UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended March 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_________to__________
Commission File Number 33-80731
PHYSICIAN SUPPORT SYSTEMS, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-3624081
____________________________ __________________
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
ROUTE 230 AND EBY-CHIQUES ROAD
MT. JOY, PENNSYLVANIA 17552
___________________________________________________________________
(Address of principal executive offices) (Zip Code)
(717) 653-5340
______________
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____ ______
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Common Stock, par value $.001 per share 6,265,000 Shares
_______________________________________ _______________________
Class Outstanding at
May 10, 1996
PHYSICIAN SUPPORT SYSTEMS, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 2
Condensed Consolidated Statements of
Operations - Three Months Ended
March 31, 1996 and 1995 3
Condensed Consolidated Statements of Cash
Flows -- Three Months Ended
March 31, 1996 and 1995 4
Notes to Condensed Consolidated
Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signature 9
Index of Exhibits
1
Part I. Financial Information
Item 1. Financial Statements
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1996 1995
------------ -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................... $ 20,157,363 $ 394,405
Accounts receivable ........................................ 2,730,158 3,993,408
Accounts receivable -- unbilled............................. 5,520,131 3,847,616
Prepaid expenses and other current assets................... 771,059 419,921
Deferred income taxes....................................... -- 388,293
------------ -----------
Total current assets................................... 29,178,711 9,043,643
Property and equipment -- net.................................... 2,517,946 2,414,882
Intangible assets -- net......................................... 22,616,581 11,965,026
Other assets..................................................... 74,455 68,147
------------ -----------
Total.................................................. $ 54,387,693 $23,491,698
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable............................................ $ 590,013 $ 442,172
Accrued expenses............................................ 5,921,556 4,856,346
Short-term borrowings....................................... -- 500,000
Current portion of long-term debt........................... -- 2,099,167
Current portion of other long-term liabilities.............. 520,203 603,782
Deferred income taxes....................................... 38,767 --
------------ -----------
Total current liabilities.............................. 7,070,539 8,501,467
------------ -----------
Long-term debt................................................... 5,500,000 13,830,763
------------ -----------
Other long-term liabilities...................................... 1,286,677 1,158,237
------------ -----------
Deferred income taxes............................................ 911,947 911,947
------------ -----------
Commitments and contingencies
Redeemable preferred stock:
Par value $.01 per share: authorized 10,000 shares; 10%
Preferred Stock, Series A and B, stated value $500 per
share, outstanding 2,932.032 shares of each
series at December 31, 1995............................... -- 2,932,032
------------ -----------
Stockholders' equity (deficiency):
Preferred stock, par value $.01 per share: authorized
10,000,000 shares; none outstanding
Common stock, par value $.001 per share:
authorized 100,000,000 shares; outstanding 6,265,000 and
2,240,000 shares at March 31, 1996 and December 31, 1995
respectively.............................................. 6,265 2,240
Additional paid-in capital.................................. 43,677,952 125,760
Accumulated deficit......................................... (4,065,687) (3,970,748)
------------ -----------
39,618,530 (3,842,748)
------------ -----------
Total.................................................. $ 54,387,693 $23,491,698
------------ -----------
------------ -----------
See notes to condensed consolidated financial statements.
2
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
Revenue.............................................................. $ 6,399,412 $ 4,559,882
----------- -----------
Operating expenses:
Salaries and wages.............................................. 3,325,326 2,393,069
General and administrative...................................... 2,217,810 1,678,023
Depreciation and amortization................................... 961,007 840,810
----------- -----------
Total operating expenses................................... 6,504,143 4,911,902
----------- -----------
Income (loss) from operations........................................ (104,731) (352,020)
----------- -----------
Other (income) expense:
Interest income................................................. (136,477) (1,561)
Interest expense................................................ 146,364 369,118
----------- -----------
Total other (income) expense............................... 9,887 367,557
----------- -----------
Income (loss) before income taxes (benefit).......................... (114,618) (719,577)
Income taxes (benefit)............................................... (56,000) (157,194)
----------- -----------
Net income (loss).................................................... (58,618) (562,383)
Preferred stock dividends............................................ (36,320) (64,872)
----------- -----------
Net income (loss) applicable to common stock......................... $(94,938) $(627,255)
----------- -----------
----------- -----------
Net income (loss) per share.......................................... $(0.02) $(0.28)
----------- -----------
----------- -----------
Weighted average shares outstanding.................................. 4,398,012 2,240,000
----------- -----------
----------- -----------
See notes to condensed consolidated financial statements.
3
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
-------------------------------
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss).............................................. $ (58,618) $ (562,383)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization............................. 961,007 840,810
Deferred income taxes..................................... (56,000) (153,227)
Other long-term liabilities............................... (83,660) (412,285)
Changes in operating assets and liabilities:
Accounts receivable.................................. 1,906,185 (278,961)
Accounts receivable -- unbilled...................... (263,259) 56,669
Prepaid expenses, other current assets and other
assets............................................. (319,637) 85,439
Accounts payable..................................... 82,205 260,277
Accrued expenses..................................... (1,812,008) 138,121
Deferred purchase price.............................. (166,666) --
------------ -----------
Net cash provided by (used in) operating
activities.................................... 189,549 (25,540)
------------ -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired............................. (9,953,368) --
Capital expenditures........................................... (76,405) (211,284)
------------ -----------
Net cash used in investing activities........... (10,029,773) (211,284)
------------ -----------
Cash flows from financing activities:
Net proceeds from sale of common stock......................... 43,556,217 --
Repayment of short-term borrowings............................. (500,000) --
Principal payments on long-term debt........................... (10,429,930) (233,333)
Principal payments on capital lease obligations................ (54,753) (65,544)
Redemption of preferred stock.................................. (2,932,032) --
Redeemable preferred stock distributions....................... (36,320) --
------------- -----------
Net cash provided by (used in)
financing activities.......................... 29,603,182 (298,877)
------------ -----------
Net increase (decrease) in cash and cash equivalents................ 19,762,958 (535,701)
Cash and cash equivalents, beginning of period...................... 394,405 878,350
------------ -----------
Cash and cash equivalents, end of period............................ $20,157,363 $ 342,649
----------- -----------
----------- -----------
Supplemental investing activity:
Fair value of assets acquired.................................. $13,850,820 $ --
Cash acquired.................................................. (193,261) --
Liabilities assumed............................................ 1,812,541 --
Deferred purchase price........................................ (1,912,000) --
----------- -----------
Net cash paid for acquisitions.................. $9,953,368 $ --
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ 381,509 $ 424,020
----------- -----------
----------- -----------
Capital lease obligations incurred in acquisition of
equipment.................................................... $ -- $ --
----------- -----------
----------- -----------
See notes to condensed consolidated financial statements.
4
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
have been prepared by the Company in accordance with the rules and regulations
of the Securities and Exchange Commission and consequently do not include all
of the disclosures normally required by generally accepted accounting
principles. These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
related notes thereto included in the Company's Annual Report on Form 10-K.
The unaudited financial information contained herein reflects all
adjustments (consisting of only normal recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of the results of
operations for the three month periods ended March 31, 1996 and 1995.
2. COMMON STOCK
a. Sale of common stock--On February 12, 1996, the Company authorized the
issuance of up to 10,000,000 shares of preferred stock, increased the number of
authorized shares of common stock from 5,000 to 100,000,000, changed the par
value of its common stock from $.01 to $.001 per share and effected a 1,400-for-
one stock split. In addition, on February 12, 1996, the Company sold 4,025,000
shares of common stock for $12 per share in its initial public offering of
common stock. The net proceeds of such offering of approximately $43,556,000
were used to repay all outstanding short and long-term debt except for the
Spring acquisition subordinated note, redeem all outstanding shares of
preferred stock and acquire three businesses (North Coast Health Care Management
Group (which consisted of three affiliated companies) ('NCHC Group'), Medical
Management Support, Inc. ('MMS') and Data Processing Systems, Inc. ('DPS')
(together, the 'Acquired Businesses')) currently providing business management
services to physicians.
b. 1996 Stock Option Plan--On February 9, 1996, the Company adopted the
1996 Stock Option Plan (the 'Plan'). A total of 939,750 authorized but unissued
shares of common stock are reserved for issuance under the Plan. All options
issued under the Plan have an exercise price of not less than 100% of the fair
market value of a share of the Company's common stock on the date of the grant,
vest over five years and must be exercised within ten years from the date of the
grant. Through March 31, 1996, the Company has issued 120,000 options under the
Plan at exercise prices ranging from $12 to $15 per share.
3. BUSINESS COMBINATIONS
On February 15, 1996, the Company acquired 100 percent of the outstanding
common stock and substantially all of the assets and liabilities of the
companies that made up the NCHC Group and substantially all of the assets and
liabilities of MMS and DPS. On May 8, 1996, the Company acquired substantially
all of the assets and liabilities of PBS Northwest, Inc. ('PBS'). The aggregate
purchase price of the foregoing acquisitions was approximately $14,650,000 in
cash and deferred payments. All of these acquisitions either have been or will
be accounted for under the purchase method of accounting, and, accordingly, the
net assets acquired either have been or will be recorded at their fair values on
the dates of acquisition. Excess purchase price over fair value of net assets
acquired either has been or will be amortized on the straight-line method over
20 years. The unaudited consolidated results of operations on a pro forma basis
as if the Company had sold 4,025,000 shares of common stock for $12 per share,
repaid short and long-term debt (except for the Spring acquisition subordinated
note), redeemed all outstanding shares of preferred stock and consummated the
above acquisitions on January 1, 1995 are as follows:
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Revenue $7,693,000 $6,969,000
---------- ----------
---------- ----------
Net income (loss) $ 169,000 $ (106,000)
---------- ----------
---------- ----------
Net income (loss) per share $ 0.03 $ (0.02)
---------- ----------
---------- ----------
Weighted average shares outstanding 6,265,000 6,265,000
---------- ----------
---------- ----------
4. LONG-TERM DEBT
On February 15, 1996, the Company repaid all outstanding short and long-
term debt except for the Spring acquisition subordinated note.
On May 2, 1996, the Company received a commitment from its bank for a $15
million line of credit through June 30, 1998.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading provider of business management services to
hospital-affiliated physicians. In providing its clients with business
management services, the Company manages the billing process for its clients,
including preparation and follow-up on bills from physicians for medical
services provided by such physicians to their patients. The Company is generally
compensated with a management fee based upon net receipts of its clients.
On February 12, 1996, the Company sold 4,025,000 shares of common stock
for $12 per share in its initial public offering of common stock. The net
proceeds of such offering of approximately $43,556,000 were used to repay
all outstanding short and long-term debt except for the Spring acquisition
subordinated note, redeem all outstanding shares of preferred stock and
acquire three businesses (North Coast Health Care Management Group (which
consisted of three affiliated companies) ('NCHC Group'), Medical Management
Support, Inc. ('MMS') and Data Processing Systems, Inc. ('DPS') (together,
the 'Acquired Businesses')) currently providing business management services
to physicians. See 'ACQUISITIONS.'
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's latest
annual report on Form 10-K.
ACQUISITIONS
On February 15, 1996 (effective February 1, 1996), the Company acquired 100
percent of the outstanding common stock and substantially all the assets and
liabilities of the companies that made up the North Coast Health Care Management
Group (which consisted of three affiliated companies) ('NCHC Group') for
approximately $8,000,000 in cash and deferred payments.
On February 15, 1996, the Company acquired substantially all the assets and
liabilities of Medical Management Support, Inc. ('MMS') for approximately
$2,500,000 in cash.
On February 15, 1996, the Company acquired substantially all the assets and
liabilities of Data Processing Systems, Inc. ('DPS') for approximately
$1,150,000 in cash and deferred payments. The payment of the deferred payments
is subject to DPS' retention of clients.
On May 8, 1996, the Company acquired substantially all the assets and
liabilities of PBS Northwest, Inc. ('PBS') for approximately $3,000,000 in cash.
Each of the foregoing acquisitions was or will be accounted for under the
purchase method of accounting, and, accordingly, the net assets acquired were or
will be recorded at their fair values on the date of acquisition. Excess
purchase price over fair value of net assets acquired is being or will be
amortized on the straight-line method over 20 years.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentages
of net revenue represented by certain items reflected in the Company's statement
of operations.
THREE MONTHS ENDED
--------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
Revenues 100.0% 100.0%
Salaries and wages 52.0 52.5
General and administrative expenses 34.7 36.8
Depreciation and amortization 15.0 18.4
------ ------
Income (loss) from operations (1.6) (7.7)
Interest income (2.1) --
Interest expense 2.3 8.1
------ ------
Income (loss) before income taxes (benefit) (1.8) (15.8)
Income taxes (benefit) (0.9) (3.5)
------ ------
Net income (loss) (0.9)% (12.3)%
------ ------
------ ------
Revenues
Revenues increased approximately 40% from $4,560,000 for the three months
ended March 31, 1995 to $6,399,000 for the three months ended March 31, 1996.
Such increase resulted from businesses acquired during the three months ended
March 31, 1996, and increases in the number of clients served by the Company in
the three months ended March 31, 1996 compared to the three months ended March
31, 1995.
Salaries and Wages
Salaries and wages increased approximately 39% from $2,393,000 for the
three months ended March 31, 1995 to $3,325,000 for the three months ended March
31, 1996. Such increase resulted from businesses acquired during the three
months ended March 31, 1996, increases in the number of clients served
by the Company and increases related to entry into new geographic markets where
revenues to be realized lag expenses incurred.
6
General and Administrative Expenses
General and administrative expenses increased approximately 32% from
$1,678,000 for the three months ended March 31, 1995 to $2,218,000 for the three
months ended March 31, 1996. Such increase resulted from businesses acquired
during the three months ended March 31, 1996, increases in the number of
clients served by the Company and increases related to entry into new geographic
markets where revenues to be realized lag expenses incurred.
Depreciation and Amortization
Depreciation and amortization increased approximately 14% from $841,000 for
the three months ended March 31, 1995 to $961,000 for the three months ended
March 31, 1996. Such increase resulted primarily from businesses acquired during
the three months ended March 31, 1996.
Interest Income
Interest income increased from $2,000 for the three months ended March 31,
1995 to $136,000 for the three months ended March 31, 1996 as a result of
interest earned on excess cash proceeds from the Company's initial public
offering of common stock.
Interest Expense
Interest expense decreased approximately 60% from $369,000 for the three
months ended March 31, 1995 to $146,000 for the three months ended March 31,
1996. Such decrease resulted from decreased levels of short and long-term debt
after repayment of such borrowings from proceeds from the Company's initial
public offering of common stock.
Income Taxes (Benefit)
The Company's effective rate for income taxes (benefit) increased from 22%
for the three months ended March 31, 1995 to 49% for the three months ended
March 31, 1996. Such increase resulted from differing levels in each year of
projected annual pretax income or loss and the effect on such projected levels
of items not deductible for federal income tax purposes.
Net Loss and Net Loss Per Share
Net loss and net loss per share result from the accumulation of the items
described above and the increase in the weighted average number of shares
outstanding resulting from the Company's initial public offering of common
stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital and cash and cash equivalents were
$22,108,000 and $20,157,000, respectively, at March 31, 1996 compared to
$542,000 and $394,000, respectively, at December 31, 1995. Such increases in
working capital and cash and cash equivalents result primarily from excess cash
proceeds from the Company's initial public offering of common stock. Such excess
proceeds are primarily invested in obligations of the U.S. Treasury or other
U.S. government agencies or other highly liquid short-term corporate securities.
The Company's total short and long-term debt was $5,500,000 at March 31,
1996 compared to $16,430,000 at December 31, 1995. The Company repaid all
outstanding short and long-term debt except for the Spring subordinated note out
of proceeds from its initial public offering of common stock.
On May 2, 1996, the Company received a commitment from its bank for a $15
million line of credit through June 30, 1998.
The Company believes anticipated cash flow from operations, cash and cash
equivalents on hand and borrowing capacity from its line of credit commitment
are adequate for its anticipated financing needs.
7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10 Employment Agreement, dated
as of February 14, 1996, by
and between the Company and
David S. Geller
27 Financial Data Schedule
(b) No current report on form 8-K was filed during the fiscal period to which
this report relates.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on May 15, 1996.
PHYSICIAN SUPPORT SYSTEMS, INC.
By: /s/ DAVID S. GELLER
...................................
DAVID S. GELLER
SENIOR VICE PRESIDENT
CHIEF FINANCIAL OFFICER
(Duly Authorized Officer and
Principal Financial Officer)
9
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
[S] [C]
10 Employment Agreement, dated
as of February 14, 1996, by
and between the Company and
David S. Geller
27 Financial Data Schedule