UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 31, 1996
--------------------
PHYSICIAN SUPPORT SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------
DELAWARE 33-80731 13-3624081
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER IDENTIFICATION NO.)
ROUTE 230 AND EBY-CHIQUES ROAD.
MT. JOY, PA 17552
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (717) 653-5340
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
----------------------------------------
Physician Support Systems, Inc., a Delaware Corporation ("PSS"), hereby
amends its Current Report on Form 8-K dated September 13, 1996 as set forth
below.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Set forth below are the audited financial statements of EE&C Financial
Services, Inc., a New York corporation ("EEC"), as of December 31, 1994 and 1995
and for the three years ended December 31, 1995. These financial statements have
been audited by Deloitte & Touche LLP, independent auditors. Also set forth
below are the unaudited financial statements of EEC as of June 30, 1996 and for
the six months ended June 30, 1995 and June 30, 1996. These unaudited statements
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, contain all adjustments necessary for a fair
presentation of the financial position and results of operations for the periods
presented. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire
year.
1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
EE&C Financial Services, Inc.
Newark, New Jersey
We have audited the accompanying balance sheets of EE&C Financial Services, Inc.
(the "Company") as of December 31, 1994 and 1995, and the related statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 10, the Company consummated a merger transaction on
August 31, 1996.
DELOITTE & TOUCHE LLP
September 10, 1996
New York, New York
EE&C FINANCIAL SERVICES, INC.
BALANCE SHEETS
December 31, June 30,
ASSETS 1994 1995 1996
(Unaudited)
CURRENT ASSETS:
Cash $1,149,449 $645,861 $751,407
Accounts receivable - net of allowance
for doubtful accounts of $1,126,467 in 1994
and $2,119,548 in 1995 and $1,115,164 at
June 30, 1996 (unaudited) 5,685,442 4,480,958 5,240,553
Accounts receivable - unbilled 144,853 459,834 504,363
Due from related parties 2,024,699 4,379,564 4,899,425
Prepaid expenses and other current assets 1,174,364 624,673 925,053
---------- ---------- ----------
Total current assets 10,178,807 10,590,890 12,320,801
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Office equipment, furniture and fixtures 768,083 1,413,059 1,459,287
Computer equipment 1,132,837 1,321,283 1,569,222
Leasehold improvements 142,166 160,273 18,200
Automobiles 102,347 96,587 96,587
---------- ---------- ----------
2,145,433 2,991,202 3,143,297
Less accumulated depreciation and amortization (639,059) (1,125,608) (1,430,448)
---------- ---------- ----------
Property and equipment - net 1,506,374 1,865,594 1,712,848
OTHER ASSETS 416,079 327,666 279,033
---------- ---------- ----------
TOTAL ASSETS $12,101,260 $12,784,150 $14,312,683
=========== =========== ==========
See notes to financial statements. (Continued)
-2-
EE&C FINANCIAL SERVICES, INC.
BALANCE SHEETS
December 31, June 30,
1994 1995 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $892,479 $2,081,294 $2,287,220
Accrued expenses 1,121,993 1,711,857 2,339,624
Notes payable - related parties 3,156,811 2,281,316 3,486,547
Current portion of long-term debt 390,909 566,414 792,467
Other current liabilities 572,875 200,015 587,273
--------- --------- ----------
Total current liabilities 6,135,067 6,840,896 9,493,131
DEFERRED INCOME TAXES 14,872 6,877 6,877
NOTES PAYABLE - RELATED PARTIES 1,338,852 1,165,988 1,079,556
LONG-TERM DEBT 329,928 919,175 661,288
--------- --------- ----------
Total liabilities 7,818,719 8,932,936 11,240,852
--------- --------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 1,000 shares
authorized, 100 shares issued and 71 shares
outstanding at December 31, 1994
and 72.25 shares outstanding at December 31, 1995
and June 30, 1996 (unaudited), respectively 10,000 10,000 10,000
Retained earnings 5,772,406 5,276,430 4,497,047
Treasury stock, at cost (1,499,865) (1,435,216) (1,435,216)
--------- --------- ----------
Total shareholders' equity 4,282,541 3,851,214 3,071,831
--------- --------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $12,101,260 $12,784,150 $14,312,683
=========== =========== ===========
See notes to financial statements. (Concluded)
-3-
EE&C FINANCIAL SERVICES, INC.
STATEMENTS OF OPERATIONS
For the Years Ended For the Six Months Ended
December 31, June 30,
1993 1994 1995 1995 1996
(Unaudited) (Unaudited)
NET REVENUES $17,800,961 $21,818,414 $23,620,339 $12,128,230 $11,226,323
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Salaries and wages 11,271,898 13,286,542 16,465,515 7,832,550 6,469,592
General and administrative 3,542,437 6,707,846 6,296,618 2,750,874 4,916,775
Depreciation and amortization 270,705 394,168 543,488 273,413 375,358
----------- ----------- ----------- ----------- -----------
Total operating expenses 15,085,040 20,388,556 23,305,621 10,856,837 11,761,725
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 2,715,921 1,429,858 314,718 1,271,393 (535,402)
OTHER INCOME (EXPENSE):
Interest expense, net (160,081) (199,416) (261,332) (126,675) (133,754)
Loss on disposal of equipment (1,778) (4,176) (3,029) - (122,609)
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE STATE INCOME TAXES 2,554,062 1,226,266 50,357 1,144,718 (791,765)
STATE INCOME TAX (BENEFIT) EXPENSE (4,114) 18,957 (3,787) 8,047 (12,382)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 2,558,176 $ 1,207,309 $ 54,144 $ 1,136,671 $ (779,383)
=========== =========== =========== =========== ===========
See notes to financial statements.
-4-
EE&C FINANCIAL SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Total
Common Stock Treasury Stock Retained Shareholders'
Shares Amount Shares Amount Earnings Equity
BALANCE, DECEMBER 31, 1992 100 $10,000 - $ - $ 3,699,415 $ 3,709,415
Net income - - - - 2,558,176 2,558,176
Distributions paid - - - - (397,444) (397,444)
-------- ------- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1993 100 10,000 - - 5,860,147 5,870,147
Net income - - - - 1,207,309 1,207,309
Distributions paid - - - - (1,295,050) (1,295,050)
Purchase of treasury stock - - 29 (1,499,865) - (1,499,865)
-------- ------- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 100 10,000 29 (1,499,865) 5,772,406 4,282541
Net income - - - - 54,144 54,144
Distributions paid - - - - (550,120) (550,120)
Issuance of treasury stock - - (1.25) 64,649 - 64,649
-------- ------- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 100 10,000 27.75 (1,435,216) 5,276,430 3,851,214
Net loss (unaudited) (779,383) (779,383)
-------- ------- ------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996 (Unaudited) 100 $10,000 27.75 $(1,435,216) $ 4,497,047 $ 3,071,831
======== ======= ======= =========== =========== ===========
See notes to financial statements.
-5-
EE&C FINANCIAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended For the Six Months Ended
December 31, June 30,
1993 1994 1995 1995 1996
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 2,558,176 $ 1,207,309 $54,144 $ 1,136,671 $ (779,383)
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for allowance for doubtful accounts 88,655 998,172 993,081 250,613 87,222
Depreciation and amortization 270,705 394,168 543,488 273,413 375,358
Loss on disposal of property and equipment 1,778 4,176 3,029 - 122,609
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,045,021) (42,038) 211,403 (753,156) (846,818)
Increase in accounts receivable - unbilled (64,512) (80,341) (314,981) (39,362) (44,529)
(Increase) decrease in prepaid expenses
and other current assets (254,001) (912,925) 549,691 654,360 (300,380)
(Increase) decrease in other assets (11,130) (54,499) 38,413 39,151 23,633
Increase in accounts payable 213,405 582,013 1,188,815 1,327,151 205,926
(Increase) decrease in accrued expenses 1,226,170 (16,832) 559,945 (421,780) 690,234
(Increase) decrease in income taxes payable 96,778 (140,722) 102,085 (76,094) (62,467)
(Increase) decrease in other current liabilities 7,067 435,675 (364,585) (436,187) 389,435
(Increase) decrease in deferred income
taxes payable 3,352 8,705 (16,270) - (2,177)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 1,091,422 2,382,861 3,548,258 1,954,780 (141,337)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisition of property and equipment (669,837) (671,114) (372,260) (177,105) (320,221)
Proceeds from disposal of property and
equipment 17,472 2,601 1,603 - -
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (652,365) (668,513) (370,657) (177,105) (320,221)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 338,300 800,000
Repayment of debt (379,410) (299,158) (520,328) (265,977) (31,834)
Increase (decrease) in notes payable
related parties 650,000 959,174 (1,120,525) (902,706) 1,118,799
Distributions paid to shareholders (397,444) (1,295,050) (550,120) (548,147)
Increase in due from related parties 1,338,913 (902,188) (2,354,865) (503,067) (519,861)
Issuance of treasury stock - - 64,649 64,649
Purchase of treasury stock - (1,145,041) -
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 1,212,059 (2,343,963) (3,681,189) (2,155,248) 567,104
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 1,651,116 (629,615) (503,588) (377,573) 105,546
CASH, BEGINNING OF YEAR 127,948 1,779,064 1,149,449 1,149,449 645,861
----------- ----------- ----------- ----------- -----------
CASH, END OF YEAR $ 1,779,064 $ 1,149,449 $ 645,861 $ 771,876 $ 751,407
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Income taxes paid $ 179,867 $ 133,589 $ 71,426 $ 45,875 $ 40,792
Interest paid $ 89,034 $ 104,373 $ 237,690 $ 102,821 $ 305,018
See notes to financial statements.
-6-
EE&C FINANCIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited as to June 30, 1996 and 1995)
- - --------------------------------------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
EE&C Financial Services, Inc. (the "Company") was established in January
1991 as a New York Corporation with operations primarily in New York and
New Jersey. The Company specializes in accounts receivable management
including primarily hospital billings and collections, Medicaid and Charity
Care qualification and eligibility, self-pay processing and litigation.
2. SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment - Property and equipment are stated at cost.
Expenditures for maintenance, repairs, renovations and betterments, which
do not materially extend the useful life of the asset, are expensed as
incurred. Depreciation is computed using the straight-line method over the
estimated useful-lives of the assets which range from five to seven years.
Amortization is provided on leasehold improvements on a straight-line basis
over the term of the lease.
Revenue Recognition - For hospital collection activities, the Company
recognizes revenue based upon a fee percentage of collections in the period
hospital collections are made.
For hospital billing activities, the Company estimates fees that will be
invoiced upon collection of referred hospital billings and recognizes such
revenues when substantially all services to be performed by the Company
have been completed. Accounts Receivable - Unbilled represents amounts
recognized for services rendered but not yet invoiced and is based on the
Company's estimate of the fees that will be collected from hospitals when
referred accounts are collected. This estimate is calculated by applying
the Company's client fee percentages to an estimate of the hospitals'
collections that will be achieved on amounts pending collection. The
Company revises its estimate of its unbilled accounts receivable
periodically based on its referred billing and collection information for
that period. The Company provides for additional costs necessary to
complete the collection process.
Income Taxes - The Company has elected to be treated as an S Corporation
for federal income tax purposes and, therefore, the taxable income of the
Company is taxed directly to the individual shareholders in proportion to
their ownership interests. Accordingly, no provision for federal income
taxes has been made in the accompanying financial statements. State taxes
are provided for states that do not recognize the S Corporation election.
State income taxes are provided for the tax effects of transactions
reported in the financial statements. The provision for income taxes
consists of taxes currently due and deferred taxes resulting from
differences in the accounting methods used for financial reporting purposes
and those used for income tax reporting.
Other Assets - Is primarily comprised of a covenant not to compete. During
1992, the Company entered into a noncompete agreement with a former
employee totaling $450,000, representing the total payments to be paid over
a period of nine years. Amounts are payable through 2001 and are guaranteed
-7-
by several of the Company's shareholders. The Company recognizes the cost
ratably over the term of the agreement at $50,000 per year. Accumulated
amortization at December 31, 1994 and 1995 was $100,000 and $150,000 and
$175,000 at June 30, 1996 (unaudited), respectively.
Interim Financial Information - The unaudited financial information
contained herein reflects all adjustments (consisting of only normal
recurring accruals) which, in the opinion of the Company, are necessary for
a fair presentation of the results of operations for the six month periods
ended June 30, 1995 and 1996.
Management Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company records both revenue and accounts receivable
allowances based on management's estimate of the net realizable value of
accounts receivable.
Fair Value Information - The estimated fair value of financial instruments
has been determined by the Company using available market information and
other appropriate valuation methodologies. The carrying amounts of current
assets and current liabilities are estimated to equal their fair value due
to the short-term nature of these accounts. The carrying amount of long-term
debt also approximates fair value due to the variable rates of interest on
such debt.
3. RELATED PARTY TRANSACTIONS
The Company has the following amounts receivable from related parties:
December 31, June 30,
1994 1995 1996
(Unaudited)
Notes receivable - shareholders 1,809,576 1,983,450 3,203,043
Due from affiliated companies 215,123 2,396,114 1,696,382
----------------------- --------------
2,024,699 4,379,564 4,899,425
======================= ==============
Legal services provided by a related party for the years ended
December 31, 1993, 1994 and 1995 and for the six month periods ended June
30, 1995 and 1996 (unaudited) were $3,953,372, $2,203,285, $2,733,582,
$1,441,724 and $1,161,905, respectively.
At December 31, 1995, the Company was contingently liable up to $400,000 for
guarantees of license fees owed by affiliates.
The Company, as well as, several shareholders are guarantors of certain
agreements made by a related party which totaled $2,294,173 at December 31,
1995 and $2,091,485 at June 30, 1996.
The Company has consulting agreements with related parties payable through
December 2004. The total amount due under such agreements was $1,261,368 at
December 31, 1995.
-8-
Notes payable to related parties consist of the following:
December 31, June 30,
1994 1995 1996
(Unaudited)
Payable to a former employee in connection
with a non-compete agreement, due in
installments through 2001 $350,000 $300,000 $275,000
Payable to a shareholder - due on demand 1,643,785 931,527 1,993,469
Payable to a shareholder - due on demand 849,013 921,179 815,444
Unsecured note due to an affiliated company
with interest at 11% matures December 31,
1996 (a) 500,000 255,746 500,000
Payable to a shareholder due in installments
with interest at 7.5% due December 2004 1,152,865 1,038,852 982,190
-------------------------- ------------
4,495,663 3,447,304 4,566,103
Less current portion 3,156,811 2,281,316 3,486,547
-------------------------- ------------
$1,338,852 $1,165,988 $1,079,556
========================== ============
(a) A loan agreement with a commercial bank places certain restrictions on
the retirement of this note (see Note 4).
The schedule of repayments of notes payable to related parties by year and in
the aggregate is as follows:
1997 $ 182,403
1998 192,682
1999 203,759
2000 182,320
2001 149,193
Thereafter 255,631
----------
$1,165,988
==========
-9-
4. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, June 30,
1994 1995 1996
(Unaudited)
Installment notes payable $516,400 $1,039,729 $812,506
Equipment under capital leases 4,437 445,860 391,249
Line of credit 200,000 - 250,000
-------- ---------- --------
720,837 1,485,589 1,453,755
Less current portion 390,909 566,414 792,467
------- --------- ---------
$329,928 $919,175 $661,288
======== ======== =========
The installment notes payable, collateralized by all assets of the Company,
are payable in monthly installments, bear interest at prime (8.50% at
December 31, 1995), and are due September 1997 and August 1998. The loan
agreement contains certain restrictions relating to debt to equity ratios
and the retirement of notes payable to S&C Investors, Inc. (see Note 3).
During 1995, the Company entered into various capital leases totaling
approximately $485,000 relating to equipment. The capital leases bear
interest at prime, and are payable in monthly installment of principal plus
interest through the year 2000.
At December 31, 1994, the Company had a $1,000,000 line of credit agreement
which bore interest at prime plus .5%. At December 31, 1995, the line of
credit amounted to $1,500,000 and bore interest at the higher of the bank's
prime rate or the federal funds rate plus .5%; the line expired on May 31,
1996. The line of credit was collateralized by all assets of the Company and
its related activities. There were no borrowings outstanding on the line at
December 31, 1995. In August of 1996, the Company entered into a secured
line of credit agreement totaling $2,000,000 (see Note 11).
Maturities of long-term debt (including capital lease obligations) as of
December 31, 1995 for the succeeding five years are as follows:
Year Ending
December 31, Total
1996 $ 566,414
1997 499,449
1998 278,106
1999 109,462
2000 32,158
----------
Total $1,485,589
==========
-10-
5. TREASURY STOCK
On December 21, 1994, the Company purchased 29 shares of common stock for
$51,719 per share from a shareholder pursuant to the terms of a pre-existing
contractual agreement. During January 1995, the Company issued 1.25 shares
at $51,719 per share pursuant to a pre-existing contractual obligation to a
key employee.
6. STATE INCOME TAXES
The state income tax (benefit) expense consists of the following:
December 31, June 30,
1993 1994 1995 1995 1996
(Unaudited) (Unaudited)
Current $27,296 $40,051 $47,620 $29,141 $(12,149)
Deferred (31,410) (21,094) (51,407) (21,094) (233)
------- ------- ------- ------- --------
Total $(4,114) $18,957 $(3,787) $ 8,047 $(12,382)
======= ======= ======= ======= ========
Deferred income tax assets and liabilities were primarily comprised of:
December 31, June 30,
-------------------------------------------------------
1994 1995 1996
(Unaudited)
Deferred income tax assets:
Allowance for doubtful accounts $ 19,759 $ 35,526 $ 18,691
Accounts payable and accrued expenses 44,803 64,173 74,707
------ ------ ------
64,562 99,699 93,398
------ ------ ------
Deferred income tax liabilities:
Accounts receivable (122,029) (118,338) (112,175)
Depreciation and amortization (14,872) (6,877) (6,877)
Other (8,104) (3,520) (7,506)
------- ------- -------
(145,005) (128,735) (126,558)
-------- --------- ---------
Net deferred income tax liability $ (80,443) $ (29,036) $ (33,160)
--------- --------- ---------
-11-
Net deferred income tax liability is classified in the balance sheets as
follows:
1994 1995 1996
(Unaudited)
Net current asset (included in other current assets) $64,562 $99,699 $93,398
Net current liability (included in other current liabilities) (130,133) (121,858) (119,681)
Net long-term liability (14,872) (6,877) (6,877)
--------- --------- ---------
Net deferred income tax liability $(80,443) $(29,036) $(33,160)
========= ========= =========
In 1993, New Jersey enacted a change in treatment for S Corporations
reducing the Company's tax rate. The impact of this change resulted in a
reduction in the deferred tax liability in the amount of approximately
$69,000.
7. SAVINGS PLAN
The Company maintains a qualified 401(k) Employee Savings Plan for the
benefit of all eligible employees. Contributions to the plan may be made by
both eligible employees and the Company. The Company contribution to the
plan, which represents a percentage of matching employee contributions for
the years ended December 31, 1993, 1994 and 1995 and for the six months
ended June 30, 1995 and 1996 (unaudited), amounted to approximately $17,800,
$47,000, $62,000 and $28,910 and $33,365, respectively.
8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of receivables. The Company believes the concentration
of credit risk in its accounts receivables is substantially mitigated by the
Company's ongoing credit evaluation process and due to the large number of
customers comprising the Company's customer base. The Company does not
generally require collateral from customers. The Company evaluates the need
for an allowance for doubtful accounts based upon factors surrounding the
credit risk of specific customers, historical trends and other information.
Revenue from one customer was approximately 22% and 12% of total revenues
for the years ended December 31, 1993 and 1994, respectively. Revenue from
two customers was approximately 19% and 11% of total revenue for the year
ended December 31, 1995.
-12-
9. COMMITMENTS AND CONTINGENCIES
a. Operating Leases - The Company occupies office space in various
locations under noncancelable operating leases which expire in various
years through 2006.
The Company leases its headquarters from a related entity on a
month-to-month basis.
Future minimum payments under noncancellable operating leases by year
and in the aggregate are as follows:
Amount
1996 $ 554,910
1997 262,723
1998 501,785
1999 554,910
2000 561,286
Thereafter 2,617,583
----------
$5,053,197
==========
Rent expense was $277,259, $493,704 and $464,220 for the years ended
December 31, 1993, 1994 and 1995 and $296,402 and $226,214 for the six
months ended June 30, 1995 and 1996 (unaudited), respectively.
b. Legal Matters - The Company is involved in legal matters arising in the
ordinary course of business. In the opinion of management and legal
counsel, the ultimate liability, if any, resulting from such matters
will not have a material effect on the Company's financial condition or
results of operations.
10. SUBSEQUENT EVENTS
On August 31, 1996, the Company consummated a transaction whereby the
Company agreed to be merged into Physician Support Systems, Inc. ("PSS") in
a transaction accounted for as a pooling of interests. In exchange for all
of the outstanding common stock of the Company, the shareholders of the
Company received 1,026,852 shares of PSS common stock. In addition, the two
notes payable to shareholders which were due on demand (see note 3) were
considered to be additional capital contributions and were treated as
equity for purposes of the pooling and were repaid with 131,148 shares of
PSS common stock.
In August 1996, the Company entered into a secured line of credit agreement
totaling $2,000,000 and two term loan agreements totaling $1,400,000 and
$717,000. Proceeds from the line of credit agreement, which is renewable
annually, were used for working capital. The $1,400,000 term loan is
payable in 60 equal principal installments commencing September 1996 and
concluding August 2001. The $717,000 term loan is payable in 35 equal
principal installments commencing September 1996 and concluding August
1999. Proceeds from the term loan agreements were used to repay existing
indebtedness of the Company. The line of credit and the term loans bear
interest at the higher of the bank's prime rate or the federal funds rate
plus .5% and are collateralized by all assets of the Company and certain
related parties.
******
-13-
(B) PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma financial information gives effect to
the merger by Physician Support Systems, Inc. ("PSS") with EE&C Financial
Services, Inc. ("EEC") which was completed on August 31, 1996. The EEC
transaction was accounted for as a pooling of interests and accordingly, all
previously issued financial statements of PSS will be restated to include EEC.
The unaudited pro forma financial information also gives effect to the
acquisitions by PSS of North Coast Health Care Management Group ("NCHCM"),
Medical Management Support, Inc. ("MMS") and Data Processing Systems, Inc.
("DPS") on February 12, 1996, PBS Northwest, Inc. ("PBS") on May 8, 1996 and
ALM, Inc. ("ALM") on May 21, 1996, together, the "Acquired Businesses", all of
which were accounted for as purchases, and the acquisition by PSS of Synergistic
Systems, Inc. ("SSI") on June 28, 1996, which was accounted for as a pooling of
interests. The unaudited pro forma financial statements are derived from the
historical financial statements of PSS, EEC, SSI and the Acquired Businesses
including those of PBS, ALM and SSI included in PSS' reports on Form 8-K dated
May 14, 1996, June 4, 1996 and July 8, 1996 respectively, in each case as
amended by Amendment No. 1 thereto, which are incorporated herein by reference,
and estimates and assumptions set forth below and in the notes to the unaudited
pro forma financial statements.
The unaudited pro forma balance sheet gives effect to the acquisition
by PSS of EEC as if such acquisition had occurred on June 30, 1996. Such
unaudited pro forma balance sheet is derived from the unaudited consolidated
balance sheet of PSS as of June 30, 1996 included in its Quarterly Report on
Form 10-Q for the six months ended June 30, 1996 which is incorporated herein
by reference as well as the unaudited balance sheet of EEC as of June 30, 1996
included elsewhere in this Form 8-K.
The unaudited pro forma statements of operations present unaudited pro
forma results of operations for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1996. For purposes of the unaudited pro forma
statements of operations, the acquisitions by PSS of the Acquired Businesses are
included as if such acquisitions had occurred on January 1, 1995. In addition,
the unaudited pro forma statements of operations for the year ended December 31,
1995 and the six months ended June 30, 1996 include pro forma adjustments
related to the Company's initial public offering of Common Stock which was
completed on February 12, 1996. The unaudited pro forma statements of operations
for the years ended December 31, 1993 and 1994 are derived from the audited
consolidated statements of operations for the years ended December 31, 1993 and
1994 included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, which is incorporated herein by reference and the audited
statements of operations of SSI and EEC. The unaudited pro forma statement of
operations for the year ended December 31, 1995 is derived from the audited
consolidated statement of operations of PSS for the year ended December 31, 1995
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995 and the audited and unaudited statements of operations of the Acquired
Businesses, SSI and EEC for the year ended December 31, 1995. The unaudited pro
forma statement of operations for the six months ended June 30, 1996 is derived
from the unaudited consolidated statement of operations of PSS for the six
months ended June 30, 1996 included in its Quarterly Report on Form 10-Q for the
six months ended June 30, 1996 (excluding merger costs of $ 1,150,000 and
restructuring charges of $ 900,000 related to SSI) (which includes the results
of operations of the Acquired Businesses from the effective dates of their
acquisitions by PSS to June 30, 1996) which is incorporated herein by reference,
the unaudited statements of operations of the Acquired Businesses from January
1, 1996 to the effective dates of their acquisitions and the unaudited
statements of operations of SSI and EEC.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma financial information presented herein are not necessarily
indicative of the results PSS would have obtained had such events occurred at
the beginning of the period, as assumed, or of the future results of PSS. The
unaudited pro forma financial information should be read in conjunction with the
financial statement and notes thereto included elsewhere in this Report.
-14-
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
($000s)
HISTORICAL
-----------------------------
PHYSICIAN
SUPPORT
SYSTEMS AND PRO FORMA
SUBSIDIARIES EEC ADJUSTMENTS PRO FORMA
------------ ----------- --------------- ---------
ASSETS
Cash.......................................... $ 15,060 $ 751 $15,812
Accounts receivable--billed................... 4,893 5,241 10,134
Accounts receivable--unbilled................. 8,772 504 9,276
Due from related parties...................... 4,899 4,899
Prepaid expenses and other current assets..... 863 925 1,788
------------ ----------- -------
Total current assets.................. 29,588 12,321 41,909
------------ ----------- -------
Fixed assets. net............................. 3,692 1,713 5,405
Intangible assets. net........................ 26,597 26,597
Other assets.................................. 168 279 447
------------ ----------- -------
$ 60,045 $ 14,313 $74,358
============ =========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.............................. $ 959 $ 2,287 $ 3,246
Accrued expenses.............................. 9,112 2,340 11,452
Current Portion LTD........................... 79 792 871
Current portion of other long-term
liabilities................................. 545 3,487 (2808)(c) 1,224
Deferred income taxes......................... 244 244
Other current liabilities..................... 587 587
------------ ----------- -------
Total current liabilities..................... 10,939 9,493 17,624
------------ ----------- -------
Long-term debt................................ 5,673 661 6,334
Other long-term liabilities................... 1,813 1,813
Due to related parties........................ 1,080 1,080
Deferred income taxes......................... 991 7 998
Common stock.................................. 7 10 (10)(a) 7
Treasury stock................................ (1,435) 1,435 (b)
Additional paid-in capital.................... 44,272 2,808 (c) 45,655
Additional paid-in capital.................... 10 (a)
Additional paid-in capital.................... (1,435)(b)
Retained earnings............................. (3,650) 4,497 847
------------ ----------- --------- -------
40,629 3,072 2,808 46,509
------------ ----------- --------- -------
$ 60,045 $ 14,313 $ 0 $74,358
============ =========== ========= =======
See notes to pro forma financial statements.
-15-
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
($000s)
HISTORICAL
-------------------------------
PHYSICIAN
SUPPORT
SYSTEMS
AND PRO FORMA
SUBSIDIARY SSI EEC ADJUSTMENTS PRO FORMA
---------- --- --- ----------- ---------
Revenues................................... $ 13,080 $9,477 $17,801 $40,358
Operating Expenses:
Wages and salaries..................... 5,898 4,980 11,272 22,150
General and administrative............. 4,291 3,246 3,542 11,079
Depreciation and
amortization......................... 2,566 416 271 3,253
--------- ------ ------ -------
12,755 8,542 15,085 36,482
--------- ------ ------ -------
Income (loss) from operations.............. 325 835 2,716 3,876
Other income (expenses)
Interest............................... (1,262) (78) (160) 224(g) (1,276)
Interest and other income
(expense)............................ (38) 53 (2) 13
--------- ------ ------ -------
(1,300) (25) (162) (1,263)
Income (loss) before income taxes
(benefit)................................ (976) 810 2,554 2,613
Income taxes (benefit)..................... (303) 323 (4) 1,111(h) 1,127
--------- -------- --------- -------
Net income (loss).......................... $ (672) $487 $2,558 $1,486
========= ======== ========= =======
Weighted average shares
outstanding.............................. 4,343,000(j)
=========
Net income per share....................... $ 0.34
====
See notes to pro forma financial statements.
-16-
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
($000s)
HISTORICAL
-------------------------------
PHYSICIAN
SUPPORT
SYSTEMS
AND PRO FORMA
SUBSIDIARY SSI EEC ADJUSTMENTS PRO FORMA
----------- --- --- ----------- ---------
Revenues............................. $ 18,773 $9,588 $21,818 $50,179
Operating Expenses:
Wages and salaries............... 8,866 5,182 13,287 27,335
General and administrative....... 6,723 3,417 6,708 16,848
Depreciation and
amortization................... 3,349 417 394 4,160
----------- ------ -------- ---------
18,938 9,016 20,389 48,343
----------- ------ -------- ---------
Income (loss) from operations........ (165) 572 1,429 1,836
Other income (expense)
Interest......................... (1,526) (33) (199) 224(g) (1,534)
Interest and other income
(expense)...................... (186) 33 (4) (157)
----------- ------ -------- ---------
(1,712) - (203) (1,691)
----------- ------ -------- ---------
Income (loss) before income taxes
(benefit)........................ (1,877) 572 1,226 145
Income taxes (benefit)............... (810) 231 19 580(h) 20
----------- ------ -------- ---------
Net income (loss).................... $(1,067) $ 341 $ 1,207 $ 125
=========== ====== ======== =========
Weighted average shares
outstanding...................... 4,343,000(j)
==========
Net income per share................. $0.03
====
See notes to pro forma financial statements.
-17-
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
($000s)
HISTORICAL
---------------------------- PRO FORMA
PHYSICIAN ACQUISITION
SUPPORT ADJUSTMENTS
SYSTEMS ------------------ PRO FORMA
AND ACQUIRED ACQUIRED OFFERING
SUBSIDIARY SSI EEC BUSINESSES BUSINESSES EEC ADJUSTMENTS PRO FORMA
---------- --- --- ----------- ---------- ---- ----------- ---------
Revenues.......................... $ 19,584 $9,831 $23,620 $12,795 $ 65,830
Operating Expenses:
Wages and salaries............ 9,661 5,590 16,466 5,855 $ (100)(d) 37,472
General and administrative.... 6,846 3,742 6,297 3,690 20,575
Depreciation and
amortization................ 3,378 420 543 247 854(e) 5,442
----------- -------- ------- --------- ----------
19,885 9,752 23,306 9,792 63,489
----------- -------- ------- --------- ----------
Income (loss) from operations..... (301) 79 314 3,003 2,341
Other income (expense)
Interest...................... (1,476) (59) (261) (2) 224(g) 2,006(f) 432
Other......................... 4 22 (3) (37) (14)
----------- -------- ------- --------- ----------
(1,472) (37) (264) (39) 418
----------- -------- -------- --------- ----------
Income (loss) before income taxes
(benefit)..................... (1,773) 42 50 2,964 2,759
Income taxes (benefit)............ (500) 17 (4) 149 735(h) 110(h) 802(h) 1,309
----------- -------- ------- --------- ----------
Net income (loss)................. $ (1,273) $ 25 $ 54 $ 2,815 $ 1,450
=========== ======== ======= ========= ==========
Weighted average shares
outstanding................... 8,379,628(i)
=========
Net income per share....... $0.17
=====
See notes to pro forma financial statements.
- 18 -
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
($000s)
HISTORICAL
------------------------------------- PRO FORMA
PHYSICIAN ACQUISITION
SUPPORT ADJUSTMENTS
SYSTEMS ------------------ PRO FORMA
AND ACQUIRED ACQUIRED OFFERING
SUBSIDIARIES EEC BUSINESSES BUSINESSES EEC ADJUSTMENTS PRO FORMA
------------ --- ---------- ---------- --- ----------- ---------
Revenues............................... $19,388 $11,226 $2,104 $32,719
Operating Expenses:
Wages and salaries................. 10,227 6,470 1,082 17,779
General and administrative......... 6,516 4,917 599 12,032
Depreciation and amortization...... 2,089 375 25 155(e) 2,644
Merger costs....................... 1,150 1,150
Spring restructuring charge........ 2,500 -- -- 2,500
------- ------ ------ -------
22,482 11,761 1,706 36,105
------- ------ ------ -------
Income (loss) from operations.......... (3,094) (535) 398 (3,385)
Other income (expense)
Interest........................... 72 (133) (1) 112(g) 147(f) 197
Other.............................. -- (122) 7 (115)
------- ------ ------ -------
72 (256) 6 82
------- ------ ------ -------
Income (loss) before income taxes
(benefit)............................ (3,021) (791) 404 (3,303)
Income taxes (benefit)................. (656) (12) -- 100(h) (272)(h) 59(h) (781)
------- ------ ------ -------
Net income (loss)...................... $(2,365) (779) 404 $(2,522)
======= ====== ====== =======
Weighted average shares outstanding.... 8,379,628(i)
=========
Net income (loss) per share............ $ (0.30)
=======
See notes to pro forma financial statements.
-19-
1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
(a) Adjustment to reclassify common stock of EEC to paid-in-capital.
(b) Adjustment to reclassify treasury stock of EEC to paid-in-capital.
(c) Adjustment to reflect repayment of related party demand notes with
PSS stock. Note that such notes were included in current portion of other
long-term liabilities.
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
(d) Adjustment to reflect the decrease in compensation expense as a
result of employment agreements with NCHCM executive officers entered into as a
result of the acquisition by PSS.
(e) Adjustment to reflect the increase in amortization expense
associated with the intangible assets recorded by PSS in purchase accounting
related to the acquisitions. The goodwill associated with the acquisitions is
being amortized on a straight line basis over an estimated life of 20 years.
(f) Adjustment to reflect the decrease in interest expense and increase
in interest income associated with the repayment of long-term debt as a result
of the offering.
(g) Adjustment to decrease interest expense at EEC as a result of
repayment of demand notes with PSS stock.
(h) Adjustment to reflect the income tax effects of the acquisitions or
adjustments shown herein.
(i) The weighted average shares outstanding used to calculate pro forma
earnings per share in 1995 is 8,379,628 shares, representing the number of
shares issued and outstanding as a result of the Company's initial public
offering, the acquisition of ALM, the merger with SSI and the merger with EEC.
(j) The weighted average shares outstanding used to calculate pro forma
earnings per share in 1993 and 1994 is 4,343,000 shares, representing the number
of shares issued and outstanding as a result of the Company's mergers with SSI
and EEC.
(C) EXHIBITS.
99.1 -- Physician Support Systems, Inc., Form 10-K (File 33-80731) for the
year ended December 31, 1995, previously filed and incorporated
herein by reference.
99.2 -- Physician Support Systems, Inc., Form 10-Q (File 33-80731) for the
quarter ended June 30, 1996, previously filed and incorporated
herein by reference.
99.3 -- Physician Support Systems, Inc. Form 8-K (File 33-80731) dated May
14, 1996, as amended by Amendment No. 1 thereto dated July 15, 1996,
previously filed and incorporated herein by reference.
99.4 -- Physician Support Systems, Inc. Form 8-K (File 33-80731) dated June
4, 1996, as amended by Amendment No. 1 thereto dated August 2, 1996,
previously filed and incorporated herein by reference.
99.5 -- Physician Support Systems, Inc. Form 8-K (File 33-80731) dated July
8, 1996, as amended by Amendment No. 1 thereto dated September 6,
1996, previously filed and incorporated herein by reference.
-20-
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this Amendment No. 1 to its report to be signed
on its behalf by the undersigned hereunder duly authorized.
PHYSICIAN SUPPORT SYSTEMS, INC.
Dated: November 12, 1996.
/s/ DAVID S. GELLER
By ...............................
DAVID S. GELLER
SENIOR VICE PRESIDENT
-21-