<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarter ended October 31, 1995.
/ / Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the transition period from N/A to N/A .
----- -----
Commission File Number: 0-15207
FIRST AMERICAN HEALTH CONCEPTS, INC.
(Exact name of small business issuer in its charter)
ARIZONA 86-0418406
(State of Incorporation) (IRS Employer Identification Number)
7776 SOUTH POINTE PARKWAY WEST, SUITE 150, PHOENIX, ARIZONA 85044-5424
(Address of principal executive offices) (Zip Code)
(602) 414-0300
(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock without par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 . ---
---
Registrant's common stock outstanding at December 14, 1995 was 2,639,074 shares
after deducting 348,902 shares of treasury stock.
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FIRST AMERICAN HEALTH CONCEPTS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED
OCTOBER 31, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheet as of October 31, 1995 . . . . . . . . . . . . . . 3
Statement of Income for the quarters
ended October 31, 1995 and 1994 . . . . . . . . . . . . . . . 4
Statement of Cash Flows for the quarters
ended October 31, 1995 and 1994 . . . . . . . . . . . . . . . 5
Notes to the Financial Statements . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 10
</TABLE>
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FIRST AMERICAN HEALTH CONCEPTS, INC.
BALANCE SHEET
- ------------------------------------
<TABLE>
<CAPTION>
ASSETS October 31,1995
- --------------------------------------------------------------------------------
<S> <C>
Current Assets:
Cash and cash equivalents $2,471,700
Marketable investment securities 1,948,746
Member fees receivable, net of allowance for
doubtful accounts of $17,750 266,437
Note receivable-officer, current 18,621
Deferred expenses 220,774
Prepaid expenses and other current assets 207,068
----------
Total Current Assets 5,133,346
Property and Equipment:
Office furniture and fixtures 119,857
Office equipment 1,093,437
Leasehold improvements 95,183
Systems under development 73,981
----------
1,382,459
Less accumulated depreciation and amortization (673,613)
----------
Net Property and Equipment 708,846
Other Assets:
Marketable investment securities, long term 98,750
Note receivable-officer, long term 57,848
----------
Total Assets $5,998,790
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 69,250
Current portion of capital lease obligation (Note 2) 15,461
Current portion of bank loan (Note 3) 84,400
Income taxes payable 50,508
Deferred revenue 658,033
Accrued expenses and other current liabilities 168,897
Deferred income taxes 12,676
----------
Total Current Liabilities 1,059,225
Long-Term Liabilities:
Capital lease obligation (Note 2) 43,103
Bank loan (Note 3) 253,200
----------
Total Long-Term Liabilities 296,303
Shareholders' Equity:
Common stock, no par value; Authorized
8,000,000 shares; Issued, 2,987,976 shares 616,547
Additional paid-in capital 2,559,168
Net unrealized gain on marketable investment securities 2,183
Unearned ESOP shares (Note 3) (327,097)
Retained earnings 2,730,369
----------
5,581,169
Treasury stock, at cost, 342,602 shares (937,907)
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Total Shareholders' Equity 4,643,262
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Total Liabilities and Shareholders' Equity $5,998,790
==========
</TABLE>
See notes to the financial statements
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FIRST AMERICAN HEALTH CONCEPTS, INC.
STATEMENT OF INCOME
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<TABLE>
<CAPTION>
Quarter ended October 31,
1995 1994
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<S> <C> <C>
Operating Revenues $1,251,704 $1,136,263
Operating Expenses:
Sales and marketing costs 413,289 351,017
Direct membership costs 280,992 163,055
General and administration 362,700 320,178
ESOP Charges 23,188 23,836
Depreciation 51,763 34,289
------------------------
Total Operating Expenses 1,131,931 892,375
------------------------
Operating Income 119,773 243,888
Non-operating Income (Expense):
Interest income 63,518 37,581
Interest expense (9,669) (2,686)
Other ---- ----
------------------------
Total Non-operating Income 53,849 34,895
Income Before Income Taxes 173,621 278,783
Income Taxes 60,900 101,500
------------------------
Net Income $ 112,721 $ 177,283
========================
Net Income Per Share:
Primary $ 0.04 $ 0.07
========================
Fully Diluted $ 0.04 $ 0.06
========================
Weighted Average Shares
Outstanding:
Primary 2,679,447 2,720,342
========================
Fully Diluted 2,679,447 2,735,711
========================
</TABLE>
See notes to the financial statements
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FIRST AMERICAN HEALTH CONCEPTS, INC.
STATEMENT OF CASH FLOWS
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<TABLE>
<CAPTION>
Quarter ended October 31,
1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 112,721 $ 177,283
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 51,763 34,289
Amortization 6,165 ----
ESOP shares committed to be released 23,188 23,836
Loss on sale of frames inventory 7,692 ----
Change In Assets and Liabilities:
Decrease in member fees receivable 195,540 94,901
(Increase) decrease in deferred expenses (27,866) 1,477
(Increase) decrease in prepaid expenses and other current assets (36,804) 59,127
Increase (decrease) in accounts payable (48,092) 55,953
Increase in income taxes payable 61,236 99,900
Decrease in deferred revenue (422,576) (388,519)
Decrease in accrued expenses and other current liabilities (10,351) (147,170)
-----------------------
Net Cash Provided By (Used In) Operating Activities (87,384) 11,077
Cash Flows from Investing Activities:
Decrease in certificates of deposit ---- 90,000
Decrease in marketable investment securities 626,496 499,590
(Increase) decrease in note receivable-officer 17,868 (26,066)
Purchases of property and equipment (130,505) (186,243)
-----------------------
Net Cash Provided By Investing Activities 513,859 377,281
Cash Flows from Financing Activities:
Sale of treasury shares to ESOP ---- 500,129
Funding of 1994 ESOP contribution ---- (78,129)
Proceeds from stock options exercised 763 50,695
Repayments of bank loan (21,100) ----
Repayments of capital lease obligation (3,567) (1,155)
-----------------------
Net Cash Provided By Financing Activities (23,904) 471,540
Net Increase In Cash and Cash Equivalents 402,571 859,898
Cash and Cash Equivalents, Beginning of Period 2,069,129 914,901
=======================
Cash and Cash Equivalents, End of Period $2,471,700 $1,774,799
=======================
Supplemental Disclosures of Cash Flow Information:
Cash paid during quarter for income taxes ---- $ 80,850
Supplemental Disclosures of Non-Cash Activities:
Unrealized gain on marketable investment securities $ 1,102 $ 3,930
=======================
Income tax benefit arising from stock option plan ---- $ 36,216
=======================
</TABLE>
See notes to the financial statements
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FIRST AMERICAN HEALTH CONCEPTS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL
These financial statements have been prepared by First American Health
Concepts, Inc. (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
Company, the unaudited financial statements include all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position, the results of operations, and statement of cash flows for the
periods presented.
The unaudited financial statements presented herein were prepared using the
underlying accounting principles utilized in the Company's 1995 audited
financial statements, filed on Form 10-KSB with the Securities and Exchange
Commission on October 28, 1995. Operating results for the three months ended
October 31, 1995 are not necessarily indicative of the results that may be
expected for the year ending July 31, 1996. Certain fiscal 1995 balances have
been reclassified to conform to the 1996 presentation.
NOTE 2 - OBLIGATION UNDER CAPITAL LEASE
The Company leases telephone equipment under the terms of a capital lease. The
lease terms provide for sixty (60) monthly installments of $1,867 including
principal and interest, through January, 1999. At October 31, 1995, office
equipment included $82,052 and accumulated amortization included $32,436
related to the asset covered by this lease. Following is a schedule by year of
future minimum lease payments as of October 31, 1995:
<TABLE>
<CAPTION>
Fiscal year ending July 31,
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<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,800
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,400
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,400
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,980
-------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . 72,580
Less amount representing interest . . . . . . . . . . . . . 14,016
-------
Principal balance . . . . . . . . . . . . . . . . . . . . . . . . . $58,564
=======
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</TABLE>
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NOTE 3 - EMPLOYEE STOCK OWNERSHIP PLAN
During fiscal 1994, the Company implemented an employee stock ownership plan
(First American Health Concepts, Inc. Employee Stock Ownership Plan and related
Trust), qualified as a stock bonus plan under Section 401(a) of the Internal
Revenue Code. The Plan is designed to invest primarily in Company stock
exclusively for the benefit of eligible employees of the Company. Each
eligible employee becomes a participant in the Plan upon completion of one year
of service as defined by the Plan. Company contributions are determined each
year by the Company's Board of Directors (subject to certain limitations) and
are allocated among the accounts of the participants in proportion to their
total compensation.
In October 1994, the Trust borrowed $422,000 from a bank for a term of five
years at an annual interest rate of 8.42%. The proceeds, along with the
Company's 1994 ESOP contribution, were used to purchase 91,978 treasury shares
from the Company. Because the Company has guaranteed the bank loan, it is
reported as long term debt of the Company. The shares sold by the Company to
the Trust are reflected in shareholders' equity, and an amount corresponding to
the borrowing (the guaranteed ESOP obligation) is reported as a reduction of
shareholders' equity.
The loan agreement requires quarterly payments of principal and interest which
will be paid from the Company's contributions to the ESOP. As the principal
amount of the borrowing is repaid, the liability and the guaranteed ESOP
obligation are reduced. The Company recognizes compensation expense equal to
the average fair market value of the shares committed to be released for
allocation to participants in the ESOP, which is based on total debt service
requirements.
Minimum remaining principal payments required to be made during fiscal years
ending July 31 are as follows: 1996 - $63,300; 1997 - $84,400; 1998 - $84,400;
1999 - $84,400; and 2000 - $21,100.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Operating revenues for the quarter ended October 31, 1995 were $1,252,000
compared to $1,136,000 for the quarter ended October 31, 1994, an increase of
10%. Although membership in the Company's traditional vision plan, ECPA
Non-Insured, increased approximately 1% from the prior year to 9.6 million
members, related revenues increased 6% due to the addition of relatively
higher-priced groups. Increased revenues were also generated by the Company's
indemnity plans, ECPA Insured and ECPA Self-funded, which increased enrollments
by 51% during the past year. Revenues from these plans increased 123% to
$190,000 for the first quarter. Management expects all revenue categories to
increase in the second quarter as a result of increasing market acceptance of
the indemnity plans and the effect of increased enrollment of employees into
all of the Company's vision care plans effective January 1, 1996.
Total operating expenses increased 27% to $1,132,000 reflecting the increased
costs of business and network development as well as marketing and servicing
the indemnity plans. Management expects total operating expenses to reflect an
increase over the prior year as the Company continues to upgrade its customer
service and computer processing capabilities, expand its provider network, and
build its marketing and sales support function to accommodate membership growth
and market demands.
Sales and marketing costs of $413,000 for the quarter ended October 31, 1995
increased 18% over the same period in fiscal 1995. The increase was the result
of the addition of marketing, account services, and sales support personnel and
increased focus on quality assurance activities including an intensified
provider credentialing program. The increasing focus on ECPA Insured and ECPA
Self-Funded products will require more sales support personnel to accommodate
these sales efforts and will result in increased sales and marketing costs
during fiscal 1996.
Direct membership costs, those costs associated with supplying vision plan
members with membership materials, maintaining a national locator service, and
administering claims processing functions, increased from $163,000 for the
quarter ended October 31, 1994 to $281,000 for the quarter ended October 31,
1995. The increase resulted from the addition of customer service, enrollment,
and claims administration personnel, and higher claims administration costs,
both tied to increased insured and self-funded membership. Management expects
direct membership costs to rise as the anticipated membership growth continues,
especially in the indemnity programs.
General and administration costs, amounting to $363,000 for the three months
ended October 31, 1995, increased 13% compared to the same period in 1994. The
increase was the result of expanded employment support services and expenses
related to the Company's overall increased employment levels.
Depreciation was $52,000 for the quarter ended October 31, 1995 compared to
$34,000 for the corresponding three months of 1994. Depreciation increased due
to purchases of computer systems and mail processing and telephone equipment
to accommodate personnel additions and increased member communication
requirements.
ESOP compensation expense represents contributions committed for the periods in
accordance with the
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Company's employee stock ownership plan implemented during fiscal 1994.
Expense recognized is affected by compensation expense of eligible
participating employees and the average market price of the Company's common
stock during the quarter.
Interest income was $64,000 for the three months ended October 31, 1995
compared to $38,000 in 1994 reflecting a higher rate of operating cash flow
investment. For the quarter ended October 31, 1995, average invested cash and
marketable investment securities (current and long term) increased by
approximately 10% compared to the same period in 1994. Investment yield also
increased compared to the prior year as investments in municipal bonds matured
and proceeds were reinvested in higher-yielding securities. Disregarding rate
fluctuations, interest income should continue to increase in fiscal 1996 as
management continues to seek improved investment opportunities.
Interest expense increased compared to the first quarter of fiscal 1995 as a
result of interest on borrowings by the ESOP trust which are guaranteed and
therefore recorded by the Company.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $4,074,000 and the current ratio was 4.8 to 1 at October
31, 1995 while cash and cash equivalents comprised $2,472,000. The Company's
principal source of funds during the first quarter was from operations.
Maturing long-term investments were also reinvested in securities classified as
cash equivalents.
Major uses of funds during the quarter included investing activities related to
increased marketable security investments and purchases of property and
equipment of $131,000. The Company did not repurchase any treasury stock
during the quarter, though the Board of Directors has authorized up to $1
million for such acquisitions as market conditions present attractive
opportunity.
Management anticipates continuing expansion efforts through additional
management and staff support personnel, capital additions and infrastructure
expenditures to accommodate future growth. The Company believes its ongoing
cash flow will support all anticipated expenditures and operating expenses.
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<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
<S> <C>
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Incorporated by reference to the Notice of Meeting and Proxy Statement for Annual
Meeting of Shareholders filed October 28, 1995 with Form 10-KSB for the year ended
July 31, 1995.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Item 6(b) No reports on Form 8-K have been filed during the quarter for which this report is
filed.
</TABLE>
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
First American Health Concepts, Inc.
- ------------------------------------
(Registrant)
By: John A. Raycraft
----------------
John A. Raycraft
President and Chief Executive Officer
By: Charles P. Stanford, Jr.
------------------------
Charles P. Stanford, Jr.
Vice President of Finance and Chief Financial Officer
Date: December 14, 1995
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000776997
<NAME> FIRST AMERICAN HEALTH CONCEPTS, INC.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-1-1995
<PERIOD-END> OCT-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,471,700
<SECURITIES> 1,948,746
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