<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
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: 0-27260
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COMPLETE MANAGEMENT, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-3149119
- --------------------------------------------------------------------------------
State or other Jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
254 West 31st Street, New York, NY 10001-2813
- --------------------------------------------------------------------------------
Address of principal executive offices (Zip Code)
(212) 868-1188
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 May 13, 1996 the registrant had a total of 7,438,298 shares of Common
Stock outstanding. There was no Preferred Stock outstanding.
<PAGE>
Complete Management, Inc.
Index to Form 10-Q
March 31, 1996
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited) Page
----
<S> <C>
Condensed Consolidated Balance Sheets at December 31, 1995
and March 31, 1996................................................. 3
Condensed Consolidated Statements of Income for the three
months ended March 31, 1995 and 1996................................ 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1995 and 1996................................ 5
Notes to Condensed Consolidated Financial Statements................. 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 11-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................... 14
SIGNATURES.......................................................................... 15
</TABLE>
2
<PAGE>
COMPLETE MANAGEMENT, INC.
Condensed Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
December 31, March 31,
------------ ---------
1995 1996
------------ ---------
(Audited) (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ................................................... $ -- $ 2,539,679
Marketable securities available-for-sale .................................... -- 9,599,316
Notes receivable from a related party ....................................... -- 1,985,641
Accounts receivable:
From a related party, less allowances of $-0- and $609,000, respectively
and net of unamortized discount of $1,307,034 and $1,575,454, respectively 5,325,147 8,952,211
Other ..................................................................... -- 424,498
----------- -----------
5,325,147 9,376,709
Prepaid expenses and other current assets ................................... 356,097 514,049
----------- -----------
Total current assets ...................................................... 5,681,244 24,015,394
Long-term portion of notes receivable from a related party ....................... -- 134,492
Long-term portion of accounts receivable from a related party, net of unamortized
discount of $603,758 and $731,998, respectively ............................. 9,559,424 16,473,716
Property and equipment, net ...................................................... 400,170 4,803,345
Excess of cost over net assets acquired, less accumulated amortization of
$108,000 ...................................................................... -- 8,567,088
Deferred registration costs ...................................................... 1,985,446 --
Deferred costs, net of amortization of $65,000 ................................... -- 95,959
Other assets ..................................................................... 233,777 264,294
----------- -----------
Total assets ........................................................... $17,860,061 $54,354,288
=========== ===========
Liabilities and shareholders' equity
Current liabilities:
Notes payable ............................................................... $ 1,000,000 $ --
Accounts payable and accrued expenses ....................................... 2,937,313 2,295,565
Income taxes payable ........................................................ 39,371 126,034
Deferred income taxes -- current ............................................ 1,799,523 4,214,450
Current portion of long-term debt ........................................... 89,369 223,468
Current portion of obligations under capital leases ......................... -- 380,569
----------- -----------
Total current liabilities ................................................. 5,865,576 7,240,086
Deferred income taxes -- non-current ............................................. 4,435,776 5,902,100
Long-term debt ................................................................... 228,534 2,339,241
Obligations under capital leases ................................................. -- 1,251,846
Commitments and contingencies
Shareholders' equity:
Preferred shares, $.001 par value:
Authorized 2,000,000 shares
Issued and outstanding, none .............................................. -- --
Common shares, $.001 par value:
Authorized, 20,000,000 shares
Issued and outstanding, 2,980,573 and 7,438,298 shares, respectively ...... 2,981 7,438
Paid-in capital ............................................................. 249,972 29,426,335
Retained earnings ........................................................... 7,077,222 8,187,242
----------- -----------
Total shareholders' equity ................................................ 7,330,175 37,621,015
----------- -----------
Total liabilities and shareholders' equity ............................ $17,860,061 $54,354,288
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
COMPLETE MANAGEMENT, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended March 31,
---------------------------
1995 1996
------------ -----------
Revenue:
From a related party ................. $ 3,000,000 $ 5,078,008
Other ................................ -- 122,325
Interest discount .................... (487,196) (515,176)
----------- -----------
Net revenue ................................ 2,512,804 4,685,157
Cost of revenue ............................ 566,904 1,724,845
General and administrative expenses ........ 652,557 1,312,848
Fees paid to related parties ............... 37,250 10,425
----------- -----------
1,256,711 3,048,118
----------- -----------
Operating income ........................... 1,256,093 1,637,039
Other income (expense):
Interest discount included in income . 302,334 587,076
Interest and dividend income ......... -- 115,633
Interest expense ..................... -- (307,670)
Gain on sale of marketable securities -- 158,442
----------- -----------
Net income before provision for income taxes 1,558,427 2,190,520
Provision for income taxes ................. 732,400 1,080,500
----------- -----------
Net income ................................. $ 826,027 $ 1,110,020
=========== ===========
Net income per share ....................... $ 0.28 $ 0.15
=========== ===========
Weighted average number of common shares and
equivalents outstanding .................. 2,980,573 7,438,298
========= =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
<PAGE>
COMPLETE MANAGEMENT, INC.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Operating activities
Net income .............................................. $ 826,027 $ 1,110,020
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization ...................... 72,915 350,490
Provision for deferred income taxes ................ 726,000 1,077,250
Amortization of discount of accounts receivable, net 184,862 (71,900)
Gain on sale of marketable securities .............. -- (158,442)
Write-off of original issue discount ............... -- 237,500
Changes in operating assets and liabilities:
Notes receivable from a related party ......... -- (1,589,550)
Accounts receivable ........................... (1,828,800) (3,474,496)
Prepaid expenses and other current assets ..... -- (239,034)
Accounts payable and accrued expenses ......... 99,130 (1,161,507)
Other assets .................................. (1,047) (36,000)
Income taxes payable .......................... 6,400 409
------------ ------------
Net cash provided by (used in) operating activities ..... 85,487 (3,955,260)
------------ ------------
Investing activities
Purchase of property and equipment ...................... (83,144) (378,973)
Purchase of marketable securities ....................... -- (15,100,094)
Proceeds from sale of marketable securities ............. -- 5,781,160
------------ ------------
Net cash used in investing activities ................... (83,144) (9,697,907)
------------ ------------
Financing activities
Proceeds from issuance of common stock, net of
underwriter's commission and expenses .............. -- 16,380,000
Payments of registration costs of common stock .......... -- (1,166,992)
Proceeds from long-term debt ............................ -- 2,000,000
Bank overdraft .......................................... (2,343) --
Cash acquired in merger ................................. -- 103,631
Repayment of notes payable .............................. -- (1,000,000)
Principal payments on long-term debt .................... -- (34,911)
Repayment of capital lease obligations .................. -- (88,882)
------------ ------------
Net cash (used in) provided by financing activities ..... (2,343) 16,192,846
------------ ------------
Net increase in cash and cash equivalents ............... -- 2,539,679
Cash and cash equivalents, begining of period ........... -- --
------------ ------------
Cash and cash equivalents, end of period ................ $ -- $ 2,539,679
============ ============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest ........................................... $ -- $ 64,839
Taxes .............................................. -- 2,842
Non-cash financing activities:
Capital stock issued for acquisition ............... $ -- $ 15,266,463
5
</TABLE>
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1996
1. BASIS OF PRESENTATION AND OPERATIONS
The accompanying consolidated financial statements are unaudited and in the
opinion of management, reflect all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation. Operating results for
the three month period ended March 31, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. For
further information, refer to the financial statements and footnotes thereto
included in the Complete Management, Inc. ("CMI" or the "Company") audited
financial statements for the year ended December 31, 1995.
The Company's primary client, Greater Metropolitan Medical Services
("GMMS") is a multi-specialty medical practice group which provides evaluations,
diagnosis and treatment in the New York metropolitan area. Currently, the
practice's primary medical focus is to treat patients with injury-related
conditions who carry insurance with various different insurance carriers under
the Workers' Compensation and No-fault guidelines.
The following unaudited tabulation sets forth the operating results of GMM
for the three months ended March 31, 1995 and 1996.
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1995 March 31, 1996
---------------------------------------------- -----------------------------------------
General General
Medical Diagnostic Total Medical Diagnostic Total
Services Imaging GMMS Services Imaging GMMS
-------- ---------- ----- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Unaudited:
Services rendered ........................ $4,529,253 $1,577,028 $6,106,281 $5,044,019 $2,052,998 $7,097,017
Contractual allowances ................... (382,723) (68,981) (451,704) (448,856) (176,753) (625,609)
--------- --------- --------- --------- --------- ---------
Net medical service fees ................. 4,146,530 1,508,047 5,654,577 4,595,163 1,876,245 6,471,408
--------- --------- --------- --------- --------- ---------
Less expenses:
Medical personnel payroll ........... 369,460 105,711 475,171 688,930 82,802 771,732
Other ............................... 101,605 3,774 105,379 342,652 26,498 369,150
--------- --------- --------- --------- --------- ---------
Total expenses ................... 471,065 109,485 580,550 1,031,582 109,300 1,140,882
--------- --------- --------- --------- --------- ---------
Owner physician payroll and
entity income ...................... 675,465 -- 675,465 252,518 -- 252,518
Management fee ........................... $3,000,000 $1,398,562 $4,398,562 $3,311,063 $1,766,945 $5,078,008
=========== ========== ========== ========== ========== ==========
</TABLE>
Relationship between the Company and GMMS (Unaudited)
General
GMMS' operations are limited to the following activities:
(1) Rendering services to patients;
(2) Payment of compensation to both the owner physician and other medical
personnel; and
(3) Payment of miscellaneous expenses incidental to the rendering of the
medical services.
As more fully discussed below, the Company's operations as they relate to
GMMS include the following activities:
1) Patient scheduling, record transcription, non-clinical intake
examination, and insurance verification;
2) Billing and collection for all patient medical services rendered; and
3) Any other activity necessary to ensure the proper delivery of medical
service.
Economics
The activities of GMMS are limited to the rendering of medical services, and
accordingly, its principle asset is the accounts receivable due from the
third-party payors and/or its patients (minimal services are paid for by the
6
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COMPLETE MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
March 31, 1996
1. BASIS OF PRESENTATION AND OPERATIONS (Continued)
patient at the time service is rendered). Further, substantially all of the
non-clinical activities of GMMS, as defined by the management agreement, are
performed by the Company. GMMS' principal liabilities are the amount due to the
owner physician and other medical personnel for services and the fee due to
the Company under the management agreement.
The tabulation above reflects those dynamics in that revenue generated by
GMMS in the amount of $6,106,281 and $7,097,017 for the three months ended March
31, 1995 and 1996, respectively, has been allocated to the owner physician and
medical personnel payroll and management fee due to the Company.
Finally, due to the fact that the management fee is paid by GMMS, through
an assignment of its accounts receivable, and the doctors' compensation is paid
currently, GMMS' cash flows are principally a pass through of cash received for
the delivery of services rendered and cost of those services.
Notes receivable from a related party included in the accompanying
unaudited balance sheet, represents working capital advances made to GMMS which
are due on demand.
Excess of Cost Over Net Assets Acquired
For purposes of amortizing the excess of cost over net assets acquired
(goodwill) arising from the acquisition and merger of Medical Management, Inc.
("MMI") (as described in Note 2) the Company's policy is to record goodwill
resulting from the merger based on appraisals, evaluations and estimates of the
fair value of the assets acquired. Until such time that these evaluations are
completed, the Company is amortizing goodwill on the straight-line method over a
20-year period. The value of goodwill and the period of amortization of goodwill
may be adjusted in future periods when the fair value and useful lives of the
assets acquired are determined.
Accounting for Impairments in Long-Lived Assets
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
Being Disposed Of", which the Company adopted on January 1, 1996. This statement
requires that long-lived assets and identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate the carrying
amounts of the assets may not be recoverable. In evaluating recoverability, the
Company estimates the future cash flows expected to result from the assets and
its eventual disposition. If the sum of future undiscounted cash flows is less
than the carrying amount of the asset, an impairment loss is recognized. No such
loss was recognized in the March 31, 1996 financial statements.
Stock Option Plan
The Financial Accounting Standards Board has issued Statement of Accounting
Standard No. 123 "Accounting for Stock-based Compensation" ("SFAS 123"). This
statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The requirements of SFAS 123 are
effective for transactions entered into in fiscal years that begin after
December 15, 1995, though they may be adopted upon issuance. The disclosure
requirements of SFAS 123 are effective for financial statements for fiscal years
beginning after December 15, 1995. The adoption of this statement had no
material effect on the March 31, 1996 financial statements.
2. INITIAL PUBLIC OFFERING AND ACQUISITION OF MEDICAL MANAGEMENT, INC.
On January 3, 1996, the Company completed an Initial Public Offering (the
"IPO") of 2,000,000 common shares at $9.00 per share and received proceeds net
of underwriter's commission and expenses of $16,380,000. Costs incurred with
respect to the registration of the common shares in addition to the
underwriter's commission and expenses amounted to $2,468,000. In addition, the
Company sold to the underwriter, or its designee, at a price of $.001 per
Representative's Warrant, up to 200,000 Warrants entitling the holders thereof
to purchase 200,000 common shares of the Company at a purchase price of $10.80
per share for a period of four years commencing one year from the date of the
IPO.
7
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
March 31, 1996
2. INITIAL PUBLIC OFFERING AND ACQUISITION OF MEDICAL MANAGEMENT, INC.
(Continued)
Simultaneously, upon the completion of the IPO, the Company acquired
Medical Management, Inc., through a merger, as a wholly-owned subsidiary of CMI.
MMI is principally engaged in providing diagnostic imaging equipment and billing
and management services thereto. Currently, MMI operates six diagnostic imaging
units for two clients. MMI has also entered into two additional agreements for
diagnostic imaging units at two metropolitan area hospitals. GMMS is the primary
client of MMI and the sole client of CMI. The terms of the merger provided that
MMI shareholders receive .778 CMI common shares for each common share which they
held based upon the IPO price of $9.00 per share. The holders of outstanding
options to purchase MMI common shares received 93,281 CMI common shares based
upon the difference between their aggregate option exercise prices and the value
thereof at $7.00 per share divided by the IPO price. In January 1996, CMI issued
2,211,953 common shares to effect the merger including shares to be issued in
satisfaction of outstanding options and warrants to purchase the MMI shares.
Upon the closing of CMI's initial public offering on January 3, 1996, the
President and Chief Executive Officer and Vice President and Chief Operating
Officer of MMI became officers of CMI.
The following table summarizes selected unaudited pro forma financial data
for the three months ended March 31, 1995. The amounts shown have been prepared
to illustrate the effect of the consummation of the acquisition as if the
transaction had taken place on January 1, 1995.
<TABLE>
<CAPTION>
Three months ended
March 31, 1995
-------------------------- Pro forma Pro forma
CMI MMI Total Adjustments Total
----------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Revenue .................................. $ 3,000,000 $ 1,738,018 $ 4,738,018 $ -- $ 4,738,018
Interest discount ........................ (487,000) -- (487,000) (171,000)(1) (658,000)
----------- ----------- ----------- ----------- -----------
Net revenue .............................. $ 2,513,000 $ 1,738,018 $ 4,251,018 $ (171,000) $ 4,080,018
=========== =========== =========== =========== ===========
Income before provision for
income taxes ........................... $ 1,558,427 $ 561,346 $ 2,119,773 $ (272,444)(2) $ 1,847,329
Provision for income taxes ............... 732,000 267,000 999,000 (79,800)(3) 919,200
----------- ----------- ----------- ----------- -----------
Net income ............................... $ 826,427 $ 294,346 $ 1,120,773 $ (192,644) $ 928,129
=========== =========== =========== =========== ===========
Net income per share...................... $ 0.12
===========
Weighted average number of
common shares and
equivalents outstanding ................ 7,438,298
===========
Pro forma adjustments:
(1) Reflects an interest discount taken for the presumed collection cycle of MMI revenues over
a two-year period at an interest rate of 12% which is management's estimate of its
incremental borrowing rate ................................................................................... $ (171,000)
===========
(2) Adjustments consist of the following:
(a) Reflects an interest discount taken for the presumed collection cycle of MMI revenues over
a two year period at an interest rate of 12% which is management's estimate of its
incremental borrowing rate............................................................................. $ (171,000)
(b) Reflects increased costs of employment agreements ........................................................ (144,000)
(c) Reflects the amortization on the straight-line method over a 20-year period of the excess
of cost over net assets acquired recorded at approximately $8,676,000 ................................ (108,444)
(d) Represents interest income earned as a result of the amortization over a two-year period
of the interest discount in (1) above ................................................................. 151,000
-----------
Total adjustments .............................................................................................. $ (272,444)
===========
(3) Assumes an effective tax rate after adjustments of 47% ......................................................... $ (79,800)
===========
</TABLE>
3. ACCOUNTS RECEIVABLE
The Company's accounts receivables are generated from its clients (the
"Clients") under management contracts whereby the Company is entitled to
management fees for practice management services it performed or an agreed-upon
fee for each medical procedure performed.
8
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
March 31, 1996
3. ACCOUNTS RECEIVABLE (Continued)
As collateral for its fee revenue receivable from its primary client, GMMS,
the Company has a security interest in GMMS' trade receivables.
In 1996, as part of the Company's periodic review for potential impairment
of all third-party payor receivables prior to the acceptance for payment of its
fee, the Company determined that based upon its Clients' historical collection
experience and the results of the review, its Clients had receivables
substantially in excess of the amounts owed to the Company after giving effect
to their collectability. Accordingly, this factor along with the fact that GMMS
assigns it receivables to the Company on a full recourse basis in payment of its
fees indicates that recognition of bad debts is not required.
Management has determined, based on actual results and industry factors,
that CMI's and MMI's receivables have collection cycles of approximately three
years and two years, respectively, and accordingly, have been reflected in the
accompanying financial statements on a discounted basis (8% per annum in 1996
and 12% per annum in 1995). Management believes that its experience and that of
the Company is a good indication of the timing of the collection process.
Because numerous factors affect the timing and the manner in which their
receivables are collected (i.e., government regulations, etc.), it is the
Company's policy to periodically assess the collection of its receivables. As a
result, the Company's estimate of its incremental borrowing rate and collection
period may change.
4. NOTES PAYABLE
In September and October 1995, the Company borrowed an aggregate of
$1,000,000 secured by all assets from three lenders (the "Secured Lenders").
The loans were evidenced by secured notes (the "Secured Notes") which were due
on the earlier of the consummation of the IPO or five years following their
issuance. The Secured Notes carried interest rates of 12% to 14% per annum. In
addition, the Company paid a processing fee of $12,500 and reimbursed them for
costs of approximately $20,000, which were charged to operations in the period
paid. In connection with execution of the Secured Notes, the Company issued to
the Secured Lenders 27,778 common shares which have an aggregate value of
$250,000 (this original issue discount was charged to operations over the term
of the loan; $12,500 in 1995 and $237,500 in January 1996) when valued at the
IPO price of $9.00 per share. The unamortized portion of the discount of
$237,500 at December 31, 1995 was classified as prepaid and other current assets
on the accompanying balance sheet. The Secured Notes were paid in full in
January 1996 from the proceeds of the IPO.
In March 1996, the Company sold $2,000,000 of Convertible Subordinated
Notes (the "Notes") to accredited investors. The notes bear interest at 8%,
payable quarterly. The entire principal is due five years from the date of
issuance. Holders of the Notes may convert all or any portion into common shares
of the Company at $9.00 per share, subject to adjustment for stock splits,
dividends, recapitalization, etc. Under certain circumstances, such as a change
in control, holders of the Notes may require the Company to redeem the Notes at
125% of the original principal amount. The Notes are subordinate in right of
payment to certain future indebtedness which may be incurred by the Company. The
purchasers and/or affiliates have an option for 120 days to acquire an
additional $3,000,000 of Notes from the Company under the same terms and
conditions.
5. SUBSEQUENT EVENTS
On April 2, 1996, options for an aggregate of 835,000 shares, exercisable
at $8.375 price during a ten-year period were granted to 8 officers and 12 other
employees and consultants of the Company. These options will be exercisable for
one-third of the shares covered thereby as of the date of the grant and for an
additional one-third of the shares covered thereby each year thereafter. In
addition, options for 20,000 shares were granted to each of the Company's two
outside directors. Options granted to outside directors are exercisable for 50%
of the shares covered immediately upon grant and for the remainder of the shares
following one year's service.
On April 24, 1996, the common shares of the Company were approved for
listing on the American Stock Exchange under the symbol "CMI" and began trading
on May 6, 1996.
9
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
March 31, 1996
5. SUBSEQUENT EVENTS (Continued)
On May 1, 1996, the Company filed a registration statement with the
Securities and Exchange Commission for $30,000,000 Convertible Subordinated
Debentures (the "Debentures") due 2003 at an interest rate ranging from 7 to 8
1/2%, payable semi-annually on August 15 and February 15. The debentures are
convertible into common shares, par value $.001 per share, of the Company at any
time prior to maturity, unless previously redeemed, at a conversion price of
120% to 130% of the closing price of the common shares on the American Stock
Exchange on the effective date of the offering, subject to adjustment in certain
events.
6. NET INCOME PER SHARE
Net income per common share has been computed by dividing net income by the
weighted average number of common shares outstanding during the periods.
10
<PAGE>
COMPLETE MANAGEMENT, INC.
Part I. Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations
March 31, 1996
The following discussion of the results of the operations and financial
condition of CMI should be read in conjunction with CMI's Unaudited Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
Quarterly Report.
Overview
Complete Management, Inc. which commenced operations on April 1, 1993, is a
physician practice management company. It provides physician and hospital
management and support services to medical practice groups and hospitals in the
greater New York metropolitan area, primarily to medical practice groups focused
on the treatment and evaluation of patients with injury-related conditions. The
services offered by the Company include substantially all aspects of business,
financial and marketing support required by a medical practice but do not
include providing any type of medical diagnostic or treatment services. The
Company offers sophisticated business and management systems and a high level of
professional competence to doctors and hospitals that, increasingly, are faced
with complex, time-consuming and expensive reporting, record-keeping,
purchasing, collections and other non-medical requirements of a successful
practice.
Services provided by the Company include the provision of office space and
equipment, non-medical personnel, administrative services, billing, receivables
collection, regulatory compliance, and non-medical services related to its
clients' diagnostic imaging services. The Company also offers consultation
regarding marketing strategies and provides financing for the expansion of its
clients' medical practices. By focusing solely on the business support of
medical practices, the Company is able to offer a variety of operating
efficiencies that would be difficult to establish and maintain by the typical,
unassisted medical practice.
The Company's current medical practice clients focus on the treatment of
patients with injury-related conditions in which the reporting, record-keeping
and other requirements imposed by governmental regulations, payors policies or
litigation or dispute resolution processes are highly complex, change rapidly
and unpredictably and require a high level of specialized non-medical knowledge.
The Company offers both management and staff with high levels of training and
experience in these activities.
CMI's revenues are derived primarily from management fees for practice
management services it performed or an agreed-upon fee for each medical
procedure performed. CMI's charges for the various services performed for a
client are intended to reflect the varying costs incurred by CMI in providing
services to such client's including rental costs, compensation of CMI's supplied
personnel, costs of third-party payor documentation, costs of billing and
collections, and the need for CMI to provide financing to enable its clients to
acquire high cost diagnostic equipment, as well as to acquire other medical
practices.
Results of Operations
The Company's combined results of operations for the three months ended
March 31, 1995 are discussed on a pro forma consolidated basis as if MMI had
been consolidated into CMI for the entire period. The three months ended March
31, 1996 reflects the actual consolidation of MMI into CMI for the entire
reporting period.
Revenue
Revenue in 1995 was $4,738,000 as compared to $5,200,000 in 1996, an
increase of $462,000 (9.7%). The significant increase ($332,000) emanated from
management services rendered by the Company to GMMS as a result of an increase
in the number patients treated and evaluated by GMMS. Additionally, three new
GMMS offices (Garden City, Staten Island and Newburgh, New York) opened during
the fourth quarter of 1995 are fully integrated in 1996. The remaining increase
($130,000) resulted from a 31% increase in the volume of diagnostic imaging
scans in 1996 provided by GMMS offset by the completion of an agreement with an
existing metropolitan area hospital client during January 1996.
11
<PAGE>
COMPLETE MANAGEMENT, INC.
Part I. Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations (Continued)
March 31, 1996
Cost of Revenues
Cost of revenue was $1,107,000 in 1995 as compared to $1,725,000 in 1996 an
increase of $618,000 (55.8%). A significant portion of this increase ($298,000)
was due to the hiring of additional practice management and other support
personnel such as appointment schedulers and intake examiners in order to
properly administrate GMMS' expanding medical practices. Consulting fees and
patient transportation cost increased by $91,000 and $50,000 respectively, as a
result of the increase in the number of patient services and diagnostic imaging
scans provided by GMMS in 1996. Depreciation and amortization increased by
$74,000 primarily as a result of an increase in medical equipment purchases of
$1,858,000.
General and Administrative Expenses
General and administrative expenses (including fees paid to related
parties) decreased by $184,000 from $1,507,000 in 1995 to $1,323,000 in 1996.
The decrease was primarily due to the reclassification of the aforementioned
consulting fees to cost of revenues ($91,000) in order to be consistent with the
Company's new practice management services agreement.
Interest Expense
Interest expense increased in 1996 as compared to 1995 by approximately
$265,000. The principal increase is attributed to the write-off of ($237,500) of
original issue discount as related to the repayment of the Secured Notes. The
balance of the increase ($33,000) was the interest incurred as related to the
mobile diagnostic testing machine utilized at a metropolitan area medical
center.
Liquidity and Capital Resources
On January 3, 1996, the Company completed an initial public offering of
2,000,000 common shares at $9.00 per share and received proceeds net of
underwriter's commission and expenses of $16,380,000. Costs incurred with
respect to the registration of the common shares in addition to the
underwriter's commission and expenses were $2,468,000, of which the Company paid
$1,166,992 in the three months ended March 31, 1996. In addition, the Company
sold to the underwriter, or its designee, at a price of $.001 per
Representative's Warrant, 200,000 Warrants entitling the holders thereof to
purchase 200,000 common shares of the Company at a purchase price of $10.80 per
share for a period of four years commencing one year from the date of the IPO.
Also, on January 3, 1996, the Company completed the merger of Medical
Management, Inc. into a wholly-owned subsidiary of CMI. The terms of the merger
provided that MMI shareholders receive .778 CMI common shares for each MMI
common share which they held based upon the IPO price of $9.00 per share. The
holders of outstanding options to purchase MMI common shares received 93,281 CMI
common shares based upon the difference between their aggregate option exercise
prices and the value thereof at $7.00 per share divided by the IPO price. In
January 1996, the Company issued 2,211,953 common shares to effect the merger
including shares to be issued in satisfaction of outstanding options and
warrants to purchase MMI shares. The excess of cost over net assets acquired
(goodwill) of $8,676,000 as a result of the acquisition of MMI will be amortized
on a straight-line basis over a period not to exceed twenty years.
The Company's principal cash requirements to date have been to fund working
capital and capital expenditures in order to support the growth of fee revenue.
The Company has financed these requirements primarily through cash flow from
operations, the proceeds from the Secured Notes and from the IPO it completed on
January 3, 1996.
During the first three months of 1996, the principal uses of cash have been
to support operating activities and to repay short-term debt. Net cash used for
operating activities in 1995 was $3,955,000. In January 1996, the Company loaned
GMMS for working capital needs approximately $1,590,000 due on demand at
12
<PAGE>
COMPLETE MANAGEMENT, INC.
Part I. Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations (Continued)
March 31, 1996
interest of 9% per annum. The Company does not anticipate making any additional
loans to GMMS. At March 31, 1996 the Company had working capital of $16,775,000.
The Company repaid $1,000,000 in short-term debt to three lenders with
proceeds from the IPO as called for in the lender's agreements. There was no
pre-payment penalty or additional costs associated with the prepayment.
The Company also borrowed $2,000,000 from accredited investors in order to
supplant the Company's working capital needs in the event certain non-definitive
potential acquisitions of the Company should materialize rapidly.
The Company currently has certain commitments for capital expenditures of
approximately $1,140,000 for new diagnostic testing units to be constructed and
installed in two major metropolitan area hospitals. The current availability of
funds is more than adequate to facilitate such costs of the projects in addition
to the initial startup costs. Historically, whenever the Company begins
servicing a new client for diagnostic testing, the Company requires funding to
acquire, setup, develop and manage the operating facilities of the client during
the period from the initial startup until sufficient cash flow levels from
reimbursements from third-party payors is achieved. During these periods the
Company's clients cash flow is negatively affected by the slow payment of
medical claims from third-party payors. As a result of the slow payment pattern
the Company's clients delay payment of management fees thus causing the Company
to require more capital to finance its management fee receivables than would be
required with traditionally faster receivable payment cycles for its clients.
The Company expects cash, cash equivalents, short-term investments, cash
generated from operations and short-term borrowings to be more than sufficient
to meet its current working capital requirements over the near term and at least
through the balance of the current year with the exception and uncertainty of
the consummation of any potential acquisitions the Company currently may be
pursuing. However, if the Company feels that its requirements for capital
expenditures for new clients, expansion of the testing facilities and any
potential acquisitions and its working capital needs exceed current anticipated
levels, the Company may be required to obtain additional funds in the credit or
capital markets.
13
<PAGE>
Complete Management, Inc.
Part II. OTHER INFORMATION
March 31, 1996
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits None.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three months
ended March 31, 1996.
14
<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.
COMPLETE MANAGEMENT, INC.
------------------------
(Registrant)
Date: May 13, 1996 /s/ STEVEN RABINOVICI
------------------------------------
Steven Rabinovici
Chief Executive Officer and Director
Date: May 13, 1996 /s/ JOSEPH M. SCOTTI
---------------------------------------
Joseph M. Scotti
Vice President, Chief Financial Officer,
Secretary, Treasurer & Director
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations found on
pages 3 and 4 of the company's Form 10-Q for the year-to-date, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,540
<SECURITIES> 9,599
<RECEIVABLES> 9,377
<ALLOWANCES> 2,184
<INVENTORY> 0
<CURRENT-ASSETS> 24,015
<PP&E> 4,803
<DEPRECIATION> 1,501
<TOTAL-ASSETS> 54,354
<CURRENT-LIABILITIES> 7,240
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 37,614
<TOTAL-LIABILITY-AND-EQUITY> 54,354
<SALES> 4,685
<TOTAL-REVENUES> 4,685
<CGS> 1,725
<TOTAL-COSTS> 1,323
<OTHER-EXPENSES> (861)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 308
<INCOME-PRETAX> 2,191
<INCOME-TAX> 1,081
<INCOME-CONTINUING> 1,110
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<NET-INCOME> 1,110
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
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