UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the fiscal year August 1, 1996 to July 31,
1997.
[_] Transition Report Pursuant to 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.
(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 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 .
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenue for the fiscal year ended July 31, 1997 was $7,171,909.
Registrant's Common Stock outstanding at October 21, 1997 was 2,544,736 shares
after deducting 468,102 shares of treasury stock. At such date, the aggregate
market value of Registrant's Common stock held by non-affiliates, based upon the
closing price at which such stock was sold on NASDAQ on such date was
approximately $5,904,000.
Documents Incorporated by Reference
Portions of Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on December 8, 1997 are incorporated in Part III as set
forth herein.
<PAGE>
TABLE OF CONTENTS
PART I PAGE
----
Item 1. Description of Business 3
Item 2. Description of Property 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 6
Item 6. Management's Discussion and Analysis 6
Item 7. Financial Statements 8
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 8
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 9
Item 10. Executive Compensation 10
Item 11. Security Ownership of Certain Beneficial
Owners and Management 10
Item 12. Certain Relationships and Related
Transactions 10
Item 13. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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PART I
First American Health Concepts, Inc.
Item 1. DESCRIPTION OF BUSINESS
Business Development
First American Health Concepts, Inc. ("FAHC" or the "Company") was
incorporated in Arizona in 1981 and first offered common stock publicly in
October 1985. FAHC markets and administers vision care programs under the
registered trade names of Eye Care Plan of America(R) and ECPA(R).
Dedicated exclusively to developing and marketing innovative vision
care programs for businesses and organizations nationwide, ECPA has grown
rapidly in twelve years. Over that time, ECPA has provided the nation's largest
direct access preferred pricing vision care program through a preferred provider
(PPO) network of independent and retail optometrists, opticians and
ophthalmologists. Since 1993, ECPA has achieved steady growth in a new product
line of insured and self-funded managed vision care programs.
ECPA is well positioned for growth at a time when the demand for vision
care services is stronger than ever. According to an optical industry report
published by the Jobson Optical Group in 1997, 60 percent of the American
population or approximately 159.3 million people require some form of vision
correction, and 62 percent of these purchased eyewear in 1996. The percent of
Americans who require a vision correction, for many years a constant proportion
of the U.S. population, is now trending upward as the Baby Boom generation ages
and needs vision correction. The percent of the U.S. population beyond the age
of 40 is approaching 50 percent and is expected to climb to 60 percent of the
population by the year 2000, according to the Jobson report.
U.S. retail sales of optical products were $14.6 billion in 1996, which
is a 6 percent increase from the $13.8 billion in 1995.
Responding to a Changing Market
Two key factors continue to change the shape of the U.S. health care
market: a rising cost of health care and an aging population that requires more
health care services. This has led to rapid growth of managed health care that
holds down costs by managing health care providers and benefits. Not only do
more Americans require vision care because of their age, but more companies and
organizations are recognizing the value of managed vision care for their
employees. Recently, a national survey of benefits executives found that vision
and wellness rank highest among the benefits that employers are planning to add
in the next 12 months. There is growing recognition that an inexpensive vision
exam is an excellent screening tool for many more serious medical conditions
such as diabetes, yet only 41 percent of consumers have annual vision exams, and
46 percent do not have a regular eye doctor.
However, consumers do recognize the value of vision care. Eighty
percent of Americans in a recent Louis Harris poll said that they consider sight
to be the most important of the five senses. Most importantly, vision care, one
of the least expensive health benefits, is one of the most highly valued
according to a recent national employee survey. As employers are driven to find
ways to contain the rising cost of benefits, managed vision care will be
increasingly attractive in the mix of employee benefits.
Competition among major medical managed care companies (HMOs) is
causing an increase in potential distribution sources for managed vision care
products and services. Approximately one in four Americans is currently
receiving health care through an HMO, and this percentage is expected to
increase. With the growth of managed care and increased competition among HMOs,
distribution opportunities will increase for managed vision care providers such
as ECPA to partner with HMOs to help them gain a market advantage through
offering managed vision care alongside medical HMO benefits or through the
private labeling of managed vision care benefits as an HMO benefit. This will be
especially true in the Medicare Risk (Medicare HMO) market, where growing
competition will increase distribution opportunities and where virtually all
members require vision correction.
A Managed Vision Care Information System
ECPA was one of the first national vision care companies to recognize
the need to develop managed vision care. ECPA's recent commitment to the
information system and internal resources for delivering managed vision care
strengthens its
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position as a leader in managed vision care.
ECPA became the first company nationally to develop and install a
vision care application of the Health Systems Design (HSD) Integrated Managed
Care System. This new system, one of the most comprehensive managed care
information systems available, allowed ECPA to eliminate its benefit voucher
this past year and begin to provide automated, hassle-free administration of
vision care benefits. The new HSD system also brings an array of capabilities
for tracking and manipulating benefits data. ECPA was able to convert its claims
processing to an internal function, but more importantly, the new system
provides ECPA with an ability to analyze utilization and costs to improve
benefit design. In addition to the HSD system, ECPA activated a state-of-the-art
voice response and fax-back system this past year. This new system allows
members to call anytime to receive provider location information, and it
delivers automated, real-time fax-back authorization for providers that allows
them to deliver fast, paperless service to members.
The Choice Network for Managed Vision Care
ECPA introduced a trademarked slogan The Choice Network for Managed
Vision Care - this past year to communicate its commitment to leadership in
managed vision care service and administration.
ECPA built its current foundation for leadership with the development
of a national provider network of independent and retail optometrists,
ophthalmologists and opticians, based on cost containment or a preferred pricing
structure. Through a verifiable preferred pricing structure and direct access to
this broad Choice Network, ECPA has been very successful with its original
program offering, called the Access Program. This Access or Non-Insured Program
offers members significant, verifiable savings on eyewear any time they present
their membership card to an ECPA Provider.
Today, ECPA's Choice Network includes more than 14,000 providers in
more than 7,500 locations throughout the United States, Puerto Rico and the
Virgin Islands. Currently, there are 10.4 million members enrolled in ECPA's
Access Program. Average savings for members throughout the Choice Network is 37
percent off of usual retail.
In 1993, ECPA introduced its first Insured and Self-Funded vision care
products which utilize the same preferred price structure as the Access Program,
while adding a schedule of benefits for vision examinations, lenses, frames and
contact lenses. Sponsoring companies elect to enroll employees in ECPA's insured
vision care program or they elect to self-fund the schedule of vision care
benefits that ECPA administers. Both of these programs have seen steady growth,
with more than 330,000 members enrolled currently.
ECPA Providers
Each ECPA provider is credentialed through independent primary source
verification by an NCQA-certified agency. ECPA providers must agree to maintain
normal business hours, offer a full selection of eyewear, possess all licenses
required to practice in the state in which their operations take place, maintain
sufficient professional liability insurance, and adhere to standards set forth
in ECPA's Provider Manual and Quality Assurance Manual. A nominal credentialing
fee is also required, and each provider agrees to pay a periodic or
transaction-based fee for ECPA's administration of the network.
Each approved provider agrees to provide vision care according to
ECPA's standards, to charge no more than ECPA's preferred pricing for eyewear
and to guarantee the services, care and related materials to the members'
satisfaction.
ECPA maintains a comprehensive provider quality assurance program that
includes recredentialing every two years and provider profiling that tracks
member complaints and grievances, member and provider surveys and random
"mystery patient" responses.
Group Administration
ECPA markets its programs only to employers and other sponsors having
access to large numbers of employees, clients or customers. Existing and
potential sponsors include employer groups, insurance carriers, third party
administrators, health maintenance organizations, multiple employer trusts,
financial institutions, associations, labor unions, governmental bodies and
political subdivisions. Sponsors generally either pay an annual/monthly fee or a
monthly premium for each member enrolled. Under
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standard agreements, each sponsor agrees to offer membership in ECPA to its
clients. Typically, all potential clients are enrolled.
Currently, there are more than 1,000 sponsors of ECPA plans, the
largest of which accounts for approximately 10.5 percent of ECPA's total
operating revenue.
ECPA makes it easy. New group set up is easy and flexible with ECPA's
new managed vision care information system. ECPA Shareware is available at no
charge to sponsors for accurate and swift new group set-up and/or for the
regular maintenance of eligibility data.
Members make appointments with ECPA providers directly. Upon
presentation of an ECPA membership card from a member, ECPA providers are able
to obtain benefit authorization swiftly through an automated, real-time fax-back
system. The result is paperless, hassle-free access to vision care benefits for
all ECPA members.
ECPA providers benefit from a system that provides high patient volume
with little paperwork and administration. Most importantly, their patients are
pleased with their Easy Access and Choice.
Using ECPA Benefits
* ECPA Access Program
Members are provided a membership card, and ECPA's toll-free provider
locator number on the card helps them locate a provider nearby. Access to
providers is direct, and members receive significant savings regardless of the
amount or frequency of purchases. To verify their savings amount, members are
encouraged to ask their provider to show them their savings. Savings are
calculated based on usual retail and published wholesale price lists such as the
optical industry publication, FRAMES.
* ECPA Insured and ECPA Self-Funded Programs
Under ECPA's Insured and ECPA Self-Funded Programs, members receive an
ECPA membership card and Schedule of Benefits for vision care needs. Members
call the toll-free provider locator line to find an ECPA provider nearby.
Members schedule and access their ECPA provider directly, and they simply
present their membership card at the time of their visit.
ECPA Insured benefits are underwritten by Security Life Insurance
Company of America (SLICA, founded in Minnesota in 1956). ECPA Self-Funded
provides the same benefits to members as ECPA Insured, however the scheduled
allowances are self-funded by the plan sponsor.
ECPA Insured and ECPA Self-Funded members also have the option of
seeking services from eye care professionals outside of the ECPA provider
network. In such cases, the member pays the eye care provider's usual and
customary fees directly, and the member is then reimbursed according to a
reduced Schedule of Allowances.
The benefit of ECPA's preferred pricing is always available to ECPA
members. Even after all scheduled benefits have been exhausted, members are able
save on additional eyewear when they present their membership card to any ECPA
provider.
ECPA's Competitive Advantage
ECPA's primary competitive advantage comes from its diverse Choice
Network of independent and retail providers and its newly developed capacity to
deliver easy, direct access to vision care benefits through an advanced,
automated vision care information system.
ECPA's largest competitor today is able to offer a larger network of
providers. Another group of competitors are able to offer lower prices on exams
and/or materials. However, ECPA's newly developed capacity to deliver and
administer managed benefits effectively positions ECPA to lead in a growth
market of managed vision care.
Regulation
Health care providers, insurers, and third party administrators are
subject to federal, state and occasionally, local regulation. Regulations
applicable to the products or operations of the Company are complied with
directly by the Company or through the compliance departments of the Company's
alliance partners, where applicable.
Since the Company is in the employee benefit industry, any proposed or
enacted legislation which would adversely affect the preferential tax treatment
or flexibility of choice afforded employee health benefits could adversely
affect the business of the Company.
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Employees
At October 21, 1997 the Company had 75 full-time employees including 7
officers, 5 outside sales representatives and 63 customer service, clerical and
administrative employees.
Item 2. DESCRIPTION OF PROPERTY
The Company leases an aggregate of 15,000 square feet of Class B office
space for its sales and administrative offices. The Company's headquarters
office in Phoenix, Arizona is leased at an effective rate of $12,300 per month
with an expiration date of September, 1999. Sales offices are located in
Phoenix, Atlanta, Chicago, San Diego, and Boston with effective rates ranging
from $650 to $1,755 per month and lease expiration dates through April, 1998.
The Company maintains cash reserves for use in corporate expansion,
financing growth of its business and general corporate purposes. FAHC invests
excess cash in interest-bearing securities including U.S. Treasuries and
municipal obligations, generally with maturities of less than one year.
Investments are governed by guidelines established by a committee of the Board
of Directors and are generally not limited by type.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Trading Range During the Years Ended July 31,
Stock Prices 1997 1996
- ------------ -------------------------------------------------------
High Low High Low
---- --- ---- ---
Quarter Ended:
October 31 $5-1/4 $3-7/8 $6-3/4 $5
January 31 4-3/4 2-3/4 6-3/8 4-5/8
April 30 5 1-3/4 5-3/4 4-3/8
July 31 4 2-1/2 5-1/4 3-1/4
Since February 27, 1995 the Company's common stock has traded on the
Nasdaq National Market System (symbol: FAHC). Prior to that date, common shares
were traded on the Nasdaq Over-the-Counter Market. On October 21, 1997 there
were approximately 120 shareholders of record, not including those shares held
in street name. The Company has neither declared nor paid any cash dividends to
date and does not plan to do so in the immediate future.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
First American Health Concepts, Inc. ("FAHC" or the "Company") reported
a 26 percent increase in operating revenues, with a growth in revenue from
$5,678,000 for 1996 to $7,172,000 for 1997. This increase is attributable to
growth in both ECPA's Non-Insured (Access Plan) revenues and ECPA's Insured and
Self-Funded (Managed Care Programs) revenues. Non-Insured revenues increased 20
percent with a growth to 10.3 million members at year ending July 31, 1997.
Insured and Self-Funded revenues increased 75 percent to 330,000 members at year
ending July 31, 1997.
Although ECPA's managed vision care programs (Insured and Self-Funded)
still represent a smaller portion of ECPA's business, they are ECPA's fastest
growing business segment. Market research continues to show growing demand for
managed vision programs, and ECPA's growth in managed vision care sales supports
this trend. ECPA has steadily added to its capacity to support the delivery of
managed vision care, and is well
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positioned for continued growth. Since the introduction of its managed vision
care programs in 1993, ECPA has become an industry-leading provider of managed
vision care. ECPA anticipates that revenues from its managed vision care
programs (Insured and Self-Funded) will continue to grow at a faster rate than
revenues from its Access Program (Non-Insured).
Inflation is not expected to have a material effect on revenues or
profits.
Total operating expenses increased 30 percent, from $5,297,000 in 1996
to $6,860,000 in 1997. This overall increase in operating expenses was the
result of continued investment in resources and capabilities necessary to
support growth in the delivery of managed vision care. This includes expenses
for supporting marketing and sales, servicing current and new business and
supporting future growth.
Sales and marketing expenses were $2,349,000 in 1997 compared to
$2,015,000 in 1996. This 17 percent increase was the result of increased
expenses to support growth in sales, account services and sales support. This
included the addition of staff and resources to support ECPA's continued
expansion of business in managed care and to reinforce ECPA's position as the
leading provider of direct access vision care preferred pricing programs. It is
anticipated that future expenses for sales and marketing will continue to be in
line with increases in revenue.
Due to the development costs of launching ECPA's managed vision care
system (HSD) and bringing claim processing in-house, direct membership expenses
increased 57 percent, from $1,345,000 for 1996 compared to $2,116,000 for fiscal
1997. This comprehensive transition which eliminated benefit vouchers and added
a host of automated administrative capabilities was a significant investment in
ECPA's future as a leading managed vision care provider and accounted for higher
growth in membership expenses than revenues. With the development of the managed
vision care information system and internal claims processing nearly complete,
future increases in membership expenses - the costs of providing members with
membership materials, maintaining a national service center and administering
claims processing - are expected to be commenserate with increases in operating
revenues in the future.
General and administrative expenses were $2,028,000 in 1997 compared to
$1,608,000 in 1996. This 26 percent increase was the result of expected expenses
in finance and information systems, support personnel and professional fees
associated with the current and future growth of ECPA. Moderate growth in
general and administrative expenses is expected during fiscal year 1997-1998.
Depreciation increased from $244,000 for 1996 to $306,000 for 1997. A
significant portion of this increase was due to the new integrated managed
vision care information system that was put into service along with related
telephone system enhancements.
Interest income was $194,000 in 1997 compared to $243,000 in 1996. The
decrease in interest income was due to lower average invested balances during
the year ended July 31, 1997. The Company used internal funds to finance capital
expenditures and information systems development.
Liquidity and Capital Resources
Working capital was $1,567,000 and the current ratio was 1.8 to 1 at
July 31, 1997. Cash and cash equivalents and marketable investment securities
totaled $2,981,000.
The Company's cash and cash equivalents decreased $1,052,000 from the
1996 balance to $548,000 at July 31, 1997. The Company's principal source of
funds for the year ended July 31, 1997 was cash flow from operations. In
addition, $1,411,000 was generated from the redemption of marketable investment
securities, though substantially all of these funds were reinvested in similar
financial instruments.
Major uses of funds for the year were the purchase of computer and
office equipment and an integrated managed care information system comprising
$1,079,000 and the purchase of 85,000 treasury shares for an aggregate price of
$344,290. The Company's Board of Directors has authorized up to $1 million for
treasury share acquisitions.
Management anticipates continuing, though slower, expansion in 1998
through capital additions and infrastructure expenditures to accommodate future
growth. The Company believes its ongoing cash flow will support all anticipated
capital expenditures and operating expenses.
Contractual Arrangements
The Company's insured line of business is
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underwritten by Security Life Insurance Company of America (SLICA). According to
the management agreement between the Company and SLICA, dated April 15, 1992,
SLICA is responsible to "process, investigate, settle, and pay all claims
arising." The Company is fully indemnified against loss or liability. Therefore,
the Company does not record any claims liability on the balance sheet.
Licensure Issues
In the coming year, ECPA will be completing the process of obtaining a
third-party administrator (TPA) license in all markets where ECPA does business.
The primary licensing activity next year, however, will involve ECPA's
subsidiary, ECPA of California. In order to provide a managed vision care
product in California, state law requires that providers of pre-paid health care
services be licensed as a Knox-Keene Health Care Services Organization. ECPA of
California has begun a licensure application process, and with many of the
pre-application tasks complete, ECPA of California is expected to receive its
license and begin operations in the State of California in fiscal year 1998.
With Knox-Keene licensure, ECPA of California and ECPA, together, will be able
to provide a complete complement of vision care services in the State of
California.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued several new
pronouncements that are not yet adopted by the Company.
In February 1997 the FASB issued SFAS No. 128, Earnings Per Share, which
specifies the computation, presentation, and disclosure requirements for
earnings per share for entities with publicly-held common stock. SFAS No. 128
will be effective for the Company for the quarter ending January 31, 1998;
earlier application is not permitted. This new accounting standard will require
presentation of basic earnings per share, and is not currently anticipated to
have a significant impact on the Company's financial statements based on the
current financial structure and operations of the Company.
In February 1997 the FASB issued SFAS No. 129, Disclosure of Information about
Capital Structure, to consolidate existing disclosure requirements. This new
standard contains no change in disclosure requirements for the Company. It will
be effective for the Company for the quarter ending January 31, 1998.
In June 1997 the FASB issued SFAS No. 130, Reporting Comprehensive Income, to
establish standards for reporting and display of comprehensive income (all
changes in equity during a period except those resulting from investments by and
distributions to owners) and its components in financial statements. This new
standard, which will be effective for the Company for the fiscal year ending
July 31, 1999, is not currently anticipated to have a significant impact on the
Company's financial statements based on the current financial structure and
operations of the Company.
In June 1997 the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, to establish standards for reporting
information about operating segments in annual financial statements, selected
information about operating segments in interim financial reports and
disclosures about products and services, geographic areas and major customers.
This new standard, which will be effective for the Company for the fiscal year
ending July 31, 1999, will require the Company to report financial information
on the basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments, which is currently anticipated
to result in more detailed information in the notes to the Company's financial
statements than is currently required and provided.
Item 7. FINANCIAL STATEMENTS
The Company's financial statements and notes thereto are included in
this annual report beginning at page 13.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information called for by this Item, with respect to directors, and
with respect to officers regarding compliance with Section 16(a) is incorporated
by reference from the "Notice of Meeting and Proxy Statement" filed herewith as
Exhibit 28.
<TABLE>
<CAPTION>
Current Title and Positions
Executive Officer Age at 7/31/97 Held During the Last Five Years
- ----------------- -------------- -------------------------------
<S> <C> <C>
John A. Raycraft 50 Chief Executive Officer since May 1993; President since
1992; Executive Vice President from 1991 to 1992.
Laura J. Arnold 36 Vice President of Provider Relations since August 1994;
Manager since August 1993; Director of Vision and Hearing
Plan Services / Southwestern Benefit Plans and Network
Development with AVESIS, Incorporated prior to joining the
Company.
Deborah L. Brady 40 Vice President of Administration since June 1997;
Membership Accounting Manager for FHP Health Care,
Operations Manager for CIGNA HealthCare, Director &
Manager of Enrollment Processing for PCS Health Systems,
Incorporated prior to joining the Company.
Bruce T. Davidson 65 Vice President of Marketing and Sales since November 1995;
an independent marketing and sales consultant prior to
joining the Company.
Carolyn Hall 57 Secretary and Treasurer since 1988; Secretary since 1987.
Richard A. Kiser 44 Vice President of Finance and Chief Financial Officer
since May 1997; Chief Financial Officer of Delta Dental;
prior to joining the Company.
Craig L. Santilli 49 Vice President of Information Systems since September
1995; Director, Applications Development for Samaritan
Health System and Director, Information Management for
Hartford Insurance Group prior to joining the Company.
</TABLE>
9
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Item 10. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated by reference
from the "Notice of Meeting and Proxy Statement" filed herewith as Exhibit 28.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated by reference
from the "Notice of Meeting and Proxy Statement" filed herewith as Exhibit 28.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has an outstanding note receivable due from the President
and Chief Executive Officer. The note was secured by an insurance policy on the
life of the officer. The terms of the note require annual installments through
August 1, 1999. The balance of the note on July 31, 1997 was $62,524.
Additional information called for by this Item is incorporated by
reference from the "Notice of Meeting and Proxy Statement" filed herewith as
Exhibit 28.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
- -------------- ----------- ----------------
<S> <C> <C>
3-A Articles of Incorporation Incorporated by reference to
of the Company as amended Exhibit 3-A of 1990 10-K.
3-B Bylaws of the Company Incorporated by reference to Exhibit
3-B of 1992 10-K
4-A Specimen Stock Certificate Incorporated by reference to
Exhibit 4-A of S-18 33-00118-LA
23 Consent of KPMG Peat Marwick LLP Exhibit filed herewith
28 Notice of Meeting and Proxy Exhibit filed herewith
Statement
</TABLE>
(B) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST AMERICAN HEALTH CONCEPTS, Inc.
(Registrant)
Date: October 28, 1997 By /s/ John A. Raycraft
--------------------
John A. Raycraft
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John A. Raycraft President and 10/28/97
- ---------------------- Chief Executive Officer --------
(John A. Raycraft)
/s/ Richard A. Kiser Vice President of Finance and 10/28/97
- ---------------------- Chief Financial Officer --------
(Richard A. Kiser)
/s/ John R. Behrmann Chairman of the Board 10/28/97
- ---------------------- --------
(John R. Behrmann)
/s/ Robert J. Delsol Director 10/28/97
- ---------------------- --------
(Robert J. Delsol)
/s/ John W. Heidt Vice Chairman of the Board 10/28/97
- ---------------------- --------
(John W. Heidt)
/s/ Thomas B. Morgan Director 10/28/97
- ---------------------- --------
(Thomas B. Morgan)
/s/ Robert M. Topol Director 10/28/97
- ---------------------- --------
(Robert M. Topol)
11
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KPMG Peat Marwick LLP
One Arizona Center
400 E. Van Buren Street
Suite 1100
Phoenix, AZ 85004
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
First American Health Concepts, Inc.:
We have audited the accompanying balance sheet of First American Health
Concepts, Inc. as of July 31, 1997, and the related statements of income,
shareholders' equity, and cash flows for each of the years in the two-year
period ended July 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First American Health Concepts,
Inc. as of July 31, 1997 and the results of its operations and its cash flows
for each of the years in the two-year period ended July 31, 1997 in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Phoenix, Arizona
September 12, 1997
12
<PAGE>
First American Health Concepts, Inc.
BALANCE SHEET
ASSETS July 31, 1997
- -------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 547,686
Marketable investment securities (Note B) 1,192,999
Member fees receivable 1,125,727
Note receivable-officer, current (Note C) 18,621
Deferred expenses 231,268
Prepaid expenses 95,493
Income taxes receivable (Note G) 122,841
Other current assets 196,684
-----------
Total Current Assets 3,531,319
-----------
Property and Equipment:
Office furniture and fixtures 307,038
Computers and office equipment 1,461,347
Leasehold improvements 112,362
Systems under development 1,448,316
-----------
3,329,063
Less accumulated depreciation and amortization (1,239,768)
-----------
Net Property and Equipment 2,089,295
Marketable investment securities, long term (Note B) 1,240,437
Note receivable-officer, long term (Note C) 43,903
-----------
Total Assets $ 6,904,954
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 184,475
Capital lease obligation, current (Note D) 19,531
Bank loan, current (Note F) 84,400
Accrued expenses 192,196
Deferred tax liability (Note G) 98,000
Deferred revenue 1,385,754
-----------
Total Current Liabilities 1,964,356
Capital lease obligation, long term (Note D) 10,450
Bank loan, long term (Note F) 105,500
-----------
Total Liabilities 2,080,306
-----------
Shareholders' Equity (Notes E, and F):
Common stock, no par value; Authorized, 8,000,000
shares; Issued, 3,012,838 shares 655,296
Additional paid-in capital 2,552,223
Retained earnings 3,273,102
Unearned ESOP shares (Note F) (175,164)
Net unrealized gain on marketable investment securities (Note B) 4,923
-----------
6,310,380
Treasury stock, at cost, 468,102 shares (1,485,732)
-----------
Total Shareholders' Equity 4,824,648
-----------
Commitments and Contingencies (Notes D and F)
Total Liabilities and Shareholders' Equity $ 6,904,954
===========
The accompanying notes are an integral part of these financial
statements.
13
<PAGE>
First American Health Concepts, Inc.
STATEMENTS OF INCOME
Years ended July 31, 1997 1996
- --------------------------------------------------------------------------------
Operating Revenues $ 7,171,909 $ 5,678,016
Operating Expenses:
Sales and marketing expenses $ 2,349,395 2,014,504
Direct membership expenses 2,115,662 1,345,497
General and administrative expenses 2,027,773 1,608,338
Depreciation 305,602 244,499
ESOP charges (Note F) 61,388 84,102
----------- -----------
Total Operating Expenses 6,859,820 5,296,940
----------- -----------
Operating Income 312,089 381,076
Non-operating Income (Expense):
Interest income 194,157 243,103
Interest expense (25,885) (35,086)
----------- -----------
Total Non-operating Income 168,272 208,017
Income Before Income Taxes 480,361 589,093
Income Taxes (Note G) 184,000 230,000
----------- -----------
Net Income $ 296,361 $ 359,093
=========== ===========
Net Income Per Share $ 0.12 $ 0.14
=========== ===========
Weighted Average Common and Equivalent
Shares Outstanding 2,577,868 2,655,432
=========== ===========
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
First American Health Concepts, Inc.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Outstanding Additional Marketable Total
Common Common Paid-in Retained Unearned Securities Treasury Shareholders
Shares Stock Capital Earnings ESOP Shares Investment Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at July 31, 1995 2,645,028 $ 615,785 $ 2,559,168 $ 2,617,648 (350,285) $ 3,285 ($ 937,907) $ 4,507,694
Stock options exercised 7,474 14,521 -- -- -- -- -- 14,521
Net unrealized gain (loss) on
marketable investment securities -- -- -- -- -- (4,898) -- (4,898)
Income tax benefit arising from
employee stock option plan -- -- 7,755 -- -- -- -- 7,755
Purchase of treasury stock (40,500) -- -- -- -- -- (203,535) (203,535)
Cost of ESOP shares released -- -- (6,379) -- 90,481 -- -- 84,102
Net income -- -- -- 359,093 -- -- -- 359,093
-----------------------------------------------------------------------------------------------
Balances at July 31, 1996 2,612,002 630,306 2,560,544 2,976,741 (259,804) (1,613) (1,141,442) 4,764,732
Stock options exercised 17,734 24,990 -- -- -- -- -- 24,990
Net unrealized gain (loss) on
marketable investment securities -- -- -- -- -- 6,536 -- 6,536
Income tax benefit arising from
employee stock option plan -- -- 14,931 -- -- -- -- 14,931
Purchase of treasury stock (85,000) -- -- -- -- -- (344,290) (344,290)
Cost of ESOP shares released -- -- (23,252) -- 84,640 -- -- 61,388
Net income -- -- -- 296,361 -- -- -- 296,361
-----------------------------------------------------------------------------------------------
Balances at July 31, 1997 2,544,736 $ 655,296 $ 2,552,223 $ 3,273,102 ($ 175,164) $ 4,923 ($1,485,732) $ 4,824,648
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial
statements.
15
<PAGE>
First American Health Concepts, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31, 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 296,361 $ 359,093
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 305,602 244,499
Amortization of deferred system costs 49,321 24,660
Income tax benefit arising from stock option plan 14,931 7,755
ESOP shares committed to be released 61,388 84,102
Provision for losses on accounts receivable -- 12,000
Increase in deferred taxes 78,000 7,000
Changes In Assets and Liabilities:
Increase in member fees receivable (476,215) (65,244)
Increase in deferred expenses (7,296) (31,065)
Increase in prepaid expenses and other current assets (97,173) (151,305)
Increase in income taxes receivable (90,034) (22,078)
Increase (decrease) in accounts payable (31,875) 99,007
Increase (decrease) in accrued expenses and other current liabilities (60,145) 72,308
Increase in deferred revenue 222,806 83,132
--------------------------
Net Cash Provided By Operating Activities 265,671 723,864
--------------------------
Cash Flows from Investing Activities:
Purchases of property and equipment (1,078,816) (998,106)
Purchases of marketable investment securities (1,245,459) (2,396,483)
Redemptions/sales of marketable investment securities 1,411,345 2,473,981
Decrease in note receivable-officer 16,220 15,600
--------------------------
Net Cash Used In Investing Activities (896,710) (905,008)
--------------------------
Cash Flows from Financing Activities:
Repayments of bank loan (84,400) (84,400)
Repayments of capital lease obligation (17,141) (15,005)
Proceeds from exercised stock options 24,990 14,521
Purchases of treasury stock (344,290) (203,535)
--------------------------
Net Cash Used By Financing Activities (420,841) (288,419)
--------------------------
Net Decrease In Cash and Cash Equivalents (1,051,880) (469,563)
Cash and Cash Equivalents, Beginning of Year 1,599,566 2,069,129
--------------------------
Cash and Cash Equivalents, End of Year $ 547,686 $ 1,599,566
==========================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for income taxes $ 180,949 $ 239,117
==========================
Cash paid during the year for interest $ 25,885 $ 34,991
==========================
Supplemental Disclosures of Non-cash Investing Activities:
Unrealized gain (loss) on marketable investment securities $ 6,536 ($ 4,898)
==========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
First American Health Concepts, Inc.
A. Summary of Significant Accounting Policies
* Revenue Recognition
First American Health Concepts, Inc. ("FAHC" or the "Company") receives
membership fees through its various Eye Care Plan of America ("ECPA") programs.
ECPA Non-Insured membership generally is renewed annually and fees are remitted
to the Company monthly by sponsors, based on the number of members represented
by the sponsor. Revenues are recognized monthly based on the aggregate number of
members reported to the Company. Membership fees may also be remitted on an
annual basis and, in such cases, are amortized ratably to income over a
twelve-month period. Premiums and fees related to ECPA Insured and ECPA
Self-Funded plans are calculated and billed on a monthly basis and recognized
accordingly.
* Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased
with an original maturity of three months or less to be cash equivalents.
* Development Costs
The Company expenses its costs of developing the eye care provider
network and sponsor network as they are incurred.
* Marketable Investment Securities
Marketable investment securities at July 31, 1997 consist of U.S.
Treasury securities. Under the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, the Company classifies its debt securities as available for sale and
such securities are recorded at fair value. Unrealized holding gains and losses
on available-for-sale securities, net of related tax effects, are excluded from
earnings and are reported as a separate component of shareholders' equity until
realized. Realized gains and losses on securities are included in earnings and
are derived using the specific identification method for determining the cost of
securities sold.
* Deferred Expenses
The Company defers the direct costs of initiating vision plan
memberships. Such costs, which include commissions, printing and other
materials, are amortized over a twelve-month period, which corresponds to the
period utilized for measurement of membership fees. Direct advertising costs are
expensed as incurred.
* Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
using the straight-line method over estimated useful lives of three-to-five
years. Equipment under capital leases and leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or the
estimated useful life of the asset. Costs of the integrated managed care
information system (systems under development) are being deferred until
development is completed and the system is operational at which time costs will
be amortized using the straight-line method over a seven-year period.
Amortization commenced in August 1997 as the system development was
substantially complete.
* Net Income Per Share
Net income per share is calculated using the weighted average number of
common shares and dilutive common equivalent shares outstanding during the
period. Dilutive common equivalent shares consist of stock options computed
using the treasury stock method. Average outstanding common and equivalent
shares do not include 31,285 shares held by the Employee Stock Ownership Plan at
July 31, 1997. Shares held by the ESOP are not considered outstanding for net
income per share calculations until the shares are released from the Trust.
* Stock Option Plan
Prior to August 1, 1996, the Company accounted for its stock option
plan (Note E) in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense was recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. On August 1, 1996, the Company implemented SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income
17
<PAGE>
and pro forma earnings per share disclosures for employee stock option grants
made in 1996 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123 when results are material to the financial statements.
* Income Taxes
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled.
* Impairment of Long Lived Assets
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, on
August 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position or results of operations.
* Use of Estimates
Management has made a number of estimates and assumptions relating to
the reporting of assets and liabilities, and disclosure of contingent assets and
liabilities; and revenues and expenses to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
B. Marketable Investment Securities
At July 31, 1997, the amortized cost, net unrealized holding gains and
fair value of available-for-sale securities by major security type were as
follows. There were no realized gains or losses included in income
in 1997.
Unrealized
Holding
Cost Gain Fair Value
---------- ---------- ----------
U.S. Treasury Securities $2,428,513 $4,923 $2,434,436
Although there is a concentration of credit risk related to the U. S.
Treasuries, management does not consider these investments to be of high risk.
Maturities of investment securities classified as available-for-sale were as
follows at July 31, 1997:
Cost Fair Value
---------- ----------
Due within one year $1,190,895 $1,192,999
Due after one year through two years 1,237,618 1,240,437
---------- ----------
$2,428,513 $2,433,436
========== ==========
18
<PAGE>
C. Note Receivable-Officer
The Company has an outstanding note receivable due from the President
and Chief Executive Officer. The note was secured by an insurance policy on the
life of the officer. The terms of the note require annual installments through
August 1, 1999. The balance of the note on July 31, 1997 was $62,524.
D. Lease Obligations
The Company leases telephone equipment under the terms of a capital
lease. The terms provide for 60 monthly installments of $1,867, including
principal and interest through January, 1999. At July 31, 1997, office equipment
included $82,052 and accumulated amortization included $60,802 related to the
leased equipment.
Following is a schedule by year of future minimum lease payments:
Years Ending July 31,
- --------------------------------------------
1998 22,400
1999 10,980
-------
Total payments 33,380
Interest portion ( 3,399)
-------
Principal balance 29,981
Less current portion (19,531)
-------
Long-term portion $10,450
=======
The Company also operates from leased premises under operating leases.
Rental expense related to these leases was $240,499 in 1997 and $210,073 in
1996.
Future minimum lease payments under noncancellable operating leases as
of July 31, 1997 are as follows:
Years Ending July 31,
- -------------------------------------------
1998 162,832
1999 177,436
2000 30,181
--------
$370,449
========
E. Stock Options
The Company maintains a stock option plan, (the "Plan") which covers
all employees, officers and directors of the Company and provides for the
granting of incentive and non-qualified stock options. Outside directors and
officers who are not employees of the Company are only eligible for
non-qualified options.
The Company has reserved 1,000,000 shares of common stock for issuance
upon exercise of stock options granted under the plan. Of these, 500,000 are
restricted for issuance to employees other than directors and officers of the
Company.
Options are granted at not less than fair market value on the date of
grant and become exercisable based on conditions set by the Board of Directors.
Options generally expire if unexercised at the end of ten years for incentive
stock options and eleven years for non-qualified stock options.
As previously discussed, the Company applies APB Opinion No. 25 and
related interpretations in accounting for the stock option plan. Accordingly, no
compensation cost has been recognized for the Plan.
Had compensation costs for the Company's plan been determined
consistent with FASB Statement No. 123, the Company's net income and net income
per share would not be materially different from those reported.
At July 31, 1997, 506,992 stock options were available for grant under
this plan and 201,569 stock options were exercisable. Activity related to stock
options is summarized, as follows:
Incentive Stock Options Nonqualified Stock Options
----------------------- --------------------------
Weighted Weighted
Number of Average Option Number of Average Option
Date Activity Shares Price Per Share Shares Price Per Share
- --------------------------------------------------------------------------------
July 31, 1995 Outstanding 61,170 4.16 230,000 3.95
Granted 11,000 6.10 45,000 6.06
Exercised (7,474) 1.94 - -
Expired (2,594) 5.51 - -
------ -------
July 31, 1996 Outstanding 62,102 4.71 275,000 4.30
Granted - - - -
Exercised (2,734) 1.71 (15,000) 1.35
Expired (11,233) 5.52 (15,000) 6.06
------ -------
July 31, 1997 Outstanding 48,135 4.69 245,000 4.37
====== =======
Exercisable 41,569 160,000
------- -------
19
<PAGE>
The sale of common stock received through the exercise of incentive
stock options, or the exercise of non-qualified options, results in a tax
deduction for the Company equivalent to the taxable gain recognized by the
optionee. For financial reporting purposes, the tax effect of this deduction is
accounted for as a credit to additional paid-in capital rather than as a
reduction of income tax expense. A tax benefit of approximately $14,900 was
recognized for the year ended July 31, 1997.
F. Employee Stock Ownership Plan
The Company maintains 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. Eligible employees become
participants 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 participants in proportion to their total compensation.
During fiscal 1995, 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. At July 31, 1997 the fair market value of the 31,285
unearned ESOP shares was $102,000. 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. Such expense amounted to
$61,388 for 1997 and $84,102 for 1996.
Minimum remaining principal payments required to be made during fiscal
years ending July 31 are $84,400 in 1998, 84,400 in 1999, and $21,100 in 2000.
G. Income Taxes
Components of income tax expense for the years ended July 31, 1997 and
1996 include:
Current Deferred Total
-------- -------- --------
1997:
Federal $ 84,000 $ 62,000 $146,000
State 22,000 16,000 38,000
-------- -------- --------
$106,000 $ 78,000 $184,000
======== ======== ========
1996:
Federal $180,000 $ 5,000 $185,000
State 43,000 2,000 45,000
-------- -------- --------
$223,000 $ 7,000 $230,000
======== ======== ========
Actual tax expense differs from the "expected" tax expense (computed by
applying the applicable U.S. Federal corporate tax rate of 34% to income before
income taxes) as follows:
1997 1996
---- ----
Computed "expected" tax expense $ 163,000 $ 200,000
Increase (reduction) in income taxes
resulting from:
State income taxes, net of Federal benefit 25,000 28,000
Interest income on tax-exempt securities -- (8,000)
Other items (4,000) 10,000
--------- ---------
$ 184,000 $ 230,000
========= =========
20
<PAGE>
The temporary differences that give rise to deferred tax assets and
liabilities at July 31, 1997 include:
Deferred tax assets:
Capital loss carryforward 16,000
Accrued expenses 6,000
---------
Total gross deferred tax assets 22,000
Less valuation allowance (8,000)
---------
Net deferred tax asset 14,000
---------
Deferred tax liabilities:
Deferred commissions 30,000
Deferred expenses 1,000
Accelerated depreciation 81,000
---------
Total gross deferred tax liabilities 112,000
---------
Net deferred tax liability $ 98,000
=========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Accordingly, the Company has
established a valuation allowance to reflect this uncertainty. There was no
change in the valuation allowance during the year ended July 31, 1997.
H. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates are
made at a specific point in time and are based on relevant market information
and information about the financial instrument; they are subjective in nature
and involve uncertainties and matters of judgement and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect
these estimates and, since the fair values are estimated as of July 31, 1997,
the amounts that will actually be realized or paid at settlement or maturity of
the instruments could be significantly different.
* Cash and Cash Equivalents - The carrying amount is assumed to be
the fair value because of the liquidity of these instruments.
* Marketable Investment Securities - As described in Note B,
marketable investment securities are carried at fair market value
as determined by quoted market prices.
* Member Fees and Notes Receivable - The carrying amount is assumed
to be the fair value because of the short maturity of these
instruments.
* Accounts Payable and Accrued Expenses - The carrying amount
approximates fair value because of the short maturity of these
instruments.
I. Business Segments and Major Customers
The Company's operations are in one business segment - the development
and marketing of vision care cost-containment programs. One customer accounted
for 10.5% of revenues during fiscal year 1997. During fiscal 1996 no single
customer represented 10% or more of revenues.
21
<PAGE>
FIRST AMERICAN HEALTH CONCEPTS, INC.
SCHEDULE OF EXHIBITS
FILED WITH 1997 10-KSB
23 Consent of KPMG Peat Marwick LLP Page 23
28 Notice of Meeting and Proxy Page 24
Statement
22
[KPMG PEAT MARWICK LLP LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
First American Health Concepts, Inc.:
We consent to incorporation by reference in the Registration Statement No.
33-23711 on Form S-8 of First American Health Concepts, Inc. of our report dated
September 12, 1997, relating to the balance sheet of First American Health
Concepts, Inc. as of July 31, 1997 and the related statements of income,
shareholders' equity, and cash flows for each of the years in the two-year
period ended July 31, 1997, which report appears in the July 31, 1997 annual
report on Form 10-KSB of First American Health Concepts, Inc.
/s/ KPMG Peat Marwick LLP
Phoenix, Arizona
October 29, 1997
23
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 776997
<NAME> FIRST AMERICAN HEALTH CONCEPTS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1
<CASH> 547,686
<SECURITIES> 2,433,436
<RECEIVABLES> 1,125,727
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,531,319
<PP&E> 3,329,063
<DEPRECIATION> 1,239,768
<TOTAL-ASSETS> 6,904,954
<CURRENT-LIABILITIES> 1,964,356
<BONDS> 0
0
0
<COMMON> 655,296
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,904,954
<SALES> 0
<TOTAL-REVENUES> 7,171,909
<CGS> 0
<TOTAL-COSTS> 6,859,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,885
<INCOME-PRETAX> 480,361
<INCOME-TAX> 184,000
<INCOME-CONTINUING> 296,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 296,361
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
FIRST AMERICAN HEALTH CONCEPTS, INC.
7776 S. POINTE PARKWAY WEST, SUITE 150
PHOENIX, ARIZONA 85044-5424
--------------------------------------------------
NOTICE OF MEETING AND PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 8, 1997
--------------------------------------------------
To Our Shareholders:
The Annual Meeting of Shareholders of FIRST AMERICAN HEALTH CONCEPTS,
INC. (the "Company") will be held at The Pointe Hilton Resort on South Mountain,
7777 S. Pointe Parkway, Phoenix, Arizona 85044 on Monday, December 8, 1997 at
10:00 A.M., Arizona Time, for the following purposes:
1. To elect directors.
2. To ratify the Board of Directors' recommendation that KPMG
Peat Marwick be appointed the Company's independent public
accountants for fiscal year 1998.
3. To transact such other business as may properly come before
the meeting. Management is presently aware of no other
business to come before the meeting.
The Board of Directors recommends a vote FOR Proposal 2.
The Board of Directors has fixed the close of business on October 1,
1997 as the record date for the determination of shareholders entitled to
receive notice of and to vote at the meeting or any adjournment thereof and only
holders of record of issued and outstanding shares of the Company's Common Stock
at that time will be entitled to such notice or so to vote.
Management of the Company cordially invites you to attend the meeting.
Shareholders who do not expect to attend personally are requested to sign and
date the accompanying proxy and return it promptly in the enclosed postage
prepaid envelope.
Details of the matters to be acted on by the shareholders are set forth
in the following Proxy Statement, which is hereby incorporated as a part of this
Notice of Meeting.
By Order of the Board of Directors
John R. Behrmann
Chairman of the Board
Mailed to Shareholders on or about November 10, 1997
<PAGE>
PROXY STATEMENT
---------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of FIRST AMERICAN HEALTH CONCEPTS, INC.
(the "Company") to be used at the Annual Meeting of Shareholders which will be
held on December 8, 1997, and at any adjournment thereof with respect to the
matters referred to in the preceding Notice of Meeting. The Company's 1997
Annual Report, containing financial statements reflecting the financial position
and results of operations of the Company for the fiscal year ended July 31,
1997, and this Proxy Statement and the preceding Notice of Meeting are being
mailed on or about November 10, 1997, to shareholders of record at the close of
business on October 1, 1997. As of the record date, there were 2,544,736 shares
of the Company's Common Stock outstanding. Shareholders of record are entitled
to one vote for each share held of record on each matter of business to be
considered at the meeting other than the election of directors. See "Cumulative
Voting Rights" under Proposal 1 for information on voting with respect to the
election of directors.
Voting; Proxies; Revocation of Proxies
- --------------------------------------
A shareholder desiring to vote at the Annual Meeting may do so by (i)
attending the meeting and voting in person; (ii) signing and dating the proxy
which accompanies this Notice of Meeting and Proxy Statement and returning it to
the Company; or (iii) duly executing and giving a proxy to a person of the
shareholder's choosing. Any proxy so given may be revoked by the person giving
it at any time before its use by delivering to the Company a written notice of
revocation or a duly executed proxy bearing a later date or by attending the
meeting and voting in person.
In determining whether a quorum exists at the meeting all shares
represented in person or proxy will be counted. Presence of holders of a
majority of the outstanding stock entitled to vote shall constitute a quorum.
Votes will be tabulated by inspectors. Abstentions and broker non-votes are each
included in the determination of the number of shares present and voting. Each
is tabulated separately. Abstentions are counted in tabulations of the votes
cast on proposals presented to shareholders, whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
Adoption of Proposal 2 will require the affirmative vote of a majority
of the shares of the Company's Common Stock present and entitled to vote at the
Annual Meeting, assuming a quorum is present. For information with respect to
election of directors, see "Proposal 1 - Cumulative Voting Rights."
1998 Proxy Statement Proposals
- ------------------------------
Each year the Board of Directors submits to the shareholders at the
Annual Meeting its nominations for election of directors. Other proposals may be
submitted by the Board of Directors or shareholders for inclusion in the Proxy
Statement for action at the Annual Meeting. Any proposal submitted by a
shareholder for inclusion in the 1998 Annual Meeting Proxy Statement must be
received by the Company not later than June 25, 1998.
PROPOSAL 1
ELECTION OF DIRECTORS
Cumulative Voting Rights
- ------------------------
Each shareholder present either in person or by proxy at the Annual
Meeting will have cumulative voting rights with respect to the election of
directors; that is the shareholder will have an aggregate number of votes in the
election of directors equal to the number of directors to be elected multiplied
by the number of shares of Common Stock of the Company held by such shareholder
on the record date. The resulting aggregate number of votes may be cast by the
shareholder for the election of any single nominee, or the shareholder may
distribute such votes among any number of all of the nominees. The seven
nominees receiving the highest number of votes will be elected to the Board of
Directors. The cumulative voting rights may be exercised in person or by proxy
and there are no conditions precedent to the exercise of such rights. The form
of proxy which accompanies this Notice of Meeting and Proxy Statement confers
discretionary authority on the proxyholders to vote the shares represented
thereby cumulatively in certain cases described immediately below under
"Nominees."
1
<PAGE>
Nominees
- --------
A board of seven directors is to be elected at the Annual Meeting.
Unless otherwise instructed in any proxy, the persons named in the form of proxy
which accompanies this Notice of Meeting and Proxy Statement (the
"proxyholders") will vote the proxies received by them for the Company's seven
nominees whose names are set forth in the following table, five of whom are
presently directors of the Company. In the event that any such nominee is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. In the event that additional persons are
nominated for election as directors, the proxyholders intend, unless otherwise
instructed in any proxy, to vote all proxies received by them in such manner in
accordance with cumulative voting as will assure the election of as many of the
following nominees as possible, and, in such event, the specific nominees to be
voted for will be determined by the proxyholders. In the event that authority to
vote for any nominee whose name is set forth in the following table is withheld
in any proxy, the proxyholders intend, unless otherwise instructed in such
proxy, to vote the shares represented by such proxy, in their discretion,
cumulatively for one or more of the other nominees named in such table. The
Company is not aware of any nominee who will be unable or will decline to serve
as a director. The term of office of each person elected as a director will
expire upon the election and qualification of his or her successor, expected to
be at the next Annual Meeting of Shareholders.
The names of the nominees, their ages, position(s) with the Company,
and periods during which they have held such positions are as follows:
Name and Year
First Held Position Age Position(s)
- ------------------- --- -----------
John R. Behrmann 62 Director (1)
(1993)
Robert J. Delsol 48 Director (1)
(1993)
John W. Heidt 49 Director (1)
(1989)
James J. Meenaghan 59 Nominee for Director
(Nominee)
Thomas B. Morgan 72 Director (1)
(1988)
John A. Raycraft 50 Nominee for Director,
(Nominee) President, and CEO
Robert M. Topol 72 Director (1)
(1989)
(1) Member of the Executive Committee, which Committee has all powers
of the entire Board of Directors other than powers denied by law or by
resolution of the entire Board of Directors.
Information Concerning Nominees
- -------------------------------
Information furnished to the Company by such persons, with respect to
the business experience of the above nominees for election as directors of the
Company, is set forth below.
2
<PAGE>
JOHN R. BEHRMANN has been a director since November, 1993 and Chairman
since January, 1997. Mr. Behrmann is a director of Medical Technology &
Innovations, Inc., a public company in the medical device business and owner and
operator of Evergreen Industries, Inc., a company with interests in commercial
deer farming and real estate. Mr. Behrmann is also a stockholder and chairman of
the board of Preston Reynolds & Co., Inc., an investment banking firm with
special emphasis on the oil and gas industry and a stockholder and chairman of
Redstone Resources, Inc., a company engaged in natural gas exploration. Mr.
Behrmann, a CPA, holds a BS degree in Commerce and Finance from Bucknell
University, Lewisburg, Pennsylvania.
ROBERT J. DELSOL has been a director of the Company since June, 1993.
Mr. Delsol is a graduate of California State University, Hayward, with a BA
degree in accounting. He received his CPA certificate in 1972. He currently
serves as President and Chief Executive Officer of Pacific Steel Casting
Company; President, Tri-Pacific, Inc., a personal holding company; President,
Alpha Capital Company, which he co-founded in 1977; and Executive Vice
President, Caron Compactor Company.
JOHN W. HEIDT has been a director of the Company since November 1989
and Vice Chairman since January, 1997. Mr. Heidt is Vice President and a
director of Alpha Capital Company, an investment advisory firm located in
Oakland, California, and is an employee of Pacific Steel Casting Company, a
steel foundry based in Berkeley, California. Prior to these positions Mr. Heidt
was a stockbroker in the San Francisco bay area. Mr. Heidt holds a BS degree in
Financial Management from California State University in Hayward, California.
JAMES J. MEENAGHAN who is a nominee for director is currently a private
investor residing in Paradise Valley, Arizona and New York City. Mr. Meenaghan
retired in 1993 from The Home Insurance Company after serving as Chairman of the
Board and Chief Executive Officer for seven years. From 1984 to 1986, he served
as President and Chief Executive Officer with the John F. Sullivan Company. Mr.
Meenaghan held various positions with the Fireman's Fund Insurance Co. (San
Francisco) from 1964 to 1984. He is currently a Trustee of the Heard Museum
(Phoenix) and Chairman/Founder of the POSSE Scholarship Program. Mr. Meenaghan
holds a BS degree in Mathematics and Philosophy from Fordham University.
THOMAS B. MORGAN has been a director of the Company since October 1988.
Mr. Morgan is currently the President of Citizen Auto Stage Co. and Gray Line
Tours, Inc., bus and trucking companies operating in Phoenix and southern
Arizona and Treasurer, American Bus Association, Washington, D.C. Mr. Morgan is
also Past Chairman of Holy Cross Hospital, Nogales, Arizona, and Gray Line
Worldwide, Dallas, Texas.
JOHN A. RAYCRAFT who is a nominee for director previously served as a
director from August 1993 to July 1995. Mr. Raycraft began his association with
the Company in May 1991 as Executive Vice President. He became the President in
August 1992 and the Chief Executive Officer in May 1993. Prior to joining the
Company, Mr. Raycraft was associated with California Vision Service Plan and AVP
Vision Plan for more than ten years. He holds a BS degree in Economics from the
California State University in Sacramento.
ROBERT M. TOPOL has been a director of the Company since November 1989.
In June 1994, Mr. Topol retired from Smith Barney Shearson, Inc. after serving
as Executive Vice President since 1976, and Director of Unit Trusts since 1980.
Mr. Topol serves as Director of E-Z-EM, Inc., a medical products company in
Westbury, New York and is a member of the Board of Directors of the American
Health Foundation, City Meals and Wheels, Purchase College, and Redstone
Resources, Inc.
The Company maintains a standing Audit Committee currently comprised of
John R. Behrmann, Robert J. Delsol, John W. Heidt and Robert M. Topol. The Audit
Committee met one time during fiscal 1997. The basic function of the Audit
Committee is to review the financial statements of the Company and to consider
such other matters in relation to the internal and external audit of the
financial affairs of the Company as may be necessary or appropriate in order to
facilitate accurate financial reporting.
The Board of Directors maintains a Nominating Committee currently
comprised of all five members of the Board of Directors. All members of the
Board of Directors also serve on the Compensation and Options Committee.
3
<PAGE>
During the fiscal year ended July 31, 1997, the Board of Directors met
on five occasions. During the last fiscal year, no incumbent director, during
the period that he was a director, attended fewer than 75% of the aggregate of
(i) the total number of meetings of the Board of Directors and (ii) the total
number of meetings held by all committees of the Board on which he served.
Compliance With Section 16(a) of the Exchange Act
- -------------------------------------------------
During the fiscal year ended July 31, 1997, there were no reports filed
on an untimely basis.
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
(a) Security ownership of certain beneficial owners. As of October 1,
1997, the following persons were known by the Company to be the beneficial
owners of more than 5% of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class (1)
- -------------- ---------------- -------------------- ---------
<S> <C> <C> <C>
No par value Alpha Capital Company 261,972 9.7%
common 1425 Leimert Blvd., Ste. #400 (13)
Oakland, CA 94602
No par value Robert J. Delsol, Director 953,941 35.3%
common 1333 Second Street (2)(5)(9)
Berkeley, CA 94710
No par value John W. Heidt 283,172 10.5%
common 1425 Leimert Blvd., Ste. #400 (2)(5)(10)
Oakland, CA 94602
No par value Robert M. Topol, Director 136,000 5.0%
common 825 Orienta Avenue (2)(5)(12)
Mamaroneck, NY 10543
</TABLE>
(b) Security ownership of management. The stock beneficially owned by
all directors, nominees, and executive officers of the Company as of October 1,
1997, is set forth below:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class (1)
- -------------- ---------------- -------------------- ---------
<S> <C> <C> <C>
No par value John R. Behrmann, Chairman of the Board 130,006 4.8%
common Highbourne Place (2)(5)
R.D. #3 Box 296
Dallastown, PA 17313
No par value Bruce T. Davidson, V.P. Marketing/Sales 10,000 .4%
common 6130 N. 31st Ct. (7)
Phoenix, AZ 85016
No par value Robert J. Delsol, Director 953,941 35.3%
common 1333 Second Street (2)(5)(9)
Berkeley, CA 94710
No par value John W. Heidt, Vice Chairman of the Board 283,172 10.5%
common 1425 Leimert Blvd., Ste. #400 (2)(5)(10)
Oakland, CA 94602
No par value James J. Meenaghan, Nominee 19,000 .7%
common 6200 N. 61st Place (3)(4)
Paradise Valley, AZ 85253
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
No par value Thomas B. Morgan, Director 114,510 4.2%
common 67 East Baffert Drive (2)(5)(11)
Nogales, AZ 8562
No par value John A. Raycraft, Nominee 41,643 1.5%
common President and Chief Executive Officer (3)(6)
7776 S. Pointe Parkway West, #150
Phoenix, AZ 85044
No par value Robert M. Topol, Director 136,000 5.0%
common 825 Orienta Avenue (2)(5)(12)
Mamaroneck, NY 10543
Officers, directors and nominees 1,439,774 53.3%
as a group (11 persons) (4)(8)
</TABLE>
(1) Percentage is calculated on the basis that all director and officer
shares under stock options presently exercisable are deemed
outstanding. The total Common Stock outstanding under this basis was
2,702,353 shares.
(2) A Director.
(3) A Nominee for Director.
(4) Includes shares held by officers, directors, nominees, and owners of 5%
or more, as community property, in joint tenancy with spouses or having
other shared voting rights.
(5) Includes 20,000 shares which may be acquired within 60 days of the
record date (10/01/97) upon exercise of stock options.
(6) Includes 39,643 shares which may be acquired within 60 days of the
record date (10/01/97) upon exercise of stock options.
(7) Includes 5,000 shares which may be acquired within 60 days of the
record date (10/01/97) upon exercise of stock options.
(8) Includes an additional 12,974 exercisable options held by other
officers for a total of 157,617 shares which may be acquired within 60
days of the record date (10/01/97) upon exercise of stock options.
(9) Includes 390,722 shares owned by Pacific Steel Casting, a corporation
of which Mr. Delsol is CEO and a major shareholder; with shared voting
and investment power; 140,286 shares owned by Pacific Steel Casting
Pension Plan and 105,704 by Pacific Steel Casting Profit Sharing Plan,
of which Mr. Delsol is a trustee with shared voting and investment
power; 23,257 shares owned by Piece of the Pebble, L.P., of which Mr.
Delsol as the general partner has sole voting and investment power;
12,000 shares owned by Tri-Pacific, Inc., a personal holding company of
which Mr. Delsol as President has sole voting and investment power;
66,515 shares owned by Alpha Capital Company, Inc., a corporation in
which Mr. Delsol as an owner, officer, and director, has shared voting
and investment power; 195,457 shares held in a fiduciary capacity by
Alpha Capital for investor-clients. Alpha Capital has no voting power
over these shares but it does have the power to dispose of these shares
on behalf of others.
(10) Includes 1,200 shares owned by children over which Mr. Heidt has sole
voting and investment power; 66,515 shares owned by Alpha Capital
Company, Inc., a corporation in which Mr. Heidt as a minority owner,
officer, and director, has shared voting and investment power, and
195,457 shares held in a fiduciary capacity by Alpha Capital for
investor-clients (Alpha Capital has no voting power over these shares
but it does have the power to dispose of these shares on behalf of
others).
5
<PAGE>
(11) Includes 15,000 shares owned by spouse. Mr. Morgan has no voting or
investment power with regard to these shares.
(12) Includes 28,000 shares owned by spouse and 60,000 owned by children.
Mr. Topol has no voting or investment power with regard to these
shares.
(13) A beneficial owner of more than 5% of the Company's Common Stock.
Address: 1425 Leimert Boulevard, Suite 400, Oakland, CA 94602. Alpha
Capital Company, Inc. ("Alpha") is a registered investment advisor. Of
the 261,972 shares, 195,457 have been acquired by Alpha for the
accounts of selected individuals and institutional investors, who are
clients of Alpha. These shares are held in fiduciary capacity for its
investor-clients and were not acquired with the purpose or effect of
changing or influencing control of FAHC.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or accrued to each
person who was an executive officer of the Company at any time during the fiscal
year ended July 31, 1997 whose cash compensation from the Company for services
in all capacities during such fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation
===================
Name Other
and Annual
Principal Compen- Options/
Position Year Salary Bonus sation SARS
- --------------------------------------------------------------------------------
John A. Raycraft 1997 $154,800 $16,954 $1,999(1) - 0 -
President/CEO 1996 154,800 10,585 1,999(1) - 0 -
1995 143,451 32,717 1,999(1) 40,000
Bruce T. Davidson 1997 139,800 - 0 - - 0 - - 0 -
V.P. of Marketing and Sales 1996 92,780 2,709 52,500(2) 50,000
(1) Life insurance policy with spouse as beneficiary.
(2) Consulting fees prior to employment.
Option/SAR Grants in Last Fiscal Year
=====================================
Individual Grants
Percent of Total
Options/SARS
Options/ Granted to
SARS Employees in Exercise or Expiration
Name Granted Fiscal Year Base Price Date
- --------------------------------------------------------------------------------
None
6
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
================================================================================
Value of
Number of Unexercised
Unexercised In-the-money
Options/SARS Options/SARS
at FY-End at FY-End
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable
- --------------------------------------------------------------------------------
None
Directors' Compensation
- -----------------------
Directors who are not employees receive $500 per meeting of the Board of
Directors attended and an additional $200 per meeting for attending any
committee meeting of the Board of Directors of which they are a member.
Nonstatutory options for 20,000 shares each of the Company=s Common Stock
have been granted to directors as follows: One during fiscal year ended July 31,
1994, at $8.00 per share; one during the fiscal year ended July 31, 1993, at
$4.625 per share; two during the fiscal year ended July 31, 1990, at $2.1875 per
share, and one during the fiscal year ended July 31, 1989, at $1.6256 per share.
Certain Relationships and Related Transactions
- ----------------------------------------------
During 1993, the Company made a $101,395 loan to John A. Raycraft,
President and Chief Executive Officer of the Company, in exchange for an
interest bearing note receivable. The agreement provided for quarterly loan
payments amounting to 50% of the profit sharing payment due to the officer, with
payments applied first to accumulated interest due and then to principal, until
paid in full. The note was secured by an insurance policy on the life of the
officer. The balance of the note on August 1, 1994 was $65,525.
During fiscal 1995, the Company loaned the officer an additional $28,000
and agreed to repayment of principal and interest in five annual installments
through August 1, 1999. Other terms of the note receivable remain unchanged. The
balance of the note on July 31, 1997 was $62,524. During August 1997, a
repayment of $18,621 was received from the officer.
PROPOSAL 2
SELECTION OF AUDITORS
The Board of Directors will request that the shareholders ratify its
selection of KPMG Peat Marwick as the Company's independent public accountants
for fiscal year 1998. If the shareholders do not ratify the selection of KPMG
Peat Marwick, another firm of certified public accountants will be selected as
the Company's independent auditors by the Board of Directors.
Representatives of KPMG Peat Marwick will be present at the Annual
Meeting, will have an opportunity to make a statement, and will be available to
respond to appropriate questions.
The Board of Directors recommends a vote FOR Proposal 2.
7
<PAGE>
GENERAL
As of the date of this Proxy Statement, the Board of Directors knows of
no other matter which will come before the meeting. In the event that any other
matter legally comes before the meeting, the persons named in the accompanying
form of Proxy intend to vote all proxies in accordance with their judgment on
such matters.
Shares represented at the Annual Meeting by properly executed and dated
proxies in the accompanying form will be voted and, where the shareholder
specifies by means of the ballot set forth in the form of Proxy a choice with
respect to any matter to be acted upon, the shares will be voted in accordance
with the specifications so made. In the absence of any specification with
respect to Proposal 2, proxies will be voted FOR such Proposal.
The cost of soliciting proxies relating to the Annual Meeting will be
borne by the Company. Directors, officers and regular employees of the Company
may solicit proxies from the larger shareholders, which solicitation may be made
by telephone, telegram or personal interview. In addition, the Company will,
upon the request of brokers, dealers, voting trustees and banks and other
entities that exercise fiduciary powers, and their nominees, who are holders of
record of shares of the Company's Common Stock on the record date referred to
above, pay their reasonable expenses for completing the mailing of copies of
this Notice of Meeting and Proxy Statement, of the enclosed form of Proxy and of
the Company's 1997 Annual Report to the beneficial owners of such shares of
Common Stock.
FIRST AMERICAN HEALTH CONCEPTS, INC.
John R. Behrmann
Chairman of the Board
November 10, 1997
8
