<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported): June 30, 1996
SUN HEALTHCARE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 1-12040 85-0410612
- --------------------------------------------------------------------------------
State or other jurisdiction Commission IRS Employer
of incorporation File Number Identification No.
101 Sun Lane, N.E.
Albuquerque, New Mexico 87109
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number,
Including Area Code: (505) 821-3355
This Current Report on Form 8-K consists of pages.
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 2, 1996, a wholly owned subsidiary of Sun Healthcare Group,
Inc. ("Sun") purchased all of the outstanding stock of H.T.A. of New York, Inc.,
and H.T.A. of New Jersey, Inc., providers of physical, speech and occupational
therapy services to the health care industry and a covenant not to compete for
$5,300,000 in cash. The shareholder of H.T.A. of New York, Inc. and H.T.A. of
New Jersey, Inc. was Iris Kimberg.
On June 30, 1996, a wholly owned subsidiary of Sun purchased all of
the outstanding stock of 3270262 Canada Inc., a provider of outpatient
physiotherapy and occupational services in Canada for $3,564,000 Canadian
Dollars ($2,614,000 U.S. Dollars as of June 30, 1996) in cash. The
shareholders of 3270262 Canada Inc. were Robert Y. Weisz and Yorkview
Physiotherapy Centre. In connection with this transaction, the acquiring
subsidiary agreed to employ a former shareholder for a period of one year at
an annual salary of $520,000 Canadian Dollars ($381,000 U.S. Dollars as of
June 30, 1996).
On June 30, 1996, a wholly owned subsidiary of Sun purchased all of
the outstanding stock of Aqua Rehabilitation Inc., a provider of outpatient
physiotherapy and occupational services in Canada, for $450,000 Canadian Dollars
($330,000 U.S. Dollars as of June 30, 1996) in cash. The shareholders of
Aqua Rehabilitaion Inc. were 624722 Ontario Limited, Lisa Lasko, Benjamin
Lasko and Lisa Lasko as the trustee of the Lasko Family Trust.
All of the above transactions were accounted for as purchases.
During the period from February 1, 1996 to July 8, 1996, Sun
acquired in open market transactions additional minority interests totalling
9.2% in Ashbourne PLC, an operator of nursing homes in the United Kingdom for
$10,165,000. As of July 8, 1996, Sun owned a total minority interest of 29.2%
in Ashbourne PLC.
Prior to July 15, 1996, a Form 8-K was not previously filed for
Ashbourne PLC, Aqua Rehabilitation Inc., H.T.A. of New York, Inc. and H.T.A.
of New Jersey, Inc. because they individually did not qualify as significant
acquisitions by the Company in accordance with the definition of a significant
subsidiary in Rule 3-05 of Regulation S-X. However, since the aggregate
impact of the individually insignificant businesses acquired by Sun exceeded
the reporting requirements of Rule 3-05, the above acquisitions are included
in this Form 8-K/A-1.
The above acquisitions were financed by borrowings under Sun's
revolving line of credit with NationsBank of Texas, N.A. as administrative
lender.
The above acquisitions were previously reported on the Company's
Current Report on Form 8-K, dated June 30, 1996. This filing provides the
required audited and pro forma financial information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<PAGE>
ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
H.T.A. of New York, Inc. and H.T.A. of New Jersey, Inc. Financial Statements
Independent Auditor's Report
Combined Balance Sheet as of December 31, 1995
Combined Statement of Income for the year ended December 31, 1995
Combined Statement of Retained Earnings for the year ended
December 31, 1995
Combined Statement of Cash Flows for the year ended December 31, 1995
Notes to Combined Financial Statements
Combined Balance Sheet as of June 30, 1996 and December 31, 1995 (unaudited)
Combined Statements of Operations for the six months ended June 30, 1996
and 1995 (unaudited)
Combined Statements of Cash Flows for the six months ended June 30, 1996
and 1995 (unaudited)
Notes to Combined Financial Statements (unaudited)
3270262 Canada Inc.
Yorkview Physiotherapy Centre Financial Statements
Auditors' Report
Balance Sheet as of December 31, 1995
Statement of Partners' Capital for the period ended December 31, 1995
Statement of Earnings for the period ended December 31, 1995
Statement of Changes in Financial Position December 31, 1995
Notes to Financial Statements
Auditors' Report
Balance Sheet as of June 21, 1996
Statement of Partners' Capital for the period ended June 21, 1996
Statement of Earnings for the period ended June 21, 1996
Statement of Changes in Financial Position for the period ended
June 21, 1996
Notes to Financial Statements
<PAGE>
3270262 Canada Inc. (continued)
Robert Weisz - Physiotherapist - Financial Statements
Auditors' Report
Balance Sheet as of December 31, 1995
Statement of Proprietor's Capital for the period ended
December 31, 1995
Statement of Earnings for the period ended December 31, 1995
Statement of Changes in Financial Position for the period ended
December 31, 1995
Notes to Financial Statements
Aqua Rehabilitation Inc.
Auditors' Report
Balance Sheet as of July 31, 1995
Statement of Retained Earnings for the year ended July 31, 1995
Statement of Earnings for the year ended July 31, 1995
Statement of Changes in Financial Position for the year ended
July 31, 1995
Notes to Financial Statements
Balance Sheet as of June 30, 1996 and June 30, 1995 (unaudited)
Statement of Retained Earnings for the eleven months ended
June 30, 1996 and June 30, 1995 (unaudited)
Statement of Earnings for the eleven months ended June 30, 1996 and
June 30, 1995
Statement of Changes in Financial Position for the eleven months ended
June 30, 1996 and June 30, 1995
Notes to Financial Statements
Ashbourne PLC Financial Statements
Auditors' Report to the Shareholders of Ashbourne PLC
Group Profit and Loss Account for the year ended 1 October 1995
Statement of Total Recognised Gains and Losses for the year ended
1 October 1995
Note of Historical Cost Profits and Losses for the year ended
1 October 1995
Reconciliation of Movements in Shareholders' Funds for the year ended
1 October 1995
Balance Sheet for the year ended 1 October 1995
Group Cash Flow Statement for the year ended 1 October 1995
Notes to the Financial Statements
Group Profit and Loss Account for the 26 weeks ended 31 March 1996
(unaudited)
Group Balance Sheet as of 31 March 1996 (unaudited)
Group Cash Flow Statement for the 26 weeks ended 31 March 1996
(unaudited)
Notes (unaudited)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Careerstaff Unlimited, Inc. and the Stockholder
HTA of New York, Inc.
HTA of New Jersey, Inc.
New York, New York
We have audited the accompanying combined balance sheet of HTA of New York, Inc.
and HTA of New Jersey, Inc. as of December 31, 1995, and the related combined
statements of income, retained earnings and cash flows for the year then ended.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform 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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of HTA of New
York, Inc. and HTA of New Jersey, Inc. as of December 31, 1995, and the combined
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ CITRIN COOPERMAN & COMPANY, LLP.
---------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
April 17, 1996, except for Note J,
as to which the date is June 28, 1996
<PAGE>
HTA OF NEW YORK, INC.
HTA OF NEW JERSEY, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current assets:
Cash (Note A(6)) $ 156,709
Accounts receivable 2,749,018
-----------
Total current assets 2,905,727
Property and equipment, net (Notes A(7) and B) 39,941
Loans receivable - stockholder 10,357
Security deposit 2,200
-----------
Total $ 2,958,225
-----------
-----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Note payable - bank (Note C) $ 36,250
Therapists payable 640,896
Income taxes payable (Note D) 856,105
Accrued expenses and other current liabilities 107,387
-----------
Total current liabilities 1,640,638
-----------
Commitments and contingencies (Notes F and G)
Stockholder's equity:
Common stock (Note H)
Retained earnings 1,317,587
-----------
Total stockholder's equity 1,317,587
-----------
Total $ 2,958,225
-----------
-----------
The accompanying notes are an integral part of this financial statement.
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<PAGE>
HTA OF NEW YORK, INC.
HTA OF NEW JERSEY, INC.
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
Fee income $ 10,643,247
Therapists expense (Note G(1)) 8,201,478
------------
Gross profit 2,441,769
General and administrative expenses 1,509,239
------------
Income before other income (expense) and
provision for income taxes 932,530
Other income (expense)
Interest income 146
Interest expense (1,494)
Depreciation expense (18,326)
------------
Income before provision for income taxes 912,856
Provision for income taxes (Note D) 470,908
------------
NET INCOME $ 441,948
------------
------------
The accompanying notes are an integral part of this financial statement.
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<PAGE>
HTA OF NEW YORK, INC.
HTA OF NEW JERSEY, INC.
COMBINED STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
Retained earnings - January 1, 1995, as previously reported $ 605,185
Prior period adjustment for accounts receivable,
therapists payable and accrued expenses (Note I) 270,454
-----------
Retained earnings - as restated - January 1, 1995 875,639
Net income 441,948
-----------
Retained earnings - December 31, 1995 $ 1,317,587
-----------
-----------
The accompanying notes are an integral part of this financial statement.
-4-
<PAGE>
HTA OF NEW YORK, INC.
HTA OF NEW JERSEY, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
Cash flows from operating activities:
Net income $ 441,948
-----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 18,326
Changes in operating assets and liabilities:
(Increase) in accounts receivable (960,784)
(Increase) in security deposit (800)
(Increase) in loans to stockholder (10,357)
Increase in therapists payable 104,258
Increase in income taxes payable 460,605
Increase in accrued expenses and other
current liabilities 20,365
-----------
Total adjustments (368,387)
-----------
Net cash provided by operating activities 73,561
-----------
Cash flows from investing activities:
Purchase of furniture and equipment (16,770)
-----------
Net cash used for investing activities (16,770)
-----------
Cash flows from financing activities:
Net repayment of note payable - bank (3,750)
Repayment of loans payable (30,000)
-----------
Net cash used for financing activities (33,750)
-----------
Net increase in cash 23,041
Cash - January 1, 1995 133,668
-----------
Cash - December 31, 1995 $ 156,709
-----------
-----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense $ 1,142
Income taxes $ 9,543
The accompanying notes are an integral part of this financial statement.
-5-
<PAGE>
HTA OF NEW YORK, INC.
HTA OF JEW JERSEY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(NOTE A) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. PRINCIPLES OF COMBINATION:
The accompanying combined financial statements include the accounts of HTA of
New York, Inc. and HTA of New Jersey, Inc. (the "Companies"), which are
affiliated by common ownership. All significant intercompany accounts and
transactions have been eliminated in combination.
2. DESCRIPTION OF BUSINESS:
The Companies provide licensed physical, occupational and speech therapists
throughout the New York metropolitan area.
3. USE OF ESTIMATES:
The preparation of financial statements requires the Companies' management to
estimate the current effects of transactions and events whose ultimate outcomes
may not be determinable until future years. Consequently, the estimated current
effects could differ from the effects of the ultimate outcomes.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Effective for years ended after December 15, 1995, Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosure about Fair Value of Financial
Instruments", requires disclosure of the fair value of specified financial
instruments for which it is practicable to estimate that value. The Statement
provides that (a) fair value may be estimated either by reference to quoted
market prices, valuation models or independent valuations and (b) practicable
means that an estimate of fair value can be made without incurring excessive
costs.
As of December 31, 1995, the fair value of cash, accounts receivable, loans
receivable - stockholder, therapists payable, income taxes payable, accrued
expenses and short term borrowings approximated their carrying amount.
5. ADVERTISING COSTS:
The costs of advertising are charged to expense as incurred. Advertising
expense included in the results of operations, amounted to $3,903 for the year
ended December 31, 1995.
6. CONCENTRATION OF CREDIT RISK ARISING FROM CASH DEPOSITS IN EXCESS OF
INSURED LIMITS:
HTA of New York, Inc. maintains cash balances at one financial institution. The
balances are insured by the Federal Deposit Insurance Company up to $100,000.
At December 31, 1995, the Company's uninsured cash balances total $373,075.
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<PAGE>
HTA OF NEW YORK, INC.
HTA OF JEW JERSEY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(NOTE A) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
7. PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation is provided for property
and equipment based upon the provisions of the Internal Revenue Code. Such
depreciation does not differ materially from that which would be recorded under
generally accepted accounting principles.
Expenditures for maintenance and repairs which do not materially prolong the
normal useful life of an asset are charged to operations as incurred.
Additions and betterments which substantially extend the useful life of an asset
are capitalized. Upon sale or other disposition of assets, the cost and related
accumulated depreciation are removed from their respective accounts, and any
resulting gain or loss is reflected in income.
(NOTE B) - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
Estimated
Useful Lives
------------
Furniture and equipment $ 99,613 5 - 7 years
Automobile 42,255 5 years
---------
141,868
Less: Accumulated depreciation 101,927
---------
$ 39,941
---------
Depreciation expense for the year ended December 31, 1995 aggregated $18,326.
(NOTE C) - NOTE PAYABLE - BANK:
HTA of New York, Inc. has a $100,000 unsecured demand line of credit with a
commercial bank which bears interest at the bank's prime rate plus 2% per annum
(10.5% at December 31, 1995). At December 31,1995 the balance outstanding was
$36,250. The entire outstanding balance plus accrued interest of $224 was
repaid by the Company on January 2, 1996.
The line of credit is personally guaranteed by the stockholder of HTA of New
York, Inc.
-7-
<PAGE>
HTA OF NEW YORK, INC.
HTA OF JEW JERSEY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(NOTE D) - INCOME TAXES:
The provision for income taxes consist of the following:
Current:
Federal $ 352,982
State and local 117,926
---------
Total $ 470,908
---------
Pursuant to applicable sections of the Internal Revenue Code, HTA of New York,
Inc. made an affirmative election to utilize the accrual basis of accounting in
filing its income tax returns. The company previously filed its income tax
returns utilizing the cash basis of accounting. At December 31, 1995,
additional income taxes due to this change aggregated $460,605.
(NOTE E) - PROFIT SHARING PLAN
HTA of New York, Inc. maintains a profit sharing plan covering all eligible
employees age 21 with a minimum of one year of service. Contributions to the
plan are made at the Company's discretion.
The contribution for the year ended December 31, 1995 aggregated $72,000.
(NOTE F) - COMMITMENTS:
HTA of New York, Inc. leases office facilities and automobiles under
noncancelable operating leases that expire through September 2000. Future
minimum lease payments are as follows:
Year Ending December 31,
------------------------
1996 $ 62,053
1997 58,279
1998 28,985
1999 26,764
2000 20,521
---------
Total $ 196,602
---------
In addition, the lease on the East Northport office provides for escalation
clauses for increases in real estate taxes and utilities.
Rent expense for the year ended December 31, 1995 aggregated $ 56,926.
-8-
<PAGE>
HTA OF NEW YORK, INC.
HTA OF NEW JERSEY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(NOTE G) - CONTINGENCIES:
1. HTA of New York, Inc. was audited by the New York State Department of Labor
for nonpayment of New York State Unemployment Insurance for the years 1990
through the third quarter of 1993. The Company's position was that the
therapists were independent contractors, not employees, and they were
therefore not liable for unemployment insurance. The Department of Labor
deemed the therapists to be employees and assessed HTA of New York, Inc.
approximately $210,000 (including interest). The Company paid the full
amount of the assessment and protested the case. In October 1995, the
Unemployment Insurance Appeal Board affirmed the decision of the
Administrative Law Judge who ruled in favor of the Company. In November
1995, the Department of Labor requested that the Appeal Board reopen and
reconsider their decision. In February 1996, the Appeal Board agreed to
reopen and reconsider their decision.
HTA of New York, Inc. has not paid or provided for unemployment insurance
for any periods subsequent to the period under audit.
2. HTA of New York, Inc. is a defendent in a lawsuit alleging negligence.
While the outcome of this lawsuit cannot be predicted with certainty,
management does not expect this matter to have a material adverse effect on
the financial position or results of operations of the Company.
(NOTE H) - COMMON STOCK:
The Companies each have authorized 200 shares of no par value common stock. As
of December 31, 1995, no shares have been issued.
(NOTE I) - PRIOR PERIOD ADJUSTMENT:
Certain errors, resulting in an understatement of previously reported assets and
liabilities, were discovered during the current year. Correction of these errors
resulted in an increase in previously reported net income for 1994 amounting to
$270,454.
The following schedule details the nature and amount of each error:
Understatement of accounts receivable $ 321,711
Understatement of therapists payable (35,242)
Understatement of accrued expenses (16,015)
---------
Net change $ 270,454
---------
These errors have no effect on net income for 1995.
-9-
<PAGE>
HTA OF NEW YORK, INC.
HTA OF NEW JERSEY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(NOTE J) - SUBSEQUENT EVENT:
The stockholder of the Companies entered into an agreement to sell 100% of the
outstanding stock of the Companies to another entity pursuant to the terms of
the agreement. The agreement became effective and the transaction was consumated
on June 28, 1996.
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<PAGE>
H. T. A. OF NEW YORK, INC. AND SUBSIDIARY
COMBINED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
JUNE 30, DECEMBER 31,
1996 1995
---------------------------
(UNAUDITED)
ASSETS
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . $ 201,123 $ 156,709
Accounts receivable - trade . . . . . . . . 3,123,866 2,749,018
Other accounts receivable . . . . . . . . . 18,033 10,357
---------------------------
Total current assets . . . . . . . . . . . . . . 3,343,022 2,916,084
---------------------------
Furniture & Equipment. . . . . . . . . . . . . . 112,703 99,613
Auto . . . . . . . . . . . . . . . . . . . . . . 42,255 42,255
Accumulated Depreciation . . . . . . . . . . . . (112,025) (101,927)
---------------------------
Total Fixed Assets . . . . . . . . . . . . . . . 42,933 39,941
Other assets . . . . . . . . . . . . . . . . . . 2,200 2,200
---------------------------
Total assets . . . . . . . . . . . . . . . . . . $ 3,388,155 $ 2,958,225
---------------------------
---------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued payroll and related liabilities . . $ 687,131 $ 640,896
Note payable - bank . . . . . . . . . . . . ---- 36,250
Other accrued liabilities . . . . . . . . . 22,410 107,387
Federal income taxes payable. . . . . . . . 1,116,512 856,105
---------------------------
Total current liabilities. . . . . . . . . . . . 1,826,053 1,640,638
---------------------------
Commitments & Contingencies (Note F) . . . . . . ---- ----
Stockholder's equity:
Common stock. . . . . . . . . . . . . . . . ---- ----
Additional paid-in capital. . . . . . . . . 120 ----
Retained earnings . . . . . . . . . . . . . 1,561,982 1,317,587
---------------------------
Total stockholder's equity . . . . . . . . . . . 1,562,102 1,317,587
---------------------------
Total liabilities and stockholder's equity . . . $3,388,155 $2,958,225
---------------------------
---------------------------
<PAGE>
H. T. A. OF NEW YORK, INC. AND SUBSIDIARY
COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 & 1995
(UNAUDITED)
SIX MONTHS ENDED
-------------------------
6/30/96 6/30/95
-------------------------
Revenues . . . . . . . . . . . . . . . . . . . . $5,711,885 $5,321,624
Cost of services. . . . . . . . . . . . . . 4,398,151 4,100,739
-------------------------
Gross Profit . . . . . . . . . . . . . . . . . . 1,313,734 1,220,885
Operating expenses. . . . . . . . . . . . . 799,664 754,620
-------------------------
Operating income . . . . . . . . . . . . . . . . 514,070 466,265
Interest income . . . . . . . . . . . . . . 1,316 73
Interest expense. . . . . . . . . . . . . . 485 747
Depr. & amort. of fixed assets. . . . . . . 10,098 9,163
-------------------------
Net income before taxes. . . . . . . . . . . . . $504,803 $456,428
-------------------------
-------------------------
Net income adjusted for income taxes (Note D):
Net income . . . . . . . . . . . . . . . . . . . 504,803 456,428
Provision for income taxes . . . . . . . . . . . 260,408 235,454
-------------------------
Net income adjusted for
income taxes . . . . . . . . . . . . . . . . . $244,395 $220,974
-------------------------
-------------------------
<PAGE>
H. T. A. OF NEW YORK, INC. AND SUBSIDIARY
COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 & 1995
(UNAUDITED)
SIX MONTHS ENDED
-------------------------
6/30/96 6/30/95
-------------------------
Operating activities
Net income . . . . . . . . . . . . . . . . . . . $244,395 $220,974
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation & Amortization. . . . . . . . . 10,098 9,163
Changes in operating assets and liabilities:
Accounts receivable, trade net . . . . . . . (382,524) (923,814)
Accounts payable and accrued expenses. . . . 221,665 408,216
-------------------------
Net cash provided by (used in) operating activities 93,634 (285,461)
-------------------------
Investing activities
Purchase of furniture, equipment and
leasehold improvements . . . . . . . . . . . (13,090) (8,385)
Changes in other assets. . . . . . . . . . . 0 71,100
-------------------------
Net cash provided by (used in) investing activities (13,090) 62,715
-------------------------
Financing activities
Borrowing from bank. . . . . . . . . . . . . (36,250) (70,000)
Other. . . . . . . . . . . . . . . . . . . . 120 270,454
-------------------------
Net cash provided by (used in) financing activities (36,130) 200,454
-------------------------
Net increase (decrease) in cash. . . . . . . . . 44,414 (22,292)
Cash at beginning of period. . . . . . . . . . . 156,709 133,668
-------------------------
Cash at end of period. . . . . . . . . . . . . . $201,123 $111,376
-------------------------
-------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest . . $1,316 $73
-------------------------
-------------------------
<PAGE>
HTA OF NEW YORK, INC.
HTA OF NEW JERSEY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(NOTE A) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. PRINCIPLES OF COMBINATION:
The accompanying combined financial statements include the accounts of HTA
of New York, Inc. and HTA of New Jersey, Inc. (the "Companies"), which are
affiliated by common ownership (See Note H). All significant intercompany
accounts and transactions have been eliminated in combination.
2. DESCRIPTION OF BUSINESS:
The Companies provide licensed physical, occupational, and speech
therapists throughout the New York metropolitan area.
3. USE OF ESTIMATES:
The preparation of financial statements requires the Companies' management
to estimate the current effects of transactions and events whose ultimate
outcomes may not be determinable until future years. Consequently, the
estimated current effects could differ from the effects of the ultimate
outcomes.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Effective for years ended after December 15, 1995, Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosure about Fair Value of
Financial Instruments", requires disclosure of the fair value of specified
financial instruments for which it is practicable to estimate that value.
The Statement provides that (a) fair value may be estimated either by
reference to quoted market prices, valuation models or independent
valuations and (b) practicable means that an estimate of fair value can be
made without incurring excessive costs.
As of June 30, 1996 and December 31, 1995, the fair value of cash, accounts
receivable, accrued payroll and related liabilities, federal income taxes
payable, and other accrued liabilities approximated their carrying amount.
5. PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation is provided for
property and equipment based upon the provisions of the Internal Revenue
Code. Such depreciation does not differ materially from that which would
be recorded under generally accepted accounting principles.
<PAGE>
Expenditures for maintenance and repairs which do not materially prolong
the normal useful life of an asset are charged to operations as incurred.
Additions and betterments which substantially extend the useful life of an
asset are capitalized. Upon sale or other disposition of assets, the cost
and related accumulated depreciation are removed from their respective
accounts, and any resulting gain or loss is reflected in income.
(NOTE B) - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
June 30, December 31, Estimated
1996 1995 Useful Lives
-------- ------------ ------------
Furniture and equipment $112,703 99,613 5-7 years
Automobile 42,255 42,255
-------- --------
154,958 141,868
Less:
Accumulated depreciation 112,025 101,927
-------- --------
$ 42,933 $ 39,941
-------- --------
-------- --------
Depreciation expense for the six months ended June 30, 1996 and 1995 aggregated
$10,098 and $9,163, respectively.
(NOTE C) - NOTE PAYABLE - BANK:
HTA of New York, Inc. has a $100,000 unsecured demand line of credit with a
commercial bank which bears interest at the bank's prime rate plus 2% per annum
(10.5% at June 30, 1996). At December 31, 1995 the balance outstanding was
$36,250. The entire outstanding balance plus accrued interest of $224 was
repaid by the Company on January 2, 1996.
<PAGE>
(NOTE D) - INCOME TAXES:
The provision for income taxes consist of the following:
Six Months Ended June 30
------------------------
1996 1995
---- ----
Current:
Federal $195,196 $176,491
State and Local 65,212 58,963
-------- --------
Total $260,408 $235,454
-------- --------
-------- --------
Pursuant to the applicable sections of the Internal Revenue Code, HTA of New
York, Inc. made an affirmative election to utilize the accrual basis of
accounting in filing its income tax returns. The Company previously filed its
income tax returns utilizing the cash basis of accounting. At June 30, 1996,
additional income taxes due to this change aggregated $483,515.
(NOTE E) - PROFIT SHARING PLAN:
HTA of New York, Inc. maintains a profit sharing plan covering all eligible
employees age 21 with a minimum of one year of service. Contributions to the
plan are made at the Company's discretion.
The contribution for the year ended December 31, 1995 aggregated $72,000.
(NOTE F) - CONTINGENCIES:
1. HTA of New York, Inc. was audited by the New York State Department of Labor
for nonpayment of New York State Unemployment Insurance for the years 1990
through the third quarter of 1993. The Company's position was that the
therapists were independent contractors, not employees, and they were
therefore not liable for unemployment insurance. The Department of Labor
deemed the therapists to be employees and assessed HTA of New York, Inc.
approximately $210,000 (including interest). The Company paid the full
amount of the assessment and protested the case. In October 1995, the
Unemployment Insurance Appeal Board affirmed the decision of the
Administrative Law Judge who ruled in favor of the Company. In November
1995, the Department of Labor requested that the Appeal Board reopen and
reconsider their decision. In February 1996, the Appeal Board agreed to
reopen and reconsider their decision.
HTA of New York, has not paid or provided for unemployment insurance for
any periods subsequent to the period under audit.
<PAGE>
2. HTA of New York, Inc. is a defendant in a lawsuit alleging negligence.
While the outcome of this lawsuit cannot be predicted with certainty,
management does not expect this matter to have a material adverse on the
financial position or results of operations of the Company.
(NOTE G) - PRIOR PERIOD ADJUSTMENT:
Certain errors, resulting in an understatement of previously reported assets and
liabilities, were discovered during the year ended December 31, 1995.
Correction of these errors resulted in an increase in previously reported net
income for 1994 amounting to $270,454.
The following schedule details the nature and amount of each error:
Understatement of accounts receivable $ 321,711
Understatement of therapists payable (35,242)
Understatement of accrued expenses (16,015)
---------
Net Change $ 270,454
---------
These errors had no effect on net income for 1995.
(NOTE H) - SALE OF COMPANIES:
On June 28, 1996 CareerStaff Unlimited, Inc. acquired all of the common stock of
the companies pursuant to the stock purchase and sale agreement executed on that
date for total consideration of approximately $4,300,000.
<PAGE>
The following financial statements for Yorkview Physiotherapy Centre, Robert
Weisz and Aqua Rehabilitation Inc. have been prepared under accounting
principles generally accepted in Canada. The financial statements for these
businesses are presented in Canadian Dollars as represented by the $ symbol.
<PAGE>
AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Partners of
Yorkview Physiotherapy Centre
We have audited the balance sheet of Yorkview Physiotherapy Centre as at
December 31, 1995 and the statements of earnings, partners, capital and changes
in financial position for the period from May 1, 1995 to December 31, 1995.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the partnership as at December 31, 1995 and
the results of its operations and the changes in its financial position for the
period then ended in accordance with generally accepted accounting principles.
/s/ Soberman Isenbaum & Colomby
Chartered Accountants
Toronto, Canada
August 7, 1996
1
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
BALANCE SHEET
At
DECEMBER 31,
1995
- --------------------------------------------------------
ASSETS
CURRENT
Cash $ 39,343
Accounts receivable 62,595
Prepaid expense 6,420
- --------------------------------------------------------
108,358
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (NOTE 3) 23,461
- --------------------------------------------------------
$ 131,819
- --------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued charges $ 6,875
PARTNERS' CAPITAL
PARTNERS' CAPITAL 124,944
- --------------------------------------------------------
$ 131,819
- --------------------------------------------------------
SEE ACCOMPANYING NOTES
2
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
STATEMENT OF PARTNERS' CAPITAL
PERIOD ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
The Weisz
Robert Family
Weisz Trust TOTAL
- --------------------------------------------------------------------------------
Balance, beginning of period $ 127,934 $ 42,644 $ 170,578
Net earnings 82,024 27,342 109,366
- --------------------------------------------------------------------------------
209,958 69,986 279,944
Distributions 116,250 38,750 155,000
- --------------------------------------------------------------------------------
Balance, end of period $ 93,708 $ 31,236 $ 124,944
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
3
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
STATEMENT OF EARNINGS
PERIOD
ENDED
DECEMBER 31,
1995
- ----------------------------------------------------------------
REVENUE
Fees billed $ 308,530
- ----------------------------------------------------------------
EXPENSES
Fees paid 47,875
Salaries 38,469
Rent 36,400
Management fees 18,800
Bad debts 18,591
Professional fees 4,467
General and office 3,672
Employee benefits 2,763
Telephone 1,863
Insurance and business taxes 1,055
Promotion 400
Interest and bank charges 200
Amortization 5,455
Write off of leasehold improvements 19,154
- ----------------------------------------------------------------
199,164
- ----------------------------------------------------------------
Net earnings $ 109,366
- ----------------------------------------------------------------
SEE ACCOMPANYING NOTES
4
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
STATEMENT OF CHANGES IN FINANCIAL POSITION PERIOD
ENDED
DECEMBER 31
1995
- ----------------------------------------------------------------
SOURCES (USES) OF CASH
OPERATING ACTIVITIES
Net earnings $ 109,366
CHARGES NOT INVOLVING AN OUTLAY OF CASH
Amortization 5,455
Write off of leasehold improvements 19,154
CHANGES IN NON-CASH WORKING CAPITAL ITEMS
Accounts receivable 41,273
Prepaid expenses (6,420)
Accounts payable and accrued charges (35,846)
- -----------------------------------------------------------------
CASH FROM OPERATIONS 132,982
INVESTING ACTIVITY
Additions to equipment and leasehold improvements (3,281)
DISTRIBUTIONS TO PARTNERS (155,000)
- -----------------------------------------------------------------
NET CASH INCREASE (DECREASE) (25,299)
CASH, BEGINNING OF PERIOD 64,642
- ----------------------------------------------------------------
CASH, END OF PERIOD $ 39,343
- ----------------------------------------------------------------
SEE ACCOMPANYING NOTES
5
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. GENERAL
The accompanying financial statements of Yorkview Physiotherapy Centre, an
unincorporated partnership, reflect only the assets, liabilities, revenue
and expenses of the physiotherapy practice. They do not include any other
personal assets, liabilities, revenue or expenses of the partners.
No provision has been made in the financial statements for interest on
capital or fees to the partners.
These financial statements do not provide for income taxes as they are the
responsibility of the partners.
2. SIGNIFICANT ACCOUNTING POLICY
CAPITAL ASSETS
Equipment and leasehold improvements are recorded at cost. Amortization is
provided annually on a basis designed to amortize the assets over their
estimated useful lives, as follows:
Furniture, fixtures and equipment - 20% declining balance
Leasehold improvements - 5 years straight line
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
DECEMBER 31,
1995
NET
Accumulated CARRYING
Cost Amortization AMOUNT
- ------------------------------------------------------------------
Equipment $ 30,159 $ 9,651 $ 20,508
Leasehold improvements 3,281 328 2,953
- ------------------------------------------------------------------
$ 33,440 $ 9,979 $ 23,461
- ------------------------------------------------------------------
6
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTION
624722 Ontario Limited ("624722") is owned by Robert Weisz, a partner.
Pursuant to a written agreement, the partnership paid management fees to
624722 in the amount of $18,800.
5. CHANGE OF NAME
On September 1, 1995, concurrent with a relocation to new premises, the
partnership changed its name to Yorkview Physiotherapy Centre.
6. CHANGE IN FISCAL YEAR END
Effective December 31, 1995, the partnership changed its fiscal year end to
December 31.
7. LEASE COMMITMENT
The partnership is committed to a long term lease with an expiry in
August, 2000. Minimum annual rent (exclusive of requirement to pay its
proportionate share of property taxes, maintenance and insurance) for each
of the next 5 years is as follows:
Year ending December 31, 1996 $22,000
1997 39,000
1998 41,000
1999 43,000
2000 30,000
8. SUBSEQUENT EVENTS
Effective immediately after the close of business on June 21, 1996, the
partnership transferred its assets and business undertaking to 3270262
Canada Inc. ("Canada"), a related party, pursuant to Subsection 85(2) of
the Income Tax Act. As consideration, the partnership received common
shares in the capital of Canada.
On June 30, 1996, the partnership sold its common shares of Canada for
$400,000 cash proceeds.
7
<PAGE>
AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Partners of
Yorkview Physiotherapy Centre
We have audited the balance sheet of Yorkview Physiotherapy Centre as at June
21, 1996 and the statements of earnings, partners' capital and changes in
financial position for the period from January 1, 1996 to June 21, 1996. These
financial statements are the responsibility of the partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the partnership as at June 21, 1996 and the
results of its operations and the changes in its financial position for the
period then ended in accordance with generally accepted accounting principles.
/s/ Soberman Isenbaum & Colomby
Chartered Accountants
Toronto, Canada
August 7, 1996
1
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
BALANCE SHEET AT
JUNE 21
1996
- ---------------------------------------------------------------
ASSETS
CURRENT
Cash $ 7,085
Accounts receivable 83,415
Prepaid expenses 7,356
- --------------------------------------------------------------
97,856
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (NOTE 3) 26,543
- --------------------------------------------------------------
$ 124,399
- --------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued charges $ 26,206
PARTNERS' CAPITAL
PARTNERS' CAPITAL 98,193
- --------------------------------------------------------------
$ 124,399
- --------------------------------------------------------------
SEE ACCOMPANYING NOTES
2
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
STATEMENT OF PARTNERS' CAPITAL
PERIOD ENDED JUNE 21, 1996
- --------------------------------------------------------------------------------
The Weisz
Robert Family
Weisz Trust TOTAL
- --------------------------------------------------------------------------------
Balance, beginning of period $ 93,708 $ 31,236 $ 124,944
Net earnings 83,437 27,812 111,249
- --------------------------------------------------------------------------------
177,145 59,048 236,193
Distributions 103,500 34,500 138,000
- --------------------------------------------------------------------------------
Balance, end of period $ 73,645 $ 24,548 $ 98,193
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
3
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
STATEMENT OF EARNINGS PERIOD
ENDED
JUNE 21
1996
- ------------------------------------------------------------
REVENUE
Fees billed $ 310,674
- ------------------------------------------------------------
EXPENSES
Fees paid 45,904
Bad debts 45,129
Rent 32,644
Salaries 28,801
Management fees 12,840
Medical supplies 9,191
Professional fees 5,275
Employee benefits 4,555
General and office 4,505
Fees dues and subscriptions 2,350
Insurance and business taxes 2,233
Maintenance and repairs 1,873
Telephone 1,479
Interest and bank charges 141
Amortization 2,505
- ------------------------------------------------------------
199,425
- ------------------------------------------------------------
NET EARNINGS $ 111,249
- ------------------------------------------------------------
SEE ACCOMPANYING NOTES
4
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
STATEMENT OF CHANGES IN FINANCIAL POSITION PERIOD
ENDED
JUNE 21
1996
- ------------------------------------------------------------
SOURCES (USES) OF CASH
OPERATING ACTIVITIES
Net earnings $ 111,249
CHARGES NOT INVOLVING AN OUTLAY OF CASH
Amortization 2,505
CHANGES IN NON-CASH WORKING CAPITAL ITEMS
Accounts receivable (20,820)
Prepaid expenses (936)
Accounts payable and accrued charges 19,331
- ------------------------------------------------------------
CASH FROM OPERATIONS 111,329
INVESTING ACTIVITY
Additions to equipment and leasehold improvements (5,587)
DISTRIBUTIONS TO PARTNERS (138,000)
- -------------------------------------------------------------
NET CASH DECREASE (32,258)
CASH, BEGINNING OF PERIOD 39,343
- ------------------------------------------------------------
CASH, END OF PERIOD $ 7,085
- ------------------------------------------------------------
SEE ACCOMPANYING NOTES
5
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
NOTES TO FINANCIAL STATEMENTS
JUNE 21, 1996
- --------------------------------------------------------------------------------
1. GENERAL
The accompanying financial statements of Yorkview Physiotherapy Centre, an
unincorporated partnership, reflect only the assets, liabilities, revenue
and expenses of the partnership. They do not include any other assets,
liabilities, revenue or expenses of the partners.
No provision has been made in the financial statements for interest on
capital or salaries to the partners.
These financial statements do not provide for income taxes as they are the
responsibility of the partners.
2. SIGNIFICANT ACCOUNTING POLICY
CAPITAL ASSETS
Equipment and leasehold improvements are recorded at cost. Amortization is
provided annually on a basis designed to amortize the assets over their
estimated useful lives, as follows:
Equipment - 20% declining balance
Leasehold improvements - 5 years straight line
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
JUNE 21,
1996
NET
Accumulated CARRYING
Cost Amortization AMOUNT
- ---------------------------------------------------------------
Equipment $ 30,159 $ 11,584 $ 18,575
Leasehold improvements 8,868 900 7,968
- ---------------------------------------------------------------
$ 39,027 $ 12,484 $ 26,543
- ---------------------------------------------------------------
6
<PAGE>
YORKVIEW PHYSIOTHERAPY CENTRE
NOTES TO FINANCIAL STATEMENTS
JUNE 21, 1996
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTION
624722 Ontario Limited ("624722") is owned by Robert Weisz, a partner.
Pursuant to a written agreement, the partnership paid management fees to
624722 in the amount of $12,840.
5. LEASE COMMITMENT
The partnership is committed to a long term lease with an expiry in August,
2000. Minimum annual rent (exclusive of requirement to pay its
proportionate share of property taxes, maintenance and insurance) is
approximately $40,000 per year.
6. SUBSEQUENT EVENTS
Effective immediately after the close of business on June 21, 1996, the
partnership transferred its assets and business undertaking to 3270262
Canada Inc. ("Canada"), a related party, pursuant to Subsection 85(2) of
the Income Tax Act. As consideration, the partnership received common
shares in the capital of Canada.
On June 30, 1996, the partnership sold its common shares of Canada for
$400,000 cash proceeds.
7
<PAGE>
AUDITORS' REPORT
- --------------------------------------------------------------------------------
To Robert Weisz, Proprietor
We have audited the balance sheet of Robert Weisz - Physiotherapist as at
December 31, 1995 and the statements of earnings, proprietor's capital and
changes in financial position for the period from February 1, 1995 to December
31, 1995. These financial statements are the responsibility of the proprietor.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the proprietorship as at December 31, 1995
and the results of its operations and the changes in its financial position for
the period then ended in accordance with generally accepted accounting
principles.
/s/ Soberman Isenbaum & Colomby
Chartered Accountants
Toronto, Canada
August 7, 1996
1
<PAGE>
ROBERT WEISZ - PHYSIOTHERAPIST
BALANCE SHEET
AT
DECEMBER 31
1995
- ------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 19,206
Accounts receivable 577,714
- -------------------------------------------------------------------------------
596,920
AUTOMOBILE - AT COST, LESS ACCUMULATED
AMORTIZATION OF $13,347 21,433
O.H.I.P. PHYSIOTHERAPY LICENCE - AT COST, LESS
ACCUMULATED AMORTIZATION OF $36,583
65,567
- -------------------------------------------------------------------------------
$683,920
- -------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued charges $ 36,748
Due to 624772 Ontario Limited, non-interest bearing (NOTE 3) 130,217
- -------------------------------------------------------------------------------
166,965
PROPRIETOR'S CAPITAL
PROPRIETOR'S CAPITAL 516,955
- -------------------------------------------------------------------------------
$683,920
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
2
<PAGE>
ROBERT WEISZ - PHYSIOTHERAPIST
STATEMENT OF PROPRIETOR'S CAPITAL PERIOD ENDED
DECEMBER 31
1995
- -------------------------------------------------------------------------------
Balance, beginning of period $1,004,211
Net earnings 1,749,663
- -------------------------------------------------------------------------------
2,753,874
Distributions, net 2,236,919
- -------------------------------------------------------------------------------
Balance, end of period $ 516,955
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
3
<PAGE>
ROBERT WEISZ - PHYSIOTHERAPIST
STATEMENT OF EARNINGS PERIOD ENDED
DECEMBER 31
1995
- -------------------------------------------------------------------------------
REVENUE
Fees billed $4,535,867
- -------------------------------------------------------------------------------
EXPENSES
Fees paid 951,652
Management fees 553,663
Salaries 551,338
Bad debts 441,347
Equipment rental 165,824
Employee benefits 66,790
General and office 19,182
Insurance and business taxes 13,840
Advertising and promotion 5,493
Professional and consulting fees 4,450
Loss on sale of automobile -
Amortization 12,625
- -------------------------------------------------------------------------------
2,786,204
- -------------------------------------------------------------------------------
NET EARNINGS $1,749,663
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
4
<PAGE>
ROBERT WEISZ - PHYSIOTHERAPIST
STATEMENT OF CHANGES IN FINANCIAL POSITION PERIOD
ENDED
DECEMBER 31
1995
- -------------------------------------------------------------------------------
SOURCES (USES) OF CASH
OPERATING ACTIVITIES
Net earnings $1,749,663
CHARGES NOT INVOLVING AN OUTLAY OF CASH
Amortization 12,625
CHANGES IN NON-CASH WORKING CAPITAL ITEMS
Accounts receivable 369,343
Accounts payable and accrued charges (33,836)
Due to 624722 Ontario Limited (38,997)
- --------------------------------------------------------------------------------
CASH FROM OPERATIONS 2,058,798
DISTRIBUTIONS TO PROPRIETOR, NET (2,236,919)
- --------------------------------------------------------------------------------
NET CASH INCREASE (DECREASE) (178,121)
CASH, BEGINNING OF PERIOD 197,327
- -------------------------------------------------------------------------------
CASH, END OF PERIOD $ 19,206
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
5
<PAGE>
ROBERT WEISZ - PHYSIOTHERAPIST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
- -------------------------------------------------------------------------------
1. UNINCORPORATED BUSINESS
The accompanying financial statements of Robert Weisz - Physiotherapist, an
unincorporated business, reflect only the assets, liabilities, revenue and
expenses of the physiotherapy practice of Robert Weisz. They do not
include any other personal assets, liabilities, revenue or expenses of
Robert Weisz.
No provision has been made in the accounts for income taxes on the net
earnings as such taxes are the personal liability of Robert Weisz.
No provision has been made in the accounts for a salary to Robert Weisz or
interest on his invested capital.
2. SIGNIFICANT ACCOUNTING POLICIES
AUTOMOBILE
The automobile is recorded at cost. Amortization is provided annually on a
basis designed to amortize the automobile over its estimated useful life,
at a rate of 30% on a declining balance basis.
O.H.I.P. PHYSIOTHERAPY LICENSE
The license is recorded at cost. Amortization is provided annually on 75%
of the cost at 7% on the declining balance basis.
3. MANAGEMENT CONTRACT
624722 Ontario Limited ("624722") is owned by Robert Weisz, the proprietor.
624722 provides management and other services. Amounts charged by 624722
during the period aggregated $719,487.
4. CHANGE IN FISCAL YEAR END
Effective December 31, 1995, the fiscal year end of the proprietorship was
changed to December 31.
6
<PAGE>
ROBERT WEISZ - PHYSIOTHERAPIST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
- -------------------------------------------------------------------------------
5. SUBSEQUENT EVENT
Effective immediately after the close of business on June 21, 1996,
substantially all of the assets and business undertaking of the
proprietorship were transferred to 3270262 Canada Inc. ("Canada"), a
related party, pursuant to Subsection 85(1) of the Income Tax Act. As
consideration, the proprietor received common shares in the capital of
Canada.
7
<PAGE>
AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders of
Aqua Rehabilitation Inc.
We have audited the balance sheet of Aqua Rehabilitation Inc. as at July 31,
1995 and the statements of earnings, retained earnings and changes in financial
position for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at July 31, 1995 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
/s/ Soberman Isenbaum & Colomby
Chartered Accountants
Toronto, Canada
August 7, 1996
1
<PAGE>
AQUA REHABILITATION INC.
BALANCE SHEET
AT JULY 31, 1995
- --------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 107,985
Accounts receivable 211,725
Prepaid expenses 3,831
Advances receivable 42,938
- --------------------------------------------------------------------------------
366,479
LEASEHOLD IMPROVEMENTS - AT COST, LESS ACCUMULATED AMORTIZATION
OF $320 2,876
- --------------------------------------------------------------------------------
$ 369,355
- --------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued charges $ 323,530
Corporation income taxes payable 41,815
- --------------------------------------------------------------------------------
365,345
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (NOTE 3) 40
RETAINED EARNINGS 3,970
- --------------------------------------------------------------------------------
4,010
- --------------------------------------------------------------------------------
$369,355
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
2
<PAGE>
AQUA REHABILITATION INC.
STATEMENT OF RETAINED EARNINGS
YEAR ENDED JULY 31, 1995
- -------------------------------------------------------------------------------
Net earnings $143,970
Dividends paid (140,000)
- -------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 3,970
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
3
<PAGE>
AQUA REHABILITATION INC.
STATEMENT OF EARNINGS
YEAR ENDED JULY 31, 1995
- -------------------------------------------------------------------------------
REVENUE
Fees billed $995,150
Interest 547
- -------------------------------------------------------------------------------
995,697
- -------------------------------------------------------------------------------
EXPENSES
Management salaries 290,000
Bad debts 190,654
Salaries, fees and benefits 179,099
Swimming pool rental 67,370
General and office 29,315
Professional services 12,643
Rent 11,152
Advertising and promotion 7,856
Medical supplies 7,630
Car 5,502
Telephone 4,571
Business taxes 1,392
Insurance 1,269
Bank charges and interest 739
Repairs and maintenance 400
Amortization 320
- -------------------------------------------------------------------------------
809,912
- -------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAX 185,785
INCOME TAX 41,815
- -------------------------------------------------------------------------------
NET EARNINGS $143,970
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
4
<PAGE>
AQUA REHABILITATION INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED JULY 31, 1995
- -------------------------------------------------------------------------------
SOURCES (USES) OF CASH
OPERATING ACTIVITIES
Net earnings $ 143,970
Amortization not involving an outlay of cash 320
CHANGES IN NON-CASH WORKING CAPITAL ITEMS
Accounts receivable (211,725)
Prepaid expenses (3,791)
Advances receivable (42,938)
Accounts payable and accrued charges 323,530
Corporation income taxes payable 41,815
- -------------------------------------------------------------------------------
CASH FROM OPERATIONS 251,181
INVESTING ACTIVITY
Additions to leasehold improvements (3,196)
DISTRIBUTIONS TO SHAREHOLDERS
Dividends (140,000)
- -------------------------------------------------------------------------------
NET CASH INCREASE 107,985
CASH, BEGINNING OF YEAR -
- -------------------------------------------------------------------------------
CASH, END OF YEAR $ 107,985
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
5
<PAGE>
AQUA REHABILITATION INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
1. INCEPTION
The company was incorporated on June 23, 1994 and commenced operations in
August, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
LEASEHOLD IMPROVEMENTS
Leasehold improvements are recorded at cost. Amortization is provided
annually on a straight line basis at 20%, in order to amortize the asset
over its estimated useful life.
3. CAPITAL STOCK
Authorized Issued
Unlimited 200 Class A shares, voting, variable dividend
per share, redeemable at stated amount
per share $ 20
Unlimited --- Class B shares, non-voting, variable
dividend per share, redeemable at stated
amount per share -
Unlimited --- Class C shares, non-voting, participating
equally with common shares -
Unlimited 200 Common shares 20
- --------------------------------------------------------------------------------
$ 40
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Advances receivable are non-interest bearing, with no fixed terms of
repayment and are due from shareholders and directors.
6
<PAGE>
AQUA REHABILITATION INC.
INTERIM BALANCE SHEET
UNAUDITED
AT JUNE 30 1996 1995
- --------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 28,869 $ 32,629
Accounts receivable 91,302 238,009
Prepaid expenses 1,710 3,830
Advances receivable - 32,062
- --------------------------------------------------------------------------------
121,881 306,530
CAPITAL ASSETS - AT COST, LESS ACCUMULATED AMORTIZATION 7,892 2,903
- --------------------------------------------------------------------------------
$129,773 $309,433
- --------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued charges $ 17,482 $259,092
Corporation income taxes payable 47,600 38,330
- --------------------------------------------------------------------------------
65,082 297,422
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK 40 40
RETAINED EARNINGS 64,651 11,971
- --------------------------------------------------------------------------------
64,691 12,011
- --------------------------------------------------------------------------------
$129,773 $309,433
- --------------------------------------------------------------------------------
2
<PAGE>
AQUA REHABILITATION INC.
INTERIM STATEMENT OF RETAINED EARNINGS
UNAUDITED
ELEVEN MONTHS ENDED JUNE 30 1996 1995
- --------------------------------------------------------------------------------
Balance, beginning of period $ 3,970 $ -
Net earnings 188,721 131,973
Dividends paid (128,040) (120,002)
- --------------------------------------------------------------------------------
Balance, end of period $ 64,651 $ 11,971
- --------------------------------------------------------------------------------
3
<PAGE>
AQUA REHABILITATION INC.
INTERIM STATEMENT OF EARNINGS
UNAUDITED
ELEVEN MONTHS ENDED JUNE 30 1996 1995
- --------------------------------------------------------------------------------
REVENUE
Fees billed $ 780,127 $ 869,130
Interest 3,216 450
- --------------------------------------------------------------------------------
783,343 869,580
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXPENSES
Salaries, fees and benefits 229,688 156,900
Swimming pool rental 107,966 57,769
Management salaries 70,000 225,089
General and office 26,642 32,224
Bad debts 21,468 185,645
Professional services 10,058 4,073
Rent 9,353 10,302
Car 8,742 4,944
Advertising and promotion 8,422 7,856
Medical supplies 6,857 7,194
Telephone 4,162 4,293
Insurance 1,613 797
Business taxes 1,584 784
Repairs and maintenance 926 400
Bank charges and interest 275 714
Amortization 897 293
- --------------------------------------------------------------------------------
508,653 699,277
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAX 274,690 170,303
INCOME TAX 85,969 38,330
- --------------------------------------------------------------------------------
NET EARNINGS $ 188,721 $ 131,973
- --------------------------------------------------------------------------------
4
<PAGE>
AQUA REHABILITATION INC.
INTERIM STATEMENT OF CHANGES IN FINANCIAL POSITION
UNAUDITED
ELEVEN MONTHS ENDED JUNE 30 1996 1995
- --------------------------------------------------------------------------------
SOURCES (USES) OF CASH
OPERATING ACTIVITIES
Net earnings $188,721 $ 131,973
Amortization not involving an outlay of cash 897 293
CHANGES IN NON-CASH WORKING CAPITAL ITEMS
Accounts receivable 120,423 (238,009)
Prepaid expenses 2,121 (3,790)
Advances receivable 42,938 (32,062)
Accounts payable and accrued charges (306,048) 259,092
Corporation income taxes payable 5,785 38,330
- --------------------------------------------------------------------------------
CASH FROM OPERATIONS 54,837 155,827
INVESTING ACTIVITY
Additions to capital assets (5,913) (3,196)
DISTRIBUTIONS TO SHAREHOLDERS
Dividends (128,040) (120,002)
- --------------------------------------------------------------------------------
NET CASH INCREASE (DECREASE) (79,116) 32,629
CASH, BEGINNING OF PERIOD 107,985 -
- --------------------------------------------------------------------------------
CASH, END OF PERIOD $ 28,869 $ 32,629
- --------------------------------------------------------------------------------
5
<PAGE>
AQUA REHABILITATION INC.
NOTES TO FINANCIAL STATEMENTS
ELEVEN MONTHS ENDED JUNE 30
- --------------------------------------------------------------------------------
1. INCEPTION
The company was incorporated on June 23, 1994 and commenced operations in
August, 1994.
2. RELATED PARTY TRANSACTIONS
Advances receivable are non-interest bearing, with no fixed terms of
repayment and are due from shareholders and directors.
3. SUBSEQUENT EVENT
On June 30, 1996, the company was sold to Columbia Centre for
Rehabilitation Inc. for $450,000 cash proceeds.
6
<PAGE>
The following consolidated financial statements of Ashbourne PLC have been
prepared under the historical cost convention, as modified by the revaluation
of certain tangible fixed assets, and in accordance with applicable
accounting standards in the United Kingdom. The consolidated financial
statements for Ashbourne are presented in British Pound Sterling as
represented by the L symbol and in pence which is represented by the p symbol.
Included in Ashbourne PLC's unaudited interim financial statements for the 26
weeks ended 31 March 1996 is a L1,900,000 gain recognized on the sale and
leaseback under operating leases of five homes in accordance with applicable
accounting standards in the United Kingdom. In accordance with applicable
accounting standards in the United States, gains on sale and leaseback of
property under operating leases are deferred and amortized by the lessee over
the lease term.
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
OF ASHBOURNE PLC
We have audited the financial statements on pages 19 to 35 which have been
prepared under the historical cost convention, as modified by the revaluation of
certain tangible fixed assets, and the accounting policies set out on page 23.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 16, the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the Directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the Company's and the Group's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give us reasonable assurance that the financial
statements are free from material misstatements, whether caused by fraud or
other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group as at 1 October 1995 and of the profit
and cash flows of the Group for the year then ended and have been properly
prepared in accordance with the Companies Act 1985.
PRICE WATERHOUSE
Chartered Accountants
and Registered Auditors
1 Blythswood Square
Glasgow G2 4AD
27 November 1995
17
<PAGE>
GROUP PROFIT AND LOSS ACCOUNT
For the Year Ended 1 October 1995
Note 1995 1994
L'000 L'000
TURNOVER 2 26,743 23,479
Staff and other operating costs (18,300) (15,462)
- --------------------------------------------------------------------------------
GROSS PROFIT 8,443 8,017
Administrative expenses (2,093) (1,909)
- --------------------------------------------------------------------------------
OPERATING PROFIT 3 6,350 6,108
Profit on disposal of tangible fixed assets - 274
Net Interest 4 152 (5,188)
- --------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 6,502 1,194
Tax on profit on ordinary activities 7 (443) -
- --------------------------------------------------------------------------------
PROFIT ATTRIBUTABLE TO SHAREHOLDERS 6,059 1,194
Dividends 8 (1,770) -
- --------------------------------------------------------------------------------
RETAINED PROFIT FOR THE FINANCIAL YEAR 16 4,289 1,194
- --------------------------------------------------------------------------------
EARNINGS PER SHARE - NET DISTRIBUTION BASIS (pence) 9 12.47p 6.52p
- --------------------------------------------------------------------------------
EARNINGS PER SHARE - NIL DISTRIBUTION BASIS (pence) 9 13.38p 6.52p
- --------------------------------------------------------------------------------
DIVIDENDS PER SHARE (pence) 8 3.30p -
- --------------------------------------------------------------------------------
The notes on pages 23 to 35 form part of these financial statements.
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19
<PAGE>
STATEMENT OF TOTAL RECOGNISED
PROFITS AND LOSSES
For the Year Ended 1 October 1995
1995 1994
L'000 L'000
Profit attributable to Shareholders 6,059 1,194
Unrealised surplus on revaluation of properties - 4,262
- --------------------------------------------------------------------------------
Total recognised gains and losses 6,059 5,456
- --------------------------------------------------------------------------------
NOTE OF HISTORICAL COST
PROFITS AND LOSSES
For the Year Ended 1 October 1995
1995 1994
L'000 L'000
Reported profit on ordinary activities before taxation 6,502 1,194
Realisation of property revaluation gain - 70
- --------------------------------------------------------------------------------
Historical cost profit on ordinary activities before taxation 6,502 1,264
- --------------------------------------------------------------------------------
Historical cost profit after taxation for the year 6,059 1,264
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RECONCILIATION OF MOVEMENTS
IN SHAREHOLDERS' FUNDS
For the Year Ended 1 October 1995
Group Company
1995 1994 1995 1994
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Issue of shares less associated expenses 49,905 66 49,905 66
Deferred consideration on acquisition
of the Ashbourne business - (1,000) - -
Unrealised surplus on revaluation of properties - 4,192 - -
Realised surplus on disposal of property - 70 - -
Profit for the financial year after taxation 6,059 1,194 10,139 301
Dividends (1,770) - (1,770) -
- --------------------------------------------------------------------------------------------------
Addition to Shareholders' funds 54,194 4,522 58,274 367
Shareholders' funds at 3 October 1994 9,573 5,051 2,742 2,375
- --------------------------------------------------------------------------------------------------
Shareholders' funds at 1 October 1995 63,767 9,573 61,016 2,742
- --------------------------------------------------------------------------------------------------
</TABLE>
The notes on pages 23 to 35 form part of these financial statements.
[LOGO]
20
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
1 October 1995
Group Company
Note 1995 1994 1995 1994
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 10 80,819 59,794 - -
Investments in subsidiary undertakings 11 - - 71,116 4,150
- ------------------------------------------------------------------------------------------------------------
80,819 59,794 71,116 4,150
CURRENT ASSETS
Stocks 174 161 - -
Debtors 12 2,483 1,597 - 26,221
Cash at bank and in hand 46 1,393 - -
- ------------------------------------------------------------------------------------------------------------
2,703 3,151 - 26,221
CREDITORS - Amount falling due within one year 13 (19,755) (53,372) (10,100) (27,629)
- ------------------------------------------------------------------------------------------------------------
NET CURRENT LIABILITIES (17,052) (50,221) (10,100) (1,408)
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 63,767 9,573 61,016 2,742
- ------------------------------------------------------------------------------------------------------------
CAPITAL AND RESERVES
Called up share capital 14 5,365 248 5,365 248
Share premium account 16 46,981 2,193 46,981 2,193
Revaluation reserve 4,192 4,192 - -
Capital reserve 325 325 - -
Profit and loss account 16 6,904 2,615 8,670 301
- ------------------------------------------------------------------------------------------------------------
EQUITY SHAREHOLDERS' FUNDS 63,767 9,573 61,016 2,742
- ------------------------------------------------------------------------------------------------------------
</TABLE>
APPROVED BY THE BOARD ON
27 NOVEMBER 1995
Thomas Banks Hamilton Director
Martin Feeney Director
[LOGO]
21
The notes on pages 23 to 35 form part of these financial statements.
<PAGE>
GROUP CASH FLOW STATEMENT
For the Year Ended 1 October 1995
<TABLE>
<CAPTION>
Note 1995 1994
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING
ACTIVITIES 20(a) 7,567 5,939
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest paid (2,411) (3,064)
Interest received 119 128
Dividends paid (590) -
- ------------------------------------------------------------------------------------------------------------
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE (2,882) (2,936)
INVESTING ACTIVITIES
Acquisition of subsidiary undertaking - (100)
Acquisition of tangible fixed assets (21,559) (4,598)
Deferred consideration paid in respect
of the Ashbourne business (900) -
Proceeds from sale of fixed tangible assets 13 2,460
- ------------------------------------------------------------------------------------------------------------
NET CASH OUTFLOW FROM
INVESTING ACTIVITIES (22,446) (2,238)
- ------------------------------------------------------------------------------------------------------------
NET CASH (OUTFLOW)/INFLOW
BEFORE FINANCING (17,761) 765
FINANCING ACTIVITIES
Issue of shares less associated expenses 47,705 66
Bank loans received 12,000 -
Bank loans repaid (21,893) (1,657)
Institutional secured subordinated
debt repaid (17,100) -
Institutional secured credit repaid (4,611) (1,489)
- ------------------------------------------------------------------------------------------------------------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING 16,101 (3,080)
- ------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS 20(b) (1,660) (2,315)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Further details of the cash flows of the Group are given in note 20.
[LOGO]
22
<PAGE>
NOTES TO THE FINANCIAL
STATEMENTS
1 OCTOBER 1995
1. ACCOUNTING POLICIES
(a) Accounting convention
The financial statements have been prepared under the historical cost
convention, as modified by the revaluation of certain tangible fixed assets, and
in accordance with applicable accounting standards.
(b) Basis of consolidation
The Group financial statements incorporate the audited financial statements of
the Company and its subsidiaries which are made up to the year end. The results
of subsidiary undertakings are consolidated from their effective date of
acquisition. Where the fair value attributed to the net assets acquired exceeds
the consideration given, this excess is transferred to a capital reserve.
No separate profit and loss account is presented for Ashbourne PLC as permitted
by Section 230 of the Companies Act of 1985.
(c) Tangible fixed assets
Tangible fixed assets are stated at cost or valuation, less depreciation.
Depreciation is provided on all tangible fixed assets, except freehold property
and integral fixed plant, at rates calculated to write off the cost or valuation
of each asset over its estimated useful life as follows:
(i) Fittings, equipment and vehicles are depreciated on a
straight line basis at rates between 10% and 25%.
(ii) Leasehold properties are amortised over the unexpired period
of the lease, where this is fifty years or less.
No depreciation is provided on freehold property or integral fixed plant. It is
the Group's practice to maintain these assets in a continual state of sound
repair and to extend and make improvements thereto and accordingly the Directors
consider that the lives and residual values (based on values prevailing at
acquisition or subsequent valuation) are such that their depreciation is
insignificant.
(d) Stocks
Stocks are stated at the lower of cost and net realisable value.
(e) Leased assets
Rental payments due under operating leases are charged to the profit and loss
account on a straight line basis over the lease periods.
(f) Pre-opening expenditure and site holding costs
Start up costs relating to the opening of newly developed homes and site holding
costs relating to sites which have not yet been developed are charged to profit
in the year in which they are incurred.
(g) Interest
Interest charges incurred in the acquisition, construction or redevelopment of a
nursing home unit are capitalized during the building period where the
expenditure on the unit will exceed L500,000. Any other interest is charged to
profit.
(h) Deferred taxation
Provision is made for deferred taxation arising from differences between profits
as computed for taxation purposes and profits as stated in the financial
statements, to the extent that, on the basis of present evidence, the liability
is likely to become payable in the future.
(i) Pension costs
Pension contributions made to defined contribution schemes are charged to
profit in the year in which they arise.
2. TURNOVER
Turnover represents the invoiced value of services provided and is attributable
to the principal activity, being the operation of nursing homes in the United
Kingdom.
[LOGO]
23
<PAGE>
NOTES TO THE FINANCIAL
STATEMENTS
3. OPERATING PROFIT
Operating profit is stated after charging or (crediting):
1995 1994
L'000 L'000
Staff and other operating costs include
Depreciation 642 548
Operating lease rentals - equipment 81 46
Rent receivable (81) -
Administrative expenses include:
Operating lease rentals - property 277 381
- equipment 62 79
Depreciation 148 118
Auditors' remuneration (net of VAT) - statutory audit 29 19
- non-audit services 45 32
The expenses of the issue of shares referred to in note 14 (vi) include L241,000
(net of VAT) in respect of fees payable to the Auditors.
4. NET INTEREST
1995 1994
L'000 L'000
Bank Interest payable on overdrafts and loans
wholly repayable within five years (721) (2,133)
Amortisation of debt issue costs - (1,271)
Gain on realisation of interest rate swap 761 -
Additional interest arising from swap transactions - (373)
Interest payable on secured subordinated loan stock
and secured credit (286) (1,851)
Interest capitalised 279 334
Interest receivable 119 106
- --------------------------------------------------------------------------------
152 (5,188)
- --------------------------------------------------------------------------------
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24
<PAGE>
5. STAFF NUMERS AND COSTS
1995 1994
L'000 L'000
Staff costs comprise:
Wages and salaries 10,637 9,033
Social security 597 578
Other pension costs 284 270
- --------------------------------------------------------------------------------
11,518 9,881
- --------------------------------------------------------------------------------
NUMBER NUMBER
Average number of employees, including Directors
and part time staff 1,932 1,754
- --------------------------------------------------------------------------------
6. DIRECTORS' EMOLUMENTS
1995 1994
L'000 L'000
Directors' emoluments, including pension costs 457 365
Performance related payments 16 16
Directors' fees 61 106
- --------------------------------------------------------------------------------
534 487
- --------------------------------------------------------------------------------
The above emoluments included:
1995 1994
L'000 L'000
Emoluments of the Chairman 27 27
- --------------------------------------------------------------------------------
No pension costs were incurred for the Chairman
Emoluments of the highests paid Director, excluding
pension costs (T B Hamilton) 140 102
- --------------------------------------------------------------------------------
Pension costs for the highest paid Director 46 33
- --------------------------------------------------------------------------------
The executive Directors are entitled to an annual discretionary bonus based on
profit performance and also participate in the Group's Profit Related Pay
Schemes.
[LOGO]
25
<PAGE>
NOTES TO THE FINANCIAL
STATEMENTS
6 DIRECTORS' EMOLUMENTS (CONTINUED)
The emoluments of the Directors, excluding pension contributions, were within
the following ranges:
1995 1994
Number Number
L0 - L5,001 1 -
L10,001 - L15,000 - 1
L15,001 - L20,000 2 -
L25,001 - L30,000 1 1
L55,001 - L60,000 - 3
L70,001 - L75,000 1 -
L75,001 - L80,000 1 -
L80,001 - L85,000 1 -
L100,001 - L105,000 - 1
L140,001 - L145,000 1 -
In addition to the above amounts, the Group paid fees of L26,387 (1994:
L105,855) to its institutional investors for services rendered by two of the
Group's former non-executive Directors.
7 TAX ON PROFIT ON ORDINARY ACTIVITIES
1995 1994
L'000 L'000
The taxation charge for the year is made
up as follows:
Advance Corporation Tax written off 443 -
No mainstream corporation tax charge is required for the year (1994: Lnil) due
to the existence of tax losses brought forward.
8 DIVIDENDS
1995 1994 1995 1994
p p L'000 L'000
Interim dividend paid on 21 July 1995 1.1 - 590 -
Final dividend payable on 8 February 1996 2.2 - 1,180 -
- --------------------------------------------------------------------------------
3.3 - 1,770 -
- --------------------------------------------------------------------------------
[LOGO]
26
<PAGE>
9 EARNING PER SHARE
The calculation of earnings per share on a net distribution basis is based on
profit after tax of L6,059,000 (1994: L1,194,000) and on a weighted average of
48,579,025 (1994: 18,322,079) shares in issue. The weighted average number of
shares has been calculated on the basis that the share conversion and division
outlined in note 14 took place with effect from 4 October 1993. Earnings per
share on a nil distribution basis is calculated before the write-off of Advance
Corporation Tax of L443,000 (1994: Lnil).
10 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Land and buildings Fixtures,
Short fittings and Projects in
Freehold leasehold equipment progress Total
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
GROUP
COST OR VALUATION
At 3 October 1994 47,596 1,910 6,420 6,285 62,211
Additions 13,470 260 1,807 6,291 21,828
Disposals - - (26) - (26)
Transfers 2,888 - 57 (2,945) -
- -------------------------------------------------------------------------------------------------------------------
At 1 October 1995 63,954 2,170 8,258 9,631 84,013
- -------------------------------------------------------------------------------------------------------------------
Historic cost at 1 October 1995 60,572 2,569 8,258 8,575 79,974
- -------------------------------------------------------------------------------------------------------------------
DEPRECIATION
At 3 October 1995 - 6 2,411 - 2,417
Charge for the year - 87 703 - 790
Disposals - - (13) - (13)
- -------------------------------------------------------------------------------------------------------------------
At 1 October 1995 - 93 3,101 - 3,194
- -------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE
At 1 October 1995 63,954 2,077 5,157 9,631 80,819
- -------------------------------------------------------------------------------------------------------------------
At 2 October 1994 47,596 1,904 4,009 6,285 59,794
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Group's freehold and leasehold properties were subject to an independent
valuation which was carried out by Christie & Co. Surveyors, on an open market
existing use basis as of 10 July 1994, and incorporated into the financial
statements for the year ended 2 October 1994. All additions to freehold and
leasehold properties since the valuation date are stated at cost.
[LOGO]
27
<PAGE>
NOTES TO THE FINANCIAL
STATEMENTS
11 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
INVESTMENTS LOANS MADE
IN SUBSIDIARY TO SUBSIDIARY
UNDERTAKINGS UNDERTAKINGS TOTAL
COMPANY L'000 L'000 L'000
Balance at 3 October 1994 4,150 - 4,150
Additions 800 - 800
Loans made to subsidiary undertakings - 66,166 66,166
- --------------------------------------------------------------------------------
4,950 66,166 71,116
- --------------------------------------------------------------------------------
In the opinion of the Directors the value of the investments in subsidiary
undertakings is not less than the amount shown in the balance sheet.
The Company owns either directly or through subsidiary undertakings, 100% of the
issued share capital of the following companies:
COUNTY OF
COMPANY REGISTRATION PRINCIPAL ACTIVITIES
Ashbourne Homes PLC Scotland Nursing home operator
Ashbourne Homes (Developments) Limited Scotland Nursing home developer
and operator
Ashbourne Finance Limited Scotland Dormant
Zek Estates Limited England Dormant*
Hi-Care Homes (Markfield) Limited England Dormant*
Openlink Limited England Provision of services to
sheltered homes*
Larstrike Limited England Group purchasing and
leasing company*
Elders PLC Scotland Dormant
Elders Pharmacies Limited Scotland Dormant
Sedbury Park Limited England Nursing home developer*
Unscript Limited England Dormant*
* Shareholding held by a subsidiary undertaking
The Company has guaranteed the liabilities of certain subsidiary undertakings.
[LOGO]
28
<PAGE>
12 DEBTORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
GROUP COMPANY
1995 1994 1995 1994
L'000 L'000 L'000 L'000
Trade debtors 1,854 1,153 - -
Prepayments 580 386 - -
Other debtors 49 58 - -
Loans made to subsidiary undertakings - - - 23,911
Amounts owed by subsidiary undertakings - - - 2,310
- --------------------------------------------------------------------------------
2,483 1,597 - 26,221
- --------------------------------------------------------------------------------
13 CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
GROUP COMPANY
1995 1994 1995 1994
L'000 L'000 L'000 L'000
Bank overdrafts 2,313 2,000 - -
Bank loan 12,000 21,893 7,477 -
Institutional secured subordinated debt - 19,300 - 19,300
Institutional secured credit - 4,611 - 4,611
Trade creditors 772 99 - -
Amounts due to subsidiary undertakings - - 1,000 1,000
Other creditors 392 1,140 - 900
Other taxation and social security 403 323 - -
Advance Corporation Tax payable 443 - 443 -
Accruals 2,252 4,006 - 1,818
Proposed dividends 1,180 - 1,180 -
- --------------------------------------------------------------------------------
19,755 53,372 10,100 27,629
- --------------------------------------------------------------------------------
[LOGO]
29
<PAGE>
NOTES TO THE FINANCIAL
STATEMENTS
14 SHARE CAPITAL
1995 1994
L'000 L'000
Authorised:
73,000,000 Ordinary shares of 10p each 7,300 -
200,000 'A' Ordinary shares of 10p each - 20
2,300,000 'B' Ordinary shares of 10p each - 230
- --------------------------------------------------------------------------------
7,300 250
- --------------------------------------------------------------------------------
Issued and fully paid:
53,648,600 Ordinary shares of 10p each 5,365 -
185,000 'A' Ordinary shares of 10p each - 18
2,300,000 'B' Ordinary shares of 10p each - 230
- --------------------------------------------------------------------------------
5,365 248
- --------------------------------------------------------------------------------
By resolutions passed on 7 November 1994 the authorised and issued share capital
of the Company was reorganised as follows:
(i) the authorised share capital of the Company was increased by
L7,050,000 to L7,300,000 by the creation of 70,500,000 Ordinary
shares;
(ii) each of the existing 200,000 'A' Ordinary shares and 2,300,000 'B'
Ordinary shares was redesignated as one Ordinary share;
(iii) the sum of L1,625,051 standing to the credit of the Company's share
premium account was applied in paying up in full 16,250,508 Ordinary
shares to be allotted, credited as fully paid, to the holders of the
issued Ordinary shares on the Register of Members as at 7 November
1994 on the basis of 6.53944 Ordinary shares for every 1 'A' or 'B'
Ordinary share held;
(iv) the issue for cash of 113,092 Ordinary shares at a price of 16.6p per
share to an employees' benefit trust was authorised;
(v) the issue of 1,466,667 Ordinary shares to institutional investors,
credited as fully paid, as consideration for the release of the
Company's obligation to repay L2,200,000 nominal of the institutional
secured subordinated debt was authorised; and
(vi) pursuant to The Placing and Public Offer dated 7 November 1994,
33,333,333 new Ordinary shares of 10p were allotted, fully paid, at
the issue price of 150p per Ordinary share for an aggregate
consideration of L49,999,999 which was satisfied in cash.
[LOGO]
30
<PAGE>
14 SHARE CAPITAL (CONTINUED)
Following a resolution passed on 7 November 1994, the Shareholders approved the
adoption of the Ashbourne PLC Sharesave Scheme ("The Sharesave Scheme"). The
Sharesave Scheme is open to all full time UK resident employees of the Company
and any participating subsidiaries with at least one year's service working a
minimum of sixteen hours a week. The options granted under the Sharesave Scheme
may be exercised after five or seven years, according to the length of saving
period chosen, at a price which is 80 per cent of the market value of the shares
at the time of grant. The first invitation to join the Sharesave Scheme was
issued to employees on 8 November 1994. On completion, the Directors granted
options to subscribe for up to 389,904 Ordinary shares of 10p each, representing
0.73 per cent of the issued share capital, at a price of 120p per share to
participating employees. The number of share options over 10p Ordinary shares
outstanding at 1 October 1995 under the Sharesave Scheme was 339,235.
15 DIRECTORS' SHAREHOLDINGS
The interest of the Directors at 1 October 1995 in the share capital of the
Company were as follows:
<TABLE>
<CAPTION>
1 OCTOBER 1995 *2 OCTOBER 1994 EXECUTIVE AND UNAPPROVED SHARE OPTIONS
ORDINARY SHARES 'A' ORDINARY SHARES GRANTED
OF 10P EACH OF 10P EACH *2 OCTOBER 1994 DURING YEAR 1 OCTOBER 1995
<S> <C> <C> <C> <C> <C>
A G O Walker 75,391 10,000 - - -
T B Hamilton - - - 450,000 450,000
N J Denny 18,849 2,500 - 244,999 244,999
M Feeney 15,079 2,000 - 249,999 249,999
C E Rhodes 15,079 2,000 - 234,999 234,999
Mrs A Levick 3,333 - - - -
M H A Broke 3,333 - - - -
A L Turner - - - -
</TABLE>
(*or date of appointment if later)
Executive and unapproved share options are held under the Ashbourne PLC
Executive and Unapproved Share Option Scheme and are normally only exercisable
after the expiry of three years ('A' Options) or five years ('B' Options) after
the date of grant by a person who remains a Director or employee providing any
applicable performance target has been met. The options above are exercisable
at 150p. The market price of the shares at 1 October 1995 was 144p and the
range during the year was 133p to 161p.
In addition to the share options above, at 1 October 1995 Messrs N J Denny, M
Feeney and C E Rhodes had outstanding share options under the Sharesave Scheme
of 14,375, 14,375 and 14,375 over 10p Ordinary shares, respectively.
Mr A L Turner, who was appointed a Director on 6 July 1995, is a Director and
the Chairman of Sun Healthcare Group, Inc, which has a substantial shareholding
in the Company.
[LOGO]
31
<PAGE>
NOTES TO THE FINANCIAL
STATEMENTS
15 DIRECTORS' SHAREHOLDINGS (CONTINUED)
In addition to the interests in Ordinary shares specified above, the following
Directors have interests in possession in trusts which have beneficial interests
in companies registered in the Isle of Man which have interests in the share
capital of Ashbourne PLC as follows:
1 OCTOBER 1995 2 OCTOBER 1994
ORDINARY 10p SHARES 'A' ORDINARY 10p SHARES
T B Hamilton 753,944 100,000
M Feeney 173,407 23,000
C E Rhodes 173,407 23,000
N J Denny 169,637 22,500
None of the Directors held any interest in the share capital of any other
group companies.
There have been no changes in the interests of the Directors in the share
capital of the Company in the period from 1 October 1995 to 27 November 1995.
16 RESERVES
<TABLE>
<CAPTION>
GROUP AND COMPANY GROUP COMPANY
SHARE PREMIUM PROFIT AND PROFIT AND
ACCOUNT LOSS ACCOUNT LOSS ACCOUNT
L'000 L'000 L'000
<S> <C> <C> <C>
As at 3 October 1994 2,193 2,615 301
Premium on share issued for cash,
net of expenses 44,360 - -
Capitalisation of share premium account (note 14(iii)) (1,625) - -
Premium on shares issued as consideration
for the release of obligations in respect of L2.2 million
Institutional secured subordinated debt 2,053 - -
Profit retained for the financial year - 4,289 8,369
- --------------------------------------------------------------------------------------------------------------
As at 1 October 1995 46,981 6,904 8,670
- --------------------------------------------------------------------------------------------------------------
</TABLE>
[LOGO]
32
<PAGE>
17 FINANCIAL COMMITMENTS
1995 1994
L'000 L'000
(i) Capital commitments
Contracted but not provided for in the financial statements 13,059 4,072
Authorised by the Directors but contracts not yet placed 1,609 350
- --------------------------------------------------------------------------------
14,668 4,422
- --------------------------------------------------------------------------------
(ii) Operating lease commitments
The Group has commitments for the following year in respect of operating leases
due to expire in the undemoted periods from the balance sheet date:
1995 1994
LAND AND LAND AND
BUILDINGS OTHER BUILDINGS OTHER
L'000 L'000 L'000 L'000
Within one year - 68 - 1
Between two and five years - 69 - 86
After five years 325 - 284 -
- --------------------------------------------------------------------------------
325 137 284 87
- --------------------------------------------------------------------------------
18 PENSION SCHEME
The Group operates defined contribution pension schemes for Directors, senior
management and staff, the assets of which are held in independently administered
funds. The pension charge for the year was L284,000 (1994: L270,000). No
contributions (1994: Lnil) remained unpaid at 1 October 1995.
[LOGO]
33
<PAGE>
NOTES TO THE FINANCIAL
STATEMENTS
19 DEFERRED TAXATION
The total potential deferred taxation (liability)/asset which has not been
provided in these financial statements, calculated at a rate of 33% (1994: 33%)
is shown below:
1995 1994
GROUP L'000 L,000
Capital allowances (4,775) (3,641)
Other timing differences 3,509 4,079
- --------------------------------------------------------------------------------
(1,266) 438
Advance Corporation Tax 443 -
- --------------------------------------------------------------------------------
(823) 438
- --------------------------------------------------------------------------------
No deferred taxation liability arises on the revaluation of assets because
the tax base cost of the assets exceeds their net book value and, in
addition, the Group has surplus capital losses of approximately L12.6 million.
20 NOTES TO THE CASH FLOW STATEMENT
(a) Reconciliation of operating profit to net cash
inflow from operating activities
1995 1994
L'000 L'000
Operating profit 6,350 6,108
Depreciation 790 666
Increase in stocks (13) (75)
Increase in debtors (886) (708)
Increase/(decrease) in creditors 1,326 (52)
- --------------------------------------------------------------------------------
7,567 5,939
- --------------------------------------------------------------------------------
(b) Analysis of the balances of cash and cash
equivalents as shown in the balance sheet
1995 1994 MOVEMENT
L'000 L'000 L'000
Cash at bank and in hand 46 1,393 (1,347)
Bank overdraft (2,313) (2,000) (313)
- --------------------------------------------------------------------------------
(2,267) (607) (1,660)
- --------------------------------------------------------------------------------
[LOGO]
34
<PAGE>
20 NOTES TO THE CASH FLOW STATEMENT (CONTINUED)
(c) Analysis of changes in financing
<TABLE>
<CAPTION>
SHARE CAPITAL BANK AND
INCLUDING PREMIUM OTHER LOANS
L'000 L'000
<S> <C> <C>
As at 3 October 1994 2,441 45,804
Issue of shares for cash, net of expenses 47,705 -
Shares issued for the release of obligations in respect
of L2.2 million institutional secured subordinated debt 2,200 (2,200)
Bank loan received - 12,000
Repayment of bank loan - (21,893)
Repayment of institutional secured subordinated debt - (17,100)
Repayment of institutional secured credit - (4,611)
- ------------------------------------------------------------------------------------------------
As at 1 October 1995 52,346 12,000
- ------------------------------------------------------------------------------------------------
</TABLE>
[LOGO]
35
<PAGE>
ASHBOURNE PLC
GROUP PROFIT AND LOSS ACCOUNT
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 26 WEEKS ENDED 31 MARCH 1996
26 WEEKS ENDED 52 WEEKS ENDED
31 MARCH 96 2 APRIL 95 1 OCT 95
NOTES L'000 L'000 L'000
<S> <C> <C> <C> <C>
TURNOVER 15,091 12,555 26,743
Cost of Sales 2 (10,397) (8,502) (18,300)
- ----------------------------------------------------------------------------------------------
GROSS PROFIT 4,694 4,053 8,443
Administrative expenses 3 (1,487) (1,188) (2,093)
- ----------------------------------------------------------------------------------------------
OPERATING PROFIT 3,207 2,865 6,350
Profit on disposal of tangible fixed assets 1,941 - -
- ----------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 5,148 2,865 6,350
Net interest receivable/(payable) (247) 254 152
- ----------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4,901 3,119 6,502
Tax on profit on ordinary activities (188) (148) (443)
- ----------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 4,713 2,971 6,059
Dividends (751) (590) (1,770)
- ----------------------------------------------------------------------------------------------
RETAINED PROFIT FOR THE FINANCIAL PERIOD 3,962 2,381 4,289
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Earnings per share - net distribution basis 3 8.8p 6.9p 12.5p
Earnings per share - nil distribution basis 3 9.1p 7.2p 13.4p
Earnings per share - adjusted nil distribution basis 3 5.5p 5.4p 11.8p
Dividends per share 1.4p 1.1p 3.3p
</TABLE>
3
<PAGE>
ASHBOURNE PLC
GROUP BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS AT 31 MARCH 1996
31 MARCH 96 2 APRIL 95 1 OCT 95
L'000 L'000 L'000
<S> <C> <C> <C>
FIXED ASSETS 74,437 64,101 80,819
- ----------------------------------------------------------------------------------------------
CURRENT ASSETS
Stocks 208 150 174
Debtors: due within one year 2,132 1,334 2,483
Cash at bank and in hand 55 30 46
- ----------------------------------------------------------------------------------------------
2,395 1,514 2,703
CREDITORS
Amounts falling due within one year (9,103) (3,757) (19,755)
- ----------------------------------------------------------------------------------------------
NET CURRENT LIABILITIES (6,708) (2,243) (17,052)
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 67,729 61,858 63,767
- ----------------------------------------------------------------------------------------------
CAPITAL AND RESERVES
Called up share capital 5,365 5,365 5,365
Share premium account 46,981 46,981 46,981
Revaluation reserve 2,891 4,192 4,192
Capital reserve 325 325 325
Profit and loss account 12,167 4,995 6,904
- ----------------------------------------------------------------------------------------------
EQUITY SHAREHOLDERS' FUNDS 67,729 61,858 63,767
- ----------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
ASHBOURNE PLC
GROUP CASH FLOW STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 26 WEEKS ENDED 31 MARCH 1996
26 WEEKS ENDED 52 WEEKS ENDED
31 MARCH 96 2 APRIL 95 1 OCT 95
L'000 L'000 L'000
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 4,522 4,087 7,567
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Net interest paid (483) (2,241) (2,292)
Dividends paid (1,180) - (590)
Advanced corporation tax paid (148) - -
- ----------------------------------------------------------------------------------------------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE (1,811) (2,241) (2,882)
INVESTING ACTIVITIES
Purchase of fixed assets (8,950) (4,698) (21,559)
Deferred consideration paid in respect of
the Ashbourne business - - (900)
Sale of tangible fixed assets 16,760 10 13
- ----------------------------------------------------------------------------------------------
NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES 7,810 (4,688) (22,446)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 10,521 (2,842) (17,761)
- ----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of shares net of associated costs - 46,718 47,705
New loans received 5,000 500 12,500
Loans repaid (13,000) (44,104) (44,104)
- ----------------------------------------------------------------------------------------------
NET CASH INFLOW/(OUTFLOW) FROM
FINANCING ACTIVITIES (8,000) 3,114 16,101
- ----------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 2,521 272 (1,660)
- ----------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
ASHBOURNE PLC
NOTES
(UNAUDITED)
1. The figures for the 26 weeks ended 31 March 1996 and 2 April 1995 have not
been audited. The figures for the 52 weeks ended 1 October 1995 are
abridged from the Company's Group accounts for that period, which carried
an unqualified audit report and have been filed with the Registrar of
Companies in Scotland. The Group continues to follow the accounting
policies applied in the statutory accounts for the 52 weeks ended 1 October
1995.
2. Operating profit is calculated after charging:
<TABLE>
<CAPTION>
26 WEEKS ENDED 52 WEEKS ENDED
31 MARCH 96 2 APRIL 95 1 OCT 95
L'000 L'000 L'000
<S> <C> <C> <C>
Pre-opening expenses 190 60 199
Operating lease rentals - property 436 254 277
Short leasehold depreciation 47 47 87
</TABLE>
3. The earnings per share amounts shown on page 3 have been calculated based
on the following information:
<TABLE>
<CAPTION>
26 WEEKS ENDED 52 WEEKS ENDED
31 MARCH 96 2 APRIL 95 1 OCT 95
L'm PENCE L'm PENCE L'm PENCE
<S> <C> <C> <C> <C> <C> <C>
Earnings per share (net basis) 4.7 8.8 3.0 6.9 6.1 12.5
Adjustment: advance corporation tax 0.2 0.3 0.1 0.3 0.4 0.9
---------------------------------------------------------------------------------
Earnings per share (nil basis) 4.9 9.1 3.1 7.2 6.5 13.4
Adjustments:
Gain on sale of tangible fixed
assets (1.9) (3.6) - - - -
Gain on realisation of interest
rate swap - - (0.8) (1.8) (0.8) (1.6)
---------------------------------------------------------------------------------
Adjusted earnings per share (nil
basis) 3.0 5.5 2.3 5.4 5.7 11.8
---------------------------------------------------------------------------------
Weighted average number of shares
(millions) 53.6 43.4 48.6
---------------------------------------------------------------------------------
</TABLE>
The adjusted earnings per share figures have been presented to indicate the
underlying trading performance of the Group.
4. The interim net dividend of 1.4p (1995: 1.1p) per Ordinary share is payable
on 19 July 1996 to shareholders on the register on 2 July 1996.
<PAGE>
ITEM 7(b) PRO FORMA FINANCIAL INFORMATION
SUN HEALTHCARE GROUP, INC.
PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1996 and the Unaudited Pro Forma Condensed Consolidated Statements of Earnings
for the year ended December 31, 1995 and the six months ended June 30, 1996 are
presented by combining, with the adjustments described in the accompanying
notes, (i) the results of operations of Sun Healthcare Group, Inc. ("Sun") for
such year and six-month period, which include the results of operations of (a)
H.T.A. of New York, Inc. and H.T.A. of New Jersey, Inc. ("HTA") acquired by Sun
effective June 28, 1996, (b) 3270262 Canada, Inc. which includes Yorkview
Physiotherapy Centre and Robert Weisz - Physiotherapist ("3270262 Canada")
acquired by Sun effective July 2, 1996, (c) Aqua Rehabilitation Inc. ("Aqua")
acquired by Sun effective July 2, 1996, and (d) minority interest investments of
Ashbourne PLC ("Ashbourne") acquired by Sun during the period from February 1,
1996 to July 8, 1996, commencing on the respective dates of acquisition by Sun,
and (ii) the results of operations of HTA, 3270262 Canada, Aqua and Sun's
portion of earnings in its equity investment in Ashbourne for such year and
period prior to their acquisition by Sun as if the acquisitions had been
consummated on January 1, 1995.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do not
necessarily reflect the financial condition or the results of operations of Sun
that would have actually resulted had these acquisitions occurred as of January
1, 1995 and for the periods indicated or of the future results of operations of
Sun. The Unaudited Pro Forma Condensed Consolidated Financial Statements should
be read in connection with the various financial statements of HTA, 3270262
Canada, Aqua and Ashbourne included elsewhere in this Current Report on Form 8-
K/A-1 and the financial statements of Sun as included in Sun's Annual Report on
Form 10-K and as amended on Form 10-K/A-1.
<PAGE>
<TABLE>
<CAPTION>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1996
Pro Forma
3270262 Acquisition
Sun Canada Aqua Adjustments Pro Forma
----------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
(In thousands)
Current assets
Cash and cash equivalents $9,415 $72 $21 - $9,508
Restricted cash 2,315 - - - 2,315
Receivables, net 278,489 474 67 - 279,030
Other current assets 35,102 5 1 - 35,108
----------- -------- ---------- ------------ ----------
Total current assets 325,321 551 89 - 325,961
Property and equipment, net 231,420 33 6 - 231,459
Goodwill, net 410,039 - - 2,061 (a) 412,383
283 (b)
Other assets, net 103,786 46 - 544 (c) 104,376
Deferred tax asset 6,457 - - - 6,457
----------- -------- ---------- ------------ -----------
Total assets $1,077,023 $630 $95 $2,888 $1,080,636
----------- -------- ---------- ------------ -----------
----------- -------- ---------- ------------ -----------
Current liabilities:
Current portion of long-term debt $14,831 - - - $14,831
Other current liabilities 86,493 77 48 - 86,618
----------- -------- ---------- ------------ -----------
Total current liabilities 101,324 77 48 - 101,449
Long-term debt, net of current portion 379,724 - - 2,614 (a) 383,212
330 (b)
544 (c)
Other long-term liabilities 15,629 - - - 15,629
----------- -------- ---------- ------------ -----------
Total liabilities 496,677 77 48 3,488 500,290
Minority interest 2,687 - - - 2,687
Stockholders' equity 577,659 553 47 (553) (a) 577,659
(47) (b)
----------- -------- ---------- ------------ -----------
Total liabilities and stockholders' equity $1,077,023 $630 $95 $2,888 $1,080,636
----------- -------- ---------- ------------ -----------
----------- -------- ---------- ------------ -----------
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
</TABLE>
<PAGE>
SUN HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
The adjustments resulting from Sun's acquisition of 3270262 Canada, Aqua, and
Ashbourne are as follows:
HTA Acquisition
HTA was acquired by Sun effective June 28, 1996 when ownership of HTA's stock
was transferred and the consideration of $5,300,000 was paid and therefore is
consolidated as of June 30, 1996.
3270262 Canada Acquisition
(a) On July 2, 1996, Sun completed the acquisition of all of the outstanding
stock of 3270262 Canada for $3,564,000 Canadian Dollars ($2,614,000 U.S.
Dollars as of June 30, 1996) in cash. The book value of the 3270262
Canada equity was $553,000 U.S. Dollars as of June 30, 1996 from which
the remaining purchase price of $2,061,000 U.S. Dollars was allocated to
goodwill. The acquisition was funded by additional borrowings under the
NationsBank Credit Facility.
Aqua Acquisition
(b) On July 2, 1996, Sun completed the acquisition of all of the outstanding
stock of Aqua for $450,000 Canadian Dollars ($330,000 U.S. Dollars as of
June 30, 1996) in cash. The book value of the Aqua equity was $47,000
U.S. Dollars as of June 30, 1996 from which the remaining purchase price
of $283,000 was allocated to goodwill. The acquisition was funded by
additional borrowings under the NationsBank Credit Facility.
Ashbourne Acquisition
(c) Subsequent to June 30, 1996, Sun acquired an additional .5% minority
interest in Ashbourne for $544,000 funded by additional borrowings under
the NationsBank Credit Facility.
<PAGE>
<TABLE>
<CAPTION>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
Pro Forma
3270262 Acquisition
Sun HTA Canada Aqua Adjustments Pro Forma
------------ --------- -------- ------ ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total net revenues $1,135,508 $10,643 $3,602 $659 - $1,150,412
------------ --------- -------- ------ ----------- ------------
Costs and expenses:
Operating 929,493 9,711 1,858 399 (833)(h) 940,628
Corporate general and administrative 51,468 - - - - 51,468
Provision for losses on accounts receivable 14,623 - 351 83 - 15,057
Depreciation and amortization 27,734 18 10 - 215 (a) 28,237
143 (b)
103 (d)
14 (f)
Interest, net 21,829 1 - - 398 (c) 23,211
196 (e)
25 (g)
762 (i)
Conversion expense 3,256 - - - - 3,256
Merger expenses 5,800 - - - - 5,800
Strike costs 4,006 - - - - 4,006
Investigation and litigation costs 5,505 - - - - 5,505
Impairment loss 59,000 - - - - 59,000
------------ --------- -------- ------ ----------- ------------
Total costs and expenses 1,122,714 9,730 2,219 482 1,023 1,136,168
------------ --------- -------- ------ ----------- ------------
Earnings before income taxes and extraordinary
loss 12,794 913 1,383 177 (1,023) 14,244
Pro forma income taxes 33,362 471 - 88 277 (j) 34,198
------------ --------- -------- ------ ----------- ------------
Net earnings (loss) before extraordinary loss ($20,568) $442 $1,383 $89 ($1,300) ($19,954)
------------ --------- -------- ------ ----------- ------------
------------ --------- -------- ------ ----------- ------------
Net loss per common and common
equivalent share ($0.43) ($0.42)
------------ ------------
------------ ------------
Weighted average number of common and
common equivalent shares outstanding 47,419 47,419
------------ ------------
------------ ------------
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Statements of Earnings
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
Pro Forma
3270262 Acquisition
Sun HTA Canada Aqua Adjustments Pro Forma
---------- -------- -------- ------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total net revenues $645,744 $5,712 $1,817 $348 - $653,621
---------- -------- -------- ------- ----------- -----------
Costs and expenses:
Operating 531,862 5,197 1,041 205 (231)(h) 538,074
Corporate general and administrative 29,177 - - - - 29,177
Provision for losses on accounts receivable 2,463 - 51 74 - 2,588
Depreciation and amortization 16,489 10 6 - 108 (a) 16,743
71 (b)
52 (d)
7 (f)
Interest, net 12,911 - - - 186 (c) 13,389
91 (e)
12 (g)
189 (i)
---------- -------- -------- ------- ----------- -----------
Total costs and expenses 592,902 5,207 1,098 279 485 599,971
---------- -------- -------- ------- ----------- -----------
Earnings before income taxes 52,842 505 719 69 (485) 53,650
Income taxes 21,137 261 - 15 160 (j) 21,573
---------- -------- -------- ------- ----------- -----------
Net earnings $31,705 $244 $719 $54 ($645) $32,077
---------- -------- -------- ------- ----------- -----------
---------- -------- -------- ------- ----------- -----------
Net earnings per common and common
equivalent share:
Primary $0.67 $0.68
---------- -----------
---------- -----------
Fully diluted $0.64 $0.65
---------- -----------
---------- -----------
Weighted average numnber of common and
common equivalent shares outstanding
Primary 47,187 47,187
---------- -----------
---------- -----------
Fully Diluted 51,954 51,954
---------- -----------
---------- -----------
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Statements of Earnings
</TABLE>
<PAGE>
SUN HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
The adjustments resulting from Sun's acquisition of HTA, 3270262 Canada, Aqua,
and Ashbourne are as follows:
HTA Acquisition
(a) The excess purchase price of HTA over the fair value of the assets
acquired totaled $4,300,000. This excess purchase price will be
amortized over an estimated 20 years resulting in additional amortization
of $215,000 for the year ended December 31, 1995 and $108,000 for the six
months ended June 30, 1996.
(b) In connection with the purchase of HTA, Sun entered into a non-compete
agreement with the seller for $1,000,000. The non-compete agreement will
be amortized over its life of seven years resulting in additional
amortization of $143,000 for the year ended December 31, 1995 and $71,000
for the six months ended June 30, 1996.
(c) Represents pro forma interest on borrowings to fund the acquisition of
HTA.
3270262 Canada Acquisition
(d) The excess purchase price of 3270262 Canada over the fair value of the
assets acquired totaled $2,061,000. The excess purchase price will
be amortized over an estimated 20 years resulting in additional
amortization of $103,000 for the year ended December 31, 1995 and
$52,000 for the six months ended June 30, 1996.
(e) Represents pro forma interest on borrowings to fund the acquisition of
3270262 Canada.
Aqua Acquisition
(f) The excess purchase price of Aqua over the fair value of the assets
acquired totaled $283,000. The excess purchase price will be amortized
over an estimated 20 years resulting in additional amortization of
$14,000 for the year ended December 31, 1995 and $7,000 for the six
months ended June 30, 1996.
(g) Represents pro forma interest on borrowings to fund the acquisition of
Aqua.
Ashbourne Acquisition
(h) Represents the pro forma earnings of Sun's ownership interest in
Ashbourne under the equity method for the periods prior to acquisition
by Sun resulting in recognition of $833,000 for the year ended
December 31, 1995 and $231,000 for the six months ended June 30, 1996.
<PAGE>
(i) Represents pro forma interest on borrowings to fund the purchase of
minority interest investments of Ashbourne.
Income Taxes
(j) Represents the tax effect of the pro forma adjustments reflected in
the Unaudited Pro Forma Condensed Consolidated Statements of
Earnings and a pro forma provision for income taxes of $553,000 for
the year ended December 31, 1995 and $288,000 for the six months ended
June 30, 1996, to present taxes on the results of operations of 3270262
Canada on the basis that is required upon their change in tax status
from a sole proprietorship to a corporation. The effective pro forma tax
rate for the year ended December 31, 1995 and the six months June 30,
1996 is the Sun effective tax rate considering the permanent difference
related to non-deductible amortization of goodwill.
<PAGE>
ITEM 7(c) EXHIBITS
Exhibit 23.1 Consent of Citrin Cooperman & Company, LLP
Exhibit 23.2 Consent of Soberman, Isenbaum & Colomby
Exhibit 23.3 Consent of Price Waterhouse
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Sun Healthcare Group, Inc. has duly caused this Current Report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: September 11, 1996 SUN HEALTHCARE GROUP, INC.
/s/ William C. Warrick
------------------------------------
William C. Warrick
Vice President and
Corporate Controller
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation of our report dated April 17, 1996, with
respect to the combined financial statements of HTA of New York, Inc. and HTA
of New Jersey, Inc. included in this Current Report on Form 8-K/A-1 into
filed Registration Statements of Sun Healthcare Group, Inc. on Form S-8
(No. 33-80540, No. 33-93692 and No. 333-3058).
/s/ Citrin Cooperman & Company, LLP
---------------------------------------
Citrin Cooperman & Company, LLP
New York, NY
September 9, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation of our reports on the following financial
statements, dated August 7, 1996 included in this Current Report on Form
8-K/A-1 into filed Registration Statements of Sun Healthcare Group, Inc. on
Form S-8 (No. 33-80540, No. 33-93692 and No. 333-03058):
Yorkview Physiotherapy Centre - period ended December 31, 1995
Yorkview Physiotherapy Centre - period ended June 21, 1996
Robert Weisz - Physiotherapist - period ended December 31, 1995
Aqua Rehabilitation Inc. - year ended July 31, 1995
SOBERMAN ISENBAUM & COLOMBY
/s/ SOBERMAN ISENBAUM & COLOMBY
Toronto, Canada
September 9, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF PRICE WATERHOUSE
We hereby consent to the incorporation by reference of our report dated
27 November 1995 with respect to the consolidation financial statements of
Ashbourne PLC included in this current report on form 8-K/A-1 into filed
registration statements of Sun Healthcare Group, Inc on Form S-8 (No 33-80540,
No 33-93692 and No 333-03058).
/s/ Price Waterhouse
Price Waterhouse
Glasgow G2 4AD
27 November 1995