<PAGE> 1
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998.
|_| TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER 000-22719
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
(Name of small business issuer as specified in its charter.)
New Jersey 22-3273637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o The Pace Group, Inc., 12160 Abrams Road, Suite 409, Dallas, Texas 75243
(Address of principal executive offices) (zip code)
Issuer's telephone number: c/o (800) 422-5611
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
State the number of share outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 1998, there were
4,628 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
<PAGE> 2
Index to Form 10-QSB
<TABLE>
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Statements of Net Assets in Liquidation -
March 31, 1998 and December 31, 1997 3
Statement of Changes in Net Assets in Liquidation for the Three Months Ended
March 31, 1998 4
Statement of Operations for the Three Months Ended March 31, 1997 5
Statement of Cash Flows for the Twelve Months Ended December 31, 1997 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
</TABLE>
Part II - Other Information
Item 1. Legal Proceedings
Item 2. [Omitted]
Item 3. [Omitted]
Item 4. [Omitted]
Item 5. [Omitted]
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
Part I - Financial Information
Item 1. Financial Statements
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE THREE FOR THE
MONTHS ENDED MARCH YEAR ENDED
31, 1998 DECEMBER 31,
(UNAUDITED) 1997
------------------ ------------
<S> <C> <C>
ASSETS
Cash $ (120,275) $1,504,664
Investments
8,377,580 6,529,250
Premium Receivable 0 424,211
Other Assets 141,506 179,698
----------- ----------
Total Assets 8,398,811 8,637,823
LIABILITIES
Claims Payable 1,036,517 $3,000,000
Accounts Payable and Accrued Liabilities 416,317 839,555
Funds held for Management Company 1,947,951 0
----------- ----------
Net Assets in Liquidation $ 4,998,026 $4,798,268
=========== ==========
</TABLE>
See accompanying notes.
<PAGE> 4
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31,
1997
<S> <C>
REVENUE
Premiums, net of reinsurance $ 2,056,263
Interest income, net 204,551
Other revenue 43,445
-----------
Total Revenue 2,304,259
EXPENSES
Medical costs 1,642,136
Professional services 1,093,468
Compensation and benefits 375,112
General and administrative 373,876
Insurance 34,918
-----------
Total expenses incurred 3,519,500
-----------
Net Loss $(1,215,241)
===========
Net loss per common share $ (262)
===========
Weighted average shares outstanding $ 4,639
===========
</TABLE>
See accompanying notes.
<PAGE> 5
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
1997
-------------
<S> <C>
Cash flows from operating activities:
Net Loss $(1,215,241)
Adjustment to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 81,601
Advances to management company 93,868
Prepaid and other assets (35,264)
Accounts payable and accrued expenses 5,668
Claims payable 418,325
Reinsurance recoverable on claims payable 104,016
Other liabilities (62,646)
Other assets 18,107
Funds held for reinsurer (66,867)
-----------
Net cash used in operating activities (658,433)
-----------
Cash flows from investing activities:
Proceeds from sale of equipment 20,373
Proceeds from investments matured 2,455,701
Cost of investments acquired (2,424,995)
-----------
Net cash provided (used) in investing activities 51,079
-----------
Cash flows from financing activities:
Redemption of common stock (1,734)
-----------
Net cash used by financing activities (1,734)
-----------
Net (decrease) in cash and cash equivalents (609,088)
Cash and cash equivalents, beginning of period 5,563,345
-----------
Cash and cash equivalents, end of period $ 4,954,257
===========
</TABLE>
See accompanying notes.
<PAGE> 6
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
1998
-------------
<S> <C>
4,798,268
Net Assets in Liquidation at Beginning of Period:
Investment Income 109,359
Professional Services (150,899)
General and Administrative (100,248)
Premiums 341,546
Net Income for the Period 199,758
Net Assets in Liquidation at End of Period: 4,998,026
Net Income per Common Share 43
Weighted Average Number of Shares Outstanding 4,628
</TABLE>
See accompanying notes.
<PAGE> 7
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. UNAUDITED FINANCIAL STATEMENTS
The financial information for the three months ended March 31, 1998 included
herein is unaudited. Such information includes all adjustments, consisting of a
normal and recurring nature, which in the opinion of management, are necessary
for a fair presentation of the Company's Statements of Net Assets in
Liquidation, Statements of Operations, Statements of Changes in Net Assets in
Liquidation, Changes in Shareholders' Equity and Cash Flows in accordance with
generally accepted accounting principles. Such information should be read in
conjunction with Management's Plan of Operation included herein and the Notes to
Financial Statements included in the Physician Healthcare Plan of New Jersey
(the "Company") Annual Report on Form 10-KSB for the year ended December 31,
1997. The interim operating results are not necessarily indicative of the
operating results for the full fiscal year. As a result of the sale of its
operations to HMO Blue on December 19, 1997, the company has changed from a
going concern basis of accounting to a liquidation basis of accounting
effective December 31, 1997.
2. LIQUIDATION BASIS OF ACCOUNTING
A liquidation basis of accounting was implemented as of December 31, 1997. The
statements of net assets in liquidation at December 31, 1997 and March 31, 1998
do not distinguish between current and long-term balances as would be reflected
if such statements had been prepared on a going-concern basis. The accompanying
consolidated statements of operations and cash flows for the quarter ended
March 31, 1997 are presented on a going-concern basis.
3. SALE OF GROUP CONTRACTS AND PROVIDER AGREEMENTS
On December 19, 1997, the Company consummated the transfer and assignment of
certain provider and subscriber contracts constituting its HMO and PPO
operations (the "Transaction") to HMO Blue, the health maintenance organization
affiliated with Blue Cross Blue Shield of New Jersey, Inc. The Company received
a cash payment of $1,839,300 as consideration for the transfer and assignment.
Although the Company has sold its operations to HMO Blue, the Company remains
responsible for the payment of claims incurred prior to the December 19, 1997
date of the closing of the transaction with HMO Blue. The Company expects that
it will surrender its COA to New Jersey insurance regulators at such time as
the regulators approve, based on the regulators' determination that the Company
has satisfied its liabilities, expected in late 1998 or early 1999. After such
surrender, it is expected that the Company will be dissolved and assets
remaining, if any, after satisfaction of the Company's liabilities will be
distributed to stockholders. Amounts distributed in respect of each outstanding
share of the Company's common stock are expected to be substantially lower than
the purchase price paid for such shares. However, the Company is unable to
determine the final amount that would be available for distribution.
Dissolution would require additional stockholder action.
4. MANAGEMENT AGREEMENT
Effective September 1, 1994, the Company entered into a management agreement
with Medical Group Management, Inc. ("MGM"), a subsidiary of New Jersey State
Medical Underwriters, Inc. ("NJSMU"). The management agreement with MGM
provided, among other things, that MGM was responsible for all administration
and management of the company. This agreement was terminated effective as of
July 31, 1997.
Effective July 1, 1997, the Company entered into a Management Services Agreement
(the "Management Agreement") with the Purchaser. Under the terms of the
Management Agreement, the Purchaser is providing the Company management and
administrative services necessary for the operation of the Company including,
but not limited to, claims processing, member services, enrollment, provider
assistance, utilization management and financial services. After the sale of
operations on December 19, 1997, the Company's Management Agreement transitioned
to a payment arrangement based on hourly fees.
In addition, effective August 1, 1997, the Company engaged The Pace Group, Inc.
("Pace") to provide certain management transition services and certain corporate
financial and reporting assistance not otherwise provided by the Purchaser.
5. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in an action entitled Behari vs. Physician Healthcare
Plan of New Jersey, et. al., docket number L-2397-97 in Superior Court of Morris
County, New Jersey. In that action, the Plaintiff seeks to recover unspecified
compensatory and punitive damages together with interest and litigation costs
from the Defendants for alleged wrongful termination of an employment agreement
alleged between the Plaintiff and the Defendants and for defamation, among other
related causes of action. The Company believes that it has excellent defenses
which it intends to vigorously pursue. The case is in early stages of litigation
and the Company cannot estimate the amount of potential loss at this time.
In regards to the action entitled Anthony Tonzola, M.D. vs. Physician Healthcare
Plan of New Jersey, the Company was notified that an Order was filed on April
14, 1998 voluntarily dismissing the complaint without prejudice and without
costs.
6. REINSURANCE
The Company renewed its reinsurance coverage to cover claims incurred through
December 19, 1997, the closing date of the transaction with the Purchaser, and
paid within one year from that date.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE> 8
The following discussion should be read in conjunction with the
Financial Statements and the Notes thereto provided herein.
The Company sold its operations to the Purchaser on December 19, 1997,
following the December 9, 1997 shareholder meeting at which the sale was
approved, and has continued efforts through 1998 year to date to wind down
operations. As a result, effective December 31, 1997, the Company changed its
basis of accounting from a going-concern basis to a liquidation basis. During
the three months ended March 31, 1998, management activities have been limited
to continuing the Company's payment of existing liabilities, stewardship of
remaining assets, and financial reporting to applicable regulatory bodies.
Although the Company has sold its operations to HMO Blue, the Company
remains responsible for the payment of claims incurred prior to the December
19, 1997 date of the closing of the transaction with HMO Blue. The Company
expects that it will surrender its Certificate of Authority to New Jersey
insurance regulators at such time as the regulators approve, based on the
regulators' determination that the Company has satisfied its liabilities,
expected in late 1998 or early 1999.
Results of Operations
The Company's net income for the three months ended March 31, 1998 was
$199,758 as compared to a net loss of $(1,215,241) for the three months ended
March 31, 1997. The Company no longer has health plan members as all group
contracts and provider agreements were transferred to the Purchaser in
accordance with the Agreement in 1997. 1998 income was generated largely from
receipt of 1997 premium revenues in the first quarter of 1998.
For the three months ended March 31, 1998, the Company incurred
professional and administrative costs of $251,047, as compared to $1,877,374 for
the three months ended March 31, 1997. In 1998, such costs and expenses relate
to the limited management activities of the Company including, but not limited
to, costs and expenses incurred due to legal fees, actuarial and accounting
assistance, insurance, and printing and shareholder communications expenses. The
Company's administrative costs decreased relative to 1997 as the Company
disposed of leased office space, terminated all employees, and sold all
remaining fixed assets to MGM, its former management company. See Note 3 of the
Notes to Financial Statements for March 31, 1998.
During the three months ended March 31, 1998, $1,963,483 in medical
claims were paid against the Company's Claims Payable reserves, all of which
were accrued at December 31, 1997. Based on claims payment experience through
April 30, 1998, the Company has not provided additional reserves or IBNR beyond
the balances accrued at December 31, 1997. Management has elected to maintain
the claims liability remaining on a conservation basis until actual risk data
concludes otherwise.
During the three months ended March 31, 1998, the Company earned
$109,359 in investment income, as compared to $204,551 earned during the three
months ended March 31, 1997. The decrease in investment income was principally
the result of reduced investment levels following the operating losses incurred
during 1997, partially offset by the investment of proceeds of the sale of
contracts to the Purchaser in the amount of 1,839,300.
Liquidity and Capital Resources
General
As of March 31, 1998, the Company had approximately $8,257,305 in cash
and cash equivalents and investments in U.S. Treasury obligations. Management
believes sufficient liquid funds are available to satisfy any remaining
liabilities, medical or otherwise, likely to occur in the near future
(including, without limitation, costs and expenses related to the administration
of liquidation such as legal and actuarial fees, insurance, accounting fees, and
printing and shareholder communication expenses).
The Company has not made any liquidating distributions since assuming a
liquidation status and does not anticipate a future distribution until such time
as outstanding liabilities are confirmed as extinguished and net assets
available for liquidation are entirely complete. Additionally, the New Jersey
Department of Banking and Insurance and Department of Health and Senior
Services must approve the surrender of the company's certificate of
Authority.
The Company operates under a Management Agreement with the Purchaser,
whereby the Purchaser provides most administrative and financial services
required by the Company. Since December 31, 1997, employers whose health
insurance was formerly placed with the Company have continued to deposit
premiums in the Company's bank account, although membership has transferred to
the Purchaser. As of March 31, 1998, the Company had received $1,947,951 in
premiums which were included in the Investments balance of $8,511,561. Since
these amounts are due to the
<PAGE> 9
Purchaser, an offsetting liability of $1,947,951 has been recorded as Funds
Held for Management Company, and the Company expects to remit this amount to the
Purchaser during the fiscal quarter ending June 30, 1998.
Contingent Liabilities
As the scope of the Company's liabilities becomes better defined, there
may be changes in the estimates of future costs, which could have a material
effect on the Company's financial condition, liquidity and future ability to
make liquidating distributions. However, the Company currently believes, based
on claims payment experience through April 30, 1998, that existing IBNR reserves
and standing reinsurance agreements will adequately insulate the Company from
any material medical claims in excess of outstanding recorded liabilities. See
Note 5 of the Notes to Financial Statements for March 31, 1998 for discussion of
the Company's reinsurance coverage.
The discussion in this Quarterly Report contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The statements should
not be regarded as a representation by the Company that the expectations or
plans of the Company will be achieved. Actual results or events could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, the effect of requirements
imposed by regulatory agencies, the amount of claims submitted by members who
were enrolled in the Company's health care plans through December 19, 1997, the
level of non-medical expenses incurred by the Company and the returns on the
Company's investments.
PART II -- OTHER INFORMATION
ITEM 1.
The Company is a defendant in an action entitled Behari vs. Physician
Healthcare Plan of New Jersey, et. al., docket number L-2397-97 in
Superior Court of Morris County, New Jersey. In that action, the
Plaintiff seeks to recover unspecified compensatory and punitive
damages together with interest and litigation costs from the Defendants
for alleged wrongful termination of an employment agreement alleged to
exist between the Plaintiff and the Defendants and for defamation,
among other related causes of action. The Company believes that it has
excellent defenses which it intends to vigorously pursue. The case is
in early stages of litigation and the Company intends to vigorously
defend this action.
In regards to the action entitled Anthony Tonzola, M.D. vs. Physician
Healthcare Plan of New Jersey, the Company was notified that an Order
was filed on April 14, 1998 voluntarily dismissing the complaint
without prejudice and without costs.
ITEM 2. [Omitted]
ITEM 3. [Omitted.]
ITEM 4. [Omitted.]
ITEM 5. [Omitted]
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Reference is made to the Index of Exhibits hereinafter contained on Page nn.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter for which this report on
Form 10-QSB is being filed.
<PAGE> 10
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
3.1 Amended and restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form SB-2)
3.2 Amended and restated By-Laws (incorporated by
reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form SB-2)
4.1 Secondary Offering Prospectus, as approved by the
Securities Exchange Commission on November 9, 1995,
detailing rights of security holders (incorporated
by reference to the Registrant's Registration
Statement on Form SB-2)
10.1 Physician Participation Agreement with Registrant,
and amendment thereto (incorporated by reference to
the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1995)
10.2 Hospital Letter of Agreement with Registrant
(incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form SB-2)
10.3 Hospital Participation Agreement with Registrant
(incorporated by reference to Exhibit 10.3 to the
Registrant's Form 8-K filed on December 29, 1997)
10.4 Revised Management Agreement by and between Medical
Group Management, Inc. and the Registrant
(incorporated by reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form SB-2)
10.5 Capital Management Agreement between New England
Asset Management and Registrant (incorporated by
reference to Exhibit 10.9 to the Registrant's
Registration Statement on Form SB-2)
10.6 Letter of Intent between Acordia of Southern
California and Medical Group Management, Inc.
(incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form SB-2)
10.7 Lease for Registrant's facility (incorporated by
reference to Exhibit 10.11 to the Registrant's
Registration Statement on Form SB-2)
10.8 Assignment and Assumption of Lease Agreement dated
February 11, 1997 (incorporated by reference to
Exhibit 10.8 in the Registrant's Registration
Statement Form SB-2)
10.9 Agreement between the Registrant and Medigroup of New
Jersey, Inc. dated as of June 26, 1997 (incorporated
by reference to Exhibit 10.9 to the Registrant's Form
10-QSB for quarter ended June 30, 1997)
<PAGE> 11
10.10 Management Services Agreement between the Registrant
and Medigroup of New Jersey, Inc. dated as of June
26, 1997 (incorporated by reference to Exhibit 10.9
to the Registrant's Form 10-QSB for quarter ended
June 30, 1997)
10.11 Termination and Release Agreement by and between
Medical Group Management, Inc. and Physician
Healthcare Plan of New Jersey, Inc., dated as of July
31, 1997 (incorporated by reference to Exhibit 10.11
to the Registrant's Form 10-QSB for quarter ended
September 30, 1997)
10.12 Letter Agreement between Medigroup of New Jersey,
Inc. and Physician Healthcare Plan of New Jersey.,
dated as of August 26, 1977, relating to the sale of
certain fixed assets (incorporated by reference to
Exhibit 10.12 to the Registrant's Form 10-QSB for
quarter ended September 30, 1997)
10.13 Services Agreement between The Pace Group, Inc. and
Physician Healthcare Plan of New Jersey, Inc., dated
as of August 1, 1997 (incorporated by reference to
Exhibit 10.13 to the Registrant's Form 10-QSB for
quarter ended September 30, 1997)
10.14 Agreement between Medigroup of New Jersey, Inc. and
Physician Healthcare Plan of New Jersey, Inc., dated
July 25, 1997, relating to the use of certain
computer equipment (incorporated by reference to
Exhibit 10.14 to the Registrant's Form 10-QSB for
quarter ended September 30, 1997)
10.15 Management Services Agreement dated as of December
19, 1997 between Physician Healthcare Plan of New
Jersey, Inc. and Medigroup of New Jersey, Inc.
(incorporated by reference to Exhibit 99.3 to the
Registrant's Form 8-K filed December 29, 1997)
27 Financial Data Schedule
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
BY: /S/ JOSEPH BILLOTTI, M.D.
-------------------------
Joseph Billotti, M.D.
Chairman
/S/ BARRY MASSEY
-------------------
Barry Massey
Senior Consultant of The Pace Group, Inc.
(Acting in the capacity of Principal Accounting Officer and Principal
Financial Officer of the Registrant)
DATED: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AT MARCH 31, 1998 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THREE
MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948547
<NAME> PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> (284,256)
<SECURITIES> 8,511,561
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,398,810
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,398,810
<SALES> 0
<TOTAL-REVENUES> 450,904
<CGS> 0
<TOTAL-COSTS> 251,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 199,758
<INCOME-TAX> 0
<INCOME-CONTINUING> 199,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199,758
<EPS-PRIMARY> 43
<EPS-DILUTED> 43
</TABLE>
