<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 1996 Commission File Number: 1-12238
MHM SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1223048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7601 LEWINSVILLE ROAD, SUITE 200
MCLEAN, VIRGINIA 22102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 749-4600
Registrant's Former Name: MENTAL HEALTH MANAGEMENT, INC.
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
---- ----
As of August 14, 1996, there were 3,310,448 shares of Common Stock, par value
$.01 per share, outstanding.
<PAGE>
MHM SERVICES, INC.
AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1996
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Statements of Operations-
Three and Nine Months Ended June 30, 1996 and 1995
(Unaudited) 4
Condensed Consolidated Balance Sheets-
June 30, 1996 (Unaudited) and September 30, 1995 5
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended June 30, 1996 and 1995
(Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 10-18
PART II. OTHER INFORMATION
ITEM 4. MATTERS SUBMITTED TO A VOTE OF STOCKHOLDERS 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
2
<PAGE>
MHM SERVICES, INC.
AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE>
MHM SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 9,487,000 $ 9,912,000 $ 31,989,000 $ 30,243,000
Costs and expenses:
Operating 6,655,000 6,714,000 22,574,000 21,156,000
General and administrative 2,605,000 2,458,000 8,236,000 7,452,000
Provision for bad debts 1,877,000 1,074,000 4,723,000 2,544,000
Depreciation and amortization 226,000 371,000 940,000 1,193,000
Other (credits) charges:
Equity in earnings of Joint Venture -- -- -- (835,000)
Gain on sale of investment -- -- -- (3,529,000)
Loss on sale of facilities 33,000 -- 4,385,000 --
Interest expense - MEDIQ 262,000 302,000 834,000 876,000
Interest expense - other 73,000 22,000 267,000 317,000
Other income, net 54,000 104,000 108,000 184,000
----------- --------- ----------- ----------
Income (loss) before income taxes
and extraordinary item (2,190,000) (925,000) (9,862,000) 1,253,000
Income tax expense (benefit) -- (350,000) (175,000) 2,193,000
----------- --------- ----------- ----------
Net loss before
extraordinary item (2,190,000) (575,000) (9,687,000) (940,000)
Extraordinary item-loss on early
extinguishment of debt (463,000) -- (463,000) --
----------- --------- ----------- ----------
Net loss $(2,653,000) $ (575,000) $(10,150,000) $ (940,000)
----------- --------- ----------- ----------
----------- --------- ----------- ----------
Loss per share:
Loss per share before extraordinary item $ (0.66) $ (0.17) $ (2.93) $ (0.28)
Extraordinary Item (0.14) -- (0.14) --
----------- --------- ----------- ----------
Net loss per share $ (0.80) $ (0.17) $ (3.07) $ (0.28)
----------- --------- ----------- ----------
----------- --------- ----------- ----------
Weighted average shares outstanding 3,310,000 3,310,000 3,310,000 3,310,000
----------- --------- ----------- ----------
----------- --------- ----------- ----------
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
MHM SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1996 1995
----------- -------------
(Unaudited) (See Note)
Assets
------
Current assets:
Cash and cash equivalents $ 5,544,000 $ 3,084,000
Accounts receivable, net 4,978,000 7,618,000
Prepaid expenses 158,000 397,000
Notes Receivable 182,000 --
Other current assets 859,000 976,000
---------- ----------
Total current assets 11,721,000 12,075,000
Property, plant and equipment, net 581,000 12,581,000
Goodwill, net 1,574,000 4,519,000
Notes receivable 1,394,000 --
Other receivables 660,000 --
Other assets 938,000 1,108,000
---------- ----------
Total assets $16,868,000 $30,283,000
---------- ----------
---------- ----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $1,216,000 $ 1,672,000
Accrued expenses 2,467,000 2,342,000
Accrued payroll 457,000 542,000
Accrued expenses - MEDIQ 350,000 377,000
Current maturities of long-term debt 1,209,000 1,219,000
---------- ----------
Total current liabilities 5,699,000 6,152,000
Long-term debt, less current maturities:
MEDIQ 10,158,000 10,733,000
Other 298,000 2,422,000
Other liabilities 68,000 181,000
Stockholders' equity 645,000 10,795,000
---------- ----------
Total liabilities and stockholders' equity $16,868,000 $30,283,000
---------- ----------
---------- ----------
Note: The balance sheet at September 30, 1995 has been condensed from the
audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
MHM SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended June 30,
---------------------------
1996 1995
-------- --------
Cash flows from operating activities:
- ------------------------------------
Net loss $(10,150,000) $ (940,000)
Adjustments to reconcile net loss to net cash
used in operating activities 7,190,000 75,000
---------- ----------
Net cash used in operating activities (2,960,000) (865,000)
Cash flows from investing activities:
- ------------------------------------
Proceeds from sale of facilities 8,865,000 --
Capital expenditures for property,plant and
equipment (226,000) (422,000)
Proceeds from sale of Joint Venture -- 9,609,000
Distributions from Joint Venture -- 1,000,000
Acquisition of Clinic Operations (150,000) --
Other ( 20,000) (200,000)
---------- ----------
Net cash provided by investing
activities 8,469,000 9,987,000
--------- ----------
Cash flows from financing activities:
- ------------------------------------
Debt repayments (3,049,000) (6,224,000)
---------- ----------
Net cash used in
financing activities (3,049,000) (6,224,000)
---------- ----------
Increase in cash 2,460,000 2,898,000
Cash and cash equivalents:
Beginning balance 3,084,000 735,000
---------- ----------
Ending balance $5,544,000 $ 3,633,000
---------- ----------
---------- ----------
Supplemental disclosure of cash flow information:
Interest paid $1,108,000 $ 1,233,000
---------- ----------
---------- ----------
Income taxes refunded $ ( 92,000) $ (112,000)
---------- ----------
---------- ----------
Supplemental disclosure of non-cash investing and
financing activities:
Equipment financed with debt and capital leases $ 63,000 $ 43,000
---------- ----------
---------- ----------
Acquisition financed with long-term debt $ 338,000 --
---------- ----------
---------- ----------
Notes received from sale of fixed assets $1,400,000 --
---------- ----------
---------- ----------
Liabilities assumed by BHC $1,358,000 --
---------- ----------
---------- ----------
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
MHM SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1996, the condensed
consolidated statements of operations for the three and nine month periods ended
June 30, 1996 and 1995 and the condensed consolidated statements of cash flows
for the nine month periods then ended have been prepared by the Company, without
audit. In the opinion of management, all adjustments (consisting only of
normal, recurring adjustments) necessary to present fairly the condensed
consolidated financial position, results of operations and cash flows as of June
30, 1996, and for all periods presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's September 30, 1995 Annual
Report on Form 10-K. The results of operations for the period ended June 30,
1996 are not necessarily indicative of the operating results for the full year.
NOTE 2 - LIQUIDITY
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course
of business. As a result of the Company's continued negative operating
results, as well as increased delays in collections of accounts receivable
(including reimbursement review of certain Medicare claims in southern
California), the Company has been experiencing difficulty generating
sufficient cash flows from its operations to meet its obligations and sustain
its operations without the use of available cash. The report of the
Company's independent auditors on the Company's financial statements for the
fiscal year ended September 30, 1995 includes an explanatory paragraph which
states that such conditions raise substantial doubt as to the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.
Based upon the adverse impact on the Company's operating results of cost-
reduction pressures on inpatient care and the Company's belief that such
pressures would likely continue to have an adverse impact on future results, the
Company focused its strategy on pursuing opportunities to grow its Extended
Care Services Division. As a result, the Company sold six of its seven
freestanding behavioral healthcare facilities and is pursuing opportunities to
sell the remaining facility. The operations of the freestanding facilities
represented 72% and 87% of net revenues for the first nine months of 1996 and
fiscal year 1995, respectively. The Company is also taking steps to reduce
operating expenses, attempting to raise additional capital, and working to
improve cash flows. See Note 3 and Note 6.
7
<PAGE>
MHM SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SALE OF FREESTANDING FACILITIES
On April 5, 1996, the Company sold Oakview Treatment Center to a non-profit
corporation affiliated with a privately-owned operator of two psychiatric
hospitals for $50,000 in cash and $2,150,000, evidenced by two promissory notes
payable to the Company. For financial statement purposes, the notes were
recorded at an estimated net realizable value of $1,400,000. The notes are
payable in monthly installments of principal and interest (at prime) based on 15
year amortization, with the remaining principal due in five years (or earlier
under certain circumstances). In connection with obtaining consent to the sale
of Oakview Treatment Center as required under the terms of the Company's
revolving credit facility, the Company pledged both of the notes receivable
relating to the sale of Oakview Treatment Center as collateral for the Company's
obligations under the revolving credit facility. In connection with obtaining a
waiver from MEDIQ Incorporated ("MEDIQ") of an event of default provision of a
note payable to MEDIQ (the "MEDIQ Note") relating to the sale of the assets of a
significant subsidiary, the Company pledged one of the notes receivable (with a
principal balance of $1,875,000) as collateral for the Company's obligations
under the MEDIQ Note. In connection with the BHC Sale (discussed below) the
revolving credit facility has been repaid and the pledges under the revolving
credit facility have been terminated, but the pledge under the MEDIQ Note
continues.
On May 31, 1996, the Company sold certain assets, consisting principally
of five of its freestanding behavioral healthcare facilities (the
"Hospitals"), to Behavioral Healthcare Corporation ("BHC"), a Delaware
corporation, with its principal offices located in Nashville, Tennessee,
pursuant to an Asset Purchase Agreement, dated as of January 24, 1996, and
amended as of April 11, 1996, by and between the Company and BHC (the "BHC
Sale"). The Hospitals were sold for approximately $10,222,700, consisting of
$8,864,500 in cash and $1,358,200 in assumed liabilities of the freestanding
facilities. The sale price is subject to certain post-closing adjustments,
pursuant to the terms of the Asset Purchase Agreement, as amended, expected
to be resolved in the fourth quarter. The Asset Purchase Agreement, as
amended, also provides for certain Medicare depreciation recapture amounts to
be allocated between the Company (85%) and the purchaser (15%). Such
recapture amounts relate to potential adjustments for prior years to reflect
the loss on the sale of the Hospitals as a retroactive increase in the
Company's depreciation expense for purposes of cost-based reimbursements.
The Company estimates that its share of the amounts to be collected pursuant
to such Medicare recapture will be approximately $1,320,000 and that it will
receive such payments beginning in two to three years after the closing.
The Company used a portion of the proceeds from the BHC Sale for (i) the
repayment of the principal amount outstanding under the Company's revolving
credit facility ($2,515,000, including related early termination fees of
$174,000); (ii) the extinguishment of a portion of the indebtedness not
assumed by BHC and paid by the Company at the closing of the sale ($692,000,
including early termination fees of $139,000), which consisted primarily of
indebtedness secured by certain of the assets (particularly a facility and
certain equipment) acquired by BHC; and (iii) the funding of the Company's
obligation to complete repairs to two of the freestanding facilities sold to
BHC in the amount of $284,000 (which amount was placed in escrow). The
Company anticipates using the remainder of the proceeds from the BHC Sale for
general working capital, which the Company anticipates will include expansion
of the Extended Care Services Division. See Note 6.
The pretax loss on the sale of facilities consists of the write off of
intangibles related to the Hospitals of $3,184,000, a loss on the sale of
certain property, plant and equipment aggregating $221,000, transaction expenses
of $515,000, severance expenses of $330,000 and other expenses of $769,000 and
additional expenses incurred in connection with the sale of Oakview Treatment
Center of $26,000, offset by estimated Medicare depreciation recapture income.
8
<PAGE>
MHM SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - ACQUISITION OF CLINIC OPERATIONS
In December 1995, the Company's Extended Care Services Division acquired the
behavioral healthcare clinic operations of National Mentor, Inc. located in
Charlestown, Taunton and New Bedford, Massachusetts. The purchase price
included cash of $150,000 and a note in the amount of $338,000 payable
in 36 monthly installments.
NOTE 5 - JOINT VENTURE
Effective August 1, 1994, the Company formed a joint venture ("Joint Venture")
to combine its contract management business with that of Horizon Mental Health
Services, Inc. ("Horizon") of Denton, Texas. The Joint Venture, which was owned
27.5% by the Company and 72.5% by Horizon, managed both companies' hospital
behavioral health care contracts. The operating results of the contract
management business were included in the Company's results of operations through
the commencement of the Joint Venture on August 1, 1994.
On March 20, 1995, Horizon completed its initial public offering, and, in
accordance with the terms of the Joint Venture Agreement, acquired the Company's
interest in the Joint Venture for approximately $9,600,000 (net of related
expenses). The sale resulted in a gain of approximately $500,000 (net of income
taxes of $3,000,000). In connection with the sale, the Company assigned to
Horizon all of its rights and interests in its management contracts.
NOTE 6 - LONG-TERM DEBT
In March 1995, the Company utilized a portion of the proceeds from the sale of
its investment in the Joint Venture to repay the $5,102,000 outstanding
principal balance of a revolving credit facility, which was scheduled to mature
on March 31, 1995. This facility was not renewed.
On August 14, 1995, the Company entered into a $5,000,000 revolving credit
facility with a commercial lender. The Company used a portion of the proceeds
from the BHC Sale for the repayment of the principal amount outstanding under
this revolving credit facility ($2,515,000, including related early termination
fees of $174,000). In connection with this repayment, the facility was
terminated.
As of June 30, 1996, the Company had $10,925,000 outstanding under its
note payable to MEDIQ Incorporated ("MEDIQ") (original principal amount of
$11,500,000) that was executed in connection with the distribution of the
Company's stock to MEDIQ's stockholders (the "MEDIQ Note").
The MEDIQ Note bears interest at prime plus 1.5% per annum, with monthly
payments of interest only through September 1995, and then monthly principal
and interest payments for the following three years, based on a fifteen year
amortization period, with the remaining balance due in August 1998. The
MEDIQ Note may be prepaid in whole or in part without penalty. The MEDIQ
Note is collateralized by a note receivable (in the amount of $1,875,000)
obtained by the Company as partial consideration for the sale of the Oakview
Treatment Center, one of the Company's former freestanding facilities. The
Company pledged the note receivable to MEDIQ in connection with obtaining a
waiver from MEDIQ of an event of default provision of the MEDIQ Note relating
to the sale of the assets of a significant subsidiary in connection with such
sale.
The Company does not anticipate that cash flows from operations will be
sufficient to repay the MEDIQ Note upon maturity in 1998. In addition, as
reflected in the financial statements of the Company for the fiscal year ended
September 30, 1995, and the report of the Company's independent auditors
thereon, the Company has been experiencing difficulty generating sufficient cash
flows to meet its obligations and sustain its operations and, as a result, may
not be able to meet the monthly principal and interest obligations under the
MEDIQ Note. A portion of the net proceeds from the BHC Sale is available to the
Company to fund the monthly obligations and a portion of the principal
obligations upon maturity, if necessary, of the MEDIQ Note. MEDIQ has pledged
the MEDIQ Note as collateral for certain of its indebtedness to a third party
unaffiliated with MEDIQ or the Company. In the event of default by MEDIQ on
such indebtedness, such third party would obtain all of MEDIQ's rights under the
MEDIQ Note, including the right to the payment of principal and interest as and
when due in accordance with the terms of the MEDIQ Note.
The MEDIQ Note also provides for certain events of default, including:
"The . . . sale of all or substantially all of the assets of [the Company]
. . ." In an attempt to preclude the possibility of a dispute as to whether the
BHC Sale constituted the sale of all or substantially all of the assets of the
Company for purposes of the MEDIQ Note, the Company, prior to the sale, sent
MEDIQ a letter requesting a waiver of this provision in connection therewith.
MEDIQ sent the Company a letter in which MEDIQ declined to grant such a waiver.
Since the completion of the BHC Sale, the Company has not received any notice of
default under the MEDIQ Note on this basis. Nevertheless, in the event MEDIQ
attempts to accelerate the MEDIQ Note, the Company intends to aggressively
defend its position in any legal proceeding. There can be no assurances that
the Company would be able to obtain a favorable decision in such a legal
proceeding. In the event the Company were to receive an adverse decision on
this matter, the outstanding principal balance on the MEDIQ Note would become
immediately due and payable in full. In that event, the Company may be required
to apply the remainder of the net proceeds from the BHC Sale toward the
repayment of the outstanding principal of the MEDIQ Note, obtain alternative
sources of cash with which to satisfy such obligation, or obtain from MEDIQ a
modification to the MEDIQ Note. The remaining balance of the net proceeds from
the BHC Sale is insufficient to repay the entire outstanding principal balance
of the MEDIQ Note. There can be no assurance that the Company will have
sufficient cash to repay the outstanding principal balance of the MEDIQ Note or
that other sources of cash will be available to the Company in the event the
Company was to receive an adverse decision on such matter. In such event, the
Company may be unable to fulfill its debt obligations and also sustain
operations at a level at which the Company could continue as a going concern.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion addresses the financial condition of the Company
as of June 30, 1996 and the Company's results of operations for the three and
nine month periods then ended, compared with the same period last year. This
discussion should be read in conjunction with the Management's Discussion and
Analysis section (pages 17-27) for the fiscal year ended September 30, 1995
included in the Company's Annual Report on Form 10-K.
GENERAL
In response to continuing changes in the behavioral healthcare industry,
the Company made significant changes in its operations in 1994, 1995 and
1996, including the divestiture of the Company's contract management business
and substantially all of its freestanding behavioral healthcare facilities,
so that the Company could focus on its remaining business -- its Extended
Care Services Division (which commenced operations in the fall of 1993). The
Extended Care Services Division has experienced growth through internal
development (principally from a contract with the State of Georgia) and
acquisitions in July and December 1995.
However, continued pressures from managed care providers and other third
party payors to decrease the utilization and cost of behavioral healthcare
services have adversely affected the operations of the Company's freestanding
facilities, resulting in decreased revenues and significant operating losses.
See "Recent Developments."
As a result of the Company's continued negative operating results, as well
as reduced collections of accounts receivable, the Company has been
experiencing difficulty generating sufficient cash flows from operations to
meet its obligations and sustain its operations without the use of available
cash resources. The report of the Company's independent auditors on the
Company's financial statements for the fiscal year ended September 30, 1995
includes an explanatory paragraph which states that such conditions raise
substantial doubt as to the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
RECENT DEVELOPMENTS
Based upon the adverse impact on the Company's operating results of
cost-reduction pressures on in-patient care and the Company's belief that such
pressures would likely continue to have an adverse impact on future results, the
Company decided to pursue a strategy focused on growing its Extended Care
Services Division. As a result, the Company has pursued opportunities to sell
its freestanding behavioral health facilities. In 1995 and the first nine
months of fiscal 1996, the operations of the freestanding facilities represented
87% and 72% of net revenues, respectively.
10
<PAGE>
On April 5, 1996, the Company sold Oakview Treatment Center (the
"Oakview Sale") to a non-profit corporation affiliated with a privately-owned
operator of two psychiatric hospitals for $50,000 in cash and $2,150,000,
evidenced by two promissory notes payable to the Company. For financial
statement purposes, the notes were recorded at an estimated net realizable
value of $1,400,000. The notes are payable in monthly installments of
principal and interest (at prime) based on a 15 year amortization, with the
remaining principal due in five years (or earlier under certain
circumstances). In connection with obtaining consent to the Oakview Sale as
required under the terms of the Company's revolving credit facility, the
Company pledged both of the notes receivable relating to the Oakview Sale as
collateral for the Company's obligations under the revolving credit facility.
In connection with obtaining a waiver from MEDIQ of an event of default
provision of the MEDIQ Note relating to the sale of the assets of a
significant subsidiary, the Company pledged one of the notes receivable (with
a principal balance of $1,875,000) as collateral for the Company's
obligations under the MEDIQ Note. In connection with the BHC Sale (discussed
below) the revolving credit facility has been repaid and the pledges under
the revolving credit facility have been terminated, but the pledge under the
MEDIQ Note continues. See "Liquidity and Capital Resources."
On May 31, 1996, the Company sold certain assets, consisting principally
of five of its freestanding behavioral healthcare facilities (Aspen Hill
Hospital, Pacific Shores Hospital, Pinon Hills Hospital, Pinon Hills
Residential Treatment Center and Windsor Hospital) (the "Hospitals"), to
Behavioral Healthcare Corporation ("BHC"), a Delaware corporation, with its
principal offices located in Nashville, Tennessee, pursuant to an Asset
Purchase Agreement, dated as of January 24, 1996, and amended as of April 11,
1996, by and between the Company and BHC (the "BHC Sale"). The Hospitals
were sold for approximately $10,222,700, consisting of $8,864,500 in cash and
$1,358,200 in assumed liabilities of the freestanding facilities. The sale
price is subject to certain post-closing adjustments, pursuant to the terms
of the Asset Purchase Agreement, as amended, expected to be resolved in the
fourth quarter. The Asset Purchase Agreement, as amended, also provides for
certain Medicare depreciation recapture amounts to be allocated between the
Company (85%) and the purchaser (15%). Such recapture amounts relate to
potential adjustments for prior years to reflect the loss on the sale of the
Hospitals as a retroactive increase in the Company's depreciation expense for
purposes of cost-based reimbursements. The Company estimates that its share
of the amounts to be collected pursuant to such Medicare recapture will be
approximately $1,320,000 and that it will receive such payments beginning in
two to three years after the closing.
The Company used a portion of the proceeds from the BHC Sale for (i) the
repayment of the principal amount outstanding under the Company's revolving
credit facility ($2,515,000, including related early termination fees of
$174,000); (ii) the extinguishment of a portion of the indebtedness not
assumed by BHC and paid by the Company at the closing of the sale ($692,000,
including early termination fees of $139,000), which consisted primarily of
indebtedness secured by certain of the assets (particularly a facility and
certain equipment) acquired by BHC; and (iii) the funding of the Company's
obligation to complete repairs to two of the freestanding facilities sold to
BHC in the amount of $284,000 (which amount was placed in escrow). The
Company anticipates using the remainder of the proceeds from the BHC Sale for
general working capital, which the Company anticipates will include expansion
of the Extended Care Services Division. See "Liquidity and Capital
Resources."
The Company has not entered into any definitive agreement to sell its
remaining freestanding facility. Accordingly, there can be no assurance that
the Company will be successful in selling such facility.
11
<PAGE>
The Company's freestanding facilities represent the majority of the
Company's historical business and have contributed significantly to the
Company's cash flows. In addition, the freestanding facilities helped to
absorb certain corporate-related expenses that, following the sale of the
Company's freestanding facilities, will have to be borne fully by the
Extended Care Services Division. Since its founding in October 1993, the
Extended Care Services Division has generated 13% and 3% of net revenues for
the years ended September 30, 1995 and 1994, respectively, and 28% of net
revenues for the first nine months of fiscal 1996. Going forward, the
Extended Care Services Division will account for a substantial portion of the
Company's revenues. The expansion of the Extended Care Services Division has
also resulted in increased costs, and thus, with the allocation of corporate
overhead related to the operations of the Extended Care Services Division,
the Extended Care Services Division has not yet achieved profitable results.
No assurances can be given that the Company will be successful in generating
profits from the Extended Care Services Division, or that the strategy of
focusing on growing the Extended Care Services Division through internal
expansion and acquisition will not result in further increased costs. The
Company completed two acquisitions in 1995 (described below), routinely
reviews potential acquisition candidates, and is negotiating letters of
intent with respect to several additional acquisitions and pursuing other
acquisition and management opportunities. The Company plans to continue its
expansion into the practice management business, which is the thrust of the
Company's long-term growth strategy, by acquiring additional practices and/or
securing long-term management agreements with additional practices. To date,
however, the Company has not entered into definitive agreements with respect
to other acquisitions, and there can be no assurances that any acquisitions
will be completed or management opportunities will be secured. In addition,
since the Company's liquidity and capital resources may be limited by certain
future events, there can be no assurance that the Company will have
sufficient resources to pursue and/or complete any other acquisitions. For
example, in the event the Company needs to use the remainder of the proceeds
of the BHC Sale to fund its continued operating losses or to repay the
amounts outstanding under the MEDIQ Note as described below, the Company's
plans to expand the Extended Care Services Division would be extremely
restricted, and the Company's results of operations and financial condition
may be adversely affected.
ACQUISITION OF SUPPORTIVE COUNSELING CARE
In July 1995, the Company's Extended Care Services Division acquired
certain assets of Supportive Counseling Care ("SCC") of Manhattan Beach,
California, a provider of behavioral healthcare services to extended care
facilities, and entered into a 40-year management contract to provide
administrative services to SCC. The operating results related to these
assets are included in the Company's consolidated results of operations from
the date of acquisition. The operations of SCC are primarily responsible for
an increase in the Company's provision for bad debts from the prior year
quarter and period (as described in "Third Quarter 1996 Compared to Third
Quarter 1995" and "Nine Months Ended June 30, 1996 Compared to Nine Months
Ended June 30, 1995").
ACQUISITION OF CLINIC OPERATIONS
In December 1995, the Company's Extended Care Services Division acquired
the behavioral healthcare clinic operations of National Mentor, Inc. located in
Charlestown, Taunton, and New Bedford, Massachusetts. The operating results of
the acquired business are included in the Company's consolidated results of
operations from the date of acquisition.
12
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship that items in the Company's Statements of Operations bear to net
revenues.
Three Months Ended June 30, Nine Months Ended June 30,
-------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net revenues 100% 100% 100% 100%
----- ------ ----- -----
----- ------ ----- -----
Costs and expenses:
Operating 70 68 70 70
General and administrative 27 25 26 25
Provision for bad debts 20 11 15 9
Depreciation and amortization 2 4 3 4
Other (credits) charges:
Equity in earnings of Joint
Venture -- -- -- (3)
Gain on Sale of Investment -- -- -- (12)
Loss on sale of facilities -- -- 14 --
Interest expense 4 3 3 4
Other (income) expense, net -- (1) -- (1)
----- ------ ----- -----
Income (loss) before income
taxes and extraordinary item (23) (10) (31) 4
Income tax expense (benefit) -- (4) -- 7
----- ------ ----- -----
Loss before extraordinary
item (23) (6) (31) (3)
Extraordinary item -
loss on early extinguishment
of debt (5) (1)
----- ------ ---- -----
Net loss (28%) (6%) (32%) (3%)
----- ------ ----- -----
----- ------ ----- -----
THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995
Net revenues for the third quarter of 1996 were $9,487,000 as compared to
$9,912,000 for the prior year quarter, a decrease of $425,000 or 4%,
reflecting an increase in revenues from the Extended Care Services Division,
more than offset by decreased revenues from the freestanding facilities. Net
revenues from freestanding facilities were $6,284,000 (including $1,484,000
from Mountain Crest Hospital, the Company's remaining freestanding facility)
in the third quarter of 1996, a decrease of $2,354,000, or 27%, as compared
to the prior year quarter. The decrease in revenues resulted primarily from
the sale of five of the freestanding facilities on May 31, 1996 and the sale
of Oakview Treatment Center on April 5, 1996. Going forward, the Extended
Care Services Division will account for a substantial portion of the
Company's revenues. Revenues from the Extended Care Services Division were
$3,203,000 for the third quarter of 1996, as compared to $1,274,000 in the
prior year quarter. This increase is the result of revenues of $1,229,000
attributable to an acquisition in July 1995 and $524,000 attributable to an
acquisition in December 1995, as well as increased revenues under a contract
with the state of Georgia to provide mental health services to Medicaid
patients in nursing homes.
13
<PAGE>
Operating expenses for the third quarter of 1996 were $6,655,000 as
compared to $6,714,000 in the prior year quarter. This decrease was
attributable to the sale of six of the Company's seven freestanding behavioral
healthcare facilities, offset by increases in costs associated with the
expansion of the Extended Care Services Division. The level of operating
cost of the Extended Care Servics Division, together with the increased
provision for bad debts, has had an adverse impact on operating costs.
Such factors are expected to continue to affect operating results pending
expansion of the Extended Care Services Division and the impact of cost
reductions at the Extended Care Services Division with respect to corporate
overhead.
General and administrative expenses were $2,605,000, or 27% of net
revenues, as compared to $2,458,000, or 25% of net revenues, in the prior year
quarter. This increase was attributable to increased costs associated with
growth of the Extended Care Services Division offset by decreased costs related
to the sale of six of the Company's seven freestanding facilities.
The provision for bad debts increased to $1,877,000 as compared to
$1,074,000 in the prior year quarter. As a percentage of net revenues, bad
debt expense was 20%, as compared to 11% in the prior year quarter. The
increase in the provision for bad debts resulted primarily from the
operations of SCC (acquired in July 1995) which are subject to Medicare
reimbursement limits, with the remaining charges billed to the patients or
other third party payors. In March 1996, the Company became aware that SCC's
claims, as well as claims submitted by other industry providers in the
region, for reimbursement under the Medicare program were being subjected to
a pre-payment review process by the Medicare fiscal intermediary in Southern
California commencing in April 1996. Under applicable Madicare rules,
therefore, SCC is now required to include specified supporting documentation
with its claims for reimbursement. Since the commencement of this prepayment
review, SCC has received an increased number of denials and requests for
additional information. In addition, SCC has received notice of a proposed
suspension of Medicare payments based upon a review of certain claims by such
fiscal intermediary. This suspension is not expected to become effective
pending the review of additional information being provided by SCC to the
fiscal intermediary. SCC plans to appeal the denied claims, as well as pursue
the claims under review by the fiscal intermediary, and is actively engaged in
data collection and analysis in order to support the claims submitted to
Medicare. SCC will not receive reimbursement for claims that are not reversed
on appeal. In addition, it is possible that the fiscal intermediary's review
of SCC's claims may result in further investigation and possible sanctions
against SCC, which may include repayment of any alleged overpayments,
suspension or exclusion from the Medicare program, fines or other penalites.
Based upon the number of denials, the Company's assessment of available
documentation and knowledge of, and experience with, the appeal process, the
Company has increased its provision for bad debts by approximately $500,000,
which represents approximately half of the Company's net accounts receivable
balance from SCC's operations as of June 30, 1996. In addition, the number of
denials has had an adverse impact on the Company's cash flow from operations.
There can be no assurance that the appeal process will result in a significant
percentage of reversals, that additional denials will not be received by SCC
or the Company's other operations, that actual bad debt experience will not
exceed the Company's estimates or that the review of SCC's claims will not
result in further action.
Depreciation and amortization expense was $226,000 as compared to $371,000
in the prior year quarter. The decrease in depreciation and amortization
expense was attributable to the sale of the six freestanding facilities.
Interest expense was $335,000, as compared to $324,000 in the prior year
quarter.
Pretax loss for the third quarter of 1996 was $2,190,000 as compared to
pretax loss of $925,000 in the prior year quarter. Operating results from
the Company's freestanding facilities were adversely affected in the current
period by lower average reimbursement rates, decreases in inpatient average
lengths of stay and other market forces. Management expects operating results
of its remaining freestanding facility to continue to be adversely affected
by these market forces. In addition, the increase in costs associated with
expansion of the Extended Care Services Division, as well as the increased
provision for bad debts, has had an adverse impact on operating results.
14
<PAGE>
In this quarter, the Company recorded an extraordinary item in the amount
of $463,000, consisting primarily of costs related to the early retirement of
the Company's revolving credit facility and the subsequent write-off of
associated loan acquisition costs.
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Net revenues were $31,989,000 as compared to $30,243,000 for the prior
year period, an increase of $1,746,000 or 6%. Net revenues from freestanding
facilities decreased $4,157,000 or 15% to $22,954,000 (including $4,361,000
from Mountain Crest Hospital). The decrease in revenues from freestanding
facilities resulted primarily from the sale of six of the Company's seven
freestanding facilities. Revenues from the Extended Care Services Division
were $9,035,000 for the first nine months of 1996, as compared to $3,131,000
in the prior year period. This increase is the result of revenues of
$3,991,000 attributable to an acquisition in July 1995 and $995,000
attributable to an acquisition in December 1995, as well as increased
revenues under a contract with the state of Georgia to provide mental health
services to Medicaid patients in nursing homes.
Operating expenses were $22,574,000, as compared to $21,156,000 in the
prior year period. This increase was primarily attributable to increased costs
associated with growth of the Extended Care Services Division offset by
decreased costs resulting from the sale of six of the freestanding facilities.
As a percentage of net revenues, operating expenses were comparable to the prior
year period.
General and administrative expenses were $8,236,000, as compared to
$7,452,000 in the prior year period. This increase was attributable to
increased costs associated with growth of the Extended Care Services Division,
partially offset by decreased costs resulting to the sale of six of the
freestanding facilities.
The provision for bad debts was $4,723,000 in 1996. As a percentage of net
revenues, bad debt expense was 15%, as compared to 9% in the prior year
period. The increase in the provision for bad debts resulted primarily from
the operations of SCC (acquired in July 1995) which are subject to Medicare
reimbursement limits, with the remaining charges billed to the patients or
other third party payors (as described in "Third Quarter 1996 Compared to
Third Quarter 1995").
Depreciation and amortization expense was $940,000, as compared to
$1,193,000 in the prior year period. The decrease in depreciation and
amortization expense was attributable to the sale of six of the Company's seven
freestanding facilities.
The pretax loss on the sale of facilities consists of the write off of
intangibles related to the Hospitals of $3,184,000, a loss on the sale of
certain property, plant and equipment aggregating $221,000, transaction expenses
of $515,000, severance expenses of $330,000 and other expenses of $769,000 and
additional expenses incurred in connection with the sale of Oakview Treatment
Center of $26,000, offset by estimated Medicare depreciation recapture income.
Interest expense was $1,101,000, a decrease of $92,000 from the prior year
period, primarily attributable to decreases in outstanding borrowings.
Pretax loss for the nine month period ended June 30, 1996 increased to
$9,862,000, as compared to pre-tax income of $1,253,000 in 1995. The prior
period included significant non-recurring income
15
<PAGE>
related to the Joint Venture, including equity in the earnings of $835,000
and a pretax gain on the sale of $3,529,000. Operating results from the
Company's freestanding facilities were adversely affected in the current
period by lower average reimbursement rates and decreases in inpatient
average lengths of stay and other market forces. Management expects operating
results of the remaining freestanding facility to continue to be adversely
affected by these market forces. In addition, the increase in costs
associated with the expansion of Extended Care Services Division has had an
adverse impact on operating results.
In this nine month period, the Company recorded an extraordinary item in
the amount of $463,000, consisting primarily of costs related to the early
retirement of the Company's revolving credit facility and the subsequent
write-off of associated loan acquisition costs.
INCOME TAXES
The Company's effective tax rates for the three and nine month periods
ended June 30, 1995 were disproportionate to the statutory tax rate primarily as
a result of permanent differences related to the disposition of the Company's
interest in the Joint Venture. The tax benefit for 1996 was adversely impacted
by the Company's inability to utilize current net operating losses to reduce
tax liability for prior years.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Company had cash and cash equivalents of $5,544,000,
consisting primarily of the remaining proceeds from the sale of the
freestanding facilities. Such funds are currently invested in short-term
interest bearing securities.
Cash used in operating activities was $2,960,000 for the first nine
months of 1996, as compared to $865,000 for the prior year period.
Cash provided by investing activities in the first nine months of 1996
included $8,869,500 in proceeds from the BHC Sale. Cash used in investing
activities for the first nine months of 1996 included $226,000 for capital
expenditures and $150,000 for the acquisition of clinic operations in
Massachusetts. The Company anticipates capital expenditures of approximately
$50,000 during the remainder of 1996. The Company anticipates using a
portion of the proceeds from the sale of its freestanding facilities to
continue its expansion of the Extended Care Services Division. However,
based upon the Company's liquidity and capital resources, there can be no
assurance the Company will have sufficient resources to expand this division.
See "Recent Developments." Non-cash investing activities also included
notes received in connection with the sale of Oakview Treatment Center
recorded at net estimated realizable value of $1,400,000 and liabilities
assumed by BHC of $1,358,000.
Net cash used in financing activities for the first nine months of 1996
consisted of debt repayments of $3,049,000. The Company used a portion of
the proceeds from the BHC Sale for the repayment of the principal amount
outstanding under the Company's revolving credit facility ($2,515,000,
including related early termination fees of $174,000). In connection with
this repayment, the facility was terminated. Non-cash financing activities
included a $338,000 note payable incurred in connection with the acquisition
of clinic operations in Massachusetts, payable in 36 monthly installments.
As of June 30, 1996, the Company had $10,925,000 outstanding under its
note payable to MEDIQ Incorporated ("MEDIQ") (original principal amount of
$11,500,000) that was executed in connection with the distribution of the
Company's stock to MEDIQ's stockholders (the "MEDIQ Note").
16
<PAGE>
The MEDIQ Note bears interest at prime plus 1.5% per annum, with monthly
payments of interest only through September 1995, and then monthly principal and
interest payments for the following three years, based on a fifteen year
amortization period, with the remaining balance due in August 1998. The MEDIQ
Note may be prepaid in whole or in part without penalty. The MEDIQ Note is
collateralized by a note receivable (in the amount of $1,875,000) obtained by
the Company as partial consideration for the sale of the Oakview Treatment
Center, one of the Company's former freestanding facilities. The Company
pledged the note receivable to MEDIQ in connection with obtaining a waiver
from MEDIQ of an event of default provision of the MEDIQ Note relating to the
sale of the assets of a significant subsidiary in connection with such sale.
The Company does not anticipate that cash flows from operations will be
sufficient to repay the MEDIQ Note upon maturity in 1998. In addition, as
reflected in the financial statements of the Company for the fiscal year ended
September 30, 1995, and the report of the Company's independent auditors
thereon, the Company has been experiencing difficulty generating sufficient cash
flows to meet its obligations and sustain its operations and, as a result, may
not be able to meet the monthly principal and interest obligations under the
MEDIQ Note. A portion of the net proceeds from the BHC Sale is available to the
Company to fund the monthly obligations and a portion of the principal
obligations upon maturity, if necessary, of the MEDIQ Note. MEDIQ has pledged
the MEDIQ Note as collateral for certain of its indebtedness to a third party
unaffiliated with MEDIQ or the Company. In the event of default by MEDIQ on
such indebtedness, such third party would obtain all of MEDIQ's rights under the
MEDIQ Note, including the right to the payment of principal and interest as and
when due in accordance with the terms of the MEDIQ Note.
The MEDIQ Note also provides for certain events of default, including:
"The . . . sale of all or substantially all of the assets of [the Company]
. . ." In an attempt to preclude the possibility of a dispute as to whether the
BHC Sale constituted the sale of all or substantially all of the assets of the
Company for purposes of the MEDIQ Note, the Company, prior to the sale, sent
MEDIQ a letter requesting a waiver of this provision in connection therewith.
MEDIQ sent the Company a letter in which MEDIQ declined to grant such a waiver.
Since the completion of the BHC Sale, the Company has not received any notice of
default under the MEDIQ Note on this basis. Nevertheless, in the event MEDIQ
attempts to accelerate the MEDIQ Note, the Company intends to aggressively
defend its position in any legal proceeding. There can be no assurances that
the Company would be able to obtain a favorable decision in such a legal
proceeding. In the event the Company were to receive an adverse decision on
this matter, the outstanding principal balance on the MEDIQ Note would become
immediately due and payable in full. In that event, the Company may be required
to apply the remainder of the net proceeds from the BHC Sale toward the
repayment of the outstanding principal of the MEDIQ Note, obtain alternative
sources of cash with which to satisfy such obligation, or obtain from MEDIQ a
modification to the MEDIQ Note. The remaining balance of the net proceeds from
the BHC Sale is insufficient to repay the entire outstanding principal balance
of the MEDIQ Note. There can be no assurance that the Company will have
sufficient cash to repay the outstanding principal balance of the MEDIQ Note or
that other sources of cash will be available to the Company in the event the
Company was to receive an adverse decision on such matter. In such event, the
Company may be unable to fulfill its debt obligations and also sustain
operations at a level at which the Company could continue as a going concern.
As a result of the Company's continued negative operating results and
reduced collections of accounts receivable from certain government-funded
payors, as well as other administrative delays by third-party payors
(including reimbursement review of certain Medicare claims in Southern
California), the Company has been experiencing difficulty generating
sufficient cash flows from operations to meet
17
<PAGE>
its obligations and sustain its operations without the use of available cash.
In an effort to improve this situation, the Company has pursued opportunities
to sell its freestanding facilities and is taking steps to reduce operating
expenses, attempting to raise additional capital, and working to improve its
cash flows. The Company has sold six of its seven freestanding facilities
and is pursuing opportunities to sell the remaining facility. To date,
however, the Company has not entered into any definitive agreement to sell
its other freestanding facility. Accordingly, there can be no assurance that
the Company will be successful in selling such facility. See "Recent
Developments." With respect to its efforts to reduce operating expenses, the
Company is implementing reductions in office lease expense by reducing its
leased space and reductions in personnel expense by reducing staff of the
Extended Care Services Division and corporate staff. The Company's liquidity
could also be improved by: (i) the collection of additional outstanding
receivables; (ii) significant reductions in the operating losses of the
Company's remaining businesses; (iii) significant additional reductions in
overhead; and (iv) obtaining additional capital and/or financing sources.
However, there can be no assurance that any of such events will occur or, if
they do occur, that the impact on cash flows will be sufficient to enable the
Company to continue its operations. In the event that the Company is unable
to enhance its liquidity, the Company may be required to renegotiate the
terms of its financial obligations, significantly curtail its level of
operations or otherwise significantly reduce operating expenses.
This report includes forward-looking statements based on management's
current plans and expectations, relating to, among other matters, the
anticipated use of proceeds from the sale of freestanding facilities, the
proposed business activities of the Company, estimates of amounts that are
not yet determinable and the proposed activities of the Company relating to
improving its liquidity. Such statements involve risks and uncertainties
which may cause actual future activities and results of operations to be
materially different from that suggested in this report, including, among
others, the use of available cash resources to fund continued operating
losses, the amount and timing of receipt of government reimbursement and the
results of the review of SCC's claims by the Medicare fiscal intermediary,
risks associated with industry consolidation and acquisitions, the need to
manage growth, the possible need to use the net cash proceeds from the sale
of freestanding facilities for the retirement of certain indebtedness and
competition. For additional information, please refer to the Company's
Annual Report on Form 10-K and other reports filed by the Company with the
Securities and Exchange Commission.
18
<PAGE>
PART II. OTHER INFORMATION
Item 4. Matters Submitted to a Vote of Stockholders
At a Special Meeting of stockholders of the Company held on May 13,
1996, at which the holders of at least 1,826,912 shares of Common
Stock of the Company (out of a total of 3,310,448 shares outstanding
and entitled to vote at such Special Meeting) were present in person
or represented by proxy (a quorum for the transaction of business),
the stockholders of the Company approved the sale of five of the
Company's freestanding behavioral healthcare facilities and the
amendment of the Certificate of Incorporation of the Company to
change the Company's name from Mental Health Management, Inc. to MHM
Services, Inc. At the Annual Meeting of stockholders of the Company
held on June 25, 1996, at which the holders of at least 2,072,239
shares of Common Stock of the Company (out of a total of 3,310,448
shares outstanding and entitled to vote at such Annual Meeting) were
present in person or represented by proxy (representing a quorum for
the transaction of business), Messrs. Michael S. Pinkert, Abraham B.
Gosman, H. Scott Miller and Michael F. Sandler and Dr. Kenneth A.
Kessler were elected directors of the Company to serve until the
next Annual Meeting and until the election and qualification of
their successors, an amendment to the Company's 1993 Stock Option
Plan was approved and a Non-Employee Directors' Stock Option Plan
was approved.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
During the third quarter, the Company filed (i) a Current Report on
Form 8-K dated April 17, 1996 to announce the Oakview Sale, as
amended by Current Report on Form 8-K/A dated June 19, 1996, which
included ProForma Financial Information relating to such sale, (ii)
a Current Report on Form 8-K dated May 31, 1996 to announce that the
Company had changed its name from Mental Health Management, Inc. to
MHM Services, Inc., and (iii) a Current Report on Form 8-K dated
June 17, 1996 to announce the BHC Sale, as amended by a Current
Report on Form 8-K filed on June 25, 1996, which included Pro Forma
Financial Information relating to such sale).
19
<PAGE>
SIGNATURE
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.
Dated: August 14, 1996 MHM Services, Inc.
/s/ Carolyn Zimmerman
----------------------------------------
Carolyn Zimmerman
Vice President, Finance
and Chief Financial Officer
20
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<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,544,000
<SECURITIES> 0
<RECEIVABLES> 12,488,000
<ALLOWANCES> 7,510,000
<INVENTORY> 43,000
<CURRENT-ASSETS> 11,721,000
<PP&E> 1,238,000
<DEPRECIATION> 657,000
<TOTAL-ASSETS> 16,868,000
<CURRENT-LIABILITIES> 5,699,000
<BONDS> 0
0
0
<COMMON> 33,000
<OTHER-SE> 612,000
<TOTAL-LIABILITY-AND-EQUITY> 16,868,000
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