<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 SEPTEMBER 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
------------
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 November 3, 2000, Integra, Inc. had 10,138,552 shares of common stock,
$0.01 par value, outstanding.
<PAGE> 2
INTEGRA, INC.
FORM 10-Q - QUARTER ENDED SEPTEMBER 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 September 30, 2000 and 1999 3
- Consolidated Statements of Operations
for the Nine Months Ended September 30,
2000 and 1999 4
- Consolidated Balance Sheets
as of September 30, 2000 and
December 31, 1999 5
- Consolidated Statements of
Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 6
- Consolidated Statement of
Changes in Stockholders' Equity
for the Nine Months Ended
September 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
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
September 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net revenues:
Premium revenue $ 6,747 $ 6,521
----------- -----------
Total net revenues 6,747 6,521
----------- -----------
Cost of revenues:
Premium service costs 4,539 4,085
----------- -----------
Total cost of revenues 4,539 4,085
----------- -----------
Gross profit 2,208 2,436
Selling and administrative expenses 1,786 1,526
Amortization of intangible assets and excess cost
over fair value of net assets acquired 121 123
----------- -----------
Total expenses 1,907 1,694
Income from operations 301 787
Interest income - net (27) (7)
----------- -----------
Income before income taxes 328 794
Provision for income taxes 11 75
----------- -----------
Net income $ 317 $ 719
=========== ===========
Net income per common share:
Basic $ .03 $ .07
=========== ===========
Diluted $ .03 $ .07
=========== ===========
Weighted average shares outstanding:
Basic 10,138,552 10,138,552
=========== ===========
Diluted 10,744,271 10,514,075
=========== ===========
</TABLE>
Page 3 of 19
<PAGE> 4
INTEGRA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net revenues:
Premium revenue $ 19,974 19,116
----------- -----------
Total net revenues 19,974 19,116
----------- -----------
Cost of revenues:
Premium service costs 14,274 12,288
----------- -----------
Total cost of revenues 14,274 12,288
----------- -----------
Gross profit 5,700 6,828
Selling and administrative expenses 5,288 4,275
Restructuring and other charges 0 (700)
Amortization of intangible assets and excess cost
over fair value of net assets acquired 367 365
----------- -----------
Total expenses 5,655 3,940
Income from operations 45 2,888
Interest (income) expense (76) 28
----------- -----------
Income before income taxes 121 2,860
Provision for income taxes 13 143
----------- -----------
Net income $ 108 $ 2,717
=========== ===========
Net income per common share:
Basic $ .01 $ .27
=========== ===========
Diluted $ .01 $ .26
=========== ===========
Weighted average shares outstanding:
Basic 10,138,552 10,138,552
=========== ===========
Diluted 10,735,292 10,526,524
=========== ===========
</TABLE>
Page 4 of 19
<PAGE> 5
INTEGRA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30,
ASSETS 2000 December 31,
(Unaudited) 1999
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 84 $ 706
Restricted cash 1,000 1,000
Accounts receivable, net of allowance for doubtful
accounts of $220 in 2000 and $71 in 1999 625 914
Other accounts receivable 270 187
Other current assets 241 555
-------- --------
Total current assets 2,220 3,362
Property and equipment, net of accumulated amortization
of $2,220 in 2000 and $1,589 in 1999 1,961 1,859
Intangible assets and excess cost over fair value
of net assets acquired, net of accumulated amortization
of $2,058 in 2000 and $1,691 in 1999 9,796 10,009
-------- --------
$ 13,977 $ 15,230
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 646 $ 277
Medical claims payable 3,126 3,385
Accrued expenses and other current liabilities 4,526 6,002
-------- --------
Total current liabilities 8,298 9,664
Deferred income tax liability 296 296
-------- --------
Total liabilities 8,594 9,960
-------- --------
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 87,514 87,508
Accumulated deficit (82,232) (82,339)
-------- --------
Total stockholders' equity 5,383 5,270
-------- --------
$ 13,977 $ 15,230
======== ========
</TABLE>
Page 5 of 19
<PAGE> 6
INTEGRA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 108 $ 2,717
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 967 906
Loss on abandonment of equipment 31
Issue of warrant for financing guarantee 5
Non-cash portion of restructuring and other charges (700)
Provision for doubtful accounts 149
Changes in assets and liabilities, net of effects of
businesses acquired:
Decrease (increase) in accounts receivable 57 (223)
Increase in restricted cash (700)
Decrease in other current assets 314 32
Increase (decrease) in accounts payable 369 (449)
(Decrease) increase in accrued expenses and other
current liabilities (1,734) 1,240
------- -------
Net cash provided by operating activities 266 2,823
------- -------
Cash flows from investing activities:
Additional payments for businesses acquired in prior years (150) (591)
Purchases of property and equipment (738) (835)
------- -------
Net cash used in investing activities (888) (1,426)
------- -------
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 (622) (153)
Cash and cash equivalents at beginning of period 706 2,452
------- -------
Cash and cash equivalents at end of period $ 84 $ 2,299
======= =======
</TABLE>
Page 6 of 19
<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 $87,509 $(82,340) $5,270
Issuance of warrants
for financing guarantee 5 5
Net income 108 108
------ ---- ------- -------- ------
Balance at September 30, 2000
(unaudited) 10,139 $101 $87,514 $(82,232) $5,383
====== ==== ======= ======== ======
</TABLE>
Page 7 of 19
<PAGE> 8
INTEGRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
Integra, Inc.'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 nine month periods ended September
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
The provision for income taxes is based on the Company's estimated
effective income tax rate for 2000. 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 - MEDICAL CLAIMS PAYABLE
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 currently
covers over 430,000 members and is the Company's largest contract. 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
Page 8 of 19
<PAGE> 9
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>
September 30, December 31,
2000 1999
------------- -----------
<S> <C> <C>
Salaries and vacation................................. 425 451
Restructuring costs................................... 2,003 2,284
Long-term care and provider billing reserves.......... 1,454 1,935
Other................................................. 644 1,332
------ ------
$4,526 $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 initially estimated that there were 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 third quarter of 2000 the
Company paid $92 relating to legal costs and lease obligations bringing the
total to $304 for the year.
Page 9 of 19
<PAGE> 10
In addition to the above lease exposure, PsychPartners defaulted on
certain deferred contingent purchase price obligations that 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 September 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, 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 September 30, 2000. However, as the Company continues to pursue
resolution of open matters, actual results could differ from such estimates.
During the third quarter of 2000, the Company paid $53 relating to legal costs
and lease obligations bringing the total to $315 for the year.
Page 10 of 19
<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 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 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 nine month periods ended September
30, 2000 increased from the corresponding periods of the prior year by $226 and
$858 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 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.
Page 11 of 19
<PAGE> 12
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 $4,539 for the three months ended
September 30, 2000 from the $4,085 for the same period in 1999. These costs also
increased for the nine month period ended September 30, 2000 to $14,274 from
$12,288 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 $1,786 for the three months ended September 30, 2000 from $1,526
for the same period in 1999. These expenses also increased for the nine month
period ended September 30, 2000 to $5,288 from $4,275 for the same period in
1999. These increases are the 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. At June
30, 1999, as part of its ongoing evaluation of these reserves, 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" and was recorded during the quarter ended June 30, 1999. The
Company believes the remaining reserves for these matters are adequate at
September 30, 1999, 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 for the initial 50,000 shares of common stock 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 subsequently 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 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 $4 has been provided for the period.
Page 12 of 19
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $266 for the nine months ended
September 30, 2000, compared to net cash provided by operations of $2,823 for
the same period in the prior year. Unrestricted cash and cash equivalents
decreased to $84 at September 30, 2000 from $2,299 at December 31, 1999. At
September 30, 2000 and December 31, 1999, the Company also had $1,000 in cash
contractually restricted as a reserve for medical claims payable.
At September 30, 2000, the Company had a working capital deficit of
$6,078. The deficit is primarily attributable to accrued liabilities of $ 3,457
that 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 is operating
in nature.
In October 2000, the Company signed a commitment letter with a local
Bank which will establish a credit facility that allows for up to $500 of
available borrowings subject to a formula based upon eligible accounts
receivable.
The Company believes that the cash flow generated by the Company's
operations together with its existing cash and credit available from its Bank as
well as 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>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Current Ratio............................... .26:1 .35:1.
Working Capital Deficit..................... $(6,078) $(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.
Page 13 of 19
<PAGE> 14
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 430,000 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.
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, 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 SEPTEMBER 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. Administrative hearings have
taken place in April and September 2000 with follow-on hearings expected in the
fourth quarter of 2000. As of December 31, 1997, the Company had fully reserved
for the above amount.
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 may 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 initially estimated that there were 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 third quarter of 2000 the
Company paid $92 relating to legal costs and lease obligations.
In addition to the above lease exposure, PsychPartners defaulted on
certain deferred contingent purchase price obligations that 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. The Company has not established a
reserve for the amounts that 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.
Page 15 of 19
<PAGE> 16
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") wherein 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 that have been effected. In addition, the OIG requested
specific procedures to be implemented that 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.
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)
November 3, 2000 /s/ Jack N. Brown
---------------- -----------------------
(Date) Jack N. Brown
Chief Financial 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
