<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 18, 1997 (June 2, 1997)
CHILDREN'S COMPREHENSIVE SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Tennessee 0-16162 62-1240866
- ---------------------------------------------------- ------------------------ -------------------
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
</TABLE>
805 South Church Street
Murfreesboro, Tennessee 37130
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 896-3100
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 7 - FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
Children's Comprehensive Services Inc. ("CCS") purchased substantially all of
the assets and assumed certain liabilities of Vendell Healthcare, Inc.
("Vendell") on June 2, 1997 pursuant to the Asset Purchase Agreement dated
February 27, 1997, as amended. A Current Report on Form 8-K dated June 2, 1997
was filed related to this, as amended.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(i) Consolidated Audited Financial Statements of Vendell Healthcare,
Inc. as of June 30, 1996 and for the three years ended June 30, 1996.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Vendell Healthcare, Inc.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheets of Vendell
Healthcare, Inc. as of June 30, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for each
of the three years in the period ended June 30, 1996. These 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.
Except as discussed in the following paragraph, we conducted our aforementioned
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 report.
As described in Note 2, during the year ended June 30, 1996 the Company recorded
an impairment writedown of its long-term assets in the amount of $15,750,000. We
were informed by management that such writedown was based upon preliminary
discussions with potential buyers of the properties. Because there was not
sufficient evidence to support these values, and because future cash flows from
the properties are not reasonably estimable by management, we were unable to
satisfy ourselves as to the amount of such provisions. If actual values for
these properties were determinable, additional adjustments could result and such
adjustments could be material.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 10, the Company
has failed to make scheduled interest payments on notes which were declared in
default, has recurring losses, negative working capital, and shareholders'
deficit. Additionally, as described in Note 11, certain of the Company's
hospitals are under investigation by authorities, the outcome of which is not
determinable but which may have material adverse effects. These circumstances
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
10. The financial statements may require additional adjustments that might
result from the outcome of these uncertainties.
2
<PAGE> 3
Because of the possible material effects of the uncertainties referred to in the
preceding paragraph, and the additional potential adjustments concerning the
valuation of certain assets discussed in the second preceding paragraph, we are
unable to express, and we do not express, an opinion on the financial statements
as of June 30, 1996 and for the year then ended.
In our opinion, the 1995 consolidated financial statements present fairly, in
all material respects, the financial position of Vendell Healthcare, Inc. as of
June 30, 1995, and the results of its operations and its cash flows for each of
the two years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
October 4, 1996
3
<PAGE> 4
VENDELL HEALTHCARE, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1996
- ----------------------------------------------------------------------------------------------
ASSETS 1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 6,801,938 $ 5,492,113
Accounts receivable, less allowance for doubtful accounts
of $3,078,000 and $4,996,000, respectively 15,500,060 10,807,658
Prepaid expenses and other current assets 1,832,701 1,800,670
------------- -------------
Total current assets 24,134,699 18,100,441
PROPERTY AND EQUIPMENT, net (Notes 1, 2 and 4) 39,383,951 20,558,876
OTHER ASSETS (Note 1) 3,236,228 1,917,345
------------- -------------
TOTAL $ 66,754,878 $ 40,576,662
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,606,678 $ 1,525,672
Accrued expenses (Note 3) 5,687,713 8,536,802
Accrued salaries and wages 2,846,869 2,889,990
Accrued interest 5,625,000 14,625,000
Due to third party payors (Note 1) 10,696,993 13,244,668
Series B Senior Notes (Note 5) 75,000,000 75,000,000
------------- -------------
Total current liabilities 101,463,253 115,822,132
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock - $.01 par value; authorized,
1,000,000 shares; none outstanding
Common stock - $.01 par value; authorized,
10,000,000 shares; issued and outstanding,
5,169,989 (including 231,250 of treasury shares as
of June 30, 1996 acquired at no cost) (Note 7) 51,700 51,700
Additional paid-in capital 21,443,116 21,443,116
Accumulated deficit (56,203,191) (96,740,286)
------------- -------------
Total shareholders' deficit (34,708,375) (75,245,470)
------------- -------------
TOTAL $ 66,754,878 $ 40,576,662
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
VENDELL HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
PATIENT SERVICE REVENUE (Note 1) $ 74,337,717 $ 79,969,515 $ 65,391,088
COSTS AND EXPENSES:
Salaries and benefits 36,990,312 42,204,278 38,011,451
Other operating expenses 27,729,017 31,192,615 30,166,259
Provision for doubtful accounts 1,354,521 1,451,059 2,017,725
Interest expense 9,404,267 9,385,408 9,386,211
Depreciation and amortization 4,616,400 5,419,999 3,123,494
Impairment loss (Note 2) -- 23,582,724 15,750,000
Nonrecurring charges (Note 3) 1,185,509 3,387,100 7,473,043
------------- ------------- -------------
81,280,026 116,623,183 105,928,183
LOSS BEFORE INCOME TAXES (6,942,309) (36,653,668) (40,537,095)
PROVISION FOR INCOME
TAXES (Notes 1 and 8) -- -- --
------------- ------------- -------------
NET LOSS (6,942,309) (36,653,668) (40,537,095)
------------- ------------- -------------
NET LOSS APPLICABLE TO
COMMON STOCK $ (6,942,309) $ (36,653,668) $ (40,537,095)
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
VENDELL HEALTHCARE, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 5,082,489 $50,825 $20,743,991 $(12,607,214) $ --
Purchase of 12,500 shares of common stock -- -- -- -- (100,000)
Issuance of 100,000 shares in connection
with acquisition of certain intellectual
property 87,500 875 699,125 -- 100,000
Net loss -- -- -- (6,942,309) --
--------- ------- ----------- ------------ ---------
BALANCE, JUNE 30, 1994 5,169,989 51,700 21,443,116 (19,549,523) --
Net loss -- -- -- (36,653,668) --
--------- ------- ----------- ------------ ---------
BALANCE, JUNE 30, 1995 5,169,989 51,700 21,443,116 (56,203,191) --
Net loss -- -- -- (40,537,095) --
--------- ------- ----------- ------------ ---------
BALANCE, JUNE 30, 1996 5,169,989 $51,700 $21,443,116 $(96,740,286) $ --
========= ======= =========== ============ =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
VENDELL HEALTHCARE, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
- -------------------------------------------------------------------------------------------------
1994 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,942,309) $(36,653,668) $(40,537,095)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Impairment loss -- 23,582,724 15,750,000
Depreciation and amortization 4,616,400 5,419,999 3,123,494
Provision for doubtful accounts 1,354,521 1,451,059 2,017,725
Interest not requiring cash 385,199 385,200 385,200
Deferred rent on lease obligation (61,666) -- --
Gain on sale of property -- -- (1,207,414)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,003,366) (5,266,832) 2,674,677
Receivable from sale of facility (3,200,000) -- --
(Increase) decrease in prepaid expenses
and other current assets (970,727) 187,067 32,031
Increase (decrease) in accounts payable 461,443 251,188 (81,006)
Increase in accrued interest -- 4,500,000 9,000,000
Increase in accrued expenses and other
current liabilities 1,774,268 7,120,349 5,439,885
------------ ------------ ------------
Net cash provided by (used in)
operating activities (3,586,237) 977,086 (3,402,503)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,155,940) (1,827,481) (474,660)
Purchase of intangible property (2,039,040) (173,919) --
Disposal of property and equipment 440,848 -- 1,831,974
Received from property sale -- 3,200,000 --
------------ ------------ ------------
Net cash (used in) provided by
investing activities (9,754,132) 1,198,600 1,357,314
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in other assets (593,390) (324,647) 735,364
Issuance of common stock 800,000 -- --
Purchase of treasury stock (100,000) -- --
------------ ------------ ------------
Net cash provided by (used in)
financing activities 106,610 (324,647) 735,364
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (13,233,759) 1,851,039 (1,309,825)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 18,184,658 4,950,899 6,801,938
------------ ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 4,950,899 $ 6,801,938 $ 5,492,113
============ ============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Interest paid $ 8,962,000 $ 4,500,000 $ --
============ ============ ============
Income taxes paid (received) $ 116,000 $ (1,346,000) $ 82,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
VENDELL HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Vendell
Healthcare, Inc. (the "Company") and its wholly-owned subsidiaries and
controlled entity. The Company owns and operates psychiatric hospitals,
outpatient clinics and physician practices. All significant intercompany
accounts and transactions have been eliminated. See Note 10 which
describes liquidity problems resulting from operating results and failure
to service a debt obligation.
CASH AND CASH EQUIVALENTS include highly liquid investments with an
original maturity date when purchased of three months or less.
PROPERTY AND EQUIPMENT is stated at cost. Depreciation has been computed
by the straight-line method based on the estimated useful lives of the
related assets which are 30 years for buildings and range from three to
ten years for other depreciable assets. At June 30, 1996 and 1995, an
impairment loss has been recorded which reduced carrying values (See Notes
2 and 4).
OTHER ASSETS consist largely of deferred loan costs, pre-opening costs and
intangible assets. Deferred loan costs are being amortized over the life
of the related debt using the interest method. Pre-opening costs are being
amortized over the shorter of three years or the life of the related
leased facilities using the straight-line method. Intangible assets are
being amortized over the lesser of fifteen years or the life of the
related agreement.
PATIENT SERVICE REVENUE is recorded in the period in which services are
rendered to the patient, at the hospital's estimated net realizable
amounts from patients, third party payors and others for services
rendered. Revenues from state Medicaid programs comprised approximately
36%, 36% and 36% of patient service revenue for the years ended June 30,
1994, 1995 and 1996, respectively. The Company is reimbursed by the
various state Medicaid programs based upon tentative rates or established
agreed upon rates dependent upon the reimbursement systems in place in the
individual state. For states with a cost based reimbursement system, the
final settlement is based upon reimbursement of the annual cost reports
submitted by the Company and audits by the Medicaid intermediaries.
Differences between estimated provisions and final settlements are
reflected as adjustments in the year the cost reports and claims are
finalized. During the fiscal years ended June 30, 1994, 1995 and 1996 the
Company recorded revenue of approximately $740,000, $1,343,000 and
$32,000, respectively, representing disproportionate share payments which
are potentially non-recurring.
CHARITY CARE represents services performed without charge or at amounts
less than the hospital's established rates and is identified based upon
financial information obtained from the patient and subsequent analysis.
As the Company does not expect payment, estimated charges of approximately
$1,702,000, $2,745,000 and $1,514,000 for the years ended June 30, 1994,
1995 and 1996, respectively, for charity care are not included in revenue.
INCOME TAXES are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which is
8
<PAGE> 9
an asset and liability approach. The asset and liability approach
requires recognition of deferred tax assets and liabilities for expected
future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. The Company files a
consolidated federal income tax return and individual state income tax
returns. Certain revenue and expense items are recognized for tax
purposes in years other than the year in which they are reflected in the
financial statements.
LIABILITY INSURANCE. The Company carries professional malpractice and
general liability insurance for its hospitals. The policy is carried on a
claims made basis. Management is not aware of any material pending or
threatened medical malpractice claims and believes that any claims, if
asserted, would be settled within the limits of this insurance coverage.
OTHER. The Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of as of June
30, 1995. SFAS No. 121 requires review of long-lived assets and certain
identifiable intangibles for impairment. Due to circumstances discussed in
Notes 2 and 10, the Company has reflected an impairment loss on its
statements of operations for 1996 and 1995 in accordance with the
provisions of SFAS No. 121.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the
estimates.
CERTAIN RECLASSIFICATIONS to the 1995 financial statements have been made
for comparability purposes in the 1996 financial statements.
2. IMPAIRMENT LOSS
The Company's debt and capital structure along with other factors
discussed in Note 10 caused a decision to pursue alternatives which led to
a proposed restructuring and asset sale which ultimately terminated in
August 1995. Due to continued pursuit of similar alternatives and based on
values believed to exist asset impairment losses have been recorded. The
Company recognized the impairment losses in fiscal years 1995 and 1996 in
the amount of $23,582,724 and $15,750,000, respectively, utilizing the
principles of SFAS No. 121. The impairment losses include an adjustment to
the carrying value of property and equipment in the amount of $35,000,000
as a result of the Company's intent to sell substantially all of its
assets. An additional impairment reserve of $1,500,000 was set up in
conjunction with the closing of the Company's Nebraska facility in fiscal
1996. This amount was determined based on estimates of net realizable
values. A total impairment reserve of $36,500,000 is reflected as a
reduction in the carrying valuing of property and equipment as of June 30,
1996. The impairment loss recorded in fiscal 1996 adjusted the carrying
value of assets to approximate values indicated by current discussions
with potential buyers, however such amounts do not necessarily indicate
amounts that would result from a sale. The impairment loss for fiscal 1995
also includes $2,832,724 comprised of adjustments to assets of the
Company's PATHwise group based on past operating losses and negative cash
flows. The primary operations of this group were sold in fiscal 1996.
9
<PAGE> 10
3. NONRECURRING CHARGES
During the fourth quarter of fiscal 1994, the Company reflected a
nonrecurring credit of $2,005,000 related to an adjustment of certain
closing costs accrued as of June 30, 1993. This adjustment was due to a
hospital property being sold for an amount in excess of the original
estimated net realizable value. During June 1994 the Company completed
arrangements for the sale and the cash proceeds in the amount of
$3,200,000 were received in July 1994.
Due to the expectation of continuing unprofitable operations, management
decided to close its Stafford, Texas facility effective March 31, 1994.
Accordingly, the Company reflected a nonrecurring charge during the third
quarter of fiscal 1994 of $3,190,000 related to the write down of the
facility's assets of $2,420,000 and accrual of certain closing costs of
$770,000.
Due to the expectation of continuing unprofitable operations, management
decided in April 1995, to close or sell its AltaCare of Tennessee centers.
Accordingly, the Company reflected a nonrecurring charge of $2,381,000 in
the fourth quarter of fiscal year 1995 related to the write down of assets
and expenses incurred which relate to this decision.
In connection with a proposed restructuring and sale of substantially all
of the Company's assets, nonrecurring charges in the amount of $1,006,000
and $1,463,000, which consist of costs incurred, are reflected in the
Company's fiscal 1995 and 1996 results. The proposed restructuring and
sale initiated in fiscal 1995 was eventually terminated (See Note 10). The
Company is continuing to pursue a potential sale transaction or financial
restructuring.
During fiscal 1996, the Company closed and placed for sale its Seward,
Nebraska facility resulting in nonrecurring charges of $2,010,000. In
addition, the Company has reflected a nonrecurring charge of $4,000,000 to
provide for contingencies associated with legal matters.
4. PROPERTY AND EQUIPMENT
Property and equipment at June 30 consist of the following:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Land $ 8,580,482 $ 8,493,511
Buildings and improvements 60,461,734 60,229,908
Furniture and equipment 13,087,196 12,791,237
----------- -----------
82,129,412 81,514,656
Less impairment reserve (20,750,000) (36,500,000)
Less accumulated depreciation (21,995,461) (24,455,780)
----------- -----------
$39,383,951 $20,558,876
=========== ===========
</TABLE>
The impairment reserve reflected above is due to circumstances discussed
in Note 2 and utilizes the provisions of SFAS No. 121 at June 30, 1995
and 1996.
10
<PAGE> 11
5. SERIES B SENIOR NOTES
The Company's debt at June 30 consists of the following:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Current obligations - Series B senior notes $75,000,000 $75,000,000
=========== ===========
</TABLE>
SERIES A AND B NOTES OFFERING
In May 1993 the Company sold $75,000,000 of 12% Series A notes due 2000 to
certain investors. These investors subsequently resold the Series A notes
to qualified institutional buyers pursuant to Rule 144A under the
Securities Act. In July 1993, the Company filed an exchange offer with the
Securities and Exchange Commission (SEC). The exchange offer granted
holders of the Series A Notes the right to receive Series B Notes in
exchange for the same principal amount of Series A Notes. In August 1993
the exchange offer was declared effective by the SEC.
The Series B Notes are unsecured, bear interest at 12% payable
semi-annually on May 15 and November 15 of each year and mature May 15,
2000. The notes contain certain covenants that restrict the ability of the
Company and its subsidiaries to create liens, incur or guarantee debt,
make distributions, sell certain equity interests or assets, engage in
certain sale and leaseback transactions and engage in transactions with
related parties. The Company did not make its required interest payment
due May 15, 1995 or subsequent required interest payments and thus is in
default. Accordingly, the notes are classified as a current liability as
of June 30, 1995 and 1996 (see Note 10).
6. COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment through
noncancelable operating leases which expire through 2000. Rental expense
was approximately $990,000, $1,947,000 and $2,327,000 in 1994, 1995 and
1996, respectively. Future minimum payments under the noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30, Amount
<S> <C>
1997 $1,288,000
1998 1,123,000
1999 761,000
2000 357,000
2001 14,000
----------
$3,543,000
===========
</TABLE>
The Company also leases one hospital through an operating lease effective
January 1993 with a lease term expiring on September 30, 1996 and rental
payments of $30,000 per month. Additional rent based on a percentage of
net revenue was also due through December 1995. During fiscal year 1994
the Company leased another hospital which it purchased in June 1994.
Rentals relating to these two leases were approximately $932,000, $638,000
and $457,000 for the years ended June 30, 1994, 1995 and 1996. Of this
amount approximately $270,000, $256,000 and $66,000, respectively, was
additional rent.
11
<PAGE> 12
The Company is a defendant in various legal matters which are generally
incidental to its business. In the opinion of management, the resolution
of these matters will not have a material adverse affect on the Company's
financial position or future results of operations, except for the matters
discussed in Note 11.
7. STOCK OPTIONS AND TREASURY STOCK
The Company has adopted several stock option plans which provide for both
non-qualified and incentive stock options to key employees and
non-qualified stock options to directors. Non-qualified options may be
granted at not less than 85% of fair market value to key employees and
100% of fair market value to directors, and incentive options at not less
than 100% of fair market value. Options have been granted at exercise
prices of between $1.00 and $8.00. Approximately 74,000 of these options
are fully vested with the remaining options vesting over three years.
Approximately 900,000 shares have been reserved for these plans. All
options become immediately exercisable upon consummation of a public
offering of the Company's common stock.
A summary of stock option activity for these plans during the last three
fiscal years is as follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
NON-QUALIFIED INCENTIVE
STOCK STOCK
OPTIONS OPTIONS
<S> <C> <C>
Outstanding at June 30, 1993 414,011 -
Granted at $6.80 to $8.00 per share 63,100 230,000
Cancelled (91,912) -
Exercised - -
-------- --------
Outstanding at June 30, 1994 385,199 230,000
Cancelled (87,844) -
Exercised - -
-------- --------
Outstanding at June 30, 1995 297,355 230,000
Cancelled (265,103) (170,000)
Exercised - -
-------- --------
Outstanding at June 30, 1996 32,252 60,000
======== ========
</TABLE>
Effective January 1993 the Company adopted an employee stock purchase plan
and reserved 250,000 shares for issuance under this plan. At June 30, 1996
there were no shares issued under this plan.
In connection with the resignation of the Company's Chairman and CEO
effective December 31, 1995, the Company received all of his shares with
no associated cost. The shares are reflected as treasury stock.
12
<PAGE> 13
8. INCOME TAXES
The provision for income taxes for the fiscal years ended June 30, 1994,
1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Currently payable:
Federal $ - $ - $ -
State - - -
Tax effect of loss carryforward - - -
-------- ------- -------
Provision for income taxes $ - $ - $ -
======== ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards. Significant
components of the Company's deferred tax balances as of June 30 are as
follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 8,912,000 $ 27,573,000
Bad debt expense not currently deductible 1,043,000 1,996,000
Reserves not currently deductible 1,439,000 3,559,000
Asset impairment 8,962,000 5,695,000
Other 398,000 27,000
------------- ------------
20,754,000 38,850,000
Deferred tax liabilities:
Other - -
------------- -------------
Net deferred tax asset before valuation
allowance 20,754,000 38,850,000
Valuation allowance (20,754,000) (38,850,000)
------------ -------------
Total $ - $ -
============= =============
</TABLE>
The Company's operating loss carryforwards begin to expire in 2008.
A reconciliation of the provision for income taxes to the assumed
statutory federal tax rate of 34% is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Income taxes (benefit) - statutory rate $(2,360,000) $(12,462,000) $(13,783,000)
State taxes, net of federal benefit - (1,435,000) (1,605,000)
Other and permanent differences - 259,000 (2,708,000)
Increase in valuation allowances 2,360,000 13,638,000 18,096,000
----------- ------------ ------------
Total $ - $ - $ -
=========== =========== ============
</TABLE>
13
<PAGE> 14
9. DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan for all full-time,
non-union employees who have completed one year of continuous service and
have obtained the age of 21. Eligible employees may contribute to the plan
2% to 15% of their compensation each pay period through payroll
deductions. The company matches 35% of the employee's contributions, not
to exceed 5% of the employee's gross compensation. The Company recorded an
expense of $168,000, $205,000 and $206,000 for the years ended June 30,
1994, 1995 and 1996, respectively, for contributions made to the plan.
10. DEFAULT ON NOTES, PROPOSED RESTRUCTURING AND ASSET SALE
Pressure from payors of behavioral health services to reduce the use of
acute inpatient treatment for behavioral health patients has caused
declines in acute average length of stay with resulting industrywide
overcapacity causing declines in prices and reduced revenue per patient
day. The combination of these factors without fully offsetting operating
expense reductions have had an adverse effect on the Company's operations
during fiscal 1995 and fiscal 1996.
The Company had outstanding indebtedness, consisting of notes of
approximately $75 million at June 30, 1995 and 1996, and annual cash debt
service obligations for interest of $9 million. Cash flow from operations
has been insufficient to cover such debt service obligations and make
necessary capital expenditures to enhance the long-term viability of the
Company.
As a result of its liquidity problems, the Company did not make a $4.5
million scheduled interest payment due on the notes on May 15, 1995 or
subsequent payments due. The failure to pay the May 15, 1995 interest
payment on the notes on or before June 14, 1995 constituted an event of
default under the Indenture. In May 1995, the Company entered into a
Standstill Agreement (the "Standstill Agreement") with holders of more
than 70% of the principal amount of the notes, whereby such holders agreed
not to exercise certain available rights and remedies based upon the
occurrence of certain defaults. Such Standstill Agreement was subsequently
extended until September 7, 1995; provided, however that such holders may
exercise available rights and remedies in certain circumstances. The
Company continues to communicate with substantial bond holders and no
further action has been taken regarding their rights and remedies.
In July 1995 an agreement was signed whereby another entity was to acquire
all assets, and assume all liabilities, except the obligations under the
notes, of the Company based on certain terms and conditions. Such terms
and conditions were disclosed to certain holders of notes, who hold more
than 70% of the outstanding notes, and such holders subsequently agreed to
support a reorganization and the acquisition of assets and liabilities by
the other entity. As a result of the investigation of the Company's
Florida Network (Note 11), the agreement was terminated. The Company
continues to pursue a potential sale transaction or financial
restructuring.
11. LEGAL ISSUES
The U.S. Department of Justice in conjunction with other federal agencies
is investigating the Company's Florida Network. The Company and a former
employee have been informed that they are targets of the investigation.
The investigation relates to allegations of Medicare, CHAMPUS and other
federal insurance program misbilling by the Company and certain doctors
with privileges at the Company's Florida facilities. The government
executed search warrants at the Florida facilities in August 1995. To
date, the Company has received several subpoenas to which the Company has
14
<PAGE> 15
responded. The Company is cooperating fully with the investigation.
Discussions with the government regarding settlement of the issues are
progressing.
In late September 1995, the Company learned that the Seward County
Attorney's office in conjunction with the Nebraska Department of Social
Services ("Nebraska DSS") would be investigating the Company's Nebraska
operations. The Company received search warrants in late September and
early October 1995. The investigation relates to allegations concerning
inappropriate patient care and billing practices. As a result of this
investigation, the Nebraska DSS notified the Company that they would
discontinue placement of patients in the facility. In response to this
decision, management determined that facility operations were no longer
financially viable and that the facility would be closed. Based on
available information, the Company believes that its Nebraska operations
were providing appropriate patient care and following proper billing
practices.
Although the precise amount of liability for these matters is not known,
the Company has provided for a potential settlement in the financial
statements.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosure About Fair Value of Financial Instruments. The carrying values
of cash and cash equivalents approximate fair values due to the short-term
maturity of these instruments. It is not practicable to estimate the fair
value of the Series B Senior Notes due to reasons discussed in Note 10.
* * * * * *
15
<PAGE> 16
(ii) Unaudited Interim Financial Statements of Vendell Healthcare,
Inc. as of March 31, 1997 and for the nine month periods ended March 31, 1996
and 1997.
<TABLE>
<CAPTION>
VENDELL HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEET
================================================================================
(unaudited) (dollars in thousands)
MARCH 31,
1997
---------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,844
Accounts receivable, less allowance for doubtful accounts
of $4,320 9,059
Prepaid expenses and other current assets 1,535
---------
Total current assets 19,438
PROPERTY AND EQUIPMENT, net (Note 4) 18,611
OTHER ASSETS 1,476
---------
TOTAL $ 39,525
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,134
Accrued expenses 9,504
Accrued salaries and wages 2,147
Accrued interest (Note 7) 20,750
Due to third party payors 10,765
Series B Senior Notes (Note 7) 75,000
---------
Total current liabilities 119,300
SHAREHOLDERS' EQUITY:
Preferred stock - $.01 par value; authorized,
1,000,000 shares; none outstanding --
Common stock - $.01 par value; authorized,
10,000,000 shares; issued 4,847,093 shares 48
Additional paid-in capital 21,446
Accumulated deficit (101,269)
---------
Total shareholders' equity (79,775)
---------
TOTAL $ 39,525
=========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 17
<TABLE>
<CAPTION>
VENDELL HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
(unaudited) (dollars in thousands)
Nine Months Ended
--------------------
MARCH 31, MARCH 31,
1996 1997
--------------------
<S> <C> <C>
PATIENT SERVICE REVENUE $ 48,977 $ 42,280
COSTS AND EXPENSES:
Salaries and benefits 29,220 22,858
Other operating expenses 24,197 14,390
Provision for doubtful accounts 1,583 393
Interest expense 7,040 6,414
Depreciation and amortization 2,553 1,941
Nonrecurring charges (Note 5) 4,868 813
-------- --------
69,461 46,809
-------- --------
(LOSS) BEFORE INCOME TAXES (20,484) (4,529)
PROVISION (BENEFIT) FOR INCOME TAXES -- --
-------- --------
NET (LOSS) $(20,484) $ (4,529)
======== ========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
<TABLE>
<CAPTION>
VENDELL HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
======================================================================================
(unaudited) (dollars in thousands)
Nine Months Ended
--------------------
MARCH 31, MARCH 31,
1996 1997
--------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(20,484) $ (4,529)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Impairment loss 1,500 --
Gain on sale of property (1,005) --
Depreciation and amortization 2,553 1,941
Provision for doubtful accounts 1,583 393
Interest not requiring cash 289 289
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 1,963 1,356
Decrease (increase) in prepaid expenses and
other current assets 47 265
(Decrease) increase in accounts payable 157 (392)
(Decrease) increase in accrued interest 6,750 6,125
(Decrease) increase in accrued expenses 1,782 (2,162)
-------- --------
Net cash provided (used) by operating activities (4,865) 3,286
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (625) (216)
Received from property sale 1,749 130
-------- --------
Net cash provided (used) in investing activities 1,124 (86)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in other assets 645 152
-------- --------
Net cash provided (used) in financing activities 645 152
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,096) 3,352
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 6,802 5,492
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,706 $ 8,844
======== ========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
VENDELL HEALTHCARE, INC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements are "Interim
Financial Statements", and do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
Company's accounting principles and practices (including consolidation
practices) reflected in the Company's audited financial statements for the
fiscal year ended June 30, 1996, and in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments), necessary for a
fair presentation. The results of operations for the nine month period ended
March 31, 1997, are not necessarily indicative of the results that can be
expected for the year ending June 30, 1997. All significant intercompany
balances and transactions have been eliminated in the consolidated financial
statements. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's audited financial
statements for the year ended June 30, 1996.
NOTE 2 - ASSET PURCHASE AGREEMENT AND BANKRUPTCY FILING
On February 27, 1997, the company signed an Asset Purchase Agreement whereby
Vendell agreed to sell substantially all of its assets to Children's
Comprehensive Services, Inc ("CCS"). The Company and two of its subsidiaries
filed for protection under Chapter 11 of the U.S. Bankruptcy Code in March 1997
as part of the Asset Purchase Agreement with CCS. The Company continued to
operate through the date of the sale to CCS, June 2, 1997. It is now in the
process of managing operations of one subsidiary pending a closing of the sale
to a third party, as well as settling other remaining obligations.
NOTE 3 - ACCOUNTING FOR INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standard (SFAS) No. 109. SFAS 109 requires recognition of deferred
tax assets and liabilities for expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. The Company files a consolidated federal income tax return and
individual state income tax returns. Certain revenue and expense items are
recognized for tax purposes in years other than the year in which they are
reflected in the financial statements.
NOTE 4 - IMPAIRMENT RESERVE
At June 30, 1996 the Company recognized an impairment loss utilizing the
principles of SFAS No. 121. The impairment loss included an adjustment to the
carrying value of the property and equipment as a result of the Company's intent
to sell substantially all of its assets. An impairment reserve in the amount of
$36.2 million is reflected as a reduction in the carrying value of the property
and equipment.
19
<PAGE> 20
NOTE 5 - NONRECURRING CHARGES
In connection with the proposed restructuring and sale of substantially all of
the Company's assets, the Company recorded a nonrecurring charge reflecting the
costs incurred during the fiscal year ended June 1995 with respect to the
restructuring and potential sale. Subsequent expenses related to the
restructuring are included in this item during the fiscal periods ended March
31, 1996 and 1997. A nonrecurring charge of $3.46 million, including a $1.5
million impairment loss was recognized in the second quarter of fiscal 1996
related to the closure and intention to sell the Nebraska facility.
NOTE 6 - GOVERNMENT INVESTIGATION
The U.S. Department of Justice in conjunction with other federal agencies has
investigated the Company's Florida Network. The investigation related to
allegations of Medicare, CHAMPUS and other federal insurance program overbilling
by the Company and certain doctors with privileges at the Company's Florida
facilities. The government executed search warrants at the Florida facilities in
August 1995. The Company has accrued for the cost of settling the investigation.
In September 1995, the Company learned that the Seward County Attorney's office
in conjunction with the Nebraska Department of Social Services ("Nebraska DSS")
was investigating the Company's Nebraska operations. The investigation related
to allegations concerning inappropriate patient care and billing practices. As a
result of this investigation, the Nebraska DSS notified the Company that they
would discontinue placement of patients in the Nebraska facility. In response to
this decision, management determined that the Nebraska facility operations were
no longer financially viable and that the facility would be closed. Based on
available information, the Company believes that its Nebraska operations were
providing appropriate patient care and following proper billing practices. The
Company has now closed the facility and has sold the building. (see NOTE 9)
NOTE 7 - SECURITIES DEFAULT
The Company is currently in default on its Senior Notes due 2000 having failed
to make its scheduled interest payments of $4.5 million on May 15, 1995 and
failing to cure the default within 30 days of that date. No payments have been
made since that date. Future scheduled semi-annual interest payments of $4.5
million will not be timely paid. Accrued interest on the Notes is reflected in
the financial statements.
NOTE 8 - OTHER INFORMATION
The Company sold its Connecticut operations effective February, 1996. The
Company's Stafford hospital building was sold in October 1995 for approximately
$1.6 million, net of sales costs, in a cash transaction. The Company's
physician practice operations in Texas and Michigan were sold in May 1996 and
August 1996, respectively.
20
<PAGE> 21
NOTE 9 - SUBSEQUENT EVENTS
In May 1997, the Company sold its Nebraska building to a third party. No gain or
loss was recognized from the sale. In May 1997, the Company sold substantially
all of its assets relating to its Wichita Falls, Texas operations to a third
party. The remainder of these assets are expected to be sold as part of a second
closing in September 1997. In August 1997, the Company settled its dispute with
the U.S. Department of Justice and the Nebraska Medicaid Program for
approximately $650,000. The Company had previously accrued for the settlement.
In August 1997, the Company settled its dispute with the U.S. Department of
Justice regarding the investigation of the Company's Florida operations for
approximately $4.2 million. The Company had previously accrued for the
settlement.
On June 2, 1997 the Company closed its transaction with CCS pursuant to the
Asset Purchase Agreement.
**********
21
<PAGE> 22
(b) PRO FORMA FINANCIAL INFORMATION
The unaudited proforma information set forth below gives effect to the
acquisition as if it had been consummated on March 31, 1997 for balance sheet
purposes and on July 1, 1995 for income statement purposes, subject to the
assumptions and adjustments in the accompanying notes to the pro forma
financial information. The pro forma adjustments do not reflect any operating
efficiencies that may be achievable with respect to the combined companies.
The pro forma adjustments reflecting the consummation of the acquisition are
based on purchase accounting methods and upon the assumptions set forth in the
notes hereto. This pro forma financial information is qualified in its entirety
by, and should be read in conjunction with, the historical financial statements
and accompanying notes of CCS and Vendell.
The following information is not necessarily indicative of the financial
position or operating results that would have occurred had the acquisition
occurred on the date, or at the beginning of the periods, for which the
consummation of the acquisition is being given effect. For purposes of preparing
CCS consolidated financial statements, CCS will establish a new basis for
Vendell's assets and liabilities based upon the fair values thereof and the
purchase price, including costs of the acquisition. The purchase price
adjustments made in connection with the development of the pro forma financial
information are preliminary and have been made solely for purposes of developing
such pro forma financial information.
22
<PAGE> 23
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
===========================================================================================================================
(unaudited) (dollars in thousands)
----------------------------------------------------------
AS REPORTED CCS
-------------------------- PRO FORMA PRO FORMA
CCS VENDELL ADJUSTMENTS CONSOLIDATED
----------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and short term investments $22,219 $ 8,844 $ (8,844) (1) $17,182
11,450 (2)
(11,450) (3)
(5,037) (3)
Accounts receivable, less allowance for doubtful accounts 5,170 9,059 14,229
Prepaid expenses and other current assets 782 1,535 2,317
------- -------- -------- -------
Total current assets 28,171 19,438 (13,881) 33,728
PROPERTY AND EQUIPMENT, net 14,921 18,611 1,338 (4) 34,870
OTHER ASSETS 2,298 1,476 (1,247) (1) 2,527
------- -------- -------- -------
TOTAL $45,390 $ 39,525 $(13,790) $71,125
======= ======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 733 $ 1,134 $ 1,867
Accrued expenses 1,675 5,204 $ (1,800) (1) 5,079
Due to government - 4,300 (4,300) (1) -
Accrued salaries and wages 1,845 2,147 3,992
Due to third party payors - 10,765 (10,765) (1) -
Series B Senior Notes, including accrued interest - 95,750 (95,750) (1) -
------- -------- ------- -------
Total current liabilities 4,253 119,300 (112,615) 10,938
Other liabilities 390 - 390
Long term debt - - 11,450 (2) 11,450
------- -------- ------- -------
TOTAL LIABILITIES 4,643 119,300 (101,165) 22,778
SHAREHOLDERS' EQUITY 40,747 (79,775) 7,600 (3) 48,347
79,775 (5)
------- -------- ------- -------
TOTAL $45,390 $ 39,525 $(13,790) $71,125
======= ======== ======== =======
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
23
<PAGE> 24
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED JUNE 30, 1996
==================================================================================================================================
(unaudited) (dollars in thousands)
---------------------------------------------------------------
AS REPORTED CCS
----------------------------- PRO FORMA PRO FORMA
CCS VENDELL ADJUSTMENTS CONSOLIDATED
---------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $ 25,835 $ 65,391 $ (8,540) (6) $ 82,686
COSTS AND EXPENSES:
Salaries and benefits 15,658 38,011 (5,388) (6) 48,281
Other operating expenses 4,825 32,184 (4,558) (6) 32,451
Interest expense, net 763 9,386 973 (7) 1,736
(9,386) (8)
Depreciation and amortization 952 3,124 (2,301) (9) 1,775
Impairment loss - 15,750 - 15,750
Nonrecurring charges - 7,473 - 7,473
---------- -------- -------- ----------
22,198 105,928 (20,660) 107,466
---------- -------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 3,637 (40,537) 12,120 (24,780)
PROVISION (BENEFIT) FOR INCOME TAXES 713 - (713) (10) -
---------- -------- -------- ----------
NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEMS $ 2,924 $(40,537) $ 12,833 $ (24,780)
========== ======== ======== ==========
Earnings per share $ 0.50 $ (3.85)
Average shares outstanding 5,792,161 6,435,139 (11)
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
24
<PAGE> 25
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1997
=======================================================================================================================
(unaudited) (dollars in thousands)
-------------------------------------------------------------
AS REPORTED CCS
---------------------------- PRO FORMA PRO FORMA
CCS VENDELL ADJUSTMENTS CONSOLIDATED
-------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $ 23,359 $42,280 $(3,772) (6) $ 61,867
COSTS AND EXPENSES:
Salaries and benefits 14,564 22,858 (1,632) (6) 35,790
Other operating expenses 4,530 14,783 (1,936) (6) 17,377
Interest expense, net (502) 6,414 730 (7) 228
(6,414) (8)
Depreciation and amortization 685 1,941 (1,324) (9) 1,302
Nonrecurring charges - 813 - 813
---------- ------- ------- ----------
19,277 46,809 (10,576) 55,510
---------- ------- ------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 4,082 (4,529) 6,804 6,357
PROVISION (BENEFIT) FOR INCOME TAXES (596) - - (596)
---------- ------- ------- ----------
NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEMS $ 4,678 $(4,529) $ 6,804 $ 6,953
========== ======= ======= ==========
Earnings per share $ 0.66 $ 0.90
Average shares outstanding 7,044,734 7,687,712 (11)
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
25
<PAGE> 26
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Elimination of Vendell assets not purchased by, and Vendell liabilities
not assumed by, CCS.
(2) Incurrence of $11,450,000 of debt under the Company's existing line of
credit to provide the cash portion of the purchase price.
(3) Reflects reductions in cash and an increase in shareholder's equity as a
result of the acquisition of the Vendell assets.
Purchase price payable in:
Cash:
Purchase property and equipment $11,450,000
Purchase net working capital 5,037,000
Common Stock 7,600,000
(4) Under purchase accounting, Vendell's assets and liabilities are required
to be adjusted to their estimated values. The estimated fair value
adjustment has been determined by CCS based upon available information.
(5) Elimination of Vendell's shareholder's equity.
(6) Elimination of revenues and expenses of Vendell operations which were not
acquired by CCS.
(7) Reflects interest expense on $11,450,000 of debt incurred by CCS to
finance the cash portion of the acquisition.
(8) Elimination of the interest expense incurred by Vendell on its Series B
Senior Notes, as such notes were not assumed by CCS.
(9) Reflects the reduction in depreciation and amortization resulting from
adjustments to the fair value of Vendell property and equipment.
(10) Reflects the elimination of income tax expense due to the benefit of
Vendell's operating loss.
(11) Reflects adjustment to weighted shares outstanding due to the issuance of
642,778 shares of common stock in concurrence with the acquisition.
26
<PAGE> 27
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on August 18, 1997.
CHILDREN'S COMPREHENSIVE SERVICES, INC.
By: /s/ DONALD B. WHITFIELD
--------------------------------------
Donald B. Whitfield
(Vice President of Finance, Secretary
and Treasurer)
27
