-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ElC+nNr8iicLZcpRq+/IqQWXeaxDZF+Zvqw/MuChKVv9ugSd2bKUDbjiJLJwFp6y EayD+gmVA3KroKkCiaD8Iw== 0000914039-98-000474.txt : 19981123 0000914039-98-000474.hdr.sgml : 19981123 ACCESSION NUMBER: 0000914039-98-000474 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEXINGTON HEALTHCARE GROUP INC CENTRAL INDEX KEY: 0001026348 STANDARD INDUSTRIAL CLASSIFICATION: 8051 IRS NUMBER: 061468252 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22261 FILM NUMBER: 98753213 BUSINESS ADDRESS: STREET 1: 35 PARK PL CITY: NEW BRITAIN STATE: CT ZIP: 06052 BUSINESS PHONE: 8602236902 MAIL ADDRESS: STREET 1: 35 PARK PLACE CITY: NEW BRITTAIN STATE: CT ZIP: 06052 10-Q 1 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For The QUARTER ENDED SEPTEMBER 30, 1998 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Transition Period from ______to______ Commission File Number 0-22261 LEXINGTON HEALTHCARE GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 06-1468252 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 1577 NEW BRITAIN AVENUE, FARMINGTON, CT 06032 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 860-674-2700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No___ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: NOVEMBER 13, 1998 4,125,000 Common Shares outstanding 2 LEXINGTON HEALTHCARE GROUP, INC. SEPTEMBER 30, 1998 FORM 10-Q INDEX
PART I -- FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Condensed Consolidated Balance Sheets -- September 30, 1998 and June 30, 1998...........................................................Pg. 3. Condensed Consolidated Statements of Operations -- Three months ended September 30, 1998 and 1997.......................................Pg. 4. Condensed Consolidated Statements of Cash Flows -- Three months ended September 30, 1998 and 1997.......................................Pg. 5. Notes to Condensed Consolidated Financial Statements....................Pg. 6-8. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................Pg. 9-13. PART II -- OTHER INFORMATION. Item 1. Legal Proceedings.......................................................Pg. 14. Item 2. Changes in Securities...................................................Pg. 14. Item 3. Defaults Upon Senior Securities.........................................Pg. 14. Item 4. Submission of Matters to a Vote of Security Holders.....................Pg. 14. Item 5. Other Information.......................................................Pg. 14. Item 6. Exhibits and Reports on Form 8-K........................................Pg. 14. Signatures..........................................................................Pg. 15.
Page 2. 3 LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30, 1998 1998 (Unaudited) ------------ -------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 640,000 $ 831,000 Accounts receivable, net 10,291,000 10,848,000 Note receivable-related party 658,000 595,000 Estimated third-party payor settlements- Medicare 417,000 197,000 Inventories 673,000 777,000 Prepaid expenses and other current assets 848,000 533,000 ----------- ----------- Total current assets 13,527,000 13,781,000 PROPERTY, EQUIPMENT & LEASEHOLD IMPROVEMENTS, net 3,627,000 3,370,000 OTHER ASSETS Goodwill, net 3,139,000 3,181,000 Security deposits-related parties 2,337,000 2,337,000 Bed licenses, net 1,597,000 1,626,000 Operating subsidy receivable (less current portion) 664,000 701,000 Other assets, net 469,000 411,000 Residents' funds 240,000 206,000 ----------- ----------- 8,446,000 8,462,000 ----------- ----------- $25,600,000 $25,613,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 8,557,000 $ 8,532,000 Estimated third-party payor settlements-Medicaid 1,248,000 1,686,000 Notes and capital leases payable (current portion) 408,000 398,000 Income taxes payable 113,000 91,000 ----------- ----------- Total current liabilities 10,326,000 10,707,000 OTHER LIABILITIES Notes and capital leases payable (less current portion) 7,506,000 7,424,000 Deferred rent 351,000 364,000 Residents' funds payable 240,000 206,000 ----------- ----------- 8,097,000 7,994,000 ----------- ----------- Total liabilities 18,423,000 18,701,000 ----------- ----------- MINORITY INTERESTS 690,000 529,000 STOCKHOLDERS' EQUITY Common stock, par value $.01 per share, authorized 15,000,000 shares, issued and outstanding 4,125,000 shares 41,000 41,000 Additional paid-in capital 6,126,000 6,126,000 Retained earnings 320,000 216,000 ----------- ----------- Total stockholders' equity 6,487,000 6,383,000 ----------- ----------- $25,600,000 $25,613,000 =========== ============
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 3. 4 LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
1998 1997 -------------- --------------- REVENUES Net patient service revenue $ 15,554,000 $ 13,815,000 Other revenue 144,000 116,000 ------------ -------------- Total revenues 15,698,000 13,931,000 EXPENSES Facility operating expenses: Salaries and benefits 10,761,000 10,161,000 Food, medical and other supplies 1,827,000 1,158,000 Other operating expenses 1,854,000 1,445,000 Corporate, general and administrative expenses 715,000 503,000 Interest expense 233,000 180,000 ------------- ------------ Total expenses 15,390,000 13,447,000 ------------- ------------ Income before income taxes and minority interest 308,000 484,000 INCOME TAXES 43,000 205,000 MINORITY INTEREST IN INCOME OF CONSOLIDATED JOINT VENTURES (161,000) - -------------- ---------------- Net income $ 104,000 $ 279,000 ============== ================= Basic earnings per common share $ 0.03 $ 0.07 ---- ---- Weighted average number of common shares outstanding 4,125,000 4,125,000 ============== ===============
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 4. 5 LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
1998 1997 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 104,000 $ 279,000 Adjustments to reconcile net income to net cash provided by operating activities 176,000 142,000 Minority interest in income of consolidated joint ventures 161,000 -- Decrease (increase) in accounts receivable 557,000 (1,480,000) Changes in other operating assets and liabilities (861,000) 1,311,000 ---------- ----------- Net cash provided by operating activities 137,000 252,000 ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Note receivable -- related party (63,000) -- Increase in security deposits -- (64,000) Acquisition of fixed assets (199,000) (67,000) ---------- ----------- Net cash used in investing activities (262,000) (131,000) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Repayments of notes payable and capital lease obligations (66,000) (41,000) --------- ----------- Net cash used in financing activities (66,000) (41,000) --------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (191,000) 80,000 CASH AND CASH EQUIVALENTS, beginning of period 831,000 1,000,000 --------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 640,000 $ 1,080,000 ========= =========== NON-CASH INVESTING AND FINANCING ACTIVITIES: Certain assets acquired through assumption of mortgage note payable $ 86,000 $ 6,863,000 Equipment and leasehold improvements acquired through assumption of notes payable and capital leases 72,000 --
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 5. 6 LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED) NOTE A - THE COMPANY The consolidated financial statements include the accounts of Lexington Healthcare Group, Inc. and all of its wholly-owned subsidiaries: Balz Medical Services, Inc. ("BALZ"), Professional Relief Nurses, Inc. ("PRN" ), and Lexington Highgreen Holding, Inc. (collectively, the "Company"), as well as the accounts of the following joint ventures controlled by the Company: LexiCore Rehab Services, LLC and Lexicon Pharmacy Services, LLC. All material intercompany balances and transactions have been eliminated in consolidation. The Company is a long-term and subacute care provider which operates six nursing home facilities at September 30, 1998 with 853 beds licensed by the State of Connecticut. BALZ provides medical supplies and durable medical equipment to nursing homes; PRN provides health care services in the homes of its patients. Lexicore and Lexicon provide rehab and pharmacy services respectively to patients in the Company's and other nursing homes. NOTE B - BASIS OF PRESENTATION The financial information included herein is unaudited and presented on a condensed basis; however, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented although the results shown for the interim periods presented herein are not necessarily indicative of the results to be obtained for a full fiscal year. The condensed balance sheet data as of June 30, 1998 is derived from audited financial statements; certain line items have been combined or condensed in their presentation herein. Inventories consisting of food, chemicals and medical and other supplies are valued at the lower of cost or market, with cost determined on a first-in, first-out (FIFO) basis. NOTE C - REORGANIZATION, PUBLIC STOCK OFFERING, ACQUISITIONS AND NEW BUSINESSES Lexington Healthcare Group, Inc. was incorporated in 1996. It completed an initial public offering of its common stock in May 1997 during which 1,125,000 shares of common stock at $5 per share and 1,940,625 common stock warrants at $.10 per warrant were issued resulting in net proceeds to the Company of $4.1 million. Upon completion of such offering, the Company became the successor to Lexington Health Care Group, LLC, a limited liability company ("LLC"). The business combination was accounted for as a reorganization of entities under common control, in a manner similar to a pooling of interests, using LLC's historical cost basis. Page 6. 7 LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED) NOTE C - REORGANIZATION, PUBLIC STOCK OFFERING, ACQUISITIONS AND NEW BUSINESSES (CONTINUED) Accordingly, the accompanying condensed consolidated financial statements for the period prior to the reorganization reflect the accounts and operations of LLC and adjustment has been made to give effect to the reorganization resulting in the restatement of certain stockholders' equity accounts. NEW BUSINESSES On October 15, 1997 Lexicore Rehab Services, LLC began operations as a 50% owned joint venture with Core Rehab Management, LLC. The joint venture is controlled by the Company and the results of its operations from inception are included in the Company's condensed consolidated financial statements with appropriate recognition of minority interest. On December 1, 1997 Lexicon Pharmacy Services, LLC began operations as a 70% owned joint venture with Pharmacy Corporation of America. The joint venture is controlled by the Company and the results of its operations from inception are included in the Company's condensed consolidated financial statements with appropriate recognition of minority interest. NOTE D - NOTE RECEIVABLE--RELATED PARTY During September 1998, the Company converted an existing note receivable from and additional advances to an entity in which an officer and director of the Company has a controlling ownership interest into a $649,000 8% interest-bearing promissory note due from the officer. This note provides for $15,000 monthly installment payments and a balloon payment of the remaining balance due May 31, 1999. As security for the note, the officer has pledged 600,000 of his shares of the common stock of the Company, with the certificate representing such shares being held in escrow by the Company's legal counsel. He has also pledged to the Company his right to receive a $15,000 monthly payment from the proceeds of a nursing home sale. As a result, the entire balance of this note together with accumulated interest of $9,000, is classified as a current asset in the accompanying condensed consolidated balance sheet. Page 7. 8 LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED) NOTE E - CONTINGENCIES On July 31, 1998, the former President of PRN, the Company's home care subsidiary, initiated a lawsuit against Lexington Healthcare Group, Inc., PRN, and the Company's Chairman and CEO, in connection with her termination as President of PRN. The suit alleges breach of contract and wrongful discharge against the Company. The Company will vigorously defend the suit; it believes that plaintiff breached the contract, failed to perform in good faith and was therefore terminated. At this time, it is not possible to estimate the final cost to the Company to resolve this matter. The Company is also involved in other legal proceedings and is subject to certain lawsuits and claims in the ordinary course of its business. Although the ultimate effect of these matters is often difficult to predict, management believes that their resolution will not have a material adverse effect on the Company's condensed consolidated financial statements. NOTE F - SUBSEQUENT EVENTS On November 1, 1998, the Company began operations as manager of four skilled nursing facilities in Connecticut under an interim Management Agreement with SunRise Healthcare Corporation, a New Mexico corporation and nation-wide healthcare provider. As consideration for the services provided under this Management Agreement, the Company will be entitled to retain the excess of any revenues earned during the term over the expenses incurred and will be responsible for any excess of expenses incurred over revenues earned in the operation of the facilities during the term. On November 12, 1998 the Company completed agreements under which it will formally purchase and/or lease these four facilities along with an additional Connecticut nursing facility from SunRise. The purchase or lease transactions are expected to close during the first six months of 1999. In total, the Company will acquire the operation of approximately 600 skilled nursing beds. Page 8. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. OVERVIEW In the fiscal year ended June 30, 1997 the Company had reorganized its capital structure and completed an initial public stock offering (the "Offering") which raised net proceeds of approximately $4.1 million. In connection with the Offering, the Company acquired two businesses in the healthcare field, BALZ and PRN. During the fiscal year ended June 30, 1998, the Company expanded its nursing home operations with the acquisition of two additional facilities, formed and began operating three healthcare joint venture companies, and initiated plans to acquire five additional nursing homes. During the first quarter of fiscal 1999 the Company signed a Management Agreement effective November 1, 1998 to manage four of the five skilled nursing facilities which it had earlier agreed to acquire. Growth also continued in its joint-venture ancillary businesses. The Company believes that the demand for long-term care and specialty medical services will increase substantially over the next decade due primarily to favorable demographic trends, advances in medical technology and emphasis on healthcare cost containment. At the same time, government restrictions and high construction and start-up costs are expected to limit the supply of long-term care facilities. In addition, the Company anticipates that recent trends toward industry consolidation will continue and will provide future acquisition opportunities. The Company's operating strategy is to increase nursing home profitability levels, through aggressive marketing and by offering rehabilitation therapies and other specialized services; adhere to strict cost standards at the Facility level while providing effective patient care and containing corporate overhead expenses; and become a fully integrated health network whereby the Company will increase marketing of medical products and supplies, rehabilitative services, institutional pharmaceutical services and nursing services to affiliated and non-affiliated nursing homes and hospitals, as well as patients at home. By concentrating its facilities and ancillary service operations within a selected geographic region, the Company's strategy is to achieve operating efficiencies through economies of scale, reduced corporate overhead, more effective management supervision and financial controls. In addition, the Company believes that geographic concentration also enhances the Company's ability to establish more effective relationships with referral sources and regulatory authorities in the states where the Company operates. Page 9. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR 2000 DISCLOSURE The Company is working to resolve the potential impact of the year 2000 on the ability of the Company's computerized information systems to accurately process information that may be date-sensitive. Any of the Company's programs that recognize a date using "00" as the year 1900 rather than the year 2000 could result in errors or system failures. The Company utilizes a number of computer programs across its entire operation. The Company has not completed its assessment, but currently believes that costs of addressing this issue will not have a material adverse impact on the Company's financial position. However, if the Company and third parties upon which it relies are unable to address this issue in a timely manner, it could result in a material financial risk to the Company. In order to assure that this does not occur, the Company plans to devote all resources required to resolve any significant year 2000 issues in a timely manner. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1998 ("1998 PERIOD") VS. THREE MONTHS ENDED SEPTEMBER 30, 1997 ("1997 PERIOD") For the three months ended September 30, 1998, the Company had total revenues of $15,698,000 and total operating expenses of $15,390,000. For the three months ended September 30, 1997, the Company had total revenues of $13,931,000 and total operating expenses of $13,447,000. The Company had net income of $104,000 or $.03 per share for the three months ended September 30, 1998, after providing for income taxes of $43,000. The Company had net income of $279,000 or $.07 per share for the three months ended September 30, 1997, after providing for income taxes of $205,000. For the three months ended September 30, 1998, operating expenses consisted of salaries and benefits of $10,761,000, food, medical and other supplies of $1,827,000, other operating expenses (including rent of $667,000) of $1,854,000, and corporate, general and administrative expenses of $715,000. In addition, income from operations was reduced by minority interest of $161,000 and interest expense of $233,000. Revenues in the 1998 period increased over the 1997 period by $1,767,000 or 13%, largely as a result of the two joint ventures started in 1997. Of this net increase, $2,015,000 pertained to the new joint ventures and growth in ancillary businesses acquired in 1997; there was a $248,000 net revenue decrease in the nursing facilities due to lower occupancy (caused in part by ongoing renovations). Page 10. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating expenses in the 1998 period increased over the 1997 period by $1,943,000 or 14% largely as a result of the two new joint ventures noted above and the increased volume in the ancillary businesses. Net nursing home costs decreased somewhat as a result of lower occupancy offset by higher benefit costs. Administrative and general expenses increased by $212,000 due to the new businesses and acquisitions, higher rent, legal and other administrative costs. Minority interest was $161,000 on the joint ventures formed in 1997; interest expense increased by $53,000 mostly as a result of additional borrowings. Income taxes were provided in the 1998 period on pre-tax income of $147,000; the combined federal and state effective tax rate was 29%. Income taxes were provided in the 1997 period on pre-tax income of $484,000; the combined federal and state effective rate was 42%. LIQUIDITY AND CAPITAL RESOURCES Since its formation in 1995, the Company has primarily financed its operations through operating revenues, borrowings from the prior operator of the Facilities and other private lenders (including stockholders), by financing its accounts receivable, through a public offering of its common stock which raised net proceeds of approximately $4.1 million and through the sale of a portion of certain bed licenses acquired in 1997. In July 1997, the Company borrowed $6.8 million in connection with the acquisition of land, buildings, bed licenses and operating assets of the two nursing homes acquired. Interest is payable at 10% over the 20 year term of the mortgage. In connection with the acquisitions, the Company also obtained an operating subsidy of $2.5 million to be received over five years. As noted above, some of the bed licenses acquired were sold for $1,550,000 in November 1997. In July 1995, the Company entered into an agreement to manage the day-to-day business affairs of Lexington House, Inc., a nursing home with 67 licensed beds; Lexington House is owned by Jack Friedler and his wife. The Company made certain expenditures on behalf of Lexington House in anticipation that it would acquire Lexington House. Subsequently, the negotiations for the sale were terminated because the Company determined that such facility required too many capital improvements. As of June 30, 1997, Lexington House, Inc. was indebted to the Company in the amount of $290,000. During the year ended June 30, 1998, $23,000 was charged for management fees and costs, interest of $26,000 accumulated, and an additional $286,000 was advanced; $30,000 was repaid; the balance due at June 30, 1998 was $595,000. In July 1998 an additional $50,000 was advanced. Page 11. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) During September 1998, the balance of $649,000 was formalized into an 8% interest bearing promissory note from Jack Friedler with $15,000 monthly installments and a balloon payment of the remaining balance due May 31, 1999. As security for the note, Mr. Friedler has pledged 600,000 of his shares of the common stock of the Company and also pledged the right to receive a $15,000 monthly payment from the sale of Lexington House. As a result, the entire balance of this note together with accumulated interest of $9,000 through September 30, 1998 is classified as a current asset in the accompanying condensed consolidated balance sheet. In August 1997, the Company obtained a $2,000,000 revolving line of credit (at prime plus .50%) from a bank, which is secured by its accounts receivable and other assets. In March $400,000 was borrowed for working capital purposes; $200,000 of this was repaid in April; $1,800,000 was available at September 30, 1998. In October, $1.1 million was borrowed for working capital purposes. During the three months ended September 30, 1998, the Company expended approximately $193,000 in capital improvements at its leased Facilities. Any capital improvements made to the Facilities belong to the landlord. However, any amounts expended for capital improvements are generally recouped in their entirety through the reimbursement system. During the three months ended September 30, 1998 the Company expended $87,000 for capital improvements at its owned facilities which was funded by the mortgagor under the terms of the mortgage. The Company has recorded $303,000 of investments in joint ventures (of which $48,000 was paid through September 30, 1998) which began operations in 1997. At September 30, 1998, the Company had cash and cash equivalents of $640,000, receivables of $10,708,000, inventories of $673,000, prepaid expenses and other current assets of $848,000, and a note receivable including interest from a related party of $658,000. Working capital at September 30, 1998 was $3,201,000 as compared with working capital of $3,074,000 at June 30, 1998. The principal reasons for the increase are profitable operations in the first three months. Current liabilities at September 30, 1998 consist of trade accounts payable, estimated third-party payor settlements due Medicare and Medicaid, current portion of notes and capital leases payable, accrued payroll and related taxes, income taxes, and other accrued expenses. Page 12. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This quarterly report contains certain forward-looking statements regarding the Company, its business prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause the Company's actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that may affect such forward-looking statements include, without limitations: the Company's ability to successfully and timely develop and finance new projects, the impact of competition on the Company's revenues, and changes in reimbursement rates, patient mix, and demand for the Company's services. When used, words such as "believes," "anticipates," "expects," "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by the Company in this report, news releases, and other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business. Page 13. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings On July 31, 1998, Suzanne Nettleton, the former President and Administrator of Professional Relief Nurses, Inc., the Company's home care subsidiary, initiated a lawsuit against Lexington Healthcare Group, Inc., Professional Relief Nurses, Inc. (PRN), and Jack Friedler, the Company's Chairman and CEO, in connection with her termination as President of PRN. The suit alleges breach of contract and wrongful discharge against the Company. The Company will vigorously defend the suit on behalf of itself, PRN and Mr. Friedler; it believes that Ms. Nettleton breached the contract, failed to perform in good faith and was therefore terminated. At this time, it is not possible to estimate the final cost to the Company to resolve this matter. The Company has received notice of lawsuits initiated by Sundance Rehabilitation Corporation in early July 1998 against three of its nursing homes for payment of invoices for therapy services rendered. In total, the amounts claimed by Sundance Rehabilitation is $625,000 which amounts have been recorded appropriately on the Company's books, but remain unpaid. As mentioned above, the Company announced that it had signed a letter of intent to acquire five skilled nursing facilities from Sun Healthcare Group, Inc., the parent of Sundance Rehabilitation. Management believes Sun Healthcare Group will defer the collection proceedings until the closing of the nursing home acquisitions. The Company is involved in other legal proceedings and is subject to certain lawsuits and claims in the ordinary course of its business. Although the ultimate effect of these matters is often difficult to predict, management believes that their resolution will not have a material adverse effect on the Company. Item 2. Change in Securities NONE Item 3. Defaults Upon Senior Securities NONE Item 4. Submission of Matters to a Vote of Security Holders NONE Item 5. Other Information NONE. Item 6. Exhibits and Reports on Form 8-K NONE Page 14. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. /s/ Jack Friedler ------------------------------------------- (Jack Friedler, Chief Executive Officer) (Duly Authorized Officer) /s/ Harry Dermer ------------------------------------------- (Harry Dermer, President) (Duly Authorized Officer) Date November 16, 1998 /s/ Thomas E. Dybick -------------------- ------------------------------------------- (Thomas E. Dybick, Chief Financial Officer) (Principal Financial Officer) Page 15. EX-27 2 EX-27
5 1,000 U.S. DOLLARS 3-MOS JUN-30-1998 JUL-01-1998 SEP-30-1998 1 640 0 11,738 (372) 673 13,527 4,108 (481) 25,600 10,326 7,506 0 0 41 6,446 25,600 15,554 15,698 0 15,157 0 0 233 308 43 104 0 0 0 104 .03 .03
-----END PRIVACY-ENHANCED MESSAGE-----