================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MAY 16, 1996
COMMUNITY CARE OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-26502 52-1823411
(State or other (Commission (IRS Employer
jurisdiction of file number) Identification No.)
incorporation)
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)
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<PAGE>
Community Care of America, Inc., ("the Company") hereby amends Item 7 of its
Current Report on Form 8-K dated (date of earliest event reported) May 16, 1996,
to read as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired:
<TABLE>
<S> <C>
Report of Independent Auditors 6
Combined Balance Sheets as of June 30, 1994 and 1995 and
March 31, 1996 (Unaudited) 7
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) 9
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) 10
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) 11
Notes to Combined Financial Statements 13
Report of Independent Auditors 27
Balance Sheet as of December 31, 1993 28
Statement of Operations and Retained Earnings for the
Year Ended December 31, 1993 29
Statement of Cash Flows for the Year Ended December 31, 1993 30
Notes to Financial Statements 31
(b) Pro Forma Financial Information:
Unaudited Pro Forma Statement of Operations for the Year
Ended December 31, 1995 35
Unaudited Pro Forma Statement of Operations for the Three
Months Ended March 31, 1996 36
Unaudited Pro Forma Balance Sheet as of March 31, 1996 37
Notes to Unaudited Pro Forma Balance Sheet as of March 31, 1996 38
</TABLE>
Page 2
<PAGE>
(c) Exhibits:
2.1 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.*
2.2 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.)
2.3 Management Agreement dated as of May 10, 1996 between CCA of Texas,
Inc. and Southern Care Centers of Texas, Inc.*
2.4 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.*
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.*
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.*
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.*
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.*
4.5 Allonge and Amendment to Promissory Note dated as of May 10, 1996 to
CCN Group Renovation Funding Promissory Note dated April 1, 1995 in
the principal amount of $2,833,300 made by CCN and its subsidiaries
payable to HRPT.*
99.1 Fourth Amendment dated as of May 10, 1996 to Master Lease Document,
General Terms and Conditions dated December 30, 1993 between HRPT and
ECA.*
Page 3
<PAGE>
(c) Exhibits (Continued):
99.2 First Amendment dated as of May 10, 1996 to Master Lease Document,
General Terms and Conditions dated April 1, 1995 between HRPT and
ECA.*
99.3 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.*
* All of the exhibits to this Report were previously filed with
the initial filing of this Report and are incorporated herein by
reference.
Page 4
<PAGE>
SIGNATURE
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.
Date: July 30, 1996 By: /S/ DAVID H. FATER
-----------------
David H. Fater
Executive Vice President
and Chief Financial Officer
Page 5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
SOUTHERN CARE CENTERS GROUP
ATLANTA, GEORGIA
We have audited the accompanying combined balance sheets of the
SOUTHERN CARE CENTERS GROUP as of June 30, 1995 and 1994, and the related
combined statements of income, retained earnings (deficit) and cash flows for
the year ended June 30, 1995 and the six months ended June 30, 1994. These
financial statements are the responsibility of the Southern Care Centers Group's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of the Southern
Care Centers Group as of June 30, 1995 and 1994, and the results of their
operations and their cash flows for the year ended June 30, 1995 and the six
months ended June 30, 1994, in conformity with generally accepted accounting
principles.
Atlanta, Georgia
February 29, 1996, except for Notes 5 and
8 as to which the date is May 29, 1996
Page 6
<PAGE>
SOUTHERN CARE CENTERS GROUP
COMBINED BALANCE SHEETS
JUNE 30, 1994 AND 1995 AND
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 128,605 $ 125,864 $ 42,547
Trade receivables, less allowance for
doubtful accounts June 30, 1995
$245,900; June 30, 1994 $ -- (Note 4) 264,150 1,107,430 1,302,222
Accounts receivable, related parties (Note 6) 28,688 525,415 1,146,633
Third party reimbursement settlement
receivable (Note 4) -- 47,000 297,517
Prepaid expenses -- 143,552 45,034
Deferred taxes (Note 7) -- 120,061 307,937
---------- ---------- ----------
Total current assets 421,443 2,069,322 3,141,890
---------- ---------- ----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Note receivable (Notes 2 and 8) -- 450,000 --
Notes receivable, related parties
(Note 6) 235,000 774,625 --
Deposits 5,564 24,571 124,571
Deferred taxes (Note 7) -- 48,031 129,623
---------- ---------- ----------
240,564 1,297,227 254,194
---------- ---------- ----------
PROPERTY AND EQUIPMENT (NOTES 2 AND 3)
Land, buildings and equipment under
capital leases -- 4,803,087 4,803,087
Leasehold improvements -- 28,974 44,296
Departmental equipment 81,583 223,597 323,196
Transportation equipment -- 23,198 23,198
---------- ---------- ----------
81,583 5,078,856 5,193,777
Less accumulated depreciation,
including amortization applicable to assets
acquired under capital leases June 30,
1995 $62,083; June 30, 1994 $ -- 42,766 134,521 373,010
---------- ---------- ----------
38,817 4,944,335 4,820,767
---------- ---------- ----------
$ 700,824 $8,310,884 $8,216,851
========== ========== ==========
</TABLE>
Page 7
<PAGE>
SOUTHERN CARE CENTERS GROUP
COMBINED BALANCE SHEETS
JUNE 30, 1994 AND 1995 AND
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt (Note 3) $ -- $ 16,069 $ 16,069
Line of credit (Note 3) 50,000 550,000 700,000
Outstanding checks in excess of bank balance -- -- 56,138
Accounts payable, trade 189,935 1,445,183 2,416,886
Third-party reimbursement payable (Note4) -- 115,000 --
Accrued expenses 313,246 690,787 704,071
Income taxes payable 7,000 7,000 19,582
----------- ----------- -----------
Total current liabilities 560,181 2,824,039 3,912,746
----------- ----------- -----------
LONG-TERM DEBT, less current maturities (Notes 2 and 3)
Financing obligations arising from
sale-leaseback transaction -- 5,375,143 5,392,166
Other notes payable -- 277,850 272,175
----------- ----------- -----------
-- 5,652,993 5,664,341
----------- ----------- -----------
DEFERRED CREDITS (Note 2)
Deferred rent -- 271,860 475,754
----------- ----------- -----------
CONTINGENCIES (Notes 4, 5 and 8)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $1 par value; authorized and
issued 1,000 shares 1,000 1,000 1,000
Retained earnings (deficit) 139,643 (439,008) (1,836,990)
----------- ----------- -----------
140,643 (438,008) (1,835,990)
----------- ----------- -----------
$ 700,824 $ 8,310,884 $ 8,216,851
=========== =========== ===========
</TABLE>
Page 8
<PAGE>
SOUTHERN CARE CENTERS GROUP
COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994,
YEAR ENDED JUNE 30, 1995 AND NINE MONTHS
ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Nine Months Ended March 31,
---------------------------
Ended Year Ended 1995 1996
June 30, 1994 June 30, 1995 (Unaudited)
------------------------------------------------------------
<S> <C> <C> <C> <C>
PATIENT SERVICE REVENUE,
net (Note 4) $ 432,038 $ 12,652,026 $ 8,826,726 $ 13,161,935
OTHER OPERATING REVENUE 127,350 354,342 241,768 480,106
------------ ------------ ------------ ------------
Total operating revenue 559,388 13,006,368 9,068,494 13,642,041
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Routine 201,563 4,764,144 3,344,627 4,739,279
Ancillary 20,261 1,329,230 837,456 1,329,288
Dietary 57,217 1,399,712 1,002,314 1,275,805
Laundry 11,280 267,880 189,855 260,030
Housekeeping 26,334 593,558 401,971 575,342
Plant 30,059 709,938 487,157 757,680
General and administrative 115,518 2,478,133 1,948,130 2,826,734
Property insurance and taxes 8,918 228,242 161,088 193,286
Other -- 28,104 10,100 10,742
------------ ------------ ------------ ------------
471,150 11,798,941 8,382,698 11,968,186
------------ ------------ ------------ ------------
Income before property and
related expenses,
financial income and
income taxes 88,238 1,207,427 685,796 1,673,855
------------ ------------ ------------ ------------
PROPERTY AND RELATED EXPENSES:
Depreciation 14,781 91,755 16,613 238,489
Lease expense (Note 2) 25,516 1,679,785 1,252,861 1,346,317
Interest (Notes 2 and 3) 1,064 197,538 11,985 547,292
------------ ------------ ------------ ------------
41,361 1,969,078 1,281,459 2,132,098
------------ ------------ ------------ ------------
Income (loss) from
operations 46,877 (761,651) (595,663) (458,243)
FINANCIAL INCOME, interest -- 14,908 -- --
------------ ------------ ------------ ------------
Income (loss) before
provision for income taxes 46,877 (746,743) (595,663) (458,243)
FEDERAL AND STATE INCOME TAXES: (NOTE 7)
Current tax expense -- -- -- 19,582
Deferred tax (benefit) -- (168,092) (134,084) (269,468)
------------ ------------ ------------ ------------
-- (168,092) (134,084) (249,886)
------------ ------------ ------------ ------------
Net income (loss) $ 46,877 $ (578,651) $ (461,579) $ (208,357)
============ ============ ============ ============
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS
Page 9
<PAGE>
SOUTHERN CARE CENTERS GROUP
COMBINED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
SIX MONTHS ENDED JUNE 30, 1994,
YEAR ENDED JUNE 30, 1995 AND NINE MONTHS
ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Nine Months Ended March 31,
---------------------------
Ended Year Ended 1995 1996
June 30, 1994 June 30, 1995 (Unaudited)
------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, BEGINNING $ 92,766 $ 139,643 $ 139,643 $ (439,008)
Net income (loss) 46,877 (578,651) (461,579) (208,357)
Distribution of notes receivable
as dividend on common stock -- -- -- (1,189,625)
----------- ----------- ----------- -----------
BALANCE, ENDING $ 139,643 $ (439,008) $ (321,936) $(1,836,990)
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
Page 10
<PAGE>
SOUTHERN CARE CENTERS GROUP
COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994,
YEAR ENDED JUNE 30, 1995 AND NINE MONTHS
ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Year Nine Months Ended March 31,
Ended Ended 1995 1996
June 30, 1994 June 30, 1995 (Unaudited)
------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from
patients and
government programs $ 167,888 $ 11,630,846 $ 8,016,376 $ 12,451,848
Cash paid to suppliers
and employees (59,621) (11,546,727) (8,226,446) (11,828,188)
Interest received -- 14,908 -- --
Other operating cash
receipts 127,350 354,342 241,768 480,106
Interest paid (1,064) (141,547) (11,985) (547,292)
------------ ------------ ------------ ------------
Net cash provided
by operating
activities 234,553 311,822 19,713 556,474
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and
equipment (11,553) (47,273) (143,288) (114,921)
Disbursements or
collections on notes
receivable from related
parties (135,000) (539,625) (370,000) 35,000
Deposit on option to
purchase property and
equipment -- -- -- (100,000)
------------ ------------ ------------ ------------
Net cash (used in)
investing activities (146,553) (586,898) (513,288) (179,921)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in related
party accounts
receivable or payable (98,688) (496,727) (87,239) (621,218)
Proceeds from long-term
borrowings -- 302,563 294,468 17,023
Principal payments on
long-term debt and
other notes payable (10,850) (33,501) (25,126) (5,675)
Net borrowings on
revolving credit
arrangements 50,000 500,000 350,000 150,000
------------ ------------ ------------ ------------
Net cash provided
by (used in)
financing activities (59,538) 272,335 532,103 (459,870)
------------ ------------ ------------ ------------
Increase (decrease) in cash 28,462 (2,741) 38,528 (83,317)
CASH:
Beginning 100,143 128,605 128,605 125,864
------------ ------------ ------------ ------------
Ending $ 128,605 $ 125,864 $ 167,133 $ 42,547
============ ============ ============ ============
</TABLE>
Page 11
<PAGE>
SOUTHERN CARE CENTERS GROUP
COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994,
YEAR ENDED JUNE 30, 1995 AND NINE MONTHS
ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended Nine Months Ended March 31,
June 30, Year Ended 1995 1996
1994 June 30, 1995 (Unaudited)
--------------------------------------------------------
<S> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income (loss) $ 46,877 $ (578,651) $ (461,579) $ (208,357)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation 14,781 91,755 16,613 238,489
Bad debt (expense) recovery -- 245,900 184,425 149,778
Deferred taxes -- (168,092) (134,084) (269,468)
Deferred rent -- 271,860 203,895 203,895
Changes in assets and liabilities:
(Increase) decrease in trade
receivables (264,150) (1,089,180) (861,350) (344,571)
(Increase) in prepaid expenses -- (143,552) (103,155) 98,518
(Increase) decrease in third
party reimbursement
receivable -- (47,000) (35,250) (250,517)
Increase in accounts payable 123,799 1,255,248 909,751 971,703
Increase in outstanding
checks in excess of bank
balance -- -- -- 56,138
Increase (decrease) in third
party reimbursement payable -- 115,000 86,250 (115,000)
Increase (decrease) in accrued
expenses 313,246 377,541 208,633 13,284
Increase in income taxes
payable -- -- -- 12,582
Other deferrals and deposits -- (19,007) 5,564 --
----------- ----------- ----------- -----------
Net cash provided by
operating activities $ 234,553 $ 311,822 $ 19,713 $ 556,474
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULES OF NONCASH FINANCING ACTIVITIES
Financing lease obligation
incurred for use of land,
building and equipment $ -- $ 5,400,000 $ -- $ --
=========== =========== =========== ===========
Distribution of notes receivable
as dividend on common stock $ -- $ -- $ -- $ 1,189,625
=========== =========== =========== ===========
</TABLE>
See Notes to Combined Financial Statements
Page 12
<PAGE>
SOUTHERN CARE CENTERS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Southern Care Centers, Inc. is a Georgia corporation
organized for the purpose of managing and operating
long-term care facilities. Prior to June 15, 1994, the
Company's principal activity involved third party
management of unrelated nursing facilities. On June 15,
1994, the Company, through its wholly-owned subsidiaries,
began leasing and operating five nursing facilities in
Georgia (See Note 2).
BASIS OF PRESENTATION:
The combined financial statements represent the accounts
of Southern Care Centers, Inc., and six of its
wholly-owned subsidiaries (hereinafter referred to as the
Southern Care Center Group). The Southern Care Center
Group is party to a merger agreement with Community Care
of America, Inc. (see Note 8). One Southern Care Centers,
Inc. subsidiary, Southern Care Centers of Texas, Inc., is
not included in the merger agreement and is not included
in these combined financial statements. Consequently,
these statements do not reflect the consolidated financial
position or results of operations of Southern Care
Centers, Inc. and subsidiaries. Intercompany accounts
between the Southern Care Centers Group and Southern Care
Centers of Texas, Inc. have not been eliminated. All
significant intercompany accounts and transactions of the
Southern Care Center Group have been eliminated in the
combination.
Page 13
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
For purposes of reporting the combined statement of cash
flows, the Company considers all cash accounts, which are
not subject to withdrawal restrictions or penalties to be
cash equivalents. Cash balances are maintained in
financial institutions and are subject to Federal
insurance limitations.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation of
property and equipment is computed on the straight-line
method over the following estimated useful lives:
<TABLE>
YEARS
<S> <C>
Buildings and equipment under capital leases 10-20
Leasehold improvements 5-15
Departmental equipment 5-15
Transportation equipment 5
</TABLE>
Page 14
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT: (CONTINUED)
Depreciation includes amortization applicable to assets
acquired under capital leases of $62,083 and $ - - for the
year ended June 30, 1995 and the six months ended June 30,
1994, respectively.
Maintenance and repairs of property and equipment are
charged to operations and major improvements are
capitalized. Upon retirement, sale or other disposition of
property and equipment, the cost and accumulated
depreciation are eliminated from the accounts and gain or
loss is included in income.
REVENUE RECOGNITION:
Revenue from patient services is recognized as the
services are rendered. Substantially all State Medicaid
patients are billed at the end of each week for services
rendered during the week. Federal Medicare patients are
billed at the end of each month for services rendered
during the month. Private pay patients are billed in
advance at the beginning of the month. If a private pay
patient leaves the facility prior to the end of the month,
a refund is provided for services not rendered.
Page 15
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES:
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit
carry forwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets
are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some
portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the
date of enactment.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to
estimate the fair values of each class of financial
instruments:
CASH AND CASH EQUIVALENTS, ACCRUED INTEREST AND OTHER
RECEIVABLES:
The carrying amount approximates fair value
because of the short maturity of those
instruments.
NOTES PAYABLE:
The fair value of the notes payable is
estimated based on interest rates for similar
debt offered to the Company having similar
remaining maturities and collateral
requirements.
Page 16
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. LEASE TRANSACTIONS
The Southern Care Centers Group conducts substantially all of its
operations from leased facilities under agreements with unrelated
lessors that generally require the lessee to pay all maintenance,
property taxes and insurance costs.
The following leases are being accounted for as operating leases.
Management believes this is a more appropriate matching of revenue
and expenses. Total rental expense and other information regarding
these operating leases are as follows:
Lessee and Description of Leased Premises Lease Expiration Date
----------------------------------------- ---------------------
Southern Care Centers, Inc. - office space September 7, 1997
Macon/SCC, Inc. d/b/a July 1, 2014*
Oak Valley Nursing Home -
nursing home land, building and equipment
Dublin/SCC, Inc. d/b/a
Laurens Convalescent Center - July 1, 2014*
nursing home land, building and equipment
College Park/SCC, Inc. d/b/a
Park Haven Health Center - July 1, 2014*
nursing home land, building and equipment
Marietta/SCC, Inc. d/b/a
Autumn Breeze Nursing Home - July 1, 2014*
nursing home land, building and equipment
Glenwood/SCC, Inc. d/b/a
Conner Nursing Home - July 1, 2014*
nursing home land, building and equipment
*The inception date for each of these leases was June 15, 1994.
Page 17
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. LEASE TRANSACTIONS (CONTINUED)
Future minimum lease payments, by year and in the aggregate, under
the above leases are due as follows (See Note 8):
Year ending June 30,
1996 $ 1,400,748
1997 1,400,748
1998 1,323,458
1999 1,308,000
2000 1,347,240
Thereafter 23,709,936
--------------
$ 30,490,130
==============
The total lease expense included in the combined income statements
for the year ended June 30, 1995 and the six months ended June 30,
1994 was $1,679,785 and $25,516, respectively.
On April 1, 1995, SCC, Inc. acquired and then sold Saint Charles
Manor Nursing Center. Concurrently, Luling/SCC, Inc., a 100% owned
subsidiary, entered into an agreement to lease the property back
through March 31, 2015. A portion of the sales price included a
$450,000 second mortgage on the Saint Charles facility payable to
SCC, Inc. The recourse note includes interest at 13% payable monthly.
The entire $450,000 principal balance is due at the end of the lease
term (See Note 8). Because SCC, Inc. retains a collateral interest in
the real estate, the transaction has been accounted for as a
financing, whereby principal payments received from the purchaser are
added to the finance obligation and payments made under the leaseback
are treated as interest expense (at an effective rate of 13.242%) and
a reduction of the finance obligation. A sale will be recognized when
the recourse note is repaid. The finance obligation, with a June 30,
1995 balance of $5,375,143, is due in monthly installments of
$54,182, including interest to March 1, 2015. The monthly
installments increase a minimum of 2% per year beginning April 1,
1996 and each year thereafter.
Page 18
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. LEASE TRANSACTIONS (CONTINUED)
The building and related assets were recorded at a present value of
$4,803,087.
Future minimum payments required on the leaseback are due as follows:
Year ending June 30,
1996 $ 653,436
1997 666,507
1998 679,833
1999 693,426
2000 707,295
Later Years 12,371,027
Total minimum lease payments 15,771,524
Less the amount representing interest 10,396,381
-------------
Present value of net minimum lease payments $ 5,375,143
=============
Interest expense relating to this financing agreement was $167,432
for the year ended June 30, 1995.
Luling/SCC, Inc. subleases a portion of the facility to an unrelated
third party through June 30, 1997. Future minimum lease payments due
to Luling pursuant to the sublease are as follows:
Year ending June 30,
1996 402,114
1997 301,818
-----------
$ 703,932
===========
Page 19
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LINES OF CREDIT AND LONG-TERM DEBT
At June 30, 1995, the Company had lines of credit totaling $550,000
available from financial institutions, all of which had been
utilized. These lines are collateralized by substantially all assets
of the Company. A line of credit totaling $500,000 bears interest at
1% above prime (9.75% at June 30, 1995) and expired on October 31,
1995. On October 31, 1995, this loan was renewed and increased to
$725,000. Interest on the renewed loan is due monthly at 1% above
prime with the entire principal balance due March 1997. A line of
credit totaling $50,000 bears interest at 2% above prime (11% at June
30, 1995) and is due on demand.
The lessor of the five Georgia nursing facilities advanced the
Company $250,000 at the lease inception. The debt is non-interest
bearing and is due at the end of the lease term, July 1, 2014.
Long-term debt at June 30, 1995 consisted of six $ 43,919
notes payable, collateralized by office ==========
equipment and automobiles, due in monthly
instalments (totaling $1,672 at June 30, 1995)
through June 2000 with interest rates ranging
from 8.14% to 14.53%.
Aggregate maturities of long-term debt at June 30, 1995 were as
follows:
Year ending June 30,
1996 $ 15,416
1997 12,229
1998 9,749
1999 3,306
2000 3,219
----------
$ 43,919
==========
Page 20
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. PATIENT SERVICE REVENUE AND RECEIVABLES
Approximately 85% and 90% of patient service revenues were earned
through participation in the Georgia and Louisiana Medicaid programs
and 0% and - - % through the Federal Medicare program for the year
ending June 30, 1995 and the six months ended June 30, 1994,
respectively. Revenue under third-party payor agreements with
Medicaid, is set prospectively each year and is not subject to
retroactive revision by the States. Medicaid cost reports through
June 30, 1994, have been accepted as filed or audits have been
completed without significant adjustments. Management believes it has
properly applied cost reimbursement principles in the preparation of
those Medicaid cost reports which have not yet been audited. Under
third-party payor agreements with Medicare, the Facilities are
reimbursed for allowable costs at an interim rate with final
settlement determined after submission of annual cost reports by the
Facilities and audits thereof by the Medicare fiscal intermediary.
Provisions for estimated third-party payor settlements are provided
in the period the related services are rendered. In the opinion of
management, adequate provision has been made for third-party payor
settlements.
Page 21
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. PATIENT SERVICE REVENUE AND RECEIVABLES
(CONTINUED)
Trade receivables were recorded at net realizable value and relate to
amounts due from the following sources:
JUNE 30,
--------------------------------
1995 1994
--------------------------------
Medicaid $ 765,383 $ 261,350
Medicare 517,411 1,594
Private 70,536 1,206
------------- -----------
1,353,330 264,150
Allowance for doubtful accounts (245,900) -
------------- -----------
$ 1,107,430 $ 264,150
============= ===========
Final intermediary audits of Medicare cost reports (for the years
ending June 30, 1994 and 1993) of the prior owner/operator of Oak
Valley Nursing Home and Laurens Convalescent Center have not been
completed and settled. Since SCC, Inc. continued to use the former
owner's Medicare provider numbers, the Company is potentially liable
for any resulting amounts due back to Medicare. It is not possible at
this time to determine the ultimate amount, if any, that will result
from the intermediary's final audit settlement.
Page 22
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. LEGAL MATTERS
The Southern Care Centers Group is a defendant in a lawsuit filed by
a former vendor for alleged breach of therapy service agreements. The
suit seeks actual damages of $1,036,000, representing invoices for
therapy services provided through October 1995. Invoices for services
rendered through June 30, 1995 totaling $683,723 have been charged to
operations. The suit is pending but discussions have proceeded to a
point where the matter may be settled in the near future.
Southern Care Centers, Inc. is a co-defendant in a lawsuit filed by
the lessor of an affiliated company. The suit asks for damages
totaling $8.4 million. The Company strongly disputes the allegations
and plans to contest the lawsuit strenuously.
The Southern Care Centers Group is involved in several other small or
pending lawsuits. Liability, if any, which might result from those
proceedings, would not in the opinion of management, have a material
adverse effect on the financial position.
NOTE 6. RELATED PARTY TRANSACTIONS
Notes receivable, related parties consist of the following:
JUNE 30,
------------------------------
1995 1994
------------------------------
Approximately 4.16%, unsecured demand $ 740,000 $ 235,000
notes receivable from stockholders.
Approximately 4.16%, unsecured demand 34,625 -
notes receivable from related partnership ----------- ---------
$ 774,625 $ 235,000
=========== =========
Accounts receivable, related parties consist of advances to Southern
Care Centers of Texas, Inc., Buchannan/SCC, Inc., an affiliated
company, and the lessor of substantially all of the Georgia
facilities.
Page 23
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAX MATTERS
Net deferred tax assets consist of the following components as of
June 30, 1995:
DEFERRED TAX ASSETS:
Loss carry forwards $ 24,272
Receivable allowances 95,360
Property and equipment 48,460
-----------
$ 168,092
===========
The components giving rise to the net deferred tax assets described
above have been included in the accompanying balance sheets as of
June 30, 1995 as follows:
Current assets $ 120,061
Noncurrent assets 48,031
------------
$ 168,092
============
Realization of deferred tax assets is dependent upon sufficient
future taxable income during the period the deductible temporary
differences and carryforwards are expected to be available to reduce
taxable income. There is no valuation allowance.
Loss carryforwards for tax purposes have the following expiration
date:
Expiration Date:
June 30, 2010 $ 62,235
===========
For the year ended June 30, 1995, the provision for income taxes
resulted entirely from a deferred tax benefit.
Page 24
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAX MATTERS (CONTINUED)
The income tax provision differs from the amount of income tax
determined by applying the U. S. Federal income tax rate to pretax
(loss) for the year ended June 30, 1995 due to the following:
<TABLE>
<S> <C>
Computed "expected" tax expense $(255,087)
Increased income taxes resulting from:
Nondeductible expense 12,344
Deferred tax asset expected to reverse at lower rate 74,651
-----------
$(168,092)
</TABLE>
NOTE 8. SUBSEQUENT EVENTS
On March 8, 1996, the Southern Care Centers Group (seller) reached an
agreement in principle to be acquired by Community Care of America,
Inc. (buyer). On May 10, 1996, a definitive agreement was executed
with the closing occurring on May 16, 1996. This resulted in the
exchange of the seller's outstanding stock for cash of $2.9 million
and the buyer's common stock of $6.4 million.
Simultaneous with the closing, the Southern Care Centers Group
terminated the existing lease agreements and acquired the land,
building and personal property constituting the five (5) leased
Georgia facilities (see Note 2) for $11.8 million. The facilities
were then sold for $15.8 million and leased back from the unrelated
buyer/lessor under agreements that generally require the lessee to
pay all maintenance, property taxes and insurance costs. Future
minimum lease payments, by year and in the aggregate, under the May
1996 leases are due as follows:
Year ending June 30,
1996 $ 296,250
1997 1,777,500
1998 1,777,500
1999 1,777,500
2000 1,777,500
Thereafter 18,663,750
-------------
$ 26,070,000
=============
Page 25
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. SUBSEQUENT EVENTS (CONTINUED)
In January 1996, Southern Care Centers, Inc. distributed the $450,000
second mortgage on the Saint Charles facility (See Note 2) to its
stockholders as a dividend on common stock. The $450,000 principal
balance, originally due March 31, 2015, was paid off in advance on
May 1, 1996 by the Saint Charles buyer/lessor.
Page 26
<PAGE>
INDEPENDENT AUDITOR'S REPORT
BOARD OF DIRECTORS AND SHAREHOLDERS OF
SOUTHERN CARE CENTERS, INC.
ATLANTA, GEORGIA
We have audited the accompanying balance sheet of the Southern Care Centers,
Inc. as of December 31, 1993, and the related statements of operations and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Southern Care Centers, Inc.
as of December 31, 1993, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
BDO Seidman LLP
January 30, 1994
except for note 6,
which is as of March 25, 1994
Page 27
<PAGE>
SOUTHERN CARE CENTERS, INC.
BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT
Cash ............................................................................................$ 100,143
Property and equipment (Note 3)...........................................................................42,045
Other assets ............................................................................................. 5,564
---------
$ 147,752
=========
LIABILITIES AND CAPITAL DEFICIT
LIABILITIES
Accounts payable and accrued liabilities...........................................................$27,919
Income taxes payable (Note 7)........................................................................4,900
Capital lease obligations (Note 4)...................................................................6,009
Due to parent (Note 2)..............................................................................70,000
Deferred lease payable .............................................................................17,319
---------
Total current liabilities................................................................................126,147
Deferred income taxes (Note 7).............................................................................2,100
Deferred lease payable....................................................................................20,898
Capital lease obligations (Note 4) ........................................................................4,841
---------
Total liabilities........................................................................................153,986
COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 6)
CAPITAL DEFICIT
Common stock, $1.00 par value, 1,000 shares authorized
and outstanding......................................................................................1,000
Note receivable from shareholder (Note 2).........................................................(100,000)
Retained earnings ..................................................................................92,766
---------
Total capital deficit ....................................................................................(6,234)
---------
$ 147,752
=========
</TABLE>
See accompanying notes to financial statements
Page 28
<PAGE>
SOUTHERN CARE CENTERS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
<S> <C>
REVENUE
Management fee revenue (Notes 5 and 6)............................................................$826,284
Other ...................................................................................... 9,836
---------
Total revenue........................................................................................... 836,120
EXPENSES
General and administrative expenses................................................................606,074
Depreciation and amortization.......................................................................73,080
Interest......................................................................................... 2,556
---------
Total expenses...........................................................................................681,710
---------
Income before tax expense (benefit)......................................................................154,410
Income tax expense (Note 7)............................................................................ 7,000
---------
Net income...............................................................................................147,410
---------
Deficit, beginning of year...............................................................................(54,644)
Retained earnings, end of year...........................................................................$92,766
=========
</TABLE>
See accompanying notes to financial statements.
Page 29
<PAGE>
SOUTHERN CARE CENTERS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
OPERATING ACTIVITIES
<S> <C>
Net income........................................................................................$147,410
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization..................................................................73,080
Changes in assets and liabilities:
Security deposit...............................................................................(5,564)
Advance to affiliate.........................................................................(100,000)
Certificate of deposit.........................................................................11,799
Prepaid expenses................................................................................1,700
Accounts payable and accrued liabilities......................................................(86,331)
Income taxes payable............................................................................7,000
Lease obligations payable................................................................... (14,927)
----------
Cash provided by operating activities.................................................................. 34,167
----------
INVESTING ACTIVITY
Purchase of property and equipment.............................................................. (792)
----------
FINANCING ACTIVITY
Repayment of capital lease obligations........................................................... (5,583)
----------
NET INCREASE IN CASH......................................................................................27,792
CASH, beginning of year................................................................................ 72,351
----------
CASH, end of year.......................................................................................$100,143
==========
</TABLE>
See accompanying notes to financial statements.
Page 30
<PAGE>
SOUTHERN CARE CENTERS GROUP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Southern Care Centers, Inc. (the "Company") was incorporated on
November 1, 1990 as a Georgia corporation. The Company provides
management and accounting services to ten nursing home facilities in
the eastern United States. On February 26, 1992, the Company's stock
was acquired by Amcare, Inc. (the "Parent") in a reverse acquisition
in which the Company's shareholders acquired voting control of the
Parent.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets, which range from five to seven years. Assets under capital
lease obligations are amortized over the lives of the respective
leases.
DEFERRED LEASE PAYABLE
Deferred lease payable consists of rent on a lease with increased
rental rates over the lease term. In accordance with FASB Statement
No. 13, the Company has recognized as deferred lease payable the
incremental amounts of increases in rental payments over the lease
term. Amortization of deferred lease payable is computed on the
straight-line method over the term of the lease.
REVENUE RECOGNITION
The Company generates revenue principally from management fees. The
management fees are based on a percentage of facility's gross
revenues and are recognized in the month in which the facilities
recognize their revenue.
TAXES ON INCOME
Deferred income taxes are recognized for the tax consequences of
temporary differences between the financial reporting bases and the
tax bases of the Company's assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
Page 31
<PAGE>
CASH AND CASH EQUIVALENTS
For purposes of financial statement presentation, the Company
considers all highly liquid investments with maturity of three months
or less to be cash equivalents.
2. RELATED PARTY TRANSACTIONS
At December 31, 1993, the Company had advances due from a shareholder
of $100,000. Interest payments only are due annually until maturity
of December 31, 2003. The balance accrues interest at 1% over prime.
Additionally, the Company received advances from its parent of
$70,000. As described in Note 6, subsequent to December 31, 1993, the
advances were forgiven.
3. PROPERTY AND EQUIPMENT
At December 31, 1993, property and equipment consisted of the
following:
Furniture and fixtures...........................................$47,728
Equipment under capital lease.....................................25,886
Office equipment and other....................................... 5,076
-------
$78,690
Less: accumulated depreciation................................... 36,645
-------
$42,045
=======
4. LEASE COMMITMENTS
The Company leases equipment and office space under capital and
noncancellable operating leases expiring at various dates through
January, 1996. The office lease provides for increases based upon the
consumer price index and common area costs.
Future minimum rental payments for all leases are as follows:
CAPITAL OPERATING
YEAR LEASES LEASES
- ---- ------ ------
1994............................................... $ 7,215 $ 66,768
1995................................................ 6,095 66,768
1996................................................ 499 11,128
--------- ---------
13,809 144,664
Less amount representing interest.................... 2,959 -
--------- ---------
Present value of net minimum
lease payments......................................$10,850 $144,664
========= =========
Rental expense for all operating leases was $49,452 in 1993.
Page 32
<PAGE>
4. LEASE COMMITMENTS (CONTINUED)
During 1992, the Company had an irrevocable standby letter of credit
with a bank in the amount of $11,128 to the benefit of the lessor of
the office space. The letter of credit was accepted in lieu of a
security deposit. A certificate of deposit in the amount of $11,799
was restricted for the letter of credit. For the year ended December
31, 1993, the irrevocable standby letter of credit was replaced by a
security deposit in the amount of $5,564.
5. MAJOR CUSTOMERS
The Company manages six nursing home facilities and provides
accounting services for four other facilities. Fees for these
services represent substantially all of the 1993 revenue. These
facilities are all directly or indirectly owned and controlled by one
individual. The contracts are for five years but are cancelable with
thirty days notice. Subsequent to December 31, 1993, all of the
Company's management contracts were cancelled.
6. SUBSEQUENT EVENTS
During 1993, state regulatory agencies disallowed the reimbursement
of management fees at the property level. As a result of this
regulatory action, all of the Company's management contracts were
cancelled effective January 1, 1994.
On March 25, 1994 the Company's parent entered into a stock sale, in
which all of the assets and liabilities of the Company were
transferred back to its former shareholders. Contemporaneous with the
sale, advances from the parent of $70,000 were forgiven.
7. INCOME TAXES
The components of the provision for income taxes were as follows:
CURRENT
Federal.....................................................$3,500
State....................................................... 1,400
------
4,900
------
DEFERRED
Federal......................................................1,500
State....................................................... 600
------
2,100
------
Total..................................................................$7,000
======
Page 33
<PAGE>
7. INCOME TAXES (CONTINUED)
During 1993, the Company utilized the remaining $120,000 of available
net operating loss carryforwards.
Deferred income taxes are provided to reflect differences between
financial and income tax reporting. Such differences relate primarily
to the differing methods of depreciation.
A reconciliation between the actual income tax rate and the statutory
federal income tax rate is as follows:
Income taxes, at statutory rates...................................26 %
Increase (decrease) in tax rates resulting from:
State Income tax.........................................6 %
Net operating loss carryforward........................(27) %
---
Income taxes at effective rates................................... 5 %
===
Page 34
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(In Thousands except per share amounts)
<TABLE>
<CAPTION>
CCA Southern Care Transaction Pro Forma
Actual Actual Adjustments Consolidated
---------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $ 94,178 $ 15,608 $ -- $109,786
Facility operating expenses 73,693 10,524 -- 84,217
Corporate administrative and
general expenses 4,765 3,135 -- 7,900
Rent 6,404 1,348 1,093 (a) 8,845
Depreciation 2,033 352 (79)(b) 2,306
Interest, net 3,795 783 (798)(c) 3,780
-------- -------- -------- --------
Earnings (loss) before income
taxes 3,488 $ (534) $ (216) 2,738
======== ========
Income taxes 1,047(d) 822(d)
-------- --------
Earnings before extraordinary
charge 2,441(1) 1,916
Dividends - preferred stock (408) (408)
-------- --------
Earnings before extraordinary
charge applicable to common
stock $ 2,033 $ 1,508
======== ========
Earnings (loss) per common share
before extraordinary charge $ 0.42 $ 0.28
======== ========
Weighted average number of
common and common
equivalent shares outstanding 4,840 5,409
======== ========
</TABLE>
(1) Excludes an extraordinary charge of $992,000 net of taxes ($.20 per common
share)
(a) Represents elimination of sellers rent expense replaced by rental expense
of new lease agreements.
(b) Represents elimination of sellers depreciation expense offset by
amortization of goodwill ($10,926/40).
(c) Represents elimination of interest on debt not assumed in connection with
the transaction.
(d) Represents income tax provision using the effective tax rate in 1995 of
30%.
Note: The "actual" figures above represent the historical
financial information of the Southern Care Center Group
excluding the revenues and expenses of the Countryside
facility which were retained by the seller.
Page 35
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
CCA Southern Care Transaction Pro Forma
Actual Actual Adjustments Consolidated
----------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $28,945 $ 4,496 $ -- $33,441
Facility operating expenses 22,106 3,221 -- 25,327
Corporate administrative and
general expenses 1,434 1,026 -- 2,460
Rent 1,763 500 110 (a) 2,373
Depreciation and amortization 645 78 (10)(b) 713
Interest, net 818 181 (181)(c) 818
------- ------- ------- -------
Earnings (loss) before income
taxes 2,179 $ (510) $ 81 1,750
======= =======
Income taxes 827(d) 665(d)
------- -------
Earnings before extraordinary
charge applicable to common
stock $ 1,352 $ 1,085
------- -------
Earnings per common share before
extraordinary charge $ 0.19 $ 0.14
======= =======
Weighted average number of
common and common
equivalent shares outstanding 7,198 7,767
======= =======
</TABLE>
(a) Represents elimination of sellers rent expense replaced by rental expense
of new agreements.
(b) Represents elimination of sellers depreciation expense offset by
amortization of goodwill ($10,926/40/4).
(c) Represents elimination of interest on debt not assumed in connection with
the transaction.
(d) Represents income tax provision using the effective tax rate in 1996 of
38%.
Page 36
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
CCA Southern Care Transaction Pro Forma
Actual Actual Adjustments Consolidated
--------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 488 $ 43 $ (2,784)(a) $ (2,253)
Accounts receivable, net 14,354 2,746 -- 17,100
Supplies inventory 1,553 -- -- 1,553
Prepaid expenses and other current
assets 2,121 353 217(b) 2,691
--------- -------- --------- ---------
Total current assets 18,516 3,142 (2,567) 19,091
Property, plant and equipment, net 56,455 4,821 (4,821)(c) 56,455
Notes receivable 2,503 -- -- 2,503
Deposits 11,610 124 750(d) 12,484
Excess of cost over fair value of
net assets acquired 3,564 -- 10,926(i) 14,490
Deferred financing costs 941 -- -- 941
Other assets 3,021 130 -- 3,151
--------- -------- --------- ---------
$ 96,610 $ 8,217 $ 4,288 $ 109,115
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Current maturities of long-term debt $ 1,062 $ 716 $ (716)(e) $ 1,062
Accounts payable and accrued
expenses 15,261 3,197 2,590 (f) 21,048
--------- -------- --------- ---------
Total current liabilities 16,323 3,913 1,874 22,110
Long-term debt, less current maturities 35,977 6,140 (5,615)(e) 36,502
Deferred income taxes 9,334 -- 1,393 (g) 10,727
Common stock subject to repurchase 2,181 -- -- 2,181
Shareholders' equity:
Common stock, $.0025 par value 17 1 -- (h) 18
Additional paid-in capital 31,558 -- 4,799(h) 36,357
Retained earnings (deficit) 1,220 (1,837) 1,837 1,220
--------- -------- --------- ---------
Total shareholders' equity 32,795 (1,836) 6,636 37,595
--------- -------- --------- ---------
$ 96,610 $ 8,217 $ 4,288 $ 109,115
========= ======== ========= =========
</TABLE>
Page 37
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1996
(a) Cash paid to sellers.
(b) Represents prorated partial month and first full month lease payment.
(c) Represents property and equipment under capital leases, other
equipment and related liabilities which were not conveyed with the
sale.
(d) Represents deposit with Lessor on the holdback provision of the
Pledge Agreement ($850,000), less deposit refunded at closing
($100,000).
(e) Represents debt paid at closing.
(f) Represents additional estimated closing costs, legal and other costs
related to the acquisition.
(g) Represents deferred tax liability on step-up in basis of assets
acquired.
(h) Represents the common stock portion of the purchase price value at
$4,800,000.
(i) Represents costs in excess of fair value of net assets acquired.
Page 38
