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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-SB/A
Amendment No. 3 to
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
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(Name of Small Business Issuer in its charter)
Pennsylvania 23-2795795
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(State or other Jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
777 East Park Drive
P.O. Box 8740
Harrisburg, PA 17105-8740
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code: (800) 671-7747
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Class A Common Stock, $.01 par value per share
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(Title of Class)
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Part I
[Alternative 2 (Items 6-12 of Model B of Form 1-A)]
Item 6. Description of Business
Pennsylvania Physician Healthcare Plan, Inc. ("Registrant") was
organized in February, 1995 by Pennsylvania practicing physicians to establish a
physician-controlled managed care organization in Pennsylvania.
Registrant is in the development phase, and has not yet begun its
business or generated operating revenues.
Registrant proposes to establish and operate a managed care
organization that will offer prepaid health care plans eventually throughout
Pennsylvania to employers and other group purchasers of health care plans such
as unions, trusts, governments and trade associations, as well as to
individuals. In the future, Registrant may also attempt to have its programs
federally qualified to provide services under and receive payments from the
federal Medicare and/or Medicaid Programs.
Registrant is controlled by physicians, who elect the entire Board of
Directors. All directors must be shareholders of the Registrant and Pennsylvania
physicians, podiatrists or oral surgeons. The goal of registrant is to have the
required policy decisions, including but not limited to quality assurance, cost
containment, utilization, treatment policies and practice guidelines decided
upon by the physician directors and committee members of Registrant.
Registrant's directors believe that physician control of such policies will
produce better quality care for subscribers and attract well-qualified
physicians and other providers.
On May 9, 1996 Registrant's subsidiary filed an application with the
Pennsylvania Department of Health and Department of Insurance (the
"Departments") for a license to operate a risk- assuming preferred provider
organization ("PPO"). Registrant is currently preparing an application for a
health maintenance organization ("HMO") which it expects to file with the
Departments within the next several months. The PPO or HMO may not begin seeking
providers until authorized by the Departments during the application process,
and may not solicit subscribers until the applicable license is granted.
The PPO application proposes that Registrant's subsidiary operate
initially in a 16 county area in Pennsylvania. This area includes the following
counties:
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Southcentral Pennsylvania
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Franklin Lebanon
Adams Lancaster
Cumberland Berks
Dauphin Schuylkill
York
Lehigh Valley
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Lehigh Carbon
Northampton
Northeastern Pennsylvania
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Lackawanna Monroe
Luzerne Wyoming
A PPO enters into agreements with health care providers to provide
medical care services for its subscribers, who may be individuals or employer
groups. A risk-assuming PPO may be responsible for all covered medical care for
the subscriber in exchange for a fixed premium. Under Pennsylvania law the PPO
may not place its providers at financial risk, such as through capitation
payments (as discussed below in the case of an HMO). The provider contracts for
a PPO are generally on a discounted fee for service basis. Generally, a PPO does
not require the subscriber's care to be managed by a pre-selected primary care
physician (i.e. a gatekeeper).
Pending regulatory approval, Registrant expects to begin enrollment of
employer groups for its initial PPO product in the fall, with coverage available
January 1, 1997.
An HMO is responsible for all covered medical care for its subscribers
in exchange for a fixed premium. HMOs typically contract directly with
physicians, hospitals and other health care providers to administer medical care
to HMO subscribers. These contracts provide for payment to the provider on
either a discounted fee-for-service or per diem basis, or through fixed monthly
payments ("capitation payments") based on the number of members covered,
regardless of the amount of necessary medical care required within the covered
benefits. Specialty care physician services, in-patient hospitalization and
certain other services are often managed by primary care physicians
("gatekeepers") and are subject to stringent pre-authorization requirements.
Contracts with primary care physicians may include shared-risk arrangements and
other financial incentives designed to encourage the provision of cost-effective
health care.
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From July, 1995 through March, 1996 Registrant sold 4,061 shares of its
Class A voting common stock at $5,000 per share and 1,074 shares of its Class B
non-voting common stock at $1,000 per share, exclusively to practicing
physicians residing in Pennsylvania. The offering was conducted by Registrant
without an underwriter. Registrant raised $21,379,000 from investment by almost
4,000 physicians in Pennsylvania. Under the terms of the offering, the net
proceeds of approximately $20,432,000 are allocated as follows:
Preparing and processing
application for certificate
of authority to operate an
HMO $ 3,696,575
Prelicensure development
of business and operations 4,463,480
Contingency fund of (1) 2,500,000
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Total allocated to
pre-licensure activities $10,659,055
Current net worth requirement 1,500,000
Deposit requirement 100,000
Working capital, including
funding of initial operating
deficits after licensure 8,172,945
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Total allocated to
post-licensure activities $ 9,772,945
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TOTAL NET PROCEEDS $20,432,000
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(1) To be allocated to any of the first two items as needed; otherwise,
will be allocated to working capital.
The Managed Health Care Industry
Managed Care Organizations
Medical services traditionally have been provided on a fee-for-service
basis with insurance companies assuming responsibility for paying all or a
portion of such fees.
As a result of escalating health care costs, employers, insurers and
governmental entities have all sought cost-effective approaches to the delivery
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of and payment for quality health care services. HMOs and other managed health
care organizations have emerged as integral components in this effort. Like
traditional indemnity health care plans, HMOs and other managed health care
organizations typically assume most of the financial risk for the delivery of
medical care. Unlike traditional indemnity health care plans, however, managed
care organizations seek to reduce the cost of medical services through volume
discounts from their provider networks and through the reduction of unnecessary
medical services by implementing intensive utilization review and quality
assurance programs.
The goal of managed care organizations is to provide subscribers with
access to quality health care, while employing a business strategy and
management systems designed to encourage more cost-effective use of health care
delivery systems. Such cost- containment strategies include providing access to
primary physician care and other services on a fixed, pre-paid basis, monitoring
hospital admissions and length of stay, using a system of specialist referrals,
using non-hospital based medical services, and emphasizing preventive care.
Arrangements with the Physician Providers
When Registrant is authorized by the Departments to do so, Registrant
will recruit primary care and specialist physicians (not all of whom are
expected to be shareholders of Registrant) who will use Registrant's policies to
monitor and control medical costs. An important factor in the success of
Registrant's business will be the development of a network of physician
providers in the appropriate numbers in Registrant's geographic markets and the
appropriate mix of primary care physicians and specialists.
The selection of physicians may include a review of licensure, hospital
admitting privileges, demonstrated proficiency, written references, patient
access, office standards, after-hours coverage, a personal interview and many
other factors.
Arrangements with Other Health Care Providers
Registrant will deliver necessary preventive, diagnostic, therapeutic,
and rehabilitation health care services to subscribers, in part, by contracting
with qualified non-physician providers who meet the participation criteria of
Registrant. Registrant intends to negotiate definitive contracts with hospitals
and other providers as part of the application process for the licenses to
operate as a PPO and as an HMO. Generally, these contracts will provide that the
participating hospitals and other providers will accept as patients subscribers
in the Registrant's HMO or PPO, provide to those subscribers all medically
necessary services that are ordered or supervised by a participating physician,
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and bill Registrant according to the parameters set forth in their participation
agreement with Registrant. The services provided by hospitals and other
providers will be reviewed for quality improvement, utilization and risk
management by appropriate committees of the Registrant.
Premium Rates
Registrant's primary source of revenue will be the premiums paid by or
on behalf of subscribers in its PPO and its HMO. Registrant intends to design
its benefit plans and set its premium rates to be competitive with other health
insurance programs available in Pennsylvania. The premium rates and benefits
will be consistent with state and federal laws regulating PPOs and HMOs and, in
the case of the HMO, will be approved by the Departments as part of the
application process.
Plan of Operation
Registrant's plan of operation entails selecting its initial market
areas, securing a license to operate as a PPO and an HMO, developing its
provider network, substantially completing its managerial and operational
structure and, as each license is obtained, commencing operations by marketing
its products, initially as a PPO and then also as an HMO.
In order to operate a PPO or an HMO, Registrant will develop systems to
deal with: (1) management information; (2) claims administration, (3)
utilization management, (4) case management, (5) quality assurance; (6)
physician credentialing and recruitment; and (7) grievance procedures.
Registrant may decide to engage outside vendors to provide certain of these
services, such as claims administration and credentialing.
Registrant's operations are dependent in part upon the creation,
continued development and enhancement of data processing and analysis
capabilities. The information processed by the systems will enable Registrant to
price its services, monitor utilization and other cost factors, and process
provider payments. There can be no assurance that Registrant will be able to
develop a management information system which can economically and adequately
serve its needs.
Substantial funds will be required to implement Registrant's plan of
operations prior to the time Registrant will first receive revenues. It is
typical for a new managed care organization to experience substantial operating
losses for its first several years of operations. It is anticipated that
Registrant will incur such operating losses and will have a substantial cash
flow deficit following the commencement of its operations until it obtains
sufficient subscribers in its market area to meet its administrative costs and
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its medical and hospital costs. Registrant believes that its funds, which
consists of the $20,432,000 net proceeds of its initial public offering of
shares, are adequate to fund Registrant's operations until such time as it
ceases to incur operating deficits. If this should not prove to be the case,
then additional financing may be required, and there is no assurance that that
such financing will be available on terms acceptable to Registrant. In addition,
since the Departments require managed care organizations to maintain reserves
based on premium revenues, Registrant's limited capital will restrain expansion
of its business.
Employees
Registrant has one clerical employee, and until it receives its PPO
license, operates through a management services company, under the supervision
of the Board of Directors and officers. See "Management Agreement."
Recruiting efforts have begun to hire individuals to fill the following
upper-level management positions:
Chief Executive Officer
Chief Medical Officer
Chief Financial Officer
Vice President - Marketing/Sales
Vice President - Operations
Manager, Provider Services and Network Development
Director, Management Information Systems
Registrant also intends eventually to hire individuals to fill lower level
positions, which may include, but are not be limited to, the following: a
controller, district managers, account executives, sales representatives,
membership services personnel, enrollment clerks, a computer programmer, a
utilization review manager, utilization supervisors, claims processors,
assistant medical directors, a provider relations manager, and provider
relations representatives.
Management Agreement
In April, 1995 Registrant engaged Infinity Management Services, Inc.
("Infinity"), a subsidiary of Pennsylvania Medical Society Liability Insurance
Company ("PMSLIC"), to provide administrative and management services to
Registrant. PMSLIC, which is owned by the Pennsylvania Medical Society, writes
medical professional liability insurance coverage in Pennsylvania. Infinity
furnishes personnel to manage Registrant subject to the authority and control of
Registrant's Board of Directors.
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In March, 1996 Registrant and Infinity entered into a new agreement
under which Infinity provides similar services until Registrant secures its
license from the Departments to operate its business. Infinity manages the
development and implementation of Registrant's business plan, including locating
and recommending appropriate third-party service providers. Infinity generally
oversees the activities of Registrant's consultants associated with developing
its applications for licenses and the design and development of its start-up
operations. Infinity is paid on a fixed monthly retainer of $55,000. Registrant
may elect the alternative of an hourly fee basis. During the term of the
agreement, Infinity may not provide similar services to any organization
offering a managed care insurance product in Pennsylvania. Registrant has agreed
not to solicit for employment any personnel employed by Infinity during the term
of the agreement and for one year thereafter.
No member of Registrant's Board of Directors or its officers devotes
full time to managing Registrant's affairs, and because each such person is a
practicing physician, there are substantial competing claims on each such
person's time. Moreover, none of such persons has experience in the creation and
management of a HMO or PPO. Until a permanent management team is in place,
Registrant will rely upon the services of Infinity to manage Registrant's
activities. Loss of the services of Infinity could have a material adverse
effect on Registrant.
Marketing and Sales
Registrant is currently conducting marketing analyses aimed at
identifying initially penetrable markets and developing strategies for marketing
Registrant's products and services, including selecting product names.
Registrant will hire direct sales representatives to offer Registrant's
services to purchasers of health care services, including private and
governmental employers and individuals, and will engage independent insurance
agents. Registrant's marketing efforts may also include media advertising and
direct mailings.
The overall objective of Registrant's marketing strategy is twofold: 1)
to enroll membership sufficient to attain financial viability; and 2) to do so
on a controlled growth basis so that the necessary health resources are
available to provide quality services.
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Subscribers will join Registrant's PPO or HMO primarily through
employer groups. In many instances, employers offer employees a choice of
coverage by a managed care company or an indemnity health insurer. Employees may
select their desired health coverage during a designated period (usually one
month annually). New employees make their selections at the time of employment.
Employers generally pay all or part of the monthly charges and make payroll
deductions for any portion of the premium not provided as an employee benefit.
Competition
The managed care industry in Pennsylvania is characterized by vigorous
competition, and is currently dominated by U.S. Healthcare, Keystone Health Plan
East, Keystone Health Plan West, Geisinger Health Plan and Health America.
Registrant will also compete with other managed care plans that are
operating, or may in the future operate, in Registrant's service area, as well
as traditional indemnity insurance companies. Based on filing with the
Departments, Registrant believes there are approximately 24 HMOs now operating
in Pennsylvania. Many of these competitors are significantly larger and better
capitalized than Registrant, provide a wider variety of services, have greater
experience in operating managed care organizations and have longer established
relationships with providers and subscriber groups than will the Registrant, and
have well-known names. In addition, larger HMOs may acquire a Pennsylvania HMO,
thereby entering the Pennsylvania marketplace and commencing business without
the delay of applying for an HMO or PPO license.
In addition, there are currently pending with the Departments
applications from at least 12 additional HMOs and at least 25 PPOs.
Competition in the highly competitive health care industry has
intensified in recent years, primarily due to more aggressive marketing, a
proliferation of competing products from new and existing competitors and
increased quality and price sensitivity. Employer groups have increasingly
demanded new benefit options, including HMOs and PPOs. In addition, some larger
employers have adopted self-funded health benefit plans, with plan
administration provided by a third-party.
Competition may also affect the availability to Registrant of the
services of health care providers, including primary care physicians and
hospitals.
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Licenses
Certificates of Authority
Pennsylvania's PPO and HMO laws and regulations (the "Managed Care
Laws") require that a PPO and an HMO obtain a Certificate of Authority or
license from the Departments before commencing operations.
The PPO application includes, among other things, all appropriate
organizational documents, director and key personnel information, financial
statements, a description of the proposed service area, the form of provider
contracts, the form of subscriber contracts and enrollee/member documents and
information, and a business plan containing five-year projections. When
authorized by the Departments, a list of all preferred providers must be
furnished. The Health Department focuses its review to assure that the PPO will
not operate in a manner which leads to undertreatment or poor quality care and
will review all provider agreements and assess the adequacy of the network in
relation to the PPO's market service area. The Insurance Department's review is
on the overall financial soundness of the PPO, as well as a determination that
adequate working capital and reserves are in place. The Insurance Department
will also review all enrollee literature and subscriber contracts and documents.
It will not, however, preapprove or review the PPO's rates. The regulatory
review and approval of a PPO application generally requires a 4 to 6-month
period.
However, the Departments' review of an HMO application and its
submission documents is extremely comprehensive and requires a minimum of 10 to
12 months, but can extend from 18 months to 2 years or more for approval.
Before an HMO license can be issued, the Secretary of Health is
required to find that Registrant possesses the ability to assure the
availability and accessibility of adequate personnel and facilities, has
sufficient arrangements for on-going quality assurance programs and has adequate
arrangements for effective provision of basic health services on a pre-paid
basis. In addition, the Commissioner of Insurance is required to find that
Registrant has a reasonable plan to operate in a financially sound manner and
can meet its obligations to subscribers considering working capital and funding
sources, reinsurance and payment security, non-recourse against subscribers and
net worth requirements.
In general, the HMO application process commences with an initial
information and review meeting with various personnel at the Departments. The
application requirements include, among other things, the submission of
organizational documents and corporate governance documents such as bylaws,
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a description of the proposed service area, proposed subscriber contracts and
literature, proposed provider contracts and detailed descriptions of (i) the
proposed rates and their underlying assumptions, (ii) the arrangements for
on-going quality assurance and utilization review, (iii) the credentialing
systems for physicians, (iv) incentives for cost control, (v) proposed
reinsurance contracts, (vi) insolvency protections and plan and (vii) grievance
resolution systems. In addition, the Insurance Department requires the
submission of a business plan providing a detailed analysis of the organization
and management structure, including identifying key personnel and their
respective health insurance experience, discussing, among other things, the
basis for the proposed rate structure, intended market and financial
projections, consisting of a balance sheet and income statements for a minimum
of five years, prepared by a certified public accounting firm in accordance with
statutory accounting principles.
Although the Insurance Department reviews the entire HMO application,
its principal focus is on the proposed rates and their underlying assumptions,
subscriber contracts and literature, insolvency plan and subscriber protection
and the business plan. The Insurance Department will also conduct an on-site
visit of an applicant's office to ascertain that the applicant possesses the
minimum statutory net worth and otherwise complies with the Managed Care Laws.
As with the Insurance Department, the Health Department focuses on
certain elements of the HMO application on which it is principally concerned,
which includes quality assurance, committee structure and operations, quality
assurance work plan including the development of ten clinical standards of care,
credentialing system, forms and process, provider contracts and grievance
system. It will specifically approve an applicant's provider contracts and
credentialing forms, at which time the applicant will then be permitted to begin
soliciting and credentialing physicians.
The Health Department will also conduct a site visit. Prior to that
time, the applicant must send to the Health Department a list of providers and
their distribution by type, specialty and geographic location. At the site
visit, the Health Department will review random credentials files to ensure that
signed contracts and required credentialing activities have in fact taken place.
Registrant has engaged consultants, attorneys and accountants, and is
now in the process of preparing the PPO and HMO applications, including all of
the necessary or appropriate contracts, forms, information and business plan.
Also during the application process, Registrant will engage key executive
personnel.
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Federal Qualification. Registrant may seek federal qualification as an
HMO, but there is no assurance that it will obtain such qualification. An
advantage of federal qualification is that employers who are subject to minimum
wage laws and who employ at least 25 employees must offer to their employees the
option of subscribing to a federally qualified HMO plan as an alternative to
traditional health insurance. Moreover, failure to obtain federal qualification
will prevent Registrant from, in the future, establishing a health care program
directed to the Medicare and Medicaid markets, and will place Registrant at a
competitive disadvantage with respect to those employers in Pennsylvania who
perceive federal qualification as indicative of a quality HMO. Disadvantages of
federal qualification include: the application procedure is expensive and time
consuming; in certain instances, the HMO may be required to deliver a higher
level of benefits than is required by state authorities; health services must be
priced in accordance with federal law; and detailed periodic reports must be
submitted to the United States Department of Health and Human Services.
Government Regulation
The laws and regulations concerning conduct of a PPO and an HMO
restrict how Registrant conducts its business and may result in additional
burdens and costs to the Registrant. Areas of governmental regulation include
licensure, premium rates, benefits, service area expansion, quality assurance
procedures, plan design, eligibility requirements, provider contracts,
subscriber contracts, permissible investments, claims and grievance procedures
and rates of payment, underwriting, financial arrangements, financial condition
(including reserves) and corporate governance. Registrant will also be required
to file quarterly and annual reports with the Department of Insurance and
Department of Health containing financial statements and other information
concerning the operation of Registrant's business. Laws and regulations
governing Registrant's business are subject to amendments and changing
interpretations from time to time.
Proposed state laws and regulations include restrictions on the ability
of managed care entities to negotiate payment rates with providers, "any willing
provider" statutes which would require Registrant to accept all providers who
agree to meet Registrant's terms, restrictions on Registrant's discretion to
make benefit determinations, and mandated benefits.
Net Worth Requirements. The Managed Care Laws govern the licensing and
operation of PPOs and HMOs in the Commonwealth of Pennsylvania. They require
that Registrant maintain a minimum net worth (the Registrant's assets minus its
liabilities) of $1,500,000 to operate an HMO and an additional $1,175,000 for a
risk-assuming PPO. In practice the Departments may require higher amounts. In
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addition to the net worth requirements, the Managed Care Laws require that
Registrant, before commencing the operations of its HMO or PPO, deposit with the
Department of Insurance cash or securities in a minimum amount of $100,000 to
insure against the insolvency of Registrant. This deposit requirement is
reviewed by the Department at least annually. If Registrant becomes unable to
meet the foregoing deposit and net worth requirements, or any more stringent
requirements that may be imposed, Registrant's Certificate of Authority may be
revoked.
Registrant is unable to predict how existing federal or state laws and
regulations may be changed or interpreted, what additional laws or regulations
affecting its business may be enacted or proposed, when and which of the
proposed laws will be adopted and what affect the new laws and regulations will
have on its business.
Health Care Industry Reform. There can be no assurance that the
regulatory environment in which Registrant operates will not change
significantly in the future. Generally, regulation of health care companies is
increasing. Various proposals affecting federal and state regulation of the
health care industry, including limitations on Medicare and Medicaid payments,
have been introduced, including provisions in legislation currently pending
which would reduce funds available for the Medicare and Medicaid programs.
State health care reform legislation under the administration of
Governor Tom E. Ridge will likely impact on the business and operations of the
Registrant. The precise shape of any such legislation is presently unknown.
Registrant cannot assess the impact any of these proposals, if enacted,
would have on Registrant's business.
Antitrust Considerations. Antitrust concerns have become central issues
in the new managed care environment of the health care industry. Whenever
physicians or other health care providers join together to form ventures for the
delivery of health care services, antitrust issues may be present. These issues
primarily concern conspiracies, combinations and agreements in restraint of
competition, price fixing, boycotts, exclusive dealing arrangements, and
concerted refusals to deal. Antitrust violations may be asserted and judicial
relief may be sought by the United States Department of Justice, the Federal
Trade Commission or private litigants. Adverse consequences that can result from
legal action include the imposition of treble damages, injunctions, restricting
the way Registrant operates, civil or criminal fines and substantial expenses in
the form of attorneys' fees and costs. Registrant intends to analyze carefully
its business activities against the applicable antitrust laws. However, such
analysis will inherently be fact-sensitive and be based upon the comparative
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pro-competitive and anti-competitive effects of the Registrant's proposed
operations. Even with such analysis, there can be no assurance that Registrant's
operations will not be challenged on the basis of antitrust violations at some
time in the future. In addition, antitrust law in this area is unsettled and any
agency guidelines affecting Registrant could require substantial changes in its
method of doing business which could negatively impact the profitability of
Registrant. Moreover, if antitrust lawsuits were to be filed against Registrant,
it would be forced to incur substantial legal expenses, and if any challenge
were successful, Registrant could suffer additional material adverse
consequences.
Medicare "Fraud and Abuse" and "Anti-Referral" Concerns. Under the
Medicare and Medicaid Fraud and Abuse law, also known as the Anti-Kickback
Statute, a physician is prohibited from (a) soliciting or receiving any
remuneration in return for referring a patient to another health care provider;
and (b) offering or paying any remuneration to induce the referral of patients
to the physician. In addition, the federal anti-referral law, known as "Stark",
prohibits a physician from referring patients to an entity in which the
physician, or an immediate family member, has a "financial relationship" for the
provision of certain designated health services. These designated health
services include, among other things, laboratory, physical therapy, inpatient
and outpatient hospital services and radiology services. The present scope of
the Anti-Kickback Statute and the Stark Law are limited to the Medicare
(including the Medicare Secondary Payor Program) and Medicaid programs and other
federal programs or grants, but bills have been introduced in Congress to extend
these laws to all payors. Registrant does not presently anticipate that its
initial operations will include contracting with the federal or state government
to provide services to patients enrolled in Medicare or Medicaid. However, at
the time Registrant does participate in Medicare or Medicaid, or otherwise
become subject to these laws, its business, operations and provider relationship
may not fully comply with these or comparable laws then in effect. Registrant
cannot predict the scope and requirements of these laws or the impact on the
business operations and provider relationships of Registrant. However, any
required restructuring of its business and operations could have a material
adverse effect on Registrant.
Pennsylvania's Workers' Compensation Act prohibits a "provider" from
referring a person for, among other services, laboratory, physical therapy,
rehabilitation and diagnostic imaging services payable under workers'
compensation if that provider has a "financial interest" with the person or in
the entity which receives the referral. Registrant may, in the future, contract
to provide workers' compensation insurance coverage and services. However, the
Pennsylvania Workers' Compensation Act has incorporated by reference as
exceptions to its anti-referral prohibition all present and future "safe harbor
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regulations" promulgated under the Anti-Kickback Statute and present and future
exceptions to Stark. In addition, an exception to the Workers' Compensation Act
anti-referral prohibition exists for "coordinated care organizations." Should
Registrant enter into contracts for workers' compensation coverage and services,
thereby bringing it within the purview of this law, Registrant will be required
to comply with the then applicable exceptions and "safe harbors" or qualify as a
coordinated care organization.
Item 7. Description of Property.
Registrant has no materially important physical properties. Required
office equipment is currently furnished to Registrant by Infinity as part of its
management services. See "Management Agreement" in Item 6. Registrant intends to
lease office space and acquire office furniture and equipment as needed to begin
business operations once it has applied for its PPO license.
Item 8. Directors, Executive Officers and Significant Employees.
The current directors and officers of the Registrant are as follows:
Names of Directors Other Positions Held
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*Gary C. Brown, M.D. Chairman, President
*John J. Nevulis, M.D. Executive Vice President
*Jay H. Shah, M.D. Vice President, Medical Affairs
*Larry E. Goldstein, M.D. Secretary
*Richard J. Minehart, M.D. Treasurer
Dennis P. DiRenzo, M.D.
Darlene Ann Dunay, D.O.
Gay D. Dunne, M.D.
Michael J. Gallagher, M.D.
Edward W. Gerner, M.D.
Frank H. Guinn, D.O.
Leonard P. Harman, D.O.
George R. Homa, D.O.
Marvin T. Hunter, M.D.
Alice McCormick, D.O.
*Robert J. Mirabile, M.D.
Herbert C. Perlman, M.D., M.P.A.
Mark A. Piasio, M.D.
James G. Pitcavage, M.D.
*Robert S. Pyatt, Jr., M.D.
Saad Sakkal, M.D.
*Milton D. Soiferman, J.D., D.O.
Jay Anthony Townsend, M.D.
James F. Vander, M.D.
*Member of Executive Committee.
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All directors were first elected in March, 1995 and hold office until
the next annual meeting of the voting shareholders of the Registrant or until
their successors are elected and shall have qualified. At the first annual
meeting of shareholders, the directors shall divide the nominees for director
into three classes as nearly equal as possible. One class shall be elected for
one year, a second class for two years, and a third class for three years.
Thereafter each class of directors shall hold office for three years, or until
the election and qualification of their respective successors. Registrant's
bylaws state that only practicing Pennsylvania physicians, podiatrists or oral
surgeons are eligible to serve as directors.
All officers have served since the organization of the Registrant in
March, 1995.
Gary C. Brown, M.D., 46, Chairman and President, of Flourtown, PA, is a
Professor of Ophthalmology at Thomas Jefferson University School of Medicine and
has conducted a medical practice in ophthalmology in the Philadelphia area since
1976. Dr. Brown, a Board certified ophthalmologist, is the Director of the
Retinal Vascular Unit at Wills Eye Hospital and an instructor at the American
Academy of Ophthalmology.
John J. Nevulis, M.D., 45, Executive Vice President, of Gwynedd Valley,
PA, has conducted a medical practice in orthopaedic surgery in the Philadelphia
area since 1977. He is the managing partner of Norristown Orthopaedic
Associates, Inc. He is also president of Pennsylvania Orthopedic Network, an
independent practice association of orthopedists. He is a Board certified
orthopaedic surgeon and Fellow of the American Academy of Orthopaedic Surgeons.
Jay H. Shah, M.D., 50, Vice President-Medical Affairs, of Richboro, PA,
maintains his family medical practice in Richboro, Pennsylvania. Dr. Shah is
certified by the American Board of Family Practice and by the American Board of
Quality Assurance and Utilization Review Physicians.
Larry E. Goldstein, M.D., 48, Secretary, of Wynnewood, PA, has
conducted a medical practice in urology since 1978. He practices in
Philadelphia, Pennsylvania and Turnersville, New Jersey. Dr. Goldstein is a
Board certified urologist and a Fellow of the American College of Surgeons. He
is an instructor in urology at Thomas Jefferson University School of Medicine
and serves on the Board of Directors of the Keystone Kidney Lithotripsy Center.
Richard J. Minehart, M.D., 44, Treasurer, of Lansdale, PA, has
conducted a medical practice in General Surgery since 1983. An Associate Fellow
of the American College of Surgeons, Dr. Minehart is presently the Chairman of
-16-
<PAGE>
the Credentials Committee and Vice President of the Medical Staff at North Penn
Hospital.
Dennis P. DiRenzo, M.D., 42, of Wyomissing, PA, has conducted
a medical practice in pediatrics since 1983. Dr. DiRenzo is Board
certified in pediatrics and is a Fellow of the American Academy of
Pediatrics.
Darlene Ann M. Dunay, D.O., 37, of Old Forge, PA, since 1987, has
maintained a solo general practice in Old Forge specializing in primary care.
She is a diplomate of the National Board of Medical Examiners and is Board
certified in family medical practice.
Gay D. Dunne, M.D., 55, of State College, PA, has conducted a medical
practice in dermatology since 1976. Dr. Dunne is a member of the Executive
Committee of the American Academy of Dermatology Advisory Board and the
Executive Committee of the Pennsylvania Academy of Dermatology.
Michael J. Gallagher, M.D., 48, of Scranton, PA, is a member of the
Department of Radiation Oncology of Mercy Hospital in Scranton, PA. He is Board
certified in therapeutic radiology, medical oncology, internal medicine, and
anatomic pathology. He is President of the Lackawanna County Medical Society.
Edward W. Gerner, M.D., 55, of Ardmore, PA, has conducted a medical
practice in ophthalmology and neuro-ophthalmology in Philadelphia, Pennsylvania
since 1976. He is a Clinical Associate Professor for the Departments of
Ophthalmology and Neurology at Thomas Jefferson University School of Medicine
and Board Certified in Neurology and Ophthalmology.
Frank H. Guinn, D.O., 59, of Philadelphia, PA, has conducted an
internal medical practice in Philadelphia, Pennsylvania since 1980. He is the
Chief of Staff of Graduate Health System - Parkview Hospital, Philadelphia, PA
and the Medical Director of Green Acres Nursing Home.
Leonard P. Harman, D.O., 52, of Philadelphia, PA, has conducted a
family medical practice in Philadelphia, Pennsylvania since 1974. He is Board
certified in family practice by the American Osteopathic Board of General
Practice.
George R. Homa, D.O., 45, of North Wales, PA, has conducted a family
medical practice in Bridgeport, Pennsylvania since 1979. He is Board certified
by the American College of Osteopathic General Practitioners and a Clinical
Instructor of General Practice at the Philadelphia College of Osteopathic
Medicine.
Marvin T. Hunter, 53, of Doylestown, PA, has conducted a medical
practice in Plastic Surgery in Bucks and Montgomery counties since 1975. Dr.
-17-
<PAGE>
Hunter is President-elect of the Bucks County Medical Society. Dr. Hunter is a
Fellow of the International College of Surgeons and is a diplomate of the
American Board of Plastic Surgery.
Alice McCormick, D.O., 49, of Canadensis, PA, has been practicing
medicine since 1980. She has maintained a practice in internal medicine in
Tafton, PA with Mercy Physician Network since July, 1995. She is certified by
the National Board of Osteopathic Medicine Examiners.
Robert J. Mirabile, M.D., 41, of Lower Gwynedd, PA, has conducted a
medical practice in plastic and reconstructive surgery in Norristown,
Pennsylvania since 1988. He is a diplomate of the American Board of Surgery as
well as the American Board of Plastic Surgery.
Herbert C. Perlman, M.D., F.A.C.R., M.P.A., 59, of Carlisle, PA, has
conducted a medical practice in radiology in Carlisle, Pennsylvania since 1973.
He is a Board certified diagnostic radiologist. Dr. Perlman is certified by the
American Board of Quality Assurance and Utilization Review Physicians. He is a
Clinical Associate Professor of Radiology at Thomas Jefferson University School
of Medicine and, also, a Clinical Associate Professor of Radiology at the
Hershey Medical Center, Pennsylvania State University. Dr. Perlman is the
President of CMS, Inc., a Carlisle physician corporation. He is a Trustee of the
Pennsylvania Medical Society and is a member of the Board of Directors of Penn
Med, Inc., and of Penn Med's subsidiary, Keystone Peer Review Organization
(KePRO).
Mark A. Piasio, M.D., 40, of Clearfield, PA, has been an orthopaedic
surgeon since 1989. He is a diplomate of the American Board of Orthopaedic
Surgery and the National Board of Medical Examiners and is a fellow of the
American Academy of Orthopaedic Surgery and the American College of Surgeons. He
is the President of the Clearfield County Medical Society, and Vice Chairman of
the Young Physicians Section of the Pennsylvania Medical Society.
James G. Pitcavage, M.D., 62, of Edgeworth, PA, has conducted a medical
practice in pediatrics since 1965. Dr. Pitcavage is a member of the Board of
Directors of the Pennsylvania American Academy of Pediatrics and a member of the
Board of Directors of Managed Care Associates, PHO - Sewickley Valley Hospital.
He is also the Assistant Clinical Instructor, Department of Pediatrics,
University of Pittsburgh Medical School.
Robert S. Pyatt, Jr., M.D., 45, of Chambersburg, PA, has conducted a
medical practice in radiology since 1982. Since January, 1996 he has also served
as Acting Medical Director of Cumberland Valley Health Network, a
physician-hospital organization. He is a Board certified radiologist and Fellow
-18-
<PAGE>
of the American College of Radiology. He has been Medical Director of the
Radiology Department of Chambersburg Hospital since 1982, and is currently
President-Elect of its Medical Staff. Dr. Pyatt is also Clinical Professor of
Radiology at the George Washington University School of Medicine, Washington
D.C.
Saad Sakkal, M.D., 49, of Greenville, PA, has been the Medical Director
of the Metabolic Care Center of Greenville since 1981 and of the Regional
Diabetes Center in Greenville, PA since 1991. He is certified by the American
Board in Medicine, Endocrinology and Metabolism, and Geriatric Medicine. Since
1993 he has been Secretary-Treasurer of Physicians Independent Practice
Association of Mercer County.
Milton D. Soiferman, D.O., 53, of Wynnewood, PA, has conducted a
medical practice in Philadelphia, Pennsylvania since 1979. He is certified in
family practice by the American Osteopathic Board of Family Practice. Dr.
Soiferman is a Fellow of the American College of Legal Medicine and a diplomate
of the American Academy of Pain Management.
Jay Anthony Townsend, M.D., 60, of Newville, PA, has maintained a
family practice in Newville, PA since 1972. Dr. Townsend is President of
Carlisle Healthcare Alternatives, Inc.
James Franklin Vander, M.D., 35, of Wynnewood, PA, has conducted a
medical practice in ophthalmology since 1989. He is a diplomate of the American
Board of Ophthalmology and an Assistant Professor at Thomas Jefferson University
School of Medicine, Department of Ophthalmology.
Item 9. Remuneration of Directors and Officers
Registrant has paid no remuneration, either directly or indirectly, to
any director, officer, or promoter. The Registrant has entered into no
agreement, and has made no arrangements, to pay any remuneration, directly or
indirectly, to any director, officer, or promoter.
Registrant does not expect to pay any compensation other than
reimbursement of reasonable out-of-pocket expenses, to officers who are also
directors, during the period prior to Registrant's receiving its license to
operate an HMO.
At such time as it retains full-time executive officers, Registrant
intends to remunerate its executive officers on terms and conditions negotiated
with them at the time of their employment, including providing certain employee
benefit plans which are comparable to those offered by other companies in the
managed care industry.
-19-
<PAGE>
Item 10. Security Ownership of Management and Certain
Securityholders.
The following table lists certain information with respect to the Class
A voting common stock and Class B non-voting common stock beneficially owned by
each current officer and director of the Company as of March 19, 1996, as well
as the number of shares beneficially owned by all officers and directors as a
group on such date. This information has been furnished by such persons.
Class A Class B
Officers/Directors Shares %(1) Shares %(2)
------------------ ------------ ------------
Gary C. Brown, M.D. 2 5 1.4%
Dennis P. DiRenzo, M.D. 1
Darlene Ann M. Dunay, D.O. 1
Gay D. Dunne, M.D. 1
Michael J. Gallagher, M.D. 1
Edward W. Gerner, M.D. 1 3
Larry E. Goldstein, M.D. 1 3
Frank H. Guinn, D.O. 1
Leonard P. Harman, D.O. 1
George R. Homa, D.O. 1
Marvin T. Hunter, M.D. 1 5 1.4%
Alice McCormick, D.O. 1
Richard J. Minehart, M.D. 1
Robert J. Mirabile, M.D. 1
John J. Nevulis, M.D. 2 2
Herbert C. Perlman, M.D. 1
Mark A. Piasio, M.D. 4
James G. Pitcavage, M.D. 1
Robert S. Pyatt, Jr., M.D.(3) 3 4 1.1%
Saad Sakkal, M.D. 1
Jay H. Shah, M.D. 2 1
Milton D. Soiferman, D.O. 1 3
Jay Anthony Townsend, M.D. 1
James F. Vander, M.D. 2
All directors and officers
as a group 33(4) 26 7%
(1) Less than 1% for each person.
(2) Less than 1% for each person, except Dr. Brown, Dr.
Hunter and Dr. Pyatt.
(3) Including shared voting and investment power as co-trustee
as to 2 Class A shares and 4 Class B shares.
(4) Less than 1%.
-20-
<PAGE>
The addresses of the directors are as follows:
Gary C. Brown, M.D. Alice McCormick, D.O.
910 E. Willow Grove Avenue RR #2, Box 9C
Wyndmoor, PA 19038 Greentown, PA 18426
Dennis P. DiRenzo, M.D. Richard J. Minehart, M.D.
Reading Pediatrics 2100 N. Broad Street, Ste. 100
40 Berkshire Court Lansdale, PA 19446
Wyomissing, PA 19610
Robert J. Mirabile, M.D.
Darlene Ann M. Dunay, D.O. 1330 Powell Street, Ste. 402
314 Oak Street Norristown, PA 19401
Old Forge, PA 18518
John J. Nevulis, M.D.
Gay D. Dunne, M.D. 1308 DeKalb Street
137 South Pugh Street Norristown, PA 19401
State College, PA 16801
Herbert C. Perlman, M.D.
Michael J. Gallagher, M.D. Department of Radiology
Dept. of Radiation/Oncology Carlisle Imaging Associates
Mercy Hospital 246 Parker Street, Box 310
746 Jefferson Avenue Carlisle, PA 17013-0310
Scranton, PA 18510
Mark A. Piasio, M.D.
Edward W. Gerner, M.D. Suite 140
834 Chestnut Street, Ste. T160 807 Turnpike Avenue
Philadelphia, PA 19107 Clearfield, PA 16830-1238
Larry E. Goldstein, M.D. James G. Pitcavage, M.D.
2501 S. Broad Street 701 Broad Street
Philadelphia, PA 19148 Sewickley, PA 15143
Frank H. Guinn, D.O. Robert S. Pyatt, Jr., M.D.
1331 E. Wyoming Avenue Department of Radiology
Philadelphia, PA 19124 Chambersburg Hospital
112 N. Seventh Street
Leonard P. Harman, D.O. Chambersburg, PA 17201
4857 C Street
Philadelphia, PA 19120 Saad Sakkal, M.D.
81 North Main Street
George R. Homa, D.O. Greenville, PA 16125
700 DeKalb Street
Bridgeport, PA 19405 Jay H. Shah, M.D.
862 Second Street Pike
Marvin T. Hunter, M.D. Richboro, PA 18954
301 S. Main St., Ste. 2-3 South
Doylestown, PA 18901 Milton D. Soiferman, D.O.
724 Porter Street
Philadelphia, PA 19148
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<PAGE>
Jay Anthony Townsend, M.D. James F. Vander, M.D.
100 S. High Street 910 E. Willow Grove Avenue
Newville, PA 17241 Wyndmoor, PA 19038
To the knowledge of management, no person beneficially owns more than
10% of any class of the Registrant's securities. Registrant has not granted any
options, warrants or rights to purchase any of its securities. The directors of
Registrant may be regarded as the "parents" of the Registrant, as that term is
defined under the Securities Act of 1933.
Item 11. Interest of Management and Others in Certain Transactions.
In April, 1995 Registrant engaged Infinity to provide management
services. See "Management Agreement" in Item 6 above. Commencing in April, 1995,
Registrant borrowed from PMSLIC to finance its initial operations, payable with
interest at 18% per annum on the first $500,000 and at 35% per annum on the
balance, and due on or before 90 days of the completion of Registrant's initial
public offering. The highest amount outstanding was $717,500, plus interest of
$49,838, in December 1995, when it was repaid from the proceeds of Registrant's
public offering of shares. Infinity and PMSLIC are affiliates of the
Pennsylvania Medical Society. Herbert C. Perlman, M.D., a director of
Registrant, is a trustee of the Pennsylvania Medical Society and a director of
Penn-Med, Inc., the parent of PMSLIC.
Item 12. Securities Being Offered (Description of Capital Stock).
Registrant's authorized capital stock consists of 40,000 Shares of
Class A Common Stock, 100,000 Shares of Class B Common Stock, 100 Shares of
Class C Common Stock, and 1,000,000 Shares of Class D Common Stock, each $.01
par value per Share.
Each Share of Class A and Class B common stock has equal dividend and
liquidation rights.
Only a holder of record of Class A Common Stock who is a practicing
physician (medical doctor or doctor of osteopathy), podiatrist or oral surgeon
may vote, but each such holder is entitled to only one vote, regardless of the
number of Class A Shares held. Otherwise the holders of Class A Shares have no
right to vote, except as otherwise provided by law.
Except as otherwise provided by law, the holders of the Class B Common
Stock have no right to vote.
Except as otherwise provided by law, the holders of Class C Shares and
the voting holders of Class A Shares shall vote as a class. Those holders of
common stock who have voting rights, have non-cumulative voting rights, which
-22-
<PAGE>
means that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors, if they choose to do so, and in such
event, the holders of the remaining shares voting at such election will not be
able to elect any of the directors.
Registrant's Bylaws state that only Pennsylvania practicing physicians
who are shareholders of the Registrant are eligible to serve as directors.
The Board of Directors has the authority, without any vote or action by
the shareholders, to issue Class D Stock in one or more subclasses or series, or
both, and to designate for any such subclass or series its designation and the
number of shares of the subclass or series and the preferences, limitations and
special rights, if any, of the shares of the subclass or series, except that the
Class D Shares shall not have voting rights, except as otherwise provided by
law.
The holders of common stock have no preemptive rights. All the
outstanding shares of common stock are, and the Shares offered by Registrant
hereby, when issued and paid for at the price specified herein, will be, fully
paid and not liable to further call or to assessment by the Registrant.
Registrant's Bylaws state that any vote of shareholders having the
effect of the acquisition of substantially the entire business of the Registrant
by any person, whether a plan of merger, sale or other disposition of all or
substantially all the assets, or otherwise, shall require the affirmative vote
of 90% of the votes cast by all shareholders entitled to vote thereon.
Part II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.
Registrant's initial public offering was concluded in early 1996, and
no public trading market has yet developed.
Registrant was organized in February, 1995 and no cash dividends were
declared or paid in 1995.
As of March 29, 1996, there were 3965 record holders of Class A common
stock and 354 record holders of Class B common stock.
Item 2. Legal Proceedings.
None.
-23-
<PAGE>
Item 3. Changes in and Disagreements with Accountants.
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
In June, 1995 Registrant issued one share of Class C common stock at
$100 per share and one subordinated note at $4,900 to each of the 25 directors
of Registrant. These shares and notes were offered under the exemption from
registration provided by section 4(2) of the Securities Act of 1933 as
transactions not involving a public offering. No underwriting discounts or
commissions were paid.
In December, 1995 Registrant exchanged the outstanding shares of Class
C common stock and $4,900 subordinated notes held by the 25 directors for shares
of Class A common stock, par value $.01 per share. No underwriting discounts or
commissions were paid. The shares were offered under the exemption from
registration provided under section 4(2) of the Securities Act of 1933 as
transactions not involving a public offering.
In July, 1995 through March, 1996 Registrant sold 4,061 shares of Class
A common stock at $5,000 per share and 1,074 shares of Class B common stock at
$1,000 per share exclusively to persons maintaining their principal residence in
the Commonwealth of Pennsylvania. No underwriting discounts or commissions were
paid. Each purchaser agreed in writing that during the offering and for a period
of nine months from the date of the last sale by Registrant in the offering, all
resales of any part of the shares by any person shall be made only to persons
maintaining their principal residence in Pennsylvania. The certificates
representing the shares bear a legend to that effect. The offering was exempt
from registration as an issue offered and sold only to persons resident within a
single state pursuant to section 3(a)(11) of the Securities Act of 1933, and
Rule 146 promulgated thereunder.
Item 5. Indemnification of Directors and Officers.
The Bylaws of Registrant provide for indemnification of directors or
officers of Registrant in civil, criminal, administrative or investigative
proceedings, including expenses, judgments, and fines reasonably incurred,
unless the act or failure to act giving rise to the claim for indemnification is
determined to have constituted willful misconduct or recklessness. The
determination that indemnification shall be made because such standard of
conduct has been met shall be made by a court, or in the absence of a court
determination, shall be made by the Board of Directors by a majority vote of any
directors who are not party to the action or proceeding, or, under certain
circumstances by independent legal counsel in a written opinion.
-24-
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Harrisburg, Pennsylvania
INDEX TO THE FINANCIAL STATEMENTS
Page Number
- -----------
25 Index to the Financial Statements
26 Independent Auditor's Report
27 Balance Sheet as of December 31, 1995
28 Statement of Operations for the Period February 15, 1995 (Date
of Inception) to December 31, 1995
29 Statement of Changes in Stockholders' Equity for the Period
February 15, 1995 (Date of Inception) to December 31, 1995
30 Statement of Cash Flows for the Period February 15, 1995 (Date
of Inception) to December 31, 1995
31 - 35 Notes to Financial Statements
36 - 42 Unaudited Financial Statements for the Three-Month Periods Ended
March 31, 1996 and 1995
25
<PAGE>
DRESLIN
AND COMPANY, INC.
[LETTERHEAD]
To the Board of Directors
Pennsylvania Physician Healthcare Plan, Inc.
777 East Park Drive, P.O. Box 8740
Harrisburg, PA 17105
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of Pennsylvania
Physician Healthcare Plan, Inc. (a development stage company) as of December 31,
1995, and the accompanying statements of operations, changes in stockholders'
equity, and cash flows for the period February 15, 1995 (Date of Inception) to
December 31, 1995. These financial statements are the responsibility of the
Company's management and their Board of Directors. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pennsylvania
Physician Healthcare Plan, Inc. as of December 31, 1995, and the results of its
operations and its cash flows for the period February 15, 1995 (Date of
Inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
Dreslin and Company, Inc.
April 23, 1996
26
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
Assets
<S> <C>
Current Assets:
Cash and Cash Equivalents $18,142,948
Due from Related Entity 18,531
Accrued Interest Income 76,571
Prepaid Insurance 30,147
-----------
Total Current Assets $18,268,197
-----------
Other Assets:
Deferred Offering Costs $227,341
Deferred Income Tax Benefit 321,909
-----------
Total Other Assets $549,250
-----------
Total Assets $18,817,447
===========
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities:
Accounts Payable - Management Company $78,130
Accounts Payable - Other 56,272
Accrued Income Taxes Payable 28,571
Other Taxes Payable 44,966
----------
Total (Current) Liabilities $207,939
----------
Stockholders' Equity
Class A Common Voting Stock ($.01 Par Value, 40,000 Shares
Authorized; 3,613 Shares Issued) $36
Class B Common Non-Voting Stock ($.01 Par Value; 100,000 Shares
Authorized; 918 Shares Issued) 9
Class C Common Voting Stock ($.01 Par Value; 100 Shares
Authorized; 0 Shares Issued) 0
Class D Common Non-Voting Stock ($.01 Par Value; 1,000,000 Shares
Authorized; 0 Shares Issued) 0
Additional Paid In Capital - Class A Common Stock 18,064,964
Additional Paid In Capital - Class B Common Stock 917,991
Deficit Accumulated During the Development Stage (373,492)
-----------
Total Stockholders' Equity $18,609,508
-----------
Total Liabilities and Stockholders' Equity $18,817,447
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statement of Operations
For the Period February 15, 1995 (Date of Inception) to December 31, 1995
Revenues:
Contribution from Non-Profit Corporation $34,412
Interest Income 166,045
--------
Total Revenue $200,457
========
Expenses:
Legal Fees and Related Expenses $114,738
Management Fees 234,551
Other Consulting Fees 77,443
Administrative Expenses 308,729
Accounting Fees 10,420
Payroll 29,035
Payroll Taxes 2,533
Interest Expense 49,838
Other Taxes 40,000
--------
Total Expenses $867,287
--------
Loss Before Income Taxes ($666,830)
--------
Income Taxes:
Current Tax Expense $28,571
Deferred Tax Benefit (321,909)
--------
($293,338)
--------
Net Loss ($373,492)
========
Weighted Average Loss per Common Share (Based
on 972 Weighted Average Shares) ($384.25)
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period February 15, 1995 (Date of Inception) to December 31, 1995
<TABLE>
<CAPTION>
Additional Additional Additional
Paid-In Paid-In Paid-In Deficit
Capital - Capital - Capital - Accumulated
Common Stock Class A Class B Class C During the
--------------------------------------- Common Common Common Development
Class A Class B Class C Class D Stock Stock Stock Stage Total
--------- --------- --------- --------- ------------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - Beginning 0 0 0 0 0 0 0
of Period
Issuance in June $1 $2,499 $2,500
1995 of 25 Shares of
Class C Common Stock
Redemption in (1) (2,499) (2,500)
December 1995 of 25
Shares of Class C
Common Stock and
Liquidation of
Subordinated Notes
Payable
Issuance in December $1 $124,999 125,000
1995 of 25 Shares of
Class A Common Stock
Issuance in December 35 17,939,965 17,940,000
1995 of 3,588
Additional Shares of
Class A Common Stock
Issuance in December $9 $917,991 918,000
1995 of 918 Shares
of Class B Common
Stock
Deficit Accumulated ($373,492) (373,492)
During the
Development Stage
========= ========= ========= ========= ============= ============ ============== ============== ============
Balance - End of $36 $9 $0 $0 $18,064,964 $917,991 $0 ($373,492) $18,609,508
Period
========= ========= ========= ========= ============= ============ ============== ============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statement of Cash Flows
For the Period February 15, 1995 (Date of Inception) to December 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) ($373,492)
Adjustments to Reconcile Net (Loss) to Net
Cash (Used) by Operating Activities:
(Increase) in Due from Related Entity (18,531)
(Increase) in Accrued Interest Income (76,571)
(Increase) in Prepaid Insurance (30,147)
Deferred Income Tax Benefit (321,909)
Increase in Accounts Payable - Management Company
(See Note G) 78,130
Increase in Accounts Payable - Other 56,272
Increase in Accrued Income Taxes Payable 28,571
Increase in Other Taxes Payable 44,966
---------
Net Cash (Used) by Operating Activities ($612,711)
---------
CASH FLOWS FROM INVESTING ACTIVITIES -0-
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt of Director Cash Advances $123,000
Return of Director Cash Advances (123,000)
Borrowings Under Line of Credit 717,500
Payments Under Line of Credit (717,500)
Proceeds from Issuance of Subordinated Notes Payable 122,500
Proceeds from Issuance of Class C Common Stock 2,500
Proceeds from Issuance of Class A Common Stock 17,940,000
Proceeds from Issuance of Class B Common Stock 918,000
Deferred Offering Costs (227,341)
-----------
Net Cash Provided by Financing Activities $18,755,659
-----------
Net Increase in Cash $18,142,948
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -0-
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $18,142,948
===========
SUPPLEMENTAL DISCLOSURES:
Interest Paid $49,838
Income Taxes Paid -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
25 Shares of Class C - Common Stock for a total of $2,500, together with
each of 25 Subordinated Notes Payable for a total of $122,500 were redeemed
in exchange for 25 shares of Class A - Common Stock
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Notes to Financial Statements
Note A - Development Stage Operations:
Pennsylvania Physician Healthcare Plan, Inc. (the
"Corporation") was formed as a Pennsylvania for-profit
corporation in February 1995, under the direction of private
practicing physicians to develop a statewide physician owned
and controlled managed care organization. The Corporation is
in its developmental stage, and its activities have consisted
primarily of raising capital, obtaining financing, and
preparing a Prospectus for a stock offering.
The Corporation has adopted a fiscal year end of December 31.
Note B - Summary of Significant Accounting Policies:
Cash and Cash Equivalents
Cash and cash equivalents represent amounts held in depository
institutions and investments in a U.S. Treasury Securities
money market fund. It is the Corporation's policy to treat
highly liquid investments in money markets as cash
equivalents.
Deferred Offering Costs
As of December 31, 1995, the Corporation had deferred certain
direct costs of $227,341 incurred in connection with its stock
offering. Such costs will be charged against additional
paid-in capital upon completion of the offering.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Note C - Cash and Cash Equivalents:
Cash and Cash Equivalents as of December 31, 1995 consists of the following:
Cash - Checking $8,931
Offering Proceeds Account:
Cash 42,000
Conestoga U.S. Treasury Securities Fund 18,090,682
Processing Fee Account:
Cash 160
Conestoga U.S. Treasury Securities Fund 1,175
-----------
Total $18,142,948
===========
31
<PAGE>
There are no restrictions on cash as of December 31, 1995.
The Corporation's cash in bank deposit accounts may at times
exceed federally insured limits. As of December 31, 1995, all
cash balances are fully insured. The Conestoga U.S. Treasury
Securities Fund invests in U.S. Treasury Securities that are
guaranteed by the full faith and credit of the United States
government.
Note D - Line of Credit:
The Corporation had established a line of credit with the
Pennsylvania Medical Society Liability Insurance Company in
the amount of $800,000. The interest rate on this line of
credit varied from 18% to 35% and as of December 31, 1995 all
line of credit advances had been repaid.
Note E - Common Stock:
The Corporation's authorized common stock consists of: 40,000
shares of Class A, 100,000 shares of Class B; 100 shares of
Class C; and 1,000,000 shares of Class D, each with a $.01 par
value per share.
The holders of any shares of common stock of the Corporation
have no preemptive rights. The Corporation's Bylaws state that
any vote of shareholders having the effect of the acquisition
of substantially the entire business of the Corporation by any
person, whether in a plan of merger, sale or other disposition
of all or substantially all of the assets of the Corporation,
shall require the affirmative vote of ninety percent (90%) of
all shareholders entitled to vote.
The following is a description of each class of common stock:
Class A:
The holder of Class A shares is limited to one vote if and
only if the holder of the Class A shares is a practicing
physician. The Class A shares may be sold only to a
practicing physician or they may be transferred through
gift or involuntarily to others. In the event that Class A
shares are transferred to others, they become non-voting
and such person or persons would have the right to sell the
shares only to a practicing physician who then could
exercise the right to vote.
Class B:
The Class B shares of common stock are non-voting and are
only offered to holders of voting Class A shares, and may
only be resold to holders of existing Class A shares, or
they may be transferred by gift or involuntarily to others.
32
<PAGE>
Class C:
The holders of Class C common stock and the voting holders
of Class A common stock shall vote as a class.
Class D:
The Board of Directors may designate one or more subclasses
or series, or both of Class D common stock and reserves the
right to designate future preferences, limitations and
special rights, if any, except that Class D common stock
shall not have voting rights.
Prior to the public stock offering, members of the Board of
Directors of the Corporation subscribed to Class A common
stock and paid the Corporation $123,000. In May 1995, members
of the Board of Directors rescinded their decision to
subscribe to stock and all the funds were returned by the
Corporation to the individual subscribers.
During 1995, one share of Class C common stock was issued to
each of the 25 members of the Board of Directors for a
purchase price of $100 per share. In addition, a subordinated
note in the amount of $4,900 was issued to each of the 25
members in exchange for cash. The notes were due in one year
or less, without interest. Total cash received from the
issuance of the Class C common stock and the subordinated
notes payable was $125,000, as follows:
Issuance of 25 Shares of Class C
Common Stock, at $100 per Share $2,500
Issuance of 25 Subordinated Notes
Payable, at $4,900 Face Value Each 122,500
-------
Total $125,000
========
The Corporation's Prospectus was effective on July 20, 1995.
The minimum offering was established at $16,500,000.
Once the minimum offering was achieved in December, 1995, each
Class C share of common stock, together with each subordinated
note payable, was redeemed in exchange for one share of Class
A common stock. As of December 31, 1995, 3,588 additional
shares of Class A common stock, and 918 shares of Class B
common stock, were issued, for a total of $18,858,000, as
follows:
Issued 3,588 Additional Shares
of Class A Common Stock $17,940,000
Issued 918 Shares of Class B
Common Stock 918,000
-----------
Total $18,858,000
===========
33
<PAGE>
Note F - Revenues - Contribution from Non-Profit Corporation:
The revenue on the statement of operations represents an
unconditional, nonreciprocal payment by a non-profit entity,
related to the corporation by common management, of the
Corporation's expenses.
Note G - Management Agreement:
The Corporation has retained Infinity Management Services, Inc.
("Infinity"), a wholly owned subsidiary of the Pennsylvania Medical
Society Liability Insurance Company, to manage the Corporation.
Infinity has incurred $297,571 of various costs on behalf of the
Corporation as of December 31, 1995, as follows:
Description Amount
----------- ------
Management Fees $234,551
Reimbursable Business Expenses 63,020
--------
Total $297,571
========
Accounts payable to Infinity for management fees and reimbursable
business expenses totaled $78,130 as of December 31, 1995.
Note H - Income Taxes:
For federal and state income tax purposes, certain expenses
incurred by a corporation in its development stage are not
currently deductible as business expenses. Instead, these
expenses accumulate until the corporation is actively in
business, at which time the expenses are deductible over a
period of five years. For the period February 15, 1995 (Date
of Inception) to December 31, 1995, the Corporation incurred
expenses totaling $783,037 that will, for federal and state
income tax purposes, be deferred until future years. In order
to recognize the income tax benefit of deducting these
expenses in the future, the Corporation has recorded a
deferred income tax benefit totaling $321,909.
However, the Corporation has, for the period February 15, 1995
(Date of Inception) to December 31, 1995, earned interest
totaling $166,045 that is currently taxable for federal income
tax purposes. This interest income, less deductible expenses
totaling $49,838, yields a federal taxable income for the
period of $116,207. Income taxes currently payable total
$28,571.
The Corporation incurred a net operating loss for state income
tax purposes of $49,838, which will be available to offset
future taxable income through December 31, 1997.
34
<PAGE>
The provision for income taxes consists of the following components:
Total Federal State
----- ------- -----
Current $28,571 $28,571 -0-
Deferred Benefit (321,909) (255,293) ($66,616)
------- ------- ------
Totals ($293,338) ($226,722) ($66,616)
======== ======== =======
Management believes the Corporation will generate sufficient taxable
income in future years to utilize the expenses totaling $783,037 not
currently deductible. Accordingly, management has not recorded a
valuation allowance against the deferred income tax benefit.
It is at least reasonably possible that a change in the estimate of
the probability of realizing the future income tax benefits as
described above will occur in the near term.
Note I - Subsequent Events:
The Corporation had continued to receive cash for stock issued
through the termination of the offering, which was extended to March
1, 1996. Additional cash received during the period January 1, 1996
through the termination of the offering totaled approximately $2.5
million.
35
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Balance Sheet (Unaudited)
March 31, 1996
Assets 1996
- ------ --------
Current Assets:
Cash and Cash Equivalents $20,423,884
Due From Related Entity 18,531
Accrued Interest Income 81,153
Prepaid Insurance 15,100
-----------
Total Current Assets 20,538,668
Other Assets:
Deferred Offering Costs --
Deferred Income Tax Benefit 622,978
-----------
Total Assets $21,161,646
===========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
- ------------
Current Liabilities:
Accounts Payable -- Management Company $55,000
Accounts Payable -- Other 405,076
Cash Advances 0
Accrued Income Taxes Payable 102,134
Other Taxes Payable 46,774
-----------
Total Current Liabilities 608,984
-----------
Stockholders' Equity
- --------------------
Class A Common Voting Stock ($.01 Par Value; 40,000 Shares 41
authorized; 4,086 shares issued)
Class B Common Non-Voting Stock ($.01 Par Value; 100,000 11
shares authorized; 1,074 shares issued)
Class C Common Voting Stock ($.01 Par Value; 100 Shares --
authorized; 0 shares issued)
Class D Common Non-Voting Stock ($.01 Par Value; 1,000,000 --
shares authorized; 0 shares issued)
Additional Paid In Capital -- Class A Common Stock 20,202,304
Additional Paid In Capital -- Class B Common Stock 1,013,473
Deficit Accumulated During the Development Stage (663,167)
-----------
Total Stockholders' Equity 20,552,662
-----------
Total Liabilities and Stockholders' Equity $21,161,646
===========
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statements of Operations (Unaudited)
Three-Month Periods Ended March 31, 1996 and 1995
Cumulative From
Inception to
Revenues: 1996 1995 March 31, 1996
- --------- -----------------------------------
Contribution from Non-Profit Corporation -- -- $34,412
Interest Income $231,573 -- 397,618
-----------------------------------
Total Revenue 231,573 -- 432,030
Expenses:
- ---------
Legal Fees & Related Expenses 58,769 57,250 173,506
Management Consulting 156,035 22,936 390,586
Other Consulting 464,002 -- 541,445
Administrative Expenses 58,305 31,669 367,034
Accounting 745 -- 11,165
Payroll 4,173 -- 33,208
Payroll Taxes 1,726 -- 4,259
Interest Expense -- -- 49,838
Other Taxes 5,000 -- 45,000
-----------------------------------
Total Expenses 748,755 111,855 1,616,041
-----------------------------------
Loss before income taxes (517,182) (111,855) (1,184,011)
-----------------------------------
Income Taxes:
Current Tax Expense 73,563 -- 102,134
Deferred Tax Benefit (301,070) (38,047) (622,978)
Net loss ($289,675) ($73,808) ($663,167)
====================================
Weighted Average Loss per Common Share
(Based on cumulative weighted average
shares of 1,817, and weighted average
shares of 4,853 and 0 as of March 31,
1996 and 1995 respectively) ($59.69) -- ($364.98)
The accompanying notes are an integral part of these financial statements
37
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Unaudited)
Three-Month Periods Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
(Deficite)
Common Stock Additional Paid in Capital Accumulated During
------------ -------------------------- The Development
Class A Class B Class C Class D Class A Class B Class C Stage Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 15, 1995 - - - - - - - - -
Deficit Accumulated During the
Period - - - - - - - ($73,808) ($73,808)
----------------------------------------------------------------------------------------------
Balance, March 31, 1995 - - - - - - - ($73,808) ($73,808)
==============================================================================================
Issuance in June 1995 of 25 Shares
of Class C Common Stock - - $1 - - - $2,499 - $2,500
Redemption in December 1995
of 25 shares of Class C Common
Stock and Liquidation of
Subordinated Notes Payable - - ($1) - - - ($2,499) - ($2,500)
Issuance in December 1995 of
25 Shares of Class A Common
Stock $1 - - - $124,999 - - - $125,000
Issuance in December of 1995
of 3,588 Shares of Class A
Common Stock $35 - - - $17,939,965 - - - $17,940,000
Issuance in December of 1995
of 918 Shares of Class B
Common Stock - $9 - - - $917,991 - - $918,000
Deficit Accumulated During the
Period - - - - - - - ($299,684) ($299,684)
----------------------------------------------------------------------------------------------
Balance, December 31, 1995 $36 $9 - - $18,064,964 $917,991 - ($373,492) $18,609,508
==============================================================================================
Issuance in January-March 1996
of 473 Additional Shares
of Class A Common Stock $5 - - - $2,364,995 - - - $2,365,000
Issuance in January-March 1996
of 156 Additional Shares
of Class B Common Stock - $2 - - - $155,998 - - $156,000
Charge-off of Deferred Offering
Costs - March 1, 1996 - - - - ($227,655) ($60,516) - - ($288,171)
Deficit Accumulated During the
Period - - - - - - - ($289,675) ($289,675)
----------------------------------------------------------------------------------------------
Balance, March 31, 1996 $41 $11 - - $20,202,304 $1,013,473 - ($663,167) $20,552,662
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
38
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statements of Cash Flows (Unaudited)
Three-Month Periods Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
Cumulative From
Inception to
1996 1995 March 31, 1996
------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss ($289,675) ($73,808) (663,167)
Adjustments to reconcile net loss to net cash
(used) provided in operating activities:
(Increase) in Due from Related Entity -- -- (18,531)
(Increase) in Accrued Interest Income (4,582) -- (81,153)
(Increase) Decrease in Prepaid Insurance 15,047 -- (15,100)
(Increase) in Deferred Income Tax Benefit (301,070) (38,047) (622,978)
Increase (Decrease) in Accounts Payable -- Mgmt Co. (23,130) 49,587 55,000
Increase in Accounts Payable -- Other 348,804 75,388 405,076
Increase in Accrued Income Taxes Payable 73,563 -- 102,134
Increase in Other Taxes Payable 1,809 -- 46,774
------------------------------------------------------
Net cash (used) provided in operating activities (179,234) 13,120 (791,945)
------------------------------------------------------
Cash Flows From Investing Activities: -- -- --
------------------------------------------------------
Cash Flows From FInancing Activities:
Receipt of Director Cash Advances -- 123,000 123,000
Return of Director Cash Advances -- -- (123,000)
Borrowings Under Line-Of-Credit -- -- 717,500
Payments Under Line-Of-Credit -- -- (717,500)
Proceeds from Issuance of Subordinated Notes Payable -- -- 122,500
Proceeds from Issuance of Class C Common Stock -- -- 2,500
Proceeds from Issuance of Class A Common Stock 2,365,000 -- 20,305,000
Proceeds from Issuance of Class B Common Stock 156,000 -- 1,074,000
Deferred Offering Class (60,830) (16,391) (288,171)
------------------------------------------------------
Net Cash Flows Provided from Financing Activities 2,460,170 106,609 21,215,829
------------------------------------------------------
Net Increase in Cash and Cash Equivalents 2,280,936 119,729 20,423,884
Cash and Cash Equivalents:
Beginning 18,142,948 -- --
------------------------------------------------------
Ending $20,423,884 $119,729 $20,423,884
=======================================================
SUPPLEMENTAL DISCLOSURES:
Interest Paid -- -- $49,838
Income Taxes Paid -- -- --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
25 Shares of Class C -- Common Stock for a total of $2,500, together with
each of 25 Subordinated Notes Payable for a total of $122,500 were
redeemed in exchange for 25 shares of Class A -- Common Stock
</TABLE>
The accompanying notes are an integral part of these financial statements
39
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Notes to Financial Statements
Note A - Development Stage Operations:
Pennsylvania Physician Healthcare Plan, Inc. (the
"Corporation") was formed as a Pennsylvania for-profit
corporation in February 1995, under the direction of private
practicing physicians to develop a statewide physician owned
and controlled managed care organization. The Corporation is
in its developmental stage, and its activities have consisted
primarily of raising capital through a public stock offering,
obtaining the necessary license to operate as a managed care
organization and developing a business plan.
The Corporation has adopted a fiscal year end of December 31.
Note B - Summary of Significant Accounting Policies:
Deferred Offering Costs:
Through December 31, 1995, the Corporation deferred certain direct
costs of $227,341 incurred in connection with its stock offering. As
of March 1, 1996, the Corporation had deferred an additional $60,830
of similar costs. On March 1, 1996, upon completion of the initial
stock offering, the Corporation accordingly charged $288,171 of
deferred offering costs to additional paid-in capital. Offering costs
of $16,391 were deferred as of March 31, 1995.
Unaudited Financial Statements:
The unaudited financial statements should be read in conjunction with
the audited financial statements as of December 31, 1995 and reflect,
in the opinion of management, all adjustments necessary to fairly
state the results of operations for such periods.
The results of operations for the three-month periods ended March 31,
1996 and 1995 are not necessarily indicative of the results of
operations expected for the full year.
The notes to the financial statements are condensed and may not
include all information that is required to be disclosed by generally
accepted accounting principles.
40
<PAGE>
Note C - Cash and Cash Equivalents:
Cash and Cash Equivalents as of March 31, 1996 and 1995 consist of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash - Checking $10,621 $119,729
Offering Proceeds Account:
Cash 1,000 0
Conestoga U.S. Treasury Securities Fund 20,409,673 0
Processing Fee Account:
Cash 0 0
Conestoga U.S. Treasury Securities Fund 2,590 0
----- -
Total $20,423,884 $119,729
=========== ========
</TABLE>
There are no restrictions on cash as of March 31, 1996 and 1995.
The Corporation's cash in bank deposit accounts may at times exceed
federally insured limits. As of March 31, 1996 all cash balances are
fully insured. The Conestoga U.S. Treasury Securities Fund invests in
U.S. Treasury Securities that are guaranteed by the full faith and
credit of the United States government.
Note D - Common Stock:
During the three-month period ended March 31, 1996, 473 additional
shares of Class A common stock, and 156 additional shares of Class B
common stock, were issued, for a total of $2,521,000 as follows:
Issued 473 Additional Shares
of Class A Common Stock $2,365,000
Issued 156 Shares of Class B
Common Stock 156,000
----------
Total $2,521,000
==========
Note E - Management Agreement:
Infinity Management Services, Inc. (Infinity) has incurred $162,616
and $49,587 of various costs on behalf of the Corporation as of March
31, 1996 and 1995 respectively, as follows:
<TABLE>
<CAPTION>
Description 1996 1995
----------- --------------------
<S> <C> <C>
Management Fees $156,035 $22,936
Reimbursable Business Expenses 6,577 26,651
----- ------
Total $162.616 $49,587
======== =======
</TABLE>
41
<PAGE>
Accounts payable to Infinity for management fees and reimbursable
business expenses totaled $57,631 and $49,587 as of March 31, 1996
and 1995 respectively.
Note F - Income Taxes:
For federal and state income tax purposes, certain expenses incurred
by a corporation in its development stage are not currently
deductible as business expenses. Instead, these expenses accumulate
until the corporation is actively in business, at which time the
expenses are deductible over a period of five years. For the quarters
ended March 31, 1996 and 1995, the Corporation incurred expenses
totaling $748,755 and 111,855 respectively that will, for federal and
state income tax purposes, be deferred until future years. In order
to recognize the income tax benefit of deducting these expenses in
the future, the Corporation has recognized a deferred income tax
benefit totaling $301,070 and $38,047 for the three-month periods
ended March 31, 1996 and 1995 respectively.
However, the Corporation has, for the three-month periods ended March
31, 1996 earned interest totaling $231,573 that is currently taxable
for federal income tax purposes. Income taxes currently payable total
$102,134.
The provision for income taxes at March 31, 1996 and 1995 consists of
the following components:
1996:
-----
Total Federal State
----- ------- -----
Current $73,563 $73,563 -
Deferred Benefit (301,070) (249,404) (51,666)
------- ------- ------
Totals ($227,507) ($175,841) ($51,666)
======== ======== =======
1995:
-----
Total Federal State
----- ------- -----
Current - - -
Deferred Benefit ($38,047) ($26,873) ($11,174)
------ ------ ------
Totals ($38,047) ($26,873) ($11,174)
------- ------- -------
Management believes the Corporation will generate sufficient taxable
income in future years to utilize the expenses totaling $1,531,792
not currently deductible. Accordingly, management has not recorded a
valuation allowance against the deferred income tax benefit.
It is at least reasonably possible that a change in the estimate of
the probability of realizing the future income tax benefits as
described above will occur in the near term.
42
<PAGE>
Part III
Item 1. Index to Exhibits.
2.1 Restated Articles of Incorporation
(Incorporated by reference to Exhibit
2.1 to Registrant's Form 10-SB filed
April 30, 1996)
2.2 Amended Bylaws
(Incorporated by reference to Exhibit
2.2 to Registrant's Form 10-SB filed
April 30, 1996)
6.1 Licensure/Business Development Phase Services
Agreement with Infinity Management Services,
Inc. dated March 6, 1996.
(Incorporated by reference to Exhibit 6.1 to Registrant's
Form 10-SB filed April 30, 1996)
-43-
<PAGE>
SIGNATURES
In accordance with section 12 of the Securities Exchange Act of 1934,
Registrant caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
PENNSYLVANIA PHYSICIAN HEALTHCARE
PLAN, INC.
By: /s/ Gary C. Brown
______________________________
Gary C. Brown, M.D., President
Date: June 18, 1996
-44-
