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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period 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:
0-21428
OCCUPATIONAL HEALTH + REHABILITATION INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3464527
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
175 DERBY STREET, SUITE 36
HINGHAM, MASSACHUSETTS 02043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(781) 741-5175
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 [ ]
The number of shares outstanding of the registrant's Common Stock as of
November 4, 1998 was 1,479,444.
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OCCUPATIONAL HEALTH + REHABILITATION INC
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PART I --- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets................................. 3
Consolidated Statements of Operations....................... 4
Consolidated Statements of Cash Flows....................... 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........... 15
Item 5. Exhibits and Reports on Form 8-K.............................. 15
Signatures............................................................. 16
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
- ------ -------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................... $ 2,199 $ 4,180
Accounts receivable, net................... 4,662 3,207
Notes receivable............................ 715 210
Prepaid expenses and other assets........... 508 456
------- -------
Total current assets.......................... 8,084 8,053
Property and equipment, net................... 1,950 1,539
Goodwill, net................................. 4,131 3,985
Notes receivable.............................. 233 707
Other assets.................................. 264 289
------- -------
Total assets................................ $14,662 $14,573
======= =======
<CAPTION>
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses....... $ 2,290 $ 2,073
Current portion of long-term debt........... 921 663
Current portion of obligations under capital
leases.................................... 139 120
------- -------
Total current liabilities..................... 3,350 2,856
Long-term debt, less current maturities....... 748 1,264
Obligations under capital leases.............. 107 122
------- -------
Total liabilities............................. 4,205 4,242
Minority interest............................. 645 134
Redeemable stock:
Redeemable, convertible preferred stock,
Series A, $.001 par value - $8,500,002
liquidation value, 1,666,667
shares authorized, 1,416,667
shares issued and outstanding............. 8,452 8,440
Stockholders' equity:
Preferred stock, $.001 par value - 3,333,333
shares authorized; none issued
and outstanding........................... -- --
Common stock, $.001 par value - 10,000,000
shares authorized; 1,579,904
issued and 1,479,402 outstanding in 1998,
and 1,579,479 issued and
1,478,977 outstanding in 1997............. 1 1
Additional paid-in capital.................. 10,619 10,619
Accumulated deficit......................... (8,760) (8,363)
Less treasury stock, at cost,
100,502 shares............................ (500) (500)
------- -------
Total stockholders' equity.................. 1,360 1,757
------- -------
Total liabilities, redeemable stock and
stockholders' equity....................... $14,662 $14,573
======= =======
</TABLE>
See Accompanying Notes
3
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OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
------ ------
<S> <C> <C>
Revenue...................................... $ 5,753 $ 4,913
Expenses:
Operating................................. 4,889 4,508
General and administrative................ 675 611
Depreciation and amortization............. 194 165
---------- ----------
5,758 5,284
---------- ----------
(5) (371)
Nonoperating gains (losses):
Interest income........................... 44 94
Interest expense.......................... (40) (71)
Minority interest in net (gain) loss of
subsidiaries............................ (93) 52
Gain on disposition of investment......... - 217
---------- ----------
Net loss..................................... $ (94) $ (79)
========== ==========
Net loss available to common shareholders.... $ (98) $ (83)
========== ==========
Net loss per common share................... $ (0.07) $ (0.05)
========== ==========
Weighted average common shares............... 1,479,162 1,576,952
========== ==========
</TABLE>
See Accompanying Notes
4
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OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
------ ------
<S> <C> <C>
Revenue..................................... $ 16,716 $ 12,968
Expenses:
Operating................................ 14,179 12,159
General and administrative............... 2,103 1,897
Depreciation and amortization............ 552 500
---------- ----------
16,834 14,556
---------- ----------
(118) (1,588)
Nonoperating gains (losses):
Interest income.......................... 143 266
Interest expense......................... (139) (190)
Minority interest in net (gain) loss of
subsidiaries........................... (271) 194
Gain on disposition of investment........ -- 217
---------- ----------
Net loss.................................... $ (385) $ (1,101)
========== ==========
Net loss available to common shareholders... $ (397) $ (1,114)
========== ==========
Net loss per common share................... $ (0.27) $ (0.71)
========== ==========
Weighted average common shares.............. 1,479,039 1,571,814
========== ==========
</TABLE>
See Accompanying Notes
5
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OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
------ ------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................... $ (385) $(1,101)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 552 500
Amortization of discount................ -- 7
Minority interest in net gain
(loss) of subsidiaries................. 271 (194)
Gain on disposition of investment....... -- (217)
Changes in operating assets
and liabilities:
Accounts receivable................. (1,154) (2,036)
Prepaid expenses and other
current assets..................... (72) (27)
Notes receivable.................... (31)
Due from related party, net......... -- 179
Deposits and other noncurrent
assets............................. 12 (19)
Accounts payable and accrued
expenses and other long-term
liabilities........................ 210 473
------- -------
Net cash used by operating activities....... (597) (2,435)
INVESTING ACTIVITIES:
Release of restricted cash.................. -- 345
Cash paid for intangibles................... (100) (321)
Refund of security deposit.................. -- (25)
Property and equipment additions............ (447) (386)
Cash paid for acquisitions.................. (219) (1,175)
------- -------
Net cash used by investing activities....... (766) (1,562)
FINANCING ACTIVITIES:
Payments of long-term debt and other
long-term obligations...................... (672) (552)
Proceeds from line of credit and
loans payable.............................. 54 344
Cash received by partnership................ -- 17
------- -------
Net cash used by financing activities....... (618) (191)
------- -------
Net decrease in cash and cash equivalents... (1,981) (4,188)
Cash and cash equivalents at beginning
of period.................................. 4,180 8,616
------- -------
Cash and cash equivalents at end of
period..................................... $ 2,199 $ 4,428
======= =======
</TABLE>
See Accompanying Notes
6
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OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Occupational Health
+ Rehabilitation Inc (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and Rule 10.01 of Regulation S-X pertaining to interim
financial information and disclosures required by generally accepted accounting
principles. The interim financial statements presented herein reflect all
adjustments (consisting of normal recurring adjustments) which, in the opinion
of management, are considered necessary for a fair presentation of the Company's
financial condition as of September 30, 1998 and results of operations for the
three and nine months ended September 30, 1998 and 1997. The results of
operations for the nine months ended September 30, 1998 are not necessarily
indicative of the results that may be expected for a full year.
2. NET LOSS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. There was no effect on previously reported net loss per common share
amounts due to the adoption of Statement 128. For the nine months ended
September 30, 1998, for purposes of the net loss per common share calculation,
the net loss has been increased by $12,000 of preferred stock accretion. The
effect of options, warrants, convertible preferred stock and a convertible note
payable is not considered as it would be anti-dilutive for the periods
presented.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company specializes in occupational health care throughout the
Northeastern United States. The Company develops and operates multidisciplinary
outpatient healthcare centers and provides on-site services to employers for the
prevention, treatment and management of work-related injuries and illnesses. The
Company operates the centers under management and submanagement agreements with
professional corporations that practice exclusively through such centers.
Additionally, the Company has entered into joint ventures with hospital-related
organizations to provide management and related services to the centers
established by the joint ventures.
The Company is the surviving corporation of a merger (the "Merger") of
Occupational Health + Rehabilitation Inc ("OH+R") into Telor Ophthalmic
Pharmaceuticals, Inc ("Telor"). Pursuant to the Merger, the ophthalmic
pharmaceutical business of Telor ceased, and the business of the Company was
changed to the business of OH+R.
The following table sets forth, for the periods indicated, the relative
percentages which certain items in the Company's consolidated statements of
operations bear to revenue. The following information should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this report. Historical results and percentage
relationships are not necessarily indicative of the results that may be expected
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------------- -------------------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue.................... 100% 100% 100% 100%
Operating expenses......... (85) (92) (85) (94)
General and administrative
expenses.................. (12) (12) (12) (15)
Depreciation and
amortization expense...... (3) (3) (3) (3)
Interest income............ 1 2 1 2
Interest expense........... (1) (2) (1) (1)
Minority interest in net
(gain) loss of
subsidiaries.............. (2) 1 (2) 2
Gain on disposition of
investment................ -- 4 -- 2
---- ---- ---- ----
Net loss................... (2)% (2)% (2)% (8)%
==== ==== ==== ====
</TABLE>
8
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RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
- ----------------------------------------------
Revenue
Revenue increased 17% to approximately $5,753 in the three months ended
September 30, 1998 from approximately $4,913 in the three months ended September
30, 1997. Of the approximately $840 increase in revenue in the three months
ended September 30, 1998 compared to the three months ended September 30, 1997,
approximately $1,257 related to centers acquired subsequent to September 30,
1997 and the remaining $255 related to additional volume at existing centers.
These amounts were offset by $672 of revenue which related primarily to the
Company's share of a partnership in which the Company sold its interest on
December 31, 1997.
Operating, General and Administrative Expenses
Operating expenses increased 8% to approximately $4,889 in the three months
ended September 30, 1998 from approximately $4,508 in the three months ended
September 30, 1997. This increase was principally due to the acquisition and
development of additional centers. As a percentage of revenue, operating
expenses declined to 85% in the three months ended September 30, 1998 as
compared to 92% in the three months ended September 30, 1997. The centers, in
the aggregate, continued to achieve profitability before general and
administrative expenses during the third quarter of 1998 as individual centers
reached critical mass in terms of volume.
General and administrative expenses increased 10% to approximately $675 in
the three months ended September 30, 1998 from $611 in the three months ended
September 30, 1997. The increase was the result of the Company's expanding its
corporate staff to support the growth in the centers and to support additional
business lines. As a percentage of revenue, general and administrative expenses
approximated 12% in the three months ended both September 30, 1998 and 1997.
Depreciation and Amortization
Depreciation and amortization expense increased 18% to approximately $194 in
the three months ended September 30, 1998 from approximately $165 in the three
months ended September 30, 1997. The increase occurred primarily as a result of
the Company's having additional growth through center development and
acquisitions. As a percentage of revenue, depreciation and amortization was 3%
in both the three months ended September 30, 1998 and 1997.
Interest Income
Interest income is generated primarily from cash invested in highly liquid
funds with a maturity of three months or less. Interest income decreased 53% to
approximately $44 in the three months ended September 30, 1998 from $94 in the
three months ended September 30, 1997. The decrease was related to the
Company's having less cash available to invest in the three months ended
September 30, 1998 compared to the three months ended September 30, 1997 since
the Company has continued to utilize cash during 1998 for acquisitions and other
general corporate needs.
9
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Minority Interest
Minority interest represents the share of (profits) and losses of minority
investors in certain joint ventures with the Company. In the three months ended
September 30, 1998, the minority interest in net profits of subsidiaries was
($93) compared to the minority interest in net losses of subsidiaries equaling
$52 in the three months ended September 30, 1997. For the third quarter of
1998, the financial performance of the joint venture centers continued to
improve compared to the same period in the prior year.
Gain on Disposition of Investment
For the three months ended September 30, 1997, the gain on disposition of
investment related to the restructuring of one of the Company's joint ventures.
In connection with such restructuring, the ownership of the joint venture
changed whereby the Company assumed an additional 24% ownership interest in the
joint venture. Through this transaction, each party in the joint venture
forgave outstanding indebtedness. Additionally, certain assets associated with
one of the joint venture sites were purchased by one of the Company's partners
in consideration for the forgiveness of the Company's note payable to its
partner of approximately $536 and for cash of approximately $56. This
restructuring resulted in the gain on disposition of investment of $217 to the
Company for the three month period ended September 30, 1997. No such similar
event occurred during the three month period ended September 30, 1998.
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)
- ---------------------
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------------
Revenue
Revenue increased 29% to approximately $16,716 in the nine months ended
September 30, 1998 from approximately $12,968 in the nine months ended September
30, 1997. Of the approximately $3,748 increase in revenue in the nine months
ended September 30, 1998 compared to the nine months ended September 30, 1997,
approximately $2,679 was attributable to the incremental increase of revenue of
centers that were acquired or became part of a joint venture during the nine
months ended September 30, 1997, $2,697 related to centers acquired subsequent
to September 30, 1997 and the remaining $336 related to additional volume at
existing centers. These amounts were offset by $1,964 of revenue which related
primarily to the Company's share of a partnership in which the Company sold its
interest on December 31, 1997.
Operating, General and Administrative Expenses
Operating expenses increased 17% to approximately $14,179 in the nine months
ended September 30, 1998 from approximately $12,159 in the nine months ended
September 30, 1997. This increase was principally due to the acquisition and
development of additional centers. As a percentage of revenue, operating
expenses declined to 85% in the nine months ended September 30, 1998 as compared
to 94% in the nine months ended September 30, 1997. The centers, in the
aggregate, improved their profitability during the nine months ended
September 30, 1998 compared to the nine months ended September 30, 1997 as
individual centers began to reach critical mass in terms of volume.
10
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General and administrative expenses increased 11% to approximately $2,103 in
the nine months ended September 30, 1998 from $1,897 in the nine months ended
September 30, 1997. The increase was the result of the Company's expanding its
corporate staff to support the growth in the centers and to support additional
business lines. As a percentage of revenue, general and administrative expenses
decreased to 12% in the nine months ended September 30, 1998 as compared to 15%
in the nine months ended September 30, 1997. The Company believes that as
additional acquisitions are completed, leveraging of existing management will
occur.
Depreciation and Amortization
Depreciation and amortization expense increased 10% to approximately $552 in
the nine months ended September 30, 1998 from approximately $500 in the nine
months ended September 30, 1997. The increase occurred primarily as a result of
the Company's having additional growth through center development and
acquisitions. As a percentage of revenue, depreciation and amortization was 3%
in the nine months ended September 30, 1998 compared to 4% in the nine months
ended September 30, 1997.
Interest Income
Interest income is generated primarily from cash invested in highly liquid
funds with a maturity of three months or less. Interest income decreased 46%
to approximately $143 in the nine months ended September 30, 1998 from $266 in
the nine months ended September 30, 1997. The decrease was related to the
Company's having less cash available to invest in the nine months ended
September 30, 1998 compared to the nine months ended September 30, 1997 since
the Company has continued to utilize cash during 1998 for acquisitions and
other general corporate needs.
Minority Interest
Minority interest represents the share of (profits) and losses of minority
investors in certain joint ventures with the Company. In the nine months ended
September 30, 1998, the minority interest in net profits of subsidiaries was
($271) compared to the minority interest in net losses of subsidiaries equaling
$194 in the nine months ended September 30, 1997. For the first nine months of
1998, the financial performance of the joint venture centers continued to
improve compared to the same period in the prior year.
Gain on Disposition of Investment
For the nine months ended September 30, 1997, the gain on disposition of
investment related to the restructuring of one of the Company's joint ventures.
In connection with such restructuring, the ownership of the joint venture
changed whereby the Company assumed an additional 24% ownership interest in the
joint venture. Through this transaction, each party in the joint venture
forgave outstanding indebtedness. Additionally, certain assets associated with
one of the joint venture sites were purchased by one of the Company's partners
in consideration for the forgiveness of the Company's note payable to its
partner of approximately $536 and for cash of approximately $56. This
restructuring resulted in the gain on disposition of investment of $217 to the
Company for the nine month period ended September 30, 1997. No such similar
event occurred during the nine month period ended September 30, 1998.
11
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Seasonality
The Company is subject to the natural seasonal swing that impacts the various
employers and employees it serves. Although the Company hopes that as it
continues its growth and development efforts it may be able to anticipate the
effect of these swings and provide services aimed to ameliorate this impact,
there can be no assurance that it can completely alleviate the effects of
seasonality. Historically, the Company has noticed these impacts in portions
of the first and fourth quarters. Traditionally, revenues are lower during
these periods since patient visits decrease due to the occurrence of plant
closings, vacations, holidays, a reduction in new employee hirings and the
impact of severe weather conditions in the Northeast. These activities also
cause a decrease in drug and alcohol testings, medical monitoring services and
pre-hire examinations. The Company has also noticed similar impacts during the
summer months, but typically to a lesser degree than during the first and fourth
quarters.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's funding requirements have been met through a
combination of issuances of capital stock, long-term debt and other commitments,
the utilization of capital leases and loans to finance equipment purchases, the
sale of certain accounts receivable and the creation of minority interests. Net
proceeds from the sale of capital stock have totaled approximately $14 million,
including the Company's private placement of its Series A Convertible Preferred
Stock on November 6, 1996. The proceeds from the sale of this preferred stock
provided the Company with cash proceeds of approximately $8.4 million, net of
expenses. At September 30, 1998, the Company had $4,734 in working capital, a
decrease of $463 from December 31, 1997. The Company has utilized its funds in
its expansion effort and for working capital. The Company's principal sources
of liquidity as of September 30, 1998 consisted of (i) cash and cash equivalents
aggregating approximately $2,199 and (ii) current accounts and notes receivable
of approximately $5,377.
During the quarter, the Company restructured a note receivable arrangement
whereby a significant portion of the note receivable was prepaid and the
remaining principal balance of the note was amortized over eight quarters, with
the last payment due on September 30, 2000. The former arrangement required
quarterly payments through December 31, 2000, with the last payment being a
sizable balloon payment. The restructured note is unsecured, but bears a higher
interest rate than the former note. This arrangement was finalized in October
1998, and the balance sheet reflects the appropriate allocation between short-
term and long-term notes receivable.
Net cash used by operating activities by the Company during the nine months
ended September 30, 1998 was approximately $597 as compared to approximately
$2,435 for the nine months ended September 30, 1997. During these periods, the
primary uses of cash were the funding of working capital in centers in early
stages of development or centers that were recently acquired and to fund Company
operating losses. The improvement in net cash used by operating activities is
primarily due to the improved financial performance of the Company's centers.
The Company's investing activities for the nine months ended September 30,
1998 used cash of $766 compared to $1,562 for the nine months ended September
30, 1997. Amounts involved in investing activities included the use of $447 and
$386 for fixed asset additions in the nine months ended September 30, 1998 and
1997, respectively. Fixed asset additions for the nine months ended September
30, 1998 related primarily to computer hardware and software. Additional amounts
invested during the nine months ended September 30, 1998 included the purchase
of a physician and physical therapy practice, a 51% interest in a joint venture
and payments related to additional purchase price in accordance with the terms
12
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negotiated in connection with certain prior acquisitions. The total payments
amounted to $319. For the nine months ended September 30, 1997, the Company
paid $1,496 for the purchase of several physician practices and the investments
in two joint ventures. The Company has an equity interest equal to or in excess
of 51% in all joint ventures. As part of the Company's investment in a joint
venture made during September 1998, the Company acquired $300,000 of accounts
receivable.
Finally, in the nine months ended September 30, 1998 and 1997, the Company
utilized $672 and $552, respectively, towards the payment of long-term debt and
other long-term obligations. The Company expects that its principal use of
funds in the near future will be in connection with acquisitions, the formation
of joint venture entities, the establishment of professional service agreements,
working capital requirements, debt repayments and purchases of property and
equipment. During November 1997, the Company entered into a financing
arrangement with BankBoston, N.A. whereby it has access to two separate credit
facilities. The first credit facility provides the Company with $2.5 million
for working capital and acquisition needs. The second facility provides up to
$4.5 million to be utilized by the Company's existing and future joint ventures.
As of September 30, 1998, the Company's borrowings under the second facility
were approximately $287. The borrowing base of the joint venture credit
facility is eighty-five percent (85%) of the joint ventures' accounts receivable
less than 120 days old. Both facilities expire on September 30, 1999. In
addition, in September 1998, the Company entered into a master lease agreement
whereby it can borrow up to $500,000 related to fixed asset additions
retroactive to January 1, 1998 and through June 30, 1999. The Company expects
that the cash received as the result of the Merger, the sale of 1,416,667 shares
of its Series A Convertible Preferred Stock, the credit facilities, the
availability of its master lease agreements, and cash generated from operations
will be adequate to provide working capital requirements and to fund debt
repayments and to finance any necessary capital expenditures through December
31, 1998. However, the Company believes that the level of financial resources
available to it is an important competitive factor. The Company will consider
raising additional capital on an on-going basis as market factors permit and its
needs suggest since additional capital may be necessary to fund acquisitions by
the Company and the working capital needs of the Company.
IMPACT OF YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is pervasive and complex, as virtually every computer operation will be affected
in the same way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test its systems for Year 2000 compliance. It is
currently anticipated that all reprogramming efforts will be completed by March
31, 1999, allowing adequate time for testing. A preliminary assessment has
indicated that some of the Company's older personal computers and ancillary
software programs may not be Year 2000 compatible. The Company intends to
either replace or modify these computers and programs as part of its 1998 and
1999 fixed asset budget in conjunction with converting acquired centers to OH+R
systems. The cost of this replacement is not currently expected to be material
as the shelf life of the Company's personal computers is 3 to 5 years, and as a
result historically each year approximately 25% of all personal computers are
replaced or upgraded. All personal computers purchased in 1997 and through
September 30, 1998 are Year 2000 compatible.
13
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The Company has also identified the following areas which may be impacted by
the Year 2000 problem: reimbursement from its payors and medical equipment
readings. The Company is obtaining confirmations from its primary payors,
equipment manufacturers and vendors that plans are being developed or are
already in place to address processing of transactions in the Year 2000.
However, there can be no assurance that the systems of other companies on which
the Company's systems rely also will be converted in a timely fashion or that
any such failure to convert by another company would not have an adverse effect
on the Company's systems.
Management is in the process of completing its assessment of the Year 2000
compliance costs. However, based on currently available information (excluding
the possible impact of vendor systems which management currently is not in a
position to evaluate) as noted above, and subject to continued investigation of
this issue, management does not believe that these costs will have a material
effect on the Company's earnings at this time; although budget assessment
efforts are still in process.
INFLATION
The Company does not believe that inflation had a significant impact on its
results of operations during the last three years. Further, inflation is not
expected to adversely affect the Company in the future unless it increases
substantially, and the Company is unable to pass through the increases in its
billings and collections.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q, including in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain forward-looking statements within the meaning of Section
21E of the Securities Exchange Act, which statements are intended to be subject
to the "safe-harbor" provisions of the Private Securities Litigation Reform Act
of 1995. The forward-looking statements are based on management's current
expectations and are subject to many risks and uncertainties, which could cause
actual results to differ materially from such statements. Such statements
include statements regarding the Company's objective to develop a comprehensive
regional network of occupational healthcare centers providing integrated
services through multi-disciplinary teams and the Company's efforts to achieve
Year 2000 compliance. Among the risks and uncertainties that may affect the
Company's actual results are locating and identifying suitable acquisition
candidates, the ability to consummate acquisitions on favorable terms, the
success of such acquisitions, if completed, the cost and delays inherent in
managing growth, the ability to attract and retain qualified professionals and
other employees to expand and complement the Company's services, the
availability of sufficient financing and the attractiveness of the Company's
capital stock to finance acquisitions and working capital needs, strategies
pursued by competitors, the restrictions imposed by government regulation,
changes in the industry resulting from changes in workers' compensation laws,
regulations and in the healthcare environment generally, internal and/or third-
party delays or failures in achieving Year 2000 compliance, and other risks
described in this Quarterly Report on Form 10-Q and this Company's other filings
with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders of the Company was held on July 23,
1998. At the Annual Meeting, the stockholders elected the sole nominee, Kevin
J. Dougherty, to the Board of Directors of the Company for a term that expires
at the 2001 Annual Meeting of Stockholders. There were 1,291,294 votes for and
2,740 votes withheld from Mr. Dougherty. As of the date of the Annual Meeting,
the continuing directors of the Company were John C. Garbarino and Angus M.
Duthie, who are currently serving terms on the Board of Directors which expire
at the 1999 Annual Meeting of Stockholders, and Edward L. Cahill and Donald W.
Hughes, who are currently serving terms which expire at the 2000 Annual Meeting
of Stockholders. Subsequent to the Annual Meeting, the Board of Directors
appointed Frank H. Leone to fill a vacancy in the class of directors whose terms
expire at the 2001 Annual Meeting of Stockholders and Steven Garfinkle to fill a
vacancy in the class of directors whose terms expire at the 1999 Annual Meeting
of Stockholders.
At the Annual Meeting, the stockholders also approved the adoption of the
Company's 1998 Stock Plan. There were 2,097,271 votes for, 10,551 votes against,
16,737 abstentions and 381,850 broker non-votes with respect to such adoption.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
11.01 Statement re Computation of Per Share Earnings.*
27.01 Financial Data Schedule.*
*Filed herewith
a. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1998.
15
<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.
OCCUPATIONAL HEALTH + REHABILITATION INC
By: /s/ John C. Garbarino
-------------------------------------
John C. Garbarino
President and Chief Executive Officer
(principal executive officer)
By: /s/ Richard P. Quinlan
-------------------------------------
Richard P. Quinlan
Chief Financial Officer, Treasurer,
Secretary and General Counsel
(principal financial officer)
Date: November 9, 1998
16
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------ -----------
11.01 Statement re Computation of Per Share Earnings.
27.01 Financial Data Schedule.
<PAGE>
EXHIBIT NO. 11.01
OCCUPATIONAL HEALTH + REHABILITATION INC
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE - BASIC
Weighted average common stock outstanding
during the period.................................... 1,479,162 1,576,952 1,479,039 1,571,814
========== ========== ========== ==========
Net loss............................................... $ (94) $ (79) $ (385) $ (1,101)
Less: Accretion of preferred stock redemption
value.................................................. (4) (4) (12) (13)
---------- ---------- ---------- ----------
Net loss available to common stock........................ $ (98) $ (83) $ (397) $ (1,114)
========== ========== ========== ==========
Net loss per share - basic................................ $ (0.07) $ (0.05) $ (0.27) $ (0.71)
========== ========== ========== ==========
EARNINGS PER COMMON SHARE - DILUTED
Weighted average common stock outstanding
during the period..................................... 1,479,162 1,576,952 1,479,039 1,571,814
Plus: Incremental shares from assumed conversions
Series A preferred stock.............................. 1,416,667 1,416,667 1,416.667 1,416,667
Convertible subordinated debt......................... 25,000 25,000 25,000 19,322
---------- ---------- ---------- ----------
Adjusted weighted average shares.......................... 2,920,829 3,018,619 2,920,706 3,007,803
========== ========== ========== ==========
Net loss................................................ $ (94) $ (79) $ (385) $ (1,101)
Plus: Interest expense on convertible subordinated debt.. 3 3 9 7
---------- ---------- ---------- ----------
Net loss available to common stock....................... $ (91) $ (76) $ (376) $ (1,094)
========== ========== ========== ==========
Net loss per share - diluted............................. $ (0.03) $ (0.03) $ (0.13) $ (0.36)
========== ========== ========== ==========
</TABLE>
NOTE: THE EFFECT OF OPTIONS AND WARRANTS IS NOT CONSIDERED AS IT WOULD BE
ANTIDILUTIVE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 2,199 4,180
<SECURITIES> 0 0
<RECEIVABLES> 5,377 3,417
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,084 8,053
<PP&E> 3,088 2,359
<DEPRECIATION> (1,138) (820)
<TOTAL-ASSETS> 14,662 14,573
<CURRENT-LIABILITIES> 3,350 2,856
<BONDS> 0 0
8,452 8,440
0 0
<COMMON> 1 1
<OTHER-SE> 1,359 1,756
<TOTAL-LIABILITY-AND-EQUITY> 14,662 14,573
<SALES> 16,716 12,968
<TOTAL-REVENUES> 16,716 12,968
<CGS> 0 0
<TOTAL-COSTS> 14,179 12,159
<OTHER-EXPENSES> 2,655 2,397
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 139 190
<INCOME-PRETAX> (385) (1,101)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (385) (1,101)
<EPS-PRIMARY> (0.27) (0.71)
<EPS-DILUTED> (0.13) (0.36)
</TABLE>
