<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2000 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 19934 FOR THE TRANSITION PERIOD
FROM TO .
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Commission file number: 0-23220
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Health Power, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 31-1145640
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1209 Orange Street, Wilmington, Delaware 19801
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(Address of principal executive offices) Zip Code
(302) 658-7581
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(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 []. Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Common Stock, $0.01 Par Value 3,888,460
------------------------------------- -----------------------------------------
Class Outstanding at November 14, 2000
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HEALTH POWER, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - as of 3 & 4
September 30, 2000 and December 31, 1999
Consolidated Statements of Operations for the nine months 5
ended September 30, 2000 and September 30, 1999
Consolidated Statements of Cash Flows - for the nine months
ended September 30, 2000 and September 30, 1999 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II.OTHER INFORMATION
Item 4. Exhibits & Reports 15
Signatures 16
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTH POWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS as of September 30, 2000 and December 31, 1999
September 30, 2000 December 31,
ASSETS (Unaudited) 1999
------ ----------- ----
Current assets:
Cash and cash equivalents $3,990,997 $6,815,578
Accounts receivable, net 4,022,296 4,094,365
Prepaid expenses and other assets 1,005,603 332,988
Current assets of discontinued operations 55,011 4,273,765
Deferred income taxes 255,680 2,107,984
---------- ----------
Total current assets 9,329,587 17,624,680
---------- ----------
Property and equipment, net 4,151,867 3,889,237
Goodwill 9,238,441 9,510,984
Deposits and other assets 63,780 553,371
----------- -----------
Total assets $22,783,675 $31,578,272
=========== ===========
The accompanying notes are an integral part of the financial statements
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CONSOLIDATED BALANCE SHEETS, Continued
<TABLE>
<CAPTION>
September 30, 2000 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 1999
------------------ ------------
<S> <C> <C>
Current liabilities:
Deferred revenues $4,735,835 $10,527,550
Accounts payable 789,208 1,023,945
Accrued expenses and other liabilities 1,218,399 965,476
Taxes payable 958,200 215,215
Current liabilities of discontinued operations 2,389 6,734,980
Notes and leases payable 1,566,845 2,764,536
----------- -----------
Total current liabilities 9,270,876 22,231,702
Notes and leases payable - noncurrent 1,576,366 2,086,460
Deferred income taxes 480,240 224,131
----------- -----------
Total Liabilities 11,327,482 24,542,293
----------- -----------
Stockholders' equity:
Common stock 38,885 38,537
Additional paid-in capital 10,907,502 10,854,153
Accumulated earnings (deficit ) 509,806 (3,856,711)
----------- -----------
Total stockholders' equity 11,456,193 7,035,979
----------- -----------
Total liabilities and stockholders' equity $22,783,675 $31,578,272
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
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HEALTH POWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
Sept 30, Sept 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Contract $11,658,520 $10,571,121 $35,406,970 $25,989,190
Expenses:
Selling, general and administrative 10,318,395 9,754,888 30,968,427 22,795,960
----------- ----------- ----------- -----------
Income from operations 1,340,125 816,233 4,438,543 3,193,230
Interest income and other, net (8,863) (114,430) 66,350 (77,045)
----------- ----------- ----------- -----------
Income from continuing operations
before income taxes 1,331,262 701,803 4,504,893 3,116,185
Federal, state and local income taxes 541,741 184,089 1,774,881 1,089,812
----------- ----------- ----------- -----------
Net income from continuing operations 789,521 517,714 2,730,012 2,026,373
Discontinued operations:
Gain from disposal of discontinued operations (net of
tax expense of $3,000 and $ 0 , / (5,000) 0 180,976 0
/ $149,640 and $ 0 , respectively )
Extraordinary Item
Gain from extinguishment of debt (net of
tax benefit of $783,058 ) 0 0 1,455,529 0
----------- ----------- ----------- -----------
Net income (loss) $784,521 $517,714 $4,366,517 $2,026,373
=========== =========== =========== ===========
EARNINGS PER SHARE (BASIC)
Continuing operations, per share $0.20 $0.13 $0.70 $0.53
Discontinued operations, per share $0.00 $0.00 $0.05 $0.00
Extraordinary item, per share $0.00 $0.00 $0.38 $0.00
=========== =========== =========== ===========
Net income per share - basic $0.20 $0.13 $1.13 $0.53
=========== =========== =========== ===========
EARNINGS PER SHARE (DILUTED)
Continuing operations, per share $0.20 $0.13 $0.70 $0.53
Discontinued operations, per share $0.00 $0.00 $0.05 $0.00
Extraordinary item, per share $0.00 $0.00 $0.38 $0.00
=========== =========== =========== ===========
Net income per share - diluted $0.20 $0.13 $1.13 $0.53
=========== =========== =========== ===========
</TABLE>
The accompanying footnotes are an integral part of the financial statements.
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HEALTH POWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the nine months ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Cash (used in) continuing operating activities ($207,118) ($3,755,552)
Cash (used in) provided by discontinued operations (4,021,230) 562,344
---------- ----------
Net cash (used in) operating activities: (4,228,348) (3,193,208)
---------- ----------
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Purchase of property and equipment, net (1,183,384) (772,340)
Acquisition of business 0 (1,590,576)
---------- ----------
Cash (used in) continuing operating activities (1,183,384) (2,362,916)
Cash provided by discontinued operations 0 21,086
---------- ----------
Net cash (used in) investing activities (1,183,384) (2,341,830)
---------- ----------
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Payments on notes payable and lease obligations (1,487,776) 0
Issuance of Common Stock 53,697 42,867
Change restricted cash of discontinued operations 4,021,230 0
---------- ----------
Net cash provided by financing activities 2,587,151 42,867
---------- ----------
Net decrease in cash and cash equivalents (2,824,581) (5,492,171)
Cash and cash equivalents, beginning of year 6,815,578 11,714,169
---------- ----------
Cash and cash equivalents, end of period $3,990,997 $6,221,998
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
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HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements are unaudited and have
been prepared by the management of Health Power, Inc. In the opinion of
management, they contain the adjustments (all of which are normal and
recurring in nature) necessary to present fairly the financial position,
results of operations, and cash flows for all periods presented. The
results of operations for the nine-month periods ending September 30, 2000
and 1999 are not necessarily indicative of operating results for a full
year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and, therefore,
do not include all information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles. These financial statements should be read in
conjunction with the December 31, 1999, financial statements and notes
thereto contained in the Company's 1999 Form 10-K.
2. The Company recognizes income tax expense in interim periods based on an
estimated annual effective tax rate, adjusted for events and circumstances
expected to impact the estimated annual rate.
3. On December 29, 1998, the Company's Board of Directors formally approved a
plan to discontinue operations of the Company's HMO. Accordingly, at
December 31, 1998 and 1999, the operating results of the HMO operations
included a provision for estimated lease costs, employee severance and
benefits, and write-downs of property, plant and equipment during the
phase-out period and a loss on disposal and has been segregated from
continuing operations and reported as a separate line item on the statement
of operations. All operating costs related to HMO operations for the nine
month period ending September 30, 2000 have been charged against the
provision for discontinued operations and management has adjusted the
provision to reflect anticipated costs considered necessary through the
anticipated wind-up date. The Company has classified the operating results
of the HMO as discontinued operations in its financial statements. The
assets and liabilities of such operations at September 30, 2000 and
December 31, 1999, respectively, have been reflected as separate line items
on the balance sheet based substantially on the original classification of
such assets and liabilities.
On July 18, 1998, the Ohio Department of Insurance (ODI) issued an order
that the Company's HMO business was to be placed under the supervision of
ODI. On June 30, 2000, ODI issued an order that terminated the supervision
order. As a result of the termination order, certain liabilities of the HMO
were extinguished due to the insufficiency of the assets of the HMO. The
Company has classified the extinguishment of these liabilities, net of the
related tax effect as an extraordinary item in the statement of operations.
4. On June 8, 2000, Security Capital Corporation (SCC) and the Company signed
a definitive agreement to merge. The merger is subject to the approval of
the Company's shareholders. Pursuant to the terms of the agreement, the
Company will become a subsidiary of SCC and stockholders of the Company
will receive approximately $27.3 million in cash, or in the range of $6.98
to $7.03 per share, in exchange for their shares. Following the merger, it
is expected that all members of the CompManagement management team will
remain in their current positions and maintain an equity interest in the
merged entity.
5. The Company has two reportable segments for it's continuing operations:
consulting services and managed care services, which were determined, based
upon its method of internal reporting. Each segment of the Company is
managed separately. The consulting services segment offers workers' and
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unemployment compensation consulting services. The managed care services
administer workers' compensation claims for the Ohio Bureau of Workers'
Compensation ("OBWC"). The Company also has an all other segment, which
derives its revenues from management fees and interest income. Segment data
includes intercompany revenues, as well as a charge for allocating
corporate expenses to each of its segments. Such amounts have been included
in the elimination column to reconcile to consolidated totals.
Segment Reporting for Continuing Operations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------
MANAGED CARE CONSULTING OTHER ELIMINATION'S TOTAL
SERVICES SERVICES
------------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues to unaffiliated $20,559,353 $14,847,617 $ $ - $35,406,970
customers
Intercompany revenues 246,423 (246,423)
Income before taxes 1,885,228 2,692,175 5,758,686 (5,831,196) 4,504,893
NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------
Revenues to unaffiliated $11,313,773 $14,675,417 $ - $ - $25,989,190
customers
Intercompany revenues 1,276,924 (1,276,924)
Income before taxes 147,317 3,006,692 4,666,468 (4,704,292) 3,116,185
THREE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------
MANAGED CARE CONSULTING OTHER ELIMINATION'S TOTAL
SERVICES SERVICES
------------------- --------------- -------------- ---------------- ---------------
Revenues to unaffiliated $6,723,205 $4,935,315 $ $ - $11,658,520
customers
Intercompany revenues 1,812 (1,812)
Income before taxes 552,672 778,697 802,416 (802,523) 1,331,262
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------
Revenues to unaffiliated $5,483,144 $5,087,977 $ - $ - $10,571,121
customers
Intercompany revenues 316,433 (316,433)
Income before taxes (696,978) 1,420,428 517,714 (539,361) 701,803
</TABLE>
6. Supplemental Disclosures for Earnings Per Share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
<S> <C> <C>
</TABLE>
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<TABLE>
<S> <C> <C>
BASIC:
Earnings:
Income from continuing operations $2,730,012 $2,026,373
Gain on disposal of discontinued operations 180,976 -
Gain on extraordinary item 1,455,529 -
---------- ----------
Net income $4,366,517 $2,026,373
---------- ----------
Shares:
Weighted average common shares outstanding 3,865,918 3,843,470
---------- ----------
Income from continuing operations per common share, basic $0.70 $0.53
Gain on disposal of discontinued operations per share, basic 0.05 0.00
Gain on extraordinary item per share, basic 0.38 0.00
---------- ----------
Net income per common share, basic $1.13 $0.53
DILUTED: 2000 1999
Earnings:
Income from continuing operations $2,730,012 $2,026,373
Gain on disposal of discontinued operations 180,976 -
Gain on extraordinary item 1,455,529 -
---------- ----------
Net income $4,366,517 $2,026,373
---------- ----------
Shares:
Weighted average common shares outstanding 3,865,918 3,843,470
Add: Dilutive effect of outstanding options 8,610 98
Weighted average common shares outstanding, diluted 3,874,528 3,843,568
---------- ----------
Income from continuing operations per common share, diluted $0.70 $0.53
Gain on disposal of discontinued operations per share, diluted 0.05 0.00
Gain on extraordinary item per share, diluted 0.38 0.00
---------- ----------
Net income per common share, diluted $1.13 $0.53
-------------------------
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
BASIC:
Earnings:
Income from continuing operations $789,521 $517,714
Loss on disposal of discontinued operations (5,000) -
Gain on extraordinary item - -
-------- --------
Net income $784,521 $517,714
-------- --------
Shares:
Weighted average common shares outstanding 3,878,928 3,851,172
--------- ---------
Income from continuing operations per common share, basic $0.20 $0.13
Gain on disposal of discontinued operations per share, basic 0.00 0.00
Gain on extraordinary item per share, basic 0.00 0.00
--------- ---------
Net income per common share, basic $0.20 $0.13
DILUTED: 2000 1999
Earnings:
Income from continuing operations $789,521 $517,714
Gain on disposal of discontinued operations (5,000) -
Gain on extraordinary item - -
--------- ---------
</TABLE>
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<TABLE>
<S> <C> <C>
Net income $784,521 $517,714
--------- ---------
Shares :
Weighted average common shares outstanding 3,878,928 3,851,172
Add: Dilutive effect of outstanding options 23,299 0
Weighted average common shares outstanding, diluted 3,902,227 3,851,172
--------- ---------
Income from continuing operations per common share, diluted $0.20 $0.13
Gain on disposal of discontinued operations per share, diluted 0.00 0.00
Gain on extraordinary item per share, diluted 0.00 0.00
--------- ---------
Net income per common share, diluted $0.20 $0.13
</TABLE>
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November 10, 2000
HEALTH POWER INC /DE/ (HPWR)
Quarterly Report (SEC form 10-Q)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - -
RESULTS OF OPERATIONS
GENERAL
Health Power, Inc., through its subsidiaries, CompManagement, Inc.
("CompManagement"), CompManagement Health Systems, Inc. ("CompManagement Health
Systems"), and M&N Risk Management, Inc. ("M&N Risk Management"), is an
independent provider of comprehensive cost containment and medical management
services designed to minimize the costs of workers' and unemployment
compensation benefits for employers. Health Power, Inc. and these subsidiaries
are collectively referred to as the "Company."
Through CompManagement and M&N Risk Management, the Company serves as a third
party administrator (a "TPA") for workers' and unemployment compensation claims
and provides claims management, risk management, and medical cost containment
services primarily to Ohio employers. The Company is one of the largest workers'
compensation TPAs in Ohio, currently serving approximately 20,000 employers
located throughout Ohio. Through CompManagement Health Systems and its division
Integrated Comp, the Company operates two state-wide certified managed care
organizations (an "MCO") under Ohio's Health Partnership Program and provides
medical management services for workers' compensation claims. The Company began
offering its MCO services in March 1997, and acquired the assets of Integrated
Comp (formerly known as Anthem Managed Comp) in July 1999. The Company's MCOs
currently serve approximately 47,000 employers located throughout Ohio. Because
all workers' compensation claims are reimbursed by the Ohio Bureau of Workers'
Compensation, the Company does not assume any risk for the payment of medical or
disability benefits to employees with respect to workers' compensation claims.
On December 29, 1998, the Board of Directors of Health Power, Inc. formally
approved a plan to discontinue the operations of Health Power HMO, Inc., its
health maintenance organization subsidiary ("Health Power HMO"). Accordingly,
the operating results of Health Power HMO have been segregated from continuing
operations and are reported separately as discontinued operations. Health Power
HMO's certificate of authority was revoked by the order of the Ohio Department
of Insurance effective May 1, 1999, for failure to meet statutory financial
requirements. The Department's revocation order permitted Health Power HMO to
conclude its affairs and to windup its business on its own, subject to the
Department's continuing supervision, but without judicial involvement. Health
Power HMO has substantially completed the distribution of all of its assets in
payment of the claims of its creditors in the manner approved by the Department.
As of June 30, 2000, the Ohio Department of Insurance removed its supervision
order. All remaining windup matters will be completed by the end of November
2000.
The Company has two reportable segments for its continuing operations, TPA
services and MCO services, which were determined based upon its method of
internal reporting. Each of these segments is managed separately. The Company
also has an all other segment, which derives its revenues from management fees
and interest income. As of June 30, 2000 this other segment was no longer in
operation.
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The following discussion should be read in conjunction with the consolidated
financial statements, notes, and tables included elsewhere in this report and in
the Company's Form 10-K for its fiscal year ended December 31, 1999.
RECENT DEVELOPMENTS
SECURITY CAPITAL CORPORATION AND HEALTH POWER, INC. SIGN MERGER AGREEMENT
On June 8, 2000, Security Capital Corporation (SCC) and Health Power, Inc.
signed a definitive agreement to merge. The merger is subject to the approval of
the Company's shareholders. Pursuant to the terms of the agreement, the Company
will become a subsidiary of SCC and stockholders of the Company will receive
approximately $27.3 million in cash, or in the range of $6.98 to $7.03 per
share, in exchange for their shares. Following the merger, it is expected that
all members of the CompManagement management team will remain in their current
positions and maintain an equity interest in the merged entity.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Revenues from continuing operations increased $1,089,000 or 10.3%, to
$11,660,000 during the third quarter of 2000, from $10,571,000 for the same
period in 1999. Revenues from TPA services decreased 3.0% primarily as a result
of adjustments and cancellations through the annual group rating process.
Revenues from the MCO services increased 22.6% primarily as a result of the
inclusion of revenues from Integrated Comp.
General and administrative ("G&A") expenses increased $565,000 to $10,320,000,
or 88.5% of revenues, for the third quarter of 2000, as compared to $9,755,000,
or 92.2% of revenues, for the same period in 1999. G&A expenses decreased in the
third quarter of 2000 as a percentage of revenues due to spreading fixed costs
over a higher revenue base. Included in G&A expense is $146,000 of expenses
directly related to the merger of Security Capital Corporation and the Company.
Such expenses relate to the negotiation and preparation of the merger agreement
as well as other documents.
"Open enrollment" for the MCO business and professional services associated with
the integration of the acquisition of Integrated CompManagement increased the
overall G&A expenses in the third quarter.
Interest income and other expenses,net decreased $105,000 to $9,000 expenses for
the third quarter of 2000, from $114,000 for the same period in 1999. This
decrease in expense resulted primarily from the retirement of the
seller-financed debt related to the M&N Risk Management acquisition.
Income tax expense was $542,000 in the third quarter of 2000, or an effective
tax of 40.75%, as compared to $184,000 for the same period in 1999, or an
effective tax rate of 26.23%.
As a result of the foregoing, income from continuing operations was $790,000, or
basic and diluted earnings per share of $0.20, for the third quarter of 2000, as
compared to income from continuing operations of $518,000, or basic and diluted
earnings per share of $ 0.13 for the same period in 1999. Excluding the
transaction costs, the income from continuing operations was $936,000 or basic &
diluted earnings per share of $0.24.
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The Company had net income of $784,000, or basic and diluted earnings per share
of $0.20 for the third quarter of 2000, as compared to net income of $518,000,
or basic and diluted earnings per share of $0.13, for the same period in 1999.
There were 3,878,928 and 3,851,172 basic weighted average shares of common stock
and common stock equivalents for the three months outstanding at September 30,
2000 and 1999, respectively. There were 3,902,227 and 3,851,172 diluted weighted
average shares of common stock and common stock equivalents for the three months
outstanding at September 30, 2000 and 1999, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
Revenues from continuing operations increased $9,418,000 or 36.2%, to
$35,407,000 during the first nine months of 2000, from $25,989,000 for the same
period in 1999. Revenues from TPA services increased 1.2% primarily as a result
of increased revenues from M&N Risk Management. Revenues from the MCO services
increased 81.7% primarily as a result of the inclusion of revenues from
Integrated Comp.
General and administrative ("G&A") expenses stayed the same, $8,172,000 to
$30,968,000, or 87.5% of revenues, for the first nine months of 2000, as
compared to $22,796,000, or 87.7% of revenues, for the same period in 1999.
G&A expenses increased overall in the first nine months of 2000 primarily due to
costs associated with "Open Enrollment" for the MCO business and professional
services associated with the integration of the Integrated CompManagement
acquisition.
Interest income and other increased $143,000 to $66,000 for the first nine
months of 2000, from $77,000 expense for the same period in 1999. This increase
resulted primarily from the retirement of the seller-financed debt related to
the M&N Risk Management acquisition.
Income tax expense was $1,775,000 in the first nine months of 2000, or an
effective tax of 39.4%, as compared to $1,090,000 for the same period in 1999,
or an effective tax rate of 35.0%.
As a result of the foregoing, income from continuing operations was $2,730,000,
or basic earnings per share of $0.70 and diluted earnings per share of $0.70,
for the first nine months of 2000, as compared to income from continuing
operations of $2,026,000, or basic and diluted earnings per share of $ 0.53 for
the same period in 1999.
The Company experienced a gain from discontinued operations for the first nine
months of 2000 of $180,000 or $0.05 basic and diluted earnings per share as
compared to no net income or loss from discontinued operations for the same
period during 1999.
On June 30, 2000, the Ohio Department of Insurance terminated its regulatory
Supervision of Health Power HMO after the HMO had completed its final windup
plan. As a result of this termination, which resulted in the extinguishment of
certain liabilities of the HMO business in excess of the assets of the HMO, the
Company has recognized an extraordinary, non-cash gain of $1,456,000, net of
taxes, for the second quarter ended June 30, 2000.
The Company had net income of $4,367,000, or basic and diluted earnings per
share of $1.13 for the first nine months of 2000, as compared to net income of
$2,026,000, or basic and diluted earnings per share of $0.53, for the same
period in 1999. There were 3,865,918 and 3,843,470 basic weighted average shares
of common stock and common stock equivalents outstanding at September 30, 2000
and 1999, respectively. There were 3,874,528 and 3,843,568 diluted weighted
average shares of common stock and common stock equivalents outstanding at
September 30, 2000 and 1999, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
CONTINUING OPERATIONS
The Company finances its continuing operations through internally generated
funds, and its principal sources of cash for continuing operations are revenues
from TPA and MCO services. The Company's principal capital needs for continuing
operations are to fund expenditures for continued growth and for possible
acquisitions.
The company had $6,000 of working capital from continuing operations as of
September 30, 2000, as compared to a working capital deficit from continuing
operations of $2,147,000 at December 31, 1999. The Company believes that cash
generated from continuing operations should be sufficient to meet the working
capital requirement during the fourth quarter of 2000. However, there can be no
assurance that cash generated from continuing operations will be sufficient to
meet the working capital requirement. In addition, the Company has an
outstanding balance of $1.0 million on a bank loan due on demand related to the
acquisition of M&N Risk Management. Although the Company believes that the bank
does not intend to make demand for payment of such loan in the immediate future,
the facts and circumstances surrounding the Company could change at any time
such that the bank would demand payment of such loan. Such a demand for payment
could have an adverse effect on the Company's financial condition and results of
operation.
At September 30, 2000, cash and cash equivalents from continuing operations were
$3,991,000, a decrease of $2,824,000 from $6,815,000 at December 31, 1999. This
decrease was attributable primarily to payment towards the bank demand loan
related to the acquisition of M&N Risk Management and the payments towards the
seller financed debt related to the Anthem Integrated purchase.
CompManagement leases a 70,000 square foot building in Dublin, Ohio. The lease
restricts CompManagement's ability to distribute funds and/or assets to Health
Power, Inc. or another affiliate unless CompManagement meets certain tangible
net worth requirements.
The Company believes that cash generated from continuing operations will be
sufficient to fund its anticipated cash needs for working capital, acquisitions,
and expenditures for continuing operations for the next 12 months, including
capital requirements caused by the Bank making demand for payment of the $1.0
million demand loan.
DISCONTINUED OPERATIONS
As previously described, the Ohio Department of Insurance issued an order
revoking Health Power HMO's certificate of authority effective May 1, 1999. The
revocation order permitted Health Power HMO to conclude its affairs and to
windup its business on its own, subject to ODI's continuing supervision, but
without judicial involvement. The Ohio Department of Insurance released it
supervision effective June 30, 2000. Health Power HMO has completed the
distribution of all of its assets in payment of the claims of its creditors in
the manner approved by the Department. All remaining windup matters will be
completed by the end of November 2000. Health Power HMO did not have sufficient
assets to pay the claims of all of its creditors. Health Power, Inc. believes
that neither it nor any of its other subsidiaries are liable for any claims
against Health Power HMO. Furthermore, Health Power, Inc. does not intend to
fund, or cause any other subsidiary to fund, any deficits of Health Power HMO.
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SAFE HARBOR STATEMENT UNDER THE SECURITIES LITIGATION REFORM ACT OF 1995
Some of the information in this Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. The
words "believe," "expect," "anticipate," "project," and similar expressions,
among others, identify forward-looking statements. Forward-looking statements
speak only as of the date the statement was made. These "forward-looking
statements" are subject to certain risks, uncertainties, and other factors that
could cause the Company's actual results to differ materially from those
projected, anticipated, or implied. Such risks, uncertainties, and factors that
might cause such a difference include, but are not limited to, potential legal
actions related to the Company's HMO and its discontinued operations, the
Company's dependence upon its MCO contract and group rating plans for revenues,
its dependence upon workers' compensation plans and programs administered by
governmental agencies pursuant to state statutes and regulations, in particular
Ohio's Health Partnership Program and group rating program, risks associated
with acquisitions, in particular the Company's ability to locate and acquire
other businesses and to integrate these newly acquired operations effectively
with its existing businesses, its dependence on certain key personnel, and the
Company's ability to effectively compete with larger and more diverse
competitors. These and other risks, uncertainties, and factors that could
materially affect the financial results of the Company are further discussed in
the Company's filings with the Securities and Exchange Commission, including the
Form 10-K for the Company's fiscal year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There is no change in the quantitative and qualitative disclosures about the
Company's market risk from the disclosures contained in the Company's Form 10-K
for its fiscal year ended December 31, 1999.
Part II - Other Information
Item 4. Exhibits and Reports on Form 8 -K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8 - K
On August 25, 2000, the Company filed a Form 8 - K (dated
August 23, 2000) reporting under item 5 of such report the
Company's entering into an amended merger agreement with
Security Capital Corporation.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
HEALTH POWER, INC.
DATE: NOVEMBER 14, 2000 By /s/ BERNARD F. MASTER, DO
----------------------------------------------
BERNARD F. MASTER, DO, PRESIDENT,
CHIEF OPERATING OFFICER AND CHAIRMAN
OF THE BOARD
DATE: NOVEMBER 14, 2000
By /s/ PAUL A. MILLER
----------------------------------------------
PAUL A. MILLER, CHIEF FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER
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