (b) 70% of the first
$900,000 of net cash flow generated by Spectrum from operations during that
quarter. To the extent that net profits or net cash flow exceed $900,000 for a
quarter, 100% of the amounts over $900,000 are also payable. These notes have
no maturity date and are secured by a pledge of the outstanding stock of
Spectrum and by a third mortgage on the Oak Manor facility. A default on the
restructuring agreement by the Company could have a material adverse impact
upon the Company.
Notes were issued to a group of individuals for $1,525,000 to fund the purchase
of the Cimerron Group in Georgia. The notes carry interest at 12% payable
monthly, and were due on April 30, 1996, and have not ben paid by the Company.
A second mortgage on the Dania Nursing Home was given to the lenders as
security for the debt. Refinancing of Dania is expected to be completed in
September 1996 and the proceeds will be used to pay these notes. As discussed
under "Capital Resources and Liquidity", no firm commitment has been signed for
this loan and there can be no certainty that such a commitment will be received
and closed. The note holders are all shareholders of the Company and two (2)
are Directors of the Company. Failure to refinance the Dania nursing facility
could have a material adverse affect upon the Company.
K. INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $67,000 available to offset future taxable income through 2009.
Provisions for income taxes for the six months ended June 30, 1996 were
estimated at $40,000. In addition, deferred income taxes of $194,000 was
provided for in respect to the gain on restructuring of debt of $691,668. As
of December 31, 1994, the Company had a net operating loss carryforward.
Accordingly, there was no provision for income
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<PAGE> 9
taxes for the six month period ended June 30, 1995.
L. CAPITAL STOCK
In accordance with the restructuring of the Spectrum acquisition notes on June
25, 1996, the Company issued 375,000 shares. No other shares were issued
during the six month period ended June 30, 1996.
M. STOCK OPTIONS AND WARRANTS
In connection with the acquisition of a skilled nursing home in 1990, an option
was issued to the seller to acquire up to 200,000 shares of common stock of
American Nursing Homes, Inc. (a subsidiary of NewCare), at an exercise price of
$1.00 per share. This option remains exercisable through December 1998.
During 1993, an option to acquire up to 33,500 shares of the Company's common
stock at an exercise price of $2.24 per share was granted to an officer of the
Company. This option remains exercisable through June 1998.
During September 1994, options were granted to the Company's President and
Executive Vice-President to acquire up to 50,000 shares, each, of the Company's
common stock at an exercise price of $4.75 per share. These options remain
exercisable through September 1999.
In connection with the acquisition of Cimerron on May 22, 1995, the Company
issued 152,000 warrants which are exercisable for one (1) share each of the
Company's common stock until June 1, 1998 with an exercise price of $3.50.
N. RELATED PARTY TRANSACTIONS
In 1995, Karen Hagan, wife of Robert Hagan, a director of the Company, loaned
$495,000 to the Company for its purchase of real property in Georgia and
provided refinancing for the Suncoast Nursing Home with a $600,000 mortgage.
All notes bear interest at 10% and are interest only through various dates in
1997 and 1998.
O. LEASE TERMINATION
The lease on Bay to Bay Nursing Home expired on May 31, 1996 and was not
renewed. The loss of this 75-bed skilled nursing facility is not expected to
have an material adverse effect on the Company's operations. For the six
months ended June 30, 1996 this facility had an operating loss of $33,866 as
compared to an operating profit of $80,126 for the same period in 1995.
7
<PAGE> 10
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Structure of Operations
NewCare Health Corporation currently operates through its three subsidiaries:
NewCare, Inc., Spectrum Health Services, Inc. (acquired September 1, 1994) and
Cimerron Health Care, Inc. (acquired May 22, 1995). The Company operates ten
(10) skilled nursing facilities, five (5) in Florida by NewCare, Inc. and five
(5) in Georgia by Cimerron, and has medical supply and pharmaceutical sales and
service operations in Florida, Georgia, Kansas and Texas through Spectrum.
Separate industry segment information in respect to Spectrum is provided below.
Events during the Three Months Ended June 30, 1996
The Registrant had net income of $534,542 for the three months ended March 31,
1996, including a gain from restructuring of debt, net of income taxes
of$497,668, compared to net income of $197,553 for the same period in 1995.
As mentioned in the notes to condensed consolidated financial statements, the
Company did not make payment of $1,333,333 of the Spectrum acquisition notes
payable on January 2, 1996. The acquisition notes were primarily payable to a
Director and significant shareholder of the Company. As mentioned previously,
the Company and the holders of these notes executed an agreement restructuring
the notes on June 25, 1996. This agreement has been approved by the Board of
Directors of the Company. A default on the restructuring agreement by the
Company could have a material adverse impact upon the Company.
Notes were issued to a group of individuals in the principal amount of
$1,525,000 to fund the purchase of the Cimerron Group in Georgia. The notes
carry interest at 12% payable monthly, and were due on April 30, 1996, and have
not ben paid by the Company. A second mortgage on the Dania Nursing Home was
given to the lenders as security for the debt. Refinancing of Dania is
expected to be completed in September 1996 and the proceeds will be used to pay
these notes. The note holders are all shareholders of the Company and two (2)
are Directors of the Company. Failure to refinance the Dania nursing facility
could have a material adverse affect upon the Company.
As discussed under "Capital Resources and Liquidity", the Company is
negotiating with several lenders to refinance three nursing facilities .
However, no firm commitment has been signed and there can be no certainty that
such a commitment will be received and closed.
8
<PAGE> 11
On January 17, 1996, Medicare Part B Financial Services notified Spectrum
Health Services, Inc. that it was claiming a recapture of overpayment to
Spectrum from the years 1990 through 1992 in the amount of $364,391.41. On
appeal this claim was reduced to $85,955.26. Interest is accruing at a rate
13.87% per annum. Spectrum has appealed this demand and is going through a
series of appeals and an administrative hearing in an attempt to have this
reversed. Spectrum has agreed to a series of payments of $22,540 per month
during the appeal period. In addition, during the three months ended June 30,
1996, Spectrum recorded an allowance for this claim of $86,000, with a
corresponding reduction in income for the period. If a favorable ruling is
received by Spectrum on its appeal, all monies paid in will be returned to
Spectrum, and the allowance mentioned above will be adjusted accordingly.
Management feels it has a very strong case and the recapture should be
reversed. However, there is no certainty that such a favorable ruling will be
received. If the ruling is unfavorable, then Spectrum would have to pay all
the funds plus interest to Medicare Part B Financial Services.
On July 23, 1996, the Company received correspondence from Ms. Karen Hagan
which purported to exercise an option pursuant to Section 8(c) of the
Supplemental Agreement among NewCare Health Corporation, et al. dated May 22,
1995 (the "Supplemental Agreement"). Section 8(c) of the Supplemental
Agreement provided that if the shares held by Ms. Hagan were not contained in a
registration statement filed with the United States Securities and Exchange
Commission prior to April 30, 1996, Ms. Hagan would have the option to require
the Company to purchase all of Ms. Hagan's shares of NewCare stock for
$2,500,000 within 60 days after receipt by NewCare of written notice of the
exercise of the option. NewCare filed a registration statement containing Ms.
Hagan's shares on May 6, 1996. It is management's opinion that the option
contained in Section 8(c) of the Supplemental Agreement is not available to Ms.
Hagan because Ms. Hagan failed to timely execute the registration statement and
thereby delayed its filing date. By letter dated August 2, 1996, the Company
was informed that Ms. Hagan had retained legal counsel to represent her in this
matter. Ms. Hagan is a significant shareholder of the Company and wife of
Robert Hagan, a director of the Company.
Occupancy Levels and Payor Mix
The average occupancy level, based on licensed beds, for the Company's skilled
nursing facilities during the six months ended June 30,1996 and 1995 was 89%
and 93% respectively. Excluding Central Tampa Nursing facility, which was
leased in September 1995, occupancy for the six months ended June 30, 1996 was
93%. As contemplated before Central Tampa was leased, a plan for renovating and
adding to patient care areas for this facility is in process. These
enhancements are expected to enhance Central Tampa's occupancy. The financing
of this project is to be
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provided by the lessor.
The Company's nursing facility revenues, exclusive of assisted living, medical
supply and pharmaceutical revenues, are divided into the following classes for
payor mix:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
---- ----
<S> <C> <C>
Medicaid 77% 69%
Medicare 12% 11%
Private pay 7% 15%
Other Payors 4% 5%
--- ---
100% 100%
</TABLE>
Medicaid is a major payor for the Company and it continues to have a
significant impact in the long-term care industry. The Company received 89% of
its nursing facility revenues for the six months ended June 30, 1996 from
Medicaid and Medicare, compared to 80% for the same period in 1995. Future
changes in these major payor programs could possibly have a negative impact on
the Company's operations and ultimately can affect the Company's profitability.
Results of Operations
The Registrant had net income of $617,989, including a gain from restructuring
of debt, net of income taxes of $497,668, and $197,533 for the six months ended
June 30, 1996 and 1995 respectively. The Company's operating revenues and
expenses have increased primarily due to its acquisition of Cimerron in May
1995, which was accounted for under the purchase method of accounting.
Net Revenues Revenues of the Registrant were $22,222,545 and $17,406,532 for
the six months ended June 30, 1996 and 1995, increasing $4,816,010 or 28.0%.
The revenues were approximately comprised of: NewCare, Inc. with $9,233,000
(42%), Spectrum with $7,353,000 (33%) and Cimerron with $5,637,000 (25%).
Operating Expenses Operating expenses for the six months ended June 30, 1996
and 1995 were 99.3% and 98.2% of revenues or $22,062,224 and $17,091,989,
respectively. Operating expenses consist of compensation and related expenses,
operating and administrative expenses, interest expenses, and depreciation and
amortization expenses. Compensation and related expenses and operating and
administrative expenses are the primary operating expenses of the Company. The
operating and administrative expenses decreased, as a percentage of revenues,
from 49.5% to 44.4% for the six month periods presented. The Company's
compensation and related expenses have increased from 40.3% to
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<PAGE> 13
46.7% of revenues for the six month periods presented. The mix of operations,
nursing home operations by NewCare and Cimerron, and medical and pharmaceutical
sales and services by Spectrum, has significant affects on the composition of
the Company's operating expenses.
Depreciation and amortization expenses for the three months ended June 30, 1996
and 1995 were $842,578 and $734,538, respectively. The change in the
depreciation and amortization expenses was primarily due to the acquisitions of
Cimerron in May 1995, as it resulted in increases in the Company's consolidated
assets. Approximately $186,000 of depreciation and amortization expense for
1996 is related to the Cimerron acquisition. The assets of the Company are
depreciated or amortized over their expected useful lives, ranging from 3 to 40
years.
Interest expenses were $979,676 for the six months ended June 30, 1996 and
$740,716 for the same period in 1995. Approximately $420,000 of interest
expense for 1996 is related to the Cimerron acquisition.
The Company's operating results may be affected by issues facing the long-term
care industry, such as occupancy levels, nursing personnel availability,
governmental reimbursement programs (Medicaid and Medicare), and the possible
reforms that may be taken by the federal government. The Registrant's ability
to manage costs, including compensation and related expenses, and payor mix can
significantly affect its future profitability.
Industry Segment Information
The Company operates principally in two industries: the operation of skilled
nursing facilities and, through its Spectrum subsidiary, the sale of medical
equipment, supplies and services to the long term health care industry.
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<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
(in Thousands)
<S> <C>
Net revenues from nonaffiliated customers:
Skilled nursing facilities $14,871
Spectrum 7,946
-------
22,817
Spectrum intersegment sales 594
-------
$22,223
=======
Net income (loss) before gain from
debt restructuring:
Skilled nursing facilities $ 260
Spectrum (100)
-------
$ 160
=======
Assets:
Skilled nursing facilities $33,978
Spectrum 5,683
-------
39,661
Eliminations 219
-------
$39,442
=======
Depreciation and amortization:
Skilled nursing facilities $ 555
Spectrum 288
-------
$ 843
=======
Capital expenditures:
Skilled nursing facilities $ 109
Spectrum 57
-------
$ 166
=======
</TABLE>
Seasonality The Company's revenues may fluctuate from quarter to quarter.
Fluctuations are the result of seasonal occupancy changes, the number of
calendar days per quarter and the timing of Medicaid and Medicare reimbursement
rate changes for individual nursing facilities.
Inflation and Labor Supply Nursing facilities are labor intensive and can be
affected by changes in wages and the supply of labor. Inflationary increases
in wages can have adverse affects on the Registrant's skilled nursing
operations in the short term until Medicaid and Medicare cost reports can be
filed for appropriate reimbursement rate adjustments for individual nursing
facilities. The supply of labor can have possible adverse affects on the
Company's net results of operations.
Capital Resources and Liquidity
The Company had net income of $617,989 for the six months ended June 30, 1996,
with a net increase in cash of $184,879. Cash flows increased $876,506 from
Operating Activities; decreased $166,019 from Investing Activities; and
decreased $525,608 from Financing Activities, resulting in an ending Cash
balance of $386,518 on June 30, 1996.
Net Cash provided by Operating Activities was $876,505 for the
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six months ended June 30, 1996. The Company's accounts payable decreased by
$169,796 while accounts receivable decreased by $59,186. Inventories decreased
by $8,742 during the six month period ended June 30, 1996. Depreciation and
amortization was $842,578 and the provision for bad debts was $222,086. The
change in other assets and liabilities, net decreased cash by $58,529.
Net cash used by Investing Activities was $166,019 for the six months ended
June 30, 1996 which consisted of purchases of property and equipment.
For the six months ended June 30, 1996, Financing Activities used net cash of
$525,608. The Registrant made payments of $1,092,473 on long-term debt that
were primarily for scheduled payments on the Company's mortgage debt and
equipment loans. Included in these payments was a $500,000 note payable which
matured in February 1996 and was refinanced with a loan from Retirement Care
Associates, Inc. (RCA). In addition the Company received $78,000 from its
line of credit.
Management believes that the existing cash and cash from operations will be
sufficient to fund its continued operations, excluding current maturities for
notes payable related to the acquisitions of Cimerron and Spectrum and first
mortgage of its Oak Manor facility. Cash reserves are not adequate to fund the
Company's Oak Manor first mortgage of $4,225,447, the $1,500,000 note payable
related to the restructuring of the Spectrum debt mentioned previously, and
$1,525,000 in short-term notes related to the Cimerron acquisition, which are
payable to shareholders of the Company. Should the Company be unable to
refinance these notes or borrow against its assets, its inability to pay these
notes would have significant adverse consequences upon the Company.
The current portion of long-term debt for mortgages payable as of December 31,
1995 is approximately $4,677,000, of which $4,321,000 is related to its Oak
Manor facility. The Company at this time has no specific plan to sell and
lease back any of its health care facilities. The Company does have plans and
its management is negotiating with several lenders to refinance its Oak Manor
facility in Largo, Florida, the Dania nursing home in Dania, Florida, and the
Windward nursing home in Flowery Branch, Georgia. It is management's belief
that the refinancing of these properties will generate approximately $4,300,000
in additional proceeds after paying off the existing debt on the properties.
These proceeds will be used to pay the $1,525,000 note related to the Cimerron
acquisition, pay the $1,500,000 note referred to above related to the Spectrum
acquisition and leave approximately $920,000 in working capital available for
the ongoing operations of the company. The refinancing plan has been submitted
to several lenders and a preliminary term sheet has been received
13
<PAGE> 16
from a real estate investment trust. Management believes that with current
market conditions this financing can be achieved and will satisfy its liquidity
needs and generate working capital for the Company. There is no assurance that
this financing will be secured. If the Company is unable to refinance the
notes due in 1996, it would have a material affect on the Company's ability to
continue operations.
The Company at this time has no material commitments for capital expenditures.
The Company's working capital (Current Assets less Current Liabilities) as of
June 30, 1996 was a negative $6,943,632. Current Liabilities of $13,593,041
consisted primarily of Current Portion of Long-term Debt of $6,765,851,
Accounts Payable of $3,064,725, notes payable of $1,525,000 and Accrued
Liabilities of $1,871,249. The Current Assets included Cash of $386,518,
Accounts Receivable, Net of $4,887,959 and Inventory of $1,160,662.
If needed, management believes that the Spectrum and Cimerron notes can be
modified to extend the maturities of such notes to the long-term, thus reducing
the Company's requirements on current cash reserves. As discussed under
"Capital Resources and Liquidity", the Company is negotiating with several
lenders to refinance three nursing facilities . However, no firm commitment
has been signed and there can be no certainty that such a commitment will be
received and closed.
Plan of Operations
As discussed above in "Capital Resources and Liquidity," management believes
that existing cash and cash from operations will be sufficient to fund its
operations through the next twelve (12) months, excluding current maturities
for notes payable related to the acquisition of Cimerron and Spectrum and the
first mortgage of the Oak Manor nursing facility. The current portion of
long-term debt for mortgages payable as of June 30, 1996 for Oak Manor is
approximately $4,225,000. The Company at this time has no specific plan to
sell and lease back any of its health care facilities. The Company does have
plans and its management is negotiating with several lenders to refinance its
Oak Manor facility in Largo, Florida, the Dania nursing home in Dania, Florida,
and the Windward nursing home in Flowery Branch, Georgia. It is management's
belief that the refinancing of these properties will generate approximately
$4,300,000 in additional proceeds after paying off the existing debt on the
properties. These proceeds will be used to pay the $1,525,000 note related to
the Cimerron acquisition, pay the $1,500,000 note referred to above related to
the Spectrum acquisition and leave approximately $920,000 in working capital
available for the ongoing operations
14
<PAGE> 17
of the company. The refinancing plan has been submitted to several lenders and
a preliminary term sheet has been received from a real estate investment trust.
Management believes that with current market conditions this financing can be
achieved and will satisfy its liquidity needs and generate working capital for
the Company. There is no assurance that this financing will be secured. If
the Company is unable to refinance the notes due in 1996, it would have a
material affect on the Company's ability to continue operations.
Other Matters
The Company currently has no benefits that extend to former or inactive
employees such as disability, layoff, death, or other benefits other than sick
time benefits which accrue ratably based upon hours worked with certain maximum
accrual amounts. These benefits, however, do not vest nor do they carry-over
from year to year. Accordingly, the provisions of the Financial Accounting
Standards Board Statement of Financial Accounting Standard ("FAS") no.106,
"Employers' Accounting For Post-Retirement Benefits other than Pensions," do
not apply. The Company currently does not provide any post-employment
benefits, therefore FAS no. 112 does not apply.
15
<PAGE> 18
PART II. OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
None
Item 2: CHANGES IN SECURITIES
None
Item 3: DEFAULTS UPON SENIOR SECURITIES
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5: OTHER INFORMATION
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Articles of Incorporation are incorporated herein by reference to Form
10-SB which was filed with the Commission on May 12, 1994.
3.2 By-Laws, as amended are incorporated herein by reference to Form
10-QSB which was filed with the Commission November 9, 1995.
10.1 Forbearance Agreement dated June 25, 1996, by and among Matt Carroll,
Francis Farlye, Cheryl Hannant and Edward R. Meyer (collectively, the
"Sellers") and NewCare Health Corporation, Spectrum Health Services,
Inc. and Robert W. Bell.
13.1 The Company's annual report is incorporated herein by reference to
Form 10-KSB/A1 which was filed with the Commission on July 10, 1996.
27 Financial Data Schedule (for SEC use only).
99.1 Press release on the Company's results of operations for the six
months ended June 30, 1996 dated August 13, 1996.
(b) Reports on Form 8-K:
None.
16
<PAGE> 19
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NewCare Health Corporation
By: /s/ Henry H. Sherrill, Jr.
---------------------------
Henry H. Sherrill, Jr., Principal
Financial and Chief Accounting Officer
and Authorized Signatory for the
Registrant
Date: August 13, 1996
17
<PAGE> 20
INDEX TO EXHIBITS
Incorporated by Reference
3.1 Articles of Incorporation are incorporated herein by reference
to Form 10-SB which was filed with the Commission on May 12,
1994.
3.2 By-laws, as amended are incorporated herein by reference to
Form 10-QSB which was filed with the Commission November 9,
1995.
10.1 Forbearance Agreement dated June 25, 1996, by and among Matt
Carroll, Francis Farley, Cheryl Hannant and Edward R. Meyer
(collectively, the "Sellers") and NewCare Health Corporation,
Spectrum Health Services, Inc. and Robert W. Bell.
13.1 The Company's annual report is incorporated herein by
reference to Form 10-KSB/A-1 which was filed with the
Commission on July 10, 1996.
27 Financial Data Schedule (for SEC use only).
99.1 Press release on the Company's results of operations for the
six months ended June 30, 1996, dated August 13, 1996.17
18
<PAGE> 1
EXHIBIT 10.1
FORBEARANCE AGREEMENT
This Forbearance Agreement (the "Agreement") is made effective as of
June 25, 1996, by and among Matt Carroll ("Carroll"), Francis Farley ("Farley"),
Cheryl Hannant ("Hannant") and Edward R. Meyer ("Meyer") (collectively, the
"Sellers") and NewCare Health Corporation ("NewCare"), Spectrum Health
Services, Inc. ("Spectrum") and Robert W. Bell ("Bell").
BACKGROUND
The Sellers own and hold certain Promissory Notes dated September 1,
1994, executed and delivered by NewCare to the Sellers in connection with
NewCare's acquisition of all outstanding stock of Spectrum (the "NewCare
Notes"). Copies of the NewCare Notes are attached as Composite Exhibit "A."
Carroll, Farley and Hannant also own and hold certain promissory notes dated
August 31, 1994, executed and delivered by Spectrum to evidence Spectrum's
obligation to distribute certain prior period profits and commissions to
Carroll, Farley, and Hannant as of that date (the "Spectrum Notes"). Copies of
the Spectrum Notes are attached as Composite Exhibit "B." (The NewCare Notes
and the Spectrum will collectively be referred to as the "Notes"). The Notes
are secured by a pledge of all outstanding stock of Spectrum (the "Stock"). In
addition to the Notes, the Stock secures the payment of all other obligations
of NewCare to Sellers under the Supplement to Agreement among NewCare Health
Corporation, NewCare Acquisition Corporation, and Spectrum Health Services,
Inc. dated August 5, 1994, and the Plan and Agreement of Merger dated August 5,
1994 (collectively, the "Agreements"). The pledge of the Stock is evidenced by
a Security Agreement dated September 1, 1994 (the "Security Agreement"). The
pledge of the Stock is properly perfected by Sellers' possession of the single
certificate evidencing all outstanding stock of Spectrum.
NewCare is in default under the terms of the Newcare Notes by, among
other defaults, its failure to make the principal payments due under the Notes
on September 1, 1995. NewCare also is in default under the NewCare Notes by its
failure to make the monthly interest payments due under the NewCare Notes for
May, June, July, October, November, December, 1995, and January, February,
March and April, 1996. Spectrum is in default under the terms of the Spectrum
Notes by its failure to make the monthly payments due under the Spectrum Notes.
NewCare and Spectrum have requested that Sellers forbear from
commencing an action against NewCare and Spectrum to collect the amounts
outstanding under the Notes and to exercise their rights against the Stock
pursuant to the Security Agreement, in order to give NewCare and Spectrum an
opportunity to cure the existing defaults. NewCare and Spectrum have also
requested that NewCare's and Spectrum's obligations to Sellers under the Notes,
Security Agreement, and Agreements be restructured (the "Obligations"). Sellers
have agreed to grant the requested forbearance and restructuring, subject to
the terms of this Agreement.
<PAGE> 2
The parties are entering this Agreement for the purpose of settling the
terms of payment of those Obligations of NewCare, Spectrum, and Bell to Sellers
as set forth on Exhibit "C".
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises contained herein, Sellers, NewCare, Spectrum, and Bell agree as
follows:
TERMS
I. BACKGROUND
The parties agree that the background is true and correct and is
therefore incorporated into this Agreement by this reference.
II. CONSIDERATION
In consideration of the making of this Agreement, the promises and
releases set forth below, and other good and valuable consideration, the
receipt of which are hereby acknowledged, Sellers, NewCare, Spectrum, and Bell
have entered into this Agreement intending to be legally bound.
III. REAFFIRMATION AND ACKNOWLEDGMENT
1. Validity of Existing Obligations
NewCare and Spectrum reaffirm the validity of all Obligations
of Newcare and Spectrum to Sellers under the Notes, Security
Agreement and Agreements. Except as expressly amended,
modified or waived hereby, the terms and conditions of the
Notes, Security Agreement, and Agreements remain in full force
and effect as if incorporated herein and shall be binding upon
and performed by the parties.
2. Acknowledgement of Default
Newcare and Spectrum acknowledge that each is presently in
default in its Obligations under the Notes, Security Agreement
and Agreements to the Sellers and that, subject to any
defenses that may be available to either NewCare or Spectrum,
Sellers have the present right to immediately declare all
Obligations of NewCare and Spectrum in default and to exercise
all rights and remedies available under the Notes, Security
Agreement, Agreements, and Florida Law.
2
<PAGE> 3
IV. LIMITED WAIVER OF INTEREST
Expressly conditioned on NewCare's payment and performance of all
Obligations under the Notes, Security Agreement, and Agreements, as
modified by this Agreement, and except as provided in Section VI and
X, herein, interest shall cease to accrue on the Obligations as of
April 1, 1996.
V. CONSOLIDATION OF OBLIGATIONS
All Obligations of NewCare and Spectrum to each of the Sellers under
the Notes will be consolidated into a single consolidated and restated
promissory note (the "Restated Notes") payable by NewCare to each
respective Seller according to the terms described below. The Restated
Notes shall contain the payment terms described below and shall be in
the form attached hereto as Exhibit "D." NewCare's obligations under
the Restated Notes will be secured by the pledge of the Stock.
Additionally, the First, Second and Third Principal Reduction Payments,
as defined below, will be secured by a first mortgage on NewCare's Oak
Manor Retirement Villas and Nursing Care Facility (the "Oak Manner
Facility"), as described below.
VI. PAYMENT OF THE RESTATED NOTES
The Restated Notes will be payable as follows:
1. First Principal Reduction Payment
Within 90 days from the execution of this Agreement, Newcare
will pay to Sellers $1,500,000.00, which shall be applied to
reduce the outstanding principal balance of each Restated Note
in the ratio that the original principal amount of such Restated
Note bears to the aggregate principal balance of all Restated
Notes (the "First Principal Reduction Payment").
2. Issuance of NewCare Stock
Within 90 days from the execution of this Agreement, NewCare
shall issue to Sellers 375,000 shares of NewCare's common stock
(the "NewCare Stock") in exchange for a portion of the Notes.
NewCare shall provide the Sellers with a tax opinion that states
that said exchange will be treated as a recapitalization without
the recognition of gain. NewCare agrees to allow the Sellers to
piggyback registration rights of the NewCare stock in NewCare's
pending registration.
3
<PAGE> 4
3. Second Principal Reduction Payment
NewCare will pay Sellers $450,000 (the "Second Principal
Reduction Payment") on or before January 1, 1998, which shall
be applied to reduce the outstanding principal balance of each
Restated Note in the ratio that the original principal amount
of such Restated Note bears to the aggregate principal balance
of all Restated Notes.
4. Third Principal Reduction Payment
NewCare will pay Sellers $450,000 (the "Third Principal
Reduction Payment") on or before January 1, 1999, which shall
be applied to reduce the outstanding principal balance of each
Restated Note in the ratio that the original principal amount
of such Restated Note bears to the aggregate principal balance
of all Restated Notes.
5. Interest Payments
Commencing upon the execution of the Restated Notes interest
shall accrue on $900,000.00 of the principal balance of the
Restated Notes at the rate of eight percent (8%) per annum
until the Second Principal Reduction Payment is received by
the Sellers. Commencing upon Sellers' receipt of the Second
Principal Reduction Payment, interest shall accrue on
$450,000.00 of the principal balance of the Restated Notes at
the rate of eight percent (8%) per annum until the Third
Principal Reduction Payment is received by the Sellers.
Interest will be paid monthly in arrears on or before the
fifteenth day of each month. NewCare will include the amount
of the accrued interest in the amounts billed each month to
Spectrum for internal accounting purposes. In the event that
NewCare defaults under the terms of this Agreement, the
interest payments described herein shall cease and the
interest payments described in paragraph X shall be due and
payable.
6. Discount of the Remaining balance of the Restated Notes
Expressly conditioned upon the Sellers receipt of the First
Principal Reduction Payment, the Second Principal Reduction
Payment, the Third Principal Reduction Payment and the NewCare
Stock, when each is due under this Agreement, and except as
provided in the paragraphs below, the remaining balance due
under the Restated Notes will be discounted to $1,850,000,
payable in quarterly installments on the dates and in the
manner described in Section VI(7).
4
<PAGE> 5
7. Amount of Quarterly Payments
Commencing with the first calendar quarter following Seller's
receipt of the First Principal Reduction Payment, NewCare will
make quarterly payments to Sellers in an amount equal to the
lesser of: (a) 70% of the first $900,000 of Spectrum's net
profits for that quarter; or (b) 70% of the first $900,000 of
net cash flow generated: by Spectrum from operations during
that quarter (the "Quarterly Payments"). To the extent that
Spectrum's net profits or net cash flow exceeds $900,000 for
any given quarter, the Quarterly Payment due to Sellers for
that quarter shall be increased to include the greater of (a)
100% of the amount by which Spectrum's net profits exceeds
$900,000; or (b) 100% of the amount by which Spectrum's net
cash flow exceeds $900,000.
Each Quarterly Payment made shall be paid on or before the
30th day after the end of each quarter with the first
installment due on the 30th day after the last day of the
first quarter beginning after Newcare has paid the First
Principal Reduction Payment, but in no event later than
January 30, 1997.
8. Determination of the Amount of Quarterly Payments
For the purposes of determining the amount of the Quarterly
Payments, "net profits" and "net cash flow" will be determined
by generally accepted accounting principles and in a manner
consistent with the method of calculation in which those
amounts were calculated prior to NewCare's acquisition of
Spectrum. Within 10 days of a request by Sellers, NewCare
and Spectrum shall provide Sellers with access to financial
records necessary to allow an accountant designated by Sellers
to determine the net cash flow and net profit of Spectrum for
the preceding quarter. In the event the parties disagree as
to the net profit or net cash flow of Spectrum for any
quarter, such dispute shall be resolved by the firm of
independent certified public accountants then engaged by
NewCare to perform its annual audit.
9. Status Report
Within sixty (60) days from the date of this Agreement,
Newcare will provide Sellers with a copy of a binding loan
commitment letter from a lender with respect to the financing
of the First Principal Reduction Payment. Additionally,
NewCare will provide Sellers with a monthly status report
detailing the efforts made to obtain the funds necessary to
make the First, Second and Third Principal Reduction Payments.
NewCare will provide the report on or before the 5th of the
month for every month up until such financing is obtained and
proof of such loan commitment
5
<PAGE> 6
provided to Sellers. The report will be provided, in writing,
by NewCare to William J. Schifino, Jr., Esq.
10. Obligations of NewCare
The parties agree that all payments required to be made under
the Restated Notes or pursuant to this Agreement shall be
obligations of NewCare and no payment required hereunder shall
be reflected as an obligation of Spectrum on any of its
financial statements until such time as the payment
obligations have accrued.
VII. SECURITY FOR REPAYMENT OF THE RESTATED NOTES
NewCare's Obligations under the Restated Notes will be secured by the
existing pledge by NewCare to Sellers of the Stock. As additional
security for the repayment of the First, Second and Third Principal
Reduction Payments due under the Restated Notes, at the time of the
execution of this Agreement, NewCare will execute and deliver to
Sellers, a third mortgage on the Oak Manner Facility in the form
attached as Exhibit "E" (the "Mortgage"). NewCare shall pay all costs
associated with the execution and recording of the Mortgage and other
security documents, including, but not limited to, documentary stamp
taxes, intangible taxes and recording fees. Upon request of Sellers,
NewCare will execute an Amended Security Agreement, UCC-1 Financing
Statements, and all other documents necessary, in Sellers' discretion,
to properly effectuate the transfer and perfection of such mortgage
and security interest.
VIII. RELEASE OF MORTGAGE
Only upon receipt by Sellers of the Third Principal Reduction Payment,
and provided that NewCare is not otherwise in default under any of the
terms of this Agreement, the Restated Notes, the Mortgage, the
Agreements or other Obligations, Sellers will execute and deliver to
NewCare a satisfaction of the Mortgage and any other agreement
evidencing a lien on the Oak Manor Facility. The pledge of the Stock
shall not be released until all amounts due under the Restated Notes
are paid and all other Obligations of NewCare to Sellers are
satisfied. In the event a third party lender requires the
subordination of the Mortgage as a condition for the financing or
advance of funds necessary to allow NewCare to pay the First Principal
Reduction Payment, prior to the receipt of the Third Principal
Reduction Payment, Sellers will subordinate the Mortgage to any
mortgage on the Oak Manor Facility given to such third party lender.
If, despite NewCare' best efforts to obtain financing not requiring
the release of the Mortgage, such financing is otherwise unavailable,
Sellers will release its Mortgage only upon receipt of the First
Principal Reduction Payment. In the event the Mortgage is released
prior to the receipt by Sellers of the Third Principal
6
<PAGE> 7
Reduction Payment, NewCare will then execute and deliver to Sellers a
a mortgage in favor of Sellers on the Oak Manor Facility to secure the
payment of the Second and Third Principal Reduction Payments.
IX. TIME AND METHOD OF PAYMENT
NewCare will pay all payments required under the Restated Notes,
Mortgage and this Agreement to Sellers c/o William J. Schifino, Jr.
The First, Second and Third Principal Reduction Payments shall be made
in a manner so that each such payment is received by Sellers on or
before the date each payment is due. A thirty (30) day grace period
will apply to the Quarterly Payments.
X. EVENTS AND CONSEQUENCES OF DEFAULT AND ACCELERATION
1. Failure to make the Principal Reduction Payments and Deliver
Stock
In the event that Newcare fails to (i) make the First, Second and
Third Principal Reduction Payments by the date due and in accordance
with the terms of this Agreement; or (ii) fails to issue and deliver
the NewCare Stock as described in Section VI (2), the entire
undiscounted balance of the Restated Notes, plus interest accruing on
the principal balance at 8.5% from March 31, 1996, will be a
accelerated and become immediately due and payable to Sellers.
2. Failure to Make Quarterly Payments
If the event NewCare fails to make a Quarterly Payment in accordance
with the terms of this Agreement, the entire remaining balance of the
Restated Notes, plus interest accruing on the principal balance at
8.5% from March 31, 1996, will be immediately due and payable to
Sellers.
3. Discontinuance of Matt Carroll's Employment
The Employment Agreement between Carroll and Spectrum will remain in
full force and effect. In the event that NewCare terminates Carroll's
employment as President and Chief Executive Officer of Spectrum, with
or without cause, or significantly reduces his responsibilities in
that capacity, in addition to all rights and remedies available to
Carroll under the Employment Agreement, all amounts owed to Sellers
under the Restated Notes at the time of such termination or reduction
in responsibilities will become due and payable within ninety (90)
days of the date of such event.
7
<PAGE> 8
4. Sale or Transfer of a Majority of Spectrum or NewCare Assets
NewCare and Spectrum shall keep its business and property
substantially intact, including its present operations, physical
facilities, working conditions and relationships with affiliates,
suppliers, customers and employees. In the event that a majority of
NewCare or Spectrum's assets are sold or transferred or in the event
of merger of the two companies, all amounts owed to Sellers under the
Restated Notes will immediately become due and payable.
5. Breach of any Non-Monetary Covenant
In the event that NewCare breaches any provision of this Agreement,
the Restated Notes, the Mortgage, and the Agreements or fails to
perform any other Obligations, other than a failure to make the
payments described above, and such breach continues for more than 10
days after Sellers provide NewCare with notice of the breach, Sellers
shall have the right to declare all remaining amounts owed to Sellers
under the Restated Notes immediately due and payable.
6. Initiation of Litigation
In the event that Sellers initiate an action to collect any delinquent
payments due under the Restated Notes, to enforce the Security
Agreement, foreclose the Mortgage or otherwise enforce their rights
under any Obligation of NewCare and NewCare or Spectrum raise any
defenses or counterclaims to such action, the entire undiscounted
balance of the Restated Notes, plus interest accruing on the
outstanding balance at 8.5% from March 31, 1996, will be immediately
due and payable.
XI. LITIGATION
1. Attorney's Fees
In the event the Sellers, individually or collectively,
initiate an action to collect the amounts due under the
Restated Notes, to enforce the Security Agreement, this
Agreement, the Agreements, to foreclose the Mortgage on the
Oak Manor Facility, or take any other action to protect or
enforce their rights, NewCare will reimburse Sellers for all
costs, including reasonable attorney's fees, incurred in
connection with any such action.
2. Acceleration of Debt Upon Assertion of Counterclaim or Defense
In the event that NewCare or Spectrum raise any defenses or
counterclaims to any action brought by Sellers to collect the
amounts due under the Restated Notes, to enforce the Security
Agreement, this
8
<PAGE> 9
Agreement, the Agreements, to foreclose the Mortgage, or
otherwise protect or enforce their rights, the entire
undiscounted balance of the Restated notes plus interest
accruing on the outstanding balance at 8.5% from March 31,
1996, will be immediately due and payable, less any payments
previously made.
XII. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto as to the subject matter hereof and there are not other prior
or contemporaneous agreements, understandings, promises,
representations, or warranties between or among the parties with
regard thereto.
XIII. METHOD OF GIVING NOTICE
All notices, requests, and other communications under this Agreement
shall be deemed duly given if sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to the Sellers:
Matt Carroll
c/o Spectrum Health Services Inc.
6026 Jetport Industrial Boulevard
Tampa, FL 33634
With a copy to:
William J. Schifino, Jr., Esq.
Williams Reed Weinstein
Schifino & Mangione, P.A.
One Tampa City Center, Ste. 2600
Tampa, FL 33602
If to NewCare:
Robert W. Bell, Sr., President
NewCare Health Corporation
3600 Oak Manor Lane, Bldg. 4
Largo, FL 34644
9
<PAGE> 10
With a copy to:
A.R. Neal, Esq.
Jacobs, Forlizzo & Neal
13577 Feather Sound Dr., Ste. 300
Clearwater, FL 34622
Any Party may send any notice, request, or other communication
hereunder to the recipient at the address set forth above using any
other means, but no such notice, request, or other communication shall
be deemed to have been duly given unless and until it is actually
received by the intended recipient.
XIV. GOVERNING LAW
The parties agree that this Agreement will be governed by and
construed in accordance with Florida law.
XV. GUARANTEES
All existing guarantees of the Obligations will remain in full force
and effect. Bell will guarantee payment of all amounts due under the
Restated Notes and performance of all obligations of NewCare under
this Agreement. If Bell's employment with NewCare is terminated,
without cause, Bell's guarantee shall terminate with respect to any
breach or default by NewCare or Spectrum occurring after the date of
such termination.
/s/ Matt Carroll
----------------------------------
Matt Carroll
/s/ Francis Farley
----------------------------------
Francis Farley
/s/ Cheryl Hannant
----------------------------------
Cheryl Hannant
/s/ Edward R. Meyer
----------------------------------
Edward R. Meyer
10
<PAGE> 11
NewCare Health Corporation, a Nevada
corporation
By: /s/ Robert W. Bell, Sr.
----------------------------------
Name (Print): Robert W. Bell, Sr.
---------------------
Title (Print): President
-------------------
Spectrum Health Services, Inc., a Florida
corporation
By: /s/ Matt Carroll
-----------------------------------
Name (Print): Matt Carroll
----------------------
Title (Print): President
--------------------
/s/ Robert W. Bell
-----------------------------------
Robert W. Bell
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NEWCARE HEALTH CORPORATION FOR THE SIX MONTHS ENDED JUNE
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 386,518
<SECURITIES> 0
<RECEIVABLES> 5,196,289
<ALLOWANCES> 308,330
<INVENTORY> 1,160,662
<CURRENT-ASSETS> 6,649,409
<PP&E> 31,511,931
<DEPRECIATION> 6,822,588
<TOTAL-ASSETS> 39,441,961
<CURRENT-LIABILITIES> 13,593,041
<BONDS> 0
0
0
<COMMON> 220,850
<OTHER-SE> 8,292,118
<TOTAL-LIABILITY-AND-EQUITY> 39,441,961
<SALES> 22,222,545
<TOTAL-REVENUES> 22,222,545
<CGS> 0
<TOTAL-COSTS> 22,062,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 222,086
<INTEREST-EXPENSE> 979,676
<INCOME-PRETAX> 160,321
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 120,321
<DISCONTINUED> 0
<EXTRAORDINARY> 497,668
<CHANGES> 0
<NET-INCOME> 617,989
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
<PAGE> 1
EXHIBIT 99.1
NEWCARE ANNOUNCES 6 MONTHS EARNINGS
NewCare Health Corporation's, President and CEO, Robert W. Bell, Sr. reports
that the Largo, Florida company had earnings after tax of $617,989 for the six
month period ended June 30, 1996 as compared to earnings of $314,543 for the
same period in 1995. The results for the six months ended June 30, 1996 include
a gain on restructuring of debt of $497,668 net of income taxes. Revenues were
$22,222,000 up from $17,406,000 for the same period last year.
