UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
-------------------------------------------------------------------------
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from _______ to _______
Commission file number 333-3762-A
----------------------------------------------
THE DOCTORS' HEALTH PLAN, INC.
(Name of small business issuer as specified in its charter)
Florida 59-3369916
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
760 Riverside Avenue
Jacksonville, Florida 32204
(Address of principal executive offices)
(904)354-5115
(Issuer's telephone number)
-----------------------------------------------
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__________ No ___X___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 10,000 shares of Class B
Common Stock, $.001 par value, and 1,000 shares of Class C Common stock, $.001
par value, respectively, were outstanding as of August 14, 1996.
Transitional Small Business Disclosure Format (check one):
Yes__________ No ___X___
<PAGE>
<TABLE>
<CAPTION>
THE DOCTORS' HEALTH PLAN, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
------------ --------
1995 1996
---- ----
(Audited) (Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 34,574 $ 5,510
Prepaid expenses - 66,725
--------- --------
Total current assets 34,574 72,235
Organization costs 64,191 56,167
Deferred public offering costs - 161,790
Loan costs 5,000 5,000
--------- --------
Total assets $103,765 $295,192
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Payable to former stockholders $ 10,000 $ 1,000
Accounts payable and accrued expenses 7,019 8,112
-------- -------
Total current liabilities 17,019 9,112
Bank line of credit 50,000 295,000
-------- -------
Total liabilities 67,019 304,112
-------- -------
Redeemable Series A preferred stock, $.001 par value,
100,000 shares authorized,
32,074 shares issued
and outstanding (Note 3) 320,740 320,740
Stockholders' equity (deficit):
Class B common stock, $.001 par value; 5,000,000 shares
authorized, 10,000 shares issued and outstanding 10 10
Class C common stock, $.001 par value; 5,000,000 shares
authorized, 1,000 shares issued and outstanding 1 1
Capital in excess of par value 34,989 34,989
Deficit accumulated during the development stage (318,994) (364,660)
------- -------
Total stockholders' equity (deficit) (283,994) (329,660)
Total liabilities and stockholders' equity (deficit) $103,765 $295,192
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE DOCTORS' HEALTH PLAN, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1996 1995 1996
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 139 $ - $ 283 $ 2
Costs and expenses:
Development and start-up costs 205,814 - 206,276 -
General and administrative 2,545 26,867 2,545 32,883
Amortization of organization costs - 4,012 - 8,024
Interest - 3,964 - 4,761
------- -------- ------- ------
Total costs and expenses 208,359 34,843 208,821 45,668
------- -------- ------- ------
Net loss $(208,220) $(34,843) $(208,538) $(45,666)
======= ====== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE DOCTORS' HEALTH PLAN, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
-------- --------
1995 1996 1995 1996
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(208,220) $(34,843) $(208,538) $ (45,666)
Adjustments to reconcile net loss to
net cash used for operating activities:
Amortization of organization costs - 4,012 - 8,024
Increase in prepaid expenses - (66,725) - (66,725)
Increase (decrease) in accounts payable
and accrued expenses 138 8,112 374 1,093
------- ------- ------- -------
Net cash used for operating activities (208,082) (89,444) (208,164) (103,274)
------- ------- ------- -------
Cash flows from investing activities:
Deferred public offering costs incurred - (122,122) - (161,790)
------- ------- ------- -------
Net cash used for investing activities - (122,122) - (161,790)
------- ------- ------- -------
Cash flows from financing activities:
Proceeds from notes payable 250,000 - 250,000 -
Repayment of debt to former stockholders - (9,000) - (9,000)
Net borrowings under line of credit - 220,000 - 245,000
------- ------- ------- -------
Net cash provided by financing activities 250,000 211,000 250,000 236,000
------- ------- ------- -------
Net increase (decrease) in cash and
cash equivalents 41,918 (566) 41,836 (29,064)
Cash and cash equivalents, beginning of period 24,457 6,076 24,539 34,574
-------- --------- -------- --------
Cash and cash equivalents, end of period $ 66,375 $ 5,510 $ 66,375 $ 5,510
======== ========= ======== =========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In 1995, the Company exchanged long-term debt of $310,000 and accrued
interest of $10,740 payable to stockholders for preferred stock.
In addition, the Company converted $45,000 of common stock issued by its
subsidiary into $35,000 of common stock issued by the Company and $10,000
payable to former stockholders.
See accompanying notes to consolidated financial statements.
<PAGE>
THE DOCTORS' HEALTH PLAN, INC.
(a development stage company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
Note 1 - Interim Statement Adjustments
The unaudited interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the periods presented. All adjustments are of a
normal and recurring nature. The interim consolidated financial statements are
designed to be read in conjunction with the most recent consolidated financial
statements.
Note 2 - Summary of Significant Accounting Policies
The following is a summary of significant accounting policies of The
Doctors' Health Plan, Inc. (the Company):
Basis of Consolidation
The consolidated financial statements include the accounts of The Doctors'
Health Plan, Inc. (the Company) and its wholly-owned subsidiary, The Doctors'
Health Plan of Florida, Inc. (DHPF). All significant intercompany accounts and
transactions have been eliminated.
Organization and Operations
The Company was incorporated on March 1, 1996, under the sponsorship of
the Florida Medical Association, Inc. and the Florida Osteopathic Medical
Association, Inc. for the purpose of developing a statewide, physician-owned
health maintenance organization (HMO). The Company's wholly-owned subsidiary,
The Doctors' Health Plan of Florida, Inc., was incorporated on October 22, 1993.
The original shareholders of the Company's wholly-owned subsidiary included the
Florida Medical Association, Inc. (FMA), the Florida Osteopathic Medical
Association, Inc. (FOMA), Florida Independent Physicians Association (FIPA), the
respective FIPA regions, and the Independent Physicians Association Region IX
(IPA). The Company is in the development stage and its efforts through June 30,
1996 have been principally devoted to organizational activities, raising capital
and feasibility and developmental efforts. Management anticipates incurring
additional expenses as it continues to raise capital necessary to start the HMO.
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles.
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period.
Organization Costs
Organization costs, which are stated at cost, are amortized on a
straight-line basis over the estimated period of benefit not to exceed sixty
months.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
Development and Start-Up Costs
Development and start-up costs are recorded at cost. These costs have
been incurred since inception and represent costs associated with the ongoing
development of the Company. Such costs are expensed when no discernible future
economic benefits exist.
Note 3 - Capitalization
Common Stock
On June 7, 1996, the Securities and Exchange Commission approved a $60
million restricted stock offering of the Company's Class A common stock. The
proceeds of the offering will be used to fund all of the costs associated with
developing the HMO. As of June 30, 1996, no subscriptions for the Class A common
stock had been received.
From inception through June 30, 1996, the Company has issued 10,000
shares of its Class B common stock to Florida Medical Association, Inc. (FMA)
and 1,000 shares of its Class C common stock to Florida Osteopathic Medical
Association, Inc. (FOMA). These shares were issued through the conversion of
previously issued common stock of DHPF into shares of the Company for a total
consideration of $35,000. In addition, IPA and FIPA Class common stock owned by
former stockholders of DHPF was converted into rights to receive $1,000 per
share for a total of $10,000 from the Company.
Redeemable Preferred Stock
In 1995, the Company issued 32,074 shares of its Series A Preferred
Stock, $.001 par value per share ("Series A Preferred Stock"), in exchange for
notes payable and accrued interest totaling $320,740. The Series A Preferred
Stock entitles the holder to cumulative annual dividends of $1.00 per share
payable annually beginning March 1, 1997, and to preference in the payment of
dividends and in liquidation over holders of the Company's common stock and
other series of preferred stock.
The Series A Preferred Stock is required to be redeemed on the earlier
of April 1, 1998, or the date on which the Company completes an offering of
Class A Common Stock totaling a minimum of $20,000,000. On this date, the
Company shall redeem all of the issued and outstanding shares of Series A
Preferred Stock for $10.00 per share plus all accrued and unpaid dividends
thereon, to and including the redemption date.
<PAGE>
PART I
------
Item 1.
FINANCIAL INFORMATION
INTERIM FINANCIAL STATEMENTS OF
THE DOCTORS' HEALTH PLAN, INC.
AS OF JUNE 30, 1996
<PAGE>
Item 2. MANAGEMENT'S PLAN OF OPERATION
PLAN OF OPERATIONS
Summary of Certain Prior Activities. The Doctors' Health Plan, Inc., a
Florida corporation ("Company"), was incorporated on March 1, 1996, under the
sponsorship of the Florida Medical Association and the Florida Osteopathic
Medical Association for the purpose of developing a statewide, physician-owned
health maintenance organization ("HMO"). The Company's wholly owned subsidiary,
The Doctors' Health Plan of Florida, Inc., was incorporated on October 22, 1993.
The original shareholders of the Company's wholly-owned subsidiary included the
Florida Medical Association (occasionally referred to herein as "FMA"), the
Florida Osteopathic Medical Association (occasionally referred to herein as
"FOMA"), Florida Independent Physicians Association (occasionally referred to
herein as "FIPA"), the respective FIPA regions, and the Independent Physicians
Association (occasionally referred to herein as "IPA") Region IX.
Since the formation of the Company's wholly-owned subsidiary, it has
investigated strategic alternatives for the Company, and has engaged in other
pre-operational activities, including preparation of the conduct of a limited
offering of its Class A Common Stock to eligible offerees (the "Offering"). The
Company's subsidiary was initially capitalized with funds advanced by the
Florida Medical Association and the Florida Osteopathic Medical Association. The
FMA also invested initial equity of $25,000, and FOMA invested initial equity of
$10,000 in the Company. In addition, the FMA has guaranteed a line of credit
established in favor of the Company with First Union National Bank of Florida.
In April 1996, the FMA purchased 31,025 shares and FOMA purchased 1,049 shares
of the Company's Series A Preferred Stock in exchange for cancellation of
$320,740 owed by the Company to the FMA and FOMA under certain promissory notes.
The Company anticipates that the FIPA Regions and IPA Region IX, which
are independent practice associations, or the members of those organizations who
are shareholders of the Company, will comprise a significant portion of the
provider panel for the Company. FIPA, the FIPA Regions, and IPA Region IX may
serve as contracting agents for certain physician providers in negotiating
provider agreements. The Company believes that share ownership of the Company by
FIPA, the FIPA Regions, or IPA Region IX might create a perceived conflict of
interest. Accordingly, effective in April 1996, all of the capital stock of the
Company's subsidiary formerly owned by these organizations was converted in a
merger transaction into the right to receive the original purchase price paid by
these organizations for such capital stock. The Company intends, however, to
maintain a strong relationship with these independent practice associations.
The plan of operations for the Company for the following twelve months
is described below.
<PAGE>
Cash Requirements. Management estimates, based on information available
to it at this time, that if the Company sells a minimum of 3,000,000 shares, the
proceeds of the Offering will satisfy the Company's cash requirements for a
period of approximately 33 months following the completion of the Offering. If
the Company sells a minimum of 500,000 shares, the Company will not be required
to raise additional funds during the next twelve months.
The Company intends to utilize its line of credit with First Union
National Bank of Florida to fund its operations pending the sale of the Minimum
Proceeds and may use it to fund short-term cash requirements after completion of
the Offering. The Company's line of credit has a $1,000,000 maximum limit (of
which $705,000.00 was available as of August 1, 1996), and bears interest,
payable monthly, at 0.5% above First Union's prime rate of interest. The entire
outstanding principal balance, together with accrued interest, is payable on
October 17, 1997. The line of credit is guaranteed by the FMA.
Licensing and Qualifications. In order to operate as an HMO in the
state of Florida, the Company must obtain a certificate of authority issued by
the Florida Department of Insurance and a health care provider certificate
issued by the Florida Agency for Health Care Administration. To obtain such
certificates, the Company must comply with certain regulatory requirements
relating to the financial condition and proposed operating procedures of the
Company. Florida law also requires that each HMO be accredited by an approved
accrediting organization such as the Joint Commission on Accreditation of Health
Care Organizations, the National Committee of Quality Assurance, or the
Accreditation Association for Ambulatory Health Care, within one (1) year of the
Company's receipt of its certificate of authority.
Over the next 12 months, the Company intends to seek and obtain the
necessary licenses, approvals, and accreditations to operate as an HMO under
Florida law. The Company will also seek designation by the Florida Agency for
Health Care Administration as an accountable health partnership. As an
accountable health partnership, the Company will be able to provide health care
plans to the ten (10) community health purchasing alliances designated by the
state of Florida. During the next 12 months, the Company may also seek
qualification as a federally qualified HMO.
Strategic Alternatives. Over the next 12 months, the Company will
continue to evaluate and pursue various strategic alternatives for the Company.
Depending on available opportunities, this may include exploring the possible
acquisition of other existing HMOs or a merger or affiliation with another
existing HMO.
The Company likely will investigate existing HMO's operating in the
Florida market that are potential acquisition candidates. The acquisition of an
existing, operational HMO offers certain advantages over the establishment of a
new HMO. By acquiring an existing HMO, the Company would acquire existing
management capability, corporate infrastructure and information systems, and an
existing subscriber population. Accordingly, the Company will continue to
evaluate the possibility of acquiring or affiliating with an existing HMO. The
<PAGE>
Company has not yet established any specific criteria for an acquisition or
merger candidate, and any acquisition or merger would be within the sole
discretion of management, except to the extent shareholder approval of the
transaction may be required under the Florida Business Corporation Act. Any
merger or acquisition transaction could involve the issuance of additional
equity or debt obligations of the Company to the acquired entity or its
shareholders possibly diluting the ownership interest of existing shareholders
or the book value of the Company.
Provider Network. The Company's success is largely dependent on the
Company's ability to develop an extensive network of physician providers. Over
the next 12 months, the Company will devote substantial efforts to developing
and credentialing its health care delivery network. The Company will begin by
establishing credentialing standards for its physician providers. Once these
standards have been established, the Company will develop a physician network
among its physician shareholders. The Company anticipates that this network will
consist of thousands of primary care and specialist physicians throughout the
state of Florida. If required to provide services under health care plans
established by the Company, the Company will credential additional physicians or
health care providers that are not shareholders of the Company.
Recruiting Management and Other Personnel. Over the next 12 months, the
Company will devote substantial efforts to recruiting and engaging a new chief
executive officer, a chief operating officer, and other senior management
personnel that are experienced in the operation of HMOs. The Company will
develop a salary and benefit package for executive personnel that will permit it
to attract quality management. The Company may engage a personnel recruitment
firm to assist the Company in these efforts. The Company will also recruit
additional staff on an as-needed basis.
Management Information Systems. The Company's success will be largely
dependent upon its ability to acquire and maintain management information
systems to provide centralized billing services, tracking of enrollees,
verification of an enrollees's status, and to implement quality assurance and
utilization review programs. The Company will likely engage consultants over the
next 12 months to help it design and acquire management information systems
which will permit the Company to meet its data processing and analysis needs.
Lease of Office Space. Within the next 12 months, the Company
anticipates that it will lease office space for its administrative and executive
offices in accordance with its needs. The Company may also lease additional
office space for regional offices that it intends to establish over the next 12
months.
Product Development. Over the next 12 months, the Company will engage
actuarial personnel and consultants, establish underwriting guidelines and
pricing methodologies, and conduct market and consumer research. Based on these
and other activities, the Company will develop health care plan products which
will be marketed directly to employers. The Company anticipates that it will
develop a variety of health care plan products over the next 12 months. The
<PAGE>
principal product to be developed by the Company will be a capitated benefit
plan, although the Company likely will develop other types of plans, possibly
including a fee-for-service plan and a point of service plan.
Marketing. Over the next 12 months, the Company will engage a Vice
President of Marketing and additional marketing personnel. In conjunction with
these employees, the Company will develop a comprehensive marketing strategy for
the marketing of its health care plans. Due to the highly regionalized nature of
the Florida health care delivery system, the Company anticipates that it will
divide its marketing efforts among several regions. During the next 12 months,
the Company anticipates that its marketing efforts will include conducting
extensive market and consumer research, developing a comprehensive and
regionalized market plan, and commencing marketing efforts directly to
employers.
Quality Assurance and Utilization Review. Over the next 12 months, the
Company will develop and implement quality assurance and utilization review
programs. The Company anticipates that it will establish quality assurance and
utilization review committees which will establish these criteria. The Company
currently anticipates that it will seek to manage medical costs, in part, by
controlling inappropriate services. The utilization review programs used by the
Company may include pre-admission certification, prospective length of stay
approvals, second surgical opinions, concurrent review, discharge planning and
review, mandatory ambulatory surgical procedures, and other programs that the
Company may implement from time to time.
Risk Management. Over the next 12 months, the Company will determine
its insurance requirements for general liability insurance, business insurance,
and property insurance. In addition, the Company will determine its reinsurance
and stop loss requirements. Once these criteria have been established, the
Company will obtain insurance from an appropriate carrier. In addition, the
Company will seek to implement risk management procedures in accordance with
criteria to be established by management of the Company.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
3.1 Articles of Incorporation of The Doctors'
Health Plan, Inc. (Exhibit 3.1 to the
Company's Registration Statement on
Form SB-2, Registration No. 333-3762-
A, is incorporated herein by reference).
3.2 Bylaws of The Doctors' Health Plan, Inc.
(Exhibit 3.2 to the Company's
Registration Statement on Form SB-2,
Registration No. 333-3762-A, is
incorporated herein by reference).
<PAGE>
4.1 Form of Stock Certificate for Class A
Common Stock (Exhibit 3.3 to the
Company's Registration Statement on
Form SB-2 Registration No. 333-3762-
A, is incorporated herein by reference).
4.2 Form of Subscription Agreement (Exhibit
4.1 to the Company's Registration
Statement on Form SB-2 Registration
No. 333-3762-A, is incorporated herein
by reference).
4.3 Articles of Incorporation of The Doctors'
Health Plan, Inc. (Exhibit 3.1 to the
Company's Registration Statement on
Form SB-2 Registration No. 333-3762-
A, is incorporated herein by reference).
4.4 Bylaws of The Doctors' Health Plan, Inc.
(Exhibit 3.2 to the Company's
Registration Statement on Form SB-2
Registration No. 333-3762-A, is
incorporated herein by reference).
10.1 Escrow Agreement with First Union
National Bank of Florida (Exhibit 10.1 to
the Company's Registration Statement
on Form SB-2, Registration No. 333-
3762-A, is incorporated herein by
reference ).
10.2 Agreement for Consulting Services with
Douglas Capital Management, Inc.
(Exhibit 10.1 to the Company's
Registration Statement on Form SB-2,
Registration No. 333-3762-A, is
incorporated herein by reference ).
10.3 Line of Credit Promissory Note payable
to First Union National Bank of Florida
(Exhibit 10.1 to the Company's
Registration Statement on Form SB-2,
Registration No. 333-3762-A, is
incorporated herein by reference ).
<PAGE>
27 Financial Data Schedules attached
hereto as Exhibit "A"
(b) Report on Form 8-K
None
<PAGE>
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.
THE DOCTORS' HEALTH PLAN, INC. a
Florida corporation
(Registrant)
Date: August 14, 1996 /s/ Charles P. Hayes, Jr., M.D.
-------------------------------
Chairman of the Board
Date: August 14, 1996 /s/ Juan Wester, M.D.
---------------------
Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
financial statements of the Doctors' Health Plan, Inc. for the quarterly period
ending June 30, 1996, and is qualified in its entirety by reference to such
interim financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,510
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,235
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 295,192
<CURRENT-LIABILITIES> 9,112
<BONDS> 0
320,740<F1>
0
<COMMON> 11<F2>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,843)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>There are currently 32,074 issued and outstanding shares of the Company's
Series A Preferred Stock, $.001 par value, which are valued at $320,740
through June 30, 1996.
<F2>There are currently 10,000 issued and outstanding shares of the Company's Class
B Common Stock, $.001 par value, with a combined value of $11 through June 30,
1996.
</FN>
</TABLE>
