By Len Boselovic, Pittsburgh Post-Gazette
World Health Alternatives continued its free fall yesterday after the Wilkins medical staffing firm's new managers discovered $22 million in company debt they weren't aware of previously.
Separately, four law firms have filed class-action lawsuits against the company, accusing it of issuing false and misleading financial statements. Two of the lawsuits charge that the company misstated the academic credentials of co-founder Richard E. McDonald, the company's former chief executive officer and top accountant.
McDonald resigned Aug. 15, and four days later, World Health disclosed it had fired auditor Daszkal Bolton and said it expected to restate financial results because of a number of discrepancies it had uncovered since McDonald left.
The accounting problems included irregular reports to the company's lenders that enabled World Health to borrow about $6.5 million more than it would have been otherwise able to borrow, and underpayment of taxes by more than $4 million.
Late Wednesday, the company disclosed one source of the discrepancies: $22 million in convertible debentures issued May 17, one day after the company filed an amended annual report for the previous year with the Securities and Exchange Commission.
World Health, which has relied on a series of stock and debt offerings to fund acquisitions and ongoing operations, received only $2 million in cash from the debt financing, as well as $14.8 million in convertible preferred stock from the unidentified lenders.
However, because of World Health's tenuous finances, the lenders are entitled to receive $22 million for the $16.8 million in cash and preferred stock they supplied to the company.
The lenders also were given warrants to purchase 4.2 million World Health shares.
The agreement with the unidentified lenders required World Health to file a registration statement within 45 days that would have allowed the lenders to sell stock they obtained by converting the debt and exercising the warrants. The registration statement would have alerted the company's other debtors and stockholders to the lenders' claims against the company.
But World Health said it had not filed all the registration statements it had been required to file and that it might have to pay damages under the terms of its creditor agreements. It also may face damages for halting stock sales that were registered, the company said.
World Health said the accounting irregularities would force it to restate 2004 and 2005 results. The company had reported a 2004 loss of $13.4 million, or 67 cents per share, and a fiscal first-quarter loss of $244,000, or 1 cent per share. It has not yet reported second-quarter results.
The company said it had obtained a $4 million loan from Palisades Master Fund, of Plantation, Fla., on Aug. 18 to fund operations while it attempts to work out its troubles.
World Health shares closed yesterday at 29.5 cents, down 12.5 cents or 30 percent. They hit a 52-week high of $3.75 on Aug. 3, but fell precipitously following McDonald's resignation and the disclosure of accounting problems.
Interim President John Sercu could not be reached for comment.
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Troubles mount for Wilkins medical staffing firm
