<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 DECEMBER 31, 1996
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)
<TABLE>
<S> <C>
Delaware 62-1584092
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
502 Gould Drive
Cookeville, Tennessee 38506
(Address of principal executive offices)
(615) 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 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
--- ---
Number of shares outstanding as of March 28, 1997: 8,754,282.
<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:
Condensed Consolidated Balance Sheets at June 30, 1996 and December 31, 1996 ................ 1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended
December 31, 1995 and 1996................................................................... 2
Condensed Consolidated Statement of Cash Flows for the Six Months Ended December 31,
1995 and 1996................................................................................ 3
Notes to Condensed Consolidated Financial Statements ........................................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ....... 8
PART II. OTHER INFORMATION
Item 5. Other Information............................................................................ 11
Item 6. Exhibits and Reports on Form 8-K............................................................. 11
Signatures..................................................................................................... 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,872,343 $ 844,514
Accounts receivable, net 1,043,771 1,316,599
Prepaid expenses and other 9,903 71,403
Notes receivable 22,323 43,484
Deferred tax asset 95,549 95,549
---------- ----------
Total current assets 3,043,889 2,371,549
Property and equipment, net 293,684 552,177
Note receivable - related party (Note 4) 631,173 795,495
Deferred offering costs 25,000 678,165
Goodwill 16,145 15,741
Other assets -- 64,907
---------- ----------
Total assets $4,009,891 $4,478,034
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable $ 2,435 $ 2,618
Current portion of capital lease obligations 1,540 1,089
Accounts payable 117,025 643,088
Accrued expenses 2,050 125,575
Income taxes payable 635,205 83,890
---------- ----------
Total current liabilities 758,255 856,260
Note payable, less current portion 5,028 3,700
Capital lease obligations, less current portion 2,009 895
Deferred income taxes payable 55,620 55,620
---------- ----------
Total liabilities 820,912 916,475
---------- ----------
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued or outstanding -- --
Common stock, $.001 par value, 25,000,000 shares
authorized, 6,931,082 issued and outstanding 6,931 6,931
Additional paid-in capital 1,780,612 1,780,612
Retained earnings 1,401,436 1,774,016
---------- ----------
Total stockholders' equity 3,188,979 3,561,559
---------- ----------
Total liabilities and stockholders' equity $4,009,891 $4,478,034
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,857,030 $ 2,724,144 $ 3,274,321 $ 5,096,281
Cost of revenue 588,823 1,000,865 1,020,031 1,889,381
----------- ----------- ----------- -----------
Gross profit 1,268,207 1,723,279 2,254,290 3,206,900
Selling, general and administrative expenses 1,143,587 1,470,035 2,069,318 2,639,154
----------- ----------- ----------- -----------
Income from operations 124,620 253,244 184,972 567,746
Other income (expense):
Interest expense (19,685) (3,101) (29,980) (3,348)
Interest income 7,741 25,629 12,402 63,967
----------- ----------- ----------- -----------
(11,944) 22,528 (17,578) 60,619
----------- ----------- ----------- -----------
Income before income taxes 112,676 275,772 167,394 628,365
Provision for income tax expense 38,310 144,383 58,060 255,785
----------- ----------- ----------- -----------
Net income $ 74,366 $ 131,389 $ 109,334 $ 372,580
=========== =========== =========== ===========
Per share data:
Primary net income per share (Note 3) $ 0.01 $ 0.02 $ 0.02 $ 0.06
=========== =========== =========== ===========
Primary weighted average common shares outstanding (Note 3) 6,703,517 6,703,517 6,703,517 6,703,517
=========== =========== =========== ===========
Fully diluted net income per share (Note 3) $ 0.01 $ 0.02 $ 0.01 $ 0.05
=========== =========== =========== ===========
Fully diluted weighted average common shares
outstanding (Note 3) 7,703,517 7,703,517 7,703,517 7,703,517
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------
1995 1996
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 109,334 $ 372,580
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 60,050 57,519
Interest income debited to note receivable (3,953) (32,756)
Interest expense credited to note payable 1,900 --
Changes in assets and liabilities:
Accounts receivable (334,501) (272,828)
Deferred tax asset 18,892 --
Prepaid expenses and other -- (61,500)
Other assets -- (85,402)
Accounts payable - trade 98,041 526,063
Accrued expenses 10,700 123,525
Income taxes payable
- current 86,166 (551,315)
- deferred 678 --
--------- -----------
(62,027) (296,694)
Net cash provided by operating activities 47,307 75,886
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment (18,962) (315,608)
Collection of notes receivable - related parties 107,187 9,000
Advances for notes receivable - related parties (371,136) (141,232)
--------- -----------
Net cash used by investing activities (282,911) (447,840)
--------- -----------
Cash flows from financing activities:
Proceeds from debt 161,100 --
Payments on debt (273,139) (2,189)
Payments on capital leases -- (521)
Deferred offering costs (155,190) (653,165)
Proceeds from sale of stock 492,500 --
--------- -----------
Net cash provided (used) by financing activities 225,271 (655,875)
--------- -----------
Net decrease in cash and cash equivalents (10,333) (1,027,829)
Cash and cash equivalents at beginning of period 10,333 1,872,343
--------- -----------
Cash and cash equivalents at end of period $ -- $ 844,514
========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED 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 six months ended December 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 1997. These interim financial statements should be read in conjunction
with the prospectus dated February 12, 1997, including the financial statements
and notes contained therein, filed with the Securities and Exchange Commission.
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. The Company acquired a third subsidiary on June 14, 1996, through an asset
purchase of Hughes & Associates, Inc ("Hughes"). The operations of Hughes are
immaterial. This represents a change in legal entity, but not in the operations
of the Company. 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.
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 health plans in association with physician networks,
hospitals, and other health care providers.
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 12,
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 has
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 anticipated offering 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 to be placed in escrow upon
completion of the proposed 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
<PAGE> 7
4. Related Party Transactions
Notes Receivable:
Included in notes receivable at June 30, 1996 and December 31, 1996 are
the following related party notes and interest receivable :
<TABLE>
<CAPTION>
June 30, December 31,
1996 1996
-------- --------
<S> <C> <C>
7% notes receivable from David N. Birman, M.D., due on demand $556,586 $ --
Interest receivable -- David N. Birman, M.D. 74,587
Note receivable from David N. Birman, M.D., Interest is the prime rate
at American National Bank and Trust of Chicago and due in three
annual installments beginning 8/31/97. Principal due 8/31/99 -- 775,000
Interest receivable -- accrued interest on the note from 9/1/96 through
12/31/96 -- 20,495
-------- --------
$631,173 $795,495
======== ========
</TABLE>
On September 1, 1996, the Company consolidated the 7% note receivable and
all accrued interest into the new note receivable.
5. 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. 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 substantially all of the
assets of the Quality Management Program and Hughes & Associates, Inc. Under the
terms of the facility, the Company can borrow up to the lesser of: (i) $100,000,
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 December 30,
1996 there was a zero balance on the line of credit.
6. 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 47% and
28% of the Company's Quality Management Program revenues for the three months
ended December 31, 1995 and 1996, respectively, and approximately 61% and 26% of
the Company's Quality Management Program revenues for the six months ended
December 31, 1995 and 1996, respectively.
7. Subsequent Events and Contingencies
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 will be
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.
Dr. Birman tendered 176,800 shares of his Common Stock, valued at $4.60 per
share, as payment in full of his note to the Company in the amount of $775,000
plus accrued interest, at the time of the closing the IPO (February 12, 1997).
Mr. Arkin, the Company's former general counsel and secretary, and who had
been elected its chief operating officer, left the Company's employ on March 5,
1997. The Company and Mr. Arkin are currently discussing settlement of any
claims each may have against the other involving his former employment
relationship.
5
<PAGE> 8
8. Proforma Condensed Consolidated Financial Statements
The following unaudited Proforma Condensed Consolidated Balance Sheet as of
December 31, 1996 and the unaudited Proforma Condensed Consolidated Statement of
Operations for the six month period ended December 31, 1996, give effect to the
acquisition by Birman Managed Care, Inc. of Canton Management Group, Inc.
pursuant to the Acquisition Agreement between the parties, and are based on the
estimates and assumptions set forth herein. This proforma information has been
prepared utilizing the historical financial statements. The unaudited Proforma
Condensed Consolidated Financial Statements do not purport to be indicative of
the results which actually would have been obtained had the purchase been
effected on the dates indicated or of the results which may be obtained in the
future.
The unaudited Proforma Condensed Consolidated Financial Statements are
based on the purchase method of accounting for the acquisition of Canton
Management Group, Inc., and should be read in conjunction with the prospectus
dated February 12, 1997. In management's opinion, all adjustments necessary to
reflect the acquisition have been made.
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
Canton
Management
Historical Group, Inc.
Birman (A Development Proforma
Consolidated Company) Proforma Entries Consolidated
------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Cash $ 844,514 $ 4,171 $ (700,000)(1) $ 148,685
Accounts receivable 1,316,599 763 1,317,362
Prepaid expenses 71,403 -- 71,403
Notes receivable 838,979 -- 838,979
Deferred tax asset 95,549 -- 95,549
Property, plant and equipment 552,177 -- 552,177
Deferred taxes, long-term -- 24,000 (24,000)(2) --
License and goodwill 15,741 -- 1,107,158 (1) 1,122,899
Other assets 743,072 132,425 875,497
Restricted certificates of deposit -- 500,000 500,000
---------- --------- ----------
Total assets $4,478,034 $ 661,359 $ 5,522,551
========== ========= ==========
Current portion - long-term debt $ 2,618 -- $ 200,000 (1) $ 202,618
Current portion of capital lease 1,089 -- 1,089
Accounts payable 643,088 6,624 649,712
Accrued expenses 125,575 -- 125,575
Income taxes payable 83,890 -- 83,890
Long-term debt 3,700 -- 600,000 (1) 603,700
Long-term portion of capital lease 895 -- 895
Deferred income taxes 55,620 -- (24,000)(2) 31,620
Minority interest -- -- 261,893 (1) 261,893
Preferred stock -- -- --
Common stock 6,931 -- 6,931
Additional paid-in capital 1,780,612 713,673 (713,673)(1) 1,780,612
Retained earnings 1,774,016 (58,938) 58,938 (1) 1,774,016
---------- --------- ----------
Total liabilities and stockholders' equity $4,478,034 $ 661,359 $ 5,522,551
========== ========= ==========
</TABLE>
- -------------
(1) To record the purchase of Canton Management Group, Inc. pursuant to the
acquisition agreement between the parties and the minority interest.
(2) To reclassify long-term deferred income taxes.
6
<PAGE> 9
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
Canton
Management
Historical Group, Inc.
Birman (A Development Proforma
Consolidated Company) Proforma Entries Consolidated
------------ ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Revenues $5,096,281 -- $5,096,281
Cost of revenue 1,889,381 -- 1,889,381
---------- --------- ----------
Gross profit 3,206,900 -- 3,206,900
Selling, general and administrative expenses 2,639,154 25,261 (1) 2,664,415
---------- --------- ----------
Income (loss) from operations 567,746 (25,261) 542,485
Other income 60,619 22,532 (2) 83,151
---------- --------- ----------
Income (loss) before provision for income taxes 628,365 (2,729) 625,636
Income taxes 255,785 -- 255,785
---------- --------- ----------
Net income (loss) $ 372,580 $ (2,729) $ 369,851
========== ========= ==========
Per share data:
Primary net income (loss) per share $ 0.06 $ (0.03) $ 0.06
========== ========= ==========
Primary weighted average common shares outstanding 6,703,517 100,000 6,703,517
========== ========= ==========
Fully diluted net income (loss) per share $ 0.05 $ (0.03) $ 0.05
========== ========= ==========
Fully diluted weighted average common shares
outstanding 7,703,517 100,000 7,703,517
========== ========= ==========
</TABLE>
- --------------
(1) Amortization of the licenses recorded in connection with the purchase
of Canton Management Group, Inc. will be reported on a straight-line
basis over 35 years, commencing when operations begin.
(2) Does not include the effects of additional interest expense on notes
payable as amount is immaterial.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue represented by
certain items reflected in the Company's Consolidated Statements of Operations
for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 31.7% 36.7% 31.2% 37.1%
Gross margin 68.3% 63.3% 68.8% 62.9%
Selling, general and administrative expenses 61.6% 54.0% 63.2% 51.8%
Income from operations 6.7% 9.3% 5.6% 11.1%
Other income (expense):
Interest expense (1.1%) (.1%) (.9%) (.1%)
Interest income .5% .9% .4% 1.3%
Income before provision for income taxes 6.1% 10.1% 5.1% 12.3%
Provision for income tax expense (2.1%) (5.3%) (1.8%) (5.0%)
Net income 4.0% 4.8% 3.3% 7.3%
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH THE THREE MONTHS ENDED
DECEMBER 31, 1995
REVENUES. Revenue from the Quality Management Program increased by 40%, to
approximately $2,601,000 in the three months ended December 31, 1996, from
approximately $1,852,000 in the comparable period of the prior year. The growth
in revenue was attributable to management's action to initiate engagements by
new hospital-clients for the Quality Management Program. The aggregate Medicare
discharges of the hospital-clients increased by 83% to approximately 14,000 for
the three months ended December 31, 1996, from approximately 7,600 in the
comparable period of the prior year and the number of hospital-clients increased
to 32 in December 1996 from 26 in December 1995. Additional revenue of $123,000
is attributable to the operations of Hughes and Associates, Inc. which was
acquired in June 1996 and not consolidated with the financial statements in the
comparable period of the prior year.
COST OF REVENUE. The cost of revenue includes all costs directly associated
with the operations of the Quality Management Program and Hughes & Associates,
Inc., including compensation of physicians and allied medical specialists,
consulting staff travel and lodging, and other direct costs of the Quality
Management Program and the UR/QA division. The cost of revenue of the Quality
Management Program increased by 56%, to approximately $920,000 for the three
months ended December 31, 1996, from approximately $589,000 in the comparable
period of the prior year due to an increase in the number of hospital-clients.
Additional cost of revenue of $81,000 is attributable to the operations of
Hughes and Associates, Inc. The Company's cost of revenue as a percentage of
revenue increased to 36.7% for the three months ended December 31, 1996 from
31.7% for the three months ended December 31, 1995, due primarily to (i) an
increase in recruitment and training costs for the Quality Management Program
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 and (ii) costs associated with the operations of Hughes & Associates,
Inc. which was acquired in June 1996 and not consolidated with the financial
statements in the comparable period of the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 28%, to approximately $1,470,000 for the
three months ended December 31, 1996, from approximately $1,144,000 in the
comparable period of the prior year. The increase in selling, general and
administrative expenses for the three months ended December 31, 1996 was
primarily attributable to (i) the expansion of the Company's management team and
(ii) selling, general and administrative expenses for Hughes & Associates, Inc.,
which was acquired in June 1996 and not consolidated with the financial
statements in the comparable period of the prior year. As a percentage of
revenue, selling, general and administrative expenses decreased to 54% for the
three months ended December 31, 1996 from 61.6% in the comparable period in the
prior year.
8
<PAGE> 11
INTEREST INCOME AND EXPENSE. Interest income increased to approximately
$26,000 for the three months ended December 31, 1996, from approximately $7,700
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 accounts and also on the increased balance on loans made by the
Company to Dr. Birman in connection with the farm operations distributed to him
in fiscal 1995. Interest expense decreased approximately $16,000, a reduction of
84% for the three months ended December 31, 1996 from the comparable period of
the prior year, as a result of the Company repaying the entire outstanding
principal of its term loan in June 1996.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH THE SIX MONTHS ENDED DECEMBER
31, 1995
REVENUES. Revenue from the Quality Management Program increased by 47%, to
approximately $4,818,000 in the six months ended December 31, 1996, from
approximately $3,274,000 in the comparable period of the prior year. The growth
in revenue was attributable to management's action to initiate engagements by
new hospital-clients for the Quality Management Program. The aggregate Medicare
discharges of the hospital-clients increased by 79% to approximately 25,000 for
the six months ended December 31, 1996, from approximately 14,000 in the
comparable period of the prior year and the number of hospital-clients
increased to 32 in December 1996 from 26 in December 1995. Additional revenue of
$278,000 is attributable to the operations of Hughes and Associates, Inc. which
was acquired in June 1996 and not consolidated with the financial statements in
the comparable period of the prior year.
COST OF REVENUE. The cost of revenue includes all costs directly associated
with the operations of the Quality Management Program and Hughes & Associates,
Inc., including compensation of physicians and allied medical specialists,
consulting staff travel and lodging, and other direct costs of the Quality
Management Program and the UR/QA division. The cost of revenue of the Quality
Management Program increased by 72%, to approximately $1,756,000 for the six
months ended December 31, 1996, from approximately $1,020,000 in the comparable
period of the prior year due to an increase in the number of hospital-clients.
Additional cost of revenue of $133,000 is attributable to the operations of
Hughes and Associates, Inc. The Company's cost of revenue as a percentage of
revenue increased to 37.1% for the six months ended December 31, 1996 from 31.2%
for the three months ended December 31, 1995, due primarily to (i) an increase
in recruitment and training costs for the Quality Management Program 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
and (ii) costs associated with the operations of Hughes & Associates, Inc. which
was acquired in June 1996 and not consolidated with the financial statements in
the comparable period of the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 28%, to approximately $2,639,000 for the
six months ended December 31, 1996, from approximately $2,069,000 in the
comparable period of the prior year. The increase in selling, general and
administrative expenses for the six months ended December 31, 1996 was primarily
attributable to (i) the expansion of the Company's management team and (ii)
selling, general and administrative expenses for Hughes & Associates, Inc.,
which was acquired in June 1996 and not consolidated with the financial
statements in the comparable period of the prior year. As a percentage of
revenue, selling, general and administrative expenses decreased to 51.8% for the
six months ended December 31, 1996 from 63.2% in the comparable period in the
prior year.
INTEREST INCOME AND EXPENSE. Interest income increased to approximately
$64,000 for the six months ended December 31, 1996, from approximately $12,000
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 accounts and also on the increased balance on loans made by the
Company to Dr. Birman in connection with the farm operations distributed to him
in fiscal 1995. Interest expense decreased approximately $27,000, a reduction of
89% for the six months ended December 31, 1996 from the comparable period of the
prior year, as a result of the Company repaying the entire outstanding principal
of its term loan in June 1996.
RECENT ACQUISITION
The recent acquisition of Canton provides to the Company a Certificate of
Compliance to operate an HMO in certain counties in northern Mississippi. In
addition to those counties, the Department of Insurance of the State of
Mississippi issued a Certificate of Compliance dated February 10, 1997, for
Care3 to operate an HMO in the six-county southern Mississippi region on March
4, 1997. The Company's Mississippi HMO commenced operations on or about March
18, 1997. Insufficient business activities have taken place for the Company to
assess the prospects for such operations. The effect on the Company's operations
of the Mississippi HMO will depend to a large extent on the Company's ability to
attract enrollees to its Mississippi health plan which,
9
<PAGE> 12
in turn, will depend to a significant extent upon the Company's ability to offer
PPO and point-of-service options to its enrollees in addition to the HMO option.
Because the Company's health plan business will be in a "start-up" phase for at
least six months after the HMO commences operations in Mississippi, the Company
anticipates that the Canton acquisition will result in a net operating loss
during at least the first three quarters of calendar 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to market its Quality Management Program and
to develop and launch its health plan business including, among other costs, the
organization of the requisite management infrastructure necessary to implement
the Company's health plan business. During the three months ended December 31,
1995, the Company financed its operating and business development activities
primarily through operating revenue and $100,000 of net proceeds from the
private placement of shares of Common Stock. During the three months ended
December 31, 1995, the Company repaid approximately $16,000 of debt using
proceeds from the private placement of Company Stock. In addition, the Company
advanced approximately $121,000 against notes receivable from Dr. Birman and
invested approximately $8,400 in the purchase of property and equipment.
During the six months ended December 31, 1995, the Company financed its
operating and business development activities primarily through operating
revenue and $492,500 of net proceeds from the private placement of shares of
Common Stock. During the six months ended December 31, 1995, the Company repaid
approximately $112,000 of debt using proceeds from the private placement of
Company Stock. In addition, the Company advanced approximately $264,000 against
notes receivable from Dr. Birman and invested approximately $19,000 in the
purchase of property and equipment.
During the three months ended December 31, 1996, the Company financed its
operating and business development activities primarily through operating
revenue and use of cash on hand at the beginning of the quarter. During the
three months ended December 31, 1996, the Company repaid approximately $1,100 of
debt and capital leases and invested $174,000 in the purchase of property and
equipment.
During the six months ended December 31, 1996, the Company financed its
operating and business development activities primarily through operating
revenue and use of cash on hand at the beginning of the quarter. During the six
months ended December 31, 1996, the Company repaid approximately $2,700 of debt
and capital leases using proceeds from operating activities. The Company
collected $9,000 on a note receivable from a related party. In addition, the
Company advanced $141,000 against notes receivable from Dr. Birman and invested
$316,000 in the purchase of property and equipment.
On January 15, 1997, the Company acquired all of the outstanding capital
stock of 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. Additional capital will be required to establish the
reserves required under Mississippi and Tennessee HMO regulations and to further
develop and market the Company's health plans.
The Company has a $1,000,000 maximum principal amount working capital line
of credit facility with American National Bank and Trust Company of Chicago. The
credit facility is secured by a pledge of the Company's Quality Management
Program and quality assurance/utilization review accounts receivable. These
receivables are obligations of the hospital-clients to the Company and of
insurance company and self-insured employer clients to Hughes, and are not
Medicare or Medicaid receivables.
The Company believes that the net proceeds from the initial public
offering, 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 24 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 24-month period.
There can be no assurance that acceptable financing for future transactions can
be obtained.
10
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Company Completes Initial Public Offering of Shares
Birman Managed Care, Inc. (the "Company"), successfully completed its
initial public offering of 2,000,000 shares of its common stock, par value
$.001 per share, at a price of $5.00 per share sold under its registration
statement and prospectus dated February 12, 1997. The offering closed on
February 19, 1997, and net proceeds of $8,707,500 were delivered to the
Company that day.
Trading of Company's Common Stock Commences on NASDAQ
The Company's common stock commenced trading on the National
Association of Securities Dealers Automatic Quotation national market
system ("NASDAQ") on February 13, 1997, under the symbol "BMAN."
Mississippi Issues Certificate of Compliance to Operate HMO
The State of Mississippi issued a Certificate of Compliance to the
Company's 69%-owned subsidiary, Care3, Inc. ("Care3") to operate a health
maintenance organization ("HMO") in six southern counties of Mississippi.
The Certificate was issued February 10, 1997 and received on March 4, 1997.
This new Certificate, along with the Certificate already held by Care3,
allows the Company to establish and operate an HMO in fourteen Mississippi
counties. Care3 maintains its headquarters office in Gulfport, Mississippi,
with four full-time employees.
Care3 is authorized to offer its HMO and has filed for permission to
offer point-of-sale, commercial group, Medicaid and individual health
plans. As marketing and sales have only just begun, the Company cannot yet
determine the acceptance of its product in the marketplace.
Company Names Higgins New Director; Replaces Arkin
John D. Higgins, senior vice president of corporate finance of Royce
Investment Group, Inc. -- the managing underwriter of the Company's
recently completed initial public offering of shares -- accepted
appointment to the Board of Directors of the Company on March 18, 1997. His
election fulfills a contractual provision of the underwriting agreement for
the initial public offering and fills the vacancy created by the removal of
Robert D. Arkin as a director, who had refused to resign. Mr. Arkin, the
Company's former general counsel and secretary, and who had been elected
its chief operating officer, left the Company's employ on March 5, 1997.
The Company and Mr. Arkin are currently discussing settlement of any claims
each may have against the other involving his former employment
relationship.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<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.
4.2* Specimen Common Stock Certificate.
4.6* Form of Representative's Warrant.
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.
</TABLE>
11
<PAGE> 14
<TABLE>
<S> <C>
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.
10.7* Employment Agreement by and between Birman Managed Care, Inc. and Brad Seitzinger, M.D. entered into on
August 26, 1991.
10.8* Employment Agreement by and between Birman Managed Care, Inc. and Bill Barenkamp entered into on November
9, 1993.
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 Saddler, M.D., James Goodman, Ph.D, Vic
Caracci, Michael T. Caracci, Roben T. Teague, M.S.W., Vincent Caracci, Charlie Hills, 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.
10.16* Promissory Note (Secured) dated August 21, 1995 in the stated principal amount of $1,000,000 payable to American
National Bank & Trust Company of Chicago by Birman & Associates and 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.
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.
11.1 Statement of Computation of Earnings Per Share for the three and six months ended December 31, 1996.
27.1 Financial Data Schedule.
99.1 State of Mississippi, Department of Insurance Certificate of Authority dated February 10, 1997.
(b) Reports
No reports on Form 8-K were required to be filed by the Company during the three months ended December 31, 1996.
</TABLE>
* Incorporated by reference from the Company's Registration Statement on
Form SB-2 (No. 333-11957)
12
<PAGE> 15
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.
March 28, 1997 /s/ DAVID N. BIRMAN
------------------------------------
David N. Birman
Chairman of the Board, President and
Chief Executive Officer
March 28, 1997 /s/ DOUGLAS A. LESSARD
------------------------------------
Douglas A. Lessard
Vice President, Treasurer and Chief
Financial Officer
(Principal Accounting Officer)
13
<PAGE> 1
EXHIBIT 11.1
BIRMAN MANAGED CARE, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 74,366 $ 131,389 $ 109,334 $ 372,580
Primary Earnings Per Share: (1)
Common stock equivalents
Options and warrants granted and unexercised 1,076,371 1,076,371 1,076,371 1,076,371
Assumed buyback of options (2) (303,936) (303,936) (303,936) (303,936)
----------- ----------- ----------- -----------
772,435 772,435 772,435 772,435
Total weighted average shares issued 5,931,082 5,931,082 5,931,082 5,931,082
----------- ----------- ----------- -----------
Weighted average common shares outstanding 6,703,517 6,703,517 6,703,517 6,703,517
=========== =========== =========== ===========
Primary Earnings Per Share $ 0.01 $ 0.02 $ 0.02 $ 0.06
=========== =========== =========== ===========
Fully Diluted Earnings Per Share: (1)
Common stock equivalents
Options and warrants granted and unexercised 1,076,371 1,076,371 1,076,371 1,076,371
Escrow shares (3) 1,000,000 1,000,000 1,000,000 1,000,000
Assumed buyback of options (2) (303,936) (303,936) (303,936) (303,936)
----------- ----------- ----------- -----------
1,772,435 1,772,435 1,772,435 1,772,435
Total weighted average shares issued 5,931,082 5,931,082 5,931,082 5,931,082
----------- ----------- ----------- -----------
Weighted average common shares outstanding 7,703,517 7,703,517 7,703,517 7,703,517
=========== =========== =========== ===========
Fully Diluted Earnings Per Share $ 0.01 $ 0.02 $ 0.01 $ 0.05
=========== =========== =========== ===========
</TABLE>
- --------------------
(1) 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 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 12, 1997. 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
assumed IPO price of $5.00 per share.
(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.
14
<PAGE> 1
EXHIBIT 99.1
[LOGO]
DEPARTMENT OF INSURANCE
POST OFFICE BOX 79
JACKSON, MS 39205-0079
CERTIFICATE OF COMPLIANCE
I, THE UNDERSIGNED COMMISSIONER OF INSURANCE, OF THE STATE OF MISSISSIPPI, DO
HEREBY CERTIFY THAT
9500039
CARE3, INC.
2301 14TH STREET, STE. 350
GULFPORT, MS 39501
HAS COMPLIED WITH ALL THE REQUIREMENTS OF THE LAWS OF THIS STATE APPLICABLE TO
SAID COMPANY AND IS AUTHORIZED TO TRANSACT THE BUSINESS OF: (SEE REVERSE SIDE
FOR INFORMATION OF SPECIFIC LINES)
HEALTH MAINTENANCE ORGANIZATION
IN ACCORDANCE WITH THE LAWS THEREOF UNTIL
01/01/1998
GIVEN UNDER MY HAND AND SEAL ON
2/10/1997
/s/ George Dale
[SEAL]
COMMISSIONER OF INSURANCE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 844,514
<SECURITIES> 0
<RECEIVABLES> 2,192,514
<ALLOWANCES> 36,936
<INVENTORY> 0
<CURRENT-ASSETS> 2,371,549
<PP&E> 790,744
<DEPRECIATION> 238,567
<TOTAL-ASSETS> 4,478,034
<CURRENT-LIABILITIES> 856,260
<BONDS> 8,302
0
0
<COMMON> 6,931
<OTHER-SE> 3,554,628
<TOTAL-LIABILITY-AND-EQUITY> 4,478,034
<SALES> 0
<TOTAL-REVENUES> 5,096,281
<CGS> 0
<TOTAL-COSTS> 1,889,381
<OTHER-EXPENSES> 2,639,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,348
<INCOME-PRETAX> 628,365
<INCOME-TAX> 255,785
<INCOME-CONTINUING> 372,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 372,580
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
