<PAGE>
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 MARCH 31, 1997
----------------------------
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.)
35 PARK PLACE, NEW BRITAIN, CT 06052
- ------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 860-223-6902
------------
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: June 25, 1997 4,125,000
Common Shares outstanding
Transitional Small Business Disclosure (check One):
Yes No X
-- --
<PAGE>
LEXINGTON HEALTHCARE GROUP, INC.
MARCH 31, 1997 FORM 10-Q
INDEX
PART I -- FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet -- March 31, 1997 and June 30, 1996
Condensed Consolidated Income Statement -- Three months and nine months ended
March 31, 1997 and 1996
Condensed Consolidated Statement of Cash Flows -- Nine months ended March 31,
1997 and 1996
Notes to Condensed Consolidated Financial Statements
ProForma Condensed Consolidating Balance Sheet at March 31, 1997 and
ProForma Condensed Consolidating Income Statement for the nine months and three
months ended March 31, 1997
Management's Discussion and Analysis of Financial Condition and Results of
Operations
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
3/31/97 6/30/96
------- -------
(Unaudited)
-----------
ASSETS
Current assets:
<S> <C> <C>
Cash $ 782,820 $ 212,000
Accounts receivable - net of allowance for
uncollectible amounts of $75,000 4,234,071 5,585,000
Due from related parties 104,593 73,000
Prepaid and other current assets 427,400 159,000
___________ ____________
Total current assets 5,548,884 6,029,000
----------- ------------
Equipment and leasehold improvements, net 626,231 462,000
Security deposit - related party 2,281,972 2,282,000
Residents' funds 167,073 147,000
Deferred registration costs 339,842 198,000
Other assets, net 102,050 102,000
Note receivable - related party 514,463 394,000
___________ ____________
T O T A L $9,580,515 $9,614,000
----------- ------------
----------- ------------
LIABILITIES
Current liabilities:
Notes payable $463,904 $2,267,000
Notes payable - officers/stockholders 181,908 286,000
Accounts payable and accrued expenses 7,090,014 5,568,000
Capital leases payable (current portion) 21,185 27,000
Due to related party 262,245 262,000
___________ ____________
Total current liabilities 8,019,256 8,410,000
----------- ------------
Capital leases payable (less current portion) 107,826 102,000
Resident's funds payable 167,073 147,000
Deferred rent 331,935 468,000
___________ ____________
Total liabilities 8,626,090 9,127,000
----------- ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock 27,222 25,000
Additional paid-in capital 274,000 1,000
Retained earnings 653,203 461,000
----------- ------------
Total stockholders equity 954,425 487,000
___________ ____________
T O T A L $9,580,515 $9,614,000
----------- ------------
----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
LEXINGTON HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------- ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET PATIENT REVENUE $26,071,504 $25,206,754 $8,776,504 $8,303,754
OTHER REVENUE 226,416 54,090 74,416 18,090
----------- ----------- ---------- ----------
TOTAL REVENUE 26,297,920 25,260,844 8,850,920 8,321,844
EXPENSES:
- --------
FACILITY OPERATING EXPENSES
SALARIES AND BENEFITS 20,026,714 18,985,439 7,016,714 6,725,439
FOOD, MEDICAL AND OTHER SUPPLIES 1,687,755 1,603,956 612,755 530,956
OTHER OPERATING EXPENSES 3,530,439 3,132,389 956,439 827,389
CORPORATE, GENERAL & ADMIN. 763,022 573,188 277,022 96,188
INTEREST EXPENSE 97,927 241,426 27,927 141,426
----------- ----------- ---------- ----------
TOTAL EXPENSES 26,105,857 24,536,398 8,890,857 8,321,398
NET INCOME $192,063 $724,446 39,937 $446
PRO FORMA INCOME TAXES 45,000 294,000 ($51,000) 0
----------- ----------- ---------- ----------
PRO FORMA NET INCOME $147,063 $430,446 11,063 $446
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Pro forma net income per share $0.05 $0.14 ($0.00) $0.00
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Weighted number of shares outstanding 3,092,000 3,092,000 3,092,000 3,092,000
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
LEXINGTON HEALTH GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
March 31,
-------------------------------------------
1997 1996
----------- -----------
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 192,063 $ 724,446
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 81,922 43,492
Provision for uncollectible amounts 0 (75,000)
Increase in deferred rent (136,065) 468,000
Changes in operating assets and liabilities:
Accounts receivable 1,319,336 (5,658,000)
Other current assets (268,400) (159,000)
Notes payable (1,907,188) 2,553,000
Accounts payable and accrued expenses 1,522,014 5,568,000
Increase in other assets 0 (102,000)
Due to related parties 0 262,000
----------- -----------
Net cash provided by operating activities 803,682 3,624,938
----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets (246,153) (537,492)
(Increase) in security deposit - related party 0 (2,282,000)
Note receivable - related party (120,463) (394,000)
----------- -----------
Net cash (used in) investing activities (366,616) (3,213,492)
----------- -----------
Cash flows from financing activities:
Issuance of common stock 275,222 26,000
Capital leases 0 (27,000)
Registration costs (141,842) (198,000)
----------- -----------
Net cash provided by financing activities 133,380 (199,000)
----------- -----------
NET INCREASE IN CASH 570,446 212,446
Cash at beginning of period 212,374 0
----------- -----------
CASH AT END OF THE PERIOD 782,820 212,446
=========== ===========
</TABLE>
See accompanying notes to Financial Statements
<PAGE>
LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND
MARCH 31, 1996 IS UNAUDITED)
(NOTE A THE COMPANY AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include Lexington Healthcare Group, Inc.
and its wholly owned subsidiary LEV Rehab Services, Inc. ("LEV") (collectively,
the "Company").
The Company was incorporated in 1996. Upon consummation of its public offering
the Company became the successor to Lexington Health Care Group, LLC,
a limited liability company ("LLC"). Each of the members of LLC have exchanged
their respective membership interests in the LLC upon consummation of the public
offering, for an aggregate of 2,462,000 shares of the Company's Common Stock.
The reorganization has been accounted for using LLC's historical cost basis.
The financial statements have been prepared as if such reorganization took place
effective March 31, 1997.
LLC is a long-term and subacute care provider, which operates four nursing home
facilities in the State of Connecticut. These facilities, which are leased
under a long-term lease from a partnership, (of which a 33% partner is presently
the controlling member of LLC) has previously been leased from that partnership
and operated by Beverly Enterprises, Inc. ("Beverly"), an unrelated entity.
Subacute care is generally provided to patients who have been discharged from an
acute care hospital and require additional care in specialized clinical programs
before being discharged.
LLC includes in revenues all room and board, nursing, therapies, medical
supplies and pharmacy charges. Basic care generally is provided to geriatric
and chronic care patients requiring routine nursing services.
LLC also provides management services to a nursing facility owned by a
partnership controlled by its principal member and to a nonaffiliated entity.
LLC was formed on March 8, 1995 and commenced operations on July 1, 1995.
LEV was incorporated in 1996 and commenced operations in May 1996 to provide
physical, occupational, speech and other therapies to patients at the nursing
home facilities owned or managed by LLC, unaffiliated facilities and persons in
their homes. LEV has not generated any significant revenues to date.
<PAGE>
LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND
MARCH 31, 1996 IS UNAUDITED)
On May 14, 1997 the Company issued 1,125,000 shares of common stock and
1,687,500 related warrants in an initial public offering, which generated
proceeds of approximately $5,800,000.
The Company has subsequently acquired simultaneously with the closing of the
public offering all of the capital stock of Balz Medical Services, Inc. ("Balz")
and Professional Relief Nurses, Inc. ("PRN").
The Company acquired Balz through an exchange of 300,000 shares of the Company
which are valued at $1,500,000 based on the $5.00 offering price of the public
offering.
The purchase price of PRN consisted of $1,620,000 payable in cash and exchange
of 108,000 shares of the Company which are valued at $540,000 based on the $5.00
offering price of the public offering. Furthermore, in connection with the
acquisition, PRN subsequently distributed 100% of its net book value to its
stockholders.
The excess of cost over the fair value of the assets acquired from Balz and PRN
will be amortized over 20 years.
(NOTE B) BASIS OF PRESENTATION
The financial information included herein is unaudited; 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. These condensed consolidated financials statements should be
read in conjunction with the Registration Statement on Form S-1 of Lexington
Healthcare Group, Inc. which includes financial statements and notes thereto for
the year ended June 30, 1996 and the six months ended December 31, 1996 and
1995.
<PAGE>
LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND
MARCH 31, 1996 IS UNAUDITED)
In November 1996, the Company completed a Private Placement of 500,000 shares of
common stock at $.50 per share together with (six-year) warrants to acquire
another 500,000 shares at $6.00 per share, and realized net proceeds of $215,000
therefrom. In May 1997, at the request of NASDAQ as a condition for the approval
of the Company's listing, the transaction was rescinded. The rescinding
purchasers did not receive consideration for their agreement to rescind; the
Company repurchased the 500,000 shares in May 1997 for $250,000.
The Company's June 30,1996 financial statements were prepared with
disclosure concerning that the Company's continuing as a going concern. In
the fiscal year ended June 30, 1996, the Company had expended a substantial
amount of current resources for fixed assets and a security deposit. As of
June 30, 1996 and March 31, 1997, the Company had a large working capital
deficiency.
During fiscal 1997, management has continued to implement plans including the
following:
i) Materially reducing outlays for noncurrent assets.
ii) Vigorously promoting the Company's business by increasing patient
occupancy levels, as well as the businesses of PRN and Balz in order to
enhance profitablility and cash flows.
iii) Completing a public offering of 1,125,000 shares of common stock and
warrants as discussed above which generated proceeds of approximately
$5.8 million.
<PAGE>
LEXINGTON HEALTHCARE GROUP, INC.
<TABLE>
<CAPTION>
PROFORMA CONDENSED CONSOLIDATING BALANCE SHEET
3/31/1997 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
LEXINGTON
HEALTH CARE BALZ PROFESSIONAL
GROUP AND MEDICAL RELIEF
SUBSIDIARY SERVICE, INC. NURSES, INC. ADJUSTMENTS TOTAL
---------- ------------- ------------ ----------- -----
ASSETS
- ------
CURRENT ASSETS:
- --------------
<S> <C> <C> <C> <C> <C>
CASH $782,820 $19,988 $159,296 $1,951,705 $2,913,809
ACCOUNTS RECEIVABLE - NET 4,175,970 839,424 338,071 5,353,465
RECEIVABLE FROM RELATED PARTIES 104,593 (92,793) 11,800
PREPAID EXP & OTHER 427,400 23,502 30,000 480,902
-------------------------------------------- --------------
TOTAL CURRENT ASSETS 5,490,783 882,914 527,367 8,759,976
PROPERTY & EQUIPMENT - NET 626,231 81,764 91,140 799,135
SECURITY DEPOSIT 2,281,972 2,281,972
RESIDENTS' FUND 167,073 167,073
OTHER ASSETS 102,050 129,974 5,614 1,647,000 1,884,638
NOTE RECEIVABLE, RELATED PARTY 514,463 (165,693) 348,770
DEFERRED REGISTRATION COSTS 279,842 279,842
-------------------------------------------- --------------
TOTAL ASSETS $9,462,415 $1,094,652 $624,121 $14,521,406
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS EQUITY
- ---------------------------------
CURRENT LIABILITIES:
- -------------------
ACC. PAY. & ACCRUED LIABILITIES $7,090,014 $167,878 $146,713 (350,000) 7,054,605
NOTES PAYABLE 463,904 $58,844 (453,000) 69,748
NOTES PAYABLE - OFFICERS 181,908 30,000 0 (165,693) 46,215
INCOME TAXES PAYABLE 343,293 0 343,293
DUE TO RELATED PARTY 262,245 70,356 30,000 92,793 269,808
OTHER 21,185 21,185
-------------------------------------------- --------------
TOTAL CURRENT LIABILITIES 8,019,256 611,527 235,557 (968,693) 7,804,854
DEFERRED RENT 331,935 331,935
RESIDENTS FUNDS 167,073 0 167,073
CAPITAL LEASE LIABILITY 107,826 107,826
STOCKHOLDERS EQUITY
- -------------------
COMMON STOCK 241,222 25,000 1,000 4,401,705 4,668,927
RETAINED EARNINGS 595,102 458,125 387,564 1,440,791
--------------------------------------------------------------------------
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $9,462,414 $1,094,652 $624,121 $14,521,406
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
NOTE:
THIS BALANCE SHEET REFLECTS THE TRANSACTIONS MORE FULLY DISCUSSED IN THE
COMPANY'S REGISTRATION STATEMENT AS IF IT HAD OCCURRED ON MARCH 31, 1997.
THE ACQUISITIONS ARE ACCOUNTED FOR AS PURCHASES.
THESE PRO FORMA FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THE COMPANY'S REGISTRATION
STATEMENT.
THE PRO FORMA FINANCIAL STATEMENTS ARE NOT NECESSARILY INDICATIVE OF WHAT THE
ACTUAL FINANCIAL POSITION WOULD HAVE BEEN HAD THE TRANSACTIONS OCCURRED AT
MARCH 31, 1997, NOR DOES IT PURPORT TO REPRESENT THE FUTURE FINANCIAL
POSITION OF THE COMPANY AND THE ACQUIRED COMPANIES
<PAGE>
LEXINGTON HEALTHCARE GROUP, INC.
<TABLE>
<CAPTION>
PROFORMA CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE NINE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
LEXINGTON
HEALTH CARE BALZ PROFESSIONAL
GROUP AND MEDICAL RELIEF
SUBSIDIARY SERVICE, INC. NURSES, INC. ADJUSTMENTS TOTAL
---------- ------------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
NET PATIENT REVENUE $26,071,504 $1,059,390 $2,814,553 $29,945,447
OTHER REVENUE 144,827 144,827
-------------------------------------------- --------------
TOTAL REVENUE 26,216,331 1,059,390 2,814,553 30,090,274
EXPENSES:
- --------
OPERATING EXPENSES
SALARIES AND BENEFITS 20,026,714 138,827 1,421,225 21,586,766
FOOD, MEDICAL AND OTHER SUPPLIES 1,687,755 405,094 2,092,849
OTHER OPERATING EXPENSES 3,448,850 106,448 1,017,740 4,573,038
CORPORATE, GENERAL & ADMIN. 763,022 763,022
INTEREST EXPENSE 97,927 97,927
-------------------------------------------- --------------
TOTAL EXPENSES 26,024,268 650,369 2,438,965 29,113,602
INCOME BEFORE INCOME TAXES $192,063 $409,021 $375,588 $976,672
INCOME TAXES, ACTUAL & PRO FORMA $45,000 $159,429 $155,000 $359,429
NET INCOME - PRO FORMA $147,063 $249,592 $220,588 $617,243
--------------------------------------------------------------------------
--------------------------------------------------------------------------
PRO FORMA INCOME PER SHARE $0.17
--------------
--------------
Weighted number of shares outstanding 3,537,000
--------------
--------------
</TABLE>
NOTE:
THIS INCOME STATEMENT REFLECTS THE TRANSACTIONS MORE FULLY DISCUSSED IN THE
COMPANY'S REGISTRATION STATEMENT AS IF IT HAD OCCURRED ON MARCH 31, 1997.
THE ACQUISITIONS ARE ACCOUNTED FOR AS PURCHASES.
THESE PRO FORMA FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THE COMPANY'S REGISTRATION
STATEMENT.
THE PRO FORMA FINANCIAL STATEMENTS ARE NOT NECESSARILY INDICATIVE OF WHAT THE
ACTUAL FINANCIAL RESULTS OF OPERATIONS WOULD HAVE BEEN HAD THE TRANSACTIONS
OCCURRED AT MARCH 31, 1997, NOR DOES IT PURPORT TO REPRESENT THE FUTURE
RESULTS OF OPERATIONS OF THE COMPANY AND THE ACQUIRED COMPANIES
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On May 19, 1997, the members of Lexington Health Care Group, LLC exchanged their
LLC interests for shares of common stock of Lexington Healthcare Group, Inc.
(LHG). Also, on that same date LHG completed an Initial Public Offering of its
shares and raised approximately $5.8 million. Simultaneously with this stock
offering, the company acquired all of the capital stock of Balz Medical
Services, Inc. (Balz) and Professional Relief Nurses, Inc. (PRN).
Proforma condensed financial statements consisting of a consolidating balance
sheet and a consolidating statement of operations are included in this Form 10-Q
filing. These statements reflect the transactions more fully discussed in the
Company's Registration Statement as if they had occurred on March 31, 1997.
These proforma financial statements should be read in conjunction with the
financial statements and notes thereto and other information included in the
Company's Registration Statement.
This Management's Discussion and Analysis covers the operations of the Company
but not the subsequently-acquired subsidiaries whose information is shown in the
proforma financial statements. It should be read in conjunction with the
Management's Discussion and Analysis included in the Company's Registration
Statement.
RESULTS OF OPERATIONS -- LEXINGTON HEALTHCARE GROUP, INC.
NINE MONTHS ENDED MARCH 31, 1997 ("1997 PERIOD") VS. NINE MONTHS ENDED MARCH 31,
1996 ("1996 PERIOD")
For the nine months ended March 31, 1997, Lexington Healthcare Group, Inc. (LHG)
had total revenues of $26,297,920 and total expenses of $26,105,857. Theses
expenses consisted of salaries and benefits of $20,026,714, food, medical and
other supplies of $1,687,755, other operating expenses (including rent of
$1,394,600) of $3,530,439, corporate, general and administrative expenses of
$763,022, and interest expense of $97,927. LHG had net income of $192,063 for
the nine months ended March 31, 1997.
For the nine months ended March 31, 1996, LHG had total revenues of $25,260,844
and total expenses of $24,536,398. These expenses consisted of salaries and
benefits of $18,985,439, food, medical and other supplies of $1,603,956, other
operating expenses (including rent of $1,861,500) of $3,632,389, corporate,
general and administrative expenses of $573,188 and interest expense of
$241,426. LHG had net income of $724,446 for the nine months ended March 31,
1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues in the 1997 period increased over the 1996 period by $1,037,076 or
4.1%; $865,000 of this increase was a result of increased patient revenues
due in large measure to increased occupancy. Other revenue increased due to
additional third-party management fees and interest income.
Costs in the 1997 period increased over the 1996 period by $1,569,459 or 6.4%.
The major increases were in facility salaries and benefits, facility operating
expenses and corporate expenses, offset by reduced interest expense.
RESULTS OF OPERATIONS -- LEXINGTON HEALTHCARE GROUP, INC.
THREE MONTHS ENDED MARCH 31, 1997 ("1997 PERIOD") VS. THREE MONTHS ENDED MARCH
31, 1996 ("1996 PERIOD")
For the three months ended March 31, 1997, LHG had total revenues of $8,850,920
and total expenses of $8,890,857. Theses expenses consisted of salaries and
benefits of $7,016,714, food, medical and other supplies of $612,755, other
operating expenses (including rent of $464,867) of $956,439, corporate, general
and administrative expenses of $277,022, and interest expense of $27,927. LHG
had a net loss of $39,937 for the three months ended March 31, 1997.
For the three months ended March 31, 1996, LHG had total revenues of $8,321,844
and total expenses of $8,321,398. These expenses consisted of salaries and
benefits of $6,725,439, food, medical and other supplies of $530,956, other
operating expenses (including rent of $620,500) of $827,389, corporate, general
and administrative expenses of $96,188 and interest expense of $141,426. LHG
had net income of $446 for the three months ended March 31, 1996.
Revenues in the 1997 period increased over the 1996 period by $529,000 or 6%;
approximately $450,000 of this increase was a result of increased patient
revenues due in large measure to increased occupancy. Other revenues increased
due to additional third-party management fees and interest income.
Costs in the 1997 period increased over the 1996 period by $569,459. The major
increases were in facility salaries and benefits, facility operating expenses
and corporate expenses, offset by reduced interest expense.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Prior to the IPO in May, 1997, LHG has primarily financed its operations
through operating revenues and borrowings. Start up and initial period
operations have consumed a large amount of the Company's cash and working
capital; going forward certain earlier needs will not re-occur. As a result
of the acquisitions, internally-generated cash flow will increase from the
addition of BALZ and PRN and the need for external financing should be
lessened.
At June 30, 1996, LHG had cash of $212,000, accounts receivable of $5,658,000
and prepaid and other current assets of $159,000. LHG also had non-current
assets of $3,584,000 which consisted primarily of a security deposit of
$2,282,000, equipment and leasehold improvements of $462,000 and an 8% note in
the principal amount of $394,000 due from Lexington House, Inc. (an entity owned
by Jack Friedler, LHG's Chief Executive Officer).
At March 31, 1997, LHG had cash of $783,000, accounts receivable of $4,338,000
and prepaid and other current assets of $427,000. LHG also had non-current
assets of $3,805,000 which consisted primarily of a security deposit of
$2,282,000, equipment and leasehold improvements of $626,000 and an 8% note in
the principal amount of $514,000 due from Lexington House, Inc. Subsequently,
the note from Lexington House was reduced by $265,000.
At June 30, 1996 and March 31, 1997, LHG had a working capital deficiency of
$2,381,000 and $2,528,000, respectively. As a result of such working capital
deficiency, LHG's accountants had included an explanatory paragraph in their
report on LHG's financial statements for the year ended June 30, 1996. In
May, 1997 over $2 million of the net proceeds of the Offering were allocated
to working capital which eliminated the working capital deficit.
The Company may seek to obtain a line of credit from a bank, which would likely
be secured by its accounts receivable.
SUBSEQUENT EVENT
On June 19, 1997 the Company announced that it has signed a letter of intent
to acquire the assets of two additional skilled nursing facilities in
Connecticut from Beverly Enterprises, Inc. The facilities are located in
Hartford and Winsted and have a total of 315 licensed beds. The Company
estimated that the addition of the two facilities would add approximately $15
million in gross revenues to the company.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended March
31, 1997.
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.
--------------------------------
(Harry Dermer, President)
(Duly Authorized Officer)
Date June 27, 1997
------------------ --------------------------------
(Thomas E. Dybick, Chief Financial Officer)
(Principal Financial Officer)
