<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-23998
FIRST CHOICE HEALTH NETWORK, INC.
(Name of small business issuer as specified in its charter)
Washington 91-1272766
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
601 Union Street
Suite 700
Seattle, Washington 98101
(Address of principal
executive offices)
(206) 667-8050
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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
----- -----
The aggregate number of Registrant's shares of Class A Common Stock and Class B
Common Stock outstanding on June 30, 1997 was 648 shares and 40,600 shares,
respectively.
Transitional Small Business Disclosure Format ( check one ):
Yes No X
----- -----
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
INDEX TO FORM 10-Q
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets
at June 30, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 1997 and 1996. . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1997 and 1996. . . . . . . . . . . . . . . . . 6
Notes to Consolidated
Financial Statements. . . . . . . . . . . . . . . . . . 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 15
Part II Other Information
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 17
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . 17
Item 3 Defaults Upon Senior Securities . . . . . . . . . . . . 17
Item 4 Submission of Matters to a
Vote of Security Holders. . . . . . . . . . . . . . . . 17
Item 5 Other Information . . . . . . . . . . . . . . . . . . . 17
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 17
Signatures. . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
June 30, 1997 and December 31, 1996
June 30, December 31,
Assets 1997 1996
(Unaudited)
Current Assets
Cash and cash equivalents $ 1,782,313 $ 2,407,355
Securities available for sale 6,551,978 5,507,366
Accounts Receivable 1,278,875 1,441,383
Other Current Assets 478,076 231,553
-------------------------------
Total Current Assets 10,091,243 9,587,657
-------------------------------
Other Assets
Furniture and equipment 227,676 1,030,286
Computer equipment/software 1,353,546 343,370
Capitalized goodwill 210,509 90,000
Other other assets 163,179 162,159
Less Accumulated Depreciation (866,814) (740,319)
-------------------------------
11,179,338 10,473,153
-------------------------------
See accompanying notes to consolidated financial statements (unaudited).
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
June 30, 1997 and December 31, 1996
June 30, December 31,
Liabilities and Shareholders' Equity 1997 1996
(Unaudited)
Current Liabilities
Accounts Payable 76,952 88,636
Accrued Medical Expenses 507,181 18,598
Other Liabilities 892,969 795,309
-------------------------------
Total Current Liabilities 1,477,102 902,543
Deferred Income Taxes - Non-Current 24,057 -
-------------------------------
Total Liabilities 1,501,160 902,543
-------------------------------
Shareholders' Equity
Common Stock, Class A 648 656
Common Stock, Class B 40,600 40,600
Additional Paid-in Capital 6,516,797 6,518,525
Retained Earnings 3,621,044 3,540,660
Net Unrealized Loss on
securities available for sale,
net of deferred taxes (911) (29,831)
-------------------------------
Less Subscription Receivable (500,000) (500,000)
-------------------------------
Total Shareholders' Equity 9,678,178 9,570,610
Total Liabilities and Shareholders' Equity 11,179,338 10,473,153
-------------------------------
-------------------------------
See accompanying notes to consolidated financial statements (unaudited).
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
For The Three Months and Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating Revenue
Premium Revenue $ 1,432,922 - $ 2,268,137 -
Medicare-Based Revenue 50,160 - 101,300 -
Management Fees 1,534,408 1,464,143 3,052,720 2,754,248
Other - - 212 -
------------------------------------------------------------------------
Total Operating Revenue 3,017,490 1,464,143 5,422,368 2,754,248
------------------------------------------------------------------------
Less: Medical Expenses (1,267,611) - (2,025,280) -
Gross Profit 1,749,879 1,255,431 3,397,088 2,754,248
------------------------------------------------------------------------
Operating Expenses
Payroll and related 953,681 591,989 1,852,319 1,314,258
Selling, general and
administrative costs 954,179 469,509 1,652,241 993,979
------------------------------------------------------------------------
Total Operating Expenses 1,907,860 1,061,498 3,504,560 2,308,237
------------------------------------------------------------------------
Other Income (Expense)
Interest and dividends 155,936 75,730 266,112 144,266
Other (80,622) 16,453 (58,824) 13,064
------------------------------------------------------------------------
Total Other Income 75,314 92,183 207,287 157,330
------------------------------------------------------------------------
Income Before Taxes (82,667) 494,828 99,815 603,341
Federal Income Taxes (28,824) 168,296 19,421 187,818
------------------------------------------------------------------------
Net Income (53,843) 326,532 80,394 415,523
------------------------------------------------------------------------
------------------------------------------------------------------------
Net Income per common share $ (1.15) $ 6.94 $ 1.95 $ 8.83
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For The Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash Flows From (To) Operating Activities
Net income $ 80,394 $ 415,523
------------------------------
Adjustments to reconcile net income to net cash
cash provided by (used for) operating activities:
Depreciation and amortization 127,479 51,846
Deferred Income Taxes, net (133,485) (34,281)
Gain realized on sale of equipment - 1,841
Realized (gains) losses on sale of securities 58,824 (14,905)
Bond premium and discount amortization (59,820) -
Noncash Donation 245 -
Changes in certain assets and liabilities:
Decrease in service fees receivable 144,724 120,725
(Increase) decrease in prepaid expenses (173,950) 99,197
(Increase) decrease in prepaid
federal income tax (55,732) 90,129
Decrease in accounts payable (6,140) (120,913)
Increase (decrease) in accrued expenses 725,059 (12,966)
Increase in federal income taxes payable - 147,034
------------------------------
Total Adjustments 627,204 327,707
------------------------------
Cash provided by operating activities 707,598 743,230
------------------------------
Cash Flows From Investing Activities
Purchase of equipment and furnishings (287,448) (52,528)
Purchase of securities available for sale (12,353,408) (1,970,661)
Sale of securities available for sale 7,102,513 844,672
Maturities of investment securities 4,240,000 200,000
Principal received - bonds 27,424 40,928
Assignment of call option - (60)
Refund of license fees 60,900 -
Refund of merger development costs 50,000 -
Payment of merger development costs (170,508) -
Increase in restricted indemnity deposit (376) -
------------------------------
Cash used by investing activities (1,330,904) (937,649)
------------------------------
Cash Flows From Financing Activities
Reduction of note payable - (45,000)
Repurchase of Class A common stock (1,736) (3,421)
------------------------------
Cash used for financing activities (1,736) (48,421)
------------------------------
Net increase (decrease) in cash and cash equivalents (625,042) (242,840)
------------------------------
Cash and cash equivalents at beginning of period 2,407,355 2,129,006
Cash and cash equivalents at end of period 1,782,313 1,886,166
------------------------------
------------------------------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
First Choice Health Network, Inc. (Company) was incorporated under the laws
of the state of Washington on September 28, 1984. The Company was formed
to organize a network of independent participating physicians and hospitals
to provide a comprehensive, managed health care delivery system for group
plans established by employers and benefit groups. The Company's business
is conducted primarily in Washington, Oregon and Alaska.
(b) Principles of Consolidation
The consolidated financial statements include the consolidated accounts of
the Company and its wholly-owned subsidiary, First Choice Health Plan,
Inc., a health care services contractor which was formed on January 31,
1995. All significant intercompany balances have been eliminated in
consolidation.
(c) Adoption of a New Accounting Principle
Effective January 1, 1996, the Company adopted the provisions of the
Statement of Financial Accounting Standards No. 121 (SFAS 121), Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. There was no cumulative effect of adopting SFAS 121 or impact
on operations for the year ended December 31, 1996.
(d) Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At June
30, 1997 and December 31, 1996, cash equivalents consist of money market
funds amounting to $12,392 and $232,152, and cash management funds of
$1,341,447 and $2,038,291, respectively.
(e) Operating Revenue
Management fee revenue consists primarily of network access fees and
hospital administrative fees. Network access fees are recognized as earned
during the month of coverage and are recorded at contractual rates.
Hospital administrative fees are recognized as earned in the month hospital
claims are incurred by a subscriber and are recorded at a contractual
percentage of the claims.
For the six months ended June 30, 1997, 10% of the Company's management fee
revenue was provided by one customer.
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
Premium revenue is generated from health insurance premiums billed to
employer groups. Premiums are billed in the month prior to the coverage
date and are recorded as revenue in the month of the subscriber's coverage.
Medical expenses are comprised of incurred health insurance claims as well
as capitation payments made to providers. Medical expenses also include an
estimate of claims incurred, but not reported (IBNR), based upon claims lag
schedule analysis.
(f) Investment Securities
The Company's investment securities are classified as available-for-sale
and are recorded at fair market value, with unrealized holding gains and
losses recognized as a separate component of shareholders' equity, net of
deferred taxes. Declines in the fair value of investment securities
available for sale determined to be other than temporary are recognized as
a component of net income.
The cost used in determining the gain or loss on sales of marketable equity
securities and debt securities is average cost and specific
identification, respectively.
(g) Furniture, Equipment, Computer Software and License Fees
Furniture, equipment, computer software and license fees are recorded at
cost. Depreciation and amortization are computed using the straight-line
method over the lesser of the estimated useful lives of the assets,
licensing agreement or lease term, ranging from three to five years.
(h) Restricted Indemnity
Restricted indemnity are amounts established to account for potential
claims from enrollees as required by the Office of Insurance Commissioner.
(i) Goodwill
Goodwill is determined as the difference between the purchase price and
fair market value of net assets purchased. Goodwill is amortized using the
straight-line method over fifteen years. Events or changes in
circumstances have not occurred that indicate the value of goodwill has
been impaired as of June 30, 1997.
(j) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
those temporary differences are expected to be recovered or settled. The
effect on the deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(k) Advertising
The Company expenses advertising costs as incurred. Advertising expense
amounted to $44,250 and $1,025 for the six months ended June 30, 1997 and
1996, respectively.
(l) Accounts Receivable
Service fees receivable consists primarily of estimates for hospital
administrative fees receivable related to claims incurred on or before the
balance sheet date, but not reported. Premiums receivable consists of
monthly health insurance premium revenue payments yet to be received from
the employer groups as of the balance sheet date. The Company evaluates the
reasonableness of its receivables based upon claims reported in subsequent
periods. These estimates are subject to the effects of trends in claim.
Although considerable variability is inherent in such estimates, management
believes that its receivables are reasonable. The estimates are continually
reviewed and adjusted as necessary as new information becomes known; such
adjustments are included in the current year operations.
The Company performs periodic credit evaluations of its customers and
maintains allowance for potential credit losses.
(m) Use of Estimates
Preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(2) Shareholders' Equity
(a) Ownership of Stock
Class A common stock may be held solely by physicians licensed in the State
of Washington who contract with the Company to provide health care services
and who hold active, associate or provisional medical staff privileges at
one or more of the hospitals that contract with the Company to provide
health care services.
Class B common stock may be held by hospitals in the State of Washington
that contract with the Company to provide health care services.
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(b) Voting Rights
Holders of each outstanding share of Class A or Class B common stock are
entitled to one vote on each matter submitted to a vote at meetings of
shareholders and each class of common stock votes as a separate class.
(c) Transfer of Stock
Shareholders may only transfer their stock in the Company to the Company
for repurchase.
The repurchase price is established by the Board of Directors each fiscal
year as set forth in
the Bylaws.
(d) Dividends
The Board of Directors may declare and pay dividends on one or more classes
of common stock at such times and in such amounts as it designates, but
in no event may dividends be paid while there is an outstanding obligation
to repurchase shares. Dividends are allocated among shareholders of each
class of stock according to the number of shares outstanding to each Class
A or B shareholder. Any dividends paid to the Class B shareholders must be
shared with the nonshareholder district hospitals that have rights
equivalent to that of the Class B shareholders.
(e) Liquidation Rights
Upon liquidation or dissolution, the Board of Directors, at its discretion,
will allocate the value of assets among the classes of its outstanding
stock in proportion to the capital contributions of shareholders of each
class. For these purposes, the contributions by the nonshareholder district
hospitals that have rights equivalent to that of the Class B shareholders
and the membership fees paid by Class A shareholders are considered capital
contributions. The allocation to Class A shareholders will be shared among
all Class A shareholders in accordance with the number of shares
outstanding to each Class A shareholder. The allocation to the Class B
shareholders must be shared with the nonshareholder hospitals that have
rights equivalent to that of Class B shareholders.
(f) Paid-in Capital from Affiliates
District hospitals are not shareholders of the Company, but have
contractual agreements with the Company that provide for certain rights and
obligations equivalent, but not identical, to those of Class B
shareholders, including liquidation and dividend rights. The capital
contributions of the nonshareholders are recorded as paid-in-capital from
affiliates. These contractual agreements are considered to be common share
equivalents for purposes of calculating net income per common share.
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(3) Line of Credit
At December 31, 1996, the Company had a $300,000 line of credit, expiring
on June 3, 1997. Borrowings under the line are unsecured and bear interest
at the prime rate plus 1%. There were no borrowings outstanding under the
line of credit at December 31, 1996.
(4) Commitments
(a) License Fees
(i) HSD Software License
On March 21, 1994, the Company entered into a software license and
beta site agreement with Health Services Design Corporation (HSD) for
the use of the software application developed and owned by HSD. The
agreement calls for a license fee of $145,000 and additional license
fees which are priced in tiers based upon the total number of users on
the system, has no specific term, and is cancelable by the Company or
HSD at any time. In April, 1997, HSD refunded the initial licensure
deposit of $60,900 (which was paid by the Company in March, 1994) as a
result of the cooperative effort that the Company has put into the
development of the software.
(ii) VHS Software License
On May 31, 1995, the Company entered into a software licensing
agreement with Value Health Science, Inc. (VHS). The initial license
term began on the day VHS successfully installed the related software,
and ends three years later. The license term will automatically renew
for one more year at the third anniversary of the commencement date
and each anniversary thereafter. The agreement calls for a $30,000
one-time customization fee which was paid in 1995. On an ongoing
basis, the agreement calls for minimum monthly fees of $4,167, plus
claim processing fees and out-of-pocket costs with respect to storage
and processing. The maximum annual license fee shall not exceed
$300,000. At June 30, 1997, this contracted was terminated effective
August 31, 1997.
(b) Consulting Agreement
On October 20, 1995, the Company entered into a consulting agreement with
Olympic Health Management System, Inc. to develop and implement a Medicare
supplement product. The agreement may be terminated with 90 days notice at
any time by the Company. The agreement called for monthly fees of $11,000
until April, 1996 and $2,500 monthly thereafter. Total fees related to this
agreement amounted to $7,500 and $51,359 for the six months ended June 30,
1997 and 1996, respectively.
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(c) Leases
The Company leases its office facilities under terms of an operating lease
expiring in September, 1999. The lease provides for monthly minimum rent
payments and includes a renewal option for an additional five years.
Rental expense charged to operations under the operating lease for the six
months ended June 30, 1997 and 1996 was $92,376 and $72,336, respectively.
Future minimum lease payments under the operating lease for the years ended
December 31 are as follows:
1997 $138,949
1998 188,990
1999 132,608
--------
$460,547
--------
--------
(5) Related Party Transactions -- Operating Revenue and Service Fees Receivable
Operating revenue includes $639,288 and $523,301 for administrative service
fees charged to owner and affiliated hospitals and network access fees
charged to owner and affiliated hospitals through third-party
administrators for the six months ended June 30, 1997 and 1996,
respectively.
As of June 30, 1997 and December 31, 1996, service and access fees
receivable of $552,908 and $668,046, respectively, were outstanding related
to these revenues.
(6) Acquisition
Effective January 31, 1995, the Company acquired 100% of the stock interest
in Pacific Health Systems, Inc., a dental Preferred Provider Organization
(PPO) operating in the state of Washington, by delivering cash of $45,000
and a noninterest-bearing note of $45,000 paid in full on January 31, 1996.
In addition to the fixed purchase price, the Company will make contingent
purchase price payments to be calculated as 50% of the dental PPO net
income, as defined in the purchase agreement, in excess of $295,000 for
each of the calendar years 1995 and 1996, with an aggregate amount not to
exceed $260,000. No contingent purchase price payments were incurred in
1996 and 1995. The acquisition has been accounted for as a purchase with
the entire purchase price allocated to goodwill. The operation of the PPO
was merged into the Company and the result of operations of the PPO have
been included in the Company's consolidated financial statements from the
date of acquisition.
<PAGE>
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(7) Fair Value of Financial Instruments
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures About Fair Values of Financial
Instruments, as modified by SFAS No. 119, Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments. SFAS No. 107
requires disclosures of fair value for financial instruments, whether or
not they are included in the balance sheet, for which it is practicable to
estimate fair value. SFAS No. 119 requires disclosures about amount, nature
and terms of derivative financial instruments.
The Company's financial instruments, included in the June 30, 1997 and
December 31, 1996 balance sheet, consist of investment securities available
for sale. The fair value of the investment securities is based upon quoted
market prices.
(8) Retirement Plans
The Company has a qualified 401(k) Employee Savings and Profit Sharing Plan
(Plan) covering substantially all employees that are not already covered by
a collective bargaining agreement. Under the Plan, employees can defer up
to 12% of the eligible compensation. The Company matches 50% of the
employee contribution, up to 6% of the participant's eligible salary. The
Company also has the option to make an additional profit sharing
contribution to the Plan. Employer contributions to the Plan for the six
months ended June 30, 1997 and 1996 amounted to $28,381 and $22,034,
respectively.
(9) Subsequent Events
At July 1, 1997, First Choice Health Plan, Inc., a wholly-owned subsidiary
of First Choice Health Network, Inc., signed a letter of intent to
consolidate First Choice Health Plan, Health First Partners and Health
Washington. First Choice Health Network will be the majority owner with
approximately a 74% interest in First Choice Health Plan.
(10) Contingency
In connection with Overlake Hospital becoming a shareholder in December,
1996, the Company incurred a contractual contingent liability for
exclusivity damages to another hospital shareholder of up to $600,000.
Since the amount of any damages is not reasonably estimable, no amount has
been reflected in the consolidated financial statements as of June 30,
1997.
<PAGE>
Item 2
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included in this quarterly report and
with the Company's 1996 Annual Statement on Form 10-KSB.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Operating revenue increased 140.4% to approximately $3.0 million in the first
quarter of 1997, from approximately $1.3 million during the same quarter of
1996. The majority of the increase, 81.3%, was the result of the Company's
initial offering of health insurance in the state of Washington during the first
quarter of 1997. Offsetting the health insurance premium revenue were medical
payments for claims and capitation. The remaining increase was due to an
increase in network PPO access and administrative fees
Total operating expenses increased 79.7% to approximately $1.9 million in the
first quarter of 1997, from approximately $1.1 million in the same quarter of
1996, primarily due to expenditures for marketing materials, contracts and
additional staffing necessary to introduce First Choice Health Plan's (FCHP),
the Company's subsidiary, first new commercial product since it received its
HCSC licensure in January 1995.
Other income decreased 18.3% to approximately $75,000 in the first quarter of
1997, from approximately $92,000 during the same quarter in 1996, due to
realized losses from the sale of securities.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,1996
Operating revenue increased 97.0% to approximately $5.4 million for the first
half of 1997, from approximately $2.8 million during the same half of 1996. The
majority of the increase, 84.9%, was the result of the Company's initial
offering of health insurance in the state of Washington during the first half of
1997. Offsetting the health insurance premium revenue were medical payments for
claims and capitation. The remaining increase was due to an increase in network
PPO access and administrative fees
Total operating expenses increased 51.8% to approximately $3.5 million in the
first half of 1997, from approximately $2.31 million in the same half of 1996,
primarily due to expenditures for marketing materials, contracts and additional
staffing necessary to introduce First Choice Health Plan's (FCHP), the Company's
subsidiary, first new commercial product since it received its HCSC licensure in
January 1995.
<PAGE>
Other income increased 31.8% to approximately $207,000 in the first half of
1997, from approximately $157,000 during the same half of 1996, resulting from
an increase in cash available for investment.
Liquidity and Capital Resources
The Company had a $300,000 line of credit from Seafirst Bank. On June 1, 1996,
this line of credit was renewed for a one-year period ending June 3, 1997. This
line-of-credit was not renewed at June 3, 1997.
At June 30, 1997, the Company had cash, cash equivalents and investment
securities at fair market value of approximately $8.3 million compared to
approximately $7.9 million at December 31, 1996.
On April 11, 1996, the Company transferred cash of $150,000 to its subsidiary,
First Choice Health Plan, Inc to be held as a restricted asset by the state of
Washington Office of Insurance Commissioner for payment of potential claims from
enrollees.
The Company previously transferred $1.5 million in January 1995 to fund the
required statutory reserve. Subsequent to year-end, an additional five million
dollars in investment securities were transferred to the Subsidiary. As of this
filing these funds remain on deposit.
The Company signed contracts for software development on March 21, 1994,
commenced implementation thereof, and have obtained necessary programming
assistance and additional hardware. Portions of the new system were put into
operation in October 1996 and are currently being utilized for use in its
commercial business. The final stage of implementation for use in the Company's
PPO business is yet to be determined.
In May of 1996 the Company's subsidiary, First Choice Health Plan, Inc.,
introduced into the market place a Medicare Supplement program in conjunction
with two of its owner hospitals, Northwest Hospital and Valley Medical Center..
By the quarter ending June 30, 1997 there were 384 policies enforce and earned
premiums of $101,300. The Company has contracted with Olympic Health Management
Systems to act as the plan administrator. Their primary responsibilities are to
maintain a adequate sales force legally licensed in Washington state, premium
billing and collection, claims processing and payment, and financial reporting
to all applicable parties including the appropriate reports necessary for
compliance with the Office of Insurance Commissioner of the State of Washington.
<PAGE>
Part II Other Information
Item 1 Legal Proceedings
There are no material pending legal proceedings.
Item 2 Changes in Securities
No changes in the Company's securities occurred during this
period.
Item 3 Defaults Upon Senior Securities
No senior securities of the Company are outstanding.
Item 4 Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders.
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST CHOICE HEALTH NETWORK, INC.
Date: August 11, 1997
By: / s /David Peel
--------------------------------
David Peel
Vice President of Finance
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FIRST CHOICE HEALTH NETWORK, INC., SECOND QUARTER 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,782,313
<SECURITIES> 6,551,978
<RECEIVABLES> 1,278,875
<ALLOWANCES> (96,000)
<INVENTORY> 0
<CURRENT-ASSETS> 10,091,243
<PP&E> 1,581,222
<DEPRECIATION> (866,814)
<TOTAL-ASSETS> 11,179,338
<CURRENT-LIABILITIES> 1,477,102
<BONDS> 0
0
0
<COMMON> 41,248
<OTHER-SE> 6,015,886
<TOTAL-LIABILITY-AND-EQUITY> 11,179,338
<SALES> 5,422,368
<TOTAL-REVENUES> 5,422,368
<CGS> 2,025,280
<TOTAL-COSTS> 2,025,280
<OTHER-EXPENSES> 3,297,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 99,815
<INCOME-TAX> (19,421)
<INCOME-CONTINUING> 80,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,394
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
</TABLE>
