SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO. 0-21684
THE WELLCARE MANAGEMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 14-1647239
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
PARK WEST / HURLEY AVENUE EXTENSION, KINGSTON, NY 12401
(Address of principal executive offices) (Zip Code)
(914) 338-4110
(Registrant's telephone number, including area code)
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 the Registrant's share outstanding on November 1,
1997 was 1,204,025 shares of Common Stock, $.01 par value, and
5,108,217 shares of Class A Common Stock, $.01 par value.
Page 1 of 39 Pages
Exhibit Index on Page 28
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1997 and 1996 6
Consolidated Statements of Shareholders'
Equity for the Nine Months Ended
September 30, 1997 8
Notes to Consolidated Financial Statements 10
Item 2 Management's Discussion and Analysis
of Financial Condition and
Results of Operations 19
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 24
Item 2 Changes in Securities 25
Item 3 Defaults Upon Senior Securities 25
Item 4 Submission of Matters to a
Vote of Security Holders 26
Item 5 Other Information 26
Item 6 Exhibits and Reports on Form 8-K 26
Signatures 27
Index to Exhibits 28
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
1997 1996
------------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 3,949 $ 7,869
Short-term investments -
available for sale 108 919
Accounts receivable (net
of allowance for doubtful
accounts of $3,683 in 1997
and $1,902 in 1996) 6,732 8,133
Notes receivable (net of
allowance for doubtful
accounts of $5,101 in 1997
and $2,032 in 1996) 591 351
Advances to participating providers 2,649 2,320
Other receivables (net of allowances
for doubtful accounts of $4,347 in
1997 and $4,995 in 1996) 4,283 4,874
Taxes receivable 303 6,969
Deferred tax asset 3,932 3,932
Prepaid expenses and other
current assets 531 400
-------- --------
TOTAL CURRENT ASSETS 23,078 35,767
PROPERTY AND EQUIPMENT (net of
accumulated depreciation and
amortization of $6,210 in 1997
and $5,157 in 1996) 11,341 12,261
OTHER ASSETS:
Restricted cash 6,667 6,667
Notes receivable (net of allowance
for doubtful accounts of $2,951
in 1997 and $3,313 in 1996) 257 1,104
Preoperational costs (net of
accumulated amortization of
$2,238 in 1997 and $1,237 in 1996) 1,764 2,764
Other non-current assets (net of
allowance for doubtful accounts
of $1,455 in 1997 and $1,516 in 1996
and accumulated amortization of
$796 in 1997 and $585 in 1996) 3,605 4,749
Goodwill (net of accumulated
amortization of $2,182 in 1997
and $1,702 in 1996) 7,548 8,028
-------- --------
TOTAL ASSETS $54,260 $71,340
======== ========
<PAGE>
September 30, December 31,
1997 1996
------------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 669 $ 702
Medical costs payable 14,035 15,965
New York State demographic pool 1,017 -
Accounts payable 898 1,002
Accrued expenses 2,828 2,678
Unearned income 5,866 4,248
-------- --------
TOTAL CURRENT LIABILITIES 25,313 24,595
LONG-TERM LIABILITIES -
Long-term debt 25,976 26,471
-------- --------
TOTAL LIABILITIES 51,289 51,066
-------- --------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Class A Common Stock ($.01 par
value; 1,344,784 and 1,484,482
shares authorized; 1,229,794
and 1,369,492 shares issued
and outstanding at
September 30, 1997 and December 31,
1996, respectively) 12 14
Common Stock ($.01 par value;
20,000,000 shares authorized,
5,082,448 and 4,942,750 shares
issued at September 30, 1997 and
December 31, 1996 respectively) 51 49
Additional paid-in capital 26,624 26,624
Accumulated deficit (29,440) (12,121)
Statutory reserve 5,932 5,932
-------- --------
3,179 20,498
Unrealized gain/(loss) on
short-term investments 5 (11)
Less:
Notes receivable from shareholders 6 6
Treasury stock (at cost; 14,066
shares of Common Stock
at September 30, 1997 and
December 31, 1996, respectively) 207 207
-------- --------
TOTAL SHAREHOLDERS' EQUITY 2,971 20,274
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $54,260 $71,340
======== ========
See accompanying notes to consolidated financial statements.
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- ---------
REVENUE:
Premiums earned $35,033 $39,062 $105,477 $118,825
Administration fee income 8 163 (14) 1,526
Interest and investment
income 372 307 927 1,021
Other income - net 124 (11) 401 780
-------- -------- -------- --------
TOTAL REVENUE 35,537 39,521 106,791 122,152
-------- -------- -------- --------
EXPENSES:
Medical expenses 29,775 35,422 95,356 103,815
General and administrative
expenses 8,896 13,764 24,763 30,043
Depreciation and
amortization expense 872 808 2,752 2,428
Interest expense 416 527 1,239 1,636
Expenses to affiliates - net - 35 - 108
-------- -------- -------- --------
TOTAL EXPENSES 39,959 50,556 124,110 138,030
-------- -------- -------- --------
LOSS BEFORE
INCOME TAXES (4,422) (11,035) (17,319) (15,878)
BENEFIT FOR INCOME TAXES - (4,414) - (6,351)
-------- -------- -------- --------
NET LOSS ($4,422) ($6,621) ($17,319) ($9,527)
======== ======== ======== ========
Primary loss ($0.70) ($1.05) ($2.75) ($1.51)
per share ======== ======== ======== ========
Weighted average common
shares outstanding 6,298 6,298 6,298 6,295
======== ======== ======== ========
Fully diluted loss
per common share ($0.70) ($1.05) ($2.75) ($1.51)
======== ======== ======== ========
Weighted average common
shares outstanding 6,298 6,298 6,298 6,295
======== ======== ======== ========
See accompanying noted to consolidated financial statements.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
---------------------
1997 1996
---- ----
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss ($17,319) ($9,527)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 2,752 2,428
Increase in deferred taxes - (6,351)
Loss on sale of assets and others 99 -
Changes in assets and liabilities:
Decrease in accounts receivable - net 1,401 4,732
(Decrease) increase in medical
costs payable (1,930) 2,612
Increase in New York State
demographic pool 1,017 -
Decrease in accounts receivable-non-
current - net 454 -
Decrease (increase) in other
receivables - net 1,119 (198)
Increase in accounts payable,
accrued expenses and other
current liabilities 46 1,786
Decrease (increase) in taxes
receivable 6,666 (1,792)
(Increase) decrease in prepaid
expenses and other (131) 80
Increase in unearned income 1,618 1,474
(Increase) decrease in advances to
participating providers (329) 807
Decrease (increase) in other non-current
assets - excluding preoperational costs
and accounts and other receivables 162 (702)
Decrease in due to/from
affiliates - net - 223
Other - net (207) (367)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (4,582) (4,795)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (243) (454)
Decrease in notes receivable 607 188
Sale of investments 811 6,639
Purchase of investments - (6,500)
Increase in preoperational costs - (329)
Other investing activities 16 (13)
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,191 (469)
-------- --------
Nine Months Ended
September 30,
---------------------
1997 1996
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable and
long-term debt (529) (11,634)
Proceeds from notes payable and
long-term debt - 21,239
Proceeds from exercise of stock
options - 252
Proceeds from issuance of stock and
treasury stock - net - 5
-------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (529) 9,862
-------- --------
NET (DECREASE) INCREASE IN CASH (3,920) 4,598
CASH, BEGINNING OF PERIOD 7,869 5,456
-------- --------
CASH, END OF PERIOD $3,949 $10,054
======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Income taxes paid $ -0- $1,792
Interest paid 1,099 1,272
See accompanying notes to consolidated financial statements.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1997
(in thousands)
(Unaudited)
Class A Additional
Common Common Paid-In Accumulated Statutory
Stock Stock Capital Deficit Reserve
------- ------- ------- ------- -------
BALANCE, $14 $49 $26,624 ($12,121) $5,932
DEC 31, 1996
Net change of
valuation
allowance on
short-term
investments
Net (loss) ( 13,002)
BALANCE,
MARCH 31, 1997 14 49 26,624 ( 25,123) 5,932
Conversion of
Class A
Common Stock
to Common
Stock (2) 2
Net change of
valuation
allowance
on short-term
investments
Net income 105
BALANCE,
JUNE 30, 1997 12 51 26,624 (25,018) 5,932
Net (loss) (4,422)
BALANCE,
SEP 30, 1997 $12 $51 $26,624 ($29,440) $5,932
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1997
(in thousands)
(Unaudited)
Unrealized Total
Gain/(Loss) Notes Share-
On Short-term Receivables- Treasury holders'
Investments Shareholders Stock Equity
------- ------- ------- -------
BALANCE, ($11) ($6) ($207) $20,274
DEC 31, 1996
Net change of
valuation
allowance on
short-term
investments 12 12
Net (loss) (13,002)
BALANCE,
MARCH 31, 1997 1 (6) (207) 7,284
Conversion of
Class A Common
to Common Stock
Net change of
valuation
allowance
on short-term
investments 4 4
Net income 105
BALANCE.
JUNE 30, 1997 5 (6) (207) 7,393
Net (loss) (4,422)
BALANCE,
SEP 30, 1997 $5 ($6) ($207) $2,971
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q
and, accordingly, do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction
with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996. In the opinion of management,
the accompanying unaudited interim financial statements contain
all adjustments necessary to present fairly the financial position
at September 30, 1997, and the results of operations and cash
flows for the interim periods presented. Operating results for the
interim period are not necessarily indicative of results that may
be expected for the year ending December 31, 1997. Certain
amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
2. MEDICAL EXPENSE
a. In March 1997, the Company received a notice from The New
York State Insurance Department ("NYSID") relating to NYSID's
audit of the New York State market stabilization pool for the
audit years 1993, 1994 and 1995. On April 16, 1997, NYSID advised
the Company of a preliminary assessment, which would have required
a payment of $1.7 million by the Company. Based on this
preliminary assessment, the Company charged medical expense $4.3
million in the quarter ended March 31, 1997. This included the
Company's calculation of the projected impact of the 1993-1995
audit, as well as the potential impact on the 1996 and first
quarter 1997 medical expense. In July 1997, the Company and NYSID
agreed upon a minimum and maximum amount due for the 1993-1995
audit and 1996. As a result, the Company reduced medical expense
by $1.1 million in the quarter ended June 30, 1997 to reflect this
revised assessment. Subsequently, in the third quarter of 1997,
the Company further reduced medical expense $1.3 million to give
effect to the results of ongoing discussions with NYSID.
b. In 1994, two entities which were predecessors to the
regional health care delivery networks with which WellCare of New
York, Inc. ("WCNY") contracted to provide health care services to
WCNY's members (the "Alliances"), made payments of approximately
$2,879,000 to providers in connection with the close out of the
1993 group risk accounts and to resolve certain disputed amounts
between WCNY and certain providers, which payments might otherwise
have been made by WCNY. Additionally, these entities paid
approximately $1,833,000 directly to WCNY in payment of 1993
provider deficits which would otherwise have been due to WCNY
directly from the providers. As originally reported in its 1994
consolidated financial statements, WCNY recorded the $1,833,000
received as a reduction of medical expense, and WCNY did not
record as medical expense the $2,879,000 paid directly to the
providers by these entities.
Subsequently, in 1996, the Company's accounting personnel were
informed that Edward A. Ullmann, the Company's then Chairman of
the Board, Chief Executive Officer and President of the Company,
had guaranteed, in his individual capacity, two loans each in the
amount of $2,700,000, made by banks to these two entities, the
proceeds of which were used to fund the aggregate payments of
$4,712,000 referred to above.
The Company subsequently restated its 1994 consolidated financial
statements to reflect the higher medical expenses and established
a medical expense accrual. As there were no specific accounts
payable by WCNY, this accrual has been reduced concurrently with
the pay down of the bank loans, with a simultaneous reduction in
medical expense. A reduction of medical expense of approximately
$435,000 and $1,780,000 was recorded in the first nine months of
1997 and 1996, respectively. The remaining principal balance of
the outstanding loan, which is in default, is approximately
$116,000 at November 13, 1997. The Company's ability to reduce
future medical expense by the remaining $116,000 is contingent on
this amount being paid.
c. The Alliances commenced operations in the fourth quarter of
1994. Based on information provided to the Company by the
Alliances, the Alliances have operated at a deficit since
inception (the deficit was approximately $17 million at December
31, 1996, based on unaudited information). The deficit is the
result of medical expense obligations assumed from WellCare upon
the formation of the Alliances, actual and estimated but not
incurred medical losses in excess of the amounts initially
estimated and operating losses. The Alliances have financed the
deficits through a combination of borrowings from the Buyer and
the Investor defined in Note 3; lags inherent in the receipt,
adjudication and payment of claims; and the deferral of claim
payments to providers. In addition, a $3,000,000 bank line-of-credit was
entered into by the Buyer on December 28, 1995, which was guaranteed by
Mr. Ullmann in his personal capacity.
On August 1, 1996, the Alliances implemented a fee withhold
program, as permitted under the contracts with its physicians, to
withhold payments otherwise payable to referral physicians by
approximately 15% to 22% depending on the geographic location of
the physician. Management of the Alliances and WellCare believe
that this withhold program, together with general changes in the
management of the Alliances, and the introduction of new provider
reimbursement schedule should enable the Alliances to maintain
their operations and reduce their accumulated deficits in 1997 and
substantially eliminate them in 1998.
The Company had been advised by counsel that it would have no
financial liability to providers with whom the Alliances had
contracted for services rendered in the event the Alliances were
unable to maintain their operations. Further, the Company has
direct contracts with providers which would require the providers
to continue medical care to members on the financial terms similar
to those in the Alliances' agreement with providers, in the event
that the Alliances were unable to maintain their operations.
Nevertheless, in the event of continuing losses or increasing
deficits by the Alliances, the Alliances could request increased
capitation rates from the Company.
Management of the Company does not believe that such additional
financial or increased contractual capitation rates should be
required by the Alliances and has no intention to agree to such
terms if requested by the Alliances beyond the negotiated
contractual increases. Effective September 1, 1996, the Company
entered into a letter of understanding with the Alliances to
restructure its capitation arrangement. In the second quarter of
1996, based on instructions of NYSID, the Company recorded charges
of $3.7 to medical expense for inpatient hospital claims, and
reassumed the risk for certain previously capitated services with
a corresponding reduction in rates. In the third quarter of 1996,
based on the instructions of NYSID, the Company recorded medical
expense of $2.9 million for the period prior to October 1, 1994.
Both of these charges represented obligations which had previously
been assumed by the Alliances. During the second quarter of 1997,
the Company renegotiated and modified the terms of the capitation
agreement, as provided for in the contract, to reflect regulatory
decreases/increases in premium rates and to reflect utilization
trends that affect both the Company and the Alliances.
3. SALE OF WELLCARE MEDICAL MANAGEMENT, INC.
a. June 1995, the Company contributed approximately $5.1
million to its then wholly-owned subsidiary, WellCare Medical
Management, Inc. ("WCMM") which was engaged in managing physician
practices and then sold the assets of WCMM for cash of $.6 million
and a note receivable of $5.1 million. The buyer (the "Buyer")
which was newly formed, to acquire WCMM, is in the business of
managing medical practices and providing related consultative
services, and entered into agreements to manage the Alliances.
The Company also received a five-year option to acquire the Buyer,
which option was canceled in 1996. The note receivable bears
interest at a rate equal to prime plus 2% (10.5% at September 30,
1997) with interest payable monthly through July 31, 1996 and,
thereafter, principal and interest monthly through July 31, 2000.
The Buyer has paid interest only through January 1996.
The Company has also advanced $3.4 million to the Buyer ($.6
million in 1997, $2.1 million in 1996 and $.7 million in 1995) for
operating expenses and unpaid interest, which obligations are
documented by notes of $215,000 and $2.1 million and interest
receivable of $1.1 million. The note for $215,000 bears interest
at a rate equal to prime plus 2% (10.5% at September 30, 1997) and
was due December 31, 1996. No payments of principal have been
made on this note, nor payments of interest beyond May 1996.
On February 19, 1997, the Buyer executed the promissory note in
the amount of $2.1 million, bearing interest at the rate of prime
plus 2% (10.5% at September 30, 1997), with repayment of the
principal over 36 months, starting upon the occurrence of certain
events explained below (no interest has been paid on this
obligation). Subsequently, on February 26, 1997, the Buyer
entered into an Option Agreement with a potential investor (the
"Investor"), whereby the Investor agreed to lend the buyer up to
$4,000,000 ($3.5 million of which has been received as of November
11, 1997) and received an option to merge with the Buyer,
exercisable during the period from March 15, 1998 through March
15, 1999. Concurrently, WellCare entered into an agreement with
the Buyer whereby WellCare agreed to forbear on the collection of
principal and interest on the note for $5.1 million, and on the
collection of principal of the $2.1 million note, in exchange for
the right to convert the $5.1 million note into 43% of the Common
Stock of the company resulting from the merger of the Investor and
the Buyer. In the event the Investor merges with the Buyer, the
$2.1 million note would be payable immediately, and the Company
would have a 43% equity interest in the company resulting from the
merger of the Investor and the Buyer. At the earlier of the Buyer
relinquishing its option to merge, or March 14, 1999, the
forbearance will be rescinded and the original payment terms of
the $5.1 million note reinstated. The Buyer would be obligated to
pay monthly interest on the $2.1 million note, with principal
payments over a thirty-six month period to commence upon recession
of the forbearance. The notes are subordinated to the Investor's
and Key Bank's security interest.
In view of the Buyer's operating losses and advances to the
Alliances, the Company had obtained from certain of the Buyer's
equity holders personal guarantees of the original note and
pledges of collateral to secure these guarantees. On April 19,
1997, the Company's Board of Directors agreed to release these
guarantees and related collateral pledged by the guarantors to
secure the guarantees in exchange for the Buyer's stock options
that such guarantors originally received from the Buyer and a
release from the guarantors for any potential claims against
WellCare associated with the transactions. In view of the Buyer's
financial condition and difficulties inherent in the collection of
personal guarantees and realization of collateral, and the Buyer's
default on the payments of the notes, the Company had fully
reserved in 1995 the original $5.1 million note receivable, plus
the $.7 million advanced in 1995. In 1996, the Company
established an additional net reserve of $1.9 million for the
$215,000 note, interest accrued on the notes, and advances
receivable, net of the deferred gain on the original sale. In
1997, the Company has established a reserve of $.6 million for
1997 accrued interest not paid by the Buyer and for advances made
in 1997.
b. In the third quarter of 1997, the Company established a
provision of $1.2 million to reserve notes, premiums and other
accounts receivables from several practice sites previously
managed by the Buyer. These receivables reflect advances and
extended credit terms provided to these sites in 1996 and 1997.
The provision is included in General and Administrative Expenses.
The Buyer is negotiating the sale of the practices to independent
third parties. Management anticipates that the proceeds from the
sales will be used to repay the receivables from the medical
sites.
4. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost net of accumulated
depreciation. Some of the real estate held and used in the day to
day operations of the Company was recently appraised for Key Bank
(see Note 6, "Long Term Debt") with respect to the Company's
mortgage obligations which are current. The valuations used by
the Bank are being reviewed by the Company to determine the
appropriateness of the methodologies used and the conclusions
reached. The carrying values of the respective properties at
September 30, 1997 exceeded the valuation amounts by approximately
$2.8 million.
Management has applied the criteria of FASB's SFAS No. 121 -
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", and believes that the future operations of the Company
and the future cash flows to be generated from operations will be positive,
therefore, no impairment reserve has been recorded with respect to the
underlying properties. Management will closely monitor the need
for future adjustments to the carrying value.
5. SHORT-TERM INVESTMENTS
The Company has determined that its short-term investments,
consisting primarily of state and municipal obligations, might be
sold prior to maturity to support the Company's investment
strategies. Such investments have, therefore, been classified as
available for sale. Available for sale securities are valued at
market. The separate component of shareholders' equity
representing unrealized gains or losses on investments available
for sale was a gain of approximately $5,000 at September 30, 1997
and a loss of approximately $11,000 at December 31, 1996.
6. LONG-TERM DEBT
Although the Company was current on all its mortgage obligations,
on July 28, 1997, Key Bank (the "Bank") notified the Company that
it considered the Company not in compliance with the Target Loan
to Value Ratio provided for in two of its mortgages, with
outstanding balances of approximately $4.9 million. According to
the Bank's calculations, the outstanding Loan Amount exceeded the
corresponding Lendable Property Value, as defined, based on
appraisals prepared for the Bank, by approximately $1.7 million.
The Bank had requested that the Company either reduce the
outstanding obligation, or provide additional collateral for $1.7
million. The Bank indicated that if not cured by August 15, 1997,
the Bank would have considered the Company in default of the
mortgage notes. A default would require the Company to pay a
higher interest rate on the outstanding obligations, among other
potential penalties. The Company has requested certain underlying
documents from the Bank with respect to the valuations, and has
asked the Bank for an extension of time to respond and cure the
asserted non-compliance. The Bank subsequently granted an
extension to September 3, 1997. The Company disagrees with the
Bank's valuation methodology and has informed the Bank in writing
of this disagreement. The Bank has not responded in writing to
the Company. The Company continues to classify the debts in
accordance with their original terms.
7. SUBORDINATED CONVERTIBLE NOTE
On January 19, 1996, the Company completed a private placement of
a subordinated convertible note in the principal amount of
$20,000,000 (the "Note") due December 21, 2002, with The 1818 Fund
II, L.P. (the "Fund"), a private equity fund managed by Brown
Brothers Harriman & Co. ("BBH & Co."). Pursuant to the terms of
the Note Purchase Agreement dated January 19, 1996 (the
"Agreement"), entered into between the Company and the Fund, the
Company issued a Note dated January 19, 1996, in the principal
amount of $20,000,000 payable to the order of the Fund or its
registered assignees. On February 28, 1997, the Fund and the
Company amended the Agreement and the Note (such amendments
together with the concurrent amendment to the related registration
rights agreement between the parties, the "Amendment").
As of September 30, 1997, the Company is in default of certain
provisions of the Agreement and the Amendment, including the
requirements to maintain a minimum tangible net worth as defined
in the amended Agreement. The Company is seeking to renegotiate
amendments of certain terms which it believes will cure any
default provisions. In anticipation of successful renegotiation,
the Company continues to classify this obligation as long term.
8. INCOME TAXES
At December 31, 1996, the Company recorded a deferred tax asset of
approximately $5.4 million giving recognition to the future tax
benefit of reversing temporary differences and state net
operations loss carryovers ("NOL"). No valuation allowance was
established for the deferred tax asset since realization was
determined by management to be more likely than not based upon the
Company's internal budgets. The maximum utilization period for
the NOL's are fifteen (15) and five (5) years for New York and
Connecticut, respectively.
Continuing operating losses during the first nine months of 1997
resulted in additional deferred tax benefits of approximately $6.9
million. Although the Company believes that future profitable
operations will be achieved, the Company has provided a 100%
valuation allowance with respect to these additional deferred tax
assets in view of their size and length of the expected recoupment
period. Management will continue to closely monitor the need for
future adjustments to this valuation allowance.
9. STOCK OPTIONS
The Company's 1993 Incentive and Non-Incentive Stock Option Plan
(the "Plan"), as amended, has 820,904 shares reserved for
issuance, as of September 30, 1997, upon exercise of options
granted or to be granted.
Options to purchase 612,604 shares of Common Stock at exercise
prices ranging from $4.38 to $24.50 per share were outstanding
under the Plan on September 30, 1997. No options were granted in
the third quarter of 1997. Of the total options outstanding at
September 30, 1997, options to purchase 356,653 shares were
exercisable.
The Company's 1996 Non-Incentive Executive Stock Option Plan
("Non-Incentive Plan") has 650,000 shares reserved for issuance as
of September 30, 1997, upon exercise of options granted or to be
granted. Options to purchase 600,000 shares of Common Stock
(consisting of two grants, one covering 450,000 shares and the
other 150,000 shares), which were granted on December 31, 1996,
were outstanding under the Non-Incentive Plan at September 30,
1997. None of the options were exercisable. The option to
purchase 450,000 shares has a five-year term and is exercisable at
$10.00 per share commencing November 23, 2001 or earlier only upon
the occurrence of any of the following events: (a) the Company's
Common Stock trades for a thirty (30) consecutive day period at or
above $20.00 per share (the "Accelerated Performance Price") or
$17.50 per share in the event of a change of control of the
Company (the "Change of Control Price") or (b) the option holder's
death or disability. The option to purchase 150,000 shares has
identical terms except that the exercise price is $15.00 per
share, the Accelerated Performance Price is $25.00 per share and
the Change of Control Price is $22.50 per share. There were no
options granted in the third quarter of 1997.
The Company has adopted the disclosure-only provisions of the
FASB's SFAS No. 123, "Accounting for Stock Based Compensation"
("SFAS 123"). Accordingly, no compensation cost has been
recognized for grants or stock options.
10. COMMITMENTS AND CONTINGENCIES
a. Effective October 1, 1994, WCNY changed its capitation
arrangement with the majority of its providers from capitating
primary care physicians with attendant risk-sharing to capitating
the Alliances comprised of the specialists and previously-capitated
primary care physicians. The Alliances have operated at
a deficit since inception but have recently instituted measures
designed to reduce these deficits and achieve profitability. The
Alliance could request additional funding beyond the contractual
increases described in Note 1a of "Notes to Consolidated Financial
Statements" of the Company's Annual Report on Form 10-K, from the
Company which management does not believe should be required and,
if requested, by the Alliances does not intend to provide. (As of
November 11, 1997, the Alliances had received a $3.5 million cash
infusion from the Buyer which in turn received a like amount from
the Investor, as discussed in Note 3.)
b. Between April 1, 1996 and June 6, 1996, the Company, its
former President and Chief Executive Officer, and its former Vice
President of Finance and Chief Financial Officer were named as
defendants in twelve separate actions filed in Federal Court (the
"Securities Litigations"). An additional three directors were
also named in one of these actions. Plaintiffs sought to recover
damages allegedly caused the Company's defendants' violations of
federal securities laws with regard to the preparation and
dissemination to the investing public of false and misleading
information concerning the Company's financial condition.
On July 3, 1996, the Securities Litigations were consolidated in
the United States District Court for the Northern District of New
York, and an amended consolidated complaint (the "Complaint") was
served on August 21, 1996. The Complaint did not name the three
additional directors. The Company's auditor, however, was named
as an additional defendant. On October 23, 1996, the Company
filed a motion to dismiss the consolidated amended complaint
against the Company as well as the individual defendants. The
Company's auditor likewise filed its own motion to dismiss. By
Memorandum Decision and Order (the "Order"), entered on April 30,
1997, the Court (i) granted the auditor's motion to dismiss and
ordered that the claims against the auditors be dismissed with
prejudice; and (ii) denied the motion to dismiss brought by the
individual defendants. Because the Order did not specifically
address the Company's motion to dismiss, on May 14, 1997, the
Company moved for reconsideration of its motion to dismiss and
dismissal of all claims asserted against it. On reconsideration,
the judge clarified his previous ruling expanding it to include a
denial of the Company's motion as well. Following the Court's
decision, the Company filed its answer and defenses to the
Complaint. On September 26, 1997, the plaintiffs' class was
certified and the parties are currently actively engaged in the
discovery process of the litigation.
Although management is unable to predict the likelihood of success
on the merits of the consolidated class action, it has instructed
its counsel to vigorously defend its interests. To date, the
Company has indemnified the former Chairman of the Board, Chief
Executive Officer and President and the former Vice President of
Finance and Chief Financial Officer for costs incurred in
defending the Securities Litigations. The Company has insurance
in effect which may, at least in part, offset any costs to be
incurred in these litigations.
c. The Company and certain of its subsidiaries, including WCNY,
have responded to subpoenas issued in April and August 1997 from
the United States District Court for the Northern District of New
York through the office of the United States Attorney for that
District. These subpoenas sought the production of various
documents concerning financial and accounting systems, corporate
records, press releases and other external communications. While
the United States Attorney has not disclosed the purpose of its
inquiry, the Company has reason to believe that neither its
current management nor its current directors are subjects or
targets of the investigation. The Company has informed the
government that it will continue to cooperate fully in any way
that it can in connection with the ongoing investigation.
d. On July 31, 1996 and October 3, 1996 the Securities and
Exchange Commission issued subpoenas to the Company for the
production of various financial and medical claims information.
The Company fully complied with both of these subpoenas.
e. Other - The Company is involved in litigation and claims
which are considered normal to the Company's business. In the
opinion of management, the amount of loss that might be sustained,
if any, would not have a material effect on the Company's
consolidated financial statements.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including short-term
investments, advances to participating providers, other
receivables - net, restricted cash, other non-current assets -
net, and accounts payable and accrued expenses, approximate their
fair value.
The fair value of notes receivable consisting primarily of
advances to medical practices, is not materially different from
the carrying value for financial statement purposes. In making
this determination, the Company used interest rates based on an
estimate of the credit worthiness of each medical practice.
The Subordinated Convertible Note was issued in a private
placement on January 19, 1996, and amended with the holder on
February 28, 1997, as described in Note 7. There is no public
market for this instrument or other debt of the Company and
management believes it is not practicable to estimate its fair
value at this time. The carrying amount of other long-term debt,
the majority of which bears interest at floating rates, are
assumed to approximate their fair value.
12. EARNINGS/(LOSS) PER SHARE
Primary earnings/(loss) per common share are computed by dividing
the net income/(loss) by the weighted average number of shares
outstanding during the period. On a fully diluted basis, both net
earnings and the shares outstanding are adjusted to assume the
conversion of the subordinated convertible debt and stock options.
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and notes
thereto, included in the quarterly report and with the Company's
Annual report on Form 10-K for the year ended December 31, 1996.
Certain statements in this Form 10-Q are forward-looking
statements, and are not based on historical facts but are
management's projections or best estimates. Actual results may
differ from these projections due to risks and uncertainties.
These risks and uncertainties include a variety of factors. The
Company's results of operations depend in large part of accurately
predicting and effectively managing medical costs and other
operating expenses. A variety of factors including: competition,
changes in health care practices, changes in federal or state laws
and regulations or the interpretations thereof, inflation,
provider contract changes, new technologies, government imposed
surcharges, taxes or assessments, reductions in provider payments
by governmental payors, the exercise of the Investor's option to
merge with the Buyer (refer to Note 3 of the Financial
Statements), the ability to satisfy statutory net worth
requirements, major epidemics, disasters and numerous other
factors affecting the delivery and cost of health care, such as
major health care providers' inability to maintain their
operations and reduce or eliminate their accumulated deficits, may
in the future affect the Company's ability to control its medical
costs and other operating expenses. Governmental action
(including downward adjustments to premium rates requested by the
Company, which could result in adjustments to premium rates
requested by the Company, which could result in adjusted rates
lower than premium rates then in effect) or business conditions
(including intensification of competition and other factors
described above) could result in premium revenues not increasing
to thus offset any increases in medical costs and other operating
expenses. Once set, premiums are generally fixed for one year
periods and, accordingly, unanticipated costs during such periods
cannot be recovered through higher premiums. The expiration,
suspension or termination of contracts to provide health coverage
for governmental entities or other significant customers would
also negatively impact the Company. Due to these factors and
risks, no assurance can be given with respect to the Company's
premium levels or its ability to control its medical costs.
The following table provides certain statement of operations data
expressed as a percentage of total revenue and other statistical
data for the periods indicated:
<PAGE>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenue:
Premiums earned 98.6% 98.8% 98.8% 97.3%
Interest and
other income 1.4 1.2 1.2 2.7
TOTAL REVENUE 100.0 100.0 100.0 100.0
Expenses:
Hospital services 24.9 20.2 24.3 23.3
Physician services 60.6 67.0 59.9 60.0
Other medical services (1.8) 2.5 5.1 1.7
TOTAL MEDICAL SERVICES 83.7 89.7 89.3 85.0
General and administrative 25.0 34.8 23.2 24.6
Depreciation and
amortization 2.5 2.0 2.6 2.0
Interest and other expenses 1.2 1.4 1.1 1.4
TOTAL EXPENSES 112.4 127.9 116.2 113.0
Loss before income taxes (12.4) (27.9) (16.2) (13.0)
Benefits for income taxes - (11.2) - (5.2)
Net loss (12.4%) (16.7%) (16.2%) (7.8%)
STATISTICAL DATA:
HMO member months 224,177 268,062 684,202 817,407
enrollment
Medical loss ratio (1) 85.0% 90.7% 90.4% 87.4%
General and administrative
ratio (2) 25.0% 34.8% 23.2% 24.6%
- ------------------------------
(1) Medical expenses as a percentage of premiums earned; reflects
the combined rates of commercial, Medicaid, Full-Risk Medicare
and Medicare supplemental members.
(2) General and administrative expenses as a percentage of total
revenue.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1996
Premiums earned in the third quarter of 1997 decreased by 10.3% or
$4.0 million, to $35.0 million from $39.0 million in the third
quarter of 1996. Commercial premium revenue decreased 30.0% or
approximately $8.5 million, as a result of 32.5%, or $9.2 million,
decrease in member months, partially offset by a 3.5% increase in
average rates. Medicaid premium revenue remained the same. An
increase of 13.3%, or $.9 million, in member months was offset by
an 11.6% decrease in average rates. Medicare premium revenue
increased 119.2%, or $4.5 million, because of a 137.6% increase,
or $5.2 million in member months, partially offset by a reduction
in average rates of 7.7%, or $.7 million.
Interest and other income increased by 13.0%, or $.1 million, to
$.5 million in the third quarter of 1997. This increase was
primarily due to increases in insurance reimbursements and
interest income, partially offset by reductions in management
fees.
Medical expenses decreased 15.9% or $5.6 million, to $29.8
million, from $35.4 million in the third quarter of 1996. On a per
member per month basis this cost remained constant, with a
decrease as a percentage of premiums earned (the "medical loss
ratio") from 90.7% in the third quarter of 1996 to 85.0% in the
third quarter of 1997. The decrease in 1997 medical expenses from
1996 is primarily due to reduced membership and better utilization
management, partially offset by increases attributable to a change
in product mix. Medical expenses for the third quarter of 1997
included a charge of $2.2 million for adverse development relating
to 1996 and the first six months of 1997 medical claim reserves,
partially offset by a reduction of $1.3 million in the estimated
liability relating to the NYSID's audit of the 1993-1995
demographic pool and the 1996 demographic pool. The adverse
development was primarily due to payment of previously denied
claims which were subsequently appealed and settled in favor of
medical providers. The Company's adherence to its claims denial
policy, starting in April 1997, resulted in a subsequent increase
in appeals and, in some cases, payment of previously denied
claims. In the absence of charges relating to the prior periods,
the medical expenses for the third quarter of 1997 would have been
$28.9 million and the medical loss ratio would have been 82.6%.
The third quarter of 1996 included a one-time $2.9 million charge
to reflect the reassuming of the cost of unpaid claims for the
period prior to October 1, 1994, as instructed by the NYSID.
Without this expense, the medical loss ratio would have been
83.2%.
General and administrative ("G&A") expenses decreased 35.4% or
$4.9 million, to $8.9 million, from $13.8 million in the third
quarter of 1996. The decrease in G&A expenses resulted primarily
from a decrease of $4.2 million in the provision for doubtful
trade and other receivables; a decrease of $.4 million in payroll
and labor related expenses because of reduced staffing levels; and
a decrease of $.3 million in miscellaneous expenses.
Depreciation expense increased by 7.8% or $.1 million, in the
third quarter of 1997 reflecting the impact of the amortization of
preoperational costs associated with service area and product line
expansion. Interest expense decreased $.1 million because of the
retirement of the Key Bank debt during the fourth quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 1996
Premiums earned in the first nine months of 1997 decreased by
11.2%, or $13.3 million, to $105.5 million from $118.8 million in
the first nine months of 1996. Commercial premium revenue
decreased 28.6%, or $26.0 million, because of a 29.3%, or $26.6
million, decrease in member months, partially offset by a .9%
increase in average rates. Medicaid premium revenue decreased
0.8%, or $.2 million, as a result of a 6.7% decrease in average
rates, partially offset by a 8.0% increase in member months.
Medicare premium revenue increased 163.3%, or $12.5 million, due
to a 182.7% increase in member months, partially offset by a
reduction in average rates of 6.9%, or $1.5 million.
Interest and other income decreased by 58.6%, or $1.9 million, to
$1.4 million in the first nine months of 1997. This decrease is
primarily due to reductions in management fees, insurance
reimbursements and interest income.
Medical expenses decreased 8.1% or $8.5 million, to $95.3 million
in the first nine months of 1997, from $103.8 million for the nine
months in 1996. There was a 9.7% increase on a per member per
month basis and an increase as a percentage of premiums earned
(the "medical loss ratio") from 87.4% in the first nine months of
1996 to 90.4% in the first nine months of 1997. The decrease in
medical expenses from 1996 is primarily due to decreased
membership and better utilization management, offset by increases
attributable to a change in product mix. Year-to-date 1997
medical expenses included a $2.8 million charge for adverse
development relating to 1996 medical claim reserves and a $1.9
million charge for the estimated liability related to the NYSID's
audit of the 1993-1995 demographic pool and the 1996 demographic
pool. In the absence of such additional expenses, medical
expenses would have been $90.6 million and the medical loss ratio
would have been 85.9%. The nine months in 1996 included the
recording as instructed by the NYSID of medical expense of (i)
approximately $3.7 million relating to unpaid inpatient hospital
claims at June 30, 1996 and (ii) approximately $2.9 million
relating to unpaid claims for the period prior to October 1, 1994,
which costs had previously been assumed by the Alliances. In the
absence of such additional expenses, medical expenses would have
been $97.2 million, and the medical loss ratio would have been
81.8%.
General and administrative ("G&A") expenses decreased 17.6%, or
$5.3 million, to $24.8 million from $30.1 million in the first
nine months of 1996. The decrease in G&A expenses is the net
result of a decrease of $2.3 million in the provision for doubtful
trade and other receivables; a decrease of $1.2 million in
advertising, promotional and communication costs; a decrease of
$.9 million in payroll and labor related expenses because of
reduced staffing levels; and a decrease of $.9 million in
extraordinary legal and other professional services primarily
related to class action litigation. It is anticipated that legal
costs will increase during the normal progression of the class
action litigation.
Depreciation and amortization increased by 13.3% or $.3 million,
in the first nine months of 1997 due primarily to amortization of
preoperational costs associated with service area and product line
expansion. Interest and other expenses decreased by 25.3%, or $.4
million, in the first nine months of 1997 due primarily to
retirement of the Key Bank debt during the fourth quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $4.6 million during the
first nine months of 1997, as compared to net cash used by
operations of $4.8 million for the first nine months of 1996. The
cash used in operations in the first nine months of 1997 resulted
from the Company's cash operating loss of $14.5 million, partially
offset by the collection of tax refunds of $6.6 million,
reductions in receivables of $2.8 million, and an increase in
unearned income of $1.6 million, offset by a decrease in medical
costs payable of $.9 million. Cash used for capital expenditures
was approximately $.2 million during the first nine months of
1997, as compared to $.5 million for the same period in 1996.
New York State certified HMOs are required to maintain a cash
reserve equal to the greater of 5% of expected annual medical
costs or $100,000. Additionally, WCNY is required to maintain a
contingent reserve equal to at least 1% of premiums earned
limited, in total, to a maximum of 5% of premiums earned for the
most recent calendar year and which may be offset by the cash
reserve. The cash reserve is calculated at December 31st of each
year and is maintained throughout the following calendar year. At
September 30, 1997, WCNY had required cash reserves of $6.7
million and a contingent reserve of $5.9 million, which was fully
offset by the cash reserve. In the event the contingent reserve
exceeds the required cash reserve, the excess of the contingent
reserve over the required cash reserve would be required to be
maintained.
In June 1997, the Company loaned $3.1 million to WCNY under the
provisions of Section 1307 of the New York State Insurance Law.
The principal and interest are treated as equity capital for
regulatory purposes and are repayable out of the free and
divisible surplus, subject to the prior approval of the
Superintendent of Insurance of the State of New York.
At September 30, 1997, the statutory net worth of WellCare of New
York ("WCNY"), the Company's wholly-owned subsidiary, was not in
compliance with the requirements of the New York State Insurance
Department. WCNY management will discuss with the NYS regulators
its plans to meet its statutory obligations.
At September 30, 1997, the statutory net worth of WellCare of
Connecticut, Inc. ("WCCT"), the Company's wholly-owned subsidiary,
was not in compliance with the requirements of the Connecticut
Insurance Department. WCCT management will discuss with the state
regulators its plans to meet its statutory obligations.
At September 30, 1997, the Company has a working capital
deficiency of $2.2 million, excluding the $6.7 million cash
reserve required by New York State which is classified as a
non-current asset, compared to working capital of $11.2 million at
December 31, 1996; the decrease is attributed primarily to the
losses incurred by the Company during the nine months ended
September 30, 1997. The Company intends to finance its current
and future operations by returning to profitability via increased
sales, rate increases and further reductions in medical expense,
and the proceeds anticipated upon the successful completion of the
merger between the Buyer and Investor, as discussed in Note 3a.
At September 30, 1997, the Company had total mortgage indebtedness
of $6.0 million outstanding on five of its office buildings, of
which approximately $.8 million is due February 1, 1999,
approximately $4.1 million is due on January 1, 2000,
approximately $.8 is due March 1, 2000, and approximately $.3 due
on March 1, 2001.
Although the Company was current on all its mortgage obligations,
on July 28, 1997, Key Bank (the "Bank") notified the Company that
it considered the Company not in compliance with the Target Loan
to Value Ratio provided for in two of its mortgages, with
outstanding balances of approximately $4.9 million. According to
the Bank's calculations, the outstanding Loan Amount exceeded the
corresponding Lendable Property Value, as defined, based on
appraisals prepared for the Bank, by approximately $1.7 million.
The Bank had requested that the Company either reduce the
outstanding obligation, or provide additional collateral for $1.7
million. The Bank indicated that if not cured by August 15, 1997,
the Bank would have considered the Company in default of the
mortgage notes. A default would require the Company to pay a
higher interest rate on the outstanding obligations, among other
potential penalties. The Company has requested certain underlying
documents from the Bank with respect to the valuations, and has
asked the Bank for an extension of time to respond and cure the
asserted non-compliance. The Bank subsequently granted an
extension to September 3, 1997. The Company disagrees with the
Bank's valuation methodology and has informed the Bank in writing
of this disagreement. The Bank has not responded in writing to
the Company. The Company continues to classify the debts in
accordance with their original terms.
PART II - OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
a. Between April 1, 1996 and June 6, 1996, the Company, its
former President and Chief Executive Officer, and its former Vice
President of Finance and Chief Financial Officer were named as
defendants in twelve separate actions filed in Federal Court (the
"Securities Litigations"). An additional three directors were
also named in one of these actions. Plaintiffs sought to recover
damages allegedly caused by the Company's defendants' violations
of federal securities laws with regard to the preparation and
dissemination to the investing public of false and misleading
information concerning the Company's financial condition.
On July 3, 1996, the Securities Litigations were consolidated in
the United States District Court for the Northern District of New
York, and an amended consolidated complaint (the "Complaint") was
served on August 21, 1996. The Complaint did not name the three
additional directors. The Company's auditor, however, was named
as an additional defendant. On October 23, 1996, the Company
filed a motion to dismiss the consolidated amended complaint
against the Company as well as the individual defendants. The
Company's auditor likewise filed its own motion to dismiss. By
Memorandum Decision and Order (the "Order"), entered on April 30,
1997, the Court (i) granted the auditor's motion to dismiss and
ordered that the claims against the auditors be dismissed with
prejudice; and (ii) denied the motion to dismiss brought by the
individual defendants. Because the Order did not specifically
address the Company's motion to dismiss, on May 14, 1997, the
Company moved for reconsideration of its motion to dismiss and
dismissal of all claims asserted against it. On reconsideration,
the judge clarified his previous ruling expanding it to include a
denial of the Company's motion as well. Following the Court's
decision, the Company filed its answer and defenses to the
Complaint. On September 26, 1997, the plaintiffs' class was
certified and the parties are currently actively engaged in the
discovery process of the litigation.
Although management is unable to predict the likelihood of success
on the merits of the consolidated class action, it has instructed
its counsel to vigorously defend its interests. The Company has
insurance in effect which may, at least in part, offset any costs
to be incurred in these litigations.
b. The Company and certain of its subsidiaries, including
WellCare of New York, Inc. have responded to subpoenas issued in
April and August 1997 from the United States District Court for
the Northern District of New York through the office of the United
States Attorney for that District. These subpoenas sought the
production of various documents concerning financial and
accounting systems, corporate records, press releases and other
external communications. While the United States Attorney has not
disclosed the purpose of its inquiry, the Company has reason to
believe that neither its current management nor its current
directors are subjects or targets of the investigation. The
Company has, however, informed the government that it will
continue to cooperate fully in any way that it can in connection
with the ongoing investigation.
c. On July 31, 1996 and October 3, 1996 the Securities and
Exchange Commission issued subpoenas to the Company for the
production of various financial and medical claims information.
The Company fully complied with both of these subpoenas on August
21, 1996 and October 31, 1996.
Item 2 CHANGES IN SECURITIES
Not Applicable
Item 3 DEFAULTS UPON SENIOR SECURITIES
As of September 30, 1997, the Company is in default of certain
provisions of the Note Purchase Agreement, and its Amendment,
between the Company and The 1818 Fund II, L.P. (See Note 7 under
Item 1), including the requirement to maintain a minimum tangible
net worth as defined in the amended Agreement. The Company is
seeking to renegotiate amendments of certain terms which it
believes will cure any default provisions. In anticipation of
successful renegotiation, the Company continues to classify this
obligation as long-term.
Although the Company was current on its mortgage obligations, on
July 28, 1997, Key Bank (the "Bank") notified the Company that it
considered the Company not in compliance with the Target Loan to
Value Ratio provided for in two of its mortgages, with outstanding
balances of approximately $4.9 million (see Note 6 under Item 1).
The Bank had requested that the Company either reduce the
outstanding obligation, or provide additional collateral, in the
amount of approximately $1.7 million, by August 15, 1997. The
Company requested and the Bank subsequently granted an extension
to September 3, 1997. The Company disagrees with the Bank's
valuation methodology and has informed the Bank in writing of this
disagreement. The Bank has not responded in writing to the
Company. The Company continues to classify the debts in
accordance with their original terms.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5 OTHER INFORMATION
The Company's common stock was listed on the Nasdaq SmallCap
Market, effective October 30, 1997. Previously, the stock had
been listed on the Nasdaq National Market. This change was based
on the Company not maintaining the net tangible assets requirement
currently applicable to companies for continued listing on the
Nasdaq National Market. Continued listing on the Nasdaq SmallCap
Market is dependent on the Company satisfying the $1 million
capital and surplus maintenance requirement.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.2c Copy of Registrant's Amended By-Laws
(As Amended June 10, 1997)
Exhibit 11 Computation of Net Income Per Share of Common
Stock
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1932, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The WellCare Management Group, Inc.
By: /s/ Joseph R. Papa
Joseph R. Papa
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Howard B. Lorch
Howard B. Lorch
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 14, 1997
<PAGE>
INDEX TO EXHIBITS
All exhibits below are filed with this Quarterly Report of Form
10-Q:
EXHIBIT NUMBER
- --------------
3.2c Copy of Registrant's Amended By-Laws
(As Amended June 10, 1997)
11 Computation of Net Income Per Share of Common
Stock
27 Financial Data Schedule
<PAGE>
EX-3.2c Copy of Registrants Amended By-Laws
(As Amended June 10, 1997)
BY-LAWS
OF
THE WELLCARE MANAGEMENT GROUP, INC.
(AS AMENDED JUNE 10, 1997)
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the
shareholders of The WellCare Management Group, Inc. (the
"Corporation") shall be held either within or without the State of
New York, at such place and at such time as the Board of Directors
may designate and set forth in the call or in a waiver of notice
thereof, for the purpose of electing directors and for the
transaction of such other business as may properly be brought
before the meeting, and except as otherwise designated by the
Board of Directors and stated in the notice of the meeting, the
annual meeting of the shareholders shall be held on the first
Monday in June in each year, if not a legal holiday, and if a
legal holiday, then on the next business day following, at 6:00
p.m., at which meeting the shareholders shall elect a Board of
Directors for the ensuing year and transact such other business as
may properly be brought before the meeting.
Section 2. Proposed Business at Annual Meeting. No
business may be transacted at an annual meeting of shareholders,
other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction
of the Board of Directors (or any duly authorized committee
thereof), which shall include shareholder proposals contained in
the Corporation's proxy statement made in accordance with
Rule 14a-8 of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), or any successor thereto, or (b) otherwise
properly brought before the annual meeting by or at the direction
of the Board of Directors (or any duly authorized committee
thereof).
Section 3. Special Meetings. Special Meetings of the
shareholders, for any purpose or purposes, may be called at any
time by resolution of the Board of Directors or by the President,
and shall be called by the President or by the Secretary upon the
written request of the holders of record of the issued and
outstanding shares entitled to cast at least twenty percent (20%)
of the total number of votes entitled to be cast by shareholders
at such meeting, at such times and at such place either within or
without the State of New York as may be stated in the call or in a
waiver of notice thereof. Business transacted at any special
meeting shall be limited to the purposes stated in the notice.
Section 4. Notice of Meetings. Notice of the time,
place and purpose of every meeting of shareholders shall be
delivered personally or by first class mail, not less than ten
(10) days nor more than fifty (50) days previous thereto, or by
third class mail, not less than twenty-four (24) days nor more
than fifty (50) days before the meeting, to each shareholder of
record entitled to vote, at his post office address appearing upon
the records of the Corporation or at such other address as shall
be furnished in writing by him to the Corporation for such
purpose. Such further notice shall be given as may be required by
law or by these By-Laws. Any meeting may be held without notice
if all shareholders entitled to vote are present in person or by
proxy, or if notice is waived in writing, either before or after
the meeting, by those not present. The attendance of any
shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting lack of notice
of such meeting, shall constitute a waiver of notice by such
shareholder.
Section 5. Quorum. The holders of record of at least
a majority of the shares of the stock of the Corporation, issued
and outstanding and entitled to vote, present in person or by
proxy, shall, except as otherwise provided by law or by these By-Laws,
constitute a quorum at all meetings of the shareholders; if
there be no such quorum, the holders of a majority of such shares
so present or represented may adjourn the meeting from time to
time until a quorum shall have been obtained.
Section 6. Organization of Meetings. Meetings of the
shareholders shall be presided over by the Chairman of the Board,
if there be one, of if he is not present by the President, or if
he is not present by a chairman to be chosen at the meeting. The
Secretary of the Corporation, or in his absence an Assistant
Secretary, shall act as Secretary of the meeting, if present.
Section 7. Voting. At each meeting of shareholders,
except as otherwise provided by statute, every holder of record of
stock entitled to vote shall be entitled to cast the number of
votes to which shares of such class or series are entitled as set
forth in the Certificate of Incorporation or any Certificate of
Amendment with respect to any preferred stock, in person or by
proxy for each share of such stock standing in his name on the
records of the Corporation. Elections of directors shall be
determined by a plurality of the votes cast thereat and, except as
otherwise provided by statute, the Certificate of Incorporation,
or these By-Laws, all other action shall be determined by a
majority of the votes cast at such meeting. Each proxy to vote
shall be in writing and signed by the shareholder or by his duly
authorized attorney.
At all elections of directors, the voting shall be by
ballot or in such other manner as may be determined by the
shareholders present in person or by proxy entitled to vote at
such election. With respect to any other matter presented to the
shareholders for their consideration at a meeting, any shareholder
entitled to vote may, on any question, demand a vote by ballot.
A complete list of the shareholders as of the record
date, certified by the Secretary or the transfer agent of the
Corporation, shall be produced at any meeting of shareholders upon
the request thereat or prior thereto of any shareholder.
Section 8. Action by Consent. Any action required
or permitted to be taken at any meeting of shareholders may be
taken without a meeting, if, prior to such action, a written
consent or consents thereto setting forth such action, is signed
by the holders of record of all of the shares of the stock of the
Corporation, issued and outstanding and entitled to vote.
ARTICLE II
DIRECTORS
Section 1. Number, Quorum, Term. The number of
directors of the Corporation shall be fixed in the manner provided
in the Certificate of Incorporation.
A majority of the members of the Board of Directors
then holding office shall constitute a quorum for the transaction
of business, but if at any meeting of the Board there shall be
less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have
been obtained.
Directors shall hold office until the next annual
meeting of shareholders and until their successors have been duly
elected and qualified, unless sooner removed in accordance with
the Certificate of Incorporation or upon their death or
resignation.
Section 2. Nomination of Directors. Only persons
who are nominated in accordance with the following procedures
shall be eligible for election as directors of the Corporation,
except as may be otherwise provided in any Certificate of
Amendment of the Corporation with respect to the right of holders
of certain specified classes of preferred stock of the Corporation
to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of shareholders, or
at any special meeting of shareholders called for the purpose of
electing directors, (a) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (b) by any
shareholder of the Corporation who is a shareholder of record on
the record date for the determination of shareholders entitled to
vote at such meeting.
Section 3. Meetings, Notice. Meetings of the Board
of Directors shall be held at such place either within or without
the State of New York, as may from time to time be fixed by
resolution of the Board, or as may be specified in the call or in
a waiver of notice thereof. Regular meetings of the Board of
Directors shall be held at such times as may from time to time be
fixed by resolution of the Board, and special meetings may be held
at any time upon the call of one director, the Chairman of the
Board, if one be elected, or the President, by oral, telegraphic
or written notice, duly served on or sent or mailed to each
director not less than two days before such meeting. A meeting of
the Board may be held without notice immediately after the annual
meeting of shareholders at the same place at which such meeting
was held. Notice need not be given of regular meetings of the
Board. Any meeting may be held without notice, if all directors
are present, or if notice is waived in writing, either before or
after the meeting, by those not present.
Section 4. Committees. The Board of Directors may,
in its discretion, by resolution passed by a majority of the
entire Board, designate from among its members one or more
committees which shall consist of three or more directors. The
Board may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified
member at any meeting of the committee. Such committees shall
have and may exercise such powers as shall be conferred or
authorized by the resolution appointing them, provided, however,
that no such committee shall have authority as to the following
matters: (i) the submission to shareholders of any action that
needs shareholders' approval under the New York Business
Corporation Law, (ii) the filling of vacancies in the Board of
Directors or in any committee, (iii) the fixing of compensation of
the directors for serving on the Board or on any committee, (iv)
the amendment or repeal of the By-Laws, or the adoption of new By-Laws,
and (v) the amendment or repeal of any resolution of the
Board which by its terms shall not be so amendable or repealable.
A majority of any such committee may determine its action and fix
the time and place of its meetings, unless the Board of Directors
shall otherwise provide. Each committee shall keep regular
minutes of its meetings and report the same to the Board of
Directors when required. The Board shall have power at any time
to change the membership of any such committee, to fill vacancies
in it, or to dissolve it.
Section 5. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors, of
any committee thereof, may be taken without a meeting, if prior to
such action a written consent or consents thereto is signed by all
members of the Board, or of such committee as the case may be,
and such written consent or consents is filed with the minutes of
proceedings of the Board or committee.
Section 6. Telephonic Meetings. Any or all members
of the Board or any committee thereof may participate in a meeting
of such Board or committee by means of a conference telephone or
similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at
a meeting.
Section 7. Compensation. The Board of Directors may
determine, from time to time, the amount of compensation which
shall be paid to its members. The Board of Directors shall also
have power, in its discretion, to allow a fixed sum and expenses
for attendance at each regular or special meeting of the Board, or
of any committee of the Board; the Board of Directors shall also
have power, in its discretion, to provide for any pay to directors
rendering services to the Corporation not ordinarily rendered by
directors, as such, special compensation appropriate to the value
of such services, as determined by the Board from time to time.
ARTICLE III
OFFICERS
Section 1. Titles and Election. The officers of the
Corporation, who shall be chosen by the Board of Directors at its
first meeting after each annual meeting of shareholders, shall be
a President, a Treasurer and a Secretary. The Board of Directors
from time to time may elect a Chairman of the Board, a Vice
Chairman of the Board, one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and such other officers and
agents as it shall deem necessary, and may define their powers and
duties. Any number of offices may be held by the same person,
except that the office of President and Secretary may not be held
by the same person.
Section 2. Terms of Office. The officers shall hold
office until their successors are chosen and qualify.
Section 3. Removal. Any officer may be removed,
either with or without cause, at any time, by the affirmative vote
of a majority of the Board of Directors.
Section 4. Resignations. Any officer may resign at
any time giving written notice to the Board of Directors or to the
Secretary. Such resignation shall take effect at the time
specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
Section 5. Vacancies. If the office of any officer
or agent becomes vacant by reason of death, resignation,
retirement, disqualification, removal from office or otherwise,
the directors may choose a successor, who shall hold office for
the unexpired term in respect of which such vacancy occurred.
Section 6. Chairman of the Board and Vice Chairman of
the Board. (a) The Chairman of the Board of Directors, if one be
elected, shall be a member of the Board and shall preside at all
meetings of the Board of Directors and of the shareholders, and
shall have and perform such other duties as from time to time the
Board of Directors may prescribe, including, if the Board of
Directors so directs, the duties and title of chief executive
officer of the Corporation.
(b) The Vice Chairman of the Board of Directors, if
one be elected, shall be a member of the Board and shall perform
the duties of the Chairman of the Board in the latter's absence
and shall have and be assigned such other duties as the Board of
Directors may from time to time prescribe.
Section 7. President. The President shall be the
chief executive officer of the Corporation unless the Board of
Directors appoints the Chairman of the Board to act in such
capacity and, in the absence of the Chairman, shall preside at all
meetings of the Board of Directors, and of the shareholders.
Unless the Chairman of the Board is appointed chief executive
officer, the President shall exercise the powers and perform the
duties usual to the chief executive officer and, subject to the
control of the Board of Directors, shall have general management
and control of the affairs and business of the Corporation; the
President shall appoint and discharge employees and agents of the
Corporation (other than officers elected by the Board of
Directors) and fix their compensation; and shall see that all
orders and resolutions of the Board of Directors are carried into
effect. The President shall have the power to execute bonds,
mortgages and other contracts, agreements and instruments of the
Corporation, and shall do and perform such other duties as the
Board of Directors may from time to time prescribe.
Section 8. Vice Presidents. If chosen, the Vice
Presidents, in the order of their seniority, shall, in the absence
or disability of the President, exercise all of the powers and
duties of the President. Such Vice Presidents shall have the
power to execute bonds, notes, mortgages and other contracts,
agreements and instruments of the Corporation, and shall do and
perform such other duties incident to the office of Vice President
and as the Board of Directors or the President shall direct.
Section 9. Secretary and Assistant Secretary. (a)
The Secretary shall attend all sessions of the Board and all
meetings of the shareholders and record all votes and the minutes
of the proceedings in a book to be kept for that purpose. The
Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of
Directors. The Secretary shall affix the seal of the Corporation
to any instrument requiring it, and when so affixed, it shall be
attested by the signature of the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer who may affix
the seal to any such instrument in the event of the absence or
disability of the Secretary. The Secretary shall have and be the
custodian of the stock records and all other books, records and
papers of the Corporation (other than financial) and shall see
that all books, reports, statements, certificates and other
documents and records required by law are properly kept and filed.
(b) The Assistant Secretary, if there be
one, shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and
exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may
from time to time prescribe.
Section 10. Treasurer and Assistant Treasurer. (a)
The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall
deposit all moneys, and other valuable effects in the name and to
the credit of the Corporation, in such depositories as may be
designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the
Board, taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board and the President and the
Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all of the Treasurer's
transactions and of the financial condition of the Corporation.
(b) The Assistant Treasurer, if there be
one, shall, in the absence of the Treasurer of in the event of the
Treasurer's inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors may
from time to time prescribe.
Section 11. Duties of Officers may be Delegated. In
case of the absence or disability of any officer of the
Corporation, or for any other reason that the Board may deem
sufficient, the Board may delegate, for the time being, the powers
or duties, or any of them, of such officer to any other officers,
or to any director.
ARTICLE IV
INTERESTED DIRECTORS
Section 1. Contracts or Transactions.
(a) No contract or other transaction between the
Corporation and one or more of its directors, or between the
Corporation and any other corporation, firm, association or other
entity in which one or more of its directors are directors or
officers, or have a substantial financial interest, shall be
either void or voidable for this reason alone or by reason alone
that such director or directors are present at the meeting of the
Board, or of a committee thereof, which approves such contract or
trans-action, or that the votes of such director or directors are
counted for such purposes:
(i) If the facts of such common directorship,
officership or substantial financial interest are disclosed or
known to the Board of committee, and the Board or committee
approves such contract or transaction by a vote sufficient for
such purpose without counting the vote or votes of such interested
director or directors or, if the votes of the disinterested
directors are insufficient to constitute an act of the Board, by
unanimous vote of the disinterested directors; or
(ii) If such common directorship, officership
or substantial financial interest is disclosed or known to the
shareholders entitled to vote thereon, and such contract or
transaction is approved by vote of the shareholders.
(b) If the facts of such common directorship,
officership or substantial financial interest are disclosed to the
directors or shareholders, or known to the Board or committee or
shareholders entitled to vote thereon, the contract or transaction
may not be avoided by the Corporation for the reason set forth in
Section 1(a). If there was no such disclosure or knowledge, or if
the vote of such interested director or directors was necessary
for approval of a contract or transaction at a meeting of the
Board or committee at which it was approved, the Corporation may
avoid the contract or transaction unless the parties thereto shall
establish affirmatively that the contract or transaction was fair
and reasonable as to the Corporation at the time it is approved by
the Board or committee or the shareholders.
ARTICLE V
CAPITAL STOCK
Section 1. Certificates. The interest of each
shareholder of the Corporation shall be evidenced by certificates
for shares of stock in such form as the Board of Directors may
from time to time prescribe. The certificates of stock shall be
signed by the President or a Vice President and by the Secretary
or the Treasurer or an Assistant Secretary or an Assistant
Treasurer, sealed with the seal of the Corporation or a facsimile
thereof, and countersigned and registered in such manner, if any,
as the Board of Directors may by resolution prescribe. Where any
such certificate is countersigned by a transfer agent other than
the Corporation or its employee, or registered by a registrar
other than the Corporation or its employee, the signature of any
such officer may be a facsimile signature. In case any officer or
officers who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or
certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered
by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or
signatures shall have been used thereon had not ceased to be such
officer or officers of the Corporation.
Section 2. Transfer. Subject to any restrictions on
transfer of shares of stock of the Corporation of any class,
series or designation contained in the Certificate of
Incorporation, the shares of stock of the Corporation shall be
transferred only upon the books of the Corporation by the holder
thereof in person or by such person's attorney, upon surrender for
cancellation of certificates for the same number of shares, with
an assignment and power of transfer endorsed thereon or attached
thereto, duly executed, with such proof of the authenticity of the
signature as the Corporation or its agents may reasonably require.
Section 3. Record Dates. The Board of Directors may
fix in advance a date, not less than ten (10) nor more than fifty
(50) days preceding the date of any meeting of shareholders, or
the date for the payment of any dividend, or the date for the
distribution or allotment of any rights, or the date when any
change, conversion or exchange of capital stock shall go into
effect, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of any such dividend, or to receive
any distribution or allotment of such rights, or to exercise the
rights in respect of any such change, conversion or exchange of
capital stock, and in such case only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting, or to receive
payment of such dividend, or to receive such distribution or
allotment of rights or to exercise such rights, as the case may
be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid.
Section 4. Lost Certificates. In the event that any
certificate of stock is lost, stolen, destroyed or mutilated, the
Board of Directors may authorize the issuance of a new certificate
of the same tenor and for the same number of shares in lieu
thereof. The Board may in its discretion, before the issuance of
such new certificate, require the owner of the lost, stolen,
destroyed or mutilated certificate, or the legal representative of
the owner to make an affidavit or affirmation setting forth such
facts as to the loss, destruction or mutilation as it deems
necessary, and to give the Corporation a bond in such reasonable
sum as it directs to indemnify the Corporation.
ARTICLE VI
CHECKS, NOTES, ETC.
Section 1. Checks, Notes, Etc. All checks and drafts
on the Corporation's bank accounts, and all bills of exchange and
promissory notes, and all acceptances, obligations and other
instruments for the payment of money, may be signed by the
President or any Vice President and may also be signed by such
other officer or officers, agent or agents, as shall be thereunto
authorized from time to time by the Board of Directors.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the
Corporation shall end on December 31st of each year unless
otherwise fixed by resolution of the Board of Directors.
Section 2. Corporate Seal. The seal of the
Corporation shall be circular in form and contain the name of the
Corporation, and the year and state of its incorporation. Such
seal may be altered from time to time at the discretion of the
Board of Directors.
Section 3. Books. There shall be kept at such
office of the Corporation as the Board of Directors shall
determine, within or without the State of New York, correct books
and records of account of all its business and transactions,
minutes of the proceedings of its shareholders, Board of Directors
and committees, and the stock book, containing the names and
addresses of the shareholders, the number of shares held by them
and the class or series thereof, respectively, and the dates when
they respectively became the owners of record thereof, and in
which the transfer of stock shall be registered, and such other
books and records as the Board of Directors may from time to time
determine.
ARTICLE VIII
AMENDMENTS
Section 1. Amendments. These By-Laws may be amended
or repealed, or new By-Laws may be adopted, by the majority of the
votes cast at a meeting of shareholders by the holders of shares
entitled to vote thereon. The vote of the holders of at least a
majority of the voting power of the Corporation, of the shares
that are issued and outstanding and entitled to vote, shall be
necessary at any meeting of shareholders to amend or repeal these
By-Laws or to adopt new by-laws. The By-Laws may also be amended
or repealed, or new by-laws adopted, at any meeting of the Board
of Directors by the vote of at least a majority of the entire
Board, provided that any by-law adopted by the Board may be
amended or repealed by the shareholders.
Any proposal to amend or repeal these By-Laws or to
adopt new by-laws shall be stated in the notice of the meeting of
the Board of Directors or the shareholders, or in the waiver of
notice thereof, as the case may be, unless all of the directors or
the holders of record of all of the shares of the Corporation,
issued and outstanding and entitled to vote, are present at such
meeting.
<PAGE>
EX-11 Computation of Net Income
Per Share of Common Stock
(in thousands, except per share data)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
----- ----- ----- -----
Loss before
income taxes ($4,422) ($11,035) ($17,319) ($15,878)
Benefit for income taxes - (4,414) - (6,351)
Net loss ($4,422) ($6,621) ($17,319) ($9,527)
Primary loss per share ($0.70) ($1.05) ($2.75) ($1.51)
Weighted average common
shares outstanding 6,298 6,298 6,298 6,295
Fully diluted
loss per share ($0.70) ($1.05) ($2.75) ($1.51)
Weighted average common
shares outstanding 6,298 6,298 6,298 6,295
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of The WellCare Management Group, Inc. and
Subsidiaries as of September 30, 1997 and the related Statement of Operations
for the period ended September 30, 1997, and is qualified in it's entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,949
<SECURITIES> 108
<RECEIVABLES> 11,833
<ALLOWANCES> 5,101
<INVENTORY> 0
<CURRENT-ASSETS> 23,078
<PP&E> 17,551
<DEPRECIATION> 6,210
<TOTAL-ASSETS> 54,260
<CURRENT-LIABILITIES> 25,313
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 2,908
<TOTAL-LIABILITY-AND-EQUITY> 54,260
<SALES> 105,477
<TOTAL-REVENUES> 106,791
<CGS> 0
<TOTAL-COSTS> 95,356
<OTHER-EXPENSES> 28,664
<LOSS-PROVISION> 4,535
<INTEREST-EXPENSE> 1,239
<INCOME-PRETAX> (17,319)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,319)
<EPS-PRIMARY> (2.75)
<EPS-DILUTED> 0
</TABLE>
