<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________ .
COMMISSION FILE NUMBER 0-27374
UNISON HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-0684011
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7272 E. INDIAN SCHOOL ROAD, SUITE 214
SCOTTSDALE, AZ 85251
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(602) 423-1954
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO ___
AS OF APRIL 30, 1996 THERE WERE 3,871,312 SHARES OF $0.001 PAR VALUE COMMON
STOCK OUTSTANDING.
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<PAGE> 2
UNISON HEALTHCARE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995................... 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1996 and 1995..... 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1996 and 1995......... 5
Notes to Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 13
Signatures............................................... 14
Exhibit Index............................................ 15
</TABLE>
NOTE: Items 1 through 5 of Part II are omitted because
they are not applicable.
2
<PAGE> 3
UNISON HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 1,228 $ 6,097
Accounts receivable -- patient, less allowance
for doubtful accounts of $828 at March 31, 1996
and $709 at December 31, 1995...................... 22,108 14,771
Accounts receivable -- other, less allowance for
doubtful accounts of $74 at March 31, 1996
and December 31, 1995.............................. 1,996 1,852
Prepaid expenses and other current assets............. 2,648 2,245
------- -------
Total current assets............................... 27,980 24,965
Lease operating rights and other assets, net............ 39,401 38,902
Goodwill, net........................................... 11,310 7,473
Property and equipment, net............................. 3,951 3,002
Security deposits....................................... 3,239 3,189
------- -------
$85,881 $ 77,531
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit........................................ $ -- $ 789
Accounts payable...................................... 9,417 9,437
Accrued expenses...................................... 8,976 8,785
Notes payable and current portion of long-term
debt due to affiliates.............................. 1,551 5,824
Current portion of other notes and long-term debt..... 758 636
Deferred taxes........................................ 727 703
------- -------
Total current liabilities.......................... 21,429 26,174
Line of credit.......................................... 7,631 --
Notes payable and long-term debt due to affiliates...... 13,055 13,691
Other notes payable and long-term debt.................. 8,415 4,693
Deferred taxes.......................................... 8,448 8,173
Leasehold liability, net................................ 4,575 4,621
Other long-term liabilities............................. 292 294
------- -------
Total liabilities.................................. 63,845 57,646
------- -------
Stockholders' equity:
Common stock, $.001 par value; 10,000,000
shares authorized; 3,871,312 and
3,673,748 issued and outstanding
at March 31, 1996 and December 31, 1995............ 3 2
Additional paid-in capital............................ 21,805 20,091
Retained earnings (accumulated deficit)............... 228 (208)
------- -------
Total stockholders' equity......................... 22,036 19,885
------- -------
$85,881 $ 77,531
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
3
<PAGE> 4
UNISON HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Revenues:
Net patient revenue...................................... $29,852 $5,817
Management fees.......................................... 330 466
Other.................................................... 2,808 40
-------- -------
Total revenues........................................ 32,990 6,323
Expenses:
Wages and related........................................ 15,959 3,560
Other operating.......................................... 11,800 2,205
Rent..................................................... 3,415 557
Interest................................................. 610 45
Depreciation and amortization............................ 470 38
-------- -------
Total expenses........................................ 32,254 6,405
-------- -------
Income (loss) before income taxes.......................... 736 (82)
Income tax expense......................................... 300 1
-------- ------
Net income (loss).......................................... $ 436 $ (83)
======= ======
Net income (loss) per common share:
Primary.................................................. $.11 $(.07)
Fully diluted............................................ .11 (.07)
Weighted average shares used in per share calculation:
Primary.................................................. 4,036,425 1,266,164
Fully diluted............................................ 4,056,218 1,266,164
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
4
<PAGE> 5
UNISON HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Net cash provided by (used in) operating activities
(including changes in all operating assets
and liabilities)................................................ $(6,190) $ 32
------ ------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements................ (869) (80)
Increase in intangibles and other assets........................ (816) (41)
Increase in lease deposits...................................... (50) (1)
Acquisitions.................................................... (932) --
------ ------
Net cash used in investing activities........................ (2,667) (122)
------ ------
Cash flows from financing activities:
Net increase in borrowings under revolving lines of credit...... 6,841 --
Proceeds from long-term debt.................................... 3,623 50
Payments of principal on long-term debt......................... (6,476) (42)
------ ------
Net cash provided by financing activities.................... 3,988 8
------ ------
Net decrease in cash.............................................. (4,869) (82)
Cash and cash equivalents at beginning of period.................. 6,097 118
------ ------
Cash and cash equivalents at end of period........................ $ 1,228 $ 36
====== ======
Supplemental disclosures:
Cash paid for:
Interest........................................................ $ 155 $ 45
Income taxes.................................................... -- --
Acquisitions:
Increase in assets.............................................. 5,031 --
Liabilities assumed and incurred................................ 4,031 --
Conversion of debenture into shares of common stock............... 1,714 --
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
5
<PAGE> 6
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, contains all adjustments which are necessary to state fairly the
financial position, cash flows and results of operations of Unison HealthCare
Corporation and its subsidiaries ("Unison" or "the Company") as of and for
the periods indicated. Unison presumes that users of the interim financial
information herein have read or have access to the audited financial
statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the preceding fiscal year and that the adequacy
of additional disclosure needed for a fair presentation, except in regard to
material contingencies, may be determined in that context. Accordingly,
footnote and other disclosures which would substantially duplicate the
disclosures contained in Unison's most recent annual report to stockholders
have been omitted. Operating results for the three months ended March 31,
1996 are not necessarily indicative of the results which may be expected for
the year ended December 31, 1996.
2. The provision for doubtful accounts receivable is included in other operating
expenses. Provisions totaled $211,000 and $19,000 for the three months ended
March 31, 1996 and 1995, respectively.
3. On March 28, 1996, Unison entered into a definitive purchase and sale
agreement for the acquisition, effective February 1, 1996, of 90% of the
common stock of four rehabilitation therapy centers (collectively, "Sunbelt
Therapy"). In consideration for the stock of Sunbelt Therapy, Unison paid
$800,000 in cash, issued term notes for $1,000,000 in the aggregate (the
"Notes") and issued subordinated convertible debentures totaling $1,800,000
(the "Debentures"). In addition, contingent payments will be due if specified
pretax income targets are achieved. The Notes and Debentures bear interest at
10%, payable quarterly beginning May 1, 1996, and are convertible into Unison
common stock at the option of the holder at a conversion price equal to the
average closing price (85% of the average closing price with respect to the
Notes) of Unison's common stock for the 20-day trading period preceding the
date of conversion. The Notes mature in equal principal amounts on February
1, 1997 and 1998, and the Debentures mature in equal principal amounts on
February 1, 1997, 1998 and 1999. The transaction was accounted for as a
purchase.
In August 1995, Unison acquired BritWill HealthCare Company ("BritWill"), a
long-term care company operating 28 facilities in Texas and Indiana. The
transaction was accounted for as a purchase.
Summarized below are the unaudited pro forma consolidated results of
operations of Unison for the periods indicated, assuming the acquisitions
were consummated as of January 1, 1995. The amounts reflect pro forma
adjustments for interest on new debt and amortization of intangible assets
and leasehold liabilities. The unaudited pro forma consolidated results of
operations have been prepared for comparative purposes only and are not
necessarily indicative of what would have occurred had these transactions
been made at January 1, 1995 or of results which may occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1995
------- -------
(IN THOUSANDS, EXCEPT PER
SHARE)
<S> <C> <C>
Revenues........................................... $33,533 $23,475
Net income (loss).................................. 410 (407)
Net income (loss) per share........................ $.10 $(.32)
</TABLE>
4. In January 1996, Unison acquired an institutional pharmacy in Indiana. In
consideration for the $600,000 purchase price, the Company paid cash in the
amount of $200,000 and issued a note payable amounting to $400,000. The
acquisition was accounted for as a purchase. The pro forma effect on Unison's
results of operations for the three months ended March 31, 1996 and 1995
would have been immaterial.
5. In March 1996, Unison replaced its revolving lines of credit with a new
$10,000,000 revolving credit facility. Borrowings under this credit facility
bear interest at the prime rate plus 2.0% (10.5% at March 31, 1996), mature
in 1998 and are secured by the Company's eligible accounts receivable. The
credit
6
<PAGE> 7
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement requires Unison to comply with certain financial and operational
covenants including limitations on additional borrowings and sales of assets
and alteration of the existing capital structure. Unison also executed a
promissory note with a lessor in the amount of $3,500,000 with interest at
10.25%. The note is guaranteed by Jerry M. Walker, the Company's President.
In May 1996, Unison executed a promissory note payable to the agent for the
former holders of BritWill stock immediately prior to the acquisition of
BritWill in the amount of $1,000,000. Interest is payable at 12.0% and the
note is due on demand after 30 days from issuance.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unison's statements regarding its potential for growth and liquidity and
capital resources are forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act and are based on
the assumptions set forth in this discussion and analysis of financial condition
and results of operations. While the Company believes that such assumptions are
reasonable, any of such assumptions could prove to be inaccurate. Important
factors which could cause actual growth and liquidity and capital resources to
vary from the discussion herein are set forth in such discussions and include
without limitation the factors discussed in "Item 1 -- Business" in Unison's
Annual Report on Form 10-K for the year ended December 31, 1995 and "Risk
Factors" in the Company's Prospectus filed as part of the registration statement
on Form S-1 (File No. 33-97662), as well as those factors discussed elsewhere in
this report or in any document incorporated herein by reference.
The following material should be read in conjunction with the Consolidated
Financial Statements of the Company and the related notes thereto. All
references in this discussion and analysis to years are to fiscal years of the
Company ended December 31 of such year.
ACQUISITIONS
On March 28, 1996, Unison entered into a definitive purchase and sale
agreement for the acquisition, effective February 1, 1996, of 90% of the common
stock of four rehabilitation therapy centers (collectively, "Sunbelt Therapy")
(the "Sunbelt Acquisition"). The transaction was accounted for as a purchase.
In August 1995, Unison acquired BritWill Healthcare Company ("BritWill"), a
long-term care company operating 28 facilities in Texas and Indiana (the
"BritWill Acquisition"). The transaction was accounted for as a purchase.
Summarized below are the unaudited pro forma consolidated results of
operations of Unison for the periods indicated, assuming both the Sunbelt
Acquisition and the BritWill Acquisition were consummated as of January 1, 1995.
The amounts reflect pro forma adjustments for interest on new debt and
amortization of intangible assets and leasehold liabilities. The unaudited pro
forma consolidated results of operations have been prepared for comparative
purposes only and are not necessarily indicative of what would have occurred had
these transactions been made at January 1, 1995 or of results which may occur in
the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1995
------- -------
(IN THOUSANDS, EXCEPT PER
SHARE)
<S> <C> <C>
Revenues................................ $33,533 $23,475
Net income (loss)....................... 410 (407)
Net income (loss) per share............. $.10 $(.32)
</TABLE>
RESULTS OF OPERATIONS
In the first quarter of 1996, Unison realized net income of $436,000
compared to a net loss of $83,000 in the prior year period. Income before income
taxes amounted to $736,000 in the 1996 first quarter compared to a pretax loss
of $82,000 in the prior year quarter. Net operating revenues were $32,990,000
and $6,323,000 in the three months ended March 31, 1996 and 1995, respectively.
8
<PAGE> 9
The following table summarizes selected operating statistics.
<TABLE>
<CAPTION>
AT MARCH 31,
-------------
1996 1995
----- ---
<S> <C> <C>
Leased Facilities:
Number of facilities.............................. 43 13
Number of licensed beds:
Long-term care................................. 3,886 780
Assisted and independent living................ 134 104
Managed Facilities:
Number of facilities.............................. 8 9
Number of licensed beds........................... 892 990
Institutional Pharmacies:
Number of outlets................................. 2 --
Nonaffiliated facilities served................... 26 --
Therapy locations................................... 20 --
</TABLE>
The following table identifies the Company's sources of net operating
revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Percentage of total revenues:
Long-term care............................... 91.6% 99.9%
Therapy contracts............................ 3.9 --
Pharmacies................................... 3.3 --
Medicare Part B billing and supply........... 1.2 .1
----- -----
Total................................ 100.0% 100.0%
===== =====
Net patient revenues per patient day........... $107.17 $ 86.38
Patient days................................... 278,540 67,337
</TABLE>
Net patient revenues increased by 413% in the 1996 first quarter to
$29,852,000 from $5,817,000 in 1995. This growth is due primarily to
acquisitions. Management fee revenue decreased by 29% as a result of a decrease
in the number of management contracts. Other income increased from $40,000 in
the 1995 first quarter to $2,808,000 in the current period due primarily to
pharmacy revenues and the Sunbelt Acquisition.
Unison's revenues fluctuate from facility to facility based on various
factors, including total capacity, occupancy rates, reimbursement methodologies
and rates among the payor categories, payor mix and the scope and utilization of
the Company's ancillary services. Medicare patients generate the highest revenue
per patient day, although profitability is not always increased due to the
additional costs associated with the higher level of care required by such
patients. In general, private pay sources are more profitable to the Company
than governmental reimbursement sources. Unison generally derives a higher
profit margin from ancillary services than from basic nursing services.
Data for nursing center operations with respect to sources of net patient
revenues and patient mix by payor type are set forth below.
<TABLE>
<CAPTION>
NET PATIENT
REVENUES PATIENT CENSUS
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
----------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Medicaid.............................. 53.9% 60.7% 69.9% 63.1%
Medicare.............................. 29.8 19.3 8.0 5.9
Private and other..................... 16.3 20.0 22.1 31.0
</TABLE>
9
<PAGE> 10
Wages and related expense increased from $3,560,000 to $15,959,000 in the
current quarter due primarily to the increase in the number of leased facilities
operated. Wages and related expense as a percentage of revenues decreased from
56.3% in 1995 to 48.4% in the 1996 first quarter as a result of operating
efficiencies.
Other operating expenses increased from $2,205,000 to $11,800,000 in the
1996 first quarter. The increase is due primarily to acquisitions. Other
operating expenses as a percentage of revenues amounted to 35.8% in 1996
compared to 34.9% in 1995.
Rent expense increased from $557,000 in the 1995 first quarter to
$3,415,000 in 1996. The increase is due primarily to the increase in the number
of leased facilities operated. Rent expense as a percentage of revenues
increased from 8.8% in 1995 to 10.4% in the current quarter.
Interest expense amounted to $610,000 in the current quarter compared to
$45,000 in the 1995 first quarter. The increase is the result of debt incurred
and assumed in connection with acquisitions as well as increases in borrowings
under lines of credit. See "-- Liquidity and Capital Resources." Interest
expense as a percentage of revenues increased from .7% in the 1995 first quarter
to 1.8% in the current period.
Depreciation and amortization expense increased from $38,000 in the first
quarter of 1995 to $470,000 in 1996. The increase is due primarily to the
increase in goodwill and lease operating rights associated with acquisitions.
Depreciation and amortization expense as a percentage of revenues increased from
.6% in the 1995 first quarter to 1.4% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, Unison had $1,228,000 in cash compared to $6,097,000 at
December 31, 1995. The Company had working capital of $6,551,000 at March 31,
1996 compared to a working capital deficit at December 31, 1995 amounting to
$1,209,000.
Cash used in operations in the quarter ended March 31, 1996 amounted to
$6,190,000 compared to cash provided amounting to $32,000 in the prior year
period. The change is due primarily to fluctuations in current assets and
liabilities in the 1996 first quarter. Of this increase, $2,515,000 is the
result of a change in the Company's accounts receivable-backed credit facility.
In March 1996, the agreement to sell accounts receivable was replaced with a
line of credit secured by eligible accounts receivable. As a result, accounts
receivable at March 31, 1996 include amounts which, under the sales agreement,
would have been deducted from the accounts receivable balance.
Net cash used in investing activities amounted to $2,667,000 in the 1996
first quarter compared to $122,000 in the prior year period. In the 1996 first
quarter, capital expenditures amounted to $869,000 compared to $80,000 in the
prior year period. Expenditures for acquisitions, net of cash acquired, amounted
to $932,000 in the current period and increases in intangible and other assets
totaled $816,000.
Net cash provided by financing activities amounted to $3,988,000 compared
to $8,000 in the prior year quarter.
At March 31, 1996 the Company had $31,410,000 in total debt (58.8% of total
capitalization as compared with 56.3% of total capitalization at December 31,
1995), contingent payment obligations due over the next five years totaling up
to approximately $21,800,000 and minimum leasehold obligations totaling
approximately $121,783,000 over the same period. This increase in total debt is
primarily attributable to an increase in the Company's working credit facilities
of $10,341,000 and debt issued in connection with acquisitions in the amount of
$3,200,000, which increase is offset in part by the repayment of the Term Note
to the agent for the former BritWill shareholders in the amount of $5,602,000
and the conversion of the remainder of the Convertible Debenture into shares of
the Company's common stock. To the extent that existing resources and future
earnings are insufficient to fund its activities and to repay its fixed and
contingent obligations, either near term or in future years, the Company will
need to raise additional funds through debt or equity financings. There can be
no assurance that such financings will be available, or if available, that
necessary financing will be available on terms favorable to the Company and its
shareholders.
10
<PAGE> 11
By agreement finalized in April 1996, but providing for effectiveness as of
August 10, 1995 (the "Purchase Modification"), Unison, BritWill and the agent
for the former holders of BritWill shares immediately prior to the acquisition
of BritWill by Unison (the "Former BritWill Shareholders") amended the BritWill
purchase agreement and Unison's related promissory notes and other obligations
to the Former BritWill Shareholders as described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in Unison's annual report on Form 10-K for the year ended
December 31, 1995.
The obligations and notes associated with the BritWill Acquisition, after
the Purchase Modification, include the following: (i) the $7,000,000 Convertible
Debenture, which has been converted in full into Unison common stock; (ii) the
$8,000,000 Subordinated Note, as amended, payable in monthly installments of
$54,000 of interest only at the rate of 8.0% for the first 18 months, and
monthly payments of principal and interest of $76,000 to $117,000 for the next
42 months at 8.0% to 10.0%. The Subordinated Note requires that the Company
maintain (a) specified ratios of operating cash flows to current obligations
increasing over time; (b) a specified ratio of current assets to current
liabilities; and (c) cash and unencumbered credit facilities of minimum levels.
At March 31, 1996, Unison was in compliance with these requirements. The entire
remaining principal balance outstanding under the Subordinated Note and all
unpaid interest are due and payable upon the earlier to occur of either August
9, 2000 or the completion of any secondary public or private debt or equity
offering of at least $10,000,000; (iii) the $5,602,000 Term Note which was
repaid on January 2, 1996; (iv) a $3,375,000 note which was repaid from the
proceeds of the Company's initial public offering in December 1995 (the "IPO");
(v) scheduled contingent monthly payments, as amended, through August 2000 of
$144,000 to $225,000 are required upon attainment of specified revenues and will
be added to leasehold rights when and if paid; and (vi) a contingent payment of
$11,500,000 (subject to adjustment pursuant to the Purchase Modification) is due
August 9, 2000 (or earlier in the event of certain securities offerings, or
under certain circumstances) if revenues during the 12 months ending June 30,
2000 exceed $150,000,000, which will also be added to leasehold rights when and
if paid. If a default occurs on any one or more of the above obligations, after
the expiration of all applicable cure periods with respect to any of the above,
all of the liabilities become due and payable. In order to meet the terms of the
above obligations, specifically the Subordinated Note, the Company expects that
it will be necessary to seek outside financing through an offering of debt or
equity securities or similar outside financing arrangement. There can be no
assurance, however, that such financing will be available to the Company or, if
available, on terms favorable to the Company. In addition, Unison is required to
meet a series of financial covenants and conditions related to existing leases
and financing assumed with the BritWill Acquisition, including maintenance of
specified operating ratios, levels of working capital and net worth. At March
31, 1996, the Company was in compliance with these covenants.
In March 1996, Unison refinanced its existing revolving credit lines with a
new $10,000,000 revolving credit facility. Borrowings under the credit facility
bear interest at the prime rate plus 2% (10.5% at March 31, 1996) and are
secured by the Company's eligible accounts receivable. At March 31, 1996,
borrowings under this credit facility amounted to $7,631,000. Unison also
executed an unsecured promissory note with a lessor in the amount of $3,500,000
with interest payable at 10.25%. The note is guaranteed by Jerry M. Walker, the
Company's President. In May 1996, Unison executed a promissory note payable to
the agent for the Former BritWill Shareholders in the amount of $1,000,000.
Interest is payable at 12.0% and the note is due on demand after 30 days from
issuance. Unison also entered into an agreement allowing the Company to lease
equipment in the aggregate amount of $921,000. The lease term is for three years
and the effective interest rate is 11.47%.
Unison intends to finance a substantial portion of its growth through
sale/leaseback transactions with REITs, financial institutions and private and
other investors. Approximately $5,000,000 of the proceeds from the IPO were not
designated and were used for acquisitions, working capital and repayment of
debt. Continued expansion and the repayment of the $11,500,000 contingent
payment and Subordinated Note in August 2000 will likely require a substantial,
additional public or private placement of equity or debt securities. To a
limited extent, the Company may make use of traditional long-term debt,
including publicly issued debt, to finance development. The Company will
continue to require new sources of working capital as acquisitions are completed
and the Company continues to expand its existing business. The Company is
currently negotiating with several lenders to increase the availability of
working capital for continuing
11
<PAGE> 12
operations, to fund acquisitions and to decrease the cost of existing
borrowings. There can be no assurance that any such financing will be available
to the Company or, if available, that the terms will be acceptable to the
Company. If the Company is unable to obtain such financing on acceptable terms,
it may be unable to achieve its growth and development goals.
On March 21, 1995, BritWill received an erroneous overpayment of Medicaid
reimbursement at its Wellington Manor facility in Indianapolis, Indiana. The
overpayment, which was received from the Indiana fiscal intermediary, was in the
amount of approximately $4,300,000. Upon inquiry to the fiscal intermediary,
BritWill was advised to retain the overpayment and that the intermediary would
apply the overpayment as an advance against future monthly Medicaid
reimbursement to Wellington Manor until such time as the amount of the
overpayment was recovered in full. BritWill and the State entered into a
settlement agreement on September 25, 1995 in which the parties agreed to a
deferred recovery of the overpayment. In April 1996, Unison reached an agreement
with the State of Indiana for the repayment of the remaining $3,700,000 balance
by which (i) Unison paid $1,100,000 to Indiana in April 1996; (ii) Indiana will
withhold a retroactive rate increase due to Unison in the amount of
approximately $740,000; (iii) Medicaid reimbursement payments with respect to
five of Unison's facilities in Indiana will offset the amount due to the State
for the months of May through July 1996; and (iv) the unpaid balance will be due
in full in August 1996. From September 25, 1995 to March 25, 1996, interest
accrued on the outstanding balance of the advance at 12%. From March 25, 1996
forward, interest is payable at 14%.
In January 1996, Unison acquired an institutional pharmacy in Indiana for
$200,000 in cash and a note in the amount of $400,000.
On March 28, 1996, the Company entered into a definitive purchase and sale
agreement for the acquisition, effective as of February 1, 1996, of 90% of the
outstanding common stock of Sunbelt Therapy. In consideration for the stock of
Sunbelt Therapy, Unison paid $800,000 in cash, issued term notes for $1,000,000
in the aggregate (the "Notes") and issued subordinated convertible debentures
totaling $1,800,000 (the "Debentures"). In addition, contingent payments will be
due if specified pretax income targets are achieved. The Notes and Debentures
bear interest at 10%, payable quarterly beginning May 1, 1996, and are
convertible into Unison common stock at the option of the holder at a conversion
price equal to the average closing price (85% of the average closing price with
respect to the Notes) of Unison's common stock for the 20-day trading period
preceding the date of conversion. The Notes mature in equal principal amounts on
February 1, 1997 and 1998, and the Debentures mature in equal principal amounts
on February 1, 1997, 1998 and 1999.
12
<PAGE> 13
PART II. OTHER INFORMATION
Items 1 - 5 are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
See Exhibit Index following the Signatures page, which index is
incorporated herein by reference.
(B) Reports filed on Form 8-K:
During the quarter ended March 31, 1996, Unison filed a Current Report
on Form 8-K dated March 28, 1996. The Form 8-K was filed in connection
with the acquisition, through a wholly owned subsidiary of the Company
("Sunbelt Therapy"), of 90% of the stock of four rehabilitation therapy
service centers. No financial statements were filed with the Form 8-K.
13
<PAGE> 14
SIGNATURE
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 thereunto duly authorized.
UNISON HEALTHCARE CORPORATION
(Registrant)
Date: May 15, 1996 /s/ CRAIG R. CLARK
--------------------------------------
Craig R. Clark
Executive Vice President and
Chief Financial Officer
/s/ PAUL J. CONTRIS
--------------------------------------
Paul J. Contris
Executive Vice President
Finance and Principal
Accounting Officer
14
<PAGE> 1
Exhibit 10.1
PROMISSORY NOTE
$1,000,000.00 May 6, 1996 Dallas, Texas
FOR VALUE RECEIVED, Unison HealthCare Corporation, a Delaware
Corporation ("Borrower"), promises to pay to the order of Bruce H. Whitehead,
Agent for one hundred percent (100%) of the former shareholders of BritWill
HealthCare Company, a Delaware corporation, pursuant to a certain Collection
Agency Agreement dated on or about August 10, 1995 ("Lender", which term also
includes any owner or holder of this Note), the sum of One Million and No/100
Dollars ($1,000,000.00), or such lesser portion thereof as may be advanced from
time to time hereunder, together with interest on the principal hereof from time
to time outstanding from the date hereof until maturity, at the per annum rate
(based on a 360-day year) hereinafter stated, said principal and interest being
payable in lawful money of the United States of America at 4300 Livingston,
Dallas, Texas, or such other place as Lender may hereafter designate in
writing.
The Principal balance hereof advanced and from time to time remaining
unpaid bears interest during each day of the loan evidenced hereby at the rate
of twelve percent (12%) per annum.
All past due principal and interest of this Note, whether due as the
result of acceleration of maturity or otherwise, bears interest at the maximum
lawful rate of interest permitted by the applicable usury laws, now or
hereafter enacted, from the date the payment thereof becomes due until the same
have been fully discharged by payment; provided, however, if there is no
maximum lawful rate of interest permitted by the applicable usury laws, all past
due principal and interest of this Note, whether due as the result of
acceleration of maturity or otherwise, bears interest at the rate of eighteen
percent (18%) per annum, from the date the payment thereof becomes due until
the same have been fully discharged by payment.
This Note shall be due and payable as follows: All accrued interest and
the entire principal balance outstanding under this Note are due within three
(3) business days following written demand by Lender, which demand may not be
asserted by Lender until at least thirty (30) days after the date of the first
advance hereunder.
<PAGE> 2
Borrower has the right to prepay this Note in whole or in part at any
time without penalty or premium. No partial prepayment operates to postpone the
due date under this Note.
If Borrower files a voluntary petition in bankruptcy, or is adjudicated
a bankrupt or insolvent, or files any petition or answer seeking for Borrower
any arrangement, composition, readjustment, or similar relief under any present
or future statute, law or regulation, or files any answer admitting the
material allegations of a petition filed against Borrower in any such
proceeding, or seeks or consents to or acquiesces in the appointment of any
trustee or receiver, on all or any substantial part of the properties of
Borrower, then Lender may, to the extent permitted by applicable law, declare
this Note due and payable, whereupon the entire unpaid principal balance of
this Note and all accrued unpaid interest thereon becomes at once mature and
due and payable without presentment, demand, protest or notice of any kind
(including, but not limited to, notice of intention to accelerate and notice of
acceleration), all of which are hereby expressly waived by Borrower. Failure by
Lender to exercise such option at any time does not constitute a waiver by
Lender to exercise the same at any other time.
To the full extent permitted by law, Borrower and any and all sureties,
guarantors and endorsers of this Note and all other parties now or hereafter
liable hereon, severally waive demand, presentment for payment, protest, notice
of any kind (including, but not limited to, notice of dishonor, notice of
protest, notice of intention to accelerate and notice of protest, notice of
intention to accelerate and notice of acceleration) and diligence in collecting
and bringing suit against any party hereto and agree (i) to all extensions and
partial payments, with or without notice, before or after maturity, (ii) to any
substitution, exchange or release of any security now or hereafter given for
this Note, (iii) that no judgment taken against any party operates to terminate
any lien, security interest or other interest of Lender in any collateral
securing the payment of this Note, (iv) to the release of any party primarily
or secondarily liable hereon, and (v) that it will not be necessary for Lender,
in order to enforce payment of this Note, to first institute or exhaust
Lender's remedies against Borrower or any other party liable therefor or
against any security for this Note.
-2-
<PAGE> 3
If there is a default hereunder and this Note is placed in the hands of
an attorney for collection (whether or not suit is filed), or if this Note is
collected by suit or legal proceedings or through the probate court or
bankruptcy proceedings or is the subject of any such proceedings, Borrower
agrees to pay reasonable attorneys fees and expenses of collection, in addition
to all sums then due hereon (including principal and interest).
It is the intention of the parties hereto to comply with applicable
usury laws (now or hereafter enacted); accordingly, notwithstanding any
provision to the contrary in this Note, or in any of the documents otherwise
relating hereto, in no event do this Note or such documents require the payment
or permit the collection of interest in excess of the maximum amount permitted
by such laws, including as to Article 5069-1.04. Vernon's Texas Civil Statutes
(and as the same may be incorporated by reference in other Texas statutes), but
otherwise without limitation, that rate based upon the "indicated rate
ceiling". If any such excess of interest is contracted for, charged or received
under this Note or under the terms of any of the documents otherwise relating
hereto, or in the event the maturity of the indebtedness evidenced by this Note
is accelerated in whole or in part, or in the event that all or part of the
principal or interest of this Note is prepaid, so that under any of such
circumstances the amount of interest contracted for, charged or received under
this Note or under any of the instruments otherwise relating hereto, on the
amount of principal actually outstanding from time to time under this Note
exceeds the maximum amount of interest permitted by applicable usury laws, now
or hereafter enacted, that in any such event (i) the provisions of this
paragraph govern and control, (ii) any such excess which may have been
collected must, at Lender's option, be either applied as a credit against the
then unpaid principal amount hereof or refunded to Borrower or any endorser or
guarantor who has paid such excess, and (iii) the provisions of this Note and
any documents relating to this Note are automatically reformed so that the
effective rate of Interest is reduced to the maximum lawful contract rate.
Without limiting the foregoing, all calculations of the rate of interest
contracted for, charged or received under this Note or under such other
documents which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, must be made, to the extent permitted
by law, by amortizing, prorating, allocating and spreading in equal parts
during the period of the full stated term of the loan evidenced hereby, all
interest at any time contracted for, charged or received from Borrower or
otherwise by Lender in connection with such indebtedness. Borrower represents to
Lender that neither Borrower nor Borrower's counsel is aware of any respect as
to which this Note or the transaction in connection with which the Note was
issued, is or may be usurious.
-3-
<PAGE> 4
This Note is governed by and construed under the applicable laws of the
State of Texas and the laws of the United States of America, except that Texas
Revised Civil Stat. Ann. Article 5069 Chapter 15, as amended (which regulates
certain revolving credit loan accounts and revolving tri-party accounts), do
not apply hereto.
Any check, draft, money order or other instrument given in payment of
all or any portion hereof may be accepted by Lender and handled in collection
in the customary manner, but the same do not constitute payment hereunder or
diminish any rights of Lender except to the extent that actual cash proceeds of
such Instrument are unconditionally received by Lender.
The payment of this Note is secured by multiple Pledge Agreements
(which, as they may be or may have been amended, restated, modified, or
supplemented from time to time, collectively are the "Pledge Agreement") dated
as of August 10, 1995, affecting certain personal property more fully described
therein.
This Note, the Pledge Agreement, that certain Second Amended and
Restated Purchase and Sale Agreement dated as of August 10, 1995 between
Borrower, Lender and Whitehead Family Investments, Ltd., as modified, that
certain $8,000,000 Second Amended and Restated Subordinated Promissory Note
from Borrower to Lender, dated as of August 10, 1995, and that certain
Contingent Payment Agreement between Borrower and Lender, with an effective
date as of August 10, 1995, each are called a "Loan Document", and collectively
are called the "Loan Documents."
Any default under this Note constitutes a default under each of the
Loan Documents, and any breach or event of default under any Loan Document
(however that term may be defined under any Loan Document) constitutes a default
under this Note and the other Loan Documents.
-4-
<PAGE> 5
Notwithstanding anything contained herein or in any other separate
security agreement or other document executed heretofore, herewith or hereafter
in connection with or related to this credit obligation (as defined or
described in 12 C.F.R. 227, Regulation M, promulgated by the Federal Reserve
Board), the security for this credit obligation does not extend to any
non-possessory security interest in household goods (as defined in said
Regulation M) other than a purchase money security interest, and no waiver of
any notice contained herein or therein may be construed under any circumstances
to extend to any waiver of notice prohibited by Regulation AA.
In addition to any other remedies, any holder of this Note may, if it
chooses, upon any default under this Note, exercise a right of offset against
any amounts such holder may owe to Borrower.
This Note is subordinated and subject in right of payment to the prior
payment of all existing and future secured indebtedness of Borrower or its
subsidiaries (the "Senior Indebtedness"). The holder hereof agrees to cooperate
with Borrower in good faith in the negotiation and execution of intercreditor
agreements with Borrower's secured creditors, upon request of such secured
creditors.
For purposes of any suit relating to the Note, Borrower hereof submits
itself to the jurisdiction of any Court sitting in the State of Texas and
further agrees that venue in any suit arising out of the Note or any venue is
fixed in Dallas County, Texas.
BORROWER MUST REPAY THE ENTIRE PRINCIPAL BALANCE OF THE LOAN AND UNPAID
INTEREST WHEN DUE. LENDER IS UNDER NO OBLIGATION TO REFINANCE THE LOAN AT THAT
TIME. BORROWER WILL, THEREFORE, BE REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS
THAT BORROWER MAY OWN, OR BORROWER WILL HAVE TO FIND A LENDER, WHICH MAY BE THE
LENDER BORROWER HAS THIS LOAN WITH, WILLING TO LEND BORROWER THE MONEY. IF
BORROWER REFINANCES THIS LOAN AT MATURITY, BORROWER MAY HAVE TO PAY SOME OR ALL
OF THE CLOSING COSTS NORMALLY ASSOCIATED WITH A NEW LOAN EVEN IF BORROWER
OBTAINS REFINANCING FROM THE SAME LENDER.
UNISON HEALTHCARE CORPORATION
By: __________________________________
Jerry M. Walker, President and CEO
-5-
<PAGE> 1
EXHIBIT 11
UNISON HEALTHCARE CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
------- -------
<S> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period(1).............................. 3,674 1,249
Conversion of debentures.................................................. 6 --
Exercise of stock purchase warrants....................................... 44 --
Dilutive effect of outstanding stock options.............................. 30 --
Dilutive effect of stock purchase warrants(2)............................. 151 17
Conversion of noninterest-bearing convertible debentures.................. 131 --
------- -------
Weighted average number of shares and share equivalents outstanding....... 4,036 1,266
====== =======
Net income (loss)......................................................... $ 436 $ (83)
====== =======
Primary earnings (loss) per share......................................... $ .11 $ (.07)
====== =======
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used in primary calculation............. 4,036 1,266
Additional dilutive effect of stock options and warrants.................. 20 --
------- -------
Weighted average number of shares fully diluted........................... 4,056 1,266
====== =======
Net income (loss)......................................................... $ 436 $ (83)
====== =======
Fully diluted earnings (loss) per share................................... $ .11 $ (.07)
====== =======
</TABLE>
- ---------------
(1) Shares used in these tables are weighted based on the number of days the
shares were outstanding or assumed to be outstanding during each period.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, "Earnings Per Share Computation in an Initial Public Offering", an
aggregate of 16,667 common equivalent shares issued during the twelve-month
period prior to the initial public offering, at prices below the initial
public offering price, have been included as if they were outstanding for
the three months ended March 31, 1996 and 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNISON'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE-MONTH PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,228
<SECURITIES> 0
<RECEIVABLES> 25,006
<ALLOWANCES> 902
<INVENTORY> 1,059
<CURRENT-ASSETS> 27,980
<PP&E> 4,328
<DEPRECIATION> 377
<TOTAL-ASSETS> 85,881
<CURRENT-LIABILITIES> 21,429
<BONDS> 23,779
0
0
<COMMON> 3
<OTHER-SE> 22,033
<TOTAL-LIABILITY-AND-EQUITY> 85,881
<SALES> 0
<TOTAL-REVENUES> 32,990
<CGS> 0
<TOTAL-COSTS> 27,548
<OTHER-EXPENSES> 3,885
<LOSS-PROVISION> 211
<INTEREST-EXPENSE> 610
<INCOME-PRETAX> 736
<INCOME-TAX> 300
<INCOME-CONTINUING> 436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 436
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
