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 April 30, 2000.
[ ] 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 May 31, 2000 was 2,604,736 shares after
deducting 468,102 shares of treasury stock.
<PAGE>
FIRST AMERICAN HEALTH CONCEPTS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED
APRIL 30, 2000
TABLE OF CONTENTS
Part I. Financial Information Page
----
Item 1. Financial Statements (Unaudited)
Balance Sheet as of April 30, 2000 3
Statements of Operations for the quarter and nine
months ended April 30, 2000 and 1999 4
Statements of Cash Flows for the nine months
ended April 30, 2000 and 1999 5
Note to the Financial Statements 6
Item 2. Management's Discussion and Analysis 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
2
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FIRST AMERICAN HEALTH CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
APRIL 30, 2000
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 658,649
Marketable investment securities 219,000
Member fees receivable, net of allowance for
doubtful accounts of $40,385 4,256,934
Deferred expenses 243,260
Prepaid expenses 100,378
Income tax receivable 479,890
Other current assets 126,489
----------
Total Current Assets 6,084,600
Property and Equipment:
Office furniture and fixtures 320,583
Office equipment 3,925,731
Leasehold improvements 201,083
----------
4,447,397
Less accumulated depreciation and amortization (2,751,938)
----------
Net Property and Equipment 1,695,459
----------
Total Assets $7,780,059
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 304,913
Claims payable 378,000
Deferred revenue 1,591,772
Accrued expenses and other current liabilities 103,770
Deferred income taxes 285,549
----------
Total Current Liabilities 2,664,004
Shareholders' Equity:
Common stock, no par value; Authorized
8,000,000 shares; Issued, 3,072,838 shares 757,296
Additional paid-in capital 2,565,067
Net unrealized loss on marketable investment securities (31,772)
Unearned ESOP shares 10,659
Retained earnings 3,300,537
----------
6,601,787
Treasury stock, at cost, 468,102 shares (1,485,732)
----------
Total Shareholders' Equity 5,116,055
----------
Total Liabilities and Shareholders' Equity $7,780,059
==========
See Accompanying Notes to the Consolidated Financial Statements (Unaudited)
3
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FIRST AMERICAN HEALTH CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended April 30, Nine months ended April 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fee revenues $ 2,033,684 $ 1,895,713 $ 5,437,468 $ 5,276,852
Reinsurance revenues 1,459,534 350,615 3,198,869 853,766
----------- ----------- ----------- -----------
Total 3,493,218 2,246,328 8,636,337 6,130,618
Operating Expenses:
Sales and marketing costs 387,113 239,428 1,003,165 957,594
Direct membership costs 800,885 801,749 2,117,547 2,021,423
General and administration 744,034 592,101 2,127,738 1,894,627
Assumed incurred loss expense 1,115,981 223,949 1,834,780 506,081
Assumed underwriting expense 418,636 112,158 959,409 267,523
ESOP charges 16,798 11,504 49,265 38,452
Depreciation 137,452 135,973 451,051 405,829
----------- ----------- ----------- -----------
Total Operating Expenses 3,620,899 2,116,862 8,542,955 6,091,529
----------- ----------- ----------- -----------
Operating Income (Loss) (127,681) 129,466 93,382 39,089
Non-operating Income (Expense):
Interest income 15,127 16,753 64,597 117,068
Interest expense -- (916) (458) (8,943)
----------- ----------- ----------- -----------
Total Non-operating Income 15,127 15,837 64,139 108,125
Income (Loss) Before Income Taxes (112,554) 145,303 157,521 147,214
Income Taxes (37,973) 53,673 53,853 54,399
----------- ----------- ----------- -----------
Net Income (Loss) Before Change
in Accounting Principle $ (74,581) $ 91,630 $ 103,668 $ 92,815
----------- ----------- ----------- -----------
Cumulative Effect of Change in
Accounting Principle, Net of Tax $ -- $ -- $ (642,259) $ --
Net Income (Loss) After Change
in Accounting Principle $ (74,581) $ 91,630 $ (538,591) $ 92,815
Net Income/(Loss) Per Share - Basic
Before Change in Accounting Principle $ (0.03) $ 0.04 $ 0.04 $ 0.04
=========== =========== =========== ===========
Cumulative Effect of Change in Accounting
Principle , Net of Tax - Basic $ -- $ -- $ (0.25) $ --
=========== =========== =========== ===========
Net Income/(Loss) Per Share - Basic
After Change in Accounting Principle $ (0.03) $ 0.04 $ (0.21) $ 0.04
=========== =========== =========== ===========
Net Income/(Loss) Per Share - Diluted
Before Change in Accounting Principle $ (0.03) $ 0.04 $ 0.04 $ 0.04
=========== =========== =========== ===========
Cumulative Effect of Change in Accounting
Principle, Net of Tax - Diluted $ -- $ -- $ (0.24) $ --
=========== =========== =========== ===========
Net Income/(Loss) Per Share - Diluted
Before After in Accounting Principle $ (0.03) $ 0.04 $ (0.20) $ 0.04
=========== =========== =========== ===========
Weighted Average Shares Outstanding - Basic 2,604,736 2,578,069 2,604,736 2,578,069
=========== =========== =========== ===========
Weighted Average Shares Outstanding - Diluted 2,621,250 2,621,250 2,629,076 2,578,069
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements (Unaudited)
4
<PAGE>
FIRST AMERICAN HEALTH CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended April 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) Income $ (538,591) $ 92,815
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation 451,051 405,829
ESOP shares committed to be released 33,217 38,452
Provision for losses on accounts receivable 2,515 --
(Decrease) in deferred taxes (408,145) --
Change In Assets and Liabilities:
(Increase) decrease in member fees receivable (1,801,479) (939,318)
Decrease (increase) in deferred expenses 909,100 (379,476)
Decrease (increase) in prepaid expenses and other current assets 98,849 (29,435)
(Increase) decrease in income tax receivable (123,689) 51,144
Increase (decrease) in accounts payable 243,988 52,478
Increase (decrease) in claims payable 117,000 177,000
Increase (decrease) in deferred revenue 490,134 (484,769)
(Decrease) increase in accrued expenses and other current liabilities (64,678) (7,860)
----------- -----------
Net Cash Used by Operating Activities (590,728) (1,023,140)
----------- -----------
Cash Flows from Investing Activities:
Decrease in marketable investment securities -- 255,168
Decrease in note receivable-officer 28,794 17,170
Purchases of property and equipment (384,191) (146,949)
----------- -----------
Net Cash (Used) Provided By Investing Activities (355,397) 125,389
----------- -----------
Cash Flows from Financing Activities:
Proceeds from stock options exercised -- 75,750
Repayments of bank loan (21,100) (63,300)
Repayments of capital lease obligation -- (7,353)
----------- -----------
Net Cash (Used) Provided By Financing Activities (21,100) 5,097
----------- -----------
Net Decrease in Cash and Cash Equivalents (967,225) (892,654)
Cash and Cash Equivalents, Beginning of Period 1,625,874 1,342,759
----------- -----------
Cash and Cash Equivalents, End of Period $ 658,649 $ 450,105
=========== ===========
Supplemental Disclosures of Non-Cash Activities:
Unrealized (loss) gain on marketable investment securities $ (20,875) $ (176)
=========== ===========
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements (Unaudited)
5
<PAGE>
FIRST AMERICAN HEALTH CONCEPTS, INC.
NOTE 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 1999 audited
financial statements, filed on Form 10-KSB with the Securities and Exchange
Commission on October 29, 1999, except for the change in accounting principle
for deferred costs, the recording of a reserve for claims incurred but not yet
reported, and the write off of certain insurance contract fulfillment costs.
During 2000, subsequent to the issuance of the Company's July 31, 1999 audited
consolidated financial statements, certain accounting items that affect those
consolidated financial statements as of and for the period ended April 30, 1999
were identified as requiring adjustment. The need for adjustment was identified
in the following items: an unrecorded claims reserve, tax adjustments, other
adjustments related to general expenses and costs that do not qualify for
deferral. The adjustments change net income per share as follows: quarter ended
April 30, 1999: $0.05 decrease and nine months ended April 30, 1999: $0.05
decrease.
Operating results for the nine months ended April 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending July 31,
2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB contains forward-looking statements. The words
"believe," "expect," "anticipate," and "project," and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. Such forward-looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements may
include, but are not limited to, projections of revenues, income, or loss,
capital expenditures, plans for future operations, financing needs or plans, the
impact of inflation and plans relating to the foregoing.
RESULTS OF OPERATIONS
Operating revenues for the quarter ended April 30, 2000 were $3,493,000 compared
to $2,246,000 for the quarter ended April 30, 1999, an increase of 56%. Revenues
generated from the Company's indemnity plans increased 175% to $2,312,000 for
6
<PAGE>
the third quarter 2000, as compared to $841,000 for the same period in the prior
year. Indemnity plan revenues for the nine months ended were $5,139,000, a 128%
increase over the same period in 1999. Revenues from the Company's traditional
vision care savings product were $947,000 and $2,859,000 for the quarter and
nine months ended April 30, 2000. Revenue for the corresponding periods in 1999
was $1,209,000 and $3,347,000. Management expects revenues from indemnity plans
to continue to increase during the remaining fiscal year. A significant portion
of sponsor companies maintain employee benefit plans with calendar-year terms,
resulting in the Company's third quarter generally showing the largest increase
in enrollment and revenues. Non-insured revenues from the vision care savings
product are expected to remain flat due to a decreasing demand for this product.
Total operating expenses increased 71% for the quarter ended April 30, 2000 to
$3,621,000. Total operating expenses for the year to date increased 40% to
$8,543,000. 54% or $1,329,000 of the year to date increase was the result of
increased reinsurance expenses corresponding with the increase in reinsurance
premium revenue.
Sales and marketing costs increased to $387,000 for the quarter ended April 30,
2000, as compared to $239,000 for the quarter ended April 30, 1999. Sales and
marketing expense for the nine- month period ended April increased 5% to
$1,003,000 as compared to $958,000 for the same period in 1999. The increase was
due to new sales offices coupled with increased commissions to outside brokers
due to the sale of indemnity plans.
Direct membership costs, those costs associated with supplying vision plan
members with membership materials, maintaining a national locator service, and
administering claims processing functions decreased to $801,000 for the quarter
ended April 30, 2000, as compared to $802,000 for the same period in fiscal
1999. Direct membership costs for the nine-month period increased 5% to
$2,118,000, as compared to $2,021,000 for the same period in 1999.
General and administration expenses totaled $744,000 for the quarter ended April
30, 2000, as compared to $592,000 to the same quarter in the prior year. General
and administration expenses for the nine months ended April 30, 2000 increased
12% to $2,128,000, as compared to $1,895,000 for the same period in the prior
year. This increase was due to the treatment of expenses associated with the
licensing of ECPA-CA. These costs are expensed through operations in fiscal
2000, but were deferred in fiscal 1999. Those previously deferred costs were
written off in the first quarter of fiscal 2000 due to the mandatory adoption of
SOP 98-5, REPORTING THE COSTS OF START-UP ACTIVITIES.
Assumed incurred loss expense increased to $1,116,000 for the quarter ended
April 30, 2000, as compared to $224,000 for the quarter ended April 30, 1999.
Assumed incurred loss expense increased to $1,835,000 for the nine-month period,
as compared to $506,000 for the same period in 1999. The increase in assumed
incurred loss expense corresponds to the increase in reinsurance revenues.
Assumed underwriting expense increased for the nine months ended April 30, 2000.
The assumed underwriting expense was $419,000 for the quarter and $959,000 for
the nine-months ended April 30, 2000. The expense was $112,000 and $268,000 for
the corresponding periods in fiscal 1999. The increase is due to increased
revenues as discussed above.
Depreciation was $137,000 for the three months ended April 30, 2000, as compared
to $136,000 for the corresponding period in the prior year. Depreciation for the
nine months ended April 30, 2000 was $451,000, as compared to $406,000 for the
same period in the prior year. The increase was due to a shortened depreciation
period on some information systems equipment.
ESOP compensation expense represents contributions committed for the periods in
accordance with the Company's Employee stock ownership plan implemented during
7
<PAGE>
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 $15,000 for the three months ended April 30, 2000 and
$65,000 year to date as compared to $17,000 and $117,000 for the corresponding
periods in fiscal 1999. Interest income during the first quarter 1999 included a
one-time gain on the sale and reinvestment of securities.
Interest expense decreased for the quarter and year to date comparison. The
decrease is a result of repayments of borrowings by the ESOP trust.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $3,421,000 and the current ratio was 2.3 to 1 at April 30,
2000 while cash, cash equivalents and marketable securities comprised $877,649.
This level of liquid assets, combined with budgeted cash flow, is adequate to
meet periodic needs.
CHANGE IN ACCOUNTING PRINCIPLE
The Company adopted SOP 98-5, REPORTING THE COSTS OF START-UP ACTIVITIES, in the
quarter ended October 31, 1999. The Company was previously deferring start-up
costs associated with its California subsidiary. The subsidiary operates as a
Specialized Knox-Keene Health Care Services Organization.
YEAR 2000
The Company so far has experienced no disruptions in the operation of its
internal information systems during the transition to the year 2000. The Company
is not aware that any of its vendors or clients experienced any disruptions
during their transition to the year 2000 or that there has been any year 2000
issues with its services provided. The Company will continue to monitor the
transition to year 2000 and will act promptly to resolve any problems that
occur.
If the Company or any third parties with which it has business relationships
experience problems related to the year 2000 transition that have not yet been
discovered, it could have a material adverse impact on the Company.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 -- Restated Financial Data Schedule
(b) Reports On Form 8-K
A Form 8-K was filed April 6, 2000 announcing the promotion of James
D. Hyman from Chief Operating Officer to President and Chief Executive
Officer of First American Health Concepts, Inc. effective April 1,
2000.
Mr. Hyman replaced John A. Raycraft who left the Company on March 15,
2000 to pursue other interests. Mr. Raycraft also resigned as a member
of the Board of Directors effective March 15, 2000.
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: /s/ James D. Hyman
--------------------------------
James D. Hyman
President & CEO
Date: June 19, 2000
9
