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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, 1999
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 14,
2000 WAS 6,779,134.
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As filed with the Securities and Exchange Commission on February 14, 2000
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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, 1999
and June 30, 1999 2
Condensed Consolidated Statements of Operations - Three and Six Months
Ended December 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows - Six Months
Ended December 31, 1999 and 1998 4
Notes to the Unaudited Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBITS 20
</TABLE>
PART I.
1
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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,
1999 1999
----------------- --------------
<S> <C> <C>
ASSETS (Unaudited)
----------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 14,220 $ 17,286
Marketable securities, available for sale 1,690 1,290
Premium receivables 4,126 5,445
Notes receivable - 8,432
Management fee and advance receivable 6,190 2,932
Other receivables 152 223
Prepaid expenses and other 514 290
Deferred income taxes 227 227
----------------- --------------
Total current assets 27,119 36,125
Property and equipment, net 3,770 4,001
Intangible assets, net 4,018 4,374
Surplus note receivable, net 2,300 2,300
Marketable securities 1,913 1,548
Deferred income taxes 326 326
Other assets 1,175 577
----------------- --------------
$ 40,621 $ 49,251
================= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt $ 4,473 $ 12,737
Medical claims payable 19,190 19,810
Accounts payable and accrued expenses 4,103 2,959
Accrued compensation and related benefits 941 1,309
Other current liabilities 503 448
Deferred income taxes 514 514
----------------- --------------
Total current liabilities 29,724 37,777
Long-term debt, less current portion 125 375
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 December 31, 1999 and June 30, 1999, respectively 11,151 11,445
Accumulated deficit (964) (925)
Accumulated other comprehensive loss, net of income taxes (154) (160)
----------------- --------------
10,033 10,360
================= ==============
$ 40,621 $ 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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------- --------------------------------
1999 1998 1999 1998
---------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUES
Medical premiums $ 20,556 $ 16,635 $ 40,867 $ 33,220
Management fees from related party 4,650 5,046 9,099 10,348
Interest and other income 353 689 796 1,154
---------------- -------------- ---------------- ---------------
Total revenues 25,559 22,370 50,762 44,722
EXPENSES
Medical services 17,069 14,140 33,928 28,237
Marketing, general and administrative 7,873 6,747 14,830 13,452
Depreciation and amortization 863 857 1,697 1,744
Interest expense 94 443 283 938
---------------- -------------- ---------------- ---------------
Total expenses 25,899 22,187 50,738 44,371
---------------- -------------- ---------------- ---------------
(Loss) earnings before income taxes (340) 183 24 351
Income tax expense 6 29 63 77
---------------- -------------- ---------------- ---------------
NET (LOSS) EARNINGS $ (346) $ 154 $ (39) $ 274
================ ============== ================ ===============
NET (LOSS) EARNINGS PER COMMON SHARE - BASIC
Net (loss) earnings per common share $ (0.05) $ 0.02 $ (0.01) $ 0.04
================ ============== ================ ===============
Weighted average shares outstanding 6,779 6,651 6,790 6,617
================ ============== ================ ===============
NET (LOSS) EARNINGS PER COMMON SHARE - DILUTED
Net (loss) earnings per common share $ (0.05) $ 0.02 $ (0.01) $ 0.04
================ ============== ================ ===============
Weighted average shares outstanding 6,779 6,651 6,790 6,623
================ ============== ================ ===============
</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>
SIX MONTHS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings $ (39) $ 274
Adjustments to reconcile net (loss) earnings to net cash used in operating
activities
Loss on disposal of assets 22 -
Depreciation and amortization 1,697 1,744
Net change in assets and liabilities (2,668) (5,120)
------------- --------------
Net cash used in operating activities (988) (3,102)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities (691) -
Proceeds from the sale of property and equipment 125 124
Purchase of property and equipment (1,136) (85)
Proceeds from collection of notes receivable 8,432 4,000
Cash used in discontinued operation - (1,047)
------------- --------------
Net cash provided by investing activities 6,730 2,992
CASH FLOWS FROM FINANCING ACTIVITIES
Payments made on long-term debt (8,514) (4,346)
Repurchase of common stock (370) -
Issuance of common stock 76 -
------------- --------------
Net cash used in financing activities (8,808) (4,346)
------------- --------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (3,066) (4,456)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,286 13,259
============= ==============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,220 $ 8,803
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 283 $ 938
============= ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Issuance of notes receivable in connection with sale of discontinued operation $ - $ 15,750
============= ==============
</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
DECEMBER 31, 1999 AND 1998
- ------------------------------------------------------
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 six-month period ended December 31, 1999 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 (loss) income, net of related tax, are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------- ------------- ----------- -------------
1999 1998 1999 1998
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net (loss) earnings $ (346) $ 154 $ (39) $ 274
Unrealized holding gains, net of deferred federal income
taxes - - 6 -
============= ============= =========== =============
Comprehensive (loss) income $ (346) $ 154 $ (33) $ 274
============= ============= =========== =============
</TABLE>
The components of accumulated other comprehensive loss, included in
shareholders' equity at December 31, 1999 and June 30, 1999, include net
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
DECEMBER 31, 1999 AND 1998
- ----------------------------------------------
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 December 31,
1999. In February 2000, the Company and its bank lender amended the Company's
loan agreement and promissory note to change the maturity date to March 31,
2000.
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, 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>
DECEMBER 31, JUNE 30,
1999 1999
----------------- ---------------
<S> <C> <C>
Line of credit $ 3,973 $ 12,487
Promissory note 625 625
----------------- ---------------
4,598 13,112
Less debt payable within one year 4,473 12,737
================= ===============
Long-term debt, less current portion $ 125 $ 375
================= ===============
</TABLE>
- ---------------------------------------------
NOTE 5 - LIQUIDITY
- ---------------------------------------------
6
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
At December 31, 1999, the Company had (i) cash and cash equivalents and
short-term marketable securities of $15.9 million, compared to $18.6 million at
June 30, 1999; (ii) negative working capital of $2.6 million, compared to
negative working capital of $1.7 million at June 30, 1999; and (iii) a current
assets-to-current liabilities ratio of .91-to-1, compared to .96-to-1 at June
30, 1999. The principal uses of funds for the Company during the six months
ended December 31, 1999 were $1.0 million used in net operating activities, cash
proceeds and payments received on the notes from the sale of CHF of $8.5 million
- -- offset by $8.5 million to repay bank debt, purchases of marketable securities
of $0.7 million, repurchase of common stock of $0.4 million and the purchase of
property and equipment of $1.1 million.
The maturity date of the Company's bank line of credit was December 31,
1999. In February 2000, the Company and its bank lender amended the Company's
loan agreement and promissory note to change the maturity date to March 31,
2000.
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 the managed care organization managed by the Company in
Michigan, Michigan Health Maintenance Organization Plans, Inc., d/b/a/ OmniCare
Health Plan ("OmniCare-MI").
- ----------------------------------------------
NOTE 6 - NET (LOSS) EARNINGS PER COMMON SHARE
- ----------------------------------------------
Basic net (loss) earnings per share excluding dilution has been
computed by dividing net (loss) earnings by the weighted-average number of
common shares outstanding for the period. Diluted (loss) earnings per share is
computed the same as basic for the three and six months ended December 31, 1999
and 1998, since the Company did not have any outstanding securities having a
dilutive effect on (loss) earnings per share.
- ----------------------------------------------
NOTE 7 - YEAR 2000 COMPLIANCE
- ----------------------------------------------
Before, on and since January 1, 2000, the Company has experienced no
"Year 2000" problems in connection with its computerized information systems or
with other entities not affiliated with the Company (e.g., vendors and
customers). The total costs of the Company's efforts to become Year 2000
compliant were approximately $1.6 million.
- ----------------------------------------------
NOTE 8 - CONTINGENCIES
- ----------------------------------------------
7
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
DECEMBER 31, 1999 AND 1998
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 seeks termination benefits and costs of approximately
$0.7 million. The arbitration hearings ended recently and a final arbitration
decision is expected in March 2000. The Company is vigorously defending this
matter.
- ---------------------------------------------------
NOTE 9 - 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
December 31, 1999 (1) (2) Eliminations Company
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues - external customers $ 9,099 $ 40,867 $ - $ 49,966
Revenues - intersegment 5,943 - (5,943) -
Interest and other income 384 621 (209) 796
========================================================================
Total revenues $ 15,426 $ 41,488 $ (6,152) $ 50,762
======================================================================================================================
Interest expense $ 283 $ - $ - $ 283
Operating (loss) earnings (1,169) 1,548 (355) 24
Segment assets 29,733 19,052 (8,164) 40,621
Purchase of equipment 1,136 - - 1,136
Depreciation and amortization 1,342 - 355 1,697
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ---------------------------------------------
Revenues - external customers $ 10,348 $ 33,220 $ - $ 43,568
Revenues - intersegment 4,754 - (4,754) -
Interest and other income 899 559 (304) 1,154
------------------------------------------------------------------------
Total revenues $ 16,001 $ 33,779 $ (5,058) $ 44,722
======================================================================================================================
Interest expense $ 938 $ - $ - $ 938
Operating earnings (loss) 726 5 (380) 351
Segment assets 37,375 15,411 (406) 52,380
Purchase of equipment 85 - - 85
Depreciation and amortization 1,364 - 380 1,744
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Management Companies: United American Healthcare Corporation (1999, 1998)
and United American of Tennessee, Inc. (1999, 1998).
(2) HMOs and Managed Plans: OmniCare Health Plan of Tennessee (1999, 1998) and
County Care (1999).
8
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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 January 6, 2000, the Company publicly announced a strategic
partnership, subject to state regulatory approval, with The Detroit Medical
Center ("DMC") and the Company's managed health maintenance organization,
Michigan Health Maintenance Organization Plans, Inc., d/b/a OmniCare Health Plan
("OmniCare-MI"). The announcement was made jointly by Gregory H. Moses, Jr.,
President and Chief Executive Officer of both the Company and OmniCare-MI, and
Dr. Arthur T. Porter, President and Chief Executive Officer of DMC.
The announcement disclosed new and proposed affiliations among the
Company, OmniCare-MI and DMC, intended to strengthen their respective core
businesses and improve the quality of care and services for their patients and
members. DMC is the largest health care provider system in southeastern
Michigan, operating seven hospitals, two nursing centers and more than 100
primary care practices. DMC has approximately 3,000 affiliated physicians and
serves as the teaching and clinical research site for the Wayne State University
Medical School.
In the strategic partnership's first phase, the approximately 31,000
members of DMC's Medicaid managed care program ("DMC Clinic Plan") will be
transferred to OmniCare-MI; and DMC's seven hospitals and approximately 3,000
affiliated physicians will serve as a preferred provider network for
OmniCare-MI. 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.
The proposed affiliations were the subject of a binding letter of
intent dated December 20, 1999 among the Company, OmniCare-MI, DMC and DMC
Clinic Plan, subject to state regulatory approval and to developing and entering
a definitive agreement. The parties are jointly pursuing state regulatory
approval.
9
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In fiscal 1998, the Company recorded a full impairment loss against its
$2.1 million investment in Philcare Health Systems, Inc. ("Philcare"). Philcare
had earlier entered into an agreement with the Pennsylvania Department of Public
Welfare to administer the operations of Pennsylvania Healthmate, Inc.
("Healthmate"), an entity that arranged for the provision of health care
services for its Medicaid membership. In February 2000, an outside entity
purchased Healthmate and agreed to assume Healthmate's liabilities.
Philcare management has informed the Company that, having sold
Healthmate, 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, Corporate
Healthcare Financing, Inc. ("CHF") was sold 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. Including payments on the secured note,
$9.2 million of the sales price plus $0.8 million of interest in cash was
received through June 30, 1999. On August 16, 1999, the Company was paid $8.5
million, the remaining principal balance of the secured and unsecured notes and
accrued interest ($0.1 million), net of a $0.25 million discount granted as an
inducement for the buyer to prepay both notes. As required by the Company's bank
line of credit facility, the sale was approved by the bank and all proceeds were
used to reduce the Company's indebtedness to the bank.
The Company's bank debt documents were amended in September 1998 and
again in May 1999. The maturity date of the Company's bank line of credit was
December 31, 1999. In February 2000, the Company and its bank lender amended the
Company's loan agreement and promissory note to change the maturity date to
March 31, 2000. The bank has stated it is willing to extend the Company's
existing loan balance for a period of up to five years.
Effective April 1, 1999, the Company entered into the County Care
contract 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. Although Company
management does not expect significant net earnings directly from the County
Care contract, management believes that entering into this contract is
consistent with the Company's strategic objective of expanding the enrollment
base and achieving 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 by the Company 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.
For the six months ended December 31, 1999, the Company recognized a
net loss of $0.04 million. This loss is attributable primarily to an increase in
contract and
10
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temporary labor costs related to computerized information system modifications
and enhancements during the period.
FOR SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO
SIX MONTHS ENDED DECEMBER 31, 1998
Total revenues increased $6.1 million (14%), from $44.7 million for the
six months ended December 31, 1998 to $50.8 million for the six months ended
December 31, 1999.
Medical premium revenues were $40.9 million for the six months ended
December 31, 1999, an increase of $7.7 million (23%) from medical premium
revenues of $33.2 million for the six months ended December 31, 1998. Medical
premiums for OmniCare Health Plan, Inc. in Tennessee ("OmniCare-TN"), a managed
care organization owned 75% by the Company, increased $3.0 million (9%), from
$33.2 million for the six months ended December 31, 1998 to $36.2 million for
the six months ended December 31, 1999.
The OmniCare-TN per member per month ("PMPM") premium rate -- based on
an average membership of 42,500 for the six months ended December 31, 1999
compared to 45,800 for the six months ended December 31, 1998 -- was $142 for
the six months ended December 31, 1999, compared to $121 for the six months
ended December 31, 1998, an increase of $21.00 (17%) or $5.5 million in total.
Of the $21.00 rate increase, $16.00 represents an adjustment by the State of
Tennessee's TennCare Bureau to adjust the funding level for benefits covered by
TennCare, of which $12.40 (77.5%) is earmarked for payments to providers. This
accounted for $4.1 million of the $5.5 million rate increase. The effect of the
rate increase was offset by a 7% decrease in member months or approximately $2.5
million. The enrollment decrease is primarily due to the TennCare Bureau's
disenrollment of working uninsured who were determined to be no longer eligible
for coverage based on a questionnaire sent by the TennCare Bureau.
Premium revenues from the County Care program totaled $4.7 million for
the six months ended December 31, 1999. The County Care contract did not exist
in the comparable period a year earlier.
Management fees were $9.1 million for the six months ended December 31,
1999, a decrease of $1.2 million (12%) from fees of $10.3 million for the six
months ended December 31, 1998, 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 of approximately 13%. Management
believes that a major contributing factor to the commercial enrollment decrease
(from an average membership of 45,400 for the six months ended December 31, 1998
to an average membership of 37,500 for the six months ended December 31, 1999)
was the negative publicity from newspaper stories in May 1998 regarding state
regulation of OmniCare-MI. Company management vigorously addressed and improved
that situation, and in fiscal 2000 OmniCare-MI has
11
<PAGE> 13
made steady progress in signing up new employer groups and raising the average
number of members in each group. Medicaid enrollment decreased from an average
membership of 50,100 for the six months ended December 31, 1998 to an average
membership of 46,100 for the six months ended December 31, 1999, due primarily
to a state regulatory freeze on OmniCare-MI enrollment which began in June 1999
and ended in December 1999.
Interest and other income decreased $0.3 million (27%), from $1.1
million for the six months ended December 31, 1998 to $0.8 million for the six
months ended December 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 $50.7 million for the six
months ended December 31, 1999, compared to $44.4 million for the six months
ended December 31, 1998, an increase of $6.3 million (14%).
Medical service expenses were $33.9 million for the six months ended
December 31, 1999, an increase of $5.7 million (20%) from medical service
expenses of $28.2 million for the six months ended December 31, 1998. Medical
service expenses for OmniCare-TN increased $1.7 million (6%), from $28.2 million
for the six months ended December 31, 1998 to $29.9 million for the six months
ended December 31, 1999. The percentage of medical service expenses to medical
premium revenues -- the medical loss ratio ("MLR") -- was 83% for the six months
ended December 31, 1999 and 85% for the six months ended December 31, 1998 for
OmniCare-TN.
Medical service expenses for County Care were $4.1 million for the six
months ended December 31, 1999. 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 $1.3
million (10%) from $13.5 million for the six months ended December 31, 1998 to
$14.8 million for the six months ended December 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 $0.6 million (67%), from $0.9 million for
the six months ended December 31, 1998 to $0.3 million for the six months ended
December 31, 1999, due to debt reduction.
As a result of the foregoing, the Company recognized earnings before
income taxes of $0.02 million for the six months ended December 31, 1999 and a
net loss of $0.04 million for the six months ended December 31, 1999. Earnings
before income taxes and net earnings for the six months ended December 31, 1998
were $0.4 million and $0.3 million, respectively.
12
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FOR THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1998
Total revenues increased $3.2 million (14%), from $22.4 million for the
three months ended December 31, 1998 to $25.6 million for the three months ended
December 31, 1999.
Medical premium revenues were $20.6 million for the three months ended
December 31, 1999, an increase of $4.0 million (24%) from medical premium
revenues of $16.6 million for the three months ended December 31, 1998. Medical
premiums for OmniCare-TN increased $1.6 million (10%), from $16.6 million for
the three months ended December 31, 1998 to $18.2 million for the three months
ended December 31, 1999.
The OmniCare-TN PMPM premium rate -- based on an average membership of
41,800 for the three months ended December 31, 1999 compared to 45,900 for the
three months ended December 31, 1998 -- was $145 for the three months ended
December 31, 1999, compared to $121 for the three months ended December 31,
1998, an increase of $24.00 (20%) or $3.1 million in total. Of the $24.00 rate
increase, $16.00 represents an adjustment by the State of Tennessee's TennCare
Bureau to adjust the funding level for benefits covered by TennCare, of which
$12.40 (77.5%) is earmarked for payments to providers. This accounted for $2.0
million of the $3.1 million rate increase. The effect of the rate increase was
offset by a 9% decrease in member months or approximately $1.5 million. The
enrollment decrease is primarily due to the TennCare Bureau's disenrollment of
working uninsured who were determined to be no longer eligible for coverage
based on a questionnaire sent by the TennCare Bureau.
Premium revenues from the County Care program totaled $2.4 million for
the three months ended December 31, 1999. The County Care contract did not exist
in the comparable period a year earlier.
Management fees were $4.6 million for the three months ended December
31, 1999, a decrease of $0.4 million (8%) from fees of $5.0 million for the
three months ended December 31, 1998, and represent management fees earned from
OmniCare-MI. The decrease is due to a reduction in operating revenues of
OmniCare-MI during the quarter due primarily to a combined net enrollment
decrease in the commercial and Medicaid markets of approximately 14% offset by a
net rate increase of 5%. Management believes that a major contributing factor to
the commercial enrollment decrease (from an average membership of 44,600 for the
three months ended December 31, 1998 to an average membership of 37,400 for the
three months ended December 31, 1999) was the negative publicity from newspaper
stories in May 1998 regarding state regulation of OmniCare-MI. Medicaid
enrollment decreased from an average membership of 49,600 for the three months
ended December 31, 1998 to an average membership of 44,300 for the three months
ended December 31, 1999, due primarily to a state regulatory freeze on
OmniCare-MI enrollment which began in June 1999 and ended in December
13
<PAGE> 15
1999. The rate increase is attributable mainly to increased commercial rates,
retroactive Medicaid billings and changes in the Medicaid membership mix.
Interest and other income decreased $0.3 million (43%) from $0.7
million for the three months ended December 31, 1998 to $0.4 million for the
three months ended December 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 $25.9 million for the three
months ended December 31, 1999, compared to $22.2 million for the three months
ended December 31, 1998, an increase of $3.7 million (17%).
Medical service expenses were $17.1 million for the three months ended
December 31, 1999, an increase of $3.0 million (21%) from medical service
expenses of $14.1 million for the three months ended December 31, 1998. Medical
service expenses for OmniCare-TN increased $0.9 million (6%), from $14.1 million
for the three months ended December 31, 1998 to $15.0 million for the three
months ended December 31, 1999. The OmniCare-TN MLR was 83% for the three months
ended December 31, 1999 and 85% for the three months ended December 31, 1998.
Medical service expenses for County Care were $2.1 million for the
three months ended December 31, 1999. The estimated MLR for County Care for the
same period was 88%.
MGA expenses increased $1.2 million (18%), from $6.7 million for the
three months ended December 31, 1998 to $7.9 million for the three months ended
December 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%), from $0.4 million for
the three months ended December 31, 1998 to $0.1 million for the three months
ended December 31, 1999, due to debt reduction.
As a result of the foregoing, the Company recognized a loss before
income taxes of $0.34 million for the three months ended December 31, 1999 and a
net loss of $0.35 million for the three months ended December 31, 1999. Earnings
before income taxes and net earnings for the three months ended December 31,
1998 were $0.18 million and $0.15 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had (i) cash and cash equivalents and
short-term marketable securities of $15.9 million, compared to $18.6 million at
June 30, 1999; (ii) negative working capital of $2.6 million, compared to
negative working capital of $1.7 million at June 30, 1999; and (iii) a current
assets-to-current liabilities ratio of .91-
14
<PAGE> 16
to-1, compared to .96-to-1 at June 30, 1999. The principal uses of funds for the
Company during the six months ended December 31, 1999 were $1.0 million used in
net operating activities, cash proceeds and payments received on the notes from
the sale of CHF of $8.5 million -- offset by $8.5 million to repay bank debt,
purchases of marketable securities of $0.7 million, repurchase of common stock
of $0.4 million and the purchase of property and equipment of $1.1 million.
The maturity date of the Company's bank line of credit was December 31,
1999. In February 2000, the Company and its bank lender amended the Company's
loan agreement and promissory note to change the maturity date to March 31,
2000. The bank has stated it is willing to extend the Company's existing loan
balance for a period of up to five years.
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.
PART II.
ITEM 1. LEGAL PROCEEDINGS
None.
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
11, 1999, at which the following matters were voted upon: (i) to elect four
directors of the Company to serve until the Annual Meeting of Shareholders in
2002; and (ii) to vote on the approval of the appointment of KPMG LLP as
independent auditors of the Company for the 2000 fiscal year.
At such Annual Meeting, William C. Brooks, Julius V. Combs, M.D., Pearl
M. Holforty and Gregory H. Moses, Jr., 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 were approved.
15
<PAGE> 17
The voting at the Annual Meeting was as follows:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD ABSTAIN
------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
Election of directors:
William C. Brooks 5,620,440 - 265,511 -
Julius V. Combs, M.D. 5,555,867 - 330,084 -
Pearl M. Holforty 5,567,982 - 317,969 -
Gregory H. Moses, Jr. 5,588,873 - 297,078 -
--------------------------------------------------------------------------------------------------
Approval of independent auditors 5,867,608 15,277 13,066 -
--------------------------------------------------------------------------------------------------
</TABLE>
ITEM 5. OTHER INFORMATION
NEW YORK STOCK EXCHANGE
The Company's common stock is listed on the New York Stock Exchange,
Inc. ("Exchange"). In 1998, the Exchange and the Company had communications
about the Company not meeting applicable listing standards, and the Company
consequently presented to the Exchange a definitive action plan for meeting
those standards within a reasonable period. In February 1999, the Exchange
notified the Company that, based on its review of the plan submitted by the
Company, the Exchange would continue the listing of the Company currently and
would review the Company's continued listing on a quarterly basis for compliance
with the plan submitted. In July 1999, the Exchange notified the Company of new
continued listing requirements and requested the Company to submit a revised
definitive action plan to demonstrate how the Company would meet the new
requirements over a 12-month period. The Company submitted its revised plan in
September 1999 and provided additional information in October 1999. In November
1999, the Exchange notified the Company that, based on its review of the
information submitted by the Company, the Exchange would continue the listing of
the Company currently and would review the Company's continued listing on a
quarterly basis for compliance with the revised plan submitted. There can be no
assurance as to the Company's continued listing on the Exchange.
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.
16
<PAGE> 18
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.
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
17
<PAGE> 19
Exhibit Number Description of Document
-------------- -----------------------
27 Financial data schedule
(b) Reports on Form 8-K
None.
18
<PAGE> 20
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 14, 2000 By: /s/ Gregory H. Moses, Jr.
----------------------------------------
Gregory H. Moses, Jr.
President & Chief Executive Officer
Dated: February 14, 2000 By: /s/ Paul G. Samuels
---------------------------------------
Paul G. Samuels
Chief Financial Officer
19
<PAGE> 21
EXHIBIT INDEX
Exhibit Number Description of Document
-------------- -----------------------
27 Financial data schedule
20
<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, 1999 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-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,220,000
<SECURITIES> 1,690,000
<RECEIVABLES> 10,468,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,119,000
<PP&E> 17,706,000
<DEPRECIATION> (13,936,000)
<TOTAL-ASSETS> 40,621,000
<CURRENT-LIABILITIES> 29,724,000
<BONDS> 0
0
0
<COMMON> 11,151,000
<OTHER-SE> (154,000)
<TOTAL-LIABILITY-AND-EQUITY> 40,621,000
<SALES> 0
<TOTAL-REVENUES> 50,762,000
<CGS> 0
<TOTAL-COSTS> 50,455,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,000
<INCOME-PRETAX> 24,000
<INCOME-TAX> 63,000
<INCOME-CONTINUING> (39,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,000)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
