<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 March 31, 1997
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:
4,087 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 April 30, 1997)
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)
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
=======================================================================================================================
March 31, December 31,
Assets 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $16,642,825 $17,381,607
Accrued interest income 74,363 77,641
Prepaid expenses 65,669 45,816
Income taxes receivable 166,000 166,000
Other assets 45,600 44,000
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 16,994,457 17,715,064
- -----------------------------------------------------------------------------------------------------------------------
Equipment (net of accumulated depreciation of $42,000 and $0, respectively) 714,107 647,771
Total assets 17,708,564 18,362,835
=======================================================================================================================
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 220,255 335,106
Other liabilities 22,058
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 220,255 357,164
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Class A common voting stock, $.01 par value, 40,000 shares
authorized; 4,087 shares issued and outstanding at March 31, 1997
and December 31, 1996 41 41
Class B common non-voting stock, $.01 par value, 100,000 shares
authorized; 1,074 shares issued and outstanding at March 31, 1997 and
December 31, 1996 11 11
Additional paid in capital 21,220,777 21,220,777
Deficit accumulated during the development stage (3,732,520) (3,215,158)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 17,488,309 18,005,671
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $17,708,564 $18,362,835
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
===============================================================================================================================
Cumulative Period
Three Months Three Months From February
Ended Ended 15, 1995 (date
March 31, March 31, of inception) to
1997 1996 March 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Interest income $ 215,519 $ 231,574 $ 1,343,822
Other income -- -- 34,412
- -------------------------------------------------------------------------------------------------------------------------------
Total Revenue 215,519 231,574 1,378,234
- -------------------------------------------------------------------------------------------------------------------------------
Expenses:
Legal fees 38,113 58,769 438,022
Consulting services 64,570 620,037 2,477,139
Operating expenses 209,731 59,050 1,148,383
Salary and benefits 410,311 5,899 976,846
Interest expense -- -- 49,838
Other taxes 10,156 5,000 20,526
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses 732,881 748,755 5,110,754
- -------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (517,362) (517,181) (3,732,520)
- -------------------------------------------------------------------------------------------------------------------------------
Income taxes (benefit):
Current -- 28,450 --
Deferred -- (28,450) --
- -------------------------------------------------------------------------------------------------------------------------------
Net loss $(517,362) $(517,181) $(3,732,520)
===============================================================================================================================
Weighted average common shares 5,161 4,853
Weighted average loss per outstanding common share $ (100.24) $ (106.57)
===============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Consolidated Statements of Changes In Stockholders' Equity (unaudited)
<TABLE>
<CAPTION>
====================================================================================================================================
Additional Accumulated
Common Stock Shares Common Stock Par Value Paid In Deficit During The
Class A Class B Class C Class A Class B Class C Capital Development Stage Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 15, 1995 -- -- -- $ -- $ -- $ -- $ -- $ -- $ --
(date of inception)
Issuance of Class C common
stock in June, 1995 25 1 2,499 2,500
Redemption of Class C common
stock and liquidation of
subordinated notes payable
in December, 1995 (25) (1) (2,499) (2,500)
Issuance of Class A common
stock in December, 1995 25 1 124,999 125,000
Issuance of Class A common
stock in December, 1995 3,588 35 17,939,965 17,940,000
Issuance of Class B common
stock in December, 1995 918 9 917,991 918,000
Net loss (666,830) (666,830)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 3,613 918 -- 36 9 -- 18,982,955 (666,830) 18,316,170
Issuance of class A common
stock January - March, 1996 474 5 2,369,995 2,370,000
Issuance of class B common
stock January - March, 1996 156 2 155,998 156,000
Charge-off of deferred offering
costs - March 1, 1996 (288,171) (288,171)
Net loss (2,548,328) (2,548,328)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 4,087 1,074 -- 41 11 -- 21,220,777 (3,215,158) 18,005,671
Net loss (517,362) (517,362)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 4,087 1,074 -- $ 41 $ 11 $ -- $21,220,777 $(3,732,520) $17,488,309
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
===========================================================================================================================
Cumulative Period
Three Months Three Months From February
Ended Ended 15, 1995 (date
March 31, March 31, of inception) to
1997 1996 March 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (517,362) $ (517,181) $(3,732,520)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 42,000 -- 42,000
Change in assets and liabilities:
Accrued interest income 3,278 (4,583) (74,363)
Prepaid expenses (19,853) 15,047 (65,669)
Income taxes receivable -- (166,000)
Other assets (1,600) -- (45,600)
Deferred income tax benefit (28,450) --
Accounts payable (114,851) 325,674 220,255
Accrued income taxes payable 28,450 --
Other liabilities (22,058) 1,809 --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (630,446) (179,234) (3,821,897)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of equipment (108,336) -- (756,107)
- ---------------------------------------------------------------------------------------------------------------------------
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 form issuance of subordinated notes payable -- -- 122,500
Proceeds from issuance of common stock -- 2,521,000 21,386,500
Deferred offering costs -- (60,830) (288,171)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from financing activities -- 2,460,170 21,220,829
- ---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (738,782) 2,280,936 16,642,825
Cash and cash equivalents, beginning 17,381,607 18,142,948 --
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, ending $16,642,285 $20,423,884 $16,642,825
===========================================================================================================================
Supplemental disclosures:
Interest Paid $ -- $ -- $ 49,838
Income Taxes Paid $ -- $ -- $ 166,000
Non-cash investing and financing activity:
In December, 1995 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>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements for the Three Month Period Ended
March 31, 1997 and 1996, and for the Cumulative Period from February 15, 1995
(date of inception) to March 31, 1997 (unaudited)
- -------------------------------------------------------------------------------
(1) Description of Business
Pennsylvania Physician Healthcare Plan, Inc. (the Company) was formed
as a Pennsylvania for-profit corporation on February 15, 1995, under
the direction of private practicing physicians to develop a physician
owned and controlled managed care organization in Pennsylvania.
(2) Development Stage
The Company is in its developmental stage as of March 31, 1997, and
activities have consisted primarily of raising capital through a public
stock offering, hiring a management team, applying for the necessary
licenses to operate as a managed care organization and developing a
business plan. The Company received a license to operate a preferred
provider organization (PPO) in April 1997 and expects to receive a
license to operate a health maintenance organization (HMO) in the
second or third quarter of 1997.
Successful completion of the Company's development program and,
ultimately, the attainment of profitable operations are dependent upon
future events, including achieving a level of revenues adequate to
support the Company's cost structure.
(3) Summary of Significant Accounting Policies
Unaudited Financial Statements
The unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements as of
December 31, 1996 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,
1997 and 1996 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.
6
<PAGE>
Principles of Consolidation
The consolidated financial statements include the financial statements
of Pennsylvania Physician Healthcare Plan, Inc. and its three
wholly-owned subsidiaries, PPHP HMO, Inc., PPHP PPO, Inc., and
Pennsylvania Physicians Care Service Corp. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include cash and investments with maturities
of less than three months when purchased. The cost of these investments
approximates fair market value.
Equipment
Equipment, consisting principally of office equipment, computer
equipment and software, is carried at cost. Depreciation is calculated
on the accelerated cost recovery method for both financial reporting
and income taxes purposes over the estimated useful lives of the
assets. As of December 31, 1996, equipment was not placed into service.
Therefore, no depreciation expense was recorded for the year ending
December 31, 1996.
Deferred Offering Costs
Through December 31, 1995, the Company deferred certain direct costs of
$227,341 incurred in connection with its public stock offering. As of
March 1, 1996, the Company had deferred an additional $60,830 of
similar costs. Upon completion of the initial stock offering on March
1, 1996, the Company charged $288,171 of deferred offering costs to
additional paid-in capital as a direct reduction of the proceeds of
such offering.
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 to 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 during each period.
Use of Estimates
Management has made a number of estimates and assumptions relating to
the reporting of assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
7
<PAGE>
Reclassifications
Certain prior period amounts have been reclassified to facilitate
comparison with current period reporting presentation.
(4) Restrictions on Cash
As specified in the prospectus for the public stock offering,
approximately $9,691,000 of offering proceeds which are included in the
Company's cash and cash equivalents as of March 31, 1997 may only be
used 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.
(5) Income Taxes
For federal and state income tax purposes, certain organizational
expenses incurred by the Company in its development stage are not
currently deductible as business expenses. Instead, these expenses
accumulate until the Company 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 March 31, 1997, the Company
incurred expenses totaling approximately $3,014,000 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 Company has recorded a deferred income tax
benefit totaling $1,224,000, which was reduced by a valuation allowance
of $1,224,000. 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 Company's ability to realize
the deferred income tax benefit.
The Company has federal net operating loss carryforwards of $519,000
which will be available to offset future taxable income through
December 31, 2011.
8
<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 the December 31, 1996 Form 10-KSB.
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
None
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
9
<TABLE> <S> <C>
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,642,825
<SECURITIES> 0
<RECEIVABLES> 240,363
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,994,457
<PP&E> 756,107
<DEPRECIATION> 42,000
<TOTAL-ASSETS> 17,708,564
<CURRENT-LIABILITIES> 220,255
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 17,488,257
<TOTAL-LIABILITY-AND-EQUITY> 17,448,309
<SALES> 0
<TOTAL-REVENUES> 215,519
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 732,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (517,362)
<INCOME-TAX> 0
<INCOME-CONTINUING> (517,362)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (517,362)
<EPS-PRIMARY> (100.24)
<EPS-DILUTED> 0
</TABLE>
