<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
-------------
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 NUMBER 1-13177
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INTEGRA, INC.
-------------
(Exact name of registrant as specified in its charter)
Delaware 13-3605119
--------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1060 First Avenue - Suite 410
King of Prussia, PA 19406
---------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(610) 992-7000
--------------
(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__.
As of August 14, 2000, Integra, Inc. had 10,138,552 shares of common stock,
$0.01 par value, outstanding.
Page 1 of 20
<PAGE> 2
INTEGRA, INC.
FORM 10-Q - QUARTER ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
FORM 10-Q FORM 10-Q FORM 10-Q
PART NO: ITEM NO. DESCRIPTION PAGE NO.
-------- -------- ----------- --------
<S> <C> <C> <C>
I. FINANCIAL INFORMATION
1. Financial Statements
- Consolidated Statements of
Operations for the Three Months
Ended June 30, 2000 and 1999 3
- Consolidated Statements of Operations
for the Six Months Ended June 30, 2000
and 1999 4
- Consolidated Balance Sheets
as of June 30, 2000 and
December 31, 1999 5
- Consolidated Statements of
Cash Flows for the Six Months
Ended June 30, 2000 and 1999 6
- Consolidated Statement of
Changes in Stockholders' Equity
for the Six Months Ended
June 30, 2000 7
- Notes to Consolidated Financial
Statements 8
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
II. OTHER INFORMATION
1. Legal Proceedings 15
4. Submission of Matters to a Vote of Security Holders 17
6. Exhibits and Reports on Form 8-K 18
Signatures 19
Index to Exhibits 20
</TABLE>
Page 2 of 20
<PAGE> 3
INTEGRA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net revenues:
Premium revenue $ 6,747 $ 6,239
------------ ------------
Total net revenues 6,747 6,239
------------ ------------
Cost of revenues:
Premium service costs 4,960 3,991
------------ ------------
Total cost of revenues 4,960 3,991
------------ ------------
Gross profit 1,787 2,248
Selling and administrative expenses 1,561 1,462
Restructuring and other charges 0 (700)
Amortization of intangible assets and excess cost
over fair value of net assets acquired 123 121
------------ ------------
Total expenses 1,684 883
Income from operations 103 1,365
Interest (income) (45) (19)
Interest expense 4 44
------------ ------------
Income before income taxes 144 1,340
Provision for income taxes 0 37
------------ ------------
Net income $ 144 $ 1,303
============ ============
Net income per common share:
Basic $ 0.01 $ 0.13
============ ============
Diluted $ 0.01 $ 0.12
============ ============
Weighted average shares outstanding:
Basic 10,138,552 10,138,552
============ ============
Assuming dilution 10,563,227 10,523,514
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 20
<PAGE> 4
INTEGRA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net revenues:
Premium revenue $ 13,227 $ 12,595
------------ ------------
Total net revenues 13,227 12,595
------------ ------------
Cost of revenues:
Premium service costs 9,735 8,203
------------ ------------
Total cost of revenues 9,735 8,203
------------ ------------
Gross profit 3,492 4,392
Selling and administrative expenses 3,503 2,749
Restructuring and other charges -- (700)
Amortization of intangible assets and excess cost
over fair value of net assets acquired 246 242
------------ ------------
Total expenses 3,749 2,291
(Loss) income from operations (257) 2,101
Interest (income) (87) (37)
Interest expense 39 72
------------ ------------
(Loss) income before income taxes (209) 2,066
Provision for income taxes -- 68
------------ ------------
Net (loss) income $ (209) $ 1,998
============ ============
Net (loss) income per common share:
Basic $ (0.02) $ 0.20
============ ============
Diluted $ (0.02) $ 0.19
============ ============
Weighted average shares outstanding:
Basic 10,138,552 10,138,552
============ ============
Diluted 10,572,225 10,524,061
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 20
<PAGE> 5
INTEGRA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 211 $ 706
Restricted cash 1,000 1,000
Accounts receivable, net of allowance for doubtful
accounts of $61 in 2000 and $71 in 1999 487 914
Other accounts receivable 199 187
Other current assets 280 552
-------- --------
Total current assets 2,177 3,359
Property and equipment, net of accumulated amortization
of $2,023 in 2000 and $1,589 in 1999 1,968 1,859
Intangible assets and excess cost over fair value of net
assets acquired, net of accumulated amortization of
$1,937 in 2000 and $1,691 in 1999 9,767 10,009
Other assets, net 0 3
-------- --------
$ 13,912 $ 15,230
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 441 $ 277
Reserve for unpaid claims 3,069 3,385
Accrued expenses and other current liabilities 5,044 6,002
-------- --------
Total current liabilities 8,554 9,664
Deferred income tax liability 296 296
-------- --------
Total liabilities 8,850 9,960
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares
authorized; issued 10,138,552 in 2000 and 1999 101 101
Capital in excess of par value 87,509 87,508
Accumulated deficit (82,548) (82,339)
-------- --------
Total stockholders' equity 5,062 5,270
-------- --------
$ 13,912 $ 15,230
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5 of 20
<PAGE> 6
INTEGRA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
2000 1999
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (209) $ 1,998
Adjustments to reconcile net (loss) income to net cash
provided by operations:
Depreciation and amortization 713 568
Issue of warrant for financing guarantee 1 (700)
Changes in assets and liabilities, net of effects of
businesses acquired:
Decrease (increase) in accounts receivable 415 (349)
Increase in restricted cash 0 (400)
Decrease (increase) in other current assets 272 (137)
Increase (decrease) in accounts payable 164 (411)
(Decrease) increase in reserve for unpaid claims (316) 2,245
Decrease in accrued expenses and other
current liabilities (958) (1,239)
Decrease (increase) in other assets and other
liabilities, net 3 (22)
------- -------
Net cash provided by operating activities 85 1,553
------- -------
Cash flows from investing activities:
Additional payments for businesses acquired in prior
years (4) (441)
Purchases of property and equipment
(576) (630)
------- -------
Net cash used in investing activities (580) (1,071)
------- -------
Cash flows from financing activities:
Principal payments on long-term obligations 0 (1,550)
------- -------
Net cash (used in) financing activities 0 (1,550)
------- -------
Net decrease in cash and cash equivalents (495) (1,068)
Cash and cash equivalents at beginning of period 706 2,452
------- -------
Cash and cash equivalents at end of period $ 211 $ 1,384
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6 of 20
<PAGE> 7
INTEGRA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON SHARES CAPITAL IN
----------------------- EXCESS OF ACCUMULATED
NUMBER PAR VALUE PAR VALUE DEFICIT TOTAL
------ --------- --------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1999 10,139 $ 101 $ 87,508 $(82,339) $ 5,270
Issue of warrants for financing
guarantee 1 1
Net loss (209) (209)
-------- -------- -------- -------- --------
Balance at June 30, 2000
(unaudited) 10,139 $ 101 $ 87,509 $(82,548) $ 5,062
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 7 of 20
<PAGE> 8
INTEGRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Dollars in thousands, except share and per share data)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and should be read in conjunction with
the Company's consolidated financial statements and notes thereto for the year
ended December 31, 1999 included in its Form 10-K filed with the Securities and
Exchange Commission on March 30, 2000. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of Company management, the consolidated
financial statements for the unaudited interim periods presented include all
adjustments, consisting only of normal recurring adjustments, necessary to
present a fair statement of the results for such interim periods.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Operating results for the three and six month periods ended June 30,
2000 are not necessarily indicative of the results that may be expected for a
full year or any portion thereof.
NOTE 2 - INCOME TAXES
At December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $39,200. The Company will only
be able to use the net operating loss carryforwards against future taxable
earnings of the Company. In addition, as specified in the Internal Revenue Code,
the Company's ability to use certain of the net operating loss carryforwards is
limited as they were acquired by the Company in a purchase of the stock of other
companies. The carryforwards expire in varying amounts through 2019. A valuation
reserve has been established against the potential future benefit of the net
operating loss carryforwards and other deferred tax assets.
NOTE 3 - RESERVE FOR UNPAID CLAIMS
This liability primarily relates to amounts owed for healthcare
services authorized or incurred and not yet paid by the Company's managed
behavioral healthcare business. Medical claims payable are estimated based upon
authorized healthcare services, past claim payment experience for member groups,
patient census data and other factors. Effective January 1, 1999, the Company
implemented coverage on a capitated contract in New York State which covers over
420,000 members and is currently the Company's largest contract.
Page 8 of 20
<PAGE> 9
The Company estimates the medical claims payable for this contract in a manner
similar to its existing contracts, however, the Company has not yet fully
developed its own historical experience with this contract. As the Company
continues to provide coverage and pay claims for this contract, management will
make necessary revisions in the estimates used to determine medical claims
payable. While the Company believes its estimate of the liability for medical
claims payable is adequate, actual results could differ from such estimates.
NOTE 4 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Salaries and vacation ...................... $ 379 $ 451
Restructuring costs ........................ 1,895 2,284
Long-term care and provider billing reserves 1,762 1,935
Other ...................................... 1,008 1,332
------ ------
$5,044 $6,002
====== ======
</TABLE>
NOTE 5 - RESTRUCTURING AND OTHER CHARGES
In December 1997, the Company entered into an agreement with
PsychPartners of Alabama and PsychPartners, LLC (collectively "PsychPartners")
whereby it sold substantially all of the assets and business of the Company's
outpatient behavioral health provider business.
In January 2000, PsychPartners filed for protection under Chapter 11 of
the Federal Bankruptcy Laws. Based on discussions with PsychPartners personnel,
as well as developments in the bankruptcy court, the Company understands that
PsychPartners intends to discontinue all future operations and liquidate all
existing assets to satisfy outstanding obligations. Under the terms of the
Purchase Agreement, PsychPartners assumed responsibility for all facility leases
associated with the practices sold. While the Company obtained assignment
letters for many of these leases, due to the nature of both real estate and
bankruptcy laws, it is possible that the Company will be responsible for a
portion of these remaining lease obligations. The Company has engaged special
counsel and is evaluating its exposure in this matter on an ongoing basis. The
Company estimates there are approximately 32 open leases with approximately
$2,325 in remaining payments under the lease terms, not including certain fees
and expenses for which the Company may be responsible. The Company intends to
aggressively pursue resolution of this matter in terms most favorable to the
Company. Accordingly, the Company recorded a charge of $1,700 at December 31,
1999, for this potential exposure. During the second quarter of 2000 the Company
paid $85 relating to legal costs and lease obligations.
In addition to the above lease exposure, PsychPartners defaulted on
certain deferred contingent purchase price obligations which were part of the
original acquisition agreements for practices previously purchased by Integra.
These liabilities were also assumed by PsychPartners under the terms of the
Purchase Agreement. The Company believes it has no remaining responsibility for
these obligations, however, the individuals associated with these practices may
choose to assert a claim against the Company. At June 30, 2000 and December 31,
1999, the Company has not established a reserve for these amounts which it
estimates may aggregate to $1,000. The Company intends to vigorously contest any
claims related to this matter.
In prior years, the Company established reserves in connection with its
restructurings and the exit of long-term care and outpatient operations. As part
of its ongoing evaluation of these reserves, at June 30, 1999,
Page 9 of 20
<PAGE> 10
the Company determined, based on its assessment of all remaining open matters,
that the Company was over accrued for these matters by $700. This change in
estimate is separately reflected in the Statement of Operations under
"Restructuring and Other Charges." The Company believes the remaining reserves
for these matters are adequate at June 30, 2000, however, as the Company
continues to pursue resolution of open matters, actual results could differ from
such estimates. During the second quarter of 2000, the Company paid $262
relating to legal costs and lease obligations bringing the total to $389 for the
year.
Page 10 of 20
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OVERVIEW
The Company provides managed behavioral healthcare services through
full and shared risk arrangements with employers, health plans and managed care
organizations to perform behavioral health services on a capitated per member
per month basis. In addition, the Company provides an array of managed
behavioral health services including employee assistance programs, third party
clinical case management and claims administration. Integra's contract service
areas are principally concentrated in Connecticut, Delaware, Maryland, New
Jersey, New York, Pennsylvania, Rhode Island, Virginia, Tennessee and Georgia.
RESULTS OF OPERATIONS
PREMIUM REVENUE
Premium revenue pertains to the Company's managed behavioral healthcare
business which maintains a portfolio of agreements with managed care
organizations and corporations to provide inpatient and outpatient behavioral
health services. Revenues are primarily generated by capitated managed
behavioral healthcare and employee assistance programs. The fees are defined by
contract and are primarily calculated on a fixed per member per month fee.
Revenues under these contracts are recorded in the month for which the member is
entitled to services. Generally, these contracts are on a one to three year
basis subject to cancellation provisions typical in the industry.
Premium revenue for the three and six month periods ended June 30, 2000
increased from the corresponding periods of the prior year by $508 and $632
respectively primarily as a result of a net increase in membership for the
capitated contracts.
PREMIUM SERVICE COSTS
Premium service costs are primarily comprised of medical claims
and personnel costs associated with the Company's service delivery, support and
management of the its portfolio of behavioral healthcare contracts. The Company
estimates the medical claims cost of providing services under these agreements,
including a reserve for services incurred, but not reported, based upon
authorized healthcare services, past claim payment experience for member groups,
patient census data and other factors. The Company typically does not
subcapitate the risk of providing services under these contracts, but the
Company arranges discounted fee-for-service rates with independent inpatient and
outpatient behavioral health providers.
Under capitated contracts, the Company is responsible for ensuring
appropriate access to care and bears the risk for utilization levels and pricing
of the cost of services performed under these contracts. The Company believes
the future revenues under these contracts will exceed the costs of services it
will be required to provide under the terms of the contracts. An underestimation
in the utilization or price of services for these contracts could result in
material losses to the Company. Historically, Integra has managed these
capitated contracts profitably. The Company maintains no re-insurance against
the risk of loss under these contracts.
Premium service costs increased to $4,960 for the three months ended
June 30, 2000 from $3,991 for the
Page 11 of 20
<PAGE> 12
same period in 1999. Premium costs for the six month period ended June 30, 2000
increased to $9,735 from $8,203 for the same period in 1999. This increase is
primarily a result of an additional investment by the Company in internal
clinical and claims personnel, as well as increased utilization of services by
an increasing population of contract members.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses are primarily comprised of
corporate office, sales and administration. Selling and administrative expenses
increased to $1,561 for the three months ended June 30, 2000 from $1,462 for the
same period in 1999. Selling and administrative expenses for the six month
period ended June 30, 2000 increased to $3,503 from $2,749 for the same period
in 1999. These increases are a result of increased investments in information
systems personnel, consultants and information systems related depreciation.
RESTRUCTURING AND OTHER CHARGES
In prior years, the Company established reserves in connection with its
restructurings and the exit of long-term care and outpatient operations. As part
of its ongoing evaluation of these reserves, at June 30, 1999, the Company
determined, based on its assessment of all remaining open matters, that the
Company was over accrued for these matters by $700. This change in estimate is
separately reflected in the Statement of Operations under "Restructuring and
Other Charges." The Company believes the remaining reserves for these matters
are adequate at June 30, 2000, however, as the Company continues to pursue
resolution of open matters, actual results could differ from such estimates.
INTEREST EXPENSE
In March 2000, the Board of Directors approved the issuance of warrants
to purchase 50,000 shares of Common Stock to a Board member and significant
shareholder, as well as the conditional issuance of additional warrants to
purchase 50,000 shares of Common Stock, subject to the approval of the Company's
stockholders which was granted during the June 27, 2000 shareholders meeting.
The warrants were issued in connection with a temporary line of credit of
$2,000,000 (expires on January 1, 2001), which was extended to the Company by
the shareholder/Board member in March 2000. The conditional warrants were issued
because the Company was not able to obtain a line of credit from a financial
institution to replace the line of credit extended by the shareholder/Board
member prior to June 30, 2000. The Company is in discussion with a number of
financial institutions to replace or supplement this line of credit. The
warrants have a ten-year term and are exercisable at a price per share equal to
$.625, which was the fair market value of a share of Common Stock on the closing
date of the Company's annual meeting. Generally accepted accounting principles
call for the cost of the warrants to be treated as interest expense and
accordingly $1 has been provided for the period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $85 for the six months ended June
30, 2000, compared to net cash provided by operations of $1,553 for the period
in the prior year. Unrestricted cash and cash equivalents decreased to $211 at
June 30, 2000 from $706 at December 31, 1999. At June 30, 2000 and 1999, the
Company also had $1,000 in cash which is contractually restricted as a reserve
for medical claims payable.
Page 12 of 20
<PAGE> 13
At June 30, 2000, the Company had a working capital deficit of $6,377.
The deficit is primarily attributable to accrued liabilities of $3,657 which
pertain to the exit of the outpatient provider behavioral group practice
business and reserves established for long-term care and other provider billing
matters. Although these amounts are classified as current due to their nature,
the Company does not expect that all of these amounts will require payment in
the next year. The remainder of the Company's accrued liabilities are operating
in nature.
The Company believes that the cash flow generated by the Company's
operations together with its existing cash and credit available from a
significant shareholder in the amount of $2,000 will be sufficient to meet the
Company's cash requirements in 2000.
The Company's current ratio, working capital and debt to equity ratio
are set forth below for the dates indicated:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Current Ratio............................... .25:1 .35:1
Working Capital Deficit..................... $(6,377) $(6,305)
Debt to Equity.............................. -- --
</TABLE>
INFLATION
A significant portion of the Company's operating expenses have been
subject to inflationary increases, including premium service costs, clinical and
administrative salaries and rent expense. Based on management's assessment, the
Company has historically sought to offset inflationary increases through price
increases. Further, the Company believes it has somewhat mitigated the effect of
inflation by expanding services and increasing operating efficiencies especially
through the use of automation and technology. There can be no assurance that the
Company will be able to offset future inflationary increases in expenses, if
any, which would result in a dilutive impact on the Company's future earnings.
SIGNIFICANT CONTRACT
Effective January 1, 1999, the Company implemented coverage of a
behavioral health carve-out contract with a health plan which currently covers
over 420,000 members. The Company expects that this contract, which has a
two-year term, will generate over $13,200 in annual revenues and it is currently
the Company's largest contract. Profitability under this capitated contract will
greatly depend upon the Company's ability to manage the utilization of services
within the premiums received. An underestimation in the expected utilization of
services for this contract could result in a material loss to the Company. In
1999 this contract performed according to plan. Management expects performance
under the contract in 2000 to be profitable and the contract to be renewed in
future years. This contract represented fifty percent of the Company's 1999
revenues and expires on December 31, 2000. The Company is currently negotiating
the renewal of the agreement.
Page 13 of 20
<PAGE> 14
CAUTIONARY STATEMENT
Matters discussed above contained forward-looking statements that are
based on the Company's estimates, assumptions and projections. Major factors
which could cause results to differ materially from those expected by management
include the timing and nature of reimbursement changes, the nature of changes in
laws and regulations that govern various aspects of the Company's business, new
criteria adopted to determine medical necessity for behavioral health services,
the outcome of post-payment reviews of the Company's billings to Medicare
patients in long-term care facilities, Year 2000 issues, pricing of managed care
and other third party contracts, the utilization and cost of services under the
Company's capitated contracts, the direction and success of competitors,
management retention and unanticipated market changes.
Page 14 of 20
<PAGE> 15
INTEGRA, INC.
FORM 10-Q - QUARTER ENDED JUNE 30, 2000
PART II
ITEM 1 - LEGAL PROCEEDINGS
From time to time, the Company is a party to certain claims, suits and
complaints which arise in the course of business. The following items all
pertain to matters associated with the Company's outpatient behavioral health
group practice operations which were disposed of in 1998.
In March 1998, the Company received notification that the Medicare
Intermediary in California ("the Intermediary") had completed a post payment
medical review of billings previously submitted by the Company and paid between
1990 and 1994. Based upon the results of its review, the Intermediary requested
a refund of approximately $1,200. Services were denied primarily on the basis of
medical necessity and incomplete documentation. An administrative hearing was
held on this matter on April 24, 2000 and the judge has taken the matter under
advisement. As of December 31, 1997, the Company had fully reserved for the
above amount.
During the first half of 1999, the Company received notification of
potential Medicaid program billing issues in Nevada in connection with services
performed at the Company's former Nevada outpatient group practice subsidiaries
which were sold by the Company at the end of 1997. Upon further review of the
Company's former Nevada Medicaid billings, the Company determined that certain
Nevada Medicaid billings of these former outpatient practices were not in
accordance with Medicaid program regulations. In accordance with the Company's
full disclosure policy, the Company disclosed this matter to the Nevada Medicaid
program. In December 1999, the Company reached a settlement agreement with the
State of Nevada which resolves all claims against the Company relating to this
matter. Terms of the settlement include a total payment of $455 plus interest at
a simple rate of 7%. The Company paid the first installment in the amount of
$227 in December 1999. The remaining installment is reserved for at December 31,
1999 as part of the Company's long-term care and provider billing reserves.
During the second quarter the Company paid $114 (one-half of the remaining
liability) and agreed to remit the balance due plus interest in January 2001.
In January 2000, PsychPartners filed for protection under Chapter 11 of
the Federal Bankruptcy Laws. Based on discussions with PsychPartners personnel,
as well as developments in the bankruptcy court, the Company understands that
PsychPartners intends to discontinue all future operations and liquidate all
existing assets to satisfy outstanding obligations. Under the terms of the
Purchase Agreement, PsychPartners assumed responsibility for all facility leases
associated with the practices sold. While the Company obtained assignment
letters for many of these leases, due to the nature of both real estate and
bankruptcy laws, it is possible that the Company will be responsible for a
portion of these remaining lease obligations. The Company has engaged special
counsel and is evaluating its exposure in this matter on an ongoing basis. The
Company estimates there are approximately 32 open leases with approximately
$2,325 in remaining payments under the lease terms, not including certain fees
and expenses for which the Company may be responsible. The Company intends to
aggressively pursue resolution of this matter in terms most favorable to the
Company. Accordingly, the Company recorded a charge of $1,700 at December 31,
1999, for this potential exposure. During the second quarter of 2000 the Company
paid $85 relating to legal costs and lease obligations.
In addition to the above lease exposure, PsychPartners defaulted on
certain deferred contingent purchase price obligations which were part of the
original acquisition agreements for practices previously purchased by
Page 15 of 20
<PAGE> 16
Integra. These liabilities were also assumed by PsychPartners under the terms of
the Purchase Agreement. The Company believes it has no remaining responsibility
for these obligations, however, the individuals associated with these practices
may choose to assert a claim against the Company. The Company has not
established a reserve for these amounts which it estimates may aggregate to
$1,000 and intends to vigorously contest any claims related to this matter.
Although management believes that established reserves for the above
matters are sufficient, it is possible that the final resolution of these
matters may exceed the established reserves by an amount which could be material
to the Company's results of operations. Due to the nature of these matters, the
Company cannot predict when these matters will be finally resolved. The Company
does not believe the ultimate outcome of these matters will have a material
adverse effect on the Company's overall financial condition, liquidity or
operations.
During 1998, the Company entered into a Corporate Integrity Agreement
(the "Agreement") with the Office of the Inspector General of the Department of
Health and Human Services ("OIG") whereas the Company agreed to undertake
certain compliance obligations. The Company, as required under the terms of the
Agreement and with the assistance of outside auditors, filed its first annual
report with the OIG in December 1999. In April and May 2000 the Company
exchanged information with the OIG with respect to its annual filing. The OIG
offered several suggestions for improvement of the Company's Corporate
Compliance Program which have been executed. In addition, the OIG requested some
specific procedures which will be undertaken in connection with the Company's
second annual report due in November 2000.
Currently, there are no other such claims, suits or complaints that, in
the opinion of management, would have a material adverse effect on the Company's
financial position, results of operations or liquidity.
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<PAGE> 17
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 27, 2000, the Company held its 2000 Annual Meeting of
Shareholders. At the Annual Meeting, the following matters were submitted to a
vote of shareholders:
1. The holders of 2,426,384 shares of common stock voted in favor
of, the holders of 622,981 shares of common stock voted
against and the holders of 23,080 shares of common stock
abstained with respect to a proposal to amend the Company's
Certificate of Incorporation to adopt a classified Board of
Directors. This proposal was not approved since a majority of
the outstanding shares were not voted in favor of the
proposal.
2. The following four individuals, constituting the full Board of
Directors of the Company, were nominated and elected to serve
as the directors of the Company:
<TABLE>
<S> <C> <C>
Shawkat Raslan FOR: 7,985,587
WITHHOLD
AUTHORITY: 472,360
Eric E. Anderson, Ph.D. FOR: 7,985,587
WITHHOLD
AUTHORITY: 472,360
Charles-Henri Weil FOR: 7,985,587
WITHHOLD:
AUTHORITY: 472,360
Elliot Sainer FOR: 7,985,587
WITHHOLD
AUTHORITY: 472,360
</TABLE>
3. The holders of 2,541,951 shares of common stock voted in favor
of, the holders of 496,409 shares of common stock voted
against and the holders of 34,085 shares of common stock
abstained with respect to the approval of the 1999 Stock
Option Plan.
4. The holders of 2,951,793 shares of common stock voted in favor
of, the holders of 89,867 shares of common stock voted against
and the holders of 30,785 shares of common stock abstained
with respect to the approval of the issuance of warrants to
Charles-Henri Weil.
5. The holders of 8,430,012 shares of common stock voted in favor
of, the holders of 6,850 shares of common stock voted against
and the holders of 21,085 shares of common stock abstained
with respect to the ratification of the selection of
PricewaterhouseCoopers LLP, to serve as independent
accountants for the Company.
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<PAGE> 18
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) The exhibits required to be filed as part of this Quarterly
Report on Form 10-Q are contained in the attached Index to
Exhibits.
b) Current Reports on Form 8-K: None
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
INTEGRA, INC.
-----------------------
(registrant)
August 14, 2000 /s/Jack N. Brown
----------------- -----------------------
(Date) Jack N. Brown
Chief Financial Officer
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<PAGE> 20
INDEX TO EXHIBITS
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
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