<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1933
For the fiscal year ended: December 31, 1996
Commission file number: 0-24110
NEWCARE HEALTH CORPORATION
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(Name of small business issuer in its Charter)
Nevada 86-0594391
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3600 Oak Manor Lane, Building 4, Largo, Florida 34644
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(Address of principal executive offices, including zip code)
(813) 229-7777
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(Issuer's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.02 Par Value
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 reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes[X] No[ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer's revenues for its most recent fiscal year were $28,767,532.
As of March 31, 1997, 10,672,525 shares of the Registrant's common stock were
outstanding, and the aggregate market value of the shares held by non-affiliates
was approximately $13,996,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one): Yes [] No [X]
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
NewCare Health Corporation (the "Company") provides senior residential
care services including long-term care, assisted living and independent living
services. The Company's long-term care facilities provide skilled nursing
care, and ancillary services to patients, while its assisted/independent
living center provides services to residents in need of varying degrees of
assistance with the activities of daily living.
As of April 1, 1997, the Company owned or leased and operated ten (10)
nursing facilities with 967 skilled nursing beds, 74 assisted living facility
beds, and a 150-unit retirement complex. These facilities are located in
Georgia and Florida.
As of February 17, 1997, the Company turned over the management of all
ten of its facilities to Renaissance Senior Living, Inc., a newly-formed
company owned and managed by persons affiliated with Retirement Care Associates,
Inc. (See "Item 12. Certain Relationships and Related Transactions",
below.)
The Company's principal offices are located at 3600 Oak Manor Lane,
Building 4, Largo, Florida 33774, and its telephone number is (813) 586-4262.
BACKGROUND
The Company was incorporated in Nevada on February 17, 1987, under the
name Camelback Capital, Inc. primarily for the purpose of raising capital and
acquiring or merging with a private business. The Company completed its
initial public offering on December 31, 1987. During the period from 1988
until 1993, the Company conducted minimal business activities, and during
1993, the Company terminated all business activity except for the search for a
private company to acquire or merge with.
ACQUISITION OF NEWCARE, INC.
In April 1994, the Company acquired 95.17% of the issued and outstanding
common stock of NewCare, Inc. ("NewCare"). NewCare was engaged in the
business of owning, managing and operating skilled nursing facilities.
In connection with the transaction with NewCare, the Company amended its
Articles of Incorporation to (1) effect a one for twenty (1 for 20) reverse
stock split, (2) adjust the par value of the Common Stock to $.02 per share to
reflect the reverse stock split, and (3) change the name of the Company to
NewCare Health Corporation. All financial information and share data in this
Report give retroactive effect to the reverse split.
Unless the context otherwise requires, the term "Company" as used herein
refers to the Company and its subsidiary NewCare and the subsidiaries of
NewCare.
HISTORY OF NEWCARE
The history of NewCare began with American Nursing Homes, Inc. ("ANH")
which was incorporated in the State of Florida in September 1987. The primary
purpose of ANH and its subsidiaries was the ownership, management and operation
of health care related businesses, specifically in the skilled nursing
industry. ANH and its subsidiaries managed nursing facilities and owned
various interests
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in a number of limited partnerships which owned or leased such nursing
facilities.
NewCare was incorporated in the State of Florida on February 2, 1993 for
the purpose of effectuating a reorganization of ANH, its wholly-owned
subsidiaries and their respective interests in a number of limited partnerships.
The founders of NewCare were Robert W. Bell, Sr., Ashok Dalal and Dr.
James W. Wooten. NewCare had no operations or net assets prior to July 31,
1993. The reorganization was completed as of July 31, 1993 pursuant to an
exchange memorandum whereby the shareholders of ANH received shares of NewCare
in exchange for their ANH shares.
As an integral part of the July 31, 1993 reorganization of NewCare and
its affiliated entities, the limited partnership interests held directly or
indirectly by Ashok Dalal in three limited partnerships -- Healthcare Facilities
Limited Partnerships I (also known as Dania Nursing Home, Ltd.), Suncoast
Nursing Home, Ltd. and Oak Manor Nursing Home, Ltd. -- were transferred to
NewCare in exchange for an aggregate of 1,370,834 shares of common stock of
NewCare.
At December 31, 1993, ANH's direct ownership in its subsidiaries and the
limited partnership interests of these subsidiaries were transferred to
NewCare. On March 31, 1994, NewCare acquired another corporation, H. Clark of
Florida, Inc. (a general partner in four of NewCare's limited partnerships),
which increased its ownership interest in certain of the limited partnerships.
ACQUISITION AND SUBSEQUENT DISPOSITION OF SPECTRUM HEALTH SERVICES, INC.
On September 1, 1994, the Company acquired all of the outstanding common
shares of Spectrum Health Services, Inc.("Spectrum"). Spectrum sells medical
supplies and equipment, enteral products, wound care medication and kits,
respiratory therapy equipment and supplies, and orthopedic rehabilitation
supplies. It also provides services for billing, medical records computer
software, assessments software, referenced care plans, inventory supply
systems as well as providing educational programs, in-servicing and other
procedures in nursing consulting and care plans. Spectrum has operations in
Florida, Georgia, Kansas and Texas.
On September 1, 1994, the Company also acquired all of the outstanding
shares of Spectrum Infusion Services, Inc. Spectrum Infusion Services, Inc.
was then merged into Spectrum. The Spectrum Infusion Services division
provides specialized products to nursing homes for patients that require
prescriptions for dispensing by pharmacists. The Spectrum Infusion Services
division provides products, equipment and disposable supplies required for IV
antibiotic hydration, pain management and chemotherapies. These supplies and
services are provided to nursing homes that in turn dispense them to the
patients.
On October 24, 1996, the Company sold all of the operating assets of
Spectrum for cash and the assumption of certain debts to NCS Healthcare of
Florida, Inc. ("NCS"). The consideration paid by NCS was approximately
$10,167,000. Of this amount, $7,795,000 was paid in cash, $680,000 was held
in escrow pending the outcome of inventory, accounts receivable, and certain
other adjustments and approximately $1,841,000 was in the form of liabilities
assumed by NCS. In connection with the transaction, the Company paid
approximately $531,000 of the cash proceeds to retire certain Spectrum
obligations and borrowings that were not assumed by NCS and to pay certain
costs of the transaction.
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ACQUISITION OF CIMERRON HEALTH CARE, INC.
On May 22, 1995, the Company acquired all of the outstanding shares of
Cimerron Health Care, Inc. ("Cimerron") from Karen Hagan. Cimerron leases one
(1) and owns three (3) skilled nursing facilities in Georgia. In a related
agreement, Memorial Nursing Center, Inc., a subsidiary of NewCare, acquired a
skilled nursing facility lease from Emory Nursing Center, Inc., an affiliate
of Cimerron also owned by Karen Hagan. The aggregate number of skilled
nursing beds involved in the acquisition of the five (5) skilled nursing
facilities from Cimerron and Emory is 502.
ACQUISITION OF PADGETT NURSING HOME
On September 15, 1995, the Company 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.
THE COMPANY'S SERVICES, MARKETS AND OPERATIONS
The Company operates through its majority-owned subsidiary, NewCare, and
NewCare's subsidiaries. NewCare presently owns or leases and operates ten
(10) nursing facilities with 967 skilled nursing beds, 74 adult congregate
living facility beds, and a 150-unit retirement complex. These facilities are
located in Georgia and Florida.
NewCare's nursing facilities provide both routine and ancillary services.
Routine services such as room and board and basic nursing services are
provided in the skilled nursing facilities, the assisted living facilities and
the retirement complex. Certain of NewCare's nursing facilities also provide
specialty services such as HIV care, Alzheimer's disease units, wound care,
subacute care, and stroke and accident rehabilitation. NewCare provides a
full range of occupational, physical, speech and respiratory therapy in its
nursing facilities. NewCare derives most of its revenue for ancillary
services from Medicare reimbursement. See "--Regulation; Medicaid and
Medicare" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
OCCUPANCY LEVELS AND PAYOR MIX
The average occupancy level, based on licensed beds, for the Company's
skilled nursing facilities during the years ended December 31, 1996 and 1995
was 89.35% and 91.17%, respectively. The Company's nursing facility revenues,
exclusive of assisted living, medical supply and pharmaceutical revenues, are
divided into the following classes for payor mix:
YEARS ENDED DECEMBER 31,
1996 1995
-----------------------
Medicaid 76% 69%
Medicare 10% 10%
Private Pay 11% 18%
HMO 1% 1%
Hospice 1% 1%
Other Payors 1% 1%
---- ----
100% 100%
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The Company received 86% of its twelve month nursing facility revenues
from Medicaid and Medicare, compared to 79% for the same period in 1995.
Future changes in programs could possibly have a negative impact on the
Company's operations and ultimately can affect the Company's profitability.
REGULATION; MEDICAID AND MEDICARE
STATE AND LOCAL REGULATION
NewCare's nursing facilities are subject to compliance with various
state and local health care statutes and regulations. In order to maintain
such licenses, the nursing facilities must meet certain statutory and
administrative requirements. These requirements relate to the condition of the
facilities and the adequacy and condition of the equipment used therein, the
quality and adequacy of personnel and the quality of medical care. Such
requirements are subject to change.
Nursing facilities are licensed in their respective state to provide
residential health and medical services to patients requiring nursing care
including the following minimum services: 24-hour nursing care; personal or
custodial care as needed; both routine and emergency physician services; and
access to dental, recreational, rehabilitative and social work services.
Compliance with state licensing requirements imposed upon all health
care facilities is a prerequisite for the operation of the facilities and for
participation in government-sponsored health care funding programs such as
Medicaid and Medicare.
MEDICAID AND MEDICARE PROGRAMS; RELATED REGULATION
Medicaid is a state-administered program financed by state and matching
federal funds. The program provides for federal assistance to the indigent
and certain other eligible persons. Although administered under broad federal
regulations, states are given flexibility to construct programs and payment
methods consistent with their individual goals. The current Georgia and
Florida Medicaid reimbursement plans are prospective systems of reimburse-
ment. Under a prospective system, per diem rates are established based on
cost of services provided for a prior year, and are adjusted to reflect such
factors as inflation.
Medicare is a federally-administered and financed program which provides
health insurance protection to qualified individuals over the age of 65 and
the chronically disabled. This program is a retrospective reimbursement
system that is based on a prior period's cost report filed with a Medicare
intermediary. However, currently there is a commission considering and
reviewing the possible implementation of a prospective reimbursement system.
Effective October 1, 1990 the Omnibus Budget Reconciliation Act of 1987
("OBRA") eliminated the different certification standards for "skilled" and
"intermediate care" nursing facilities under Medicaid and Medicare programs in
favor of a single "nursing facility" standard. This standard has required the
Company to have at least one registered nurse on each shift and has increased
training requirements for nurses' aides by requiring a minimum number of
training hours and a certification test before a nurses' aide can commence
work. States also must certify that nursing facilities provide skilled care
in order to obtain Medicare reimbursement. OBRA has also increased the
enforcement powers of state and federal certification agencies. Additional
sanctions have been authorized including fines, temporary suspension of
admission of new patients to nursing facilities, decertification from
participation in the Medicaid or Medicare programs and, in extreme
circumstances, revocation of a nursing facility's license.
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The Medicaid and Medicare programs provide criminal penalties for
entities that knowingly and willfully offer, pay, solicit or receive
remuneration in order to induce business that is reimbursed under these
programs. The illegal remuneration provisions of the Social Security Act,
also known as the anti-kickback statute, prohibit remuneration intended to
induce the purchasing, leasing, ordering, or arranging for any good, facility,
service or item paid by Medicaid or Medicare programs.
The Social Security Act also imposes criminal and civil penalties for
making false claims to the Medicaid and Medicare programs for services not
rendered or for misrepresenting actual services rendered in order to obtain
higher reimbursement. The Medicare program has published certain "Safe
Harbor" regulations which describe various criteria and guidelines for
transactions which are deemed to be in compliance with the anti-remuneration
provisions. Although the Company has contractual arrangements with some
health care providers, management believes it is in compliance with the anti-
kickback statute and other provisions of the Social Security Act and with the
state statutes. However, there can be no assurance that government officials
responsible for enforcing these statutes will not assert that the Company or
certain transactions in which it is involved are in violation of these
statutes.
NewCare derives a significant portion of its revenue from these pro-
grams, particularly with respect to ancillary services. With respect to
Medicaid, reimbursement rates are determined by the appropriate administrative
state agency based on the cost report filed by each individual nursing
facility. Changes in the reimbursement policies of the Medicaid and Medicare
programs as a result of legislative and regulatory actions by federal and
state governments could adversely affect the revenues of the Company.
Governmental funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all of
which may materially increase or decrease program reimbursement to health care
facilities. Congress has consistently attempted to curb the growth of federal
spending on such programs. Recent actions include limitations on payments to
hospitals and nursing facilities under the Medicaid and Medicare programs,
limitations on payments for physicians' services and elimination of funding
for health planning agencies. No assurance can be given that the future
funding of Medicaid and Medicare programs will remain at levels comparable to
the present levels.
HEALTH CARE REFORM
The Clinton Administration and various federal legislators have intro-
duced health care reform proposals, which are intended to control health care
costs and to improve access to medical services for uninsured individuals.
These proposals include proposed cutbacks to the Medicare and Medicaid
programs and steps to permit greater flexibility in the administration of
Medicaid. Changes in reimbursement levels under Medicare or Medicaid and
changes in applicable governmental regulations could significantly affect the
Company's results of operations. While no federal legislation regarding
health care reform was enacted in the calendar year 1996, it is uncertain at
this time what legislation on health care reform will ultimately be enacted or
whether other changes in the administration or interpretation of governmental
health care programs will occur. There can be no assurance that future health
care legislation or other changes in the administration or interpretation of
governmental health care programs will not have an adverse effect on the
results of operations of the Company.
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COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company believes that it is in material compliance with applicable
environmental laws and regulations. Management believes that there are not
any material environmental contingencies.
EMPLOYEES
The Company and its subsidiaries employ approximately 910 people, with
approximately 660 of those employed on a full time basis. All but seven of
these employees work in the Company's 10 facilities. Presently no employees
are members of collective bargaining units, although one nursing home is
currently negotiating with a bargaining unit.
ITEM 2. DESCRIPTION OF PROPERTY
<TABLE>
NewCare believes that all facilities owned and leased by NewCare and its
subsidiaries are adequately insured. The following table sets forth certain
information relating to NewCare's facilities as of April 7, 1997<FN1>:
<CAPTION>
NUMBER NOTE
OF RENT/ BALANCE
NURSING MONTHLY AS OF OWNED/ MATURITY OCCU-
NAME/LOCATION BEDS PAYMENT 12/31/96 LEASED DATE PANCY
<FN8>
<S> <C> <C> <C> <C> <C> <C>
Oak Manor 180 $46,800 $4,169,000 Owned 9/97 94.74%
Villas, FL <FN3> $43,500 $5,650,000 12/97
<FN2>
Central Tampa 100 $24,700 N/A Leased 2015 59.82%
Nursing Home;
FL<FN4>
Dania Nursing 88 $17,400 $1,437,900 Owned 6/98 90.24%
Home; FL
Emory Nursing 40 $7,600 $500,000 Owned Demand 98.95%
Center; GA<FN5> Note
$1,625 $225,000 8/98
$2,500 $300,000 9/98
Fitzgerald 167 $23,000 $2,812,500 Owned 2019 87.21%
Nursing
Center; GA<FN6>
Fort Valley 75 $10,000 $1,000,000 Owned 2009 99.13%
Nursing Center;
GA
Pleasant View 120 $22,000 N/A Leased 2001 96.57%
Nursing Center;
GA<FN4>
Suncoast 59 $5,000 $600,000 Owned Month- 81.78%
Nursing Home; to-Month
FL<FN7>
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Victoria 38 $3,500 $181,000 Owned 2004 86.28%
Martin Nursing
Home; FL
Windward 100 $17,800 $1,760,000 Owned 2013 98.57%
Nursing
Center; GA ___ ________ ___________
Totals 967 $225,425 $18,635,400
___________________
<FN>
<FN1>
Cimerron maintains its offices in Roswell, Georgia, with a monthly rental of
$3,800. The lease for these offices will be terminated in exchange for a
$65,000 cash payment if the proposed agreement with Robert Hagan is closed.
(See Item 12 below.)
<FN2>
The Company maintains its principal executive offices at the Oak Manor
facility.
<FN3>
The Oak Manor Villas has 180 skilled nursing beds, 74 assisted living beds,
and 150 retirement apartments.
<FN4>
The leases for Central Tampa and Pleasant View terminate in September 2015 and
June 2001 respectively. The Company also owns the mortgage on the Central
Tampa facility.
<FN5>
The Emory $500,000 note terms have been modified to a 30-day demand note.
<FN6>
Fitzgerald was refinanced on February 28, 1997, for $2,812,500. The numbers
in the table reflect the terms of the new promissory note.
<FN7>
The Suncoast note has been extended to a month-to-month basis.
<FN8>
Occupancy rates are as of December 31, 1996.
</FN>
</TABLE>
The Company considers all of its nursing facilities, both owned and
leased, together with the related equipment contained therein, to be well
maintained, in good operating condition, and suitable for the present and
foreseeable future needs of each facility.
ITEM 3. LEGAL PROCEEDINGS
In June 1996 the Company entered into a debt forbearance agreement with
the previous owners of its Spectrum subsidiary Matthew Carroll, Francis
Farley, Cheryl Hannant and Edward R. Meyer (the "Carroll Group") to restruc-
ture its acquisition related debt. The agreement provided, among other
things, for the issuance of 375,000 shares of the Company's common stock and
payments of $4,250,000, including a payment of $1,500,000 due September 24,
1996. On August 12, 1996, the Company and the Carroll Group executed an early
payment agreement providing for further debt reduction. Subsequently the
Carroll Group proposed an amendment to the debt forbearance agreement which
was accepted by the Company.
The payment due on September 24, 1996 was not paid by the Company. On
October 22, 1996 the Carroll Group, denying the validity of the early payment
agreement and forbearance agreement amendment filed a lawsuit against the
Company and Robert W. Bell in the Circuit Court of the Thirteenth Judicial
Circuit Court in and for Hillsborough County, Florida, seeking, among other
things, payments
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for all amounts due under the forbearance agreement, and through court
injunction to sequester proceeds from the sale of Spectrum assets to NCS
Healthcare of Florida, Inc. and to appoint a receiver. The Company was
successful in opposing the injunction.
On February 14, 1997, the Company entered into a Settlement Agreement
("Agreement") with the Carroll Group. The purpose of the Agreement was to
settle the outstanding litigation filed by the Carroll Group against the
Company in October 1996.
The Agreement provides that among other things, the Company will pay the
Carroll Group $6,000,000 as follows:
(a) $1,000,000 was due and paid on February 21, 1997;
(b) $1,000,000 was due and paid on March 3, 1997, from the refinancing
of its nursing home in Fitzgerald, Georgia;
(c) $4,000,000 is due by June 14, 1997.
(d) Interest accrues from all unpaid sums at the rate of 8.75%
commencing February 21, 1997, and it is payable by June 14, 1997.
The Agreement further provides that upon payment of the $6,000,000, the
Carroll Group will transfer 1,200,000 shares of the Company's common stock to
the Company or its designees.
The Agreement further provides for the sale of 300,000 shares of the
Company's common stock held by the Carroll Group as follows:
(a) If the price of the Company's common stock does not trade at a
price of at least $4.00 during 30 consecutive trading days during the two year
period ending February 1, 1999, the Carroll Group can put 300,000 shares to
the Company at a price of $3.50 per share, during the 30 day period commencing
February 1, 1999.
(b) If the common stock does trade at or above $4.00 for 30 consecutive
trading days during the two year period, the Company has no obligation to
repurchase the shares.
(c) If the Carroll Group decides to sell the shares to someone other
than the Company during the 30 day period commencing February 1, 1999, the
Company has the right of first refusal to buy the shares at the market price.
The Agreement further provides that litigation between the Carroll Group
and the Company will be stayed pending the Company's compliance with its
obligation to pay $6,000,000 to the Carroll Group in accordance with provisions
of the Agreement.
The Agreement also provides that Matthew Carroll will resign from the
Company's Board of Directors on February 14, 1997. This resignation was
accepted by the Board on February 14, 1997.
On April 19, 1996, Lora Henderson, an employee of the Oak Manor Nursing
Home, filed a complaint in federal district court in Tampa, Florida against
the Company and Robert W. Bell, Sr., former President and Chairman of the
Board of the Company. The complaint contained two counts, one for sexual
harassment under Title VII of the Federal Civil Rights Act and the other for
intentional infliction of emotional distress. The Court has dismissed Robert
W. Bell, Sr.
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from the case and the count for intentional infliction of emotional distress
has been dismissed. Henderson is claiming an unspecified amount of damages
for alleged emotional distress and pain and suffering. The case has been
scheduled for a jury trial during the month of January 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the year ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) MARKET INFORMATION. The Company's Common Stock is traded in the
over-the-counter market, and since April 28, 1995, has been traded on the
Nasdaq Small-Cap Market under the symbol "NWCA".
The following table sets forth the high and low bid prices of the
Company's Common Stock as reported by the OTC Bulletin Board before April 28,
1995, and the Nasdaq Small-Cap Market for the periods since April 28, 1995.
These prices are believed to be representative interdealer quotations, without
retail markup, markdown or commissions, and may not represent prices at which
actual transactions occurred.
BID
QUARTER ENDED HIGH LOW
1995
First Quarter $3.50 $1.00
Second Quarter $4.37 $2.87
Third Quarter $2.875 $2.25
Fourth Quarter $3.00 $1.25
1996
First Quarter $2.625 $2.375
Second Quarter $2.375 $1.25
Third Quarter $1.50 $1.00
Fourth Quarter $1.3125 $0.25
1997
First Quarter $2.875 $1.0625
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. At March 31, 1997,
the Company had approximately 669 holders of record of its Common Stock.
(c) DIVIDENDS. The Company has paid no cash dividends on its Common
Stock, and has no present intention of paying cash dividends in the foresee-
able future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
STRUCTURE OF OPERATIONS
The Company has operated through its three subsidiaries: NewCare,
Spectrum (sold on October 24, 1996), and Cimerron (acquired on May 22, 1995).
The Company operates ten (10) skilled nursing facilities, five (5) in Florida
through NewCare and five (5) in Georgia through Cimerron. As a result of the
sale of Spectrum, the Company has disposed of its medical supply and pharma-
ceutical sales and service operations in Florida, Georgia, Kansas and Texas.
RESULTS OF OPERATIONS
The Company's net revenues from continuing operations for the year ended
December 31, 1996, were $28,767,532 compared to $23,186,401 for the year ended
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December 31, 1995. Revenues for 1996 were 24.1% higher than 1995 revenues due
primarily to the fact that the five Cimerron facilities were acquired in May
1995 and therefore the 1995 revenues included only eight months of revenues
from these facilities.
Operating expenses from continuing operations for the year ended
December 31, 1996 were $28,613,596, representing 99.5% of revenues, as
compared to $23,491,055 representing 101.3% of revenues for the year ended
December 31, 1995. 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 from continuing operations decreased, as a percentage of revenues,
from 90.7% in 1995 to 89.1% in 1996. Interest, depreciation and amortization
from continuing operations decreased, as a percentage of revenues, from 10.6%
in 1995 to 10.4% in 1996.
Depreciation and amortization expenses from continuing operations
increased from $938,946 in 1995 to $1,076,740 in 1996 due to the acquisition
of the Cimerron properties in May 1995. The assets of the Company are
depreciated or amortized over their expected useful lives, ranging from 3 to
40 years.
Interest expenses from continuing operations increased from $1,518,910
in 1995 to $1,912,838 in 1996 primarily due to interest expenses related to
the Cimerron properties which were acquired in May 1995.
The Company had a net loss of $2,226,292 for the twelve months ended
December 31, 1996, compared to a net loss of $172,222 for the year ended
December 31, 1995. The loss for 1996 included a loss on disposal of Spectrum
of $1,355,798, a loss related to Spectrum's discontinued operations of
$970,430, and income from continuing operations of $99,936. For the 1995
year, income from discontinued operations was $168,432 and the loss from
continuing operations was $340,654.
The Company's operating results may be affected by issues facing the
long-term care industry, such as occupancy levels, nursing personnel avail-
ability, governmental reimbursement programs (Medicaid and Medicare), and the
possible reforms that may be taken by the federal government. The Company's
ability to manage costs, including Compensation and Related Expenses, and
payor mix can significantly affect its future profitability.
SEASONALITY
The Company's revenues may fluctuate from quarter to quarter. Fluctua-
tions 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 Company's skilled nursing operations in the short term
until Medicaid and Medicare cost reports can be filed for appropriate reim-
bursement rate adjustments for individual nursing facilities. The supply of
labor can have possible adverse affects on the Company's net results of
operations.
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CAPITAL RESOURCES AND LIQUIDITY
The Company's working capital at December 31, 1996 was a negative
$12,755,366 as compared to a negative $9,400,213 on December 31, 1995. The
decrease was due primarily to the fact that a significant amount of mortgage
debt that was classified as long-term debt on December 31, 1995, was class-
ified as a current liability as of December 31, 1996.
During the year ended December 31,1996, cash used in operating activ-
ities was $706,285 as compared to $1,538,933 of cash provided by operating
activities for the year ended December 31, 1995. The largest contributing
factor to the cash used in the year ended December 31, 1996 was the net loss
of $2,226,292. This figure was offset by the loss on the disposal of the
Spectrum assets of $1,386,798. There was a $2,090,525 decrease in accounts
payable in 1996 which was partly offset by a $1,612,136 decrease in accounts
receivable. These decreases in accounts payable and accounts receivable were
primarily attributable to the sale of operating assets of Spectrum. There was
also an increase in other receivables of $486,682 due to the holdback
associated with the sale of Spectrum. Depreciation and amortization was
$1,554,219 for 1996 as compared to $1,494,836 for 1995. Amortization of
$94,000 included in the year ended December 31, 1996, relates to the writeoff
of the balance of goodwill for Bay to Bay, which lost its lease May 31, 1996.
Net cash provided by investing activities was $7,089,285 for the twelve
month period ended December 31, 1996. Proceeds on disposal of property, plant
and equipment, which was primarily related to the sale of Spectrum, was
$10,234,655. The Company paid $1,085,050 in net purchases of property, plant,
and equipment, issued notes receivable of $1,852,377, and made payments for
other assets of $207,943.
For the twelve month period ended December 31, 1996, financing activities
used net cash of $3,385,939. The Company made payments of $2,405,020 on
long-term debt, $1,525,000 on notes payable, and reduced its line of credit by
$166,491. The Company received proceeds of $710,572 from long-term debt.
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 acquisition of Spectrum and the first and
second mortgages of its Oak Manor facility. Cash reserves are not adequate to
fund the Company's Oak Manor first mortgage of $4,169,000, the second mortgage
of $5,650,0000, and the amount due the Carroll Group on June 14, 1997, of
approximately $4,000,000 (see "Item 3. Legal Proceedings"). 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, 1996 is approximately $11,464,000, of which $9,819,000 is related
to its Oak Manor facility. The Company's management is negotiating with
several lenders to refinance 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. It is management's
belief that the refinancing of these properties will generate approximately $7
million in additional proceeds after paying off the existing debt on the
properties. These proceeds will be used to pay the $4,000,000 note referred
to above related to the Carroll Settlement Agreement and leave approximately
$3 million available for acquisitions and working capital. 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
-13-
<PAGE>
working capital for the Company. There is no assurance that this financing
will be secured or if the financing is secured, whether the terms will be as
presented above. If the Company is unable to refinance the notes due in 1997,
it would have a material affect on the Company's ability to continue opera-
tions. The Company at this time has no specific plan to sell and lease back
any of its health care facilities.
The Company at this time has no material commitments for capital
expenditures.
ITEM 7. FINANCIAL STATEMENTS
Information with respect to Item 7 is contained in the Company's
consolidated financial statements and are set forth herein beginning on Page
F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No response required. See Report on Form 8-K dated February 6, 1997, as
amended.
-14-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Certain information about the directors and executive officers of the
Company is contained in the following table:
NAME AGE POSITION
Ashok Dalal 57 Chairman, Chief Executive Officer
and President
Robert Hagan 41 Director
Dr. Kishor Karia 53 Director
Henry H. Sherrill, Jr. 60 Chief Financial Officer
Robert W. Bell, Jr. 32 Vice President of Operations, Finance
Chris Brogdon 47 Director
Harlan Mathews 69 Director
Dr. Dhiraj Patel 45 Director
All directors hold office until the next annual meeting of the shareholders
of the Company or until their successors have been elected and
qualified. Officers serve at the discretion of the Board of Directors with no
fixed terms of office. Additional information regarding the directors and
officers is set forth below.
ASHOK DALAL has served as Executive Vice President and director of the
Company since April 1994 and has held such positions with ANH since November
1989 and with NewCare since its inception in February 1993. Mr. Dalal has
served as Chief Executive Officer of the Company since the resignation of
Robert W. Bell, Sr. on January 3, 1997. Mr. Dalal was a private investor in
several limited partnerships whose properties were managed by ANH. He has a
B.S. Degree and a Master of Business Administration Degree.
ROBERT HAGAN has been a director of the Company since June 1995. He
serves as the President of Cimerron Health Care, Inc., a subsidiary of the
Company. Mr. Hagan has been the President of Cimerron and its predecessors
since 1980. Mr. Hagan has a B.S. Degree in Criminology.
DR. KISHOR KARIA has served as a director of the Company since July,
1995. Dr. Karia is an internal medicine physician specializing in Hematology
Oncology and has been practicing in South Florida since 1982. Dr. Karia was a
limited partner in several Florida nursing homes operated by the Company until
1993 when he exchanged his ownership interest in the nursing homes with
NewCare, Inc.
HENRY H. SHERRILL, JR. has served as Chief Financial Officer of the
Company since April 1994 and has also served in such position with ANH and
NewCare since June 1993. Prior to joining the Company, Mr. Sherrill was Chief
Financial Officer for Advocare, Inc., a privately-held nursing home company,
from January 1986 to May 1993. Mr. Sherrill received his B.S. Degree in
Business Administration from Kent State University in 1962 and became a
Certified Public Accountant in 1964.
-15-
<PAGE>
ROBERT W. BELL, JR. has served as the Vice President of Operations,
Finance for the Company since April 1994 and has also held such position with
NewCare since April 1994. Mr. Bell received his B.S. Degree in Business
Administration from the University of Southern Mississippi in 1986. Mr. Bell
joined ANH in September 1987 and has served in the capacity of Assistant to
the Chief Financial Officer, Accounts Payable Coordinator, Purchasing Agent
and Assistant Controller of Nursing Homes.
CHRIS BROGDON has served as a Director of the Company since February 19,
1997. He has served as President and a Director of Retirement Care Associates,
Inc., a publicly-held company headquartered in Atlanta, Georgia, since
October 1991. He has also served as Secretary of Capitol Care Management
Company, Inc. ("Capitol Care") since October 1990. Capitol Care is a wholly-
owned subsidiary of Retirement Care Associates, Inc. Mr. Brogdon has been
involved in financing and operating nursing homes and retirement communities
since 1982. From 1969 until 1982, Mr. Brogdon was employed in the securities
business as a retail salesman. Mr. Brogdon attended Georgia State University
in Atlanta, Georgia. Since March 1987, Mr. Brogdon has been
Secretary/Treasurer of Winter Haven Homes, Inc. ("WHH") and since August 1990,
he has been Secretary/Treasurer of National Assistance Bureau, Inc. ("NAB").
Both WHH and NAB are engaged in the business of owning and operating nursing
homes and retirement communities. Mr. Brogdon also serves as a Director of
Contour Medical, Inc., a publicly-held company, of which Retirement Care
Associates, Inc. is a majority shareholder, and Perennial Development
Corporation, a publicly-held company of which Retirement Care Associates,
Inc. is a minority shareholder.
HARLAN MATHEWS has been a Director of the Company since February 1997.
Since 1994 he has been a partner in the law firm of Farris, Mathews, Gilman,
Branan & Hellen, P.L.C., in Nashville, Tennessee. From 1993 to 1994, he
served as a United States Senator from the State of Tennessee. From 1987 to
1993, he was Deputy to the Governor of Tennessee and Cabinet Secretary. From
1974 to 1987, Mr. Mathews was Treasurer of the State of Tennessee. He
received a Bachelor's Degree in Business from Jacksonville State University in
Alabama in 1949 and a Master's Degree in Public Administration from Vanderbilt
University in 1950. Mr. Mathews received a law degree from the Nashville
School of Law in 1962. Mr. Mathews currently serves as a Director of
Retirement Care Associates, Inc., a publicly-held company based in Atlanta,
Georgia, and Murray Guard, Inc., a publicly-held company based in Jackson,
Tennessee.
DR. DHIRAJ PATEL has served as a Director of the Company since January
1997. Dr. Patel has been a practicing physician in Hollywood, Florida for the
past 14 years. Dr. Patel was a limited partner in several Florida nursing
homes operated by the Company until 1993, when he exchanged his ownership
interest in the nursing homes with NewCare Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, officer or beneficial owner of more than 10% of the Company's Common
Stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's President for the years ended December 31,
1996,
-16-
<PAGE>
1995 and 1994 from the Company and its subsidiaries. No other executive
officer received compensation in excess of $100,000 during these periods.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER)PAYOUTS SATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert Bell, Sr. 1996 $96,000 -0- $-0- -- -- -- -0-
President 1995 $96,000 -0- $-0- -- -- -- -0-
1994 $96,000 -0- $-0- -- -- -- -0-
</TABLE>
The only benefit plan offered at the present involves a major medical
plan, which is made available to all full-time employees on a non-
discriminatory basis. The Company currently maintains no stock option plans,
no long-term incentive plans and no benefit plan which would constitute "Long
Term Compensation." There is no current policy of the Company to compensate
directors who are not officers for attending each director's meeting, but the
directors are reimbursed for related expenses.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1997, the shares of the
Common Stock beneficially owned by each person who is the beneficial owner of
more than five percent (5%) of the Company's shares, each of the Company's
Directors and by all of the Company's Directors and Executive Officers as a
group. Each person has sole voting and investment power with respect to the
shares shown, except as noted.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP OF CLASS
<S> <C> <C>
Ashok Dalal 1,031,469<FN1> 9.66%
3703 Bridge Road
Cooper City, FL 33026
Dr. Kishor Karia 1,001,138<FN2> 9.38%
11001 Pines Blvd., Suite 106
Pembroke Pines, FL 33024
Dr. Dhiraj Patel 1,081,388<FN3> 10.13%
11801 N. Island Road
Cooper City, FL 33026
Chris Brogdon 209,374<FN4> 1.96%
Suite 200
6000 Lake Forrest Drive
Atlanta, GA 30328
-17-
<PAGE>
Harlan Mathews -0- -0-
420 Hunt Club Road
Nashville, TN 37221
Robert Hagan 714,287<FN5> 6.69%
1144 Canton Street, Suite 200
Roswell, Georgia 30075
Veena Holdings, Ltd.<FN6> 1,001,138 9.38%
1101 Pines Blvd., Suite 106
Pembroke Pines, FL 33024
Daksha Vakharia Revocable 598,000 5.60%
Trust
3365 Bridle Path Lane
Fort Lauderdale, FL 33331
Matthew J. Carroll 1,172,900<FN7> 10.99%
632 E. Columbus Drive
Tierra Verde, FL 33715
All directors and officers 4,037,656 37.83%
as a group
_________________
<FN>
<FN1>
This amount includes an aggregate of 31,469 shares held of record by certain
family members of Ashok Dalal.
<FN2>
Represents shares held by Veena Holdings, Ltd., a partnership owned by Dr.
Karia and his family.
<FN3>
Includes 901,138 shares held in the name of Dr. Patel's wife, Pravinagauri
Patel; 26,750 shares held in the Karia & Patel Stirling Health Center Annuity
Plan for the benefit of Dr. Patel; and 80,000 shares held jointly by Dr. Patel
and his wife.
<FN4>
Includes 103,824 shares owned by Mr. Brogdon; 100,000 shares owned by Mr.
Brogdon's wife, Connie Brogdon; 5,550 shares of Common Stock which represents
50% of the shares held by Winter Haven Homes, Inc., of which Connie Brogdon is
a 50% owner. Does not include the 1,200,000 shares which Mr. Brogdon has the
right to purchase from the Company upon the closing of the Settlement
Agreement between the Company and Matt Carroll nor does it include options to
purchase 400,000 shares at $2.20 per share which do not vest within 60 days,
nor does it include the 714,000 shares which Mr. Brogdon has signed a letter
of intent to purchase from Karen Hagan over the next two years.
<FN5>
The shares are owned directly by Karen Hagan, wife of Robert Hagan. The
Hagans have signed a letter of intent to sell these shares to Chris Brogdon.
<FN6>
The shareholders of Veena Holdings, Ltd. are Dr. Kishor Karia, Veena Karia,
Ojus Karia and Tajus Karia.
<FN7>
These shares are subject to be transferred back to the Company pursuant to the
Settlement Agreement dated February 14, 1997, among the Company, Matthew
Carroll, et al. See "Item 3. Legal Proceedings" for further information
about the Settlement Agreement.
</FN>
</TABLE>
-18-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RESIGNATION OF ROBERT W. BELL, SR.
During January 1997, Robert W. Bell, Sr., the Company's Chairman and
President, resigned from all of his positions with the Company. In connection
with his resignation, the Company purchased from him and members of his family
a total of 869,978 shares of the Company's common stock for a price of $1.20
per share, or a total consideration of $1,043,973.60. These shares were then
resold to Chris Brogdon and his designees. (See "Letter of Understanding with
Chris Brogdon", below.)
LETTER OF UNDERSTANDING WITH CHRIS BROGDON
On February 19, 1997, the Company's Board of Directors ratified and
approved a Letter of Understanding (the "Letter") between the Company and
Chris Brogdon which was executed on January 31, 1997. Pursuant to this
Letter, the Company agreed to add Chris Brogdon and Harlan Mathews to the
Company's Board of Directors, and these two persons were in fact added on
February 19, 1997. Chris Brogdon currently serves as President and a director
of Retirement Care Associates, Inc. ("RCA"), and Harlan Mathews currently
serves as a director of RCA.
The Letter further provides for and contemplates that Chris Brogdon and
other individuals he selects will become actively involved in the management
of the Company once RCA's proposed merger with Sun HealthCare Group, Inc. is
closed.
Pursuant to the Letter, Chris Brogdon and his designees purchased from
the Company, for a price of $1.20 per share, the 869,978 restricted shares of
the Company's common stock which the Company purchased from Robert W. Bell,
Sr. and members of his family.
The Letter further provides and contemplates that Chris Brogdon and his
designees will purchase from the Company 1,200,000 shares of common stock for
a price of $1.50 per share, contingent upon the Company receiving these shares
from the Carroll Group. (See "Item 3" above.)
The Letter further provides that the Company will grant to Chris Brogdon
and his designees options to purchase a total of 1,500,000 shares of common
stock at a price of $2.20 per share. These options are being granted in
consideration for Mr. Brogdon's agreement to take over management of the
Company. In the event that the Company's common stock does not reach an
average price of at least $5.00 for any 30 consecutive days during the 12
month period following Mr. Brogdon's election as Chief Executive Officer, all
unexercised options will be canceled.
MANAGEMENT AGREEMENT WITH RENAISSANCE SENIOR LIVING, INC.
On February 17, 1997, the Company entered into a Management Agreement
with Renaissance Senior Living, Inc. ("Renaissance"), pursuant to which
Renaissance agreed to manage all of the Company's nursing homes and retirement
facilities. Renaissance is to be paid a monthly fee for each facility equal
to 25% of the increase in profit (a decrease in loss) at the facility as
compared to the profit (or loss) at the facility as of December 31, 1996, but
the fee cannot exceed 6% of the gross operating revenues of the facility for
that month. The agreement terminates December 31, 1997. Renaissance is owned
by Chris Brogdon (20%), Edward E. Lane (20%), Darrell Tucker (17%) and other
officers and employees of Retirement Care Associates, Inc. Chris Brogdon, a
director of the Company, is also a director of Renaissance.
-19-
<PAGE>
TRANSACTIONS WITH KAREN HAGAN
The Company leases office space from Cimerron Properties, Inc., a
company owned by Karen Hagan, a principal shareholder of the Company, under an
operating lease that expires December 31, 1999. Annual rental payments under
the lease approximate $45,600. Pursuant to a letter of intent with Cimerron
Properties, Inc. dated March 13, 1997, this lease will be terminated early in
exchange for a cash payment of $65,000. The termination is expected within
sixty (60) days from March 13, 1997.
In September 1995, the Company exercised an option to purchase the Emory
Nursing Center in exchange for $300,000 in cash and the assumption of approx-
imately $500,000 in debt. The $300,000 was raised by borrowing the money from
Karen Hagan. The $300,000 loan bears interest at 10% and is payable in
monthly payments of interest only through September 15, 1998, when all
principal and any accrued interest is due. The $500,000 note payable matured
in February 1996, and was refinanced with a loan from Retirement Care Asso-
ciates, Inc. bearing interest at 9%. Accrued interest and principal were due in
February 1997. This note has been converted to a demand note. Two of the
Company's directors are also directors of Retirement Care Associates, Inc.
In August 1995, the Company borrowed $225,000 from Karen Hagan to
purchase real estate adjacent to the Emory Nursing Center. Thirty thousand
dollars ($30,000) was repaid during January 1997. A $195,000 note bears
interest at 10% and is payable in monthly installments of interest only
through August 1998, when all principal and any accrued interest is due. The
note is collateralized by the real estate.
In July 1996, the Company borrowed $80,000 from Karen Hagan to pay
outstanding payroll taxes. The note bears interest at 12% and is payable in
twelve monthly installments of $7,467 with the final payment due July 1, 1997.
LETTER OF INTENT BETWEEN CHRIS BROGDON AND ROBERT HAGAN
On March 13, 1997, Robert Hagan ("Hagan") and Chris Brogdon ("Brogdon"),
two directors of the Company, entered into a letter of intent between them-
selves which, among other things, provided for the following:
(a) Brogdon will purchase from Hagan's wife 714,000 shares of the
Company's common stock at $3.00 per share, with payment to be in the form of a
promissory note. The note will bear interest at the rate of 8% and will
provide for the principal to be paid in four equal semi-annual payments with
the first payment due six months after the closing of the transaction. The
shares will be held in escrow and be released in 25% increments as each
principal payment is made on the note.
(b) The office space leased with Cimerron Properties, Inc. will be
terminated early in return for a $65,000 cash payment.
(c) The Company will pay Hagan $150,000 in cash at closing in exchange
for the termination of Hagan's employment agreement with the Company.
LOAN FROM RETIREMENT CARE ASSOCIATES, INC.
During February 1996, Retirement Care Associates, Inc. ("RCA") loaned
the Company $500,000 pursuant to a one-year promissory note with 9% interest
secured by an interest in the Emory Nursing facility. The note has been
converted to a 30-day demand note with interest payable monthly. Chris
Brogdon and Harlan Mathews, directors of the Company, are also directors of
RCA, and Chris Brogdon is President and a principal shareholder of RCA.
-20-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
3.1 Articles of Incorporation Incorporated by reference to
Form 10-SB which was filed with
the Commission on May 12, 1995.
3.2 By-Laws Incorporated by reference to
Form 10-QSB for the quarter ended
September 30, 1995 which was filed
with the Commission on November 10,
1995.
10.1 Settlement Agreement Incorporated by reference to
dated February 14, 1997, Exhibit 10.1 to the Company's
with Matthew Carroll, Report on Form 8-K dated
et al. February 14, 1997
10.2 Letter of Understanding Incorporated by reference to
Between the Company and Exhibit 10.2 to the Company's
and Chris Brogdon Report on Form 8-K dated
February 14, 1997
10.3 Management Agreement Filed herewith electronically
dated February 17, 1997
with Renaissance Senior
Living, Inc.
(b) REPORTS ON FORM 8-K. On November 11, 1996, the Company filed a
Form 8-K which reported under Item 2 the sale to NCS Healthcare of Florida,
Inc. of all the operating assets of the Company's Spectrum Health Services,
Inc. subsidiary. On January 6, 1997, the Company filed an amendment to this
same Form 8-K and provided under Item 7 the pro forma financial statements
required in connection with the sale of the assets of Spectrum Health
Services, Inc.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-22
-21-
<PAGE>
LANEY
BOTELER &
KILLINGER
Independent Auditors' Report
Board of Directors
NewCare Health Corporation and Subsidiaries
Largo, Florida
We have audited the accompanying balance sheet of NewCare Health Corporation
and Subsidiaries, as of December 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit. The financial statements of NewCare Health Corporation
and Subsidiaries as of December 31, 1995, were audited by other auditors whose
opinion, dated February 27, 1996, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the financial position of NewCare Health
Corporation and Subsidiaries, at December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Laney, Boteler & Killinger
LANEY, BOTELER & KILLINGER
Atlanta, Georgia
March 18, 1997
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
NewCare Health Corporation and Subsidiaries
Largo, Florida
We have audited the consolidated statements of operations, changes in
stockholders' equity and cash flows of NewCare Health Corporation and
Subsidiaries for the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of NewCare Health Corporation and subsidiaries for
the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Lovelace, Roby & Company, P.A.
Certified Public Accountants
Orlando, Florida
February 27, 1996
F-2
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
Assets
December 31,
1996
Current assets
Cash and cash equivalents $ 3,198,700
Accounts receivable, net of allowance for
doubtful accounts of $191,299 1,829,581
Other receivables 486,682
Mortgage notes receivable 1,852,377
Inventory 27,762
Prepaid expenses 92,141
Total current assets 7,487,243
Property and equipment
Land and improvements 4,197,271
Buildings and improvements 21,721,772
Equipment and other 3,585,056
Total property and equipment 29,504,099
Less: accumulated depreciation and
amortization 5,682,538
Property and equipment, net 23,821,561
Excess of costs over net assets of businesses
acquired, net of accumulated amortization
of $135,391 183,648
Other assets, net
Non-compete agreements -
Closing costs 92,968
Bond costs 423,716
Deferred expenses 67,152
Organization costs, deposits and other 336,037
Total other assets 919,873
Less accumulated amortization 145,224
Other assets, net 774,649
$32,267,101
See Notes to Financial Statements.
F-3
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
December 31,
1996
Current liabilities
Current maturities of long-term debt $16,899,696
Notes payable -
Borrowings under line of credit -
Accounts payable 1,143,996
Accrued compensation 808,960
Accrued interest 662,985
Accrued other expenses 577,920
Deferred revenue 86,863
Estimated third-party payor settlements 62,189
Total current liabilities 20,242,609
Estimated third-party payor settlements -
Long-term debt 6,880,805
Total liabilities 27,123,414
Commitments and contingencies
Stockholders' equity
Common stock, $.02 par value; 50,000,000
shares authorized; 10,667,524 shares
issued and outstanding 213,350
Additional paid-in capital 9,055,724
Accumulated deficit (4,075,387)
Treasury stock (70,168 shares), at cost (50,000)
Total stockholders' equity 5,143,687
Total liabilities and stockholders' equity $32,267,101
See Notes to Financial Statements.
F-4
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31,
1996 1995
Net revenues $28,767,532 $23,186,401
Operating expenses
Compensation and related expenses 15,553,474 13,152,290
Operating and administrative 10,070,544 7,880,909
Interest 1,912,838 1,518,910
Depreciation and amortization 1,076,740 938,946
Total operating expenses 28,613,596 23,491,055
Net income (loss) before income taxes 153,936 (304,654)
Income tax (provision) (54,000) (36,000)
Income (loss) from continuing operations 99,936 (340,654)
Discontinued operations
Income (loss) from discontinued
business segment net of benefit
for income taxes of $23,000 in 1996 (970,430) 168,432
Loss on disposal of discontinued
business segment net of benefit
for income taxes of $31,000 (1,355,798) -
Net loss $(2,226,292) $ (172,222)
Net income (loss) per common share:
Continuing operations $ 0.01 $ (0.03)
Net loss $ (0.21) $ (0.02)
Weighted average number of
common shares outstanding 10,667,524 10,390,073
See Notes to Financial Statements.
F-5
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Addit- Total
Number ional Stock-
of Paid-In Accumulated Treasury holders'
Shares Amount Capital Deficit Stock Equity
------ -------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1994 9,920,488 $198,410 $7,247,094 $(1,676,873) $(50,000) $5,718,631
Issuance of
common stock
for acquisi-
tion of sub-
sidiary 726,286 14,525 1,801,190 - - 1,815,715
Other common
stock is-
suances 20,750 415 7,440 - - 7,855
Net loss for
1995 - - - (172,222) - (172,222)
Balance at
December 31,
1995 10,667,524 213,350 9,055,724 (1,849,095) (50,000) 7,369,979
Net loss for
1996 - - - (2,226,292) - (2,226,292)
Balance at
December 31,
1996 10,667,524 $213,350 $9,055,724 $(4,075,387) $(50,000) $5,143,687
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Statements of Cash Flows
Years Ended December 31,
1996 1995
Cash flows from operating activities
Net loss $(2,226,292) $ (172,222)
Adjustment to reconcile net loss
to net cash provided by operating
activities
Depreciation and amortization 1,554,219 1,494,836
Common stock for services - 7,855
Provision for bad debts (707,936) 1,001,448
Loss on disposal 1,386,798 -
Changes in assets and liabilities,
net of effects from business
Combinations
Decrease (increase) in assets
Accounts receivable 1,612,136 (1,617,140)
Other receivables (486,682) -
Inventories 181,701 43,475
Prepaid expenses 81,142 73,254
Increase (decrease) in liabilities
Accounts payable (2,090,525) 778,678
Accrued liabilities 157,987 34,284
Deferred revenue 25,617 -
Estimated third party payor
settlements (194,450) (105,535)
Net cash provided by (used
in) operating activities (706,285) 1,538,933
Cash flows from investing activities
Proceeds on disposal of property,
plant and equipment 10,234,655 -
Net purchases of property, plant and
equipment (1,085,050) (564,149)
Cash paid for acquisitions of
affiliates, net of cash acquired - (1,612,200)
Issuance of notes receivable (1,852,377) -
Payments for other assets (207,943) (118,120)
Net cash provided by (used
in) investing activities 7,089,285 (2,294,469)
See Notes to Financial Statements.
F-7
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Statements of Cash Flows
Years Ended December 31,
1996 1995
Cash flows from financing activities
Proceeds from long-term debt $ 710,572 $ 2,741,953
Repayment of long-term debt (2,405,020) (2,710,935)
Repayment of notes payable (1,525,000) -
Net decrease in line of credit (166,491) -
Net cash provided by (used
in) financing activities (3,385,939) 31,018
Net increase (decrease) in cash
and cash equivalents 2,997,061 (724,518)
Cash and cash equivalents at
beginning of year 201,639 926,157
Cash and cash equivalents at
end of year $ 3,198,700 $ 201,639
See Notes to Financial Statements.
F-8
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NewCare Health
Corporation and its subsidiaries (the Company). The Company's three
subsidiaries: NewCare, Inc. (NewCare), Spectrum Health Services, Inc.
(Spectrum) and Cimerron Health Care, Inc. (Cimerron; acquired on May 22,
1995) operate predominately in the long-term health care industry. The
Company operates ten (10) skilled nursing facilities, five (5) in Florida
through NewCare and five (5) in Georgia through Cimerron. The assets and
operations of Spectrum were sold October 24, 1996. All significant inter-
company transactions have been eliminated in the consolidation process.
OPERATIONS
As of December 31, 1996, current liabilities exceeded current assets by
approximately $12,800,000. The Company was also experiencing operating losses
in its Spectrum division. On October 24, 1996, the Spectrum division was
sold. The remaining operating division had operating income in 1996.
Management's plans with regard to operations include continuing improvement of
budget controls, increased marketing efforts at its facilities to increase
occupancy and revenue and restructuring the current maturities of its debts.
In addition, the Company's chief executive officer has resigned and new
management has been engaged effective February 17, 1997 (Note 13).
CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with an original
maturity of three months or less.
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.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Maintenance and repairs are
charged to operations and major improvements are capitalized. Upon retire-
ment, sale or other disposition, the cost and accumulated depreciation are
eliminated from the accounts and any gain or loss is included in operations.
Depreciation is computed using the straight-line method for financial report-
ing purposes and accelerated methods for income tax purposes. Estimated
useful lives of the assets range from three to fifteen years for equipment
and thirty to forty years for real estate.
OTHER ASSETS
Other assets consist primarily of excess of consideration paid over net assets
acquired in business combinations (goodwill), organization costs, deferred
financing costs, deposits and certain other deferred expenses. Deferred
F-9
<PAGE>
Financing costs are amortized using a method approximating the effective
interest method over the terms of the related borrowings. The other in-
tangible assets are amortized using the straight-line method over the periods of
expected benefit, generally five to forty years.
Goodwill is reviewed for impairment whenever events or changes in circum-
stances 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.
Offering costs directly related to the Company's offerings of its common stock
are deferred and offset against the proceeds from the offerings as a charge to
additional paid-in capital, or expensed in the event the related offering is
unsuccessful.
INCOME TAXES
Deferred income taxes are provided for certain temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and tax purposes, using enacted tax rates in effect for the year in
which the differences are expected to reverse.
CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. Credit risk
associated with private pay accounts receivable is mitigated by the large
number of such accounts. Credit risk related to accounts receivable from the
Medicaid and Medicare programs are mitigated by the taxing authority of the
governmental entities funding those programs.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of products in the period that
the products are shipped to customers. Revenue from providing health care
services is generally recognized in the period that the services are performed.
Patient service revenue is reported at the estimated net realizable amounts
receivable from residents, third-party payors and others for services rendered.
Revenue under third-party payor agreements is subject to audit and retroactive
adjustment. Provisions for estimated third-party payor settlements are
provided in the period the related services are rendered. Differences between
the estimated amounts accrued and interim and final settlements are reported
in operations in the period of settlement.
PRODUCT WARRANTIES
The Company generally will replace or refund the purchase price of products
sold for which the customer is not satisfied. Historically, the effect of
this policy has not been material to the Company's financial statements which,
as a result, do not include a provision for the effect of product warranty
policies.
PER SHARE DATA
Net earnings per common share are computed using the weighted average number
of common shares and common equivalent shares outstanding during each year.
Common
F-10
<PAGE>
share equivalents represent shares issuable upon the assumed exercise of stock
options. The stock options are included in the computation using the treasury
stock method, if they would have a dilutive effect in years where there are
earnings. Common share equivalents are not considered in calculations of per
share data when their inclusion would be anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates.
ADVERTISING
The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense for 1996 and 1995, respectively,
totaled $66,000 and $68,000.
RECLASSIFICATIONS
APB Opinion 30 requires prior period financial statements that are presented
for comparative purposes to be restated to present earnings or losses of a
discontinued segment net of tax for those periods. Accordingly, the
consolidated statement of operations for 1995 has been restated to reflect the
operations of Spectrum as a single-line litem. Revenues, expenses and net
income of the Spectrum division for 1996 and 1995 were as follows:
1996 1995
Revenues $13,026,071 $16,584,059
Expenses 13,996,501 16,415,627
Net income (loss) $ (970,430) $ 168,432
NOTE 2 - BUSINESS COMBINATIONS, ACQUISITIONS AND DISPOSITIONS
CIMERRON
During 1995, the Company acquired all of the outstanding common stock of
Cimerron Health care, Inc. (Cimerron). Cimerron operates five skilled nursing
facilities in Georgia with an aggregate of 502 skilled nursing beds. The
purchase price was approximately $10,348,000, composed of $1,500,000 in cash,
726,286 unregistered shares of the Company's common stock valued at $1,815,715
and the assumption of approximately $7,032,000 of debt and operating
liabilities. The Company's stock given in exchange was valued by the
Company's Board of Directors at $2.50 per share, which approximated market
value at the time the transaction was consummated.
The acquisition was accounted for as a purchase and Cimerron's results of
operations have been included in the accompanying consolidated financial
statements beginning on May 22, 1995, the date of the acquisition.
F-11
<PAGE>
UNAUDITED PRO-FORMA RESULTS OF OPERATIONS
The following table of unaudited pro-forma results presents the operations of
the Company as if it had owned Cimerron for all of 1995 after giving effect to
certain adjustments and reclassifications, including additional depreciation
expense, increased interest expense on acquisition related debt, related
income tax effects and elimination of intercompany transactions:
1995
Net revenues $44,403,000
Net loss (94,000)
Net loss per share $ (0.01)
SPECTRUM
During 1994, the Company acquired all of the outstanding common stock of
Spectrum Health Services, Inc. and Spectrum Infusion Services, Inc.
(Spectrum). Spectrum was engaged in the business of selling medical supplies,
pharmaceutical products and services and therapy services to health care
facilities and individuals. The purchase price was $9,581,190, composed of
$1,390,000 in cash, $5,012,190 in notes payable and 1,700,000 shares of the
Company's common stock valued at $3,179,000. The Company's stock given in the
exchange were valued by the Company's Board of Directors at $1.87 per share,
which was the price at which shares were being sold in the concurrent private
placement (Note 9). The acquisition was accounted for as a purchase.
At the acquisition date, Spectrum had net assets with a fair market value of
approximately $2,874,000 resulting in an excess of cost over net assets
acquired of approximately $6,847,000. The Company was amortizing this amount
over forty years using the straight-line method.
On October 24, 1996, the assets of Spectrum were sold. The selling price of
$10,167,000 was comprised of approximately $7,795,000 in cash, assumption of
liabilities totaling $1,841,000 and payoff of liabilities and closing costs
totaling $531,000. The 1996 income statement reflects a loss from the sale of
Spectrum of $1,355,798.
CENTRAL TAMPA NURSING HOME
In September 1995, the Company acquired, through a lease, the operations of a
100-bed skilled nursing facility located in Tampa, Florida. Supplemental
pro-forma information is not presented for this transaction due to the
entity's insignificance to the consolidated financial statements.
BAY TO BAY NURSING HOME
In February 1996, the Company was notified by the lessor of Bay to Bay Nursing
Home that the lease would expire in June 1996 and would not be renewed. The
loss of the seventy-five bed skilled nursing facility is not expected to have
a material adverse effect on the Company's results of operations.
NOTE 3 - PATIENT FUNDS HELD IN ESCROW
The Company's skilled nursing facilities offer a cash management service to
their residents. These funds remain the sole property of each respective
resident to be disbursed only as requested and, accordingly, these funds are
excluded from
F-12
<PAGE>
the Company's financial statements. The facilities have a fiduciary duty of
accountability for the funds. At December 31, 1996 and 1995, patient fund
balances, in the aggregate, totaled approximately $216,000 and $244,000,
respectively.
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 (Note 2) 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 note is due on demand by the Company.
NOTE 5 - LONG-TERM DEBT
At December 31, 1996 and 1995, notes payable and long-term debt consisted of
the following:
1996 1995
First mortgage note, interest at 8.5% due
in monthly installments of principal and
interest of $46,840 with remaining princi-
pal due at maturity in September 1996,
collateralized by first mortgage on property
and equipment at Oak Manor facility and guar-
antees by Company officers, directors and
other related parties. The due date of the
note was extended until September 1997. $4,169,296 $4,321,009
Second mortgage installment note, interest
at 2% due in monthly installments of
$35,000 principal and $8,500 interest with
remaining principal and accrued interest due
at maturity in December 1997. Note is col-
lateralized by a second mortgage on the
Oak Manor facility and includes a provision
for the mortgagee to participate in any sale
or refinance proceeds in excess of $10,000,000. 5,650,000 5,965,000
Gainesville and Hall County Development
Authority bonds, interest at 10.25% due
semi-annually, principal due annually through
August 2013 in accordance with the bond agree-
ments, collateralized by property and
equipment at Windward facility and restricted
bond trust funds. 1,760,000 1,790,000
First mortgage note, interest at 12% due in
monthly installments of interest only of
$10,000 with principal due at maturity in
January 2009, collateralized by first mortgage
on property and equipment at Fort Valley
facility. 1,000,000 1,000,000
F-13
<PAGE>
Ben Hill County Development Authority bonds,
interest from 8.75% to 11.5% due semi-annually,
principal due annually through November
2000 in accordance with the bond agreements,
collateralized by property and equipment at
Fitzgerald Nursing facility and restricted bond
trust funds. The Bonds were paid in full on
February 28, 1997 with refinancing proceeds
(Note 13). 575,000 690,000
Note payable with interest at 10.25% due
in monthly installments from $3,463 increas-
ing to $25,000 (currently $10,863 through
November 2000) with remaining principal due
at maturity in January 2016, collateralized
by security interest in Fitzgerald Nursing
facility. Note was paid in full at a discount
on January 16, 1997 with refinancing proceeds
(Note 13). 2,041,209 1,950,462
Note payable with interest at prime rate plus
1% (9.25% at December 31, 1996) due in monthly
principal installments of $5,041 plus interest
with remaining principal due at maturity in
June 1998, collateralized by property and equip-
ment at Dania Nursing facility and guaranteed
by a former director. 1,373,158 1,437,970
Note payable with interest at prime rate
plus 1% (9.25% at December 31, 1996) due in
monthly principal installments of $2,083 plus
interest with remaining principal due at
maturity in February 2004, collateralized by
property and equipment at Victoria Martin
Nursing facility and guaranteed by the
Company. 181,250 206,250
Note payable to Retirement Care Associates,
Inc. with interest at 9% due with principal
at maturity on February 6, 1997, collater-
alized by interest in Emory Nursing facility
and guaranteed by the Company. The note
terms have been modified to a 30 day demand
note with interest payable monthly. 500,000 -
Note payable with interest at 17%, matures in
February 1996, collatateralized by interest in
Emory Nursing Facility - 500,000
Notes payable related party with interest at
10% due monthly with principal due at maturity
at various dates from January 1997 to September
1998, collateralized by property and equipment
of various facilities. The note due January
1997, $600,000 has been extended on a month-to-
month basis. 1,125,000 1,095,000
F-14
<PAGE>
Notes and obligations payable related to the
acquisition of Spectrum. Terms of the notes
were modified during 1996. Subsequent default
caused the notes to revert to the original
terms. A final settlement agreement was
reached in February 1997 for full payment of
the notes by June 14, 1997 (Note 13). 5,359,595 5,610,990
Installment notes with interest from 6.75% to
10.5% due in various installments. Amounts
were paid in full, refinanced or assumed by the
purchase of Spectrum during 1996. - 525,647
Various capitalized leases for equipment
terminated in connection with the sale of
Spectrum. - 267,128
Notes payable to related party with interest
from 6% to 10.25%, due in various installments,
maturing from February 1996 to December 1998 - 115,493
Note payable related party with interest at
12% due in monthly installments of $7,467,
maturing July 1997, guaranteed by a subsidiary
of the Company. 45,993 -
------------ -----------
23,780,501 25,474,949
Less current maturities 16,899,696 9,214,389
----------- -----------
Total long-term debt $ 6,880,805 $16,260,560
MORTGAGE NOTES
One of the mortgage agreements with a bank includes a restrictive financial
covenant requiring the facility to maintain a minimum debt service coverage
2.0 to 1.0 for the bank debt and a coverage of 1.0 to 1.0 for all of the
facility's debt. As of December 31, 1996, the facility was in compliance with
the debt covenants.
At December 31, 1996, the aggregate principal amount of long-term debt
scheduled for repayment are approximately as follows:
Year Ending
December 31, Amount
1997 $16,899,700
1998 1,603,300
1999 320,000
2000 355,000
2001 200,000
Thereafter 4,402,501
$23,780,501
F-15
<PAGE>
NOTE 6 - BORROWINGS UNDER LINE OF CREDIT
Spectrum had a revolving line of credit with a financial institution which
provided, among other things, for monthly interest payments at the financial
institution's prime base rate plus 1% (9.75% at December 31, 1995).
Borrowings under the line of credit were limited to a maximum of $250,000, of
which $166,491 was borrowed at December 31, 1995. The outstanding balance on
the line of credit was assumed by the purchaser of Spectrum (Note 13).
NOTE 7 - SHORT-TERM ACQUISITION NOTES PAYABLE
The cash needed to effect the Cimerron acquisition was raised through the
issuance of $1,525,000 of short-term notes payable, bearing interest at 12%.
Interest only was payable monthly through April 30, 1996 when all principal
and any accrued unpaid interest was due. The notes were extended and interest
continued to accrue until November 30, 1996, when all principal and accrued
interest was paid. At the issuance of the notes, the Company issued one
warrant for every $10 advanced under the note agreements for a total of
152,500 warrants. The warrants are exercisable for one share each of the
Company's common stock until June 1, 1998, at an exercise price of $3.50 per
share. Interest paid to the stockholders during 1996 and 1995 totaled
approximately $165,000 and $91,000, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company leases land, buildings and equipment through lease contracts that
expire in various years through 2000. Total rent expense approximated
$975,000 in 1996 and $776,000 in 1995. Property and equipment at December 31,
1995 included approximately $438,000 of assets acquired under capital leases
and related accumulated amortization of $189,000. These assets and the
related leases were disposed of as part of the sale of Spectrum (Note 12).
The aggregate amount of lease payments under non-cancelable lease obligations
of one year or longer at December 31, 1996, are as follows:
Year Ending
December 31, Amount
1997 $ 611,000
1998 611,000
1999 611,000
2000 560,000
2001 429,000
Thereafter 4,053,000
$6,875,000
STOCK OPTIONS AND WARRANTS
In connection with the acquisition of a skilled nursing home facility in 1990,
an option was granted to the seller to acquire shares of common stock of the
Company's predecessor organization. The options, after conversion for changes
in capital structure, remain outstanding for the acquisition of 89,332 shares
of common stock at an exercise price of $2.24 per share. This option remains
exercisable through December 1998.
F-16
<PAGE>
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.
On January 31, 1997, the Company granted options to purchase 1,500,000 shares
of the Company's common stock at an exercise price of $2.20 per share. Of
these, 400,000 were granted to a new Company director. The options were
granted in consideration of his undertaking to manage the Company. In the
event that the per share stock price of the Company does not reach an average
price of at least $5.00 during any 30 consecutive days during the ensuing
twelve month period, unexercised options will be canceled.
The Company issued 152,500 warrants in connection with advances made under a
short term note agreement (Note 7). The warrants are exercisable for one
share each of the Company's common stock until June 1, 1998, at an exercise
price of $3.50 per share.
The stock options and warrants described above were issued with exercise
prices determined by the Company's Board of Directors to be equal to, or
greater than, the fair value of the Company's common stock on the respective
grant dates (Note 9).
HEALTH CARE REFORM
Governmental funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all of
which may materially affect program reimbursement to health care facilities.
Changes in the reimbursement policies of the Medicaid and Medicare programs as
a result of legislative and regulatory actions by federal and state govern-
ments could adversely affect the revenues of the Company.
LEGAL PROCEEDINGS
During 1995, the Company's Spectrum subsidiary was assessed by Medicare
approximately $364,000 relating to the recoupment of an alleged overpayment of
services it provided during the years 1990 through 1993. The Company appealed
the claim and, in June 1996, received notification that the assessment had
been revised to $86,000. This amount was paid and is included in the income
statement for 1996.
During 1996, the facilities operated by the Company's Cimerron subsidiary were
audited by the State of Georgia for the fiscal year ended June 30, 1995. The
audit resulted in disallowed expenses in excess of $270,000. The State has
not notified Cimerron of any resulting rate adjustment or recoupment. The
Company intends to appeal the disallowance as soon as they are officially
notified of any adjustments. No provision has been made in the financial
statements for any amounts that may become due as a result of the audit.
On April 16, 1996, an employee of the Company filed a complaint in federal
district court against the Company and its President and Chairman of the
Board. The complaint contained two counts, one for sexual harassment under
Title VII of the Federal Civil Rights Act and the other for intentional
infliction of emotional distress. The court has dismissed the President and
Chairman of the
F-17
<PAGE>
Board from the case and the count for intentional infliction of emotional
distress. The employee is claimining an unspecified amount in damages for
alleged emotional distress and pain and suffering. The case has been sched-
uled for trial in January 1998. The Company is vigorously defending the
action. Legal counsel advised that the potential liability in this case is
undeterminable in that they cannot predict how a judge and jury will assess
any potential damages. No provision has been made in the accompanying
financial statements for any potential loss in connection with the lawsuit.
The Company is also engaged in various legal and regulatory proceedings
incidental to the Company's normal business activities. Such matters are
subject to many uncertainties, and outcomes are not predictable with assurance.
Consequently, the Company is unable to ascertain the ultimate aggregate amount
of monetary liability or financial impact with respect to these matters at
December 31, 1996. These matters could affect the operating results of any
one quarter when resolved in future periods. However, management believes
that after final disposition, any monetary liability or financial impact to
the Company would not be material to the Company's annual consolidated
financial statements.
CONSTRUCTION PLANS
In 1995, the Company filed an application with the Florida Agency for Health
Care Administration to combine the Certificates of Need (CON) for two of its
Florida facilities, which currently operate thirty-eight bed and fifty-nine
bed skilled nursing facilities, respectively. The Company plans to construct
a new facility using lease financing to operate the combined ninety-seven
beds. The Company plans to operate the existing facilities as assisted living
facilities. As of December 31, 1996 and the date of this report, the request
for consolidation of the CON's was still pending. The Company has not entered
into any formal arrangements for construction or financing of the new facility.
During 1995, Cimerron obtained a Certificate of Need for twenty skilled
nursing beds and, in November 1995, acquired approximately eight acres of
undeveloped land in Georgia. The Company has plans to combine the new
twenty-bed Certificate of Need with the existing forty-bed Certificate of Need
currently being operating as Emory Nursing Home (Emory) and to construct a new
sixty-bed skilled nursing facility. Current plans call for Emory to be
operated as an assisted living facility. As of December 31, 1996, the Company
had not entered into any formal arrangements for construction or financing of
the new facility.
NOTE 9 - STOCKHOLDERS' EQUITY
Common stock has been issued by the Company for various purposes. In certain
of these transactions, the Company's Board of Directors assigned a fair value
to the common stock issued equal to the fair value of the services or other
consideration received.
NOTE 10 - INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets at
December 31, 1996 and 1995, are as follows:
F-18
<PAGE>
1996 1995
Deferred tax liabilities:
Depreciation and amortization $ (196,700) $ (198,000)
Deferred tax assets
Bad debt allowance 67,000 148,000
Net operating loss carryforwards 974,000 23,000
Accrued expenses 252,400 138,000
Deferred revenue 30,500 21,000
Other - 12,000
Gross deferred tax assets 1,323,900 342,000
Valuation allowance (1,127,200) (144,000)
196,700 198,000
Net deferred taxes $ - $ -
The deferred tax asset valuation allowance was $144,000 at December 31, 1995,
and was increased to $1,127,200 at December 31, 1996, a change of $982,000.
The components of income tax expense are approximately as follows:
1996 1995
Federal
Current $ - $ -
Deferred-net - -
State
Current - 36,000
Deferred-net - -
Total $ - $ 36,000
A reconciliation of income tax expense and the amount computed by applying the
statutory federal income tax rate to the net loss before income taxes is as
follows:
1996 1995
Taxes computed at 35% $ (779,000) $ (48,000)
Increases (decreases)
in taxes resulting from:
Amortization (127,000) (87,000)
State income taxes, net
of federal income tax effect - 36,000
Bad debt expense 67,000 184,000
Depreciation (70,000) (111,000)
Accrued expenses 253,000 138,000
Deferred revenue 30,000 21,000
Net operating losses 626,000 (110,000)
Inventories - 13,000
Total $ 0 $ 36,000
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $2,782,000 that are available to offset future taxable income.
The loss carryforwards expire at various times through 2011 as follows:
Expires Amount
2006 $ 1,000
2009 445,000
2010 372,000
2011 1,964,000
Total $2,782,000
F-19
<PAGE>
NOTE 11 - TRANSACTIONS WITH RELATED PARTIES
The Company leased a facility used by one of its nursing homes from a stock-
holder. Rent payments to the stockholder of approximately $72,000 and
$183,000 were made in 1996 and in 1995, respectively. This lease expired in
June 1996.
A company, controlled by a stockholder, provides contract services to certain
of the Company's nursing centers. Total contract service fees paid to this
company totaled approximately $1,148,100 and $794,000 in 1996 and 1995,
respectively.
The Company leases office space from a stockholder under an operating lease
that expires December 31, 1999. Annual rental payments under the lease
approximate $45,600. Pursuant to a letter of intent with the stockholder
dated March 13, 1997, this lease will be terminated early in exchange for a
cash payment of $65,000. The termination is expected within sixty days from
March 13, 1997.
In November 1995, the Company exercised an option to purchase one of its
leased facilities from the lessor in exchange for $300,000 in cash and the
assumption of approximately $500,000 in debt. The option was exercised using
funds raised through a borrowing from a related party. The $300,000 loan
bears interest at 10% and is payable in monthly payments of interest only
through November 1997, when all principal and any accrued interest is due. The
$500,000 note payable matured in February 1996, and was refinanced with a 12
month loan bearing interest at 9%. This note was then converted during
February 1997 into a 30 day demand note with interest at 9% payable monthly.
In November 1995, the Company borrowed $195,000 from a stockholder to purchase
real property. The $195,000 note bears interest at 10% and is payable in
monthly installments of interest only through August 1998, when all principal
and any accrued interest is due. The note is collateralized by real estate.
In September 1994, the Company loaned $74,000 to one of its principal
officers. The loans, which were approved by the Board of Directors, are
non-interest bearing and were originally due in September 1995, but were
extended with new terms requiring payment on demand. Additional advances
totaling $18,000 were made during 1996. Repayments totaling $15,000 were
received in January 1997. The Company has made no demand for the repayment of
the notes.
In July 1996, the Company borrowed $80,000 from a stockholder to pay
outstanding payroll taxes. The note bears interest at 12% and is payable in
twelve monthly installments of $7,467 through July 1997.
NOTE 12 - SUPPLEMENTARY FINANCIAL INFORMATION
1996 1995
Statements of operations information
Operating and administrative expenses
Supplies and food $ 3,272,284 $2,542,200
Contract therapy 1,333,800 1,197,047
Utilities 1,095,380 879,246
Bad debt expense 203,937 211,919
Rent 714,420 494,005
Housekeeping contracts 1,161,005 522,605
Taxes and licenses 437,452 343,944
Professional fees 656,176 538,497
Insurance 351,057 267,620
Advertising and marketing 46,238 51,613
Other 798,795 832,213
Total $10,070,544 $7,880,909
F-20
<PAGE>
Certain amounts in the 1995 column of preceding tables have been reclassified
to conform to the 1996 presentation.
Statement of cash flows information
Cash paid during the year for interest $ 1,517,350 $1,617,000
NOTE 13 - SUBSEQUENT EVENTS
SPECTRUM SETTLEMENT AGREEMENT
When the Company acquired the Spectrum subsidiary in September 1994, notes
totaling $5,012,190 were issued as part of the purchase price. The initial
principal payments that were payable January 2, 1996, were not made due to a
cash shortage. By agreement with the note holders, the payments were de-
ferred. In June 1996, the Company and certain related party holders of the
Spectrum acquisition notes reached an agreement on restructuring the notes.
The agreement provided, among other things, for a reduction of the amount
payable and extensions of payment terms. Due to the Company's inability to
make the restructured payments, the notes reverted to their original terms.
The note holders filed a lawsuit against the Company for breach of contract
with respect to the payment of the notes. On February 14, 1997, the Company
and the Spectrum note holders reached an out of court settlement whereby the
Company will pay the Spectrum note holders the amount of $6,000,000 payable as
follows:
February 21, 1997 $1,000,000
On or before March 31, 1997 1,000,000
On or before June 14, 1997 4,000,000
Beginning February 21, 1997, interest will accrue at the rate of 8.75% per
annum on the unpaid balance and is payable along with the final principal
payment due on or before June 14, 1997. The first two installments of
$1,000,000 each have been paid.
In addition to the above payments, the Company will assign to the Spectrum
note holders the remaining accounts receivable hold back due from NCS
Healthcare, Inc. (NCS). NCS was the purchaser of Spectrum and the hold back
of accounts receivable was to cover any uncollectible accounts on the books of
Spectrum at the time of sale. The remaining hold back totaled $486,682 at
December 31, 1996, and is included as other receivables in the accompanying
balance sheet.
The Spectrum note holders also own 1,500,000 shares of the Company's common
stock. Upon full payment of all of the above obligations under the settlement
agreement, 1,200,000 shares will be transferred back to the Company. The
Company has agreed to purchase the remaining 300,000 shares for $3.50 per
share. The Spectrum note holders can put the shares to the Company at any
time after February 1, 1999. The Company's obligation to purchase the shares
terminates if the closing price of the stock equals or exceeds $4.00 per share
for thirty (30) consecutive trading days before February 1, 1999.
REFINANCING OF LONG-TERM DEBT
On January 16, 1997, the Company retired $2,041,209 of existing debt
collateralizing one of the nursing facilities in Georgia at a discount of
approximately $340,000. The Company then refinanced the remaining bond
debt on the facility ($500,000 plus accrued interest) with proceeds of a
Federal Housing Administration loan totaling $2,812,500. The loan will
accrue interest at 8.375% payable in monthly installments of $23,000 until
maturity on March 1, 2019.
F-21
<PAGE>
STOCKHOLDER AND MANAGEMENT CHANGES
In January 1997, the president and chairman of the board of the Company
resigned. As part of agreement, he sold 869,978 shares of the Company's
stock back to the Company. The shares were held in escrow and the right to
purchase the shares were assigned to Mr. Chris Brogdon. Mr. Brogdon was
subsequently elected to the
Company's board of directors. Mr. Brogdon and his wife personally acquired
187,000 of the shares and assigned the right to purchase the remaining 682,978
shares to business associates.
In other actions, Mr. Brogdon was granted the right to acquire 1,200,000
shares of Company stock in connection with the re-acquisition of shares in the
Spectrum settlement noted above and was granted an option to purchase 400,000
shares of unissued stock at a price of $2.20 per share. He has also signed a
letter of intent to purchase 714,000 shares of stock from the wife of the
president of the Company's Cimerron subsidiary.
Mr. Brogdon is a principal shareholder and director of Renaissance Senior
Living, Inc., (Renaissance) which, on February 17, 1997, signed a management
agreement to manage the nursing homes of the Company. The agreement expires
on December 31, 1997, and provides for management fees based on an improvement
in the profit position of the Company, not to exceed 6% of revenue.
EMPLOYMENT AGREEMENT TERMINATIONS
Two employment agreements will be terminated in conjunction with the
acquisition of the shares from the Cimerron president's wife noted above by Mr.
Brogdon and the takeover of management of the Company's facilities by
Renaissance. The two agreements had remaining payments due at December 31,
1996, totaling approximately $539,000. Cash payments to terminate the
agreements will total approximately $300,000.
REFINANCING OF LONG TERM DEBT
The Company is actively pursuing opportunities to refinance several of the
nursing facilities in order to meet its current debt obligations. No commit-
ment letters have been executed as of the date of issuance of this report.
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEWCARE HEALTH CORPORATION
Dated: April 14, 1997 By:/s/ Ashok Dalal
Ashok Dalal, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Capacity Date
/s/ Ashok Dalal Chairman and President April 14, 1997
Ashok Dalal (Chief Executive Officer)
/s/ Henry H. Sherrill, Jr. Chief Financial Officer April 14, 1997
Henry H. Sherrill, Jr. (Chief Accounting Officer)
/s/ Robert Hagan Director April 14, 1997
Robert Hagan
/s/ Kishor Karia Director April 14, 1997
Dr. Kishor Karia
/s/ Dhiraj Patel Director April 14, 1997
Dr. Dhiraj Patel
/s/ Chris Brogdon Director April 14, 1997
Chris Brogdon
_____________________________ Director
Harlan Mathews
MANAGEMENT AGREEMENT FOR EXISTING FACILITIES
THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into
this 17th day of February 1997, by and between NEWCARE HEALTH CORPORAT10N
(hereinafter called "Owner"), and RENAISSANCE SENIOR LIVING, INC. (hereinafter
called "Manager").
Owner and Manager agree that Manager shall manage the nursing home
facilities and retirement facilities listed on Exhibit "A", attached hereto
and incorporated herein (the "Facilities"), on the following terms and
conditions:
SECTION ONE: MANAGEMEFIT DUTIES AND OBLIGATIONS
1.01 Management of Facilities. During the term of this Agreement,
Manager shall supervise the management of the Facilities including but not
limited to staffing, accounting, billing, collections, setting of rates and
charges and general administration. In connection therewith Manager (either
directly or through supervision of employees of the Facilities) shall;
(a) Hire on behalf of Owner and maintain (to the extent such
personnel are reasonably available in the community in which the Facilities
are located) an adequate staff of nurses, technicians, office and other
employees, including an administrator, at wage and salary rates for various
job classifications approved from time to time by Owner; and release employees
at Manager's discretion.
(b) Recommend and institute, subject to approval of Owner,
appropriate employee benefits. Employee benefits may include pension and
profit-sharing plans, insurance benefits, incentive plans for key employees
and vacation policies.
(c) Design and maintain accounting, billing, patient and
collection records; prepare and file insurance, Medicaid, Medicare and any and
all other necessary or desirable reports and claims related to revenue
production.
(d) Order, supervise and conduct a program of regular maintenance
and repair of the Facilities except that physical improvements costing
more than $500.00 shall be subject to prior approval of Owner which shall not
be unreasonably withheld.
(e) Purchase supplies, drugs, solutions, equipment, furniture
and furnishings on behalf of Owner, except that purchases of items of equip-
ment which cost more than $500.00 shall be subject to prior approval of Owner
which shall not be unreasonably withheld.
(f) Administer and schedule all services of the Facilities.
(g) Supervise and provide the operation of food service facilities.
(h) Provide for the orderly payment (to the extent funds of
Owner are available therefore) of accounts payable, employee payroll, taxes
and insurance premiums.
(i) Institute standards and procedures for admitting patients,
for charging patients for services, and for collection of charges from ths
patients or third parties.
(j) Advise and assist Owner in obtaining and maintaining
adequate insurance coverage with Owner, Manager and such other persons as
requested by Owner named as insured for the Facilities. Manager shall advise
Owner with regard to the availability, nature and desirable policy limits of
insurance coverage for the Facilities, and shall request and receive bids for
such coverage.
(k) Negotiate on behalf of Owner (and in conjunction with
Owner's counsel) with any labor union lawfully entitled to represent employees
of the Owner who work at the Facilitles, but any collective bargaining
agreement of labor contract must be submitted to Owner for approval and
execution.
(l) Make periodic evaluation of the performance of all departments
of the Facilltles paying particular attention to those departments where
there is an inconsistency between expenditures and budget.
(m) Estabilsh and maintain books of account using accounts and
classifications consistent with those used by Manager at other facilities
owned or leased by it or its affiilates.
(n) Advise and assist Owner in designing an adequate and
appropriate public and personnel relations program.
1.02 Reports to Owner. Manager shall prepare and deliver to Owner
monthly financial statements (unaudited) containing a balance sheet and
statement of income in reasonable detail, and such monthly financial state-
ments will be delivered to Owner within 30 days after the close of each
calendar month. Manager shall submit to Owner each 12 months a proposed
budget for the operation of the Facilities during the succeeding 12-month
period, and shall use its best efforts to operate the Facilitles in accordance
with the provisions of the budget submitted to, and approved by Owner. Manager
shall submit to Owner each week a vacancy report for the Facilities.
1.03 Bank Accounts and Working Capital. Manager shall deposit all
funds received from the operation of the Facilities in an Operating Account in
a bank or banks presently being used by the Facilities or such other banks as
are designated from time to time by Manager. Owner shall provide sufficient
working capital for the operation of the Facilities and shall make deposits in
the Operating Accounts of such working capital from time to time upon the
request of Manager. All costs and expenses incurred in the operation of the
Facilities shall be paid out of the Operating Accounts. All checks or other
document withdrawals must be signed by the Comptroller of Manager or his
designate. Deposits may be made by the Comptroller of Manager or his designate.
1.04 Access to Records and Facilities. The books and records kept by
Manager for the Facilities shall be maintained at the Facilities, although
Manager shall have the right to maintain copies of such records at its home
office for the purpose of providing services under this Agreement. Manager
shall make available to Owner, its agents, accountants and attorneys, during
normal business hours, all books and records pertaining to the Facilities and
Manager shall promptly respond to any questions of Owner with respect to such
books and records and shall confer with Owner at all reasonable times, upon
request, concerning operation of the Facilities. In addition, Owner shall
have access to the Facilities at all reasonable hours for the purpose of
examining or inspecting the Facilities.
1.05 Licenses. (a) Manager shall use its best efforts to manage the
Facilities in a manner necessary to maintain all necessary licenses, permits,
consents, and approvals from all governmental agencies which have Jurisdiction
over the operation of the Facilities Manager shall not assume the liability
for any employee action, failure to act or negligence prohibiting the intent
of this provision to be met.
(b) Neither Owner nor Manager shall knowingly take any action
which may (1) cause any governmental authority having jurisdiction over the
operation of the Facilitles to Institute any proceeding for the rescission or
revocation of any necessary license, permit, consent or approval, or (2)
adversely affect Owner's right to accept and obtain payments under Medicare,
Medicaid, or any other public or private medical payment program; however,
this Agreement in no way guarantees or warrants that any or all of the above
will not or could not occur.
(c) Manager shall, with the written approval of Owner, have the
right to contest by appropriate legal proceedings, diligently conducted in
good faith, in the name of the Owner, the validity or application of any law,
ordinance, rule, ruling, regulation, order or requirement of any governmental
agency having jurisdiction over the operation of similar facilities. Owner,
after having given its written approval, shall cooperate with Manager with
regard to the contest, and Owner shall pay the reasonable attorney's fees
incurred with regard to the contest. Counsel for any such contest shall be
mutually selected by Manager and Owner. Manager shall have the right, without
the written consent of the Owner, to process all third-party payment claims
for the services of the Facilities, including the full right to contest
adjustments and denials by governmental agencies (or their fiscal inter-
mediaries) as third-party payor.
1.06 Taxes. Any taxes or other governmental obligations properly
imposed on the Facilities are the obligations of the Owner, not of Manager,
and shall be paid out of the operating Accounts of the Facilities. With the
Owner's written consent, Manager may contest the validity or amount of any
such tax or imposition on the Facilities in the same manner as described in
Section 1.05(c).
1.07 Use of Manager's Personnel. Manager shall actively utilize
Manager staff specialists in such areas as accounting, auditing, budgeting,
computer services, dietary services, housekeeping, industrial engineering,
interior design, legal, nursing, personnel, pharmaceutical, purchasing,
systems and procedures, and third-party payments for services of facilities in
the management of the Facilities when considered desirable by Manager or upon
the reasonable request of Owner.
SECTION TWO: TERM AND TERMINATION
2.01 Term. The term of this Agreement shall commence on February 17,
1997, and shall terminate at Midnight on December 31, 1997, unless earlier
terminated by mutual agreement.
SECTION THREE: MANAGEMENT FEE
3.01 Fee to Manager. During each term of this Agreement the Owner
shall pay Manager a monthly fee for each Facility equal to twenty-five percent
(25%) of the increase in profit (or decrease in loss) at the facility as
compared to the profit (or loss) at the Facility as of December 31, 1996, but
in no event shall such fee be greater than six percent (6%) of gross operating
revenues of the Facility for that month. For purpose of calculating such fee,
the profit for each Facility for the year ended December 31, 1996 is attached
as Exhibit "B", incorporated herein.
3.02 Timing of Payments to Manager. Within twenty (20) days after the
end of each month of the term, Manager shall be paid the fee computed in
accordance with the provisions of Section 3.01. The amount of such fee shall
be calculated on the basis of monthly financial statements regularly prepared
by Manager in accordance with Section 1.02 hereof.
SECTION FOUR: COVENANTS OF OWNER
4.01 Insurance. Owner shall provide and maintain throughout the Term
the following insurance with responsible companies naming Owner and Manager
(as its interest may appear) as insured thereunder in amounts approved by
Manager and Owner.
(a) public liability insurance and insurance against theft of or
damage to patient's property in the Facilities or its Premises;
(b) workers' compensation, employers' liability or similar
insurance as may be required by law;
(c) insurance against loss or damage to tho Facilities from fire
and such other risks and casualties now or hereafter embraced by "Extended
Coverage," as well as such other risks and casualties with respect to which
insurance is customarily carried for similar facilities;
(d) business interruption Insurance against loss of income due
to the risks insured against under this Section 4.01;
(e) personal injury liability insurance against claims of bodily
injury or death or otherwise arising out of the operations of the Facilities
such insurance to afford minimum protection of not less than $1,000,000 in
respect to bodily injury or death to any one person;
(f) such other insurance or additional insurance as Manager and
Owner together shall reasonably deem necessary for protection against claims,
liabilities and losses arising from the operation or ownership of the
Facilities.
If Owner fails to effect or maintain any such insurance, Owner will
indemnify Manager against damage, loss or liability resulting from, all risks
for which such Insurance should have been maintained, and Manager may, but
shall not be liable for its failure so to do, effect the same as the agent of
Owner by taking our poliGies in such insurance companies as may be selected by
Manager, running for a period not to exceed one year.
4.02 Convalescent Services. Owner covenants and agrees that Facilities
is and will continue to be a fully licensed nursing home containing the number
of licensed beds set forth on the first page of this Agreement. Manager and
Owner agree that the services rendered by the Facilities will not, during the
term thereof, be changed in any material respect, unless there shall first
have been mutual agreement between Manager and Owner to such change.
SECTION FIVE: MISCELLANEOUS
5.01 Assignment by Manager. Manager shall not assign its rights or
obligations under this Agreement without the consent of Owner other than to an
entity controlling or controlled by Manager.
5.02 Assignment by Owner. Owner shall not assign its rights or
obligations under this Agreement without the notice to Manager.
5.03 Blnding on Successors and Assigns. The terms, covenants, con-
ditions, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto, their heirs, administrators,
executors, successors and assigns, subject to provisions of Section 5.01 and
5.02 above.
5.04 Negation of Partnership, Joint Venture and Agency. Nothing in
this Agreement contained shall constitute or be construed to be or to create a
partnership, joint venture or lease between Owner and Manager with respect to
the Facilities. The parties intent for the relationship of Manager to Owner
under this Agreement to be that of an independent contractor, nor that of an
agent. Owner shall not have the power to control the time method or manner of
Manager's performance hereunder, Owner shall look solely to the results to be
achieved by Manager, and nothing contained herein shall be construed to create
a relationship of agency between Manager and Owner.
5.05 Notices. All notices hereunder by either party to the other shall
be in writing. All notices, demands and request shall be deemed given when
mailed, postage prepaid, registered, or certified mail, return receipt
requested,
(a) to Owner: NewCare Health Corporation
______________________
______________________
(b) to Manager: Renaissance Senior Living, Inc.
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30328
or to such other address or to such other person as may be designated by
notice given from time to time during the term by one pady to the other.
5.06 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto, and no representations or agreements, oral or
otherwise, between the parties not embodied herein or attached hereto shall be
of any force and effect. Any additions or amendments to this Agreement
subsequent hereto shall be of no force and effect unless in writing and signed
by the party to be bound.
5.07 Governing Law. This Agreement has been executed and delivered in
the State of Georgia, all the terms and provisions hereof and the rights and
obligations of the parties hereto shall be construed and enforced in
accordance with the laws thereof.
5 08. Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only, and the words contained
therein shall in no way be held or deemed to define, limit, describe, explain,
modify, amplify or add to the interpretation, construction or meaning of any
provision of or the scope or intent of this Agreement nor in any way affect
this Agreement.
5.09 Disclaimer of Employment of Facilities Employees. No person
employed by Owner in operation of the Facilitles will be an employee of
Manager, and Manager will have no liability for payment of wages, payroll
taxes and other expenses of employment, except that Manager shall have the
obligation to exercise reasonable care in its management of the Facilities to
properly apply available Facilities funds to the payment of such wages and
payroll taxes.
5.10 Impossibility of Performance. Neither party to this Agreement
shall be deemed to be in violation of this Agreement if it is prevented from
performing any of its obligations hereunder for any reason beyond its control,
including without limitation, acts of God or of the public enemy, flood or
storm, strikes or statutory regulation or rule of any federal, state, or local
government, or any agency thereof.
5.11 Non-assumption of Liabilities. Manager shall not, by entering
into and porforming this Agreement, become liable for any of the existing or
future obligations, liabilities or debts of Owner, and Manager shall not be
managing the Facilities assume or become liable for any of the obilgations,
debts and liabilities of Owner, and Manager will in its role as manager of the
Facilities have only the obligation to exercise reasonable care in its
management and handling of the funds generated from the operation of the
Facilities.
5.12 Responsibility for Misconduct of Employees and Other Personnel.
Manager will have no liability whatever for damages suffered on account of the
dishonosty, willful misconduct or negligence of any employee of the Owner
regarding the Facilities in connection with damage or loss directly sustained
by it by reason of the dishonesty, willful misconduct and gross negligence of
Manager employees in the operation of the Facilities during the term of this
Agreement.
5.13 Rights Cumulative, No Waiver. No right or remedy herein conferred
upon or reserved to either of the parties hereto is intended to be exclusive
of any other right or remedy, an each and every right and remedy shall be
cumulative and in addition to any other right or remedy given hereunder, or
now or hereafter legally existing upon the occurrence of any event of default
hereunder. The failure of either party hereto to insist at any time upon
strict observance or performance of any of the provisions of this Agreement or
to exercise any right or remedy as provided in this Agreement shall not impair
any such right or remedy to be construed as a waiver or relinquishment
thereof. Every right and remedy given by this Agreement to the parties hereto
may be exercised from time to time and as often as may be deemed expedient by
the parties hereto, as the case may be.
5.14 Time of Essence. Time is of the essence of this Agreement.
5.15 Invalid or Unenforceable Provisions. If any terms, covenants or
conditions of this Agreement or the application thereof to anyp erson or
circumstances other than those to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and shall be enforced to the fullest extent permitted
by law.
5.16 Counterparts. This Agreement may be executed in several counter-
parts, each of which shall be deemed an original and all such counterparts
together shall constitute one and the same instrument.
5.17 Authorization of Agreement. Manager and owner represent and
warrant, each to the other, that this Agreement has been duly authorized by
its respective Board of Directors and, if required by law, shareholders; and
that this Agreement constitutes a valid and enforceable obligation of Manager
and Owner in accordance with its terms.
5.18 Designation. Owner agrees that, during the term of this
Agreement, Manager shall have the right to designate and make public
reference to the Facilities as Renaissance managed Facilities.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, the
day and year first above written.
RENAISSANCE SENIOR LIVING NEWCARE HEALTH CORPORATION
INC.
By: /s/ Darrell C. Tucker By: /s/ Ashok Dalal
Its: Its:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and statements of operations found on pages F-4 and F-5 of the
Company's Form 10-KSB for the fiscal year ended December 31, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> $3,198,700
<SECURITIES> 0
<RECEIVABLES> 4,359,939
<ALLOWANCES> 191,299
<INVENTORY> 27,762
<CURRENT-ASSETS> 7,487,243
<PP&E> 29,504,099
<DEPRECIATION> 5,682,538
<TOTAL-ASSETS> 32,267,101
<CURRENT-LIABILITIES> 20,242,609
<BONDS> 0
0
0
<COMMON> 213,350
<OTHER-SE> 4,930,337
<TOTAL-LIABILITY-AND-EQUITY> 32,267,101
<SALES> 0
<TOTAL-REVENUES> 28,767,532
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28,613,596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 153,936
<INCOME-TAX> 54,000
<INCOME-CONTINUING> 99,936
<DISCONTINUED> (2,326,228)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,226,292)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> 0
</TABLE>
