<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-28390
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(Exact name of registrant as specified in its Charter)
Pennsylvania 23-2795795
(State of incorporation (I.R.S. Employer
or organization) Identification Number)
651 East Park Drive, Harrisburg, PA 17111
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code:
(800) 671-7747
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
4,086 shares of Class A common stock, $.01 par value per share
1,074 shares of Class B common stock, $.01 par value per share
(as of October 31, 1996)
Transitional Small Business Disclosure Format:
Yes X No
----- -----
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Balance Sheet
<TABLE>
<CAPTION>
(Unaudited) (Restated)
September 30, December 31,
Assets 1996 1995
-------------------- -------------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 18,208,824 $ 18,142,948
Due From Related Entity - 18,531
Accrued Interest Income 78,049 76,571
Prepaid Expense 52,548 30,147
Accrued Income Taxes Receivable 146,029 -
-------------------- -------------------
Total Current Assets 18,485,450 18,268,197
Equipment 66,461 -
Deferred Offering Costs - 227,341
Deferred Income Tax Benefit 19,971 28,571
--------------------- --------------------
Total Assets 18,571,882 18,524,109
==================== ===================
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities:
Accounts Payable 208,964 134,402
Accrued Income Taxes Payable - 28,571
Other Taxes Payable - 44,966
-------------------- -------------------
Total Current Liabilities 208,964 207,939
-------------------- -------------------
Stockholders' Equity
Class A Common Voting Stock ($.01 Par Value; 40,000 Shares 41
authorized; 4,086 and 3,613 shares issued in 1996 and 1995 36
respectively)
Class B Common Non-Voting Stock ($.01 Par Value; 100,000 11
shares authorized; 1,074 and 918 shares issued in 1996 and 9
1995 respectively)
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 18,064,964
Additional Paid In Capital - Class B Common Stock 1,013,473 917,991
Deficit Accumulated During the Development Stages (2,852,911) (666,830)
-------------------- -------------------
Total Stockholders' Equity 18,362,918 18,316,170
-------------------- -------------------
Total Liabilities and Stockholders' Equity $ 18,571,882 $ 18,524,109
==================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited)
Period Cumulative From
February 15, February 15, 1995
Nine Months 1995 (date of (date of inception)
Three Months Ended Ended inception) to to
September 30, September 30, September 30, September 30,
Revenues: 1996 1995 1996 1995 1996
--------------- ---------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Contribution from Non-Profit
Corporation $ - $ - $ - $ 15,881 $ 34,412
Interest Income 244,208 84 727,799 84 893,844
--------------- --------------- -------------- ------------- -------------------
Total Revenue 244,208 84 727,799 15,965 928,256
--------------- --------------- -------------- ------------- -------------------
Expenses:
Compensation & Related Expenses 161,827 7,361 176,859 7,361 208,427
Interest Expense - 19,551 - 24,052 49,838
Marketing 54,938 0 55,138 0 55,138
Management Consulting 556,845 69,506 2,009,462 206,481 2,321,456
Administrative Expenses 85,507 63,207 228,948 148,843 548,097
Legal Fees & Related Expenses 46,145 25,909 238,339 101,499 353,077
Credentialing 152,134 0 152,134 0 152,134
Other Taxes - - 53,000 - 93,000
-------------- ---------------- ------------- ------------- -------------------
Total Expenses 1,057,396 185,534 2,913,880 488,236 3,781,167
--------------- ---------------- ------------- ------------- -------------------
Loss Before Income Taxes (813,188) (185,450) (2,186,081) (472,271) (2,852,911)
--------------- ---------------- ------------- ------------- -------------------
Income Taxes:
Current Tax Expense (Benefit) (46,500) 7,945 (8,600) 20,235 19,971
Deferred Tax Benefit (Expense) 46,500 (7,945) 8,600 (20,235) (19,971)
Net Loss $ (813,188) $ (185,450) $(2,186,081) $ (472,271) $ (2,852,911)
=============== ================ ============= ============= ===================
Weighted Average Loss per Common Share
(Based on weighted average shares of
5,160 and 0 as of three months ended
September 30, 1996 and 1995 respectively,
5,059 and 0 as of nine months ended
September 30, 1996 and 1995
respectively, and cumulative
weighted average shares of 2,853) $ (157.59) - $ (432.12) - $ (999.97)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statements of Changes In Stockholders' Equity
Nine-Months Ended September 30, 1996 and 1995
(Deficit)
Accumulated
During
Common Stock Additional Paid In Capital The Development
Class A Class B Class C Class A Class B Class C Stage Total
--------- --------- --------- ------------- ----------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 15, $ - $ - $ - $ - $ - $ - $ - $ -
1995 (date of inception)
Issuance in June 1995 - - 1 - - 2,499 - 2,500
of 25 Shares of Class C
Common Stock
Redemption in December - - (1) - - (2,499) - (2,500)
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 Shares of
Class A Common Stock
Issuance in December - 9 - - 917,991 - - 918,000
1995 of 918 Shares of
Class B Common Stock
Net loss - - - - - - (666,830) (666,830)
--------- --------- --------- ------------- ----------- --------- ----------------- -------------
Balance, December 31, 36 9 18,064,964 917,991 (666,830) 18,316,170
1995
========= ========= ========= ============= =========== ========= ================= =============
Issuance in 5 - - 2,364,995 - - - 2,365,000
January-March 1996 of
473 Additional Shares
of Class A Common Stock
Issuance in - 2 - - 155,998 - - 156,000
January-March 1996 of
156 Additional Shares
of Class B Common Stock
Charge-off of Deferred - - - (227,655) (60,516) - - (288,171)
Offering Costs - March
1, 1996
Net loss - - - - - - (2,186,081) (2,186,081)
--------- --------- --------- ------------- ----------- --------- ----------------- -------------
Balance, September 30, $ 41 $ 11 $ - $ 20,202,304 $1,013,473 $ - $ (2,852,911) $ 18,362,918
1996
========= ========= ========= ============= =========== ========= ================= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine Period February
Months 15, 1995 (date of
Ended inception) to Cumulative From
September 30, September 30, Inception to
1996 1995 September 30, 1996
---------------- --------------- ------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (2,186,081) $ (472,271) $ (2,852,911)
Adjustments to reconcile net loss to net cash (used) in
operating activities:
Change in assets and liabilities:
Due From Related Entity 18,531 - -
Accrued Interest Income (1,478) - (78,049)
Prepaid Expense (22,401) (45,192) (52,548)
Income Taxes Receivable (146,029) - (146,029)
Deferred Income Tax Benefit 8,600 (20,235) (19,971)
Accounts Payable 74,562 33,609 208,965
Accrued Income Taxes Payable (28,571) 20,235 -
Other Taxes Payable (44,966) - -
Accrued Interest - Line of Credit - 24,052 -
----------------- -------------- ---------------------
<S> <C> <C> <C>
Net Cash (Used) In Operating Activities (2,327,833) (459,802) (2,940,543)
----------------- -------------- ---------------------
Cash Flows From Investing Activities:
Purchase of Equipment (66,461) - (66,461)
----------------- -------------- ---------------------
Net Cash (Used) In Investing Activities (66,461) - (66,461)
----------------- -------------- ----------------------
Cash Flows From Financing Activities:
Receipt of Director Cash Advances - 123,000 123,000
Return of Director Cash Advances - (123,000) (123,000)
Borrowings Under Line-of-Credit - 537,500 717,500
Payments Under Line-of-Credit - - (717,500)
Subscription Funds Held in Escrow - 2,198,582 -
Proceeds from Issuance of Subordinated Notes Payable - 122,500 122,500
Payment of Subordinated Notes Payable - - (122,500)
Proceeds from Issuance of Class C Common Stock - 2,500 2,500
Redemption of Class C Common Stock - - (2,500)
Proceeds from Issuance of Class A Common Stock 2,365,000 - 20,202,345
Proceeds from Issuance of Class B Common Stock 156,000 - 1,013,483
Deferred Offering Costs (60,830) (168,013) -
----------------- -------------- -------------------
Net Cash Flows Provided from Financing Activities 2,460,170 2,693,069 21,215,828
----------------- -------------- -------------------
Net Cash Increase (Decrease) in Cash and Cash Equivalents 65,876 2,233,267 18,208,824
Cash and Cash Equivalents, Beginning 18,142,948 - -
----------------- -------------- ------------------
Cash and Cash Equivalents, Ending $ 18,208,824 $ 2,233,267 $ 18,208,824
================= ============== ======================
Supplemental Disclosures:
Interest Paid $ - $ - $ 49,838
Income Taxes Paid $ 166,000 $ - $ 166,000
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 in December,
1995
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 licenses 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:
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 and nine-month periods
ended September 30, 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.
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 as a direct deduction of the
proceeds of such offering.
<PAGE>
Notes To Financial Statements
Note B - Continued
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date.
Earnings Per Common Share
Earnings per common share have been computed based upon the
weighted average number of common shares outstanding.
Cash and Cash Equivalents
Cash and cash equivalents consist of funds held at depository
institutions and a U.S. Treasury Securities Fund with
maturities of three months or less.
Note C - Restrictions on Cash:
Included in cash and cash equivalents are $18,208,824 of
proceeds of the Corporation's 1995-1996 public offering of
shares, which are to be used for various expenses of
establishing a managed care business, as specified in the
prospectus for the offering. Approximately $9,691,000 of these
proceeds may be used only after licensure of the managed care
business is attained; otherwise, such funds, less claims of
creditors, must be distributed to the shareholders, unless
holders of a majority of the voting shares elect otherwise.
Note D - Management Agreement:
The Corporation has contracted with Infinity Management
Services, Inc. ("Infinity"), a wholly owned subsidiary of the
Pennsylvania Medical Society Liability Insurance Company, to
provide various administrative services to the Corporation.
<PAGE>
Notes To Financial Statements
Note D - Continued
Infinity has incurred $532,268 and $192,166 of various costs
on behalf of the Corporation as of September 30, 1996 and 1995
respectively, as follows:
1996 1995
---- ----
Management Fees $486,398 $152,338
Reimbursable Business Expenses 45,870 39,828
-------- --------
Total $532,268 $192,166
Accounts payable to Infinity for management fees and
reimbursable business expenses totaled $137,825 as of
September 30, 1996.
Note E - 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 September 30, 1996, the Corporation incurred
expenses totaling $2,939,695 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 $1,193,548, which was
reduced by a valuation allowance of $1,173,577. Management
recorded the valuation allowance to reduce the deferred income
tax benefit to its estimated realizable value in light of
management's judgment about the Corporation's ability to
realize the deferred income tax benefit (See Note F).
The Corporation incurred a net operating loss for state income
tax purposes of $756,983, which will be available to offset
taxable income through December 31, 1998.
<PAGE>
Notes To Financial Statements
Note F - Restatement:
The December 31, 1995 financial statements and notes thereto
have been restated to give effect to a change in management's
judgment as to the realizability of a deferred income tax
benefit arising from deferring recognition of certain expenses
incurred in the Corporation's development stage for income tax
purposes (See Note E). Management had previously believed that
it was more likely than not the Corporation would generate
sufficient taxable income in future years to utilize expenses
totaling $783,037 not currently deductible for income tax
purposes. Accordingly, a valuation allowance against the
deferred income tax benefit was not recorded.
Management believes that their original judgment as to
realizability did not appropriately reflect the then existing
facts and circumstances. Management therefore believes that
restating the financial statements for the period February 15,
1995 (Date of Inception) to December 31, 1995 is appropriate.
The effect of the restatement on the 1995 financial statements
was to reduce the deferred income tax benefit on the balance
sheet by $293,338 and to reduce the deferred income tax
benefit provision on the statement of operations by the same
amount. The effect of the restatement was to change the net
loss for the period February 15, 1995 (Date of Inception) to
December 31, 1995, from ($373,492) to ($666,830), and change
the weighted average loss per common share from ($384.25) to
($684.04).
<PAGE>
Item 2. Management's Discussion and Analysis on Plan of Operation.
There have been no material changes in Registrant's plan of operations
as set forth in form 10-SB, effective June 20, 1996
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K was filed August 13, 1996 reporting item 4, Changes
In Registrant's Certifying Accountants.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be filed on its behalf by the undersigned, thereunto duly
authorized:
Pennsylvania Physician Healthcare
Plan, Inc.
(Registrant)
Date: By:
---------------------------------- --------------------------------
Richard A. Felice, President and
Chief Executive Officer
Date: By:
---------------------------------- --------------------------------
T. Clark Phillip, Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SAID FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,208,824
<SECURITIES> 0
<RECEIVABLES> 78,049
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,485,450
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,571,882
<CURRENT-LIABILITIES> 208,964
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 18,362,866
<TOTAL-LIABILITY-AND-EQUITY> 18,571,882
<SALES> 0
<TOTAL-REVENUES> 244,208
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,057,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (813,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (813,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (813,188)
<EPS-PRIMARY> (157.59)
<EPS-DILUTED> 0
</TABLE>
