<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333 -- 11957
BIRMAN MANAGED CARE, INC.
(Name of small business issuer 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
(Address of principal executive offices:zip code)
(931) 372-7800; (931) 372-7823 (Facsimile)
(Issuer's telephone number, including area code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 common stock shares outstanding as of November 1, 1998 = 8,756,254
1
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BIRMAN MANAGED CARE, INC.
FORM 10-QSB
INDEX
Part I. FINANCIAL INFORMATION
Item 1. 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-27.1 Financial Data Schedule, Quarter Ended September 30, 1998
EX-27.2 Financial Data Schedule, Quarter Ended September 30, 1997 - Restated
2
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PART I.
ITEM 1. FINANCIAL STATEMENTS
BIRMAN MANAGED CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(UNAUDITED) (AUDITED)
September 30, June 30,
1998 1998
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,710,089 $ 2,431,387
Accounts receivable, net of allowance for doubtful accounts of $139,000 and $130,000,
respectively 932,309 805,760
Prepaid expenses and other 60,609 38,516
Deferred income taxes 26,819 26,819
Income taxes receivable (Note 3) 1,028,385 1,234,634
Note receivable - related party 46,952 55,265
----------- -----------
Total Current Assets 3,805,163 4,592,381
Net assets of discontinued operations (Notes 1 and 9) 68,772 --
Property and equipment, net of accumulated depreciation 1,120,270 1,104,110
Goodwill 12,512 12,915
Other 108,780 126,282
----------- -----------
Total Assets $ 5,115,497 $ 5,835,688
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of notes payable and capital lease obligations $ 203,800 $ 205,700
Accounts payable 230,145 333,256
Accrued expenses 78,404 141,605
Net liabilities of discontinued operations (Notes 1 and 9) -- 102,546
----------- -----------
Total Current Liabilities 512,349 783,107
Note payable, less current portion 400,000 400,000
Deferred income taxes 34,083 34,083
----------- -----------
Total Liabilities 946,432 1,217,190
Commitments and Contingencies -- --
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 deficit (5,554,762) (5,105,329)
----------- -----------
Total Stockholders' Equity 4,169,065 4,618,498
----------- -----------
Total Liabilities and Stockholders' Equity $ 5,115,497 $ 5,835,688
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of the Condensed Consolidated
Financial Statements
3
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BIRMAN MANAGED CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
September 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Consulting revenues $ 1,977,467 $ 2,731,421
Cost of revenue 1,020,179 1,086,861
----------- -----------
Gross profit 957,288 1,644,560
General and administrative expenses 1,425,160 1,673,590
----------- -----------
Loss from continuing operations (467,872) (29,030)
----------- -----------
Other income (expense):
Interest and other income 27,238 112,575
Interest expense (4,407) (1,253)
Gain (loss) on disposal of assets -- 150
----------- -----------
22,831 111,472
----------- -----------
Income (loss) from continuing operations before (445,041) 82,442
provision for income taxes (Note 3)
Provision for income taxes (4,392) (18,523)
----------- -----------
Net income (loss) from continuing operations (449,433) 63,919
Net loss from discontinued operations of
health plan, net of tax (Notes 1 and 9) -- (188,219)
=========== ===========
Net Loss $ (449,433) $ (124,300)
=========== ===========
Earnings (loss) per common share - basic:
Income (loss) from continuing operations $ (.06) $ .01
Loss from discontinued operations of health plan,
net of tax -- (.02)
----------- -----------
Net loss $ (.06) $ (.01)
=========== ===========
Earnings (loss) per common share - assuming
dilution:
Income (loss) from continuing operations $ (.06) $ .01
Loss from discontinued operations of health -- (.02)
plan, net of tax
----------- -----------
Net loss $ (.06) $ (.01)
=========== ===========
Basic weighted average common stock shares
outstanding (Note 4) 8,089,588 8,089,588
=========== ===========
Weighted average diluted common stock shares
outstanding (Note 4) 8,089,588 8,403,726
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of the Condensed Consolidated
Financial Statements
4
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BIRMAN MANAGED CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained Total
Shares Amount Paid-In Earnings Stockholders'
Capital (Deficit) Equity
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997, 8,756,254 $8,756 $9,715,071 $ 1,577,417 $ 11,301,244
(Audited)
Net loss (Audited) -- -- -- (6,682,746) (6,682,746)
--------- ------ ---------- ----------- ------------
Balance at June 30, 1998, 8,756,254 8,756 9,715,071 (5,105,329) 4,618,498
(Audited)
Net loss (Unaudited) -- -- -- (449,433) (449,433)
--------- ------ ---------- ----------- ------------
Balance at September 30, 1998
(Unaudited) 8,756,254 $8,756 $9,715,071 $(5,554,762) $ 4,169,065
========= ====== ========== =========== ============
</TABLE>
The Accompanying Notes are an Integral Part of the Condensed Consolidated
Financial Statements
5
<PAGE> 6
BIRMAN MANAGED CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (449,433) $ (124,300)
Loss from discontinued operations -- (188,219)
----------- -----------
Net income (loss) from continuing operations (449,433) 63,919
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 60,868 38,056
Changes in assets and liabilities:
Accounts receivable (126,549) 436,642
Income taxes receivable 206,249 --
Prepaid expenses and other (22,093) 14,031
Deferred tax asset -- (35,200)
Other assets 17,502 75
Accounts payable (103,111) 30,782
Accrued expenses (63,201) (6,398)
Income taxes payable -- (153,850)
Deferred income taxes -- (25,775)
----------- -----------
(30,335) 298,363
----------- -----------
Net cash provided by (used in) operating activities (479,768) 362,282
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (76,625) (48,428)
Advances from (to) note receivable - related parties 8,313 (90,445)
Investment in discontinued operations (171,318) (808,264)
----------- -----------
Net cash used in investing activities (239,630) (947,137)
----------- -----------
Cash flows from financing activities:
Payments on debt (1,900) (1,591)
----------- -----------
Net cash used in financing activities (1,900) (1,591)
----------- -----------
Net decrease in cash and cash equivalents (721,298) (586,446)
Cash and cash equivalents at beginning of period 2,431,387 8,462,277
----------- -----------
Cash and cash equivalents at end of period $ 1,710,089 $ 7,875,831
=========== ===========
</TABLE>
6
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BIRMAN MANAGED CARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The condensed consolidated balance sheet and statement of changes in
stockholders equity as of September 30, 1998 and the related condensed
consolidated statements of operations and cash flows for the three
months ended September 30, 1998 and 1997 have been prepared by the
Company, without audit; in the opinion of management, all adjustments
for a fair presentation of such condensed consolidated statements have
been made in accordance with generally accepted accounting principles.
Accordingly, with the instructions of Item 310(b) of Regulation S-B,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. Operating results for the three months ended September 30,
1998 are not necessarily indicative of the results that may be expected
for the year ending June 30, 1999. These interim financial statements
should be read in conjunction with the consolidated financial statements
and notes contained therein, included in the Company's Form 10-KSB for
the year ended June 30, 1998.
The accompanying consolidated financial statements include the accounts
of Birman Managed Care, Inc. and its wholly-owned subsidiaries Birman &
Associates, Inc., and Hughes & Associates, Inc. (collectively, the
"Company").
The health plan operations are reported as discontinued operations for
all periods presented (see Note 2). The condensed consolidated balance
sheets and condensed consolidated results of operations, cash flows and
notes to the condensed consolidated financial statements have been
restated to conform to the discontinued operations presentation. The
discontinued operations include Care3, Inc., a sixty nine percent (69%)
owned subsidiary of Birman Managed Care, Inc., and the operations of BMC
Health Plans, Inc., TMMC, Inc., and MMMC, Inc., a ninety percent (90%)
owned subsidiary of Birman Managed Care, Inc. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
Unless otherwise noted, all note disclosures herein represent activities
and balances of continuing operations.
2. Nature of Operations:
Birman Managed Care, Inc. (the "Company" or "BMC") is a Delaware
corporation originally incorporated in Tennessee in 1994 as BA Forum,
Inc., which was changed to its current name in October 1995. The Company
reincorporated in Delaware in September 1996. The Company completed its
initial public offering of common shares in February 1997. The Company
operates through two wholly-owned subsidiaries, Birman & Associates,
Inc., and Hughes & Associates, Inc. Through Birman & Associates, the
Company assists hospitals and other health care providers to improve the
quality of the medical record, improve the efficiency of the delivery of
health care services, more accurately to document the services rendered,
by means of improved documentation to obtain appropriate reimbursement
for services and to comply with applicable government rules, regulations
and statutes. Unique among its competitors, Birman & Associates employs
fully-trained physicians to deliver these services to its hospital
clients. Through Hughes & Associates, Inc., the Company provides
utilization review services to self-insured employer groups and
insurers.
In addition to its consulting services, the Company formed and operated
a health maintenance organization ("HMO") in the state of Mississippi,
Care3, Inc. ("Care3"), of which it owns 69% of the common stock and all
of the preferred stock. The Company formed three wholly-owned
subsidiaries to service the HMO, BMC Health Plans, Inc., MMMC, Inc. and
TMMC, Inc. Care3 experienced rapid member growth during the third and
fourth quarters of fiscal 1998, growing to 6,400 members. However, due
to competitive pressures and capital constraints, the Company elected in
July of 1998 to cease making additional capital contributions to Care3.
After unsuccessfully seeking additional capital partners or buyers for
Care3 or the Company's interest in it, with the Company's acquiescence,
Care3 was placed under statutory rehabilitation by the Mississippi
Insurance Department on August 7, 1998 effectively ending the Company's
involvement in direct ownership and management of an HMO. The Company's
health plan operations were thus discontinued and the Company does not
intend to reenter the HMO industry in a risk-assuming capacity.
7
<PAGE> 8
BIRMAN MANAGED CARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Income taxes:
The provision for income taxes for the three months ended September 30,
1998 has been computed based on management's estimate of the tax rate
for the entire fiscal year of 35% offset by a recorded valuation
allowance against net deferred tax assets related to federal and state
net operating loss carryforwards created in the current period. The
variation between the statutory tax rate and the effective tax rate is
primarily due to permanent differences between expenses allowed for
income tax purposes and financial purposes as well as state income
taxes.
4. Earnings Per Share:
The following reconciles weighted average shares used in the earnings
per share calculation for the three months ended September 30, 1998 and
1997 for income from continuing operations:
<TABLE>
<CAPTION>
For the three months ended September 30, 1998
---------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
---------------------------------------------
<S> <C> <C> <C>
BASIC EPS - Loss from continuing
operations available to common
stockholders $(449,433) 8,089,588 $ (.06)
Effect of Dilutive Securities
None -- -- --
--------- --------- ---------
DILUTED EPS -Loss from continuing
operations available to common
stockholders $(449,433) 8,089,588 $ (.06)
========= ========= =========
</TABLE>
Options and warrants to purchase 847,354 and 257,805 shares of common
stock, respectively, were outstanding as of September 30,1998 but were
not included in the computation of diluted earnings per share because
they were anti-dilutive.
<TABLE>
<CAPTION>
For the three months ended September 30, 1997
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------------------------------------
<S> <C> <C> <C>
BASIC EPS - Income from continuing
operations available to common
stockholders $63,919 8,089,588 $.01
Effect of Dilutive Securities
Warrants -- 26,138 --
Options -- 288,000 --
------- --------- ----
DILUTED EPS - Income from continuing
operations available to common
stockholders $63,919 8,403,726 $.01
======= ========= ====
</TABLE>
Options and warrants to purchase 3,000 and 200,000 shares of common
stock, respectively, were outstanding as of September 30, 1997 but were
not included in the computation of diluted earnings per share because
the exercise price was greater than the average market price of the
common stock.
8
<PAGE> 9
BIRMAN MANAGED CARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Accounting Pronouncements:
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income" in the first quarter of 1998. The
Company's comprehensive loss and net loss for the quarter ended September
30, 1998 and September 30, 1997 were equal.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." These
pronouncements will be effective for financial statements beginning after
December 15, 1997. In March 1998, the FASB issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." This pronouncement will be effective for financial
statements beginning after December 15, 1998. In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This pronouncement will be effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company anticipates that
the adoption of these Statements will not have a material impact on its
operating results or financial position.
6. Line of Credit:
The Company has available a working capital line of $1,500,000 (maximum
principal) credit facility ("facility") with American National Bank and
Trust Company of Chicago. The facility matured on October 31, 1998 and was
subsequently renewed in November 1998. The facility provides for the
accrual of interest at a floating annual rate equal to the lender's prime
rate on the unpaid principal balance. The facility is secured by a pledge
of the Company's Quality Management Program and utilization review accounts
receivable. These accounts receivable are obligations of the hospital
clients to the Company and employer clients of Hughes 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. As of September 30,
1998, there was a zero balance on the line of credit.
7. Significant Customer:
During the three months ended September 30, 1998 and 1997, approximately
23% and 21%, respectively, of the Company's revenue was from
hospital-clients owned or managed by a national hospital management
company. In addition, approximately 20% of the Company's revenue for the
three months ended September 30, 1998 was from three hospitals owned by an
Ohio non-profit corporation.
During the three months ended September 30, 1997, approximately 23% of the
Company's revenue was from hospital-clients owned by a large New Jersey
based hospital system. The contract was terminated on December 31, 1997 in
accordance with its terms.
8. Legal Proceedings:
The Company is involved in a legal proceeding involving a former employee.
While the ultimate resolution of the dispute cannot be determined or
predicted, Company management believes that the ultimate resolution will
not have a significant impact on the Company's results of operations or its
financial position.
In April, 1998, the Company supplied certain documents to the United
States Department of Justice ("DOJ") concerning its business pursuant to an
administrative subpoena, (the "Subpoena") served on February 24, 1998
issued under the Health Insurance Portability Accountability Act of 1996.
Since April, 1998, the Company has not been requested to provide any
further documents or information to the DOJ related to the subpoena.
9
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BIRMAN MANAGED CARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. Discontinued Operations:
On July 31, 1998, the Company's Board of Directors approved a plan to
discontinue the health plan operations of the Company. The Company
determined that it would provide no additional capital to Care3, Inc.
("Care3"), the health maintenance organization ("HMO") licensed in
Mississippi of which it owned 69% of the common stock and 100% of the
preferred stock. Factors which were taken into account in making this
decision include the estimated future capital requirements of Care3, the
operating results and claims experience of Care3, and the Company's current
cash reserves. The Company was advised that the other shareholders of
Care3, Inc. had elected to provide no additional capital to Care3. As a
consequence, Care3, Inc. was not able to maintain the required minimum net
equity of $750,000 as set by state regulations. On August 6, 1998, the
Board of Directors of Care3 , Inc. consented to place the HMO under
administrative supervision of the Mississippi Insurance Commissioner ("the
Commissioner"). On August 7, 1998 (disposal date), Care3 was placed into
statutory rehabilitation in response to a petition by the Commissioner.
Neither Care3 nor the Company opposed the petition and both have and expect
to continue to cooperate fully with the Commissioner and the appointed
rehabilitator. The Care3 health plan is currently under the control of the
Commissioner and had no members as of September 30, 1998. The Company
believes that Care3's reserves were adequate to pay all claims of its
members and is aware of no grounds on which a claim against the Company
regarding Care3 could be based. There can be no assurance of this until all
such claims and costs of rehabilitation are presented.
Net Assets (Liabilities) of the Health Plan Operations are as follows:
<TABLE>
<CAPTION>
(Unaudited) (Audited)
9/30/98 6/30/98
-------------- ---------------
<S> <C> <C>
Current Assets $ -- $ 1,540,898
Property and Equipment, net -- 54,482
Income Taxes Receivable 320,223 320,223
Restricted Cash Deposit -- 500,000
Goodwill, net of Amortization -- --
Other Assets -- 127,698
Current Liabilities -- (1,434,379)
Minority Interest -- --
Estimated losses through disposal
date and costs to dispose of
health plan (251,451) (1,211,468)
-------------- --------------
Net Assets (Liabilities) of
Discontinued Operations $ 68,772 $ (102,546)
============== ==============
</TABLE>
As of June 30, 1998, the net assets of the health plan operations include a
deferred tax asset of $1,511,118 for federal tax net operating loss
carryforwards. A valuation allowance of $1,511,118 was recorded against
this deferred tax asset and resulted in a net deferred tax asset of zero.
Such federal tax net operating loss carryforwards will begin expiring June
30, 2013. The health plan operations are reported as discontinued
operations for all periods presented. The condensed consolidated balance
sheets and condensed consolidated results of operations, cash flows and
notes to the condensed consolidated financial statements have been restated
to conform to the discontinued operations presentation. The discontinued
operations include Care3, Inc. and the operations of BMC Health Plans,
Inc., TMMC, Inc., and MMMC, Inc., a ninety percent (90%) owned subsidiary
of the Company. All significant inter-company accounts and transactions
have been eliminated in consolidation.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table represents results from continuing operations and sets forth
percentage of revenue represented by certain items reflected in the Company's
Consolidated Statements of Operations for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 % SEPTEMBER 30, 1997 %
------------------ - ------------------ -
<S> <C> <C> <C> <C>
Revenue $ 1,977,467 100% $ 2,731,421 100%
Cost of revenue 1,020,179 52% 1,086,861 40%
------------ ----- ------------ -----
Gross profit 957,288 48% 1,644,560 60%
General & administrative expenses 1,425,160 72% 1,673,590 61%
------------ ----- ------------ -----
Income (loss) from continuing
operations (467,872) (24%) (29,030) (1%)
Other income (expense)
Interest income 27,238 1% 112,575 4%
Interest expense (4,407) -- (1,253) --
Miscellaneous revenue -- 150 --
------------ ----- ------------ -----
Income (loss) from continuing
operations before income taxes (445,041) (23%) 82,442 3%
Income tax provision (4,392) --% (18,523) (1%)
------------ ----- ------------ -----
Net income (loss) from continuing
operations (449,433) (23%) 63,919 2%
Loss from discontinued operations -- -- (188,219) (7%)
------------ ----- ------------ -----
Net loss $ (449,433) (23%) $ (124,300) (5%)
============ ===== ============ =====
</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.
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 23% of the Quality Management Program ("QMP") business revenue for
the last fiscal quarter has been from hospitals owned or managed by Quorum
Health Resources, Inc. ("Quorum"). Those hospitals contract individually with
the Company and there is no "system wide" agreement with Quorum. Serious
difficulties with any hospital could adversely affect the Company's relations
with Quorum; however, positive relations could result in additional business for
the Company.
Approximately 23% of the QMP business revenue for the last fiscal quarter has
been from a contract with The Health Alliance of Greater Cincinnati relating to
a contract with terms that run through May 2000.
11
<PAGE> 12
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED WITH QUARTER ENDED SEPTEMBER 30, 1997:
REVENUE
GENERAL
For the quarter ended September 30, 1998, consolidated revenue decreased by 28%
to approximately $1,977,000, from approximately $2,731,000 in the comparable
quarter of the prior year. In addition to a decrease in consolidated revenue,
there has been a change in the revenue distribution between the business
divisions of the Company. The Utilization Review business now represents 17% of
total revenue as compared to 7% of total revenue in the comparable quarter of
the prior year. The following table shows revenue by business division:
TABLE OF REVENUE BY BUSINESS DIVISION
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
Quality Management Program $1,650,000 $2,548,000
Utilization review/case management 327,000 183,000
---------- -----------
Total revenue $1,977,000 $2,731,000
========== ==========
</TABLE>
QUALITY MANAGEMENT PROGRAM (QMP)
The Quality Management Program (QMP) experienced a 35% decrease in revenue to
approximately $1,650,000 for the quarter ended September 30, 1998, from
approximately $2,548,000 in the comparable quarter of the prior year.
Approximately $430,000 of the decrease was due to the conversion from
"results-oriented" compensation contracts to lower fixed fee compensation
contracts. Approximately $470,000 of the revenue decrease was from lost business
not replaced with new accounts. The Company experienced a delay in closing new
business accounts during the first half of fiscal 1998 due to the difficult
business climate created by the federal government's increased scrutiny of
health care providers and the need to adapt the Company's marketing strategy to
that environment.
Period to period changes in QMP business is measured in discharge volume and by
"per discharge" revenue. A "discharge" is a patient discharged from a hospital
whose medical record has been reviewed under the Company's Quality Management
Program. The Company experienced a decline in "per discharge" revenue recognized
from its consulting services to approximately $131 per discharge in the quarter
ended September 30, 1998 as compared to $165 per discharge in the comparable
quarter of the prior year. The Company is currently receiving an average of $130
per discharge. This decline in "per discharge" revenue is a result of the shift
from "results-oriented" compensation contracts to fixed fee compensation
contracts made in response to the federal government's announced initiative to
scrutinize more closely any contracts with a health care provider, such as
hospitals, which include an incentive to increase reimbursements from the
Medicare program. As long as the Company's compensation was based entirely upon
results, the Company's fees had not been a material impediment to closing new
consulting agreements. With the practical need to convert to fixed fee
arrangements, the cost of the Company's services became an issue as many
hospitals viewed the Company as competitive with lower cost "coding companies."
The need to distinguish the Company's physician-to-physician services from those
non-medical, clerically-oriented companies required substantially more effort
and time. The Company also was required to re-orient its marketing personnel to
stress the regulatory compliance value of the QMP, a feature not generally found
with lower-cost services. The actual discharge volume decreased by 18% to 12,621
discharge records reviewed in the quarter ended September 30, 1998 as compared
to 15,433 discharge records reviewed in the comparable quarter of the prior
year.
During the first quarter of the prior fiscal year, 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.
As a consequence, the Company started one new hospital account during the first
two quarters of fiscal 1998. Although the Company only started two new hospital
accounts during the quarter ended September 30, 1998, five new hospitals
accounts have been added the end of the quarter.
Outlook: The Company believes that the current government regulatory climate has
brought substantial pressure on less-sophisticated "coding companies" which
cannot offer the regulatory compliance services or physician-to-physician
credibility provided by the Company's staff. This allows the Company to
differentiate itself further from these non-medical,
12
<PAGE> 13
clerical services against which the Company is forced by the market to compete.
Although this has initially adversely impacted the Company's revenues, the
Company believes that for the long term, its substantial investment in
physicians and in regulatory research, updating and communication will provide a
substantial competitive advantage. The Company continues to develop new
consulting products geared to the different aspects of the health care industry.
In addition, the Company believes that it will be successful at closing
additional new contracts during fiscal 1999 because of additional marketing
professionals hired during the fourth quarter of fiscal 1998 and the development
of a more refined sales process. The Company currently has six fully trained
marketing professionals as compared to only one marketing professional during
the comparable period of the prior year.
SIGNIFICANT CUSTOMERS -- QMP
The Company has provided services to a number of hospitals operated by Quorum
since 1991. Services provided to hospitals operated by Quorum generated
approximately 23% and 21%, respectively, of the Company's revenue in the quarter
ended September 30, 1998 and the comparable quarter of the prior year. As of
September 30, 1998, the Company is providing Quality Management Program services
at 8 Quorum-operated facilities as compared to 10 Quorum-operated facilities in
the prior year.
In April 1998, the Company entered into a contract to provide QMP, compliance,
training, and other services for three large hospitals managed and operated by
The Health Alliance of Greater Cincinnati (the "Health Alliance"), an Ohio
non-profit corporation. Work at two hospitals began in May 1998 with a third
hospital to begin sometime during the third quarter of fiscal 1999. The contract
has three phases to the program with a decreasing level of consulting services
and related fees. Phase I provides for full implementation and training under
the QMP. Phase II and III provide further training and education and a
transition to monitoring and maintenance of a Health Alliance-operated
compliance program. Services provided under this contract with The Health
Alliance resulted in approximately 20% of the Company's revenue for the quarter
ended September 30, 1998.
During the prior fiscal year, the Company provided Quality Management Program
services for two hospitals owned by St. Barnabas Health System, which represents
approximately 23% of the Company's revenues for the quarter ended September 30,
1997. The St. Barnabas contract concluded activities effective December 31, 1997
in accordance with its terms.
Outlook: The Company expects that revenue from contracts with the Health
Alliance and Quorum hospitals will continue to be a significant source of
revenue through the next fiscal quarter.
UTILIZATION REVIEW/CASE MANAGEMENT
Revenue from the operations of Hughes and Associates, Inc., the Company's
utilization review (UR) business in Mississippi, increased by 79%, to
approximately $327,000 for the quarter ended September 30, 1998, from
approximately $183,000 in the comparable quarter of the prior year. In July
1998, Hughes & Associates executed a one year contract to provide medical
utilization review management services for The University of Mississippi Medical
Center. This contract represents 21% of Hughes' revenue for the quarter ended
September 30, 1998.
Outlook: The Company expects the UR business to continue to show growth in
revenue through fiscal 1999, but at a slower growth rate. Hughes may report
additional revenue as more lives are added to the contract with the University
of Mississippi Medical Center. As part of the Company's new Self-Insured Medical
Cost Management program, Hughes & Associates is expected to play a larger role
in the Company as a whole. Should this program experience rapid growth, Hughes &
Associates may experience similarly rapid growth.
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, nurses, and
allied health specialists, consulting staff travel and lodging, and other direct
costs. The following table shows the cost of revenue by business division:
TABLE OF COST OF REVENUE BY BUSINESS DIVISION
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
Quality Management Program $ 834,000 $ 990,000
Utilization review/case management 186,000 97,000
------------ -----------
Consolidated cost of revenue $ 1,020,000 $1,087,000
=========== ==========
</TABLE>
13
<PAGE> 14
Total cost of revenue for the Company decreased slightly by 6%, to approximately
$1,020,000 for the quarter ended September 30, 1998, but not in proportion to
the 28% decrease in revenue. Cost of revenue as a percentage of total revenue
increased to 52% for the quarter ended September 30, 1998, from 40% in the
comparable quarter of the prior year. This was due to a shift from
"results-oriented" compensation contracts to fixed fee compensation contracts
for the Quality Management Program, which resulted in decreased profit margin.
As of September 30, 1998, all but two of the QMP contracts were fixed fee
contracts.
Outlook: Cost of revenue as a percentage of total revenue will be more stable as
minimal impact should be seen from the shift of the remaining few
"results-oriented" QMP contracts to fixed fee contracts. Cost of revenue for the
Company's new products remains undetermined as the Company has not begun
delivering a sufficient amount of those services to determine accurately the
ultimate cost of those services or the prices for which those services can be
provided.
GROSS PROFIT
For the quarter ended September 30, 1998, the Company's gross profit decreased
by 42% to approximately $957,000 from $1,645,000 in the comparable quarter of
the prior year. The Company's gross profit margin decreased to 48% of revenue
for the quarter ended September 30, 1998 from 60% of revenue in the comparable
quarter of the prior year.
The following chart shows gross margin percentages by business division:
TABLE OF GROSS PROFIT MARGIN BY BUSINESS DIVISION:
<TABLE>
<CAPTION>
% OF REVENUE
QUARTER ENDED
SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
Quality Management Program 49% 61%
Utilization review/case management 43% 47%
Consolidated gross margins 48% 60%
</TABLE>
Gross profit margin for the Quality Management Program decreased to 49% in the
quarter ended September 30, 1998 from 61% in the comparable quarter of the prior
year. This decrease in gross profit was due to decreased revenues from the
Quality Management Program as a result of a shift from "results-oriented"
compensation contracts to fixed fee compensation contracts. Gross profit margin
for the Utilization Review/Case Management business also decreased to 43% for
the quarter ended September 30, 1998 as compared to 47% for the comparable
quarter of the prior year.
Outlook: The QMP and UR businesses are anticipated to produce gross profit
margins of 45% to 55% of revenue in the near term. In fiscal 1999, gross margin
will increase in proportion to revenue growth. Gross margin percentages will be
more stable as minimal impact should be felt from the shift of the remaining few
"results-oriented" QMP contracts to fixed fee contracts.
GENERAL AND ADMINISTRATIVE EXPENSES
For the quarter ended September 30, 1998, general and administrative expenses
decreased by $248,000 or 15%, to approximately $1,425,000 from $1,674,000 in the
comparable quarter of the prior year. This was due to a decrease in salary and
benefit expense attributable to the elimination of several positions and pay
reductions implemented at the beginning of the quarter.
Outlook: The Company anticipates that general, and administrative expense will
decrease through at least the next fiscal quarter. The Company does not
anticipate any non-recurring charges for the next fiscal year. The Company
anticipates that legal and professional fees will decrease due to the settlement
of all material pending litigation during fiscal 1998. On June 30, 1998, the
Company implemented a series of steps designed to reduce the Company's other
general and administrative expense and cash operating requirements. These steps
included a reduction in force and staff position consolidations which eliminated
eight staff positions, an across-the-board pay reduction for most employees
ranging from 10% to 30% of salary, and a reduction in certain expenses.
Management does not believe that these steps will adversely affect the Company's
ability to service its consulting clients and to continue to attract new
clients.
14
<PAGE> 15
INTEREST INCOME AND EXPENSE
Interest income decreased to approximately $27,000 for the quarter ended
September 30, 1998 from approximately $113,000 in the comparable quarter of the
prior year. This was due to the decrease in cash deposits held primarily in
money market and other short-term investment accounts.
PROVISION FOR INCOME TAXES
The provision for income taxes from continuing operations was $4,392 for the
quarter ended September 30, 1998 as compared to $18,523 in the comparable
quarter of the prior year.
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
For the quarter ended September 30, 1998 the Company reported a net loss from
continuing operations of $449,433 as compared to net income of $63,919 in the
comparable quarter of the prior year.
The net loss from continuing operations for the quarter ended September 30, 1998
was primarily from a decrease in revenue and gross margin from the Quality
Management Business.
Outlook: The Company anticipates lower net operating losses in the next two
quarters of fiscal 1999 as (i) revenue is realized from the additional contracts
from the investment made in additional marketing personnel for QMP and (ii)
selling, general and administrative costs decrease due to steps taken by the
Company on June 30, 1998 to reduce overhead. The Company expects to break even
by the end of the third quarter of fiscal 1999 and expects to return to a profit
by the fourth quarter of fiscal 1999.
LOSS FROM DISCONTINUED OPERATIONS
For the quarter ended September 30, 1998, the Company reported no gain or loss
from discontinued operations as compared with a loss, net of tax, from
discontinued operations of $188,219 in the comparable quarter of the prior year.
This item includes all revenue and expenses from the operations of Care3, Inc.,
the health plan in Mississippi, and the related health plan management
subsidiaries of MMMC, Inc., BMC Health Plans, Inc. and TMMC, Inc.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended September 30, 1998, the Company funded its continuing
operations and business development activities primarily through operating
revenue and cash on deposit of approximately $480,000. The Company invested
approximately $171,000 in discontinued operations to fund the wind-down of the
health plan management operations and also $77,000 to purchase property and
equipment.
The Company will use $250,000 to $500,000 of cash resources during the next two
quarters to fund anticipated operating losses. In addition, the Company will use
approximately $250,000 during the next two quarters to fund costs related to the
wind down of discontinued health plan operations of the Company. The Company
expects to receive an income tax refund of approximately $1,300,000 during the
third quarter from the carryback of net operating losses.
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 which has not been used. The facility matured on October 31, 1998 and
was subsequently renewed in November. 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 of Birman & Associates and employer clients of Hughes &
Associates, Inc. and are not Medicare or Medicaid receivable accounts.
Outlook: The Company believes that existing cash resources and available credit
facilities will be sufficient to meet the Company's anticipated expansion and
working capital needs for the next twelve months. The Company has not drawn on
its line of credit and it has been renewed through October 31, 1999. 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.
15
<PAGE> 16
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." In February 1998, the
FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." These pronouncements will be effective for financial
statements beginning after December 15, 1997. In March 1998, the FASB issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This pronouncement will be effective
for financial statements beginning after December 15, 1998. In June 1998, the
FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This pronouncement will be effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company anticipates that the
adoption of these Statements will not have a material impact on its operating
results or financial position.
YEAR 2000 ISSUES
The Company uses PC hardware equipment and packaged software in the operations
of the consulting business and Utilization Review business. An initial
evaluation has been performed to assess the impact of the year 2000 issue on all
software and hardware. It has been determined that all existing hardware
equipment is Year 2000 compliant, except for certain equipment scheduled to be
retired. Various packaged software applications are used as tools in running the
Company's accounting operations and for general business functions. Management
plans to implement any necessary software vendor upgrades and modifications to
ensure continued functionality with the Year 2000. The Company's business is not
dependent upon computer systems of any significant customers, vendors or other
third parties in the course of normal business. At present, management does not
expect software upgrade costs or software replacement costs to exceed $50,000 in
the aggregate. The Company has not yet established a contingency plan, but
intends to formulate one to address unavoidable risks by July 1999.
The discontinued operations of the Company are not expected to cause Year 2000
compliance issues for the Company. The Care3 health plan in Mississippi is under
the control of the Department of Insurance and is currently being closed down.
The Company does not expect any remaining impact as the health plan will no
longer be operational and all contracts with third parties will have fully
expired by the year 2000.
16
<PAGE> 17
PART II
Item 1: Legal Proceedings
The Company currently is not a party to any material legal proceedings.
In April, 1998, the Company supplied certain documents to the United States
Department of Justice ("DOJ") concerning its business pursuant to an
administrative subpoena, (the "Subpoena") served on February 24, 1998 under the
Health Insurance Portability and Accountability Act of 1996. Since April, 1998,
the Company has not been requested to provide any further documents or
information to the DOJ related to the subpoena.
Item 5: Other Information
Outlook: As of the date of this report, November 16, 1998, the Company is
providing consulting services at 30 hospitals, of which 29 have contracted for
the Company's Quality Management Program and one has contracted for the Company
to provide "hospitalist" services. A hospitalist is a physician who consults on
issues uniquely related to the delivery of medical services in a hospital. At
this time last year, the Company provided consulting services at 22 hospitals,
an increase of 8 hospitals from the previous year. The Company is in active
negotiation with 12 hospitals for delivery of its Quality Management Program. In
addition, the Company expects to complete contracts to provide its Clinical
Resource Management Program at approximately 2 to 6 hospitals during the second
quarter of fiscal 1999. Under this program, the Company will provide consulting
services to assist hospitals in delivering appropriate and cost-effective
quality health care by working with attending physicians to improve their
analytical processes in preparing treatment plans for patients. By so doing, the
Company expects the quality of patient care to improve and the costs of care to
be reduced from improved efficiency. This expectation is based on limited
analyses performed by the Company of the experiences of a number of hospitals
which have participated in the Company's Quality Management Program. If the
anticipated results are obtained, the Company will be compensated as a variable
percentage of the actual economic benefit to the hospital. Management believes
that this program, in conjunction with the Company's existing Quality Management
Program, could restore the Company's operating margins to the levels enjoyed in
fiscal 1997. Since no Clinical Resource Management Program has yet commenced, it
is too early to tell whether or not the Company will be successful. The Company
has also continued to pursue expanding its Quality Management Program into
physician offices.
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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 D. Arkin entered into on March 1, 1996; Amendment
No. 1 by and between Birman Managed Care, Inc. and Robert D.
Arkin entered into on March 1, 1996.
*10.4 Employment Agreement by and between Birman Managed Care, Inc.
BMC Health Plans, Inc. and Vincent W. Wong entered into on
March 1, 1996.
*10.5 Employment Agreement by and between Birman Managed Care, Inc.
and Douglas A. Lessard entered into on March 1, 1996;
Amendment No. 1 by and between Birman Managed Care, Inc. and
Douglas A. Lessard entered into on March 1, 1996; Amendment
No. 2 by and between Birman Managed Care, Inc. and Douglas A.
Lessard entered into on September 1, 1996.
*10.6 Employment Agreement by and between Birman Managed Care, Inc.
and Mark C. Wade entered into on July 1, 1995; Amendment No.
1 by and between Birman Managed Care, Inc., BMC Health Plans,
Inc. and Mark C. Wade entered into on October 30,1995;
Amendment No. 2 by and between Birman Managed Care, Inc. and
Mark C. Wade entered into on September 1, 1996.
*10.9 Consulting Agreement by and between Richard M. Ross, RRCG,
L.L.C., and Birman Managed Care, Inc. entered into as of
September 1, 1996.
*10.10 1995 Stock Option Plan for Birman Managed Care, Inc. dated
October 31,1995.
*10.11 1996 Non-Employee Directors' Non-Qualified Stock Option Plan
of Birman Managed Care, Inc.
*10.12 Stock Purchase Agreement by and between Birman Managed Care,
Inc., Canton Management Group, Inc. and Wesley Prater, M.D.,
Larry Cooper, M.D., Kelvin Ramsey, M.D., L.C. Tennin, M.D.,
Louis Saddler, M.D., James Goodman, Ph.D., Vic Caracci,
Michael T. Caracci, Robert 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 American National Bank and Trust Company of
Chicago and Hughes & Associates, Inc.
*10.17 Form of Indemnification Agreement for Birman Managed Care,
Inc.
*10.18 Executive Bonus Plan to be supplied by amendment.
18
<PAGE> 19
*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. to be
supplied by amendment.
**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.
***16.1 Letter on Change in Certifying Accountants.
*21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule, quarter ended September 30, 1998
27.2 Financial Data Schedule, quarter ended September 30, 1997 -
Restated
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the last quarter
of the fiscal year ended June 30, 1998. Subsequent to fiscal year end, the
Company filed Form 8-K on July 1, 1998 to report certain cost reduction
measures taken to reduce cash operating requirements. In addition, the
Company filed Form 8-K on August 7, 1998 to report the discontinuance of
the health plan operations of the Company.
* Incorporated by Reference from the Company's Registration Statement on
Form SB-2 (No. 333-111957).
** Incorporated by Reference from the Company's Quarterly Report on Form
10-QSB for the quarterly period ended December 31, 1996.
*** Incorporated by reference from the Company's quarterly report on Form
10-QSB for the fiscal quarter ended December 31, 1997.
19
<PAGE> 20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BIRMAN MANAGED CARE, INC.
November 14, 1998 /s/ DAVID N. BIRMAN
-------------------------------------
David N. Birman
Chairman of the Board, President and
Chief Executive Officer
November 14, 1998 /s/ DOUGLAS A. LESSARD
-------------------------------------
Douglas A. Lessard
Vice President, Treasurer and Chief
Financial Officer
(Principal Accounting Officer)
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,710,089
<SECURITIES> 0
<RECEIVABLES> 1,071,309
<ALLOWANCES> 139,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,805,163
<PP&E> 1,468,449
<DEPRECIATION> 348,179
<TOTAL-ASSETS> 5,115,497
<CURRENT-LIABILITIES> 512,349
<BONDS> 0
0
0
<COMMON> 8,756
<OTHER-SE> 4,160,309
<TOTAL-LIABILITY-AND-EQUITY> 5,115,497
<SALES> 0
<TOTAL-REVENUES> 1,977,467
<CGS> 0
<TOTAL-COSTS> 1,020,179
<OTHER-EXPENSES> 1,425,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,407
<INCOME-PRETAX> (445,041)
<INCOME-TAX> (4,392)
<INCOME-CONTINUING> (449,433)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (449,433)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,431,387
<SECURITIES> 0
<RECEIVABLES> 935,760
<ALLOWANCES> 130,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,592,381
<PP&E> 1,391,827
<DEPRECIATION> 287,717
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0
0
<COMMON> 8,756
<OTHER-SE> 4,609,742
<TOTAL-LIABILITY-AND-EQUITY> 5,835,688
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<NET-INCOME> (124,300)
<EPS-PRIMARY> (.01)
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</TABLE>
