-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BmKwHVNtTmZAZdWTVj0mbimiGxk4FSMdjdA88p+X4Es65stiedTEGXhTIRmvvdyp IKrnjUnI4plS1XaaQdltUg== 0000950131-96-004810.txt : 19961001 0000950131-96-004810.hdr.sgml : 19961001 ACCESSION NUMBER: 0000950131-96-004810 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960718 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMONWEALTH INC CENTRAL INDEX KEY: 0001001493 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 752154228 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27064 FILM NUMBER: 96636704 BUSINESS ADDRESS: STREET 1: 444 NORTH WELLS ST STREET 2: STE 600 CITY: CHICAGO STATE: IL ZIP: 60610 BUSINESS PHONE: 3126441800 MAIL ADDRESS: STREET 1: 444 NORTH WELLS ST STREET 2: STE 600 CITY: CHICAGO STATE: IL ZIP: 60610 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A-1 CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest reported): July 18, 1996 ------------- FIRST COMMONWEALTH, INC. ------------------------ (Exact name of registrant as specified in its charter) DELAWARE 0-27064 75-2154228 -------- ------- ---------- (State of incorporation (Commission (I.R.S. Employer or organization) File Number) Identification No.) 444 NORTH WELLS STREET, SUITE 600, CHICAGO, IL 60610 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312) 644-1800 -------------- NOT APPLICABLE -------------- (Former name or former address, if changed since last report) The undersigned registrant hereby amends Item 7 of its Current Report on Form 8-K dated July 18, 1996, as set forth below. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Business Acquired. The following financial statements of business acquired are filed as Exhibit 99.4 hereto: Financial Statements of Smileage Dental Services, Inc. as of and for the six months ended June 30, 1996 Balance Sheets as of June 30, 1996 Statements of Income for the six months ended June 30, 1996 Statements of Stockholders' Equity as of June 30, 1996 Statements of Cash Flows for the six months ended June 30, 1996 Summary of Accounting Policies Notes to Financial Statements Financial Statements of Smileage Dental Services, Inc. as of and for the years ended December 31, 1995 and 1994 Independent Auditors' Report Balance Sheets as of December 31, 1995 and 1994 Statements of Income for the years ended December 31, 1995 and 1994 Statements of Stockholders' Equity as of December 31, 1995 and 1994 Statements of Cash Flows for the years ended December 31, 1995 and 1994 Summary of Accounting Policies Notes to Financial Statements (b) Pro Forma Financial Information. The following pro forma financial statements of the registrant are filed as Exhibit 99.5 hereto: Unaudited Pro Forma Condensed Consolidated Financial Statements of First Commonwealth, Inc. as of and for the six months ended June 30, 1996 Introduction to the Unaudited Pro Forma Condensed Consolidated Financial Statements Unaudited Pro Forma Condensed Consolidated Statement of Income for the six months ended June 30, 1996 Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1996 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements Unaudited Pro Forma Condensed Consolidated Financial Statements of First Commonwealth, Inc. as of and for the year ended December 31, 1995 Introduction to the Unaudited Pro Forma Condensed Consolidated Financial Statements 2 Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 1995 Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1995 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements (c) Exhibits 23.1 Consent of Accountants 99.4 Financial Statements of Smileage Dental Services, Inc. as of and for the six months ended June 30, 1996, and as of, and for the year ended December 31, 1995 and 1994 99.5 Pro Forma Condensed Consolidated Financial Statements of First Commonwealth, Inc. as of, and for the six months ended June 30, 1996, and as of, and for the year ended December 31, 1995 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: September 30, 1996 FIRST COMMONWEALTH, INC. (Registrant) By: /s/ Christopher C. Multhauf --------------------------- Christopher C. Multhauf Chairman and Chief Executive Officer 4 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 23.1 Consent of Accountants 99.4 Financial Statements of Smileage Dental Services, Inc. as of and for the six months ended June 30, 1996 and as of and for the years ended December 31, 1995 and 1994 99.5 Pro Forma Condensed Consolidated Financial Statements of First Commonwealth, Inc. as of and for the six months ended June 30, 1996 and as of and for the years ended December 31, 1995 and 1994 EX-23.1 2 CONSENT OF ACCOUNTANTS EXHIBIT 23.1 CONSENT OF ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated June 19, 1996 on the balance sheets of Smileage Dental Services, Inc. as of December 31, 1995 and 1994 and the related statements of income, stockholders' equity and cash flows for the years then ended, which is included in this amendment to the Form 8-K of First Commonwealth, Inc. dated July 18, 1996, into the previously filed Form S-8 Registration Statement of First Commonwealth, Inc. (registration no. 333-00474). /s/ BDO Seidman, LLP BDO Seidman, LLP September 27, 1996 EX-99.4 3 FINANCIAL STATEMENTS Exhibit 99.4 Financial Statements of Smileage Dental Services, Inc. as of, and for the six months ended June 30, 1996, and as of, and for the years ended December 31, 1995 and 1994 SMILEAGE DENTAL SERVICES, INC. =========================================================== FINANCIAL STATEMENTS JUNE 30, 1996 [LOGO OF BDO SEIDMAN, LLP] BDO SEIDMAN, LLP ACCOUNTANTS AND CONSULTANTS SMILEAGE DENTAL SERVICES, INC. ============================================================ FINANCIAL STATEMENTS JUNE 30, 1996 SMILEAGE DENTAL SERVICES, INC. CONTENTS ================================================================================ FINANCIAL STATEMENTS Balance sheet 4 Statement of income 5 Statement of stockholders' equity 6 Statement of cash flows 7-8 SUMMARY OF ACCOUNTING POLICIES 9 NOTES TO FINANCIAL STATEMENTS 10-12 2 [This page intentionally left blank] 3 ================================================================================ June 30, 1996 -------------------------------------------------------------------------- ASSETS CURRENT ASSETS Related party receivables, less allowance for losses of $70,000 (Note 2) $ 54,312 Accounts receivable 20,000 Prepaid expenses and miscellaneous 1,578 Deferred tax asset (Note 5) 50,000 -------------------------------------------------------------------------- Total current assets 125,890 -------------------------------------------------------------------------- PROPERTY AND EQUIPMENT Computers 137,539 Less accumulated depreciation (118,423) -------------------------------------------------------------------------- Net property and equipment 19,116 -------------------------------------------------------------------------- $ 145,006 ========================================================================== SMILEAGE DENTAL SERVICES, INC. BALANCE SHEET ================================================================================ June 30, 1996 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 7,786 Accrued compensation 59,806 Accrued expenses - other (Note 4) 38,714 Accrued income taxes 38,700 - -------------------------------------------------------------------------------- Total liabilities 145,006 - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTE 6) STOCKHOLDERS' EQUITY (NOTES 3, 7, AND 8) Common stock 861 Additional paid-in capital 240,639 Retained earnings 334,063 - -------------------------------------------------------------------------------- 575,563 Less treasury stock (17,400 shares at cost) (575,563) - -------------------------------------------------------------------------------- Total stockholders' equity - - -------------------------------------------------------------------------------- $145,006 ================================================================================ See accompanying summary of accounting policies and notes to financial statements. 4 SMILEAGE DENTAL SERVICES, INC. STATEMENT OF INCOME ================================================================================
Six months ended June 30, 1996 - -------------------------------------------------------------------------------- Revenues (Notes 2) Practice management fees $1,288,905 - -------------------------------------------------------------------------------- Operating expenses Salaries and related expenses 697,695 General and administrative 501,510 Depreciation and amortization 30,883 - ------------------------------------------------------------------------------- Total operating expenses 1,230,088 - -------------------------------------------------------------------------------- Operating Income 58,817 - -------------------------------------------------------------------------------- Other Income (expense) Interest income 687 Interest expense (20,015) Life insurance - income 222,732 Intercompany debt forgiven (Note 2) 621,115 Other income 3,866 - -------------------------------------------------------------------------------- Total other income, net 828,385 - -------------------------------------------------------------------------------- Income before provision for income taxes 887,202 Provision for income taxes (Note 5) 208 - -------------------------------------------------------------------------------- Net income $ 886,994 ================================================================================
See accompanying summary of accounting policies and notes to financial statements. 5 Smileage Dental Services, Inc. Statement of Stockholders' Equity ===============================================================================
Addi- Total Shares tional Stock- ----------------- Common Paid-In Retained Treasury holders' Common Treasury Stock Capital Earnings Stock Equity - ------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1995 86,100 17,400 $ 861 $240,639 $(552,931) $(575,563) $(886,994) Net income - - - - 886,994 - 886,994 - ------------------------------------------------------------------------------------------------------------------ Balance, June 30, 1996 86,100 17,400 $ 861 $240,639 $ 334,063 $(575,563) $ - ==================================================================================================================
See accompanying summary of accounting policies and notes to financial statements. 6 SMILEAGE DENTAL SERVICES, INC. STATEMENT OF CASH FLOWS =============================================================== Six months ended June 30, 1996 - --------------------------------------------------------------- Cash flows from operating activities Net income $ 886,994 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 30,883 Changes in assets and liabilities: Decrease (increase) in: Related party receivables (467,679) Accounts receivable (2,694) Prepaid expenses and miscellaneous (8,257) Increase (decrease) in: Accounts payable 32,337 Accrued compensation 5,303 Accrued expenses - other 19,688 Income taxes, accrued and deferred (249,416) Related party payables (649,721) - --------------------------------------------------------------- Net cash used in operating activities (402,562) - --------------------------------------------------------------- Cash flows from investing activities Purchase of computer equipment (11,366) Proceeds from notes receivable - shareholders 1,554 - --------------------------------------------------------------- Net cash used in investing activities (9,812) - --------------------------------------------------------------- 7 SMILEAGE DENTAL SERVICES, INC. STATEMENT OF CASH FLOWS ================================================================================
Six months ended June 30, 1996 - --------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of notes payable, net $ (456) Repayment of debt and capitalized lease obligations (60,442) - --------------------------------------------------------------------- Net cash used in financing activities (60,898) - --------------------------------------------------------------------- Net decrease in cash (473,272) CASH, at beginning of year 473,272 - --------------------------------------------------------------------- CASH, at end of year $ - ===================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 20,015 Taxes 249,624 ===================================================================== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Long-term debt and lease obligations assumed by a related party $ 358,794 Equipment and facilities transferred to a related party 307,622 Notes receivable transferred to a related party 283 =====================================================================
See accompanying summary of accounting policies and notes to financial statements. 8 Smileage Dental Services, Inc. Summary of Accounting Policies ================================================================================ Basis of Presentation The financial statements are prepared on the accrual basis in accordance with generally accepted accounting principles. 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments The carrying amount reported in the balance sheet for financial instruments approximates their fair values. Property and Equipment Property and equipment is stated at cost. Depreciation is computed over the estimated useful lives of the related assets by the straight-line method. Income Taxes Income taxes are calculated using the liability method specified by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income taxes are provided for temporary differences between amounts reported for financial statements and income tax purposes. 9 Smileage Dental Services, Inc. Notes to Financial Statements ================================================================================ 1. Nature of Operations Smileage Dental Services, Inc. (the "Company") manages and services the insurance contracts of a related company in the State of Wisconsin. The Company also provides other management services to a related insurance company in Georgia and a related dental practice in Wisconsin through May 31, 1996. 2. Related Party Transactions The Company provides management services to three related companies. The amount of revenue recognized through June 30, 1996 for the management and servicing of insurance contracts and for other management services was $881,627 and $407,278, respectively. The receivable balance at June 30, 1996 represents unpaid management fees from Smileage Dental Care, Inc. (SDC) of $54,312. Another related party, Smileage Dental Insurance, Inc. owes management fees of $70,000 at June 30, 1996 which have been fully reserved by an allowance. In connection with the Company discontinuing its management and administrative servicing for the two related entities, certain assets, liabilities and contingencies were assumed by the new management company. Assets in the amount of $1,625,233, liabilities totaling $2,627,771 and all operating leases of the Company were transferred to a related company, SDC at May 31, 1996. The resulting balance owed to SDC at May 31, 1996, of $621,115 was forgiven. 3. Common Stock The Company has authorized 2,801,400 shares of common stock at $.01 par value and issued 86,100 shares, of which 68,700 are outstanding. There is 2,801,400 shares of $.01 par value preferred stock authorized for issuance, of which none are outstanding. The preferences, limitations and relative rights of the preferred stock will be determined by the Company's Board of Directors prior to issuance of such class or series. 10 SMILEAGE DENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS ====================================================================== 4. EMPLOYEE BENEFIT PLAN The Company has a qualified contributory cash and deferred profit sharing plan for eligible employees. The Company's contribution to the plan for each employee is an amount equal to 50% of each participant's contribution up to a maximum of $500 per employee for the plan year. Contributions to the plan for the six months ended June 30, 1996 totaled $2,243. A balance of $4,224 remains unpaid at June 30, 1996. 5. PROVISION FOR INCOME TAXES The provision for income taxes consists of the following:
Six months ended June 30, 1996 ============================================================= Current Federal $ 41,708 State 8,500 ------------------------------------------------------------- 50,208 ------------------------------------------------------------- Deferred Federal (42,500) State (7,500) ------------------------------------------------------------- (50,000) ------------------------------------------------------------- $ 208 ============================================================= A reconciliation of federal and state deferred income taxes consists of the following: June 30, 1996 ------------------------------------------------------------- Total deferred tax assets $ 52,640 Valuation allowance for deferred tax assets 2,640 ------------------------------------------------------------- Total net deferred tax assets 50,000 Deferred tax liabilities - ------------------------------------------------------------- Net deferred tax assets $ 50,000 =============================================================
11 SMILEAGE DENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS =============================================================================== 5. PROVISION FOR INCOME TAXES (Continued) Deferred taxes result primarily from differences in depreciation recorded for tax purposes and financial reporting purposes and reserves and accruals recorded for book purposes. 6. COMMITMENTS AND CONTINGENCIES The Company leases its facilities and equipment through 1998. The facility lease requires the Company to pay real estate taxes and common area charges in addition to the base rent. As discussed in Note 2, all leases were assumed by Smileage Dental Care, Inc. at May 31, 1996. Rent expense was $39,083 for the six months ended June 30, 1996. The Company has entered into debt and lease agreements on behalf of other related entities. At June 30, 1996, they were jointly and severally liable on an additional $975,506 of long-term debt and $4,271,365 under future minimum lease commitments. LITIGATION The Company is involved in litigation on a number of matters and is subject to certain claims which arise in the normal course of business, none of which, in the opinion of the Company's management, is expected to have a materially adverse effect on the Company's financial position or results of operations. 7. STOCK RESTRICTION AGREEMENT The shareholders are subject to a Stock Restriction Agreement which restricts the lifetime transfer of shares owned by a shareholder, the transfer of shares upon discharge or permanent disability and the transfer of shares upon the death of a shareholder, except in accordance with the terms of the Agreement. 8. STOCK OPTIONS On May 11, 1992, the Company issued to an executive the option to purchase up to 1% of the outstanding common stock of the Company at the completion of each of his first three years of employment, at year end 1992 book value ($1.00 per share). 12 SMILEAGE DENTAL SERVICES, INC. ================================================================================ FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 [LOGO OF BDO SEIDMAN, LLP] Accountants and Consultants SMILEAGE DENTAL SERVICES, INC. =============================================================================== FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 SMILEAGE DENTAL SERVICES, INC. CONTENTS ================================================================================ INDEPENDENT AUDITORS' REPORT 3 FINANCIAL STATEMENTS Balance sheets 4 Statements of income 5 Statements of stockholders' equity 6 Statements of cash flows 7 - 8 SUMMARY OF ACCOUNTING POLICIES 9 NOTES TO FINANCIAL STATEMENTS 10 - 16 2 [LOGO OF BDO SEIDMAN, LLP] BDO SEIDMAN, LLP Two Plaza East Accountants and Consultants 330 East Kilbourn Avenue, Suite 950 Milwaukee, Wisconsin 53202-3143 Telephone: (414) 272-5900 Fax: (414) 272-1090 INDEPENDENT AUDITORS' REPORT Smileage Dental Services, Inc. Milwaukee, Wisconsin We have audited the accompanying balance sheets of Smileage Dental Services, Inc. as of December 31, 1995 and 1994 and the related 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. These 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 financial position of Smileage Dental Services, Inc. at December 31, 1995 and 1994 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ BDO Seidman, LLP June 19, 1996 3 ================================================================================
December 31, 1995 1994 - -------------------------------------------------------------------------------- Assets (Note 4) Current assets Cash (Note 2) $ 473,272 $ 2,959 Accounts receivable 17,306 17,069 Related party receivables, less allowance for losses of $70,000 and $34,000 (Note 3) 218,735 287,297 Notes receivable - officers and shareholders 1,837 -- Prepaid expenses and miscellaneous 31,607 317,689 Net deferred tax asset (Note 7) 34,000 64,254 - -------------------------------------------------------------------------------- Total current assets 776,757 689,268 - -------------------------------------------------------------------------------- Property and equipment Land -- 104,000 Buildings 457,952 457,952 Furniture and fixtures 273,026 290,907 Computers 330,858 283,755 Dental equipment -- 765,335 - -------------------------------------------------------------------------------- 1,061,836 1,901,949 Less accumulated depreciation (715,581) (1,348,264) - -------------------------------------------------------------------------------- Net property and equipment 346,255 553,685 - -------------------------------------------------------------------------------- Other assets Investment in subsidiary -- 932,000 Deposits and miscellaneous 6,225 6,225 Net book value of facilities held for sale -- 227,372 - -------------------------------------------------------------------------------- Total other assets 6,225 1,165,597 - -------------------------------------------------------------------------------- $1,129,237 $ 2,408,550 ================================================================================
SMILEAGE DENTAL SERVICES, INC. BALANCE SHEETS ================================================================================
December 31, 1995 1994 - -------------------------------------------------------------------------------- Liabilities an Stockholders' Equity Current liabilities Checks drawn against future deposits $ -- $ 57,713 Notes payable (Note 4) 456 200,000 Accounts payable 63,640 238,164 Related party payable (Note 3) 1,100,439 -- Accrued compensation 147,311 86,127 Accrued expenses - other 155,649 196,213 Accrued income taxes (Note 7) 129,500 51,000 Current maturities of long-term debt (Note 4) 222,449 603,650 Current obligations under capital lease (Note 8) -- 65,303 - -------------------------------------------------------------------------------- Total current liabilities 1,819,444 1,498,170 - -------------------------------------------------------------------------------- Long-term liabilities Lease obligation, less current obligations (Note 8) -- 181,424 Long-term debt, less current maturities (Note 4) 196,787 963,900 - -------------------------------------------------------------------------------- Total long-term liabilities 196,787 1,145,324 - -------------------------------------------------------------------------------- Total liabilities 2,016,231 2,643,494 - -------------------------------------------------------------------------------- Commitments and contingencies (Notes 8 and 13) Stockholders' equity (Notes 5, 9, 10 and 11) Common stock 861 877 Additional paid-in capital 240,639 240,623 Retained earnings (deficit) (552,931) 99,119 - -------------------------------------------------------------------------------- (311,431) 340,619 Less treasury stock (575,563) (575,563) - -------------------------------------------------------------------------------- $1,129,237 $ 2,408,550 ================================================================================
See accompanying summary of accounting policies and notes to financial statements. 4 SMILEAGE DENTAL SERVICES, INC. STATEMENTS OF INCOME ================================================================================
Year ended December 31, 1995 1994 - -------------------------------------------------------------------------------- Revenues (Notes 3 and 12) Capitation revenue $ 3,423,620 $ 8,810,541 Practice management fees 2,285,250 2,108,475 - -------------------------------------------------------------------------------- Total revenues 5,708,870 10,919,016 - -------------------------------------------------------------------------------- Operating expenses Provider payments 2,615,269 8,222,379 Salaries and related expenses 1,376,572 1,496,436 General and administrative 1,148,508 979,082 Depreciation and amortization 101,224 111,393 - -------------------------------------------------------------------------------- Total operating expenses 5,241,573 10,809,290 - -------------------------------------------------------------------------------- Operating income 467,297 109,726 - -------------------------------------------------------------------------------- Other income (expense) Interest income 5,596 3,832 Rent and other income 83,742 92,269 Interest expense (67,300) (220,696) Miscellaneous (784) 7,213 - -------------------------------------------------------------------------------- Total other income (expense) 21,254 (117,382) - -------------------------------------------------------------------------------- Income (loss) before provision for income taxes (benefit) 488,551 (7,656) Provision for income taxes (benefit) (Note 7) 209,601 (270,000) - -------------------------------------------------------------------------------- Net income $ 278,950 $ 262,344 ================================================================================
See accompanying summary of accounting policies and notes to financial statements. 5 SMILEAGE DENTAL SERVICES, INC. STATEMENTS OF CASH FLOWS ================================================================================ Year ended December 31, 1995 1994 Cash flows from operating activities Net income $ 278,950 $ 262,344 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 101,224 111,393 Provision for doubtful accounts 36,000 34,000 Loss on sale of fixed assets 50 648 Non-cash bad debt - 935,447 Changes in assets and liabilities: Decrease (increase) in: Accounts receivable (237) 28,798 Related party receivables 32,562 (411,317) Prepaids, deposits and miscellaneous 287,082 (314,341) Increase (decrease) in: Checks drawn against future deposits (57,713) 57,713 Accounts payable (174,524) (553,226) Accrued expenses 20,620 108,318 Income taxes, accrued and deferred 108,754 45,046 Related party payables 207,482 (82,881) - ---------------------------------------------------------------------------- Net cash provided by operating activities 840,250 221,942 - ---------------------------------------------------------------------------- Cash flows from investing activities Purchase of property and equipment (18,633) (7,967) - ---------------------------------------------------------------------------- Net cash used in investing activities (18,633) (7,967) - ---------------------------------------------------------------------------- 7 SMILEAGE DENTAL SERVICES, INC. STATEMENTS OF CASH FLOWS ================================================================================
Year ended December 31, 1995 1994 - --------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of notes payable, net $ (199,544) $(400,000) Repayment of debt and capitalized lease obligations (151,760) (526,959) Borrowings under long-term debt - 389,364 - --------------------------------------------------------------------------- Net cash used in financing activities (351,304) (537,595) - --------------------------------------------------------------------------- Net increase (decrease) in cash 470,313 (323,620) CASH, at beginning of year 2,959 326,579 - --------------------------------------------------------------------------- CASH, at end of year $ 473,272 $ 2,959 =========================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 17,476 $ 163,547 Taxes 100,000 - =========================================================================== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Investment in subsidiary generated through related party receivables forgiveness $ - $ 930,000 Facilities transferred from a related party - 66,529 Noncash dividend 931,000 - Long-term debt and lease obligations assumed by a related party 1,243,281 - Equipment and facilities transferred to a related party 352,161 - Notes receivable transferred from a related party 1,837 - ===========================================================================
See accompanying summary of accounting policies and notes to financial statements. 8 Smileage Dental Services, Inc. Summary of Accounting Policies ================================================================================ Basis of Presentation The financial statements are prepared on the accrual basis in accordance with generally accepted accounting principles. 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments The carrying amount reported in the balance sheet for financial instruments approximates their fair values. For notes payable, fair value was determined based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. Property and Equipment Property and Equipment is stated at cost. Depreciation is computed over the estimated useful lives of the related assets principally by the straight-line method for buildings and by the straight-line and accelerated methods for other property and equipment. Income Taxes The Company changed its method of accounting for income taxes effective January 1, 1993, to conform with Statement of Financial Accounting Standards ("SFAS" No. 109, "Accounting for Income Taxes." Deferred income taxes are provided for temporary differences between amounts reported for financial statement and income tax purposes. 9 SMILEAGE DENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS ================================================================================ 1. NATURE OF OPERATIONS The Company manages and services the insurance contracts of a related company in the State of Wisconsin. The Company also provides management services to a related insurance company in Georgia and a related dental practice in Wisconsin. 2. BUSINESS AND CREDIT CONCENTRATIONS The Company's customers are concentrated in two specific geographical regions; Wisconsin and Georgia. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited. The Company believes it places its cash and temporary cash investments with high credit quality institutions. At December 31, 1995, approximately $696,500 of cash and temporary cash investments were in excess of FDIC insurance limits. 3. RELATED PARTY TRANSACTIONS The Company provides management services in connection with obtaining and servicing a related company's insurance contracts and receives monthly capitation fees for servicing the patients covered under the contract. Revenues earned in connection with these service arrangements have been included in the statements of income as follows:
Year ended December 31, 1995 1994 ----------------------------------------------------------- Capitation revenue $ -- $5,541,165 Practice management fee 1,543,367 1,401,701 ===========================================================
Prior to 1995, all the revenue of a related company (SDI) was passed through to the Company and recorded as revenue and, upon disbursement to the provider network, recorded as provider payments. Starting in 1995, SDI paid the Company management fees and the portion of capitation fees related to the patients serviced by the Company. This change in SDI cash management resulted in a decrease in revenue and provider payments of $5,937,668. 10 SMILEAGE DENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS ================================================================================ 3. RELATED PARTY TRANSACTIONS (CONTINUED) The Company also provides management services to two other related companies. Revenues earned in connection with the management services total $741,883 and $706,774 at December 31, 1995 and 1994, respectively. Cash advances between the Company and related companies are to be repaid at varying times and at no stated interest rate. The amount due from the related companies net of the allowance is $218,735 and $287,297 at December 31, 1995 and 1994, respectively. The amounts due to related companies is $1,100,439 at December 31, 1995. Long-term debt includes demand notes that bear interest at prime plus 1% on funds advanced by the shareholders. The amount due, of which $134,205 and $244,377 is included in current maturities, is $284,205 and $354,377 at December 31, 1995 and 1994, respectively. 4. NOTES PAYABLE AND LONG-TERM DEBT Notes payable consist of the following:
December 31, 1995 1994 --------------------------------------------------------- Borrowings under a $200,000 revolving credit note repaid during 1995 $ -- $200,000 Borrowings under a $200,000 revolving credit note with interest at the bank's prime rate plus 1% (prime currently 8.5%); and collateralized by all Company assets. 456 -- --------------------------------------------------------- $456 $200,000 =========================================================
11 SMILEAGE DENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS ================================================================================ 4. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED) Long-term debt consists of the following:
December 31, 1995 1994 ----------------------------------------------------------- Notes payable, assumed by a related company during 1995. $ -- $ 425,307 Mortgages payable, assumed by a related company during 1995. -- 571,247 Notes payable, shareholders, prime plus 1% (prime currently 8.5%), payable on demand. 284,205 354,377 Note payable, with interest imputed at 8%, collateralized by treasury stock, payable in semi-annual installments of $48,658 until May of 1997. 135,031 216,619 ----------------------------------------------------------- 419,236 1,567,550 Less current maturities 222,449 603,650 ----------------------------------------------------------- $196,787 $ 963,900 ===========================================================
Borrowing under the $200,000 revolving credit note are subject to covenants and restrictions, the most significant of which prohibits payment of cash dividends, restricts sales or transfer of stock, limits expenditures for fixed assets and requires maintenance of certain financial ratios and minimum levels of stockholders' equity. Notes payable, shareholders of $150,000 have been classified as long-term debt in the accompanying financial statements. The Company has the intent and ability to extend the terms on this amount beyond one year. The aggregate maturities of long-term debt maturing in each of the next two years are as follows: 1996 - $222,449; 1997 - $196,787. 12 SMILEAGE DENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS ================================================================================ 5. COMMON STOCK Smileage Dental Services, Inc. has authorized 2,801,400 shares of common stock at $.01 par value and issued 86,100 shares, of which 68,700 are outstanding. There is 2,801,400 shares of $.01 par value preferred stock authorized for issuance, of which none are outstanding. The preferences, limitations and relative rights of the preferred stock will be determined by the Company's Board of Directors prior to issuance of such class or series. 6. EMPLOYEE BENEFIT PLAN The Company has a qualified contributory cash and deferred profit sharing plan for eligible employees. The Company's contribution to the plan for each employee is an amount equal to 50% of each participant's contribution up to a maximum of $500 per employee for the plan year. Contributions to the plan in 1995 and 1994 were $38,201 and $51,300, respectively. 7. PROVISION FOR INCOME TAXES The provision for income taxes consists of the following:
Year ended December 31, 1995 1994 ------------------------------------------------ Current Federal $139,432 $ 51,000 State 39,915 -- ------------------------------------------------ 179,347 51,000 ------------------------------------------------ Deferred Federal 30,254 (321,000) State -- -- ------------------------------------------------ 30,254 (321,000) ------------------------------------------------ $209,601 $(270,000) ================================================
13 SMILEAGE DENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS ================================================================================ 7. TAXES ON INCOME (CONTINUED) A reconciliation of federal and state deferred income taxes consists of the following:
December 31, 1995 1994 -------------------------------------------------------- Total deferred taxes assets $42,685 $121,880 Valuation allowance for deferred tax assets -- 46,431 -------------------------------------------------------- Total net deferred tax assets 42,685 75,449 Deferred tax liabilities 8,685 11,195 -------------------------------------------------------- Net deferred tax asset $34,000 $ 64,254 ========================================================
Deferred taxes result primarily from differences in depreciation recorded for tax purposes and financial reporting purposes and reserves recorded for book purposes. 8. COMMITMENTS AND CONTINGENCIES The Company leases its facilities and equipment through 1998. The facility lease requires the Company to pay real estate taxes and common area charges in addition to the base rent. Rent expense was approximately $134,000 and $135,000 in 1995 and 1994, respectively. The following is a schedule by years of the future minimum rental payments required under operating leases.
Years ending December 31, Facilities Equipment ------------------------------------------------------- 1996 $38,948 $19,731 1997 -- 9,915 1998 -- 6,201 ------------------------------------------------------- $38,948 $35,847 =======================================================
14 SMILEAGE DENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS ================================================================================ 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) Litigation - ---------- The Company is involved in litigation on a number of matters and is subject to certain claims which arise in the normal course of business, none of which, in the opinion of the Company's management, is expected to have a materially adverse effect on the Company's financial position or results of operations. 9. STOCK RESTRICTION AGREEMENT The shareholders are subject to a Stock Restriction Agreement which restricts the lifetime transfer of shares owned by a shareholder, the transfer of shares upon discharge or permanent disability and the transfer of shares upon the death of a shareholder, except in accordance with the terms of the Agreement. 10. STOCK OPTIONS On May 11, 1992, the Company issued to an executive the option to purchase up to 1% of the outstanding common stock of the Company, at the completion of each of his first three years of employment at year end 1992 book value ($1.00 per share). 11. RECAPITALIZATION During 1995, Smileage Dental Services, Inc. divested its holdings in its remaining subsidiaries in the following manner. Effective May 31, 1995, Georgia Dental Plan declared a 68.7 to 1 stock split and Smileage Dental Services, Inc. passed the 68,700 shares held in Georgia Dental Plan, Inc. to its shareholders prorata. Effective December 31, 1995, Smileage Dental Care, Inc. declared a 34.35 to 1 stock split and Smileage Dental Services, Inc. passed the 34,350 shares held in Smileage Dental Care, Inc. to its shareholders prorata. In addition, Smileage Dental Services, Inc. retired 1,600 shares held in treasury. 12. MAJOR CUSTOMERS One of the Company's clients accounted for approximately 46% and 20% of revenues in 1995 and 1994, respectively. Revenues from a related party accounted for approximately 27% and 64% of total revenues in 1995 and 1994, respectively. 15 Smileage Dental Services, Inc. Notes to Financial Statements ================================================================================ 13. Contingencies Smileage Dental Services, Inc. has entered into debt and lease agreements on behalf of other related entities. At December 31, 1995 they are jointly and severally liable on an additional $859,589 of long-term debt and $4,360,189 under future minimum lease commitments. 16 EX-99.5 4 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATE. Exhibit 99.5 Pro Forma Condensed Consolidated Financial Statements of First Commonwealth, Inc. as of, and for the six months ended June 30, 1996, and as of, and for the year ended December 31, 1995. First Commonwealth, Inc. Unaudited Pro Forma Condensed Consolidated Financial Statements Introduction June 30, 1996 The accompanying unaudited pro forma condensed consolidated financial statements reflect the consolidated financial position of First Commonwealth, Inc. (the Company) as of June 30, 1996, and the results of its consolidated operations for the six months then ended after giving pro forma effect to (i) the purchase of Smileage Dental Services, Inc. (Smileage Dental Services) which was completed on July 18, 1996. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements of the Company and Smileage Dental Services, and the related notes hereto. The unaudited pro forma information does not purport to be indicative of actual results that would have been achieved had the offering and acquisition actually been completed as of the dates indicated on the following pages nor which may be achieved in the future. FIRST COMMONWEALTH, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME For the six months ended June 30, 1996 (in thousands, except share and per share data)
COMPANY SMILEAGE PRO FORMA DENTAL PRO FORMA CONSOLIDATED COMPANY (a) SERVICES (a) ADJUSTMENTS AS ADJUSTED ---------- ----------- ----------- ------------ Subscriber Revenue $ 10,019 $ 1,289 $ (479)(c) $ 10,829 Benefit Coverage Expenses 6,220 0 0 6,220 ---------- ----------- -------- ---------- Gross Margin 3,799 1,289 (479) 4,609 Selling, General and Administrative Expense 2,517 1,199 (699)(d) 3,017 Depreciation and Amortization 276 31 63 (e) 370 ---------- ----------- -------- ---------- Operating Income 1,006 59 157 1,222 Interest Income, net 160 828 (828)(f) 160 ---------- ----------- -------- ---------- Income Before Income Taxes 1,166 887 (671) 1,382 Provision For Income Taxes 468 0 112 (g) 580 ---------- ----------- -------- ---------- Net Income $ 698 $ 887 $ (783) $ 802 ========== =========== ======== ========== Weighted Average Common and Common Equivalent Shares Outstanding (b) 3,500,668 231,399 (h) 3,732,067 ========== ======== ========== Earnings Per Common and Common $ 0.20 $ 0.21 Equivalent Share ========== ==========
See notes to the unaudited pro forma condensed consolidated financial statements. FIRST COMMONWEALTH, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET June 30, 1996 (in thousands)
Company Smileage Pro Forma Dental Pro Forma Consolidated Company (i) Services (i) Adjustments (j) As Adjusted ----------- ------------ --------------- ------------ ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 9,272 $ 0 $ 69 $ 9,341 Investments - Short Term 4,121 0 0 4,121 Accounts Receivable, Net 1,714 20 (20) 1,714 Related Party Receivable 0 54 (54) 0 Other Receivables 117 0 0 117 Deposit Under Reinsurance Agreement 485 0 0 485 Prepaid Expenses 1,314 2 (2) 1,314 Deferred Tax Asset 404 50 (50) 404 Income Taxes Receivable 622 0 0 622 ------- ---- ------ ------- TOTAL CURRENT ASSETS 18,049 126 (57) 18,118 ------- ---- ------ ------- Property & Equipment 2,770 138 0 2,908 Less: Accumulated Depreciation (1,328) (119) 0 (1,447) ------- ---- ------ ------- Property & Equipment, Net 1,442 19 0 1,461 ------- ---- ------ ------- OTHER ASSETS Restricted Cash 1,077 0 0 1,077 Excess of purchase price over net assets acquired 0 0 5,530 5,530 Deposits & Other 92 0 0 92 ------- ---- ------ ------- TOTAL OTHER ASSETS 1,169 0 5,530 6,699 ------- ---- ------ ------- TOTAL ASSETS $20,660 $145 $5,473 $26,278 ======= ==== ====== ======= LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable-Trade $ 149 $ 8 $ 13 $ 170 Accounts Payable-Dental Service Providers 407 0 0 407 Claims Liability 1,395 0 0 1,395 Related Party Payable 0 0 0 0 Accrued Payroll and Related Costs 643 60 (40) 663 Other Accrued Expenses 600 39 (27) 612 Current Portion of Capital Lease Obligations 0 0 0 0 Current Portion of Long-Term Debt 0 0 0 0 Deferred Subscriber Revenue 3,841 0 0 3,841 Payable Under Reinsurance Agreement 437 0 0 437 Accrued Preferred Dividends 0 0 0 0 Income Taxes Payable 0 38 (3) 35 ------- ---- ------ ------- TOTAL CURRENT LIABILITIES 7,472 145 (57) 7,560 ------- ---- ------ ------- Capital Lease Less Current 0 0 0 0 Long-Term Debt Less Current 0 0 0 0 Deferred Tax Liability - Long-term 125 0 0 125 ------- ---- ------ ------- TOTAL LONG-TERM LIABILITIES 125 0 0 125 ------- ---- ------ ------- TOTAL LIABILITIES 7,597 145 (57) 7,685 ------- ---- ------ ------- REDEEMABLE PREFERRED STOCK 0 0 0 0 ------- ---- ------ ------- STOCKHOLDERS' EQUITY Common Stock 3 1 1 5 Capital In Excess of Par 7,678 241 5,287 13,206 Retained Earnings 5,392 334 (334) 5,392 Treasury Stock (10) (576) 576 (10) ------- ---- ------ ------- TOTAL STOCKHOLDERS' EQUITY 13,063 0 5,530 18,593 ------- ---- ------ ------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $20,660 $145 $5,473 $26,278 ======= ==== ====== =======
See notes to the unaudited pro forma condensed consolidated financial statements. FIRST COMMONWEALTH, INC. NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (in thousands) The unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 1996 gives effect to the consolidated results of operations for the six months ended June 30, 1996, as if the acquisition of Smileage Dental Services, Inc. occurred at January 1, 1996. These results are not necessarily indicative of the consolidated results of the Company as they may be in the future, or as they might have been had these events been effective at January 1, 1996. The unaudited pro forma condensed consolidated balance sheet gives effect to the financial position at June 30, 1996, as if the acquisition of Smileage Dental Services, Inc. occurred at June 30, 1996. Such consolidated financial position is not necessarily indicative of the consolidated financial position of the Company as it may be in the future, or as it might have been had these events been effective at June 30, 1996. The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements of the Company and Smileage Dental Services, Inc. and the related notes thereto. PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 ARE AS FOLLOWS: (a) Represents the historical condensed consolidated results of the Company and Smileage Dental Services, Inc. on a consolidated and stand alone basis, respectively, for the six months ended June 30, 1996. (b) Weighted average number of common shares outstanding is calculated based upon the relevant weighted average shares outstanding and options outstanding utilizing the treasury stock method for each calculation presented. (c) Reflects the reduction in revenue for contracts not acquired as of the date of acquisition. (d) Reflects the elimination of selling, general and administrative expenses for employees who will not be retained as well as associated office expenses that will be eliminated. (e) Represents the net increase to amortization ($69) for the cost over the fair value of the net assets acquired over a period of forty years and the net decrease to depreciation ($6) for assets that were sold prior to the acquisition. (f) Reflects the elimination of transactions that are of a non-recurring basis. (g) Reflects applicable income tax effects of adjustments. (h) Reflects the number of common shares and common share equivalents issued (231,399) as a result of the acquisition. PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 ARE AS FOLLOWS: (i) Reflects historical financial position of the Company and Smileage Dental Services, Inc. at June 30, 1996. (j) Reflects assumed adjustment based upon the purchase price for the Smileage Dental Services, Inc. acquisition, including the elimination of assets and liabilities not in place as of the date of the acquisition, the allocation of the purchase price over the fair values of the net assets acquired and the elimination of Smileage Dental Services, Inc. stockholders' equity. FIRST COMMONWEALTH, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INTRODUCTION December 31, 1995 The accompanying unaudited pro forma condensed consolidated financial statements reflect the consolidated financial position of First Commonwealth, Inc. (the Company) as of December 31, 1995, and the results of its consolidated operations for the year then ended after giving pro forma effect to (i) the initial public offering of common stock that was completed November 17, 1995 and (ii) the purchase of Smileage Dental Services, Inc. (Smileage Dental Services) which was completed on July 18, 1996. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements of the Company and Smileage Dental Services, and the related notes thereto. The unaudited pro forma information does not purport to be indicative of actual results that would have been achieved had the offering and acquisition actually been completed as of the dates indicated on the following pages nor which may be achieved in the future. FIRST COMMONWEALTH, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME For the year ended December 31, 1995 (in thousands, except share and per share data)
Initial Company Public Smileage Pro Forma Offering Dental Pro Forma Consolidated Company (a) Adjustments Pro Forma Services (a) Adjustments As Adjusted ----------- ----------- --------- ------------ ----------- ------------ Subscriber Revenue $33,315 $ 0 $33,315 $5,709 $(4,166)(f) $34,858 Benefit Coverage Expenses 20,286 0 20,286 2,615 (2,615)(g) 20,286 --------- ------- --------- ------ ------- --------- Gross Margin 13,029 0 13,029 3,094 (1,551) 14,572 Selling, General and Administrative Expense 9,471 0 9,471 2,601 (1,601)(h) 10,471 Depreciation and Amortization 412 0 412 25 126 (i) 563 --------- ------- --------- ------ ------- --------- Operating Income 3,146 0 3,146 468 (76) 3,538 Interest Income, net 194 303(b) 497 21 (21) 497 --------- ------- --------- ------ ------- --------- Income Before Income Taxes 3,340 303 3,643 489 (97) 4,035 Provision For Income Taxes 1,336 121(c) 1,457 210 2 (c) 1,669 --------- ------- --------- ------ ------- --------- Net Income $ 2,004 $182 $ 2,186 $ 279 $ (99) $ 2,366 ========= ======= ========= ====== ======= ========= Weighted Average Common and Common Equivalent Shares Outstanding (d) 2,993,319 465,222(e) 3,458,541 231,399 (j) 3,689,940 ========= ======= ========= ======= ========= Earnings Per Common and Common Equivalent Share $0.67 $0.63 $0.64 ========= ========= ========= See notes to the unaudited pro forma condensed consolidated financial statements.
FIRST COMMONWEALTH, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET December 31, 1995 (in thousands)
Company Smileage Pro Forma Dental Pro Forma Consolidated ASSETS Company (k) Services (k) Adjustments (l) As Adjusted ----------- ------------ --------------- ------------ CURRENT ASSETS Cash and Cash Equivalents $12,680 $ 473 $ (404) $12,749 Investments - Short Term 0 0 0 0 Accounts Receivable, Net 1,751 17 (17) 1,751 Related Party Receivable 0 219 (219) 0 Other Receivables 52 2 (2) 52 Deposit Under Reinsurance Agreement 432 0 0 432 Prepaid Expenses 1,290 32 (32) 1,290 Deferred Tax Asset 665 34 (34) 665 Income Taxes Receivable 19 0 0 19 ------- ------ ------- ------- TOTAL CURRENT ASSETS 16,889 777 (708) 16,958 ------- ------ ------- ------- Property & Equipment 2,465 1,062 (924) 2,603 Less: Accumulated Depreciation (1,086) (716) 597 (1,205) ------- ------ ------- ------- Property & Equipment, Net 1,379 346 (327) 1,398 ------- ------ ------- ------- OTHER ASSETS Restricted Cash 799 0 0 799 Excess of purchase price over net assets acquired 0 0 5,530 5,530 Deposits & Other 44 6 (6) 44 ------- ------ ------- ------- TOTAL OTHER ASSETS 843 6 5,524 6,373 ------- ------ ------- ------- TOTAL ASSETS $19,111 $1,129 $ 4,489 $24,729 ======= ====== ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable--Trade $ 365 $ 64 $ (43) $ 386 Accounts Payable--Dental Service Providers 399 0 0 399 Claims Liability 1,258 0 0 1,258 Related Party Payable 0 1,100 (1,100) 0 Accrued Payroll and Related Costs 846 147 (127) 866 Other Accrued Expenses 720 156 (144) 732 Current Portion of Capital Lease Obligations 27 0 0 27 Current Portion of Long-Term Debt 0 223 (223) 0 Deferred Subscriber Revenue 3,263 0 0 3,263 Payable Under Reinsurance Agreement 389 0 0 389 Accrued Preferred Dividends 13 0 0 13 Income Taxes Payable 0 129 (94) 35 ------- ------ ------- ------- TOTAL CURRENT LIABILITIES 7,280 1,819 (1,731) 7,368 ------- ------ ------- ------- Capital Lease Less Current 0 0 0 0 Long-Term Debt Less Current 0 197 (197) 0 Deferred Tax Liability - Long-term 125 0 0 125 ------- ------ ------- ------- TOTAL LONG-TERM LIABILITIES 125 197 (197) 125 ------- ------ ------- ------- ------- ------ ------- ------- TOTAL LIABILITIES 7,405 2,016 (1,928) 7,493 ------- ------ ------- ------- REDEEMABLE PREFERRED STOCK 0 0 0 0 ------- ------ ------- ------- STOCKHOLDERS' EQUITY Common Stock 3 1 1 5 Capital In Excess of Par 7,677 241 5,287 13,205 Retained Earnings 4,026 (553) 553 4,026 Treasury Stock 0 (576) 576 0 ------- ------ ------- ------- TOTAL STOCKHOLDERS' EQUITY 11,706 (887) 6,417 17,236 ------- ------ ------- ------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $19,111 $1,129 $ 4,489 $24,729 ======= ====== ======= ======= See notes to the unaudited pro forma condensed consolidated financial statements.
FIRST COMMONWEALTH, INC. NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 (in thousands) The unaudited pro forma condensed consolidated statement of operations of the year ended December 31, 1995 gives effect to the consolidated results of operations for the year ended December 31, 1995, as if the acquisition of Smileage Dental Services, Inc. and the offering occurred at January 1, 1995. These results are not necessarily indicative of the consolidated results of the Company as they may be in the future, or as they might have been had these events been effective at January 1, 1995. The unaudited pro forma condensed consolidated balance sheet gives effect to the financial position at December 31, 1995, as if the acquisition of Smileage Dental Services, Inc. occurred at December 31, 1995. Such consolidated financial position is not necessarily indicative of the consolidated financial position of the Company as it may be in the future, or as it might have been had these events been effective at December 31, 1995. The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements of the Company and Smileage Dental Services, Inc. and the related notes thereto. PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 ARE AS FOLLOWS: (a) Represents the historical condensed consolidated results of the Company and Smileage Dental Services, Inc. on a consolidated and stand alone basis, respectively, for the year ended December 31, 1995. (b) Reflects the increase in interest income ($303) as if the proceeds from the initial public offering of approximately $6.6 million were invested for the full year at 5.0%. (c) Reflects applicable income tax effects of adjustments. (d) Weighted average number of common shares outstanding is calculated based upon the relevant weighted average shares outstanding and options outstanding utilizing the treasury stock method for each calculation presented. (e) Reflects the incremental number of shares to be used (465,222) in the calculation as if the additional new shares of 530,000 had been outstanding for the full year. (f) Reflects the reduction in revenue for contracts not acquired as of the date of acquisition. (g) Reflects the reduction in benefit coverage expenses for contracts not acquired as of the date of acquisition. (h) Reflects the elimination of selling, general and administrative expenses for employees who will not be retained as well as associated office expenses that will be eliminated. (i) Represents the net increase to amortization ($138) for the cost over the fair value of the net assets acquired over a period of forty years and the net decrease to depreciation ($12) for assets that were sold prior to the acquisition. (j) Reflects the number of common shares and common share equivalents issued (231,399) as a result of the acquisition. PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 ARE AS FOLLOWS: (k) Reflects historical financial position of the Company and Smileage Dental Services, Inc. at December 31, 1995. (l) Reflects assumed adjustment based upon the purchase price for the Smileage Dental Services, Inc. acquisition, including the elimination of assets and liabilities not in place as of the date of the acquisition, the allocation of the purchase price over the fair values of the net assets acquired and the elimination of Smileage Dental Services, Inc. stockholders' equity. -----END PRIVACY-ENHANCED MESSAGE-----