<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) OCTOBER 31, 1996
UNISON HEALTHCARE CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-27374 86-0684011
- ----------------------------------- -------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
7272 EAST INDIAN SCHOOL ROAD, SUITE 214, SCOTTSDALE, ARIZONA 85251
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(602) 423-1954
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 31, 1996, Unison HealthCare Corporation ("Unison") acquired
Signature Health Care Corporation ("Signature Health Care") and four affiliated
companies, Douglas Manor, Inc. ("Douglas"), Safford Care, Inc. ("Safford"),
Arkansas, Inc. ("Arkansas"), and Cornerstone Care, Inc. ("Cornerstone" and
collectively with Signature Health Care, Douglas, Safford and Arkansas,
"Signature"). Signature operates 11 long-term care facilities and two assisted
living facilities in Colorado and Arizona. Through mergers with each of the
Signature companies and newly formed wholly owned subsidiaries of Unison, each
of the Signature companies became wholly owned subsidiaries of Unison.
Outstanding shares of Signature Health Care were converted into the right to
receive, subject to certain adjustments, cash equal to approximately
$10,200,000 and 1,509,434 shares of Unison's Common Stock. Outstanding shares of
Douglas, Safford, Arkansas and Cornerstone were converted into the right to
receive, subject to certain adjustments, cash and promissory notes equal to
approximately $28,000,000 in the aggregate. The mergers will be accounted for as
purchases. Signature's president, David A. Kremser, was also named a director of
Unison.
On October 31, 1996, Unison also acquired RehabWest, Inc. ("RehabWest")
pursuant to a Stock Purchase Agreement (the "RehabWest Agreement") among Unison,
RehabWest, Linda Redwine ("Redwine"), David A. Kremser ("Kremser") and John D.
Filkoski ("Filkoski"). Under the RehabWest Agreement, Unison purchased all of
the issued and outstanding capital stock of RehabWest (the "Shares") from
Redwine for $5,350,000, and security interests in the Shares in favor of Kremser
and Filkoski were released. Immediately prior to the transaction Redwine
received a distribution from RehabWest totaling approximately $750,000. In
connection with the acquisition of RehabWest, Redwine became an employee of a
subsidiary of Unison. RehabWest provides rehabilitative therapy services to
Signature. The acquisition of RehabWest will be accounted for as a purchase.
On October 31, 1996, Unison also acquired American Professional
Holding, Inc. ("Ampro") and Memphis Clinical Laboratory, Inc. ("Memphis")
(together, the "Ampro Acquisition") in an overall transaction comprised of
separate mergers with newly formed, wholly-owned subsidiaries of Unison. Ampro
and Memphis were the surviving corporations of the mergers. In the Ampro merger,
the issued and outstanding shares of Ampro Common Stock were converted into the
right to receive an aggregate of 521,000 shares of Unison Common Stock. In the
Memphis merger, three shareholders who held approximately 35% of the outstanding
shares of Memphis received pro rata portions of 19,000 shares of Unison Common
Stock, and the holder of the remaining shares of Memphis received cash in the
approximate amount of $236,000, and a promissory note in the principal amount of
$250,000. Ampro and Memphis provide medical laboratory services to 295 nursing
homes in Texas, Missouri and Tennessee. The Ampro Acquisition will be accounted
for as a pooling of interests.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
SIGNATURE HEALTH CARE CORPORATION
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1994 and June 30, 1996
Consolidated Statements of Operations for the years ended December 31, 1995,
1994 and 1993 and six months ended June 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1995 and 1994 and six months ended June 30, 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993 and six months ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements
ARKANSAS, INC., CORNERSTONE CARE, INC., DOUGLAS MANOR, INC., AND SAFFORD CARE,
INC.
Report of Independent Public Accountants
Combined Balance Sheets as of December 31, 1995 and six months ended June 30,
1996
Combined Statements of Operations for the year ended December 31, 1995 and six
months ended June 30, 1996 and 1995
Combined Statements of Stockholders' Equity for the year ended December 31,
1995 and six months ended June 30, 1996
Combined Statements of Cash Flows for the year ended December 31, 1995 and six
months ended June 30, 1996 and 1995
Notes to Combined Financial Statements
REHABWEST, INC.
Report of Independent Public Accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995 and 1994
Statements of Stockholders' Equity for the years ended December 31, 1995
and 1994
Statements of Cash Flows for the years ended December 31, 1995 and 1994
Notes to Financial Statements
Balance Sheets as of June 30, 1996 and 1995 (unaudited)
Statements of Operations for the six months ended June 30, 1996 and 1995
(unaudited)
Statements of Stockholders' Equity for the period ended June 30, 1996
(unaudited)
Statements of Cash Flows for the six months ended June 30, 1996 and 1995
(unaudited)
AMERICAN PROFESSIONAL HOLDING, INC.
Report of Independent Auditor
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
Consolidated Statements of Income for the years ended December 31, 1993, 1994
and 1995 and the six months ended June 30, 1995 and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and the six months ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements
MEMPHIS CLINICAL LABORATORY, INC.
Report of Independent Auditor
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
Statements of Income for the years ended December 31, 1993, 1994 and 1995 and
the six months ended June 30, 1995 and 1996
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1996 and 1995
Notes to Financial Statements
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Signature Health Care Corporation:
We have audited the accompanying consolidated balance sheets of SIGNATURE
HEALTH CARE CORPORATION (a Delaware corporation) and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated 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 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 audits provide 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 Signature Health Care
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 15, 1996
<PAGE> 4
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents........................... $ -- $ 274,992 $ 919,121
Patient accounts receivable, net of allowance for
doubtful accounts of $194,210 at June 30, 1996 and
$195,900 and $155,200 at December 31, 1995 and
1994.............................................. 5,184,861 3,663,958 1,641,216
Prepaid income taxes................................ 141,525 -- 407,448
Inventory........................................... 256,304 5,000 5,000
Other current assets................................ 265,323 160,073 164,704
Deferred tax asset.................................. 101,300 101,300 102,400
----------- ----------- -----------
Total current assets........................... 5,949,313 4,205,323 3,239,889
Property and equipment, at cost..................... 18,391,035 18,264,010 18,020,293
Less-Accumulated depreciation..................... (1,949,127) (1,490,542) (594,150)
----------- ----------- -----------
Net property and equipment..................... 16,441,908 16,773,468 17,426,143
Goodwill, net of accumulated amortization of
$924,286 at June 30, 1996 and $639,142 and $68,900
at December 31, 1995 and 1994..................... 1,720,599 2,005,744 2,576,027
Loan fees, net of accumulated amortization of
$64,000 at June 30, 1996 and $49,000 and $20,000
at December 31, 1995 and 1994..................... 260,330 275,330 304,288
Debt service reserve................................ 1,187,288 1,161,808 1,110,647
Receivables due from affiliates, net................ -- 495,031 --
Deposits and other.................................. 59,925 59,925 63,425
----------- ----------- -----------
Total other assets............................. 3,228,142 3,997,838 4,054,387
----------- ----------- -----------
Total assets................................... $25,619,363 $24,976,629 $24,720,419
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt................ $ 259,064 $ 198,994 $ 141,417
Accounts payable.................................... 1,471,607 1,078,237 189,660
Accrued payroll, taxes and benefits................. 507,784 354,714 676,374
Income taxes payable................................ -- 211,847 --
Accrued property taxes.............................. 63,505 87,683 92,336
Other accrued expenses.............................. 44,348 104,468 31,077
Unearned revenue.................................... 96,402 96,402 121,016
----------- ----------- -----------
Total current liabilities...................... 2,442,710 2,132,345 1,251,880
Deferred income taxes............................... 2,921,436 2,939,553 3,219,753
Long-term debt, net of current maturities........... 18,518,886 18,605,174 18,842,292
Payables due to affiliates, net..................... 1,035,935 -- --
----------- ----------- -----------
Total liabilities......................... 24,918,967 23,677,072 23,313,925
Common stock, $.01 par value; 1,200,000 shares
authorized; 250,000 shares issued and
outstanding....................................... 2,500 2,500 2,500
Additional paid-in capital.......................... 1,610,600 1,610,600 1,610,600
Accumulated deficit from operations................. (912,704) (313,543) (206,606)
----------- ----------- -----------
Total stockholders' equity..................... 700,396 1,299,557 1,406,494
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................. $25,619,363 $24,976,629 $24,720,419
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 5
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------------- -------------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sub-acute and
rehabilitation........ $ 4,746,382 $ 3,638,225 $ 8,314,758 $ 4,151,426 $ 3,635,407
Alzheimers care......... 890,862 708,815 1,493,735 1,129,135 584,504
Skilled nursing care.... 7,151,720 7,059,116 14,481,606 14,428,066 13,932,573
Miscellaneous
services.............. 58,859 59,757 119,527 200,301 143,285
----------- ----------- ----------- ----------- -----------
Net patient revenue..... 12,847,823 11,465,913 24,409,626 19,908,928 18,295,769
Management fees......... -- -- -- 32,772 --
----------- ----------- ----------- ----------- -----------
Total revenue...... 12,847,823 11,465,913 24,409,626 19,941,700 18,295,769
----------- ----------- ----------- ----------- -----------
Nursing services
(including $1,591,506
and $1,071,642 at June
30, 1996 and 1995 and
$2,365,582, $583,911
and $0 at December 31,
1995, 1994 and 1993
paid to an
affiliate)............ 5,798,958 4,942,391 11,467,625 9,683,175 8,920,580
Dietary services........ 650,887 678,693 1,514,387 1,500,641 1,486,345
General services........ 1,938,984 1,960,668 2,890,000 3,053,090 3,050,311
Provision for bad
debts................. 58,543 71,218 181,339 213,482 125,729
Management fees paid to
an affiliate.......... 3,456,306 2,008,921 4,725,703 2,301,848 1,026,739
Rent.................... 192,582 185,512 375,101 397,297 382,552
Interest, net of $35,161
and $56,841 at June
30, 1996 and 1995 and
$96,959, $90,041 and
$65,674 at December
31, 1995, 1994 and
1993 of income........ 975,065 915,970 1,933,452 1,657,162 930,294
Depreciation and
amortization.......... 758,729 810,480 1,495,634 1,078,710 727,541
----------- ----------- ----------- ----------- -----------
Total expenses..... $13,830,054 $11,573,853 $24,583,241 $19,885,405 $16,650,091
----------- ----------- ----------- ----------- -----------
(Loss) income
before income
taxes............ (982,231) (107,940) (173,615) 56,295 1,645,678
(Benefit) provision
for income
taxes............ (383,070) (41,066) (66,678) 28,654 642,005
----------- ----------- ----------- ----------- -----------
Net (loss)
income...... $ (599,161) $ (66,874) ($ 106,937) $ 27,641 $ 1,003,673
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK
CONVERTIBLE -----------------------------
PREFERRED STOCK ADDITIONAL ACCUMULATED TOTAL
---------------------- PAID-IN EARNINGS/ STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
-------- ----------- ------- ------ ---------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992.......... 700,000 $ 2,427,566 250,000 $2,500 $ 191,100 $ 500,645 $ 3,121,811
Net income........................... -- -- -- -- -- 1,003,673 1,003,673
Accretion of mandatory provision..... -- 112,526 -- -- -- (112,526) --
-------- ----------- -------- ------ ---------- ----------- ----------
Balances at December 31, 1993.......... 700,000 $ 2,540,092 250,000 $2,500 $ 191,100 $ 1,391,792 $ 4,125,484
Net income........................... -- -- -- -- -- 27,641 27,641
Purchase of Preferred stock and
elimination of residual interest in
retained earnings.................. (700,000) (2,540,092) -- -- 1,419,500 (1,626,039) (2,746,631)
-------- ----------- -------- ------ ---------- ----------- ----------
Balances at December 31, 1994.......... -- $ -- 250,000 $2,500 $1,610,600 $ (206,606) $ 1,406,494
Net loss............................. -- -- -- -- -- (106,937) (106,937)
-------- ----------- -------- ------ ---------- ----------- ----------
Balances at December 31, 1995.......... -- $ -- 250,000 $2,500 $1,610,600 $ (313,543) $ 1,299,557
-------- ----------- -------- ------ ---------- ----------- ----------
Net loss (unaudited)................. -- -- -- -- -- (599,161) (599,161)
-------- ----------- -------- ------ ---------- ----------- ----------
Balances at June 30, 1996
(unaudited).......................... -- $ -- 250,000 $2,500 $1,610,600 $ (912,704) $ 700,396
======== =========== ======== ====== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ----------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income....................... $ (599,161) $ (66,874) $ (106,937) $ 27,641 $ 1,003,673
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... 758,729 810,480 1,495,634 1,078,710 727,541
Provision for bad debts............... 58,543 71,218 181,339 213,482 125,729
Change in deferred taxes.............. (279,100) 73,591 62,083
Changes in non-cash working capital:
Patient accounts receivable........ (1,579,445) (1,258,378) (2,204,081) (421,724) (957,302)
Prepaid income taxes............... -- 407,448 407,448 (407,448) --
Inventory and other current
assets........................... (356,553) (150,619) 4,631 (54,280) 18,673
Accounts payable................... 393,371 591,800 888,577 (149,569) (147,816)
Accrued payroll, taxes and
benefits......................... 153,070 300,317 (321,660) 118,214 69,922
Income taxes payable............... (372,258) (63,492) 211,847 (223,500) (28,059)
Accrued property taxes and other
accrued expenses................. (84,298) (108,501) 68,738 (47,779) (24,349)
Unearned revenue................... -- -- (24,614) 33,213 (22,995)
----------- ------------ ---------- ------------ ----------
Net cash (used in) provided by
operating activities............. (1,628,002) 533,399 321,822 240,551 827,100
----------- ------------ ---------- ------------ ----------
Cash flows from investing activities:
Recognition of buyout net asset value... -- -- -- (4,459,908) --
Purchase of property and equipment...... (126,257) (101,719) (243,718) (512,922) (221,573)
Purchase of investments................. -- -- (51,161) (17,739) 7,092
Purchase of goodwill.................... -- -- -- (2,644,885) --
Increase in deferred taxes related to
buyout................................ -- -- -- 2,778,543 --
Change in deposits and other assets..... (25,480) (221,752) 3,500 96,377 (26,078)
----------- ------------ ---------- ------------ ----------
Net cash used in investing
activities....................... (151,737) (323,471) (291,379) (4,760,534) (240,559)
----------- ------------ ---------- ------------ ----------
Cash flows from financing activities:
Repayment of long-term debt............. (26,218) (102,289) (179,541) (11,462,055) (1,065,386)
Receivables due from affiliates, net.... 1,530,965 678,295 (495,031) -- --
Issuance of long-term debt.............. -- -- -- 19,100,000 --
Payment of loan fees.................... -- -- -- (324,297) --
Purchase of preferred stock............. -- -- -- (2,746,631) --
----------- ------------ ---------- ------------ ----------
Net cash (used in) provided by
financing activities............. 1,504,747 576,006 (674,572) 4,567,017 (1,065,386)
----------- ------------ ---------- ------------ ----------
Net (decrease) increase in cash.... (274,992) 785,934 (644,129) 47,034 (478,845)
Cash and cash equivalents,
at beginning of year............. 274,992 919,121 919,121 872,087 1,350,932
----------- ------------ ---------- ------------ ----------
Cash and cash equivalents,
at end of year................... $ -- $ 1,705,055 $ 274,992 $ 919,121 $ 872,087
=========== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(INCLUDING INFORMATION APPLICABLE TO UNAUDITED PERIODS)
(1) BUSINESS AND ORGANIZATION
Signature Health Care Corporation and its wholly owned subsidiaries (the
"Corporation") own, operate and manage skilled nursing centers providing
restorative, rehabilitative, and sub-acute services. As of December 31, 1995,
the Corporation owns six nursing homes and leases one for a total of seven
nursing homes with 602 total beds. The Corporation does business in Colorado and
Arizona. The Corporation's nursing homes are subject to licensing and regulation
of their services by various federal and state government agencies. The
Corporation incorporated in Delaware on October 12, 1987.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The accompanying consolidated financial statements include
the accounts of the Corporation and its wholly owned subsidiaries with all
significant intercompany accounts and transactions eliminated.
Cash and Cash Equivalents. Cash and cash equivalents include all
investments with an original maturity of three months or less.
Property and Equipment. Property and equipment are recorded at cost, with
depreciation computed on the straight-line method over the estimated useful
lives of depreciable assets which range from two to 40 years.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS
121 requires that the Corporation perform a review of long-lived assets and
goodwill related to those assets to assess whether an impairment of value
exists. If such an impairment does exist, the related assets must be written
down to fair value.
The Corporation is required to adopt SFAS 121 in fiscal 1996. Management
has not yet determined what the ultimate impact of adopting this new Statement
will be on the Corporation's financial position or results of operations.
Loan Fees. Loan fees amortize over the term of the related debt using the
effective interest method.
Net Patient Service Revenue and Accounts Receivable. Patient revenue is
reported at established rates or estimated net realizable amounts from
third-party payors or others for services rendered. Credit risk exists to the
extent that the Corporation's most significant source of revenue is
reimbursement for patient care from state-sponsored Medicaid programs and from
Medicare. However, management does not believe that there are significant credit
risks associated with these governmental agencies. Contractual adjustments
resulting from agreements with various organizations to provide services for
amounts which differ from billed charges, including services under Medicare and
Medicaid, are recorded as deductions from gross patient revenue. The estimated
third party payor settlements under Medicare and Medicaid programs are recorded
in the period the related services are rendered and are subject to audit and
final settlement by the fiscal intermediary. Differences between the net amounts
accrued and subsequent settlement, if any, are recorded in operations at the
time the final settlement is determined.
Until the year of settlement, accounts receivable are reduced for the
differences between recognized revenue and interim payments received from
third-party payors. The Corporation classifies these differences in
contra-accounts in accounts receivable as payable to Medicare and Medicaid
third-party payors until the year of settlement. These settlement amounts total
$1,084,000, $586,000 and $500,000 as of December 31, 1995, 1994 and 1993,
respectively.
<PAGE> 9
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company derived patient revenues from various sources in 1995, 1994 and
1993, respectively, as follows:
(a) federal Medicare program (retrospectively reimbursing actual
allowable costs), 33%, 20% and 19%;
(b) negotiated contracts with various government agencies and private
insurance companies, 31%, 36% and 39%;
(c) private pay sources, 19%, 25% and 26%; and
(d) state Medicaid programs (prospectively reimbursing historical
allowable costs plus an inflation factor and profit factor), 17%, 19% and
16%.
Management Fees. During 1994 the Corporation provided accounting services
to a contracted therapy business. In return for its management services, the
Corporation received management fees in an amount equal to 3% of net revenue
plus its costs for providing accounting services.
Goodwill. Goodwill is being amortized over a five-year period.
Income Taxes. The Corporation accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109. "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the use of an asset and liability
approach for measuring deferred taxes based on temporary differences between
financial statement and tax bases of assets and liabilities existing at each
balance date using enacted tax rates for years in which the related taxes are
expected to be paid or recovered.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited consolidated balance sheet and statement of stockholders'
equity as of June 30, 1996 and the unaudited consolidated statements of income
and cash flows for the six months ended June 30, 1995 and 1996, in the opinion
of management, have been prepared on substantially the same basis as the audited
consolidated financial statements and include all significant adjustments
necessary for the fair presentations of the results of the interim periods. The
data disclosed in these notes to the financial statement for these periods are
also unaudited. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for an entire year.
(4) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994, consisted of the following.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
10 year mortgage at 10.5% payable monthly......... $18,804,168 $18,983,709
Less current maturities......................... (198,994) (141,417)
----------- -----------
Total long-term debt, net of current
maturities............................ $18,605,174 $18,842,292
=========== ===========
</TABLE>
The property and equipment of the Corporation secure the current mortgage.
The mortgage contains a personal guarantee from a stockholder of the
Corporation. The mortgage contains various covenants including debt service
coverage, minimum current ratio, and restrictions on the payment of dividends.
The Corporation
<PAGE> 10
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
complied with the covenants throughout 1995 and 1994. Cash paid for interest
totaled $2,030,110 $1,658,341, and $993,075 in 1995, 1994 and 1993,
respectively.
Long-term debt maturing in the next five years follows.
<TABLE>
<S> <C>
1996.................................................... $ 198,994
1997.................................................... 220,924
1998.................................................... 245,271
1999.................................................... 272,301
2000.................................................... 302,309
Thereafter.............................................. 17,564,369
-----------
Total long-term debt.......................... $18,804,168
===========
</TABLE>
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, deposits/accounts payable and long-term borrowings approximate their
fair value. The fair value of the Corporation's long-term borrowings is
estimated by discounting future cash flows at current rates offered to the
Corporation for debt of comparable types and maturities. Because no market
exists for these financial instruments, considerable judgment is necessary in
interpreting the data to develop estimates of fair value. The use of different
market assumptions may have a material effect on the estimated fair value
amounts.
(6) EQUITY
The common stock carry certain rights, the more significant of which
follow.
Voting. Each share of common stock carry the right to one vote.
Options. The Corporation reserves 250,000 shares of authorized but
unissued common stock for issuance to employees upon exercise of stock purchase
options. As of December 31, 1995, granted options cover the purchase, of 113,800
shares of common stock, of which 90,000 shares have vested and 23,800 shares
vest upon completion of certain conditions, none of which had occurred as of
December 31, 1995. Activity related to granted options for the three years ended
December 31, 1995 follows:
<TABLE>
<CAPTION>
PRICE PER
SHARES SHARE
------- ---------------
<S> <C> <C>
Granted options at December 31, 1992............................... 95,500 --
Options granted.................................................. 14,000 $6.50 - $10.00
Cancelled options................................................ (2,500) --
-------
Granted options at December 31, 1993............................... 107,000 --
Options granted.................................................. 6,800 $12.00
Cancelled options................................................ (3,000) --
-------
Granted options at December 31, 1994............................... 110,800 --
Options granted.................................................. 6,850 $25.00
Cancelled options................................................ (3,850) --
-------
Granted options at December 31, 1995............................... 113,800 --
-------
</TABLE>
(7) RELATED PARTY TRANSACTIONS
During 1993 the Corporation paid or accrued $158,750 for a consulting fee
to an affiliate of its preferred stockholder for investment banking, financial,
and management services.
<PAGE> 11
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1993 the Corporation advanced $100,000 to an affiliated entity which
will provide physical, occupational, and speech therapy services to the
Corporation and others. This advance was outstanding during 1993 and 1994.
During 1995 the Corporation incurred and paid for management and
rehabilitation services from an entity having common owners.
(8) COMMITMENTS AND CONTINGENCIES
The Corporation leases a nursing home, on a ten year base term expiring in
2000, under which the Corporation possesses (1) the right to renew for one
additional 5 year term and (2) the option to purchase the nursing home through
the end of the base term. The lease provides for certain restrictions on the
maintenance and operation of the nursing home and an annual 2% escalation in the
base rent.
The Corporation also leases office space for its corporate office, on a
year to year basis, under which the Corporation possesses the right to renew for
additional one year terms.
Both leases are treated as operating leases, future lease payments follow.
<TABLE>
<S> <C>
1996..................................................... $ 381,152
1997..................................................... 374,370
1998..................................................... 380,736
1999..................................................... 387,648
2000..................................................... 361,152
----------
Total base term rent........................... $1,885,058
==========
</TABLE>
The Corporation has been named as a defendant in certain litigation.
Corporation management believes amounts which may become payable, if any,
pursuant to such litigation, will be covered by the Corporation's insurance
policies.
(9) INCOME TAXES
The Corporation accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of events which have been included in
the financial statement or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Deferred taxes liability as of December 31, 1995 and 1994 are comprised of
the following.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Tax credit........................................ $ -- 13,000
Accrued liabilities and allowances................ 101,300 89,400
----------- -----------
Total current deferred tax asset............. 101,300 102,400
----------- -----------
Depreciation and amortization..................... (601,100) (441,200)
Basis step-up (see Note 10)....................... (2,338,500) (2,778,500)
----------- -----------
Total noncurrent deferred tax liability...... (2,939,600) (3,219,700)
----------- -----------
Total net deferred taxes................ $(2,838,300) $(3,117,300)
=========== ===========
</TABLE>
<PAGE> 12
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation did not record any valuation allowances against the
deferred tax asset at December 31, 1995 and 1994, as the Corporation's
management believes that it is more likely than not that the asset will be
realized. Cash paid for income taxes totaled $0, $462,000 and $608,000 in 1995,
1994 and 1993 respectively.
The components of the income tax provision (benefit) consist of the
following.
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Federal................................... $ 195,484 $ 44,533 $464,005
State..................................... 43,275 9,859 117,000
--------- -------- --------
Current income tax provision............ 238,759 54,392 581,005
--------- -------- --------
Federal................................... (250,077) (21,072) 30,000
State..................................... (55,360) (4,666) 31,000
--------- -------- --------
Deferred income tax provision
(benefit)............................ (305,437) (25,738) 61,000
--------- -------- --------
Total income tax provision
(benefit).......................... $ (66,678) $ 28,654 $642,005
========= ======== ========
</TABLE>
The difference between the Corporation's effective income tax rates and the
statutory rates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax expense
(benefit)............................... $ (59,025) $ 19,140 $559,531
Increases (decreases) resulting from:
State tax expense (benefit) net of
federal benefit...................... (8,681) 2,815 82,284
Nondeductible expenses.................. 5,659 6,115 2,603
Other................................... (4,631) 584 (2,413)
--------- -------- --------
Income tax expense (benefit).............. $ (66,678) $ 28,654 $642,005
========= ======== ========
</TABLE>
(10) BUY OUT OF PREFERRED STOCKHOLDERS
On March 30, 1994, the Corporation completed new long-term financing. The
proceeds were used to retire all existing debt, create a minimum debt service
reserve, and redeem all outstanding convertible preferred stock, which had
rights which made it essentially equivalent to common stock and comprised
approximately 67% of the Corporation's equity ownership.
Because a substantive change in control occurred, a proportional share of
the Corporation's net assets were revalued based on the monetary consideration
paid to the preferred shareholders and the assets applicable to common
stockholders' residual interest were carried forward at historical cost, net of
related valuation and allowance accounts.
The transaction resulted in an increase in property and equipment of
approximately $4.4 million, goodwill of $2.6 million, deferred tax liability of
$2.8 million as no step-up in basis was allowed for tax purposes, and the
elimination of retained earnings and an increase in paid-in capital.
The depreciation and amortization related to the increase in property and
equipment and goodwill referred to above totalled $233,350 in 1994 and
$1,210,111 in 1995 and $605,056 and $605,056 for the six months ended June 30,
1995 and 1996, respectively.
<PAGE> 13
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) SUBSEQUENT EVENT
On August 2, 1996, the Corporation entered into an agreement and plan of
merger with Unison HealthCare Corporation ("Unison"). Through the merger the
Corporation will become a wholly owned subsidiary of Unison. Outstanding shares
of the Corporation will be converted into the right to receive, subject to
certain adjustments, cash equal to $10,200,000 and shares of Unison's common
stock equal to approximately $20,000,000. The merger is subject to regulatory
and shareholder approval.
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor, Inc., and Safford Care,
Inc.:
We have audited the accompanying combined balance sheet of ARKANSAS, INC.,
CORNERSTONE CARE, INC., DOUGLAS MANOR, INC., and SAFFORD CARE, INC. (Colorado
corporations) as of December 31, 1995, and the related combined statements of
operations, stockholders' equity and cash flows for the period from inception,
May 9, 1995 through December 31, 1995. These financial statements are the
responsibility of each Corporation's management. Our responsibility is to
express an opinion on these combined 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 combined financial position of Arkansas, Inc.,
Cornerstone Care, Inc., Douglas Manor, Inc., and Safford Care, Inc. as of
December 31, 1995, and the combined results of their operations and their cash
flows for the period from inception through December 31, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 15, 1996
<PAGE> 15
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................ $ -- $ 313,198
Patient accounts receivable, net of allowance for doubtful
accounts of $41,000 at June 30, 1996 and $23,000 at December
31, 1995....................................................... 2,575,860 2,382,353
Inventory........................................................ 192,817 --
Other current assets............................................. 52,543 3,483
---------- ----------
Total current assets........................................ 2,821,220 2,699,034
Equipment........................................................ 753,524 800,995
Leasehold improvements........................................... 157,026 167,695
---------- ----------
Property and equipment, at cost................................ 910,550 968,690
Less-Accumulated depreciation.................................. (139,921) (54,314)
---------- ----------
Net property and equipment.................................. 770,629 914,376
Deposits and other............................................... 70,605 70,605
Prepaid rent..................................................... 114,814 209,587
---------- ----------
Total other assets.......................................... 185,419 280,192
---------- ----------
Total assets........................................... $ 3,777,268 $3,893,602
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of capitalized lease............................. $ 52,992 $ 48,003
Accounts payable................................................. 593,700 430,382
Accrued payroll, taxes and benefits.............................. 289,820 312,124
Property taxes payable........................................... 64,155 48,015
Other accrued expenses........................................... 60,488 4,905
Unearned revenue................................................. 30,550 30,550
---------- ----------
Total current liabilities................................... 1,091,705 873,979
Deferred rent............................................... -- 91,428
Capitalized lease, net of current portion................... 668,624 668,940
Amounts due affiliates...................................... 1,464,672 1,579,209
---------- ----------
Total liabilities........................................... 3,225,001 3,213,556
Common stock, $.01 par value; 400,000 shares authorized; 4,000
shares issued and outstanding.................................. 4,000 4,000
Additional paid-in capital....................................... 377,000 377,000
Distributions to stockholders.................................... (1,926,000) (406,000)
Accumulated earnings from operations............................. 2,097,267 705,046
---------- ----------
Total stockholders' equity.................................. 552,267 680,046
---------- ----------
Total liabilities and stockholders' equity............. $ 3,777,268 $3,893,602
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 16
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED INCEPTION TO YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995 1995
---------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Sub-acute and rehabilitation....................... $2,390,206 $ 79,163 $1,965,605
Alzheimers care.................................... 1,108,873 -- 1,063,937
Skilled nursing care............................... 5,695,862 395,168 5,449,292
Miscellaneous services............................. 208,925 713 161,906
---------- -------- ----------
Total revenue................................. 9,403,866 475,044 8,640,740
---------- -------- ----------
Nursing services (including $744,753 and $26,253 at
June 30, 1996 and 1995 and $467,124 at December
31, 1995 paid to an affiliate)................... 3,773,485 212,220 4,286,037
Dietary services................................... 509,366 38,129 634,946
General services................................... 1,591,666 99,017 1,213,308
Provision for bad debts............................ 17,662 6,478 55,624
Management fees paid to an affiliate............... 1,151,824 42,771 797,900
Rent............................................... 851,169 44,578 860,211
Interest, net of $4,624 and $191 at June 30, 1996
and 1995 and $2,600 at December 31, 1995 of
income........................................... 30,366 31,508 33,354
Depreciation and amortization...................... 86,107 16,042 54,314
---------- -------- ----------
Total expenses................................ 8,011,645 490,743 7,935,694
---------- -------- ----------
Net income (loss)........................ $1,392,221 $(15,699) $ 705,046
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 17
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
ADDITIONAL DISTRIBUTIONS ACCUMULATED TOTAL
PAID-IN TO EARNINGS/ STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT) EQUITY
----- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arkansas, Inc.............................. 1,000 $1,000 $ -- $ -- $ -- $ 1,000
Cornerstone Care, Inc...................... 1,000 1,000 -- -- -- 1,000
Douglas Manor, Inc......................... 1,000 1,000 -- -- -- 1,000
Safford Care, Inc.......................... 1,000 1,000 -- -- -- 1,000
----- ------ -------- --------- -------- ---------
Purchase of common stock.............. 4,000 4,000 -- -- -- 4,000
Douglas Manor, Inc......................... -- -- 259,000 -- -- 259,000
Safford Care, Inc.......................... -- -- 118,000 -- -- 118,000
----- ------ -------- --------- -------- ---------
Additional capital contributions...... -- -- 377,000 -- -- 377,000
Arkansas, Inc.............................. -- -- -- -- 442,759 442,759
Cornerstone Care, Inc...................... -- -- -- -- 170,237 170,237
Douglas Manor, Inc......................... -- -- -- -- (58,419) (58,419)
Safford Care, Inc.......................... -- -- -- -- 150,469 150,469
----- ------ -------- --------- -------- ---------
Net Income............................ -- -- -- -- 705,046 705,046
Arkansas, Inc.............................. -- -- -- (318,000) -- (318,000)
Cornerstone Care, Inc...................... -- -- -- (88,000) -- (88,000)
----- ------ -------- --------- -------- ---------
Distributions to stockholders......... -- -- -- (406,000) -- (406,000)
----- ------ -------- --------- -------- ---------
Balances at December 31, 1995.............. 4,000 $4,000 $ 377,000 $ (406,000) $ 705,046 $ 680,046
----- ------ -------- --------- -------- ---------
Arkansas, Inc. ............................ -- -- -- -- 707,661 707,661
Cornerstone Care, Inc. .................... -- -- -- -- 396,401 396,401
Douglas Manor, Inc. ....................... -- -- -- -- (89,526) (89,526)
Safford Care, Inc. ........................ -- -- -- -- 377,685 377,685
----- ------ -------- --------- -------- ---------
Net Income (unaudited)................ -- -- -- -- 1,392,221 1,392,221
Arkansas, Inc. ............................ -- -- -- (442,000) -- (442,000)
Cornerstone Care, Inc. .................... -- -- -- (526,000) -- (526,000)
Douglas Manor, Inc. ....................... -- -- -- (203,000) -- (203,000)
Safford Care, Inc. ........................ -- -- -- (349,000) -- (349,000)
----- ------ -------- --------- -------- ---------
Distributions to stockholders
(unaudited)......................... -- -- -- (1,520,000) -- (1,520,000)
----- ------ -------- --------- -------- ---------
Balances at June 30, 1996 (unaudited)...... 4,000 $4,000 $ 377,000 $ (1,926,000) $ 2,097,267 $ 552,267
===== ====== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 18
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED INCEPTION TO YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995 1995
---------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 1,392,221 $ (15,699) $ 705,046
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization...................... 86,107 16,042 54,314
Provision for bad debts............................ 17,662 6,478 55,624
Deferred rent expense.............................. (206,242) -- 91,428
Changes in non-cash working capital:
Patient accounts receivable..................... (211,166) (400,923) (2,437,977)
Inventory and other current assets.............. (32,290) (74,651) (213,070)
Accounts payable................................ 163,318 197,855 430,382
Accrued payroll, taxes and benefits............. (22,304) 278,144 312,124
Property taxes payable and other accrued
expenses...................................... 71,723 2,344 52,920
Unearned revenue................................ -- -- 30,550
----------- --------- -----------
Net cash provided by (used in) operating
activities................................. 1,259,029 9,590 (918,659)
----------- --------- -----------
Cash flows from investing activities:
Purchase of property and equipment................... 57,637 (2,226) (229,455)
Change in deposits and other assets.................. -- (23,495) (70,605)
----------- --------- -----------
Net cash provided by (used in) investing
activities...................................... 57,637 (25,721) (300,060)
----------- --------- -----------
Cash flows from financing activities:
Sale of common stock................................. -- -- 4,000
Amortization of lease obligation..................... 4,673 -- (22,292)
Amounts due to affiliates, net....................... (114,537) 295,665 1,579,209
Additional paid in capital........................... -- 377,000
Distributions to stockholders........................ (1,520,000) -- (406,000)
----------- --------- -----------
Net cash (used in) provided by financing
activities................................. (1,629,864) 295,665 1,531,917
----------- --------- -----------
Net (decrease) increase in cash and cash
equivalents.............................. (313,198) 279,534 313,198
Cash and cash equivalents, at beginning of
year..................................... $ 313,198 -- $ --
=========== ========= ===========
Cash and cash equivalents at end of year... -- $ 279,534 313,198
=========== ========= ===========
Supplemental disclosure of non-cash investing and
financing activities:
Acquisition of capitalized equipment lease......... $ -- $ 400,222 $ 739,235
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 19
ARKANSAS, INC.,
CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND
SAFFORD CARE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INCLUDING INFORMATION APPLICABLE TO UNAUDITED PERIODS)
(1) BUSINESS AND ORGANIZATION
Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor, Inc., and Safford
Care, Inc. (the "Sub-S Corporations"), operate skilled nursing centers providing
restorative, rehabilitative, and sub-acute services and assisted living centers
providing supervisory nursing services. As of December 31, 1995, the Sub-S
Corporations lease four nursing homes and two assisted living centers with 579
total beds. The Sub-S Corporations do business in Colorado and Arizona. The
Sub-S Corporations' nursing homes and assisted living centers are subject to
licensing and regulation of their services by various federal and/or state
government agencies. The Sub-S Corporations incorporated in Colorado on May 9,
1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combination. The accompanying combined financial statements include the
accounts of the Sub-S Corporations, which all have common ownership, with all
significant intercompany accounts and transactions eliminated.
Cash and Cash Equivalents. Cash and cash equivalents include all
investments with an original maturity of three months or less.
Property and Equipment. Property and equipment are recorded at cost, with
depreciation computed on the straight-line method over the estimated useful
lives of depreciable assets which range from three to ten years.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS
121 requires that the Sub-S Corporations perform a review of long-lived assets
to assess whether an impairment of value exists. If such an impairment does
exist, the related assets must be written down to fair value.
The Sub-S Corporation is required to adopt SFAS 121 in fiscal 1996.
Management has not yet determined what the ultimate impact of adopting this new
Statement will be on the Sub-S Corporations' financial position or results of
operations.
Net Patient Service Revenue and Accounts Receivable. Patient revenue is
reported at established rates or estimated net realizable amounts from
third-party payors or others for services rendered. Credit risk exists to the
extent that the Sub-S Corporations' most significant source of revenue is
reimbursement for patient care from state-sponsored Medicaid programs and from
Medicare. However, management does not believe that there are significant credit
risks associated with these governmental agencies. Contractual adjustments
resulting from agreements with various organizations to provide services for
amounts which differ from billed charges, including services under Medicare and
Medicaid, are recorded as deductions from gross patient revenue. The estimated
third party payor settlements under Medicare and Medicaid programs are recorded
in the period the related services are rendered and are subject to audit and
final settlement by the fiscal intermediary. Differences between the net amounts
accrued and subsequent settlement, if any, are recorded in operations at the
time the final settlement is determined.
Until the year of settlement, accounts receivable are reduced for the
differences between recognized revenue and interim payments received from
third-party payors. The Sub-S Corporations classify these
<PAGE> 20
ARKANSAS, INC.,
CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND
SAFFORD CARE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
differences in contra-accounts in accounts receivable as payable to Medicare and
Medicaid third-party payors until the year of settlement. These settlement
amounts total $114,550 as of December 31, 1995.
The Sub-S Corporations derived patient revenues from various sources in
1995, as follows:
(a) state Medicaid programs (prospectively reimbursing historical
allowable costs plus an inflation factor and profit factor), 42%;
(b) federal Medicare program (retrospectively reimbursing actual
allowable costs), 22%;
(c) negotiated contracts with various government agencies and private
insurance companies, 21%; and
(d) private pay sources, 15%.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited combined balance sheet and statement of stockholders' equity
as of June 30, 1996 and the unaudited combined statements of income and cash
flows for the six months ended June 30, 1995 and 1996, in the opinion of
management, have been prepared on substantially the same basis as the audited
combined financial statements and include all significant adjustments necessary
for the fair presentations of the results of the interim periods. The data
disclosed in these notes to the financial statement for these periods are also
unaudited. Operating results for the interim periods are not necessary
indicative of the results that may be expected for an entire year.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, deposits/accounts payable and long-term borrowings approximate their
fair value. The fair value of the Sub-S Corporation's long-term borrowings is
estimated by discounting future cash flows at current rates offered to the Sub-S
Corporation for debt of comparable types and maturities. Because no market
exists for these financial instruments, considerable judgment is necessary in
interpreting the data to develop estimates of fair value. The use of different
market assumptions may have a material effect on the estimated fair value
amounts.
(5) COMMITMENTS AND CONTINGENCIES
The Sub-S Corporations lease nursing homes and assisted living centers, on
a ten year base term expiring in 2005, under which the Sub-S Corporations
possess (1) the right to renew for three additional 10 year terms and (2) the
option to purchase the nursing homes and assisted living centers through the.
end of the base term and any renewals. The leases provide for certain
restrictions on the maintenance and operation of the nursing homes and assisted
living centers and an annual 2.5% escalation in the base rent. Future lease
payments follow.
<PAGE> 21
ARKANSAS, INC.,
CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND
SAFFORD CARE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
1996.................................................... $ 1,642,264
1997.................................................... 1,683,320
1998.................................................... 1,725,403
1999.................................................... 1,768,538
2000.................................................... 1,812,752
Thereafter.............................................. 8,729,428
-----------
Total base term rent.......................... $17,361,705
===========
</TABLE>
For financial reporting purposes leases are treated as operating leases
and, for financial reporting purposes, the applicable future lease payments are
being recognized on a straight-line allocation basis. The property and equipment
of the Sub-S Corporations secure the leases. The leases contain various
covenants including completion of capital additions. The Sub-S Corporations
complied with the covenants throughout 1995.
(6) RELATED PARTY TRANSACTIONS
The Sub-S Corporations incurred and paid for management and rehabilitation
services from an entity having common ownership.
(7) INCOME TAXES
The Sub-S Corporations elected and have been granted S corporation status
under the regulations of the Internal Revenue Service. Under these regulations,
The Sub-S Corporations' taxable income is divided among, and passed through to,
its stockholders. Therefore, The Sub-S Corporations do not account for income
taxes and deferred tax assets or liabilities.
(8) SUBSEQUENT EVENT
On August 2, 1996 the Sub-S Corporations entered into agreements and plans
of merger with Unison HealthCare Corporation ("Unison"). Through the mergers the
Sub-S Corporations will become wholly owned subsidiaries of Unison. Outstanding
shares of the Sub-S Corporations will be converted into the right to receive,
subject to certain adjustments, cash equal to approximately $28,000,000. The
merger agreements are subject to regulatory and shareholder approval.
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of RehabWest, Inc.:
We have audited the accompanying balance sheets of RehabWest, Inc. (a S
corporation), as of December 31, 1995 and 1994, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these 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 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 audits provide 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 RehabWest, Inc., as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ANDERSON & WHITNEY, P.C.
Greeley, Colorado
September 27, 1996
<PAGE> 23
REHABWEST, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash................................................................... $153,867 $ 22,397
Related party accounts receivable.................................... 309,896 111,793
Accounts receivable.................................................. 2,273 209,942
Bad debt allowance................................................... (36,868) (46,797)
-------- --------
Accounts receivable, net............................................... 275,301 274,938
Prepaid expenses....................................................... 4,387 5,194
-------- --------
Total current assets.............................................. 433,555 302,529
Equipment.............................................................. 11,315 2,748
Accumulated depreciation............................................... (6,288) (458)
-------- --------
Equipment, net......................................................... 5,027 2,290
Other assets........................................................... 595 0
-------- --------
TOTAL ASSETS................................................. $439,177 $304,819
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable....................................................... $ 4,542 $ 7,513
Accrued wages.......................................................... 120,914 114,319
Accrued payroll related................................................ 92,994 28,974
Income taxes payable................................................... 0 7,433
Amounts owed to related party.......................................... 122,923 165,350
-------- --------
TOTAL LIABILITIES............................................ 341,373 323,589
Common stock, no par, 1,000,000 shares authorized, 340,000 shares
issued and outstanding............................................... 340 340
Accumulated earnings/(deficit)......................................... 97,464 (19,110)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................... 97,804 (18,770)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $439,177 $304,819
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 24
REHABWEST, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Physical therapy.................................................... $1,309,515 $ 432,240
Speech therapy...................................................... 728,919 274,664
Occupational therapy................................................ 1,342,792 384,514
---------- ----------
TOTAL REVENUE............................................. 3,381,226 1,091,418
---------- ----------
Direct labor and related............................................ 1,999,919 630,537
Contracted labor.................................................... 248,257 106,902
Supplies and other.................................................. 54,738 15,001
---------- ----------
COST OF SERVICES RENDERED........................................... 2,302,914 752,440
---------- ----------
GROSS PROFIT........................................................ 1,078,312 338,978
---------- ----------
Labor and related................................................... 522,704 219,827
Supplies and other.................................................. 113,707 35,810
Related party accounting fee........................................ 301,038 32,772
Bad debts........................................................... 0 48,614
---------- ----------
Total administrative expenses..................................... 937,449 337,023
Interest expense.................................................... 8,862 7,363
Interest income..................................................... (890) (975)
---------- ----------
Interest, net....................................................... 7,972 6,388
Office rent......................................................... 10,487 6,446
Depreciation and amortization....................................... 5,830 798
---------- ----------
Total general expenses, net....................................... 24,289 13,632
---------- ----------
TOTAL INDIRECT EXPENSES................................... 961,738 350,655
---------- ----------
EARNINGS/(LOSS) BEFORE INCOME TAX................................... 116,574 (11,677)
INCOME TAXES........................................................ 0 7,433
---------- ----------
NET INCOME/(LOSS)......................................... $ 116,574 $ (19,110)
========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 25
REHABWEST, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
EARNINGS/ STOCKHOLDERS
SHARES AMOUNT (DEFICIT) EQUITY
------- ------ ----------- ------------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993................... 340,000 $340 $ 0 $ 340
Net loss...................................... 0 0 (19,110) (19,110)
------- ---- -------- --------
BALANCES AT DECEMBER 31, 1994................... 340,000 340 (19,110) (18,770)
Net income.................................... 0 0 116,574 116,574
------- ---- -------- --------
BALANCES AT DECEMBER 31, 1995................... 340,000 $340 $ 97,464 $ 97,804
======= ==== ======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 26
REHABWEST, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss).................................................. $ 116,574 $ (19,110)
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities:
Depreciation and amortization................................... 5,830 798
Provision for bad debts......................................... (9,929) 46,797
Changes in non-cash working capital:
Accounts receivable............................................. 9,566 (321,735)
Prepaid expenses................................................ 807 (5,194)
Accounts payable................................................ (2,971) 7,513
Accrued wages................................................... 64,020 28,974
Accrued payroll related......................................... 6,595 114,319
Income taxes payable............................................ (7,433) 7,433
Related party payable........................................... 57,573 65,350
--------- ---------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES.................. 240,632 (74,855)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment.............................................. (8,567) (2,748)
Change in other assets............................................. (595) 0
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES................................ (9,162) (2,748)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party notes payable.......................... 60,000 100,000
Principal payments on related party notes payable.................. (160,000) 0
--------- ---------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES.................. (100,000) 100,000
--------- ---------
NET INCREASE/(DECREASE) IN CASH...................................... 131,470 22,397
CASH, AT BEGINNING OF YEAR........................................... 22,397 0
--------- ---------
CASH, AT END OF YEAR................................................. $ 153,867 $ 22,397
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 27
REHABWEST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) BUSINESS AND ORGANIZATION
RehabWest, Inc., (the "Corporation") provides and manages Physical, Speech,
and Occupational Therapy ("Therapy") programs in health care centers,
predominantly, skilled nursing centers. As of December 31, 1995, the Corporation
provided services to nine skilled nursing homes in Colorado (5) and Arizona (4),
previously on December 31, 1994, the Corporation provided services to ten
skilled nursing homes, one psychiatric medical center, one developmentally
disabled medical center, and one home health agency in Colorado (11) and Arizona
(2). RehabWest earns a significant portion of its revenue from health care
centers owned by entities having common owners (see Note 5 below). The
Corporation's employees are subject to licensing and regulation by various state
government agencies and the provision of Therapies in health care centers is
regulated by various federal and state government agencies. The Corporation
incorporated in Colorado on November 22, 1993, and began business operations in
January of 1994.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash. Cash and cash equivalents include all investments with an original
purchase maturity of three months or less.
Equipment. Equipment is recorded at cost, with depreciation computed on
the straight-line method over the estimated useful lives of the depreciable
assets.
Net Therapy Revenue and Accounts Receivable. Revenue is reported at
established rates or estimated net realizable amounts from private payors.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, accounts
receivable, accounts payable, and borrowings approximate their fair value.
Because no market exists for these financial instruments, considerable judgment
is necessary in interpreting the data to develop estimates of fair value. The
use of different market assumptions may have a material effect on the estimated
fair value amounts.
(4) EQUITY
The common stock carries certain rights, the more significant of which is
that each share carries the right to one vote. The Corporation reserves 70,000
shares of authorized but unissued common stock for issuance to employees upon
exercise of stock purchase options. No options were granted during 1994. As of
December 31, 1995, granted options covering the purchase of 20,000 shares of
common stock at $16.04 per share, which vest upon completion of certain
conditions, none of which had occurred as of December 31, 1995.
(5) RELATED PARTY TRANSACTIONS
During 1995 and 1994, the Corporation earned 83% and 53%, respectively, of
its revenue from health care centers owned by entities having common owners with
RehabWest. The Corporation bills and accrues revenue the same at both related
party and non-related party health care centers.
During 1995 and 1994, the Corporation incurred and paid for accounting
services to an entity having common owners with RehabWest.
<PAGE> 28
REHABWEST, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1994 the Corporation received an advance of $100,000 and during 1995
an advance of $60,000 at 8% from entities having common owners with RehabWest.
These advances were paid back during 1995. Cash paid for interest totaled $8,884
and $7,341 in 1995 and 1994 respectively.
(6) COMMITMENTS AND CONTINGENCIES
The Corporation leases office space for its corporate office, on a year to
year basis. The lease is treated as an operating lease. The future base lease
payments of exercised terms as of December 31, 1994 and 1995, was immaterial.
(7) INCOME TAXES
During 1994 the Corporation was classified as a "C" corporation by the
Internal Revenue Service (IRS) and accounted for income taxes under the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"), which requires recognition of deferred tax
assets and liabilities for the expected future income tax consequences of events
which have been included in the financial statement or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The net deferred tax asset as of December 31, 1994, was comprised of the
following.
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Allowances for bad debts................................................... $ 9,360
-------
Total current deferred tax asset........................................... 9,360
-------
Deferred tax asset valuation allowance..................................... (9,360)
-------
Total net deferred taxes................................................... $ 0
=======
</TABLE>
The components of the income tax provision consist of the following.
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Federal.................................................................... $ 5,576
State...................................................................... 1,857
-------
Current income tax provision............................................... 7,433
-------
Federal.................................................................... 0
State...................................................................... 0
-------
Deferred income tax provision.............................................. 0
-------
Total income tax provision................................................. $ 7,433
=======
</TABLE>
On January 1, 1995, the stockholders of the Corporation filed an election
with, which was granted by, the IRS for classification as a "S" corporation.
Under these regulations, the Corporation's taxable income is divided among, and
passed through to, its stockholders. Therefore, the Corporation does not account
for income taxes and deferred tax assets or liabilities after December 31, 1994.
Cash paid for income taxes totaled $7,433 and $0 in 1995 and 1994, respectively.
(8) RETIREMENT PLAN
The Corporation has a 401(k) savings plan that covers substantially all
employees who have attained age 21 and completed six months of service. Employer
contributions are at the discretion of the Board of
<PAGE> 29
REHABWEST, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Directors. Employees become fully-vested after seven years of service for
employer contributions. There were no employer contributions for 1995 or 1994.
(9) CONCENTRATION OF CREDIT RISK
At December 31, 1994, the Corporation had accounts receivable of $200,553
from four customers. Each of these customer's balances at year end exceeded 10%
of the Corporation's total accounts receivable. The Corporation's policy is to
not obtain collateral on accounts receivable.
At December 31, 1995, the Corporation had various cash accounts totaling
$153,867 in one commercial bank located in Greeley, Colorado. The cash balances
are secured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000.
(10) SUBSEQUENT EVENTS
On March 1, 1996, all the outstanding shares of the Corporation were sold,
by the then current stockholders, to the President of the Corporation. The new
shareholder of the Corporation is unrelated to the previous owners of the
Corporation's shares.
In September of 1996, the Corporation reached an agreement in principal to
merge with Unison HealthCare Corporation ("Unison"). Through the merger the
Corporation will become a wholly owned subsidiary of Unison. Outstanding shares
of the Corporation will be sold for cash. The merger is subject to negotiation
of a definitive agreement, regulatory approval, and shareholder approval.
(11) INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited balance sheet and statement of stockholders' equity as of
June 30, 1996, and the unaudited statements of income and cash flows for the six
months ended June 30, 1995 and 1996, in the opinion of management, have been
prepared on the same basis as the audited financial statements and include all
significant adjustments necessary for the fair presentations of the results of
the interim periods. The data disclosed in these notes to the financial
statements for these periods are also unaudited. Operating results for the
interim periods are not necessarily indicative of the results that may be
expected for an entire year.
<PAGE> 30
REHABWEST, INC.
BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash................................................................... $116,027 $208,234
Related party accounts receivable.................................... 449,966 223,946
Accounts receivable.................................................. 12,347 95,626
Bad debt allowance................................................... 0 (45,992)
-------- --------
Accounts receivable, net............................................... 462,313 273,580
Prepaid expenses....................................................... 16,103 9,688
-------- --------
Total current assets.............................................. 594,443 491,502
Equipment.............................................................. 15,661 7,736
Accumulated depreciation............................................... (7,379) (5,954)
-------- --------
Equipment, net......................................................... 8,282 1,782
Other assets........................................................... 130 0
-------- --------
TOTAL ASSETS................................................. $602,855 $493,284
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable....................................................... $125,641 $ 41,500
Accrued wages.......................................................... 131,192 88,001
Accrued payroll related................................................ 114,165 14,500
Income taxes payable................................................... 0 8,066
Amounts owed to related party.......................................... 60,456 302,722
-------- --------
TOTAL LIABILITIES............................................ 431,454 454,789
Common stock, no par, 1,000,000 shares authorized, 340,000 shares
issued and outstanding............................................... 340 340
Accumulated earnings................................................... 171,061 38,155
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................... 171,401 38,495
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $602,855 $493,284
======== ========
</TABLE>
<PAGE> 31
REHABWEST, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
Physical therapy.................................................... $ 917,055 $ 569,188
Speech therapy...................................................... 376,700 344,409
Occupational therapy................................................ 1,042,505 551,117
---------- ----------
TOTAL REVENUE............................................. 2,336,260 1,464,714
---------- ----------
Direct labor and related............................................ 1,242,382 675,332
Contracted labor.................................................... 218,029 91,318
Supplies and other.................................................. 16,661 27,273
---------- ----------
COST OF SERVICES RENDERED........................................... 1,477,072 793,923
---------- ----------
GROSS PROFIT........................................................ 859,188 670,791
---------- ----------
Labor and related................................................... 202,955 419,418
Supplies and other.................................................. 62,078 49,642
Related party accounting fee........................................ 73,462 128,545
Bad debts........................................................... (34,144) 0
---------- ----------
Total administrative expenses..................................... 304,351 597,605
Interest expense.................................................... 2,485 6,282
Interest income..................................................... (966) (505)
---------- ----------
Interest, net....................................................... 1,519 5,777
Office rent......................................................... 6,339 4,648
Depreciation and amortization....................................... 1,091 5,496
---------- ----------
Total general expenses, net....................................... 8,949 15,921
---------- ----------
TOTAL INDIRECT EXPENSES................................... 313,300 613,526
---------- ----------
NET INCOME................................................ $ 545,888 $ 57,265
========== ==========
</TABLE>
<PAGE> 32
REHABWEST, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
EARNINGS/ STOCKHOLDERS
SHARES AMOUNT (DEFICIT) EQUITY
------- ------ ----------- ------------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995................... 340,000 340 97,464 97,804
Distributions to stockholders (unaudited)..... 0 0 (472,291) (472,291)
Net income (unaudited)........................ 0 0 545,888 545,888
------- ---- --------- ---------
BALANCES AT JUNE 30, 1996 (unaudited)........... 340,000 $340 $ 171,061 $ 171,401
======= ==== ========= =========
</TABLE>
<PAGE> 33
REHABWEST, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 545,888 $ 57,265
Adjustments to reconcile net income to net cash provided by/(used
in) operating activities:
Depreciation and amortization.................................... 1,091 5,496
Provision for bad debts.......................................... (36,868) (805)
Changes in non-cash working capital:
Accounts receivable.............................................. (150,144) 2,163
Prepaid expenses................................................. (11,716) (4,494)
Accounts payable................................................. 121,099 33,987
Accrued wages.................................................... 21,171 (14,474)
Accrued payroll related.......................................... 10,278 (26,318)
Income taxes payable............................................. 0 633
Related party payable............................................ (62,467) 37,372
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................. 438,332 90,825
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment............................................... (4,346) (4,988)
Change in other assets.............................................. 465 0
--------- --------
NET CASH USED IN INVESTING ACTIVITIES................................. (3,881) (4,988)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party notes payable........................... 0 100,000
Distributions to stockholders....................................... (472,291) 0
--------- --------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES................... (472,291) 100,000
--------- --------
NET INCREASE/(DECREASE) IN CASH....................................... (37,840) 185,837
CASH, AT BEGINNING OF PERIOD.......................................... 153,867 22,397
--------- --------
CASH, AT END OF PERIOD................................................ $ 116,027 $208,234
========= ========
</TABLE>
<PAGE> 34
REPORT OF INDEPENDENT AUDITOR
The Board of Directors
American Professional Holding, Inc.
We have audited the accompanying consolidated balance sheets of American
Professional Holding, Inc. as of December 31, 1994 and 1995 and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1995. 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 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Professional Holding, Inc. at December 31, 1994 and 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Ronald H. Ridgers, P.C.
Richardson, Texas
March 30, 1996
<PAGE> 35
AMERICAN PROFESSIONAL HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. $ 171,725 $ 61,687 $ 13,684
Accounts receivable trade............................ 971,293 1,253,870 1,574,477
Accounts receivable related party.................... 205,210 394,437 473,340
Other current assets................................. 59,587 72,931 385,563
---------- ---------- ----------
Total current assets......................... 1,407,815 1,782,925 2,447,064
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Land and building.................................... 205,205 205,205 205,205
Vehicles............................................. 181,935 222,823 219,425
Furniture............................................ 64,385 67,594 70,376
Lab equipment........................................ 353,706 542,815 562,068
---------- ---------- ----------
805,231 1,038,437 1,057,074
Less accumulated depreciation.......................... 390,691 517,281 560,518
---------- ---------- ----------
Total property and equipment................. 414,540 521,156 496,556
INTANGIBLE AND OTHER ASSETS:
Goodwill, net of $36,249, $108,746, and $144,992 of
amortization...................................... 1,051,217 978,720 942,474
Accounts receivable stockholders..................... 0 257,250 318,375
Other................................................ 2,238 1,300 1,300
---------- ---------- ----------
Total intangible and other assets............ 1,053,455 1,237,270 1,262,149
---------- ---------- ----------
$2,875,810 $3,541,351 $4,205,769
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable trade............................... $ 304,842 $ 491,080 $ 746,922
Accounts payable related............................. 5,000 0 141,500
Accrued expenses..................................... 136,314 439,098 535,100
Deferred taxes....................................... 223,690 155,690 161,690
Notes payable current................................ 516,115 394,916 394,916
---------- ---------- ----------
Total current liabilities.................... 1,185,961 1,480,784 1,980,128
Long-term debt....................................... 470,334 674,126 669,098
---------- ---------- ----------
Total liabilities............................ 1,656,295 2,154,910 2,649,226
STOCKHOLDERS' EQUITY:
Common stock; par value $.001; 50,000,000 shares
authorized; 10,200,000 shares outstanding......... 10,200 10,200 10,200
Additional paid in capital........................... 399,800 399,800 399,800
Retained earnings.................................... 809,515 976,441 1,146,543
---------- ---------- ----------
Total stockholders' equity................... 1,219,515 1,386,441 1,556,543
---------- ---------- ----------
$2,875,810 $3,541,351 $4,205,769
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 36
AMERICAN PROFESSIONAL HOLDING, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES........................ $ 4,190,398 $ 5,151,559 $ 6,421,187 $ 3,225,220 $ 3,087,780
DIRECT COSTS:
Direct labor and related
taxes...................... 1,667,264 1,684,506 2,039,835 919,541 937,347
Supplies...................... 659,594 733,967 1,038,506 515,894 437,239
Other direct costs............ 27,960 188,946 148,147 31,461 52,708
----------- ----------- ----------- ----------- -----------
Total direct costs.... 2,354,818 2,607,419 3,226,408 1,466,896 1,427,294
----------- ----------- ----------- ----------- -----------
GROSS PROFIT.................... 1,835,580 2,544,140 3,194,699 1,758,324 1,660,486
GENERAL AND ADMINISTRATIVE:
Wages and related taxes....... 204,969 434,174 873,971 353,223 403,826
Printing...................... 36,866 41,663 105,942 52,736 28,930
Depreciation and
amortization............... 81,392 146,882 193,002 112,304 79,483
Rents......................... 77,067 76,931 78,959 40,010 37,146
Mileage....................... 217,769 214,593 314,310 133,901 174,759
Utilities..................... 86,470 93,454 164,638 76,336 74,215
Supplies...................... 97,285 62,057 74,404 34,930 33,330
Interest...................... 33,343 63,290 118,110 18,499 55,698
Insurance..................... 142,113 183,197 225,590 120,095 116,941
Professional fees............. 49,162 71,923 90,999 48,057 59,152
Management fees............... 195,211 265,325 245,904 117,288 110,500
Other......................... 168,507 304,428 455,864 229,450 222,404
----------- ----------- ----------- ----------- -----------
Total general and
administrative...... 1,390,154 1,957,917 2,941,773 1,336,829 1,396,384
----------- ----------- ----------- ----------- -----------
INCOME BEFORE TAXES............. 445,426 586,223 252,926 421,495 264,102
LESS PROVISION FOR
TAXES......................... 196,800 170,000 86,000 143,300 94,000
----------- ----------- ----------- ----------- -----------
NET INCOME...................... $ 248,626 $ 416,223 $ 166,926 $ 278,195 $ 170,102
========== ========== ========== ========== ==========
NET INCOME PER COMMON SHARE..... $ .02 $ .04 $ .02 $ .03 $ .02
========== ========== ========== ========== ==========
SHARES USED IN CALCULATION...... 10,000,000 10,100,000 10,200,000 10,200,000 10,200,000
========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 37
AMERICAN PROFESSIONAL HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income..................................... $ 248,626 $ 416,223 $ 166,926 $ 278,195 $ 170,102
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation and amortization................ 81,392 146,882 193,082 112,304 79,483
Increase (decrease) in deferred taxes........ 147,800 6,242 (68,000) (8,000) 6,000
Changes in operating accounts:
Increase in accounts receivable-trade........ (274,047) (284,312) (282,577) (243,014) 320,607)
Increase in account receivable-related
parties.................................... (43,775) (161,435) (189,227) (55,527) (78,903)
Increase (decrease) in other current
assets..................................... 0 (39,587) (13,334) (57,735) (317,632)
Increase (decrease) in accounts
payable-trade.............................. (8,012) 184,973 186,238 3,845 255,842
Increase (decrease) in accounts
payable-related party...................... 0 (20,000) (5,000) (5,000) 141,500
Increase (decrease) in accrued expenses...... 75,132 22,482 302,784 257,426 96,002
--------- --------- --------- --------- ---------
Net cash (used) provided by operating
activities................................... 227,116 271,468 290,892 282,494 36,786
INVESTING ACTIVITIES:
Increase in fixed assets..................... (56,588) (538,357) (233,206) (76,632) (18,637)
Sale of other assets......................... 0 37,762 938 938 0
Increase in notes receivable-stockholders.... 0 0 (257,250) 0 (61,125)
Decrease in other liabilities................ 0 (40,000) 0 0 0
--------- --------- --------- --------- ---------
Net cash used in investing activities........ (56,588) (540,595) (489,518) (73,694) (79,762)
FINANCING ACTIVITIES:
Purchase of subsidiary....................... 0 (300,000) 0 0 0
Proceeds of borrowings....................... 33,941 833,989 627,000 0 185,859
Repayment on debt............................ (125,975) (270,208) (538,412) (292,149) (190,887)
--------- --------- --------- --------- ---------
Net cash (used) provided by financing
activities................................. (92,034) 263,781 88,588 (292,149) (5,028)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH................ 78,494 (5,346) (110,038) (85,349) (48,003)
CASH AT BEGINNING OF PERIOD.................... 98,577 177,071 171,725 171,725 61,687
--------- --------- --------- --------- ---------
CASH AT END OF PERIOD.......................... $ 177,071 $ 171,725 61,687 $ 86,376 $ 13,684
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 38
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Business -- American Professional Holding, Inc. (the Company) is a Utah
Corporation formed in February 1984 under the name Technologies Properties, Inc.
In July 1993, the Company purchased all of the outstanding stock of Ampro
Medical Services, Inc. (Ampro) a Texas Corporation which operates under the name
of Northlake Professional Laboratory (Northlake). The acquisition of Ampro was
accounted for as a pooling of interest. In addition, the stockholders voted to
change the name of the Company to American Professional Holding, Inc.
In July 1994, the Company purchased all of the outstanding stock of Gamma
Laboratories, Inc. (Gamma) of Poplar Bluff, Missouri for $300,000 in cash and a
note for $580,000. In addition, the Company issued $200,000 of its common stock.
The acquisition of Gamma was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter company accounts and
transactions have been eliminated in consolidation.
Ampro and Gamma are the only operating entities of the Company.
Nature of Business -- Ampro and Gamma principally test blood and other
specimens and provide x-ray services to various nursing homes, long-term
healthcare providers, clinics, doctors and patients in Texas and Missouri.
Approximately 85% of the Company's revenues are derived from funds provided from
Medicare and Medicaid assistance programs.
Revenue Recognition -- The Company uses the accrual method of accounting
for financial statement purposes in accordance with generally accepted
accounting principles and industry standards. Revenues are recorded in the month
service is provided based on the expected reimbursement prices to be paid by the
third-party providers. Management evaluates receivable amounts and writes down
billed amounts to recoverable amounts on a quarterly basis. Payments under
Medicare and Medicaid are subject to audit and adjustment by the fiscal
intermediary.
Cash -- Cash consists of amounts held in demand deposit accounts at
financial institutions. The Company has no cash equivalents.
Direct Costs -- Direct costs includes all direct labor and related payroll
costs, laboratory supplies, and other direct cost of sales.
Statement of Cash Flows -- The Company has adopted the indirect method of
accounting for its cash flows in accordance with Financial Accounting Standards
Board Statement No. 95.
Fixed Assets -- Fixed assets are carried at cost less accumulated
depreciation. The cost of fixed assets is depreciated over their estimated
useful lives on a straight line method. Lives used in computing depreciation
expense are as follows:
<TABLE>
<S> <C>
Vehicles........................................................ 3 to 5 years
Furniture....................................................... 3 years
Equipment....................................................... 3 to 7 years
Building........................................................ 27.5 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Additions and
betterments are capitalized. Gains or losses on dispositions are included in
current operations.
<PAGE> 39
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes -- The Company uses the cash basis for reporting for income
tax purposes. Deferred taxes are provided for items of income or expense that
are reported in different periods for financial statement purposes and tax
purposes. The Company has adopted FASB Statement No. 109 for financial statement
reporting purposes.
Account Receivable -- The Company extends credit to certain customers as a
policy of conducting business. The Company's principal customers are nursing
homes, home healthcare agencies, MHMR facilities, clinics and physicians in
Texas and Missouri. The Company bills Medicare and other third-party payors on
behalf of the customers. Because of its favorable collection experience in the
past, management does not believe a reserve for doubtful accounts is necessary.
Goodwill -- As a result of the purchase of Gamma, the Company recorded
$1,087,466 of goodwill. Such goodwill is being amortized over a fifteen year
life. Amounts amortized are as follows: December 31, 1995 -- $72,497; December
31, 1994 -- $36,249; June 30, 1996 -- $36,248; and June 30, 1995 -- $36,248.
Reclassifications -- Certain amounts have been reclassified to reflect
current classifications,
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The unaudited consolidated balance sheet as of June 30, 1996 and the
unaudited consolidated statements of income and cash flows for the six months
ended June 30, 1995 and 1996, in the opinion of management, have been prepared
on the same basis as the audited consolidated financial statements and include
all significant adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentations of the results of the interim periods. The
data disclosed in these notes to the financial statement for these periods are
also unaudited. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for an entire year.
3. FEDERAL INCOME TAXES
The provision for taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current provision............... $ 49,000 $127,300 $154,000 $151,300 $ 88,000
Deferred provision.............. 147,800 42,700 (68,000) (8,000) 6,000
------ ------ ------ ------ ------
Total provision................. $196,800 $170,000 $ 86,000 $143,300 $ 94,000
====== ====== ====== ====== ======
</TABLE>
In 1993, 1994 and 1995 the Company paid $0, $171,000 and $91,756 in Federal
income taxes, respectively.
The reconciliation of the Company's effective income tax note to the
federal statutory note of 34% for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Federal income taxes at statutory rate............ 34% 34% 34% 34% 34%
Benefit of graduated tax..........................
Accrual to cash adjustments....................... 10 (3) (2) -- --
Other............................................. -- -- 2 -- 2
-- -- -- -- --
44% 29% 34% 34% 36%
== == == == ==
</TABLE>
<PAGE> 40
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax reflects the tax affect of temporary differences
resulting from the Company being on the cash reporting basis for tax purposes.
All deferred items are current in nature.
4. NOTES PAYABLE
At December 31, 1994 and 1995 and June 30, 1996, notes payable are
comprised as follows.
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Note payable to a bank; payments are $16,100 per
month including interest; interest at 10%;
secured by assets of Ampro and personal
guarantees of three major stockholders; matures
June 1998....................................... $283,368 $ 370,819 $ 296,652
Note payable to an individual; payments are
$10,000 per month for the first year, $12,500
per month to August 1996 and $17,222 until
maturity including interest; interest 10%;
mature January 1998; secured by 1,163 shares of
Gamma stock..................................... 430,167 342,442 280,740
Note payable to a bank for a line of credit;
payments are $6,240 per month including
interest; interest at 10%; matures June 1997;
secured by accounts receivable of Gamma......... 60,000 109,065 129,172
Notes payable to bank; payments are $1,801 per
month including interest; interest at 10%
secured by land and building; matures June
1998............................................ 115,048 105,650 99,145
Note payable to a bank; interest only; interest at
10%; matures June 1998; secured by accounts
receivable of Ampro............................. -- 100,000 200,000
Note payable to a supplier; payments are $3,404
per month including interest at 7%; matures June
1995; unsecured................................. 20,126 -- --
Note payable to three individuals; payments are
$1,466 per month principal only; interest at
10%; matures August 1995; secured by accounts
receivable of
Ampro........................................... 11,690 -- --
Note payable to a related party; payments are
$2,709 per month including interest; interest at
10%; matures April 1995; secured by accounts
receivable of Ampro............................. 10,615 -- --
Notes payable to a bank and finance company;
payments are $3,090 per month including
interest; interest from 8.0% to 10.5%; matures
January 1996 to June 1998; secured by
vehicles........................................ 55,435 41,057 58,305
------ ------- -------
Total Notes payable............................... 986,449 1,069,042 1,064,014
Less: current portion............................. 516,115 394,916 394,916
------ ------- -------
$470,334 $ 674,126 $ 669,098
====== ======= =======
</TABLE>
<PAGE> 41
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, maturities on long-term debt are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 394,916
1997..................................................... 232,914
1997..................................................... 367,292
1999..................................................... 10,000
2000 and thereafter...................................... 63,920
----------
$1,069,042
==========
</TABLE>
Interest paid in 1993, 1994, and 1995 was $7,212, $43,082 and $125,446,
respectively.
5. RELATED PARTY ACTIVITIES
The Company paid $5,527, $2,701, and $5,000 for interest in 1993, 1994, and
1995, respectively, to an entity, related by common ownership. (See Note 4) In
addition, the Company paid $195,211, $265,325, and $240,690 in 1993, 1994, and
1995, respectively, in management fees and non-employee compensation to an
entity, related by common ownership. In 1993, 1994, and 1995 the Company paid
certain expenses on behalf of an entity, related by common ownership. The
related entity owed the Company $43,775, $205,210, and $369,437 at December 31,
1993, 1994, and 1995, respectively.
6. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Notes payable and long-term debt.................... $1,069,042 $1,006,970
</TABLE>
The carrying amounts reported in the balance sheet for cash, accounts
receivable, lease deposits, accounts payable and borrowings under revolving
lines of credit approximate their fair value. The fair value of the Company's
long-term borrowings is estimated by discounting future cash flows at current
rates offered to the Company for debt of comparable types and maturities.
Because no market exists for these financial instruments, considerable judgment
is necessary in interpreting the data to develop estimates of fair value. The
use of different market assumptions may have a material effect on the estimated
fair value amounts.
7. COMMITMENTS
The Company leases certain equipment and automobiles as part of its
operations. All such leases are considered operating leases. Future minimum
lease payments at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1995...................................................... $156,304
1996...................................................... 106,230
1997...................................................... 63,206
1998...................................................... 1,955
</TABLE>
<PAGE> 42
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PRO-FORMA DATA (UNAUDITED)
The following unaudited pro-forma data summarizes the combined results of
operations of the Company and Gamma as though the merger had occurred at the
beginning of 1993:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Revenues.................................................... $5,750,208 $5,882,564
Net income.................................................. 253,606 367,486
Net income per share........................................ $.02 $.03
</TABLE>
9. SUBSEQUENT EVENT
On March 26, 1996, the Company signed a letter of intent to be acquired by
Unison HealthCare Corporation of Scottsdale, Arizona. The agreement calls for a
stock for stock pooling-of-interests for approximately $8,000,000. Numerous
conditions, appropriate due diligence and various approvals must be completed
before the transaction can be completed.
<PAGE> 43
REPORT OF INDEPENDENT AUDITOR
The Board of Directors
Memphis Clinical Laboratory, Inc.
We have audited the accompanying balance sheets of Memphis Clinical
Laboratory, Inc. as of December 31, 1994 and 1995 and the related statements of
income and cash flows for each of the three years in the period ended December
31, 1995. 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 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 our audits provide 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 Memphis Clinical Laboratory,
Inc. at December 31, 1994 and 1995 and the results of it's operations and cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Ronald H. Ridgers, P.C.
Richardson, Texas
February 10, 1996
<PAGE> 44
MEMPHIS CLINICAL LABORATORY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................. $ 16,807 $ 10,015 $ 15,994
Accounts receivable trade............................. 63,843 52,933 100,933
Other current assets.................................. 899 899 13,921
--------- --------- -----------
Total current assets.......................... 81,549 63,847 130,848
PROPERTY AND EQUIPMENT:
Automobiles........................................... 102,571 5,622 58,622
Equipment............................................. 367,906 349,553 360,921
Leasehold improvements................................ 24,540 27,146 27,146
--------- --------- -----------
495,017 435,321 446,689
Less accumulated depreciation........................... 281,119 270,284 286,903
--------- --------- -----------
Total property and equipment.................. 213,898 165,037 159,786
--------- --------- -----------
$ 295,447 $ 228,884 $ 290,634
======== ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable trade................................ $ 4,500 $ 4,500 $ 0
Accounts payable officer.............................. 44,048 35,786 17,063
Accrued expenses...................................... 34,132 15,096 36,426
Current portion long-term debt........................ 12,408 10,000 10,000
Deferred taxes........................................ 23,000 20,000 25,000
--------- --------- -----------
Total current liabilities..................... 118,088 85,382 88,489
Long-term debt.......................................... 34,904 24,886 21,921
--------- --------- -----------
Total liabilities............................. 152,992 110,268 110,410
STOCKHOLDERS' EQUITY:
Common stock; no par; 1,000 shares authorized and
outstanding........................................ 1,000 1,000 1,000
Retained earnings..................................... 141,455 117,616 179,224
--------- --------- -----------
Total stockholders' equity.................... 142,455 118,616 180,224
--------- --------- -----------
$ 295,447 $ 228,884 $ 290,634
======== ======== ===========
</TABLE>
See notes to financial statements.
<PAGE> 45
MEMPHIS CLINICAL LABORATORY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES................................ $863,768 $827,489 $780,952 $418,989 $474,097
DIRECT COSTS:
Direct labor and related taxes........ 307,770 262,072 244,208 116,440 140,448
Supplies.............................. 171,080 176,563 98,560 56,464 56,025
Other direct costs.................... 105,174 106,034 80,577 37,780 41,378
-------- -------- -------- -------- --------
Total direct costs............ 584,024 544,669 423,345 210,684 237,851
-------- -------- -------- -------- --------
GROSS PROFIT............................ 279,744 282,820 357,607 208,305 236,246
INDIRECT EXPENSES:
Wages and related taxes............... 53,766 63,965 76,681 28,671 32,702
Depreciation.......................... 68,968 87,463 68,374 23,484 16,619
Rent.................................. 30,000 30,000 28,542 15,000 13,500
Repairs and maintenance............... 29,894 36,447 36,462 14,471 12,978
Supplies.............................. 15,244 17,265 13,380 7,678 11,760
Taxes................................. 11,751 6,844 5,430 7,201 3,918
Insurance............................. 16,381 16,725 22,190 13,695 5,096
Legal and accounting.................. 3,003 2,788 18,192 7,974 7,496
Management fees....................... 0 0 54,000 0 0
Auto.................................. 16,326 15,467 19,947 6,139 9,279
Utilities............................. 15,554 16,050 17,745 8,249 8,604
Other indirect costs.................. 17,636 6,806 25,600 25,483 28,876
-------- -------- -------- -------- --------
Total indirect costs.......... 278,523 299,820 386,543 158,045 150,828
Operating Income (loss)................. 1,221 (17,000) (28,936) 50,260 85,418
Other income............................ 1,423 21,024 891 140 190
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES.............. 2,644 4,024 (28,045) 50,400 85,608
PROVISION (BENEFIT) FOR TAXES........... 345 603 (4,206) 14,110 24,000
-------- -------- -------- -------- --------
NET INCOME (LOSS)....................... $ 2,299 $ 3,421 $(23,839) $ 36,290 $ 61,608
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE...... $ 2.30 $ 3.42 $ (23.84) $ 36.29 $ 61.61
======== ======== ======== ======== ========
SHARES USED IN CALCULATION.............. 1,000 1,000 1,000 1,000 1,000
======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE> 46
MEMPHIS CLINICAL LABORATORY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................... $ 2,299 $ 3,421 $(23,839) $ 36,290 $ 61,608
Adjustments to reconcile net income (loss)
to net cash (used) provided by operating
activities:
Depreciation.............................. 68,968 87,463 68,374 41,042 16,619
Change in deferred taxes.................. 0 0 (3,000) (3,000) 5,000
Changes in operating accounts:
(Increase) decrease in accounts
receivable............................. (12,046) (51,797) 10,910 7,983 (48,000)
(Increase) decrease in note receivable.... (25,000) 25,000 0 0 0
(Increase) decrease in other assets....... 4,400 8,163 0 0 (13,022)
Increase (decrease) in accounts payable... (39,008) (12,748) 0 (4,500) (4,500)
Increase (decrease) in accounts payable --
officer................................ 0 44,048 (8,262) (2,625) (18,723)
Increase (decrease) in accrued expenses... 38,108 (3,976) (19,036) (31,860) 21,330
Increase (decrease) in taxes payable...... 10,342 (21,758) 0 0 0
-------- -------- -------- -------- --------
Net cash provided by operating activities... 48,063 77,816 25,147 43,330 20,312
INVESTING ACTIVITIES:
Increase in fixed assets.................. 70,591 85,795 19,513 4,261 11,368
-------- -------- -------- -------- --------
Net cash (used) by investing activities..... (70,591) (85,793) (19,513) (4,261) (11,368)
FINANCING ACTIVITIES:
Proceeds of borrowings.................... 31,028 55,475 0 0 0
Repayment on debt......................... (8,500) (30,691) (12,426) (5,048) (2,965)
-------- -------- -------- -------- --------
Net cash (used) provided by investing
activities............................. 22,528 24,784 (12,426) (5,048) (2,965)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH............. 0 16,807 (6,792) 34,021 5,979
-------- -------- -------- -------- --------
CASH AT BEGINNING OF PERIOD................. 0 0 16,807 16,807 10,015
-------- -------- -------- -------- --------
CASH AT END OF PERIOD....................... $ 0 $ 16,807 $ 10,015 $ 50,828 $ 15,994
======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE> 47
MEMPHIS CLINICAL LABORATORY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- Memphis Clinical Laboratory, Inc. (the Company) is
a Tennessee corporation formed in May, 1986. The Company principally test blood
and other specimens and bills the cost to Medicare and other third-party
providers.
The Company uses the accrual method of accounting for financial statement
purposes in accordance with generally accepted accounting principles and
industry standards.
Direct Costs -- Direct costs includes all direct labor, materials,
laboratory supplies and other direct costs of sales.
Statement of Cash Flows -- The Company has adopted the indirect method of
accounting for its cash flows in accordance with Financial Accounting Standards
Board Statement No. 95. The Company has no cash equivalents.
Fixed Assets -- Fixed assets are carried at cost less accumulated
depreciation. The cost of fixed assets is depreciated over their estimated
useful lives on a straight line method. Lives used in computing depreciation
expense are as follows:
<TABLE>
<S> <C>
Equipment........................................................... 5 years
Vehicles............................................................ 5 years
Leasehold improvements.............................................. 5 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Additions and
betterments are capitalized. Gains or losses on dispositions are included in
current operations.
Income Taxes -- The Company uses the cash basis of accounting for income
tax purposes. In addition, it uses accelerated methods of depreciation in
accordance with federal income tax rules. Deferred taxes have been provided for
these timing differences between book and tax accounting methods. The Company
has adopted FASB Statement No. 109 for financial statement reporting purposes.
Account Receivable -- The Company extends credit to various customers as a
policy of conducting business. The Company's principal customers are nursing
homes, home healthcare agencies, clinics and physicians in the Memphis,
Tennessee area. Because of favorable collection experience in the past,
management does not believe an allowance for doubtful accounts is necessary.
Reclassifications -- Certain amounts have been reclassified to reflect
current classifications.
2. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited balance sheet as of June 30, 1996 and the unaudited
statements of income and cash flows for the six months ended June 30, 1995 and
1996, in the opinion of management, have been prepared on the same basis as the
audited financial statements and include all significant adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentations of
the results of the interim periods. The data disclosed in these notes to the
financial statement for these periods are also unaudited. Operating results for
the interim periods are not necessary indicative of the results that may be
expected for an entire Year.
<PAGE> 48
MEMPHIS CLINICAL LABORATORY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES PAYABLE
At December 31, 1994, 1995 and June 30, 1996, notes payable are comprised
as follows:
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Note payable to officer; payments are $1,099 per month
including interest; interest is at 7%; matures January 1999;
secured by
equipment................................................... $47,312 $34,886 $ 31,891
Less current portion.......................................... 12,408 10,000 10,000
------- ------- -------
$34,904 $24,886 $ 21,891
======= ======= =======
</TABLE>
Interest paid in 1993, 1994 and 1995, was $0, $5,172 and $3,088, respectively.
4. RELATED PARTY ACTIVITIES
In accordance with an agreement, the Company pays it's President for rent
of its laboratory facilities. This agreement expires in 2004. The Company paid
$30,000, $30,000 and $28,500 in 1993, 1994 and 1995, respectively.
At December 31, 1993, 1994 and 1995, the Company owes the President for
various advances. These amounts are carried as accounts payable officer in the
accompanying financial statements. In addition, see Note 3.
5. FEDERAL INCOME TAXES
The provision (benefit) for taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -----------------
1993 1994 1995 1995 1996
---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current provision (benefit)........................... $345 $603 $(1,206) $17,110 $19,000
Deferred provision (benefit).......................... -- -- (3,000) (3,000) 5,000
---- ---- ------- ------- -------
Total provision (benefit)............................. $345 $603 $(4,206) $14,110 $24,000
==== ==== ======= ======= =======
</TABLE>
The reconciliation of the Company's effective income tax note to the
federal statutory note of 34% for the years ended December 31, 1993, 1994 and
1995 and the three months ended June 30, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Federal income taxes at statutory rate.................... 34 % 34 % 34 % 34% 34%
Benefit of graduated tax.................................. (21) -- -- (5) (7)
Cash to accrual adjustments............................... -- (19) -- (1) (1)
NOL Benefit............................................... -- -- (49) -- --
--- --- --- -- --
13 % 15 % (15 )% 28% 28%
=== === === == ==
</TABLE>
Deferred income tax reflects the tax affect of temporary differences
resulting from the Company being on the cash reporting basis for tax purposes.
The Company paid no federal income taxes in 1993, 1994 and 1995.
<PAGE> 49
MEMPHIS CLINICAL LABORATORY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -------
<S> <C> <C>
Notes payable and long-term debt......................... $ 34,886 $32,100
</TABLE>
The carrying amounts reported in the balance sheet for cash, accounts
receivable, lease deposits, accounts payable and borrowings under revolving
lines of credit approximate their fair value. The fair value of the Company's
long-term borrowings is estimated by discounting future cash flows at current
rates offered to the Company for debt of comparable types and maturities.
Because no market exists for these financial instruments, considerable judgment
is necessary in interpreting the data to develop estimates of fair value. The
use of different market assumptions may have a material effect on the estimated
fair value amounts.
7. COMMITMENTS
Future minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
1996....................................................... $27,000
1997....................................................... 27,000
1998....................................................... 25,650
1999....................................................... 24,300
2000 and thereafter........................................ 76,950
</TABLE>
In 1995, the Company has entered into a three year management agreement
with its President. Such agreement, among other things, provides for a salary of
$60,000 annually, for the President for the term of the agreement which expires
in 1997.
<PAGE> 50
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On October 31, 1996, Unison HealthCare Corporation ("Unison") acquired:
(i) Signature Health Care Corporation, four affiliated entities (Arkansas,
Inc., Cornerstone, Inc., Douglas Manor, Inc. and Safford Care, Inc.) and
RehabWest, Inc. (the "Signature Acquisition"); and (ii) American Professional
Holding, Inc. and Memphis Clinical Laboratory, Inc. (the "Ampro Acquisition").
Further, Unison is holding seven facilities for disposition (the
"Dispositions"), has completed other acquisitions since January 1, 1995 (the
"Completed Acquisitions") and has placed (the "Offering") $100.0 million of
senior notes (the "Senior Notes") in connection with the Signature Acquisition.
The following Unaudited Pro Forma Condensed Combined Financial
Statements are presented assuming that the Signature Acquisition will be
accounted for as a purchase and the Ampro Acquisition will be accounted for as
a pooling of interests. Accordingly, the Unaudited Pro Forma Condensed Combined
Financial Statements include the combined operations of Unison and Ampro for
all periods presented. The Unaudited Pro Forma Condensed Combined Statements of
Operations for the six months ended June 30, 1995 and 1996 and the year ended
December 31, 1995 have been prepared as if the Signature Acquisition, the Ampro
Acquisition, the Completed Acquisitions (if consummated later) and the
Dispositions had been consummated as of the beginning of the period presented.
The Unaudited Pro Forma Condensed Combined Balance Sheet has been prepared as if
all of the aforementioned business combinations, the Completed Acquisitions (if
consummated later) and the Dispositions had been consummated as of June 30,
1996.
The Unaudited Pro Forma Condensed Combined Statements of Operations
also include the results of operations of BritWill HealthCare Company
("BritWill") and Sunbelt Therapy Management Services, Inc. ("Sunbelt") for the
periods from January 1, 1995 through the respective dates of acquisition.
BritWill was acquired on August 10, 1995 in a business combination accounted
for as a purchase. Sunbelt was acquired effective February 1, 1996 in a
business combination accounted for as a purchase.
The pro forma information is based on the historical statements of
operations of the acquired businesses giving effect to the placement of the
Senior Notes and the other assumptions and adjustments described in the
accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the results of operations of Unison had the business
combinations taken place on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future.
<PAGE> 51
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
PRO FORMA FOR PRO FORMA
UNISON SIGNATURE(A) AMPRO(B) ADJUSTMENTS PRO FORMA OFFERING(E) AS ADJUSTED
------- ------------ -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 847 $ 116 $ 30 $ -- $ 993 $ 24,906 $ 25,899
Accounts and notes receivable,
net............................. 22,152 8,223 2,149 -- 32,524 -- 32,524
Other current assets.............. 2,413 1,025 399 -- 3,837 -- 3,837
------- ------- ----- ------ -------- -------- --------
Total current assets............ 25,412 9,364 2,578 -- 37,354 24,906 62,260
Lease operating rights and other
assets, net....................... 42,588 44,936 319 -- 87,843 4,500
1,750 94,093
Goodwill, net....................... 11,195 22,603 943 -- 34,741 -- 34,741
Property and equipment, net......... 5,548 19,221 657 -- 25,426 -- 25,426
------- ------- ----- ------ -------- -------- --------
Total assets.................... $84,743 $ 96,124 $4,497 $ -- $185,364 $ 31,156 $ 216,520
======= ======= ===== ====== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt............................ $ 3,576 $ 812 $ 895 $ -- $ 5,283 $ (895) $ 4,388
Other current liabilities......... 16,988 3,654 1,664 2,000(c)
127(d) 24,433 -- 24,433
------- ------- ----- ------ -------- -------- --------
Total current liabilities....... 20,564 4,466 2,559 2,127 29,716 (895) 28,821
Long-term debt...................... 27,535 62,238 691 -- 90,464 100,000
(67,949) 122,515
Deferred taxes...................... 9,030 6,921 -- (800)(c) 15,151 -- 15,151
Other long-term liabilities......... 4,728 2,499 -- -- 7,227 -- 7,227
------- ------- ----- ------ -------- -------- --------
Total liabilities............... 61,857 76,124 3,250 1,327 142,558 31,156 173,714
------- ------- ----- ------ -------- -------- --------
Stockholders' equity:
Common stock...................... 3 1 1 -- 5 -- 5
Additional paid-in capital........ 21,804 19,999 99 -- 41,902 -- 41,902
Retained earnings................. 1,079 -- 1,147 (1,200)(c)
(127)(d) 899 -- 899
------- ------- ----- ------ -------- -------- --------
Total stockholders' equity...... 22,886 20,000 1,247 (1,327) 42,806 -- 42,806
------- ------- ----- ------ -------- -------- --------
Total liabilities and
stockholders' equity.......... $84,743 $ 96,124 $4,497 $ -- $185,364 $ 31,156 $ 216,520
======= ======= ===== ====== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Balance Sheet
<PAGE> 52
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(a) Represents the combined balance sheet of Signature at June 30, 1996
after application of the purchase method of accounting. The expected total
purchase price is approximately $63,550,000, comprised of cash amounting to
approximately $43,050,000 (including $5,350,000 for RehabWest), a promissory
note in the amount of $500,000 and Unison Common Stock with a market value of
approximately $20,000,000. The table below illustrates the historical balance
sheet of all entities acquired in the Signature Acquisition other than RehabWest
(the "Signature Affiliates") and of RehabWest together with the purchase
accounting adjustments associated with the Signature Acquisition.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-------------------------------------------------
PURCHASE
SIGNATURE ACCOUNTING
AFFILIATES REHABWEST ADJUSTMENTS SIGNATURE
---------- --------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ -- $ 116 $ -- $ 116
Accounts and notes receivable, net....................... 7,761 462 -- 8,223
Other current assets..................................... 1,009 16 -- 1,025
---------- --------- ----------- ----------
Total current assets............................... 8,770 594 -- 9,364
Lease operating rights and other assets, net............... 1,692 -- 43,244 44,936
Goodwill, net.............................................. 1,721 -- 20,882 22,603
Property and equipment, net................................ 17,213 8 2,000 19,221
---------- --------- ----------- ----------
Total assets....................................... $ 29,396 $ 602 $66,126 $ 96,124
========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................ $ 312 $ -- $ 500 $ 812
Other current liabilities................................ 3,223 431 -- 3,654
---------- --------- ----------- ----------
Total current liabilities.......................... 3,535 431 500 4,466
Long-term debt............................................. 19,188 -- 43,050 62,238
Deferred taxes............................................. 2,921 -- 4,000 6,921
Other long-term liabilities................................ 2,499 -- -- 2,499
---------- --------- ----------- ----------
Total liabilities.................................. 28,143 431 47,550 76,124
Stockholders' equity:
Common stock............................................. 7 -- (6) 1
Additional paid-in capital............................... 62 -- 19,937 19,999
Retained earnings........................................ 1,184 171 (1,355) --
---------- --------- ----------- ----------
Total stockholders' equity......................... 1,253 171 18,576 20,000
---------- --------- ----------- ----------
Total liabilities and stockholders' equity......... $ 29,396 $ 602 $66,126 $ 96,124
========== ========== =========== ==========
</TABLE>
<PAGE> 53
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET -- (CONTINUED)
(b) Represents the combined balance sheets of Ampro after application of the
pooling-of-interests method of accounting. The table below illustrates the
historical balance sheets of American Professional Holding, Inc. ("APH") and
Memphis Clinical Laboratories, Inc. ("Memphis") and the related pooling of
interests method of accounting adjustments.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
---------------------------------------
APH MEMPHIS ADJUSTMENTS AMPRO
------ ------- ----------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 14 $ 16 $ -- $ 30
Accounts and notes receivable, net................................... 2,048 101 -- 2,149
Other current assets................................................. 385 14 -- 399
------ ---- ----- ------
Total current assets........................................... 2,447 131 -- 2,578
Lease operating rights and other assets, net........................... 319 -- -- 319
Goodwill, net.......................................................... 943 -- -- 943
Property and equipment, net............................................ 497 160 -- 657
------ ---- ----- ------
Total assets................................................... $4,206 $ 291 $ -- $4,497
====== ==== ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 395 $ 10 $ 490 $ 895
Other current liabilities............................................ 1,585 79 -- 1,664
------ ---- ----- ------
Total current liabilities...................................... 1,980 89 490 2,559
Long-term debt......................................................... 669 22 -- 691
------ ---- ----- ------
Total liabilities.............................................. 2,649 111 490 3,250
Stockholders' equity:
Common stock......................................................... 10 1 (10) 1
Additional paid-in capital........................................... 400 -- (301) 99
Retained earnings.................................................... 1,147 179 (179) 1,147
------ ---- ----- ------
Total stockholders' equity..................................... 1,557 180 (490) 1,247
------ ---- ----- ------
Total liabilities and stockholders' equity..................... $4,206 $ 291 $ -- $4,497
====== ==== ===== ======
</TABLE>
(c) In September 1996, Unison announced a plan to dispose of seven nursing
facilities, two of which were not in operation. The $2,000,000 provision for
disposition represents estimated direct incremental costs to sublease the
facilities. This charge will result in a reduction of the Company's deferred tax
liability of $800,000.
(d) In connection with the Ampro Acquisition, Unison will pay a financial
advisory fee to Trouver Capital Partners, L.P. in the amount of approximately
$127,000.
(e) To record the issuance of the Senior Notes in the principal amount of
$100,000,000 as if the issuance had occurred at June 30, 1996. The following
table illustrates the pro forma application of proceeds of the Senior Notes as
if such application had occurred at June 30, 1996 (dollars in thousands).
<TABLE>
<S> <C>
Signature Acquisition payment.................................................................... $ 43,050
Ampro Acquisition payment........................................................................ 490
Repayment of long-term debt...................................................................... 24,899
Repayment of current portion of long-term debt................................................... 405
Payment of BritWill contingent obligation........................................................ 1,750
General corporate purposes....................................................................... 24,906
Estimated fees and expenses...................................................................... 4,500
--------
$100,000
========
</TABLE>
<PAGE> 54
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
OTHER PRO FORMA FOR THE PRO FORMA
UNISON SIGNATURE(A) AMPRO(B) ACQUISITIONS(C) ADJUSTMENTS PRO FORMA OFFERING AS ADJUSTED
------- ------------ -------- --------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient..... $57,743 $ 36,150 $ -- $58,568 $ (14,495)(d) $137,966 $ -- $ 137,966
Other........... 3,542 281 7,203 549 (131)(d)
(499)(e) 10,945 1,245(l) 12,190
------- ------- ------ ------- -------- -------- ------- --------
Total
revenues... 61,285 36,431 7,203 59,117 (15,125) 148,911 1,245 150,156
Expenses:
Wages and
related....... 31,811 24,777 3,234 37,707 (6,933)(d) 90,596 -- 90,596
Other
operating..... 20,777 1,262 3,256 13,780 (5,250)(d)
(499)(e)
(875)(f) 32,451 -- 32,451
Rent............ 6,565 1,245 108 5,587 (1,779)(d)
1,076(e)
(110)(g) 12,692 -- 12,692
Interest........ 1,058 7,299 118 1,486 (240)(d)
(675)(e)
568(h) 9,614 4,446(m) 14,060
Depreciation and
amortization.. 1,050 3,030 262 1,026 (266)(d)
(366)(e)
773(i) 5,509 450(n) 5,959
Provision for
loss on
dispositions... -- -- -- -- 2,000(j) 2,000 -- 2,000
------- ------- ------ ------- -------- -------- ------- --------
Total
expenses... 61,261 37,613 6,978 59,586 (12,576) 152,862 4,896 157,758
------- ------- ------ ------- -------- -------- ------- --------
Income (loss)
before income
taxes and
extraordinary
charges......... 24 (1,182) 225 (469) (2,549) (3,951 ) (3,651) (7,602)
Income tax expense
(benefit)....... 50 (799) 82 30 (943)(k) (1,580 ) (1,461)(k) (3,041)
------- ------- ------ ------- -------- -------- ------- --------
Income (loss)
before
extraordinary
charges......... $ (26) $ (383) $ 143 $ (499) $ (1,606) $ (2,371 ) $(2,190) $ (4,561)
======= ======= ====== ======= ======== ======== ======= ========
OTHER DATA:
EBITDA(o)...................................................................................................... $ 14,417
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Statements of Operations
<PAGE> 55
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUST-
MENTS PRO FORMA
OTHER PRO FORMA FOR THE AS
UNISON SIGNATURE(A) AMPRO(B) ACQUISITIONS(C) ADJUSTMENTS PRO FORMA OFFERING ADJUSTED
------- ------------ -------- --------------- ----------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient.......... $12,415 $ 13,345 $ -- $40,314 $(7,232)(d) $58,842 $ -- $58,842
Other................ 1,028 60 3,644 291 (56)(d)
(249)(e) 4,718 623(l) 5,341
------- ------ ----- ----- ------ ----- -------
Total revenues..... 13,443 13,405 3,644 40,605 (7,537) 63,560 623 64,183
Expenses:
Wages and related.... 7,486 9,117 1,418 24,977 (3,225)(d) 39,773 -- 39,773
Other operating...... 4,587 561 1,545 9,724 (2,716)(d)
(249)(e)
(750)(f) 12,702 -- 12,702
Rent................. 1,151 235 55 4,523 (950)(d)
538(e)
(94)(g) 5,458 -- 5,458
Interest............. 183 3,615 19 892 (98)(d)
(338)(e)
387(h) 4,660 2,223(m) 6,883
Depreciation and
amortization....... 88 1,569 135 627 (134)(d)
(183)(e)
632(i) 2,734 225(n) 2,959
Provision for loss on
dispositions....... -- -- -- -- 2,000(j) 2,000 -- 2,000
------- ------ ----- ----- ------ ----- -------
Total expenses... 13,495 15,097 3,172 40,743 (5,180) 67,327 2,448 69,775
------- ------ ----- ----- ------ ----- -------
Income (loss) before
income taxes and
extraordinary
charges............ (52) (1,692) 472 (138) (2,357) (3,767) (1,825) (5,592)
Income tax expense
(benefit).......... 1 (691) 157 26 (1,000)(k) (1,507) (730)(k) (2,237)
------- ------ ----- ----- ------ ----- -------
Income (loss) before
extraordinary
charges............ $ (53) $ (1,001) $ 315 $ (164) $(1,357) $(2,260) $ (1,095) $(3,355)
======= ====== ===== ===== ====== ===== =======
OTHER DATA:
EBITDA(o)..................................................................................................... $ 6,250
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Statements of Operations
<PAGE> 56
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUST-
MENTS PRO FORMA
OTHER PRO FORMA FOR THE AS
UNISON SIGNATURE(A) AMPRO(B) ACQUISITIONS(C) ADJUSTMENTS PRO FORMA OFFERING ADJUSTED
------- ------------ -------- --------------- ----------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient.......... $63,442 $ 24,321 $ -- $ 5,140 $(6,597)(d) $86,306 $ -- $86,306
Other................ 1,555 268 3,562 569 (300)(d)
(249)(e) 5,405 623(l) 6,028
------- ------- ------ ------- ------- ------- ------- -------
Total revenues..... 64,997 24,589 3,562 5,709 (7,146) 91,711 623 92,334
Expenses:
Wages and related.... 32,447 15,927 1,514 3,336 (3,669)(d) 49,555 -- 49,555
Other operating...... 21,172 472 1,493 2,230 (2,478)(d)
(249)(e) 22,640 -- 22,640
Rent................. 6,653 1,050 51 21 (892)(d)
538(e) 7,421 -- 7,421
Interest............. 1,452 3,669 56 249 (163)(d)
(247)(e)
23(h) 5,039 2,223(m) 7,262
Depreciation and
amortization....... 1,054 1,583 98 121 (190)(d)
(113)(e)
7(i) 2,560 225(n) 2,785
Provision for loss on
dispositions....... -- -- -- -- 2,000(j) 2,000 -- 2,000
------- ------- ------ ------- ------- ------- ------- -------
Total expenses..... 62,778 22,701 3,212 5,957 (5,433) 89,215 2,448 91,663
------- ------- ------ ------- ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary
charges.............. 2,219 1,888 350 (248) (1,713) 2,496 (1,825) 671
Income tax expense
(benefit)............ 932 (11) 118 -- (41)(k) 998 (730)(k) 268
------- ------- ------ ------- ------- ------- ------- -------
Income (loss) before
extraordinary
charges.............. $ 1,287 $ 1,899 $ 232 $ (248) $(1,672) $ 1,498 $ (1,095) $ 403
======= ======= ====== ======= ======= ======= ======= =======
OTHER DATA:
EBITDA(o)..................................................................................................... $12,718
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Statements of Operations
<PAGE> 57
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(a) Represents the combined operating results for Signature for the year
ended December 31, 1995 and the six months ended June 30, 1995 and June 30, 1996
after application of the purchase methods of accounting. The table below
illustrates the historical operating results of the Signature Affiliates and
RehabWest and the purchase accounting adjustments associated with the Signature
Acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------
PURCHASE
SIGNATURE ACCOUNTING
AFFILIATES REHABWEST ADJUSTMENTS SIGNATURE
---------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Net patient......................................... $ 32,769 $ 3,381 $ -- $36,150
Other............................................... 281 -- -- 281
------- ------ ------- -------
Total revenues................................ 33,050 3,381 -- 36,431
Expenses:
Wages and related................................... 22,006 2,771 -- 24,777
Other operating..................................... 5,761 469 (4,968) 1,262
Rent................................................ 1,235 10 1,245
Interest............................................ 1,967 8 5,324 7,299
Depreciation and amortization....................... 1,550 6 100
1,374 3,030
------- ------ ------- -------
Total expenses................................ 32,519 3,264 1,830 37,613
------- ------ ------- -------
Income (loss) before income taxes..................... 531 117 (1,830) (1,182)
Income tax expense (benefit).......................... (67) -- (732) (799)
------- ------ ------- -------
Income (loss)......................................... $ 598 $ 117 $(1,098) $ (383)
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
--------------------------------------------------------
PURCHASE
SIGNATURE ACCOUNTING
AFFILIATES REHABWEST ADJUSTMENTS SIGNATURE
---------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Net patient......................................... $ 11,880 $ 1,465 $ -- $13,345
Other............................................... 60 -- -- 60
------- ------ ------- -------
Total revenues................................ 11,940 1,465 -- 13,405
Expenses:
Wages and related................................... 7,931 1,186 -- 9,117
Other operating..................................... 2,129 206 (1,774) 561
Rent................................................ 230 5 235
Interest............................................ 947 6 2,662 3,615
Depreciation and amortization....................... 827 5 50
687 1,569
------- ------ ------- -------
Total expenses................................ 12,064 1,408 1,625 15,097
------- ------ ------- -------
Income (loss) before income taxes..................... (124) 57 (1,625) (1,692)
Income tax expense (benefit).......................... (41) -- (650) (691)
------- ------ ------- -------
Income (loss)......................................... $ (83) $ 57 $ (975) $(1,001)
======= ====== ======= =======
</TABLE>
<PAGE> 58
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------
PURCHASE
SIGNATURE ACCOUNTING
AFFILIATES REHABWEST ADJUSTMENTS SIGNATURE
---------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Net patient......................................... $ 21,984 $ 2,337 $ -- $24,321
Other............................................... 268 -- -- 268
------- ------ ------- -------
Total revenues................................ 22,252 2,337 -- 24,589
Expenses:
Wages and related................................... 14,263 1,664 -- 15,927
Other operating..................................... 4,684 118 (4,330) 472
Rent................................................ 1,044 6 -- 1,050
Interest............................................ 1,006 1 2,662 3,669
Depreciation and amortization....................... 845 1 50
687 1,583
------- ------ ------- -------
Total expenses................................ 21,842 1,790 (931) 22,701
------- ------ ------- -------
Income before taxes................................... 410 547 931 1,888
Income tax expense.................................... (383) -- 372 (11)
------- ------ ------- -------
Net income (loss)..................................... $ 793 $ 547 $ 559 $ 1,899
======= ====== ======= =======
</TABLE>
(b) Represents the combined operating results for Ampro. The table below
illustrates the historical operating results of APH and Memphis.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------
YEAR ENDED
DECEMBER 31, 1995 1995 1996
------------------------- ------------------------- -------------------------
APH MEMPHIS AMPRO APH MEMPHIS AMPRO APH MEMPHIS AMPRO
------ ------- ------ ------ ------- ------ ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient.......................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Other................................ 6,421 782 7,203 3,225 419 3,644 3,088 474 3,562
------ ---- ------ ------ ---- ------ ------ ---- ------
Total revenues................. 6,421 782 7,203 3,225 419 3,644 3,088 474 3,562
Expenses:
Wages and related.................... 2,913 321 3,234 1,273 145 1,418 1,341 173 1,514
Other operating...................... 2,864 392 3,256 1,359 186 1,545 1,309 184 1,493
Rent................................. 79 29 108 40 15 55 37 14 51
Interest............................. 118 -- 118 19 -- 19 56 -- 56
Depreciation and amorization......... 194 68 262 112 23 135 81 17 98
------ ---- ------ ------ ---- ------ ------ ---- ------
Total expenses................. 6,168 810 6,978 2,803 369 3,172 2,824 388 3,212
------ ---- ------ ------ ---- ------ ------ ---- ------
Income before income taxes............. 253 (28) 225 422 50 472 264 86 350
Income tax expense..................... 86 (4) 82 143 14 157 94 24 118
------ ---- ------ ------ ---- ------ ------ ---- ------
Net income............................. $ 167 $ (24) $ 143 $ 279 $ 36 $ 315 $ 170 $ 62 $ 232
====== ==== ====== ====== ==== ====== ====== ==== ======
</TABLE>
<PAGE> 59
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(c) Other Acquisitions: The following table summarizes the operating results
for BritWill and for the following leases entered into from January 1, 1995
through the later of the date of lease inception or the period of the statement
of operations.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
ACQUISITION --------------------- ---------------------
ACQUISITION DATE REVENUES EXPENSES REVENUES EXPENSES
--------------------------------------- ----------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BritWill............................... Aug. 1995 $38,854 $38,841 $ -- $ --
Nightingale............................ Oct. 1995 4,438 4,506 -- --
The Oaks of Boise...................... July 1995 815 911 -- --
Sunbelt Therapy........................ Feb. 1996 5,942 5,725 544 568
Franciscan Enumclaw.................... Aug. 1996 3,860 4,313 2,060 2,294
Franciscan Walla Walla................. Aug. 1996 1,371 1,507 969 999
Other acquisitions..................... July 1996 3,837 3,813 2,136 2,096
------ ------ ------- -------
$59,117 $59,616 $5,709 $5,957
====== ====== ======= =======
</TABLE>
(d) In September 1996, Unison announced a plan to dispose of seven nursing
facilities, two of which were not in operation. To record the disposition of
these facilities as if the dispositions had occurred at the beginning of the
period presented.
(e) Operating lease pro forma adjustments represent adjustments to the
pre-lease operating results of the facilities identified in note (c). The
historical results have been adjusted to include the lease expense incurred by
Unison, elimination of management fee income to Unison and elimination of the
lessor's depreciation, interest expense and management fees.
(f) In connection with the acquisition of BritWill, other operating expenses
have been reduced to give effect to the following estimated annual cost savings
to be realized (in thousands):
<TABLE>
<S> <C>
Elimination of duplicate corporate compensation and benefits.................. $ 710
Reduction of insurance costs.................................................. 300
Reduction of corporate office rent and operating costs........................ 468
Other......................................................................... 22
-------
---
$1,500
==========
</TABLE>
(g) To record amortization of a lease liability incurred in connection with
the acquisition of BritWill. The lease liability represents the excess of the
value of BritWill's lease obligations over market lease rates, based on
independent appraisals.
(h) To record interest on debt incurred to acquire BritWill and Sunbelt.
(i) To record amortization of goodwill, lease operating rights and other
intangible assets related to the acquisitions of BritWill and Sunbelt.
(j) In September 1996, Unison announced a plan to dispose of seven nursing
facilities, two of which were not in operation. To record the provision for loss
on disposition of $2,000,000.
(k) To record the tax provision related to the pro forma adjustments and
adjustments for the offering at an assumed rate of 40%.
(l) To record interest income on excess proceeds from the sale of the Senior
Notes at an assumed rate of 5%.
<PAGE> 60
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(m) To record interest expense on the $100,000,000 principal amount of
Senior Notes at a rate of 12 1/4%, net of repayments and reductions.
(n) To record amortization expense related to debt issue costs incurred in
connection with the Offering.
(o) EBITDA is defined as net income (loss) before (i) income taxes, (ii)
depreciation and amortization, (iii) interest expense, (iv) provision for loss
on dispositions and (v) extraordinary items. EBITDA is not a measure of
performance under generally accepted accounting principles ("GAAP"). EBITDA
should not be considered in isolation or as a substitute for net income, cash
flows from operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or as a measure of profitability or liquidity.
<PAGE> 61
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(dollars in thousands, except ratios and selected operating data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
ACTUAL ------------------------------------
------------------------------------------------- PRO FORMA ACTUAL PRO FORMA PRO FORMA
1992 1993 1994 1995 1995(2) 1996 1995(2) 1996(2)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues............ $ 379 $ 1,956 $ 12,406 $ 61,285 $ 150,156 $ 64,997 $ 64,183 $ 92,334
Expenses:
Wages and related....... 190 1,455 7,149 31,811 90,596 32,447 39,773 49,555
Other operating......... 109 545 3,902 20,777 32,451 21,172 12,702 22,640
Rent.................... 8 99 1,299 6,565 12,692 6,653 5,458 7,421
Interest................ 5 11 84 1,058 14,060 1,452 6,883 7,262
Depreciation and
amortization.......... 3 7 51 1,050 5,959 1,054 2,959 2,785
Provision for loss on
dispositions.......... -- -- -- -- 2,000 2,000 2,000
------- ------- ------ ---- -------- ------- ------- -------
Total expenses........ 315 2,117 12,485 61,261 157,758 62,778 69,775 91,663
------- ------- ------ ---- -------- ------- ------- -------
Income (loss) before
income taxes........ 64 (161) (79) 24 (7,602) 2,219 (5,592) 671
Income taxes (benefit).... 26 (20) 1 50 (3,041) 932 (2,237) 268
------- ------- ------ ---- -------- ------- ------- -------
Net income (loss)..... $ 38 $ (141) $ (80) $ (26) $ (4,561) $ 1,287 $ (3,355) $ 403
======= ======= ====== ==== ======== ======= ======= =======
OTHER DATA:
EBITDAR(3).............. $ 80 $ (44) $ 1,355 $ 8,697 $ 27,109 $ 11,378 $ 11,708 $ 20,139
EBITDA(4)............... 72 (143) 56 2,132 14,417 4,725 6,250 12,718
Capital expenditures.... 50 13 371 1,081 3,000 2,010 1,366 2,174
Ratio of earnings to
fixed charges(5)...... 9.35x -- 0.85x 1.01x 0.60x 1.60x -- 1.07x
Skilled nursing
facilities:(6)
Number of
facilities.......... 4 6 16 47 52 45 20 51
Number of licensed
beds................ 436 671 1,674 4,851 5,270 4,679 2,820 5,184
Patient days.......... -- 12,705 112,727 581,410 1,252,750 541,741 -- 685,999
Assisted living
facilities:(6)
Number of
facilities.......... -- 1 4 6 9 5 4 8
Number of units....... -- 30 104 229 417 134 292 324
Sources of patient
revenues:
Medicare.............. -- 3.4% 9.1% 26.9% 27.1% 32.4% 27.5% 33.1%
Private pay........... -- 13.8 32.4 17.2 21.4 15.8 19.6 17.9
------- ------- ------ ---- -------- ------- ------- -------
Quality mix......... -- 17.2 41.5 44.1 48.5 48.2 47.1 51.0
Medicaid.............. -- 82.8 58.5 55.9 51.5 51.8 52.9 49.0
------- ------- ------ ---- -------- ------- ------- -------
Total............. -- 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ====== ==== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT
JUNE 30,
1996
----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS:
Adjusted EBITDA(7)................................................................................................ $ 25,436
Ratio of Adjusted EBITDA to interest expense...................................................................... 1.75x
Ratio of net debt to Adjusted EBITDA(8)........................................................................... 3.97x
Adjusted EBITDAR(9)............................................................................................... $ 40,278
Ratio of Adjusted EBITDAR to interest expense plus rent expense................................................... 1.37x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, 1996
------------------------------------------------- --------------------------
1992 1993 1994 1995 ACTUAL PRO FORMA(10)
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 17 $ 8 $ 118 $ 6,097 $ 847 $ 25,899
Working capital........... 5 (120) (866) (1,208) 4,848 33,439
Total assets.............. 9 499 4,297 77,531 84,743 216,520
Total debt................ 38 176 1,589 25,633 31,111 126,903
Stockholders' equity...... 38 (103) (139) 19,885 22,886 42,806
</TABLE>
<PAGE> 62
NOTES TO SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(1) On August 10, 1995, Unison acquired BritWill. The actual results for the
year ended December 31, 1995 include the results of operations for BritWill
for the five months ended December 31, 1995.
(2) Gives effect to (i) the Signature Acquisition and the Ampro Acquisition,
(ii) the Dispositions, (iii) the Completed Acquisitions and (iv) the
Offering and the application of the net proceeds therefrom, effective, in
each case, at the beginning of the period presented. See "Use of Proceeds"
and "Unaudited Pro Forma Condensed Combined Financial Statements" and Notes
thereto.
(3) "EBITDAR" is defined as net income (loss) before (i) income taxes, (ii)
depreciation and amortization, (iii) provision for loss on dispositions,
(iv) interest expense and (v) rent expense. EBITDAR is not a measure of
performance under generally accepted accounting principles ("GAAP"). EBITDAR
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as a measure of profitability or
liquidity.
(4) "EBITDA" is defined as EBITDAR minus rent expense.
(5) Earnings are defined as income (loss) before extraordinary items and fixed
charges. Fixed charges are defined as interest expense and a portion of rent
expense representing the interest factor, which Unison estimates to be
one-third of base rents. Earnings were inadequate to cover fixed charges by
approximately $161,000 in 1993.
(6) Number of facilities, beds and units expressed are at end of period.
(7) "Adjusted EBITDA" at June 30, 1996, is defined as two times pro forma EBITDA
for the six months ended June 30, 1996.
(8) Net debt is total debt less cash and cash equivalents.
(9) "Adjusted EBITDAR" is defined as Adjusted EBITDA plus two times pro forma
rent expense for the six months ended June 30, 1996.
(10) Gives effect to (i) the Signature Acquisition and the Ampro Acquisition,
(ii) the Dispositions, (iii) the Completed Acquisitions and (iv) the
Offering and the application of the net proceeds therefrom, effective, in
each case, as of June 30, 1996.
<PAGE> 63
(c) Exhibits.
See the Exhibit Index, which is incorporated herein by reference,
immediately following the Signatures page to this Report.
SIGNATURES
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.
UNISON HEALTHCARE CORPORATION
November 14, 1996 By /s/ Craig R. Clark
----------------------------
Craig R. Clark
Executive Vice President and
Chief Financial Officer
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGINATED NO.
- ------------- -------------------------------------------------------- ---------------
<S> <C> <C>
2.1 Agreement and Plan of Merger among Unison HealthCare
Corporation, Signature Health Care Corporation, David
A. Kremser and John D. Filkoski (incorporated by
reference to Exhibit 2.3 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30,
1996)...................................................
2.2 Agreement and Plan of Merger among Unison HealthCare
Corporation, Arkansas, Inc., David A. Kremser and John
D. Filkoski (incorporated by reference to Exhibit 2.4 to
the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1996).............................
2.3 Agreement and Plan of Merger among Unison HealthCare
Corporation, Cornerstone Care, Inc., David A. Kremser
and John D. Filkoski (incorporated by reference to
Exhibit 2.5 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1996)...........
2.4 Agreement and Plan of Merger among Unison HealthCare
Corporation, Douglas Manor, Inc., David A. Kremser and
John D. Filkoski (incorporated by reference to Exhibit
2.6 to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1996).........................
2.5 Agreement and Plan of Merger among Unison HealthCare
Corporation, Safford Care, Inc., David A. Kremser and
John D. Filkoski (incorporated by reference to Exhibit
2.7 to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1996).........................
2.6 Stock Purchase Agreement among Unison Healthcare
Corporation, RehabWest, Inc., Linda Redwine, David A.
Kremser and John D. Filkoski (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on
Form 8-K dated October 10, 1996)........................
2.7 Agreement and Plan of Merger among Unison HealthCare
Corporation, a Delaware corporation, Labco Acquisition
Co., a Delaware corporation, and American Professional
Holding, Inc., a Utah corporation (incorporated by
reference to the Company's Current Report on Form 8-K
dated July 31, 1996)....................................
2.8 Agreement and Plan of Merger among Unison HealthCare
Corporation, a Delaware corporation, Memphis Acquisition
Co., a Delaware corporation, and Memphis Clinical
Laboratory, Inc., a Tennessee corporation (incorporated
by reference to the Company's Current Report on Form
8-K dated July 31, 1996)................................
</TABLE>
