<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 June 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 July 31, 1998)
Transitional Small Business Disclosure Format:
Yes X No
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
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June 30, December 31,
Assets 1998 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,685,433 $ 14,250,640
Accrued interest income 48,526 65,611
Premiums receivable 3,574 25,393
Prepaid expenses 14,462 33,485
Income taxes receivable 28,853 28,853
Other assets 31,651 38,100
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Total current assets 12,812,499 14,442,082
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Equipment (net of accumulated depreciation of $472,600
and $272,859, respectively) 719,777 789,589
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Total assets 13,532,276 15,231,671
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Liabilities and Stockholders' Equity
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Current liabilities:
Medical claims liabilities 494,689 63,458
Accounts payable 187,296 113,128
Accrued expenses 35,945 43,500
Other liabilities 9,675 65,000
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Total current liabilities 727,605 285,086
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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 (8,416,158) (6,274,244)
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Total stockholders' equity 12,804,671 14,946,585
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Total liabilities and stockholders' equity $ 13,532,276 $ 15,231,671
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</TABLE>
See accompanying notes to consolidated financial statements.
2
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PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
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<S> <C> <C> <C> <C>
Revenues:
Premiums $ 1,141,256 $ -- $ 2,069,494 $ --
Consulting 65,000 -- 65,000 --
Interest income 156,861 214,739 337,549 430,258
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Total Revenue 1,363,117 214,739 2,472,043 430,258
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Expenses:
Health care services 1,287,491 -- 2,000,567 --
Salary and benefits 662,554 557,498 1,350,334 967,809
Operating expenses 456,061 229,836 846,414 397,567
Consulting services 80,327 77,802 139,873 142,372
Legal fees 55,153 53,668 73,471 91,781
Other taxes 1,072 7,468 3,557 17,624
Depreciation 100,608 42,000 199,741 84,000
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Total expenses 2,643,266 968,272 4,613,957 1,701,153
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Loss before income taxes (1,280,149) (753,533) (2,141,914) (1,270,895)
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Income taxes (benefit):
Current -- -- -- --
Deferred -- -- -- --
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Net loss $ (1,280,149) $ (753,533) $(2,141,914) $(1,270,895)
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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 $ (248.04) $ (146.01) $ (415.02) $ (246.25)
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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
Stock Shares Par Value Paid In Accumulated
Class A Class B Class A Class B Capital Deficit Total
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<S> <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 (2,141,914) (2,141,914)
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Balance, June 30, 1998 4,087 1,074 $ 41 $ 11 $ 21,220,777 $ (8,416,158) $ 12,804,671
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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 Six Months Six Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,280,149) $ (753,533) $ (2,141,914) $ (1,270,895)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 100,608 42,000 199,741 84,000
Change in assets and liabilities:
Accrued interest income 11,053 4,974 17,085 8,252
Premium receivable 12,398 -- 21,819 --
Prepaid expenses 15,134 10,667 19,023 (9,186)
Other assets 17,695 1,600 6,449 --
Medical claims liabilities 279,249 -- 431,231 --
Accounts payable 83,841 (49,187) 74,168 (164,038)
Accrued expenses 10,832 -- (7,555) --
Other liabilities (55,325) 22,410 (55,325) 352
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Net cash used in operating activities (804,664) (721,069) (1,435,278) (1,351,515)
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Cash flows from investing activities:
Purchases of equipment (66,778) (192,665) (129,929) (301,001)
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Net decrease in cash and cash equivalents (871,442) (913,734) (1,565,207) (1,652,516)
Cash and cash equivalents, beginning of period 13,556,875 16,642,825 14,250,640 17,381,607
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Cash and cash equivalents, end of period $ 12,685,433 $ 15,729,091 $ 12,685,433 $ 15,729,091
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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 Six Month Periods Ended
June 30, 1998 and 1997.
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(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 fourth 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.
(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 six month periods ended June
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.
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.
6
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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.
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.
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.
7
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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.
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 as of June 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.
(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.
8
<PAGE>
There were no reinsurance recoveries for the six month periods ended June
30, 1998 and 1997.
(5) Income Taxes
The net deferred amounts reported by the Company at June 30, 1998 and
December 31, 1997 are as follows:
1998 1997
------------------------------
Deferred tax assets:
Start up costs 1,039,158 1,148,518
Amortization 26,325 18,580
Depreciation 968 968
Net operating loss carryforward 2,377,696 1,394,145
------------------------------
Deferred tax asset 3,444,147 2,562,211
Valuation allowance (3,444,147) (2,562,211)
------------------------------
Net deferred tax asset -- --
------------------------------
The Company has Federal net operating losses of approximately
$5,866,000 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 commencement of
operations and lack of operating history.
9
<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: August 12, 1998 By: /s/ Richard A. Felice
--------------------- --------------------------------------
Richard A. Felice, President and Chief
Executive Officer
Date: August 12, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,685,433
<SECURITIES> 0
<RECEIVABLES> 80,953
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,812,499
<PP&E> 1,192,377
<DEPRECIATION> 472,600
<TOTAL-ASSETS> 13,532,276
<CURRENT-LIABILITIES> 727,605
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 12,804,619
<TOTAL-LIABILITY-AND-EQUITY> 12,804,671
<SALES> 0
<TOTAL-REVENUES> 2,472,043
<CGS> 0
<TOTAL-COSTS> 4,613,957
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,141,914)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,141,914)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,141,914)
<EPS-PRIMARY> (415.02)
<EPS-DILUTED> 0
</TABLE>
