SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934. For the quarterly period ended June 30, 1996.
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934. For the transition period from to
Commission file number: 0-26502
COMMUNITY CARE OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1823411
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3050 North Horseshoe Drive, Suite 260, Naples, Florida 34104
(Address of principal executive offices)
Registrant's telephone number, including area code: (941) 435-0085
3050 North Horseshoe Drive, Suite 260, Naples, Florida 33942
(Former address)
Indicate by check mark whether the registrant (1) has filed all reports required
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 the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
As of July 31, 1996, there were outstanding 7,597,801 shares of common stock,
$.0025 par value, per share.
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Financial Statements
Consolidated Balance Sheets.....................................3
Consolidated Statements of Operations...........................4
Consolidated Statement of Shareholders' Equity..................5
Consolidated Statements of Cash Flows...........................6
Notes to Consolidated Financial Statements......................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...............23
Item 5 Other Information...............................................24
Item 6. Exhibits and Reports on Form 8-K..................................24
Signatures........................................................28
Exhibit Index ....................................................29
2
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<TABLE>
<CAPTION>
Community Care of America, Inc.
and Subsidiaries
Consolidated Balance Sheets
<S> <C> <C>
December 31, June 30,
1995 1996
---------- ----------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 2,485,000 $ 1,108,000
Accounts receivable net of allowance for doubtful
accounts and contractual adjustments of
$1,978,000, and $3,795,000 at December 31, 1995
and June 30, 1996 12,934,000 16,959,000
Supplies inventory 1,534,000 1,932,000
Prepaid expenses and other current assets 3,662,000 3,460,000
---------- ----------
Total current assets 20,615,000 23,459,000
Property, plant and equipment, net of
accumulated depreciation 54,327,000 59,897,000
Notes receivable 2,533,000 2,608,000
Deposits 10,244,000 6,635,000
Excess of cost over fair value of net assets
acquired, net of accumulated amortization
of $139,000 and $213,000 at December 31, 1995
and June 30, 1996 3,299,000 15,746,000
Deferred financing costs 948,000 2,527,000
Other assets 1,324,000 2,166,000
---------- ----------
$ 93,290,000 $113,038,000
============ ============
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt $ 1,258,000 $ 15,970,000
Accounts payable and accrued expenses 14,869,000 26,779,000
---------- ----------
Total current liabilities 16,127,000 42,749,000
Long-term debt, less current maturities 34,407,000 36,264,000
Deferred income taxes 9,334,000 4,698,000
Common stock subject to repurchase, 219,798 shares
issued and outstanding at December 31, 1995
and June 30, 1996 2,181,000 2,181,000
Shareholders' equity:
Common stock, $.0025 par value; authorized
15,000,000 shares; issued and outstanding
6,762,991 and 7,378,003 at December 31, 1995
and June 30, 1996 17,000 18,000
Additional paid-in capital 31,356,000 36,467,000
Deficit (132,000) (9,339,000)
---------- ----------
Total shareholders' equity 31,241,000 27,146,000
---------- ----------
$ 93,290,000 $113,038,000
============ ============
See accompanying notes to consolidated financial statements.
3
</TABLE>
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<TABLE>
<CAPTION>
Community Care of America, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1995 1996 1995 1996
------------ ------------- ---------- -------------
(Unaudited) (Unaudited)
Operating revenues:
Net patient service revenues $ 22,855,000 $ 30,721,000 $ 38,698,000 $ 56,865,000
Other operating revenues 162,000 1,716,000 273,000 4,517,000
------------ ------------- ------------- -------------
Total operating revenues 23,017,000 32,437,000 38,971,000 61,382,000
------------ ------------- ------------- -------------
Operating expenses:
Facility operating expenses 18,460,000 25,325,000 30,993,000 47,431,000
Corporate administrative and general 1,231,000 1,125,000 2,277,000 2,559,000
Rent 1,517,000 2,090,000 2,605,000 3,853,000
Depreciation and amortization 590,000 641,000 1,000,000 1,286,000
Interest, net of interest income 918,000 1,102,000 1,771,000 1,920,000
Unusual charges - 19,185,000 - 19,185,000
------------ ------------- ------------- -------------
Total operating expenses 22,716,000 49,468,000 38,646,000 76,234,000
------------ ------------- ------------- -------------
Earnings (loss) before income taxes 301,000 (17,031,000) 325,000 14,852,000)
Provision (benefit) for income taxes 90,000 (6,472,000) 90,000 (5,645,000)
------------ ------------- ------------- -------------
Net earnings (loss) 211,000 (10,559,000) 235,000 (9,207,000)
Dividends-preferred stock (163,000) - (326,000) -
------------ ------------- ------------- -------------
Earnings (loss) applicable to common stock $ $48,000 $(10,559,000) $ (91,000) $(9,207,000)
============ ============= ============= ============
Earnings (loss) per common share $ 0.0 $ (1.41) $ (0.0) $ (1.25)
============ ============= ============= ============
Weighted average number of common and
common equivalent shares outstanding 2,062,636 7,501,701 2,062,636 7,350,441
============ ============= ============= ============
See accompanying notes to consolidated financial statements.
4
</TABLE>
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<TABLE>
<CAPTION>
Community Care of America, Inc.and Subsidiaries
Consolidated Statement of Shareholders' Equity
<S> <C> <C> <C> <C>
Additional
Common Paid in Retained Total
Stock Capital Earnings (Deficit)
----------- ------------ ------------ -----------
Balance at December 31, 1995 $ 17,000 $ 31,356,000 $ (132,000) $ 31,241,000
Issuance of 615,012 shares of
common stock 1,000 5,111,000 - 5,112,000
Net loss - - (9,207,000) (9,207,000)
----------- ------------ ------------ -----------
Balance at June 30, 1996 (Unaudited) $ 18,000 $ 36,467,000 $ (9,339,000) $ 27,146,000
=========== ============ ============ ===========
See accompanying notes to consolidated financial statements.
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Community Care of America, Inc.
and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
<S> <C> <C>
Six Months Ended
June 30,
============================
1995 1996
------------- -------------
(Unaudited) (Unaudited)
Net cash provided by operating activities $ 3,039,000 $ 15,000
Cash flows from investing activities:
Property, plant and equipment additions (3,612,000) (5,551,000)
Business acquisitions (5,656,000) (4,986,000)
Notes receivable - (75,000)
Deposits - (516,000)
Other assets (2,447,000) (942,000)
------------- -------------
Net cash used in investing activities (11,715,000) (12,070,000)
------------- -------------
Cash flows from financing activities:
Dividends on preferred stock (327,000) -
Principal reductions of long-term debt (681,000) (1,940,000)
Proceeds from long-term debt borrowings 9,146,000 14,123,000
Proceeds from issuances of stock - 162,000
Deferred financing costs (261,000) (1,667,000)
------------- -------------
Net cash provided by financing activities 7,877,000 10,678,000
------------- -------------
Decrease in cash and cash equivalents (799,000) (1,377,000)
Cash and cash equivalents, beginning of period 3,925,000 2,485,000
------------- -------------
Cash and cash equivalents, end of period $ 3,126,000 $ 1,108,000
============= =============
Supplemental disclosures of cash flow information:
--------------------------------------------------
Interest paid $ 1,692,000 $ 2,099,000
Income taxes paid 3,400 15,000
See accompanying notes to consolidated financial statements.
6
</TABLE>
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1996
(1) Basis of presentation
The interim unaudited consolidated financial statements of Community Care of
America, Inc. and subsidiaries (the "Company") presented herein have been
prepared in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10- Q and Regulation S-X
pertaining to interim financial statements. The interim financial statements
presented herein reflect all adjustments (consisting of normal recurring
adjustments) which, in the opinion of management, are considered necessary for a
fair presentation of the Company's financial condition as of June 30, 1996 and
results of operations for the three and six months ended June 30, 1996 and 1995.
The Company's financial statements should be read in conjunction with the
Company's audited consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995. The results of operations for the three and six months ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
full year. Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
(2) Recent Acquisitions
Southern Care Transaction
On May 16, 1996, Southern Care Centers, Inc. ("Southern Care") was merged into
CCA Acquisition I, Inc., ("Newco"), a newly formed wholly-owned subsidiary of
the Company. As a result of the Merger, the subsidiaries of Southern Care
("Acquired Subsidiaries"), which leased five long-term care facilities in
Georgia and one long-term care facility in Louisiana, became indirect
wholly-owned subsidiaries of the Company. In addition, another wholly-owned
subsidiary of the Company became the manager of a long-term care facility in
Texas, owned by a former subsidiary of Southern Care which was not acquired by
the Company, under a Management Agreement dated as of May 1, 1996. Additionally,
Newco is providing accounting, internal auditing, billing, accounts payable and
certain other services under an Agreement to Provide Accounting and Auditing
Services and Rural Healthcare Provider Network Services dated as of May 1, 1996
to a company owned by the former shareholders of Southern Care which operates
another long-term care facility in Georgia.
Pursuant to the merger agreement, the shareholders of Southern Care received
$2.7 million of cash and 568,888 shares of Common Stock of the Company. In
addition, the shareholders of Southern Care are entitled to receive, on or
before March 31, 1997, up to $2.0 million in Common Stock of the Company based
on the amount that Newco's annualized contribution margin on a consolidated
basis for the year ended December 31, 1996 exceeds $4.4 million. The Company has
agreed to file two shelf registration statements under the Securities Act of
1933, as amended, covering the shares issued and issuable in the merger and,
upon request of the holders, to "piggyback" such shares in certain registration
statements filed by the Company.
7
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1996
(2) Recent Acquisitions - continued
Following the consummation of the transaction, the subsidiaries of Southern Care
acquired the five leased Georgia facilities and, in turn, sold those facilities
to Health and Retirement Properties Trust ("HRPT"). HRPT thereupon leased the
five Georgia facilities back to the Acquired Subsidiaries for an initial term
ending on December 31, 2003 and for up to two additional thirteen year terms,
each at the option of the Acquired Subsidiaries. After the first lease year,
rent is subject to increase based on year over year increases, if any, in net
patient revenues and non-inpatient revenues, each as defined in the master lease
agreement. The Louisiana facility will continue to be leased under the same
terms as the facility was being leased prior to the merger.
The Company's total cost of the acquisition was approximately $8.5 million
including legal, consulting and other direct costs. Such acquisition has been
accounted for by the purchase method and accordingly, the results of operations
have been included in the Company's consolidated financial statements since the
date of acquisition. The total cost has been allocated as follows:
Accounts receivable, net $ 1,036,000
Prepaid expenses and other current assets 303,000
Deposits 875,000
Excess of cost over fair value of net assets acquired 11,593,000
Accounts payable and accrued expenses (3,391,000)
Other long-term liabilities (498,000)
Deferred income tax liability (1,393,000)
---------------
$ 8,525,000
===============
The following unaudited pro forma consolidated results of operations assume all
of the transactions described above occurred as of the beginning of the six
month periods ended June 30, 1995 and 1996, after giving effect to certain
adjustments, including amortization of intangibles, increased rent expense,
elimination of certain non-recurring expenses and related income tax effects.
Six months ended June 30,
1995 1996
---- ----
Total operating revenues $45,129,000 $67,677,000
Net loss (148,000) (8,352,000)
Loss applicable to common stock (474,000) (8,352,000)
Loss per common share (0.18) (1.05)
8
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1996
(2) Recent Acquisitions - continued
Memorial Transaction
On April 29, 1996, Community Care of Georgia, Inc., a wholly-owned subsidiary of
the Company (the "Buyer"), acquired (the "Initial Acquisition") substantially
all of the business and operations, including substantially all of the personal
property and all of the real property, of a 71-bed hospital located in Hahira,
Georgia, d/b/a "Smith Hospital" (the "Smith Facility") from Memorial Health
Care, Inc. (the "Seller"). The aggregate purchase price for this facility was
$6.1 million, subject to certain post-closing adjustments. The purchase price
for the Initial Acquisition was paid through the application of a $1.4 million
deposit made by the Company at the time a letter of intent was entered into with
respect to the transaction, payments aggregating $850,000 made between April 1,
1996 and April 29, 1996 and a $3,850,000 promissory note ("the Smith Note")
bearing interest at the prime rate in effect at NationsBank, N.A. (South) plus
1%, of which an aggregate of $850,000 was paid in June and July 1996 and
$3,000,000 was outstanding as of July 31, 1996. While the balance of this note
was due and payable on July 1, 1996, the Buyer and Seller have orally agreed in
principle to modify the terms of this note as discussed below.
In connection with entering into the letter of intent related to the
transactions, the Company and the owners of the facilities acquired and to be
acquired entered into a Consulting and Advisory Services Agreement effective as
of December 1, 1995 (the "Memorial Consulting Agreement"), pursuant to which the
Company provided consulting services with respect to clinical services, quality
control, facility renovations, new programs and accounts and management
information services at the facilities through June 30, 1996. For its services,
the Company received consulting fees aggregating $2.1 million, of which $1.8
million was paid prior to June 30, 1996 and the remainder paid in July 1996.
The Buyer also entered into a Purchase Option Agreement dated April 29, 1996
pursuant to which the Buyer was granted an option (the "Option") exercisable
until July 1, 1996, which entitled the Buyer, for an aggregate consideration
valued at approximately $23.2 million, to (1) purchase all the capital stock of
Memorial Hospital of Adel, Inc., ("Adel") which owns a 60-bed hospital, a 95-bed
long-term care facility and a home healthcare agency in Adel and Valdosta,
Georgia, (2) purchase substantially all of the assets, including the real estate
of Telfair County Hospital, Inc., comprising a 60-bed hospital in McCrae,
Georgia, known as "Telfair Hospital" and (3) take an assignment of a management
agreement (subject to obtaining a satisfactory assignment of the agreement) for
the management of a 45-bed hospital in Cochran, Georgia, known as "Bleckley
Hospital" (the "Optional Acquisition"). The Buyer did not exercise the Option
but the parties have orally agreed in principle to amend the terms as discussed
below.
The Buyer, the Seller and the optionors have orally agreed in principle to amend
the terms of the
9
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1996
(2) Recent Acquisitions - continued
Initial Acquisition and Optional Acquisition to provide that (i) Buyer will
issue, in substitution for the Smith Note, a new 8% promissory note in the
principal amount of $3,000,000 (the "New Smith Note"), which will be secured by
a mortgage on the Smith Facility; (ii) Buyer will purchase Telfair Hospital for
a purchase price of $6,500,000, payable by delivery of Buyer's 8% promissory
note in such principal amount (the "Telfair Note"), which will be secured by a
mortgage on Telfair Hospital and will be guaranteed by the Company; (iii) Buyer,
Adel and the principal shareholders of Adel will enter into a management
agreement (the "Adel Management Agreement") pursuant to which Buyer will manage
the facilities owned by Adel; and (iv) Buyer will acquire, for a consideration
equal to $1,666,667 worth of shares of the Company's Common Stock, all rights
and interest of Memorial Health Services, Inc. ("MHS") under the management
agreement for Bleckley Hospital between MHS and the Hospital Authority of
Bleckley County, Georgia. The entire principal amounts under the New Smith Note
and the Telfair Note will be due and payable on February 17, 1997. In addition,
pursuant to the Adel Management Agreement, Buyer will be granted an option,
exercisable until February 17, 1997, to purchase all of the outstanding capital
stock of Adel (the "Adel Acquisition") for $15,000,000, of which $5,000,000 will
be payable in cash at the closing and $10,000,000 will be deposited with an
escrow agent under an escrow agreement. Pursuant to and subject to the terms of
the escrow agreement, two-thirds of the escrow amount will be payable to the
shareholders of Adel on the second anniversary of the Adel Acquisition and
one-third will be payable to the shareholders of Adel on the third anniversary
of the Adel Acquisition, in each case to the extent not returned to the Buyer
pursuant to such shareholders' indemnification agreements. The facilities to be
acquired are to be conveyed to the Buyer free and clear of all liabilities
(except as expressly agreed upon). The sellers of the facilities to be acquired
are to indemnify the Buyer against certain losses, if any, sustained by the
Buyer, including any that may arise out of certain litigation that has been
instituted against Adel and certain of its affiliates alleging improprieties by
a certain principal shareholder and seeking damages in an unspecified amount
which indemnification obligations are to be guaranteed by, among others, the
shareholders of the sellers. In addition, the Buyer may offset payments
scheduled to be made under the escrow agreement against any such indemnification
obligations.
Under the Option Agreement, if the Buyer did not exercise the Option by July 1,
1996, then the Seller had the option, exercisable until July 10, 1996, to
repurchase all of the assets conveyed in the Initial Acquisition for $3.0
million, by cancellation of the $3.0 million balance of the Smith Note. Should
the parties fail to enter into definitive agreement to finalize their agreements
in principle or fail to complete the transactions contemplated thereby, the
Seller may contend that they would have the option to repurchase all of the
assets conveyed in the Initial Acquisition for $3.0 million. If the Sellers do
repurchase the assets conveyed in the Initial Acquisition, the Company would
incur a charge to earnings of approximately $3.1 million. Such charge, if any,
would most likely be reported in the third quarter of 1996.
10
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1996
(3) Unusual Charges and Statement of Financial Accounting Standards No. 121
Effective on August 14, 1996, the Company will terminate its management
agreements under which it has been managing nine long-term care facilities in
the state of Maine. In connection with the termination, the Company recorded a
pre-tax charge to earnings of $6,900,000 in the quarter ended June 30, 1996
representing a write off of a deposit of $5,000,000 made by the Company for an
option to acquire those and one other facility, uncollected management fees
through March 31, 1996 and anticipated costs in the transition of the management
of the facilities back to their owners.
The Company has also completed the required analyses in connection with the
adoption of Statement of Financial Accounting Standard No. 121, Accounting for
the Impairment of LongLived Assets and for Long-Lived Assets to be Disposed of
("SFAS No. 121"), which became effective January 1, 1996. In connection with the
adoption of SFAS No. 121, the Company recorded a pre-tax charge to earnings of
$4,363,000 in the quarter ended June 30, 1996.
In addition, the Company has decided to restructure or close certain existing
physician practices, primary care clinics and adult day care centers. To accrue
for the restructuring and related costs of closing the affected facilities, the
Company recorded a pre-tax charge to earnings of $7,922,000 in the quarter ended
June 30, 1996.
(4) Events Subsequent to June 30, 1996
On July 30, 1996, the Company's proposed public offering of 3.1 million shares
of its Common Stock was withdrawn. Of the shares to be offered, 2.0 million
shares were to be offered by the Company and 1.1 shares million were to be
offered by certain selling stockholders. The Company determined that it would no
longer proceed to offer the Common Stock because the Common Stock that had been
proposed for sale could not be sold at a price acceptable to the Company or the
proposed selling stockholders. The Company is still seeking additional capital
and is pursuing several different sources. Costs of the public offering of
approximately $1.5 million are considered to have future value in obtaining
alternative capital financing. Such costs will be charged against the proceeds
of any equity capital, or deferred and amortized over the term of any debt
financing.
11
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION
As of June 30, 1996 after giving effect to the consummation of the acquisition
of Smith Hospital from Memorial Care Services, Inc., the termination of its nine
management agreements in Maine and the closing of certain physician practices,
clinics and adult day care centers, the Company operated 54 licensed long-term
care facilities with 4,426 licensed beds, two rural hospitals, three physician
practices and four clinics, one child day care center, two home health-care
agencies, and assisted living with an aggregate of 119 units in six of the
communities which the Company serves. The Company intends to continue to develop
its networks in the communities in which it already has a presence as well as
enter additional markets.
The following provides a discussion of the Company's results of operations and
liquidity and capital resources and should be read in conjunction with the
consolidated financial statements of the Company and notes thereto included
elsewhere in this report.
RESULTS OF OPERATIONS
Unusual Charges During the Second Quarter of 1996
Effective on August 14, 1996, the Company will terminate its management
agreements under which it has been managing nine long-term care facilities in
Maine. In connection with the termination, the Company recorded a pre-tax charge
to earnings of $6,900,000 representing a write off of a deposit of $5,000,000
made by the Company for an option to acquire those and one other facility,
uncollected management fees through March 31, 1996 and anticipated costs in the
transition of the management of the facilities back to their owners.
The Company has also completed the required analyses in connection with the
adoption of Statement of Financial Accounting Standard No. 121, Accounting for
the Impairment of LongLived Assets and for Long-Lived Assets to be Disposed of
("SFAS No. 121"), which became effective January 1, 1996. In connection with the
adoption of SFAS No. 121, the Company recorded a pre-tax charge to earnings of
$4,363,000.
In addition, the Company has decided to restructure or close certain existing
physician practices, primary care clinics and adult day care centers. To accrue
for the restructuring and related costs of closing the affected facilities, the
Company recorded a pre-tax charge to earnings of $7,922,000.
These charges aggregated $19.2 million (pretax) and were incurred during the
second quarter of 1996.
12
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATION - Continued
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Revenues increased by $9.4 million, or 40.9%, to $32.4 million in the second
quarter of 1996 from $23.0 million in the comparable 1995 period. This growth
was primarily attributable to the addition of nine long-term care facilities
acquired or leased subsequent to June 30, 1995 which increased revenues by $5.9
million and an increase in consulting service revenues and other revenues
aggregating $3.1 million resulting from consulting related to the proposed
acquisition of nine long-term care facilities and five hospitals and from
expanded network services, other than long-term care, including primary care
clinics, adult day care, hospitals and home healthcare operations. Long-term
care facilities accounted for 85.7% of total revenues in the 1996 period, a
decrease from 94.6% in the 1995 period. The Company expects that the proportion
of revenues from long-term care facilities may continue to decline as it further
establishes its networks, including hospitals, to provide an expanded range of
services in its communities.
Net operating revenues per patient day for long-term care and assisted living
facilities increased 12.7% to $91.16 in the second quarter of 1996 from $80.86
in 1995, primarily resulting from an increased proportion of higher acuity
patients. Medicare days as a percent of total days increased from 4.5% in the
second quarter of 1995 to 5.0% in 1996. Medicare revenues as a percentage of
total long-term care revenues also increased from 15.1% in 1995 to 18.5% in 1996
which is primarily attributable to additional ancillary services for the higher
acuity patients. Occupancy rates were 85.2% in the second quarter of 1996
compared to 87.1% in the second quarter of 1995. Patient days increased to
305,017, or 12.8%, in 1996 from 270,498 in the second quarter of 1995 due to the
facilities acquired subsequent to June 30, 1995.
Facility operating expenses increased by $6.9 million, or 37.2%, to $25.3
million in 1996 from $18.5 million in the second quarter of 1995 primarily as a
result of operations acquired subsequent to June 30, 1995, but decreased as a
percent of revenues to 78.1% in 1996 from 80.2% in the second quarter of 1995.
The improved margins resulted from higher acuity patients and the increase in
the number of consulting agreements. The payroll related component of facility
operating expenses increased by $3.4 million, or 27.2%, to $15.8 million from
$12.4 million in 1995, but decreased as a percentage of revenue from 54.0% in
the second quarter of 1995 to 48.7% in 1996.
Corporate administrative and general expenses decreased by $106,000, or 8.6%, to
$1.1 million in 1996 from $1.2 million in the second quarter of 1995. This
dollar decrease primarily results from the elimination of certain personnel in
conjunction with the restructuring of the Company offset in part, by additional
operations, information systems, finance, accounting and other personnel to
support the growth of owned, leased and managed facilities. Corporate
administrative and general expenses as a percent of revenues also decreased to
3.5% in 1996 from 5.4% in the second quarter of 1995.
13
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATION - Continued
Rent expense increased by $573,000, or 37.8%, to $2.1 million in 1996 from $1.5
million in 1995. Rent expense as a percent of revenues decreased to 6.4% in 1996
from 6.6% in 1995. The dollar increase was primarily due to the acquisition of
leasehold interests of nine leased facilities subsequent to June 30, 1995,
additional rental costs resulting from landlord financed renovations and an
increase in contingent rentals which are based on gross revenue of certain
leased facilities.
Depreciation and amortization expense increased by $51,000, or 8.6%, to $641,000
in 1996 from $590,000 in 1995, but decreased to 2.0% of revenues in 1996 from
2.6% of revenues in 1995. The dollar increase was due to a $42,000 increase
related to facilities acquired subsequent to June 30, 1995 and to renovations of
certain owned facilities. The percentage decrease was due to a lower percentage
of owned facilities to total facilities in 1996 than in 1995.
Net interest expense increased by $184,000, or 20.0%, to $1.1 million in the
1996 period from $918,000 in the 1995 period but decreased as a percent of
revenues to 3.4% in the 1996 period from 4.0% in the 1995 period. The dollar
increase was primarily due to a net increase of $3.0 million of indebtedness to
Health and Retirement Properties Trust to provide additional renovation,
acquisition and working capital funding. The percentage decrease was due to an
increase in revenue resulting primarily from acquiring nine leased facilities.
Federal and state income tax benefit was approximately $6.4 million in the
second quarter of 1996 due to the losses incurred at estimated annualized
effective tax rate of approximately 38%. The tax provision for the same period
in 1995 was $90,000 at an annualized effective tax rate of 30% which was below
the effective federal rate due to the utilization of book loss carryforwards.
The Company had a $17.0 million loss in the second quarter of 1996 compared to
earnings of $301,000 in 1995. The loss in the 1996 period was primarily the
result of the unusual charges of $19.2 million realized in the second quarter in
1996 which offset the operating profit of $2.2 million.
The Company reported a $10.6 million loss, or a $1.41 loss per share, in the
1996 period compared to net earnings applicable to common stock of $48,000, or
$.03 per share, for the same period in 1995.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues increased by $22.4 million, or 57.5%, to $61.4 million in the 1996
period from $39.0 million in the 1995 period. This growth was primarily
attributable to the addition of twenty-four facilities acquired or leased at
various times from February 1, 1995 through May 1, 1996 increasing revenues by
$16.1 million and an increase in management fees, consulting service revenues
and other revenues aggregating $6.7 million resulting from the management of ten
additional long-term care facilities, consulting related to nine long-term care
facilities and five hospitals and from expanded network services, other than
long-term care, including primary care clinics, adult day care,
14
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATION - Continued
hospital and home healthcare operations. Long-term care facilities accounted for
85.6% of total revenues in 1996, a decrease from 95.0% in 1995. The Company
expects that the proportion of revenues from long-term care facilities may
continue to decline as it further establishes its networks, including hospitals,
to provide an expanded range of services in its communities.
Net operating revenues per patient day for long-term care and assisted living
facilities increased 11.4% to $89.76 for the six months ended June 30, 1996 from
$80.54 in 1995, primarily resulting from an increased proportion of higher
acuity patients. Medicare days as a percent of total days decreased from 5.6% in
1995 to 4.7% in 1996 as a result of lower proportion of Medicare days to total
days in certain facilities acquired subsequent to March 31, 1995. Medicare
revenues as a percentage of total long-term care revenues increased from 16.4%
in 1995 to 17.5% in 1996 which is primarily attributable to additional ancillary
services for the higher acuity patients. Occupancy rates were 85.4% for the six
months ended June 30, 1996 compared to 87.4% for the same period in 1995.
Patient days increased to 584,885, or 25.2%, in 1996 from 466,998 in 1995 due to
the facilities acquired subsequent to June 30, 1995.
Facility operating expenses increased by $16.4 million, or 53%, to $47.4 million
in the 1996 period from $31.0 million in the 1995 period primarily as a result
of operations acquired subsequent to March 31, 1995, but decreased as a percent
of revenues to 77.3% in 1996 from 79.5% in 1995. The improved margins resulted
from higher acuity patients, the increase in operations other than long-term
care and the increase in the number of management contracts and consulting
agreements. The payroll related component of facility operating expenses
increased by $9.3 million, or 45%, to $30 million from $20.7 million in 1995,
but decreased as a percentage of revenue from 53.1% in 1995 to 48.9% in 1996.
Corporate administrative and general expenses increased by $282,000, or 12.4%,
to $2.6 million in 1996 from $2.3 million in 1995 but decreased as a percent of
revenues to 4.2% in 1996 from 5.8% in 1995. The dollar increase primarily
results from additional operations, information systems, finance, accounting and
other personnel to support the growth of owned, leased and managed facilities.
Rent expense increased by $1.3 million, or 47.9%, to $3.9 million in 1996 from
$2.6 million in 1995. Rent expense as a percent of revenues decreased to 6.3% in
1996 from 6.7% in 1995. The dollar increase was primarily due to the acquisition
of leasehold interests of nine leased facilities subsequent to June 30, 1995,
additional rental costs resulting from landlord financed renovations and an
increase in contingent rentals which are based on gross revenue of certain
leased facilities.
Depreciation and amortization expense increased by $286,000, or 28.6%, to $1.3
million in 1996 from $1 million in 1995, but decreased to 2.1% of revenues in
1996 from 2.6% of revenues in 1995.
15
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATION - Continued
The dollar increase was due to a $257,000 increase related to facilities
acquired subsequent to June 30, 1995 and to renovations of certain owned
facilities. The percentage decrease was due to a lower percentage of owned
facilities to total facilities in 1996 than in 1995.
Net interest expense increased by $149,000, or 8.4%, to $1.9 million in 1996
from $1.8 in 1995. Net interest expense as a percent of revenues decreased to
3.1% in 1996 from 4.5% in 1995. The dollar increase was primarily due to a net
increase of $3.0 million of indebtedness to Health and Retirement Properties
Trust to provide additional renovation, acquisition and working capital funding.
The percentage decrease was due to an increase in revenue resulting primarily
from acquiring twenty leased facilities.
Federal and state income tax benefit was approximately $5.6 million in the for
the six months ended June 30, 1996 due to the losses incurred at an estimated
annualized effective tax rate of approximately 38%. The tax provision for the
same period in 1995 was $90,000 at an annualized effective tax rate of 30% which
was below the effective federal rate due to the utilization of book loss
carryforwards.
The Company had a $14.9 million loss in 1996 compared to earnings of $325,000 in
1995. The loss in the 1996 period was primarily the result of the unusual
charges of $19.2 million realized for the six months ended June 30, 1996. The
Company reported a $9.2 million loss, or a $1.25 loss per share, in the 1996
period compared to a net loss applicable to common stock of $91,000, or $.04 per
share, for the same period in 1995.
Potential Effects of Certain Transactions
On April 29, 1996, Community Care of Georgia, Inc., a wholly-owned subsidiary of
the Company (the "Buyer"), acquired (the "Initial Acquisition") substantially
all of the business and operations, including substantially all of the personal
property and all of the real property, of a 71-bed hospital located in Hahira,
Georgia, d/b/a "Smith Hospital" (the "Smith Facility") from Memorial Health
Care, Inc. (the "Seller"). The Buyer also entered into a Purchase Option
Agreement dated April 29, 1996 pursuant to which the Buyer was granted an option
(the "Option") exercisable until July 1, 1996, which entitled the Buyer, for an
aggregate consideration valued at approximately $23.2 million, to (1) purchase
all the capital stock of Memorial Hospital of Adel, Inc., ("Adel") which owns a
60-bed hospital, a 95-bed long-term care facility and a home healthcare agency
in Adel and Valdosta, Georgia, (2) purchase substantially all of the assets,
including the real estate of Telfair County Hospital, Inc., comprising a 60-bed
hospital in McCrae, Georgia, known as "Telfair Hospital" and (3) take an
assignment of a management agreement (subject to obtaining a satisfactory
assignment of the agreement) for the management of a 45-bed hospital in Cochran,
Georgia, known as "Bleckley Hospital" (the "Optional Acquisition").
16
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Potential Effects of Certain Transactions - Continued
The Buyer and the Seller and the optionors have orally agreed in principle to
amend the terms of the Initial Acquisition and Optional Acquisition to provide
that (i) Buyer will issue, in substitution for the Smith Note, a new 8%
promissory note in the principal amount of $3,000,000 (the "New Smith Note"),
which will be secured by a mortgage on the Smith Facility; (ii) Buyer will
purchase Telfair Hospital for a purchase price of $6,500,000, payable by
delivery of Buyer's 8% promissory note in such principal amount (the "Telfair
Note"), which will be secured by a mortgage on Telfair Hospital and will be
guaranteed by the Company; (iii) Buyer, Adel and the principal shareholders of
Adel will enter into a management agreement (the "Adel Management Agreement")
pursuant to which Buyer will manage the facilities owned by Adel; and (iv) Buyer
will acquire, for a consideration equal to $1,666,667 worth of shares of the
Company's Common Stock, all rights and interest of Memorial Health Services,
Inc. ("MHS") under the management agreement for Bleckley Hospital between MHS
and the Hospital Authority of Bleckley County, Georgia. The entire principal
amounts under the New Smith Note and the Telfair Note will be due and payable on
February 17, 1997. In addition, pursuant to the Adel Management Agreement, Buyer
will be granted an option, exercisable until February 17, 1997, to purchase all
of the outstanding capital stock of Adel (the "Adel Acquisition") for
$15,000,000, of which $5,000,000 will be payable in cash at the closing and
$10,000,000 will be deposited with an escrow agent under an escrow agreement.
Pursuant to and subject to the terms of the escrow agreement, two-thirds of the
escrow amount will be payable to the shareholders of Adel on the second
anniversary of the Adel Acquisition and one-third will be payable to the
shareholders of Adel on the third anniversary of the Adel Acquisition, in each
case to the extent not returned to the Buyer pursuant to such shareholders'
indemnification agreements. The facilities to be acquired are to be conveyed to
the Buyer free and clear of all liabilities (except as expressly agreed upon.
The sellers of the facilities to be acquired are to indemnify the Buyer against
certain losses, if any, sustained by the Buyer), including any that may arise
out of certain litigation that has been instituted against Adel and certain of
its affiliates alleging improprieties by a certain principal shareholder and
seeking damages in an unspecified amount which indemnification obligations are
to be guaranteed by, among others, the shareholders of the sellers. In addition,
the Buyer may offset payments scheduled to be made under the escrow agreement
against any such indemnification obligations.
Under the Option Agreement, if the Buyer did not exercise the Option by July 1,
1996, then the Seller had the option, exercisable until July 10, 1996, to
repurchase all of the assets conveyed in the Initial Acquisition for $3.0
million, by cancellation of the $3.0 million balance of the Smith Note. Should
the parties fail to enter into definitive agreement to finalize their agreements
in principle or fail to complete the transactions contemplated thereby, the
Seller may contend that they would have the option to repurchase all of the
assets conveyed in the Initial Acquisition for $3.0 million. If the Sellers do
repurchase the assets conveyed in the Initial Acquisition, the Company would
incur a charge to earnings of approximately $3.1 million. Such charge, if any,
would most likely be reported in the third quarter of 1996.
17
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Potential Effects of Certain Transactions - Continued
The Company is seeking additional capital and is pursuing several different
sources as discussed in note 4 to the Notes to Consolidated Financial Statements
contained herein. Costs of the withdrawn public offering of approximately $1.5
million are considered to have future value in obtaining alternative capital
financing. Such costs will be charged against the proceeds of any equity capital
or deferred and amortized over the term of any debt financing. If the Company is
unable to obtain alternative financing, it may incur a charge to earnings of
approximately $1.5 million related to these costs.
Government Regulation
The Federal government and all states in which the Company operates regulate
various aspects of the Company's business. In particular, the operation of
long-term care facilities and the provision of healthcare services are subject
to Federal, state and local laws relating to, among other things, the adequacy
of medical care, distribution of pharmaceuticals, equipment, personnel,
operating policies, fire prevention and compliance with building codes.
Long-term care facilities are also subject to periodic inspection by
governmental and other authorities to assure continued compliance with various
standards, their continued licensing under state law and certification under the
Medicare and Medicaid programs. The failure to obtain or renew any required
regulatory approvals or licenses could adversely affect the Company's growth and
could prevent it from offering its existing or additional services.
Medicare certification is a critical factor contributing to the revenues and
profitability of a long-term care facility and, accordingly, is a key objective
of the Company's facility enhancement program. Such certification depends on a
favorable review of the Company's facilities by the Health Standards and Quality
Bureau of the United States Healthcare Financing Administration (HCFA). Any
suspension or delay in the administration of HCFA's survey and certification
program, as had been proposed by HCFA early in 1995, could delay Medicare
certification of the Company's facilities and adversely effect implementation of
the Company's facility enhancement program.
The Company believes that all of its facilities are in substantial compliance
with the various Medicare and Medicaid requirements and all are in substantial
compliance with other regulatory requirements applicable to them. However, in
the ordinary course of its business, the Company receives notices of
deficiencies for failures to comply with various regulatory requirements. The
Company reviews such notices and seeks to take appropriate corrective action. In
most cases, the Company and the reviewing agency have agreed upon the measures
to be taken to bring the facility into compliance. In some cases or upon
repeated violations, the reviewing agency has the authority to impose fines,
temporarily suspend admission of new patients to the facility, suspend or
decertify from participation in the Medicare or Medicaid programs and, in
extreme circumstances, revoke a facility's license. These actions could
adversely affect a facility's ability to continue to operate, the ability of the
Company to provide certain services and the facility's eligibility to
participate in the Medicare or Medicaid programs.
18
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Government Regulation - Continued
In March 1996, the Company's Toledo, Iowa long-term facility voluntarily
withdrew from participating in the Medicare and Medicaid programs rather than
risk being decertified from participating in those programs. The Company is in
the process of converting this facility into a multi-use facility which includes
a skilled nursing facility operating on a private pay basis, assisted living to
compliment its residential care operations in the community, an outpatient
rehabilitation and a primary care clinic.
The Company's Council Bluffs North facility, which had been terminated from
participation in the Medicare and Medicaid programs in March 1996, has been
resurveyed and found to be deficiencyfree. The facility has been recertified to
participate in both the Medicaid and Medicare programs.
19
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
General
Although the Company experienced a net loss of $9.2 million, net cash provided
by operating activities for the six months ended June 30, 1996 was $15,000, as
the loss was comprised primarily of non-cash charges of $11.9 million (net of
tax at an effective rate of 38%). Also contributing to the positive cash flow
was non-cash charges for depreciation and amortization of $1.3 million and an
increase in accounts payable and accrued expenses of $937,000, offset by a net
increase accounts receivable (discussed below), inventories and other current
assets of $5.1 million due primarily to the Company's expansion.
Net accounts receivable (patients accounts receivable, third-party payor
settlements receivable and other receivables) were $17.0 million at June 30,
1996. The $4.0 million increase from December 31, 1995 was primarily
attributable to (1) a $4.9 million increase in patient accounts receivable due
to the addition of facilities acquired subsequent to December 31, 1995, (2)
$300,000 of accounts receivable from consulting agreements and (3) a $1.8
million increase in and third party accounts receivable. These increases were
offset, in part, by a $1.7 million increase in allowance for doubtful accounts
and a $900,000 reduction in the accounts receivable from the Sandy River
facilities. The number of days average net revenues in accounts receivables was
48 at June 30, 1996, compared to 41 at December 31, 1995. The Company
anticipates that the number of days average net revenues in net receivables will
fluctuate in the future, and will depend, in large part, on the mix of revenues,
as well as the timing of payments by private, third-party, and governmental
payors.
The Company used net cash in investing activities totaling $12.1 million for the
six months ended June 30, 1996 consisting primarily of property, plant and
equipment additions of $5.6 million, a $550,000 security deposit with respect to
a $10 million promissory note issued to HRPT in April 1996 (discussed below),
business acquisitions of $4.9 million and a net increase in other assets of
$950,000.
Net cash provided by financing activities was $10.7 million for the six months
ended June 30, 1996 resulting from $14.1 million net proceeds from long-term
borrowings and $162,000 from issuance of 46,124 shares of common stock upon
exercise of stock options, offset in part by principal payments of $1.9 million
on long-term debt and $1.7 million of deferred financing and offering costs.
On April 4, 1996, the Company borrowed $10.0 million from Health and Retirement
Properties Trust ("HRPT) pursuant to an 11% promissory note ("the HRPT Note") to
provide additional renovation, acquisition and general working capital funding.
No principal payments are required until the maturity date of December 31, 2008
with interest payments made monthly. The HRPT Note is secured by all of the
collateral security which secure the Company's current obligations to HRPT and
is subject to cross default with other obligations to HRPT. As a result of
closing this
20
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES - Continued
loan, the Company increased the security deposit held by HRPT for all
obligations by $550,000. The operating lease agreements with HRPT under which
the Company is the lessee require the Company to maintain a current ratio (ratio
of current assets to current liabilities) of at least one to one. The Company
was not in compliance with this covenant as of June 30, 1996, but has received a
waiver from the lessor through September 30, 1996.
On April 29, 1996, in connection with the acquisition of Smith Hospital, the
Company executed a $3,850,000 promissory note (the "Smith Note") bearing
interest at the prime rate in effect at NationsBank, N.A. plus 1%, of which
$3,000,000 was outstanding as of July 31, 1996.
In addition to its scheduled long-term debt and lease obligations, the Company
could be required to repurchase shares of Common Stock upon demand by the
holders thereof at specified times between September 15, 1996 and March 1997.
The Company's revolving credit facility (under which $10.1 million was
outstanding at June 30, 1996) prohibits repurchases of Common Stock in the
absence of a waiver. The Company has not obtained a waiver of this prohibition,
and there can be no assurance that the Company will be able to obtain a waiver
should it be requested to repurchase shares of Common Stock. In the absence of a
waiver, the Company would have to breach either its agreements with the holders
of the Common Stock subject to repurchase, which would expose the Company to
potential damages, or its revolving credit agreement, which could result in the
termination of the revolving credit facility.
The Company has amended its Revolving Credit and Reimbursement Agreement with
NationsBank of Florida, N.A. ("NationsBank") to provide for termination of the
agreement on the earlier of the assumption of additional indebtedness (as
defined) or December 31, 1996. Consequently, the Company has classified their
obligations as a current liability.
At June 30, 1996, the Company had a working capital deficit of $19.3 million,
compared with working capital of $4.5 million at December 31, 1995. The working
capital deficit is primarily attributable to the inclusion of the NationsBank
loan ($10.1 million) as a current liability, the Smith Note ($3.0 million), the
inclusion of accrued liabilities incurred as a result of the restructuring
decisions ($3.9 million), some of which may be paid over periods extending
beyond one year or with consideration in forms other than cash, and the
assumption of negative working capital in connection with the acquisition of
Southern Care Centers, Inc. (approximately $1.5 million at June 30, 1996).
The Company believes that available cash and funds will be generated from
operations as well as through obtaining new working capital financing sources to
satisfy its working capital commitments for the foreseeable future. Unless the
Company's revolving credit arrangements with NationsBank is renewed (or, if a
default arises therein as a result of the Company's repurchase of shares as
described above, or otherwise), the Company will need to obtain funds to repay
NationsBank on or prior to December 31, 1996. The Company intends to seek such
funds and satisfy its capital
21
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES - Continued
requirements for any acquisition activities and working capital needs from,
among various means, borrowings from commercial lenders, seller-financed debt,
financing obtained from sale-lease back transactions with real estate investment
trusts, the public and private equity and debt capital markets and, to the
extent available, internally generated cash from operations. However, on a
longer term
basis, management believes the Company will be able to satisfy the principal
repayment requirements on its indebtedness with a combination of funds generated
from operations and from refinancing with existing or new commercial lenders.
However, there can be no assurance that any necessary funds will be available to
the Company or, if available, the terms thereof.
22
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1996 Annual Meeting of Stockholders held on May 31, 1996,
stockholders:
(a) Elected the following to serve as Class I directors of the Company
until the Company's 1999 Annual Meeting of Stockholders and until their
respective successors are elected and qualified, by the following votes:
For Withheld
--- --------
Gary W. Singleton 5,603,248 200
Michael S. Blass 5,602,648 800
(b) Approved an amendment to the Company's 1995 Stock Option Plan for
employees and consultants to increase the number of shares of the Company's
Common Stock subject thereto from 235,000 to 500,000 shares, by the following
vote:
For Against Abstain
--- ------- -------
5,412,743 179,378 11,327
(c ) Approved amendments to the Company's 1995 Non-Employee Director
Stock Option Plan to (i) increase the number of shares of the Company's Common
Stock subject thereto from 51,500 to 100,000 shares, (ii) provide that the
number of shares of Common Stock subject to initial and annual automatic grants
of options provided for in the 1995 Non-Employee Director Plan be changed from
the number of shares obtained by dividing $30,000 by the fair market value of a
share of Common Stock on the date the option is granted to fixed numbers of
10,000 shares, in the case of initial grants, and 5,000 shares, in the case of
annual grants and (iii) provide that, since each initial option grant to
non-employee directors in office on May 7, 1996 (the date the Board adopted
these amendments) covered only 2,967 shares of Common Stock each then
non-employee director be granted, on May 7, 1996, an additional initial option
to purchase 7,033 shares of Common Stock, by the following vote:
For Against Abstain
--- ------- -------
5,465,943 126,578 10,927
(d) Ratified the action of the Board of Directors in appointing KPMG
Peat Marwick LLP as the Company's independent public accountants for the
Company's year ending December 31, 1996, by the following vote:
For Against Abstain
--- ------- -------
5,598,718 1,900 2,830
23
<PAGE>
PART II - OTHER INFORMATION - (Continued)
Item 5. Other Information
On July 30, 1996, the Securities and Exchange Commission granted the
Company's application to withdraw Registration Statement No. 333-01496 covering
the proposed public offering by the Company of 2,000,000 shares of its Common
Stock and 1,100,000 shares of Common Stock proposed to be offered by certain
selling shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
2.1(a) Purchase Option Agreement dated as of April 29, 1996 among Community
Care of Georgia, Inc., the Company, and the shareholders of Memorial
Hospital of Adel, Inc., Telfair County Hospital, Inc., and Memorial
Health Services, Inc. (Incorporated by reference to Exhibit 2.1 to the
Company's Report on Form 8-K dated (date of earliest event reported)
April 30, 1996, File No. 0-26502).
2.1(b) Asset Purchase Agreement dated as of April 29, 1996 among Community
Care of Georgia, Inc., the Company and Memorial Health Care, Inc.
(Incorporated by reference to Exhibit 2.2 to the Company's Report on
Form 8-K dated (date of earliest event reported) April 30, 1996, File
No. 0-26502).
2.1(c) Consulting and Advisory Services Agreement effective as of December
1, 1995 among the Company, Memorial Health Services, Inc., the
shareholders of Memorial Hospital of Adel, Inc., Memorial Health Care,
Inc., Worth County Hospital, Inc., Telfair County Hospital, Inc. and
the shareholders of Memorial Health Services (Incorporated by reference
to Exhibit 10.24(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, File No. 0-26502).
2.2(a) Amended and Restated Agreement and Plan of Reorganization dated as
of May 10, 1996 among the Company, Newco, Southern Care and Wallace
Olson and Michael Himmelstein, the shareholders of Southern Care
(Incorporated by reference to Exhibit 2.1 to the Company's Report on
Form 8-K dated (date of earliest event reported) May 16, 1996, File No.
0-26502).
2.2(b) Consulting and Advisory Services Agreement effective as of January 1,
1996 among the Company, Southern Care and its shareholders
(Incorporated by reference to Exhibit 2.02(b) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, File No.
0-26502).
24
<PAGE>
PART II - OTHER INFORMATION - (Continued)
Item 6. Exhibits and Reports on Form 8-K - (continued)
Exhibit
Number Description
- ------ -----------
2.2(c) Management Agreement dated as of May 10, 1996 between CCA of Texas,
Inc. and Southern Care Centers of Texas, Inc. (Incorporated by
reference to Exhibit 2.3 to the Form 8-K dated (date of earliest event
reported) May 16, 1996, File No. 0-26502).
2.2(d) Agreement to Provide Accounting and Auditing Services and Rural
Healthcare Provider Network Services dated as of May 10, 1996 among
Newco and Buchanan/SCC, Inc. (Incorporated by reference to Exhibit 2.4
to the Company's Report on Form 8-K dated (date of earliest event
reported)May 16, 1996, File No. 0-26502).
4.1 Allonge and Amendment dated as of May 10, 1996 to Promissory Note dated
December 30, 1993 in the principal amount of $13,600,000 made by ECA
Holdings, Inc. ("ECA") payable to HRPT (Incorporated by reference to
Exhibit 4.1 to the Form 8-K dated (date of earliest event reported) May
16, 1996, File No. 0-26502).
4.2 Allonge and Amendment dated as of May 10, 1996 to Promissory Note dated
December 30, 1993 in the principal amount of $6,000,000 made by Community
Care of Nebraska, Inc. ("CCN") payable to HRPT (Incorporated by reference
to Exhibit 4.2 to the Company's Report on Form 8-K dated (date of
earliest event reported) May 16, 1996, File No. 0-26502).
4.3 Allonge and Amendment to Promissory Note dated as of May 10, 1996 to
Promissory Note dated April 1, 1995 in the principal amount of
$2,045,000, made by CCN and certain of its subsidiaries payable to HRPT
(Incorporated by reference to Exhibit 4.3 to the Company's Report on Form
8-K dated (date of earliest event reported) May 16, 1996, File No.
0-26502).
4.4 Allonge and Amendment to Promissory Note dated as of May 10, 1996 to ECA
Holdings Renovation Funding Promissory Note dated April 1, 1995 in the
principal amount of $6,466,700 made by ECA payable to HRPT (Incorporated
by reference to Exhibit 4.4 to the Company's Report on Form 8-K dated
(date of earliest event reported) May 16, 1996, File No. 0-26502).
4.5 Fourth Amendment dated as of May 10, 1996 to Master Lease Document,
General Terms and Conditions dated December 30, 1993 between HRPT and ECA
(Incorporated by reference to Exhibit 99.1 to the Company's Report on
Form 8-K dated (date of earliest event reported) May 16, 1996, File No.
0-26502).
25
<PAGE>
PART II - OTHER INFORMATION - (Continued)
Item 6. Exhibits and Reports on Form 8-K - (continued)
Exhibit
Number Description
- ------ -----------
4.6 First Amendment dated as of May 10, 1996 to Master Lease Document,
General Terms and Conditions dated April 1, 1995 between HRPT and ECA
(Incorporated by reference to Exhibit 99..2 to the Company's Report on
Form 8-K dated (date of earliest event reported) May 16, 1996, File No.
0-26502).
4.7 Master Lease Document, General Terms and Conditions dated as of May 10,
1996 between HRPT and Marietta/SCC, Inc., Glenwood/SCC, Inc.,
Dublin/SCC, Inc., Macon/SCC, Inc., and College Park/SCC, Inc.
(Incorporated by reference to Exhibit 99.3 to the Company's Report on
Form 8-K dated (date of earliest event reported) May 16, 1996, File No.
0-26502).
27 Financial Data Schedule
(b) Reports on Form 8-K
Five Reports on Form 8-K were filed during the quarter for which this report
is filed:
1. The Company filed a Report on Form 8-K dated (date of earliest event
reported) April 4, 1996 reporting under Item 5 the postponement of the
proposed public offering of 3,100,000 shares of its common stock.
2. The Company filed a Report on Form 8-K dated (date of earliest event
reported) April 19, 1996 reporting under Item 6 that the Board of
Directors appointed Gary W. Singleton, Ph.D. as President, Chief
Executive Officer and a director of the Company.
3. The Company filed a Report on Form 8-K dated (date of earliest
event reported) April 30, 1996 reporting under Items 2 and 7 that
Community Care of Georgia, Inc., a wholly-owned subsidiary of the
Company, (i) acquired substantially all of the business and operations
comprising a 71-bed hospital, d/b/a Smith Hospital from Memorial
Health Care, Inc. and (ii), entered into a purchase option agreement
dated April 29, 1996 to (1) purchase all the capital stock Memorial
Hospital of Adel, Inc. in Adel, Georgia, (2) purchase substantially
all of the assets of Telfair Hospital in McCrae, Georgia and (3)
obtain an assignment of a management agreement for the management of
Bleckley Hospital in Cochran, Georgia. No financial statements were
filed with the Form 8-K.
26
<PAGE>
PART II - OTHER INFORMATION - (Continued)
Item 6. Exhibits and Reports on Form 8-K - (continued)
(b) Reports on Form 8-K - (continued)
4. The Company filed a Report on Form 8-K dated (date of earliest event
reported) May 16, 1996 reporting under Items 2, 5 and 7 that Southern Care
Centers, Inc. was merged into CCA Acquisition I, Inc., a wholly-owned
subsidiary of the Company. On July 30, 1996, an amendment to that Report on
Form 8-K/A was filed to include the following financial statements.
(a) Financial Statements of Businesses Acquired:
Report of Independent Auditors
Combined Balance Sheets as of June 30, 1994 and 1995 and
March 31, 1996 (Unaudited)
Combined Statements of Income, for the Six Months Ended June
30, 1994, the Year Ended June 30, 1995 and for the Nine
Months Ended March 31, 1995 and 1996 (Unaudited)
Combined Statements of Retained Earnings (Deficit), for the
Six Months Ended June 30, 1994, the Year Ended June 30, 1995
and for the Nine Months Ended March 31, 1995 and 1996
(Unaudited)
Combined Statements of Cash Flows for the Six Months Ended
June 30, 1994, the Year Ended June 30, 1995 and the Nine
Months Ended March 31, 1995 and 1996 (Unaudited)
Notes to Combined Financial Statements
Report of Independent Auditors
Balance Sheet as of December 31, 1993
Statement of Operations and Retained Earnings for the
Year Ended December 31, 1993
Statement of Cash Flows for the Year Ended December 31, 1993
Notes to Financial Statements
(b) Pro Forma Financial Information:
Unaudited Pro Forma Statement of Operations for the Year
Ended December 31, 1995
Unaudited Pro Forma Statement of Operations for the Three
Months Ended March 31, 1996
Unaudited Pro Forma Balance Sheet as of March 31, 1996
Notes to Unaudited Pro Forma Balance Sheet as of March 31, 1996
5. The Company filed a Report on Form 8-K dated (date of earliest event
reported) June 7, 1996 reporting under Item 5 that the Board of
Directors elected Rohit M. Desai to its Board of Directors to replace
Daniel E. Pine.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
COMMUNITY CARE OF AMERICA, INC.
(Registrant)
Date: August 14, 1996 By: /s/ Gary W. Singleton
------------------- ---------------------
Gary W. Singleton
President and
Chief Executive Officer
Date: August 14, 1996 By: /s/ David H. Fater
------------------- ------------------
David H. Fater
Executive Vice President
and Chief Financial Officer
28
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2.1(a) Purchase Option Agreement dated as of April 29, 1996 among Community
Care of Georgia, Inc., the Company, and the shareholders of Memorial
Hospital of Adel, Inc., Telfair County Hospital, Inc., and Memorial
Health Services, Inc. (Incorporated by reference to Exhibit 2.1 to the
Company's Report on Form 8-K dated (date of earliest event reported)
April 30, 1996, File No. 0-26502).
2.1(b) Asset Purchase Agreement dated as of April 29, 1996 among Community
Care of Georgia, Inc., the Company and Memorial Health Care, Inc.
(Incorporated by reference to Exhibit 2.2 to the Company's Report on
Form 8-K dated (date of earliest event reported) April 30, 1996, File
No. 0-26502).
2.1(c) Consulting and Advisory Services Agreement effective as of December
1, 1995 among the Company, Memorial Health Services, Inc., the
shareholders of Memorial Hospital of Adel, Inc., Memorial Health Care,
Inc., Worth County Hospital, Inc., Telfair County Hospital, Inc. and
the shareholders of Memorial Health Services (Incorporated by reference
to Exhibit 10.24(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, File No. 0-26502).
2.2(a) Amended and Restated Agreement and Plan of Reorganization dated as
of May 10, 1996 among the Company, Newco, Southern Care and Wallace
Olson and Michael Himmelstein, the shareholders of Southern Care
(Incorporated by reference to Exhibit 2.1 to the Company's Report on
Form 8-K dated (date of earliest event reported) May 16, 1996, File No.
0-26502).
2.2(b) Consulting and Advisory Services Agreement effective as of January 1,
1996 among the Company, Southern Care and its shareholders
(Incorporated by reference to Exhibit 2.02(b) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, File No.
0-26502).
2.2(c) Management Agreement dated as of May 10, 1996 between CCA of Texas,
Inc. and Southern Care Centers of Texas, Inc. (Incorporated by
reference to Exhibit 2.3 to the Form 8-K dated (date of earliest event
reported) May 16, 1996, File No. 0-26502).
2.2(d) Agreement to Provide Accounting and Auditing Services and Rural
Healthcare Provider Network Services dated as of May 10, 1996 among
Newco and Buchanan/SCC, Inc. (Incorporated by reference to Exhibit 2.4
to the Company's Report on Form 8-K dated (date of earliest event
reported) May 16, 1996, File No. 0- 26502).
29
<PAGE>
EXHIBIT INDEX - (Continued)
Exhibit
Number Description
- ------ -----------
4.1 Allonge and Amendment dated as of May 10, 1996 to Promissory Note dated
December 30, 1993 in the principal amount of $13,600,000 made by ECA
Holdings, Inc. ("ECA") payable to HRPT (Incorporated by reference to
Exhibit 4.1 to the Form 8-K dated (date of earliest event reported) May
16, 1996, File No. 0-26502).
4.2 Allonge and Amendment dated as of May 10, 1996 to Promissory Note dated
December 30, 1993 in the principal amount of $6,000,000 made by Community
Care of Nebraska, Inc. ("CCN") payable to HRPT (Incorporated by reference
to Exhibit 4.2 to the Company's Report on Form 8-K dated (date of
earliest event reported) May 16, 1996, File No. 0-26502).
4.3 Allonge and Amendment to Promissory Note dated as of May 10, 1996 to
Promissory Note dated April 1, 1995 in the principal amount of
$2,045,000, made by CCN and certain of its subsidiaries payable to HRPT
(Incorporated by reference to Exhibit 4.3 to the Company's Report on Form
8-K dated (date of earliest event reported) May 16, 1996, File No.
0-26502).
4.4 Allonge and Amendment to Promissory Note dated as of May 10, 1996 to ECA
Holdings Renovation Funding Promissory Note dated April 1, 1995 in the
principal amount of $6,466,700 made by ECA payable to HRPT (Incorporated
by reference to Exhibit 4.4 to the Company's Report on Form 8-K dated
(date of earliest event reported) May 16, 1996, File No. 0-26502).
4.5 Fourth Amendment dated as of May 10, 1996 to Master Lease Document,
General Terms and Conditions dated December 30, 1993 between HRPT and ECA
(Incorporated by reference to Exhibit 99.1 to the Company's Report on
Form 8-K dated (date of earliest event reported) May 16, 1996, File No.
0-26502).
4.6 First Amendment dated as of May 10, 1996 to Master Lease Document,
General Terms and Conditions dated April 1, 1995 between HRPT and ECA
(Incorporated by reference to Exhibit 99.2 to the Company's Report on
Form 8-K dated (date of earliest event reported) May 16, 1996, File No.
0-26502).
4.7 Master Lease Document, General Terms and Conditions dated as of May 10,
1996 between HRPT and Marietta/SCC, Inc., Glenwood/SCC, Inc., Dublin/SCC,
Inc., Macon/SCC, Inc., and College Park/SCC, Inc. (Incorporated by
reference to Exhibit 99.3 to the Company's Report on Form 8-K dated (date
of earliest event reported) May 16, 1996, File No. 0-26502).
27 Financial Data Schedule (filed herewith on page 31).
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000945772
<NAME> Community Care of America, Inc.
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<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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<RECEIVABLES> 20,754,000
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<DEPRECIATION> 4,164,000
<TOTAL-ASSETS> 113,038,000
<CURRENT-LIABILITIES> 42,749,000
<BONDS> 36,264,000
0
0
<COMMON> 2,199,000
<OTHER-SE> 27,128,000
<TOTAL-LIABILITY-AND-EQUITY> 113,038,000
<SALES> 0
<TOTAL-REVENUES> 61,382,000
<CGS> 0
<TOTAL-COSTS> 74,314,000
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<INTEREST-EXPENSE> 1,920,000
<INCOME-PRETAX> (14,852,000)
<INCOME-TAX> (5,645,000)
<INCOME-CONTINUING> (9,207,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (9,207,000)
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