<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
For the quarterly period ended: June 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file Number: 0-22197
Physicians' Specialty Corp.
---------------------------------------------
(Exact Name of Registrant as
Specified in its charter)
Delaware 58-2251438
- ------------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5555 Peachtree Dunwoody Road, Suite 235
Atlanta, Georgia 30342
---------------------------------------------
(Address of principal executive offices)
(Zip Code)
404-256-7535
------------------
(Registrant's telephone number, including area code)
N/A
---------------------------------------------
(Former name or former address, if changed since last report)
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 such
filing requirements for the past 90 days.
Yes X No
------ -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There are 6,236,849 shares of common stock, par value $.001 per share,
outstanding as of August 12, 1997.
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Physicians' Specialty Corp.
---------------------------
Index
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Part 1 - Financial Information
------------------------------
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1996
and June 30, 1997 ...................................................................... 1
Consolidated Statements of Operations
for the Three and Six Months............................................................ 2
Ended June 30, 1997
Consolidated Statement of Cash Flows
for the Six Months...................................................................... 3
Ended June 30, 1997
Notes to Consolidated Financial Statements ............................................. 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......................................... 9
<CAPTION>
Part II - Other Information
---------------------------
Item 5. Other
<S> <C>
Information...................................................................................... 14
Item 6. Exhibits and Reports on Form 8-K......................................................... 14
</TABLE>
<PAGE> 3
PHYSICIANS' SPECIALTY CORP.
Condensed Consolidated Balance Sheets
Unaudited
<TABLE>
<CAPTION>
December 31 June 30
1996 1997
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 123,540 $14,727,341
Accounts receivable, net 26,976 3,984,024
Notes Receivable 0 62,226
Prepayments and other 0 14,453
--------- -----------
Total current assets 150,516 18,788,044
PROPERTY AND EQUIPMENT, net 19,897 1,642,587
OTHER ASSETS 442,567 370,602
--------- -----------
Total Assets $ 612,980 $20,801,233
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 505,000 $ 0
Accounts payable and accrued expenses 118,270 2,574,074
Deferred income taxes 0 1,169,198
--------- -----------
Total current liabilities 623,270 3,743,272
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized;
issued: 599,893 in 1996 and 5,904,648 in 1997 600 $ 5,905
Additional paid-in capital 343,711 16,874,614
Retained earnings (deficit) (354,601) 177,442
--------- -----------
Total shareholders' equity (10,290) 17,057,961
--------- -----------
Total liabilities and shareholders' equity $ 612,980 $20,801,233
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements
1
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PHYSICIANS' SPECIALTY CORP.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
---------------- ----------------
<S> <C> <C>
Patient service revenue - net $ 293,814 $ 320,175
Capitation revenue 1,301,703 1,357,551
Management fees 2,668,918 2,825,660
---------- ----------
Total revenue 4,264,435 4,503,386
Expenses
Provider claims, wages, benefits 2,360,886 2,544,391
General and administrative 1,089,953 1,122,737
Depreciation and amoritization 93,771 96,555
---------- ----------
Operating Expenses 3,544,610 3,763,683
Operating income 719,825 739,703
Other income, net 119,306 132,499
---------- ----------
Pretax income 839,131 872,202
Provision for income taxes 327,261 340,159
---------- ----------
Net income $ 511,870 $ 532,043
========== ==========
Earnings per share $ 0.09 $ 0.15
========== ==========
Weighted average common and common equivalent
shares outstanding 5,904,648 3,519,742
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
2
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PHYSICIANS' SPECIALTY CORP.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
---------------------
OPERATING ACTIVITIES:
<S> <C>
Net income $ 532,043
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amoritization 96,555
Compensation expense 48,000
Change in assets and liabilities:
Accounts receivable (35,501)
Notes receivable (19,003)
Other assets 152,149
Accounts payable 67,320
Accrued expenses 607,028
------------
Total adjustments 916,548
------------
Net cash provided by operating activities 1,448,591
INVESTING ACTIVITIES:
Capital expenditures (164,322)
------------
FINANCING ACTIVITIES:
Borrowings under notes payable 170,000
Repayment of notes payable (2,258,562)
Net proceeds from issuance of common stock, net of offering costs $ 15,408,094
------------
Net cash provided by financing activities 13,319,532
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, January 1, 1997 14,603,801
CASH AND CASH EQUIVALENTS, June 30, 1997 $ 123,540
------------
$ 14,727,341
============
</TABLE>
See accompanying notes to consolidated financial statements
3
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Physicians' Specialty Corp.
Notes to the Consolidated Financial Statements (Unaudited)
June 30, 1997
NOTE 1. ORGANIZATION
Physicians' Specialty Corp. (the "Company") was organized in July 1996
to provide comprehensive physician practice management services to physician
practices and health care providers specializing in the treatment and
management of diseases and disorders of the ear, nose, throat, head and neck
("ENT"). The Company commenced its business activities upon consummation of the
reorganization, as described in Note 3, on March 26, 1997. The Company provides
financial and administrative management, enhancement of clinical operations,
network development and payor contracting services, including the negotiation
and administration of capitated arrangements.
NOTE 2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial reporting
and in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of normal recurring items) necessary for a
fair presentation of the results for the interim periods presented. These
financial statements and footnote disclosures should be read in conjunction
with the audited financial statements and the notes thereto included in the
Company's prospectus dated March 20, 1997.
Because the Company was incorporated in July 1996 there is no
comparative information available at or for the period ended June 30, 1996.
NOTE 3. REORGANIZATION
Concurrently with the closing of the Company's initial public offering
("IPO"), the Company acquired substantially all of the assets of Atlanta Ear,
Nose & Throat Associates, P.C., three additional ENT practices in the
metropolitan Atlanta area (collectively, "Atlanta ENT"), and one ENT practice
in Birmingham, Alabama ("Birmingham ENT"). In addition the Company purchased
the common stock of three corporations (the "ENT Networks") which at June 30,
1997 held, managed and administered capitated ENT managed care contracts
covering an aggregate of 396,861 enrollees of health maintenance organizations
("HMOs") sponsored by United Healthcare of Georgia, Aetna Health Plans of
Georgia ("Aetna"), and Cigna HealthCare of Georgia ("Cigna").
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In connection with the acquisitions, the Company entered into
management services agreements with the physician practices providing for the
comprehensive management of the practices by the Company, while enabling the
practices to retain authority over the provision of medical care. The
management services agreement with Atlanta ENT provides for the assignment to
the Company by Atlanta ENT of all or substantially all of its non-governmental
accounts receivable and all of its rights and interest in the proceeds of its
governmental accounts receivable and grants to the Company the right to collect
and retain the proceeds of the accounts receivable for the Company's account to
be applied in accordance with the agreement. The Company is responsible for the
payment of operating and non-operating expenses of Atlanta ENT (excluding
compensation to physicians and physician assistants) and is responsible for the
payment of all such expenses directly out of the proceeds of the accounts
receivable assigned to the Company by Atlanta ENT. In addition, the Company
retains a management fee equal to 12.5% of all revenues (after adjustment for
contractual allowances) generated by or on behalf of physicians practicing at
Atlanta ENT, subject to specified maximum annual amounts, as payment for the
Company's services and non-allocable costs incurred by the Company attributable
to the provision of management services under the management services
agreement. In addition, the Company is entitled to incentive compensation under
the management services agreement upon the receipt by the Company of specified
maximum annual management fees. The remaining revenues are remitted to Atlanta
ENT to pay physician and physician assistant compensation and benefits.
Simultaneous with the acquisition of substantially all of the assets
of Birmingham ENT, the physicians at Birmingham ENT entered into employment
agreements with PSC Alabama, a wholly-owned subsidiary of the Company ("PSC
Alabama"). The assignment of accounts receivable, realization of revenues, and
allocation of costs and expenses are governed by a management services
agreement between PSC Alabama and the Company which is substantially similar to
the management services agreement between Atlanta ENT and the Company.
In April 1997 the Company announced that it received notification that
Aetna was modifying its delivery system of physician specialty services in the
Atlanta market. As part of this modification, Aetna terminated its capitated
managed care contracts with each physician specialty group including the
Company effective June 30, 1997. The Company's affiliated physicians continue
to provide services to Aetna enrollees under new physician provider agreements,
which reimburse physicians on a modified fee-for-service basis. At June 30,
1997 there were 49,359 enrollees covered by the Aetna contract. The Company
does not believe the Aetna contract termination will have a material adverse
effect on the Company's business, financial condition or results of operations.
At June 30, 1997 the Company was affiliated with 23 physicians, 1
dentist, and 26 allied healthcare professionals operating 19 clinical
facilities.
5
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NOTE 4. INITIAL PUBLIC OFFERING
On March 26, 1997, the Company completed its IPO of 2,200,000 shares
of its common stock. The net proceeds of the IPO were approximately
$15,408,000, and were used for repayment of indebtedness of the acquired
practices, repayment of indebtedness of the Company, payment of a consulting
fee, and working capital requirements.
NOTE 5. CREDIT AGREEMENT
On April 30, 1997, the Company closed on a five year $20.0 million
senior acquisition credit facility, with up to $5.0 million of such $20.0
million available for working capital purposes, provided by NationsBank, N.A.
(South). Advances under the credit facility will bear interest at either a
prime-based rate or a LIBOR-based rate, at the Company's option, with interest
only payments required during the first three years of the credit agreement.
Thereafter, in years four and five of the agreement, the term loan commitment
will be reduced to $13,333,333 and $6,666,666 respectively. Borrowings under the
credit facility are secured by the capital stock of the Company's subsidiaries
and the Company's accounts receivable, and will be secured by acquisition
documents in connection with physician practice equity or assets acquired.
NOTE 6. MANAGEMENT FEE REVENUE
The Company records revenue derived from physician practices managed
by the Company in which a controlling equity ownership interest does not exist
on a management fee basis. Management fees are composed of (i) a varying
percentage of affiliated practice patient service revenue (typically 12.5%) and
(ii) reimbursement of practice operating expenses (excluding compensation to
physicians and physician assistants). Management fee revenue earned by the
Company is detailed as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1997 June 30, 1997
--------------------- --------------------
(unaudited) (unaudited)
<S> <C> <C>
Percentage of affiliated
practice patient service revenue $618,397 $729,673
Reimbursement of practice
operating expenses 2,050,520 2,095,987
---------- ----------
Total management fee revenue $2,668,918 $2,825,660
========== ==========
</TABLE>
6
<PAGE> 9
There currently exists wide disparity in the methods of recording
revenue in the physician practice management (PPM) industry. The Company
believes the following unaudited supplemental information, which includes
patient service revenue of both owned as well as managed practices
("system-wide" revenue) allows a reader of the Company's financial statements
to evaluate comparability with other PPM companies recording patient services
revenue on a consolidated basis for financial reporting purposes. The unaudited
supplemental "system-wide" information is being presented for supplemental
purposes only and should be read in conjunction with the Company's financial
statements.
<TABLE>
<CAPTION>
Supplemental "System-wide" Information
--------------------------------------
Three months ended Six months ended
June 30, 1997 June 30, 1997
---------------------- ---------------------
<S> <C> <C>
Supplemental Patient Service Revenue:
Owned Practice $ 293,814 $ 320,175
Managed Practices 4,627,267 5,130,842
---------- -----------
Total Supplemental Patient Service Revenue 4,921,081 5,451,017
Plus:
Capitation Revenue $ 1,301,703 $ 1,357,551
Management Fees 39,989 88,318
----------- -----------
Total Supplemental System-wide Revenue $ 6,262,773 $ 6,896,886
Less:
Amounts Retained by
Physicians Groups 1,998,338 2,393,500
----------- -----------
Total Revenue $ 4,264,435 $ 4,503,386
=========== ===========
</TABLE>
NOTE 7. FINANCIAL ACCOUNTING STANDARDS BOARD (FASB)
STATEMENT NO. 128 - EARNINGS PER SHARE
During the first quarter of 1997, the FASB issued statement No. 128 -
Earnings Per Share. This statement sets out new guidelines for the calculation
and presentation of earnings per share but cannot be adopted until December 31,
1997. At June 30, 1997, the common stock of the Company assumed issued upon
exercise of stock options using the "treasury stock method" had an anti-
dilutive effect on earnings per share, and therefore, was not considered in the
weighted average shares outstanding.
7
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NOTE 8. SUBSEQUENT EVENTS
In July 1997 the Company acquired the non-medical practice assets of
Allatoona ENT & Facial Plastic Surgery, P.C. ("Allatoona"), Ear, Nose & Throat
Specialists, P.C. ("ENT Specialists"), and Ear, Nose & Throat Specialists, Head
& Neck Surgery, P.C. ("ENT Head & Neck") comprising an aggregate of five ENT
physicians operating eight clinical locations throughout the Northern and
Eastern counties in the Atlanta metropolitan area. In connection with the
acquisition of the assets of Allatoona, the Company entered into a management
services agreement with Allatoona which is substantially similar to the
management services agreement with Atlanta ENT and provides for a management
fee equal to 15% of all revenues (after adjustment for contractual allowances)
generated by or on behalf of physicians practicing at Allatoona, subject to
specified maximum annual amounts, as payment for the Company's services and
non-allocable costs incurred by the Company attributable to the provision of
management services under the management services agreement with Allatoona. In
connection with the acquisition of the assets of ENT Specialists and ENT Head &
Neck, the physicians at such practices entered into employment agreements with
Atlanta ENT and the revenues generated by such physicians will be subject to
the Company's management services agreement with Atlanta ENT. As a result of
such acquisitions, on August 1, 1997, the Company was affiliated with 28
physicians, 1 dentist, and 36 allied healthcare professions operating 28
clinical facilities.
In consideration for the assets of the three practices, the Company,
(i) paid an aggregate of $718,000 in cash, (ii) issued an aggregate of 322,201
shares of common stock of the Company (valued at the time of the issuances at an
aggregate of approximately $1,970,000), and (iii), issued two non-negotiable
contingent subordinated promissory notes in the aggregate principal amount of
$600,000. The notes are non-interest bearing and are payable in shares of
common stock of the Company, valued at the average closing price of the common
stock for the ten trading days preceding the date of delivery of such shares,
contingent upon the selling physicians reaching certain revenue targets. These
acquisitions will be accounted for utilizing the purchase method of accounting
and the Company anticipates it will record an amount for goodwill in the
quarter ending September 30, 1997. Each of the physicians receiving shares of
common stock in connection with the acquisitions received "piggyback"
registration rights. In addition, pursuant to an advisory agreement, the
Company paid advisory fees to Premier HealthCare, an affiliate of the Company's
Vice Chairman and Secretary.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is a physician practice management company organized in
July 1996 that provides management services to physician practices and health
care providers specializing in the treatment and management of diseases and
disorders of the ear, nose, throat, head and neck. The Company commenced
business activities upon consummation of the reorganization on March 26, 1997,
as described in Note 3 of the Notes to Consolidated Financial Statements. Prior
to this date, the Company conducted only limited activities primarily
consisting of acquiring computer hardware and negotiating the agreements
relating to the reorganization and the IPO. The Company provides financial and
administrative management, enhancement of clinical operations, network
development and payor contracting services, including the negotiation and
administration of capitated arrangements.
The Company's relationships with its affiliated physicians are set
forth in various asset acquisition agreements, management services agreements,
and physician employment agreements. The management services agreements, which
have a term of 40 years, delineate the responsibilities and obligations of the
physician practices and the Company. In connection with the Reorganization, the
Company entered into management services agreements with Atlanta ENT and with
PSC Alabama (which directly employed the physicians of Birmingham ENT). These
management services agreements provide for the affiliated practices to assign
to the Company all of its non-governmental accounts receivable and all of its
right and interest in the proceeds of its governmental accounts receivable and
grant to the Company the right to collect and retain the proceeds of the
accounts receivable for the Company's account to be applied in accordance with
the agreement.
The Company is responsible for the payment of operating expenses of
the affiliated physician practices, including salaries and benefits of
non-medical employees of the practices, lease obligations for office space and
equipment, medical and office supplies, and the non-operating expenses of the
affiliated physician practices, including depreciation, amortization and
interest. The Company pays for all such expenses directly out of the proceeds
of the accounts receivable assigned to the Company by the affiliated physician
practices. In addition, under the management services agreements with Atlanta
ENT and PSC Alabama, the Company retains as a part of its management fee, a
stipulated percentage (12.5%) of all revenues (after adjustment for contractual
allowances) generated by or on behalf of physicians practicing at such
practice, as payment for the Company's management services and non-allocable
costs incurred by the Company attributable to the provision of management
services. Contractual allowances are the
9
<PAGE> 12
difference between the amounts customarily charged by physicians practicing at
such practice and the amounts received pursuant to negotiated fee schedules
from payors under indemnity arrangements, managed care contracts and preferred
provider arrangements.
Under the management services agreements with Atlanta ENT and PSC
Alabama, the Company retains on an annual basis, 12.5% of affiliated physician
practice revenue until such revenue equals 150% of such practice's annual
revenue in the year prior to its affiliation with the Company (the "Threshold
Amount"). In the event the affiliated practice's revenue exceeds the Threshold
Amount in any fiscal year, the Company is entitled to incentive compensation
(in lieu of the 12.5% amount) for the remainder of such fiscal year in amounts
ranging from 20% to 25% of the affiliated practice's income (net practice
revenues less practice expenses), prior to the payment of physician
compensation and benefits. The Company will remit the remaining revenues to the
affiliated practice to pay compensation and benefits to physicians pursuant to
employment agreements between the practice and each physician, and to physician
assistants. The percentage components of the management fee to be retained by
the Company under future management services agreements will be determined
based upon negotiations between the Company and future affiliating practices
and may vary significantly in the future.
At June 30, 1997 the ENT Networks held capitated managed care
contracts with Cigna, Aetna, and United Healthcare which require the ENT
Networks to contract for the provision of substantially all of the ENT medical
and surgical services required by the enrollees of these HMOs in the Atlanta
market. In exchange, the ENT Networks receive pre-determined amounts per
patient per month. The ENT Networks have contracted with participating
physicians, including those at Atlanta ENT, to provide substantially all of
such medical services in exchange for compensation on a discounted
fee-for-service basis. Such contracts pass much of the financial risk of
providing care, such as over-utilization from the payor to the provider.
In April 1997 the Company announced that it received notification that
Aetna was modifying its delivery system of physician specialty services in the
Atlanta market. As part of this modification, Aetna terminated its capitated
managed care contracts with each physician specialty group including the
Company effective June 30, 1997. The Company's affiliated physicians continue
to provide services to Aetna enrollees under new physician provider agreements,
which reimburse physicians on a modified fee-for-service basis. The Company's
three capitated managed care contracts covered an aggregate of 396,861
enrollees at June 30, 1997 (of which 49,359 were enrollees covered by the Aetna
contract). Excluding the Aetna enrollees, the number of enrollees covered under
the remaining contracts with United and Cigna of Georgia increased at June 30,
1997 by 9% from the number of enrollees at December 31, 1996. As a result of
the foregoing, the Company does not believe the termination of the Aetna
contract will have a
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<PAGE> 13
material adverse effect on the Company's business, financial condition or
results of operation.
As of June 30, 1997 the Company's revenues were derived (i) under the
management services agreement with Atlanta ENT, (ii) from patient service
revenues generated by the Company's wholly-owned subsidiary, PSC Alabama, which
directly employs the Birmingham ENT physicians, and (iii) under capitated
managed care contracts held by the ENT Networks, which are wholly-owned
subsidiaries of the Company.
In July 1997, the Company acquired the non-medical practice assets
of three ENT physician practices employing five ENT physicians operating eight
clinical locations throughout the Northern and Eastern counties in the Atlanta
metropolitan area. See "Item 5. Other Information."
Except for the descriptions of historical facts contained herein,
statements concerning future results, performance or expectations are
forward-looking statements. Actual results, performance or developments could
differ materially from those expressed or implied by such forward-looking
statements as a result of known and unknown risks, uncertainties and other
factors including those described from time to time in the Company's filings
with the Securities and Exchange Commission, under "Risk Factors" and
elsewhere, including the Company's limited operating history; risks associated
with combined operations; and risks relating to acquisitions and managing
growth; dependence on affiliated physicians; dependence on managed care
organizations and risks associated with capitated arrangements, including
potential reductions in reimbursement; competition; regulatory risks; risks
relating to credit facility and substantial leverage; and other risks.
RESULTS OF OPERATIONS
Because the Company was incorporated in July 1996 there is no
comparative information available at or for the period ended June 30, 1996.
Total revenues were $4,264,435 for the quarter ended June 30, 1997,
consisting of $2,668,918 of management fees, $293,814 of net patient service
revenue, and $1,301,703 of capitated revenue.
Total revenues were $4,503,386 for the six month period ended June 30,
1997, consisting of $2,825,660 of management fees, $320,175 of patient service
revenue, and $1,357,551 of capitated revenue.
Total operating expenses were $3,544,610 for the quarter ended June
30, 1997 consisting largely of provider claims, wages and benefits and
administrative expenses.
11
<PAGE> 14
Total operating expenses were $3,763,683 for the six month period
ended June 30, 1997 consisting largely of provider claims, wages and benefits
and administrative expenses.
Interest income of $133,473 was earned for the quarter ended June 30,
1997 and interest income was $146,666 for the six months ended June 30, 1997,
as a result of the investments in cash equivalents of the IPO proceeds.
Income taxes for the quarter and for the six months ended June 30,
1997 were provided for at a 39% effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $15,044,772
including cash and cash equivalents of $14,727,341.
Net cash provided by operating activities for the six month period
ended June 30, 1997 was $1,448,591, while cash used in investing activities was
$164,322. Cash provided by financing activities was $13,319,532 for the three
month period primarily due to the net proceeds received from the Company's IPO
of 2.2 million shares of common stock in March 1997 partially offset by the
repayment of outstanding indebtedness in the aggregate amount of $2,258,562
incurred in connection with the Reorganization and assumption of certain
liabilities of the physician practices, the assets of which were acquired in
the Reorganization.
On April 30, 1997 the Company closed on a five year $20.0 million
senior acquisition credit facility, with up to $5.0 million of such $20.0
million available for working capital purposes, provided by NationsBank,
N.A.(South). Advances under the credit facility will be governed by a borrowing
base formula and will bear interest, at the Company's option, at either a
prime-based rate or a LIBOR-based rate with interest only payments required
during the first three years of the agreement. Thereafter, in years four and
five of the agreement, the term loan commitment is reduced to $13,333,333 and
$6,666,666, respectively. The bank credit facility contains affirmative and
negative covenants, which among other things require the Company to maintain
certain financial ratios including the ratio of funded debt, (as defined in the
credit agreement) to earnings before interest, taxes, depreciation and
amortization (as defined in the credit agreement); the ratio of funded debt to
net worth; the ratio of current assets to current liabilities; and debt service
and interest coverage ratios, and sets certain restrictions on investments,
mergers and sale of assets. Borrowings under the credit facility are secured by
the capital stock of the Company's subsidiaries and the Company's accounts
receivable, and will be secured by acquisition documents in connection with
physician practice equity or assets acquired.
During July 1997, in consideration of the acquisition of the
non-medical practice assets of three ENT physician practices, the Company (i)
paid an aggregate of
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<PAGE> 15
$718,000 in cash, (ii) issued an aggregate of 322,201 shares of common stock of
the Company (valued at the time of the issuances at an aggregate of
approximately $1,970,000), and (iii) issued two non-negotiable contingent
subordinated promissory notes in the aggregate principal amount of $600,000.
The notes are non-interest bearing and are payable in shares of common stock of
the Company, valued at the average closing price of the common stock for the
ten trading days preceding the date of delivery of such shares, contingent upon
the selling physicians reaching certain revenue targets.
The Company is currently in discussions related to the acquisition of
the assets or the equity of additional ENT and complimentary physician
practices, although it has not executed definitive agreements with respect to
any specific additional acquisitions. The Company intends to fund future
acquisitions with cash or cash equivalents, borrowings under the bank credit
facility, issuance of long-term or short-term indebtedness and/or the issuance
of additional equity securities. The Company is unable to predict whether or
when any of these negotiations will result in any definitive agreements or
whether or when any of the physicians responding to the Company's marketing
efforts will begin discussions relating to a potential acquisition by the
Company. In addition, there can be no assurance as to the terms of any such
acquisitions or as to the Company's ability to complete future acquisitions.
13
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On May 19, 1997 the Company entered into an agreement with Premier
HealthCare, an affiliate of Gerald R. Benjamin, the Company's Vice Chairman and
Secretary (the "Agreement"), pursuant to which Premier HealthCare will assist
the Company as a financial advisor in connection with acquisitions and similar
transactions. In the event that the Company completes any transaction in which
Premier HealthCare performed advisory services, Premier HealthCare will receive
a fee equal to 5% of the initial $1 million of Transaction Value (as defined
below), 4% of the next $1 million of Transaction Value, 3% of the next $1
million of Transaction Value, 2 % of the next $1 million of Transaction Value,
and 1% of the next $1 million of Transaction Value in excess of $4 million.
Transaction Value is defined under the Agreement as the product of (i) the
pro-forma annual management fee to be derived by the Company in connection with
the proposed transaction and (ii) 6.25. Pursuant to the Agreement, the fee to
be paid to Premier HealthCare for a particular transaction will be reduced by
any finder's fee payable by the Company, which has been approved by Premier
HealthCare, and the aggregate fee to be paid to Premier HealthCare in any given
year will be reduced by the product of (i) $5,000 and (ii) the number of months
in any year in which Mr. Benjamin is employed by the Company. The Agreement may
be terminated by either party upon 90 days written notice to the other. In
connection with the acquisitions of the non-medical practice assets of the
three ENT physician practices in July 1997, the Company paid an advisory fee to
Premier HealthCare.
In July 1997 the Company acquired the non-medical practice assets of
Allatoona ENT & Facial Plastic Surgery, P.C. ("Allatoona"), Ear, Nose & Throat
Specialists, P.C. ("ENT Specialists"), and Ear, Nose & Throat Specialists, Head
& Neck Surgery, P.C. ("ENT Head & Neck") comprising an aggregate of five ENT
physicians operating eight clinical locations throughout the Northern and
Eastern counties in the Atlanta metropolitan area. In connection with the
acquisition of the assets of Allatoona, the Company entered into a management
services agreement with Allatoona which is substantially similar to the
management services agreement with Atlanta ENT and provides for a management
fee equal to 15% of all revenues (after adjustment for contractual allowances)
generated by or on behalf of physicians practicing at Allatoona, subject to
specified maximum annual amounts, as payment for the Company's services and
non-allocable costs incurred by the Company attributable to the provision of
management services under the management services agreement with Allatoona. In
connection with the acquisition of the assets of ENT Specialists and ENT Head &
Neck, the physicians at such practices entered into employment agreements with
Atlanta ENT and the revenues generated by such physicians will be subject to the
Company's management services agreement with Atlanta ENT. As a result of such
acquisitions, on August 1, 1997, the Company was affiliated with 28 physicians,
1 dentist, and 36 allied healthcare professionals operating 28 clinical
facilities.
In consideration for the assets of the three practices, the Company,
(i) paid an aggregate of $718,000 in cash, (ii) issued an aggregate of 322,201
shares of common stock of the Company (valued at the time of the issuances at an
aggregate of approximately $1,970,000), and (iii) issued two
non-negotiable contingent subordinated promissory notes in the aggregate
principal amount of $600,000. The notes are no-interest bearing and are
payable in shares of common stock of the Company, valued at the average closing
price of the common stock for the ten trading days preceding the date of
delivery of such shares, contingent upon the selling physicians reaching
certain revenue targets. These acquisitions will be accounted for utilizing
the purchase method of accounting and the Company anticipates it will record an
amount for goodwill in the quarter ending September 30, 1997. Each of the
physicians receiving shares of common stock in connection with the acquisitions
received "piggyback" registration rights. In addition, pursuant to an advisory
agreement, the Company paid advisory fees to Premier HealthCare, an affiliate
of the Company's Vice Chairman and Secretary.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.34 Agreement dated May 19, 1997 between Physicians' Specialty Corp. and
Premier HealthCare
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHYSICIANS' SPECIALTY CORP.
DATE August 13, 1997 /s/ Robert A. DiProva
--------------------- ---------------------
Robert A. DiProva
Executive Vice President and
Chief Financial Officer
15
<PAGE> 1
May 19, 1997
Mr. Richard D. Ballard, CEO
Physicians' Specialty Corp.
The Medical Quarters
5555 Peachtree Dunwoody Road
Suite 201
Atlanta, Georgia 30342
Dear Rich:
We are pleased to set forth the terms of the engagement of Premier HealthCare, a
division of Bock, Benjamin & Co. (the "Advisor") by Physicians' Specialty Corp.
(together with its affiliates, the "Company"), in connection with the proposed
acquisition by the Company of the assets or equity of Otolaryngology group
medical practices and other complementary health care providers (hereinafter to
be referred to as "Target"), each to be included on an addendum identified as
Exhibit "A" to be attached to this Agreement and by reference made a part
hereof.
1. Engagement. The Advisor will assist the Company as financial advisor in
connection with any Transaction (as defined below) involving a Target, its
assets, subsidiaries or stockholders. The term "Transaction" means any
acquisition, purchase, tender offer, exchange offer, merger, consolidation,
reorganization, recapitalization, business combination or other transaction
pursuant to which the Target or any of its subsidiaries is acquired by or
combined with the Company, including, without limitation, the acquisition by the
Company, in a single transaction or series of transactions, of any substantial
portion of the assets of the Target or any of its subsidiaries, or five percent
or more of the Target's outstanding equity securities. The Advisor's services
("Advisory Services") will include introducing the Target, conducting due
diligence on behalf of the Company, advising on valuation and structuring a
Transaction, assisting the Company in negotiations with the Target, and closing
the Transaction. Any advice rendered by the Advisor shall be treated as
confidential and will not be disclosed publicly in any manner without the
Advisor's written approval. Notwithstanding anything contained herein to the
contrary, the Advisor must have provided Advisory Services with respect to a
specific Company acquisition or other business combination involving the Company
to be included as a Transaction.
2. Fees. The Advisor shall be compensated by the Company as follows:
(a) Success Fee Upon Consummation of a Transaction. Upon consummation
of a Transaction during the term of this Agreement (or within 12 months
following the termination hereof, so long as Advisor introduced the Target to
the Company and performed Advisory
<PAGE> 2
Richard D. Ballard - Physicians' Specialty Corp.
May 19, 1997
Page 2
Services related thereto) the Company shall pay to the Advisor a success fee
("Success Fee") as provided for on Exhibit "B" attached hereto. The amount of
Success Fee payable to Advisor shall be reduced by any finder's fee payable by
PSC, which Advisor has approved (Advisor deemed to have approved any such fee
included in Definitive Agreements), with respect to a Transaction.
Notwithstanding anything contained herein to the contrary, the aggregate Success
Fee(s) due and payable pursuant to this Paragraph 2(a) in any given year shall
be offset by the product of (A) $5,000 and (B) the number of months in that
calendar year in which Gerald R. Benjamin is employed by the Company. Further,
no Success Fee shall be due and payable with respect to acquisitions consummated
simultaneous with the closing of the Company's 2.2 million common share initial
public offering.
(b) Fee Upon Break-up of Transaction. If a Transaction is not
consummated, but the Company receives during the term of this agreement or
within 12 months following termination hereof a "break up" payment or other
payment resulting from efforts to effect a transaction, a judgment or payment in
settlement of any claim relating to a Transaction or any investment by the
Company in the Target, or other payment from the Target, the Company shall pay
to the Advisor a fee equal to the lesser of (i) 25% of the amount so received,
net of the Company's documented expenses incurred, paid or due to unrelated
parties directly in connection with any such Transaction, or (ii) the amounts
that would have been payable pursuant to paragraph (a) hereof had the
Transaction been consummated.
3. Indemnification. The Company will indemnify and hold harmless the Advisor
and each person, firm or corporation associated with the Advisor in connection
with any Transaction, and each of their directors, officers, partners,
employees, agents, consultants and attorneys, and each person, firm or
corporation controlling, controlled by or under common control with them
(including each person controlling them within the meaning of Section 15 of the
Securities Act of 1933 or Section 20 of the Securities Exchange Act of 1934),
against all actual and threatened suits, proceedings and claims, and all losses,
liabilities and reasonable expenses (including, without limiting the generality
of the foregoing, all reasonable fees of counsel and expenses in connection with
investigating, preparing for or defending any actual or threatened suit,
proceeding or claim or giving testimony or furnishing documents in response to
any subpoena or request therefor), incurred in connection therewith, arising
from or by reason of or in connection with the Advisor's engagement hereunder or
any action taken by the Advisor or any such person in furtherance of such
engagement. The Company will reimburse the Advisor and all such persons for all
such expenses as they are incurred. The Company will have no obligation to
indemnify the Advisor or any other person for any losses, claims, liabilities or
expenses which are finally judicially determined to have resulted primarily from
the bad faith or gross negligence of the person seeking indemnification
hereunder or with respect to actions taken by Advisor outside the scope of its
engagement. In the event of such determination, such person shall promptly
refund
<PAGE> 3
Richard D. Ballard - Physicians' Specialty Corp.
May 19, 1997
Page 3
to the Company the amount of all expense theretofore advanced pursuant hereto.
These indemnification provisions shall be in addition to, and not in lieu of,
any other liability which the Company may otherwise have to the Advisor and such
persons or any other right or remedy which the Advisor and such persons may have
against the Company.
If any action, claim, proceeding or investigation is instituted or
threatened against the Advisor in respect of which indemnity may be sought
against the Company hereunder, the Advisor will give prompt notice to the
Company of the commencement of such claim, but the failure to notify the Company
will not relieve the Company of any liability that it may have to the Advisor,
except to the extent that the Company's defense of such action is prejudiced by
the Advisor's failure to give such notice.
If any action referred to above is brought against the Advisor, and the
Advisor gives notice to the Company of the commencement of such action, the
Company will, be entitled to participate in such proceeding and, to the extent
that it wishes (unless [i] the Company is also a party to such proceeding and
the Advisor determines in good faith that joint representation would be
inappropriate, or [ii] the Company fails to provide reasonable assurance to the
Advisor of its financial capacity to defend such proceeding and provide
indemnification with respect to such proceeding), to assume the defense of such
proceeding with counsel reasonably satisfactory to the Advisor and, after notice
from the Company to the Advisor of its election to assume the defense of such
proceeding, the Company will not, as long as it diligently conducts such
defense, be liable to the Advisor under this paragraph for any fees of other
counsel or any other expenses with respect to the defense of such proceeding, in
each case subsequently incurred by the Advisor in connection with the defense of
such proceeding, other than reasonable costs of investigation. If notice is
given to the Company of an action or any proceeding and the Company does not,
within twenty (20) days after the Advisor's notice is given, give notice to the
Advisor of its election to assume the defense of such proceeding, the Company
will be bound by any determination made in such proceeding or any compromise or
settlement made by the Advisor.
Notwithstanding the foregoing, if the Advisor determines in good faith
that there is a reasonable probability that a proceeding may adversely affect it
or its affiliates other than as a result of monetary damages for which it would
be entitled to indemnification under this Agreement, the Advisor may, by notice
to the Company, assume the exclusive right to defend, compromise, or settle such
proceeding, but the Company will not be bound by any determination of a
proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld). It is understood by both
parties that should Advisor assume the exclusive right to defend, compromise, or
settle any such proceedings as contemplated in this paragraph, it shall be at
Advisor's expense.
<PAGE> 4
Richard D. Ballard - Physicians' Specialty Corp.
May 19, 1997
Page 4
In order to provide just and equitable contribution, if a claim for
indemnification pursuant to these indemnification provisions is made but it is
found in a final judgment by a court of competent jurisdiction (not subject to
further appeal) that such indemnification may not be enforced in such case, even
thought the express provisions hereof provide for indemnification in such case,
then the Company, on the one hand, and the Advisor, on the other hand, shall
contribute to the losses, liabilities, and reasonable expenses to which the
indemnified persons may be subject in accordance with the relative benefits
received by the Company, on the one hand, and the Advisor, on the other hand,
and also the relative fault of the Company, on the one hand, and the Advisor, on
the other hand, in connection with the statements, acts, or omissions which
resulted in such losses, liabilities and expenses and disbursements and the
relevant equitable considerations shall also be considered. Notwithstanding the
foregoing, the Advisor shall not be obligated to contribute any amount hereunder
that exceeds the amount of fees previously received by the Advisor pursuant to
this Agreement.
The Advisor shall indemnify the Company and each person, firm, or
corporation in connection with any Transaction for any claim, losses,
liabilities, and reasonable expenses which are finally judicially determined to
have resulted from the Advisor's bad faith and gross negligence or actions
outside the scope of its engagement.
The Company expressly acknowledges that Advisor is being engaged as an
independent financial consultant and is not being engaged as a broker, dealer,
or broker-dealer in connection herewith.
4. Confidentiality. Physicians' Specialty Corp., its employees, agents
and advisors (including, without limitation, attorneys, accountants,
consultants, financing sources and financial advisors) (collectively,
"Representatives"), agree to treat any information concerning the Target which
is furnished to the Company by the Advisor (herein collectively referred to as
the "Confidential Information") in accordance with the provisions hereof, and to
take or abstain from taking certain other actions hereinafter set forth. The
term "Confidential Information" also shall be deemed to include all
reproductions, summaries, notes, analyses, compilations, studies,
interpretations or other documents prepared by the Company which contain,
reflect or are based upon, in whole or in part, information furnished to the
Company by the Advisor ("Derivative Information"). The Confidential Information
will be kept confidential and the Company will not use, duplicate, disclose, or
permit the use, duplication or disclosure of any of the Confidential Information
in any manner whatsoever, except as expressly permitted by this Paragraph 4. The
Company and the Advisor acknowledge that the Company may retain or consult with
institutions in connection with the financing of a Transaction. The Company
shall not furnish or disclose any Confidential Information to any institution in
connection with the financing of the Transaction unless (i) the Company shall
have given prior written notice to the Advisor, (ii) the Company and
<PAGE> 5
Richard D. Ballard - Physicians' Specialty Corp.
May 19, 1997
Page 5
the party to whom Confidential Information is to be furnished shall have entered
into a confidentiality agreement, and (iii) a copy of such confidentiality
agreement is provided to the Advisor. The Company will, at any time upon the
request of the Advisor, promptly deliver to the Advisor, or certify destruction
of all Confidential Information (and all copies thereof) furnished by or on
behalf of the Company pursuant hereto, and all other Confidential Information,
(including all Derivative Information) prepared by the Company or its
representatives shall be destroyed, and no copy thereof shall be retained.
Notwithstanding the return or destruction of the Confidential Information, the
Company will continue to be bound by its obligations of confidentiality and
other obligations hereunder. The Company agrees that the restrictions contained
herein are fair, reasonable and necessary to protect the legitimate interests of
the Advisor and that the Advisor would suffer irreparable injury if the Company
were to violate any provision of this Paragraph. In the event of a breach or
threatened breach of this Paragraph by the Company, the Advisor, without
prejudice to any rights to judicial relief it may otherwise have, shall be
entitled to equitable relief, including injunction and specific performance. The
Company waives any requirement for the securing or posting of a bond in
connection with the Advisor's seeking or obtaining such relief. In the event of
litigation relating to this Paragraph, the prevailing party shall recover its
reasonable legal fees incurred in connection with such litigation, including any
appeal therefrom.
5. Disclosure of Transaction and Fee Liability. Any documents
memorializing any Transaction between the Company and the Target shall be
provided to Advisor and shall include language describing the Company's
engagement of Advisor pursuant to this Agreement. Further, Advisor reserves the
right to produce and issue a tombstone announcement of the Transaction
consummated (maintaining the confidentiality of Transaction Consideration).
6. Collection. In the event Advisor prevails in any action against the
Company to enforce collection of amounts due or other rights due Advisor under
this Agreement, the Company agrees to pay Advisor's legal and other collection
costs.
7. Term of Agreement. This agreement may be terminated by the Company or
the Advisor at any time upon 90 days written notice to the other, provided,
however, notwithstanding such termination, (i) the provisions hereof relating to
compensation, including compensation payable by reason of events following such
termination, (ii) the provisions for indemnification set forth in Paragraph 3
hereof, (iii) the provisions relating to confidentiality set forth in Paragraph
4 hereof, and (iv) the provisions of Paragraph 5 through 11 hereof shall remain
in full force and effect.
<PAGE> 6
Richard D. Ballard - Physicians' Specialty Corp.
May 19, 1997
Page 6
8. Governing Law and Submission to Jurisdiction. The understanding
expressed herein shall be governed by the laws of the State of Georgia governing
contracts made and to be performed in such State, without giving effect to
principles of conflicts of law.
Each party submits to the jurisdiction of any state or federal court
sitting in Atlanta, Georgia, in any action or proceeding arising out of or
related to this Agreement, agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court; and agrees not to
bring any action or proceeding arising out of or relating to this Agreement in
any other court. Each party waives any defense of inconvenient forums to the
maintenance of any action or proceeding so brought and waives any bond, surety
or other security that might be required of any other party with respect hereto.
Each party agrees that a final judgment in any action or proceeding so brought
shall be conclusive and may be enforced by suit on the judgment or in any other
manner provided by law.
9. Successors and Assigns. This agreement shall be binding upon and shall
inure to the benefits of the parties hereto and their respective successors and
assigns.
10. Counterparts. This agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed the same document.
11. Prior Relations. The Company expressly acknowledges that it has been
advised that the Advisor may have provided investment banking and other services
in the past to one of more Target(s) and may provide such services to one or
more Target(s) and/or its affiliates in the future, so long as such endeavors do
not violate the exclusivity and non-competition provisions existing in that
certain employment agreement entered into by and between Gerald R. Benjamin and
Physicians' Specialty Corp. dated November 26, 1996.
Please confirm your agreement to the foregoing by signing and returning
to us the enclosed of this letter.
PREMIER HEALTHCARE A
Division of Bock, Benjamin & Co.
By: /s/ Gerald R. Benjamin
------------------------------
Gerald R. Benjamin, Principal
Agrees as of the date first set forth above:
<PAGE> 7
Richard D. Ballard - Physicians' Specialty Corp.
May 19, 1997
Page 7
PHYSICIANS' SPECIALTY CORP.
By: /s/ Richard D. Ballard
------------------------------
Richard D. Ballard
Chief Executive Officer
<PAGE> 8
EXHIBIT "B"
PREMIER HEALTHCARE/PHYSICIANS' SPECIALITY CORP.
AGREEMENT DATED MAY 19, 1997
Success Fee Formula:
Lehman based success fee payable in connection with a Transaction equal to 5%
of the initial $1.0 million of Transaction Value, 4% of the next $1.0 million of
Transaction Value, 3% of the next $1.0 million of Transaction Value, 2% of the
next $1.0 million of Transaction Value, and 1% of all amounts of Transaction
Value in excess of $4.0 million. For purposes of this Exhibit "B", Transaction
Value shall be defined as the product of (X) the pro-forma annual management fee
to be derived by the Company in connection with the proposed Transaction; and
(Y) six and one-quarter (6.25). Should an acquired practice merge into or with
an existing affiliated Company practice, the pro-forma management fee shall be
determined by applying the then existing management fee percentage to the
pro-forma revenues generated by the Target in connection with the proposed
Transaction. Should a Target execute a management agreement with the Company
providing for a management fee to be derived based upon a factor other than
Revenues (i.e., margin before physician compensation and benefits), for purposes
of this Agreement the management fee shall be converted to a percentage of
Revenues.
One hundred percent (100%) of the estimated Success Fee shall be payable in
cash at Closing with a reconciliation of the pro-forma management fee to actual
performed on the anniversary date following Closing. Should the re-computed
Transaction Value (utilizing the actual management fee derived in connection
with a Transaction multiplied by 6.25) yield a Success Fee differing from the
amount paid Advisor at closing, the difference shall be payable in cash by the
Company or the Advisor within 25 days following the anniversary date of
Closing. Should this Agreement be terminated by either party, unremitted
Success Fee(s) due to or payable by Advisor, if any, shall be due and payable
as if no such termination occurred.
By way of example, a Transaction with a pro-forma annual management fee of
$1.0 million would result in Transaction Value of $6.25 million, yielding an
estimated Success Fee payable (before any offset pursuant to Article 2(a) of
the Agreement) of one hundred sixty-two thousand five hundred dollars
($162,500), all of which would be payable at Closing. Assuming that the
initial actual year one management fee realized in connection with this
transaction is $1.25 million, a final payment due Advisor of fifteen thousand
six hundred twenty-five dollars ($15,625) would be due and payable within 15
days of the anniversary following Closing ($1.25 mil. x 6.25 = $7,812,500
Transaction Value; Lehman Fee related thereto equals $178,125, less amount paid
at Closing of $162,500 equals $15,625).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PHYSICIAN SPECIALTY FOR THE SIX MONTHS ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 14,727,341
<SECURITIES> 0
<RECEIVABLES> 4,046,250
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,788,044
<PP&E> 1,642,587
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,801,233
<CURRENT-LIABILITIES> 3,743,272
<BONDS> 0
0
0
<COMMON> 5,905
<OTHER-SE> 16,874,614
<TOTAL-LIABILITY-AND-EQUITY> 20,801,233
<SALES> 4,503,386
<TOTAL-REVENUES> 4,503,386
<CGS> 0
<TOTAL-COSTS> 3,763,683
<OTHER-EXPENSES> (132,499)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 872,202
<INCOME-TAX> 340,159
<INCOME-CONTINUING> 532,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 532,043
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
