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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 March 31, 1997.
[ ] 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
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
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 April 30, 1997, there were outstanding 7,597,801 shares of common stock,
$.0025 par value, per share.
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<PAGE>
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Financial Statements (Unaudited)
Consolidated Balance Sheets...................................1
Consolidated Statements of Operations.........................2
Consolidated Statement of Shareholders' Equity................3
Consolidated Statements of Cash Flows.........................4
Notes to Consolidated Financial Statements....................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................6
PART II - OTHER INFORMATION
Item 2. Changes in Securities..........................................13
Item 3. Defaults Upon Senior Debt......................................13
Item 6. Exhibits and Reports on Form 8-K...............................14
SIGNATURES..............................................................15
EXHIBIT INDEX...........................................................16
<PAGE>
<TABLE>
<CAPTION>
Community Care of America, Inc.
and Subsidiaries
Consolidated Balance Sheets
December 31, March 31,
1996 1997
------------------- --------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,709,000 $ 611,000
Accounts receivable net of allowance for doubtful accounts and
contractual adjustments of $4,833,000 and $4,740,000 at
December 31, 1996 and March 31, 1997: 16,407,000 17,934,000
Inventories 1,761,000 1,754,000
Prepaid expenses and other current assets 1,095,000 1,295,000
----------------- -----------------
Total current assets 20,972,000 21,594,000
Property, plant, and equipment, net of accumulated depreciation 58,424,000 58,209,000
Notes receivable
Deposits 6,637,000 6,637,000
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $710,000 and $899,000 at December 31, 1996 and
March 31, 1997 13,666,000 13,496,000
Deferred financing costs 1,066,000 1,326,000
Other assets 1,354,000 1,424,000
----------------- -----------------
$ 102,119,000 $ 102,686,000
================= =================
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt $ 6,341,000 $ 4,407,000
Accounts payable and accrued expenses 23,402,000 24,807,000
Put option contracts payable (219,798 shares) 2,181,000 2,181,000
----------------- -----------------
Total current liabilities 31,924,000 31,395,000
Long-term debt, less current maturities 54,030,000 55,765,000
Deferred income taxes 162,000 -
Shareholders' equity:
Common stock, $.0025 par value; authorized 15,000,000
shares; issued and outstanding 7,597,801
at December 31, 1996 and March 31, 1997 19,000 19,000
Additional paid-in capital 36,465,000 36,465,000
Deficit (19,037,000) (19,514,000)
Receivable from shareholders (1,444,000) (1,444,000)
----------------- -----------------
Total shareholders' equity 16,003,000 15,526,000
----------------- -----------------
$ 102,119,000 $ 102,686,000
================= =================
See accompanying notes to consolidated financial statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Community Care of America, Inc.
and Subsidiaries
Consolidated Statements of Operations
Three Months Ended
March 31,
-------------------- ---------------------
1996 1997
-------------------- ---------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating revenues:
Net patient service revenues $ 26,144,000 $ 32,449,000
Other operating revenues 2,801,000 245,000
-------------------- ---------------------
Total operating revenues 28,945,000 32,694,000
Operating expenses:
Facility operating expenses 22,106,000 27,239,000
Corporate administrative and general 1,434,000 1,039,000
Rent 1,763,000 2,632,000
Depreciation and amortization 645,000 857,000
Interest, net of interest income 818,000 1,566,000
-------------------- ---------------------
Total operating expenses 26,766,000 33,333,000
-------------------- ---------------------
Earnings (loss) before income taxes 2,179,000 (639,000)
Federal and state income taxes 827,000 (162,000)
-------------------- ---------------------
Net earnings (loss) $ 1,352,000 $ (477,000)
==================== =====================
Net earnings (loss) per share $ 0.19 $ (0.06)
==================== =====================
Weighted average number of common and
common equivalent shares outstanding 7,197,905 7,597,801
==================== =====================
See accompanying notes to consolidated financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Community Care of America, Inc.
and Subsidiaries
Consolidated Statement of Shareholders' Equity
Receivable Total
Additional From Shareholders'
Common Stock Paid-in Capital Deficit Shareholders Equity
--------------- ----------------- ------------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 19,000 $ 36,465,000 $ (19,037,000) $ (1,444,000) $ 16,003,000
Net loss - - (477,000) - (477,000)
=============== ================== =================== ================= =================
Balance at March 31, 1997 (Unaudited) $ 19,000 $ 36,465,000 $ (19,514,000) $ (1,444,000) $ 15,526,000
=============== ================== =================== ================= =================
See accompanying notes to consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Community Care of America, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended
March 31,
===================================
1996 1997
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net cash provided by (used in) operating activities $ 2,491,000 $ (100,000)
Cash flows from investing activities:
Property, plant and equipment additions (2,417,000) (386,000)
Business acquisitions (348,000) -
Notes receivable 30,000 -
Deposits held by lessor (1,366,000) -
Other assets (1,726,000) (105,000)
--------------- --------------
Net cash used in investing activities (5,827,000) (491,000)
--------------- --------------
Cash flows from financing activities:
Principal reductions of long-term debt (1,435,000) (1,371,000)
Proceeds from long-term debt borrowings 2,808,000 1,173,000
Deferred financing costs (34,000) (309,000)
--------------- --------------
Net cash provided by (used in) financing activities 1,339,000 (507,000)
--------------- --------------
Decrease in cash and cash equivalents (1,997,000) (1,098,000)
Cash and cash equivalents, beginning of period 2,485,000 1,709,000
--------------- --------------
Cash and cash equivalents, end of period $ 488,000 $ 611,000
=============== ==============
See accompanying notes to consolidated financial statements.
4
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1997
(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 March 31, 1997 and
results of operations for the three months ended March 31, 1997 and 1996. 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, 1996. The
results of operations for the three months ended March 31, 1997 and 1996 are not
necessarily indicative of the results that may be expected for the full year.
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
(2) Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share," ("SFAS 128"), which simplifies the standards for
computing earnings per share ("EPS"). SFAS 128 is effective for the Company's
fourth quarter and year ending December 31, 1997. Early application is not
permitted and prior period EPS data will be restated.
Under SFAS 128, primary EPS will be replaced with basic EPS. Basic EPS excludes
the dilutive effect of common stock equivalents. Also, under SFAS 128, fully
diluted EPS will be replaced by diluted EPS. Diluted EPS is calculated similarly
to fully diluted EPS pursuant to Accounting Principles Board Opinion 15.
The change in calculation method is not expected to have a material impact on
previously reported earnings per common share data.
5
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION
As of March 31, 1997, the Company operated 54 licensed long-term care facilities
with 4,450 licensed beds, one 22-bed rural hospital, two physician practices,
two primary care clinics, one rural healthcare clinic, one outpatient
rehabilitation center, one child day care center, a home healthcare agency and
115 assisted living units within six of the communities which the Company
serves. The Company currently operates in Alabama, Colorado, Florida, Georgia,
Iowa, Kansas, Louisiana, Maine, Missouri, Nebraska, Texas and Wyoming.
The following is 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
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenues increased by $3.8 million, or 13.0%, to $32.7 million in the first
quarter 1997 from $28.9 million for the same period 1996. This growth was
primarily attributable to the addition of 6 long-term care facilities acquired
or leased subsequent to March 31, 1996 which increased revenues by $4.4 million
and an increase in revenues per patient day due to an increased proportion of
higher acuity patients resulting in additional revenues of $2.0 million, offset
in part, primarily by a decrease in management fees in 1997 aggregating $2.6
million resulting from the termination of management agreements and the closure
of clinics at various times during 1996. Long-term care facilities accounted for
93.1% of total revenues in the first quarter 1997, an increase from 84.3% for
the same period in 1996.
Net operating revenues per patient day for long-term care and assisted living
facilities increased 9.4% to $95.85 in the first quarter 1997 from $87.60 for
the same period in 1996, primarily resulting from an increased proportion of
higher acuity Medicare patients. Medicare days as a percent of total days
increased from 4.5% in the first quarter of 1996 to 5.6% for the same period in
1997 as a result of higher Medicare utilization in facilities acquired
subsequent to March 31, 1996. Medicare revenues as a percentage of total
revenues increased from 16.5% in the first quarter of 1996 to 21.6% for the same
period in 1997 as a result of increased Medicare occupancy and additional
ancillary services for these higher acuity patients. Occupancy increased to
85.7% in the first quarter 1997 compared to 85.6% for the same period in 1996.
Patient days increased to 314,804, or 12.5%, in the first quarter 1997 from
279,868 for the same period in 1996 due primarily to the facilities acquired
subsequent to March 31, 1996.
6
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Facility operating expenses increased by $5.1 million, or 23.2%, to $27.2
million in the first quarter 1997 from $22.1 million for the same period in 1996
primarily as a result of operations acquired subsequent to March 31, 1996.
Facility operating expense increased as a percent of revenues to 83.3% in the
first quarter 1997 from 76.4% for the same period in 1996 primarily as a result
of the reduction of management fee revenues. The payroll related component of
facility operating expenses increased by $3.4 million, or 23.2%, to $17.9
million in the first quarter 1997 from $14.5 million for the same period in 1996
primarily as a result of operations acquired subsequent to March 31, 1996.
Corporate administrative and general expenses decreased by $395,000, or 27.6%,
to $1.0 million in the first quarter 1997 from $1.4 million for the same period
in 1996. Corporate administrative and general expenses as a percent of revenues
decreased to 3.2% in the first quarter 1997 from 5.0% for the same period 1996.
The decrease is the result of reorganization during 1996, the transition of
accounting, reimbursement and MIS functions to Integrated Health Services, Inc.
under a management agreement entered into on December 27, 1996 and an increase
in revenues.
Rent expense increased by $869,000, or 49.3%, to $2.6 million in the first
quarter 1997 from $1.8 million for the same period 1996. Rent expense as a
percent of revenues increased to 8.1% in the first quarter 1997 from 6.1% for
the same period 1996. The increase was primarily due to the acquisition of
leasehold interests of five leased facilities subsequent to March 31, 1996,
additional rental costs resulting from landlord financed renovations and an
increase in contingent rentals which are based on the gross revenue of certain
leased facilities.
Depreciation and amortization expense increased by $212,000, or 32.9%, to
$857,000 in the first quarter 1997 from $645,000 for the same period 1996, and
increased to 2.6% of revenues in the first quarter 1997 from 2.2% of revenues
for the same period 1996. The increase was due primarily to an increase in
depreciation related to facilities acquired subsequent to March 31, 1996 and to
renovations of certain owned facilities and amortization of additional goodwill
related primarily to such acquired facilities.
Net interest expense increased by $748,000, or 91.4%, to $1.6 million in the
first quarter 1997 from $818,000 for the same period 1996. Net interest expense
as a percent of revenues increased to 4.8% in the first quarter 1997 from 2.8%
for the same period 1996. The increase was due to additional borrowings for a
capital lease acquired subsequent to March 31, 1996 and additional borrowings to
fund cash flow losses from operations and investing activities subsequent to
March 31, 1996.
Federal and state income tax benefit was approximately $162,000 in the first
quarter of 1997 due to the losses incurred at estimated annualized effective tax
rate of approximately 25%. The tax
7
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
provision for the same period in 1996 was $827,000 at an annualized effective
tax rate of 38%.
Net earnings before income taxes decreased $2.8 million to a $639,000 loss in
the first quarter 1997 from net earnings of $2.2 million for the same period
1996. Net loss was $477,000, or $.06 per share in the first quarter 1997. This
compares to net earnings of $1.4 million or $.19 per share for the same period
in 1996.
Liquidity and Capital Resources
General
The Company underwent major restructuring and reorganization in 1996 resulting
in the closure or termination of certain business activities and acquisitions
and the termination of offerings of debt and equity securities. During the first
quarter of 1997, the Company incurred a loss of $477,000 and had negative cash
flow from operating activities. As of March 31, 1997, the Company had a working
capital deficiency of $9.8 million compared with $11.0 million working capital
deficiency as of December 31, 1996. At year end, the Company was in default with
respect to certain of its debt, lease and other agreements. These circumstances
would naturally raise doubt about the Company's ability to continue as a going
concern. However, as discussed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, the Company obtained waivers and/or amendments
to cure such defaults, certain debt extensions, an application of lease deposits
against lease obligations and an additional revolving credit facility.
Management believes that these steps, together with, available cash, revolving
credit facilities and amounts expected to be generated from operations, will be
sufficient to enable the Company to satisfy its capital expenditures and working
capital requirements for its operations for at least the next year.
The Company will seek to satisfy its capital requirements for internal growth
and development through borrowings from commercial lenders, seller-financed
debt, financing obtained through sale-leaseback transactions with real estate
investment trusts, the public and private equity, debt capital markets and
proceeds from the sale of discontinued operations and, to the extent available,
internally generated cash from continued operations. 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 securing refinancings with existing or new commercial
lenders. Management continues to engage Smith Barney, as financial adviser, to
review interest from potential acquirers, joint venture partners and other
sources of capital infusion. There can be no assurance that any necessary funds
will be available to the Company or , if available, the terms thereof.
8
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
Net cash used in operating activities in the first quarter of 1997 was $100,000,
compared to $2.5 million net cash provided by operations for the same period in
1996. Net cash used in operating activities in the first quarter 1997 resulted
from $380,000 of nt earnings after ading back non-cash charges for depreciation
and amortization and an increase in accounts receivable and other assets of
$1.72 million , offset in part, by a net increase in accounts payable, accrued
expenses and taxes of of $1.24 million.
Net accounts receivable (patient accounts receivable, third-party payor
settlements receivable and other receivables) were $17.9 million at March 31,
1997, compared with $16.4 million at December 31, 1996. The number of days
average net revenues in net patient and third party receivables was 49.4 at
March 31, 1997, compared to 47.0 at December 31, 1996. 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.
Net cash used in investing activities totaled $491,000 in the first quarter of
1997 compared to $5.8 million for the same period in 1996. Net cash used in
investing activities in 1997 consists primarily of property, plant and equipment
additions of $386,000.
Net cash used in financing activities was $507,000 in the first quarter of 1997
compared to $1.3 million provided by financing activities for the same period in
1996. Net cash used in financing activities in the first quarter of 1997
resulted from payments of deferred financing costs of $309,000 and payments of
long-term debt partially offset by net proceeds received from long-term
borrowings.
At March 31, 1997, the Company had total debt outstanding of $60.2 million, of
which $43.4 million bears interest at fixed rates, primarily ranging from 7.0%
to 15.1%. The Company's remaining debt is drawn under its $15.0 million
revolving credit facility with and affiliate of Daiwa Securities of America,
Inc. ("Daiwa") entered into in December 1996, and its $5.0 million revolving
credit facility with Integrated Health Services, Inc.("IHS") entered into in
December 1996, both of which are discussed below.
To date, the Company's major acquisitions have been financed principally through
mortgage and lease financing by Health and Retirement Properties Trust. At March
31, 1997, the Company was obligated to Health and Retirement Properties Trust
("HRPT") under installment notes with respect to 17 facilities having an
outstanding aggregate principal balance of approximately $36.4 million and as a
tenant under three master leases covering 30 facilities having an aggregate
minimum rent of approximately $197 million (subject to increase) during the
remainder of their initial terms and first renewal period. The Company paid $5.7
million of refundable deposits under these leases. In
9
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
accordance with a Waiver and Amendment Agreement dated April 14, 1997, CCA will
apply the $5.7 million refundable deposits and a $550,000 deposit paid to HRPT
for the $10 million promissory note discussed below as follows: (1) to fund $2.2
million of accrued lease payments at March 31, 1997, (2) to fund $1.9 million of
future lease payments, (3) to pay an $870,000 financing fee and, (4) to maintain
a $1.5 million deposit balance. In connection therewith, IHS guaranteed $10.0
million of the Company's obligations to HRPT. The master leases require the
Company to maintain consolidated tangible net worth of at least $5.0 million and
a current ratio (ratio of current assets to current liabilities) of at least one
to one. HRPT has waived these covenants through February 1998. Certain debt
instruments with HRPT (aggregating approximately $19.5 million in principal
amount) have been modified to provide that interest only will be payable until
July 31, 1998, at which time principal will again become payable, with interest,
in installments.
The notes and leases contain cross default provisions, such that a default under
any note or lease would entitle HRPT to accelerate payment of all of such notes
and terminate all of such leases (and, subject to mitigation of damages, to
receive future rents.)
Included in the installment notes is $10.0 million which the Company borrowed
from HRPT pursuant to an 11% promissory note (the "HRPT Note") to provide
additional renovation and acquisition funding and general working capital. No
principal payments are required until the maturity date of December 31, 2008.
Interest payments are to be made monthly. However, this loan, together with an
approximately $2.6 million prepayment premium, must be prepaid from the first
proceeds of certain equity or debt (or any combination thereof) issued by the
Company after August 30, 1996. 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
loan, the Company increased the security deposit held by HRPT for all
obligations by $550,000.
On December 27, 1996, the Company entered into a Healthcare Receivables Purchase
and Transfer Agreement (the "Loan Agreement") with Daiwa providing for a 36
month revolving credit facility pursuant to which the Company may borrow from
time to time up to $15.0 million, subject to a borrowing base formula. The Loan
Agreement is secured by all patient and third-party settlement receivables. This
credit facility replaced, and the proceeds from this new line of credit were
used to pay in full, a $15.0 million revolving credit facility with NationsBank
of Florida, N.A. At March 31, 1997, $13.5 million was outstanding on this line
of credit with Daiwa, of which approximately $2.9 million was in excess of the
borrowing base. In accordance with a waiver and amendment agreement dated April
14, 1997, the Company is required to pay such amount in monthly installments of
$300,000. The amount in excess of the borrowing base has been guaranteed by IHS.
In connection therewith, the Company issued a five year warrant to Daiwa to
purchase 1,787,568 shares of Common Stock (subject to reduction as $300,000
payment are made) at an initial price of
10
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
$2.25 per share (subject to adjustment in certain circumstances). The remaining
outstanding loan will mature on December 27, 1999. As of March 10, 1997, each
amount advanced is to bear interest at a rate equal to the LIBO Rate at the time
of the revolving advance plus 2.25% per annum increasing .50% monthly
thereafter. The amount in excess of the borrowing base bears an interest rate of
LIBO Rate plus 4.50% per annum increasing .50% monthly thereafter.
Additionally, the Company entered into a subordinated revolving credit agreement
with IHS Financial Holdings, Inc., a subsidiary of IHS, pursuant to which, as of
December 27, 1996, the Company may borrow up to $5.0 million for additional
working capital until December 27, 1998. Borrowings under this line of credit
are to bear interest at a rate equal to the annual rate set forth in IHS's
revolving credit agreement with Citibank, N.A. plus 2% per annum.
In connection therewith, the Company issued warrants to purchase an aggregate of
752,182 shares of the Company's Common Stock, one-half of which were originally
exercisable at $3.22 per share (the average of the high and low trading price of
the Company's Common Stock on January 14 and 15, 1997) for a two-year period and
the remaining one-half of which were originally exercisable at $6.44 per share
for a five year period. In connection with certain guarantees issued by IHS to
HRPT and Daiwa of obligations of the Company on April 14, 1997, the Company
issued a warrant to IHS to purchase 379,900 shares of Common Stock at $1.937 per
share. The Company has granted IHS registration rights relating to the shares
underlying the warrants. As a result of the issuance of the warrants to IHS and
Daiwa in April 1997, the Warrants issued to IHS in January 1997 were adjusted to
cover 809,374 shares of common stock one-half of which are exercisable at $2.99
per share for a two year period and one-half of which are exercisable at $5.99
per share for a five year period.
In addition to borrowings, the liquidity of the Company is dependent on the
timing of payments by governmental and private third-party payors. The Company's
operations could be adversely affected if it experiences significant delays in
reimbursement of its costs. Continued efforts by governmental the third-party
payors to contain or reduce the acceleration of costs, as well as any
significant increase in the Company's proportion of Medicare and Medicaid
patients, could adversely affect the Company's liquidity and results of
operations.
Forward-looking Statements: Except for statements of historical fact, statements
made herein are forward-looking in nature and are inherently subject to risks
and uncertainties. The actual results of the Company may differ materially from
those reflected in the forward-looking statements based on a number of important
risk factors and uncertainties. Among the factors that could cause the Company's
future actual results, performance or achievement to differ materially from
those described or implied in forward-looking statements are: (a) the Company's
ability to obtain, on a timely and economically feasible basis, the financing
required to (i) meet its various obligations, (ii) increase its working capital
and tangible net worth in order to meet the working capital maintenance
11
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
covenant and tangible net worth covenant contained in the Company's master
leases with, and (iii) finance any future acquisitions or other transactions
that the Company may consider to implement its growth strategy; (b) the
Company's ability to successfully integrate acquisitions and effectuate
economies of scale and otherwise implement its growth strategy; (c) the
government climate towards healthcare; (d) the continuation of third-party payor
programs, including Medicare and Medicaid, at current levels and reimbursement
rates; (e) the Company's ability to remain in compliance with the requirements
for participation in such programs, as well as remain in compliance with the
other government regulations to which it is subject; (f) the level of, and the
Company's ability to meet, competition; (g) the Company's ability to avoid
significant claims and defense costs, and maintain adequate insurance to cover
any material claims and costs it may incur which may arise out of malpractice
and other claims; (h) the Company's ability to retain qualified personnel; and
(i) general economic conditions. These and other factors are discussed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
other reports filed from time to time by the Company with the Securities and
Exchange Commission.
12
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On January 13, 1997, following entering into a Management Agreement on December
27, 1996 with IHS, pursuant to which the Company is employing IHS to supervise,
manage and operate the financial, accounting, MIS, reimbursement and ancillary
services contracting functions for the Company, and in connection with entering
into the revolving credit facility with a wholly-owned subsidiary of IHS, the
Company issued to IHS warrants to purchase (before the adjustments described
below) an aggregate 752,182 shares of the Company's Common Stock, one-half of
which are exercisable until January 13, 1999 at $3.22 per share (the average of
the high and low trading price of the Company's Common Stock on January 14 and
15, 1997) and the remaining one-half of which are exercisable until January 13,
2002 at $6.44 per share. The number of shares subject to warrants and the
exercise prices are subject to adjustment in certain instances, including if the
Company issues shares of Common Stock (or securities convertible into Common
Stock) at less than the applicable exercise price. As a result of warrants
issued in the second quarter of 1997 (See "Management's Discussion and Analysis
of Financial Condition and Results of Operations Liquidity and Capital
Resources" in this Report and in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996), these warrants were adjusted so that they now
cover 809,374 shares of Common Stock one-half of which are exercisable until
January 13, 1999, at $2.99 per share and one-half of which are exercisable
January 13, 2002 at $5.99 per share. In connection therewith, the Company has
granted to IHS certain rights to cause the shares issuable upon exercise of the
warrants to be registered under the Securities Act of 1933, as amended
(the"Act"), at the Company's expense. The Company believes that the exemption
from registration afforded by Section 4(2) of the Act is applicable to the
issuance of the warrants.
Item 3. Defaults Upon Senior Securities
On April 14, 1997, the Company entered into a Waiver and Amendment Agreement
with Daiwa and a Waiver Agreement with HRPT which cured certain defaults under
the Company's financing arrangements with Daiwa and HRPT that existed at year
end. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" in this Report and in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996,
as well as Note 13 of the "Notes to the Company's Consolidated Financial
Statements" contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
13
<PAGE>
PART II - OTHER INFORMATION (continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 13, 1997, the Company filed a Report on Form 8-K dated
(date of earliest event reported); December 23, 1996, reporting under
Item 5, Other Events, and Item 7, Financial Statements, Pro Forma
Financial Information and Exhibits. No financial statements were filed
with that report.
On April 14, 1997, the Company filed a Report on Form 8-K dated (date
of earliest event reported): March 31, 1997, reporting under Item 5,
Other Events, and Item 7, Financial Statements, Pro Forma Financial
Information and Exhibits. No financial statements were filed with that
report.
14
<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: May 15, 1997 By: /s/ Deborah A. Lau
- ------------------ ------------------------------
Deborah A. Lau
President, Chief Executive
Officer and Chief Financial
Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-Q FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000945772
<NAME> Community Care of America, Inc
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 611,000
<SECURITIES> 0
<RECEIVABLES> 22,674,000
<ALLOWANCES> 4,740,000
<INVENTORY> 1,754,000
<CURRENT-ASSETS> 21,594,000
<PP&E> 63,827,000
<DEPRECIATION> 5,618,000
<TOTAL-ASSETS> 02,686,000
<CURRENT-LIABILITIES> 31,395,000
<BONDS> 0
0
0
<COMMON> 19,000
<OTHER-SE> 15,507,000
<TOTAL-LIABILITY-AND-EQUITY> 15,526,000
<SALES> 0
<TOTAL-REVENUES> 32,694,000
<CGS> 0
<TOTAL-COSTS> 33,333,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,566,000
<INCOME-PRETAX> (639,000)
<INCOME-TAX> (162,000)
<INCOME-CONTINUING> (477,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (477,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0.00
</TABLE>
