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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED DECEMBER 31, 1998
Commission File Number: 000-18839
UNITED AMERICAN HEALTHCARE CORPORATION
(Exact Name of Registrant as Specified in Charter)
MICHIGAN 38-2526913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1155 BREWERY PARK BOULEVARD, SUITE 200
DETROIT, MICHIGAN 48207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 393-0200
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF FEBRUARY 16,
1999 WAS 6,587,270.
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As filed with the Securities and Exchange Commission on February 16, 1999
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UNITED AMERICAN HEALTHCARE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1. Unaudited Condensed Consolidated Financial Statements--
Condensed Consolidated Balance Sheets--December 31, 1998
and June 30, 1998 2
Condensed Consolidated Statements of Operations--Three and Six Months
Ended December 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows--Six Months
Ended December 31, 1998 and 1997 4
Notes to the Unaudited Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
EXHIBITS 23
</TABLE>
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PART I.
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1998
------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 8,803 $ 13,259
Marketable securities 1,431 1,431
Premium receivables 5,507 2,723
Note receivable 11,500 --
Other receivables 2,183 1,816
Refundable federal income taxes 5,453 5,453
Prepaid expenses and other 192 281
Deferred income taxes 594 594
-------- --------
Total current assets 35,663 25,557
Property and equipment, net 4,728 6,098
Intangible assets, net 5,249 5,629
Long-term note receivable 2,250 --
Surplus note receivable, net 2,300 2,300
Marketable securities 1,396 1,396
Deferred income taxes 417 417
Other assets 377 584
Net assets of discontinued operation -- 16,703
-------- --------
$ 52,380 $ 58,684
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 18,098 $ 14,444
Medical claims payable 18,222 20,004
Accounts payable and accrued expenses 2,786 3,549
Accrued compensation and related benefits 963 1,240
Other current liabilities 385 420
-------- --------
Total current liabilities 40,454 39,657
Long-term debt, less current portion 625 8,000
Accrued rent 935 935
Deferred income taxes 1,011 1,011
Shareholders' equity
Preferred stock, 5,000,000 shares authorized; none issued -- --
Common stock, no par, 15,000,000 shares authorized; 6,587,270 and
6,578,356 issued and outstanding at December 31, 1998 and June 30,
1998, respectively 10,715 10,715
Retained earnings (deficit) (1,226) (1,500)
Accumulated other comprehensive loss, net of deferred federal income
taxes (134) (134)
-------- --------
9,355 9,081
======== ========
$ 52,380 $ 58,684
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------------------
1998 1997 1998 1997
--------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Medical premiums $ 16,635 $ 22,526 $ 33,220 $ 42,810
Management fees from related party 5,046 6,213 10,348 12,459
Interest and other income 689 453 1,154 955
-------- -------- -------- --------
Total revenues 22,370 29,192 44,722 56,224
EXPENSES
Medical services 14,140 21,860 28,237 39,039
Marketing, general and administrative 6,747 11,778 13,452 22,220
Depreciation and amortization 857 4,672 1,744 5,734
Interest expense 443 456 938 786
-------- -------- -------- --------
Total expenses 22,187 38,766 44,371 67,779
-------- -------- -------- --------
Earnings (loss) from continuing operations before income taxes 183 (9,574) 351 (11,555)
Income tax expense (benefit) 29 (2,073) 77 (2,512)
-------- -------- -------- --------
Earnings (loss) from continuing operations 154 (7,501) 274 (9,043)
Loss from discontinued operation, net of income taxes -- (532) -- (323)
-------- -------- -------- --------
NET EARNINGS (LOSS) $ 154 $ (8,033) $ 274 $ (9,366)
======== ======== ======== ========
NET EARNINGS (LOSS) PER COMMON SHARE - BASIC
EARNINGS (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS $ 0.02 $ (1.14) $ 0.04 $ (1.37)
======== ======== ======== ========
NET EARNINGS (LOSS) PER COMMON SHARE $ 0.02 $ (1.22) $ 0.04 $ (1.42)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 6,651 6,578 6,617 6,578
======== ======== ======== ========
NET EARNINGS (LOSS) PER COMMON SHARE - DILUTED
EARNINGS (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS $ 0.02 $ (1.14) $ 0.04 $ (1.37)
======== ======== ======== ========
NET EARNINGS (LOSS) PER COMMON SHARE $ 0.02 $ (1.22) $ 0.04 $ (1.42)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 6,651 6,578 6,623 6,578
======== ======== ======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
---------------------
1998 1997
---------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings (loss) $ 274 $ (9,366)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,744 5,734
Net change in assets and liabilities (5,120) 5,743
-------- --------
Net cash provided by (used in) operating activities (3,102) 2,111
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities -- 839
Proceeds from the sale of property and equipment 124 --
Purchase of property and equipment (85) (1,028)
Proceeds from collection of note receivables 4,000 --
Cash used in discontinued operation (1,047) (717)
-------- --------
Net cash provided by (used in) investing activities 2,992 (906)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under line of credit agreement -- 142
Payments made on long-term debt (4,346) (1,566)
Proceeds from issuance of common stock -- 217
-------- --------
Net cash (used in) financing activities (4,346) (1,207)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,456) (2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,259 9,582
======== ========
Cash and cash equivalents at end of period $ 8,803 $ 9,580
======== ========
Supplemental disclosure of cash flow information
Cash paid for interest $ 938 $ 814
======== ========
Supplemental disclosure of noncash investing and financing activities
Investing - Issuance of note receivables in connection with sale of discontinued operation $ 15,750 $ --
Financing - Conversion of current liability to long-term debt $ 625 $ --
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- -----------------------------------------------------
NOTE 1 - BASIS OF PREPARATION
- -----------------------------------------------------
The accompanying consolidated financial statements include the accounts
of United American Healthcare Corporation and all of its majority-owned
subsidiaries, together referred to as the "Company." All significant
intercompany transactions and balances have been eliminated in consolidation. As
discussed in Note 4, through August 31, 1998, the results of Corporate
Healthcare Financing, Inc. and its Subsidiaries (CHF) were presented as a
discontinued operation.
The accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in conformity with generally accepted
accounting principles and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X as they apply to interim financial information. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
financial position and results of operations have been included. The results of
operations for the six month period ended December 31, 1998 are not necessarily
indicative of the results of operations for the full fiscal year ending June 30,
1999. Audited June 30, 1998 financial statements, with accompanying footnotes,
can be found in the Company's most recent annual report on Form 10-K.
- -------------------------------------------------------
NOTE 2 - COMPREHENSIVE INCOME
- -------------------------------------------------------
As of July 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income" (SFAS
130). This standard establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of SFAS 130 had
no impact on the Company's results of operations or shareholders' equity. SFAS
130 requires unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in shareholders'
equity, to be included in accumulated other comprehensive loss. Prior period
financial statements have been reclassified to conform to the requirements of
SFAS 130.
The components of comprehensive income (loss), net of related tax, are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------------
1998 1997 1998 1997
--------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 154 $(8,033) $ 274 $(9,366)
Unrealized holding gains, net of tax -- 68 -- 28
======= ======= ======= =======
Comprehensive income (loss) $ 154 $(7,965) $ 274 $(9,338)
======= ======= ======= =======
</TABLE>
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
The components of accumulated other comprehensive loss, net of related
tax, included in shareholders' equity at December 31, 1998 and 1997 include only
unrealized holding losses, net of tax.
- ---------------------------------------------------------
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENT
- ---------------------------------------------------------
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS
131), which is effective for fiscal years beginning after December 15, 1997.
This standard requires that an enterprise report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision-maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company is not required to report pursuant to SFAS
131 until it reports its annual financial statements for the year ending June
30, 1999 and has not determined what effects the adoption of SFAS 131 will have
on its consolidated footnote disclosures.
- ---------------------------------------------------------
NOTE 4 - DISCONTINUED OPERATION
- ---------------------------------------------------------
As previously reported in the Company's most recent annual report on
Form 10-K, CHF was sold on September 8, 1998, effective as of August 31, 1998.
In anticipation of this sale, the results of CHF prior to September 1, 1998,
have been reported as a discontinued operation in the consolidated financial
statements for all periods presented. In accordance with the sale terms, through
December 31, 1998, $4.3 million of the sale price, including interest of $.3
million has been received and applied against the Company's long-term debt.
At June 30, 1998, the carrying value of CHF was written down to the net
realizable value of $17.75 million. During the six months ended December 31,
1998, the carrying value of CHF was written down by an additional $.3 million,
which represented the excess of revenues over expense of CHF during that period.
This writedown is included in the expenses of the discontinued operation to
reflect a reduction in the net carrying value to the net realizable value of
$17.75 million.
Discontinued operation is summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------
1998 1997 1998 1997
----------------------------------
<S> <C> <C> <C> <C>
Total revenues $ - $ 4,308 $ 4,677 $ 9,535
Total expenses - 4,840 4,677 9,858
----------------------------------
Loss from discontinued operation (1) $ $ (532) $ - $ (323)
==================================
</TABLE>
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
(1) Net of income tax expense (benefit) of $ 0 and $(435) for the three
months ended December 31, 1998 and 1997, respectively, and $509 and
$(318) for the six months ended December 31, 1998 and 1997,
respectively.
- --------------------------------------------------
NOTE 5 - STOCK OPTION PLANS
- --------------------------------------------------
Previously, the Company had adopted a stock option plan (the Old Stock
Option Plan), under which a maximum of 331,250 common shares had been reserved
for issuance upon exercise of options granted under the Old Stock Option Plan.
The Old Stock Option Plan was terminated and superseded by the Company's 1998
Stock Option Plan (1998 Plan) adopted by its Board of Directors on August 6,
1998 and approved by the Company's shareholders on November 12, 1998. No options
were granted under the Old Stock Option Plan. The Company has an aggregate of
500,000 common shares reserved for issuance upon exercise of options under the
1998 Plan. On September 9, 1998 and December 15, 1998 nonqualified options for a
total of 325,000 and 26,000 common shares, respectively, were granted under the
1998 Plan. Such options expire on dates ranging from September 9, 2008 to
December 15, 2008 and are fully exercisable on dates ranging from March 10, 1999
to December 15, 2002, at prices ranging from $1.25 to $1.625 per share. In
February 1999, additional nonqualified options for 5,000 common shares were
granted under the 1998 plan. Such additional shares vest ratably over four
years, expire 10 years from date of issuance and have an exercise price of
$1.1875.
Independent of any stock option plan, on May 11, 1998 the Company
granted nonqualified stock options for 100,000 common shares to the Company's
President and Chief Operating Officer, and reserved that number of common shares
for issuance upon exercise of such options. Such options expire May 11, 2003 and
are exercisable beginning May 11, 1999 for up to 77,000 common shares and in
full beginning May 11, 2000, at a price of $1.38 per share.
- --------------------------------------------------
NOTE 6 - NET EARNINGS (LOSS) PER COMMON SHARE
- --------------------------------------------------
Basic net earnings (loss) per share has been computed by dividing net
earnings (loss) by the weighted-average number of common shares outstanding for
the period. Diluted earnings (loss) per share is computed the same as basic
except that the denominator also includes shares issuable upon assumed exercise
of stock options.
At December 31, 1998, the Company has outstanding stock options for
451,000 shares, of which 356 and 6,211, as accounted for under the treasury
method, of such shares have been included in the computation of diluted earnings
from continuing operations per common share for the three and six months ended
December 31, 1998, respectively. Additionally, the Company has included the
277,777 shares issuable under the shareholder lawsuit settlement as described in
Note 8, in the computation of basic and diluted earnings per share as if such
shares had been issued and outstanding on and since December 11, 1998. For the
three and six months ended December 31, 1997, the Company did not have any
outstanding securities having a dilutive effect on loss per share.
7
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
In conjunction with the Company's restructuring efforts in fiscal 1998,
it vacated approximately 10,000 square feet at its corporate headquarters. In
consideration for negotiated lease concessions, the Company has agreed to issue
its headquarters landlord 22,500 unregistered shares of common stock of the
Company. The Company expects to issue these shares in the third quarter of
fiscal 1999.
- -----------------------------------------------------
NOTE 7 - YEAR 2000 COMPLIANCE
- -----------------------------------------------------
The Company has developed and followed a plan to ensure all
modifications and conversions to its primary information systems are implemented
and thoroughly tested on a timely basis. The Company estimates that 40% of such
modifications and conversions have been made to date. Management anticipates
that the remaining modifications and conversions will be completed by July 31,
1999 and that the Company's primary computerized information systems will be
Year 2000 compliant by that date.
Although the Company is in the process of completing a contingency plan
for critical computerized information systems to mitigate potential delays or
other problems associated with such modifications or conversions deemed
necessary by management, the Company continues to bear some risk related to the
Year 2000 issue due to its voluntary interaction with other entities not
affiliated with the Company (e.g., vendors and customers) who must address their
own Year 2000 issues. For this reason, the Company has been monitoring the Year
2000 issues of certain third parties with which it interacts. The Company has
asked such third parties to demonstrate, or give some indication as to, their
ability to become Year 2000 compliant by July 31, 1999. With respect to any
third party who appears unlikely to remedy its Year 2000 issues, the Company
intends to take appropriate steps to mitigate the exposure to the risk posed by
such third party's failure to timely address its Year 2000 issues. However, due
to the uncertainty inherent in both the Year 2000 problem and the efforts of
third parties to timely resolve their own Year 2000 issues, there can be no
assurances the Company's mitigation efforts will be successful or that the
failure of any third party to timely resolve its Year 2000 issues will not have
a material adverse impact on the Company's operations, operating results or
financial position.
Both internal and external resources will be utilized in the Company's
efforts to become Year 2000 compliant. During the six months ended December 31,
1998, which also approximates cumulative costs to date, $32,000 of costs were
incurred by the Company in connection with its efforts to become Year 2000
compliant. Approximately 100% of such costs were incurred during the second
quarter of fiscal 1999. The total costs of the Company's efforts to become Year
2000 compliant are not expected to exceed $900,000. Costs related to software
modifications have been, and will continue to be, expensed as incurred.
The costs expected to be incurred in connection with the Company's
efforts to become Year 2000 compliant, as well as the date by which the Company
is expected to be Year 2000 compliant, are based on management's best estimates.
Because such estimates were derived utilizing numerous assumptions as to future
events (including the availability of certain resources, third party
8
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
modifications and other factors), there can be no assurance that these estimates
will be achieved and such actual costs and date could differ materially from
those currently expected. Specific factors that might cause material differences
include, but are not limited to, the availability and costs of personnel trained
in this area, the ability to locate and correct all relevant computer codes and
similar uncertainties.
- -----------------------------------------
NOTE 8 - CONTINGENCIES
- -----------------------------------------
As previously reported by the Company, certain former senior officers
and the Company were named as defendants in two shareholder lawsuits filed in
the United States District Court for the Eastern District of Michigan (the
Court) in August 1995. The Court consolidated these lawsuits into a single
action. Based on an initial proposed settlement of the action, the Company
recorded an expense of $1.15 million as of June 30, 1997. In September 1998, the
parties agreed to a restructured proposed settlement. On December 11, 1998, the
Court held a hearing on the fairness of the proposed settlement and entered a
final judgment approving such settlement and dismissing the action. Pursuant
thereto, all claims and damages sought by the plaintiffs were released in
exchange for (a) $2.0 million in cash from the Company's insurance carrier, (b)
a $625,000 promissory note from the Company payable in 15 equal monthly
installments beginning January 3, 2000, with interest at 4% per annum from
December 11, 1998 and (c) 277,777 new shares of common stock of the Company
valued at $625,000 (based on a stipulated share price of $2.25 per share) and
expected to be issued in the third quarter of the Company's fiscal 1999.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
As reported in the Company's most recent annual report on Form 10-K,
the Company continues to implement the restructuring plan initiated in fiscal
1998, which during fiscal 1999 has included changes in senior management, sale
of CHF, renegotiation of the bank credit facility, restructuring of the proposed
shareholder lawsuit settlement, and continued efforts to achieve further cost
reductions and maintain Company revenue.
During August 1998, the then Chief Executive Officer of the Company
retired and the Board of Directors elected Gregory H. Moses, Jr. as the new
Chief Executive Officer of the Company, the Company's Corporate Controller
became its new Treasurer and Interim Chief Financial Officer and the Company
appointed a new Senior Director of Management Information Systems.
On September 8, 1998, effective as of August 31, 1998, CHF was sold for
$17.75 million, comprised of $2 million in cash, a secured note for $13.25
million and an unsecured note for $2.5 million. In accordance with the sale
terms, principal and interest of $4.3 million in cash was received from the sale
through December 1998, and was applied against the Company's outstanding bank
debt. Additionally, the buyer notified the Company of its intention to extend
the final payment on the secured note from January 31, 1999 to March 31, 1999,
as permitted under the note.
On September 1, 1998, the Company and its bank lender amended the
Company's loan agreement and promissory note to decrease the line of credit
amount to $20.94 million. Additionally, by April 15, 1999, the revised agreement
requires the permanent reduction of the outstanding balance owed to the bank to
the lesser of the then outstanding principal balance or $8 million. The maturity
date of the line of credit is October 1, 1999.
In September 1998, the Company's proposed shareholder lawsuit
settlement was restructured, and on December 11, 1998, the Court entered a final
judgment approving such settlement and dismissing the action. Pursuant thereto,
all claims and damages sought by the plaintiffs were released in exchange for $2
million in cash from the Company's insurance carrier, a $625,000 promissory note
from the Company payable in 15 equal monthly installments beginning 13 months
after entry of the final judgment, and 277,777 new shares of common stock of the
Company valued at $625,000 (based on a stipulated share price of $2.25 per
share) and expected to be issued in the third quarter of the Company's fiscal
1999.
10
<PAGE> 12
The Company continues to implement the corrective action plan developed
for OmniCare Health Plan ("OmniCare-MI"), a plan operated by the Company in
Michigan. The corrective action plan includes the reduction of medical costs
through renegotiation of hospital provider contracts, reduction of pharmacy
costs and a reduction in the management fee percentage paid to the Company from
17% to 14% effective June 1, 1998. The management fee percentage reduction
decreased the Company's revenues for the three and six months ended December 31,
1998 by approximately $1.1 million and $2.2 million, respectively.
In January 1999, the Company announced it had joined with Blue Cross
and Blue Shield of Michigan in a proposal to provide health care, dental and
prescription drug benefits to employees of one of three planned casinos that are
to bring casino gaming to Detroit. One of the proposal's options would have the
Company provide such health care benefits through OmniCare-MI's network.
Results from operations for OmniCare-MI for the three and nine months
ended September 30, 1998, were income of $4.5 million and a loss of $5.0
million, respectively, compared to losses of $.8 million and $7.6 million for
the comparable periods in the prior year. The favorable September 30, 1998
quarter results were due primarily to the retroactive effect of renegotiated
hospital provider contracts and the reduction in the management fee expenses.
The stabilization efforts related to OmniCare-MI continue, including pursuing
joint ventures and other similar activities.
The Company's results of operation for fiscal 1999 have also been
impacted by the cost reductions implemented in fiscal 1998, including an
approximate 35% workforce reduction at the Company's corporate and Tennessee
operations, and the cessation of operations in Florida, Louisiana, and
Pennsylvania. Payroll expenses at the corporate and Tennessee operations
decreased approximately $1.5 million and $3.1 million for the three and six
months ended December 31, 1998.
Earnings (loss) from continuing operations before income taxes for the
three and six months ended December 31, 1998 were $.2 million and $.4 million,
respectively, compared to losses of $9.6 million and $11.6 million for the
comparable fiscal 1998 periods. Losses before income taxes related to the
Company's Florida operation (which subsequently ceased operating and was placed
in liquidation in March 1998) of $8.4 million and $9.2 million for the three and
six months ended December 31, 1997, respectively, were the most significant
contributing factor to the favorable change between the fiscal years.
11
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SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO
SIX MONTHS ENDED DECEMBER 31, 1997
Total revenues decreased $11.5 million (20%), from $56.2 million in the
six months ended December 31, 1997 to $44.7 million in the six months ended
December, 1998.
Medical premium revenues were $33.2 million in the six months ended
December 31, 1998, a decrease of $9.6 million (22%) from medical premium
revenues of $42.8 million in the six months ended December 31, 1997. Medical
premiums for OmniCare Health Plan, Inc. in Tennessee ("OmniCare-TN"), a managed
care organization owned 75% by the Company, increased $2.8 million (9%), from
$30.4 million in the six months ended December 31, 1997 to $33.2 million in the
six months ended December 31, 1998. The per member per month ("PMPM") premium
rate -- based on an average membership of 45,800 for the six months ended
December 31, 1998 compared to 42,700 for the six months ended December 31, 1997
- -- was $121 for the six months ended December 31, 1998, compared to $114
(excluding adverse selection settlement) for the six months ended December 31,
1997, an increase of 6% or $1.6 million. The rate increase included changes in
the enrollment mix. An 8% increase in member months accounted for $2.3 million
of the increase.
In fiscal 1998, the Company recognized $1.1 million related to the
Bureau of TennCare's annual payment to managed care organizations for high cost
chronic conditions of their memberships and new medical technologies (adverse
selection). The December 1997, payment of $2.6 million for the January 1, 1996
to June 30, 1997 service periods was $1.1 million in excess of the State of
Tennessee's estimate for the same period. A $3.0 million adverse selection
interim payout was made by the TennCare Bureau in January 1999 for the service
periods July 1, 1997 to June 30, 1998 ($2.1 million) plus an adjustment for the
January 1996 to June 1997 service periods ($.9 million). The Company will
account for the adverse selection payment in its fiscal 1999 third quarter,
consistent with past accounting practices. This resulted in a $1.1 million
decrease in OmniCare-TN medical premium revenues for the six months ended
December 31, 1998 compared to the same period in the prior year.
UltraMedix Healthcare Systems, Inc. ("UltraMedix"), a Florida HMO
51%-owned by the Company, which ceased operations and was placed in liquidation
in March 1998, did not contribute any medical premium revenues in the six months
ended December 31, 1998. Medical premium revenues from UltraMedix were $12.4
million in the six months ended December 31, 1997.
Management fees were $10.3 million in the six months ended December 31,
1998, a decrease of $2.2 million (18%) from fees of $12.5 million in the six
months ended December 31, 1997. Management fees earned from OmniCare-MI
decreased in the six months ended December 31, 1998 due primarily to the June
1998 reduction in the management fee percentage from 17% to 14%.
12
<PAGE> 14
Total expenses before income taxes from continuing operations totaled
$44.4 million in the six months ended December 31, 1998, compared to $67.8
million in the six months ended December 31, 1997, a decrease of $23.4 million
(35%).
Medical service expenses were $28.2 million in the six months ended
December 31, 1998, a decrease of $10.8 million (28%) from medical service
expenses of $39.0 million in the six months ended December 31, 1997. Medical
service expenses for OmniCare-TN increased $3.3 million (13%), from $24.9
million in the six months ended December 31, 1997 to $28.2 million in the six
months ended December 31, 1998. The percentage of medical service expenses to
medical premium revenues -- the medical loss ratio ("MLR") -- was 85% for the
six months ended December 31, 1998 and 82% for the six months ended December 31,
1997 for OmniCare-TN. The change was due to increased medical premium revenues
related to the adverse selection settlement in fiscal 1998 which did not occur
in the same period of fiscal 1999. UltraMedix did not incur any medical service
expenses in the six months ended December 31, 1998. Medical service expenses for
UltraMedix were $14.1 million in the six months ended December 31, 1997.
Marketing, general and administrative expenses (MG&A) decreased $8.7
million (39%), from $22.2 million in the six months ended December 31, 1997 to
$13.5 million in the six months ended December 31, 1998, due to the following:
(i) MG&A for the corporate headquarters, including the cost to operate
OmniCare-MI, decreased $4.9 million with a reduction in the number of employees
significantly contributing to the decrease; and (ii) a decrease of approximately
$3.6 million related to UltraMedix and United American of Florida, Inc., the
Company's 80%-owned subsidiary, which ceased operations and were placed in
liquidation in March 1998.
Depreciation and amortization decreased from $5.7 million for the six
months ended December 31, 1997 to $1.7 million for the comparable fiscal 1999
period, or $4.0 million (70%). Of the decrease, $3.5 million is attributable to
the write-off in fiscal 1998 of the remaining goodwill related to the Company's
purchase of UltraMedix due to the liquidation of the Florida operation.
As a result of the foregoing, the Company recognized earnings from
continuing operations before income taxes of $.4 million for the six months
ended December 31, 1998, compared to a loss from continuing operations before
income taxes of $11.6 million for the six months ended December 31, 1997, a
$12.0 million change. Net earnings from continuing operations was $.3 million
for the six months ended December 31, 1998, compared to a net loss from
continuing operations of $9.0 million for the six months ended December 31,
1997, a change of $9.3 million.
The discontinued operation contributed no earnings or loss for the six
months ended December 31, 1998, compared to a loss of $.3 million for the six
months ended December 31, 1997.
13
<PAGE> 15
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1997
Total revenues decreased $6.6 million (23%), from $29.2 million in the
three months ended December 31, 1997 to $22.4 million in the three months ended
December 31, 1998.
Medical premium revenues were $16.6 million in the three months ended
December 31, 1998, a decrease of $5.9 million (26%) from medical premium
revenues of $22.5 million in the three months ended December 31, 1997. Medical
premiums for OmniCare-TN increased $.6 million (4%), from $16.0 million in the
three months ended December 31, 1997 to $16.6 million in the three months ended
December 31, 1998. The PMPM premium rate -- based on an average membership of
45,900 for the three months ended December 31, 1998 compared to 43,200 for the
three months ended December 31, 1997 -- was $121 for the three months ended
December 31, 1998, compared to $115 (excluding the effects of the adverse
selection settlement) for the three months ended December 31, 1997, an increase
of 5% or $.7 million. The rate increase included changes in the enrollment mix.
A 6% increase in enrollment accounted for $1.0 million of the increase. The
recognition of the $1.1 million related to the adverse selection settlement in
the quarter ended December 31, 1997 partially offset the OmniCare-TN rate and
enrollment increases. UltraMedix did not contribute any medical premium revenues
in the three months ended December 31, 1998. Medical premium revenues from
UltraMedix were $6.5 million in the three months ended December 31, 1997.
Management fees were $5.0 million in the three months ended December
31, 1998, a decrease of $1.2 million (19%) from fees of $6.2 million in the
three months ended December 31, 1997. Management fees earned from OmniCare-MI
decreased in the three months ended December 31, 1998 due primarily to the June
1998 reduction in the management fee percentage from 17% to 14%.
Total expenses before income taxes from continuing operations totaled
$22.2 million in the three months ended December 31, 1998, compared to $38.8
million in the three months ended December 31, 1997, a decrease of $16.6 million
(43%).
Medical service expenses were $14.1 million in the three months ended
December 31, 1998, a decrease of $7.8 million (36%) from medical service
expenses of $21.9 million in the three months ended December 31, 1997. Medical
service expenses for OmniCare-TN increased $1.5 million (12%), from $12.6
million in the three months ended December 31, 1997 to $14.1 million in the
three months ended December 31, 1998. The MLR was 85% for the three months ended
December 31, 1998 and 79% for the three months ended December 31, 1997 for
OmniCare-TN. The change was due primarily to increased medical premium revenues
related to the adverse selection settlement during the fiscal quarter ended
December 31, 1998 which did not occur in the same period of fiscal 1999.
UltraMedix did not incur any medical service expenses
14
<PAGE> 16
in the three months ended December 31, 1998. Medical service expenses for
UltraMedix were $9.2 million in the three months ended December 31, 1997.
MG&A decreased $5.1 million (43%), from $11.8 million in the three
months ended December 31, 1997 to $6.7 million in the three months ended
December 31, 1998, due to the following: (i) MG&A for the corporate
headquarters, including the cost to operate OmniCare-MI, decreased $2.9 million
with a reduction in the number of employees significantly contributing to the
decrease; and (ii) a decrease of approximately $2.0 million related to the
Company's Florida operation.
Depreciation and amortization decreased from $4.7 million for the three
months ended December 31, 1997 to $.9 million for the comparable fiscal 1999
period or $3.8 million (81%). $3.5 million of the decrease is attributable to
the write-off of the remaining goodwill related to the Company's purchase of
UltraMedix due to the liquidation of the Florida operation.
As a result of the foregoing, the Company recognized earnings from
continuing operations before income taxes of $.2 million for the three months
ended December 31, 1998, compared to a loss from continuing operations before
income taxes of $9.6 million for the three months ended December 31, 1997, a
$9.8 million change. Net earnings from continuing operations was $.2 million for
the three months ended December 31, 1998, compared to a net loss from continuing
operations of $7.5 million for the three months ended December 31, 1997, a
change of $7.7 million.
The discontinued operation contributed no earnings or loss for the
three months ended December 31, 1998, compared to losses of $.5 million for the
three months ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had (i) cash and cash equivalents
and short-term marketable securities of $10.2 million, compared to $14.7 million
at June 30, 1998; (ii) negative working capital of $4.8 million, compared to
negative working capital of $14.1 million at June 30, 1998; and (iii) a current
assets-to-current liabilities ratio of .88-to-1, compared to .64-to-1 at June
30, 1998. The principal sources of funds for the Company during the six months
ended December 31, 1998 were proceeds from the sale of CHF of $4 million and
proceeds from the sale of property and equipment of $.1 million -- offset by
cash used in net operating activities of $3.1 million, discontinued operation of
$1.0 million, $4.3 million to repay bank debt, and the purchase of property and
equipment of $.1 million.
On September 8, 1998, effective as of August 31, 1998, the Company sold
the stock of CHF for $17.75 million, comprised of $2 million in cash, a secured
note for $13.25 million and an unsecured note for $2.5 million. The secured note
is payable to the Company in four monthly installments of $.5 million each on
the last day of
15
<PAGE> 17
September through December 1998 with the balance due January 31, 1999, plus
interest at the prime rate on short-term unsecured commercial borrowings. The
unsecured note is payable to the Company in two annual installments of $.25
million with the balance due August 31, 2001, plus interest at 6% per annum. The
security for the secured note includes a pledge of the stock of CHF and a
limited personal guarantee of a principal of the buyer. The proceeds from the
sale of CHF have been and will be used to reduce the Company's outstanding bank
debt and provide security therefor. Through December 1998, $4.3 million from CHF
sale proceeds, including interest of $.3 million have been applied against the
Company's outstanding bank debt. In January 1999, the Company was notified in
writing of the buyer's intention to extend the final payment on the secured note
from January 31, 1999 to March 31, 1999, as permitted under the note. As a
result of the extension, an additional installment of $.5 million plus interest
was due and received in January 1999 and applied against the Company's
outstanding bank debt.
On September 1, 1998, the Company and its bank lender amended the
Company's loan agreement and promissory note to decrease the line of credit
amount to $20.94 million and modify other terms. The agreement requires the
permanent reduction of the outstanding balance and the line of credit to the
lesser of the then outstanding principal balance or $8 million by April 15,
1999, and requires the cancellation of a $.5 million letter of credit by April
30, 1999. The maturity date of the required line of credit is October 1, 1999.
The line of credit is secured by all of the Company's rights, title and
interest in the secured and unsecured promissory notes of the purchaser of the
stock of CHF representing part of the purchase price for such stock (which
purchaser has covenanted with the bank to make all payments on such notes
directly to the bank for credit against the Company's indebtedness to the bank)
and in the pledged CHF stock and other documents related to such sale. Financial
covenants for minimum net worth, debt service coverage ratio, and maximum debt
to worth ratio will be established with the bank prior to March 1, 1999.
The Company is unable at this time to assess the capital requirements,
if any, related to the final disposition of UltraMedix.
The Company's ability to generate adequate amounts of cash to meet its
future cash needs will depend on a number of factors, including the
stabilization of OmniCare-MI, continuation of its restructuring efforts,
achieving increased operational efficiencies at its Tennessee operation and the
receipt of the remaining CHF sale proceeds.
Management expects that the OmniCare-MI corrective action plan, which
is in the process of implementation, will stabilize OmniCare-MI and eliminate
the need for future cash infusions from the Company. OmniCare-MI has
successfully renegotiated certain major hospital provider contracts, which was
one of the major components of the corrective action plan, the effects of which
will reduce medical costs.
16
<PAGE> 18
The Company has developed and followed a plan to ensure all
modifications and conversions to its primary information systems are implemented
and thoroughly tested on a timely basis. The Company estimates that 40% of such
modifications and conversions have been made to date. Management anticipates
that the remaining modifications and conversions will be completed by July 31,
1999 and that the Company's primary computerized information systems will be
Year 2000 compliant by that date.
Although the Company is in the process of completing a contingency plan
for critical computerized information systems to mitigate potential delays or
other problems associated with such modifications or conversions deemed
necessary by management, the Company continues to bear some risk related to the
Year 2000 issue due to its voluntary interaction with other entities not
affiliated with the Company (e.g., vendors and customers) who must address their
own Year 2000 issues. For this reason, the Company has been monitoring the Year
2000 issues of certain third parties with which it interacts. The Company has
asked such third parties to demonstrate, or give some indication as to, their
ability to become Year 2000 compliant by July 31, 1999. With respect to any
third party who appears unlikely to remedy its Year 2000 issues, the Company
intends to take appropriate steps to mitigate the exposure to the risk posed by
such third party's failure to timely address its Year 2000 issues. However, due
to the uncertainty inherent in both the Year 2000 problem and the efforts of
third parties to timely resolve their own Year 2000 issues, there can be no
assurances the Company's mitigation efforts will be successful or that the
failure of any third party to timely resolve its Year 2000 issues will not have
a material adverse impact on the Company's operations, operating results or
financial position.
Both internal and external resources will be utilized in the Company's
efforts to become Year 2000 compliant. During the six months ended December 31,
1998, which also approximates cumulative costs to date, $32,000 of costs were
incurred by the Company in connection with its efforts to become Year 2000
compliant. Approximately 100% of such costs were incurred during the second
quarter of fiscal 1999. The total costs of the Company's efforts to become Year
2000 compliant are not expected to exceed $900,000. Such costs related to
software modification have been, and will continue to be, expensed as incurred.
The costs expected to be incurred in connection with the Company's
efforts to become Year 2000 compliant, as well as the date by which the Company
is expected to be Year 2000 compliant, are based on management's best estimates.
Because such estimates were derived utilizing numerous assumptions as to future
events (including the availability of certain resources, third party
modifications and other factors), there can be no assurance that these estimates
will be achieved and such actual costs and date could differ materially from
those currently expected. Specific factors that might cause material differences
include, but are not limited to, the availability and costs of personnel trained
in this area, the ability to locate and correct all relevant computer codes and
similar uncertainties.
17
<PAGE> 19
PART II.
ITEM 1. LEGAL PROCEEDINGS
On December 11, 1998, pursuant to notice duly given, the United
States District Court for the Eastern District of Michigan held a hearing on the
fairness of the previously reported proposed settlement of two consolidated
shareholder lawsuits which had been filed in August 1995 against certain former
senior officers and the Company. Following the hearing, also on December 11,
1998, the court entered a final judgment approving the settlement and dismissing
the case. Pursuant thereto, all claims and damages sought by the plaintiffs were
released in exchange for $2 million in cash from the Company's insurance
carrier, a $625,000 promissory note from the Company dated December 11, 1998,
payable in 15 equal monthly installments beginning January 3, 2000, with
interest at 4% per annum, and 277,777 new shares of common stock of the Company
valued at $625,000 (based on a stipulated share price of $2.25 per share) and
expected to be issued in the third quarter of the Company's fiscal 1999.
On December 1, 1998, a demand for arbitration was filed with the
American Arbitration Association, entitled SunTel Services, Inc. v. United
American Healthcare Corporation. The claimant seeks payment of $413,664 from the
Company for its alleged breach of a lease agreement for telecommunications
equipment and related services. The Company, which returned the leased equipment
from business locations it had closed, has asserted a counterclaim. Arbitration
is scheduled to begin April 20, 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Shareholders of the Company was held on November
12, 1998, at which the following matters were voted upon: (i) to elect three
directors of the Company to serve until the Annual Meeting of Shareholders in
2001; (ii) to vote on the approval of the appointment of KPMG Peat Marwick LLP
as independent auditors of the Company for the 1999 fiscal year; and (iii) to
approve the Company's 1998 Stock Option Plan.
18
<PAGE> 20
At such Annual Meeting, Anita C. R. Gorham, Harcourt G. Harris, M.D.,
and Ronald M. Horwitz, Ph.D., being all of management's nominees as listed in
the proxy statement for the Annual Meeting, were reelected as directors of the
Company, and the independent auditors and the 1998 Stock Option Plan were
approved.
The voting at the Annual Meeting was as follows:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST WITHHELD ABSTAIN NON-VOTES
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Election of directors:
Anita C. R. Gorham 5,080,449 - 1,187,105 - -
Harcourt G. Harris, M.D. 5,206,130 - 1,061,424 - -
Ronald M. Horwitz, Ph.D. 5,716,192 - 551,372 - -
- -----------------------------------------------------------------------------------------------------------------
Approval of independent auditors 6,197,351 53,459 - 16,744 -
- -----------------------------------------------------------------------------------------------------------------
Approval of 1998 Stock Option Plan 2,722,377 586,850 - 55,782 2,902,545
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 5. OTHER INFORMATION
NEW YORK STOCK EXCHANGE LISTING
The Company's common stock is listed on the New York Stock Exchange,
Inc. ("Exchange"). Based on the Company's depressed stock price and financial
condition, since May 1998 the Exchange and the Company have had numerous
communications about the Company's not meeting applicable listing standards and
about its actions, taken and planned, to comply with those standards. In
accordance with Exchange procedures, the Company has presented to the Exchange a
definitive action plan for meeting those standards over a reasonable period. The
Company believes that such plan, viewed with its turnaround progress since
January 1998 and its improved financial results since July 1, 1998, provides a
reasonable basis for continuing its listing on the Exchange while carrying out
the plan, with monitoring by the Exchange. However, there can be no assurance
whether or how long the Exchange listing of the Company's stock will continue.
The Company expects notification from the Exchange, possibly as soon as February
18, 1999, on the acceptability of its definitive action plan and whether its
listing will be continued to afford it time to pursue the plan and return to
compliance with applicable listing standards.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage management to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statements.
Certain statements contained in this Form 10-Q report, including, without
limitation, statements containing the words
19
<PAGE> 21
"believes," "expects," "anticipates," "will," "may," "might," and words of
similar import, constitute "forward-looking statements" within the meaning of
this "safe harbor."
Such forward-looking statements are based on management's current
expectations and involve known and unknown risks, uncertainties and other
factors, many of which the Company is unable to predict or control, that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
potentially include, among others, the following:
1. Inability of the buyer of CHF to comply with the terms of its
secured and unsecured notes and the resultant impact on bank
agreements.
2. Inability of OmniCare-MI to remain as a viable entity.
3. Inability to increase premium rates commensurate with
increases in medical costs due to utilization, government
regulation, or other factors.
4. Discontinuation of, limitations upon or restructuring of
government-funded programs, including but not limited to the
TennCare program.
5. Increases in medical costs, including increases in utilization
and costs of medical services and the effects of actions by
competitors or groups of providers.
6. Adverse state and federal legislation and initiatives,
including limitations upon or reductions in premium payments;
prohibition or limitation of capitated arrangements or
financial incentives to providers; federal and state benefit
mandates (including mandatory length of stay and emergency
room coverage); and limitations on the ability to manage care
and utilization.
7. The shift of employers from insured to self-funded coverage,
resulting in reduced operating margins to the Company.
8. Failure to obtain new customer bases or retain existing
customer bases or reductions in work force by existing
customers; failure to sustain commercial enrollment to
maintain an enrollment mix required by government programs.
9. Termination of the OmniCare-MI management agreement.
10. Increased competition between current organizations, the
entrance of new competitors and the introduction of new
products by new and existing competitors.
11. Adverse publicity and media coverage.
12. Inability to carry out marketing and sales plans.
13. Loss or retirement of key executives.
14. Termination of provider contracts or renegotiations at less
cost-effective rates or terms of payment.
15. The selection by employers and individuals of higher
co-payment/deductible/coinsurance plans with relatively
lower premiums or margins.
20
<PAGE> 22
16. Adverse regulatory determinations resulting in loss or
limitations of licensure, certification or contracts with
governmental payors.
17. Higher sales, administrative or general expenses occasioned by
the need for additional advertising, marketing, administrative
or information systems expenditures.
18. Increases by regulatory authorities of minimum capital,
reserve and other financial solvency requirements.
19. Denial of accreditation by quality accrediting agencies, e.g.,
the National Committee for Quality Assurance (NCQA).
20. Adverse results from significant litigation matters.
21. Adverse impact from Year 2000 issues.
22. Delisting from the New York Stock Exchange, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description of Document
-------------- -----------------------
10.50 Promissory Note dated December 11,
1998 from Registrant to UAH
Securities Litigation Fund
27 Financial data schedule
(b) Reports on Form 8-K
None
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED AMERICAN HEALTHCARE CORPORATION
Dated: February 16, 1999 By: /s/ Gregory H. Moses, Jr.
---------------------------------------
Gregory H. Moses, Jr.
President & Chief Executive Officer
Dated: February 16, 1999 By: /s/ Paul G. Samuels
---------------------------------------
Paul G. Samuels
Interim Chief Financial Officer
22
<PAGE> 24
EXHIBIT INDEX
Exhibit Number Description of Document
-------------- -----------------------
10.5 Promissory Note dated December
11, 1998 from Registrant to UAH
Securities Litigation Fund
27 Financial Data Schedule
23
<PAGE> 1
EXHIBIT 10.50
PROMISSORY NOTE
$625,000.00 December 11, 1998
Detroit, Michigan Maturity Date: March 1, 2001
FOR VALUE RECEIVED, United American Healthcare Corporation, a Michigan
corporation ("UAHC"), promises to pay to UAH Securities Litigation Fund
("NOTEHOLDER"), at 212 East 39th Street, New York, NY 10016 or such other place
as Noteholder may from time to time designate in writing to UAHC, in lawful
money of the United States of America, the principal sum of Six Hundred
Twenty-Five Thousand Dollars, plus interest from December 11, 1998 at the rate
of 4% per annum on the unpaid principal balance of this Note based on a year of
365 or 366 days, as the case may be, for the actual number of days elapsed.
Payment under this Note will be made in 15 installments commencing on the first
business day of January 2000 and on the first business day of each month
thereafter to and including March 2001, as follows:
(1) the 14 monthly payments due on January 3, 2000 to and
including February 1, 2001 will each consist of a principal
payment of $41,666.67, plus accrued interest to the payment
date; and
(2) the final payment due on March 1, 2001 will consist of all
remaining unpaid principal plus accrued interest thereon to
the payment date.
UAHC may voluntarily prepay this Note in whole or in part at any time
without premium, penalty or unaccrued interest. Any prepayments will be applied
first to accrued interest and then to outstanding principal in the order of
maturity.
This Note is being delivered by UAHC to Noteholder in trust for the
benefit of the Class (as defined in the Final Judgment referred to below)
pursuant to Sections 1(q)(3) and 2.b.(3) of the Agreement to Modify January 17,
1998 Stipulation of Settlement dated September 14, 1998 among the parties to the
consolidated class action entitled RICHARD LOWINGER and MICHAEL W. COLTON, on
behalf of themselves and all others similarly situated, Plaintiffs, against
JULIUS COMBS, RONALD DOBBINS, JAGANNATHAN VANAHARAM and UNITED AMERICAN
HEALTHCARE CORPORATION, Defendants, Civil Action Nos. 95-CV-73411-DT and
95-CV-73420-DT in the United States District Court, Eastern District of
Michigan, Southern Division, by and through their respective attorneys, approved
in the Final Judgment of Dismissal with Prejudice ("FINAL JUDGMENT") entered in
such action by the Honorable Anna Diggs Taylor, United States District Judge, on
December 11, 1998.
This Note will be governed by and construed in accordance with the laws
of Michigan.
24
<PAGE> 2
UAHC waives demand, presentment, protest, diligence, notice of dishonor
and any other formality in connection with this Note.
UNITED AMERICAN HEALTHCARE CORPORATION,
a Michigan corporation
By: _________________________________
Paul Samuels, Treasurer
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FILED
AS PART OF THE QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED DECEMBER
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT
ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,803,000
<SECURITIES> 1,431,000
<RECEIVABLES> 19,190,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,663,000
<PP&E> 16,226,000
<DEPRECIATION> (11,498,000)
<TOTAL-ASSETS> 52,380,000
<CURRENT-LIABILITIES> 40,454,000
<BONDS> 0
0
0
<COMMON> 10,715,000
<OTHER-SE> (134,000)
<TOTAL-LIABILITY-AND-EQUITY> 52,380,000
<SALES> 0
<TOTAL-REVENUES> 44,722,000
<CGS> 0
<TOTAL-COSTS> 43,433,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 938,000
<INCOME-PRETAX> 351,000
<INCOME-TAX> 77,000
<INCOME-CONTINUING> 274,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
