<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, 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 October 31, 1997)
Transitional Small Business Disclosure Format:
Yes X No
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
===================================================================================================================================
September 30, December 31,
Assets 1997 1996
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 14,875,696 $ 17,381,607
Accrued interest income 66,084 77,641
Premium receivable 1,616 --
Prepaid expenses 85,784 45,816
Income taxes receivable 166,000 166,000
Other assets 44,100 44,000
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Total current assets 15,239,280 17,715,064
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Equipment (net of accumulated depreciation of $180,013 and $0, respectively) 846,670 647,771
Total assets 16,085,950 18,362,835
===================================================================================================================================
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 197,317 335,106
Other liabilities 23,163 22,058
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Total current liabilities 220,480 357,164
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Stockholders' Equity:
Class A common voting stock, $.01 par value, 40,000 shares authorized; 4,087 shares 41 41
issued and outstanding at September 30, 1997 and December 31, 1996
Class B common non-voting stock, $.01 par value, 100,000 shares authorized; 1,074 shares 11 11
issued and outstanding at September 30, 1997 and December 31, 1996
Additional paid in capital 21,220,777 21,220,777
Accumulated deficit (5,355,359) (3,215,158)
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Total stockholders' equity 15,865,470 18,005,671
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Total liabilities and stockholders' equity $ 16,085,950 $ 18,362,835
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
==================================================================================================================================
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Premium $ 60,242 $ -- $ 60,242 $ --
Interest income 208,264 244,208 638,522 727,799
- ----------------------------------------------------------------------------------------------------------------------------------
Total Revenue 268,506 244,208 698,764 727,799
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Expenses:
Health care services 61,334 -- 61,334 --
Legal fees 28,846 46,145 120,627 238,339
Consulting services 65,375 556,845 207,747 2,009,462
Operating expenses 341,521 292,579 739,088 436,220
Salary and benefits 541,822 161,827 1,509,631 176,859
Other taxes 2,901 -- 20,525 53,000
Depreciation 96,013 -- 180,013 --
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Total expenses 1,137,812 1,057,396 2,838,965 2,913,880
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Loss before income taxes (869,306) (813,188) (2,140,201) (2,186,081)
- ----------------------------------------------------------------------------------------------------------------------------------
Income taxes (benefit):
Current -- (46,500) -- (8,600)
Deferred -- 46,500 -- 8,600
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (869,306) $ (813,188) $(2,140,201) $(2,186,081)
==================================================================================================================================
Weighted average common shares 5,161 5,161 5,161 5,059
Weighted average loss per outstanding common share $ (168.44) $ (157.56) $ (414.69) $ (432.12)
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Consolidated Statements of Changes In Stockholders' Equity (unaudited)
<TABLE>
<CAPTION>
===================================================================================================================================
Additional
Common Stock Shares Common Stock Par Value Paid In Accumulated
Class A Class B Class C Class A Class B Class C Capital Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 (2,140,201) (2,140,201)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 4,087 1,074 - $ 41 $ 11 $ - $ 21,220,777 $(5,355,359) $ 15,865,470
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
==============================================================================================================================
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (869,306) $ (813,188) $ (2,140,201) $ (2,186,081)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 96,013 -- 180,013 --
Change in assets and liabilities:
Due from related entity -- 18,531 -- 18,531
Accrued interest income 3,305 4,727 11,557 (1,478)
Premium receivable (1,616) -- (1,616) --
Prepaid expenses (30,782) (52,548) (39,968) (22,401)
Income taxes receivable -- (46,500) -- (146,029)
Other assets (100) -- (100) --
Deferred income tax benefit -- 46,500 -- 8,600
Accounts payable 26,249 (64,826) (137,789) 74,562
Accrued income taxes payable -- (1,775) -- (28,571)
Other liabilities 753 -- 1,105 (44,966)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (775,484) (909,079) (2,126,999) (2,327,833)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of equipment (77,911) (66,461) (378,912) (66,461)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- -- 2,521,000
Deferred offering costs -- -- -- (60,830)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided from financing activities -- -- -- 2,460,170
- ------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (853,395) (975,540) (2,505,911) 65,876
Cash and cash equivalents, beginning 15,729,091 19,184,364 17,381,607 18,142,948
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, ending $ 14,875,696 $ 18,208,824 $ 14,875,696 $ 18,208,824
==============================================================================================================================
Supplemental disclosures:
Interest Paid $ -- $ -- $ -- $ --
Income Taxes Paid $ -- $ -- $ -- $ 166,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Notes to Consolidated Financial Statements for the Three and Nine Month Periods
Ended September 30, 1997 and 1996.
- --------------------------------------------------------------------------------
(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.
The Company received a license to operate a preferred provider
organization (PPO) in April 1997 and a third party administrator (TPA)
license in March 1997. It expects to receive a license to operate a
health maintenance organization (HMO) in the first quarter of 1998.
Through June 30, 1997 the Company was in the developmental stage and
activities 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. In the third quarter of 1997 the Company became
operational and, accordingly, all developmental stage references in the
accompanying financial statements were removed.
(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 and nine month periods ended
September 30, 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, Physicians Care HMO, Inc., Physicians Care
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.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128
requires the presentation of basic earnings per share (EPS), calculated
by dividing income available to common shareholders by the
weighted-average number of common share outstanding during the period,
and diluted EPS, calculated the same as basic EPS except that the
denominator is increased to include the number of additional common
shares that would have been issued if all dilutive potential common
shares had been issued. SFAS No. 128 is effective for periods ending
after December 15, 1997, and requires the restatement of EPS for all
periods presented. On a pro forma basis, the adoption of SFAS No. 128
would not have a material effect on the Company's calculation of
primary or fully diluted earnings per share in the accompanying
financial statements.
(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 September 30, 1997 may only
be used after an HMO licensure 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 June 30, 1997, the Company
incurred expenses totaling approximately $3,028,000 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 $1,230,000. Also, the Company has federal net
operating loss carryforwards of $1,059,000 which will be available to
offset future taxable income through December 31, 2011.
The total deferred income tax benefit of $2,289,000 was reduced by a
valuation allowance of $2,289,000. Management recorded the valuation
allowance to reduce the deferred income tax benefit to its estimated
realizable value in light of the Company's commencement of operations
and lack of operating history.
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: November 14, 1997 By: /s/ Richard A. Felice
----------------------- ---------------------------------
Richard A. Felice, President and Chief
Executive Officer
Date: November 14, 1997 By: /s/ T. Clark Phillip
----------------------- ---------------------------------
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> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,875,696
<SECURITIES> 0
<RECEIVABLES> 249,127
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,254,707
<PP&E> 1,026,683
<DEPRECIATION> 180,013
<TOTAL-ASSETS> 16,101,377
<CURRENT-LIABILITIES> 220,480
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 15,880,845
<TOTAL-LIABILITY-AND-EQUITY> 16,101,377
<SALES> 75,669
<TOTAL-REVENUES> 283,933
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,137,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (853,879)
<INCOME-TAX> (853,879)
<INCOME-CONTINUING> (853,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (853,879)
<EPS-PRIMARY> (165.45)
<EPS-DILUTED> 0
</TABLE>
