<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, 1998
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, 1998)
Transitional Small Business Disclosure Format:
Yes X No
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<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 1998 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,457,795 $ 14,250,640
Short-term investments 1,552,829 --
Accrued interest income 85,018 65,611
Premiums receivable 244,936 25,393
Income taxes receivable 28,853 28,853
Other assets 71,354 71,585
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Total current assets 4,440,785 14,442,082
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Long-term investments 8,030,890 --
Equipment (net of accumulated depreciation of $576,741
and $272,859, respectively) 645,383 789,589
- -------------------------------------------------------------------------------------------------------
Total assets 13,117,058 15,231,671
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Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------
Current liabilities:
Medical claims liabilities 1,416,040 63,458
Advance premiums 268,052 --
Accounts payable 89,215 113,128
Accrued expenses 33,475 43,500
Other liabilities 29,000 65,000
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Total current liabilities 1,835,782 285,086
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Stockholders' Equity:
Class A common voting stock, $.01 par value, 40,000 shares
authorized; 4,087 shares issued and outstanding 41 41
Class B common non-voting stock, $.01 par value, 100,000 shares
authorized; 1,074 shares issued and outstanding 11 11
Additional paid in capital 21,220,777 21,220,777
Accumulated deficit (9,961,057) (6,274,244)
Net unrealized gain on investments, net of taxes 21,504 --
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Total stockholders' equity 11,281,276 14,946,585
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Total liabilities and stockholders' equity $ 13,117,058 $ 15,231,671
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</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, 1998 September 30, 1997 September 30, 1998 September 30, 1997
- --------------------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Premiums $ 1,818,428 $ 60,242 $ 3,887,922 $ 60,242
Consulting - - 65,000 -
Interest income 157,232 208,264 494,781 638,522
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Total Revenue 1,975,660 268,506 4,447,703 698,764
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Expenses:
Health care services 2,017,125 61,334 4,017,692 61,334
Salary and benefits 786,613 541,822 2,136,947 1,509,631
Operating expenses 453,874 341,521 1,300,288 739,088
Consulting services 108,219 65,375 248,092 207,747
Legal fees 17,125 28,846 90,596 120,627
Other taxes 33,462 2,901 37,019 20,525
Depreciation 104,141 96,013 303,882 180,013
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Total expenses 3,520,559 1,137,812 8,134,516 2,838,965
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Loss before income taxes (1,544,899) (869,306) (3,686,813) (2,140,201)
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Income taxes (benefit):
Current - - - -
Deferred - - - -
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Net loss $ (1,544,899) $ (869,306) $ (3,686,813) $ (2,140,201)
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Weighted average common shares 5,161 5,161 5,161 5,161
Weighted average loss per outstanding
common share - basic and diluted $ (299.34) $ (168.44) $ (714.36) $ (414.69)
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</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>
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Common Common Stock Additional Net Unrealized
Stock Shares Par Value Paid In Accumulated Gain (Loss) on
Class A Class B Class A Class B Capital Deficit Investments Total
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 4,087 1,074 $ 41 $ 11 $ 21,220,777 $ (3,215,158) $ - $ 18,005,671
Net loss (3,059,086) (3,059,086)
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Balance, December 31, 1997 4,087 1,074 41 11 21,220,777 (6,274,244) - 14,946,585
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Net loss (3,686,813) (3,686,813)
Change in unrealized gain (loss)
on investments, net of taxes 21,504 21,504
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Balance, September 30, 1998 4,087 1,074 $ 41 $ 11 $ 21,220,777 $ (9,961,057) $ 21,504 $ 11,281,276
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</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
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Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
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Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net loss $ (1,544,899) $ (869,306) $(3,686,813) $ (2,140,201)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 104,141 96,013 303,882 180,013
Amortization and accretion 2,248 - 2,248 -
Change in assets and liabilities:
Accrued interest income (36,492) 3,305 (19,407) 11,557
Premiums receivable (241,362) (1,616) (219,543) (1,616)
Other assets (25,241) (30,882) 231 (40,068)
Medical claims liabilities 921,351 - 1,352,582 -
Advance premiums 268,052 - 268,052 -
Accounts payable (98,081) 26,249 (23,913) (137,789)
Accrued expenses (2,470) - (10,025) -
Other liabilities 19,325 753 (36,000) 1,105
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Net cash used in operating activities (633,428) (775,484) (2,068,706) (2,126,999)
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Cash flows from investing activities:
Purchases of investments (9,564,463) - (9,564,463) -
Purchases of equipment (29,747) (77,911) (159,676) (378,912)
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Net cash used in investing activities (9,594,210) (77,911) (9,724,139) (378,912)
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Net decrease in cash and cash equivalents (10,227,638) (853,395) (11,792,845) (2,505,911)
Cash and cash equivalents, beginning of period 12,685,433 15,729,091 14,250,640 17,381,607
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Cash and cash equivalents, end of period $ 2,457,795 $ 14,875,696 $ 2,457,795 $ 14,875,696
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Supplemental disclosures:
Income Taxes Paid $ - $ - $ - $ -
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</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Notes to Consolidated Financial Statements for the Nine Month Periods Ended
September 30, 1998 and 1997.
- -------------------------------------------------------------------------------
(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 third party administrator (TPA) license in March
1997 and a license to operate a preferred provider organization (PPO)
in April 1997. The Company expects to receive a license to operate a
health maintenance organization (HMO) in the first quarter of 1999.
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.
(2) 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, 1997 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, 1998 and 1997 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.
<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.
Investments
Investments are to be classified in one of three categories and
accounted for as follows: 1) debt securities the Company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized cost; 2) debt
securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in
earnings; and 3) debt securities not classified as either
held-to-maturity or trading securities are classified as
available-for-sale and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component
of stockholders' equity, net of deferred taxes. Management has
determined that the entire investment securities portfolio is
classified as available-for-sale.
Premiums and discounts are amortized and accreted over the term of the
related securities using a method that approximates the interest
method, adjusted for prepayments. Realized gains and losses on the sale
of investment securities (determined by the specific identification
method) are shown separately in the consolidated statement of
operations. A decline in the fair value of any investment below cost
that is deemed other than temporary results in a reduction of the
carrying amount to fair value through a charge to income. Dividends and
interest income are recognized when earned.
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.
When changes in business circumstances warrant, the Company reviews the
recoverability of long-lived assets to determine if there has been any
permanent impairment. This assessment is based on estimated future
undiscounted cash flows compared with the assets' carrying value. If
impairment is indicated, a write-down to fair value (normally measured
by discounting estimated cash flows) would be taken.
7
<PAGE>
Medical Claims Liability
Medical claims liabilities consist of actual claims reported but not
paid and estimates of health care services incurred but not reported.
The estimated claims incurred but not reported are based on historical
data, current enrollment, health service utilization statistics, and
other related information. These accruals are continually monitored and
reviewed, and, as settlements are made or accruals adjusted,
differences are reflected in current operations. Changes in assumptions
for medical costs caused by changes in actual experience could cause
these estimates to change in the near term.
Revenue Recognition
Premium is recorded as revenue in the month in which members are
entitled to service. Premiums collected in advance are recorded as
deferred revenue. Interest income is recorded in the period it is
earned.
Reinsurance
Premiums paid to reinsurers are reported as health care services
expense and the related reinsurance recoveries, if any, are reported as
deductions from health care services expense.
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.
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards Number 128 "Earnings Per Share" (FASB No. 128).
FASB 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 shares 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. FASB No. 128 requires the restatement of EPS
for all periods presented. The adoption of FASB No. 128 had no effect
on the Company's calculation of earnings per share in the accompanying
financial statements.
8
<PAGE>
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.
New Accounting Standard
In June 1997, the Financial Accounting Standards Board (FASB) issued
FASB No. 130 "Reporting Comprehensive Income". This statement, which
establishes standards for reporting and disclosure of comprehensive
income, is effective for annual periods beginning after December 15,
1997. The Company currently has no additional items qualifying as other
comprehensive income under FASB No. 130 and, therefore, its adoption
has not had any impact on the Company's financial position or results
of operations.
(3) 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 and investments as of September 30,
1998 may only be used after an HMO license is obtained; otherwise, such
funds, less claims of creditors, must be distributed to the
shareholders, unless holders of a majority of the voting shares elect
otherwise.
The Company expects to receive its HMO license four to eight weeks
after the Department of Health and Department of Insurance complete
their respective site visits in December, 1998 and January, 1999.
Management believes that cash flow and exsisting funds which are not
restricted as to use, will be adequate to meet operating needs until
the HMO license is obtained. Should circumstances change and a portion
of the restricted funds are required prior to HMO licensure, the
Company will follow provisions in the prospectus which allow it to
request shareholder approval for the use of a portion of such
restricted funds.
(4) Reinsurance
The Company has a reinsurance agreement for portions of the risk it has
underwritten through its products. PPO risk was reinsured to $2,000,000
per member per lifetime in excess of maximum loss retention of $75,000
per member per year. Coinsurance ranges from 50% to 90% depending on
the type of service, age of the member, and service facility.
There were no reinsurance recoveries for the nine month periods ended
September 30, 1998 and 1997.
9
<PAGE>
(5) Income Taxes
The net deferred amounts reported by the Company at September 30, 1998
and December 31, 1997 are as follows:
1998 1997
------------ -----------
Deferred tax assets:
Start up costs 971,264 1,148,518
Amortization 34,689 18,580
Depreciation 968 968
Net operating loss carryforward 3,063,350 1,394,145
------------ -----------
Deferred tax asset 4,070,272 2,562,211
Valuation allowance (4,070,272) (2,562,211)
------------ -----------
Net deferred tax asset - -
------------ -----------
The Company has Federal net operating losses of approximately
$7,545,000 available to offset future income before taxes, which expire
in the period from 2011 to 2013. Management recorded the valuation
allowance to reduce the deferred income tax benefit to its estimated
realizable value in light of the Company's lack of profitable
operating history.
10
<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, 1997 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 13, 1998 By: /S/ Richard A. Felice
-------------------------- --------------------------------------
Richard A. Felice, President and Chief
Executive Officer
Date: November 13, 1998 By: /S/ T. Clark Phillip
-------------------------- --------------------------------------
T. Clark Phillip, Treasurer and Chief
Financial Officer
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,457,795
<SECURITIES> 9,583,719
<RECEIVABLES> 358,807
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,440,785
<PP&E> 1,219,124
<DEPRECIATION> 576,741
<TOTAL-ASSETS> 13,117,058
<CURRENT-LIABILITIES> 1,835,782
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 11,281,224
<TOTAL-LIABILITY-AND-EQUITY> 13,117,058
<SALES> 3,887,922
<TOTAL-REVENUES> 4,447,703
<CGS> 0
<TOTAL-COSTS> 8,134,516
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,686,813)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,686,813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,686,813)
<EPS-PRIMARY> (714.36)
<EPS-DILUTED> 0
</TABLE>
