SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] 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
0-19726
MEADOWBROOK REHABILITATION GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3022377
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Powell Street, Suite 800, Emeryville,
California 94608 (Address and Zip Code of
principal executive offices)
Registrant's Telephone Number, including Area Code: (510) 420-0900
------------
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 ______
At May 14, 1997, the latest practicable date, there were 1,157,244
outstanding shares of Class A Common Stock, $.01 par value per share, and
773,000 outstanding shares of Class B Common Stock, $.01 par value per share.
<PAGE>
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets ..................... 3
Consolidated Statements of Operations .................. 4
Consolidated Statements of Cash Flows .................. 5
Consolidated Statements of Stockholders' Equity......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Trends and Recent Events .............................. 7
Results of Operations .............................. 11
Liquidity and Capital Resources ..................... 13
Impact of Accounting Statements ..................... 15
Interim Periods ....................................... 15
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ..................................... 16
Item 2. Changes in Securities .............................. 16
Item 3. Defaults Upon Senior Securities ..................... 16
Item 4. Submission of Matters to a Vote of Security Holders ... 16
Item 5. Other Information ..................................... 16
Item 6. Exhibits .............................................. 16
SIGNATURES ......................................................... 17
<PAGE>
<TABLE>
<CAPTION>
Part I: FINANCIAL INFORMATION (Item 1. - Financial Statements)
MEADOWBROOK REHABILITATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
1996 1997
------------- -------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,439,440 $ 3,390,993
Restricted cash 311,000 249,000
Patient accounts receivable, less allowance for doubtful accounts
of $1,445,000 and $1,351,000 respectively 4,738,957 5,122,109
Due from intermediaries 331,918 9,630
Income tax refund receivable 140,362 48,945
Other receivables 1,264,444 970,246
Prepaid expenses and other assets 376,898 179,145
------------- -------------
Total current assets 10,603,019 9,970,068
------------- -------------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings 683,770 --
Furniture and equipment 2,993,965 2,155,797
Leasehold improvements 783,614 648,512
------------- -------------
4,461,349 2,804,309
Less: accumulated depreciation (2,095,193) (1,615,640)
------------- -------------
Net property and equipment 2,366,156 1,188,669
------------- -------------
OTHER ASSETS:
Goodwill and intangible assets 1,870,555 1,820,472
------------- -------------
TOTAL ASSETS $ 14,839,730 $ 12,979,209
============= =============
CURRENT LIABILITIES:
Short-term borrowings and current maturities of notes payable $ 657,724 $ 420,277
Current maturities of capital lease obligations 32,803 29,528
Accounts payable 1,226,053 1,422,073
Accrued payroll and employee benefits 1,101,168 1,052,488
Other accrued liabilities 1,065,820 626,506
------------- -------------
Total current liabilities 4,083,568 3,550,872
------------- -------------
LONG-TERM LIABILITIES:
Capital lease obligations 21,815 2,981
Note payable and other long-term liabilities 636,255 377,975
------------- -------------
Total long-term liabilities 658,070 380,956
------------- -------------
TOTAL LIABILITIES 4,741,638 3,931,828
------------- -------------
MINORITY INTEREST IN EQUITY OF CONSOLIDATED SUBSIDIARIES 11,665 --
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
Class A -- 15,000,000 shares authorized; 1,157,244 shares issued and outstanding
at June 30, 1996 and March 31, 1997 11,572 11,572
Class B -- 5,000,000 shares authorized; 773,000 shares issued and outstanding
at June 30, 1996 and March 31, 1997 7,730 7,730
Paid-in capital 17,908,122 17,908,122
Retained deficit (7,840,997) (8,880,043)
------------- -------------
Total stockholders' equity 10,086,427 9,047,381
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,839,730 $ 12,979,209
============= =============
<FN>
====================================================================================================================================
The notes to consolidated financial statements, as contained in the Company's Annual Report on Form
10-K, are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part I: FINANCIAL INFORMATION (Item 1. - Financial Statements)
MEADOWBROOK REHABILITATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
3-Mths Ended March 31, 9-Mths Ended March 31,
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET OPERATING REVENUES $ 6,321,363 $ 5,508,323 $ 17,995,272 $ 17,013,035
OPERATING EXPENSES:
Salaries and employee benefits 3,866,016 3,824,664 11,774,074 11,926,130
Professional fees and purchased services 706,177 529,770 1,940,085 1,887,597
Provision for doubtful accounts 145,677 129,147 395,532 346,381
Other operating expenses 906,770 882,961 2,411,091 2,658,606
Depreciation and amortization 147,815 139,147 427,308 448,109
Rent:
To unrelated parties 406,822 303,237 1,222,772 1,038,016
To related parties 106,399 97,920 310,134 289,708
Gain on sale of assets -- (488,240) -- (530,942)
------------- ------------- ------------- -------------
Total operating expenses 6,285,676 5,418,606 18,480,996 18,063,605
------------- ------------- ------------- -------------
Income (loss) from operations 35,687 89,717 (485,724) (1,050,570)
------------- ------------- ------------- -------------
OTHER (INCOME) EXPENSE:
Interest income (37,529) (24,021) (150,664) (85,564)
Interest expense 21,928 15,394 71,914 47,380
------------- ------------- ------------- -------------
Net other income (15,601) (8,627) (78,750) (38,184)
------------- ------------- ------------- -------------
Income (loss) before income taxes 51,288 98,344 (406,974) (1,012,386)
INCOME TAX PROVISION -- -- -- --
------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE MINORITY INTEREST $ 51,288 $ 98,344 ($ 406,974) ($ 1,012,386)
MINORITY INTEREST IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES 17,495 9,871 56,052 26,660
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 33,793 $ 88,473 ($ 463,026) ($ 1,039,046)
============= ============= ============= =============
NET INCOME (LOSS) PER SHARE (primary and fully diluted) $ 0.02 $ 0.05 ($ 0.24) ($ 0.54)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,930,244 1,930,244 1,930,384 1,930,244
============= ============= ============= =============
<FN>
====================================================================================================================================
The notes to consolidated financial statements, as contained in the Company's Annual Report on Form
10-K, are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part I: FINANCIAL INFORMATION (Item 1 - Financial Statements)
MEADOWBROOK REHABILITATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
9-Mths Ended March 31,
1996 1997
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($ 463,026) ($1,039,046)
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Depreciation and amortization 427,308 448,109
Loss (gain) on sale of assets 413 (530,942)
Minority interest expense 56,052 26,660
Changes in assets and liabilities:
(Increase) in patient receivables (1,535,816) (383,152)
Decrease in amounts due from intermediaries 215,087 322,288
Decrease in income tax refund receivable 29,638 91,417
(Increase) decrease in other receivables (975,758) 294,198
Decrease in prepaid expenses and other current assets 18,979 197,753
Decrease in accounts payable and accrued liabilities (165,086) (190,458)
----------- -----------
Cash used for operating activities (2,392,209) (763,173)
----------- -----------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Additions to property and equipment (418,510) (149,246)
Payments on prior purchase of outpatient clinics (123,432) (318,224)
Proceeds from sale of assets 15,093 1,459,652
----------- -----------
Cash provided by (used for) investment activities (526,849) 992,182
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term notes borrowings 444,609 273,002
Long-term notes borrowings 34,124 --
Payments of capital lease obligations (97,305) (22,113)
Payments of short-term notes payable (754,571) (546,599)
Reduction in restricted cash 359,000 62,000
Payments to minority shareholders (65,202) (43,746)
----------- -----------
Cash used for financing activities (79,345) (277,456)
----------- -----------
Net decrease in cash (2,998,403) (48,447)
CASH, BEGINNING OF PERIOD 6,307,307 3,439,440
----------- -----------
CASH, END OF PERIOD $ 3,308,904 $ 3,390,993
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash activities:
Property additions financed with notes payable $ 53,024 $ --
Property additions financed with capital leases 76,020 --
Liability resulting from purchase of outpatient clinics 120,480 --
Payments:
Interest paid 33,128 51,626
Income taxes paid 17,700 20,900
<FN>
====================================================================================================================================
The notes to consolidated financial statements, as contained in the Company's Annual Report on Form
10-K, are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part I: FINANCIAL INFORMATION (Item 1. - Financial Statements)
MEADOWBROOK REHABILITATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Total
------------------------------------------
Class A Class B Paid-in Retained Stockholders'
---------------------- -------------------
Shares Amount Shares Amount Capital Deficit Equity
------------ --------- ---------- -------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1995 1,157,662 $11,577 773,000 $7,730 $17,908,117 ($7,250,693) $10,676,731
Cancellation of shares (418) (5) --- --- 5 --- ---
Net loss --- --- --- --- --- (590,304) (590,304)
------------ --------- ---------- -------- --------------- ------------- -------------
BALANCE, JUNE 30, 1996 1,157,244 $11,572 773,000 $7,730 $17,908,122 ($7,840,997) $10,086,427
Net loss --- --- --- --- --- (1,039,046) (1,039,046)
------------ --------- ---------- -------- --------------- ------------- -------------
BALANCE, MARCH 31, 1997 1,157,244 $11,572 773,000 $7,730 $17,908,122 ($8,880,043) $9,047,381
============ ========= ========== ======== =============== ============= =============
<FN>
====================================================================================================================================
The notes to consolidated financial statements, as contained in the Company's Annual Report on Form
10-K, are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
TRENDS AND RECENT EVENTS
o Loss History; Liquidity Risks.
The Company has incurred significant losses in each of the last three
fiscal years, and the first nine months of fiscal 1997. The Company's future
profitability is dependent on a number of factors, including increased volume
and revenues at the Company's operating locations, and a reduction in the
Company's expenses as a percentage of its total operating revenues. There can be
no assurance as to the Company's future profitability.
The Company's recent operating losses have substantially reduced its
available working capital. For the nine months ended March 31, 1997, the
Company's operating activities used cash of $763,000, although, as a result of
the sale of the Company's Georgia operations for cash, working capital decreased
only slightly to $6,419,000 at March 31, 1997 from $6,519,000 at June 30, 1996.
While the Company believes that its working capital will be sufficient to
sustain the Company's needs for the next 12 months, the Company's ability to
continue to fund its operations thereafter is dependent on the Company achieving
profitability and positive cash flows from operating activities. The Company has
a $1,000,000 bank line-of-credit which would require a $500,000 bank deposit if
withdrawn. Otherwise, the Company currently does not have access to additional
capital. There can be no assurance that in the future the Company will not
experience a shortage of available cash necessary to operate its business.
o Consideration of Strategic Alternatives
As a result of continued operating losses, the Board of Directors has
decided to sell certain assets. On March 31, 1997, the Company sold all of its
Georgia operations, consisting of a neurobehavioral program, a subacute program
operated under a management agreement, and a post acute program. In addition,
earlier in the current fiscal year the Company sold its post acute program in
Illinois and its outpatient rehabilitation clinics in Alaska. The Board is
continuing to evaluate the Company's strategic direction and alternatives. The
alternatives under consideration by the Board include, among other things, a
merger or other business combination and/or additional sales of assets. There
can be no assurance that any such alternatives will be available on favorable
terms, if at all.
Among the alternatives under consideration is the sale of the Company's
Florida outpatient rehabilitation clinics. The Company's balance sheet at March
31, 1997 includes net assets of approximately $2,633,000 including $1,469,000 in
goodwill and other intangible assets related to these clinics. Based on
preliminary discussions with potential purchasers, the sale price for the
Florida clinics would likely be significantly less than the carrying value of
the related net assets. Accordingly, in the event of a sale, the Company would
likely record a significant loss.
Harvey Wm. Glasser, M.D., the Company's majority stockholder, has indicated
his view that the Company's business should not necessarily be limited to
medical rehabilitation or the healthcare field generally and that, if presented
with an appropriate opportunity, the Company should consider investing proceeds
from any asset sales in non-healthcare businesses. As a result, the nature of
the Company's business could change significantly. Dr. Glasser holds a majority
of the combined voting power of the Company's two classes of common stock and
accordingly has the ability to effect a change in management or to cause or
prevent a significant corporate transaction regardless of how other stockholders
might vote.
o Sale of Georgia Operations.
On March 31, 1997, the Company sold its Georgia operations, consisting of a
neurobehavioral program, a subacute program operated under a management
agreement, and a post acute program including the related real estate. The sale
price for the Georgia operations was $1,300,000. The Company's agreement with
the purchaser provides that the Company will collect outstanding accounts
receivables and be responsible for the accounts payable at the closing date. The
increase in the Company's cash position as a result of this transaction,
assuming collection of the accounts receivable, will be approximately
$2,100,000. This transaction resulted in a gain of $517,000 which was recorded
as other operating income as of March 31,1997.
o Sale of Alaska Operations.
On January 13, 1997, the Company sold its three outpatient clinics in
Alaska. The increase in the Company's cash position as a result of this
transaction, assuming the collection of the accounts receivable retained by the
Company in connection with the sale of one of the clinics, will be approximately
$230,000. This transaction resulted in a loss of $29,000, which was recorded as
other operating expense during the third quarter of fiscal 1997.
<PAGE>
o Sale of Park Ridge, Illinois Post Acute Facility.
On October 7, 1996, the Company sold the assets of its post acute
rehabilitation facility located in Park Ridge, Illinois. The Company's agreement
with the purchaser provides that the Company will collect outstanding accounts
receivable and be responsible for the accounts payable at the closing date. The
increase in the Company's cash position as a result of this transaction,
assuming collection of the accounts receivable, will be approximately $360,000.
This transaction resulted in a gain of $63,000, which was recorded as other
operating income during the second quarter of fiscal 1997.
o Reverse Stock Split.
On April 22, 1996, the Restated Certificate of Incorporation of the Company
was amended to effect a one-for-three reverse stock split of the Company's Class
A and Class B Common Stock. The purpose of the reverse stock split was to permit
the Company to remain listed on the NASDAQ Stock Market. The Company was out of
compliance at various times prior to the reverse stock split with NASDAQ's
requirement that it maintain a minimum bid price of $1.00 per share, and as a
result NASDAQ had notified the Company that it was reviewing the Company's
eligibility for continued listing. The Company has retroactively reflected the
reverse stock split in the financial statements for all periods presented.
NASDAQ has proposed new requirements for maintaining listing on the NASDAQ
National Market. The proposal would require, among other things, that the market
value of a listed company's public float (defined as the number of shares held
by persons other than officers, directors and ten percent stockholders
multiplied by the bid price for the listed company's shares) be at least $5
million. As of May 12, 1997, the market value of the Company's public float was
approximately $2,262,000. Accordingly, if NASDAQ's proposals are adopted, the
Company could be delisted from the NASDAQ National Market. The Company
understands that in the event of delisting it would be placed in the NASDAQ
SmallCap Market, subject to compliance with the SmallCap Markets maintenance
criteria. The Company would comply with such criteria as of the date hereof.
o Colorado Outpatient Clinics and Home Health Agency Acquisition.
On June 30, 1995, the Company acquired eleven outpatient rehabilitation
clinics in Colorado, three outpatient rehabilitation clinics in Alaska and home
health agencies with operations in Colorado, New Mexico and Kansas. The Company
paid $133,000 and incurred liabilities of $572,000 in connection with the
purchase. The Company also agreed to make additional payments based on the
earnings performance of the outpatient rehabilitation clinics and the home
health agencies based on the results for the twelve month periods ending June
30, 1996, through 1999. The Company was not required to make any cash payment
based on results as of June 30, 1996. If the operations collectively achieve the
target earnings thresholds for the twelve months ending June 30, 1997 through
1999, the Company's maximum liability would be $825,000.
In addition, in connection with the acquisition, the Company agreed to
deposit $500,000 to secure a $900,000 bank loan to the previous owner of the
acquired businesses. The Company is overseeing the repayment of the loan through
the collection of accounts receivable which are being collected on behalf of the
previous owner. At the time of the acquisition, the Company anticipated that the
loan would be repaid based on the accounts receivable balance then outstanding.
The loan balance on March 31, 1997 was $249,000.
In October 1995, the Company was notified by its intermediary that its
Medicare payments for the home health agencies' were being withheld to offset
amounts due by the previous owner for final settlement of the home health
agencies' cost reports for the years 1992 through 1995. While the intermediary
resumed making payments for current charges in January 1996, the intermediary
had withheld $728,000 related to these settlements. During the second quarter of
fiscal 1997, the Company received $425,000 in payment of amounts withheld. The
Company has submitted appeals on behalf of the previous owner requesting payment
of the remaining balance. In the event that such appeals are unsuccessful, the
Company intends to pursue collection from the previous owner and offset the
amounts withheld against any additional amounts due to the previous owner under
the acquisition agreements. Amounts owed to the Company as of March 31, 1997, by
Medicare and the previous owner of the Colorado operations exceed the minimum
amounts owed to the previous owner by $205,000.
On January 1, 1996, the Company acquired the assets of two physical therapy
clinics in Pueblo and Colorado City, Colorado. In connection with the
acquisitions, the Company paid $45,000 and became obligated to pay an additional
$20,000. Additionally, the Company assumed liabilities of $75,000.
On April 1, 1996, the Company acquired the assets of a contract therapy
business with operations in Pueblo and Colorado Springs, Colorado. The business
provides therapy staffing to hospitals, nursing homes and home health agencies.
In connection with the acquisition, the Company paid $10,000 and assumed
liabilities for leasehold improvements of $62,000.
<PAGE>
o Florida Outpatient Clinics Acquisitions
During fiscal 1994, the Company acquired a majority interest in or obtained
management contracts to operate nine outpatient rehabilitation clinics located
in Jacksonville, Jacksonville Beach, Orange Park, St. Augustine, St. Augustine
Beach, Palm Coast and Palatka, Florida and in Moultrie, Georgia. At closing, the
Company paid $608,000, agreed to reimburse certain selling shareholders for
accounts receivable of the acquired clinics collected after the closing, and
agreed to make additional payments based on the earnings performance of certain
clinics in each year during the three year period ending March 31, 1997.
To date, the Company has paid $678,000 based on fixed payment obligations
and the earnings performance of the acquired clinics and $152,000 in interest on
deferred acquisition payments. At March 31, 1997, the Company's remaining
liability resulting from the purchase was $234,000, plus additional payments
based on the earnings performance of certain clinics. Such additional payments
would total $255,000 if the earnings of such clinics for the twelve months
ending March 31, 1997, are equal to the earnings of such clinics for the base
year, the twelve months ended December 31, 1993.
On October 1, 1994, the Company acquired the minority interest in two of
the outpatient clinics referred to above. In connection with such acquisition,
the Company paid $750,000.
On February 1, 1995, the Company acquired an outpatient clinic in Palm
Coast, Florida. At March 31, 1997, the Company had paid $158,000 of the purchase
price and was obligated to pay an additional $102,000 prior to February 2000.
Subsequent to quarter end, the Company made a final discounted settlement
payment paying off the remaining liability.
The Company opened two outpatient rehabilitation clinics in St. Augustine
and Daytona, Florida during the second quarter of fiscal 1996. The Company also
acquired the assets of an outpatient rehabilitation clinic in Ormond Beach,
Florida in June 1996. In December 1996, the Company closed its Daytona, Florida
clinic.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the fiscal periods indicated (a) the
percentage of net operating revenues represented by certain selected items
reflected in the Company's consolidated statements of operations and (b) the
percentage change in the dollar amount of such items from the same periods in
the prior fiscal year.
<TABLE>
<CAPTION>
% Net Revenue % Net Revenue
3-Months Ended 9-Months Ended % $ Change % $ Change
03/31/96 03/31/97 03/31/96 03/31/97 3-Month 9-Month
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Operating Revenues 100.0 100.0 100.0 100.0 (12.9) (5.5)
Non-capital operating expenses:
Salaries and employee benefits 61.2 69.4 65.4 70.1 (1.1) 1.3
Other non-capital expenses 27.8 28.0 26.4 28.8 (12.3) 3.1
Gain on sale of assets -- (8.9) -- (3.1) -- --
---------- ---------- ---------- ---------- ---------- ----------
Total non-capital expenses 89.0 88.6 91.8 95.7 (13.3) (1.4)
Capital expenses:
Depreciation and amortization 2.3 2.5 2.4 2.6 (5.9) 4.9
Rent 8.1 7.3 8.5 7.8 (21.8) (13.4)
Interest 0.4 0.3 0.4 0.3 (29.8) (34.1)
---------- ---------- ---------- ---------- ---------- ----------
Total capital expenses 10.8 10.1 11.3 10.7 (18.6) (10.3)
---------- ---------- ---------- ---------- ---------- ----------
Total expenses 99.8 98.7 103.1 106.4 (13.9) (2.4)
Interest income 0.6 0.4 0.8 0.5 (36.0) (43.2)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 0.8 1.8 (2.2) (5.9) 91.7 148.8
Income tax provision -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before minority interest 0.8 1.8 (2.2) (5.9) 91.7 148.8
Minority Interest 0.3 0.2 0.3 0.2 (43.6) (52.4)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) 0.5 1.6 (2.5) (6.1) 161.8 124.4
========= ========== ========== ========== ========== ==========
</TABLE>
The Company's net operating revenues decreased 13% and 6% to $5,508,000 and
$17,013,000 for the three and nine months ended March 31, 1997, respectively, as
compared to $6,321,000 and $17,995,000 for the same periods in the prior fiscal
year. The decrease was due to decreased utilization at the Company's Kansas
facility, as well as the sale of the Company's Illinois operations in October
1996. Net operating revenues from the Company's Illinois operations were
$1,345,000 for the nine months ended March 31, 1996, as compared to $305,000 for
the nine months ended March 31, 1997. The number of patient days in the
Company's core business decreased 9% to 18,680 for the nine months ended March
31, 1997, from 20,536 for the same period in the prior fiscal year. The decrease
was primarily due to lower census levels at the Company's Kansas facility and
the sale of the Company's Illinois operations in October 1996.
In the Company's core business revenue per patient day decreased 8% and 10%
to $529 and $534 for the three and nine months ended March 31, 1997,
respectively, as compared to $574 and $591 for the same periods in the prior
fiscal year. Revenue per patient day was adversely affected by changes in
service mix and competitive pressures to reduce healthcare costs which resulted
in lower per diem rates.
Revenues from the Company's Georgia operations for the three and nine month
periods ended March 31, 1997, were $1,643,000 and $4,856,000, respectively,
representing 30% and 29% of the Company's total revenues for such periods.
In the following discussion, the Company distinguishes between capital and
non-capital operating expenses. This distinction is made to clarify those costs
that are controllable from those costs that are not controllable, in the short
term. Capital operating expenses such as rent are generally fixed in the short
term. Non-capital operating expenses such as employee costs are generally
variable in the short term and are therefore subject to faster management
intervention as business conditions change.
<PAGE>
Total non-capital expenses decreased 13% and 1% for the three and nine
months ended March 31, 1997, to $4,878,000 and $16,288,000 as compared to
$5,625,000 and $16,521,000 for the same periods in the prior fiscal year. The
decrease relates primarily to the gain of $517,000 recorded on the sale of the
Company's Georgia operations. The gain on sale was included in non-capital
expenses. Salaries and employee benefits continue to be the primary component of
the Company's non-capital operating expenses. Salaries and employee benefits
decreased 1% to $3,825,000 for the three months ended March 31, 1997, as
compared to $3,866,000 for the same period in the prior fiscal year. For the
nine months ended March 31, 1997, salaries and employee benefits increased 1% to
$11,926,000, as compared to $11,774,000 for the same period in the prior fiscal
year.
The Company's other non-capital operating expenses primarily consist of
professional fees, purchased services and other operating expenses. For the
three months ended March 31, 1997, the Company's other non-capital operating
expenses decreased 12% to $1,542,000, as compared to $1,759,000 for the same
period in the prior fiscal year. The decrease is primarily due to lower
purchased services and professional fees as a result of the sale of the
Company's Illinois operations in October, 1996. For the nine months ended March
31, 1997, other non-capital operating expenses increased 3% to $4,893,000, as
compared to $4,747,000 for the same period in the prior fiscal year. This
increase is primarily due to increased mileage reimbursement and purchased
services related to increased utilization of the Company's Colorado home health
agencies, partially offset by lower purchased services and professional fees as
a result of the sale of the Company's Illinois operations in October, 1996. The
provision for doubtful accounts decreased to $129,000 and $346,000 for the three
and nine months ended March 31, 1997, respectively, from $146,000 and $396,000
for the same periods in the prior fiscal year. The provision for doubtful
accounts as a percentage of revenues was 2% for the three and nine month periods
in fiscal 1996 and 1997.
Total capital expenses decreased 19% and 10% during the three and nine
months ended March 31, 1997, to $556,000 and $1,823,000, respectively, as
compared to $683,000 and $2,032,000 for the same periods in the prior fiscal
year. Rent expense decreased 22% and 13% to $401,000 and $1,328,000 for the
three and nine months ended March 31, 1997, respectively, as compared to
$513,000 and $1,533,000 for the same periods in the prior fiscal year. The
decrease in rent expense is primarily due to lower rents paid under leases
requiring payments on the basis of net revenue and patient volume at certain
facilities, as well as the sale of the Company's Illinois operations in October,
1996.
Net interest income for the three and nine months ended March 31, 1997,
decreased to $24,000 and $86,000, respectively, as compared to $38,000 and
$151,000 for the same periods in the prior fiscal year. This decrease is due to
lower cash balances available for investment during the first nine months of
fiscal 1997.
The Company reported net income of $88,000 for the three months ended March
31, 1997, as compared to net income of $34,000 for the same period in the prior
fiscal year. For the nine months ended March 31, 1997, the Company reported a
net loss of $1,039,000 as compared to a net loss of $463,000 for the same period
in the prior fiscal year. Both the three and nine month periods in fiscal 1997
include the $517,000 gain on the sale of the Georgia operations. The Company did
not record a tax benefit for any of the periods reported because carrybacks of
current losses against previous taxable earnings are no longer available.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $6,419,000 compared
to working capital of $6,519,000 at June 30, 1996. The Company had cash and cash
equivalents of $3,391,000 at March 31, 1997, as compared to $3,439,000 at June
30, 1996.
During the nine months ended March 31, 1997, the Company's operating
activities used $763,000 of available cash resources, as compared to cash used
for operating activities of $2,392,000 during the same period in the prior
fiscal year. The cash used for operating activities during the nine months ended
March 31, 1997, primarily reflects amounts necessary to fund the Company's net
operating losses. The cash used for operating activities during the nine months
ended March 31, 1996, primarily reflects funding of working capital for the
Company's Colorado outpatient facilities and amounts necessary to fund the
Company's net operating losses. Cash provided from investment activities during
the nine months ended March 31, 1997, was $992,000, as compared to cash used for
investment activities of $527,000 during the same period in the prior fiscal
year. The cash provided from investment activities for the nine months ended
March 31, 1997, primarily relates to the proceeds from the sales of the
Company's Georgia, Alaska and Chicago operations. See "Trends and Recent
Events."
Net patient accounts receivable, which excludes amounts due from
intermediaries, was $5,122,000 at March 31, 1997, compared to $4,739,000 at June
30, 1996. At March 31, 1997, the Company had an allowance for doubtful accounts
of $1,351,000, as compared to $1,445,000 at June 30, 1996. The number of average
days of revenue outstanding, excluding the revenues and receivables related to
litigation patients, was 76 days at March 31, 1997.
It has been the Company's practice to admit selected patients who are
seeking monetary recovery in pending litigation with third parties. These
patients are directly obligated to pay the Company for services rendered,
although the timing of collection is determined by the settlement of their
litigation and is beyond the control of the Company. For this reason, liens are
generally placed against pending insurance settlements. Prior to admitting such
patients, the Company and its counsel evaluate the merits of the patient's case,
the anticipated cost of services to be provided and the likelihood of the
patient's successful recovery of damages in litigation. Once the patient is
admitted, the Company and its counsel monitor the status of the litigation.
There can be no assurance, however, that the Company will ultimately be
reimbursed for all the services it provides to such patients. At March 31, 1997,
accounts receivable related to these litigation patients totaled $550,000, as
compared to $444,000, at June 30, 1996. These litigation patient receivables
accounted for an additional 10 average days revenue outstanding at March 31,
1997.
The Company's amount due from Medicare intermediaries of $10,000 at March
31, 1997 includes amounts the Company anticipates it will receive on cost report
settlements for its Colorado home health agencies. Such amount also includes
amounts the Company expects to receive upon regulatory approval of the Company's
annual application for an exception from the routine cost limitation ("RCL")
under the Medicare program for fiscal years 1992 through 1996 and the nine
months ended March 31, 1997, for its Gardner, Kansas facility. Medicare
reimbursement is generally based upon reasonable direct and indirect allowable
costs incurred in providing services. At the Company's inpatient facilities
these costs are subject to the RCL. Requests have been submitted for fiscal
years 1992 through 1994 for the Gardner, Kansas facility. The Company intends to
file such a request for its Kansas facility for fiscal years 1995 and 1996. The
requests are based upon atypical costs incurred at the Kansas facility in the
treatment of patients who receive substantially more intensive services than
those generally received in Skilled Nursing Facilities. There can be no
assurance that the Company will collect in full the amounts it has requested or
intends to request, nor can there be an assurance as to the timing of any such
collection. An initial three year "exemption" from the RCL for the Company's
Kansas facility expired June 1990.
The Company has no current material commitments for capital expenditures,
except for those in connection with the Company's acquisitions as described
above. The Company also expects to make routine capital improvements to its
facilities in the normal course of business.
The Company intends to use a portion of its cash balance to finance
internal development of its outpatient rehabilitation business line. The Company
will also expand its existing facilities and programs when such expansion meets
the Company's investment criteria. The Company has a line-of-credit of
$1,000,000 from a bank. The draws on the line-of-credit are secured by a cash
deposit. The Company will need to obtain access to additional capital, through
bank loans or otherwise, in order to fund any significant acquisition
opportunities. The Company believes that its existing cash, credit line and cash
flows from operations, will be sufficient to satisfy the Company's estimated
operating cash requirements for its existing facilities for the next twelve
months.
Inflation in recent years has not had a significant effect on the Company's
business and is not expected to adversely affect the Company in the future
unless the current rate of inflation increases significantly.
<PAGE>
IMPACT OF ACCOUNTING STATEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers Accounting for Post-Retirement
Benefits Other Than Pension", and SFAS No. 112, "Employers Accounting for
Post-Employment Benefits" which, in the opinion of management, will have no
effect on the Company's financial statements. The Company already provides for
income taxes under the liability method in accordance with SFAS No. 109,
"Accounting For Income Taxes."
INTERIM PERIODS
The Company believes that all the necessary adjustments have been included
in the amounts shown in the unaudited consolidated financial statements
contained in Item 1 above, for the three and nine months ended March 31, 1996
and 1997, to state fairly and consistently the results of such interim periods.
This includes all normal recurring adjustments that the Company considers
necessary for a fair statement thereof, in accordance with generally accepted
accounting principles applied in a consistent manner. This report should be read
in conjunction with the Company's Annual Report on Form 10-K.
<PAGE>
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 Information - None.
Item 6. Exhibits
(a) 27.1 Financial Data Schedule
(b) On April 14, 1997, the Company filed a Form 8-K
pursuant to items 2 and 7 of such Form and including
pro forma financial information giving effect to the
sale of the Company's Georgia operations.
<PAGE>
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.
MEADOWBROOK REHABILITATION GROUP, INC.
DATE: May 14, 1997 By /s/ Harvey Wm. Glasser, M.D.
-----------------------------------
Harvey Wm. Glasser, M.D.
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Meadowbrook
Rehabilitation Group, Inc.'s quarterly report to stockholders for the quarter
ended March 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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