<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-Q/A
(Mark
One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number 1-13498
ASSISTED LIVING CONCEPTS, INC.
(Exact name of registrant as specified in its charter)
Nevada 93-1148702
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11835 N.E. Glenn Widing Drive, Building E
Portland, Oregon 97220-9057
(Address of principal executive offices)
(503) 252-6233
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Registrants was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [_]
The Registrant had 16,767,317 shares of common stock, $.01 par value,
outstanding at July 31, 1998.
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<PAGE>
Explanatory Note
On February 1, 1999, Assisted Living Concepts, Inc. (the "Company")
announced that after consultation with its independent auditors the Company
would restate its consolidated financial statements for the fiscal quarter
ended June 30, 1997, the fiscal quarter ended September 30, 1997, the fiscal
year ended December 31, 1997, the fiscal quarter ended March 31, 1998, the
fiscal quarter ended June 30, 1998 and the fiscal quarter ended September 30,
1998. On March 31, 1999, the Company announced that the restatement would be
more extensive than the Company had previously believed, and might include
periods prior to the second quarter of 1997, including the fiscal year ended
December 31, 1996. After further consultation with its independent auditors,
the Company determined to restate its consolidated financial statements for
the fiscal year ended December 31, 1996, the fiscal year ended December 31,
1997 and the first three fiscal quarters of the fiscal year ended December 31,
1998. This amendment includes in Item 1 such restated consolidated financial
statements for the three- and six-month periods ended June 30, 1998 and other
information relating to such restated consolidated financial statements,
including Management's Discussion and Analysis of Financial Condition and
Results of Operations (Item 2). Information regarding the effect of the
restatement on the Company's results of operations for the three- and six-
months ended June 30, 1998 is included in Item 2 of this amendment and in Note
10 to the consolidated financial statements included in Item 1 of this
amendment.
Since February 1, 1999 12 separate complaints, which have since been
consolidated into one action, have been filed against the Company and certain
of its officers and directors in the United States District Court for the
District of Oregon. On July 23, 1999, a consolidated complaint was filed in
connection with this litigation. The consolidated complaint purports to be
brought on behalf of a class of purchasers of the Company's common stock from
July 28, 1997 through March 31, 1999 and on behalf of a class of purchasers of
its 6.0% Convertible Subordinated Debentures (the "6.0% Debentures") and
5.625% Convertible Subordinated Debentures (the "5.625% Debentures") and,
together with the 6.0% Debentures (the "Debentures"), from the date of
issuance through March 31, 1999. The consolidated complaint alleges violations
of the federal securities laws and seeks unspecified damages. It also names as
additional defendants certain of the Company's directors that were not named
previously, as well as the Company's independent auditors (solely in
connection with the Company's 1998 offering of 5.625% Debentures) and the
underwriters in connection with the Company's 1997 offering of 6.0%
Debentures.
Except for Items 1, 2 and 6, no other information included in the original
report on Form 10-Q is amended by this amendment. For additional information
regarding the restatement, please see the Company's reports on Form 8-K filed
on February 1, 1999 and March 31, 1999. For additional information regarding
the litigation described in the preceding paragraph, please see the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998. For
current information regarding risks, uncertainties and other factors that may
affect the Company's future performance, please see the "Risk Factors"
included in Item 7 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
2
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
FORM 10-Q/A
June 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and June 30,
1998................................................................ 4
Consolidated Statements of Operations for the three and six months
ended June 30, 1997 and June 30, 1998............................... 5
Consolidated Statements of Cash Flows for the six months ended June
30, 1997 and June 30, 1998.......................................... 6
Notes to Consolidated Financial Statements........................... 7-17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 18-23
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 24
</TABLE>
3
<PAGE>
PART 1
Item 1-- Financial Information
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30,
1998
As Restated
December 31, (Note 10)
1997 (Unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 63,269 $ 76,306
Funds held in trust................................. 1,956 --
Accounts receivable................................. 2,185 3,056
Other current assets................................ 4,483 5,531
-------- --------
Total current assets.............................. 71,893 84,893
-------- --------
Property and equipment................................ 131,623 240,120
Construction in process............................... 102,025 57,636
-------- --------
Total property and equipment...................... 233,648 297,756
Less accumulated depreciation..................... 3,370 5,718
-------- --------
Property and equipment net........................ 230,278 292,038
Goodwill.............................................. 12,447 5,228
Other assets.......................................... 9,749 12,760
-------- --------
Total assets...................................... $324,367 $394,919
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ 8,258 $ 13,576
Construction payables............................... 18,883 11,265
Other current liabilities........................... 2,368 2,229
Construction financing.............................. 2,150 --
Current portion of long-term debt................... 172 388
-------- --------
Total current liabilities......................... 31,831 27,458
-------- --------
Other liabilities..................................... 2,592 2,737
Long-term debt........................................ 57,535 71,896
Convertible subordinated debentures................... 100,165 175,165
-------- --------
Total liabilities................................. 192,123 277,256
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized; none issued and outstanding.............. -- --
Common Stock, $.01 par value; 80,000,000 shares
authorized; issued and outstanding 15,646,478 and
15,754,822 shares in 1997 and 1998................... 156 158
Additional paid-in capital............................ 141,460 139,189
Unearned compensation expense......................... (4,100) (3,796)
Fair market value in excess of historical cost of
acquired net assets attributable to related party
transactions......................................... (239) (239)
Accumulated deficit................................... (5,033) (17,649)
-------- --------
Total shareholders' equity........................ 132,244 117,663
-------- --------
Total liabilities and shareholders' equity........ $324,367 $394,919
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1998 As 1998 As
Restated Restated
(Note (Note
1997 10) 1997 10)
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues................................. $11,108 $ 21,153 $20,587 $ 39,926
Operating expenses:
Residence operating expenses........... 6,838 13,139 12,756 24,556
Corporate general and administrative... 782 2,045 1,575 3,613
Building rentals....................... 1,138 2,811 1,969 5,603
Building rentals to related party...... 488 389 968 779
Depreciation and amortization.......... 852 1,503 1,504 2,700
Site abandonment costs................. -- 1,001 -- 1,001
Write-off of impaired assets and
related expenses...................... -- 8,874 -- 8,874
------- -------- ------- --------
Total operating expenses............. 10,098 29,762 18,772 47,126
------- -------- ------- --------
Operating income (loss).................. 1,010 (8,609) 1,815 (7,200)
------- -------- ------- --------
Other (income) expense:
Interest expense....................... 1,141 2,945 1,835 4,007
Interest income........................ (153) (1,006) (276) (1,600)
Loss on sale of assets................. 221 211 424 420
Other (income) expense................. (125) 1,072 (125) 1,065
------- -------- ------- --------
Total other (income) expense......... 1,084 3,222 1,858 3,892
------- -------- ------- --------
Net income (loss) before cumulative
effect of change in accounting
principle............................... $ (74) $(11,831) $ (43) $(11,092)
Cumulative effect of change in accounting
principle............................... -- -- -- (1,523)
------- -------- ------- --------
Net income (loss)........................ $ (74) $(11,831) $ (43) $(12,615)
======= ======== ======= ========
Basic and diluted net income (loss) per
common share before cumulative effect of
change in accounting principle.......... $ (0.01) $ (0.75) $ 0.00 $ (0.71)
Cumulative effect of change in accounting
principle............................... -- -- -- (0.10)
------- -------- ------- --------
Basic and diluted net income (loss) per
common share............................ $ (0.01) $ (0.75) $ 0.00 $ (0.81)
======= ======== ======= ========
Basic and diluted weighted average common
shares outstanding...................... 11,044 15,679 11,044 15,682
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1998
Restated
(Note
1997 10)
------- --------
<S> <C> <C>
Operating activities:
Net loss................................................... $ (43) $(12,615)
Adjustment to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................ 1,504 2,700
Site abandonment cost.................................... -- 1,001
Write-off of impaired assets and related expenses........ -- 8,874
Loss on sale of asset.................................... 424 420
Cumulative effect of change in accounting principle...... -- 1,523
Compensation expense earned on restricted stock.......... -- 304
Changes in operating assets and liabilities, excluding
effects of acquisitions:
Accounts receivable, net................................. (353) (871)
Other current assets..................................... (569) (1,064)
Other assets............................................. (250) (366)
Accounts payable and accrued expenses.................... 1,235 3,592
Other liabilities........................................ 104 6
------- --------
Net cash provided by operating activities.................. 2,052 3,504
------- --------
Investing activities:
Funds held in trust........................................ (173) 1,956
Acquisitions, net of cash acquired......................... -- (8,564)
Proceeds from sale of land and residences.................. 10,618 2,813
Purchases of property and equipment........................ (52,283) (70,813)
------- --------
Net cash used in investing activities...................... (41,838) (74,608)
------- --------
Financing activities:
Proceeds from short-term construction borrowings expected
to be refinanced.......................................... 43,210 --
Repayments of construction financing....................... (10,150) --
Proceeds from long-term debt............................... 14,508 14,742
Payments on long-term debt................................. (55) (165)
Proceeds from issuance of common stock..................... 73 483
Proceeds from issuance of convertible subordinated
debentures................................................ -- 75,000
Purchase of common stock................................... -- (2,753)
Debt issuance costs of long-term debt...................... (1,077) (3,166)
------- --------
Net cash provided by financing activities.................. 46,509 84,141
------- --------
Net increase in cash and cash equivalents.................. 6,723 13,037
Cash and cash equivalents, beginning of period............. 2,105 63,269
------- --------
Cash and cash equivalents, end of period................... $ 8,828 $ 76,306
======= ========
Supplemental disclosure of cash flow information:
Cash payments for interest............................... $ 3,783 $ 5,472
Cash payments for income taxes........................... -- 590
Extinguishment of construction financing with sale
leaseback transaction................................... -- 2,150
Decrease in construction loan payable.................... $(1,920) $ (7,618)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business and Summary of Significant Accounting Policies
The Company
Assisted Living Concepts, Inc. ("the Company") owns, operates and develops
assisted living residences which provide housing to older persons who need
help with the activities of daily living such as bathing and dressing. The
Company provides personal care and support services and makes available
routine health care services designed to meet the needs of its residents. As
of June 30, 1998, the Company had received certificates of occupancy for 161
residences of which 143 were included in operating results.
Basis of Presentation
These consolidated financial statements have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries that manage, own and
develop assisted living residences and provide ancillary services such as home
health, hospice and durable medical equipment. The consolidated financial
statements also include residences the Company owns or leases but are operated
through joint venture agreements. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1997.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments with the exception of the
cumulative effect of the change in accounting principle, site abandonment
costs, and the write-off of impaired assets and related expenses) which are,
in the opinion of management, necessary for a fair presentation of the results
for interim periods. The result of operations for the three and six-month
periods ended June 30, 1997 and 1998 (as restated) are not necessarily
indicative of the results to be expected for the full year.
2. Property and Equipment
The Company's property and equipment are stated at cost and consist of the
following (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
<S> <C> <C>
Land..................................................... $ 7,924 $ 14,708
Buildings and improvements............................... 119,649 217,095
Equipment................................................ 1,419 2,141
Furniture................................................ 2,631 6,176
-------- --------
Property and Equipment................................... 131,623 240,120
Construction in progress................................. 102,025 57,636
-------- --------
Total property and equipment......................... 233,648 297,756
Less accumulated depreciation............................ 3,370 5,718
-------- --------
Property and equipment, net.............................. $230,278 $292,038
======== ========
</TABLE>
As a result of the Company's decision to reduce the number of new residence
openings during the year ended December 31, 1999 and beyond, the Company
wrote-off $1.0 million of capitalized costs during the three months ended June
30, 1998 relating to the abandonment of 11 development sites and other
miscellaneous development costs.
7
<PAGE>
During the three and six months ended June 30, 1998, the Company
capitalized interest costs of $1.4 million and $3.5 million, respectively,
relating to financing of construction in process. In addition, the Company
capitalized payroll costs that are directly related to the construction and
development of the residences of $442,000 and $1.0 million for three and six
months ended June 30, 1998, respectively.
As of June 30, 1998, the Company had begun construction on 22 residences
(894 units) ($30.5 million). Construction in process also includes 11
residences (438 units) ($25.2 million) that have received a certificate of
occupancy, but are pending licensure. As of June 30, 1998, the Company had
also entered into agreements pursuant to which it may purchase, subject to
completion of due diligence and various other conditions, 34 additional sites.
The Company has capitalized $1.7 million of direct costs in conjunction with
the due diligence associated with these 34 sites (1,349 units). The remaining
costs are associated with site selection and pre-acquisition costs.
In addition, during the three month period ended June 30, 1998 the Company
purchased three residences (164 units), two in Texas and one in Louisiana, for
a total purchase price of approximately $8.2 million and accounted for such
acquisitions as a purchase.
3. Leases
A summary of leases that the Company has entered into since its inception
is as follows:
<TABLE>
<CAPTION>
Number of
Sale and Number of
Leaseback Sale and Units
Number of Residences Leaseback under
Leased Accounted Total Residences Units Leases
Residences for as Number of Accounted under Accounted
("Oregon Operating Operating for as Operating for as
Leases") Leases Leases Financings Leases Financings
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leases at December 31, 1994.... 4 -- 4 -- 114 --
Leases entered into in 1995.... -- 5 5 -- 150 --
--- ---- --- ---- ----- ----
Leases at December 31, 1995.... 4 5 9 -- 264 --
Leases entered into in 1996.... 1 19 20 9 763 316
Residences repurchased in 1996. -- (4) (4) -- (146) --
--- ---- --- ---- ----- ----
Leases at December 31, 1996.... 5 20 25 9 881 316
Leases entered into in 1997.... 2 24 26 7 1,015 247
Lease unit expansion in 1997... -- -- -- -- 10 --
--- ---- --- ---- ----- ----
Leases at December 31, 1997.... 7 44 51 16 1,906 563
Leases entered into in First
Quarter 1998.................. -- 1 1 -- 36 --
--- ---- --- ---- ----- ----
Leases at March 31, 1998....... 7 45 52 16 1,942 563
Leases entered into in Second
Quarter 1998.................. -- 1 1 -- 35 --
--- ---- --- ---- ----- ----
Leases at June 30, 1998........ 7 46 53 16 1,977 563
=== ==== === ==== ===== ====
</TABLE>
During the three months ended June 30, 1998, the Company completed the sale
of one residence under sale and leaseback arrangements. The Company sold the
residence for approximately $2.8 million and leased it back over initial terms
of 12 years. The residence was leased back at an initial annual lease rate of
approximately $442,000. The above transaction was completed with LTC
Properties, Inc.
The Company recognized a gain of approximately $40,000 on the above
transaction for the three months ended June 30, 1998 which has been recorded
as deferred income and will be amortized over the initial term of the lease.
The Company recognized losses of $211,000 during the three months ended June
30, 1998, primarily as a result of additional capital costs incurred during
the current period on sale and leaseback transactions completed in prior
periods.
8
<PAGE>
During the second quarter ended June 30, 1998, the Company determined that
it would not enter into sale and leaseback arrangements to the full extent of
sale and leaseback commitments the Company had outstanding. The Company
recorded a $1.2 million liability for expenses expected to be incurred in
connection with this determination. Of such amount, $200,000 was recorded as
corporate general and administrative expense and $1.0 million as other
expense.
4. Long Term Debt
On April 1, 1998 the Company entered into $14.6 million of mortgage debt
for purposes of financing seven residences in Texas. The debt is secured by
buildings, land, furniture and fixtures in connection with the seven
residences. Installments are due monthly, for a period of 10 years, including
annual interest of 7.73%.
5. Convertible Subordinated Debentures
On April 7, 1998, the Company completed a private placement of $75.0
million of 5.625% convertible subordinated debentures due May 1, 2003 (the
"5.625% Debentures"). The 5.625% Debentures are convertible at any time at or
prior to maturity, unless previously redeemed, at a conversion price of
$26.184 per common share, which equates to an aggregate of 2,864,345 shares.
Interest is payable semiannually on May 1 and November 1 of each year,
commencing November 1, 1998. The 5.625% Debentures are unsecured and
subordinated to all senior indebtedness of the Company. The 5.625% Debentures
are redeemable at par, as a whole or in part, at any time on or after May 15,
2001 at the Company's option.
6. Interest Rate Swap
During the fourth quarter of fiscal year 1997, the Company entered into a
$50.0 million floating rate mortgage loan commitment with a commercial lender.
During the quarter ended March 31, 1998, the Company entered into a $25.0
million interest rate swap in order to reduce its exposure with respect to
such floating rate loan commitment. The swap can be settled in cash on or
before its effective date of September 30, 1998.
7. Write-off of Impaired Assets and Related Expenses
In June 1998, the Company announced a plan to exit all home health business
operations being conducted by Pacesetter Home Health Care, Inc.
("Pacesetter"). The decision to exit Pacesetter's operations was a result of
certain laws becoming effective that adversely affect the prospective payment
system for home health care services. The Company recorded a $8.9 million
charge to earnings in the second quarter of 1998. Such charge consisted of (i)
a $7.5 million write-off of all unamortized goodwill incurred in connection
with the purchase of Home and Community Care, Inc. ("HCI") in 1997 and (ii) a
$1.4 million provision for estimated exit costs expected to be incurred during
the phase out period. Of this $1.4 million provision, $560,000 related to
severance, salaries and benefits incremental to the shut down effort; $720,000
related to leases, equipment and related costs of closing offices; and
$150,000 related to travel and moving costs. The Company expects the phase out
period to conclude during 1999.
8. Change in Accounting Principle
On April 3, 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-up
Activities (SOP 98-5). The Company adopted SOP 98-5 effective as of January 1,
1998. The impact of this change in accounting principle on the Company relates
to the treatment of pre-opening costs associated with newly-developed
residences. SOP 98-5 requires that these costs be expensed as incurred
compared to the Company's previous policy to capitalize these costs prior to
the commencement of residence operations, amortizing them over a twelve-month
period.
9. Subsequent Events
During July, 1998, the Company completed a $12.7 million tax exempt
financing and a $530,000 taxable bond financing, secured by seven residences
in the state of Ohio, at a weighted average interest rate of
9
<PAGE>
approximately 5%. In addition, the Company obtained mortgage financing for
three Oregon properties in the amount of $6.6 million at a fixed rate of 7.6%.
Effective August 3, 1998, the Company called for redemption all of the
$13.9 million of its 7.0% convertible subordinated debentures Due 2005
outstanding as of such date. As of August 3, 1998, all debentures were
converted at a price of $7.50 per share, resulting in the issuance of
1,855,334 shares of common stock.
During August, 1998, the Company repurchased 101,900 shares of common stock
at prices ranging from $13.375 to $13.875 in accordance with a stock
repurchase plan initiated in May, 1998. The Company is authorized to
repurchase 500,000 shares, of which 301,900 have been repurchased as of August
9, 1998.
10. Restatement
On February 1, 1999, the Company announced that after consultation with its
independent auditors the Company would restate its financial statements for
the fiscal quarter ended June 30, 1997, the fiscal quarter ended September 30,
1997, the fiscal year ended December 31, 1997, the fiscal quarter ended March
31, 1998, the fiscal quarter ended June 30, 1998 and the fiscal quarter ended
September 30, 1998. On March 31, 1998, the Company announced that the
restatement would be more extensive than the Company had previously believed,
and might include periods prior to the second quarter of 1997, including the
fiscal year ended December 31, 1996. After further consultation with its
independent auditors, the Company determined to restate its financial
statements for the fiscal year ended December 31, 1996, the fiscal year ended
December 31, 1997 and the first three fiscal quarters of the fiscal year ended
December 31, 1998.
The restatement reduced the net income for the fiscal years ended December
31, 1996 and 1997 and the six months ended June 30, 1998 by $2.1 million, $6.7
million, and $7.5 million, respectively. The cumulative effect of the
restatement reduced shareholders' equity by $16.4 million through June 30,
1998. As a result of the restatement, the Company reported net losses of $1.9
million, $2.5 million, and $12.6 million for the fiscal years 1996 and 1997,
and the six months ended June 30, 1998 respectively, as compared to previously
reported net income of $149,000, $4.2 million, and a net loss of $5.1 million,
respectively. As a result of the restatement the Company reported net loss per
diluted share of $0.23, $0.21 and $0.81 for the fiscal years 1996 and 1997 and
the six months ended June 30, 1998, respectively, compared to previously
reported net income of $0.03 and $0.34, and net loss of $0.32, per diluted
share, respectively. After the restatement, the Company's cash position as of
December 31, 1996 and 1997 and as of June 30, 1998 was $2.1 million, $63.3
million and $76.3 million, respectively, as compared to $2.1 million, $63.4
million and $76.5 million, respectively, as previously reported. In addition,
the Company's working capital position on a restated basis as of December 31,
1996 and 1997 and as of June 30, 1998 was negative $27.1 million, positive
$40.1 million and positive $57.4 million, respectively, as compared to
previously reported working capital of negative $26.4 million, positive $41.0
million and positive $58.9 million, respectively.
The restatement of the financial data included in this report resulted
primarily from: (i) the earlier recognition of certain expenses which were
previously capitalized in association with the Company's development and
financing activities; (ii) a modification in how the Company accounted for
certain lease arrangements; (iii) a modification in how the Company accounted
for certain of its acquisitions and its joint venture arrangements; (iv) the
capitalization of fees received by the Company previously recognized as either
a reduction of expenses or as other income; (v) the elimination of an
impairment write-down that the Company had previously recorded on three of its
residences; (vi) elimination of certain accrued expenses previously recorded
pursuant to a change in accounting principle; and (vii) the increase in
goodwill written-off in the second quarter of 1998 relating to exiting the
Company's home health operation.
10
<PAGE>
The following table sets forth statement of operations and balance sheet
data, as originally reported and as restated, as of and for the three and six
months ended June 30, 1998. The table also sets forth the adjustments to the
originally reported data resulting from the restatement, which adjustments are
described in the related footnotes. As restated, the Company's June 30, 1998
balance sheet is affected by changes that resulted from the restatement of
fiscal year 1996 and 1997 financial statements (which cumulative adjustments
are set forth in the balance sheet under the heading "Cumulative Adjustments
resulting from Prior Restatements") and by adjustments in the quarter ended
June 30, 1998 (which adjustments are set forth in the balance sheet under the
heading "Adjustments for Six Months Ended June 30, 1998").
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 Six Months Ended June 30, 1998
--------------------------------- ---------------------------------
As As
Previously As Previously As
Reported Adjustment Restated Reported Adjustment Restated
---------- ---------- -------- ---------- ---------- --------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $21,353 $ (200)(H) $ 21,153 $40,296 $ (370)(H) $ 39,926
Operating Expenses:
Residence operating
expenses.............. 13,139 -- 13,139 24,725 (169)(K) 24,556
Corporate general and
administrative........ 1,389 204 (B) 2,045 2,448 415 (B) 3,613
152 (J) 304 (J)
100 (H) 100 (H)
200 (O) 146 (A)
200 (O)
Building rentals....... 3,573 (843)(C) 2,811 7,111 (1,686)(C) 5,603
118 (D) 240 (D)
(37)(E) (62)(E)
Building rentals to
related party......... 364 25 (D) 389 728 51 (D) 779
Depreciation and
amortization.......... 1,224 70 (A) 1,503 2,089 107 (A) 2,700
189 (C) 378 (C)
20 (O) 126 (O)
Site abandonment
costs................. -- 1,001 (O) 1,001 -- 1,001 (O) 1,001
Write-off of impaired
assets................ 8,495 379 (O) 8,874 8,495 379 (O) 8,874
------- ------- -------- ------- ------- --------
Total operating
expenses............ 28,184 1,578 29,762 45,596 1,530 47,126
------- ------- -------- ------- ------- --------
Operating income (loss). (6,831) (1,778) (8,609) (5,300) (1,900) (7,200)
------- ------- -------- ------- ------- --------
Other (income) expense:
Interest expense....... 380 843 (C) 2,945 653 1,686 (C) 4,007
1,607 (F) 20 (E)
115 (G) 1,440 (F)
208 (G)
Interest income........ (946) (60)(L) (1,006) (1,645) 45 (L) (1,600)
Loss on sale of
assets................ -- 211 (E) 211 -- 420 (E) 420
Other (income)
expense............... (1,429) 1,501 (G) 1,072 (2,804) 2,869 (G) 1,065
1,000 (O) 1,000 (O)
------- ------- -------- ------- ------- --------
Total Other (income)
expense............. (1,995) 5,217 3,222 (3,796) 7,688 3,892
------- ------- -------- ------- ------- --------
Loss before income taxes
....................... (4,836) (6,995) (11,831) (1,504) (9,588) (11,092)
Provision for income
taxes.................. (458) 458 (I) -- (809) 809 (I) --
------- ------- -------- ------- ------- --------
Net loss before
cumulative effect of
change in accounting
principle.............. (4,378) (7,453) (11,831) (2,313) (8,779) (11,092)
Cumulative effect of
change in accounting
principle.............. -- -- -- (2,770) 1,247 (A) (1,523)
------- ------- -------- ------- ------- --------
Net loss................ $(4,378) $(7,453)(Q) $(11,831) $(5,083) $(7,532)(Q) $(12,615)
======= ======= ======== ======= ======= ========
Basic and diluted net
loss per common share:
Net loss before
cumulative effect of
change in accounting
principle............. $ (0.28) $ (0.75) $ (0.15) $ (0.71)
Cumulative effect of
change in accounting
principle............. -- -- (0.17) (0.10)
------- -------- ------- --------
Basic and diluted net
loss per share........ $ (0.28) $ (0.75) $ (0.32) $ (0.81)
======= ======== ======= ========
Basic and diluted
weighted average
common shares
outstanding........... 15,749 15,679(1) 15,717 15,682(1)
</TABLE>
- --------
(1) Reflects a recalculation of weighted average common shares outstanding.
11
<PAGE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
As of June 30, 1998
----------------------------------------------
Cumulative Adjustments
Adjustments for Six-
Resulting Months
As from Prior Ended
Previously Restatements June 30, As
Reported (P) 1998 Restated
---------- ------------ ----------- --------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..... $ 76,468 $ (125) $ (162)(A) $ 76,306
125 (L)
Funds held in trust........... 1,149 -- (1,149)(M) --
Accounts receivable........... 3,056 -- -- 3,056
Other current assets.......... 4,516 (21) 505 (A) 5,531
(281)(G)
169 (K)
(336)(I)
1,149 (M)
(170)(L)
-------- ------- ------- --------
Total Current Assets........ 85,189 (146) (150) 84,893
-------- ------- ------- --------
Property and Equipment......... 208,248 30,872 1,000 (O) 240,120
Construction in process........ 60,685 (1,770) 1,046 (A) 57,636
(415)(B)
(1,440)(F)
(470)(H)
-------- ------- ------- --------
Total property and
equipment.................. 268,933 29,102 (279) 297,756
Less accumulated
depreciation............... 4,352 893 107 (A) 5,718
366 (C)
-------- ------- ------- --------
Property and equipment--net. 264,581 28,209 (752) 292,038
-------- ------- ------- --------
Goodwill....................... 9,884 (950) (3,706)(O) 5,228
Other assets................... 14,858 (1,051) (521)(A) 12,760
(12)(C)
(378)(E)
(1,471)(G)
1,335 (M)
-------- ------- ------- --------
Total assets................ $374,512 $26,062 $(5,655) $394,919
======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities.................. $ 14,590 $ 52 $ 208 (G) $ 13,576
(1,274)(A)
Construction payables......... 11,265 -- -- 11,265
Other current liabilities..... -- 1,112 1,117 (G) 2,229
Accrued income taxes.......... -- (411) 411 (I) --
Current portion of long-term
debt......................... 388 -- -- 388
-------- ------- ------- --------
Total current liabilities... 26,243 753 462 27,458
-------- ------- ------- --------
Other Liabilities.............. -- 2,592 291 (D) 2,737
(146)(A)
Long-term debt................. 39,073 31,488 1,335 (M) 71,896
Convertible subordinated
debentures.................... 175,165 -- -- 175,165
-------- ------- ------- --------
Total liabilities........... 240,481 34,833 1,942 277,256
-------- ------- ------- --------
Shareholder's equity:
Preferred Stock............... -- -- -- --
Common Stock.................. 158 -- -- 158
Additional paid-in capital.... 135,476 4,081 (368)(I) 139,189
Unearned compensation
expense...................... -- (4,100) 304 (J) (3,796)
Fair market value in excess
of historical cost of
acquired net assets
attributed to related party
transactions................. (239) -- -- (239)
Accumulated deficit........... (1,364) (8,752) (7,533)(Q) (17,649)
-------- ------- ------- --------
Shareholders' equity........ 134,031 (8,771) (7,597) 117,663
-------- ------- ------- --------
Total liabilities and
shareholders' equity....... $374,512 $26,062 $(5,655) $394,919
======== ======= ======= ========
</TABLE>
12
<PAGE>
(A) During the second quarter 1998, the Company adopted Statement of Position
98-5, Reporting on the Costs of Start-up Activities ("SOP 98-5") effective
January 1, 1998. Under SOP 98-5, start-up costs associated with the
opening of new residences are expensed as incurred. The Company recognized
a charge of $2.8 million associated with adopting SOP 98-5. Prior to the
adoption of SOP 98-5, the Company capitalized pre-opening costs on its
balance sheet and amortized such costs over a 12-month period. As a result
of (i) the cumulative effect of balance sheet adjustments from prior
restatements and (ii) a change in the accrual related to the adoption, the
charge was reduced by $1.2 million to $1.5 million.
Statement of Operations. Reflects changes resulting from the adoption of
SOP 98-5.
Balance Sheet. Reflects changes resulting from the adoption of SOP 98-5 as
described above.
(B) The Company's policy is to capitalize payroll costs related to operations
employees and certain corporate and regional employees directly associated
with the development of new residences. As a result of the restatement,
certain previously capitalized payroll costs, primarily those related to
corporate and regional employees, are being reported as expenses during
the period in which they were incurred rather than capitalized as part of
the cost of the residences and depreciated over the lives of the related
assets.
Statement of Operations. Reflects an increase in general and administrative
expenses during the period resulting from expensing payroll costs, which
were previously capitalized in connection with the Company's development
activities.
Balance Sheet. Reflects a decrease in construction in process resulting
from expensing previously capitalized payroll costs associated with the
Company's development activities.
(C) The Company has changed the accounting treatment of 16 sale and leaseback
transactions entered into during fiscal years 1996 and 1997, which had
previously been accounted for as operating leases rather than as
financings. These agreements contained a purchase option, entitling the
Company to purchase the residences at fair market value at the end of
initial lease terms ranging from 14 to 15 years. As a result of the
restatement, these agreements are being accounted for using the finance
method in Statement of Financial Accounting Standard No. 98, Accounting
for Leases (SFAS No. 98). Accordingly, for periods between April 1, 1996
and March 30, 1999, the Company has recorded on its balance sheet the
property and equipment and financing obligation associated with these
agreements. During this same time period, the Company has recorded (i) all
rent payments as interest expense and (ii) depreciation expense resulting
from depreciating the property and equipment over periods ranging from
seven to 40 years. The Company has amended these agreements effective
March 30, 1999 to eliminate the purchase option, resulting in a
reclassification of these leases as operating leases from the date of the
amendment forward. Effective March 30, 1999, in accordance with SFAS No.
98 the Company has removed both the property and equipment and financing
obligation from the Company's balance sheet resulting in a deferred gain
that will be included in other liabilities and amortized over the
remaining initial lease term as an offset to future rent expense.
Statement of Operations. Reflects an increase in depreciation expense and
interest expense and a decrease in rent expense during the period resulting
from the change described above.
Balance Sheet. Reflects an increase in accumulated depreciation and a
decrease in other assets resulting from the change described above.
(D) All of the Company's operating leases contain various provisions for
annual increases in rent, or rent escalators. Certain of these leases
contain rent escalators with future minimum annual rent increases that are
not deemed to be contingent rents. As a result of the restatement, the
Company is accounting for rental
13
<PAGE>
expense related to such operating leases with non-contingent rent
escalators on a straight-line basis over the initial term of the leases
ranging from 10 to 20 years, rather than on a contractual cash payment
basis. The Company is recording a deferred liability representing the
difference between reported rent under the straight-line method and the
actual cash rent expense paid. During fiscal years 1997 and 1998 and during
the second quarter of 1999, substantially all of these leases were amended
to restructure such rent escalators. From the date of the amendment
forward, the Company has accounted for the amended leases on a contractual
cash payment basis. The deferred liability is amortized from the date of
the applicable amendment over the remaining initial lease terms as an
offset to future rent expense.
Statement of Operations. Reflects an increase in rent expense during the
period resulting from changing the accounting treatment associated with the
rent escalators.
Balance Sheet. Reflects a deferred liability resulting from the difference
between the lease expense reported under the straight-line method compared
to the actual cash payment.
(E) The Company incurred losses from certain sale and leaseback transactions
because the Company's cost basis in the residences (which included the
capital costs associated with the development and construction of the
residences) together with capitalized costs associated with opening such
residences, exceeded the sale proceeds to the Company. Such losses were
recorded as deferred assets and amortized over the initial term of the
leases, which ranged from 15 to 20 years. The Company has determined to
eliminate the deferred assets from its consolidated balance sheet and to
recognize such losses in the period in which they were incurred. Gains
resulting from sale and leaseback transactions continue to be recorded as
deferred liabilities and amortized over the initial lease term as an
offset to future reported rent expense. Unamortized deferred financing
costs related to construction financing were previously included in the
basis of the residence for purposes of calculating gain or loss on sale
and leaseback transactions. The Company has recorded unamortized deferred
financing costs as interest expense at the time the construction financing
is repaid.
Statement of Operations. Reflects an increase in loss on sale of assets and
interest expense, and a reduction in rent expense, resulting from the
changes described above.
Balance Sheet. Reflects a decrease in other assets resulting from the
elimination of deferred losses, in conjunction with sale and leaseback
transactions.
(F) The Company capitalizes a portion of gross interest expense based upon (i)
the amount of average construction in process during the period and (ii)
the average cost of its financing. Capitalized interest is included on the
Company's balance sheet as construction in process and property and
equipment. The amount of interest capitalized is impacted by changes to
the average construction in process and changes in the costs of the
Company's financing as a result of the cumulative impact of the
adjustments in Notes (A), (B) and (C).
During fiscal year 1997 and for the nine months ended September 30, 1998,
the Company also included in its effective cost of financing a cost of
capital related to the Company's convertible debentures. As part of the
restatement, the Company has eliminated such incremental costs from its
effective financing cost calculation during this time period.
Statement of Operations. Reflects a change in interest expense resulting
from recalculating capitalized interest.
Balance Sheet. Reflects a change in construction in process resulting from
recalculating capitalized interest.
(G) During fiscal years 1997 and 1998, the Company entered into joint venture
agreements with respect to the operation of certain start-up residences
pursuant to which 90% of the operating risks and rewards related to such
residences were allocated to the joint venture partner, in which the
Company had an interest. The
14
<PAGE>
Company consolidated 100% of the revenues and expenses attributable to these
residences with the revenues and expenses of the Company. The joint venture
partner reimbursed the Company for 90% of the start-up losses of the joint
venture residences incurred in the second quarter of 1997 and through the
third quarter of 1998, and the Company recognized such reimbursements as
other income in its financial statements during such quarters. The Company
has determined to restate such loss reimbursements as loans, rather than
other income. The Company has also reflected amounts paid to repurchase the
joint venture partner's interest in the operations of joint venture
residences as a reduction of the loan balance for the amount of reimbursed
losses on those residences, with the excess recorded as interest and other
expense. Interest was calculated based on the average loan balance using an
imputed 20% interest rate, and other expense was calculated based on a
$10,000 administrative fee per residence. During the first quarter of 1999,
the Company negotiated with the joint venture partner to acquire, for $3.8
million, all of such partner's remaining interests in the operations of the
remaining 17 residences entered into under joint venture agreements through
the third quarter of 1998. The Company was not reimbursed for any start-up
losses, nor has the Company entered into any new joint venture agreements
with respect to the operation of start-up residences, subsequent to the
third quarter of 1998.
Statement of Operations. Reflects a decrease in other income and an increase
in interest and other expenses resulting from the treatment of loss
reimbursements as loans rather than other income.
Balance Sheet. Reflects an increase in accrued liabilities to reflect cash
received as loss reimbursements as loans rather than other income. Other
current assets decreased as a result of eliminating an account receivable
from the joint venture partner for unfunded losses. Other assets decreased
to reflect the elimination of an asset which, prior to the restatement, was
recorded in connection with the repurchase of the joint venture partner's
interest in the operations of the joint venture.
(H) Commencing in the fourth quarter of 1997, the Company contracted with
Supportive Housing Services, Inc. ("SHS") to provide services to the
Company for market feasibility analysis, site pre-acquisition services and
construction management oversight in conjunction with the Company's
development activities. The Company paid $480,000 and $2.7 million during
the fourth quarter of 1997 and for the nine months ended September 30,
1998, respectively, for such development services. The Company capitalized
such payments as construction in process. In addition, the Company and SHS
entered into a consulting agreement whereby the Company agreed to provide
SHS consulting services in the assisted living industry, including
providing data on the Company's facility prototypes, facilitating the
introduction to other potential customers and providing market analysis on
the assisted living industry. The Company received fees from SHS of
$195,000 during the fourth quarter of 1997 and $906,000 during the year
ended December 31, 1998. The Company recorded a portion of these fees as a
reduction of residence operating expenses or corporate, general and
administrative expenses, and recognized a portion of these fees as
revenues or other income. As a result of the restatement, the Company has
recorded the fees received from SHS as a reduction of construction in
process.
Statement of Operations. Reflects a reduction in revenue and an increase in
corporate general and administrative expenses resulting from the change in
the accounting treatment for fees received from SHS as described above.
Balance Sheet. Reflects a decrease in construction in process resulting from
the change in the accounting treatment for fees received from SHS as
described above.
(I) As a result of the restatement, the Company has reversed previously
reported tax expense, accrued taxes, certain tax benefits for stock
options exercised, and has recorded a receivable for taxes paid, which
taxes are refundable.
Statement of Operations. Reflects a reduction of income tax expense
resulting from the changes described above.
Balance Sheet. Reflects changes in accrued taxes, additional paid in capital
and other current assets. The decrease in additional paid in capital
reflects the reversal of the tax benefit for exercise of stock options.
15
<PAGE>
(J) In the fourth quarter of 1997, the Company granted 250,000 shares of
restricted common stock to certain key officers, the terms of which
provided for vesting during the fourth year through the seventh year
following the grant date. At the time of the grant, the Company's common
stock had a fair market value of $17.00 per share. No cash consideration
was paid for such shares by the recipients. The Company recorded no
compensation expense with respect to the restricted stock during the
period prior to vesting. As a result of the restatement, the Company has
recorded the restricted stock as of the date of the grant as unearned
compensation expense in the amount of $17.00 per share, or approximately
$4.3 million. This unearned compensation expense has been reported as a
separate component of shareholders' equity to be amortized as compensation
expense over the seven year vesting period. The Company has reported this
compensation expense at a rate of $152,000 per quarter during the periods
in which the restricted stock was outstanding, and reported total
compensation expense of $912,000 from the fourth quarter of 1997 through
the first quarter of 1999. During the first and second quarters of 1999
the Company repurchased the restricted stock from the key officers for an
aggregate cost of $938,000. As a result of the repurchase, the Company has
reported additional compensation expense in the first quarter of 1999 in
the amount of $26,000 (the excess of the purchase price over previously
amortized unearned compensation expense) and thereafter will record no
compensation expense for the restricted stock and the restricted stock
will be eliminated from the Company's balance sheet.
Statement of Operations. Reflects an increase in corporate general and
administrative expense for the compensation expense recognized as a result
of the issuance of the restricted stock.
Balance Sheet. Reflects an increase in common stock resulting from the
fourth quarter 1997 grant of approximately $4.3 million of restricted
stock, as well as the creation of unearned compensation expense in the same
amount, which is amortized over subsequent periods.
(K) During 1997, the Company recorded a vendor invoice as part of other
current assets. In the first quarter of 1998, the Company charged such
vendor invoice to residence operating expense. As a result of the
restatement, the Company has charged this invoice to residence operating
expense in the period in which it was incurred in 1997, and reversed the
charge to residence operating expense previously recorded in 1998.
Statement of Operations. Reflects the change described above.
Balance Sheet. Reflects the change described above.
(L) During the fourth quarter of 1997, the Company overstated cash equivalents
by $125,000 (which was realized in cash in the first quarter of 1998), and
understated accrued interest receivable (included in other current assets
on its balance sheet) by $50,000. As a result, the Company overstated
interest income by $75,000 on its 1997 statement of operations. During the
first quarter of 1998, the Company adjusted accrued interest receivable on
its balance sheet and reduced interest income by the amount of such
adjustment. Additionally, during the first quarter of 1998, the Company
accrued $180,000 of interest receivable. The Company recognized this
amount as a reduction in interest income over the remaining three quarters
of 1998. As a result of the restatement, the Company has reduced cash and
cash equivalents and eliminated the excess portion of interest income
recorded during the fourth quarter of 1997. The Company also eliminated
the excess interest receivable in the first quarter of 1998 and reversed
the reduction of interest income previously recorded. As such, the
reported net loss during fiscal year 1997 will increase by $75,000 and the
reported net loss for fiscal year 1998 will decrease by the same amount.
Statement of Operations. Reflects the changes as discussed above.
Balance Sheet. Reflects the changes as discussed above.
(M) Certain reclassifications have been made to conform to the current
period's presentation.
(N) Not Used.
16
<PAGE>
(O) In the second quarter 1998, the Company recorded an $8.5 million charge
consisting of:
(i) a $3.9 million write-off of goodwill resulting from the Company's exit
from a home health care operation acquired in October 1997 (the Company
had recorded total goodwill of $7.7 million in connection with its home
health operations);
(ii) a $1.4 million reserve for exit costs associated with closing the home
health care operation acquired in October 1997;
(iii) a $1.2 million liability for expenses expected to be incurred in
connection with sale and leaseback commitments (the "Financing
Commitment Accrual") which the Company did not intend to utilize;
(iv) a $1.0 million write-off relating to development sites (the
"Development Site Write-off") that the Company had determined not to
develop; and
(v) a $1.0 million write-down of three impaired residences as required by
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long Lived Assets and for Long Lived Assets to be Disposed of.
As a result of the restatement, the Company has written-off all of the $7.5
million of unamortized goodwill associated with the home health care
operation and has eliminated the $1.0 million write-down relating to three
residences previously accounted for as impaired. In addition, the Company
has reclassified the Development Site Write-off to site abandonment expense
and the Financing Commitment Accrual to other expense and general and
administrative expense on the statement of operations. Amortization
expenses increased to reflect a 20 year useful life on goodwill.
Statement of Operations. Reflects a reduction in amortization expense and
an increase in write-off of impaired assets resulting in the write-off of
additional goodwill associated with exiting the home health care operation
as described above. In addition, site abandonment expense, other expense
and general and administrative expense increased as a result of the
reclassification of a portion of the charges as described above.
Balance sheet. Reflects a reduction in goodwill resulting in the write-off
of additional goodwill associated with exiting the home health care
operation as described above.
(P) These adjustments reflect the cumulative impact of the restatement of
prior periods on the balance sheet amounts.
(Q) This adjustment is the net effect on net income and accumulated deficit as
a result of the adjustments described in Notes (A) through (O).
17
<PAGE>
ITEM 2--Management's Discussion and Analysis of Financial Condition and
Results of Operations
Restatement
On February 1, 1999, the Company announced that after consultation with its
independent auditors the Company would restate its financial statements for
the fiscal quarter ended June 30, 1997, the fiscal quarter ended September 30,
1997, the fiscal year ended December 31, 1997, the fiscal quarter ended March
31, 1998, the fiscal quarter ended June 30, 1998 and the fiscal quarter ended
September 30, 1998. On March 31, 1998, the Company announced that the
restatement would be more extensive than the Company had previously believed,
and might include periods prior to the second quarter of 1997, including the
fiscal year ended December 31, 1996. After further consultation with its
independent auditors, the Company determined to restate its financial
statements for the fiscal year ended December 31, 1996, the fiscal year ended
December 31, 1997 and the first three fiscal quarters of the fiscal year ended
December 31, 1998.
The restatement reduced the net income for the fiscal years ended December
31, 1996 and 1997 and the six months ended June 30, 1998 by $2.1 million, $6.7
million, and $7.5 million, respectively. The cumulative effect of the
restatement reduced shareholders' equity by $16.4 million through June 30,
1998. As a result of the restatement, the Company reported net losses of $1.9
million, $2.5 million, and $12.6 million for the fiscal years 1996 and 1997,
and the six months ended June 30, 1998 respectively, as compared to previously
reported net income of $149,000, $4.2 million, and a net loss of $5.1 million,
respectively. As a result of the restatement, the Company reported net loss
per diluted share of $0.23, $0.21 and $0.81 for the fiscal years 1996 and 1997
and for the six months ended June 30, 1998, respectively, compared to
previously reported net income of $0.03 and $0.34, and net loss of $0.32, per
diluted share, respectively. After the restatement, the Company's cash
position as of December 31, 1996 and 1997 and as of June 30, 1998 was $2.1
million, $63.3 million and $76.3 million, respectively, as compared to $2.1
million, $63.4 million and $76.5 million, respectively, as previously
reported. In addition, the Company's working capital position on a restated
basis as of December 31, 1996 and 1997 and as of June 30, 1998 was negative
$27.1 million, positive $40.1 million and positive $57.4 million,
respectively, as compared to previously reported working capital of negative
$26.4 million, positive $41.0 million and positive $58.9 million,
respectively.
The restatement of the financial data included in this report resulted
primarily from: (i) the earlier recognition of certain expenses which were
previously capitalized in association with the Company's development and
financing activities; (ii) a modification in how the Company accounted for
certain of its lease arrangements; (iii) a modification in how the Company
accounted for certain of its acquisitions and its joint venture arrangements;
(iv) the capitalization of fees received by the Company previously recognized
as either a reduction of expenses or as other income; (v) the elimination of
an impairment write-down that the Company had previously recorded on three of
its residences; (vi) elimination of certain accrued expenses previously
recorded pursuant to a change in accounting principle; and (vii) the increase
in goodwill written-off in the second quarter of 1998 relating to exiting the
Company's home health operation.
For statement of operations and balance sheet data, as originally reported
and as restated as of and for the three months ended June 30, 1998, as well as
a description of the adjustments to the originally reported data resulting
from the restatement, see Note 10 to the unaudited consolidated financial
statements included in Item 1 of this report.
Overview
At the closing of the initial public offering in November, 1994, the
Company began operating five assisted living residences located in Oregon. As
of June 30, 1998, the Company had received a Certificate of Occupancy on 161
residences (6,137 units) of which 143 residences (5,414 units) were included
in the Company's operating results.
The Company derives its revenues primarily from resident fees for the
delivery of assisted living services. Resident fees typically are paid monthly
by residents, their families, state Medicaid agencies or other responsible
parties. Resident fees include revenue derived from a multi-tiered rate
structure, which varies based on the level of care required. Resident fees are
recognized as revenues when services are provided. Operating expenses
18
<PAGE>
include (i) residence operating expenses, such as staff payroll, food,
property taxes, utilities, insurance and other direct residence operating
expenses, (ii) general and administrative expenses consisting of corporate and
support function such as legal, accounting and other administrative expenses,
(iii) building rentals and (iv) depreciation and amortization.
The Company previously capitalized the operating results of certain start-
up residences for approximately the first two months of operations. As a
result of the restatement, residences are included in operating results as of
the first day of the month following licensure. Accordingly, the number of
Stabilized and Start-up Residences (as defined below) at the beginning of each
period, and the operating results of Stabilized and Start-up Residences in
each period, have been restated. See footnote (A) to Note 10 of the
consolidated financial statements included in Item 1.
The following table sets forth, for the periods presented the number of
residences and units included in operating results, and the average occupancy
rates and sources of revenue for the Company. The portion of revenues received
from state Medicaid agencies are labeled as "Medicaid State Portion" while the
portion of the Company's revenues that a Medicaid-eligible resident must pay
out of his or her own resources is labeled "Medicaid Resident Portion".
Stabilized Residences are defined as those residences which were operating for
more than twelve months prior to the beginning of the period or had achieved a
95% occupancy rate as of the beginning of the reporting period. Start-up
Residences are defined as those residences, which were operating for less than
twelve months prior to the beginning of the period or had not achieved a 95%
occupancy rate as of the beginning of the reporting period.
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1998
---------------------------
Stabilized Start-up
Residences Residences Total
---------- ---------- -----
<S> <C> <C> <C>
Total Residences
----------------
Residences operated (end of period)........ 73 70 143
Units operated (end of period)............. 2,642 2,772 5,414
Average occupancy rate..................... 92.1% 48.0% 70.4%
Sources of revenue:
Medicaid state portion................... 14.3% 6.6% 11.6%
Medicaid resident portion................ 7.9% 3.0% 6.2%
Private.................................. 77.8% 90.4% 82.2%
----- ----- -----
Total.................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Results of Operations
Three months ended June 30, 1998 compared to three months ended June 30, 1997
The Company had a net loss of $11.8 million, or $0.75 per basic and diluted
share, on revenue of $21.2 million for the three months ended June 30, 1998 as
compared to a net loss of $74,000, or $0.01 per basic and diluted share, on
revenues of $11.1 million for the three months ended June 30, 1997.
The Company had certificates of occupancy for 161 residences, 143 of which
were included in the operating results as of June 30, 1998 as compared to 93
residences with certificates of occupancy, 83 of which were included in the
operating results as of June 30, 1997. Of the residences included in the
operating results as of June 30, 1998, the Company owned 74 residences and
leased 69 residences (53 of which were operating leases and 16 of which were
accounted for as financings) as compared to 34 owned residences and 49 leased
residences (33 of which were operating leases and 16 of which were accounted
for as financings) as of June 30, 1997.
Revenue. Revenue was $21.2 million for the three months ended June 30, 1998
as compared to $11.1 million for the three months ended June 30, 1997, an
increase of $10.1 million. This increase is due primarily to the opening of 39
residences (1,524 units) which opened between June 30, 1997 and March 31, 1998
and the opening of an additional 21 residences (874 units) during the three
months ended June 30, 1998.
19
<PAGE>
Residence Operating Expenses. Residence operating expenses were $13.1
million for the three months ended June 30, 1998 as compared to $6.8 million
for the three months ended June 30, 1997, an increase of $6.3 million. This
increase is due primarily to the 39 residences (1,524 units) which opened
between June 30, 1997 and March 31, 1998, and the opening of an additional 21
residences (874 units) during the three months ended June 30, 1998.
Corporate General and Administrative. Corporate general and administrative
expenses were $2.0 million for the three months ended June 30, 1998 as
compared to $782,000 for the three months ended June 30, 1997. The Company's
corporate general and administrative expenses before capitalized payroll costs
were $2.5 million for the three months ended June 30, 1998 as compared to $1.2
million for the three months ended June 30, 1997, an increase of $1.3 million.
This increase results from an additional investment in the Company's corporate
and regional infrastructure to support the development and operation of new
residences including the expansion into new states. The Company capitalized
$442,000 of payroll costs for the three months ended June 30, 1998 as compared
to $400,000 for the three months ended June 30, 1997 resulting from the
Company's on-going development activities.
Building Rentals. Building rentals were $3.2 million for the three months
ended June 30, 1998 as compared to $1.6 million for the three months ended
June 30, 1997, an increase of $1.6 million. This increase is due primarily to
the one lease entered into during the three months ended June 30, 1998, and
the 19 leases entered into between June 30, 1997 and March 31, 1998. As of
June 30, 1998 the Company had 53 operating leases as compared to 33 operating
leases as of June 30, 1997.
Depreciation and Amortization. Depreciation and amortization was $1.5
million for the three months ended June 30, 1998 as compared to $852,000 for
the three months ended June 30, 1997, an increase of $651,000. The increase in
depreciation is the result of additional owned residences due to the Company's
increased emphasis on asset ownership. As of June 30, 1998, the Company owned
74 residences as compared to 34 residences as of June 30, 1997. Depreciation
expense also included depreciation associated with sale and leaseback
transactions completed during fiscal years 1996 and 1997, which were accounted
for as financings. Amortization expense decreased as a result of the adoption
of SOP 98-5 as of January 1, 1998 which requires the Company to expense start-
up costs as they are incurred. Prior to the adoption of SOP 98-5, the
Company's policy was to defer certain start-up costs associated with opening
new residences and amortize them over the first twelve months of the
residence's operations.
Site Abandonment Costs. As a result of the Company's decision to reduce the
number of new residence openings during fiscal year 1999 and beyond, the
Company wrote-off $1.0 million of capitalized costs during the three months
ended June 30, 1998 relating to the abandonment of 11 development sites and
other miscellaneous development costs. The Company had not written-off any
such costs prior to the quarter ended June 30, 1998.
Write-off of Impaired Assets and Related Expenses. The Company recorded a
$8.9 million charge for the three months ended June 30, 1998 consisting of (i)
a $7.5 million write-off of unamortized goodwill resulting from the exit from
its home health care operation acquired in October 1997 and (ii) a $1.4
million provision for exit costs associated with closing such home health care
operation.
Interest Expense. Interest expense was $3.0 million for the three months
ended June 30, 1998 as compared to $1.2 million for the three months ended
June 30, 1997. Gross interest expense for the three months ended June 30, 1998
was $4.4 million compared to $2.7 million for the three months ended June 30,
1997, an increase of $1.7 million. The increase is due to interest expense
incurred during the three months ended June 30, 1998 of $1.5 million on 6.0%
Debentures issued in October, 1997, $1.0 million of interest incurred on
5.625% Debentures issued in April, 1998, an increase of $366,000 of interest
on 16 sale and leaseback transactions accounted for as financings, seven of
which were entered into subsequent to June 30, 1997, $115,000 of interest
incurred on loans pursuant to the Company's joint venture agreements, an
increase of $288,000 on mortgage financings entered into subsequent to June
30, 1997, an increase of $78,000 on State of Idaho Housing and Finance
Association loans completed subsequent to June 30, 1997, combined with a
decrease of interest incurred on construction bridge loans of $1.6 million.
The Company capitalized $1.4 million and $1.5 million of interest expense for
the three months ended June 30, 1998 and 1997, respectively.
20
<PAGE>
Interest Income. Interest income was $1.0 million for the three months
ended June 30, 1998 as compared to $153,000 for the three months ended June
30, 1997, an increase of $853,000. The increase is due to higher cash balances
available to invest.
Loss on Sale of Assets. Loss on sale of assets was $211,000 for the three
months ended June 30, 1998 as compared to $221,000 for the three months ended
June 30, 1997. The loss recorded for the three months ended June 30, 1998,
resulted primarily from additional capital costs incurred during the three
months ended June 30, 1998 on sale and leaseback transactions completed prior
to March 31, 1998. The Company entered into one sale and leaseback transaction
during the three months ended June 30, 1998 as compared to five during the
three months ended June 30, 1997.
Other Income and Expense. Other expense was $1.1 million for the three
months ended June 30, 1998 as compared to other income of $125,000 for the
three months ended June 30, 1997. During the three months ended June 30, 1998,
the Company determined that it would not enter into sale and leaseback
arrangements to the full extent of sale and leaseback commitments the Company
had outstanding. The Company recorded a $1.2 million charge in connection with
this determination, including $1.0 million as other expense for three months
ended June 30, 1998.
Net Loss. As a result of the above, net loss was $11.8 million or $0.75 per
basic and diluted share for the three months ended June 30, 1998, compared to
a net loss of $74,000, or $0.01 per basic and diluted share for the three
months ended June 30, 1997.
Six months ended June 30, 1998 compared to six months ended June 30, 1997
The Company had a net loss of $12.6 million, or $0.81 per basic and diluted
share, on revenue of $39.9 million for the six months ended June 30, 1998 as
compared to a net loss of $43,000, or $0.00 per basic and diluted share, on
revenues of $20.6 million for the six months ended June 30, 1997.
The Company had certificates of occupancy for 161 residences, 143 of which
were included in the operating results as of June 30, 1998 as compared to 93
residences with certificates of occupancy, 83 of which were included in the
operating results as of June 30, 1997. Of the residences included in the
operating results, as of June 30, 1998, the Company owned 74 residences and
leased 69 residences (53 of which were operating leases and 16 of which were
accounted for as financings) as compared to 34 owned residences and 49 leased
residences (33 of which were operating leases and 16 of which were accounted
for as financings) as of June 30, 1997.
Revenue. Revenue was $39.9 million for the six months ended June 30, 1998
as compared to $20.6 million for the six months ended June 30, 1997, an
increase of $19.3 million. This increase is due primarily to the full six
months impact of the 23 residences (877 units) which opened during the six
months ended June 30, 1997 and to the opening of an additional 60 residences
(2,398 units) since June 30, 1997.
Residence Operating Expenses. Residence operating expenses were $24.6
million for the six months ended June 30, 1998 as compared to $12.8 million
for the six months ended June 30, 1997, an increase of $11.8 million. This
increase is due to the full six months impact of the 23 residences (887 units)
which opened during the six months ended June 30, 1997, and to the opening of
an additional 60 residences (2,398 units) since June 30, 1997.
Corporate General and Administrative. Corporate general and administrative
expenses were $3.6 million for the six months ended June 30, 1998 as compared
to $1.6 million for the six months ended June 30, 1997. The Company's
corporate general and administrative expenses before capitalized payroll costs
were $4.6 million for the six months ended June 30, 1998 as compared to $2.5
million for the six months ended June 30, 1997, an increase of $2.1 million.
This increase results from an additional investment in the Company's corporate
and regional infrastructure to support the development and operation of new
residences including the expansion into new states. The Company capitalized
$1.0 million of payroll costs for the six months ended June 30, 1998 as
compared to $892,000 for the six months ended June 30, 1997 resulting from an
increase in development activities.
21
<PAGE>
Building Rentals. Building rentals were $6.4 million for the six months
ended June 30, 1998 as compared to $2.9 million for the six months ended June
30, 1997, an increase of $3.5 million. This increase is due to the one lease
entered into during the six months ended June 30, 1998, and the 20 leases
entered into between June 30, 1997 and December 31, 1997. As of June 30, 1998
the Company had 53 operating leases as compared to 33 operating leases as of
June 30, 1997.
Depreciation and Amortization. Depreciation and amortization was $2.7
million for the six months ended June 30, 1998 as compared to $1.5 million for
the six months ended June 30, 1997, an increase of $1.2 million. The increase
in depreciation is the result of additional owned residences due to the
Company's increased emphasis on asset ownership. As of June 30, 1998, the
Company owned 74 residences as compared to 34 residences as of June 30, 1997.
Depreciation expense also included depreciation associated with sale and
leaseback transactions completed during fiscal years 1996 and 1997, which were
accounted for as financings. Amortization expense decreased as a result of the
adoption of SOP 98-5 as of January 1, 1998 which requires the Company to
expense start-up costs as they are incurred. Prior to the adoption of SOP 98-
5, the Company's policy was to defer certain start-up costs associated with
opening new residences and amortize them over the first twelve months of the
residence's operations.
Site Abandonment Costs. As a result of the Company's decision to reduce the
number of new residence openings during fiscal year 1999 and beyond, the
Company wrote-off $1.0 million of capitalized costs during the six months
ended June 30, 1998 relating to the abandonment of 11 development sites and
other miscellaneous development costs. The Company had not written-off any
such costs prior to the quarter ended June 30, 1998.
Write-off of Impaired Assets and Related Expenses. The Company recorded a
$8.9 million charge for the six months ended June 30, 1998 consisting of (i) a
$7.5 million write-off of goodwill resulting from the exit from its home
health care operation acquired in October 1997 and (ii) a $1.4 million
provision for exit costs associated with closing such home health care
operation.
Interest Expense. Interest expense was $4.0 million for the six months
ended June 30, 1998 as compared to $1.8 million for the six months ended June
30, 1997. Gross interest expense for the six months ended June 30, 1998 was
$7.5 million compared to $4.7 million for the six months ended June 30, 1997,
an increase of $2.8 million. The increase is due to interest expense incurred
during the six months ended June 30, 1998 of $2.9 million on 6.0% Debentures
issued in October, 1997, $1.0 million of interest incurred on 5.625%
Debentures issued in April, 1998, an increase of $746,000 of interest on 16
sale and leaseback transactions accounted for as financings, seven of which
were entered into subsequent to June 30, 1997, $259,000 of interest incurred
on loans pursuant to the Company's joint venture agreements, an increase of
$288,000 on mortgage financings entered into subsequent to June 30, 1997, an
increase of $143,000 on State of Idaho Housing and Finance Association loans
completed subsequent to June 30, 1997, combined with a decrease of interest
incurred on bridge loans of $2.6 million. The Company capitalized $3.5 million
and $2.9 million of interest expense for the six months ended June 30, 1998
and 1997, respectively.
Interest Income. Interest income was $1.6 million for the six months ended
June 30, 1998 as compared to $276,000 for the six months ended June 30, 1997,
an increase of $1.3 million. The increase is due to higher cash balances
available to invest.
Loss on Sale of Assets. Loss on sale of assets was $420,000 for the six
months ended June 30, 1998 as compared to $424,000 for the six months ended
June 30, 1997. The loss resulted from losses incurred in connection with one
sale and leaseback transaction entered into during the six months ended June
30, 1998 and from losses resulting primarily from additional capital costs
incurred during the six months ended June 30, 1998 on sale and leaseback
transactions completed during fiscal year 1997. The Company entered into two
sale and leaseback transactions during the six months ended June 30, 1998 as
compared to 11 during the six months ended June 30, 1997.
Other Income and Expense. Other expense was $1.1 million for the six months
ended June 30, 1998 as compared to other income of $125,000 for the six months
ended June 30, 1997. During the three months ended June 30, 1998, the Company
determined that it would not enter into sale and leaseback arrangements to the
full
22
<PAGE>
extent of sale and leaseback commitments the Company had outstanding. The
Company recorded a $1.2 million liability for expenses expected to be incurred
in connection with this determination, including $1.0 million as other expense
for six months ended June 30, 1998.
Net Loss. As a result of the above, net loss was $12.6 million or $0.81 per
basic and diluted share for the six months ended June 30, 1998, compared to a
net loss of $43,000, or $0.00 per basic and diluted share for the six months
ended June 30, 1997.
Liquidity and Capital Resources
The following table sets forth certain data from the statement of cash
flows as reported and as restated as a result of the adjustments discussed in
Note 10 to the financial statements for the six months ended June 30, 1998 (in
thousands).
<TABLE>
<CAPTION>
As Previously
Reported(1) As Restated
------------- -----------
<S> <C> <C>
Net cash provided by operating activities....... $ 9,332 $ 3,504
Net cash used in investing activities........... (72,214) (74,608)
Net cash provided by financing activities....... 75,956 84,141
------- -------
Net increase in cash and cash equivalents..... $13,074 $13,037
======= =======
</TABLE>
- --------
(1) Reflects certain reclassifications to conform to the presentation in the
current year's consolidated statement of cash flows. Amounts as previously
reported do not reflect the adoption of SOP 98-5, which is reflected in
amounts as restated. SOP 98-5 was adopted during the second quarter of
1998 effective as of January 1, 1998.
As a result of the restatement, the Company's cash position as of December
31, 1996 and 1997 and as of June 30, 1998 was $2.1 million, $63.3 million and
$76.3 million, respectively, compared to $2.1 million, $63.4 million and $76.5
million, respectively, as previously reported. In addition, the Company's
working capital position on a restated basis as of December 31, 1996 and 1997
and as of June 30, 1998 was negative $27.1 million, positive $40.1 million and
positive $57.4 million, respectively, compared to previously reported working
capital of negative $26.4 million, positive $41.0 million and positive $58.9
million, respectively. As a result of the restatement, net cash provided by
operating activities decreased $5.8 million. Net cash used in investing
activities increased by $2.4 million and net cash provided by financing
activities increased by $8.2 million, primarily as a result of the change in
construction payable balance being classified as a non-cash transaction.
The Company had $76.3 million in cash and cash equivalents at June 30,
1998, compared to $63.4 million at December 31, 1997. The increase is
primarily attributable to the issuance of $75.0 million of 5.625% Debentures
in April, 1998.
Net cash provided by operating activities was approximately $3.5 million
during the six month period ended June 30, 1998.
Net cash used in investing activities totaled $74.6 million during the six
month period ended June 30, 1998. The primary use of cash was $70.8 million
related to the development of new assisted living residences and $8.6 million
related primarily to the acquisition of two Texas and one Louisiana
facilities. This was offset by proceeds of $2.8 million related to the sale
and leaseback of one residence and the release of $2.0 million of funds
previously held in trust. In addition, during the first quarter of 1998, the
Company converted $2.2 million of construction financing to a sale and
leaseback with respect to one residence.
Net cash provided by financing activities totaled $84.1 million during the
six month period ended June 30, 1998. The Company completed the issuance of
$75.0 million of 5.625% Debentures in April, 1998, realizing net proceeds of
$72.2 million. In addition, the Company completed fixed rate mortgage loans on
seven properties, realizing proceeds of $14.7 million.
As of June 30, 1998, the Company had invested excess cash balances in
short-term certificates of deposit and U.S. Treasury securities.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<C> <S>
12.1 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
On July 30, 1998, the Company filed a report on Form 8-K dated July 30,
1998 reporting its results of operations for the three and six months ended
June 30, 1998.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) the Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ASSISTED LIVING CONCEPTS, INC.
Registrant
By: James W. Cruckshank
----------------------------------
Name: James W. Cruckshank
Title: Vice President Chief
Financial Officer
September 23, 1999
By: M. Catherine Maloney
----------------------------------
Name: M. Catherine Maloney
Title: Vice President/Controller
Chief Accounting Officer
September 23, 1999
25
<PAGE>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGE:
<TABLE>
<CAPTION>
Three Months Six Months
Three Months Ended June 30, Six Months Ended June 30,
Ended June 30, 1998 Ended June 30, 1998
1997 (As Restated) 1997 (As Restated)
-------------- -------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Loss before cumulative
effect of change in
accounting principle... $ (74) $(11,831) $ (43) $(11,092)
Add fixed charges:
Interest costs including
amortization of debt
issuance cost.......... 1,141 2,945 1,835 $ 4,007
------ -------- ------ --------
Earnings (loss)......... $1,067 $ (8,886) $1,792 $ (7,085)
====== ======== ====== ========
Fixed Charges:
Interest expense
including amortization
of debt issuance cost.. $1,141 $ 2,945 $1,835 $ 4,007
Capitalized interest.... 1,512 1,432 2,846 3,492
------ -------- ------ --------
Total Fixed Charges. $2,653 $ 4,377 $4,681 $ 7,499
====== ======== ====== ========
Ratio of Earnings to
Fixed Charges.......... .40 -- .38 --
====== ======== ====== ========
Deficiency of Earnings
to Cover Fixed Charges. $1,586 $ 13,263 $2,889 $ 14,584
====== ======== ====== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q/A
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> MAR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 76,306 76,306
<SECURITIES> 0 0
<RECEIVABLES> 3,135 3,135
<ALLOWANCES> 79 79
<INVENTORY> 0 0
<CURRENT-ASSETS> 84,893 84,893
<PP&E> 297,756 297,756
<DEPRECIATION> 5,718 5,718
<TOTAL-ASSETS> 394,919 394,919
<CURRENT-LIABILITIES> 27,458 27,458
<BONDS> 247,061 247,061
0 0
0 0
<COMMON> 158 158
<OTHER-SE> 117,505 117,505
<TOTAL-LIABILITY-AND-EQUITY> 394,919 394,919
<SALES> 21,153 39,926
<TOTAL-REVENUES> 21,153 39,926
<CGS> 13,139 24,556
<TOTAL-COSTS> 29,762 47,126
<OTHER-EXPENSES> 1,072 1,065
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,945 4,007
<INCOME-PRETAX> (11,831) (11,092)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (11,831) (11,092)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (1,523)
<NET-INCOME> (11,831) (12,615)
<EPS-BASIC> (.75) (.81)
<EPS-DILUTED> (.75) (.81)
</TABLE>