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): SEPTEMBER 3, 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 16, 1996 as set forth
below.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Set forth below are the combined audited financial statements of EE&C
Health Services, Inc., a Delaware corporation ("HSI"), Med-Data Interface
Systems, LLC, a Texas limited liability ("MDI") and Medical Intercept Systems,
LLC, a Texas limited liability company ("MIS" and, together with HSI and MDI,
the "Medical Intercept Systems Group" or "MIS Group") 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 the MIS Group 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
Medical Intercept Systems Group
Garland, Texas
We have audited the accompanying combined balance sheets of Medical Intercept
Systems Group (the "Group") as of December 31, 1994 and 1995, and the related
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Group'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 combined financial statements present fairly, in all
material respects, the financial position of the Group 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 Group consummated a merger transaction on
September 3, 1996.
DELOITTE & TOUCHE LLP
September 30, 1996
New York, New York
-2-
MEDICAL INTERCEPT SYSTEMS GROUP
COMBINED BALANCE SHEETS
December 31,
1994 1995 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 47,706 $ 26,442 $ 111,828
Accounts receivable - net of allowance for doubtful
accounts of $0 in 1994 and $62,134 in 1995 and (unaudited)
$51,262 at June 30, 1996 246,763 793,854 1,408,329
Accounts receivable - unbilled 447,619 1,150,280 1,816,012
Prepaid expenses and other current assets 43,321 546,084 755,657
---------- ---------- ----------
Total current assets 785,409 2,516,660 4,091,826
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Office equipment, furniture and fixtures 32,065 270,540 388,580
Computer equipment 69,083 387,277 418,615
Leasehold improvements 7,207 215,522 285,314
---------- ---------- ----------
108,355 873,339 1,092,509
Less accumulated depreciation and amortization (72,418) (226,625) (296,271)
---------- ---------- ----------
Property and equipment - net 35,937 646,714 796,238
---------- ---------- ----------
GOODWILL - Net of accumulated amortization of
$132,381 in 1994 and $264,762 in 1995 and (unaudited)
$330,952 at June 30, 1996 2,515,282 2,382,901 2,316,711
---------- ---------- ----------
OTHER ASSETS 17,243 16,344 15,828
---------- ---------- ----------
TOTAL ASSETS $3,353,871 $5,562,619 $7,220,603
========== ========== ==========
-3-
MEDICAL INTERCEPT SYSTEMS GROUP
COMBINED BALANCE SHEETS
December 31, June 30,
1994 1995 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 90,952 $ 333,175 $ 568,865
Accrued expenses 219,499 624,625 918,513
Due to related parties 599,623 3,466,113 4,531,117
Current portion of long-term debt 143,427 1,043,948 1,062,197
Other current liabilities 19,430 526,630 674,038
---------- ----------- -----------
Total current liabilities 1,072,931 5,994,491 7,754,730
---------- ----------- -----------
LONG-TERM DEBT 2,272,069 2,098,583 1,987,810
---------- ----------- -----------
Total liabilities 3,345,000 8,093,074 9,742,540
---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, no par value - 300 shares authorized,
200 shares issued and outstanding at December 31,
1994; 400 shares authorized, 300 shares issued and
outstanding at December 31, 1995 and (unaudited)
at June 30, 1996 respectively 2,000 3,000 3,000
Retained earnings (accumulated deficit) 6,871 (2,533,455) (2,524,937)
---------- ----------- -----------
Total shareholders' equity (deficit) 8,871 (2,530,455) (2,521,937)
---------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $3,353,871 $ 5,562,619 $ 7,220,603
========== =========== ===========
See notes to combined financial statements.
-4-
MEDICAL INTERCEPT SYSTEMS GROUP
COMBINED STATEMENTS OF OPERATIONS
For the Six Months
For the Years Ended December 31, Ended June 30,
1993 1994 1995 1995 1996
(Unaudited) (Unaudited)
NET REVENUES $ - $2,630,046 $ 5,764,392 $ 2,401,032 $5,290,718
OPERATING EXPENSES:
Salaries and wages - 1,074,539 4,194,613 1,608,836 3,079,839
General and administrative 49,826 1,125,157 3,427,324 1,694,316 1,873,669
Depreciation and amortization - 205,716 288,486 103,516 145,857
-------- ---------- ----------- ----------- ----------
Total operating expenses 49,826 2,405,412 7,910,423 3,406,668 5,099,365
-------- ---------- ----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS (49,826) 224,634 (2,146,031) (1,005,636) 191,353
OTHER INCOME (EXPENSE):
Interest expense, net - (167,937) (384,596) (169,074) (181,925)
Loss on disposal of equipment - - (9,699) - -
-------- ---------- ----------- ----------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
STATE INCOME TAXES (49,826) 56,697 (2,540,326) (1,174,710) 9,428
STATE INCOME TAX EXPENSE - - - - 910
-------- ---------- ----------- ----------- ----------
NET INCOME (LOSS) $(49,826) $ 56,697 $(2,540,326) $(1,174,710) $ 8,518
======== ========== =========== =========== ==========
See notes to combined financial statements.
-5-
MEDICAL INTERCEPT SYSTEMS GROUP
COMBINED STATEMENTS OF SHAREHOLDERS'
EQUITY (DEFICIT)
Total
Retained Shareholders'
Common Stock Earnings Equity
Shares Amount (Deficit) (Deficit)
BALANCE, DECEMBER 31, 1992 - $ - $ - $ -
Net loss - - (49,826) (49,826)
Issuance of common stock 100 1,000 - 1,000
------ -------- ----------- ------------
BALANCE, DECEMBER 31, 1993 100 1,000 (49,826) (48,826)
Net income - - 56,697 56,697
Issuance of common stock 100 1,000 - 1,000
------ -------- ----------- ------------
BALANCE, DECEMBER 31, 1994 200 2,000 6,871 8,871
Net loss - - (2,540,326) (2,540,326)
Issuance of common stock 100 1,000 - 1,000
------ -------- ----------- ------------
BALANCE, DECEMBER 31, 1995 300 3,000 (2,533,455) (2,530,455)
Net income (unaudited) - - 8,518 8,518
------ -------- ----------- ------------
BALANCE, JUNE 30, 1996 (Unaudited) 300 $3,000 $(2,524,937) $(2,521,937)
====== ======== =========== ============
See notes to combined financial statements.
-6-
MEDICAL INTERCEPT SYSTEMS GROUP
COMBINED STATEMENTS OF CASH FLOWS
Year Ended December 31, June 30,
1993 1994 1995 1995 1996
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income (loss) $(49,826) $ 56,697 $(2,540,326) $(1,174,710) $ 8,518
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Provision for allowance for doubtful accounts - - 62,134 21,857 (10,872)
Depreciation and amortization - 205,716 288,486 103,516 145,857
Loss on disposal of property and equipment - - 9,699 - -
Change in operating assets and liabilities:
Increase in accounts receivable - (82,297) (609,225) (487,300) (603,603)
Increase in accounts receivable - unbilled - (447,619) (702,661) (431,674) (665,732)
Increase in prepaid expenses and other current assets - (43,321) (502,763) (721,884) (209,573)
Increase in other assets (393) (17,767) (290) 315 -
Increase in accounts payable 2,883 58,873 242,223 100,966 235,690
Increase in accrued expenses - 219,499 405,126 221,218 293,888
Increase in other current liabilities - 19,430 507,200 715,295 147,408
-------- --------- ----------- ----------- ----------
Total adjustments 2,490 (87,486) (300,071) (477,691) (666,937)
-------- --------- ----------- ----------- ----------
Net cash used in operating activities (47,336) (30,789) (2,840,397) (1,652,401) (658,419)
-------- --------- ----------- ----------- ----------
INVESTING ACTIVITIES:
Acquisition of property and equipment (7,800) (88,929) (556,962) (212,709) (228,675)
Cash paid for MIS assets - (300,000) - - -
-------- --------- ----------- ----------- ----------
Net cash used in investing activities (7,800) (388,929) (556,962) (212,709) (228,675)
-------- --------- ----------- ----------- ----------
FINANCING ACTIVITIES:
Proceeds from borrowings 384,500 1,350,205 817,000 100,000
Repayment of debt (79,063) (156,100) (39,785) (242,524)
Increase in due to related parties 50,020 165,103 2,180,990 1,041,081 1,115,004
Issuance of common stock 1,000 1,000 1,000 1,000 -
-------- --------- ----------- ----------- ----------
Net cash provided by financing activities 51,020 471,540 3,376,095 1,819,296 972,480
-------- --------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH (4,116) 51,822 (21,264) (45,814) 85,386
CASH, BEGINNING OF YEAR - (4,116) 47,706 47,706 26,442
-------- --------- ----------- ----------- ----------
CASH, END OF YEAR $ (4,116) $ 47,706 $ 26,442 $ 1,892 $ 111,828
======== ========= =========== =========== ==========
SUPPLEMENTAL DISCLOSURE:
Income taxes paid $ - $ - $ - $ - $ 910
======== ========= =========== =========== ==========
Interest paid $ - $ 165,356 $ 236,627 $ 118,314 $ 135,691
======== ========= =========== =========== ==========
See notes to combined financial statements.
-7-
MEDICAL INTERCEPT SYSTEMS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The combined financial statements include the following entities: EE&C
Health Services, Inc. ("HSI") incorporated November 1993 in Delaware, MED-
DATA Interface Systems, LLC ("MDI") incorporated April 1994 in Texas and
MED-DATA Management, LLC ("MDM") incorporated in February 1995. MDM
subsequently amended its incorporation in January 1996 and is currently
operating as Medical Intercept Systems, LLC ("MIS").
Medical Intercept Systems Group (collectively the "Group") is engaged
principally in providing billing, management, data processing,
administrative and similar services for physicians in exchange for a fixed
percentage of gross billings, based on actual collections. The Group
markets these services throughout the United States, with most of their
revenue generated in Texas, Illinois and New Jersey.
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 - The Group estimates fees that will be invoiced upon
collection of physician accounts receivable and recognizes such revenues
when substantially all services to be performed by the Group have been
completed. Accounts Receivable Unbilled represents amounts recognized for
services rendered but not yet invoiced and is based on the Group's estimate
of the fees that will be collected from clients when patient accounts are
collected. This estimate is calculated by applying the Group's client fee
percentage to an estimate of the clients' collections that will be achieved
on amounts billed to patients and their insurers. The Company revises its
estimate of its unbilled accounts receivable periodically based on its
clients' billing and collection information for that period. The Company
provides for additional costs necessary to complete the collection process.
Income Taxes - HSI has elected to be treated as an S Corporation for
federal income tax purposes. MDM and MDI are Limited Liability
Corporations. Therefore, the taxable income or loss of the Group 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 combined financial statements. State taxes are provided
for states imposed at the corporate level.
Goodwill - The Group has classified as goodwill the cost in excess of fair
value of the net assets acquired as part of a purchase transaction.
Goodwill is being amortized on a straight-line basis over 20 years. The
Group periodically reviews goodwill to assess recoverability and
impairments that would be recognized in operating results if a permanent
diminution in value were to occur.
Interim Financial Information - The unaudited financial information
contained herein reflects all adjustments (consisting of only normal
recurring accruals) which, in the opinion of the Group, are
-8-
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 combined 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 Group records 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 Group 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. ACQUISITION
In April 1994, MDI purchased the assets of Medical Intercept Systems, Inc.
("MIS"), a software development company based in Chicago, for approximately
$2,794,559, including approximately $300,000 in cash and a $2,494,559
promissory note payable. The acquisition was accounted for under the
purchase method of accounting and, accordingly, the assets were recorded at
their fair values on the effective date of the acquisition. Results of
operations for MIS from the effective date of acquisition through December
31, 1994 are included in MDI's statement of operations for the year ended
December 31, 1994. The excess of purchase price over the fair value of the
assets acquired of approximately $2,647,663 is being amortized on the
straight line method over 20 years.
4. RELATED PARTY TRANSACTIONS
The Group has entered into certain transactions with related parties
summarized as follows:
June 30,
December 31, 1996
1994 1995 (Unaudited)
Notes payable upon demand to stockholders
with varying interest rates from 8.5 - 11%. $384,500 $1,070,000 $1,020,000
Due to an affiliate 215,123 2,396,113 3,511,117
-------- ---------- ----------
$599,623 $3,466,113 $4,531,117
======== ========== ==========
-9-
5. LONG-TERM DEBT
Long-term debt consists of the following:
June 30,
December 31, 1996
1994 1995 (Unaudited)
Installment notes payable $2,415,496 $2,310,446 $2,266,829
Line of credit - 572,000 572,000
Other - 260,085 211,178
---------- ---------- ----------
2,415,496 3,142,531 3,050,007
Less current portion 143,427 1,043,948 1,062,197
---------- ---------- ----------
$2,272,069 $2,098,583 $1,987,810
========== ========== ==========
One installment note payable is collateralized by a pledge of 95% of the
outstanding membership interest of MDI and MIS. The note is payable in
monthly installments bearing interest at 8% through March 1997 and the
lesser of: (i) two percent per annum plus the prime interest rate or (ii)
the maximum lawful rate of interest per annum, not to exceed 18%, through
April 1999. Two installment notes payable are collateralized by various
equipment of MIS, bearing interest at 11% and are due July 23, 1998 and
August 23, 1998, respectively.
The line of credit agreements authorize borrowings of up to $572,000
bearing interest at the Wall Street Journal Prime Rate (8.50% at December
31, 1995) plus 1.0%. The agreements contain restrictive covenants and are
collateralized by equity securities and treasury notes held by the lender.
The Group was contingently liable up to $300,000 for guaranteed license
fees payable to the former owner of MIS. The balance due at December 31,
1995 and June 30, 1996 was $210,085 and $161,178, respectively. The
agreement also calls for an additional license fee equal to $100,000, which
will be due if certain conditions are met.
Maturities of long-term debt as of December 31, 1995 for the succeeding
five years are as follows:
Year Ending
December 31, Total
1996 $1,043,948
1997 229,879
1998 242,421
1999 1,626,283
2000 -
----------
Total $3,142,531
==========
-10-
6. STATE INCOME TAXES
There was no state provision (benefit) for income taxes for the years ended
December 31, 1993, 1994 and 1995.
Deferred income tax assets and liabilities were primarily comprised of:
December 31,
1994 1995
Deferred income tax assets:
Current $ 1,382 $ 8,856
Non-current 1,622 41,804
------- --------
3,004 50,660
------- --------
Valuation allowance (2,248) (38,314)
------- --------
Net deferred income tax assets 756 12,346
------- --------
Deferred income tax liabilities:
Current 756 10,150
Non-current - 2,196
------- --------
756 12,346
------- --------
$ - $ -
======= ========
Current deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts for financial reporting purposes
and the amounts used for income tax purposes of allowance for doubtful
accounts, accounts receivable, and accruals. Non-current deferred income
taxes reflect the net tax effect of net operating loss carryforwards and
differences in depreciation methods for financial statement purposes and
income tax purposes.
A valuation allowance is provided when it is more likely than not that some
portion of the net deferred income tax asset will not be realized. At
December 31, 1994 and 1995, the Company has provided a full valuation
allowance against the tax benefits of the State net operating loss and
other tax carryforwards.
-11-
7. SAVINGS PLAN
In 1995, the Group established qualified 401(k) Employee Savings Plans for
the benefit of all eligible employees. Contributions to the plans may be
made by eligible employees, and at its option, the sponsoring company. The
Group contribution to the Plans for the year ended December 31, 1995 and
for the six months ended June 30, 1995 and 1996 (unaudited) amounted to
$3,122 and $1,431 and $2,259, respectively .
8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Group to credit risk
consist principally of receivables. The Group believes the concentration of
credit risk in its accounts receivables is substantially mitigated by the
Group's ongoing credit evaluation process and due to the large number of
customers comprising the Group's customer base. The Group does not
generally require collateral from customers. The Group 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 two customers was approximately 19% and 14% of total revenue
for the year ended December 31, 1994. Revenue from one customer was
approximately 14% of total revenues for the year ended December 31, 1995.
9. COMMITMENTS AND CONTINGENCIES
a. Operating Leases - The Group occupies office space in various
locations under noncancelable operating leases which expire in various
years through 2001.
Future minimum payments under noncancellable operating leases by year
and in the aggregate are as follows:
Amount
1996 $131,403
1997 169,034
1998 174,064
1999 183,070
2000 190,237
Thereafter 71,528
--------
Total $919,336
========
Rent expense was $117,042 and $368,570 for the years ended December
31, 1994 and 1995 and $184,529 and $230,712 for the six months ended
June 30, 1995 and 1996, respectively.
b. Legal Matters - The Group 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 Group's financial condition or
results of operations.
-12-
10. SUBSEQUENT EVENT
On September 3, 1996, the Group consummated a transaction whereby the Group
agreed to be merged into Physician Support System, Inc. ("PSS"). In
exchange for all of the outstanding membership interests of MDI and MIS
and common stock of HSI, the shareholders of the Group received 285,998
shares of PSS common stock and cash proceeds of $3,697,544.
******
-13-
(B) PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma financial information gives effect to
the acquisition by Physician Support Systems, Inc. ("PSS") of EE&C Health
Services, Inc., a Delaware corporation ("HSI"), Med-Data Interface Systems, LLC,
a Texas limited liability company ("MDI") and Medical Intercept Systems, LLC, a
Texas limited liability company ("MIS" and, together with HSI and MDI, the "MIS
Group"). Such acquisitions were accounted for as purchases. 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,
all of which were accounted for as purchases (together, the "Acquired
Businesses"), and the acquisitions by PSS of Synergistic Systems, Inc. ("SSI")
on June 28, 1996, and EE&C Financial Services, Inc. ("EEC") on August 31, 1996,
which were accounted for as poolings of interests. The unaudited pro forma
financial statements are derived from the historical financial statements of
PSS, SSI, EEC, the MIS Group and the Acquired Businesses including those of PBS,
ALM, SSI and EEC included in PSS' reports on Form 8-K dated May 14, 1996, June
4, 1996, July 8, 1996 and September 13, 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 the MIS Group 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 the MIS
Group 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 year ended December 31, 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 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 SSI, EEC, the Acquired
Businesses and the MIS Group for the year ended December 31, 1995 (included
elsewhere in this Form 8-K). 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
(which includes the results of operations for SSI for the six months then ended
and which also 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 and the unaudited statements of operations of
the MIS Group for the six months ended June 30, 1996 included elsewhere in this
Form 8-K .
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 statements and notes thereto included elsewhere in this Report.
-14-
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
($000s)
HISTORICAL
-----------------------------
PHYSICIAN MIS GROUP
SUPPORT EEC AQUISITION
SYSTEMS AND MIS PRO FORMA PRO FORMA
SUBSIDIARIES EEC GROUP ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------ ----------- -------- --------------- ------------- ---------
ASSETS
Cash.......................................... $ 15,060 $ 751 112 (3,698)(d) $12,226
Accounts receivable--billed................... 4,893 5,241 1,408 11,542
Accounts receivable--unbilled................. 8,772 504 1,816 11,092
Due from related parties...................... 4,899 4,899
Prepaid expenses and other current assets..... 863 925 756 2,543
------------ ----------- ------ -------
Total current assets.................. 29,588 12,321 4,092 42,303
------------ ----------- ------ -------
Fixed assets, net............................. 3,692 1,713 796 6,202
Intangible assets, net........................ 26,597 15,473(d) 42,069
Intangible assets, net........................ 2,317 (2,317)(d) -
Other assets.................................. 168 279 16 463
------------ ----------- ------ ------ -------
$ 60,045 $ 14,313 7,221 9,458 $91,036
============ =========== ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.............................. $ 959 $ 2,287 569 $ 3,815
Accrued expenses.............................. 9,112 2,340 918 750(d) 13,120
Current Portion LTD........................... 79 792 1,062 1,933
Current portion of other long-term
liabilities................................. 545 3,487 4,531 (2,808)(c) 5,755
Deferred income taxes......................... 244 244
Other current liabilities..................... 587 674 1,261
------------ ----------- ------ ------ -------
Total current liabilities..................... 10,939 9,493 7,755 26,128
------------ ----------- ------ ------ -------
Long-term debt................................ 5,673 661 1,988 8,322
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 3 (10)(a) 2(d) 9
Common stock.................................. (3)(d)
Treasury stock................................ (1,435) 1,435 (b)
Additional paid-in capital.................... 44,272 2,808 (c) 3(d) 51,839
Additional paid-in capital.................... 10 (a)
Additional paid-in capital.................... (1,435)(b) 6,181(d)
Additional paid-in capital....................
Retained earnings............................. (3,650) 4,497 (2,525) 2,525(d) 847
------------ ----------- ------ --------- ------ -------
40,629 3,072 (2,522) 2,808 8,708 52,695
------------ ----------- ------ --------- ------ -------
$ 60,045 $ 14,313 7,221 $ 0 9,458 $91,036
============ =========== ====== ========= ====== =======
See notes to pro forma financial statements.
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PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
($000s)
HISTORICAL
----------------------------
PHYSICIAN
SUPPORT
SYSTEMS
AND ACQUIRED
SUBSIDIARY SSI EEC BUSINESSES
---------- --- --- -----------
Revenues.......................... $ 19,584 $9,831 $23,620 $12,795
Operating Expenses:
Wages and salaries............ 9,661 5,590 16,466 5,855
General and administrative.... 6,846 3,742 6,297 3,690
Depreciation and
amortization................ 3,378 420 543 247
----------- -------- ------- ---------
19,885 9,752 23,306 9,792
----------- -------- ------- ---------
Income (loss) from operations..... (301) 79 314 3,003
Other income (expense)
Interest...................... (1,476) (59) (261) (2)
Other......................... 4 22 (3) (37)
----------- -------- ------- ---------
(1,472) (37) (264) (39)
----------- -------- -------- ---------
Income (loss) before income taxes
(benefit)..................... (1,773) 42 50 2,964
Income taxes (benefit)............ (500) 17 (4) 149
----------- -------- ------- ---------
Net income (loss)................. $ (1,273) $ 25 $ 54 $ 2,815
=========== ======== ======= =========
Weighted average shares
outstanding...................
Net income per share.......
PRO FORMA
ACQUISITION
ADJUSTMENTS PRO FORMA
------------------ ADJUSTMENTS PRO FORMA
ACQUIRED MIS MIS OFFERING
BUSINESSES EEC GROUP GROUP ADJUSTMENTS PRO FORMA
---------- ---- ----- ----------- ----------- ---------
Revenues.......................... $5,764 $ 71,594
Operating Expenses:
Wages and salaries............ $ (100)(e) 4,195 41,667
General and administrative.... 3,427 24,002
Depreciation and
amortization................ 854(f) 288 774(f) 6,504
------ ---------
7,910 72,173
------ ---------
Income (loss) from operations..... (2,146) (579)
Other income (expense)
Interest...................... 224(h) (385) (400)(i) 2,006(g) (353)
Other......................... (10) (24)
----- ---------
(395) (376)
----- ---------
Income (loss) before income taxes
(benefit)..................... (2,540) (955)
Income taxes (benefit)............ 735(j) 110(j) (1,486)(j) 802(j) (177)
----- ---------
Net income (loss)................. (2,540) $ (778)
====== ========
Weighted average shares
outstanding................... 8,665,626(k)
==========
Net income per share....... $(0.09)
=====
See notes to pro forma financial statements.
-16-
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
($000s)
HISTORICAL
-------------------------------------
PHYSICIAN
SUPPORT
SYSTEMS
AND ACQUIRED
SUBSIDIARIES EEC BUSINESSES
------------ --- ----------
Revenues............................... $19,388 $11,226 $2,104
Operating Expenses:
Wages and salaries................. 10,227 6,470 1,082
General and administrative......... 6,516 4,917 599
Depreciation and amortization...... 2,089 375 25
Merger costs....................... 1,150
Spring restructuring charge........ 2,500 -- --
------- ------ ------
22,482 11,761 1,706
------- ------ ------
Income (loss) from operations.......... (3,094) (535) 398
Other income (expense)
Interest........................... 72 (133) (1)
Other.............................. -- (122) 7
------- ------ ------
72 (256) 6
------- ------ ------
Income (loss) before income taxes
(benefit)............................ (3,021) (791) 404
Income taxes (benefit)................. (656) (12) --
------- ------ ------
Net income (loss)...................... $(2,365) (779) 404
======= ====== ======
Weighted average shares outstanding....
Net income (loss) per share............
PRO FORMA
ACQUISITION
ADJUSTMENTS
------------------ PRO FORMA PRO FORMA
ACQUIRED ADJUSTMENTS OFFERING
BUSINESSES EEC MIS MIS ADJUSTMENTS PRO FORMA
GROUP GROUP
---------- --- --- ----------- ----------- ---------
Revenues............................... $5,291 $38,009
Operating Expenses:
Wages and salaries................. 3,080 20,859
General and administrative......... 1,874 13,906
Depreciation and amortization...... 155(f) 146 387(f) 3,177
Merger costs....................... 1,150
Spring restructuring charge........ 2,500
------ -------
5,100 41,592
------ -------
Income (loss) from operations.......... 191 (3,582)
Other income (expense)
Interest........................... 112(h) (182) (200)(i) 147(g) (184)
Other.............................. - (115)
------ -------
(182) (299)
------ -------
Income (loss) before income taxes
(benefit)............................ 9 (3,882)
Income taxes (benefit)................. 100(j) (272)(j) 79(j) 59(j) (701)
------ -------
Net income (loss)...................... 9 $(3,180)
====== =======
Weighted average shares outstanding.... 8,665,626(k)
=========
Net income (loss) per share............ $ (0.37)
=======
See notes to pro forma financial statements.
-17-
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.
(d) Adjustment to reclassify undistributed S Corporation earnings to
additional paid-in capital and to reflect the acquisition of MIS Group by PSS.
The purchase price of $10,634 (including $3,698,000 of cash and 285,998 shares
of common stock valued at $6,184,000 and including transaction fees of
approximately $750,000) is allocated as follows:
($000S)
-------
Current assets...................................... $ 4,092
Fixed assets........................................ 812
Goodwill............................................ 15,473
Current liabilities................................. (7,755)
Long-term liabilities............................... (1,988)
-------
Total purchase price........................ $10,634
=======
Goodwill is being amortized over 20 years.
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
(e) 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.
(f) 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.
(g) 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.
(h) Adjustment to decrease interest expense at EEC as a result of
repayment of demand notes with PSS stock.
(i) Adjustment to decrease interest income earned by PSS as a result of
using cash to purchase common stock and to repay notes payable of the MIS Group
at the time of the acquisition.
(j) Adjustment to reflect the income tax effects of the acquisitions or
adjustments shown herein.
(k) The weighted average shares outstanding used to calculate pro forma
earnings per share is 8,665,626 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, the merger with EEC
and the acquisition of MIS.
-18-
(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.
99.6 -- Physician Support Systems, Inc. Form 8-K (File 33-80731) dated
September 13, 1996, as amended by Amendment No. 1 thereto dated
November 12, 1996, previously filed and incorporated herein by
reference.
-19-
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 15, 1996
By: /s/ DAVID S. GELLER
-------------------------------
DAVID S. GELLER
SENIOR VICE PRESIDENT
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