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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period Ended March 31, 1997
Commission File No. 0-24110
NEWCARE HEALTH CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 86-0594391
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(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
3600 Oak Manor Lane, Largo, Florida 34644
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(Address of Principal Executive Offices including zip code)
(813) 229-7777
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(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has 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 reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ X ] No [ ]
There were 10,667,524 shares of the Registrant's Common Stock outstanding as
of May 15, 1997.
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NEWCARE HEALTH CORPORATION
FORM 10-Q
INDEX
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PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
Unaudited Consolidated Balance Sheets as of March 31,
1997 and Audited December 31, 1996 3
Unaudited Consolidated Statements of Operations for
the Three Months Ended March 31, 1997 and 1996 4
Unaudited Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 8
ITEM 2. CHANGES IN SECURITIES 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 9
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 1997 AND AUDITED AT DECEMBER 31, 1996
Unaudited Audited
March 31, December 31,
1997 1996
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ASSETS
Current
Cash and cash equivalents $ 647,577 $ 3,198,700
Accounts receivable 1,975,519 1,829,581
Mortgage notes receivable 1,850,503 1,852,377
Other accounts receivable 570,832 588,832
Inventory 27,999 27,762
Restricted bond funds 592,005 305,044
Prepaid expenses 22,015 92,141
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Total current assets 5,686,450 7,894,437
Property and equipment 23,942,366 23,821,561
Goodwill, net of accumulated amortization 173,993 183,648
Other assets 819,803 367,455
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Total assets $30,622,612 $32,267,101
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $15,242,999 $16,899,696
Accounts payable 1,723,396 1,143,996
Accrued expenses 1,537,141 2,198,917
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Total current liabilities 18,503,536 20,242,609
Long-term debt 7,012,497 6,880,805
Shareholders' equity
Common stock, $.02 par value;
50,000,000 shares authorized;
10,667,524 issued and outstanding 213,350 213,350
Additional paid-in capital 9,055,724 9,055,724
Accumulated deficit (4,112,495) (4,075,387)
Treasury stock (50,000) (50,000)
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Total shareholders' equity 5,106,579 5,143,687
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Total Liabilities and Shareholders'
Equity $30,622,612 $32,267,101
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NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
March 31, March 31,
1997 1996
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Revenues
Patient service revenue $ 6,672,893 $7,493,778
Other operating income 94,825 36,284
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6,767,718 7,530,062
Expenses
Cost of patient services 5,047,393 5,699,884
Lease expense 167,237 189,691
General and administrative 1,236,040 841,919
Depreciation and amortization 245,252 255,460
Interest 320,924 472,238
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7,016,846 7,459,192
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Income (loss) from continuing operations (249,128) 70,870
Income (loss) from discontinued business
segment (77,852) 32,577
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Income (loss) before extraordinary item (326,980) 103,447
Extraordinary item 289,872 -
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Net income (loss) $ (37,108) $ 103,447
Income (loss) per common share before
extraordinary item $ (0.03) $ 0.01
Income (loss) per common share (0.00) 0.01
Weighted average shares outstanding 10,667,524 10,667,524
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NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
March 31, March 31,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (37,108) $ 103,447
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 245,252 398,884
Provision for bad debts 267,150 115,498
Changes in assets and liabilities
Increase in accounts receivable (145,938) (60,153)
Increase in inventories (237) (165,695)
(Increase) decrease in prepaid
expenses 70,126 (95,968)
Increase (decrease) in accounts
payable and accrued expenses (82,376) 67,336
Changes in other assets and lia-
bilities, net (736,886) (195,673)
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Net cash provided by (used in) operat-
ing activities (420,017) 167,676
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchase of property and equipment (226,098) (126,269)
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Net cash (used in) provided by invest-
ing activities (226,098) (126,269)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of borrowings (4,717,508) (400,165)
Bank overdrafts - 318,376
Loan proceeds 2,812,500 60,000
Loan costs - (11,135)
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Net cash provided by (used in)
financing activities (1,905,008) (32,924)
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Net increase (decrease) in cash (2,551,123) 8,483
Cash and cash equivalents at beginning
of period 3,198,700 201,639
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Cash and cash equivalents at end of
period $ 647,577 $ 210,122
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NEWCARE HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These consolidated financial statements and the notes thereto should be read
in conjunction with the consolidated financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996,
File No. 0-24110.
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all necessary adjustments to present
fairly the financial position, the results of operations and cash flows for
the periods reported. All adjustments are of a normal recurring nature.
NOTE 2. ACCOUNTS RECEIVABLE AND COST REIMBURSEMENTS
Accounts receivable and operating revenue include net amounts reimbursed
by Medicaid under the provisions of cost reimbursement formulas in effect.
The Company operates under a prospective payment system with Medicare, under
which annual rates are assigned based on estimated reimbursements.
Differences between estimated provisions and final settlement are reflected as
adjustments to future rates.
NOTE 3. INVENTORY
Inventory consists primarily of health care supplies and is stated at
the lower of cost (determined using the first-in, first-out method) or market
value.
NOTE 4. MORTGAGE NOTES RECEIVABLE
On November 15, 1996, the Company purchased two purchase money mortgage
notes totaling $1,853,300. The notes are collateralized by all real and
personal property of Central Tampa Nursing Facility which the Company leases
from the issuer of the notes. The notes bear interest at the rate of 10% per
annum and were due on January 15, 1997. At maturity, the note terms were
modified where the notes are due on demand by the Company.
NOTE 5. CURRENT PORTION OF LONG-TERM DEBT
The Company's current portion of long-term debt primarily consists of
$9,544,781 relating to the Oak Manor facility's first and second mortgage
principal payments and $4,000,000 notes payable related to the acquisition of
Spectrum.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
The Company's total revenues from continuing operations for the three
months ended March 31, 1997 decreased to $6,767,718 from $7,530,062 for the
three months ended March 31, 1996. As of June 1, 1996, the Company's lease of
its Bay to Bay Nursing Home was not renewed. The loss of this facility
accounted for approximately $585,000 of the decrease in revenues for the three
month period ended March 31, 1997, as compared to the same period in 1996.
Total expenses for the three months ended March 31, 1997 were
$7,016,846, representing 103.7% of total revenues, as compared to $7,459,192,
representing 99.1% of total revenues for the three months ended March 31,
1996. The loss of the Bay to Bay facility accounted for approximately
$635,000 of the decrease in expenses for the three month period ended March
31, 1997, as compared to the same period in 1996.
General and administrative expenses for the three months ended March 31,
1997 were $1,236,040, representing 18.3% of total revenues, as compared to
$841,919, representing 11.2% of total revenues for the three months ended
March 31, 1996. This increase is primarily due to increased allowances for
bad debt expense and reclassification of certain expenses.
The Company had a loss from continuing operations for the three months
ended March 31, 1997 of $249,128 as compared to income of $70,870 for the
three months ended March 31, 1996. The Company had a loss of $77,852 from its
discontinued business segment for the three months ended March 31, 1997 as
compared to income of $32,577 for the three months ended March 31, 1996.
The Company had a loss before extraordinary item for the three months
ended March 31, 1997 of $326,980 as compared to income of $103,447 for the
three months ended March 31, 1996. The Company had a net loss for the three
months ended March 31, 1997 of $37,108, after income from an extraordinary
item of $289,872, as compared to income of $103,447 for the three months ended
March 31, 1996.
The income from an extraordinary item represents the net gain resulting
from the retirement of existing debt of its Fitzgerald nursing facility at a
discount.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had negative working capital of
$12,817,086 as compared to negative working capital of $12,348,172 at December
31, 1996.
During the three months ended March 31, 1997, cash used by operating
activities was ($420,017) as compared to cash provided of $167,676 for the
three months ended March 31, 1996. The decrease was primarily due to a
reduction of depreciation and amortization of $153,632, a decrease of accounts
payable and accrued expenses of $149,712, and a net loss for the three months
of $37,108 as compared to $103,447 net income in the prior year period.
Cash used in investing activities during the three months ended March
31, 1997 was $226,098. The expenditures related to purchases of property and
equipment.
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Cash used in financing activities during the three months ended March
31, 1997 consisted of net repayments of borrowings of $4,717,508, which was
partially offset by loan proceeds of $2,812,500. Net repayments of borrowings
includes $2,000,000 paid to the Spectrum note holders and approximately
$2,200,000 in respect to the Fitzgerald nursing facility which was refinanced
for $2,812,500.
Management believes that the existing cash and cash from operations will
be sufficient to fund its continued operations, excluding current maturities
related to the acquisition of Spectrum of $4,000,000 and the first and second
mortgages of its Oak Manor facility of $9,544,781.
The Company is in the process of closing on the refinancing of its Oak
Manor facility in Largo, Florida, the Dania nursing home in Dania, Florida,
the Windward nursing home in Flowery Branch, Georgia, and the Central Tampa
nursing home. The estimated additional proceeds after paying off the existing
debt on these properties will be approximately $7,000,000. These proceeds
will be used to pay the $4,000,000 Spectrum note and leave approximately
$3,000,000 available for acquisitions and working capital.
The Company has no present commitments for capital expenditures, but the
Company is looking for acquisitions in the nursing home and retirement care
industry.
IMPACT OF PENDING FEDERAL HEALTH CARE LEGISLATION
Management is uncertain what the financial impact will be of the pending
federal health care reform package since the legislation has not been
finalized. However, based on information which has been released to the
public thus far, management does not believe that there will be cuts in
reimbursements paid to nursing homes.
Legislative and regulatory action at the state and federal level, has
resulted in continuing changes in Medicare and Medicaid reimbursement
programs. The changes have limited payment increases under these programs.
Also, the timing of payments made under Medicare and Medicaid programs are
subject to regulatory action and governmental budgetary constraints. Within
the statutory framework of the Medicare and Medicaid programs, there are
substantial areas subject to administrative rulings and interpretations which
may further affect payments made under these programs. Further, the federal
and state governments may reduce the funds available under these programs in
the future or require more stringent utilization and quality review of health
care facilities.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On April 25, 1997, Robert W. Bell, Sr. and other members of his family
filed a Complaint in the Circuit Court of the Sixth Judicial Circuit in
Pinellas County, Florida, against the Company, three of its directors (Messrs.
Dalal, Karia and Patel), a shareholder (Dr. Vahkania) and the Company's
corporate attorney (A.R. "Charlie" Neal).
During the last week of December 1996 and the first week of January
1997, Robert W. Bell, Sr. ("Bell") and the Company negotiated and executed an
agreement pursuant to which Bell agreed to resign as the Company's President
and CEO and sell 869,978 of his and his family's shares to the Company at
$1.20 per share. The shares were then to be used by the Company to bring in
Chris Brogdon as a
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director and eventually as President of the Company. Bell's Complaint
alleges, among other things, that the defendants, through fraudulent
misrepresentations and omissions of material facts, induced the plaintiffs to
sell their shares to the Company for less than their fair value.
The plaintiffs are seeking rescission of the transaction, an unspecified
amount of damages, and costs. The Company believes that the Complaint is
without merit and it intends to vigorously defend the lawsuit.
ITEM 2. CHANGES IN SECURITIES
During January 1997, the Company repurchased a total of 869,978 shares
of the Company's common stock from Robert W. Bell, Sr. at a price of $1.20 per
share in connection with his resignation as President of the Company.
During February 1997, the Company sold 869,978 shares of the Company's
common stock to Chris Brogdon and 22 other persons designated by Mr. Brogdon
at a price of $1.20 per share pursuant to a Letter of Understanding dated
February 19, 1997, between the Company and Mr. Brogdon in which Mr. Brogdon
agreed to join the Company's Board of Directors.
With respect to these sales, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended. Each investor signed a subscription
agreement in which he represented that he was purchasing the shares for
investment only and not for the purpose of resale or distribution. The
appropriate restrictive legends were placed on the certificates and stop
transfer instructions were issued to the transfer agent.
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) Exhibit 27 Financial Data Schedule Filed herewith
electronically
(b) Reports on Form 8-K. The Company filed the following reports on
Form 8-K during the three months ended March 31, 1997:
1. A report dated January 10, 1997, was filed which reported under
Item 5 that Robert W. Bell, Sr. resigned as President and CEO of the Company.
2. A report dated February 6, 1997, was filed which reported under
Item 4 that the Company was changing its auditors from Lovelace, Roby &
Company, P.A. to Laney, Boteler and Killinger.
3. A report dated February 14, 1997, was filed which reported under
Item 5 the terms of the settlement of the litigation with Matt Carroll, a
former director, and others.
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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.
NEWCARE HEALTH CORPORATION
Date: May 16, 1997 By/s/ Ashok Dalal
Ashok Dalal, President
Date: May 16, 1997 By/s/ Henry H. Sherrill, Jr.
Henry H. Sherrill, Jr.
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
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27. Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages 3-4 of the
Company's Form 10-QSB for the year to date, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 647,577
<SECURITIES> 0
<RECEIVABLES> 4,396,854
<ALLOWANCES> 0
<INVENTORY> 27,999
<CURRENT-ASSETS> 5,686,450
<PP&E> 23,942,366
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,622,612
<CURRENT-LIABILITIES> 18,503,536
<BONDS> 0
<COMMON> 213,350
0
0
<OTHER-SE> 4,893,229
<TOTAL-LIABILITY-AND-EQUITY> 30,622,612
<SALES> 6,767,718
<TOTAL-REVENUES> 6,767,718
<CGS> 5,047,393
<TOTAL-COSTS> 5,047,393
<OTHER-EXPENSES> 1,648,529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320,924
<INCOME-PRETAX> (249,128)
<INCOME-TAX> 0
<INCOME-CONTINUING> (249,128)
<DISCONTINUED> (77,852)
<EXTRAORDINARY> 289,872
<CHANGES> 0
<NET-INCOME> (37,108)
<EPS-PRIMARY> (.00)
<EPS-DILUTED> (.00)
</TABLE>
