<PAGE> 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
<PAGE> 2
LEXINGTON HEALTHCARE GROUP, INC.
SEPTEMBER 30, 1998 FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
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.
</TABLE>
Page 2.
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LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
(Unaudited)
------------ --------
<S> <C> <C>
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
=========== ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3.
<PAGE> 4
LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION> 1998 1997
-------------- ---------------
<S> <C> <C>
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
============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4.
<PAGE> 5
LEXINGTON HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
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 --
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 5.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 640
<SECURITIES> 0
<RECEIVABLES> 11,738
<ALLOWANCES> (372)
<INVENTORY> 673
<CURRENT-ASSETS> 13,527
<PP&E> 4,108
<DEPRECIATION> (481)
<TOTAL-ASSETS> 25,600
<CURRENT-LIABILITIES> 10,326
<BONDS> 7,506
0
0
<COMMON> 41
<OTHER-SE> 6,446
<TOTAL-LIABILITY-AND-EQUITY> 25,600
<SALES> 15,554
<TOTAL-REVENUES> 15,698
<CGS> 0
<TOTAL-COSTS> 15,157
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233
<INCOME-PRETAX> 308
<INCOME-TAX> 43
<INCOME-CONTINUING> 104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
