<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K 405/A
Amendment No. 2
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended May 31, 1995 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 0-5751
COMPREHENSIVE CARE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-2594724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4350 Von Karman Avenue
Suite 280
Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 798-0460
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, Par Value $.01 per share New York Stock Exchange, Inc.
Common Share Purchase Rights New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
7 1/2% Convertible Subordinated Debentures due 2010 Over-the-Counter
(Title of Class)
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of the
Registrant at August 31, 1995, was $20,635,655 based on the closing sale price
of the Common Stock on August 31, 1995 as reported on the New York Stock
Exchange composite tape.
At August 31, 1995, the Registrant had 2,637,003 shares of Common Stock
outstanding.
The aggregate market value of Registrant's Common Stock held by
non-affiliates as of August 31, 1995 and the number of shares outstanding,
includes an aggregate of 422,500 shares previously sold by the Registrant and
which the Registrant is obligated to issue. Issuance of which is pending the
completion of administerial acts.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant's
definitive proxy statement for the Registrant's 1995 annual meeting of
stockholders presently scheduled to be held on November 9, 1995, which Proxy
Statement will be filed no later than 120 days after the close of the
Registrant's fiscal year ended May 31, 1995.
1
<PAGE> 2
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
YEARS ENDED MAY 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Balance Sheets, May 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Operations, Years Ended May 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . 35
Consolidated Statements of Stockholders' Equity, Years Ended May 31, 1995, 1994 and 1993 . . . . . . . . . . . 36
Consolidated Statements of Cash Flows, Years Ended May 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
31
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Comprehensive Care Corporation
We have audited the accompanying consolidated balance sheet of Comprehensive
Care Corporation and subsidiaries as of May 31, 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Comprehensive Care Corporation and subsidiaries as of May 31, 1995, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements for the year ended
May 31, 1995 have been prepared assuming the Company will continue as a going
concern. As more fully described in Note 2, the Company has reported annual net
losses for each of the last five fiscal years and has a working capital
deficiency of $15.3 million and a deficit in total stockholders' equity of $4.9
million as of May 31, 1995. Approximately $9.5 million of the working capital
deficiency arises from presentation of the Company's convertible subordinated
debentures as currently payable due to default in the payment of interest on
this obligation commencing October 1994. The Company is seeking to remedy this
default through the debenture exchange offer described in Note 10. Among other
terms this proposed transaction requires the holders of a majority of the
debentures to give their approval to rescind the acceleration, and the Company
to obtain and expend up to $5.5 million in cash during fiscal 1996 over and
above cash required to fund other financing, operating and investing needs. No
assurance can be given that the debenture exchange will be successfully
accomplished, and the failure to reach a settlement with the holders of the
Company's debentures through the debenture exchange or otherwise may cause the
debenture holders to pursue the involuntary bankruptcy of the Company and/or the
Company to take alternative actions including filing for voluntary protection
from creditors. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 2. The 1995 consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Orange County, California
September 7, 1995
32
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comprehensive Care Corporation:
We have audited the accompanying consolidated balance sheets of
Comprehensive Care Corporation (a Delaware corporation) and subsidiaries as of
May 31, 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two fiscal years in the
period ended May 31, 1994. These consolidated financial statements are the
responsibility of the Company'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 Comprehensive Care
Corporation and subsidiaries as of May 31, 1994 and the results of their
operations and their cash flows for each of the two fiscal years in the period
ended May 31, 1994, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has incurred significant
recurring losses and negative cash flows from operations which raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri
August 22, 1994
33
<PAGE> 5
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
------------------------
1995 1994
---- ----
A S S E T S (DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 1,542 $ 1,781
Accounts and notes receivable, less allowance for
doubtful accounts of $1,096 and $1,574 . . . . . . . . . . . . 3,329 5,848
Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . 2,750 ---
Property and equipment held for sale . . . . . . . . . . . . . . --- 6,939
Other current assets . . . . . . . . . . . . . . . . . . . . . . 391 508
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 8,012 15,076
------- -------
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . 25,181 29,326
Less accumulated depreciation and amortization . . . . . . . . . . . (13,074) (13,338)
------- -------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . 12,107 15,988
------- -------
Property and equipment held for sale . . . . . . . . . . . . . . . . 3,746 ---
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,136 2,162
======= =======
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,001 $33,226
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . $10,235 $ 13,776
Long-term debt in default (see Note 10) . . . . . . . . . . . . . 9,538 ---
Current maturities of long-term debt . . . . . . . . . . . . . . 3,285 154
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 296 734
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 23,354 14,664
------- -------
Long-term debt, excluding current maturities . . . . . . . . . . . . 5,077 10,477
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,503 2,986
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 ---
Commitments and contingencies (see Note 2, 10 and 15)
Stockholders' equity:
Preferred stock, $50.00 par value; authorized 60,000 shares . . . --- ---
Common stock, $.01 par value; authorized 12,500,000 shares;
issued and outstanding 2,464,516 and 2,198,692 shares . . . . 25 22
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 41,558 40,060
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (46,516) (34,983)
------- -------
Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . ( 4,933) 5,099
------- -------
Total liabilities and stockholders' equity . . . . . . . . . . . . . $26,001 $33,226
======= =======
</TABLE>
See accompanying notes.
34
<PAGE> 6
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1995 1994 1993
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues and gains:
Operating revenues . . . . . . . . . . . . . . . . . $29,282 $34,277 $51,847
Gain on sale of RehabCare stock, net . . . . . . . . --- --- 13,114
Gain on Sovran settlement, net . . . . . . . . . . . --- --- 584
Interest income . . . . . . . . . . . . . . . . . . . 38 50 69
Equity in earnings of unconsolidated affiliates . . . --- --- 384
-------- ------- --------
29,320 34,327 65,998
-------- ------- --------
Costs and expenses:
Operating expenses . . . . . . . . . . . . . . . . . 31,497 31,875 50,924
General and administrative expenses . . . . . . . . . 4,331 5,455 5,754
Provision for doubtful accounts . . . . . . . . . . . 1,423 1,558 6,187
Depreciation and amortization . . . . . . . . . . . . 1,797 1,762 2,946
Loss on sale/write-down of assets . . . . . . . . . . 259 --- 4,382
Interest expense . . . . . . . . . . . . . . . . . . 1,366 1,228 1,759
Other restructuring/nonrecurring expenses . . . . . . --- --- 5,452
-------- ------- --------
40,673 41,878 77,404
-------- ------- --------
Loss before income taxes . . . . . . . . . . . . . . . . (11,353) (7,551) (11,406)
Provision for income taxes . . . . . . . . . . . . . . . 180 301 194
-------- ------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(11,533) $(7,852) $(11,600)
======== ======= ========
Net loss per share . . . . . . . . . . . . . . . . . . . $(5.11) $(3.57) $(5.28)
======== ======= ========
</TABLE>
See accompanying notes.
35
<PAGE> 7
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY STOCK STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT EQUITY
------ ------ ------- ------- ------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1992 . . . . . 2,191 $ 22 $39,950 $(15,531) --- $ --- $24,441
Net loss . . . . . . . . . --- --- --- (11,600) --- --- (11,600)
Exercise of stock options . 4 --- 50 --- --- --- 50
Issuance of shares for the
purchase of Mental
Health Programs, Inc . . 4 --- 60 --- --- --- 60
----- ------- ------- -------- --- ------- -------
Balance, May 31, 1993 . . . . . 2,199 $ 22 $40,060 $(27,131) --- $ --- $12,951
Net loss . . . . . . . . . --- --- --- (7,852) --- --- (7,852)
----- ------- ------- -------- --- ------- -------
Balance, May 31, 1994 . . . . . 2,199 $ 22 $40,060 $(34,983) --- $ --- $ 5,099
Net loss . . . . . . . . . --- --- --- (11,533) --- --- (11,533)
Issuance of shares for the
purchase of Mental
Health Programs, Inc . . 16 --- --- --- --- --- ---
Odd lot shares purchase . . (2) (2)
Shares issued for
private placements . . . 250 3 1,500 --- --- --- 1,503
----- ------- ------- -------- --- ------- -------
Balance, May 31, 1995 . . . . . 2,465 $ 25 $41,558 $(46,516) --- $ --- $(4,933)
===== ======= ======= ======== === ======= =======
</TABLE>
See accompanying notes.
36
<PAGE> 8
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
1995 1994 1993
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $(11,533) $(7,852) $(11,600)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 1,797 1,762 2,946
Provision for doubtful accounts, net of recoveries . . . . . . 1,423 1,558 6,187
Gain on sale of RehabCare stock, net . . . . . . . . . . . . . --- --- (13,114)
Gain on Sovran settlement, net . . . . . . . . . . . . . . . . --- --- (584)
Loss on sale/write-down of assets . . . . . . . . . . . . . . 259 36 4,382
Carrying costs incurred on property and equipment
held for sale . . . . . . . . . . . . . . . . . . . . . . . (420) (1,241) (1,330)
Other restructuring/non-recurring expenses . . . . . . . . . . --- --- 5,452
Equity in earnings of unconsolidated affiliates . . . . . . . --- --- (384)
Decrease in accounts and notes receivable . . . . . . . . . . 1,108 452 2,542
Decrease in accounts payable and accrued liabilities . . . . . (116) (2,762) (4,927)
Increase(decrease) in income taxes payable . . . . . . . . . . (438) 68 ---
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 56 818 278
-------- ------- --------
Net cash used in operating activities . . . . . . . . . . . (7,864) (7,161) (10,152)
-------- ------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment
(operating and held for sale) . . . . . . . . . . . . . . 3,204 10,357 3,489
Proceeds from the sale of RehabCare stock . . . . . . . . . . --- --- 18,825
Proceeds from Sovran settlement, net . . . . . . . . . . . . . --- --- 584
Additions to property and equipment, net . . . . . . . . . . . (362) (383) (474)
Purchase of operating entity . . . . . . . . . . . . . . . . . (50) --- (75)
-------- ------- --------
Net cash provided by investing activities . . . . . . . . . 2,792 9,974 22,349
-------- ------- --------
Cash flows from financing activities:
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . (725) (2,158) (11,835)
Bank and other (repayments)borrowings . . . . . . . . . . . . 3,055 --- (1,266)
Exercise of stock options . . . . . . . . . . . . . . . . . . --- --- 50
Proceeds from the issuance of stock . . . . . . . . . . . . . 2,503 --- ---
-------- ------- --------
Net cash provided by(used in) financing activities . . . . 4,833 (2,158) (13,051)
-------- ------- --------
Net increase(decrease) in cash and cash equivalents . . . . . . . (239) 655 (854)
Cash and cash equivalents at beginning of year . . . . . . . . . 1,781 1,126 1,980
-------- ------- --------
Cash and cash equivalents at end of year . . . . . . . . . . . . $1,542 $ 1,781 $ 1,126
======== ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 527 $1,302 $ 2,050
======== ======= ========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ 507 $ 233 $ 338
======== ======= ========
</TABLE>
See accompanying notes.
37
<PAGE> 9
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of
Comprehensive Care Corporation (the "Company") and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The Company's consolidated financial statements are presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
continuation of the Company's business is dependent upon the resolution of
operating and short-term liquidity problems (see Note 2-- "Operating Losses and
Liquidity").
Revenue Recognition
Approximately 52%, 66% and 88% of the Company's operating revenues were
received from private sources in fiscal 1995, 1994 and 1993, respectively. The
remainder is received from Medicare, Medicaid and other governmental programs.
The latter are programs which provide for payments at rates generally less than
established billing rates. Payments are subject to audit by intermediaries
administering these programs. Revenues from these programs are recorded under
reimbursement principles applicable to each of the programs. Although management
believes estimated provisions currently recorded properly reflect these
revenues, any differences between final settlement and these estimated
provisions are reflected in operating revenues in the year finalized. Such
differences between estimated and final settlements approximated $(8,000) during
fiscal 1995.
Depreciation
Depreciation and amortization of property and equipment are computed on
the straight-line method over the estimated useful lives of the related assets,
principally: buildings and improvements -- 5 to 40 years; furniture and
equipment -- 3 to 12 years; leasehold improvements -- life of lease or life of
asset, whichever is less.
Property and Equipment Held for Sale
Property and equipment held for sale represents net assets of certain
freestanding facilities and other properties that the Company intends to sell,
within the next fiscal year, and is carried at estimated net realizable value
less holding costs anticipated to be incurred.
Property and equipment held for sale are expected to be sold in the next
fiscal year. Such property and equipment is shown as non-current assets on the
consolidated balance sheet as of May 31, 1995 due to the fact that contracts for
sale have not been fully negotiated. Gains and losses on facilities sold have
been reflected as adjustments to the estimated remaining property values. When
all assets that are classified as property and equipment held for sale are sold,
a net gain is anticipated that will be recognized and separately identified in
the statement of operations.
Intangible Assets
Intangible assets include costs in excess of fair value of net assets of
businesses purchased (goodwill), licenses, and similar rights. Costs in excess
of net assets purchased are amortized over 20 to 25 years. The costs of other
intangible assets are amortized over the period of benefit. The Company assesses
the recoverability and the amortization period of goodwill by determining
whether the amount can be recovered through undiscounted cash flows of the
businesses acquired, excluding interest expense and amortization, over the
remaining amortization
38
<PAGE> 10
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
period. The Company considers external factors relating to each acquired
business, including local market developments, regional and national trends,
regulatory developments and other pertinent factors including the business'
current and expected financial performance in making its assessment. The Company
believes that the $1.6 million of net recorded intangible assets at May 31,
1995, are recoverable from future estimated undiscounted cash flows. The amounts
in the consolidated balance sheets are net of accumulated amortization of
goodwill of $731,000 and $652,000 at May 31, 1995 and 1994, respectively.
Deferred Contract Costs
The Company has entered into contracts with independent general
hospitals whereby it will provide services in excess of the standard agreement.
In recognition of the hospitals' long-term commitment, the Company has paid
certain amounts to them. These amounts may be used by the hospitals for capital
improvements or as otherwise determined by the hospital. The Company is entitled
to a prorata refund in the event that the hospital terminates the contract
before its scheduled termination date; accordingly, these amounts are charged to
expense over the life of the contract.
Cash and Cash Equivalents
Cash in excess of daily requirements is invested in short-term
investments with original maturities of three months or less. Such investments
are deemed to be cash equivalents for purposes of the consolidated statements of
cash flows and aggregate $318,000 and $1,294,000 at May 31, 1995 and 1994,
respectively.
Excluded from cash and cash equivalents is a certificate of deposit in
the amount of $55,000 at May 31, 1995. Such certificate of deposit secures a
letter of credit which is required under a capitated contract and is subject to
adjustment annually. As a result, this short-term investment has been classified
as other current assets in the financial statements at May 31, 1995.
Income Taxes
Effective June 1, 1993, the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 109, "Accounting for Income Taxes" on a
prospective basis. Prior to this date, the Company accounted for income taxes
under APB 11. Statement No. 109 changed the Company's method of accounting for
income taxes from the deferred method required under APB 11 to the asset and
liability method. Under the deferred method, annual income tax expense is
matched with pretax accounting income by providing deferred taxes at current tax
rates for timing differences between the determination of net earnings for
financial reporting and tax purposes. The objective of the asset and liability
method is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized or settled. The change to Statement No. 109 had
no cumulative effect on the financial statements of the Company as a result of
recording a valuation allowance.
Charity Care
The Company provides charity care to patients who meet certain criteria
under its charity care policy without charge or at amounts less than its
established rates. Corporate policy allows for charity when appropriate, which
must be prearranged, and the patient must meet applicable federal and/or state
poverty guidelines. The Company will not pursue collection of charity accounts.
Charity charges foregone, based upon established rates, were less than 1% of the
Company's operating revenues for fiscal 1995, 1994 and 1993.
39
<PAGE> 11
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Loss Per Share
Primary and fully diluted loss per common and common equivalent share
have been computed by dividing net loss by the weighted average number of common
shares outstanding during the period. During fiscal 1995, 1994 and 1993, the
effect of outstanding stock options and the assumed conversion of the
convertible subordinated debentures had an antidilutive impact on loss per share
and, accordingly, were excluded from per share computations.
On May 16, 1994, the stockholders of the Company approved an amendment
to the Company's Certificate of Incorporation to effect a reverse stock split of
one share for each ten or fewer shares of the Company's Common Stock, with the
specific ratio to be selected by the Board of Directors. The stockholders also
approved amendments to the Certificate of Incorporation reducing the par value
of the Company's Common Stock to $.01 per share and reducing the number of
authorized shares of Common Stock to five times the number of shares
outstanding, reserved or otherwise committed for future issuance but not less
than 12.5 million. The reverse stock split and amendments to the Certificate of
Incorporation were to become effective on any date selected by the Board of
Directors prior to February 16, 1995.
The Board of Directors effected a one-for-ten reverse stock split
effective October 17, 1994. On the effective date of the reverse stock split,
the Certificate of Incorporation was amended to reduce the par value of the
Common Stock to $.01 per share and to reduce the number of authorized shares of
Common Stock to 12.5 million. All share and per share amounts contained in these
financial statements retroactively reflect the effect of the reverse stock split
for all periods presented, which effect is to reduce the number of shares set
forth by a factor of ten, with each stockholder's proportionate ownership
interest remaining constant, except for payment in lieu of fractional shares.
The weighted average number of common and common equivalent shares used
to calculate loss per share was 2,257,000, 2,199,000 and 2,196,000 for the years
ended May 31, 1995, 1994 and 1993, respectively.
Recently Issued Accounting Standards
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the Impairment
of Long-Lived Assets to Be Disposed Of". The Company is required to adopt the
provisions of this statement in 1997. SFAS No. 121 requires that the Company
review long-lived assets and certain identifiable intangibles to be held and
used for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. This review requires
the estimation of the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is to be recognized. Measurement of an impairment
loss for long-lived assets and identified intangibles that an entity expects to
hold and use should be based on the fair value of the assets. The statement
further requires that long-lived assets and certain identifiable intangibles to
be disposed of be reported at the lower of carrying amount or fair value less
cost to sell. When adopted by the Company, this statement will govern the
accounting for the Company's Property and Equipment, Intangible Assets and
Property and Equipment Held for Sale.
As further described in Note 5, in 1992 the Company had transferred most
of its recorded hospital plant and equipment, which were proposed for inclusion
in a sale/leaseback transaction, into property and equipment held for sale and
reported them at their net realizable value. Such sale/leaseback plans were
terminated in October 1992, and the property and equipment was returned to
operating assets at their then net realizable value. Given the
40
<PAGE> 12
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Company's ongoing losses and the presence of other industry related impairment
indicators, the Company has continued to depreciate those assets from that
basis. As a result, the Company's Property and Equipment is carried at a value
that approximates its current fair value. Property and Equipment Held for Sale
is reported at the assets net realizable value, which management believes
approximates the fair values of those assets less holding costs anticipated to
be incurred. Further, as indicated above (Intangible Assets), the Company
continues to evaluate the recoverability of recorded intangible assets of $1.6
million (see Note 8-- "Other Assets"). Accordingly, implementation of SFAS No.
121 is not expected to have a significant impact upon the Company's financial
statements.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
NOTE 2-- OPERATING LOSSES AND LIQUIDITY
The Company reported a net loss of $11.5 million for the year ended May
31, 1995 and has reported net losses in each of the four preceding fiscal years
aggregating an additional $39.8 million. As a result, the Company has an
accumulated deficit of $46.5 million and a total stockholders' deficiency of
$4.9 million as of May 31, 1995. Additionally, the Company's current assets at
May 31, 1995 amounted to approximately $8.0 million and current liabilities were
approximately $23.4 million, resulting in a working capital deficiency of
approximately $15.4 million and a current ratio of 1:2.9.
Included in current liabilities are $9.5 million of Debentures in
default as a result of the Company's failure to make scheduled payments of
interest on the Debentures commencing in October 1994. As further discussed in
Note 10-- "Long-Term Debt and Short-Term Borrowings", the Company has agreed to
use its best efforts to provide an opportunity for Debenture holders to tender
their Debentures pursuant to an exchange offer to be made by the Company. This
proposed transaction requires the holders of a majority of the Debentures to
give their approval to rescind the acceleration and the Company to obtain and
expend up to $5.5 million of cash during fiscal 1996, over and above cash
required to fund other financing, operating and investing needs. Additionally,
the Debenture exchange provides for the Company to issue $120 worth of its
common stock at a defined value for each $1,000 of Debentures, which may be
contingent upon the Company's ability to effect certain filings with the
Securities and Exchange Commission. The ability to timely proceed with any such
proposed filings will, in part, depend upon the ability of the Company to obtain
a consent from its prior auditors for the use of their report on the Company's
consolidated financial statements in such registration statements. Failure to
obtain Debenture holder approval or to accomplish the Debenture exchange, or, in
the alternative, a failure of the Company and the Debenture holders to otherwise
reach a settlement, may cause the Debenture holders to pursue the involuntary
bankruptcy of the Company and/or the Company to take alternative actions that
may include filing for voluntary protection from creditors. Alternatively, if
the Debenture exchange is accomplished, the elimination of the Debenture's debt
service requirement would decrease the Company's future cash flow requirements.
(The foregoing summary does not constitute an offer to the holders of the
Company's Debentures. Any such offer may only be made pursuant to an exchange
offer, and in conformity with the relevant securities laws, rules and
regulations.)
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The 1995 consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amount and classification of
liabilities that may result from the outcome of this uncertainty.
41
<PAGE> 13
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
To address the Company's operational issues, in fiscal 1993 the Company
established a restructuring reserve (see Note 9-- "Accounts Payables and Accrued
Liabilities"). One purpose of such reserve was for the realignment of the
Company's focus and business and the settlement and disposition of certain
non-performing and under-utilized assets. Through May 31, 1995 many of the
Company's inpatient freestanding facilities have been sold or are in the process
of being closed or sold. Additionally, in fiscal 1995, management has begun to
implement plans for expanding the Company's contract management and managed care
operations (see Note 3-- "Acquisitions and Dispositions").
In previous years, the Company was obligated to support and fund certain
freestanding facilities that now have been closed, including two such facilities
closed in fiscal 1995 (see Note 5-- "Property and Equipment Held for Sale"). As
a result, the Company will no longer be burdened with the negative cash flow
requirements associated with such facilities. Based upon a projection of actual
performance during fiscal 1995 with adjustments for reduced cash flow
requirements associated with facilities closed and/or sold in fiscal 1995, known
contract and cyclical changes, and also giving consideration to cash on hand at
May 31, 1995 of $1.5 million, management expects the Company to be able to meet
its cash obligations required by operations during fiscal 1996, excluding the
Company's obligations under the Debentures. However, the cash needs of the
Company may vary from month to month depending upon the actual level of business
activity, and through the first quarter of fiscal 1996 the Company continues to
incur losses. Therefore, no assurance can be given that the Company will
generate adequate cash flows to meet cash obligations required by operations,
excluding the Company's obligations under the Debentures, in fiscal 1996.
To provide funds for the Debenture exchange and/or additional operating
needs, the Company anticipates utilizing one or more of the following potential
sources of cash:
- The Company has received a firm commitment from a mutual fund to
purchase in a private placement at least $5.0 million of 15%
fully secured Company notes due no earlier than December 1996 if
offered by the Company.
- The Company has filed its fiscal 1995 Federal tax return, and a
Form 1139 "Corporate Application for Tentative Refund" in the
amount of $9.4 million. In the event the Company receives the
full refund claim for fiscal 1995, the net amount of cash
available for working capital purposes would be $7.5 million.
The Company has also filed amended Federal tax returns for prior
years to claim refunds of an additional $13.2 million. These
refund claims have been made under Section 172(f) of the
Internal Revenue Code, an area of the tax law without
significant precedent, and there may be substantial opposition
by the IRS to the Company's refund claims. Accordingly, no
assurances can be made to the Company's entitlement to such
refunds or the timing of the receipt thereof (see Note 12--
"Income Taxes").
- Included in non-current assets are three hospital facilities
designated as property and equipment held for sale with a total
carrying value of $3.7 million. The Company expects to sell two
of these facilities in the next fiscal year and may lease a
third facility to an unrelated entity. However, the contracts
have not been fully negotiated, and proceeds from the sales or
lease of such assets are not expected to be available by the
time the Debenture exchange is expected to occur. Accordingly,
management expects to use such cash proceeds, if received during
fiscal 1996, to fund and expand the Company's operations and
implement the Company's restructuring plans.
42
<PAGE> 14
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
- In March 1995, a jury awarded the Company approximately $2.7
million, plus interest, in damages in its lawsuit against
RehabCare Corporation. The defendant has posted a bond for the
amount of the award and has filed an appeal of the judgment.
Management is unable to predict whether any proceeds from this
judgment will be received in fiscal 1996 (see Note 15--
"Commitments and Contingencies").
All of these potential sources of additional cash in fiscal 1996 are
subject to variation due to business and economic influences outside the
Company's control. There can be no assurance that during fiscal 1996 the Company
will complete the transactions required to fund its working capital deficit.
NOTE 3-- ACQUISITIONS AND DISPOSITIONS
On May 22, 1995, the Company and its subsidiary, Comprehensive
Behavioral entered into an agreement with Physicians Corporation of America
("PCA"), providing for PCA to invest $1.0 million in Comprehensive Behavioral
for 13 1/2% of the voting power of Comprehensive Behavioral represented by all
of the Series A Preferred Stock of Comprehensive Behavioral which is also
exchangeable at the option of PCA for 100,000 shares of the Company's Common
Stock. As a key to the agreement, so long as PCA remains an equity holder of
Comprehensive Behavioral, PCA and its subsidiaries will negotiate in good faith
to contract with Comprehensive Behavioral for the delivery of mental health
services in all PCA service areas where Comprehensive Behavioral has an adequate
network. In addition, PCA was granted a first right of refusal regarding any
sale of Comprehensive Behavioral. The Company is required to maintain a $3.75
million investment in its subsidiary, Comprehensive Behavioral, which limits the
extent to which cash dividends may be paid to the parent. Effective June 1,
1995, Comprehensive Behavioral will provide services on a capitated basis to
220,000 of PCA's 700,000 members in the Tampa area. In conjunction with this
contract, in May 1995, PCA advanced $360,000 to Comprehensive Behavioral. Such
advance is reimbursable to PCA in 12 equal monthly installments.
On April 30, 1995, the Company's lease ended in Grand Rapids, Michigan.
As a result, the Company ceased operations in that facility; however the Company
entered into an agreement with Longford Health Sources, Inc., to operate a
chemical dependency unit in Kent Community Hospital in Grand Rapids, Michigan.
On April 1, 1995, the Company agreed to issue American Mental Health
Care, Inc. ("AMH") 44,054 shares of the Company's common stock in return for a
one-year management contract between Comprehensive Behavioral and AMH, one-third
of the shares of AMH and a one year option to acquire all of the shares of AMH
for up to 132,162 additional shares of the Company's Common Stock to be issued
based on three-year net revenue requirements. AMH currently provides behavioral
managed care services in Florida. The terms of the management agreement include
an employment contract with Comprehensive Behavioral for the former president of
AMH. The management contract has not been fully executed; however, AMH has
assigned its revenues and associated expenses to Comprehensive Behavioral
effective April 1, 1995. The Company's consolidated financial statements as of
May 31, 1995 reflect such revenue assignment and expense assumption.
On February 1, 1995, the Company purchased certain assets of Alternative
Psychiatric Centers, Inc., ("APC"), a behavioral medicine contract management
company based in Southern California for $50,000, from Drew Q. Miller, who
joined the Company and is currently Chief Financial Officer and Chief Operating
Officer. APC had two operating locations with three contract units offering
inpatient, outpatient and partial hospitalization services.
On November 22, 1994, the Company sold its CareUnit Hospital of Orlando.
Proceeds from the sale were utilized for working capital purposes. On March 3,
1995, the Company sold its Starting Point, Oak facility in
43
<PAGE> 15
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Sacramento, California. Proceeds from this sale were utilized for working
capital purposes and for payment to the IRS in accordance with the Company's
offer in compromise with the IRS. (see Note 15-- "Commitments and
Contingencies").
On April 5, 1993, the Company sold its CareUnit Hospital of Nevada.
Proceeds from the sale were utilized to reduce the Company's senior secured debt
and the remainder was used for working capital purposes. On July 1, 1993, the
Company sold its CareUnit Hospital of Albuquerque and on October 1, 1993, sold
its CareUnit Hospital of South Florida/Tampa. Proceeds from both of these sales
were utilized to reduce the Company's senior secured debt and the remainder was
utilized for working capital purposes. On December 10, 1993, the Company sold
its CareUnit Hospital of Coral Springs. Proceeds from the sale were utilized for
working capital purposes. In April 1994, the Company sold a material portion of
its publishing business. Proceeds from the sale were used for working capital
purposes.
In October 1992, the Company's wholly-owned subsidiary, Starting Point,
Inc., entered into a joint operating agreement with Century HealthCare of
California to manage Newport Harbor Psychiatric Hospital, a 68-bed adolescent
psychiatric facility and Starting Point, Orange County, a 70-bed adult
psychiatric facility. The Company has an 80% interest in this venture. This
agreement was mutually dissolved on February 28, 1993. Pretax losses of
approximately $0.0 million and $0.1 million, net of minority interest, were
included in the consolidated financial statements for the years ended May 31,
1995 and 1994, respectively.
In December 1992, the Company purchased Mental Health Programs, Inc.
based in Tampa, Florida, from the former owner. The Company was operating as
AccessCare, Inc., however, effective August 1, 1995, the Company changed its
name to Comprehensive Behavioral Care, Inc. The terms of the purchase included a
payment of $75,000, issuance of 4,000 shares of the Company's common stock, an
employment agreement, a stock option agreement and the assumption of bank debt
from the former owner. Both the stock option and employment agreements and the
release of the former owner as guarantor of the bank debt are contingent upon
the continued employment of the former owner with the Company. In connection
with this acquisition, the Company recorded goodwill of approximately $829,000.
In July 1993, the Company terminated the employment agreement and subsequently
entered into litigation with the former owner. On November 21, 1994, the Company
reached a settlement agreement with the former owner and will pay $250,000 in
installments through September 1996; forgive the obligations owing under the
indemnification agreement between the Company and the former owner; and satisfy
the terms under the stock purchase agreement dated December 30, 1992 between the
former owner and the Company to issue 16,000 shares of the Company's common
stock. The Company has established a reserve with respect to this settlement.
During the third quarter of 1995, the Company satisfied the terms of the stock
purchase agreement and commenced installment payments to the former owner.
Should the Company be unable to register the 20,000 shares issued to the former
owner prior to December 31, 1995, the Company will be obligated to pay a penalty
in the amount of $50,000.
On July 3, 1991, RehabCare, a wholly-owned subsidiary of the Company as
of May 31, 1991, and the Company completed an initial public offering of
2,500,000 shares of RehabCare common stock. Of the total shares sold to the
public, 1,700,000 shares were sold by the Company and 800,000 shares were new
shares issued by RehabCare. Net proceeds to the Company totaled approximately
$20.6 million, of which approximately $11.3 million was used to pay a portion of
the Company's senior secured debt. A gain of approximately $18 million on the
sale of the RehabCare shares was recorded in the Company's consolidated
statement of operations for the first quarter of fiscal 1992. The Company's
remaining 48% interest (2,300,000 shares) in RehabCare was accounted for on the
equity method (see Note 7-- "Investments in Unconsolidated Affiliates"). The
Company sold its remaining 48% interest in RehabCare to RehabCare during fiscal
1993 and a gain of approximately $13.1 million was recorded in the Company's
consolidated statement of operations for the second quarter of 1993. Net
proceeds
44
<PAGE> 16
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
to the Company totaled $18.8 million which were used for the paydown of a
portion of senior secured debt, short-term borrowings, and to fund working
capital.
NOTE 4-- ACCOUNTS AND NOTES RECEIVABLE
Current notes receivable was $2,750,000 at May 31, 1995 which
represented financing on the sale of Starting Point Oak. The note was collected
in July 1995. There were no current notes receivable as of May 31, 1994. The
following table summarizes changes in the Company's allowance for doubtful
accounts for the years ended May 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
BALANCE AT WRITE-OFF BALANCE AT
BEGINNING ADDITIONS CHARGED TO OF END OF
------------------------
OF YEAR EXPENSE RECOVERIES ACCOUNTS YEAR
---------- ------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1995 . . . . . $1,574 $ 2,808 $(1,385) $(1,901) $1,096
Year ended May 31, 1994 . . . . . 2,489 3,841 (2,283) (2,473) 1,574
Year ended May 31, 1993 . . . . . 4,137 9,379 (3,192) (7,835) 2,489
</TABLE>
During fiscal 1993, the freestanding facilities fully implemented the
current write-off and reserve policy whereby all accounts past a certain aging
category or otherwise deemed by management to be uncollectible are written-off
and recorded as bad debt expense. Any recoveries are reflected on the Company's
statement of operations as a reduction to the provision for doubtful accounts
in the period in which it is received. The Company's reserve for bad debt
represented 25%, 21% and 24% of total receivables, for fiscal years ended May
31, 1995, 1994 and 1993, respectively.
NOTE 5-- PROPERTY AND EQUIPMENT HELD FOR SALE
The Company has decided to dispose of certain freestanding facilities
and other assets (see Note 2-- "Operating Losses and Liquidity"). Property and
equipment held for sale, consisting of land, building, equipment and other fixed
assets with an historical net book value of approximately $11.8 million and
$23.3 million at May 31, 1995 and 1994, respectively, is carried at estimated
net realizable value of approximately $3.7 million and $6.9 million at May 31,
1995 and 1994, respectively. Operating revenues and operating expenses of the
facilities designated for disposition were approximately $0.1 million and $0.5
million, respectively, for the year ended May 31, 1995, $0.1 million and $1.3
million, respectively, for the year ended May 31, 1994, $0.8 million and $2.1
million, respectively, for the year ended May 31, 1993. In addition, $1.0
million was reclassified to property and equipment during fiscal 1994 to adjust
property to its estimated fair market value.
45
<PAGE> 17
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
A summary of the transactions affecting the carrying value of property
and equipment held for sale is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1995 1994 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . $ 6,939 $ 15,352 $ 35,568
Designation of facilities as property and equipment held for sale 2,347 --- 10,977
Carrying costs incurred during phase-out period . . . . . . . . . 420 1,241 1,330
Carrying value of assets sold . . . . . . . . . . . . . . . . . . (5,619) (7,981) ---
Contingencies on properties sold . . . . . . . . . . . . . . . . --- (848) ---
Loss on sale/write-down of facilities . . . . . . . . . . . . . . (341) (825) (3,670)
Redesignation of facilities as continuing operations . . . . . . --- --- (28,853)
------- -------- --------
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,746 $ 6,939 $ 15,352
======= ======== ========
</TABLE>
Contingencies for properties sold represent unresolved liabilities at the time
of sale. Proceeds from the sale of property and equipment held for sale were
$3.1 million (net of the $2.7 million note receivable) and $9.8 million for
fiscal 1995 and 1994, respectively. There were no sales proceeds in fiscal 1993.
The loss on sale/write-down of property and equipment held for sale is reflected
on the Company's statement of operations and consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------
1995 1994 1993
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Gain on properties sold . . . . . . . . . . . . . . . . . . . $ 836 $ 1,825 $ ---
Loss/write-down of property and equipment . . . . . . . . . . (495) (1,000) ---
Adjustment to estimated property values . . . . . . . . . . . (341) (825) (3,670)
------ ------- --------
$ --- $ --- $ (3,670)
====== ======= ========
</TABLE>
Property and equipment held for sale at May 31, 1992 included certain
hospitals which were proposed for inclusion in sale/leaseback transactions and
were carried at estimated net realizable value totaling $27.8 million. In early
fiscal 1993, the Company had expected to sell certain freestanding facilities to
CMP Properties, Inc. and lease them back. The facilities expected to be sold and
leased back were carried at estimated net realizable value which had been
reduced for estimated selling costs for these facilities. On October 28, 1992,
the board of directors of the Company terminated its plans for the public
offering of shares of common stock of its wholly owned subsidiary CMP
Properties, Inc. As a result, the proposed sale of hospitals to CMP Properties
subject to leaseback to the Company was not completed, and the properties which
were to be part of the transaction and were designated as assets held for sale
were reclassified during the second quarter as property and equipment.
46
<PAGE> 18
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
NOTE 6-- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF MAY 31,
-------------
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land and improvements . . . . . . . . . . . . . . . . . . . . . . $ 2,122 $ 4,063
Buildings and improvements . . . . . . . . . . . . . . . . . . . 16,260 18,192
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . 4,710 4,817
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 1,280 1,365
Capitalized leases . . . . . . . . . . . . . . . . . . . . . . . 809 889
------- -------
25,181 29,326
Less accumulated depreciation . . . . . . . . . . . . . . . . . . 13,074 13,338
------- -------
Net property and equipment . . . . . . . . . . . . . . . . . . . $12,107 $15,988
======= =======
</TABLE>
Included in property and equipment are write-downs to net realizable
value of $4.2 million and $4.6 million as of May 31, 1995 and 1994,
respectively. The loss on sale/write-down of property and equipment for the
years ended May 31, 1995, 1994 and 1993 were $259,000, $0, and $712,000,
respectively, and are reflected on the Company's statement of operations.
NOTE 7-- INVESTMENTS IN UNCONSOLIDATED AFFILIATES
NeuroAffiliates
The Company has a 50% interest in a joint venture partnership with
another corporation for the purpose of operating two hospitals. Under the terms
of the joint venture agreement, the Company managed Crossroads Hospital and its
partner managed Woodview-Calabasas Hospital. Each of the partners in the joint
venture received a management fee for the hospital it managed. The Company is
currently in negotiation to dissolve this joint venture retroactive to December
1991. The Company retained the hospital it managed and its partner retained the
other. The results of operations of the hospital retained have been included in
the consolidated financial statements beginning January 1, 1992. Crossroads
Hospital continued to be managed by the Company although it was closed in August
1992, and was subleased through the remaining term of the lease which expired in
September 1993. Woodview- Calabasas Hospital continues to be managed by its
joint-venture partner although it was closed in April 1993. Effective January 1,
1992, the Company no longer reported the results of operations for the
NeuroAffiliates joint venture as an investment in unconsolidated affiliates.
Golden Valley Health Center
The Company has a 50% interest in a joint venture agreement with a
subsidiary of HealthOne Corporation (formerly The Health Central System). The
joint venture owned and operated Golden Valley Health Center, a behavioral
medicine facility located in a suburb of Minneapolis, Minnesota. This facility
was sold to GVHC, Inc., an unrelated entity, during fiscal 1989. The terms of
the sale included the joint venture holding a promissory note from the purchaser
of the facility for $2.5 million. The Company serves as managing partner of the
joint venture. The purchaser was forced into receivership in January 1992 and
was dissolved during fiscal 1994. The Company did not receive any proceeds from
this dissolution. In fiscal 1991, the Company recorded its respective loss in
the joint venture as a result of the uncollectability of the promissory note.
The Company is in the process of dissolving this legal entity; however, there
are no longer any transactions or results of operations to report.
47
<PAGE> 19
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
RehabCare Corporation
On July 3, 1991, RehabCare Corporation ("RehabCare"), a wholly-owned
subsidiary of the Company as of May 31, 1991, and the Company completed an
initial public offering of 2,500,000 shares of RehabCare common stock. The
Company's remaining 48% interest (2,300,000 shares) in RehabCare was accounted
for on the equity method. The Company sold its remaining 48% interest in
RehabCare to RehabCare during fiscal 1993 and a gain of approximately $13.1
million was recorded in the Company's consolidated statement of operations for
the second quarter of 1993. Net proceeds to the Company totaled $18.8 million
which were used for the paydown of a portion of senior secured debt, short-term
borrowings, and to fund working capital. As of May 31, 1993, the Company no
longer had any interest in the outstanding common stock of RehabCare. Earnings
under the equity method related to the Company's ownership in RehabCare amounted
to $384,000 for the year ended May 31, 1993. The condensed combined operating
results of affiliates for fiscal 1993 include the results of RehabCare through
the sale of the Company's remaining interest in November 1992. The Company no
longer reports any investment in RehabCare.
Summary of Unconsolidated Affiliates
The Company reported its interest in these affiliates on the equity
method. Due to the termination of operations and/or dissolution of the above
joint ventures, the condensed consolidated assets and liabilities of these
affiliates are zero at May 31, 1995 and 1994. The condensed combined operating
results of affiliates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1995 1994 1993
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --- $ --- $11,928
Costs and expenses:
Operating, general and administrative . . . . . . . . . . . $ --- --- 10,536
Depreciation and amortization . . . . . . . . . . . . . . . --- --- 148
------- ------- -------
--- --- 10,684
------- ------- -------
Earnings before income taxes . . . . . . . . . . . . . . . . . --- --- 1,244
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . --- --- 443
------- ------- -------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ --- $ --- $ 801
======= ======= =======
</TABLE>
NOTE 8-- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
AS OF MAY 31,
-------------
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Intangible assets, net . . . . . . . . . . . . . . . . . . . . $1,636 $1,762
Deferred contract costs, net . . . . . . . . . . . . . . . . . 99 81
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 319
------ ------
$2,136 $2,162
====== ======
</TABLE>
48
<PAGE> 20
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
NOTE 9-- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
AS OF MAY 31,
-------------
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued liabilities . . . . . . . . . . . $ 5,737 $ 7,729
Accrued claims payable . . . . . . . . . . . . . . . . . . . . 1,584 454
Accrued restructuring/non-recurring . . . . . . . . . . . . . . 508 1,228
Accrued salaries and wages . . . . . . . . . . . . . . . . . . 980 1,140
Accrued vacation . . . . . . . . . . . . . . . . . . . . . . . 407 576
Accrued legal . . . . . . . . . . . . . . . . . . . . . . . . . 198 353
Payable to third-party intermediaries . . . . . . . . . . . . . 584 1,751
Deferred compensation . . . . . . . . . . . . . . . . . . . . . 237 545
------- -------
$10,235 $13,776
======= =======
</TABLE>
One of the Company's subsidiaries provides managed behavioral health and
substance abuse services to members under capitated contracts. The cost of
health care services is recognized in the period in which it is provided and
includes an estimate of the costs of services which have been incurred but not
yet reported. The estimate for accrued claims payable is based on projections of
costs using historical studies of claims paid. Estimates are continually
monitored and reviewed and, as settlements are made or estimates adjusted,
differences are reflected in current operations.
A reserve for restructuring was established in fiscal 1993 for $5.4 million
for the purpose of implementing management's plan for the "global restructuring"
of the Company. It is management's intent to complete the "global restructuring"
plan in fiscal 1996. Management intends to allocate the remaining balance
accordingly: $0.3 million for corporate relocation and consolidation and $0.2
million as severance payments.
The following table sets forth the activity during the years ended May 31,
1995 and 1994:
<TABLE>
<CAPTION>
AS OF MAY 31,
-------------
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $1,228 $2,642
Less:
Cash items . . . . . . . . . . . . . . . . . . . . . . . . 620 1,377
Non-cash items . . . . . . . . . . . . . . . . . . . . . . 100 37
------ ------
$ 508 $1,228
====== ======
</TABLE>
Severance payments of $0.3 million and $0.1 million paid in fiscal 1995 and
1994, respectively, were the result of the closure and relocation of three
facilities, as well as, the general downsizing as part of the Company's "global
restructuring" plan. This restructuring resulted in the termination of 91 and 43
employees during fiscal 1995 and 1994, respectively.
49
<PAGE> 21
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
NOTE 10-- LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Senior secured debt:
12.5% secured convertible note, with quarterly interest
payments, maturing in January 1997 (a) . . . . . . . . . . . . $ 2,000 $ ---
------- --------
2,000 ---
7.5% convertible subordinated debentures due 2010 (b) . . . . . . . 9,538 9,538
9% note payable in monthly installments maturing in 1996,
by real and personal property having a net book value
of $2,281 . . . . . . . . . . . . . . . . . . . . . . . . . . 4 41
9% offer in compromise (c) . . . . . . . . . . . . . . . . . . . . 4,566 ---
10% secured promissory note, payable in monthly installments,
maturing in January 1997 (d) . . . . . . . . . . . . . . . . . 899 ---
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . 677 740
Bank debt, interest and principal payable in monthly installments maturing in
August 1997, collateralized by the trust of the
former owner (e) . . . . . . . . . . . . . . . . . . . . . . . 216 312
------- --------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . 17,900 10,631
Less long-term debt in default (b) . . . . . . . . . . . . . . . . 9,538 ---
Less current maturities of long-term debt . . . . . . . . . . . . . 3,285 154
------- --------
Long-term debt, excluding current maturities . . . . . . . . . . . $ 5,077 $10,477
======= ========
</TABLE>
As of May 31, 1995, aggregate annual maturities of long-term debt for
the next five years (in accordance with stated maturities of the respective loan
agreements) are approximately $3,285,000 in 1996, $2,968,000 in 1997, $528,000
in 1998 and $504,000 in 1999, and $400,000 in 2000.
The Company had no revolving loan or short-term borrowings during fiscal
1994 and 1995. The maximum amount outstanding on the revolving loan and
short-term borrowings was approximately $4.2 million during the year ended May
31, 1993. The average amount outstanding of such borrowings, based upon an
average of month-end balances for periods when the Company had such debt
outstanding, was $2.2 million during the year ended May 31, 1993. Weighted
average interest rates for short-term borrowings were 7.54% for the year ended
May 31, 1993.
(a) On January 9, 1995, the Company issued a $2.0 million Secured
Convertible Note due January 9, 1997 to Lindner Bulwark Fund, a series of
Lindner Investments, a business trust. The Note is secured by first priority
liens on two of the Company's operating hospital properties. The Note bears
interest at the rate of 12 1/2% per annum, payable quarterly, and in the event
of a default, a charge of 2 1/2% per annum until the default is cured. Prior to
maturity, the Note is redeemable, in whole or in part, at the option of the
Company at a redemption price initially of 120% of the amount of principal
redeemed, declining after January 9, 1996 to 110% of principal. Until paid, the
principal amount of the Note is convertible into the Company's Common Stock, par
value $0.01, at the rate of $6.00 per share (which was the fair market value on
the date of signing). The maximum number of shares issuable upon conversion of
the Note was approximately 333,333, subject to adjustments for dilution and
recapitalization, which is under 15% of the undiluted number of shares of Common
Stock outstanding. The
50
<PAGE> 22
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
proceeds were used to pay costs of closing unprofitable operations, working
capital and other general corporate purposes.
(b) In April 1985, the Company issued $46 million in 7 1/2% Convertible
Subordinated Debentures (the "Debentures"). These Debentures require that the
Company make semi-annual interest payments in April and October at an interest
rate of 7.5% per annum. The Debentures are due in 2010 but may be converted to
common stock of the Company at the option of the holder at a conversion price of
$230.00 per share, subject to adjustment in certain events. The Debentures are
also redeemable at the option of the Company in certain circumstances. Mandatory
annual sinking fund payments sufficient to retire 5% of the aggregate principal
amount of the Debentures are required to be made on each April 15 commencing in
April 1996 to and including April 15, 2009. Should the Company default on its
senior debt, then the Company may be precluded from paying principal or interest
on the Debentures until such default is cured or waived. During fiscal 1991,
holders of approximately $36.5 million Debentures voluntarily converted their
Debentures into 11,667,200 shares of common stock at a temporarily reduced
conversion price.
The Company did not make its payment of interest on the Debentures when
such payment was scheduled on October 17, 1994. In early February 1995, a group
of holders and purported holders of the Debentures gave notice of acceleration
of the entire amount of principal and interest due under the Debentures, and on
February 24, 1995, a subset of such persons filed an involuntary petition in the
United States Bankruptcy Court for the Northern District of Texas under Chapter
7 of the U.S. Bankruptcy Code. On March 3, 1995, the Company entered into a
letter agreement with a representative of the certain holders of the Debentures
who had taken such actions. The agreement provides for a consensual,
out-of-court resolution that the Company's Board of Directors has approved as in
the best interests of the Company, its stockholders and other stakeholders. The
holders' representative agreed to use best efforts to provide notices of waiver
of the interest non-payment default, notices of rescission of the Debenture
acceleration and the effects thereof, and consent to the immediate dismissal of
the involuntary Chapter 7 petition. In return, the Company has agreed to use
best efforts to provide an opportunity to holders of Debentures to tender their
Debentures to the Company pursuant to an exchange offer to be made by the
Company to the holders of the Debentures. The offer consideration will consist
of $500 in cash and $120 worth in shares of Common Stock at a defined value per
each $1,000 in face amount of Debentures. Tendering holders will not receive
interest calculated from and after April 15, 1994 (which includes the October
17, 1994 and April 17, 1995 payments) and in lieu of calculated interest will
receive an interest payment of $80 per $1,000 principal amount of Debentures. If
the exchange offer with holders of Debentures is consummated on the terms in the
letter agreement and assuming the tender of 100% of the outstanding Debentures,
the portion of the offer consideration which will be payable in cash by the
Company would be approximately $5,550,000. Among the factors affecting the
anticipated exchange offering are the various conditions to the consummation of
the offer and the ability of the Company to finance the cash payment necessary,
and no assurance can be made that the exchange offer will be successfully
completed. Failure to consummate the Debenture exchange offer may result in the
Debenture holders instituting involuntary bankruptcy proceedings and/or in the
Company considering alternative actions including filing for voluntary
protection from creditors. In such case, the Company believes that the recovery
to it security holders would be less in a bankruptcy case than the recovery that
may be achieved under the consensual, out-of-court arrangement the Company has
reached. In addition, the letter agreement provides for a pledge of all of the
shares of CareUnit, Inc. to secure the Company's obligation to purchase the
Debentures, pursuant to the exchange or otherwise; and failure to complete an
exchange could result in a foreclosure sale of such shares. The foregoing is
intended to disclose event, and does not constitute an offer to the holders of
the Company's Debentures. Any such offer may only be made pursuant to an
exchange offer, and in conformity with the relevant rules and regulations of the
Securities Act of 1933. As a result of the default on the interest payment to
the holders, the Company has classified the outstanding principal amount of the
Debentures as current as of May 31, 1995.
51
<PAGE> 23
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(c) In December 1994, the Company reached a final settlement with the
Internal Revenue Service ("IRS") on the payroll tax audit (see Note 15--
"Commitment and Contingencies") pursuant to which the Company entered into an
Offer in Compromise and will pay the IRS $5.0 million with the Company having no
obligation to pay any penalties or accrued interest. Payment terms have been
accepted at 50% within 90 days (extended an additional 120 days) of finalization
with the remaining balance financed over the next five years. In March 1995, the
Company paid $350,000 to the IRS against the initial payment due. The Company
paid the remaining balance (of the initial payment) of $2,150,000 on July 10,
1995. The Company commenced monthly installment payments to the IRS in April
1995. Interest accrues at 9% per annum and is due and payable upon billing at
the end of the term.
The Company has filed its 1995 Federal tax return which included a
refund claim to the Company for $9.4 million (see Note 12-- "Income Taxes").
This refund is not reflected on the Company's consolidated financial statements
as of May 31, 1995.
(d) In May 1995, the Company and a subsidiary entered into a $1.0
million promissory note with PMR Corporation. Performance of the obligations
under the note is secured by a deed of trust on the property of a subsidiary.
The note provides for the payment of interest at a fixed rate of 10% per annum.
The Company made a principal payment of $125,000 in April 1995 and paid $50,000
in May 1995. The note requires equal monthly principal payments commencing June
1, 1995 and continuing through February 1997.
(e) On December 30, 1992, the Company assumed approximately $456,000 in
bank debt with the purchase of Mental Health Programs, Inc. (see Note
3--"Acquisition and Dispositions"). The note is secured and guaranteed by the
trust of the former owner of Mental Health Programs, Inc. The release of
collateral and guarantee are contingent upon continued employment of the former
owner with the Company. The note is payable at $8,000 per month with the balance
due on August 31, 1997. Interest is at prime plus 1.5%.
The net book value of assets pledged to secure the above debt aggregated $11.5
million at May 31, 1995.
NOTE 11-- LEASE COMMITMENTS
The Company leases certain facilities, furniture and equipment. The
facility leases contain escalation clauses based on the Consumer Price Index and
provisions for payment of real estate taxes, insurance, maintenance and repair
expenses. Total rental expenses for all operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1995 1994 1993
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals . . . . . . . . . . . . . . . . . . . . . . $1,085 $1,342 $1,257
Contingent rentals . . . . . . . . . . . . . . . . . . . . --- --- 15
------ ------ ------
Total rentals . . . . . . . . . . . . . . . . . . . . . . . $1,085 $1,342 $1,272
====== ====== ======
</TABLE>
Assets under capital leases are capitalized using interest rates
appropriate at the inception of each lease; contingent rents associated with
capital leases in fiscal 1995, 1994 and 1993 were $79,000, $61,000 and $60,000,
respectively. The net book value of capital leases at May 31, 1995 and 1994 was
$549,000 and $567,000, respectively.
52
<PAGE> 24
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Future minimum payments, by year and in the aggregate, under capital
leases and noncancellable operating leases with initial or remaining terms of
one year or more consist of the following at May 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138 $ 319
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 149
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 84
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 22
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 2
Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . 770 ---
------ -------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . 1,436 $ 576
=======
Less amounts representing interest . . . . . . . . . . . . . . . . 759
------
Present value of net minimum lease payments . . . . . . . . . . . $ 677
======
</TABLE>
NOTE 12-- INCOME TAXES
Provision for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1995 1994 1993
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --- $ --- $ ---
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 301 194
------ ------ ------
$ 180 $ 301 $ 194
====== ====== ======
</TABLE>
A reconciliation between the provision for income taxes and the amount
computed by applying the statutory Federal income tax rate (34%) to loss before
income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1995 1994 1993
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Benefit from income taxes at the statutory tax rate . . . . . . . . $(3,860) $(2,567) $(3,878)
State income taxes, net of federal tax benefit . . . . . . . . . . 119 199 128
Amortization of intangible assets . . . . . . . . . . . . . . . . . 39 38 30
Tax effect of net operating loss . . . . . . . . . . . . . . . . . 3,701 2,607 3,888
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 24 26
------- ------- -------
$ 180 $ 301 $ 194
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
comprised of the following:
53
<PAGE> 25
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Deferred Tax Assets:
Net operating losses . . . . . . . . . . . . . . . . $18,867 $14,968
Restructuring/non-recurring costs . . . . . . . . . . 4,853 9,418
Alternative minimum tax credits . . . . . . . . . . . 666 666
Bad debt expense . . . . . . . . . . . . . . . . . . 333 568
Employee benefits and options . . . . . . . . . . . . 432 663
Other, net . . . . . . . . . . . . . . . . . . . . . 273 2,186
------- -------
Total Deferred Tax Assets . . . . . . . . . . . 25,424 28,469
Valuation Allowance . . . . . . . . . . . . . . . . . (22,439) (24,417)
------- -------
Net Deferred Tax Assets . . . . . . . . . . . . 2,985 4,052
------- -------
Deferred Tax Liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . (1,866) (2,929)
State income taxes . . . . . . . . . . . . . . . . . (806) (654)
Cash to accrual differences . . . . . . . . . . . . . (313) (469)
------- -------
Total Deferred Tax Liabilities . . . . . . . . . ( 2,985) (4,052)
------- -------
Net Deferred Tax Assets . . . . . . . . . . . . . . . . . $ --- $ ---
======= =======
</TABLE>
The Company was previously subject to alternative minimum tax ("AMT") at
a 20% rate on alternative minimum taxable income which is determined by making
statutory adjustments to the Company's regular taxable income. Net operating
loss carryforwards and carry backs may be used to offset only 90% of the
Company's alternative minimum taxable income. The Company will be allowed a
credit carryover of $666,000 against regular tax in the event that regular tax
expense exceeds the alternative minimum tax expense (see Note 15-- "Commitments
and Contingencies").
On July 20, 1995, the Company filed its Federal tax return for fiscal
1995. On August 11, 1995, the Company filed Form 1139 "Corporate Application for
Tentative Refund" to carry back losses described in Section 172(f) requesting a
refund to the Company in the amount of $9.4 million. On August 30, 1995, the
Company also filed amended Federal tax returns for several prior fiscal years to
carry back losses under Section 172(f). The amount of refund claimed on the
amended returns is approximately $11.7 million for 1986; $0.4 million for 1985;
$0.7 million for 1983 and $0.4 million for 1982 which is a total of $13.2
million for the refunds from amended returns and a total of $22.6 million for
all refunds requested. Section 172(f) is an area of the tax law without
substantial legal precedent. There may be opposition by the IRS as to the
Company's ability to carry back such claim. Therefore, no assurances can be made
to the Company's entitlement to such claim. Consequently, a valuation allowance
was established against the potential tax benefit.
At May 31, 1995, the Company has Federal accumulated net operating
losses of approximately $50 million, which if carried forward would expire in
2006 through 2009. Subsequent to May 31, 1995, and in accordance with Section
172(f), the Company has carried back the entire $50 million of Federal
accumulated net operating losses requesting refunds of approximately $22.6
million. In the event these refund requests are ever challenged by the IRS, the
Company may be unable to utilize some or all of its net operating losses
depending upon the availability of sufficient net income from which to deduct
such losses during a three-year carry back or fifteen-year carryover period. The
Company may be further restricted as to its use of any of these losses if the
Company issues or agrees to issue amounts of additional equity which may
constitute a change in ownership under Section 382. All benefits recoverable
from Federal income taxes paid since May 31, 1990 have been recognized. No
further carry backs are available.
54
<PAGE> 26
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
NOTE 13-- EMPLOYEE BENEFIT PLANS
The Company had deferred compensation plans ("Financial Security Plans")
for its key executives and medical directors. Under provisions of these plans,
participants elected to defer receipt of a portion of their compensation to
future periods. Upon separation from the Company, participants received payouts
of their deferred compensation balances over periods from five to fifteen years.
Effective January 1, 1989, participants were not offered the opportunity to
defer compensation to future periods. In June 1992, the Company terminated the
plan and placed the remaining participants on 5-year payments. The consolidated
balance sheet as of May 31, 1995 reflects the present value of the obligation to
the participants under the plan of $660,000.
The Company has a 401(k) Plan, which is a defined contribution plan
qualified under Section 401(k) of the Internal Revenue Code, for the benefit of
its eligible employees. All full-time and part-time employees who have attained
the age of 21 and have completed six consecutive months of employment are
eligible to participate in the plan. Effective June 1, 1994, eligibility was
modified to one year of employment and a minimum of twenty (20) regular
scheduled hours per week. Each participant may contribute from 2% to 15% of his
or her compensation to the plan subject to limitations on the highly compensated
employees to ensure the plan is non-discriminatory. The Company made
approximately $29,000, $20,000 and $9,000 in contributions to the Plan in fiscal
1995, 1994 and 1993, respectively.
NOTE 14-- STOCKHOLDERS' EQUITY
The Company is authorized to issue 60,000 shares of preferred stock with
a par value of $50 per share. No preferred shares have been issued.
The Company has a 1988 Incentive Stock Option Plan and a 1988
Nonstatutory Stock Option Plan (the "1988 Plans"). Options granted under the
1988 Incentive Stock Option Plan are intended to qualify as incentive stock
options ("ISOs") under Section 422 of the Internal Revenue Code. In fiscal 1992,
the 1988 Incentive Stock Option Plan and 1988 Nonstatutory Stock Option Plan
were amended to increase the total number of shares reserved for issuance under
the plans and to expand the class of eligible persons under the nonstatutory
plan to include advisors and consultants. Options granted under the 1988
Nonstatutory Stock Option Plan do not qualify as ISOs. The maximum number of
shares originally subject to options were 150,000 and 40,000 for the ISOs and
nonstatutory options, respectively. In fiscal 1995, the plans were amended to
increase the number of shares authorized for issuance under the Company's 1988
incentive stock option plan to 500,000 and the Company's 1988 Nonstatutory Stock
Option Plan to 200,000. Such amendment was ratified by the shareholders on
November 14, 1994. The following table sets forth the activity related to ISOs
for the years ended May 31, 1995, 1994 and 1993:
55
<PAGE> 27
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
-------------------------
SHARES PER SHARE AGGREGATE
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, May 31, 1992 . . . . . . . . . . . . . . . . . . . . . 76,517 $12.50-33.80 $1,462
Options forfeited in fiscal 1993 . . . . . . . . . . . . . (13,000) $12.50-33.80 (283)
------- ------
Balance, May 31, 1993 . . . . . . . . . . . . . . . . . . . . . 63,517 $12.50-30.00 $1,179
Options forfeited in fiscal 1994 . . . . . . . . . . . . . (46,750) $12.50-30.00 (830)
------- ------
Balance, May 31, 1994 . . . . . . . . . . . . . . . . . . . . . 16,767 $12.50-30.00 $ 349
Options canceled in fiscal 1995 . . . . . . . . . . . . . . (5,000) $ 6.25- 7.50 (34)
Options issued in fiscal 1995 . . . . . . . . . . . . . . . 227,500 $ 6.25-12.00 1,684
Options forfeited in fiscal 1995 . . . . . . . . . . . . . (53,100) $ 6.25-30.00 (493)
------- ------
Balance, May 31, 1995 . . . . . 186,167 $ 6.25-30.00 $1,506
======= ======
</TABLE>
Options under the 1988 ISO Plan to purchase 62,115 shares and 12,601
shares were exercisable as of May 31, 1995 and 1994, respectively.
The following table sets forth the activity related to nonstatutory
options for the years ended May 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
-------------------------
SHARES PER SHARE AGGREGATE
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, May 31, 1992 . . . . . . . . . . . . . . . . . . . . . 32,000 $12.50 $ 400
Options exercised in fiscal 1993 . . . . . . . . . . . . . (4,000) $12.50 (50)
------- ------
Balance, May 31, 1993 . . . . . . . . . . . . . . . . . . . . . 28,000 $12.50 $ 350
Options forfeited in fiscal 1994 . . . . . . . . . . . . . (12,000) $12.50 (150)
------- ------
Balance, May 31, 1994 . . . . . . . . . . . . . . . . . . . . . 16,000 $12.50 $ 200
Options forfeited in fiscal 1995 . . . . . . . . . . . . . (12,000) $12.50 (150)
Options canceled in fiscal 1995 . . . . . . . . . . . . . . (4,000) $12.50 (50)
------- ------
Balance, May 31, 1995 . . . . . . . . . . . . . . . . . . . . . --- $ ---
======= ======
</TABLE>
There were no nonstatutory options exercisable as of May 31, 1995.
Nonstatutory options to purchase 16,000 shares were exercisable as of May 31,
1994.
The per share exercise price of options issued under the plans is
determined by the Board of Directors, but in no event is the option exercise
price so determined less than the then fair market value (as defined in the
plans) of the shares at the date of grant. In the case of an ISO, if, on the
date of the grant of such option, the optionee is a restricted stockholder (as
defined in the plans), the option exercise price cannot be less than 110% of the
fair market value of the shares on the date of the grant.
Options vest and become exercisable at such times and in such
installments as the Board of Directors provides for in the individual option
agreement, except that an option granted to a director may not be exercised
until the expiration of one year from the date such option is granted. Subject
to the limitation with respect to the vesting of options granted to directors,
the Board of Directors may in its sole discretion accelerate the time at which
an option or installment thereof may be exercised.
56
<PAGE> 28
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
In fiscal 1995, the Company implemented the Company's Directors' Stock
Option Plan (the "Director's Plan"). The terms of the Directors' Plan provides
for the grant of only non-qualified stock options. The Directors' Plan is not
subject to ERISA, nor is it qualified under code section 401(a) of the Internal
Revenue Code. The maximum number of shares subject to option are 200,000, and
all non-employee directors of the Company are eligible to participate in the
Directors' Plan. The Directors' Plan provides for the grant of non-qualified
stock options to non-employee directors as follows: (1) each individual serving
as a non-employee director as of the effective date were granted a non-qualified
stock option to purchase 10,000 share of common stock ("Initial Grant"); (2)
each individual who first becomes a non-employee director on or after the
effective date, will be granted, at the time of such election or appointment a
non-qualified stock option to purchase 10,000 shares of common stock ("Initial
Grant"); (3) commencing with the 1995 annual meeting of the Company's
stockholders, each individual who at each annual meeting of the Company's
stockholders remains a non-employee director will receive an additional
non-qualified stock option to purchase 2,500 shares of common stock. Each
non-qualified stock option is exercisable at a price equal to the common stock's
fair market value as of the date of grant. Initial grants vest annually in 25%
increments beginning on the first anniversary of the date of grant, provided the
individual is still a director on those dates. Annual grants will become 100%
vested as of the first annual meeting of the Company's stockholders following
the date of grant, provided the individual is still a director as of that date.
An optionee who ceases to be a director shall forfeit that portion of the option
attributable to such vesting dates on or after the date he or she ceases to be a
director.
During fiscal 1995, 50,000 non-qualified options were granted in the
Directors' Plan at $7.00 per share. There were no options under the Directors'
Plan exercisable as of May 31, 1995.
In July 1992, options not under any plan were issued to the former Vice
Chairman. Options for 100,000 shares were granted at an exercise price ranging
from $15.00 to $30.00. These options were exercisable 25 percent at grant date
and each year thereafter. The option was amended in November 1994 for 12,500
shares at $7.50 and expired on August 18, 1995. In December 1992, options not
under any plan were issued to the former owner of Mental Health Programs, Inc.,
as an inducement essential to the purchase of Mental Health Programs, Inc. (see
Note 3-- "Acquisitions and Dispositions"). Options for 10,000 shares were
granted at an exercise price ranging from $15.00 to $30.00. These options are
exercisable 25 percent after one year from the grant date and each year
thereafter and were contingent upon the continued employment with the Company.
In July 1993, the Company terminated the employment agreement with the former
owner and subsequently entered into litigation. On November 21, 1994, the
Company reached a settlement agreement with the former owner and as part of the
settlement agreement issued 16,000 shares of the Company's common stock. In
February 1993, options not under any plan were issued to the Company's former
Chief Financial Officer. Options for 50,000 shares were granted at an exercise
price ranging from $10.00 to $20.00. These options become exercisable 25 percent
after one year from the grant date and each year thereafter. In November 1994,
the former Chief Financial Officer resigned and all options have expired.
In August 1994, options not under any plan were issued to the interim
President and Chief Executive Officer as an inducement essential to his
appointment as President and Chief Executive Officer. Options for 50,000 shares
were granted at an exercise price ranging from $7.50 to $15.00 per share. These
options were exercisable 50 percent at grant date and 25 percent each year
thereafter.
In August 1994, options not under any plan were issued to the President of
a subsidiary of the Company. Options for 15,000 shares were granted as an
exercise price ranging from $7.50 to $15.00 per share. These options vest
one-third one year from the date of grant and one-third each year thereafter.
57
<PAGE> 29
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
In October 1994, options not under any plan were issued to a non-policy
making vice president of a subsidiary of the Company. Options for 20,000 shares
were granted at an exercise price ranging from $7.50 to $15.00 per share.
Options for 7,500 shares vest one year from the date of grant; options for 7,500
shares two years from the date of grant and the remaining options for 5,000
shares vest on the three year anniversary of the date of grant. In addition,
vesting of all options are subject to certain performance requirements. Failure
to meet such annual performance requirements will result in the forfeiture of
all or part of such options which vest in that year.
On February 1, 1995, the Company sold an aggregate of 100,000 shares of
Common Stock to one accredited investor in a private offering for an aggregate
purchase price of $600,000 paid in cash on February 7, 1995. Such agreement was
amended in June 1995 for an additional 15,000 shares as an adjustment for delay
in registration of shares without additional payment. On April 15, 1995 the
Company sold an aggregate of 150,000 shares of Common Stock to an accredited
investor in a private offering for an aggregate purchase price of $975,000 paid
in cash on April 19, 1995. It is the Company's intent to amend this agreement
for an additional 22,500 shares as an adjustment for delay in registration of
shares without additional payment.
On April 1, 1995, the Company agreed to issue American Mental Health Care,
Inc. ("AMH") 44,054 shares of the Company's Common Stock in return for a
one-year management contract between Comprehensive Behavioral and AMH, one-third
of the shares of AMH and a one year option to acquire all of the shares of AMH
for up to 132,162 additional shares of the Company's Common Stock to be issued
based on three-year net revenue requirements. AMH currently provides behavioral
managed care services in Florida. The terms of the management agreement include
an employment contract with Comprehensive Behavioral for the former president of
AMH.
On May 22, 1995, the Company and its subsidiary, Comprehensive Behavioral
entered into an agreement with Physicians Corporation of America ("PCA"),
providing for PCA to invest $1.0 million in Comprehensive Behavioral for 13 1/2%
of the voting power of Comprehensive Behavioral represented by all of the Series
A Preferred Stock of Comprehensive Behavioral which is also exchangeable at the
option of PCA for 100,000 shares of the Company's Common Stock. The right to
exchange expires in 10 years. As a key to the agreement, so long as PCA remains
an equity holder of Comprehensive Behavioral, PCA and its subsidiaries will
negotiate in good faith to contract with Comprehensive Behavioral for the
delivery of mental health services in all PCA service areas where Comprehensive
Behavioral has an adequate network. In addition, PCA was granted a first right
of refusal regarding any sale of Comprehensive Behavioral. The Series A
Preferred Stock is convertible into 13 1/2% of the common stock of Comprehensive
Behavioral on a fully-diluted basis, subject to certain antidilution
adjustments. The redemption price for the Series A Preferred Stock is equal to
the original purchase price plus 4% for each year the stock is outstanding. The
Company has the right to redeem the Series A Preferred Stock after approximately
five years, and PCA has the right to require the Company to redeem the Series A
Preferred Stock after approximately three years. On liquidation, the holder of
the Series A Preferred Stock will be entitled to a liquidation preference equal
to the redemption price. The Series A Preferred Stock is entitled to receive
dividends, if any, in an amount proportionate to its voting power when any
dividends are declared and paid on the common stock of Comprehensive Behavioral.
On April 19, 1988, the Company declared a dividend of one common share
purchase right ("Right") for each share of common stock outstanding at May 6,
1988. Each Right entitles the holder to purchase one share of common stock at a
price of $300 per share, subject to certain anti-dilution adjustments. The
Rights are not exercisable and are transferable only with the common stock until
the earlier of ten days following a public announcement that a person has
acquired ownership of 25% or more of the Company's common stock or the
commencement or announcement of a tender or exchange offer, the consummation of
which would result in the ownership by a person of 30% or more of the Company's
common stock. In the event that a person acquires 25% or more of the Company's
common stock or if the Company is the surviving corporation in a merger and its
58
<PAGE> 30
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
common stock is not changed or exchanged, each holder of a Right, other than the
25% stockholder (whose Rights will be void), will thereafter have the right to
receive on exercise that number of shares of common stock having a market value
of two times the exercise price of the Right. If the Company is acquired in a
merger or more than 50% of its assets are sold, proper provision shall be made
so that each Right holder shall have the right to receive or exercise, at the
then current exercise price of the Right, that number of shares of common stock
of the acquiring company that at the time of the transaction would have a market
value of two times the exercise price of the Right. The Rights are redeemable at
a price of $.20 per Right at any time prior to ten days after a person has
acquired 25% or more of the Company's common stock.
As of May 31, 1995, the Company has reserved 276,216 shares of Common
Stock for future issuances related to business acquisitions, approximately
773,441 shares related to the conversion of convertible debt and private
placements and 985,500 shares for the exercise of stock options of which
approximately 688,000 shares are for options granted under the Company's 1988
Plans and 200,000 shares under the Directors' Plan. Each of the shares
reserved for future issuance includes one Right as referenced above. As of May
31, 1995, no Preferred Stock is outstanding or reserved for issuance.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
On October 30, 1992, the Company filed a complaint in the United States
District Court for the Eastern District of Missouri against RehabCare
Corporation ("RehabCare") seeking damages for violations by RehabCare of the
securities laws of the United States, for common law fraud and for breach of
contract (Case No. 4:92CV002194 CAS). The Company sought damages for the lost
benefit of certain stockholder appreciation rights in an amount in excess of
$3.6 million and punitive damages. RehabCare filed a counterclaim in the case
seeking a declaratory judgement with respect to the rights of both parties under
the Stock Redemption Agreement, an injunction enjoining the Company from taking
certain action under the Stock Redemption or Restated Shareholders Agreements
and damages in the form of attorneys' fees and costs allegedly incurred by
RehabCare with respect to its issuance of certain preferred stock and with
respect to prior litigation between the parties. The case was tried before a
jury commencing on February 21, 1995. Prior to the presentation of evidence to
the jury, the Court struck RehabCare's counterclaim in its entirety. On March 8,
1995, the jury returned its verdict awarding the Company $2,681,250 in damages,
plus interest and the costs of the action against RehabCare for securities fraud
and for breach of contract. RehabCare has posted a bond in the amount of $3.0
million and filed a motion for new trial or in the alternative, for judgement
as a matter of law, which the court denied its entirety on August 4, 1995. On
September 1, 1995, RehabCare filed a notice of appeal with the District Court
indicating its intent to appeal the matter to the United States Court of
Appeals. Although the Company feels that RehabCare will not prevail in its
appeal, the Company has not recognized any gain with relation to the judgement.
In connection with the proposed sale and lease-back of hospitals to CMP
Properties, Inc., a real estate investment trust, the Company advanced $1.1
million to its financial advisor in fiscal 1992. The financial advisor was
affiliated with several members of the Company's Board of Directors at that
time. The advances, which were to be repaid if the transaction was not
completed, were to be secured by a pledge of common stock in an unrelated
company. The pledged shares of common stock were in the possession of the
Company's primary legal counsel at that time, as collateral for the advances.
After the transaction was terminated, the financial advisor refused to repay the
advances and the Company's legal counsel refused to turn over the collateral to
the Company. The Company has filed an action in the United States District Court
for the District of Oregon (Civil Case No. 94-384 FR) against its former
financial advisor and former legal counsel to recover the advances. The former
financial advisor has counterclaimed against the Company for $1,688,000 for
breach of contract and unjust enrichment. The Company's former law firm has
filed a counterclaim for $193,000 for unpaid legal fees. Management believes
that the counterclaims are without merit and intends to vigorously defend
against them and to pursue the Company's claims.
On June 8, 1994, RehabCare filed a lawsuit against the Company in the
Circuit Court of St. Louis County, Missouri concerning a Tax Sharing Agreement
entered into between the Company and RehabCare in May 1991 (Case No. 663957). An
amended petition was filed November 15, 1994. In the lawsuit, RehabCare alleges
that it has incurred attorneys fees in connection with the settlement of certain
tax issues with the IRS and has paid the IRS a settlement amount with respect to
the years 1987 and 1988. RehabCare seeks the recovery from the Company of
$588,000, plus interest, which RehabCare alleges is the amount it incurred for
payments to the IRS in settlement
59
<PAGE> 31
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
and attorneys fees it incurred in dealing with the IRS. The Company has filed
its answer and affirmative defenses contesting the right of RehabCare to obtain
the relief it seeks. Discovery is ongoing. Until such discovery is complete, it
is not possible to predict the likely outcome of the lawsuit. The Company
intends to continue to vigorously defend this matter.
In December 1994, the Company reached a settlement with the Appeals Office
of the Internal Revenue Service ("IRS") on the payroll tax audit for the
calendar years 1983 through 1991 pursuant to which the Company agreed to pay the
IRS $5.0 million with the Company having no obligation to pay any penalties or
accrued interest. The IRS agent conducting the audit asserted that certain
physicians and psychologists and other staff engaged as independent contractors
by the Company should have been treated as employees for payroll tax purposes.
The settlement was reviewed and accepted on behalf of the IRS by its district
counsel. Payment terms have been accepted at 50% within 90 days of finalization
with the remainder financed over the next five years. In March 1995, the Company
paid $350,000 to the IRS against the initial payment due. In return, the IRS
granted the Company an additional 120 days to pay the remaining balance of
$2,150,000. In July 1995, the Company paid the remaining balance of the initial
payment, and continues to make the monthly installment payment pursuant to the
terms of the settlement. The unpaid balance bears interest at 9% per annum due
and payable after the $5.0 million is paid.
The Federal income tax returns of the Company for its fiscal years ended
1984 and 1987 through 1991 were examined by the IRS resulting in a disallowance
of approximately $229,000 in deductions which were offset against the Company's
net operating losses available for carryover. The examination also included the
review of the Company's claim for refund of approximately $205,000 relating to
an amended return for the fiscal year ended May 31, 1992. During completion of
the audit, the IRS noted that the Company had received excess refunds
representing its alternative minimum tax ("AMT") liability of approximately
$666,000 in 1990 and 1991 from the carry back of net operating losses to the
fiscal years ended May 31, 1988 and 1989, respectively. On March 29, 1994, the
Company agreed to the assessment of $666,000 plus interest and received the
final bill of $821,000 during the fourth quarter of fiscal 1994. The Company
paid the assessment including interest during the third quarter of fiscal year
1995. The Company will no longer report on this issue.
An involuntary bankruptcy petition was dismissed on March 6, 1995 pursuant
to an agreement dated March 3, 1995 between the Company and a representative of
the petitioners. Under such agreement the Company has agreed, subject to the
conditions therein, to offer to exchange for its outstanding 7 1/2% Convertible
Subordinated Debentures with a combination of cash and shares. See Note 10--
"Long-Term Debt and Short-Term Borrowings" for a discussion of the Company's
default in the payment of interest on its 7 1/2 % Convertible Subordinated
Debentures and the consequent acceleration of the full principal amount thereof.
The foregoing is intended to disclose an event, and does not constitute an offer
to the holders of the Company's Debentures. Any such offer may only be made
pursuant to an exchange offer, and in conformity with the relevant securities
laws, rules and regulations.
In October 1994, the New York Stock Exchange, Inc. ("NYSE") notified the
Company that it was below certain quantitative and qualitative listing criterion
in regard to net tangible assets available to common stock and three year
average net income among others. The Listing and Compliance Committee of the
NYSE has determined to monitor the Company's progress toward returning to
continuing listing standards. Management anticipates success in "global
restructuring" (see Note 2-- "Operating Losses and Liquidity") will be necessary
in order to satisfy the Committee of the Company's progress. The Company met
with representatives of the NYSE during the third quarter of fiscal 1995 and
during the first quarter of fiscal 1996, to discuss the Company's financial
condition and intention to issue shares without seeking approval of shareholders
pursuant to the exception to the NYSE policy for financially distressed
companies.
60
<PAGE> 32
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
From time to time, the Company and its subsidiaries are also parties and
their property is subject to ordinary routine litigation incidental to their
business. In some pending cases, claims exceed insurance policy limits and the
Company or a subsidiary may have exposure to liability that is not covered by
insurance. Management believes that the outcome of such lawsuits will not have a
material adverse impact on the Company's financial statements.
NOTE 16-- EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
On June 29, 1995, the Company entered into an amended common stock purchase
agreement with Lindner Growth Fund ("Lindner"). The agreement, among other
things, amends the original common stock purchase between the Company and
Lindner Fund, Inc. dated February 1, 1995 for the purchase of 100,000 shares of
common stock at $6.00 per share. The amended agreement allows for an additional
15,000 shares as an adjustment in the February 1, 1995 purchase for delay in
registration of shares and without additional payment. In addition, the amended
agreement provides that Lindner agreed to acquire an additional 135,000 shares
of common stock for $6.00 per share. The Company received the proceeds for such
purchase on July 14, 1995.
On July 31, 1995, the Company entered into an agreement with an accredited
investor to acquire, through private placement, 4,100 respectively, of common
stock of the Company for $6.00 per share. The Company received the proceeds on
August 15, 1995.
On August 15, 1995, the Company entered into agreements with two accredited
investors to acquire, through private placement, 10,833 and 5,000 shares,
respectively, of common stock of the Company for $6.00 per shares. The Company
received the proceeds on August 17, 1995.
On August 18, 1995, the Company settled its claim filed against its
fidelity bond carrier in the amount of $425,000. The Company received the
proceeds on September 6, 1995.
61
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, September 20, 1995.
COMPREHENSIVE CARE CORPORATION
By /s/ CHRISS W. STREET
----------------------------
Chriss W. Street
Chairman, President
and Chief Executive Officer
By /s/ DREW Q. MILLER
----------------------------
Drew Q. Miller
(Principal Financial Officer)
By /s/ KERRI RUPPERT
----------------------------
Kerri Ruppert
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates so indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman, President and
Chief Executive Officer
/s/ CHRISS W. STREET (Principal Executive Officer) September 20, 1995
-----------------------------------
Chriss W. Street
Vice President, Chief Financial Officer
and Chief Operating Officer
/s/ DREW Q. MILLER (Principal Financial Officer) September 20, 1995
-----------------------------------
Drew Q. Miller
Vice President, Secretary/Treasurer and
Chief Accounting Officer
/s/ KERRI RUPPERT (Principal Accounting Officer) September 20, 1995
-----------------------------------
Kerri Ruppert
/s/ J. MARVIN FEIGENBAUM Vice Chairman September 20, 1995
-----------------------------------
J. Marvin Feigenbaum
/s/ WILLIAM H. BOUCHER Director September 20, 1995
-----------------------------------
William H. Boucher
</TABLE>
66
<PAGE> 34
<TABLE>
<S> <C> <C>
/s/ RUDY R. MILLER Director September 20, 1995
-----------------------------------
Rudy R. Miller
/s/ W. JAMES NICOL Director September 20, 1995
-----------------------------------
W. James Nicol
</TABLE>
67
