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) December 16, 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.)
1
Physician Support Systems, Inc., a Delaware Corporation ("PSS"), hereby
amends its Current Report on Form 8-K dated December 30, 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 combined financial statements of C-Care,
Inc. T/A The MARS Group and Affiliates ("The MARS Group"), as of December 31,
1994 and 1995 and for each of the two years ended December 31, 1994 and 1995.
These financial statements have been audited by Alloy, Silverstein, Shapiro,
Adams, Mulford & Co., independent auditors. Also set forth below are the
unaudited financial statements of The MARS Group as of September 30, 1996 and
for the nine months ended September 30, 1995 and 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 nine months ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
entire year.
-2-
To the Board of Directors and Shareholders of
C-Care, Inc. T/A The MARS Group
Camden, New Jersey 08102
We have audited the accompanying combined balance sheets of C-Care, Inc.
T/A The MARS Group and Affiliates as of December 31, 1994 and 1995, and the
related combined statements of income, stockholders' equity, and cash flows for
the years then ended. 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, the financial statements referred to above present fairly,
in all material respects, the combined financial position of C-Care, Inc. T/A
The MARS Group and Affiliates as of December 31, 1994 and 1995, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 13, C-Care, Inc. T/A The MARS Group and Affiliates
consummated a purchase transaction on December 16, 1996.
ALLOY, SILVERSTEIN, SHAPIRO, ADAMS, MULFORD & CO.
Cherry Hill, New Jersey
February 18, 1997
-3-
C-CARE, INC. T/A THE MARS GROUP AND AFFILIATES
----------------------------------------------
COMBINED BALANCE SHEETS
-----------------------
September 30
-------------
December 31 1996
----------- ----
1994 1995 (Unaudited)
---- ---- -------------
ASSETS
------
CURRENT ASSETS
- --------------
Cash $ 990,656 $ 271,466 $ 876,214
Accounts Receivable - net of
allowance for doubtful accounts
of $365,650 in 1994 and $807,803
in 1995 and $621,277 at
September 30, 1996 (unaudited) 1,861,481 1,698,093 1,903,766
---------- ---------- ----------
TOTAL CURRENT ASSETS 2,852,137 1,969,559 2,779,980
-------------------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT 1,105,547 1,326,108 1,382,277
- ----------------------
Less: Accumulated Depreciation 759,753 996,942 1,099,343
---------- ---------- ----------
NET PROPERTY AND EQUIPMENT 345,794 329,166 282,934
-------------------------- ---------- ---------- ----------
OTHER ASSETS
- ------------
Prepaid Excise Taxes 61,105 34,194 709
Security Deposits 1,950 - 950
Advances to Stockholders - 4,197 4,986
Loans to Affiliates 187,628 166,745 216,632
---------- ---------- ----------
TOTAL OTHER ASSETS 250,683 205,136 223,277
------------------ ---------- ---------- ----------
TOTAL ASSETS $3,448,614 $2,503,861 $3,286,191
- ------------ ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Note Payable $ 40,000 $ 70,000 $ -
Current Portion of Long Term Debt 45,000 105,000 142,380
Accounts Payable 143,429 123,973 61,612
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 228,429 298,973 203,992
-------------------------
LONG TERM DEBT, less current
- --------------
portion above 86,250 281,250 280,120
LOANS FROM AFFILIATES 79,594 33,000 6,858
- ---------------------
ADVANCES FROM STOCKHOLDERS 95,713 - -
- -------------------------- ---------- ---------- ----------
TOTAL LIABILITIES 489,986 613,223 490,970
- ----------------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock 8,000 8,000 8,000
Retained Earnings 2,950,628 1,882,638 2,787,221
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,958,628 1,890,638 2,795,221
-------------------------- ---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
- ----------------------------------
EQUITY $3,448,614 $2,503,861 $3,286,191
- ------ ========== ========== ==========
The accompanying notes are an integral part of these statements.
-4-
C-CARE, INC. T/A THE MARS GROUP AND AFFILIATES
----------------------------------------------
COMBINED STATEMENTS OF INCOME
-----------------------------
Nine Month Period Ended
----------------------------
Year Ended December 31 September 30
---------------------------- ----------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
------------ ------------
REVENUE COLLECTED
- -----------------
Fees $7,976,544 $ 7,353,978 $5,622,732 $6,592,382
OPERATING EXPENSES
- ------------------
Salaries and Wages 3,463,073 4,454,190 3,264,284 3,639,538
General and Administrative 3,981,992 3,703,397 2,541,053 1,926,934
Depreciation 174,072 237,187 190,516 102,403
---------- ----------- ---------- ----------
TOTAL OPERATING EXPENSES 7,619,137 8,394,774 5,995,853 5,668,875
------------------------ ---------- ----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS
- -----------------------------
BEFORE OTHER INCOME (EXPENSES) 357,407 (1,040,796) (373,121) 923,507
- ------------------------------ ---------- ----------- ---------- ----------
OTHER INCOME (EXPENSES)
- -----------------------
Interest Expense (23,271) (30,966) (17,520) (39,766)
Interest Income 10,301 15,023 9,065 23,397
---------- ----------- ---------- ----------
TOTAL OTHER INCOME (EXPENSES) (12,970) (15,943) (8,455) (16,369)
- ----------------------------- ---------- ----------- ---------- ----------
INCOME (LOSS) BEFORE STATE
- --------------------------
INCOME TAXES 344,437 (1,056,739) (381,576) 907,138
- ------------
STATE INCOME TAXES 14,382 11,251 9,765 2,555
- ------------------ ---------- ----------- ---------- ----------
NET INCOME (LOSS) $ 330,055 $(1,067,990) $ (391,341) $ 904,583
- ----------------- ========== =========== ========== ==========
The accompanying notes are an integral part of these statements.
-5-
C-CARE, INC. T/A THE MARS GROUP AND AFFILIATES
----------------------------------------------
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
-------------------------------------------
Common Stock Total
------------ Retained Stockholders'
Shares Amount Earnings Equity
------ ------ -------- ------
(Issued)
BALANCE - DECEMBER 31, 1993 1966.5 $8,000 $ 2,620,573 $ 2,628,573
- ---------------------------
Net Income .- - 330,055 330,055
------ -------- ----------- -----------
BALANCE - DECEMBER 31, 1994 1966.5 8,000 2,950,628 2,958,628
- ---------------------------
Net (Loss) .- - (1,067,990) (1,067,990)
Issuance of Common Stock 33.5 - - -
------ -------- ----------- -----------
BALANCE - DECEMBER 31, 1995 2000.0 8,000 1,882,638 1,890,638
- ---------------------------
Net Income (Unaudited) .- - 904,583 904,583
Issuance of Common Stock 1000.0 - - -
------ -------- ----------- -----------
BALANCE - SEPTEMBER 30, 1996
- ----------------------------
(UNAUDITED) 3000.0 $8,000 $ 2,787,221 $ 2,795,221
- ----------- ====== ======== =========== ===========
The accompanying notes are an integral part of these statements.
-6-
C-CARE, INC. T/A THE MARS GROUP AND AFFILIATES
----------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS
---------------------------------
Year Ended Nine Month Period Ended
---------- -----------------------
December 31 September 30
----------- ------------
1994 1995 1995 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
----------- -----------
OPERATING ACTIVITIES:
- --------------------
Net Income (Loss) $ 330,055 $(1,067,990) $ (391,341) $ 904,583
ADJUSTMENTS TO RECONCILE NET INCOME
- -----------------------------------
(LOSS) TO NET CASH PROVIDED BY (USED
- ------------------------------------
IN) OPERATING ACTIVITIES:
- ------------------------
Bad Debt Expense (Recovery) 191,226 442,153 188,674 (186,526)
Depreciation 174,072 237,187 190,516 102,403
Change in Operating Assets and
- ------------------------------
Liabilities:
- -----------
(Increase) Decrease in Accounts
Receivable 231,056 (278,763) (215,749) (19,149)
(Increase) Decrease in Prepaid
Excise Taxes (26,925) 26,911 26,911 33,485
Increase (Decrease) in Accounts
Payable 96,394 (19,456) (132,187) (62,361)
------- --------- -------- -------
NET CASH PROVIDED BY (USED IN)
- ------------------------------
OPERATING ACTIVITIES 995,878 (659,958) (333,176) 772,435
- ------------------------------ ------- --------- -------- -------
INVESTING ACTIVITIES:
- --------------------
Purchase of Property and Equipment (104,643) (220,561) (189,539) (56,169)
Deposits Returned (Paid) - 1,950 1,950 (950)
NET CASH (USED IN) INVESTING ------- --------- -------- -------
- ----------------------------
ACTIVITIES (104,643) (218,611) (187,589) (57,119)
- ---------- ------- --------- -------- -------
FINANCING ACTIVITIES:
- --------------------
Proceeds from Notes Payable 40,000 30,000 30,000 -
Payments on Notes Payable - - - (70,000)
Proceeds from Long Term Debt - 300,000 - 141,250
Payments on Long Term Debt (45,000) (45,000) (33,750) (105,000)
Increase (Decrease) on Loans from
Affiliates 46,594 (46,594) (45,844) (26,142)
Increase (Decrease) on Loans to
Affiliates (65,064) 20,883 135,883 (49,887)
Increase (Decrease) from Advances
from Stockholders 26,941 (95,713) (95,713) -
Increase (Decrease) from Advances
to Stockholders - (4,197) (4,197) (789)
------- --------- -------- -------
NET CASH PROVIDED BY (USED IN)
- ------------------------------
FINANCING ACTIVITIES 3,471 159,379 (13,621) (110,568)
- -------------------- ------- --------- -------- -------
NET INCREASE (DECREASE) IN CASH 894,706 (719,190) (534,386) 604,748
- -------------------------------
CASH - BEGINNING OF YEAR 95,950 990,656 990,656 271,466
- ------------------------ ------- --------- -------- -------
CASH - END OF YEAR $ 990,656 $ 271,466 $ 456,270 $ 876,214
- ------------------ ======= ========= ======== =======
SUPPLEMENTAL DISCLOSURE:
- -----------------------
Income Taxes Paid $ 14,382 $ 11,251 $ 9,765 $ 2,555
======= ========= ======== =======
Interest Paid $ 23,271 $ 30,966 $ 17,520 $ 39,766
======= ========= ======== =======
The accompanying notes are an integral part of these statements.
-7-
C-CARE, INC. T/A THE MARS GROUP AND AFFILIATES
----------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
YEARS ENDED DECEMBER 31, 1994 AND 1995
--------------------------------------
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
--------------------------------------------------------------------
1. Business Activity
-----------------
C-Care Inc. was incorporated in the State of New Jersey on August 4, 1993 to
provide billing and collection related services to hospitals. Medical
Assistance Recovery Systems, Inc. was incorporated in the Commonwealth of
Pennsylvania on January 24, 1986. Medical Recovery Plus, Inc. was
incorporated in the Commonwealth of Pennsylvania on February 2, 1988.
MATRAK, Inc. was incorporated in the Commonwealth of Pennsylvania on August
7, 1986. Professional Medical Recovery Service, Inc. was incorporated in the
State of New Jersey on January 17, 1985. H.O.P.E. Enterprises Group, Inc.
was incorporated in the State of New Jersey on July 18, 1996. The
accompanying financial statements include the accounts of all these
companies ("The MARS Group"). On October 1, 1995, Medical Assistance
Recovery Systems, Inc., Medical Recovery Plus, Inc. and MATRAK, Inc.
were merged into C-Care Inc. The MARS Group provides billing and collection
related services to hospitals in New Jersey, Pennsylvania and Delaware.
2. Summary of Significant Accounting Policies
------------------------------------------
Principles of Combination
-------------------------
The combined financial statements include the accounts of all the companies
contained in The MARS Group. All significant intercompany accounts and
transactions have been eliminated.
Use of 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.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation on assets is
provided using federally prescribed rates, which are not materially
different from normal depreciation methods, and recovery periods as set
forth below:
Years
------
Furniture and Fixtures 7
Equipment 5
Revenue Recognition
-------------------
The Company recognizes revenue based upon a percentage of client hospital
collections in the period the client hospital collections are received.
Accounts Receivable
-------------------
The Company provides an accounts receivable allowance based on management's
estimate of the net realizable value of accounts receivable.
-8-
C-CARE, INC. T/A THE MARS GROUP AND AFFILIATES
----------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
YEARS ENDED DECEMBER 31, 1994 AND 1995
--------------------------------------
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
--------------------------------------------------------------------
(Continued)
2. Summary of Significant Accounting Policies (Continued)
------------------------------------------
Income Taxes
------------
The stockholders of the Company and H.O.P.E. Enterprises Group, Inc. have
elected under the Internal Revenue Code and for certain states to be taxed
individually for the profits of the S corporation. Professional Medical
Recovery Service, Inc. is a C Corporation.
Interim Financial Information
-----------------------------
The unaudited financial information contained herein reflects all
adjustments which, in the opinion of the Company, are necessary for a fair
presentation of the results of operations for the nine month periods ended
September 30, 1996 and 1995.
Fair Value of Financial Instruments
-----------------------------------
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments approximate the carrying
value of such amounts.
3. Property and Equipment
----------------------
Property and Equipment consist of the following:
December 31 September 30
----------- ------------
1994 1995 1996
---- ---- ----
(Unaudited)
-----------
Furniture and Fixtures $ 286,176 $ 321,485 $ 324,597
Improvements 50,399 52,899 52,899
Equipment 768,972 951,724 1,004,781
--------- --------- ---------
Total $ 1,105,547 $ 1,326,108 $ 1,382,277
----- ========= ========= =========
4. Loans to Affiliates
-------------------
Represents non-interest bearing advances to entities controlled by certain
Company stockholders. The advances have no set terms of repayment.
5. Note Payable
------------
The Company has available a line of credit in the amount of $200,000 bearing
interest at prime plus 1%. The note is secured by equipment and general
intangibles. The balance outstanding at December 31, 1994 and 1995 was
$40,000 and $70,000, respectively. At December 31, 1995, an additional
$90,000 had been borrowed on the line by an entity controlled by certain
stockholders of the Company.
-9-
C-CARE, INC. T/A THE MARS GROUP AND AFFILIATES
----------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
YEARS ENDED DECEMBER 31, 1994 AND 1995
--------------------------------------
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
--------------------------------------------------------------------
(Continued)
6. Long Term Debt
--------------
December 31 September 30
----------- ------------
1994 1995 1996
---- ---- ----
(Unaudited)
-----------
Note payable, secured by equipment
and general intangibles, payable
in equal monthly principal pay-
ments of $3,750 plus interest at
prime plus 1% through October 1997.
Interest rate at December 31, 1995
was 9.5%. $ 131,250 $ 86,250 $ 52,500
Note payable, secured by equipment
and general intangibles, payable
in equal monthly principal pay-
ments of $3,115 plus interest at
prime plus 1% through October
1999. Interest rate at
September 30, 1996 was 9.25%. - - 115,000
Note payable, secured by equipment
and general intangibles, payable
in equal monthly principal pay-
ments of $5,000 plus interest
at prime plus 1% through
December, 2000. Interest rate
at December 31, 1995 was 9.5%. - 300,000 255,000
------- ------- -------
131,250 386,250 422,500
Less: Current Portion 45,000 105,000 142,380
------- ------- -------
Total $ 86,250 $ 281,250 $ 280,120
----- ======= ======= =======
The long term debt maturing in the next five years is:
1996 $ 136,150
1997 138,630
1998 97,380
1999 90,916
2000 60,000
All long term debt was paid off by the Company on December 19, 1996.
7. Loans from Affiliates
---------------------
Represents non-interest bearing advances from entities controlled by certain
Company stockholders. The advances have no set terms of repayments.
-10-
C-CARE, INC. T/A THE MARS GROUP AND AFFILIATES
----------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
YEARS ENDED DECEMBER 31, 1994 AND 1995
--------------------------------------
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
--------------------------------------------------------------------
(Continued)
8. Advances from Stockholders
--------------------------
Represents non-interest bearing advances with no set terms of repayment.
9. Common Stock
------------
Common stock consists of the following:
At December 31, 1994, no par value, 5114 shares authorized, 1966.5 issued
and outstanding; at December 31, 1995, no par value, 3500 shares authorized,
2000 issued and outstanding; at September 30, 1996, no par value, 4500
shares authorized, 3000 issued and outstanding. The Company and its
affiliates issued 33.5 shares of common stock in the year ended December 31,
1995 and 1,000 shares of common stock in the nine month period ended
September 30, 1996.
10. Commitments and Contingencies
-----------------------------
Operating Leases -
----------------
The Company occupies office space in various locations under operating
leases which expire in various years through 2008. Certain lease agreements
are with related entities. Total rent expense was $174,086 and $214,001 for
the years ended December 31, 1994 and 1995 and $148,679 and $246,511 for the
nine months ended September 30, 1995 and 1996 (unaudited), respectively.
Rent expense to related parties was $128,835 and $164,698 for the years
ended December 31, 1994 and 1995 and $111,875 and $155,754 for the nine
months ended September 30, 1995 and 1996 (unaudited), respectively.
Minimum future rental payments for each of the next five years and in the
aggregate are:
1996 $ 227,528
1997 236,466
1998 237,560
1999 197,310
2000 184,680
Thereafter 1,402,800
----------
Total Minimum Lease Payments $2,486,344
---------------------------- =========
Litigation -
----------
The Company is involved in legal matters arising in the ordinary course of
business. In the opinion of management, 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.
-11-
C-CARE, INC. T/A THE MARS GROUP AND AFFILIATES
----------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
YEARS ENDED DECEMBER 31, 1994 AND 1995
--------------------------------------
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
--------------------------------------------------------------------
(Continued)
11. Concentrations of Credit Risk
-----------------------------
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's uninsured cash balances total
$276,585 at December 31, 1995. The Company's uninsured cash balances total
$709,096 at September 30, 1996 (unaudited).
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. The Company
considers the concentration of credit risk in accounts receivable to be
limited due to the large number of customers comprising the Company's
customer base. The Company does not generally require collateral.
12. Related Party Transactions
--------------------------
The Company paid management fees in the amount of $5,625 and $99,169 for the
years ended December 31, 1994 and 1995, and $26,356 and $50,000 for the nine
months ended September 30, 1995 and 1996 (unaudited), respectively, to an
entity controlled by certain stockholders of the Company.
13. Subsequent Events
-----------------
On December 16, 1996, the stockholders of the Company and its affiliates
consummated a transaction whereby all of the stock of the Company and its
affiliates would be acquired by PSS C-Care, Inc., a wholly owned subsidiary
of Physician Support Systems, Inc.
-12-
(b) PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma financial information gives effect to
the acquisition by Physician Support Systems, Inc. ("PSS") of each of (i)
C-Care, Inc., a New Jersey corporation ("C-Care"), (ii) H.O.P.E. Enterprises
Group, Inc., a New Jersey corporation ("HOPE"), and (iii) Professional Medical
Recovery Service, Inc., a New Jersey corporation ("PMRS", and together with C-
Care and HOPE, "The MARS 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, ALM,
Inc. ("ALM") on May 21, 1996, and the MIS Group ("MIS") on September 3, 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 MARS Group and the Acquired Businesses including those of
PBS, ALM, SSI, EEC and MIS included in PSS' reports on Form 8-K dated May 14,
1996, June 4, 1996, July 8, 1996, September 13, 1996, and September 16, 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 MARS Group as if such acquisition had occurred on September 30, 1996.
Such unaudited pro forma balance sheet is derived from the unaudited
consolidated balance sheet of PSS as of September 30, 1996 included in its
Quarterly Report on Form 10-Q for the nine months ended September 30, 1996 which
is incorporated herein by reference, as well as the unaudited balance sheet of
The MARS Group as of September 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 nine
months ended September 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 nine months ended September 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 MARS Group (included elsewhere in this Form 8-K) for the year
ended December 31, 1995. The unaudited pro forma statement of operations for the
nine months ended September 30, 1996 is derived from the unaudited consolidated
statement of operations of PSS for the nine months ended September 30, 1996
included in its Quarterly Report on Form 10-Q for the nine months ended
September 30, 1996 (which includes the results of operations of SSI and EEC for
the nine 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
September 30, 1996) which is incorporated herein by reference and the unaudited
statement of operations of The MARS Group for the nine months ended September
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.
-13-
Physician Support Systems, Inc.
Pro Forma Balance Sheet
September 30, 1996
(Unaudited)
($000s)
Physician Support
Systems, Inc. and Pro Forma
ASSETS Subsidiaries MARS Group Adjustments Pro Forma
----------------- ----------------- ------------- ----------------
Current Assets
Cash and cash equivalents $ 4,997 $ 876 $ 5,873
Accounts receivable 13,359 1,904 15,263
Accounts receivable - unbilled 11,203 11,203
Prepaid expenses and other current assets 1,900 1,900
----------------- ----------------- ----------------
Total Current Assets 31,459 2,780 34,239
Property and equipment 7,708 283 7,991
Intangible assets - net 43,740 8,906 (a) 52,646
Due from related parties 572 572
Other assets 1,764 223 1,988
----------------- ----------------- ----------------
$ 85,243 $ 3,286 $ 97,435
================= ================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,252 $ 62 $ 2,313
Accrued expenses 14,844 800 (a) 15,644
Current portion long-term debt 2,500 142 2,642
Current portion of other long-term liabilities 901 901
Deferred income taxes 2,634 500 (a) 3,134
----------------- ----------------- ----------------
Total Current Liabilities 23,132 204 24,636
----------------- ----------------- ----------------
Long-term debt 8,134 280 7,617 (a) 16,031
----------------- ----------------- ----------------
Other long-term liabilities 3,213 7 3,220
----------------- ----------------- ----------------
Deferred income taxes 1,401 1,401
----------------- ----------------
Stockholders' equity
Preferred stock
Common stock 9 8 (8)(a) 9
Common stock 1 (a)
Additional paid-in-capital 53,088 2,784 (a) 55,873
Retained earnings (accumulated deficit) (3,734) 2,787 (2,787)(a) (3,734)
----------------- ----------------- ----------------
49,363 2,795 52,148
----------------- ----------------- ----------------
$ 85,243 $ 3,286 $ 97,435
================= ================= ================
See notes to pro forma financial statements
-14-
Physician Support Systems, Inc.
Pro Forma Statement of Operations
Year Ended December 31, 1995
(Unaudited)
($000s)
Physician
Support
Systems, Inc. Acquired
and Subsidiary EEC SSI Businesses MARS Group
-------------- --------- --------- ---------- ----------
Revenues $ 19,584 $ 23,620 $ 9,831 $ 18,559 $ 7,354
Operating Expenses:
Wages and salaries 9,661 16,466 5,590 10,050 4,454
General and administrative 6,846 6,297 3,742 7,117 3,703
Depreciation and amortization 3,378 543 420 535 237
------------- --------- --------- --------- ----------
19,885 23,306 9,752 17,702 8,395
------------- --------- --------- --------- ----------
Income (loss) from operations (301) 314 79 857 (1,041)
------------- --------- --------- --------- ----------
Other Income (expense)
Interest (1,476) (261) (59) (387) (16)
Interest and other income (expense) 4 (3) 22 (47) -
------------- --------- --------- --------- ----------
(1,472) (264) (37) (433) (16)
Income (loss) before income taxes (benefit) (1,773) 50 42 424 (1,057)
Income taxes (benefit) (500) (4) 17 149 11
------------- --------- --------- --------- ----------
Net income (loss) $ (1,273) $ 54 $ 25 $ 274 $ (1,068)
============== ======== ========= ========= ==========
Weighted average shares outstanding
Net income (loss) per share
Pro Forma Adjustments Pro Forma Pro forma
Acquired Businesses, Adjustments Offering
EEC, SSI MARS Group Adjustments Pro Forma
--------------------- ------------- ----------- -------------
Revenues $ 78,948
Operating Expenses:
Wages and salaries (100) (b) 46,121
General and administrative - 27,706
Depreciation and amortization 1,628 (c) 455 (c) 7,197
-------------
81,023
-------------
Income (loss) from operations (2,075)
-------------
Other Income (expense)
Interest expense 224 (d) (498) (e) 1,356 (f) (1,117)
Interest and other income (expense) (24)
-------------
(1,140)
Income (loss) before income taxes (benefit) (3,216)
Income taxes (benefit) (482) (g) (815) (g) 542 (g) (1,081)
-------------
Net income (loss) $ (2,134)
==============
Weighted average shares outstanding 8,841,053 (h)
==============
Net income (loss) per share $ (0.24)
==============
See notes to pro forma financial statements
-15-
Physician Support Systems, Inc.
Pro Forma Statement of Operations
Nine Months Ended September 30, 1996
(Unaudited)
($000's)
Pro Forma
Physician Support Adjustments Pro Forma Pro Forma
Systems, Inc. and Acquired Acquired Adjustments Offering
Subsidiaries Businesses MARS Group Businesses MARS Group Adjustments Pro Forma
---------------- ---------- ---------- ---------- ---------- ----------- ---------
$ 48,557 $ 9,419 $ 6,592 $ 64,569
Revenues
Operating Expenses:
Wages and salaries 25,085 5,438 3,640 34,162
General and administrative 17,822 3,456 1,927 23,205
Depreciation and amortization 3,791 234 102 735 (c) 341 (c) 5,204
Interest expense 131 235 16 (149) (d) 374 (e) (103) (f) 504
Other, net 123 (7) 116
Merger costs 2,350 2,350
Restructuring charge 2,500 - - 2,500
--------- ------- --------
Income (loss) before income taxes (benefit) (3,244) 63 907 (3,472)
Income taxes (benefit) (5) - 3 (209) (g) 74 (g) 41 (g) (96)
--------- -------- -------- ----------
Net income (loss) $ (3,239) $ 63 $ 905 $ (3,376)
========= ======== ========= ==========
Weighted average shares outstanding 8,841,053 (h)
==========
Net income (loss) per share $ (0.38)
==========
See notes to pro forma financial statements
-16-
1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
(a) Adjustment to reclassify undistributed S Corporation earnings to
additional paid-in capital and to reflect the acquisition of the MARS Group by
PSS. The purchase price of $10,402,000 (including $7,117,000 of cash and 175,439
shares of common stock valued at $2,785,000 and including transaction fees of
approximately $500,000) is allocated as follows:
($000S)
-------
Current assets...................................... $ 2,780
Fixed and other assets.............................. 506
Goodwill............................................ 8,906
Current liabilities................................. (1,504)
Long-term liabilities............................... (287)
-------
Total purchase price........................ $10,402
=======
Goodwill is being amortized over 20 years. The adjustment to accrued expenses
includes estimated costs of exiting certain redundant facilities and activities.
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
(b) 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.
(c) 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.
(d) Adjustment to decrease interest expense at EEC as a result of
repayment of demand notes with PSS stock.
(e) Adjustment to reflect increase in interest expense as a result of
MARS acquisition.
(f) Adjustment to reflect the decrease in interest expense associated
with the repayment of long-term debt as a result of the offering.
(g) Adjustment to reflect the income tax effects of the acquisitions or
adjustments shown herein.
(h) The weighted average shares outstanding used to calculate pro forma
earnings per share is 8,841,053 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,
the acquisition of MIS and the acquisition of The MARS Group.
-17-
(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 September 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.
99.7 -- Physician Support Systems, Inc. Form 8-K (File 33-80731) dated
September 16, 1996, as amended by Amendment No. 1 thereto dated
November 15, 1996, previously filed and incorporated herein by
reference.
-18-
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.
Date: February 28, 1997. By: /s/ David S. Geller
--------------------------------
David S. Geller
Senior Vice President and Chief
Financial Officer
-19-