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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended: August 31, 1997
Commission File No. 0-22155
IN-HOUSE REHAB CORPORATION
- -----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-0987697
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
325 West Main Street, Suite 1400B, Louisville, Kentucky 40202
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(Address of Principal Executive Offices, Including Zip Code)
(502) 568-8923
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
There were 13,344,215 shares of the Registrant's Common Stock outstanding as
of October 21, 1997.
Transitional Small Business Disclosure Format: Yes --- No -X-
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31 and May 31, 1997
August 31, May 31,
ASSETS (Unaudited)
Current assets: ----------- -----------
Cash $ 15,064
Accounts receivable-trade, less allowance
for doubtful accounts of $105,000 and
$75,000 at August and May 31, 1997,
respectively 3,168,568 $ 2,736,132
Accounts receivable-trade - related party 4,888,528 4,548,493
Other current assets 62,533 15,057
Total current assets 8,134,693 7,299,682
Equipment, at cost 325,084 265,556
Less accumulated depreciation (61,638) (48,660)
263,446 216,896
Other assets 600,011 480,751
TOTAL ASSETS $ 8,998,150 $ 7,997,329
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,900,053 $ 3,542,102
Accounts payable 793,326 553,564
Other current liabilities 794,950 673,745
Total current liabilities 5,488,329 4,769,411
Minority Interest 3,924 -
Stockholders' equity:
Preferred stock, $10 par value; 10,000,000
shares authorized; no shares issued - -
Common stock, no par value;
20,000,000 shares authorized;
13,344,215 and 13,405,715 shares
issued and outstanding
at August 31, 1997 and May 31, 1997,
respectively 1,886,584 1,886,584
Subordinated convertible common stock,
no par value; 1,200,000 shares
authorized; no shares issued - -
Common stock subscriptions receivable (58,847) (58,577)
Retained earnings 1,678,160 1,399,911
3,505,897 3,227,918
Total Liabilities and
Stockholders' Equity $ 8,998,150 $ 7,997,329
See accompanying notes to consolidated financial statements.
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IN-HOUSE REHAB CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended August 31, 1997 and 1996
(Unaudited)
1997 1996
------------ -----------
Revenues:
Contract services $ 2,592,426 $ 1,933,521
Contract services - related party 2,125,680 1,501,361
------------ -----------
4,718,106 3,434,882
Operating costs:
Salaries, wages and benefits 2,446,683 1,646,050
Contract therapists 783,697 637,193
Other expense 272,361 76,823
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3,502,741 2,360,066
------------ -----------
Gross profit 1,215,365 1,074,816
Selling, general and administrative expenses 667,978 495,903
Income from operations 547,387 578,913
Interest expense 80,214 15,323
Income before minority interest
and income taxes 467,173 563,590
Minority interest 3,924 -
Provision for income taxes 185,000 244,580
Net income $ 278,249 $ 319,010
Net income per common share $ 0.02 $ 0.02
----------- -----------
Weighted average number of
common shares outstanding 13,711,217 13,619,959
See accompanying notes to consolidated financial statements.
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IN-HOUSE REHAB CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended August 31, 1997 and 1996
(Unaudited)
1997 1996
Cash flows from operating activities: ----------- ------------
Net income $ 278,249 $ 319,010
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 12,978 4,300
Amortization 25,738 46,400
Minority interest 3,924 -
Allowance for doubtful accounts 30,601 -
Change in assets and liabilities,
net of effects from acquisitions:
Accounts receivable (803,072) (1,404,840)
Other current assets (47,746) (16,696)
Other assets 502 (11,537)
Accounts payable 239,762 51,882
Other current liabilities 243,105 361,505
----------- ------------
Net cash used in operating
activities (15,959) (649,976)
----------- ------------
Cash flows from investing activities:
Purchase of equipment (59,528) (20,411)
Investment in Rehab Tools, Inc. (145,500) -
----------- ------------
Net cash used in investing
activities (205,028) (20,411)
----------- ------------
Cash flows from financing activities:
Issuance of common stock - 185,999
Issuance of short-term borrowings 1,465,000 700,000
Repayments of short-term borrowings (1,107,049) (125,000)
Checks issued in excess of cash on deposit (121,900) (90,612)
----------- ------------
Net cash provided by financing
activities 236,051 $ 670,387
----------- ------------
Decrease in cash and equivalents 15,064 -
Beginning cash balance - -
----------- ------------
Ending cash balance $ 15,064 -
----------- ------------
Supplemental disclosures:
Cash paid for interest $ 75,564 $ 15,018
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IN-HOUSE REHAB CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of the
Company as of August 31, 1997 and 1996 and the results of operations and cash
flows for the three month periods then ended.
This financial information should be read in conjunction with financial
statements and the notes thereto included in the Company's Form 10-KSB for the
fiscal year ended May 31, 1997.
Certain reclassifications of amounts in the consolidated financial statements
have been made to reflect comparability.
2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The Company generated approximately $4,718,000 in gross revenue for the three
months ended August 31, 1997 compared with $3,435,000 for the three months
ended August 31, 1996. The increase is due to both the addition of new
service contracts and acquisitions made during the past year.
Operating expenses as a percentage of revenue for the three months ended
August 31, 1997 were 74.2%. This compares with 68.7% for the three months
ended August 31, 1996. The increase is attributed to increases in the number
of personnel and wages and benefits costs.
Selling, general and administrative expenses for the three months ended August
31, 1997 were 14.2% of revenue as compared to 14.4% in the three months ended
August 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 1997, the Company had working capital of approximately
$2,646,000 as compared to working capital of approximately $2,530,000 at
August 31, 1996. The increase was primarily due to an increase in trade
receivables which was the result of an increase in the number of contracts
being serviced. As of August 31, 1997, the Company had 89 contracts to
provide rehabilitation, respiratory and/or psyche/social services compared
with 59 contracts at August 31, 1996.
Net cash used in operating activities was approximately $16,000 for the three
months ended August 31, 1997. This compares with approximately $650,000 for
the same period in the prior year. The decrease was primarily due to a
decrease in the days outstanding in accounts receivable and an increase in the
days outstanding in accounts payable.
Net cash used toward investing activities for the three month period ending
August 31, 1997 was approximately $205,000. This compares with approximately
$20,000 for the same period in the prior year. The increase was primarily due
to a $145,500 investment made in Rehab Tools, Inc. ("RTI"). RTI was formed in
July 1997, when the Company entered into an agreement with an unrelated
company
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to acquire an airplane. RTI is a limited liability company that is 50% owned
by the Company and 50% owned by the unrelated company.
The Company had approximately $236,000 provided by financing activities. This
compares with approximately $670,000 for the same period in the prior year.
The decrease was primarily attributable to a net decrease in the amount of
borrowings/repayments with respect to the Company's line of credit as compared
to the same period in the prior year.
MAJOR CUSTOMER
Approximately $2,592,000 and $1,934,000 or 55% and 56% of all revenue for the
three months ended August 31, 1997 and 1996, respectively, and approximately
$4,889,000 and $4,519,000 or 60% and 61% of the balance of accounts receivable
at August 31 and May 31, 1997, respectively, related to one customer who is a
stockholder and related party of the Company, Retirement Care Associates, Inc.
("RCA"). The Company had Contracts for Therapy Program Services with 28 and
30 facilities either owned, operated or managed by RCA at August 31, 1997 and
1996, respectively.
RCA has announced that it has entered into a Merger Agreement (Merger) with
Sun Healthcare Group, Inc. (Sun) pursuant to which RCA would be merged into a
subsidiary of Sun. Sun currently has a subsidiary which provides
rehabilitation services similar to those services offered by the Company. The
Company is currently working with Sun on a schedule for the transition of the
RCA facilities that are serviced by IHR to Sun. The transition period is
tentatively scheduled to begin approximately thirty (30) days after the
issuance of the proxy relating to the Merger and will conclude approximately
ninety (90) days thereafter. Contingent upon the completion of the Merger,
Sun has agreed to pay IHR each respective facility's accounts receivable
balance in full on the date of each facility's transition to Sun.
RCA has issued its financial statements for the year ended June 30, 1997,
which includes an unqualified opinion from its auditors. In the footnotes to
the aforementioned financial statements, it states that RCA "has experienced a
significant net operating loss and at the same time a decline in liquidity,
resulting from the operating loss and a heightened level of investment in new
facilities." It also states that "closing of the Merger of the Company with
Sun...will provide access to additional sources of liquidity..." and outlines
RCA management's plan if the Sun Merger does not take place. In RCA's June
30, 1997 10-K, it states that RCA and Sun "have filed with the Securities and
Exchange Commission, on a confidential basis, a preliminary proxy statement
with respect to the Merger..." and it is "anticipated to occur in the fourth
quarter of calendar year 1997." For further information, see RCA's Form 10-K
and other SEC filings.
RCA continues to be a major customer of the Company. A delay in regular
payments of accounts receivable from RCA, for any reason, could have a
significantly unfavorable effect on the Company's cash flow from operations.
The Company has been increasing the number of contracts it has with long-term
care facilities operated by entities other than RCA and does not anticipate
that a loss of the RCA service contract revenues will have a significantly
unfavorable effect on the Company's operations.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes 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 Events.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended August 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IN-HOUSE REHAB CORPORATION
Dated: October 28, 1997 By:/s/ David V. Hall
David V. Hall, President
By:/s/ Robert J. Babine
Robert J. Babine, Chief Financial
Officer and Treasurer
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages 2 and 3 of the
Company's Form 10-QSB for the quarter ended August 31, 1997, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 15,064
<SECURITIES> 0
<RECEIVABLES> 8,082,096
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,159,693
<PP&E> 325,084
<DEPRECIATION> (61,638)
<TOTAL-ASSETS> 8,998,150
<CURRENT-LIABILITIES> 5,488,329
<BONDS> 0
0
0
<COMMON> 1,886,584
<OTHER-SE> 1,619,313
<TOTAL-LIABILITY-AND-EQUITY> 8,998,150
<SALES> 4,718,106
<TOTAL-REVENUES> 4,718,106
<CGS> 3,502,741
<TOTAL-COSTS> 3,502,741
<OTHER-EXPENSES> 667,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,214
<INCOME-PRETAX> 467,173
<INCOME-TAX> 185,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,249
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
