<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 MARCH 31, 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
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) 992-2600
(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 May 1, 2000, Integra, Inc. had 10,138,552 shares of common stock $0.01 per
value, outstanding.
Page 1 of 19
<PAGE> 2
INTEGRA, INC.
FORM 10-Q - QUARTER ENDED MARCH 31, 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 3
Operations for the Three Months
Ended March 31, 2000 and 1999
- Consolidated Balance Sheets 4
as of March 31, 2000 and
December 31, 1999
- Consolidated Statements of 5
Cash Flows for the Three Months
Ended March 31, 2000 and 1999
- Consolidated Statement of 6
Changes in Stockholders' Equity
for the Three Months Ended
March 31, 2000
- Notes to Consolidated Financial 7
Statements
2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
II. OTHER INFORMATION
1. Legal Proceedings 15
6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index to Exhibits 19
</TABLE>
Page 2 of 19
<PAGE> 3
INTEGRA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
2000 1999
---- ----
Net revenues:
<S> <C> <C>
Premium revenue $ 6,480 6,356
------------ ------------
Total net revenues 6,480 6,356
------------ ------------
Cost of revenues:
Premium service costs 4,775 4,212
------------ ------------
Total cost of revenues 4,775 4,212
------------ ------------
Gross profit 1,705 2,144
Selling and administrative expenses 1,942 1,287
Amortization of intangible assets and excess cost over
fair value of net assets acquired 123 121
------------ ------------
Income (loss) from operations (360) 736
Interest (income) expense net (7) 10
------------ ------------
Income (loss) before income taxes (353) 726
Provision for income taxes 31
------------ ------------
Net income (loss) $ (353) $ 695
============ ============
Basic net income (loss) per common share $ (0.03) $ 0.07
============ ============
Diluted net income (loss) per common share $ (0.03) $ 0.07
============ ============
Weighted average shares outstanding:
Basic 10,138,552 10,138,552
============ ============
Diluted 10,552,546 10,528,748
============ ============
</TABLE>
Page 3 of 19
<PAGE> 4
INTEGRA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31,
ASSETS 2000 December 31,
(Unaudited) 1999
----------- ----
<S> <C>
Current assets:
Cash and cash equivalents $ 377 $ 706
Restricted cash 1,000 1,000
Accounts receivable, net of allowance for doubtful
accounts of $32 in 2000 and $71 in 1999 469 914
Other accounts receivable 194 187
Other current assets 497 552
-------- --------
Total current assets 2,537 3,359
Property and equipment, net of accumulated amortization of $1,827 in
2000 and $1,589 in 1999 1,844 1,859
Intangible assets and excess cost over fair value of net assets
acquired, net of accumulated amortization of $1,814 in 2000 and
$1,691 in 1999 9,890 10,009
Other assets, net 1 3
-------- --------
$ 14,272 $ 15,230
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 171 $ 277
Reserve for unpaid claims 3,439 3,385
Accrued expenses and other current liabilities 5,449 6,002
-------- --------
Total current liabilities 9,059 9,664
Deferred income tax liability 296 296
-------- --------
Total liabilities 9,355 9,960
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares
authorized; issued 10,138,552 in 2000 and
10,138,552 in 1999 101 101
Capital in excess of par value 87,508 87,508
Accumulated deficit (82,692) (82,339)
-------- --------
Total stockholders' equity 4,917 5,270
======== ========
$ 14,272 $ 15,230
======== ========
</TABLE>
Page 4 of 19
<PAGE> 5
INTEGRA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (353) $ 695
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operations:
Depreciation and amortization 357 271
Changes in assets and liabilities, net of effects of
businesses acquired:
(Increase) decrease in accounts receivable 445 (491)
Decrease in other current assets 48 68
Decrease in accounts payable (106) (485)
Increase (decrease) in accrued expenses and other
current liabilities (498) 1,050
Increase in other assets and other liabilities 2 (31)
------- -------
Net cash (used in) provided by operating
activities (105) 1,077
------- -------
Cash flows from investing activities:
Additional payments for businesses acquired in prior
years (5) (416)
Purchases of property and equipment
(219) (217)
------- -------
Net cash used in investing activities (224) (633)
------- -------
Cash flows from financing activities:
Principal payments on long-term obligations -- (1,550)
------- -------
Net cash used in financing activities 0 (1,550)
------- -------
Net (decrease) increase in cash and cash equivalents (329) (1,106)
Cash and cash equivalents at beginning of period 706 2,452
------- -------
Cash and cash equivalents at end of period $ 377 $ 1,346
======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 0 $ 26
======= =======
Income taxes paid $ 17 $ 171
======= =======
</TABLE>
Page 5 of 19
<PAGE> 6
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
Net Loss (353) (353)
------- -------- ---------- --------- ----------
Balance at March 31,
2000 10,139 $ 101 $ 87,508 $ (82,692) $ 4,917
======= ========= ========== ========= ==========
</TABLE>
Page 6 of 19
<PAGE> 7
INTEGRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 and as amended on April 28, 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 month period ended March 31, 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 7 of 19
<PAGE> 8
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>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Salaries and vacation $ 237 $ 451
Restructuring costs 2,157 2,284
Long-term care and provider billing reserves 1,675 1,935
Other 1,380 1,332
------------ ------------
$ 5,449 $ 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
it 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, the Company is evaluating whether it may have
contingent exposure under these agreements. The Company is in the process of
coordinating with PsychPartners, the landlords and special counsel which the
Company engaged to assist in this matter. The Company estimates there are
approximately 35 open leases with approximately $2,500 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 part of the lease situations in terms most favorable to the
Company. Due to the nature of real estate law, it is probable the Company will
be responsible for a portion of these remaining lease obligations. Accordingly,
the Company recorded a charge of $1,700 at December 31, 1999, for this potential
exposure. The Company believes that the reserve for these matters is adequate at
March 31, 2000, however, as the Company continues to pursue resolution of open
matters, actual results could differ from such estimates.
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 March 31, 2000 and December 31,
Page 8 of 19
<PAGE> 9
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. The
Company believes the remaining reserves for these matters are adequate at March
31, 2000. However, as the Company continues to pursue resolution of open
matters, actual results could differ from such estimates. During the first
quarter of 2000 the Company paid $127 relating to legal costs and lease
obligations.
Page 9 of 19
<PAGE> 10
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 EAP and 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 employee or 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 and
selected consulting services. Integra's contract service areas are principally
concentrated in Connecticut, Delaware, Maryland, New Jersey, New York,
Pennsylvania, Rhode Island, Virginia and Tennessee.
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 employee or per member per
month fee. Revenues under these contracts are recorded in the month for which
the member or employee is entitled to services. Generally, these contracts are
on a one to three year basis and are subject to various cancellation provisions
which are typical to industry practice.
Premium revenue for the three-month period ended March 31, 2000
increased from the corresponding period of the prior year from $6,356 to $6,480
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
Page 10 of 19
<PAGE> 11
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 for the three month period ended March
31, 2000 to $5,042 from $4,212 in the corresponding period in the prior year.
This increase is primarily a result of an additional investment by the Company
in internal clinical and claims personnel, as well as increased utilization from
capitated contracts due to increased membership.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses are primarily comprised of
corporate office, sales and administration. Selling and administrative expenses
increased to $1,972 for the three months ended March 31, 2000 from $1,287 for
the same period in 1999. The increase is essentially a result of increased
investment in Information Systems personnel, consultants and depreciation.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $105 for the three months ended March
31, 2000 compared to net cash provided by operations of $1,077 for the same
period in the prior year. Unrestricted cash and cash equivalents decreased to
$377 at March 31, 2000 from $706 at December 31, 1999. At March 31, 2000, the
Company also had $1,000 in cash which is designated as a restricted reserve for
medical claims payable under the contract with HealthNow New York.
At March 31, 2000 the Company had a working capital deficit of $6,817.
The deficit is primarily attributable to accrued liabilities of $3,832 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>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Current Ratio............................... .28:1 .35:1
Working Capital Deficit..................... $(6,522) $(6,305)
Debt to Equity.............................. - -
</TABLE>
INFLATION
A significant portion of the Company's operating expenses have been
subject to inflationary increases, including 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
Page 11 of 19
<PAGE> 12
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
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 in
discussion with the Health Plan regarding the renewal of the agreement.
POTENTIAL IMPACT OF YEAR 2000 COMPUTER ISSUES
The year 2000 problem is primarily the result of two potential
malfunctions that could have an impact on the Company's systems and equipment.
The first problem arises due to computers being programmed to use two rather
than four digits to define the applicable year. The second problem arises in
embedded chips where microchips and microcontrollers have been designed using
two rather than four digits to define the applicable year. Certain of the
Company's computers, programs, and building infrastructure components (e.g.
alarm systems and HVAC systems) are date sensitive and may recognize a date
using "00" as the year 1900 rather than the year 2000.
The Company relies on information technology ("IT") systems and other
systems and facilities such as telephones, building access control systems and
heating and ventilation equipment ("Embedded Systems") to conduct its business.
These systems may have been potentially vulnerable to year 2000 problems due to
their use of date information. The Company also has business relationships with
customers and healthcare providers and other critical vendors who are themselves
reliant on IT and Embedded Systems to conduct their businesses.
State of Readiness. The Company's internal IT systems are largely
centralized and consist primarily of purchased software. The Company's IT
hardware infrastructure is built mainly around IBM PC compatible servers and
desktop systems. The Company's IT software primarily utilizes Microsoft systems
including SQL Server, Windows NT, Internet Information Server, Exchange and
Office. The Company believes these systems were compliant at December 31, 1999.
The Company's clinical and claims administration software were certified by the
vendor as being year 2000 compliant. The Company completed testing of this
system and believes it to be compliant. Year 2000 remediation costs incurred in
1999 and 1998 were $60 and $100, respectively.
External Relationship. The Company also faced the risk that one or more
of its critical suppliers or customers ("External Relationships") would not be
able to interact with the Company due to the third party's inability to resolve
its own year 2000 issues, including those associated with its own External
Relationships.
Page 12 of 19
<PAGE> 13
The Company has assessed its External Relationships and has rated its risk with
each External Relationship based upon the potential business impact, available
alternatives and cost of substitution. The Company attempted to determine the
overall year 2000 readiness of its External Relationships. In the case of
significant customers and mission critical suppliers such as banks,
telecommunications providers and other utilities and IT vendors, the Company
engaged in discussions with the third parties and obtained information as to
those parties' year 2000 plans and state of readiness. The Company believes its
External Relationships are year 2000 ready.
Risks and Contingency/Recovery Planning. If the Company's year 2000
issues were unresolved, it is possible the Company would not have the ability to
accurately and timely authorize and process benefits and claims, accurately bill
customers, assess claims exposure, determine liquidity requirements, report
accurate data to management, stockholders, customers, regulators and others, and
would be subject to business interruptions or shutdowns, financial losses,
reputational harm, loss of significant customers, increased scrutiny by
regulators and litigation related to year 2000 issues. The Company attempted to
limit the potential impact of the year 2000 by monitoring the progress of its
own year 2000 project and those of its critical External Relationships and by
developing contingency/recovery plans.
The Company developed contingency/recovery plans aimed at maintaining
the continuity of critical business functions before and after December 31, 1999
and through March 1, 2000. As part of that process, the Company developed manual
work alternatives to automated processes which were designed to maintain
business continuity. These manual alternatives presume, however, that basic
infrastructure such as electrical power and telephone service, as well as
purchased systems which are advertised to be year 2000 compliant by their
manufacturers (primarily IT hardware and software) will remain unaffected by the
year 2000 problem. The Company engaged various testing techniques using Integra,
Inc. Information Technology staff and external consultants during the last half
of 1999. Minor problems revealed as a result of such testing were corrected.
Integra's Y2000 readiness was deemed complete in December 1999. No significant
problems at that time, or through March 30, 2000 were encountered and the
Company believes it will not have future difficulty.
Page 13 of 19
<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 and customer retention and unanticipated market changes.
Page 14 of 19
<PAGE> 15
INTEGRA, INC.
FORM 10-Q - QUARTER ENDED MARCH 31, 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.
In April 1998, the Company received notice that the Office of the
Attorney General of New York State ("the State") was conducting an audit of the
New York Medicaid billings of one of the outpatient provider operations with
which it had an Administrative Services Agreement. The State was investigating
whether the Company had any liability arising from the operation of, and its
relationship with, that provider. In October 1998, the Company terminated its
agreements with that provider. In May 1999, the company reached a settlement
agreement with the State which resolves all claims against the Company relating
to this matter. Terms of the settlement include a total payment of $382 plus
$18 of interest. The final installment of $200 was paid in February 2000.
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 and is expected to be paid in full by the end of fiscal year
2000.
In January 2000, PsychPartners filed for protection under Chapter 11 of
the Federal Bankruptcy Laws. Based on discussions with PsychPartners personnel
it 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, the Company is evaluating whether it may
Page 15 of 19
<PAGE> 16
have contingent exposure under these agreements. The Company is in the process
of coordinating with PsychPartners, the landlords and special counsel which the
Company engaged to assist in this matter. The Company estimates there are
approximately 35 open leases with approximately $2,500 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 part of the lease situations in terms most favorable to the
Company. Due to the nature of real estate law, it is probable the Company will
be responsible for a portion of these remaining lease obligations. Accordingly,
the Company recorded a charge of $1,700 at December 31, 1999, for this potential
exposure.
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 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.
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 2000 the Company received a
response from the OIG. The Company responded to questions of the OIG and
continues to provide the OIG information regarding its performance under the
Integrity Agreement.
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.
Page 16 of 19
<PAGE> 17
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
Page 17 of 19
<PAGE> 18
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)
May 15, 2000 /s/ Eric E. Anderson, Ph.D.
- ------------- -----------------------------
(Date) Eric E. Anderson, Ph.D.
President and Chief Executive Officer
Page 18 of 19
<PAGE> 19
INDEX TO EXHIBITS
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
Page 19 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,377
<SECURITIES> 0
<RECEIVABLES> 501
<ALLOWANCES> 32
<INVENTORY> 0
<CURRENT-ASSETS> 2,537
<PP&E> 3,671
<DEPRECIATION> 1,827
<TOTAL-ASSETS> 14,272
<CURRENT-LIABILITIES> 9,059
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 4,816
<TOTAL-LIABILITY-AND-EQUITY> 14,272
<SALES> 0
<TOTAL-REVENUES> 6,480
<CGS> 0
<TOTAL-COSTS> 4,775
<OTHER-EXPENSES> 2,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7)
<INCOME-PRETAX> (353)
<INCOME-TAX> 0
<INCOME-CONTINUING> (353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (353)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
