SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 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: 0-22421
MD HealthShares Corporation
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Louisiana 72-1301480
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
12021 Bricksome Avenue, Baton Rouge, LA 70816
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(Address of Principal Executive Offices)
(504) 293-3272
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(Issuer's Telephone Number, Including Area Code)
201 St. Charles Avenue, Suite 4400, New Orleans, LA 70170
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the issuer: (1) filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
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 No X
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State the number of shares outstanding of each of the issuer's common
equity, as of the latest practicable date:
As of July 31, 1997, 1,071,000 shares of the Registrant's Class A Non-Voting
Common Stock and 1 share of the Registrant's Class B Common Stock were
outstanding.
Transitional Small Business Disclosure Format (Check one) Yes X No
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MD HEALTHSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996--UNAUDITED
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JUNE 30, DECEMBER 31,
1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 6,329,287 $ 9,147,525
Investments 1,050,000 --
Interest receivable 75,837 57,473
Premiums receivable 2,163 --
Prepaid expenses 210,840 147,747
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Total current assets 7,668,127 9,352,745
RESTRICTED INVESTMENTS 1,100,000 1,071,777
EQUIPMENT, net of accumulated depreciation of
$10,379 and $3,825, respectively 47,866 13,844
OTHER 63,260 5,225
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TOTAL $ 8,879,253 $10,443,591
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 189,690 $ 355,856
Claims payable 21,854 --
Deferred revenue 12,612 --
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Total current liabilities 224,156 355,856
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CONTINGENCIES (Note 3) -- --
STOCKHOLDERS' EQUITY (Note 2):
Junior preferred voting stock, $1.00 par value,
liquidation value $1,000, 7,500 shares authorized,
2,142 shares issued and outstanding in 1997; none
in 1996 2,142 --
Preferred stock, $1.00 par value, 2,000,000 shares
authorized, none issued and outstanding in 1997
and 1996 -- --
Common stock:
Class A, no par vaslue, 1,000,000 shares authorized,
shares issued and outstanding in 1996; none in 1997 -- 11,826,306
Class B, no par value, 1 share authorized, issued
and outstanding in 1996; none in 1997 -- 100
Class A non-voting, $0.10 par value, 8,000,000
shares authorized, 1,071,000 shares issued and
outstanding in 1997; none in 1996 107,100 --
Class B, $0.10 par value, 1 share authorized and
outstanding in 1997; none in 1996 -- --
Additional paid-in capital 11,717,164 --
Accumulated deficit (3,171,309) (1,738,671)
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Total stockholders' equity 8,655,097 10,087,735
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TOTAL $ 8,879,253 $10,443,591
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See notes to consolidated financial statements.
MD HEALTHSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX AND THREE MONTH PERIODS ENDED JUNE 30, 1997 AND 1996--UNAUDITED
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SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
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1997 1996 1997 1996
REVENUES:
Investment income (loss) $ 253,236 $ (5,121) $ 128,644 $ (9,973)
Premiums 37,081 -- 35,771 --
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Total revenues 290,317 (5,121) 164,415 (9,973)
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EXPENSES:
Medical expenses 31,891 -- 30,765 --
Selling, general and administrative 1,684,509 435,883 802,811 163,479
Interest expense -- 6,922 -- 3,461
Depreciation 6,554 -- 4,224 --
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Total expenses 1,722,954 442,805 837,800 166,940
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NET LOSS $(1,432,637) $(447,926) $ (673,385) $ (176,913)
=========== ========= ========== ===========
NET LOSS PER COMMON SHARE $ (1.34) $(447,926) $ (.63) $ (176,913)
=========== ========= ========== ===========
AVERAGE OUTSTANDING COMMON
SHARES 1,071,001 1 1,071,001 1
=========== = ========= =
See notes to consolidated financial statements.
MD HEALTHSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996--UNAUDITED
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1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,432,637) $(447,926)
Adjustment to reconcile net loss to cash
flows from operating activities:
Loss on sales of available-for-sale securities -- 9,665
Depreciation 6,554 --
Changes in operating assets and liabilities:
Interest receivable (18,364) (1,160)
Other receivable (2,163) --
Prepaid expenses (63,093) --
Accounts payable and accrued expenses (166,166) 21,341
Claims payable 21,854 --
Deferred revenue 12,612 --
Interest payable -- 6,922
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Net cash used in operating activities (1,641,403) (411,158)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (2,150,000) (561,379)
Sales and maturities of available-for-sale securities 1,071,777 483,998
Other (58,036) (98,756)
Purchase of equipment (40,576) (16,581)
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Net cash used in investing activities (1,176,835) (192,718)
CASH FLOWS FROM FINANCING ACTIVITIES--
Developmental funds provided by the medical community -- 585,250
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NET DECREASE IN CASH (2,818,238) (18,626)
CASH AND CASH EQUIVALENTS, Beginning of period 9,147,525 48,874
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CASH AND CASH EQUIVALENTS, End of period $ 6,329,287 $ 30,248
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NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Unrealized gain on available-for-sale securities $ -- $ 868
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See notes to consolidated financial statements.
MD HEALTHSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED
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1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Rule 310(g) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. Operating results for
the six and three month periods ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1997.
Reserves for Incurred But Unreported Claims - The Company provides reserves
for estimated incurred but unreported physician, hospital, and pharmacy
services rendered to enrolled members during the period. These reserves are
presently based on the use of estimated medical cost ratios. Changes in
these estimates could be significant.
Revenue Recognition - Premium revenues are recognized in the period in which
the members are entitled to health care services. Premiums collected in
advance are deferred. Consistent with industry practice, third-party selling
expenses are reported as a reduction of premium revenue.
Reinsurance - The Company is covered under a medical reinsurance agreement
that provides coverage for 80% of hospital services in excess of $50,000.00
per member, up to a yearly maximum of $1,000,000.00 per member. There were
no reinsurance recoveries in 1997 and 1996.
Risks and Uncertainties - The Company's business could be impacted by
continuing price pressure on new and renewal business, the Company's ability
to effectively control health care costs, additional competitors entering
the Company's markets, federal and state legislation in the area of health
care reform, and governmental licensing regulations of HMOs and insurance
companies. Changes in these areas could adversely impact the Company's
operations in the future.
Financial Presentation - Certain reclassifications have been made to prior
period amounts to conform with current period presentation.
For a summary of other significant accounting policies, refer to Note 1 of
Notes to Consolidated Financial Statements included in the Company's General
Form of Registration of Securities of Small Business Issuers on Form 10-SB/A
for the year ended December 31, 1996.
2. RECAPITALIZATION
On March 22, 1997, the Company's stockholders approved a plan of
recapitalization and amendments to the Company's articles of incorporation.
In connection therewith, 7,500 shares of Junior Preferred Voting Stock,
2,000,000 shares of Preferred Stock and 8,000,000 shares of Class A Non-
Voting Stock were authorized. Additionally, all of the Company's 2,142
outstanding shares of Class A Common Stock were cancelled, and each former
share of Class A Common Stock was converted into one share of Junior
Preferred Voting Stock and 500 shares of Class A Non-Voting Common Stock.
The average number of outstanding common shares has been restated to reflect
the recapitalization.
3. COMMITMENTS AND CONTINGENCIES
Letter of Credit - In connection with the filing for a COA and as an ongoing
requirement of the State of Louisiana, PCI has a $1,000,000 stand-by letter
of credit issued by Hibernia National Bank, payable to the LDOI as
beneficiary in lieu of a $1,000,000 statutory deposit. Such stand-by letter
of credit is secured by a pledge of a $1,100,000 stated value U.S. treasury
security.
Regulatory Requirements - The State of Louisiana has implemented financial
regulations for HMOs requiring, among other things, minimum net worth
requirements. As of December 31, 1996, admitted assets, as defined, less
liabilities, must be at least equal to $800,000 as reported in the statutory
filing of such calendar year. PCI was in compliance with the state statutory
net worth requirement at December 31, 1996. The minimum state statutory net
worth requirement will increase to $1.5 million and $2.0 million by July 1,
1997 and 1998, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Prior to the commencement of operations during the first quarter of 1997,
after the issuance by the Louisiana Department of Insurance of a Certificate of
Authority to operate a health maintenance organization ("HMO"), the Company was
in the development stage and had no operating revenues.
The Company anticipates that the managed care plans of its subsidiary,
Patient's Choice, Inc., ("PCI") will be marketed statewide by the end of the
third-quarter of 1997. The Company expects that it will incur losses on
operations until PCI's HMO attains an enrollment of approximately 22,500
persons, which the Company anticipates will occur by the first quarter of 1999.
The Company expects that the aggregate negative cash flow from PCI's operations
during the period prior to the achievement of positive operating results may
exceed $7 million. The Company believes that its capital resources are
sufficient to fund operations during such period. The Company does not
anticipate that it will be necessary for it to raise additional capital in the
next six months.
As of August 1, 1997, there were 70 subscribers and 165 covered lives in
PCI's HMO. PCI has not commenced the marketing of its PPO plans and there are
no enrollees under such plans, or under PCI's other managed care plans.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECUITY HOLDERS
On June 7, 1997, the Company held its Annual Meeting of Stockholders, at
which the following persons were elected by the holders of the Company's Junior
Preferred Voting Stock to serve as directors of the Company for three-year
terms:
VOTES
For Against Withheld
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Ralph W. Colpitts, M.D. 641 7 3
Wallace H. Dunlap, M.D. 641 7 3
Michael S. Ellis, M.D. 641 7 3
David R. Raines, M.D. 641 7 3
and the following person was elected by the holder of the one share of the
Company's Class B Common Stock oustanding to serve as a director of the Company
for a three-year term:
R. Bruce Williams, M.D.
The terms of the following directors continued after the Annual Meeting:
Brian W. Amy, M.D.
Lawrence L. Braud, M.D.
David G. Dupree, M.D.
Melanie C. Firmin, M.D.
Charles C. Lewis, M.D.
William M. Roeling, M.D.
Jay M. Shames, M.D.
James A. White III, M.D.
F. Jeffrey White III, M.D.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) No reports on Form 8-K were filed during the three months ended
June 30, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
cause this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MD HEALTHSHARES CORPORATION
/s/ Thomas P. McCabe
Date: August 13, 1997 _________________________________
Thomas P. McCabe, J.D.
Interim Chief Executive Officer
/s/ Charles C. Lewis
Date: August 13, 1997 _________________________________
Charles C. Lewis, M.D.
Treasurer and Principal Financial
Officer