As filed with the Securities and Exchange Commission on April 17, 1997
Registration No. 33-98018
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
(Name of small business issuer in its charter)
NEVADA 8049 91-1256470
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification
number)
38 POND STREET
FRANKLIN, MASSACHUSETTS 02038
(508) 520-2422
(Address and telephone number of principal
executive offices and principal place of business)
ROBERT M. WHITTY,
PRESIDENT
CONSOLIDATED HEALTH
CARE ASSOCIATES, INC.
38 POND STREET
FRANKLIN, MASSACHUSETTS 02038
(508) 520-2422
(Name, address and telephone
number of agent for service)
------------------------
COPIES TO:
ARTHUR D. EMIL, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE: (212) 715-9100
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 14, 1997)
6,047,017 SHARES OF COMMON STOCK
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
This Prospectus Supplement (the "Supplement") supplements the
Prospectus of Consolidated Health Care Associates, Inc. (the "Company") dated
February 14, 1997 (the "Prospectus") with audited financial statements for the
year ended December 31, 1996. This Supplement forms a part of, and should be
read in conjunction with, the Prospectus of the Company.
EXPERTS
The financial statements as of December 31, 1995 and the year then ended,
included in this prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting. The financial statements as of the
period ended December 31, 1996 included in this prospectus have been so included
in reliance on the report of Federman, Lally & Remis LLC, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The Date of this Prospectus is April , 1997
<PAGE>
Financial Statements and Schedules
Table of Contents
Consolidated Health Care Associates, Inc.
Page
----
The Report of Independent Accountants S-3
The Report of Independent Accountants S-4
Consolidated statements and notes as of December 31, 1996,
and 1995 and for the years then ended:
Consolidated Balance Sheets S-5
Consolidated Statements of Operations S-6
Consolidated Statements of Stockholders' Equity S-7
Consolidated Statements of Cash Flows S-8
Notes to Consolidated Financial Statements S-9 to S-19
S-2
<PAGE>
THE REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Consolidated Health Care Associates, Inc.
In our opinion, the accompanying consolidated financial statements appearing on
pages S-4 through S-16 present fairly, in all material respects, the financial
position of Consolidated Health Care Associates, Inc. and its subsidiaries at
December 31, 1995, and the results of their operations and their cash flows for
the year, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 15 to the
financial statements, the Company's ability to meet all its obligations as they
become due is dependent on the continued availability of financing arrangements
for factoring receivables and on the availability of other sources of financing.
These financing uncertainties raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in this regard are
described in Note 15. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Price Waterhouse LLP
Providence, RI
April 5, 1996
S-3
<PAGE>
THE REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Consolidated Health Care Associates, Inc.
We have audited the accompanying consolidated balance sheet of Consolidated
Health Care Associates, Inc. and subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 financial position of Consolidated Health
Care Associates, Inc. and subsidiaries as of December 31, 1996, and the 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 have been prepared assuming
that the Company will continue as a going concern. As described in Note 15, the
Company has suffered recurring losses, including a net loss in excess of
$473,000 for the year ended December 31, 1996, and has an accumulated deficit in
excess of $7,972,000 as of December 31, 1996, which raises substantial doubt
about its ability to continue as a going concern. Management's plans regarding
these matters are also described in Note 15. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Federman, Lally & Remis LLC
Farmington, Connecticut
March 12, 1997
S-4
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
=========================================================================================================================
Consolidated Balance Sheets as of December 31, 1996 and 1995
=========================================================================================================================
<S> <C> <C>
ASSETS: 1996 1995
- ------- ---- ----
Current assets:
Cash $ 37,141 $ 85,557
Accounts receivable (net of allowance of $977,000 in 1996 and $815,000 in
1995) 1,817,036 2,016,846
Other accounts receivable 535,225 116,260
Other current assets 176,403 102,056
---------- ---------
Total current assets 2,565,805 2,320,719
---------- ---------
Property and equipment, at cost:
Equipment and leasehold improvements 1,316,166 1,292,487
Less accumulated depreciation and amortization (862,305) (694,903)
---------- ---------
Property and equipment, net 453,861 597,584
---------- ---------
Other assets:
Goodwill (net of accumulated amortization of $384,342 in 1996 and $309,290
in 1995) 2,428,463 2,503,515
Other 132,437 144,979
---------- ---------
Total other assets 2,560,900 2,648,494
---------- ---------
TOTAL $5,580,566 $5,566,797
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable and current portion of long-term debt $ 353,023 $ 521,248
Accounts payable 778,358 799,888
Accrued personnel costs 377,085 326,468
Accrued expenses and other liabilities 173,038 214,583
---------- ---------
Total current liabilities 1,681,504 1,862,187
Long-term debt 1,804,550 1,699,360
Other liabilities - 26,998
---------- ---------
Total liabilities 3,486,054 3,588,545
---------- ---------
Commitments and contingencies (Notes 6 and 10))
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized; issued and outstanding 1,727,305
in 1996 and 1995 1,727,305 1,727,305
Common stock, $.012 par value, 50,000,000 shares authorized; issued
16,369,583 in 1996, and 14,702,306 in 1995 196,435 176,428
Additional paid-in capital 8,230,611 7,661,116
Accumulated deficit (7,972,339) (7,499,097)
---------- ---------
2,182,012 2,065,752
Less-treasury stock, 700,000 shares of common stock, at cost (87,500) (87,500)
---------- ---------
Total stockholders' equity 2,094,512 1,978,252
---------- ---------
TOTAL $5,580,566 $5,566,797
========== ==========
- -------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
=========================================================================================================================
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
===============================================================================================================
Consolidated Statements of Operations
For the Years Ended December 31, 1996 and 1995
===============================================================================================================
1996 1995
---------------------------------
<S> <C> <C>
Revenue, net $ 8,799,431 $8,617,798
----------- -----------
Costs and expenses:
Operating costs 7,015,664 7,244,196
Administrative and selling costs 1,771,723 1,641,099
Depreciation and amortization 242,454 230,115
----------- -----------
Total costs and expenses 9,029,841 9,115,410
----------- -----------
Operating loss (230,410) (497,612)
Interest expense (298,564) (183,023)
Other income, net 86,562 81,780
----------- -----------
Loss before income tax provision (442,412) (598,855)
Income tax provision 30,830 10,000
----------- -----------
Net loss $ (473,242) $ (608,855)
=========== ===========
Net loss per share $(.04) $(.05)
=========== ===========
- ---------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
===============================================================================================================
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
==================================================================================================================================
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1996 and 1995
==================================================================================================================================
Additional
Preferred Common Treasury Paid-In Accumulated
Stock Stock Stock Capital Deficit
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $1,727,305 $159,268 $(87,500) $7,337,382 $(6,890,242)
Common stock issued 17,160 323,734
Net loss for the year (608,855)
---------- -------- -------- ---------- -----------
Balance, December 31, 1995 $1,727,305 $176,428 $(87,500) $7,661,116 $(7,499,097)
Common stock issued 20,007 569,495
Net loss for the year (473,242)
---------- -------- -------- ---------- -----------
Balance, December 31, 1996 $1,727,305 $196,435 $(87,500) $8,230,611 $(7,972,339)
========== ======== ======== ========== ============
- ----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
==================================================================================================================================
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
===========================================================================================================
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995
===========================================================================================================
1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(473,242) $(608,855)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation 167,402 156,000
Amortization of goodwill 75,052 74,115
Loss on disposal of fixed assets - 2,500
Gain on debt restructuring (89,231) (31,372)
Non-cash interest expense 21,434 18,277
Non-cash expense for 401K contribution 53,935 79,500
Non-cash compensation expenses 118,750 -
(Increase) decrease in accounts receivable (179,155) 139,319
(Increase) decrease in other current assets (13,191) (151,643)
(Increase) decrease in other assets 41,002 93,017
Increase (decrease) in accounts payable, accrued personnel costs,
accrued expenses, and other liabilities 168,507 203,504
----------- ---------
Net cash used for operating activities (108,737) (25,638)
----------- ---------
Cash Flows From Investing Activities:
Purchases of equipment (23,679) (138,075)
----------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of debt 340,000 335,000
Proceeds from issuance of common stock 10,000 125,000
Principal payments on debt (266,000) (423,871)
----------- ---------
Net cash provided by financing activities 84,000 36,129
----------- ---------
Net decrease in cash (48,416) (127,584)
Cash, beginning of year 85,557 213,141
----------- ---------
Cash, end of year $ 37,141 $ 85,557
=========== =========
- -----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
===========================================================================================================
</TABLE>
S-8
<PAGE>
Consolidated Health Care Associates, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
1. Summary of Significant Accounting Policies
Consolidated Health Care Associates, Inc. (the Company or CHCA) is a provider of
therapeutic rehabilitation services including physical, occupational and speech
therapy. Services are provided on a local and regional basis through a network
of outpatient clinics, as well as through managed rehabilitation contracts. The
Company owns and operates ten clinics, five in Massachusetts, one in
Pennsylvania, three in Delaware and one in Florida. The Company also provides
managed ancillary health care rehabilitation services through contract staffing,
principally in Massachusetts, Pennsylvania, Florida, Delaware and New York.
The following is a summary of significant accounting policies followed by the
Company in the preparation of the consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Consolidated Imaging Systems, Inc.,
Associated Billing Corporation, PTS Rehab, Inc. and Consolidated Rehabilitation
Services, Inc. All significant intercompany transactions and balances have been
eliminated.
Revenues and Accounts Receivable
Revenues are recorded when services are provided at the estimated net realizable
amounts from patients, third party payors and contracted agreements.
Substantially all of the Company's accounts receivable are due from third-party
insurance companies or government agencies.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is determined utilizing
the straight-line method over the estimated useful lives of equipment, furniture
and fixtures, and leasehold improvements as follows:
Equipment 5 - 7 years
Furniture and fixtures 5 - 7 years
Leasehold improvements 10 years
When property or equipment is retired or otherwise disposed of, the cost and
related accumulated depreciation is removed from the accounts with any resulting
gain or loss reflected in net income. Maintenance and repairs are expensed as
incurred.
Goodwill
The excess of the purchase price over the fair value of the net assets of
acquired physical therapy clinics has been recorded as goodwill and is being
amortized over 27-40 years using the straight-line method. Management believes
this amortization period is reasonable for its clinics with profitable
operations. When adverse events or changes in circumstances indicate that
previously anticipated cash flows warrant reassessment, the Company reviews the
recoverability of goodwill by comparing estimated undiscounted future cash flows
from clinical activities to the carrying value of goodwill. If such cash flows
are less than the carrying value of the goodwill, an impairment loss is measured
as the amount by which goodwill exceeds the present value of estimated cash
flows using a discount rate commensurate with the risks involved.
Income Taxes
Income taxes are provided utilizing the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those differences are expected
to be recovered or settled.
S-9
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the period reported. Actual results could differ from those
estimates. Estimates are used when accounting for allowance for doubtful
accounts, depreciation and amortization, employee benefit plans, taxes, deferred
taxes and contingencies.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable, accrued
personnel costs, other accrued expenses, and other liabilities are reasonable
estimates of their fair value because of the short maturity of those
instruments. It is not practical for the Company to estimate the fair value of
long-term debt without the Company incurring excessive costs.
New Accounting Pronouncements
The Financial Accounting Standards Board (the FASB) issued Financial Accounting
Standard No.121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of" (FAS 121) in March 1995. FAS 121 requires that long-lived assets
and certain indefinite intangible assets be reviewed for impairment whenever
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The entity must estimate the future cash flows expected to
result from the use of the asset and its eventual disposition, and to recognize
an impairment loss for any differences between the fair value of the asset and
the carrying amount of the asset. The Company adopted FAS 121 in 1996. The
effect on the Company's financial position or results of operations from
adoption of FAS 121 is not material.
The FASB issued Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" (FAS 123) in October 1995 effective for years
beginning after December 15, 1995. FAS 123 was implemented by the Company during
1996. FAS 123, establishes a fair value-based method of accounting for stock
options and other equity instruments. It requires the use of that method for
transactions with other than employees and encourages its use for transactions
with employees. Under provisions of FAS 123, the Company is not required to
change its method of accounting for stock based compensation and management has
retained its current method of accounting.
The FASB issued Financial Accounting Standard No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities" (FAS 125)
in June of 1996. The effective date of FAS 125 was December 31, 1996, and was to
be applied prospectively to transfers and servicing of assets and extinguishment
of liabilities occurring after that date. The FASB issued Financial Accounting
Standard No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125" (FAS 127) in December of 1996. FAS 127 delays the application
of FAS 125 until December 31, 1997. The effect on the Company's financial
position or results of operations from the adoption of FAS 125 is not expected
to be material.
Reclassifications
Certain 1995 amounts have been reclassified to agree with the 1996 presentation.
2. Accounts Receivable Financing
Substantially all of the Company's accounts receivable are due from third-party
insurance companies or government agencies. Beginning in 1995, the Company
factors with recourse all of the accounts receivable of Consolidated
Rehabilitation Services, Inc. and certain accounts receivable of PTS Rehab, Inc.
Subsequent to year end, the Company renegotiated its factoring arrangement to
increase the credit line from $1,250,000 to $2,000,000, as set forth in Note 16.
The Company accounts for these factoring arrangements as sales. During the years
ended December 31, 1996 and 1995 the Company received $2,938,000 and
$1,377210,000 of proceeds from the factoring of accounts receivable,
respectively. At December 31, 1996 and 1995, the Company was contingently liable
for approximately $1,407,000 and $327,000 of such accounts, respectively.
Reserves are included in the allowance for doubtful accounts in the accompanying
balance sheet to provide for the estimated uncollectible portion of accounts
receivable with recourse. Service fees charged by the factoring agent during
1996 and 1995 totaled $45,000 and $18,700 respectively, and are included as
interest expense on the accompanying consolidated statements of operations. At
December 31, 1996 and 1995, the Company had transferred accounts receivable in
excess of the proceeds it received from its factor of $535,225 and $116,216,
respectively, which are reflected as other receivables in the accompanying
consolidated balance sheets.
In November 1995, Joel Friedman, then the Chairman and Chief Executive of the
Company, and Robert M. Whitty, the President of the Company, jointly and
severally guaranteed those accounts receivable of the Company that were pledged
to Capital Factors, Inc., a lender to the Company. The amount of the line of
credit secured by the Company's accounts receivable
S-10
<PAGE>
is $500,000. In January 1996, additional guarantees were provided by Messrs.
Friedman and Whitty in connection with an additional line of credit secured by
receivables in the amount of $750,000. Subsequent to Mr. Friedman's resignation
on November 1, 1996 as the Company's Chairman and as an officer of the Company,
Mr. Friedman's guarantees were released.
3. Goodwill
Goodwill was recorded during the period from 1991 through 1993 in conjunction
with the Company's acquisitions of physical therapy clinics in Massachusetts,
Pennsylvania, Delaware and Florida during that period. Since these acquisitions,
the Company has experienced lower than anticipated patient volumes at certain
clinics which it attributes to utilization constraints imposed by managed care
and third party payers and the impact of new competitors in these geographic
markets. Revenues at these facilities have also declined from management's
original expectations at the time of the acquisitions because of the
unanticipated increase in customers covered by managed care. Revenues have also
been adversely affected by reductions in workers compensation and personal
injury reimbursement rates.
These trends, which are expected to continue in the foreseeable future, have
adversely impacted the Company's profitability in its Pennsylvania, Delaware and
Florida clinics. As a consequence, during the fourth quarter of 1994, the
Company revised its original projections developed at the time of acquisition to
more accurately reflect the effects of these trends. The resulting cash flow
projections indicated that the Company would not recover the goodwill
attributable to certain of its clinics. Accordingly, the Company recorded an
impairment charge of $3,209,439 during the fourth quarter of 1994. The majority
of the clinics to which this impairment charge relates were acquired in 1993.
Although the patient volumes and, therefore, revenues at these clinics during
the first several months of 1994 were lower than anticipated when they were
acquired, such shortfalls were initially attributed to adverse weather
conditions and other nonrecurring factors and, therefore, were considered to be
a temporary phenomenon. In the fourth quarter of 1994 it was determined that
there were also factors of a more permanent nature, related primarily to managed
health care and competition, to which a portion of these shortfalls at these
clinics could be attributed. No such impairment charges were incurred during
1996 or 1995.
Changes in goodwill during 1996 and 1995 are summarized as follows:
===========================================================================
1996 1995
- ---------------------------------------------------------------------------
Balance, January 1, $2,503,515 $2,577,630
Goodwill amortization (75,052) (74,115)
--------- ----------
Balance, December 31, $2,428,463 $2,503,515
========== ==========
===========================================================================
4. Revenue, Net
Revenue is reported net of allowances as follows:
<TABLE>
<CAPTION>
==================================================================================================
1996 1995
==================================================================================================
<S> <C> <C>
Revenue $12,003,250 $11,659,001
Allowances for contractual and other adjustments (3,203,819) (3,041,203)
----------- -----------
Revenue, net $ 8,799,431 $ 8,617,798
=========== ===========
=================================================================================================
</TABLE>
S-11
<PAGE>
5. Supplemental Disclosure of Cash Flows and Noncash Investing and
Financing Activities
During 1996, the Company issued 419,342 shares of common stock to reduce the
outstanding principal of long-term debt by $182,802. Additionally, the Company
issued 180,000 shares of common stock, valued at $53,935, to the Company's 401K
plan, 210,400 shares of common stock, valued at $65,750 to a vendor in
satisfaction of an obligation in the same amount, and 501,778 shares of common
stock, valued at $154,812 to noteholders as consideration for certain financing
activities on behalf of the Company. In addition, $108,000 of accounts payable
were converted to term debt.
During 1995, the Company issued 1,310,000 shares of common stock to reduce the
outstanding principal of long-term debt by $345,688. Additionally, the Company
issued 120,000 shares of common stock, valued at $79,500, to the Company's 401K
plan.
6. Lease Commitments
The Company leases clinic facilities under several non-cancelable operating
leases expiring at various times between 1996 and 2000. Rent expense for these
operating leases was $542,600 in 1996 and $543,600 in 1995.
Future minimum payments under non-cancelable facility operating leases for the
five years subsequent to December 31, 1996 are:
Operating
Leases
================================================================
1997 $505,491
1998 245,948
1999 56,207
2000 30,296
2001 31,825
--------
Total minimum lease payments $869,767
-------
================================================================
S-12
<PAGE>
7. Notes Payable and Long-Term Debt
Notes payable and long-term debt consists of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Convertible promissory notes (convertible into 292,184 shares of CHCA $702,530 $900,858
common stock) with interest rate of 7-10% issued in connection with business
acquisitions, payable in monthly installments through 2002
Convertible promissory notes (convertible into 238,474 of CHCA common 461,251 502,968
stock) with interest rate of 7-10% issued to employees in connection with
business acquisitions, payable in monthly installments through 2001
Promissory notes to Renaissance Capital Partners and other stockholders with 340,000 -
interest at 10%, payable in full in April 1999
Promissory notes issued in connection with business acquisitions, with average 297,262 396,600
interest rate of 7-10%, payable monthly through 2001
Convertible promissory notes (convertible into 160,000 shares of CHCA 120,000 120,000
common stock) bearing interest of 10%, issued to a Director; principal payable
in full September 1998
Non-interest bearing note payable with monthly payments through 1997 84,750 25,000
Convertible promissory notes (convertible into 80,000 shares of CHCA 60,000 60,000
common stock) bearing interest of 10% payable monthly; principal payable in
full September 1998
Promissory note with interest rate of 12%, payable in monthly installments 49,781 65,750
through 1999
Promissory notes with average interest rates of 9-11% payable in monthly 41,999 -
installments through 1999
Demand notes with interest paid monthly at prime rate plus 4% - 89,432
Non-interest bearing loan payable to officers; paid in January 1996 - 60,000
---------- ----------
Total long-term debt 2,157,573 2,220,608
Less: current portion of debt (353,023) (521,248)
---------- ----------
Long-term debt $1,804,550 $1,699,360
========== ==========
</TABLE>
Substantially all of the Company's assets are security for the above debt.
At December 31, 1996 and 1995, the Company was in default for non-payment of
principal and interest on one or more of its note payable obligations.
Subsequently, the Company cured these defaults by renegotiating and extending
the payment terms of these obligations, by issuing new convertible promissory
notes and by remitting past-due payments of principal and interest.
S-13
<PAGE>
In January 1996, pursuant to an arbitration agreement, the Company entered into
a three-year 12% note payable agreement for $65,750 with a vendor. Additionally,
the Company issued $65,750 worth of the Company's common stock to the vendor,
based upon the market price of the stock at the time of the agreement.
In February 1996, the Company renegotiated a convertible promissory note and a
promissory note, both of which were issued in connection with a business
acquisition. Under the renegotiated agreements, the interest rate for these
notes was increased to 9.5% and the term of the notes was extended to 2002. In
consideration, the Company issued warrants to the note holder to purchase 83,333
shares of the Company's common stock at $0.30 per share. The warrants may be
exercised anytime for a period of 3 years. Additionally, the Company issued to
the note holder $50,000 worth of the Company's common stock based upon market
prices in effect as of the date of the renegotiated agreements.
In April 1996, the Company renegotiated a convertible promissory note held by an
employee issued in connection with a business acquisition, which was originally
due in 1996. The new renegotiated note was extended for five years with
interest-only payments at 10% to be made in 1996 and 1997. In consideration, the
Company released the employee from non-compete agreements and issued $30,000
worth of the Company's common stock based upon market prices in effect as of the
date of the agreement.
In April 1996, the Company executed a promissory note in favor of Renaissance in
connection with a $500,000 line of credit. Pursuant to the promissory note, the
Company is obligated to pay interest on the unpaid monthly balance of the line
of credit at the rate of 10% per annum, computed in arrears, with the entire
principal balance plus any unpaid interest due in full on April 17, 1999. As of
December 31, 1996, $340,000 had been advanced to the Company under these
arrangements. Of this amount, $265,000 was loaned by Renaissance, and the
balance by the following persons participating in the loan: Alan Mantell,
$15,000; Joel Friedman, $15,000; Goodhue Smith, a member of the Board of
Directors, $20,000; and Duncan-Smith Co., an entity affiliated with Mr. Smith,
$25,000. In September and December 1996, the Company issued to Renaissance and
the other participants in the Renaissance credit line shares of common stock in
consideration of their loans to the Company, as follows: Renaissance, 159,000
shares; Mr. Mantell, 9,000 shares; Mr. Friedman, 9,000 shares; Mr. Smith, 12,000
shares; and Duncan-Smith Co., 15,000 shares.
In July 1996, the holder of a convertible promissory note issued in connection
with a business acquisition converted the note and certain accounts payable due
the note holder to common stock. The note, which had an outstanding balance of
$182,305 and the accounts payable in the amount of $6,399 were converted into
419,342 shares of common stock at a price of $.45 per share.
In December 1996, the Company determined that a demand note payable, which it
had assumed in connection with a previous business acquisition in 1991, the
outstanding balance of which was $89,231 would not have to be repaid. This loan
was originally payable to a bank that is now defunct, the assets of which were
taken over by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC sold
the loan to a third party which subsequently determined the loan to be
uncollectible. The third party returned the then deemed uncollectible loan to
the FDIC in April 1995. The Company has not made any principal or interest
payments on the loan since 1991 and has not been contacted by the FDIC regarding
repayment of the loan since that time. Management has no plans to repay the loan
and believes that it is unlikely that the FDIC will demand repayment.
Accordingly, the Company wrote-off the remaining balance under the loan of
$89,231, which has been reflected as other income in the accompanying
consolidated statement of operations for the year ended December 31, 1996.
In December 1994 and January 1995, the Company issued $500,000 of short-term
notes, payable in September 1995. In connection with this financing, the Company
issued warrants to purchase 300,000 shares of the Company's common stock at
$0.75 per share. These warrants may be exercised at any time for a period of two
years. During August and September 1995, certain holders of these short term
notes exchanged $375,000 of the outstanding obligations for three-year 10%
convertible promissory notes, payable on September 15, 1998. In conjunction with
this transaction, $195,000 of these notes were converted into 780,000 shares of
the Company's common stock. Additionally, the Company repaid $125,000 to note
holders and raised equivalent funds by issuing 500,000 shares of the Company's
common stock.
During 1995, a holder of a convertible promissory note, issued in conjunction
with a business acquisition, exchanged approximately $26,000 of the outstanding
obligation for 30,000 shares of the Company's common stock.
S-14
<PAGE>
Aggregate annual long-term debt maturities for the next five years are:
=============================================================
Year Ending December 31,
1997 $353,023
1998 $410,719
1999 $569,982
2000 $241,002
2001 $283,075
2002 and thereafter $299,772
----------
Total $2,157,573
==========
=============================================================
8. Stockholders' Equity
Preferred Stock and Common Stock
At December 31, 1996 and 1995, the Company had outstanding shares of preferred
and common stock as follows:
Preferred Preferred Common
Series A Series B Stock
Balance, January 1, 1995 1,227,305 500,000 13,272,306
Number of shares issued for
Reduction of debt 0 0 1,310,000
Contribution to 401(k) plan 0 0 120,000
--------- -------- ----------
Total of shares issued 0 0 1,430,306
--------- -------- ----------
Balance, December 31, 1995 1,227,305 500,000 14,702,306
--------- -------- ----------
Number of shares issued for
Reduction of debt 0 0 1,187,277
Contribution to 401(k) plan 0 0 180,000
Directors' compensation 0 0 300,000
--------- -------- ----------
Total of shares issued 0 0 1,667,277
--------- -------- ----------
Balance, December 31, 1996 1,227,305 500,000 16,369,583
========= ======= ==========
In connection with the exchange of convertible debt as of June 30,1994, the
Company issued 1,227,305 shares of Series A preferred stock. Additionally, on
October 24, 1994 the Company issued 500,000 shares of Series B preferred stock.
The holders of the preferred stock have the right to convert such stock into
Company common stock at a conversion price of $.75 per share (1.333 shares of
common stock for each share of Series A) and $.33 per share (3.0 shares of
common stock for each share of Series B) for Series A and Series B,
respectively. The preferred stock requires cumulative dividends at the rate of
6% per annum. Cumulative dividends in arrears totaled $259,096 and $155,458 at
December 31, 1996 and 1995, respectively. No dividends were declared in 1996 or
1995; therefore, cumulative dividends in arrears are not recorded in the
accompanying consolidated balance sheets. In the event the Company raises in
excess of $1.5 million additional equity at a per share price in excess of $.75,
the holders of Series A and B preferred stock are required to convert their
preferred stock into common stock.
Options
The Company has stock options outstanding to participants under the 1994 Stock
Option Plan (the 1994 Plan) approved by stockholders on June 20, 1995, effective
November 3, 1994. The 1994 Plan provides the Company the ability to grant
options to purchase an aggregate of 3,000,000 shares of common stock. Types of
grants under the 1994 Plan include non-statutory stock
S-15
<PAGE>
options, incentive (performance) stock options and restricted stock awards.
Options granted under the Plan will be exercisable as determined by the Options
Committee of the Board of Directors (the Committee). The Committee may prescribe
the options granted become exercisable in installments or provide that an option
may be exercisable in full immediately upon the date of the grant.
At the end of 1994 the Company granted 1,800,000 options to its officers
and directors to acquire the Company's stock at $.97 per share, the fair market
value at the date of grant. At the time of the grant, 600,000 were immediately
vested with 1,000,000 of the balance to be vested only upon the achievement of
certain future performance goals and 200,000 options ratably vested over the
next four years. During 1995, 666,667 of these options expired due to the
non-achievement of certain goals and the termination of an officer.
Additionally, 50,000 options became vested in 1995 in accordance with the
vesting schedule. The Company also has stock options outstanding under the 1989
Stock Incentive Plan ( the Plan). The Company grants awards of common stock to
those persons determined by the Board of Directors to be key employees who are
responsible for the management and growth of the Company. The size of the award
is generally determined on the basis of the level of responsibility of the
employee. Types of awards include non-statutory stock options, incentive options
(qualifying under Section 422A of the Internal Revenue Code of 1986) and
restricted stock awards. Options generally expire ten years from the grant date
and unless otherwise provided, are exercisable on a cumulative basis with
respect to 20% of the optioned shares on each of the five anniversaries after
the grant date. Restrictions on restricted stock awards generally lapse with
respect to 20% of the shares subject to the award after the expiration of each
year following the grant date and the portions of such awards for which
restrictions have not lapsed are subject to forfeiture upon termination of
employment. The Company may grant options to purchase an aggregate of 500,000
shares of common stock under the Plan, 380,000 of which are currently available
for grant. No stock options or other awards under the Plan were granted during
1996.
The Company also has other option awards. Of these, due to the termination of an
officer, 204,584 options issued to the officer prior to 1994, were canceled
during 1995.
Stock option transactions during 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1989 Stock Weighted 1994 Stock Weighted Other Weighted
Option Plan Average Option Plan Average Option Average
Exercise Exercise Plans Exercise
Price Price Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995 120,000 $1.31 1,800,000 $0.97 668,084 $0.48
- -------------------------------------------------------------------------------------------------------------------------------
Granted 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Expired 0 (416,667) $0.97 0
- -------------------------------------------------------------------------------------------------------------------------------
Canceled (100,000) $1.31 (250,000) $0.97 (104,584) $0.45
- -------------------------------------------------------------------------------------------------------------------------------
Exercised 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 20,000 $1.31 1,133,333 $0.97 563,500 $0.49
- -------------------------------------------------------------------------------------------------------------------------------
Granted 0 2,357,000 $0.38 333,333 $0.36
- -------------------------------------------------------------------------------------------------------------------------------
Expired 0 (1,000,000) $0.38 (563,500)
- -------------------------------------------------------------------------------------------------------------------------------
Canceled 0 (933,333) $0.97 (250,000) $0.45
- -------------------------------------------------------------------------------------------------------------------------------
Exercised 0 (35,714) $0.28 0
- -------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 20,000 $1.31 1,521,286 $0.45 83,333 $0.30
========= ========= ==========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In accordance with the terms of APB No. 25, the Company records no compensation
expense for its stock option awards. However, the majority of all options can be
forfeited based upon the discretion of the Board of Directors, if in their
opinion expectations have not been met, which currently the Board of Directors
has not defined. Therefore there is no material pro forma effect that would be
disclosed. Additionally, the weighted average recurring contractual lives of the
options cannot be determined.
S-16
<PAGE>
Warrants
Warrants were issued in conjunction with various placements of stock and
refinancing of debt. A summary of warrants outstanding is as follows:
1996 1995
---- ----
Balance outstanding, January 1, 881,000 581,000
Issued 0 300,000
Expired 431,000 0
------- -------
Balance outstanding, December 31, 450,000 881,000
======= =======
Exercise price range for warrants $0.75 - $2.08 $0.75 - $2.08
9. Net Loss Per Share
Net loss per share is computed by dividing the net loss for the year, adjusted
for undeclared cumulative preferred dividends, by the weighted average number of
common shares issued during each year. The number of shares used in the
computation for the years ended December 31, 1996 and 1995 is 15,834,220 and
13,771,855 respectively.
10. Litigation
There are actions pending against the Company arising out of the normal conduct
of business. In the opinion of management the amounts, if any, which may be
awarded as a result of these claims would not have a significant impact on the
Company's consolidated financial position and results of operations.
11. Related Parties
During 1996, the Company retained the services of a management consultant
company which is affiliated with a current director of the Company. The Company
incurred approximately $20,520 in consulting fees in connection with the
services rendered by this company, the entire amount of which is included in
accounts payable in the accompanying consolidated balance sheet as of December
31, 1996. During 1995, the Company retained legal services from the law firm of
a former director of the Company, for which it was paid $32,937.
As set forth in Note 7, during 1996 the Company was advanced $340,000 under an
arrangement with Renaissance, a major stockholder of the Company. Interest
expense related to this loan was $10,600 for 1996.
The Company rents rehabilitation clinics from an employee. Total rental expense
of $133,520 was paid by the Company in 1996 and 1995.
12. Employee Costs and Benefit Plan
Effective March 1,1992, the Company adopted the 401(k) Savings Plan (the Plan)
of its subsidiary company, PTS Rehab, Inc., for all eligible employees of the
Company and its subsidiaries. Under the provisions of the Plan, the Company
matches 100% of the first 3% of employee contributions. All employees who have
reached 21 years of age and have completed one year of service with a minimum of
1,000 hours worked per year are eligible to participate in the Plan. The
Company's expense in 1996 and 1995 related to the plan was $50,100 and $79,500,
respectively. During 1996 and 1995 the Company issued 180,000 and 120,000 shares
of common stock to the Plan reflecting the Company's matching contribution for
employee's contributions during 1995 and 1994, respectively.
S-17
<PAGE>
13. Accrued Expenses and Other Liabilities
Components of accrued expenses and other liabilities are as follows:
1996 1995
---- ----
Accrued expenses $129,038 $214,583
Accrued corporate taxes 44,000 -
-------- --------
Total $173,038 $214,583
======== ========
14. Income Taxes and Deferred Income Taxes
The provision for income taxes on income from continuing operations in 1996 and
1995 is comprised of minimum taxes due to various states in which the Company
operates. The tax effects of temporary differences that give rise to deferred
tax assets and liabilities are as follows:
1996 1995
---- ----
Deferred tax assets:
Net operating loss carry forwards $1,108,000 $809,000
Goodwill 1,231,000 1,249,000
Provision for doubtful accounts 391,000 326,000
Other (investment tax credits) 4,000 4,000
---------- ---------
2,734,000 2,388,000
---------- ---------
Deferred tax liabilities:
Fixed assets (80,000) (81,000)
Cash to accrual Section 481A
Adjustment (60,000) (89,000)
---------- ----------
(140,000) (170,000)
---------- ----------
2,594,000 2,218,000
Valuation allowance (2,594,000) (2,218,000)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
A valuation allowance must be established for deferred tax assets if, based on
the weight of available evidence, it is more likely than not that some portion
or all of the deferred tax asset will not be realized. The Company has
determined that a valuation allowance is required since it is not certain that
the results of future operations will generate sufficient taxable income to
realize the deferred tax asset. During the year ended December 31, 1996, the
valuation allowance increased by $376,000 which included a decrease in the
beginning-of-the-year valuation allowance caused by a change in circumstances
that caused a change in judgment about the realizability of deferred tax assets
of $517,000. During the year ended December 31, 1995, the valuation allowance
increased by $100,000.
At December 31, 1996, the Company has Federal net operating loss carry forwards
available to reduce future taxable income of approximately $2,770,000. This
carry forward expires in varying amounts from approximately 1999 through 2011.
It is the Company's understanding that a substantial change in ownership
occurred during 1994 as defined under Section 382 of the Internal Revenue Code.
In general, a substantial change in ownership may significantly limit the future
utilization of tax loss carry forwards incurred prior to an ownership change. As
of December 31, 1996, approximately $451,000 of the Company's net operating loss
carry forward continues to be limited under Section 382. This limitation,
itself, will expire during 1997. Accordingly, for tax year 1997, all of the
Company's net operating loss carry forwards should be available to reduce future
income.
15. Liquidity
The Company has suffered recurring losses in each of the past four years,
including a net loss of $473,242 and $608,855 for the years ended December 31,
1996 and 1995, respectively. The Company also has an accumulated deficit of
$7,972,339 as of December 31, 1996. As a result, during both 1996 and 1995, the
Company was unable to make certain scheduled principal and interest payments to
note holders and was required to negotiate extended payment terms in certain
cases and issue convertible
S-18
<PAGE>
promissory notes in exchange for short-term notes in other cases. In addition,
the Company is dependent upon its factoring arrangements pursuant to which it
assigned a substantial portion of its accounts receivable to meet its
obligations. These matters raise substantial doubt about the Company's ability
to continue as a going concern.
However, as described in Note 16, subsequent to December 31, 1996 the Company
successfully negotiated a new agreement with its accounts receivable factor
under which the maximum borrowing were increased from $1,250,000 to $2,000,000.
The Company also sold three of its four Pennsylvania clinics for $900,000 in
cash, $150,000 in notes receivable, and the assumption of approximately $230,000
in associated liabilities. Management intends to use the proceeds of the sale of
these clinics to reduce its outstanding debt and for continued operating needs.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
16. Subsequent Events
In January 1997, the Company executed a new agreement with its accounts
receivable factor. The new agreement increases the maximum borrowing from
$1,250,000 to $2,000,000.
In February 1997, the Company sold three of its four Pennsylvania clinics for
$900,000 in cash and $150,000 in notes receivable. The purchaser also assumed
approximately $230,000 in liabilities. Approximately 22% of the Company's total
1996 revenues were attributable to these clinics. The proceeds from the sale of
these clinics are intended to be used to reduce the Company's outstanding debt
and to fund current operations.
S-19
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment to this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Franklin, Commonwealth of Massachusetts, on the 17TH DAY OF APRIL, 1997.
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
By:/s/ Robert M. Whitty
--------------------
ROBERT M. WHITTY, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 was signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Raymond L. LeBlanc Treasurer, Chief Financial Officer January 14, 1997
- ---------------------- and Chief Accounting Officer
RAYMOND L. LEBLANC
</TABLE>
Date: April 17, 1997 *
------------------------------------------
JAMES W. KENNEY
Chairman and Director
Date: April 17, 1997 *
------------------------------------------
SIDNEY DWORKIN
Director
Date: April 17, 1997 *
------------------------------------------
PAUL FRANKEL
Director
Date: April 17, 1997 *
------------------------------------------
JOEL FRIEDMAN
Director
i
<PAGE>
Date: April 17, 1997 *
------------------------------------------
GOODHUE W. SMITH III
Director
*By:/s/ Robert M. Whitty
--------------------
Robert M. Whitty
Attorney-in-Fact
- ii -
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Propsectus constituting part of the
Registration Statement on Form SB-2 of our report dated April 5, 1996 relating
to the financial statements of Consolidated Health Care Associates, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
------------------------
Price Waterhouse LLP
Boston, Massachusetts
April 15, 1997
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 33-98018 of Consolidated Health Care Associates, Inc. of our
report dated March 12, 1997 which expresses an unqualified opinion and includes
an explanatory paragraph relating to recurring losses that the Company has
incurred which raises substantial doubt about its ability to continue as a going
concern, appearing in the Prospectus Supplement, which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus Supplement.
/s/ FEDERMAN, LALLY & REMIS LLC
-------------------------------
Federman, Lally & Remis LLC
Farmington, Connecticut
April 15, 1997
