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 quarterly period ended September 30, 2000
Commission File No. 000-21684
THE WELLCARE MANAGEMENT GROUP, INC.
(Exact name of registrant as specified in its charter.)
New York 14-1647239
------------------------ --------------------------------
(State of Incorporation) (IRS Employer Identification No.)
Park West/Hurley Avenue Extension, Kingston, NY 12401
(Address of principal executive office)
(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 [ ]
Class Outstanding at November 10, 2000
----- ---------------------------
Common stock, par value $0.01 per share 38,697,940
Class A common stock, par value $0.01 per share 313,555
<PAGE> 2
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I FINANCIAL INFORMATION NUMBER
------ --------------------- ------
Item 1 Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
September 30, 2000 (Unaudited) and December 31, 1999 3
Unaudited Condensed Consolidated Statements of
Operations for the Three and Nine Months
Ended September 30, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures about Market Risk 12
Part II OTHER INFORMATION
------- -----------------
Item 1 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 13
<PAGE> 3
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,432 $ 7,240
Accounts Receivable (net of allowance for doubtful
accounts of $1,371 in 2000 and $434 in 1999) 7,020 4,385
Advances to participating providers 504 586
Other receivables (net of allowance for doubtful accounts
of $341 in 2000 and $500 in 1999) 1,867 2,414
Prepaid expenses and other current assets 428 1,066
-------------- --------------
Total current assets 11,251 15,691
Property and equipment (net of accumulated depreciation
and amortization of $5,258 in 2000 and $4,304 in 1999) 561 756
Other Assets:
Restricted cash 1,836 3,773
Other non-current assets (net of allowance for doubtful
accounts of $1,376 in 1999) 85 103
-------------- --------------
Total assets $ 13,733 $ 20,323
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIENCY IN ASSETS)
Current Liabilities:
Medical costs payable $ 10,415 $ 18,280
Accounts payable and accrued expenses 4,739 1,743
Current portion of long-term debt 1,650 850
Unearned revenue 2,163 2,258
-------------- --------------
Total current liabilities 18,967 23,131
Commitments and Contingencies (Note 5)
Shareholders' Deficiency in Assets:
Class A common stock - $0.01 par value; 1,109,292
shares authorized; 313,555 shares issued and outstanding
in 2000 and 1999 3 3
Common stock, $0.01 par value; 75,000,000 shares
authorized; 38,697,940 and 38,697,940 shares issued
in 2000 and 1999, respectively 386 386
Additional paid-in capital 54,585 54,585
Accumulated deficit (64,120) (61,693)
Accumulated other comprehensive income 2 1
Statutory reserve 4,112 4,112
-------------- --------------
(5,032) (2,606)
Treasury stock at cost - 12,850 shares in 2000 and 1999 (202) (202)
-------------- --------------
Total deficiency in assets (5,234) (2,808)
-------------- --------------
Total liabilities and shareholders' deficiency
in assets $ 13,733 $ 20,323
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In $ Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned $ 16,770 $ 23,062 $ 52,970 $ 88,233
Interest income 77 189 273 692
Other income - net (115) 102 1,389 213
---------- ---------- ---------- ----------
Total revenue 16,732 23,353 54,632 89,138
Expenses:
Medical expenses 16,729 20,147 47,868 80,946
General and administrative expenses 3,221 3,172 8,845 18,747
Depreciation and amortization expense 247 110 683 752
Interest expense - - 36 631
---------- ---------- ---------- ----------
Total expenses 20,197 23,429 57,432 101,076
---------- ---------- ---------- ----------
Loss before income taxes and
extraordinary gain (3,465) (76) (2,800) (11,938)
Income tax benefit - (362) (41) (1,417)
---------- ---------- ---------- ----------
Net income (loss) before extraordinary
item (3,465) 286 (2,759) (10,521)
Extraordinary gain, net of tax of
$362 for the three months ended
September 30, 1999 and $41 and $1,417
for the nine months ended September 30,
2000 and 1999, respectively - 2,716 332 10,621
---------- ---------- ---------- ----------
Net income (loss) (3,465) 3,002 (2,427) 100
Preferred stock deemed dividend - - - (3,043)
---------- ---------- ---------- ----------
Net income (loss) available to
common shareholders $ (3,465) $ 3,002 $ (2,427) $ (2,943)
========== ========== ========== ==========
Earnings per share:
Income (loss) before income
taxes and extraordinary gain -
basic and diluted $ (0.09) $ 0.04 $ (0.07) $ (1.71)
Extraordinary gain - basic and diluted $ - $ 0.34 $ 0.01 $ 1.34
Income (loss) available to common
shareholders - basic and diluted $ (0.09) $ 0.38 $ (0.06) $ (0.37)
Weighted average shares outstanding -
basic and diluted 39,011 7,904 39,011 7,904
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,427) $ 100
Adjustments to reconcile net income (loss) to net
cash provided by (used) in operating activities:
Depreciation and amortization 683 752
Bad debt expense 622 -
Extraordinary gain on claims settlement (373) (12,038)
Changes in assets and liabilities:
Increase in accounts receivable (3,257) (1,156)
Decrease (increase) in advances to participating providers 82 (331)
Decrease in other receivables 547 73
Decrease (increase) in prepaid expenses and
other current assets and other assets 656 (293)
Decrease in restricted cash 1,937 2,394
Increase (decrease) in medical cost payable (7,492) 8,978
Increase (decrease) in accounts payable, accrued expenses 2,998 (1,505)
Decrease in unearned revenue (95) (5,181)
Provider pool escrow - (2,474)
Due from GHI membership escrow - (792)
------------- -------------
Net cash used in operating activities (6,119) (11,473)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) disposal of property and equipment (489) 11,416
------------- -------------
Net cash (used in) provided by investing activities (489) 11,416
------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 800 850
Principal payments of long-term debt - (5,791)
Issuance of series A preferred stock - 5,000
------------- -------------
Net cash provided by financing activities 800 59
------------- -------------
Net (decrease) increase in cash and cash equivalents (5,808) 2
Cash and cash equivalents, beginning of period 7,240 6,393
------------ ------------
Cash and cash equivalents, end of period $ 1,432 $ 6,395
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS
The Wellcare Management Group, Inc. ("Wellcare" or the "Company"), a New
York corporation, owns, operates and provides management services to health
maintenance organizations ("HMO"). An HMO is an organization that accepts
contractual responsibility for the delivery of a stated range of health care
services to its members for a predetermined, prepaid fee. The accompanying
unaudited consolidated financial statements include its wholly owned
subsidiaries, Wellcare of New York, Inc. ("WCNY") and Wellcare of Connecticut,
Inc. ("WCCT").
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been omitted.
These unaudited consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the year ended
December 31, 1999 included in the Company's Form 10-K filed with the Securities
and Exchange Commission on June 1, 2000.
In the opinion of management, the consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
considered necessary to present fairly the financial position of the Company as
of September 30, 2000 and the results of its operations and its cash flows for
the respective nine months ended September 30, 2000 and 1999. Interim results
for the nine months ended September 30, 2000 are not necessarily indicative of
results that may be expected for the year ending December 31, 2000.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION. Premiums from subscribers are recorded as revenue in
the period that subscribers are entitled to service. Premiums received in
advance are deferred.
MEDICAL COSTS PAYABLE. Medical expense includes estimates for medical
expenses incurred but not yet reported ("IBNR") based on a number of factors,
including hospital admissions data and prior claims experience; adjustments, if
necessary, are made to medical expenses in the period the actual claims costs
are ultimately determined. The Company believes the IBNR estimates in the
consolidated financial statements are adequate; however, there can be no
assurances that actual health care claims will not exceed such estimates.
OTHER INCOME. For the nine months ended September 30, 2000, other income
consisted of a recovery from the Company's D&O insurance carrier of $766,000
and an estimated reduction of the demographic pool liability of $350,000.
<PAGE> 7
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4. STATUTORY REQUIREMENTS
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, except as described in the following paragraph, WCNY is required
to maintain a contingent reserve which must be increased annually by an amount
equal to at least 1% of statutory premiums earned limited, in total, to a
maximum of 5% of statutory premiums earned for the most recent calendar year
and which may be offset by the cash reserve. The cash reserve is calculated at
December 31 of each year. At September 30, 2000, Wellcare had cash reserves of
$1.8 million, of which $3.3 million is required, and a contingent reserve of
$4.1 million. In the event the contingent reserves exceeds the required cash
reserve, the excess of the contingent reserve over the required cash reserve is
required to be maintained. Notwithstanding the above, New York State Insurance
Department ("NYSID") has the authority to allow an HMO to maintain a net worth
of 50% to 100% of the contingent reserve. WCNY is not in compliance with the
cash reserve requirement
At December 31, 1999, WCNY had a statutory net worth of approximately
$(0.7) million, which at the end of September 30, 2000 was $0.1 million.
Failure to come into compliance with the reserve requirement could cause NYSID
to take action, which could include restriction or revocation of WCNY's
license.
WCCT is subject to similar regulatory requirements with respect to its HMO
operations in Connecticut. The Connecticut Department of Insurance requires
that WCCT maintain a minimum statutory reserve of $1.0 million. In addition,
there is a Risk Based Capital (RBC) requirement which requires reserve in the
amount of $2.3 million. WCCT is not in compliance with the RBC requirements.
As part of the Company's plan to bring its net worth into compliance with
the State of New York's and the State of Connecticut's requirements, $2.2
million was infused into the Company in October 2000 as a note payable from
Comprehensive Health Management, Inc., ("CHMI") an affiliate of the majority
shareholder. An additional $1.4 million note payable from CHMI will be infused
in November 2000.
In August 1999, WCNY voluntarily agreed to cease marketing and enrollment
of its Medicare+Choice plan. WCNY has submitted to the Health Care Financing
Administration (HCFA) a corrective action plan that fully addressed all of
HCFA's findings. WCNY will not resume marketing and enrollment until such time
as HCFA notifies WCNY that its Medicare+Choice plan meets HCFA requirements.
HCFA is in the process of reviewing WCNY's corrective action plan and does
reserve the right to impose civil monetary penalties on WCNY pursuant to HCFA's
ongoing monitoring of WCNY's effort to regain compliance in the areas cited.
No fines have been levied through the first nine months of 2000.
<PAGE> 8
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4. STATUTORY REQUIREMENTS - (CONTINUED)
In April 2000, WCNY voluntarily suspended marketing and enrollment of its
Medicaid and Child Health Plus products. Management made the decision to
temporarily cease the marketing and enrollment in the Child Health Plus and
Healthy Choice Products to allow WCNY to fully evaluate the current operations
and implement a business strategy that will assure WCNY Medicaid members of a
high level of quality service and care. Subsequently, the State of New York
Department of Health has lifted WCNY's voluntary suspension in October 2000 and
WCNY has resumed marketing and enrollment of its Medicaid and Child Health Plus
products.
5. COMMITMENTS AND CONTINGENCIES
WCNY has entered into various contractual arrangements with a majority of
its primary care physicians and specialists through contracts with regional
health care delivery networks. These agreements call for capitating IPAs
comprised of specialists and primary care physicians. Under the agreements,
the Company pays IPAs for medical services provided by primary care physicians
and specialists. IPAs in turn reimburse those providers for the services that
are provided by each physician. In the event the IPAs default on their
financial obligations, WCNY could be ultimately liable for reimbursing the
medical providers.
6. NEW ACCOUNTING PRONOUNCEMENT
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), Accounting for Certain Transactions
Involving Stock Compensation. Interpretation 44 provides criteria for the
recognition of compensation expense in certain stock-based compensation
arrangements that are accounted for under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. Interpretation 44 is
effective July 1, 2000, with certain provisions effective retroactively to
December 15, 1998 and January 12, 2000. There was no effect of the retroactive
provisions of Interpretation 44 on the Company's financial statements.
Interpretation 44 is not expected to have a material effect on the Company's
financial statements.
7. SUBSEQUENT EVENTS
Effective October 1, 2000, Wellcare of Connecticut, Inc. changed its name
to FirstChoice HealthPlans of Connecticut, Inc. ("FirstChoice").
Effective October 1, 2000, FirstChoice closed on its transaction with
HealthChoice of Connecticut, Inc., (HealthChoice) to acquire the assets of
HealthChoice's Medicaid line of business, known as PreferredOne for a purchase
price of $1.00 (one dollar). FirstChoice, which was licensed solely as a
commercial health maintenance organization in the State of Connecticut,
covering about 4,200 members, received all necessary regulatory approval
effective October 1, 2000 to assume the responsibility for approximately 25,000
adult and child members of HealthChoice's Medicaid and HUSKY Plans.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. The auditors' report on the
Company's 1999 financial statements states that "the Company's recurring losses
from operations, working capital deficit, capital deficiency and failure to
maintain 100% of the contingent reserve requirement for the New York State and
Connecticut Departments of Insurance at December 31, 1999 raise substantial
doubt about its ability to continue as a going concern." Certain statements in
this Form 10-Q are forward looking statements within the meaning of the
securities laws 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, including but not limited to the following: the
Company's ability to continue as a going concern; the inability to meet HMO
statutory net worth requirement for WCNY or WCCT; the absence of a commercial
line of business in WCNY for at least one year; that increased regulation will
increase health care expenses; that increased competition in the Company's
markets or change in product mix will unexpectedly reduce premium revenue; that
the Company will not be successful in increasing membership growth; that there
may be adverse changes in Medicare and Medicaid premium rates set by federal
and state governmental agencies; that health care cost in any given period may
be greater than expected due to unexpected incidence of major cases, natural
disasters, epidemics, change in physician practices, and new technologies; that
the Company will be unable to successfully expand its operations into New York
City, Westchester County and the State of Connecticut; and that major health
care providers will be unable to maintain their operations and reduce or
eliminate their accumulated deficits.
Legislative and regulatory proposals have been made at the federal and
state government levels related to the health care system, including but not
limited to limitations on managed care organizations (including benefit
mandates) and reform of the Medicare and Medicaid programs. Such legislative
or regulatory action could have the effect of reducing the premiums paid to the
Company by governmental programs or increasing the Company's medical costs or
both. The Company is unable to predict the specific content of any future
legislation, action or regulation that may be enacted or when any such future
legislation or regulation will be adopted. Therefore, the Company cannot
predict the effect of such future legislation, action or regulation on the
Company's business.
Set forth below for the periods indicated, is selected unaudited
information (in thousands, except percentages).
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenue:
Premiums earned $ 16,770 $ 23,062 $ 52,970 $ 88,233
Expenses:
Medical expenses 16,729 20,147 47,868 80,946
General and
Administrative expenses 3,221 3,172 8,845 18,747
Medical expense ratio 99.8% 87.4% 90.4% 91.7%
Administrative expense ratio 19.2% 13.8% 16.7% 21.2%
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2000
PREMIUMS EARNED. Premiums earned decreased $6.3 million to $16.8 million
for the three months ended September 30, 2000 from $23.1 million for the
comparable period in 1999, a decrease of 27.3%. The decrease in premiums
earned was primarily due to the decrease in membership from prior year. WCNY
ceased marketing and enrollment of its Medicaid and Child Health Plus products
in April 2000 and WCCT's membership continued to decline.
MEDICAL EXPENSES. Medical expenses as a percentage of premiums earned
(medical expense ratio), increased from 87.4% to 99.8% for the three months
ended September 30, 1999 and 2000, respectively. The increase in the medical
expense ratio was primarily a result of the change in WCCT's commercial line of
business. WCCT experienced a greater amount of claims as compared to the
amount of premiums earned. Medical expenses decreased $3.4 million to $16.7
million for the three months ended September 30, 2000 from $20.1 million for
the comparable period in 1999, a decrease of 16.9%. The decrease in medical
expenses was primarily the result of the decrease in membership discussed
above.
GENERAL AND ADMINISTRATIVE (G&A) EXPENSES. G&A expenses remained
comparable at $3.2 million for the three months ended September 30, 2000 and
1999. G&A expenses as a percentage of premiums earned (G&A expense ratio),
increased from 13.8% to 19.2% for the three months ended September 30, 1999 and
2000, respectively. The increase in G&A expense ratio was primarily due to the
decrease in revenue from prior year coupled with an increase in bad debt
expense.
EXTRAORDINARY GAIN. For the three months ended September 30, 1999, the
Company recognized a benefit of approximately $3.1 million ($2.7 million net of
tax) as a result of the provider settlement agreement.
NET INCOME (LOSS). During the three months ended September 30, 2000, the
Company incurred a net loss of approximately $3.5 million compared to net
income of approximately $3.0 million for the same period in 1999. This change
in net loss was due primarily to the higher medical and G&A expenses discussed
above.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000
PREMIUMS EARNED. Premiums earned decreased $35.3 million to $52.9 million
for the nine months ended September 30, 2000 from $88.2 million for the
comparable period in 1999, a decrease of 40.0%. The decrease in premiums
earned was primarily due to the decrease in membership from prior year.
WCNY's commercial business was sold to GHI in June 1999. In April 2000, WCNY
ceased marketing and enrollment of its Medicaid and Child Health Plus products
and WCCT's membership continued to decline.
<PAGE> 11
OTHER INCOME - NET. Other income -net increased $1.2 million to $1.4
million for the nine months ended September 30, 2000 from $0.2 million for the
comparable period in 1999. The increase in other income was primarily due to
an insurance recovery of $766,000 and the estimated reduction of demographic
pool liability of $350,000.
MEDICAL EXPENSES. Medical expenses as a percentage of premiums earned
(medical expense ratio), decreased from 91.7% to 90.4% for the nine months
ended September 30, 1999 and 2000, respectively. Medical expenses decreased
$33.0 million to $47.9 million for the nine months ended September 30, 2000
from $80.9 million for the comparable period in 1999, a decrease of 40.8%.
This decrease was primarily the result of a decrease in membership.
GENERAL AND ADMINISTRATIVE (G&A) EXPENSES. G&A expenses decreased $9.9
million to $8.8 million for the nine months ended September 30, 2000 from $18.7
million for the comparable period in 1999. G&A expenses as a percentage of
premiums earned (G&A expense ratio), decreased from 21.2% to 16.7% for the nine
months ended September 30, 1999 and 2000, respectively. The decrease in G&A
expenses and the G&A expense ratio was primarily the result of the management
agreement with Comprehensive Health Management, Inc. and the reduction in
administrative costs associated with WCCT's operation.
EXTRAORDINARY GAIN. For the nine months ended September 30, 2000 and
1999, the Company recognized a benefit of approximately $0.4 million ($0.3 net
of tax) and $12.0 million ($10.6 million net of tax) as a result of the
provider settlement agreement.
NET INCOME (LOSS). During the nine months ended September 30, 2000, the
Company incurred a net loss of approximately $2.4 million compared to net
income of approximately $0.1 million for the same period in 1999. This change
in net loss was due primarily to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows. For the nine months ended June 30, 2000, operating activities
utilized $6.1 million of cash. The net loss adjusted for non-cash items such
as depreciation, amortization, and other non-cash charges utilized $1.1 million
of cash. Payment of medical claims incurred in prior year utilized $7.5
million of cash and the net decrease in operating assets provided $2.5 million
of cash. Investing activities utilized $0.5 million of cash, principally
consisting of capital expenditures. Financing activities provided $0.8 million
of cash principally from proceeds of long-term debt.
As part of the Company's plan to bring its net worth into compliance with
the State of New York's and the State of Connecticut's requirements, $2.2
million was infused into the Company in October 2000 as a note payable from
Comprehensive Health Management, Inc., ("CHMI") an affiliate of the majority
shareholder. An additional $1.4 million note payable from CHMI will be infused
in November 2000. The Company's financial statements have been prepared
assuming that the Company will continue as a going concern. The auditors'
report on the Company's 1999 financial statements states that "the Company's
recurring losses from operations, working capital deficit, capital deficiency
and failure to maintain 100% of the contingent reserve requirement for the New
<PAGE> 12
York State and Connecticut Departments of Insurance at December 31, 1999 raise
Substantial doubt about its ability to continue as a going concern." The
Company continues to explore the possibility of raising funds through available
Sources including but not limited to the equity and debt markets. It is
uncertain that the Company will be successful at raising funds through these
sources.
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), Accounting for Certain Transactions
Involving Stock Compensation. Interpretation 44 provides criteria for the
recognition of compensation expense in certain stock-based compensation
arrangements that are accounted for under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. Interpretation 44 is
effective July 1, 2000, with certain provisions effective retroactively to
December 15, 1998 and January 12, 2000. There was no effect of the retroactive
provisions of Interpretation 44 on the Company's financial statements.
Interpretation 44 is not expected to have a material effect on the Company's
financial statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INFLATION
Medical costs have been rising at a higher rate than consumer goods as a
whole. The Company believes its premium increases, capitation arrangements and
other cost control measures may mitigate, but do not wholly offset, the effects
of medical cost inflation on its operations and its inability to increase
premiums could negatively impact the Company's future earnings.
INTEREST RATE RISK
The Company is subject to market risk from exposure to changes in interest
rates based upon its financing, investing and cash management activities. The
Company does not expect changes in interest rates to have a material adverse
effect on its income or its cash flows in fiscal 2000. However, there can be
no assurances that interest rates will not significantly change for the
remainder of 2000.
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings. The
Company at times does have routine litigation incidental to its business. In
the opinion of the Company's management, such proceedings should not,
individually or in the aggregate, have a material adverse effect on the
Company's consolidated results of operations or consolidated financial
condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on August 17, 2000.
The following business was transacted during the meeting:
1. Election of Directors: Votes For Votes Against
------------- -----------------
Kirin C. Patel, M.D. Elected 40,807,470 96,311
Dr. Mark Dean Elected 40,807,470 96,311
Pradip C. Patel Elected 40,807,470 96,311
Rupesh R. Shah Elected 40,807,470 96,311
2. Proposal to ratify the reappointment of BDO Seidman, LLP as the
Company's independent auditors for fiscal year 2000 was approved,
40,843,481 votes For and 28,160 votes Against.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 10.85 Agreement For Sale of Assets between HealthChoice of
Connecticut, Inc. and Wellcare of Connecticut, Inc.
Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K None
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE WELLCARE MANAGEMENT GROUP, INC.
Dated: November 14, 2000 /s/ Kiran C. Patel, M.D.
------------------------------------------
Kiran C. Patel, M.D.
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 14, 2000 /s/ Carol K. McAllister
------------------------------------------
Carol K. McAllister
Acting Chief Accounting Officer
(Interim Principal Accounting Officer)
