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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 MARCH 31, 2000
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 MAY 12, 2000
WAS 6,779,134.
================================================================================
As filed with the Securities and Exchange Commission on May 15, 2000
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UNITED AMERICAN HEALTHCARE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C>
Item 1. Unaudited Condensed Consolidated Financial Statements--
Condensed Consolidated Balance Sheets - March 31, 2000
and June 30, 1999 2
Condensed Consolidated Statements of Operations - Three and Nine Months
Ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended March 31, 2000 and 1999 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 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBITS 21
</TABLE>
1
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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>
MARCH 31, JUNE 30,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 15,377 $ 17,286
Marketable securities, available for sale 1,705 1,290
Premium receivables 2,013 5,445
Notes receivable - 8,432
Management fee and advance receivable, net 4,190 2,932
Other receivables 182 223
Prepaid expenses and other 376 290
Deferred income taxes 227 227
----------------------------------
Total current assets 24,070 36,125
Property and equipment, net 3,119 4,001
Intangible assets, net 3,841 4,374
Surplus note receivable, net 2,300 2,300
Marketable securities 2,092 1,548
Deferred income taxes 326 326
Other assets 1,566 577
----------------------------------
$ 37,314 $ 49,251
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 4,473 $ 12,737
Medical claims payable 13,065 19,810
Accounts payable and accrued expenses 3,559 2,959
Accrued compensation and related benefits 1,011 1,309
Other current liabilities 506 448
Deferred income taxes 514 514
----------------------------------
Total current liabilities 23,128 37,777
Long-term debt, less current portion - 375
Accrued rent 700 700
Deferred income taxes 39 39
Shareholders' equity
Preferred stock, 5,000,000 shares authorized; none issued - -
Common stock, no par, 15,000,000 shares authorized; 6,779,134
and 6,947,683 issued and outstanding at March 31, 2000 and
June 30, 1999, respectively 11,151 11,445
Retained earnings (deficit) 2,450 (925)
Accumulated other comprehensive loss, net of income taxes (154) (160)
------------------------------------
13,447 10,360
====================================
$ 37,314 $ 49,251
====================================
</TABLE>
See accompanying Notes to the Unaudited 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Medical premiums $ 22,435 $ 19,279 $ 63,302 $ 52,499
Management fees from related party 4,304 3,383 13,403 13,731
Interest and other income 365 679 1,161 1,833
----------------------------------------------------------------
Total revenues 27,104 23,341 77,866 68,063
EXPENSES
Medical services 13,714 14,938 47,642 43,175
Marketing, general and administrative 7,503 6,996 22,333 20,448
Depreciation and amortization 845 856 2,542 2,600
Interest expense 128 387 411 1,325
Bad debt expense 1,488 - 1,488 -
----------------------------------------------------------------
Total expenses 23,678 23,177 74,416 67,548
----------------------------------------------------------------
Earnings before income taxes 3,426 164 3,450 515
Income tax expense (benefit) 12 (103) 75 (26)
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NET EARNINGS $ 3,414 $ 267 $ 3,375 $ 541
================================================================
NET EARNINGS PER COMMON SHARE - BASIC
Net earnings per common share $ 0.50 $ 0.04 $ 0.50 $ 0.08
================================================================
Weighted average shares outstanding 6,779 6,867 6,786 6,699
================================================================
NET EARNINGS PER COMMON SHARE - DILUTED
Net earnings per common share $ 0.50 $ 0.04 $ 0.50 $ 0.08
================================================================
Weighted average shares outstanding 6,779 6,867 6,786 6,702
================================================================
</TABLE>
See accompanying Notes to the Unaudited 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>
NINE MONTHS ENDED
MARCH 31,
----------------------------
2000 1999
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,375 $ 541
Adjustments to reconcile net earnings to net cash used in operating
activities
Loss on disposal of assets 22 -
Depreciation and amortization 2,542 2,600
Bad debt expense 1,488 -
Net change in assets and liabilities (7,533) 3,239
----------------------------
Net cash (used in) provided by operating activities (106) 6,380
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities (540) (5,464)
Proceeds from sale of marketable securities 125 671
Proceeds from the sale of property and equipment - 124
Purchase of property and equipment (887) (219)
Proceeds from collection of notes receivable 8,432 4,500
Cash used in discontinued operation - (1,047)
----------------------------
Net cash provided by (used in) investing activities 7,130 (1,435)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments made on long-term debt (8,639) (4,917)
Repurchase of common stock (370) -
Issuance of common stock 76 -
-----------------------------
Net cash used in financing activities (8,933) (4,917)
-----------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,909) 28
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,286 13,259
=============================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,377 $ 13,287
=============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 411 $ 1,325
=============================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Issuance of notes receivable in connection with sale of discontinued operation $ - $ 15,750
Conversion of current liability to common stock - 652
Conversion of current liability to long-term debt - 625
=============================
</TABLE>
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
4
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
- --------------------------------
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.
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 nine-month period ended March 31, 2000 are not necessarily
indicative of the results of operations for the full fiscal year ending June 30,
2000. Audited June 30, 1999 financial statements, with accompanying footnotes,
can be found in the Company's most recent annual report on Form 10-K.
- --------------------------------
NOTE 2 - COMPREHENSIVE INCOME
- --------------------------------
The components of comprehensive income, net of related tax, are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-----------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings $ 3,414 $ 267 $ 3,375 $ 541
Unrealized holding gains, net of deferred federal
income taxes - (11) 6 (11)
=====================================================
Comprehensive income $ 3,414 $ 256 $ 3,381 $ 530
=====================================================
</TABLE>
Without the reversal of a medical claims liability reserve as described in
Note 9, for the three and nine months ended March 31, 2000 the Company instead
would have had a net loss and a comprehensive loss of $2.2 million.
The components of accumulated other comprehensive loss, included in
shareholders' equity at March 31, 2000 and June 30, 1999, include unrealized
holding losses, net of deferred federal income taxes.
5
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000 AND 1999
- ----------------------------------------
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
- ----------------------------------------
CORPORATE HEALTHCARE FINANCING, INC. (CHF)
The stock of CHF was sold on September 8, 1998, effective as of August 31,
1998, for $17.75 million, comprised of $2.0 million in cash and the buyer's
secured and unsecured notes for $13.25 million and $2.5 million, respectively,
to an entity related to the Company through certain common shareholders,
including a former officer and director of the Company.
Both notes were paid in full with accrued interest, net of an agreed $0.25
million prepayment discount, on August 16, 1999. The final payment on the
secured and unsecured notes was in the aggregate amount of $8.5 million,
including $0.1 million of interest.
OMNICARE HEALTH PLAN, INC. OF TENNESSEE (OMNICARE-TN)
In July 1998, the Company made an additional cash contribution of $0.75
million to OmniCare-TN, in exchange for additional preferred stock of
OmniCare-TN.
- -------------------------
NOTE 4 - LONG TERM DEBT
- -------------------------
The maturity date of the Company's bank line of credit was March 31, 2000.
In May 2000, the Company and its bank lender amended the Company's loan
agreement and promissory note to change the maturity date to July 1, 2000. The
Company and the bank are in discussions about converting the existing line of
credit balance into a term loan.
The Company has an outstanding promissory note in the original principal
amount of $0.625 million, dated December 11, 1998, issued in a shareholder
lawsuit settlement. The note is payable in 15 equal monthly installments
beginning January 3, 2000, with interest at 4% per annum.
The Company's outstanding debt is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
---------------------------------
<S> <C> <C>
Line of credit $ 3,973 $ 12,487
Promissory note 500 625
---------------------------------
4,473 13,112
Less debt payable within one year 4,473 12,737
=================================
Long-term debt, less current portion $ - $ 375
=================================
</TABLE>
6
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000 AND 1999
- --------------------
NOTE 5 - LIQUIDITY
- --------------------
At March 31, 2000, the Company had (i) cash and cash equivalents and
short-term marketable securities of $15.4 million, compared to $17.3 million at
June 30, 1999; (ii) positive working capital of $0.9 million, compared to
negative working capital of $1.7 million at June 30, 1999; and (iii) a current
assets-to-current liabilities ratio of 1.04-to-1, compared to .96-to-1 at June
30, 1999. The principal uses of funds for the Company during the nine months
ended March 31, 2000 were $0.1 million used in net operating activities,
repayment of $8.5 million of bank debt from the same amount of cash proceeds and
payments received on notes from the sale of CHF, purchases of marketable
securities of $0.5 million, repurchase of common stock of $0.4 million and the
purchase of property and equipment of $0.9 million.
The maturity date of the Company's bank line of credit was March 31, 2000.
In May 2000, the Company and its bank lender amended the Company's loan
agreement and promissory note to change the maturity date to July 1, 2000. The
Company and the bank are in discussions about converting the existing line of
credit balance into a term loan.
Subsequent to the end of the period, in April 2000, the Company funded a
$7.7 million unsecured loan to the managed care organization managed by the
Company in Michigan, Michigan Health Maintenance Organization Plans, Inc.,
d/b/a/ OmniCare Health Plan ("OmniCare-MI"), evidenced by a surplus note. The
loan consisted of $4.0 million in cash and conversion to a surplus note of $3.7
million of management fees owed to the Company. As a result of the conversion of
such management fee receivable into a surplus note, and an estimate of
OmniCare-MI's future discounted cash flows, bad debt expense of $1.5 million was
recorded.
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 continued
stabilization of OmniCare-MI.
- -----------------------------------------
NOTE 6 - NET EARNINGS PER COMMON SHARE
- -----------------------------------------
Basic net earnings per share excluding dilution has been computed by
dividing net earnings by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share is computed the same as
basic for the three and nine months ended March 31, 2000 and 1999, since the
Company did not have any outstanding securities having a dilutive effect on
earnings per share.
- --------------------------------
NOTE 7 - YEAR 2000 COMPLIANCE
- --------------------------------
Before, on and since January 1, 2000, the Company has experienced no
significant "Year 2000" problems in connection with its computerized information
systems or with other
7
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000 AND 1999
entities not affiliated with the Company (e.g., vendors and customers). The
total costs of the Company's efforts to become Year 2000 compliant,
approximately $1.6 million, were charged to expense as incurred.
- -------------------------
NOTE 8 - CONTINGENCIES
- -------------------------
A demand for arbitration was filed on May 20, 1999 with the American
Arbitration Association by the former President and Chief Operating Officer of
the Company. The claimant sought termination benefits and costs of approximately
$0.8 million. The final binding arbitration order was issued on May 9, 2000 and
held in favor of the Company on all of the claimant's claims, awarding him only
undisputed vacation benefits of $0.04 million.
- -------------------------------------
NOTE 9 - MEDICAL SERVICES EXPENSES
- -------------------------------------
At December 31, 1997, the Company established a $6.4 million estimated
medical claims liability reserve for UltraMedix Healthcare Systems, Inc.
("UltraMedix"), a Florida HMO managed and 51%-owned by the Company's
majority-owned subsidiary United American of Florida, Inc. ("UAFL"). UAFL and
UltraMedix ceased operations and were placed in liquidation in March 1998. At
March 31, 2000 Company management concluded that the continuing reserve
requirement should be $0.8 million. Accordingly, at March 31, 2000 the Company
reduced the $6.4 million reserve by $5.6 million and reversed that amount from
medical services expenses (which otherwise would have been $19.3 million for the
three months ended March 31, 2000 and $53.3 million for the nine months ended
March 31, 2000).
As a result of this reversal, for the three and nine months ended March 31,
2000, the Company recognized net earnings of $3.4 million or $0.50 per share
(instead of a net loss of $2.2 million, or a $0.32 net loss per share, without
the reversal).
8
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000 AND 1999
- --------------------------------------------------
NOTE 10 - UNAUDITED SEGMENT FINANCIAL INFORMATION
- --------------------------------------------------
Summarized financial information for the Company's principal operations is
as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Management HMOs &
Companies Managed Plans Corporate & Consolidated
March 31, 2000 (1) Eliminations Company
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues - external customers $ 13,403 $ 63,302 $ - $ 76,705
Revenues - intersegment 9,169 - (9,169) -
Interest and other income 516 956 (311) 1,161
------------------------------------------------------------------------
Total revenues $ 23,088 $ 64,258 $ (9,480) $ 77,866
======================================================================================================================
Interest expense $ 411 $ - $ - $ 411
Operating earnings 3,803 1,668 (2,021) 3,450
Segment assets 33,270 19,365 (15,321) 37,314
Purchase of equipment 887 - - 887
Depreciation and amortization 2,008 - 534 2,542
- ----------------------------------------------------------------------------------------------------------------------
March 31, 1999
- ---------------------------------------------
Revenues - external customers $ 13,731 $ 52,499 $ - $ 66,230
Revenues - intersegment 7,481 - (7,481) -
Interest and other income 1,367 903 (437) 1,833
------------------------------------------------------------------------
Total revenues $ 22,579 $ 53,402 $ (7,918) $ 68,063
======================================================================================================================
Interest expense $ 1,325 $ - $ - $ 1,325
Operating loss (397) 1,482 (570) 515
Segment assets 38,636 18,371 (3,698) 53,309
Purchase of equipment 219 - - 219
Depreciation and amortization 2,029 - 571 2,600
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) HMOs and Managed Plans: OmniCare Health Plan of Tennessee and UAFL (both
periods) and County Care (fiscal 2000 only).
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
--------
After successfully implementing a restructuring plan initiated in fiscal
1998, the Company continues to focus its efforts on maintaining and increasing
Company revenue and profitability through enrollment of additional managed care
plan members, pursuing worthwhile mergers and joint ventures and further cost
savings.
On May 1, 2000, the Company and its managed health maintenance
organization, Michigan Health Maintenance Organization Plans, Inc., d/b/a
OmniCare Health Plan ("OmniCare-MI"), commenced their previously announced
strategic partnership with the Detroit Medical Center ("DMC"), a major health
care provider system in southeastern Michigan. The alliance is intended to
strengthen their respective core businesses and improve the quality of care and
services for their patients and members. In addition, it was announced that DMC
and OmniCare-MI will develop a joint marketing campaign designed to increase
OmniCare-MI's membership and DMC's facility utilization rate.
In the strategic partnership's first phase, beginning May 1, 2000,
approximately 28,000 members of DMC's Medicaid managed care program were
transferred to OmniCare-MI; and DMC's seven hospitals and approximately 3,000
affiliated physicians now serve as a preferred provider network for OmniCare-MI.
In fiscal 1998, the Company recorded a full impairment loss against its
$2.1 million investment in Philcare Health Systems, Inc. ("Philcare"). Under an
agreement with the Pennsylvania Department of Public Welfare, Philcare
administered the operations of Pennsylvania Healthmate, Inc. ("Healthmate"), an
entity that arranged for providing health care services for its Medicaid
membership. In February 2000, Healthmate was sold, and the buyer agreed to
assume Healthmate's liabilities.
As a result of the Healthmate sale, Philcare management has informed the
Company that Philcare is expected to be dissolved under applicable law in the
Company's current fiscal year. The Company is in discussion with Philcare to
recover a substantial portion of the Company's $2.1 million investment in
Philcare in connection with such dissolution. The Company would recognize a net
gain in the amount of any such recovery.
In September 1998, effective as of August 31, 1998, the Company sold
Corporate Healthcare Financing, Inc. ("CHF") for $17.75 million, comprised of
$2.0 million in cash and the buyer's secured and unsecured notes for $13.25
million and $2.5 million, respectively. On August 16, 1999, the Company was paid
$8.5 million, the remaining principal balance of the secured and unsecured notes
and accrued interest
10
<PAGE> 12
($0.1 million), net of a $0.25 million discount granted as an inducement for the
buyer to prepay both notes.
The maturity date of the Company's bank line of credit was March 31, 2000.
In May 2000, the Company and its bank lender amended the Company's loan
agreement and promissory note to change the maturity date to July 1, 2000. The
Company and the bank are in discussions about converting the existing line of
credit balance into a term loan.
Effective April 1, 1999, the Company entered into a contract ("County
Care") to arrange for the delivery of health care services, including the
assumption of underwriting risk, on a capitated basis to certain enrollees
residing in Wayne County, Michigan who lack access to private or employer
sponsored health insurance or to another government health plan. The initial
contract period was for six months, with automatic renewal for successive
periods of one year unless terminated by either party as provided in the
contract. The contract currently expires September 30, 2000. Company management
does not expect significant net earnings directly from the County Care contract,
but regards the contract as consistent with the strategic objectives to expand
the enrollment base and achieve size sufficient to enable the Company to
negotiate better rates, save on administrative costs and increase profits.
On May 6, 1999, the Company's Board of Directors authorized the repurchase
of up to 250,000 of the Company's common shares (approximately 3.6% of the total
outstanding common shares) in the open market. At June 30, 1999, 12,900 shares
had been repurchased by the Company, and the additional 237,100 shares were
repurchased in the three months ended September 30, 1999.
At March 31, 2000, the Company increased medical services expenses $0.7
million to adjust medical claims payable based on a review of unpaid claims
incurred by enrollees of OmniCare Health Plan, Inc. in Tennessee
("OmniCare-TN"), a managed care organization owned 75% by the Company, but not
reported to the Company for payment as of March 31, 2000.
At December 31, 1997, the Company established a $6.4 million estimated
medical claims liability reserve for UltraMedix Healthcare Systems, Inc.
("UltraMedix"), a Florida HMO managed and 51%-owned by the Company's
majority-owned subsidiary United American of Florida, Inc. ("UAFL"). UAFL and
UltraMedix ceased operations and were placed in liquidation in March 1998. At
March 31, 2000 Company management concluded that the continuing reserve
requirement should be $0.8 million. Accordingly, at March 31, 2000 the Company
reduced the $6.4 million reserve by $5.6 million and reversed that amount from
medical services expenses.
Subsequent to the end of the period, in April 2000, the Company funded a
$7.7 million unsecured loan to the managed care organization managed by the
Company in Michigan, OmniCare-MI, evidenced by a surplus note. The loan
consisted of $4.0
11
<PAGE> 13
million in cash and conversion to a surplus note of $3.7 million of management
fees owed to the Company. As a result of the conversion of such management fee
receivable into a surplus note and an estimate of OmniCare-MI's future
discounted cash flows, bad debt expense of $1.5 million was recorded.
FOR NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO
------------------------------------------------
NINE MONTHS ENDED MARCH 31, 1999
--------------------------------
Total revenues increased $9.8 million (14%), to $77.9 million for the
nine months ended March 31, 2000, from $68.1 million for the nine months ended
March 31, 1999.
Medical premium revenues were $63.3 million for the nine months ended March
31, 2000, an increase of $10.8 million (21%) from medical premium revenues of
$52.5 million for the nine months ended March 31, 1999. Medical premiums for
OmniCare-TN increased $3.9 million (7%), to $56.4 million for the nine months
ended March 31, 2000 from $52.5 million for the nine months ended March 31,
1999.
The OmniCare-TN per member per month ("PMPM") premium rate -- based on an
average membership of 43,000 for the nine months ended March 31, 2000 compared
to 45,500 for the nine months ended March 31, 1999 -- was $143 for the nine
months ended March 31, 2000, compared to $121 for the nine months ended March
31, 1999, an increase of $22 (18%). Of the $22 rate increase, $12.40 (56%) is
earmarked for payments to providers pursuant to an adjustment by the State of
Tennessee's TennCare Bureau to adjust the funding level for covered benefits.
The effect of the rate increase, offset by a 6% decrease in member months,
accounted for a $3.9 million increase in medical premium revenues.
Premium revenues from the County Care program totaled $6.9 million for the
nine months ended March 31, 2000. The County Care contract did not exist in the
comparable period a year earlier.
Management fees were $13.4 million for the nine months ended March 31,
2000, a decrease of $0.3 million (2%) from fees of $13.7 million for the nine
months ended March 31, 1999, and represent management fees earned from
OmniCare-MI. The decrease is due to a reduction in operating revenues of
OmniCare-MI during the period due primarily to a combined net enrollment
decrease in the commercial and Medicaid markets.
Interest and other income decreased $0.6 million (33%), to $1.2 million for
the nine months ended March 31, 2000, from $1.8 million for the nine months
ended
12
<PAGE> 14
March 31, 1999. The decrease was due primarily to the retirement of the CHF
interest-bearing note in August 1999.
Total expenses before income taxes were $74.4 million for the nine months
ended March 31, 2000, compared to $67.5 million for the nine months ended March
31, 1999, an increase of $6.9 million (10%).
Medical services expenses were $47.6 million for the nine months ended
March 31, 2000, an increase of $4.4 million (10%) from medical services expenses
of $43.2 million for the nine months ended March 31, 1999. As explained under
the heading "Overview" above, at March 31, 2000 the Company reduced an existing
$6.4 million estimated medical claims liability reserve for UltraMedix by $5.6
million and reversed that amount from medical services expenses. Without that
reversal, medical services expenses would have been $53.3 million for the nine
months ended March 31, 2000, an increase of $10.1 million (23%) from medical
services expenses of $43.2 million for the nine months ended March 31, 1999,
resulting in an overall percentage of medical services expenses to medical
premium revenues - the medical loss ratio ("MLR") - of 84% for OmniCare-TN and
County Care.
Medical services expenses for OmniCare-TN increased $4.0 million (9%), to
$47.2 million for the nine months ended March 31, 2000, from $43.2 million for
the nine months ended March 31, 1999. The MLR was 84% for the nine months ended
March 31, 2000 and 82% for the nine months ended March 31, 1999 for OmniCare-TN.
Medical services expenses for County Care were $6.1 million for the nine
months ended March 31, 2000. The MLR for County Care is estimated at 88%, a rate
management believes is adequate to establish reserves sufficient to cover
anticipated program medical expenses.
Marketing, general and administrative ("MGA") expenses increased $1.9
million (9%) to $22.3 million for the nine months ended March 31, 2000, from
$20.4 million for the nine months ended March 31, 1999. The increase was due
mainly to contract and temporary labor costs related to computerized information
system modifications and enhancements during the period.
Interest expense decreased $0.9 million (69%), to $0.4 million for the nine
months ended March 31, 2000, from $1.3 million for the nine months ended March
31, 1999, due to debt reduction.
Bad debt expense for the nine months ended March 31, 2000 was $1.5 million
as a result of the recording of a $1.5 million valuation allowance against a
management fee receivable of $3.7 million. The valuation allowance was recorded
based on the subsequent conversion of the receivable into a surplus note and
consideration of an
13
<PAGE> 15
estimate of OmniCare-MI's future discounted cash flows.
The Company recognized earnings before income taxes of $3.5 million and
$0.5 million for the nine months ended March 31, 2000 and 1999, respectively.
Earnings net of income taxes for the nine months ended March 31, 2000 and 1999
were $3.4 million and $0.5 million, respectively. Excluding the
earlier-described reversal in part of an UltraMedix medical claims liability
reserve, recording of bad debt expense against a management fee receivable and
adjustment to medical claims payable, the Company would have recognized a net
loss before and after income taxes of $0.07 million for the nine months ended
March 31, 2000.
FOR THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO
-------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------
Total revenues increased $3.8 million (16%), to $27.1 million for the three
months ended March 31, 2000 from $23.3 million for the three months ended March
31, 1999.
Medical premium revenues were $22.4 million for the three months ended
March 31, 2000, an increase of $3.1 million (16%) from medical premium revenues
of $19.3 million for the three months ended March 31, 1999. Medical premiums for
OmniCare-TN increased $0.9 million (5%), to $20.2 million for the three months
ended March 31, 2000, from $19.3 million for the three months ended March 31,
1999.
The OmniCare-TN PMPM premium rate -- based on an average membership of
43,800 for the three months ended March 31, 2000 compared to 44,800 for the
three months ended March 31, 1999 -- was $153 for the three months ended March
31, 2000, compared to $121 for the three months ended March 31, 1999, an
increase of $32 (26%). Of the $32 rate increase, $12.40 (39%) is earmarked for
payments to providers pursuant to an adjustment by the State of Tennessee's
TennCare Bureau to adjust the funding level for covered benefits. The effect of
the rate increase, offset by a 5% decrease in member months, accounted for a
$0.9 million increase in medical premium revenues.
Premium revenues from the County Care program totaled $2.2 million for the
three months ended March 31, 2000. The County Care contract did not exist in the
comparable period a year earlier.
Management fees were $4.3 million for the three months ended March 31,
2000, an increase of $0.9 million (26%) from fees of $3.4 million for the three
months ended March 31, 1999, and represent management fees earned from
OmniCare-MI.
14
<PAGE> 16
The increase is due to a growth in operating revenues of OmniCare-MI during the
quarter due primarily to rate increases.
Interest and other income decreased $0.3 million (43%) to $0.4 million for
the three months ended March 31, 2000 from $0.7 million for the three months
ended March 31, 1999. The decrease was due primarily to the retirement of the
CHF interest-bearing note in August 1999.
Total expenses before income taxes totaled $23.7 million for the three
months ended March 31, 2000, compared to $23.2 million for the three months
ended March 31, 1999, a decrease of $0.5 million (2%).
Medical services expenses were $13.7 million for the three months ended
March 31, 2000, a decrease of $1.2 million (8%) from medical services expenses
of $14.9 million for the three months ended March 31, 1999. As explained under
the heading "Overview" above, at March 31, 2000 the Company reduced an existing
$6.4 million estimated medical claims liability reserve for UltraMedix by $5.6
million and reversed that amount from medical services expenses. Absent that
reversal, medical services expenses would have been $19.3 million for the three
months ended March 31, 2000, an increase of $4.4 million (30%) from medical
services expenses of $14.9 million for the three months ended March 31, 1999,
resulting in an overall MLR for OmniCare-TN and County Care of 86%.
Medical services expenses for OmniCare-TN increased $2.4 million (16%), to
$17.3 million for the three months ended March 31, 2000 from $14.9 million for
the three months ended March 31, 1999. The OmniCare-TN MLR was 86% for the three
months ended March 31, 2000 and 77% for the three months ended March 31, 1999.
Medical services expenses for County Care were $2.0 million for the three
months ended March 31, 2000. The estimated MLR for County Care for the same
period was 88%.
MGA expenses increased $0.5 million (7%), to $7.5 million for the three
months ended March 31, 2000 from $7.0 million for the three months ended March
31, 1999. The increase was due mainly to contract and temporary labor related to
computerized information system modifications and enhancements during the
period.
Interest expense decreased $0.3 million (75%), to $0.1 million for the
three months ended March 31, 2000 from $0.4 million for the three months ended
March 31, 1999, due to debt reduction.
Bad debt expense for the three months ended March 31, 2000 was $1.5 million
as a result of the previously described valuation allowance taken against a
management fee receivable.
15
<PAGE> 17
The Company recognized earnings before income taxes of $3.4 million and
$0.2 million for the three months ended March 31, 2000 and 1999, respectively.
Earnings net of taxes for the three months ended March 31, 2000 and 1999 were
$3.4 million and $0.3 million, respectively. Absent the earlier-described
reversal in part of an UltraMedix medical claims liability reserve, recording of
bad debt expense against a management fee receivable, and adjustment to medical
claims payable, the Company would have recognized a net loss before and after
income taxes of $0.03 million for the three months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At March 31, 2000, the Company had (i) cash and cash equivalents and
short-term marketable securities of $15.4 million, compared to $17.3 million at
June 30, 1999; (ii) positive working capital of $0.9 million, compared to
negative working capital of $1.7 million at June 30, 1999; and (iii) a current
assets-to-current liabilities ratio of 1.04-to-1, compared to 0.96-to-1 at June
30, 1999. The principal uses of funds for the Company during the nine months
ended March 31, 2000 were $0.1 million used in net operating activities,
repayment of $8.5 million of bank debt from the same amount of cash proceeds and
payments received on the notes from the sale of CHF, purchases of marketable
securities of $0.5 million, repurchase of common stock of $0.4 million and the
purchase of property and equipment of $0.9 million.
The maturity date of the Company's bank line of credit was March 31, 2000.
In May 2000, the Company and its bank lender amended the Company's loan
agreement and promissory note to change the maturity date to July 1, 2000. The
Company and the bank are in discussions about converting the existing line of
credit balance into a term loan.
Subsequent to the end of the period, in April 2000, the Company funded a
$7.7 million unsecured loan to OmniCare-MI, evidenced by a surplus note. The
loan consisted of $4.0 million in cash and conversion to a surplus note of $3.7
million of management fees owed to the Company. As a result of the conversion of
such management fee receivable into a surplus note and an estimate of
OmniCare-MI's future discounted cash flows, bad debt expense of $1.5 million was
recorded.
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 continued
stabilization of OmniCare-MI.
16
<PAGE> 18
PART II.
ITEM 1. LEGAL PROCEEDINGS
A demand for arbitration was filed on May 20, 1999 with the American
Arbitration Association by the former President and Chief Operating Officer of
the Company. The claimant sought termination benefits and costs of approximately
$0.8 million. The final binding arbitration order was issued on May 9, 2000 and
held in favor of the Company on all of the claimant's claims, awarding him only
undisputed vacation benefits of $0.04 million.
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
None.
ITEM 5. OTHER INFORMATION
NEW YORK STOCK EXCHANGE AND OTC BULLETIN BOARD
----------------------------------------------
The Company's common stock was listed and publicly traded on the New York
Stock Exchange, Inc. (the "Exchange") through May 1, 2000. On and since May 2,
2000, public trading of the Company's common stock has continued on the OTC
Bulletin Board, under the symbol "UAHC." The change was due to the Company not
meeting the Exchange's continued listing standards.
CHANGE OF STOCK TRANSFER AGENT
------------------------------
The Company's stock transfer agent and registrar, Harris Trust and Savings
Bank ("Harris"), recently sold its shareholder services business to
Computershare Investor Services LLC ("Computershare"), with processing
operations to transition on July 1, 2000. The Company's Board of Directors has
approved Harris' resignation as such stock transfer agent and registrar,
effective June 30, 2000 and approved the appointment of Computershare as the
Company's successor stock transfer agent and registrar effective July 1, 2000.
17
<PAGE> 19
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 "believes," "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 OmniCare-MI to remain as a viable entity.
2. Inability to increase premium rates commensurate with
increases in medical costs due to utilization, government
regulation or other factors.
3. Discontinuation of, limitations upon, or restructuring of
government-funded programs, including but not limited to the
TennCare program.
4. Increases in medical costs, including increases in utilization and
costs of medical services and the effects of actions by competitors or
groups of providers.
5. 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); limitations on the
ability to manage care and utilization; and any willing provider or
pharmacy laws.
6. The shift of employers from insured to self-funded coverage, resulting
in reduced operating margins to the Company.
7. Failure to obtain new customer bases or retain existing customer bases
or reductions in work force by existing customers; and failure to
sustain commercial enrollment to maintain an enrollment mix required
by government programs.
8. Termination of the OmniCare-MI management agreement.
9. Increased competition between current organizations, the entrance of
new competitors and the introduction of new products by new and
existing competitors.
10. Adverse publicity and media coverage.
18
<PAGE> 20
11. Inability to carry out marketing and sales plans.
12. Loss or retirement of key executives.
13. Termination of provider contracts or renegotiations at less
cost-effective rates or terms of payment.
14. The selection by employers and individuals of higher
co-payment/deductible/coinsurance plans with relatively lower premiums
or margins.
15. Adverse regulatory determinations resulting in loss or limitations of
licensure, certification or contracts with governmental payors.
16. Higher sales, administrative or general expenses occasioned by the
need for additional advertising, marketing, administrative or MIS
expenditures.
17. Increases by regulatory authorities of minimum capital, reserve and
other financial solvency requirements.
18. Denial of accreditation by quality accrediting agencies, e.g., the
National Committee for Quality Assurance (NCQA).
19. Adverse results from significant litigation matters.
20. Inability to maintain or obtain satisfactory bank credit arrangements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description of Document
-------------- -----------------------
27 Financial data schedule
(b) Reports on Form 8-K
Form 8-K filed January 14, 2000
19
<PAGE> 21
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: May 15, 2000 By: /s/ Gregory H. Moses, Jr.
-----------------------------------------
Gregory H. Moses, Jr.
President & Chief Executive Officer
Dated: May 15, 2000 By: /s/ Gloria Larkins
-----------------------------------------
Gloria Larkins
Interim Chief Financial Officer
20
<PAGE> 22
EXHIBIT INDEX
Exhibit Number Description of Document
-------------- -----------------------
27 Financial data schedule
21
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<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 NINE MONTHS ENDED MARCH 31,
2000 IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM
10-Q.
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 15,377,000
<SECURITIES> 1,705,000
<RECEIVABLES> 7,873,000
<ALLOWANCES> (1,488,000)
<INVENTORY> 0
<CURRENT-ASSETS> 24,070,000
<PP&E> 17,933,000
<DEPRECIATION> (14,814,000)
<TOTAL-ASSETS> 37,314,000
<CURRENT-LIABILITIES> 23,128,000
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0
<COMMON> 11,151,000
<OTHER-SE> (154,000)
<TOTAL-LIABILITY-AND-EQUITY> 37,314,000
<SALES> 0
<TOTAL-REVENUES> 77,866,000
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<TOTAL-COSTS> 74,005,000
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<INTEREST-EXPENSE> 411,000
<INCOME-PRETAX> 3,450,000
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<INCOME-CONTINUING> 3,375,000
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