<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 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 (IRS Employer
incorporation or organization Identification No.)
1025 Highway 111 South
Cookeville, Tennessee 38501
(931) 372-7800
(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 February 16, 1998 8,756,254
<PAGE> 2
BIRMAN MANAGED CARE, INC.
FORM 10-QSB
INDEX
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
EX-11.1 Statement of Earnings per Share
EX-27.1 Financial Data Schedule
<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)
December 31, June 30,
1997 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,729,150 $ 8,515,572
Accounts receivable, net of allowance for
doubtful accounts of $68,366 1,088,341 1,592,741
Prepaid expenses and other 130,413 95,980
Deferred tax asset 512,000 14,800
Income taxes receivable 404,378 --
Note receivable - related party 16,034 --
----------- -----------
Total Current Assets 8,880,316 10,219,093
Property and equipment, net of accumulated depreciation 1,117,830 584,248
Goodwill 1,208,320 1,226,566
Other 573,995 486,948
Restricted certificates of deposit 500,000 500,000
----------- -----------
Total Assets $12,280,461 $13,016,855
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 200,000 $ 207,600
Current portion of capital lease obligations -- 419
Accounts payable 550,680 263,351
Accrued expenses 139,212 19,753
Accrued executive bonuses -- 116,341
Income taxes payable -- 208,587
Deferred revenue 16,572 --
----------- -----------
Total Current Liabilities 906,464 816,051
Note payable, less current portion 600,000 605,700
Deferred income taxes payable 73,600 92,775
----------- -----------
Total Liabilities 1,580,064 1,514,526
----------- -----------
Minority interest 153,920 201,085
----------- -----------
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 822,650 1,577,417
----------- -----------
Total Stockholders' Equity 10,546,477 11,301,244
----------- -----------
Total Liabilities and Stockholders' Equity $12,280,461 $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) (UNAUDITED)
Three Months ended Six Months ended
December 31, December 31,
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Consulting and health plan revenues $ 2,617,175 $ 2,724,144 $ 5,465,884 $ 5,096,281
Cost of revenue 1,360,924 1,000,865 2,542,363 1,889,381
----------- ----------- ----------- -----------
Gross profit 1,256,251 1,723,279 2,923,521 3,206,900
Selling, General and administrative expenses 2,426,544 1,470,035 4,431,474 2,639,154
----------- ----------- ----------- -----------
Income (loss) from operations (1,170,293) 253,244 (1,507,953) 567,746
----------- ----------- ----------- -----------
Other income (expense):
Interest income 100,005 25,629 218,488 63,967
Interest expense (11,235) (3,101) (15,009) (3,348)
Loss on disposal of assets (4,505) -- (4,355) --
Other income 3,369 -- 4,265 --
----------- ----------- ----------- -----------
87,634 22,528 203,389 60,619
Minority interest 43,772 -- 47,165 --
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes (1,038,887) 275,772 (1,257,399) 628,365
Provision for income tax (expense) benefit 408,421 (144,383) 502,632 (255,785)
----------- ----------- ----------- -----------
Net Income (Loss) $ (630,466) $ 131,389 $ (754,767) $ 372,580
=========== =========== =========== ===========
Per share data:
Basic Earnings (loss) per common share (Note 3) $ (.08) $ .02 $ (.09) $ .06
=========== =========== =========== ===========
Basic weighted average common stock shares
outstanding (Note 3) 8,089,588 5,931,082 8,089,588 5,931,082
=========== =========== =========== ===========
Earnings per common share - assuming dilution
(Note 3) $ (.08) $ .02 $ (.09) $ .05
=========== =========== =========== ===========
Weighted average common stock shares
outstanding, assuming dilution (Note 3) 8,089,588 7,703,517 8,089,588 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 (Unaudited) -- -- -- -- (754,767) (754,767)
--- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997
(Unaudited) -- 8,756,254 $ 8,756 $ 9,715,071 $ 822,650 $ 10,546,477
=== ============ ============ ============ ============ ============
</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)
Six Months Ended
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Net income (loss) $ (754,767) $ 372,580
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 113,921 57,519
Loss (gain) on disposal of assets 4,355 (32,756)
Loss (gain) attributed to minority interest (47,165) --
Changes in Assets and Liabilities:
Accounts receivable 504,400 (272,828)
Prepaid expenses and other (34,433) (61,500)
Deferred tax asset (497,200) --
Income taxes receivable (404,378) --
Other assets (91,600) (85,402)
Accounts payable 287,329 526,063
Accrued expenses 119,459 123,525
Accrued executive bonuses (116,341) --
Income taxes payable (208,587) (551,315)
Deferred revenue 16,572 --
Deferred income tax payable (19,175) --
----------- -----------
(372,843) (296,694)
----------- -----------
Net cash provided (used) by operating activities (1,127,610) 75,886
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (629,209) (315,608)
Collection of note receivable - related parties 900 9,000
Advances for note receivable - related parties (16,934) (141,232)
Proceeds from sale of assets 150 --
----------- -----------
Net cash used in investing activities (645,093) (447,840)
----------- -----------
Cash flows from financing activities:
Deferred offering costs -- (653,165)
Payments on debt (13,719) (2,710)
----------- -----------
Net cash used by financing activities (13,719) (655,875)
----------- -----------
Net decrease in cash and cash equivalents (1,786,422) (1,027,829)
Cash and cash equivalents at beginning of period 8,515,572 1,872,343
----------- -----------
Cash and cash equivalents at end of period $ 6,729,150 $ 844,514
=========== ===========
</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 six month period ended December 31,
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 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 Care3, Inc., a
Mississippi corporation ("formerly Canton Management Group, Inc."), 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. Care3, Inc. currently is a 69%
subsidiary of the Company. The Company may further reduce its ownership
percentage of Care3, Inc. to 60% by allowing selected physicians to
acquire shares of Care3, Inc. common stock. 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.
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
may 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 on managed care in
Mississippi 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. Basic Earnings Per Common Share:
Basic 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, assuming dilution, using the treasury stock method. After
completion of the public offering, 1,000,000 shares of common stock were
placed in escrow by David N. Birman, M.D. , of which 666,666 still
remain in escrow. These escrow shares are common stock equivalents and
included in the calculation of weighted average common stock shares
assuming dilution.
The following data reflects the amount used in computing earnings per
share for the quarter ended December 31, 1997, and the effect on income
and the weighted average number of shares of dilutive potential of
common stock:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income available to common
stockholders used in basic EPS $ (630,466) $ 131,389 $ (754,767) $ 372,580
Basic earnings (loss) Per Share:
Weighted average of common shares
outstanding 8,089,588 5,931,082 8,089,588 5,931,082
=========== =========== =========== ===========
Basic earnings (loss) Per Share $ (.08) $ .02 $ (.09) $ .06
=========== =========== =========== ===========
Earnings Per Share Assuming Dilution:
Common stock equivalents
Options and warrants granted and
unexercised -- 1,076,371 -- 1,076,371
Escrow shares -- 1,000,000 -- 1,000,000
Assumed buyback of options -- (303,936) -- (303,936)
----------- ----------- ----------- -----------
-- 1,772,435 -- 1,772,435
Weighted average of common shares
outstanding 8,089,588 5,931,082 8,089,588 5,931,082
----------- ----------- ----------- -----------
Weighted average common shares
outstanding, assuming dilution 8,089,588 7,703,517 8,089,588 7,703,517
=========== =========== =========== ===========
Earnings Per Share Assuming Dilution $ (.08) $ .02 $ (.09) $ .05
=========== =========== =========== ===========
</TABLE>
<PAGE> 9
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. The Company has adopted this accounting standard for its earnings
per share computations.
Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" (SFAS No. 129) issued by 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.
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 does not expect adoption of SFAS No. 130 to have a material
effect on its financial position or results of operations.
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.
<PAGE> 10
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Line of Credit:
In August, 1996, the Company arranged a $1,500,000 maximum principal
amount working capital revolving line of credit facility ("facility")
with American National Bank and Trust Company of Chicago. The facility
has a maturity date of October 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, utilization review ,
and health plan premium accounts receivable. These accounts receivable
are obligations of the hospital clients to the Company , employer
clients of Hughes, and employer clients of Care3, Inc. and are not
Medicare or Medicaid receivable accounts. Under the terms of the
facility, the Company can borrow up to the lesser of: (i) $1,500,000, 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 31, 1997, 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 21% and 28% of the Company's Quality Management Program
revenues for the three months ended December 31, 1997 and 1996,
respectively, and approximately 21% and 26% for the six months ended
December 31, 1997 and 1996, respectively.
The Company also provided Quality Management Program services for two
hospitals owned by St. Barnabas Health System, which represents
approximately 27% and 9% of the Company's Quality Management Program
revenues for the three months ended December 31, 1997 and 1996
respectively and approximately 26% and 5% for the six months ended
December 31, 1997 and 1996 respectively. St. Barnabas has elected to end
the current contracts effective December 31, 1997 in accordance with
their terms.
7. Commitments and Contingencies:
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.
On December 11, 1997, the Company and Robert D. Arkin entered into
a written Settlement Agreement and Mutual Release by which all parties
released the others on certain terms and conditions. The Company will
pay Arkin nothing in respect of his contract claims. Arkin will retain
and exercise previously-vested options to acquire 97,252 shares of the
Company's common stock for a price of $1.37 per share. The shares remain
subject to a previously existing "lock-up agreement" prohibiting their
unrestricted transfer until December 12, 1998. Arkin's previously
unvested award of options to acquire 184,505 shares of the Company's
common stock is canceled. Since December 11, 1997, Arkin and the Company
have made efforts to sell the shares (which remain restricted and
locked-up). On February 12, 1998, the Company committed to pay Mr. Arkin
$291,756 if the Company does not locate a buyer who purchases the stock
within ninety (90) days in return for Mr. Arkin's rights to the stock.
The Company further agreed to place these funds in escrow. If a buyer
for the stock cannot be found within that period, Mr. Arkin will be paid
the escrowed amount which will be a charge against pretax earnings
during the third fiscal quarter. The amount would thereupon be
classified as compensation or settlement expense in accordance with APB
Opinion No. 25.
8. 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
<PAGE> 11
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Legal Proceedings (continued)
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> 12
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) (Unaudited) (Unaudited)
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 2,617,175 100% $ 2,724,144 100% $ 5,465,884 100% $ 5,096,281 100%
Cost of revenue 1,360,924 52% 1,000,865 37% 2,542,363 47% 1,889,381 37%
----------- ---- ----------- ---- ----------- ---- ----------- ----
Gross Profit 1,256,251 48% 1,723,279 63% 2,923,521 53% 3,206,900 63%
SG&A Expenses 2,426,544 93% 1,470,035 54% 4,431,474 81% 2,639,154 52%
----------- ---- ----------- ---- ----------- ---- ----------- ----
Income (loss) from operations (1,170,293) (45)% 253,244 9% (1,507,953) (28)% 567,746 11%
Interest income 100,005 4% 25,629 1% 218,488 4% 63,967 1%
Interest expense (11,235) --% (3,101) --% (15,009) % (3,348) --
Gain (loss) on Sale (4,505) --% -- --% (4,355) % -- --
Other income 3,369 --% -- --% 4,266 % -- --
Minority interest 43,772 2% -- --% 47,165 1% -- --
----------- ---- ----------- ---- ----------- ---- ----------- ----
Income (loss) before
income taxes (1,038,887) (39)% 275,772 10% (1,257,399) (23)% 628,365 12%
Income tax (exp.)
benefit 408,421 16% (144,383) (5)% 502,632 9% (255,785) (5)%
----------- ---- ----------- ---- ----------- ---- ----------- ----
Net income (loss) $ (630,466) (23)% $ 131,389 5% $ (754,767) (14)% $ 372,580 7%
=========== ==== =========== ==== =========== ==== =========== ====
</TABLE>
FORWARD LOOKING STATEMENTS:
Certain 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 and results cannot be predicted with certainty.
In particular:
The Company operates within a highly regulated industry, health care, which is
now the subject of expanded federal regulatory enforcement efforts. Although the
Company believes it is in full compliance with all applicable statutes,
regulations and administrative and court decisions, this area of the law is
evolving rapidly. 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 has engaged special health care regulatory counsel since 1989 to
review the 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.
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.
Approximately 22% of the Quality Management Program (QMP) business revenue for
the last two fiscal quarters has been from hospitals owned or managed by Quorum.
Those hospitals contract individually with the Company and there is no "system
wide" agreement with those hospital groups. Serious difficulties with any
hospital could adversely affect the Company's relations with other hospitals in
those groups, however positive relations could result in additional business for
the Company.
<PAGE> 13
Approximately 26% of the QMP business revenue for the last two fiscal quarters
has been from contracts with two St. Barnabas Health Care System hospitals.
These contracts ended in accordance with their terms on December 31, 1997. The
termination of these two contracts will have an adverse effect on gross revenue
and earnings for the next fiscal quarter and until new business is secured to
replace this revenue.
QUARTER ENDED AND SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH QUARTER ENDED
AND SIX MONTHS ENDED DECEMBER 31, 1996:
REVENUE:
General
For the quarter ended December 31,1997, consolidated revenue decreased by 4% to
approximately $2,617,000, from approximately $2,724,000 in the comparable period
of the prior year. In addition, revenue for the last two consecutive quarters
has decreased by 8%.
For the six months ended December 31, 1997, revenue increased by 7% to
approximately $5,466,000, from approximately $5,096,000 in the comparable period
of the prior year.
Quality Management Program (QMP)
The Quality Management Program (QMP) experienced a 20% decrease in revenue to
approximately $ 2,089,000 for the quarter ended December 31, 1997, from
approximately $2,596,000 in the comparable period of the prior year. For the six
months ended December 31, 1997 the QMP business experienced a 4% decrease in
revenue to approximately $ 4,638,000 from approximately $4,811,000 in the
comparable period of the prior year. The Company has not started a new hospital
account since August 1997. Although the number of hospital-clients on contract
has decreased to 22 as of December 31, 1997 from 32 in the prior year, the
average size of the hospital-client has increased.
Period to period changes in the QMP business is measured by "per discharge"
revenue. In addition to a decrease in total revenue from the QMP business, the
Company has experienced a decline in "per discharge" revenue recognized from its
consulting services. This decline in "per discharge" revenue is a result of the
shift from "results-oriented" compensation contracts to fixed fee compensation
contracts.
Outlook: Until recently, the Company experienced rapid growth in its QMP
business which it sustained through most of the fiscal year ended June 30, 1997.
In the last two fiscal quarters, the decrease in revenue was due to a delay in
closing new business caused by a marketing strategy change to increase emphasis
of the regulatory compliance assurance benefit of the QMP product, along with
the lead time necessary to effectively train a new marketing and sales team.
During the first quarter, the impact of heightened government regulatory
enforcement against the health care industry in general created a climate of
hesitation among the Company's potential hospital clients and has continued into
the second quarter. As a consequence, the Company has not started a new hospital
account since August, 1997.
The Company now believes that the current government regulatory climate has
created an opportunity for our services and during the second quarter announced
several new product offerings which are designed to position the Company for
increased business. These products include the Company's new Physician
Evaluation and Management Product (PEM) which utilizes the QMP technologies in
the private practice setting. In addition, the Company has formed an alliance
with Government Management Services (GMS) to develop a product which brings
together the administrative and the clinical side of compliance into one
combined product called COMPASS. The Company has also taken the hospital QMP
product and divided it into incremental services to provide prospective
customers with a wider choice of QMP services with varying pricing arrangements
while preserving margins desired by the Company. There can be no assurance given
as to the ultimate success of these new products. In addition, there can be no
assurance as to the ultimate decline in "per discharge" revenues resulting from
the shift from "results-oriented" compensation to fixed fee compensation
Competitive and regulatory pressures may cause still further declines in these
revenues.
<PAGE> 14
Significant Customer - Quality Management Program
The Company's contracts with two St. Barnabas Health Care System hospitals,
Community Medical Center, Toms River, New Jersey and Kimball Medical Center,
Lakewood, New Jersey, were responsible for approximately 27% of the QMP business
revenues for the three months ended December 31, 1997 and 26% for the six months
ended December 31, 1997. St. Barnabas elected to end the current contracts in
accordance with their terms effective December 31, 1997.
Outlook: The termination of the two St. Barnabas Health Care System hospital
contracts will have an adverse effect on gross revenue and earnings during the
next fiscal quarter and until the Company replaces this business with new
contracts.
Health Plan Revenue
The Company's Health Plan in Gulfport, Mississippi began operations in March
1997 and therefore, had no revenue in the comparable period of the prior year.
The health plan revenue grew to approximately $336,000 for the quarter ended
December 31, 1997. For the six months ended December 31, 1997, the health plan
revenue was $445,000
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 3,235 "member months"
for the three months ended December 31, 1997 and 4,325 "member months" for the
six months ended December 31, 1997.
Outlook: The Care3, Inc. health plan will experience significant growth in the
next fiscal quarter and has grown to 27 groups and 2,293 members as of January
1, 1998 from 174 members as of June 30, 1997. The Company has enrolled a
substantial number of members from the casino gaming industry - an industry
known for relatively high medical claims experience. The Company has applied
approved actuarial and underwriting standards to this member population for
enrollment purposes. Like all enrolled groups to Care3, the Company will apply
appropriate clinical case management standards through their Hughes & Associates
utilization and case management subsidiary to assure clinical quality and cost
management procedures are attained. 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.
Hughes & Associates, Inc. Revenue
Revenue from the operations of Hughes and Associates, Inc., the Company's
utilization review (UR) business in Mississippi, increased by 72%, to
approximately $211,000 for the three months ended December 31, 1997, from
approximately $123,000 in the comparable period of the prior year. For the six
months ended December 31, 1997, the UR business increased by 42% to
approximately $394,000 from approximately $278,000 in the comparable period of
the prior year.
Outlook: The Company expects the UR business to continue to show growth in
revenue and modest profits. The revenue and earnings from Hughes & Associates is
not expected to contribute materially to consolidated revenue or earnings.
COST OF REVENUE:
The cost of revenue includes all costs directly associated with the operations
of the QMP and UR business, including compensation of physicians and allied
health specialists, consulting staff travel and lodging, and other direct costs.
Also included in cost of revenue are medical claims for Care3, Inc., the health
plan in Mississippi, including a reserve for claims incurred but not reported,
Cost of revenue for the Company increased by 36%, to approximately $1,361,000
for the three months ended December 31, 1997, from approximately $1,001,000 in
the comparable period of the prior year. For the six months ended December 31,
1997, cost of revenue increased by 35% to approximately $2,542,000 from
$1,889,000 in the comparable period of the prior year. This increase was due to
the consolidation of the Company's health plan in Gulfport, Mississippi which
began operations in March 1997 and reported medical claims expense of
approximately $341,000 for the quarter and $426,000 for the six months ended
December 31, 1997. The cost of revenue as a
<PAGE> 15
percentage of revenue increased to 52% for the three months ended December 31,
1997 from 37% for the comparable period of the prior year. For the six months
ended December 31, 1997, cost of revenue as a percentage of revenue increased to
47% from 37% in the comparable period of the prior year. While the QMP and UR
business direct costs continue at 40% to 50% of revenue, the consolidation of
the Company's health plan has caused cost of revenue to increase.
Outlook: Cost of revenue will increase significantly as more medical claims are
incurred for the Company's health plan in Mississippi due to membership growth.
Cost of revenue as a percentage of the Company's total revenue is anticipated to
continue to increase as the revenue from the health plan becomes a larger
portion of the Company's total revenue.
GROSS MARGIN:
The Company's gross margin decreased to 48% for the quarter ended December 31,
1997 from 63% in the comparable period of the prior year. For the six months
ended December 31, 1997, gross margin decreased to 53% from 63% 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.
While the QMP and UR businesses continue to operate with gross margins of 50% to
60%, the consolidation of the Company's health plan business has caused overall
gross margins to decrease.
Outlook: The QMP and UR businesses are anticipated to produce gross profit
margins of 50% to 60% of revenue in the near term. The Company expects the
health plan in Gulfport, Mississippi to produce gross profit margins of 12% to
18% of premium revenue, which is typical for the industry. 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. The
health plan gross profit margins as a percentage of premium revenue will never
equal the margin percentages experienced from the Company's other business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expense increased by 65%, to approximately $
2,427,000 for the current quarter, from approximately $1,470,000 in the
comparable quarter of the prior year. For the six months ended December 31,
1997, selling, general and administrative expense increased by 68%, to
approximately $ 4,431,000 from approximately $2,639,000 in the comparable period
of the prior year.
The increase in selling, general and administrative expense for the quarter and
six months ended December 31, 1997 was primarily attributable to the following
items:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
INCREASES IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSE DECEMBER 31, 1997 DECEMBER 31, 1997
<S> <C> <C>
Salaries, benefit and relocation expense related to the expansion of $ 362,000 $ 631,000
the management team, additional marketing executives for the QMP
and UR business and other administrative support personnel
A decrease in executive bonus expense due to the net operating loss (116,000) (124,000)
incurred by the Company
An increase in legal and professional fees related to regulatory and 208,000 425,000
compliance advice and on-going litigation
Expenses incurred as a new publicly held company for public 162,000 303,000
reporting, directors expense, and D&O liability insurance
Overhead related to the new health plan in Gulfport Mississippi 186,000 349,000
An increase in travel costs related to the increased marketing and 150,000 171,000
business activity
</TABLE>
Outlook: The Company anticipates that selling, general and administrative
expense will continue at the current level through the next fiscal quarter.
Legal expense is anticipated to decrease due to the settlement of the Arkin
litigation during the second quarter. As a percentage of revenue the Company
expects a decrease in future quarters as revenue is realized from the health
plan and other business development.
<PAGE> 16
INTEREST INCOME AND EXPENSE:
Interest income increased to approximately $100,000 for the quarter ended
December 31, 1997 from approximately $26,000 in the comparable period of the
prior year. For the six months ended December 31, 1997, interest income
increased to approximately $ 219,000 from approximately $64,000 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 $11,000, for the quarter ended
December 31, 1997 from approximately $3,000. For the six months ended December
31, 1997, interest expense increased to approximately $15,000 from approximately
$3,000. This increase was due to the accrual of interest on a note payable for
the acquisition of the Mississippi HMO license in January 1997.
NET INCOME:
For the three months ended December 31, 1997 the Company reported a net loss of
($630,466), as compared with net income of $131,389 in the comparable period of
the prior year. For the six months ended December 31, 1997, the Company reported
a net loss of ($754,767), as compared with net income of $372,580 in the
comparable period of the prior year.
The decrease in net income both for the quarter and six months ended December
31, 1997 was primarily due to an increase in selling, general and administrative
expense as a result of the staffing 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 $600,000 to $750,000 (exclusive of any charge to earnings related
to the Arkin Settlement - See Legal Proceedings) for the next fiscal quarter.
The Company anticipates that this situation will not continue into the fourth
quarter as (i) revenue is realized from the investment made in additional
marketing personnel (ii) the health plans approach profitability and (iii)
additional revenue is realized from the QMP business as a result of the new QMP
products and increased marketing initiatives.
LIQUIDITY AND CAPITAL RESOURCES:
During the six months ended December 31, 1997, the Company funded its operating
and business development activities primarily through operating revenue and cash
on deposit of approximately $1,128,000. The Company invested approximately
$629,000 to furnish and improve the Company's new office building and used
$16,000 to fund travel advances to employees. During the six months ended
December 31, 1997, the Company repaid approximately $14,000 of debt and capital
leases.
The Company will use $600,000 to $750,000 of cash resources during the next
fiscal quarter to fund anticipated operating losses for the quarter. In
addition the Company may use an additional $291,756 related to the Arkin
Settlement - See legal proceedings.
The Company has available a working capital line of a $1,500,000 (maximum
principal) credit facility with American National Bank and Trust Company of
Chicago. The facility has a maturity date of October 31, 1998. The credit
facility is secured by a pledge of the Company's Quality Management Program,
utilization review and premium receivable accounts receivable. These accounts
receivable are obligations of the hospital clients to the Company, employer
clients of Hughes, and employer clients of Care3, Inc. and are not Medicare or
Medicaid receivable accounts.
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 twelve 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
twelve month period. There can be no assurance that acceptable financing for
future transactions can be obtained.
<PAGE> 17
PART II
Item 1: Legal Proceedings
MEDICAL BUSINESS ASSOCIATES, LLC LITIGATION: In August, 1997, the Company filed
suit against Medical Business Associates, LLC and its principal, a former
employee of the Company, for injunctive relief to prevent misappropriation of
the Company's proprietary information and trade secrets. In December of 1997 the
Company obtained assurances that the use by defendants of the Company's
materials had ceased. The Company voluntarily dismissed the suite in January
1998.
ARKIN DISPUTE SETTLEMENT: On December 11, 1997, the Company and Robert D. Arkin
entered into a written Settlement Agreement and Mutual Release by which all
parties released the others on certain terms and conditions. The Company will
pay Arkin nothing in respect of his contract claims. Arkin will retain and
exercise previously vested options to acquire 97,272 shares of the Company's
common stock for a price of $1.37 per share. The shares remain subject to a
previously existing "lock-up agreement" prohibiting their unrestricted transfer
until December 12, 1998. Arkin's previously unvested award of options to acquire
184,505 shares of the Company's common stock is canceled. Since December 11,
1997, Arkin and the Company have made efforts to sell the shares (which remain
restricted and locked-up). On February 12, 1998, the Company committed to pay
Mr. Arkin $291,756 if the Company does not locate a buyer who purchases the
stock within ninety (90) days in return for Mr. Arkin's rights to the stock. The
Company further agreed to place these funds in escrow. If a buyer for the stock
cannot be found within that period, Mr. Arkin will be paid the escrowed amount
which will be a charge against pretax earnings during the third fiscal quarter.
The amount would thereupon be classified as compensation or settlement expense
in accordance with APB Opinion No. 25.
OTHER LITIGATION: The Company is subject to no other litigation except for the
suit described at Footnote 8 of the Financial Statements and a suit arising out
of a child-support payment dispute between a sales executive of the Company and
his former wife. The suit, entitled Charlotte Brown v. Birman Managed Care. In.,
et al., filed July 7, 1997 in the Circuit Court of Putnam County, Tennessee,
alleges that the Company and its principal officers provided incorrect salary
information to the former wife. Compensatory damages of $89,000 and punitive
damages of $1,000,000 are sought. The Company believes there is no merit to
the suit.
Item 5: Other Information
Change of Accountants
On February 6, 1998, the Company, with the approval of the Board of Directors
and upon recommendation of the audit committee of the Board of Directors,
advised BDO Seidman, LLP, that it was dismissing such accounting firm and was
retaining the accounting firm of Deloitte & Touche, LLP, as independent public
accountants for the Company and its subsidiaries for the remaining two fiscal
quarters of the fiscal year ending June 30, 1998. The decision to retain
Deloitte & Touche, LLP, was made because of that firm's closer proximity to the
Company's headquarters in Cookeville, Tennessee and that firm's extensive
experience in health care related industries. The dismissal and replacement was
not motivated by any disagreements between the Company and BDO Seidman, LLP
concerning any accounting matter. During the entire period of BDO Seidman, LLP's
engagement with the Company, there were no disagreements on any matter relative
to accounting principles or practices, financial statement disclosure, or
auditing scope or procedures which, if not resolved to the satisfaction of BDO
Seidman, LLP, would have resulted in a reference to the subject matters of the
disagreement in connection with its report. The reports of BDO Seidman, LLP on
the Company's financial statements have not contained an adverse opinion or a
disclaimer of opinion, nor were the opinions qualified or modified as to
uncertainty, audit scope, or accounting principles, nor were there any events of
the type requiring disclosure under Item 304 (a) (1) (iv) of Regulation S-B of
the Securities and Exchange Commission promulgated under the Securities Act of
1933 and the Securities Exchange Act of 1934. During the two year period prior
to February 6, 1998, the Company did not consult Deloitte & Touche, LLP
concerning any matter or the type of opinion that might be rendered.
<PAGE> 18
Item 6: Exhibits and Reports on Form 10-Q
(a.) Exhibits
*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 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., and 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, LLC, 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.
*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.
<PAGE> 19
*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 December 31, 1997.
16.1 Letter on Change in Certifying Accountant to be supplied
upon receipt under Item 304(a)(3) of Regulation S-B.
27.1 Financial Data Schedule.
(b.) Reports on Form 8-K
Form 8-K was filed by the Company on December 22,1997.
--------------------
* 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.
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.
February 16, 1998 /s/ DAVID N. BIRMAN
------------------------------------
David N. Birman
Chairman of the Board, President and
Chief Executive Officer
February 16, 1998 /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 Six Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income available to common $ (630,466) $ 131,389 $ (754,767) $ 372,580
stockholders used in basic EPS
Basic earnings (loss) Per Share:
Weighted average of common shares
outstanding (1) 8,089,588 5,931,082 8,089,588 5,931,082
=========== =========== =========== ===========
Basic earnings (loss) Per Share $ (.08) $ .02 $ (.09) $ .06
=========== =========== =========== ===========
Earnings Per Share Assuming Dilution:
Common stock equivalents
Options and warrants granted and
unexercised (2) -- 1,076,371 -- 1,076,371
Escrow shares (3) -- 1,000,000 -- 1,000,000
Assumed buyback of options (2) -- (303,936) -- (303,936)
----------- ----------- ----------- -----------
-- 1,772,435 -- 1,772,435
Weighted average of common shares
outstanding (1) 8,089,588 5,931,082 8,089,588 5,931,082
----------- ----------- ----------- -----------
Weighted average common shares
outstanding, assuming dilution 8,089,588 7,703,517 8,089,588 7,703,517
=========== =========== =========== ===========
Earnings Per Share Assuming Dilution $ (.08) $ .02 $ (.09) $ .05
=========== =========== =========== ===========
</TABLE>
(1) Earnings per share calculations 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, 1997.
(2) Buyback of stock options under the treasury stock method is at the average
market price of $6.54 at December 31, 1997. Stock options and warrants
granted and unexercised are included as common share equivalent shares,
using the treasury stock method, as if they had been outstanding for all
periods presented, unless the effect is anti-dilutive.
(3) Shares deposited into escrow by Dr. Birman pursuant to the Underwriting
Agreement are included in earnings per share assuming dilution, unless the
effect is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,729,150
<SECURITIES> 0
<RECEIVABLES> 1,156,707
<ALLOWANCES> 68,366
<INVENTORY> 0
<CURRENT-ASSETS> 8,880,316
<PP&E> 1,497,075
<DEPRECIATION> 379,245
<TOTAL-ASSETS> 12,280,461
<CURRENT-LIABILITIES> 906,464
<BONDS> 673,600
0
0
<COMMON> 8,756
<OTHER-SE> 10,546,477
<TOTAL-LIABILITY-AND-EQUITY> 12,280,461
<SALES> 0
<TOTAL-REVENUES> 5,465,884
<CGS> 0
<TOTAL-COSTS> 2,542,363
<OTHER-EXPENSES> 4,431,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,009
<INCOME-PRETAX> (1,257,399)
<INCOME-TAX> 502,632
<INCOME-CONTINUING> (754,767)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (754,767)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
