<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333--11957
BIRMAN MANAGED CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1584092
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
502 Gould Drive
Cookeville, Tennessee 38506
(931) 432-6532
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports to be filed
by Section 13 or 15 (d) of the Securities Exchange Ace 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 [ ]
Number of shares outstanding as of November 14, 1997: 8,756,254
<PAGE> 2
BIRMAN MANAGED CARE, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I Financial Information
Item 1. Condensed Consolidated Financial Statements and
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS
Exhibit 11.1 Statement of Earnings per Share
Exhibit 27.1 Financial Data Schedule
</TABLE>
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
September 30, June 30,
1997 1997
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,294,367 $ 8,515,572
Accounts receivable, net of allowance for
doubtful accounts of $49,436 1,096,014 1,592,741
Prepaid expenses and other 106,434 95,980
Deferred tax asset 56,370 14,800
Income taxes receivable 218,490 --
Note receivable - related party (Note 5) 100,000 --
----------- -----------
Total Current Assets 9,871,675 10,219,093
----------- -----------
Property and equipment, net of accumulated depreciation 604,296 584,248
Goodwill 1,217,443 1,226,566
Other 513,416 486,948
Restricted certificates of deposit 500,000 500,000
----------- -----------
Total Assets $12,706,830 $13,016,855
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 207,600 $ 207,600
Current portion of capital lease obligations 727 419
Accounts payable 277,930 263,351
Accrued expenses 62,683 19,753
Accrued executive bonuses 111,341 116,341
Income taxes payable -- 208,587
Deferred revenue 1,113 --
----------- -----------
Total Current Liabilities 661,394 816,051
Note payable, less current portion 603,800 605,700
Deferred income taxes payable 67,000 92,775
----------- -----------
Total Liabilities 1,332,194 1,514,526
----------- -----------
Minority interest 197,692 201,085
----------- -----------
Commitments and Contingencies (Note 8)
Stockholders' Equity:
Preferred stock, $.001 par value, 5,000,000
shares authorized, none issued or outstanding -- --
Common stock, $.001 par value, 15,000,000 shares
authorized, 8,756,254 issued and outstanding $ 8,756 $ 8,756
Additional paid-in capital 9,715,071 9,715,071
Retained earnings 1,453,117 1,577,417
----------- -----------
Total Stockholders' Equity $11,176,944 $11,301,244
----------- -----------
$12,706,830 $13,016,855
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements
<PAGE> 4
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
Three Months ended
September 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Consulting and health plan revenues $ 2,848,709 $ 2,372,137
Cost of revenues 1,181,439 888,516
----------- -----------
Gross profit 1,667,270 1,483,621
General and administrative expenses 2,004,930 1,169,119
----------- -----------
Income (loss) from operations (337,660) 314,502
----------- -----------
Other income (expense):
Interest income 118,483 38,338
Interest expense (3,774) (247)
Gain on sale of assets 150 --
Other income 897 --
----------- -----------
115,756 38,091
----------- -----------
Minority interest 3,393 --
----------- -----------
Income (loss) before provision for income taxes (218,511) 352,593
Provision for income tax (expense) benefit 94,211 (111,402)
Net Income (Loss) $ (124,300) $ 241,191
=========== ===========
Per share data:
Primary net income (loss) per share (Note 3) $ (.01) $ .04
=========== ===========
Primary weighted average common stock shares
outstanding (Note 3) 8,765,764 6,703,517
=========== ===========
Fully diluted net income per share (Note 3) N/A $ .03
=========== ===========
Fully diluted weighted average common stock
shares outstanding (Note 3) N/A 7,703,517
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements
<PAGE> 5
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Preferred Common Stock Paid-In Retained Stockholders'
Stock Shares Amount $ Capital Earnings Equity
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 -- 6,931,082 $ 6,931 $ 1,780,612 $ 1,401,436 $ 3,188,979
Stock sales -- 2,000,000 2,000 7,546,697 -- 7,548,697
Stock retired in payment of debt -- (174,800) (175) (803,903) -- (804,078)
Retirement of fractional shares -- (28) -- -- -- --
Stock released -- -- -- 1,191,665 -- 1,191,665
Net income -- -- -- -- 175,981 175,981
-----------------------------------------------------------------------------------
Balance at June 30, 1997 -- 8,756,254 8,756 9,715,071 1,577,417 11,301,244
Net loss -- -- -- -- (124,300) (124,300)
-----------------------------------------------------------------------------------
Balance at September 30, 1997
(Unaudited) -- 8,756,254 $ 8,756 $ 9,715,071 $ 1,453,117 $ 11,176,944
===================================================================================
</TABLE>
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements
<PAGE> 6
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
Three Months Ended
September 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Net income (loss) $ (124,300) $ 241,191
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 54,914 22,865
Gain on sale of assets (150) (17,074)
Interest income added to note receivable
Loss attributed to minority interest (3,393) --
Changes in Assets and Liabilities:
Accounts receivable 480,535 50,868
Prepaid expenses and other 5,738 (38,342)
Deferred tax asset (41,570)
Income taxes receivable (218,490) --
Other (35,319) (47,506)
Accounts payable 14,579 581,133
Accrued expenses 37,930 (2,050)
Income taxes payable (208,587) (486,897)
Deferred revenue 1,113 --
Deferred income tax payable (25,775) --
----------- -----------
61,525 62,997
----------- -----------
Net cash provided (used) by operating activities (62,775) 304,188
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (55,262) (142,080)
Collection of note receivable - related parties -- 9,000
Advances for notes receivable - related party (100,000) (141,232)
Proceeds from sale of assets -- --
----------- -----------
Net cash used in investing activities (155,262) (274,312)
----------- -----------
Cash flows from financing activities:
Deferred offering costs -- (450,960)
Payments on debt (3,168) (1,607)
----------- -----------
Net cash used by financing activities (3,168) (452,567)
----------- -----------
Net decrease in cash and cash equivalents (221,205) (422,691)
Cash and cash equivalents at beginning of period 8,515,572 1,872,343
----------- -----------
Cash and cash equivalents at end of period $ 8,294,367 $ 1,449,652
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements
<PAGE> 7
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The accompanying condensed consolidated financial statements of Birman
Managed Care, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and in accordance with the instructions to Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation of the Company's financial condition and operating
results for the interim periods presented, have been included. Operating
results for the three month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year
ending June 30, 1998. These interim financial statements should be read in
conjunction with the financial statements and notes contained therein,
included in the Company's Form 10-KSB for the year ended June 30, 1997.
The Company was organized in 1994 and reincorporated in Delaware in 1996
to serve as the holding company of Birman & Associates, Inc., and BMC
Health Plans, Inc. On September 9, 1996, the Company was reincorporated in
Delaware by means of a merger in which shareholders of the Company
received 72.939 shares of Common Stock for each 100 shares of Common Stock
then outstanding. This represents a change in legal entity, but not in the
operations of the Company. The Company acquired a third subsidiary on June
14, 1996, through an asset purchase of Hughes & Associates, Inc.
("Hughes").
On January 15, 1997, the Company acquired substantially all of the issued
and outstanding shares of capital stock of Canton Management Group, Inc.,
a Mississippi corporation ("Canton"), for $1,500,000, of which $700,000
was paid in cash and $800,000 was paid by the issuance of promissory notes
payable in four equal annual installments of $200,000 each, plus interest
at the rate of 2% per annum on the unpaid principal balance. Canton is an
inactive holder of a certificate of authority to operate an HMO in
Mississippi. Canton was renamed Care3, Inc. As a result of the issuance of
shares of Care3, Inc. to certain founders of Canton, Care3, Inc. currently
is a 69% subsidiary of the Company. The Company may reduce its ownership
percentage of Care3, Inc. to 60% by allowing selected physicians to
acquire shares of Care3, Inc. common stock. The Company anticipates that
it will own not less than 60% of Care3, Inc. During the year ended June
30, 1997, the Company formed two new subsidiaries, TMMC, Inc. and MMMC,
Inc. MMMC, Inc. is ninety percent owned by the Company. The Company also
acquired a majority interest in Canton Management Group, Inc., which was
renamed Care3 Inc. through a stock purchase.
2. Nature of Operations:
The Company is a health care consulting and management company dedicated
to improving the quality, controlling the cost, and enhancing the
efficiency of the management and delivery of health care services by
focusing on the physician as the most important factor in the health care
system. In pursuing these goals, the Company currently provides its
proprietary "Quality Management Program" to hospitals and their attending
physicians. In addition, the Company is developing and will operate
various managed care programs in association with physician networks,
hospitals, and other health care providers based upon its fundamental
belief in the importance of the physician-patient relationship. As part of
its managed care business, the Company organizes physicians into
independent practice associations, or networks, that will provide services
to the Company's health plan, as well as other health plans. The Company
also operates, through its Care3, Inc. subsidiary, a health plan in the
State of Mississippi and will pursue licenses in other states. The
Company concentrates its efforts on rural communities, particularly
in the south-central and southeast United States, with an initial
focus for managed care in Mississippi and Tennessee, where it
believes that the development of health care management systems and
managed care programs has lagged behind other areas of the country.
<PAGE> 8
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Earnings Per Common Share:
Earnings per share are based upon the weighted average number of shares
outstanding for each of the respective periods. All weighted average
shares outstanding give retroactive effect to the 1,000 for 1 stock split
in October, 1995, and the 72.939 for 100 exchange of shares of Common
Stock in connection with the reincorporation of the Company in Delaware in
September, 1996. The Company completed an initial public offering of its
Common Stock on February 19, 1997. Pursuant to Securities and Exchange
Commission rules, shares of Common Stock issued for consideration below
the anticipated offering price per share during the 12-month period prior
to filing of the registration statement have been included in the
calculation of common share equivalent shares as if they had been
outstanding for all periods presented. In addition, shares of Common Stock
that are subject to options and warrants having exercise prices that are
below the current trading price per share, whether or not exercisable,
have been included in the earnings per share calculation, using the
treasury stock method. One million shares of common stock placed in escrow
after completion of the public offering, which are common stock
equivalents, have been included in the calculation of fully diluted
earnings per share, when they are not anti-dilutive.
4. New Accounting Pronouncements:
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" (SFAS No. 121) issued by the Financial Accounting Standards Board is
effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard establishes new guidelines regarding
when impairment losses on long-lived assets, which include plant and
equipment and certain identifiable intangible assets, should be recognized
and how impairment losses should be measured. The Company adopted this
accounting standard on July 1, 1996, and its effects on the financial
position and results of the operations were immaterial.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial
Accounting Standards Board is effective for specific transactions entered
into after December 15, 1995, while the disclosure requirements of SFAS
No. 123 are effective for financial statements for fiscal years beginning
after December 31, 1995. The new standard establishes a fair value method
of accounting for stock-based compensation plans and for transactions in
which an entity acquires goods or services from non-employees in exchange
for equity instruments. The Company adopted this accounting standard on
July 1, 1996, and its effects on the financial position and results of the
operations were immaterial. The Company will continue to account for
employee purchase rights and stock options under APB Opinion No. 25,
"Accounting for Stock Issued to Employees."
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). This pronouncement provides a different method of calculating
earnings per share than is currently used in accordance with APB 15,
"Earnings per Share." SFAS 128 provides for the calculation of basic and
diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities
that could share in the earnings of an entity, similar to fully diluted
earnings per share. This pronouncement is effective for fiscal years and
interim periods ending after December 15, 1997; early adoption is not
permitted. The Company has not determined the effect, if any, of adoption
on its earnings per share computations.
Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" (SFAS No. 129) issued by the FASB is
effective for financial statements ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously
in effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. The Company does not expect adoption of SFAS
No. 129 to have a material effect, if any, on its financial position or
results of operations.
<PAGE> 9
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. New Accounting Pronouncements: (Continued)
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The Company has not
determined the effect on its financial position or results of operations,
if any, from the adoption of this statement.
Statements of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued
by the FASB is effective for financial statements beginning after December
15, 1997. The new standard requires that public business enterprises
report certain information about operating segments in complete sets of
financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders. It also requires
that public business enterprises report certain information about their
products and services, the geographic areas in which they operate and
their major customers. The Company does not expect adoption of SFAS No.
131 to have a material effect, if any, on its Results of Operations.
5. Related Party Transactions:
Notes Receivable:
Included in notes receivable at September 30, 1997 is the following
related party note:
8% note receivable from officer, due upon
sale of residence. $ 100,000
=========
Subsequent to September 30, 1997, the note was paid in full.
6. Line of Credit:
In August, 1996, the Company arranged a $1,000,000 maximum principal
amount working capital revolving line of credit facility ("facility") with
American National Bank and Trust Company of Chicago. The facility has an
initial maturity date of October 31, 1997, which has been extended to
January 31, 1998. The facility provides for the accrual of interest at a
floating annual rate equal to the lender's prime rate on the unpaid
principal balance. The facility is secured by a pledge of the Company's
Quality Management Program and quality assurance/utilization review
accounts receivable. Under the terms of the facility, the Company can
borrow up to the lesser of: (i) $1,000,000, or (ii) the maximum facility
minus any letter of credit obligations, or (iii) the "Borrowing Base",
(i.e., up to 75% of the face amount of all then existing eligible
receivables), minus any letter of credit obligations. At September 30,
1997, there was a zero balance on the line of credit.
7. Significant Customer:
The Company has provided Quality Management Program services to various
hospitals owned and/or managed by Quorum Health Care, Inc. ("Quorum")
since 1991. Hospitals owned and/or managed by Quorum represented
approximately 22% and 25% of the Company's Quality Management Program
revenues for the three month periods ended September 30, 1997 and 1996,
respectively. The Company also provides Quality Management Program
services to two hospitals owned by St. Barnabas Health System, which
represents approximately 24% of the Company's Quality Management Program
revenues for the three month period ended September 30, 1997.
The Company was notified on November 11, 1997, that Saint Barnabas has
elected to end the current contracts to provide the Company's Quality
Management Program to these two hospitals in accordance with their terms
on December 31, 1997, Saint Barnabas and the Company have been in active
negotiations for the Company to provide further services, termed
"co-sourcing," to the entire 10-hospital Saint Barnabas System to train
staff members of Saint Barnabas to perform functions now provided by the
Company.
<PAGE> 10
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies:
Employment Termination:
On March 5, 1997, the Company terminated the employment of Robert D. Arkin
as general counsel, secretary and chief operating officer, for reasons the
Company believes constituted good cause. On May 8, 1997, Mr. Arkin filed a
complaint in United States District Court in Atlanta, Georgia, against the
Company, its chief executive officer, David N. Birman, M.D., and its
executive vice president, Sue D. Birman, seeking to enforce a written
employment agreement between the Company and Mr. Arkin, which was drafted
by Mr. Arkin, and other related causes of action. Dr. and Mrs. Birman were
dismissed from the complaint shortly after it was served.
In the complaint, Mr. Arkin seeks his unearned future compensation under
the employment agreement of $206,250 per year for five years; one
additional year's salary for non-renewal; bonus compensation of
approximately $85,000 accrued through the date of termination; and
immediate vesting of options to acquire 291,758 shares of the Company's
common stock at $1.37 per share, as well as other relief.
Counsel to the Company has advised that the complaint is without merit,
and that the Company is likely to prevail. This is based upon their belief
that the termination was with cause and that the employment agreement is
unenforceable due to omissions by Mr. Arkin, the Company's former outside
counsel, of certain disclosures of conflicts of interest and notification
to the Company of its right to seek independent counsel which he was
obligated to make prior to entering into a business relationship with his
client, the Company.
On May 14, 1997, the Company filed suit in Tennessee State Court against
Mr. Arkin, seeking a judicial determination that Mr. Arkin is entitled to
no additional compensation from the Company, to rescind his 97,252 vested
stock options, and for other related relief.
The accompanying financial statements contain no accrual for the
additional compensation sought by Mr. Arkin. In addition, the earnings per
share calculations as of June 30, 1997, contemplate only 97,252 options as
outstanding, representing a potential one-third vested portion of the
total options previously granted to Mr. Arkin.
The Company intends to vigorously defend its position that Mr. Arkin was
terminated with cause and that no part of his employment contract is still
enforceable, including the previous grant of options, whether vested or
not at the time of termination.
9. Legal Proceedings
On November 2, 1995, Dallas Riley, Jr., a former employee of Birman &
Associates, Inc., filed a lawsuit against Birman & Associates, Inc., David
N. Birman, M.D., and Liberty Mutual Insurance Company in the Circuit Court
of Putnam County, Tennessee seeking permanent disability benefits under
the Tennessee Worker's Compensation statute or, alternatively, $500,000 in
damages for personal injury sustained through the alleged negligence of
Birman & Associates, Inc. Mr. Riley claims that he was permanently
disabled as a result of an injury that he suffered at a Company-sponsored
event. The Company's workers' compensation insurance carrier has recently
advised the Company that it intends to deny coverage of the claim on the
basis that the plaintiff was an independent contractor and not an
employee. The Company's general liability insurance carrier has agreed to
defend the Company in the action under reservation of rights to contest
the timeliness of the Company's notice. The Company believes Mr. Riley's
claims are without merit and intends to defend this action vigorously.
There are no other material legal proceedings pending against the Company.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
The following table sets forth the results of operations and percentage of
revenue represented by certain items reflected in the Company's Consolidated
Statements of Operations for the periods indicated.
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenue $ 2,848,709 100.0% $ 2,372,137 100.0%
Cost of revenue 1,181,439 41.5% 888,516 37.4%
----------- ----- ----------- -----
Gross Margin 1,667,270 58.5% 1,483,621 62.6%
Selling, General and administrative expenses 2,004,930 70.4% 1,169,119 49.3%
----------- ----- ----------- -----
Income (loss) from operations (337,660) (11.9)% 314,502 13.3%
Interest income 118,483 4.2% 38,338 1.6%
Interest expense (3,774) 0.0% (247) 0.0%
Gain on Sale of Assets 150 0.0% -- 0.0%
Other income 897 0.0% -- 0.0%
Minority interest 3,393 0.0% -- 0.0%
----------- ----- ----------- -----
Income (loss) before provision for income taxes (218,511) (7.7)% 352,593 14.9%
Provision for income tax (expense) benefit 94,211 3.3% (111,402) (4.7%)
----------- ----- ----------- ------
Net income (loss) (124,300) (4.4%) 241,191 10.2%
=========== ===== =========== ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996.
FORWARD LOOKING STATEMENTS:
Certain of the statements contained in this section of the report, including
those under "Outlook" and "Financial Conditions" are "forward-looking". While
the Company believes that these statements are accurate, the company's business
is dependent upon general economic conditions and various conditions specific to
its industry, and future trends results cannot be predicted with certainty. In
particular:
Almost 22% and 25%, respectively, of the company's consulting business is
derived from hospitals owned by Quorum and St. Barnabas. Those hospitals
contract individually with the Company and there is no "system wide" agreement
with those hospital groups. Nonetheless, serious difficulties with any hospital
in either group could adversely affect the Company's relations with other
hospitals in those groups.
The Company operates within a highly regulated industry --- health care ---
which is now the subject of tremendously expanded federal regulatory enforcement
efforts. Although the Company believes itself to be fully in compliance with all
applicable statues, regulations and administration and court decisions, this
area of the law is evolving rapidly. The Company has engaged special health care
regulatory counsel since 1989 to review the
<PAGE> 12
Company's procedures and activities to assure compliance with those laws. The
Company's Board of Directors has adopted its resolution setting compliance with
those laws as the Company's main governing business principle. Nonetheless,
given the widespread federal enforcement activities in this industry, there can
be no assurance that the Company and/or its current and former officers will not
be made the subject of an investigation by federal enforcement personnel. In the
event of any such investigation or other regulatory or enforcement action, the
Company may experience a material adverse decline in its principal business.
While the Company believes any such action would be wholly unwarranted, the mere
fact of such action would cause the Company to incur substantial professional
fees for its defense and would damage its reputation and business activities
within its market.
The Company and its industry remain subject to further regulation, laws and
court or administrative actions. There can be no assurance that such laws or
decisions will not in the future materially adversely affect the Company and its
business.
The Company competes with a vast array of other companies and individuals, many
of whom have resources substantially greater than those of the Company.
REVENUE:
General
Revenue for the Company increased by 20%, to approximately $2,849,000 for the
three months ended September 30, 1997, from approximately $2,372,000 in the
comparable period of the prior year. The Quality Management Program experienced
a 15% growth rate with revenue of approximately $ 2,549,000 for the three months
ended September 30, 1997, from approximately $2,216,000 in the comparable period
of the prior year. The growth in revenue was due to management's action to
target larger hospital-clients for the Quality Management Program. Period to
period changes in the volume of the Quality Management Program business of the
Company is measured in aggregate annual Medicare discharges of the Company's
hospital-clients. Aggregate Medicare discharges is a factor of the size and
number of hospital-clients. The aggregate Medicare discharges of the
hospital-clients increased by 36 % to approximately 15,400 for the three months
ended September 30, 1997, from approximately 11,300 in the comparable period of
the prior year. Although the number of hospital-clients on contract decreased to
28 in September 1997 from 32 in the prior year, the Company continued to
experience growth in revenue as the average size of the hospital-client
increased.
Although the Company experienced growth in comparable fiscal quarters, revenue
for the last two consecutive quarters decreased by 20% to $2,849,000 for the
three months ended September 30, 1997 from $3,555,000 for the three months ended
June 30, 1997. This decrease was due to the seasonal nature of the Quality
Management Program business as hospital discharges and severity of illness
normally decline during the summer months and also the conversion of several
large hospital contracts to discounted fee arrangements.
Outlook: Until recently, the Company experienced rapid growth in its Quality
Management Program business which it largely sustained throughout the first
three quarters of the fiscal year ended June 30, 1997. In the last two fiscal
quarters, the impact of heightened government regulatory enforcement against the
health care industry in general has created a climate of hesitation among the
Company's potential hospital clients. As a consequence, the Company has not been
able to add new hospital-clients at its previous rate. During the first quarter
of the current fiscal year, the Company changed its marketing strategy
accordingly to increase the emphasis on the regulatory compliance assurance
benefit of the Quality Management Program. The Company also added four new sales
executives and believes that the current government regulatory climate has
created an opportunity for our services. In addition, the Company is also
developing products and services which the Company believes will complement and
expand the Company's core business. The first of these services, a Physicians'
Office Management program was introduced in September 1997.
Significant Customer - Quality Management Program
The Company's contracts with two Saint Barnabas Health Care System hospitals,
Community Medical Center in Tom's River, New Jersey, and Kimball Medical Center
in Lakewood, New Jersey, were responsible for approximately 24% of the
Company's Quality Management Program revenues for the three months ended
September 30, 1997. The Company was notified on November 11, 1997, that Saint
Barnabas has elected to end the current contracts to provide the Company's
Quality Management Program to these two hospitals in accordance with their
terms on December 31, 1997. Saint Barnabas and the Company have been in active
negotiations for the Company to provide further services, termed "co-sourcing,"
to the entire 10-hospital Saint Barnabas System to train staff members of Saint
Barnabas to perform functions now provided by the Company.
Outlook: Based on discussions to date, the Company believes that an acceptable
agreement will be reached to provide "co-sourcing" services to the Saint
Barnabas System. There is no assurance that the Company and Saint Barnabas will
reach agreement on providing these additional services or, if agreement is
reached, that the compensation to the Company will equal fees now paid for the
Quality Management System.
<PAGE> 13
Change in Fee Structure - Quality Management Program
Both the Company and its hospital clients have initiated the change in billing
arrangements from "results oriented" contracts to "fixed fee" contracts for the
Quality Management Program. In addition, the Company is targeting larger
hospital facilities which are demanding discounted fee contracts. As a result,
revenue per discharge has decreased by approximately 16 % for the quarter ended
September 30, 1997.
Outlook: Although there can be no assurance given as to the ultimate decline in
"per discharge" revenues resulting from the shift from "results-oriented"
compensation to fixed fee compensation, the Company believes that the 16%
decline already experienced should represent most or all of the decline the
Company will face. However, competitive and regulatory pressures may cause still
further declines in these revenues. The Company has recently announced "value
added" regulatory compliance services which will distinguish the Company's
services from those of the bulk of its competitors and which should allow the
Company to retain its "per discharge" fee levels.
Hughes & Associates, Inc. Revenue
Revenue from the operations of Hughes and Associates, Inc., the Company's
utilization review business in Mississippi, increased by 18%, to approximately
$183,000 for the three months ended September 30, 1997, from approximately
$155,000 in the comparable period of the prior year.
Outlook: The Company expects Hughes & Associates, Inc. to continue to show
growth in revenue and modest profits. The revenue and earnings from Hughes &
Associates is not expected to contributed materially to consolidated revenue or
earnings.
Health Plan Revenue
Revenue of $108,000 was attributable to health plan premiums earned from the
start up of Care3, Inc., the Company's Health Plan in Gulfport, Mississippi
which began operations in March 1997 and had no revenue in the comparable period
of the prior year. Period to period changes in the volume of the health plan
business of the Company is measured in aggregate "member months". A "member
month" is equivalent to one member for which the HMO recognized premium revenue
for one month. The aggregate health plan "member months" of Care3, Inc. was
1,090 for the three months ended September 30, 1997.
Outlook: The Care3, Inc. health plan is anticipated to experience significant
growth during the current fiscal year and has grown to 843 members as of
September 30, 1997 from 174 members as of June 30, 1997. The Company has
enrolled a substantial number of members engaged in the casino gaming industry
in Mississippi - an occupation know for relatively high claims on health care
providers. In addition, the health plan is in the start-up stage and there can
be no assurance that the health plan will achieve or maintain profitability in
the future.
COST OF REVENUE:
The cost of revenue includes all costs directly associated with the operations
of the Quality Management Program and Utilization Review business, including
compensation of physicians and allied medical specialists, consulting staff
travel and lodging, and other direct costs. Also included in cost of revenue are
medical expenses and claims associated with the operation of the Company's
health plan in Gulfport, Mississippi. Cost of revenue for the Company increased
by 33%, to approximately $1,181,000 for the three months ended September 30,
1997, from approximately $889,000 in the comparable period of the prior year.
The Company's cost of revenue as a percentage of revenue increased to 41.5% for
the three months ended September 30, 1997 from 37.4% for
<PAGE> 14
the comparable period of the prior year, due primarily to (i) an increase in
recruitment and training costs due to the hiring of additional physicians and
allied medical specialists for hospital engagements scheduled or anticipated to
start in the second and third quarters (ii) an increase in costs associated with
the operations of Hughes & Associates, Inc. and (iii) medical expenses and
claims associated with operations of the Company's health plan in Gulfport,
Mississippi which began operations in March 1997.
Outlook: Cost of revenue will increase significantly as the Company's health
plan in Mississippi enrolls more members and incurs medical claims. Cost of
revenue as a percentage of revenue is anticipated to increase as the revenue
from the Company's health plan in Gulfport, Mississippi becomes a larger portion
of the total revenue.
GROSS MARGIN:
The Company's gross profit margin decreased as a percentage of revenue to 58.5%
for the three months ended September 30, 1997 from 62.6 % in the comparable
period of the prior year. The decrease was primarily due to the consolidation of
the Company's new health plan in Mississippi. The health plan gross profit
margins as a percentage of premium revenue will never equal the margins
experienced from the Company's other business.
Outlook: The Company expects the health plan in Gulfport, Mississippi to produce
gross profit margins of 15% to 20% of premium revenue, which is typical for the
industry. The Quality Management Program business is anticipated to produce
gross profit margins of 55% to 60% of consulting fees in the near term. Gross
margin percentages on a consolidated basis will therefore continue to decrease
as the revenue from the health plan becomes a larger portion of total revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expense increased by 72%, to approximately
$2,005,000 for the three months ended September 30, 1997, from approximately
$1,169,000 in the comparable period of the prior year. The increase in selling,
general and administrative expense for the three months ended September 30, 1997
was primarily attributable to (i) an increase in salaries and benefit expense of
$312,000 related to the expansion of the management team for the Quality
Management Program and new administrative support personnel (ii) salary expense
of $40,000 incurred in the development of the new physician office product of
the Quality Management Program (iii) an increase in legal and professional fees
of $233,000, which includes fees related to regulatory compliance advice and
on-going litigation; and $46,500 in consulting fees paid under a consulting
agreement with Richard M. Ross, former officer and director of the Company
(v) expense of $150,000 incurred as a new publicly held company which includes
public reporting, directors expense, and directors and officers liability
insurance (vii) expense of $51,000 incurred to operate the Company's new health
plan in Gulfport Mississippi. As a percentage of revenue, selling, general and
administrative expense increased to 70.4% for the three months ended September
30, 1997 from 49.3% in the comparable period in the prior year.
Outlook: The Company anticipates that selling, general and administrative
expense will continue at the current level through the next fiscal quarter and
continue to increase in future quarters. However, as a percentage of revenue the
Company expects a decrease in the third and fourth quarters as revenue is
realized from the investment made in additional personnel and new product
development.
INTEREST INCOME AND EXPENSE:
Interest income increased to approximately $118,000 for the three months ended
September 30, 1997 from approximately $38,000 in the comparable period of the
prior year. This increase was attributable to interest earned on the increased
balance of cash deposits held primarily in money market and other short term
investment accounts. Interest expense increased to approximately $4,000, due to
the accrual of interest on a note payable for the acquisition of the Mississippi
HMO license in February 1997.
NET INCOME:
For the three months ended September 30, 1997 the company reported a net loss of
($124,300), a decrease of 152% as compared with net income of $241,191 in the
comparable period of the prior year. The decrease in net income was primarily
due to an increase in selling, general and administrative expense as a result of
the staffing
<PAGE> 15
additions to the Company's management team to accommodate core business growth
and new product development. Other factors attributable to the decrease in net
income included expenses related to the startup of the Company's HMO in
Mississippi, an increase in legal and professional fees, and expenses incurred
as a new publicly held company.
Outlook: Due to anticipated lower gross profit margins and increased selling,
general and administrative expense, the Company expects operating losses of
approximately $150,000 to $250,000 for the next fiscal quarter. The Company
anticipates that this situation will not continue into the third and fourth
quarters as (i) revenue is realized from the investment made in additional
personnel and new product development (ii) the health plans approach
profitability and (iii) additional revenue is realized from the Quality
Management Program as a result of the change in marketing strategy.
LIQUIDITY AND CAPITAL RESOURCES:
During the three months ended September 30, 1997, the Company funded its
operating and business development activities primarily through operating
revenue and used cash on deposit of approximately $63,000. The Company invested
approximately $55,000 to purchase property and equipment and used $100,000 to
fund a mortgage bridge loan to a new executive of the Company under the terms of
an employment agreement. During the three months ended September 30, 1997, the
Company repaid approximately $3,200 of debt and capital leases.
The Company will use capital of $300,000 to $400,000 within the next two
fiscal quarters to comply with increased net equity requirements under the
Mississippi HMO regulations and $200,000 to service an annual debt installment
related to the acquisition of the HMO license. The Company will utilize
approximately $200,000 within the next two fiscal quarters to furnish and move
to the new office building in Cookeville, Tennessee. In addition, the Company
plans to enter into an operating lease agreement to purchase approximately
$250,000 of furniture for the new office building. The Company will use
$100,000 to $250,000 of cash resources during the next fiscal quarter to fund
anticipated operating losses for the quarter.
The Company has available a working capital line of a $1,000,000, (maximum
principal) credit facility with American National Bank and Trust Company of
Chicago. The facility has an initial maturity date of October 31, 1997, which
has been extended to January 31, 1998. The credit facility is secured by a
pledge of the Company's Quality Management Program and quality
assurance/utilization review accounts receivables. These receivables are
obligations of the hospital-clients to the Company of insurance company and
self-insured employer clients of Hughes, and are not Medicare or Medicaid
receivable accounts. The Company plans to renew the line of credit facility with
an increased principal amount of $1,500,000 and will include as additional
collateral the premium receivable accounts of the health plan.
Outlook: The Company believes the net proceeds from the initial public offering
in February, 1997, together with its existing cash resources and available
credit facilities, will be sufficient to meet the Company's anticipated
acquisition, expansion, and working capital needs for the next eighteen months.
The Company, however, may raise capital through the issuance of long-term or
short-term debt or the issuance of securities in private or public transactions
to fund future expansion of its business either before or after the end of the
eighteen month period. There can be no assurance that acceptable financing for
future transactions can be obtained.
<PAGE> 16
PART II
Item 1: Legal Proceedings
In August 1997, the Company filed suit in the Circuit Court for Putnam County,
Tennessee, for damages and injunctive relief against a former employee of the
Company, Mr. Dallas Riley and his company, Medical Business Associates, LLC,
alleging that he and his company misappropriated the company's trade secrets and
marketing materials. No answer to the complaint has been filed and discovery has
not commenced.
The Company's former general counsel, and secretary, Robert D. Arkin, a member
of the Georgia State Bar, filed suit against the Company, its chairman,
president and chief executive officer, David N. Birman, M.D., and its executive
vice president and director, Sue D. Birman, in United States District Court for
the Northern District of Georgia, Atlanta Division, on May 8, 1997. Dr. Birman
and Mrs. Birman were dismissed from the complaints shortly after it was served.
The complaint alleges breach by the Company of a written employment agreement
drafted by Arkin while he was an attorney for the company, which was executed by
the Company. On March 5, 1997, he was terminated by the Company for reasons the
Company believes constituted good cause. By his complaint, Arkin seeks all of
his future unearned compensation under the agreement, which calls for payments
to him of $206,250 per year for five years (plus annual CPI adjustments), plus
one additional year's salary if the contract is not renewed - a total of over
$1,230,000. In addition, Arkin asserts he is entitled to his bonus compensation
under the Company's executive bonus plan, which would be approximately $85,000
through the date of his termination, and immediate vesting of options granted to
him under the company's 1995 Stock Option Plan to acquire 194,504 shares of
common stock of the Company for an exercise price of $1.37 per share (which are
in addition to 97,252 shares which have otherwise vested). He also alleges
various causes of action related to the facts giving rise to his termination.
Arkin's complaint also contains numerous other disclosures and allegations which
the Company believes are irrelevant to the complaint and are protected by the
Company's attorney/client privilege, which disclosure is in violation of the
Standards of Conduct of the Georgia State Bar. The United States District Court
for Northern District of Georgia granted the company's motion to place the
litigation under seal, agreeing with the Company that Mr. Arkin's complaint
disclosed matters which appear to be covered by the attorney/client privilege.
The Company denies the material allegations of the complaint. The Company has
been advised that the complaint has no merit and that it is likely to prevail on
the complaint. Should Arkin prevail, it is unclear whether Arkin would be
entitled to some or all of the unearned and unpaid compensation. It is further
unclear whether such payment, if owed, would be for a lump-sum payment of his
claimed salary or whether the salary would be paid in annual or monthly
installments.
The Company believes that the employment agreement is not enforceable against
the Company and it further believes it has the right to rescind the grant of
stock options to Arkin, including the options to acquire 97,252 shares which
have otherwise vested. In connection with the drafting, negotiation and
execution of the employment agreement, the executive bonus plan and the stock
options agreement, Arkin acted as sole counsel to the Company as well as to
himself. At no time did he disclose to the Company the conflicts of interest
inherent in the transactions. He further failed to fully advise the Company of
its right to obtain independent representation with respect to those
transactions. Such disclosure and advice are required by the Standards of
Conduct of the Georgia State Bar. The company also believes he failed to provide
the company with an accurate employment history prior to becoming employed by
the company. Even if the agreements are deemed enforceable, the Company believes
that Arkin was terminated "for cause," which terminates any right he would
otherwise have to additional compensation or vesting of stock options.
Item 5: Other information
On November 11, 1997, the Company, through its Birman & Associates, Inc.,
subsidiary, and Government Management Systems, Inc., ("GMS"), signed a contract
under which GMS, whose principal is Richard P. Kusserow, former Inspector
General of the Department of Health & Human Services, will serve as a
subcontractor to the Company for certain regulatory compliance services. The
Company will manage all recruitment and business aspects of relationships
originated by the Company and for which GMS is called upon to render services.
Outlook: The Company expects this new relationship with Mr. Kusserow to confirm
and enhance the Company's position in the field of health care regulatory
compliance assurance services.
<PAGE> 17
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
*3.1 Certificate of Incorporation of Birman Managed Care, Inc.
*3.2 By-laws of Birman Managed Care, Inc.
*3.3 Certificate of Merger dated September 9, 1996 by and between Birman
Managed Care, Inc. --- Delaware and Birman Managed Care, Inc.
*4.1 Reference is made to Exhibits 3.1 through 3.3.
*10.1 Employment Agreement by and between Birman Managed Care, Inc. and
David N. Birman, M.D. entered into on March 1, 1996.
*10.2 Employment Agreement by and between Birman Managed Care, Inc. and
Sue D. Birman entered into on March 1. 1996.
*10.3 Employment Agreement by and between Birman Managed Care, Inc. and
Robert D. Arkin entered into on March 1, 1996; Amendment No. 1 by and
between Birman Managed Care, Inc. and Robert D. Arkin entered into on
March 1, 1996.
*10.4 Employment Agreement by and between Birman Managed Care, Inc.,
BMC Health Plans, Inc. and Vincent W. Wong entered into on March 1, 1996.
*10.5 Employment Agreement by and between Birman Managed Care, Inc. and
Douglas A. Lessard entered into on March 1, 1996; Amendment No. 1 by
and between Birman Managed Care, Inc. and Douglas A. Lessard entered
into on March 1, 1996; Amendment No. 2. by and between Birman
Managed Care, Inc. and Douglas A. Lessard entered into on September 1,
1996.
*10.6 Employment Agreement by and between Birman Managed Care, Inc. and
Mark C. Wade entered into on July 1, 1995; Amendment No. 1 by and
between Birman Managed Care, Inc., BMC Health Plans, Inc. and Mark C.
Wade entered into on October 30, 1995; Amendment No. 2 by and
between Birman Managed Care, Inc. and Mark C. Wade entered into on
September 1, 1996.
*10.9 Consulting Agreement by and between Richard M. Ross, RRCG, L.L.C.,
and Birman Managed Care, Inc. entered into as of September 1, 1996.
*10.10 1995 Stock Option Plan for Birman Managed Care, Inc. dated October 31,
1995.
*10.11 1996 Non-Employee Directors' Non-Qualified Stock Option Plan of
Birman Managed Care, Inc.
*10.12 Stock Purchase Agreement by and between Birman Managed Care, Inc.,
Canton Management Group, Inc. and Wesley Prater, M.D., Larry
Cooper, M.D., Kelvin Ramsey, M.D., L.C. Tennin, M.D., Louis Sadler, M.D., James
Goodman, Ph.D., Vic Caracci, Michael T. Caracci, Robert T. Teague, M.S.W.,
Vincent Caracci, Charlie Hill, Harold Wheeler, M.D., Stephanie Tucker, Winifred
Fulgham and Joyce Johnson entered into on September 6, 1996.
*10.13 Promissory Note by David N. Birman, M.D. and payable to the Company.
*10.14 Loan and Security Agreement dated August 21, 1996 by and between
American National Bank and Trust Company of Chicago and Birman
& Associates, Inc.
*10.15 Loan and Security Agreement dated August 21, 1996 by and
between Hughes & Associates, Inc.
*10.17 Form of Indemnification Agreement for Birman Managed Care, Inc.
*10.18 Executive Bonus Plan.
*10.19 Agreement by and between National Benefit Resources, Inc. and
Birman Managed Care, Inc. entered into on April 16, 1996.
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
*10.20 Agreement dated September 17, 1996 by and between Birman Managed
Care, Inc. and Community Medical Center.
*10.21 Form of Escrow Agreement.
*10.22 Lease dated December 2, 1996 between Arc Builders, LLC and Birman
Managed Care, Inc.
*10.23 Form of Consulting Agreement between Birman Managed Care, Inc. and
Royce Investment Group, Inc.
*10.24 Form of Merger and Acquisition Agreement between Birman Managed
Care, Inc. and Royce Investment Group, Inc.
**10.25 Employment Agreement by and between Birman Managed Care, Inc.
and Samuel S. Patterson.
**10.26 Employment Agreement by and between Birman Managed Care, Inc.
and Jeffrey L. Drake.
11.1 Statement of Computation of Earnings Per Share for the three months ended
September 30, 1997.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed by the Company during the
three months ended September 30, 1997.
--------------------
* Incorporated by Reference from the Company's Registration Statement on
Form SB-2 (No. 333-111957).
** Incorporated by Reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1997.
<PAGE> 19
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.
BIRMAN MANAGED CARE, INC
November 12, 1997 /s/ DAVID N. BIRMAN
---------------------------------------
David N. Birman
Chairman of the Board, President and
Chief Executive Officer
November 12, 1997 /s/ DOUGLAS A. LESSARD
----------------------------------------
Douglas A. Lessard
Vice President, Treasure and Chief
Financial Officer
(Principal Accounting Officer)
<PAGE> 1
EX-11.1
Statement of Computation of Earnings Per Share
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11.1
BIRMAN MANAGED CARE, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, September 30,
1997 1996
----------------------------------------
<S> <C> <C>
Net Income $ (124,300) $ 241,191
Primary Earnings Per Share: (1)
Common stock equivalents
Options and warrants granted and unexercised 1,130,457 1,076,371
Assumed buyback of options (2) (434,280) (303,936)
----------- ----------
696,177 772,435
8,089,588 5,931,082
----------- ----------
Total average common shares outstanding 8,785,765 6,703,517
=========== ==========
Primary earnings Per Share $ (.01) $ .04
=========== ==========
Fully Diluted Earnings Per Share (1)
Common stock equivalents
Options and warrants granted and
unexercised 1,130,457 1,076,371
Escrow shares (3) 666,666 1,000,000
Assumed buyback of options (2) (434,280) (303,396)
----------- ----------
1,362,843 1,772,435
Total weighted average share issued 8,756,254 5,931,082
----------- ----------
Weighted average common shares outstanding 10,119,097 7,703,517
=========== ==========
Fully Diluted Earnings Per Share $ N/A $ .03
=========== ==========
</TABLE>
(1) Earning per share are based upon the weighted average number of shares
outstanding for each of the respective periods. All weighted average shares
outstanding give retroactive effect to the 1,000 to 1 stock split in October
1995 and the 72.939 for 100 exchange in September 1996. The company
completed an initial public offering of its common stock on February 19,
1007. Pursuant to Securities and Exchange Commission rules, common stock
issued for consideration below the anticipated offering price per share
during the 12-month period prior to filing of the registration statement has
been included in the calculation of common share equivalent shares, using
the treasury stock method, as if they had been outstanding for all periods
presented.
(2) Buyback of stock options under the treasury stock method is at the market
price of $6.50 at September 30, 1997.
(3) Shares deposited into escrow by Dr. Birman pursuant to the Underwriting
Agreement are included in fully diluted earnings per share unless they are
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,294,367
<SECURITIES> 0
<RECEIVABLES> 1,145,450
<ALLOWANCES> 49,436
<INVENTORY> 0
<CURRENT-ASSETS> 9,871,675
<PP&E> 938,347
<DEPRECIATION> 334,051
<TOTAL-ASSETS> 12,706,830
<CURRENT-LIABILITIES> 661,394
<BONDS> 670,800
0
0
<COMMON> 8,756
<OTHER-SE> 11,168,188
<TOTAL-LIABILITY-AND-EQUITY> 12,706,830
<SALES> 0
<TOTAL-REVENUES> 2,848,709
<CGS> 0
<TOTAL-COSTS> 1,181,439
<OTHER-EXPENSES> 2,004,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,501
<INCOME-PRETAX> (218,511)
<INCOME-TAX> 94,211
<INCOME-CONTINUING> (124,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,300)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
