UNITED STATES
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 Earliest Event Reported: May 7, 2004
Commission File Number 000-31249
CRITICAL HOME CARE, INC.
(Exact name of registrant as specified in its charter)
|
NEVADA |
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88-0331369 |
|
(State or other jurisdiction of |
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(I.R.S. Employer I.D. Number) |
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26777 CENTRAL PARK BLVD., SUITE 200 |
48076 |
|
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(Address of principal executive offices) |
Zip Code |
Registrant's telephone no.: 248-352-7530
Critical Home Care, Inc. (the “Company”) hereby amends Form 8-K filed on May 24, 2004 as follows:
Item 7(a), Financial Statement of Business Acquisition, is amended by filing the Consolidated Financial Statements of Arcadia Services, Inc. and Subsidiaries for the Years Ended March 31, 2004 and 2003, including signed Report of Independent Registered Public Accounting Firm BDO Seidman, LLP. as part of this report beginning on page F-1.
Item 7(b), Pro Forma Financial Information, is amended filing the Unaudited Pro Forma Condensed Combined Financial Statements for the Period Ended March 31, 2004 as part of this report beginning on page PF-1.
The amendments described above in Paragraphs (1) and (2) are the sole amendments which this Form 8-K/A makes to Form 8-K filed on May 24, 2004.
This Form 8-K/A restates below in its entirety Form 8-K filed on May 24, 2004, together with Items 7(a) and 7(b) as amended:
On April 28, 2004, Critical Home Care, Inc. (the "Company") filed with the Securities and Exchange Commission (the "SEC") an Information Statement pursuant to Rule 14f-1 of the Securities Exchange Act of 1934. This Information Statement concerned a change in control of the Company's Board of Directors that is described in Item 2 of this Current Report on Form 8-K and became effective on May 10, 2004.
Pursuant to the terms and conditions of the Agreement and Plan of Merger dated May 7, 2004, as described in Item 2 below, John E. Elliott ("Elliott"), Chief Executive Officer, and Lawrence R. Kuhnert ("Kuhnert"), Chief Operating Officer, received 21,300,000 shares of Common Stock, or 27.9%, of the issued and outstanding shares of the Company. Elliott and Kuhnert are deemed to be the beneficial owners of 17.4% and 11.6%, respectively, of the Company's common stock giving effect to their presently outstanding Class A Warrants, exclusive of stock options which are not currently exercisable.
The consideration tendered by Elliott and Kuhnert was all of the issued and outstanding shares of RKDA, Inc. The basis of their control of the Company is their stock ownership of the Company and their control of the Board of Directors, as described in Item 2 below, and more fully in the Information Statement.
As described below in Item 2 under "Comerica Bank Credit Agreement," RKDA granted Comerica Bank a first priority security interest in all of the capital stock of Arcadia Services, Inc. and in the assets of Arcadia's subsidiaries. Elliott and Kuhnert each executed a personal guaranty to Comerica Bank; however, they did not pledge their capital stock of the Company.
Item 2. Acquisition or Disposition of Assets
The Arcadia Acquisition
On May 10, 2004, CHC Sub, Inc., a wholly-owned subsidiary of the Company, merged with and into RKDA, Inc. (the "RKDA Merger") a recently formed Michigan corporation. RKDA's assets consist of all of the capital stock of Arcadia Services, Inc. and the membership interests of SSAC, LLC d/b/a Arcadia Rx (collectively "Arcadia"). RKDA acquired Arcadia Services, Inc. on May 7, 2004 pursuant to a Stock Purchase Agreement ("SPA") by and among RKDA, Arcadia, Addus HealthCare, Inc. ("Addus") and W. Andrew Wright.
Arcadia Services is a national provider of staffing and home care services currently operating in 22 states. Arcadia operates through 56 affiliated and 18 company-owned offices. Arcadia's medical staffing includes registered
2
nurses, licensed practical nurses, certified nursing assistants, respiratory therapists, technicians and medical assistants. Its non-medical staffing includes light industrial, clerical and technical personnel. Arcadia's home care staffing includes personal care aides, home care aides, homemakers and companions. Arcadia also offers physical therapists, occupational therapists, speech pathologists and medical social workers.
The RKDA Merger occurred pursuant to an Agreement and Plan of Merger dated May 7, 2004, by and among Critical, RKDA, CHC Sub, David Bensol ("Bensol") then the Company's Chief Executive Officer and now its Executive Vice President, Elliott who became the Company's Chief Executive Officer and a director and Kuhnert who became Chief Operating Officer and a director. Elliott and Kuhnert had no material relationship with the Company or its affiliates prior to this transaction.
The consideration paid to Elliott and Kuhnert for all the issued and outstanding shares of RKDA was 21,300,000 shares of Common Stock of the Company, plus 1 million Class A Warrants substantially the same as the Class A Warrants issued in the Company's Regulation D Offering described below in Item 5. Elliott and Kuhnert, the sole owners of Arcadia Rx, contributed their membership interests in Arcadia Rx to RKDA simultaneously with RKDA's acquisition by the Company. Arcadia Rx is a mail service pharmacy based in Paducah, Kentucky. Bensol contributed 1,300,000 shares of Common Stock owned by him back to the Company as part of this transaction and also settled certain Company obligations on behalf of the Company.
Change in Control of the Board
Pursuant to the terms of the Agreement and Plan of Merger, John E. Elliott, II and Lawrence A. Kuhnert were elected to the Company's Board of Directors by David Bensol and Mitchell Cooper, the two remaining directors, and Elliott and Kuhnert have the right to elect a third director to the Board. Dr. Barbara Levine and Bradley Smith resigned from the Company's Board of Directors upon the completion of the Merger. Pursuant to an Information Statement filed with the Securities and Exchange Commission ("SEC") pursuant to Rule 14F-1, Elliott and Kuhnert obtained control of the Board of Directors, effective May 10, 2004, although they currently hold only two of the four seats on the Board of Directors. Under a Voting Agreement entered into with David Bensol and Bradley Smith and in excess of a majority of the Regulation D Investors (see Item 5 below), the parties agreed to vote or cause to be voted a sufficient percentage of the voting securities owned by them for the nominees of Elliott and Kuhnert so that at all times during the term of the Agreement a majority of the Board of Directors will consist of persons nominated by Elliott and Kuhnert. The Voting Agreement shall remain in effect until the earlier of (a) the date that neither Elliott nor Kuhnert are executive officers of the Company, (b) the date that Elliott and Kuhnert fail to collectively own at least 10% of the
3
outstanding voting securities of the Company, or (c) the expiration of the maximum period of time that applicable law allows for a voting agreement to remain in effect.
Escrow of Critical Home Care Common Stock
John E. Elliott, II, Lawrence Kuhnert and David Bensol have escrowed 6 million, 4 million and 2 million shares of Critical Home Care Common Stock, respectively pursuant to Escrow Agreements dated as of May 7, 2004 (collectively, the "Escrow Shares"). Fifty (50%) percent of the Escrow Shares will be released from escrow in each of the next two twelve-month periods, if RKDA, in the case of Elliott and Kuhnert, and the Company, in the case of Bensol, meets the following milestones: for the 12 month period ending March 31, 2006, an Adjusted EBITDA (as defined) of $9.7 million and for the 12 month period March 31, 2007, an Adjusted EBITDA of $12.5 million. Alternatively, the Escrow Shares shall be released in 2007 if RKDA, in the case of Elliott and Kuhnert, and the Company, in the case of Bensol, obtains an Adjusted EBITDA for the two 12 month periods ending March 31, 2007 of at least $22.2 million. In addition, for any of the Escrow Shares to be released pursuant to the foregoing thresholds, the Company's, in the case of Bensol, and RKDA's, in the case of Kuhnert and Elliott, Debt to Adjusted EBITDA ratio must be 2.0 or less for both fiscal periods. Nevertheless, twenty (20%) percent of the Escrow Shares (2.4 million shares) will be released if the Company's Common Stock remains at least $1.00 per share for 30 consecutive trading days or the average closing price for any consecutive 45 day period is at least $1.00 per share, even if the EBITDA thresholds are not met.
Notwithstanding anything to the contrary, all Escrow Shares which the respective shareholders shall receive and all dividends payable with respect to the shares shall be voted as though the shares were not subject to escrow.
Additional Agreements
The Company agreed to register the 21.3 million shares, the 1 million Class A Warrants, and the shares underlying the Class A Warrants issued to Elliott and Kuhnert as consideration for all the issued and outstanding shares of RKDA. The Shares shall be registered with the SEC along with all of the Regulation D Investors within 90 days of the final closing of the Regulation D Offering.
Elliott and Kuhnert were granted preemptive rights for a period of three years to acquire additional shares of Common Stock of the Company to maintain their percentage ownership of the Company. As of May 10, 2004, the effective date of the Merger, there were 76,393,351 shares of Common Stock issued and outstanding of which Elliott and Kuhnert owned 21.3 million shares, or 27.9%.
4
Elliott, Kuhnert, and Bensol entered into substantially similar Employment Agreements on May 7, 2004, as Chief Executive Officer, President and Chief Operating Officer, and Executive Vice President, respectively. Each agreement is for three years, automatically renewable for successive one-year periods unless terminated on three months' prior written notice. Each officer is being paid $150,000 per annum in salary and is eligible to receive a discretionary annual bonus determined by the Board of Directors. If either Elliott, Kuhnert, or Bensol's Employment Agreement is terminated by the Company other than for cause (as defined) or by the executive for good reason (as defined) then such executive shall receive twice his base salary. Upon a change in control, other than this transaction, if the executive is terminated by the Company other than for cause or by the executive for good reason, the executive shall receive three times his total compensation for the past year. Each executive agreed not to compete with the Company within North America for the one-year-period following termination of his employment.
Elliott and Kuhnert were each granted stock options to purchase 4 million shares of Common Stock exercisable at $.25 per share. The options shall vest in six tranches provided certain adjusted EBITDA milestones are met through fiscal 2008, subject to acceleration upon certain events occurring. The options may be executed by Elliot and Kuhnert as long as they are employed by the Company and for one year from termination if they are terminated for any reason.
RKDA Purchase of Arcadia Services
Pursuant to a Stock Purchase Agreement entered into as of May 7, 2004, RKDA purchased all of the capital stock of Arcadia Services, Inc. from Addus HealthCare, Inc., an Illinois corporation. The purchase price for the capital stock of Arcadia was $16.6 million plus payment of $557,109 of bonus payments to certain key employees. The purchase of Arcadia was financed, in part, by the Company's loan of $5 million to RKDA just prior to the merger, a revolving bank loan (described below) initially in the amount of $11.5 million, a $100,000 cash deposit, plus an unsecured subordinated promissory note from Arcadia to Addus in the amount of $500,000, one of the purposes of which was to fund valid indemnification claims against Addus and/or Wright.
Comerica Bank Credit Agreement
On May 7, 2004, Arcadia Services, Inc. and three wholly-owned subsidiaries entered into a Loan Agreement with Comerica Bank. The agreement provides the borrowers with a revolving credit facility of up to $12 million through May 7, 2006. The initial advance on May 7, 2004, was in the amount of $11.5 million. The initial advance was immediately distributed up to RKDA, Inc. to fund a portion of the purchase price of the capital stock of Arcadia by RKDA from Addus. All other advances under the credit facility shall
5
be used solely for working capital purposes. RKDA granted Comerica Bank a first priority security interest in all of the issued and outstanding capital stock of Arcadia. The Arcadia subsidiaries granted the bank security interests in all of their assets and Addus subordinated indebtedness of Arcadia to Arcadia's indebtedness to Comerica Bank. RKDA and its former principals, Elliott and Kuhnert, each executed a guaranty to Comerica Bank over all indebtedness of Arcadia and its subsidiaries.
Advances under the credit facility bear interest at the prime-based rate (as defined) or the Eurodollar - based rate (as defined), at the election of borrowers. Arcadia agreed to various financial covenant ratios; to have any person who acquires Arcadia capital stock to pledge such stock to Comerica Bank, and along with Elliott and Kuhnert, to customary negative covenants.
Item 5. Other Events.
On May 7, 2004, the Company completed the minimum $8 million of a Regulation D Private Placement (the "Offering"). The Company subsequently sold an additional $205,000 of securities and terminated the Offering. The Company sold an aggregate of 32,820,000 shares at $.25 per share together with 3,282,000 Class A Warrants exercisable for 7 years at $.50 per share. The Placement Agent received warrants to purchase 2,282,000 Shares, exercisable on a cashless basis for 7 years at $.50 per share. The Placement Agent also received 10% sales commissions and reimbursement of out-of-pocket expenses.
The Company used $5 million of the net proceeds to complete the Arcadia Acquisition described in Item 2 above; approximately $164,000 for the repayment of indebtedness and the balance for working capital.
Item 7. Financial Statements, Pro Forma Financial Informational Exhibits
(a) Financial Statement of Business Acquisition – Consolidated Financial Statements of Arcadia Services, Inc. and Subsidiaries for the Years Ended March 31, 2004 and 2003, including signed Report of Independent Registered Public Accounting Firm BDO Seidman, LLP are filed as part of this report beginning on page F-1.
(b) Pro Forma Financial Information – Unaudited Pro Forma Condensed Combined Financial Statements for the Period Ended March 31, 2004 are filed as part of this report beginning on page PF-1.
(c) Exhibits -
| 2.1* | Agreement and Plan of Merger dated May 7, 2004 by and among RKDA, Inc., CHC Sub, Inc., Critical Home Care, Inc., John E. Elliott, II, Lawrence Kuhnert and David Bensol. |
6
| 2.2* | Membership Interest Contribution Agreement dated May 7, 2004, by and among RKDA, Inc. John E. Elliott, II, and Lawrence Kuhnert. |
| 2.3* | Stock Purchase Agreement dated as of May 7, 2004 by and among RKDA, Inc., Arcadia Services, Inc., Addus Healthcare, Inc. and W. Andrew Wright. |
| 3.1* | Amended and Restated Articles of Incorporation of Critical Home Care, Inc. |
| 3.2* | Articles of Incorporation of RKDA, Inc. |
| 3.3* | By-laws of RKDA, Inc. |
| 4.1* | Form of Regulation D Class A Common Stock Purchase Warrant |
| 4.2* | Class A Warrant issued to John E. Elliott, II |
| 4.3* | Class A Warrant issued to Lawrence Kuhnert |
| 9.1* | Form of Voting Agreement. |
| 10.1* | Employment Agreement dated May 7, 2004, by and between Critical Home Care, Inc. and Lawrence Kuhnert. |
| 10.2* | Employment Agreement dated May 7, 2004, by and between Critical Home Care, Inc. and John E. Elliott, II. |
| 10.3* | Employment Agreement dated May 7, 2004, by and between Critical Home Care, Inc. and David Bensol. |
| 10.4* | Termination of Employment Agreement and Release dated May 7, 2004, by and between Critical Home Care, Inc. and David Bensol. |
| 10.5* | Escrow Agreement made as of May 7, 2004, by and among Critical Home Care, Inc., John E. Elliott, II, Lawrence Kuhnert and Nathan Neuman & Nathan P.C. |
| 10.6* | Escrow Agreement made as of May 7, 2004, by and among Critical Home Care, Inc., David Bensol and Nathan Neuman & Nathan P.C. |
7
| 10.7* | Stock Option Agreement dated May 7, 2004, between Critical Home Care, Inc. and John E. Elliott, II. |
| 10.8* | Stock Option Agreement dated May 7, 2004, between Critical Home Care, Inc. and Lawrence Kuhnert |
| 10.9* | Agreement of Modification (without exhibits) dated May 6, 2004, among Critical Home Care, Inc. and David Bensol and All Care Medical Products Corp., Luigi Piccione and S&L Realty, LLC. |
| 10.10* | Credit Agreement dated as of May 7, 2004, by and among Arcadia Services, Inc., Arcadia Health Services, Inc. Grayrose, Inc. and Arcadia Health Services of Michigan, Inc. |
____________________
* Previoiusly Filed
|
Arcadia Serv
|
ices, Inc. sidiaries
|
Consolidated Financial Statements
Years Ended March 31, 2004 and 2003
F-1
|
Arcadia Services, Inc. and Sub
|
sidiaries Contents |
|
Report of Independent Registered Public Accounting
Firm
|
F-3 |
| Consolidated Financial Statements | |
|
Balance Sheets |
F-4 |
|
Statements of Income |
F-5 |
|
Statements of Stockholder’s Equity |
F-6 |
|
Statements of Cash Flows
|
F-7 |
|
Summary of Accounting
Policies
|
F- 8 and 9 |
| Notes to Consolidated Financial Statements | F- 10 and 11 |
F-2
Board of Directors
Arcadia Services, Inc. and Subsidiaries
Southfield, Michigan
We have audited the accompanying consolidated balance sheets of Arcadia Services, Inc. and Subsidiaries (the Company) as of March 31, 2004 and 2003, and the related consolidated statements of income, stockholder’s equity, and cash flows for the years 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Arcadia Services, Inc. and Subsidiaries as of March 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ BDO
Seidman, LLP
BDO
Seidman, LLP
Kalamazoo, Michigan
May 21, 2004
F-3
|
Arcadia Services, Inc. and Sub
Consolidated Balan |
sidiaries ce Sheets |
|
March 31, |
2004 |
2003 |
|||
|
Assets (Note 3) |
|||||
|
Current Assets |
|||||
|
Accounts receivable, net of allowance of $780,000 and |
$ |
13,478,381 |
$ |
12,183,483 | |
|
Prepaid expenses and other current assets |
133,547 |
141,070 |
|||
|
Total Current Assets |
13,611,928 |
12,324,553 |
|||
|
Other Assets |
|||||
|
Goodwill |
3,589,191 |
2,655,607 |
|||
|
Furniture and fixtures, net of accumulated |
2,011 |
18,871 |
|||
|
Total Other Assets |
3,591,202 |
2,674,478 |
|||
|
$ 17,203,130 |
$ 14,999,031 |
||||
|
Arcadia Services, Inc. and Sub Consolidated Balan
(CONTINUED) |
sidiaries ce Sheets
|
|
March 31, |
2004 |
2003 |
|||
|
Liabilities and Stockholder’s Equity |
|||||
|
Current Liabilities |
|||||
|
Checks issued against future deposits |
$ |
1,116,143 |
$ |
155,371 | |
|
Accounts payable |
- |
88,733 |
|||
|
Accrued expenses |
|||||
|
Compensation and related taxes |
1,573,267 |
1,586,878 |
|||
|
Commissions |
470,326 |
340,572 |
|||
|
Other |
239,489 |
136,390 |
|||
|
Due to related parties (Note 1) |
1,143,804 |
1,142,901 |
|||
|
Total Current Liabilities |
4,543,029 |
3,450,845 |
|||
|
Due to Related Parties (Note 1) |
429,829 |
1,916 |
|||
|
Total Liabilities |
4,972,858 |
3,452,761 |
|||
|
Commitments and Contingencies (Note 3) |
|||||
| Stockholder’s Equity | |||||
|
Common stock - $.001 par value; 5,000,000 shares authorized; |
948 |
948 |
|||
|
Additional paid-in capital |
7,627,047 |
7,627,047 |
|||
|
Retained earnings |
15,233,460 |
11,501,507 |
|||
|
Due from stockholder (Note 1) |
(10,631,183) |
(7,583,232) |
|||
| Total Stockholder’s Equity |
12,230,272 |
11,546,270 |
|||
|
|
|||||
|
$ |
17,203,130 |
|
$ |
14,999,031 | |
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-4
|
Arcadia Services, Inc. and Sub
Consolidated Statements |
sidiaries of Income |
|
Year Ended March 31, |
2004 |
2003 |
|
|
Sales |
$ 78,359,328 |
$ 76,276,043 |
|
|
|
|||
|
Cost of Sales |
66,722,920 |
64,940,029 |
|
|
|
|
||
| Gross Profit |
11,636,408 |
11,336,014 |
|
|
|
|
||
|
General and Administrative Expenses |
7,906,444 |
7,053,908 |
|
|
|
|
||
| Operating Income |
3,729,964 |
4,282,106 |
|
|
|
|
||
| Interest Income |
1,989 |
1,412 |
|
|
|
|
||
|
Net Income |
$ 3,731,953 |
$ 4,283,518 |
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-5
|
Arcadia Services, Inc. and Sub
Consolidated Statements of Stockholder |
sidiaries 's Equity |
|
Additional |
Due |
Total |
|||||||||
|
Common Stock |
Paid-In |
Retained |
From |
Stockholder’s |
|||||||
|
Shares |
Amount |
Capital |
Earnings |
Stockholder |
Equity |
||||||
|
B alance, April 1, 2002 |
947,636 |
$ |
948 |
$ |
7,627,047 |
$ |
7,217,989 |
$ |
(4,526,327) |
$ |
10,319,657 |
|
Net advances during the year |
- |
- |
- |
- |
(3,056,905) |
(3,056,905) |
|||||
|
Net income for the year |
- |
- |
- |
4,283,518 |
- |
4,283,518 |
|||||
|
Balance, March 31, 2003 |
947,636 |
948 |
7,627,047 |
11,501,507 |
(7,583,232) |
11,546,270 |
|||||
|
Net advances during the year |
- |
- |
- |
- |
(3,047,951) |
(3,047,951) |
|||||
|
Net income for the year |
- |
- |
|
3,731,953 |
- |
3,731,953 |
|||||
|
Balance, March 31, 2004 |
947,636 |
$ |
948 |
$ |
7,627,047 |
$ |
15,233,460 |
$ |
(10,631,183) |
$ |
12,230,272 |
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-6
|
Arcadia Services, Inc. and Sub
Consolidated Statements of |
sidiaries Cash Flows |
|
Year Ended March 31, |
2004 |
2003 |
|||
|
|
|
||||
|
Cash Flows From Operating Activities |
|||||
|
Net income |
$ |
3,731,953 |
$ |
4,283,518 | |
|
Adjustments to reconcile net income to net cash |
|||||
|
Depreciation |
17,333 |
22,380 |
|||
|
Bad debt expense |
26,784 |
238,840 |
|||
|
Changes in assets and liabilities |
|||||
|
Accounts receivable |
(1,321,682) |
42,668 |
|||
|
Prepaid expenses and other current assets |
7,523 |
(107,692) |
|||
|
Accounts payable |
(88,733) |
23,574 |
|||
|
Accrued expenses |
219,242 |
(1,104,694) |
|||
|
Due to related parties |
(145,614) |
(162,514) |
|||
|
Net Cash Provided By Operating Activities |
2,446,806 |
3,236,080 |
|||
|
Cash Flows From Investing Activities |
|||||
|
Purchases of businesses |
(359,154) |
(97,827) |
|||
|
Increase in due from stockholder |
(3,047,951) |
(3,056,905) |
|||
|
Purchase of furniture and fixtures |
(473) |
(3,467) |
|||
|
|
|
||||
|
Net Cash Used In Investing Activities |
(3,407,578) |
(3,158,199) |
|||
|
|
|
||||
|
Net Cash Provided By (Used In) Financing Activities |
|
|
|||
|
Checks issued against future deposits |
960,772 |
(77,881) |
|||
|
|
|
||||
|
Net Change In Cash |
- |
- |
|||
|
Cash, beginning of year |
- |
- |
|||
|
Cash, end of year |
$ |
- |
$ |
- | |
|
|
|
||||
|
Non-Cash Transactions |
|||||
|
Related party payable recorded as part of |
$ |
574,430 |
$ |
- |
|
|
Supplemental Disclosures of Cash Flow Information |
|||||
|
Cash received during the year for interest |
$ |
1,989 |
$ |
1,412 |
|
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-7
|
Arcadia Services, Inc. and Sub
Summary of Accountin |
sidiaries g Policies |
|
Business and Operations |
Arcadia Services, Inc. and it subsidiaries are a national provider of medical staffing services, including home healthcare, medical staffing, light industrial, clerical and technical staffing services. Based in Southfield, Michigan, Arcadia provides its staffing services through a network of affiliate offices and Company-owned offices throughout the United States. These services are generally paid for by the clients themselves, insurance companies or by state Medicaid waiver programs. Typically, Arcadia uses registered nurses, licensed practical nurses, certified nursing assistants, personal care attendants, home health aides and homemakers and companions to service these clients. |
Principles of Consolidation |
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation |
|
Use of Estimates |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates. |
|
Related Business Entities |
The Company is a wholly owned subsidiary. These financial statements do not include any other related business entities that are under common ownership or in which the stockholder has a direct or indirect controlling financial interest. |
See accompanying notes to financial statements.
F-8
|
Arcadia Services, Inc. and Sub
Summary of Accountin |
sidiaries g Policies |
|
Allowance for Doubtful Accounts |
The Company records an allowance for doubtful accounts based on specifically identified amounts the Company believes to be uncollectible. The Company also records an additional allowance based on certain percentages of aged receivables, which is determined based on historical experience and an assessment of the general financial conditions affecting the customer base. If actual collection experience changes, revisions to the allowance may be required. The Company has a limited number of customers with individually large amounts due at any given balance sheet date. Any unanticipated change in one of those customer’s credit worthiness or other matters affecting the collectibility of amounts due from such customers, could have a material effect on the results of operations in the period in which such changes or events occur. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. |
|
Revenue Recognition |
The Company recognizes revenues as services are provided. |
|
Furniture and Fixtures |
The Company’s policy is to depreciate or amortize property and equipment over the estimated useful lives of the assets (3-15 years) by use of the straight-line method. |
|
Goodwill |
Goodwill represents the excess of purchase price over net assets of businesses acquired. Goodwill was previously amortized on the straight-line method over periods ranging from seven to fifteen years. In 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Accordingly, amortization of goodwill ceased as of December 31, 2002. Goodwill is now tested for impairment annually by comparing the fair value of each reporting unit to its carrying value. |
|
Taxes on Income |
The Company has elected to be treated as an S-corporation for federal income tax purposes. Therefore, no federal or state income tax expense has been included in the accompanying financial statements. |
See accompanying notes to financial statements.
F-9
|
Arcadia Services, Inc. and Sub
Notes to Consolidated Financial S |
sidiaries tatements |
|
1. Related Party |
The Company had $10,631,183 and $7,583,232 due from its stockholder at March 31, 2004 and 2003, respectively. The receivables are a result of advances to the stockholder for corporate operating purposes. Due to the nature of the advances they have been classified as contra equity. |
|
The Company had net accounts payable to related parties of $1,573,633 and $1,144,817 at March 31, 2004 and 2003, respectively. The payables are primarily a result of holdbacks from affiliated entities for commissions payable once the related receivables have been collected. |
|
|
From time to time, the Company acquires businesses throughout the country in order to establish affiliate offices in those markets. During the years ended March 31, 2004 and 2003, the Company acquired 5 and 2 businesses, respectively. Total cash payments for these affiliates, contingent upon certain purchase price adjustments, is approximately $942,000 and $123,000, respectively. The Company has recorded amounts to be paid to affiliates as consideration for the purchase of the affiliate business, contingent on the affiliate reaching certain margin targets. A portion of the payables has been classified as long-term based on anticipated payment. The majority of purchase price is allocated to goodwill since the acquired affiliates have few identifiable tangible assets. The primary purpose for acquiring the affiliates is to increase revenues and market share and provide additional operating cash flow. |
|
|
2. Operating Leases |
The Company leases office space under several operating lease agreements, which expire through 2008. Rent expense relating to these leases amounted to approximately $564,000 and $479,000 for the years ended March 31, 2004 and 2003, respectively. |
|
The following is a schedule of approximate future minimum rental payments, exclusive of real estate taxes and other operating expenses, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year. |
|
F-10
|
Year Ending March 31, |
Amount |
|
|
2005 |
$ 386,000 |
|
|
2006 |
319,000 |
|
|
2007 |
306,000 |
|
|
2008 |
274,000 |
|
|
|
||
| Total |
$ 1,285,000 |
|
|
3. Commitments and |
The Company is involved in various litigation incident to its business at March 31, 2004. Management’s opinion is that the outcome of such litigation will not have a material adverse effect on the Company’s consolidated financial position. |
|
|
At March 31, 2004, the parent has a credit facility with a bank. Certain borrowings under the commitment are limited to eligible accounts receivable. Borrowings are collateralized by essentially all assets of the Company. |
||
|
The Company has entered into an employment agreement with a key employee. The agreement extends through March 2006. The agreement provides for compensation, specific employee benefits and has a clause for a change in control. |
||
|
4. Employee Benefit Plan |
The Company participates in its parent’s 401(k) Plan which allows Company employees to defer a percentage of compensation up to defined limitations. The Plan allows for certain discretionary employer contributions. The Company made no contributions on the employees’ behalf for each of the years ended March 31, 2004 and 2003. |
|
|
5. Subsequent Event |
On May 7, 2004, the sole stockholder sold its shares of Arcadia to RKDA, Inc. |
|
F-11
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
Effective May 10, 2004, CHC Sub, Inc., a wholly owned subsidiary of Critical Home Care, Inc. (the “Company”), merged with and into RKDA, Inc., a recently formed Michigan corporation, (the “RKDA Merger”). RKDA’s assets consist of all of the capital stock of Arcadia Services, Inc. and the membership interest of SSAC, LLC d/b/a Arcadia Rx. RKDA acquired Arcadia Services, Inc. on May 7, 2004 pursuant to a Stock Purchase Agreement by and among RKDA, Inc., Arcadia Services, Inc., Addus HealthCare, Inc., and Addus HealthCare’s principal shareholder (the “Arcadia Acquisition”). For descriptions of the terms of the RKDA Merger and the Arcadia Acquisition, please refer to the Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on May 24, 2004, as amended by the accompanying Form 8-K/A filed with the Commission on July 23, 2004.
The following unaudited pro forma financial statements have been prepared to give effect to the Arcadia Acquisition and the RKDA Merger. RKDA, Inc. will be considered the acquirer of the Company for accounting purposes. These pro forma condensed combined financial statements were prepared as if the Arcadia Acquisition and the RKDA Merger had been completed as of April 1, 2003 for the purpose of the statement of income and March 31, 2004 for balance sheet purposes.
The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that would have actually been reported had the Arcadia Acquisition and RKDA Merger occurred on March 31, 2004 for balance sheet purposes and April 1, 2003 for the statement of income purposes, nor are they necessarily indicative of the future financial position or results of operations. The unaudited pro forma condensed combined financial statements include adjustments which are based on preliminary estimates to reflect the allocation of the purchase consideration of the assets acquired and liabilities assumed of Arcadia Services, Inc. and the RKDA Merger. The final allocation of the purchase consideration of the Arcadia Acquisition and the RKDA Merger will be determined using Arcadia Services, Inc.’s financial statements as of May 7, 2004, the closing date of the Arcadia Acquisition, and the Company’s financial statements as of May 10, 2004, the effective date of the RKDA Merger, and will be based on a comprehensive final evaluation of the fair value of the assets acquired, liabilities assumed and goodwill at the time of Arcadia Acquisition and RKDA Merger as considered appropriate. The pro forma and acquisition adjustments are based upon information and assumptions available at the time of the filing of the accompanying Form 8-K/A with the Commission on July 23, 2004.
The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of the Company, together with the related notes thereto, including the Company’s quarterly report filed with the Commission on Form 10-QSB for the quarter ended March 31, 2004 and the Company’s annual report filed with the Commission on Form 10-KSB for the fiscal year ended September 31, 2003, together with the Consolidated Financial Statements of Arcadia Services, Inc. and Subsidiaries for the Years Ended March 31, 2004 and 2003, including signed Report of Independent Registered Public Accounting Firm BDO Seidman, LLP, accompanying in this Form 8-K/A filed with the Commission on July 23, 2004.
PF-1
Unaudited Pro Forma Condensed Combined
Balance Sheets
March 31, 2004
| Acquisition | Consolidated | ||||||||||
| Assets | RKDA |
Arcadia |
ArcadiaRx | Adjustments | RKDA | ||||||
| Current Assets | |||||||||||
| Cash (Note 2) |
$ |
- |
$ |
- |
$ |
- |
$ |
(6,157,212) |
$(6,157,212) |
||
| Accounts Receivable | - | 13,478,381 | 400,826 | - | 13,879,207 | ||||||
| Inventory | - | - | 220,868 | - | 220,868 | ||||||
| Deferred Income Tax (Note 3) | - | - | - | 683,000 | 683,000 | ||||||
|
Prepaid Expenses and Other Current Assets (Note 4) |
- | 133,547 | 12,333 | - | 145,880 | ||||||
|
Total Current Assets |
- | 13,611,928 | 634,027 | (5,474,212) | 8,771,743 | ||||||
|
Property and Equipment |
- | 2,011 | 102,129 | - | 104,140 | ||||||
|
|
|||||||||||
| Goodwill (Notes 1 & 5) | - | 3,589,191 | - | 4,790,535 | 8,379,726 | ||||||
| Deferred Financing Fees | - | - | - | 80,387 | 80,387 | ||||||
| Deferred Income Tax (Note 3) | - | - | - | 90,000 | 90,000 | ||||||
|
|
- | 3,589,191 | - | 4,960,922 | 8,550,113 | ||||||
|
|
$ | - | $ | 17,203,130 | $ | 736,156 | $ | (513,290) |
$ |
17,425,996 | |
|
|
|||||||||||
| Current Liabilities | |||||||||||
| Checks Issued Against Future Deposits |
$ |
- |
$ |
1,116,143 |
900 |
$ |
- |
$ |
1,117,043 |
||
| Accounts Payable ( Note 6) | - | - | 47,933 | 468,765 | 516,698 | ||||||
| Accrued Expenses | |||||||||||
|
Compensation and Related Taxes (Note 7) |
- | 1,573,267 | 30,577 | 114,770 | 1,718,614 | ||||||
| Commissions | - | 470,326 | - | - | 470,326 | ||||||
| Other | - | 239,489 | 3,880 | - | 243,369 | ||||||
| Current Portion of Long Term Debt | - | - | - | - | - | ||||||
| Loan Payable - Bridge Loan | - | - | - | - | - | ||||||
|
Note Payable Asset Acquisition (Note 8) |
- | - | - | - | - | ||||||
|
Note Payable Other, net of Discount of $2,000 (Note |
- | - | 82,156 | (82,156) | - | ||||||
| Note Payable Officer (Note 9) | - | - | 300,000 | (25,000) | 275,000 | ||||||
| Line of Credit - Bank (Note 10) | - | - | - | 1,000,000 | 1,000,000 | ||||||
| Note Payable Acquisition (Note11) | - | - | - | 500,000 | 500,000 | ||||||
| Due to Related Parties | - | 1,143,804 | - | - | 1,143,804 | ||||||
|
Total Current Liabilities |
- | 4,543,029 | 465,446 | 1,976,379 | 6,984,854 | ||||||
|
|
|||||||||||
|
Long Term Debt, Less Current Portion (Note 9) |
- | - | 329,330 | (167,844) | 161,486 | ||||||
| Line of Credit - Bank (Note 10) | - | - | - | 10,031,650 | 10,031,650 | ||||||
| Due to Related Parties | - | 429,829 | - | - | 429,829 | ||||||
|
Total Long Term Liabilities |
- | 429,829 | 329,330 | 9,863,806 | 10,622,965 | ||||||
|
|
- | 4,972,858 | 794,776 | 11,840,185 | 17,607,819 | ||||||
|
Stockholders' Equity |
|||||||||||
| Common Stock (Note 12) | - | 948 | - | (948) | - | ||||||
| Additional Paid in Capital (Note 13) | - | 7,627,047 | 38,750 | (7,627,047) | 38,750 | ||||||
| Retained Earnings (Deficit) (Note 13) | - | 15,233,460 | (97,370) | (15,356,663) | (220,573) | ||||||
| Due From Stockholder (Note 13) | - | (10,631,183) | - | 10,631,183 | - | ||||||
|
Total Stockholders' Equity |
- | 12,230,272 | (58,620) | (12,353,475) | (181,823) | ||||||
|
|
$ |
- |
$ |
17,203,130 |
$ |
736,156 |
$ |
(513,290) |
$ |
17,425,996 | |
PF-2
Unaudited Pro Forma Condensed Combined
Balance Sheets
March 31, 2004
(CONTINUED)
| Pro Forma | Pro Forma | |||||
| Assets | Critical | Adjustments | Balance | |||
| Current Assets | ||||||
| Cash (Note 2) | $ |
- |
$ |
7,610,195 |
$ | 1,452,983 |
| Accounts Receivable | 855,000 | - | 14,734,207 | |||
| Inventory | 262,000 | - | 482,868 | |||
| Deferred Income Tax (Note 3) | - | - | 683,000 | |||
|
Prepaid Expenses and Other Current Assets (Note 4) |
401,000 | (285,803) | 261,077 | |||
|
Total Current Assets |
1,518,000 | 7,324,392 | 17,614,135 | |||
|
Property and Equipment |
604,000 | - | 708,140 | |||
|
|
||||||
| Goodwill (Notes 1 & 5) | - | 14,282,476 | 22,662,202 | |||
| Deferred Financing Fees | - | - | 80,387 | |||
| Deferred Income Tax (Note 3) | - | - | 90,000 | |||
|
|
- | 14,282,476 | 22,832,589 | |||
|
|
$ |
2,122,000 | $ | 21,606,868 |
$ |
41,154,864 |
|
|
||||||
| Current Liabilities | ||||||
| Checks Issued Against Future Deposits |
$ |
(75,000) |
$ |
- |
$ |
1,042,043 |
| Accounts Payable ( Note 6) | 637,000 | (146,108) | 1,007,590 | |||
| Accrued Expenses | ||||||
|
Compensation and Related Taxes (Note 7) |
- | - | 1,718,614 | |||
| Commissions | - | - | 470,326 | |||
| Other | 231,000 | - | 474,369 | |||
| Current Portion of Long Term Debt | 8,000 | - | 8,000 | |||
| Loan Payable - Bridge Loan | 1,500,000 | - | 1,500,000 | |||
|
Note Payable Asset Acquisition (Note 8) |
233,000 | (233,000) | - | |||
|
Note Payable Other, net of Discount of $2,000 (Note |
223,000 | - | 223,000 | |||
| Note Payable Officer (Note 9) | 654,000 | - | 929,000 | |||
| Line of Credit - Bank (Note 10) | - | - | 1,000,000 | |||
| Note Payable Acquisition (Note11) | - | - | 500,000 | |||
| Due to Related Parties | - | - | 1,143,804 | |||
|
Total Current Liabilities |
3,411,000 | (379,108) | 10,016,746 | |||
|
|
||||||
|
Long Term Debt, Less Current Portion (Note 9) |
65,000 | - | 226,486 | |||
| Line of Credit - Bank (Note 10) | - | - | 10,031,650 | |||
| Due to Related Parties | - | - | 429,829 | |||
|
Total Long Term Liabilities |
65,000 | - | 10,687,965 | |||
|
|
3,476,000 | (379,108) | 20,704,711 | |||
|
Stockholders' Equity |
||||||
| Common Stock (Note 12) | 6,151,000 | (6,074,607) | 76,393 | |||
| Additional Paid in Capital (Note 13) | 3,525,000 | 16,947,583 | 20,511,333 | |||
| Retained Earnings (Deficit) (Note 13) | (11,030,000) | 11,113,000 | (137,573) | |||
| Due From Stockholder (Note 13) | - | - | - | |||
|
Total Stockholders' Equity |
(1,354,000) | 21,985,976 | 20,450,153 | |||
|
|
$ |
2,122,000 |
$ |
21,606,868 |
$ |
41,154,864 |
PF-3
Unaudited Pro Forma Condensed Combined
Statements of Income
For the Twelve Months Ended
March 31, 2004
| RKDA |
Arcadia |
Arcadia Rx |
Acquisition |
|||||
|
Net Sales |
$ |
- |
$ |
78,359,328 |
$ |
1,260,384 |
$ |
- |
|
Cost of Sales |
- |
|
66,722,920 |
|
889,348 |
|
- |
|
|
Gross Profit |
|
- |
|
11,636,408 |
|
371,036 |
|
- |
|
General and Administrative Expenses (Note 14) |
|
- |
|
7,906,444 |
|
449,489 |
|
160,000 |
|
Operating Income (Loss) |
|
- |
|
3,729,964 |
|
(78,453) |
|
(160,000) |
|
Other Expenses (Income) |
|
- |
|
|
|
|
|
|
| Impairment of Goodwill | - | - | - | |||||
| Other Income | - | - | - | |||||
| Interest Expense (Income) (Note 15) | - |
(1,989) |
18,917 | 507,694 | ||||
| Amortization of Debt Discount | - |
- |
- | - | ||||
|
Operating Income (Loss) Before Income Tax Expense |
|
- |
|
3,731,953 |
|
(97,370) |
|
(667,694) |
|
Income Tax Expense (Note 3) |
|
- |
|
- |
|
- |
|
|
|
Net Income (Loss) |
$ |
- |
$ |
3,731,953 |
|
(97,370) |
|
1,454,000 |
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) per Share |
|
|
|
|
|
|
|
|
| Basic | ||||||||
| Diluted | ||||||||
| Weighted Average Common Shares (in thousands) | ||||||||
|
Basis (Note 16) |
|
|
|
|
|
|
|
|
| Diluted (Note 16) | ||||||||
PF-4
Unaudited Pro Forma Condensed Combined
Statements of Income
For the Twelve Months Ended
March 31, 2004
(Continued)
|
Consolidated |
Critical |
Pro Forma Adjustments |
Pro Forma |
|||||
|
Net Sales |
$ |
79,619,712 |
$ |
4,501,068 |
$ |
- |
$ |
84,120,798 |
|
Cost of Sales |
67,612,268 |
|
1,426,806 |
|
- |
|
69,039,074 |
|
|
Gross Profit |
|
12,007,444 |
|
3,074,280 |
|
- |
|
15,081,724 |
|
General and Administrative Expenses (Note 14) |
|
8,515,933 |
|
4,489,456 |
|
- |
|
13,005,389 |
|
Operating Income (Loss) |
|
3,491,511 |
|
(1,415,176) |
|
- |
|
2,076,335 |
|
Other Expenses (Income) |
|
|
|
- |
|
|
||
| Impairment of Goodwill | - | 3,357,430 | - | 3,357,430 | ||||
| Other Income | - | (352) | - | (352) | ||||
| Interest Expense (Income) (Note 15) | 524,622 | 201,830 | - | 726,452 | ||||
| Amortization of Debt Discount | - | 268,561 | - | 268,651 | ||||
|
Operating Income (Loss) Before Income Tax Expense |
|
2,966,889 |
|
(5,242,735) |
|
- |
|
(2,275,846) |
|
Income Tax Expense (Note 3) |
|
1,454,000 |
|
- |
|
- |
|
1,454,000 |
|
Net Income (Loss) |
$ |
1,512,889 |
$ |
(5,242,735) |
$ |
- |
$ |
(3,729,846) |
|
|
|
|
|
|
|
|
||
|
Income (Loss) per Share |
|
|
|
|
|
|
||
| Basic | $ | (0.21) | $ | (0.06) | ||||
| Diluted | $ | (0.21) | $ | (0.06) | ||||
| Weighted Average Common Shares (in thousands) | ||||||||
|
Basis (Note 16) |
|
|
|
24,393 |
|
40,000 |
|
64,393 |
| Diluted (Note 16) | 24,393 |
40,000 |
64,393 | |||||
PF-5
The accompanying unaudited pro forma condensed combined financial statements reflect a purchase price for Arcadia Services, Inc. of approximately $17,211,808 consisting of cash and a note payable and other expenses directly related to the acquisition of Arcadia Services, Inc. by RKDA, Inc. (the “Arcadia Acquisition”).
| Deposit | $ | 100,000 |
| Cash at closing | 16,000,000 | |
| Note Payable | 500,000 | |
| Accounts Payable | 200,000 | |
| Estimated Acquisition Related Costs | 411,808 | |
| Total Consideration | $ | 17,211,808 |
The preliminary purchase price allocation, which is subject to change based on Arcadia Services, Inc.’s final analysis, is as follows
| Current Assets | $ | 14,294,929 |
| Fixed Assets | 2,011 | |
| Other Assets | 90,000 | |
| Liabilities | (5,554,858) | |
| Goodwill | 8,379,726 | |
| Total Consideration | $ | 17,211,808 |
The Company, on May 7, 2004, completed the minimum $8 million of a Regulation D Private Placement (the "Offering"), and subsequently sold an additional $245,000 of securities and terminated the Offering effective May 27, 2004. Through the Offering and a
PF-6
subsequent sale to key employees of the Company’s subsidiary, the Company raised $7,620,500 of cash net of $834,500 of fees paid to an investment banker. The Company incurred legal and accounting fees related to the Offering of $411,808. As described in Item 2 of the accompanying Form 8-K/A, he Company, on May 7, 2004, received bank financing of $11,031,650. Cash was used to purchase the stock of Arcadia Services, Inc. for $16,100,00, pay the employees’ stay bonus of $467,230, legal and accounting fees of $506,937 and pay off certain notes payable of $425,000, net of $300,000 of prepaid acquisition costs.
Note 3 - Income Tax
Prior to the Arcadia Acquisition, Arcadia Services, Inc. had S corporation status under the Internal Revenue Code and income taxes were paid on a consolidated basis by Arcadia’s stockholder, Addus HealthCare, Inc. If Arcadia Services, Inc. had C corporation status under the Internal Revenue Code, Arcadia Services, Inc. would have paid income taxes for the year ended March 31, 2004. Deferred income taxes as of March 31, 2004 of $773,000 represents the differences in book and tax bases of assets and liabilities as if Arcadia Services, Inc. were operating as a stand-alone entity. Income tax expense of $1,454,000 is reflected for the year ended March 31, 2004.
$300,000 cash that was paid for the Arcadia Acquisition and legal and accounting expenses were transferred from prepaid expenses to purchase price and other accrued expenses. In addition two months rent in the amount of $14,197 was prepaid for April and May 2004.
As the merger of CHC Sub, Inc., a wholly owned subsidiary of Critical Home Care, Inc. (the “Company”), with and into RKDA, Inc. (the “RKDA Merger”) is treated as a reverse merger of an operating company for accounting purposes, the goodwill of the Company is the market value of outstanding shares of the Company on the date of the RKDA Merger plus the net liabilities of the Company. The Company had 24,393,351 shares outstanding immediately preceding the RKDA Merger. At a closing market price of $0.53 per share as May 10, 2004, the effective date of the RKDA Merger, the total value of the Company’s 24,393,351 outstanding shares immediately preceding the RKDA Merger is $12,928,476, which together with liabilities of $1,354,000 equals the total goodwill pro forma adjustment of $14,282,476.
PF-7
The pro forma adjustment includes a payable for legal expenses in the amount of $193,765, investment banking fees of $75,000 and a payable to Addus HealthCare, Inc. (Arcadia, Inc.’s former stockholder) for a purchase price adjustment of $200,000. Payments were made from the acquisition proceeds in the amount of $92,583 for legal expenses and $53,525 for accounting expenses.
Arcadia Services, Inc. had agreements with certain key employees for a stay bonus. The bonuses totaled $582,000. On the transaction date, the employees were paid $467,230. The difference of $114,770, which represents payroll taxes, was accrued.
On September 13, 2002, CHC acquired substantially all of the assets and business operations of All Care Medical Products, Inc. Of the $233,000 balance due for the All Care acquisition, a payment of $150,000 was made, and the balance of $83,000 was forgiven.
The sum of the current and long term pro forma adjustment is $275,000 out of which $150,000 was paid against a note payable with a bank, $100,000 was paid to an unrelated party and $25,000 was paid against an officer note.
The Company entered into an agreement with the bank to help fund the transaction. See Note 2, above. Based on the terms of the agreement the bank loaned the Company $11,031,650 of which $10,031,650 is based on the Company accounts receivable as a revolving line of credit and $1,000,000 of excess borrowings, payable within a year.
PF-8
The purchase price for Arcadia Services, Inc. paid by RDKA, Inc. was $16,800,000. Addus HealthCare, Inc. (Arcadia’s stockholder) was paid $16,100,000 in cash, provided a $500,000 promissory note payable one year after closing, and $200,000 which is accrued in accounts payable.
The Company’s common stock was adjusted to reflect 76,393,351 of outstanding shares as of May 10, 2004, at a par value of $0.001 (includes recapitalization of RKDA, Inc. and issuance of the Company’s common stock in the Offering).
The paid in capital and retained earnings were restated to reflect the purchase accounting adjustment to eliminate the historical equity.
Michigan Single Business Tax was paid on a consolidated basis by the Addus HealthCare, Inc., Arcadia’s former stockholder. On a standalone basis, Arcadia Services, Inc. would have incurred an additional $160,000 of expense for the year ended March 31, 2004.
The Company obtained approximately $11,000,000 in financing from a bank in order to help fund the acquisition of Arcadia Services, Inc. by RKDA, Inc. See Notes 2 and 10, above. Based on the current borrowing rate of 4.25%, the Company would have incurred approximately $467,500 of interest expense for the year ended March 31, 2004. In addition the Company would have incurred amortization of deferred financing fees of $40,194 for the year ended March 31, 2004.
Note 16 – Earnings Per Share
The following is a summary of the Company’s outstanding common stock activity as of May 10, 2004:
PF-9
| Outstanding Shares Immediately Preceding RKDA Merger | 24,393,351 |
| Shares Issued in the Offering | 32,000,000 |
| Shares Issued per RKDA Merger | 21,300,000 |
| Shares Contributed to the Company per RKDA Merger | (1,300,000) |
| Shares Held in Escrow per RKDA Merger | (12,000,000) |
| Shares Included in Calculation of Earnings Per Share at March 31, 2004 |
64,393,351 |
As of May 10, 2004, the effective date of the RKDA Merger, there were 76,393,351 shares of the Company’s common stock authorized and outstanding. The 32,000,000 Shares Issued in the Offering do not include an additional 980,000 shares of the Company’s common stock issued in the Offering through the date the Offering terminated on May 27, 2004, and an additional 840,000 shares of the Company’s common stock sold to key employees of the Company’s subsidiary. The Shares Held in Escrow Per RKDA Merger are not included for purposes of calculating the earnings per share in the pro forma statement of income.
PF-10
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Critical Home Care, Inc.
By: /s/ John E. Elliott II |
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| Dated: July 23, 2004 | |
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Its: Chairman of the Board |