<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period from to
Commission file number 0-21373
PROMEDCO MANAGEMENT COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2529809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
801 CHERRY STREET, SUITE 1450
FORT WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
(817) 335-5035
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES ( ) NO ( X ) *
* The Company has been subject to the reporting requirements of the Securities
Exchange Act of 1934 since March 12, 1997.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock April 30, 1997
--------------------- ----------------
$.01 par value 8,783,862 shares
================================================================================
<PAGE> 2
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
No.
---
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
1
<PAGE> 3
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997 December 31,
(Unaudited) 1996
-------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,294,341 $ 1,633,534
Accounts receivable, net 8,967,800 6,227,228
Management fees receivable 1,658,933 1,266,598
Due from affiliated physician groups 1,437,819 660,278
Prepaid expenses and other current assets 883,198 742,845
------------ ------------
Total current assets 46,242,091 10,530,483
------------ ------------
Property and equipment, net 4,986,227 3,930,191
Intangible assets, net 17,569,560 14,860,171
Other assets 15,368,960 1,238,929
------------ ------------
Total assets $ 84,166,838 $ 30,559,774
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,533,441 $ 1,505,762
Payable to affiliated physician groups 2,012,117 1,341,876
Accrued salaries, wages and benefits 1,443,272 1,153,558
Accrued expenses and other current liabilities 3,149,944 2,353,381
Current maturities of long-term debt 753,821 1,151,191
Current maturities of obligations under capital leases 457,092 589,438
Deferred purchase price 11,107,755 181,986
------------ ------------
Total current liabilities 20,457,442 8,277,192
------------ ------------
Long-term debt, net of current maturities 13,587,257 4,585,173
Obligations under capital leases, net of current maturities 1,030,171 1,030,171
Convertible subordinated notes payable 1,800,274 1,800,274
Other long term liabilities 483,515 393,575
------------ ------------
Total liabilities 37,358,659 16,086,385
------------ ------------
Series A redeemable convertible preferred stock -- 2,957,641
Redeemable common stock -- 991,776
Stockholders' equity:
Class B Common Stock -- 12,262
Common stock 87,839 31,871
Additional paid-in capital 49,839,045 11,987,480
Common stock to be issued 487,024 2,303,212
Stockholder notes receivable (400,977) (151,306)
Accumulated deficit (3,204,752) (3,659,547)
------------ ------------
Total stockholders' equity 46,808,179 10,523,972
------------ ------------
Total liabilities and stockholders' equity $ 84,166,838 $ 30,559,774
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Physician groups revenue, net $20,725,577 $ 7,091,429
Less: amounts retained by physician groups 9,008,171 3,428,089
----------- -----------
Management fee revenue 11,717,406 3,663,340
----------- -----------
Operating expenses:
Clinic salaries and benefits 4,639,895 1,741,516
Clinic rent and lease expense 1,079,862 411,372
Clinic supplies 1,513,716 404,298
Other clinic costs 2,463,630 936,021
General corporate expenses 818,772 581,596
Depreciation and amortization 435,875 51,564
Interest expense (income) 115,949 (19,625)
----------- -----------
11,067,699 4,106,742
----------- -----------
Income (loss) before provision for income taxes 649,707 (443,402)
Provision for income taxes 194,912 --
----------- -----------
Net income (loss) $ 454,795 $ (443,402)
=========== ===========
Earnings (loss) per share $ 0.04 $ (0.05)
=========== ===========
Weighted average number of common shares outstanding 11,617,229 8,414,274
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 454,795 $ (443,402)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities (net
of effects of purchase transactions):
Depreciation and amortization 435,875 51,564
Provision for deferred income taxes 121,820 --
Changes in assets and liabilities:
Accounts receivable (148,679) (207,995)
Management fees receivable (392,335) (651,742)
Due from affiliated physician groups (414,258) --
Other assets (153,971) (86,653)
Accounts payable (199,447) 217,527
Payable to physician groups 670,241 --
Accrued expenses and other current liabilities (53,807) 763,570
------------ ------------
Net cash provided by (used in) operating activities 320,234 (357,131)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (477,907) (48,407)
Purchases of clinic assets, net of cash (1,189,144) (277,641)
------------ ------------
Net cash used in investing activities (1,667,051) (326,048)
------------ ------------
Cash flows from financing activities:
Borrowings under long-term debt 2,076,242 82,580
Payments on long-term debt (2,299,382) (43,270)
Payments on capital lease obligations (132,346) --
Proceeds from issuance of common stock, net 33,363,110 --
------------ ------------
Net cash provided by financing activities 33,007,624 39,310
------------ ------------
Increase in cash and cash equivalents 31,660,807 (643,869)
Cash and cash equivalents, beginning of period 1,633,534 3,047,366
------------ ------------
Cash and cash equivalents, end of period $ 33,294,341 $ 2,403,497
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for -
Interest expense $ 221,743 $ 9,143
Income taxes $ 71,518 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
PROMEDCO MANAGEMENT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation/Principles of Consolidation
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such SEC rules and regulations. Management believes that
the disclosures herein are adequate to prevent the information presented from
being misleading. The foregoing financial information, not audited by
independent public accountants, reflects, in the opinion of the Company, all
adjustments (which included only normal recurring adjustments) necessary for a
fair presentation of the financial position and the results of operations for
the interim periods presented. The results of operations for any interim period
are not necessarily indicative of the results of the operations for the entire
year. It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto for the
year ended December 31, 1996, included in the Company's registration statement
on Form S-1.
In November 1996, the Company entered into a definitive agreement with Western
Medical Management Corp., Inc. ("Reno"), a physician management company. Under
the terms of the agreement, Reno exchanged its common stock for common stock of
the Company upon consummation of the Company's initial public offering of
common stock in March 1997 (see Note 4). This transaction has been accounted
for as a pooling of interests, as defined by APB No. 16, "Business
Combinations." The accompanying financial statements are based on the
assumption that the companies were combined for the full periods presented and
prior financial statements have been restated to give effect to the
combination.
Earnings Per Share
Primary earnings per share of common stock have been computed using the
weighted average number of shares of common stock outstanding and dilutive
common stock equivalents.
Management Fee Revenue
Management fee revenue represents physician groups revenue less amounts
retained by physician groups. The amounts retained by physician groups (85% of
the physician groups' operating income) represents amounts paid to the
physicians pursuant to the service agreements between the Company and the
physician groups. Under the service agreements, the Company provides each
physician group with the facilities and equipment used in its medical practice,
assumes responsibility for the management of the operations of the practice,
and employees substantially all of the non-physician personnel utilized by the
group.
5
<PAGE> 7
PROMEDCO MANAGEMENT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The Company's management fee revenues are dependent upon the operating income
of the physician groups. As discussed previously, the physician groups retain a
fixed percentage (typically 85%) of physician group operating income. Physician
group operating income is defined in the service agreements as the physician
group's net medical revenue less certain contractually agreed-upon clinic
expenses, including non-physician clinic salaries and benefits, rent,
insurance, interest and other direct clinic expenses. The amount of the
physician groups revenue retained and paid to the physician group primarily
consists of the cost of the affiliated services. The remaining amount of the
physician group operating income (typically 15%) and an amount equal to 100% of
the clinic expenses are reflected as management fee revenue earned by the
Company and is detailed as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Component based upon percentage of physician groups
operating income $ 1,589,677 $ 604,957
Reimbursement of clinic expenses 10,127,729 3,058,383
----------- -----------
Management fee revenue $11,717,406 $ 3,663,340
=========== ===========
</TABLE>
2. ACQUISITIONS:
Through March 31, 1997 and during 1996, the Company, through its wholly-owned
subsidiaries, acquired certain operating assets of the following clinics:
<TABLE>
<CAPTION>
Clinic Effective Date Location
------ -------------- --------
<S> <C> <C>
1997:
Naples Medical Center, P.A. March 1, 1997 Naples, FL
1996:
Cullman Primary Care, P.C. March 6, 1996 Cullman, AL
Morgan-Haugh, P.S.C. April 1, 1996 Mayfield, KY
HealthFirst Medical Group, P.A. June 1, 1996 Lake Worth, TX
King's Daughters Clinic, P.A. September 1, 1996 Temple, TX
</TABLE>
These acquisitions were accounted for as purchases, and the accompanying
condensed consolidated financial statements include the results of their
operations from the dates of their respective acquisitions. Purchase price
allocations to tangible assets acquired and liabilities assumed are based on the
estimated fair values at the dates of acquisitions and are subject to final
revisions. Simultaneous with each acquisition, the Company entered into a
long-term service agreement with the related clinic physician group. The service
agreements are 40 years in length.
The Naples acquisition was closed on April 23, 1997 and is effective as of
March 1, 1997. Total consideration amounted to $19.9 million, consisting of
cash of $11.1 million, notes payable of $8.7 million and the assumption of
certain liabilities of $130,000. The cash portion was recorded as deferred
purchase price at March 31, 1997. The impacts of this acquisition have been
eliminated from the statement of cash flows.
6
<PAGE> 8
PROMEDCO MANAGEMENT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
In addition, the Company has entered into an agreement to acquire the operating
assets and liabilities of a physician group which is currently operated under
an interim service agreement. The closing of this acquisition will
occur during the second quarter of 1997. The Company will issue approximately
1,900,000 common shares as consideration related to the acquisition, subject to
adjustments defined in the related purchase agreement.
The following unaudited pro forma information reflects the effect of
acquisitions on the consolidated results of operations of the Company,
including the results of operations for Reno, had the acquisitions occurred at
January 1, 1996. Future results may differ substantially from pro forma results
and cannot be considered indicative of future results.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Physician groups revenue, net $25,395,421 $21,404,683
Less: amounts retained by physician groups 11,048,385 9,661,521
----------- -----------
Management fee revenue $14,347,036 $11,743,162
=========== ===========
Net income $ 614,639 $ 234,185
=========== ===========
Net income per share $ 0.05 $ 0.02
=========== ===========
</TABLE>
As discussed in Note 1., the Company completed its merger with Reno on March
17, 1997, the date of the closing of the Company's initial public offering. The
accompanying condensed consolidated financial statements are based on the
assumption that the companies were combined for the full periods presented and
prior financial statements have been restated to give effect to the
combination. The following unaudited information reflects the separate results
of the combined entities for periods prior to the combination:
<TABLE>
<CAPTION>
Three Months Ending Three Months Ending
March 31, 1997 March 31, 1996
------------------------- --------------------------
ProMedCo Reno ProMedCo Reno
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Physician groups revenue, net $17,343,665 $ 3,381,912 $ 4,139,217 $ 2,952,212
Less: amounts retained by
physician groups 7,669,484 1,338,687 2,010,147 1,417,942
----------- ----------- ----------- -----------
Management fee revenue 9,674,181 2,043,225 2,129,070 1,534,270
----------- ----------- ----------- -----------
Operating expenses
Clinic expenses 8,025,524 1,671,579 1,774,601 1,718,606
General corporate expenses 818,772 -- 581,596 --
Depreciation and amortization 391,507 44,368 31,591 19,973
Interest expense (income) 112,666 3,283 (28,768) 9,143
----------- ----------- ----------- -----------
9,348,469 1,719,230 2,359,020 1,747,722
----------- ----------- ----------- -----------
Income (loss) before provision
for income taxes 325,712 323,995 (229,950) (213,452)
Provision for income taxes 97,714 97,198 -- --
----------- ----------- ----------- -----------
Net income (loss) $ 227,998 $ 226,797 $ (229,950) $ (213,452)
=========== =========== =========== ===========
</TABLE>
7
<PAGE> 9
PROMEDCO MANAGEMENT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
3. LONG-TERM DEBT:
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Borrowings under bank credit facility $ 4,468,000 $ 4,157,027
Note payable issued to physician groups 9,561,630 851,549
Other long-term debt 311,448 727,788
----------- -----------
14,341,078 5,736,364
Less current maturities 753,821 1,151,191
----------- -----------
Long-term debt, net of current maturities $13,587,257 $ 4,585,173
=========== ===========
</TABLE>
In connection with the Naples affiliation, the Company issued notes payable to
the groups totaling $8.7 million. These notes payable are payable in three
annual installments in each of April 1998, 1999 and 2000. The notes bear
interest at 9%, with interest payable in options to purchase the Company's
common stock at a price of $9.00 per share, providing the market price for the
stock is above the exercise price at the time of payment. Interest may be paid
in cash at the option of either party if the market price for the stock is
$9.00 or less at the time of payment.
4. CAPITALIZATION:
During March 1997, the Company completed the initial public offering of its
common stock (the "Offering"). The Offering consisted of 4,000,000 shares of
common stock sold at a price of $9.00 per share. Gross and net proceeds from
the Offering were $36 million and $33.5 million, respectively. In addition, net
proceeds were reduced by approximately $1.6 million of expenses relating to the
Offering, of which approximately $680,000 had been paid by March 31, 1997. Upon
the completion of the Offering, 500,000 shares of preferred stock were
converted into common stock. Similarly, 165,296 shares of redeemable common
stock and 613,075 shares of Class B Common Stock were converted into common
stock.
5. SUPPLEMENTAL EARNINGS PER SHARE DATA:
In March 1997, the Company sold 4,000,000 shares of common stock at a price of
$9.00 per share in the Offering. The unaudited supplemental earnings per share
data has been calculated assuming the Offering occurred as of the beginning of
each respective period.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Supplemental income per share (primary and fully diluted)
Net income (loss) per share $ 0.03 $ (0.04)
=========== ===========
Supplemental weighted average shares outstanding 14,817,229 12,414,274
=========== ===========
</TABLE>
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
ProMedCo Management Company, ("ProMedCo" or the "Company") a Delaware
corporation, is a physician practice management company that consolidates its
affiliated physician groups into primary-care-driven multi-specialty networks.
ProMedCo commenced operations in December 1994 and affiliated with its initial
physician group in June 1995. The Company's rapid growth in 1996 and 1997 has
resulted primarily from its affiliation with additional physician groups. The
Company is affiliated with eight physician groups in five states representing
180 physicians and 53 physician extenders practicing at 36 service sites. When
affiliating with a physician group, the Company typically acquires at fair
market value the group's non-real estate operating assets and enters into a
40-year service agreement with the group in exchange for a combination of
common stock, cash, other securities of the Company, and/or the assumption of
certain liabilities. The Company is continually seeking additional physician
groups with which to affiliate and is currently engaged in negotiations with
several such groups.
ProMedCo focuses on pre-managed care secondary markets located principally
outside of or adjacent to large metropolitan areas. The key elements of the
Company's strategy are to (i) affiliate with primary-care-oriented
multi-specialty groups, (ii) continue to penetrate pre-managed care markets,
(iii) expand its affiliated groups' market presence through addition of
physicians and ancillary services, (iv) preserve the local autonomy of the
Company's affiliated physician groups and maintain decentralized management and
(v) align the Company's economic interests with those of its physician
partners.
Results of Operations
As a result of the Company's rapid growth and limited period of affiliation
with its affiliated physician groups, the Company does not believe that the
period-to-period comparisons and percentage relationships within periods set
forth below are meaningful. The Company commenced operations in December 1994
and affiliated with its first physician group in June 1995 and its second group
in December 1995. The Company entered into affiliations with six additional
groups during 1996 and 1997. Changes in results of operations for the three
months ended March 31, 1997 as compared to the three months ended March 31,
1996 were caused primarily by affiliations with these six physician groups.
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
The following table sets forth the percentages of physician groups revenue
represented by certain items reflected in the Company's condensed consolidated
statements of operations.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Physician groups revenue, net 100.0% 100.0%
Less: amounts retained by physician groups 43.5 48.3
----- -----
Management fee revenue 56.5 51.7
Operating expenses:
Clinic salaries and benefits 22.4 24.6
Clinic rent and lease expense 5.2 5.8
Clinic supplies 7.3 5.7
Other clinic costs 11.9 13.3
General corporate expenses 4.0 8.2
Depreciation and amortization 2.1 0.7
Interest expense (income) 0.5 (0.3)
----- -----
Income (loss) before provision for income taxes 3.1% (6.3)%
Provision for income taxes 0.9 --
----- -----
Net income (loss) 2.2% (6.3)%
===== =====
</TABLE>
Physician groups revenue was $20,725,577 for the quarter ended March 31, 1997,
compared with $7,091,429 for the quarter ended March 31, 1996, an increase of
$13,634,148. The increase in physician groups revenue resulted primarily from
the affiliation with six physician groups since March 1996.
Amounts retained by physician groups as a percentage of physician groups
revenue declined to 43.5% for the quarter ended March 31, 1997, compared to
48.3% for the quarter ended March 31, 1996. Overall clinic costs as a
percentage of physician groups revenue declined to 46.8% for the quarter ended
March 31, 1997, compared to 49.4% for the quarter ended March 31, 1996. The mix
of physician specialties and ancillary services affects the cost of affiliated
physician services, clinic salaries and benefits and clinic supplies. Because
of the significance of individual group affiliations to the Company as a whole,
these expense ratios will vary with each new acquisition. Generally, primary
care and office-based physician practices require a higher number of support
staff than specialty care or hospital-based practices. Clinic rent and lease
expense as percentage of physician groups revenue will vary based on the size
of each of the affiliated group's offices and the current market rental rate
for medical office space in the particular geographic markets. Other clinic
costs will vary as a percentage of physician groups revenue based on regional
cost differences and the Company's ability to implement operational
efficiencies and negotiate more favorable purchasing arrangements.
General corporate expenses as a percentage of management fee revenue declined
to 4.0% for the quarter ended March 31, 1997, compared to 8.2% for the quarter
ended March 31, 1996. The level of these expenses continued to increase during
the remainder of 1996 and through the quarter ended March 31, 1997, as the
Company continued to add to its management infrastructure. While the Company
expects that these expenses will continue to increase as the Company increases
the number of affiliated physician groups, it believes that these expenses will
continue to decline as a percentage of management fee revenue.
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Depreciation and amortization as a percentage of physician groups revenue
increased to 2.1% for the quarter ended March 31, 1997, compared to 0.7% for
the quarter ended March 31, 1996. This was a result of the affiliations with
the six additional groups and the acquisition of their operating assets.
Interest expense also increased as a percentage of physician groups revenue as
a result of higher debt levels associated with these new affiliations.
Provision for income taxes reflects an effective rate of 30%, the Company's
estimated effective rate for all of 1997. This effective rate is lower than the
Federal statutory rate due to the realization of net operating loss
carryforwards, which had been previously reserved for.
Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of $25.8 million, compared
to $2.3 million at December 31, 1996. This increase was largely due to
completion of the Company's initial public offering (the "Offering"), which
resulted in net proceeds of $33.5 million, before expenses of the Offering.
This was partially offset by an increase in deferred purchase price of $10.9
million, resulting from the Naples Medical Center affiliation. Subsequent to
March 31, 1997, initial consideration of $9.7 million was paid to the Naples
groups, with the balance of approximately $1.4 million due in the second and
third quarters of 1997.
Cash from operations for the quarter ended March 31, 1997 was $320,000. Net
income combined with depreciation and amortization, deferred taxes and an
increase in amounts payable to affiliated physician groups to provide $1.7
million in cash flows. This was offset by uses of cash of $1.4 million
resulting from increases in accounts receivable, management fees receivable,
amounts due from affiliated physicians and other assets and decreases in
accounts payable, accrued expenses and other current liabilities.
The Company had expenditures for the acquisition of clinic assets of $1.2
million for the quarter ended March 31, 1997. Of this, approximately $700,000
was an advance payment for an affiliation that will close in the
second quarter of 1997. This physician group is currently operating under an
interim service agreement with ProMedCo. The remaining amounts were for
deferred payments associated with previously completed acquisitions. Capital
expenditures amounted to $478,000 for the quarter ended March 31, 1997.
Although each of the Company's service agreements with its affiliated physician
groups requires the Company to provide capital for equipment, expansion,
additional physicians and other major expenditures, no specific amount has been
committed in advance. Capital expenditures are made based partially upon the
availability of funds, the sources of funds, alternative projects and an
acceptable repayment period.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
The Company's bank credit facility provides for a total of $25 million in
working capital and acquisition financing, subject to certain restrictions.
Outstanding borrowings against the bank credit facility were $4.5 million at
March 31, 1997. The interest rate under this facility is, at the Company's
option, (i) the "adjusted" 30-day commercial paper rate of issuers whose
corporate bonds are rated "AA" plus 3.25%, (ii) one month LIBOR plus 3.25% or
(iii) the bank's prime rate plus 0.5%. The bank credit facility, which expires
in July 1999, contains certain restrictive covenants, including
prohibitions on paying dividends, limitations on capital expenditures and
maintenance of minimum net worth and certain financial ratios.
In connection with the Naples affiliation, the Company issued notes payable to
the group totaling $8.7 million. These notes payable are payable in three
annual installments in each of April 1998, 1999 and 2000. The notes bear
interest at 9%, with interest payable in options to purchase the Company's
common stock at a price of $9.00 per share, providing the market price for the
stock is above the exercise price at the time of payment. Interest may be paid
in cash at the option of either party if the market price for the stock is
$9.00 or less at the time of payment.
The Company had cash and cash equivalents of $33.3 million at March 31, 1997.
In addition to this, the Company's principal sources of liquidity are accounts
receivable of $9.0 million at March 31, 1997 and availability under the working
capital portion of the bank line of credit of $2.3 million. The Company
believes that the combination of these sources will be sufficient to meet the
Company's working capital needs for the next twelve months. The Company's
future acquisition, expansion and capital expenditure programs will require
substantial amounts of capital resources. To meet the capital needs of these
programs, the Company will continue to evaluate alternative sources of
financing, including short- and long-term bank indebtedness, additional equity
and other forms of financing, the availability and terms of which will depend
upon market and other conditions. There can be no assurance that additional
financing will be available on terms acceptable to the Company.
Forward-Looking Statements
From time to time, the Company may publish forward-looking statements about
anticipated results. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that such forward-looking
statements are based upon internal estimates which are subject to change
because they reflect preliminary information and management assumptions, and
that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The factors
which could cause actual results or outcomes to differ from such expectations
include the extent of the Company's success in (i) negotiating the acquisition
of additional physician groups; (ii) integrating all operations within the
planned time frame; and (iii) negotiating favorable reimbursement rates, along
with the uncertainties and other factors described from time to time in the
Company's SEC filings and reports. This report includes "forward-looking
statements" including, without limitation, statements as to liquidity and
capital resources, and the negotiation and acquisition of additional physician
groups.
12
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
On March 31, 1997, the Company filed a report on Form 8-K
reporting an affiliation with a physician group in Reno,
Nevada, pursuant to Item 2. of Form 8-K.
On May 7, 1997, the Company filed a report on Form 8-K
reporting an affiliation with a physician group in Naples,
Florida, pursuant to Item 2. of Form 8-K.
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ H. WAYNE POSEY
- -------------------------------
H. Wayne Posey President, Chief Executive May 15, 1997
Officer, and Director
(Chief Executive Officer)
/s/ ROBERT D. SMITH
- -------------------------------
Robert D. Smith Vice President - Finance May 15, 1997
(Chief Accounting Officer)
</TABLE>
14
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
11 Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
---------- ---------
<S> <C> <C>
Primary
Weighted average shares
outstanding 5,584,121 4,786,184
Net common shares issuable
on exercise of certain
stock options (1) (2) 513,753 276,171
Net common shares issuable
on exercise of certain
stock warrants (1) (2) 2,234,103 66,667
Contingently issuable shares in
business combinations 3,085,222 3,085,222
Number of common shares
outstanding 11,417,199 8,214,244
Fully Diluted
Weighted average shares
outstanding 5,584,121 4,786,184
Net common shares issuable
on exercise of certain
stock options (1) (2) 513,753 276,171
Net common shares issuable
on exercise of certain
stock optionswarrants 2,234,103 66,667
Contingently issuable shares in
business combinations 3,085,222 3,085,222
Other dilutive securities 200,030 200,030
Number of common shares
outstanding 11,617,229 8,414,274
</TABLE>
(1) net common shares issuable on exercise of certain stock options and
warrants is calculated based on the treasury stock method using an
estimated of the initial publice offering price.
(2) Common shares issuable on exercise of certain stock options and
warrants were not included during loss periods since the effect of the
inclusion would be anti-dilutive. (Pursuant to applicable rules of the
SEC stock, options, and warrants issued or contingently issuable within
one year prior to the initial filing of this registration statement
are treated as outstanding for all periods presented regardless of the
anit-dilutive effect.)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 33,294,341
<SECURITIES> 0
<RECEIVABLES> 8,967,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,242,091
<PP&E> 6,115,203
<DEPRECIATION> 1,128,976
<TOTAL-ASSETS> 84,166,838
<CURRENT-LIABILITIES> 20,457,442
<BONDS> 0
0
0
<COMMON> 87,839
<OTHER-SE> 46,720,340
<TOTAL-LIABILITY-AND-EQUITY> 84,166,838
<SALES> 0
<TOTAL-REVENUES> 20,725,577
<CGS> 0
<TOTAL-COSTS> 19,959,921
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,949
<INCOME-PRETAX> 649,707
<INCOME-TAX> 194,912
<INCOME-CONTINUING> 454,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 454,795
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
