<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 March 31, 2000
[ ] 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 1100
Seattle, Washington 98101
(Address of principal
executive offices)
(206) 292-8255
(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 March 31, 2000, was 585 shares and 40,600 shares,
respectively.
1
<PAGE> 2
FIRST CHOICE HEALTH NETWORK, INC.
INDEX TO FORM 10-Q
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets
at March 31, 2000 and
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income
for the Three Months Ended
March 31, 2000 and 1999 . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 2000 and 1999. . . . . . . . . . . . . . . . 6
Notes to Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . 12
Part II Other Information
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . . . 13
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . 13
Item 3 Defaults Upon Senior Securities . . . . . . . . . . . . 13
Item 4 Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . . . . 13
Item 5 Other Information . . . . . . . . . . . . . . . . . . . 13
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . 14
2
<PAGE> 3
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $12,733,753 $ 13,082,129
Service fees receivable, net of allowance for doubtful
accounts of $275,393 at March 31, 2000 and $252,361
at December 31, 1999 2,846,407 3,929,493
Service fees and premiums receivable from related parties 1,378,380 1,213,593
Premiums receivable, net of allowance for doubtful
accounts of $104,737 at March 31, 2000 and $65,427 at
December 31, 1999 2,893,777 2,562,710
Due from unrelated provider organizations 4,174,096 1,891,651
Due from related provider organizations 1,514,773 684,606
Prepaid expenses 672,180 572,935
Deferred tax assets 551,528 548,735
Other current assets 42,331 170,581
----------- -----------
Total current assets 26,807,225 24,656,434
FURNITURE, EQUIPMENT, AND COMPUTER SOFTWARE:
Furniture and equipment 3,547,099 3,353,485
Computer software 337,453 324,385
----------- -----------
3,884,552 3,677,870
Less accumulated depreciation and amortization (2,147,268) (2,011,730)
----------- -----------
Furniture, equipment and computer software, net 1,737,285 1,666,140
DEFERRED TAX ASSETS 256,375 314,384
OTHER ASSETS:
Restricted indemnity cash 1,793,210 1,747,626
Goodwill, net of accumulated amortization of $151,375
and $137,614 123,858 137,646
Other intangible assets, net of accumulated amortization
of $1,492,624 and $1,212,757 1,865,776 2,145,643
----------- -----------
Total other assets 5,776,530 4,030,915
----------- -----------
TOTAL $32,583,755 $30,667,873
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 623,642 $ 520,046
Accrued expenses 2,017,824 2,275,005
Reserve for unpaid claims and claims adjustment expenses 5,908,308 3,210,613
Due to unrelated provider organizations 6,533,293 5,104,101
Due to related provider organizations 23,385 421,711
Unearned premiums 2,399,831 3,104,521
Deferred income taxes 94,705 146,979
Current portion of note payable 472,005 1,612,004
----------- ----------
Total current liabilities 18,072,993 16,394,980
MINORITY INTEREST 871,651 864,249
REDEEMABLE EQUITY CONTRIBUTION 1,260,000 1,260,000
SHAREHOLDERS' EQUITY:
Common Stock:
Class A, par value $1 - Authorized, 30,000 shares;
issued and outstanding, 585 and 585 shares 585 585
Class B, par value $1 - Authorized, 70,000 shares;
issued and outstanding, 40,600 and 40,600 shares 40,600 40,600
Additional paid-in capital 4,350,034 4,350,034
Shareholder receivable
Paid-in capital from affiliates 1,472,108 1,472,108
Retained earnings 6,515,785 6,285,317
----------- ------------
Total shareholders' equity 12,379,112 12,148,644
----------- ------------
TOTAL $32,583,755 $30,667,873
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
OPERATING REVENUE:
<S> <C> <C>
Premium revenue $20,587,212 $15,082,949
Premium revenue, related parties 3,479,415 1,575,366
Medicare revenue 4,538,599 789,673
Network access fees 1,765,518 1,871,404
Hospital administrative fees 1,192,838 973,760
Hospital administrative fees, related party 456,000 366,000
Other 68,810 48,591
----------- ----------
Total operating revenue 32,088,392 20,707,743
OPERATING EXPENSES:
Medical expenses 15,442,589 9,236,810
Medical expenses, related parties 10,295,060 6,157,874
Payroll and related expenses 3,001,972 2,344,449
Selling, general, and administrative expenses 2,895,238 2,358,209
Amortization expense 293,628 298,128
----------- ----------
Total operating expenses 31,928,486 20,395,469
----------- ----------
Operating income 159,906 312,274
OTHER INCOME (EXPENSE):
Interest 210,728 102,331
Other (9,440) (52,760)
---------- ----------
201,288 49,571
---------- ----------
Income before federal income taxes
and minority interest 361,194 361,845
FEDERAL INCOME TAXES 123,324 219,943
---------- ----------
237,870 141,902
MINORITY INTEREST (7,402) 31,842
---------- ----------
NET INCOME $ 230,468 $ 173,744
========== ==========
NET INCOME PER COMMON SHARE $ 3.93 $ 2.96
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 58,585 58,615
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 230,468 $ 173,744
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 135,538 134,923
Amortization 293,628 298,128
Deferred income taxes, net 2,942 (128,941)
Provision for doubtful accounts 68,571 57,415
Minority interest 7,402 (31,842)
Cash provided (used) by changes in operating
assets and liabilities:
Service fees receivable 888,298 83,413
Premiums receivable (369,638) (702,330)
Prepaid expenses (99,245) (40,215)
Other current assets 128,251 (189,163)
Intangibles and other 19,655
Federal income tax payable 116,394
Accounts payable 103,596 243,991
Accrued expenses (257,183) 519,022
Reserve for unpaid claims and claims
adjustment expense 2,697,695 (166,144)
Due to (from) related provider organizations (1,228,493) 669,803
Due to (from) unrelated provider organizations (853,253) 576,198
Unearned premiums (704,690) 123,116
---------- ----------
Net cash provided by operating activities 1,043,887 1,757,167
INVESTING ACTIVITIES:
Purchase of furniture, equipment, and
computer software (206,682) (147,299)
Increase in restricted indemnity cash (45,583) (40,147)
---------- -----------
Net cash used by investing activities (252,265) (187,446)
--------- -----------
BALANCE, carried forward $791,622 $1,569,721
</TABLE>
See accompanying notes to consolidated financial statements.
6
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLDIATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
BALANCE, brought forward $ 791,622 $ 1,569,721
FINANCING ACTIVITIES:
Repurchase of Class A common stock and membership
rights from physicians (4,149)
Payment on note payable (1,139,999) (305,020)
--------------------------
Net cash used by financing activities (1,139,999) (309,169)
------------------ --------------
NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (348,377) 1,260,552
CASH AND CASH EQUIVALENTS:
Beginning of period 13,082,130 5,759,751
----------- ----------
End of period $12,733,753 $7,020,303
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for the quarter for interest $ 9,440 $ 37,760
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES:
Business acquired for note payable 167,001
7
<PAGE> 8
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Presentation of interim information: The unaudited consolidated financial
statements and related notes have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
management of First Choice Health Network, Inc. and Subsidiary, the
accompanying unaudited consolidated financial statements include all normal
adjustments considered necessary to present fairly the financial position as of
March 31, 2000, and the results of operations for the three months ended March
31, 2000 and 1999, and cash flows for three months ended March 31, 2000 and
1999. The consolidated financial statements were prepared on the same basis as
the annual 1999 consolidated financial statements.
Description of business: First Choice Health Network, Inc. (the 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 de-
livery system for group plans established by employers and benefit groups. The
Company's business is conducted primarily in Washington, Oregon, and Alaska.
The Company's majority owned subsidiary, First Choice Health Plan, Inc., (the
Plan) is a health care services contractor which was formed on January 31,
1995, to offer fully insured health care services to an enrolled population in
Washington state.
Principles of consolidation: The consolidated financial statements include the
accounts of the Company and the Plan. All significant intercompany accounts
have been eliminated in consolidation.
New accounting pronouncements: On June 16, 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Financial Instruments and Hedging
Activities, which is effective for quarters of fiscal years beginning after
June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. Under this statement, certain
derivatives are recognized at fair value and changes in fair market value are
recognized as gains or losses. Management is currently studying this pro-
nouncement to determine its effect, if any, on the Company's financial
statements.
Cash equivalents: The Company considers all investments purchased with an
original maturity of three months or less to be cash equivalents. At March 31,
2000 and December 31, 1999, cash and cash equivalents consist of cash
management funds of $12,733,753 and $13,082,130, respectively.
Service fees receivable: Service fees receivable consist primarily of
estimates for hospital administrative fees receivable related to claims
incurred on or before the balance sheet date but not reported. The Company
evaluates the reasonableness of hospital administrative fees receivable based
on claims reported in subsequent periods. These estimates are subject to the
effects of trends in claims. Although considerable variability is inherent in
such estimates, management believes that the hospital administrative fees re-
ceivable is reasonable. The estimates are continually reviewed and adjusted as
necessary in the period new information becomes known.
8
<PAGE> 9
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Allowance for doubtful accounts: The Company performs periodic credit
evaluations of its customers and maintains an allowance for potential credit
losses related to receivables.
Premiums receivable: Premiums receivable represents monthly group health
insurance premiums billed and outstanding.
Furniture, equipment, and computer software: Furniture, equipment, and
computer software 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 or lease term ranging from three to five years.
Restricted indemnity cash: Restricted indemnity cash consists of amounts
required to be restricted for potential claims from enrollees as required by
the Office of Insurance Commissioner of the State of Washington.
Other intangible assets: Intangible assets assumed in the Providence Plan
Partners PPO network acquisition were trademarks, contracts, and a
noncompetition agreement. Intangible assets are amortized using the straight-
line method over three years.
Goodwill: Goodwill is determined as the difference between the purchase price
and fair value of identifiable net assets purchased. Goodwill is amortized
using the straight-line method over three to five years. Events or changes in
circumstances have not occurred that indicate the value of goodwill has been
impaired as of March 31, 2000 and December 31, 1999.
Reserve for unpaid claims and claims adjustment expenses: This liability
represents reported and unreported claims which have been incurred but have not
been paid at the date of the financial statements. The reserve for unreported
claims is determined actuarially using prior experience and the nature of
current health insurance contracts and volume. Included in the liability is an
estimate of the expenses necessary to settle claims. Due to the uncertainties
inherent in the estimation process, actual costs may differ from the estimated
amounts in the near term, and these differences may be significant.
Due to (from) related (unrelated) provider organizations: This liability or
asset is the amount due to (from) health care providers in conjunction with
capitation arrangements, which is computed by subtracting the claims payments
made on behalf of the provider from the capitated amounts contractually
allocated to them. The ultimate payout or receipt of these amounts is subject
to a settlement process subsequent to the contract year end. The Company
believes the amounts recorded appropriately reflect the ultimate settlement
amounts.
Unearned premiums: Unearned premiums consist of insurance premiums received
prior to fiscal year end for health insurance coverage subsequent to year end.
Operating revenue: Operating revenue consist primarily of premium revenue,
medicare revenue, network access fees, and hospital administrative fees.
Premium revenue represents amounts charged for health care services and is
recognized as revenue in the period for which enrollees are entitled to medical
care. Medicare revenue is paid at a fixed per member per month capitation
9
<PAGE> 10
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
amount by the HCFA based on the projected medical cost for each Medicare
member and are recognized as revenue over the coverage period. Network
access fees are recognized as earned during the period of coverage and are
recorded at contractual rates. Hospital administrative fees are recognized
as earned in the period hospital claims are incurred by a subscriber and are
recorded at a contractual percentage of the claims.
One subscriber group provided 24.87% of the premium revenue for the three
months ended March 31, 2000.
Income taxes: Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of 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 those temporary
differences are expected to reverse. 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. A valuation allowance is established to the
extent that it is more likely than not that deferred tax assets will not be
realized.
Valuation of long-lived assets: Using its best estimates, based on reasonable
and supportable assumptions and projections, the Company reviews its long-lived
assets for impairment whenever events or changes in circumstances have
indicated that the carrying amounts of its assets might not be recoverable. At
March 31, 2000 and December 31, 1999, no write downs were required.
Earnings per share: Net income per common share (class A and B) is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the period, including 41,185, and 41,215
common shares and 17,400 and 17,400 shares applicable to affiliate common share
equivalents (Note 2) in March 2000 and 1999, respectively. Shares issued and
reacquired during each period were weighted for the portion of the period that
they were outstanding. There are no dilutive securities.
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.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the current year presentation.
NOTE 2: SHAREHOLDERS' EQUITY
Ownership of stock: Class A voting 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 voting common stock may be held by hospitals in the state of Washington
that contract with the Company to provide health care services.
10
<PAGE> 11
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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. Class A shares
were repurchased at $1,040.60, and $1,031.95 per share during 2000 and 1999,
respectively.
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 nonshareholders that have rights equivalent to that of the other
shareholders.
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 of the Class B
shareholders must be shared with the nonshareholder hospitals that have rights
equivalent to that of Class B shareholders.
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.
Common stock: In January 1998, the owners of the Plan entered into an
agreement, which increased the Company's ownership in the common stock of the
Plan from 75.1% to 80%. The purpose of the increase in common stock ownership
was to allow for the consolidation of tax returns between the Company and the
Plan. This transaction included exchanging common stock held by the minority
owners of the Plan, who are also stockholders in the company, for the same
number of preferred shares. This preferred stock is nonvoting and
noncumulative and has a dividend rate of 8.75%.
NOTE 3: CONTINGENT LIABILITY
Throughout 1999 and early 2000, the Plan contracted with Cascade Medical Group
(Cascade) for capitated health care services. The Plan did not have insurance
risk for the covered individuals to the extent that Cascade could continue to
pay the Plan for claims paid on Cascade's behalf. In March of 2000, Cascade
management dissolved the organization. The dissolution of Cascade does not
affect the financial position or results of operations in 1999 because the Plan
had a payable to Cascade as of December 31, 1999. Management has accrued
$500,000 for losses associated with Cascade through March 31, 2000. However,
management believes that a total loss of $700,000 will be incurred in 2000 for
all claims paid for which the Plan does not expect to be reimbursed. Management
will continue to evaluate the financial impact of this event.
11
<PAGE> 12
FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Overview
The Network's ability to retain existing clients and attract new clients is
largely dependent on its ability to control health care costs by creating and
maintaining a network of high quality, efficient, fully credentialed providers
who agree to accept competitive reimbursement rates and on its ability to control
excess utilization through its utilization management program. During 2000, the
Company continued to expand its PPO network
The Plan's revenues consist primarily of commercial premiums resulting from the
offering of health insurance products.
Medical expenses are largely comprised of capitation arrangements with the
physician organizations (PO) in which the risk for health insurance coverage has
been passed to the PO. The Plan passes much of the premium to the POs and keeps
a certain percentage for administrative fees, which covers services that the Plan
provides on behalf of the PO. The Plan is responsible should a PO fail to
fulfill its commitment to provide medical services and fund claims for `services.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Operating revenue increased 55% to approximately $32.1 million for the first
quarter of 2000, from approximately $20.7 million during the same period of 1999.
The majority of the increase was due to a 34% increase in the Plan's health
insurance member months. The Plan's membership increased from 134,659 member
months to 180,467 member months during the same period of 1999. The Medicare
Risk revenue increased 475% in the first quarter of 2000 compared to the same
period in 1999. The Medicare Risk membership increased from 2,733 member months
in 1999 to 9,940 member months in 2000.
Total operating expenses increased 56.5% to approximately $31.9 million for the
first quarter of 2000, from approximately $20.4 million in the same quarter of
1999. Medical expenses drove the majority of the increase as the result of the
increase in Plan and Medicare health insurance membership. Payroll and related
expenses increased 28.1% resulting from the hiring of additional employees needed
to administrate the increased growth and new product lines. Operating expenses
also increased as the result of increased marketing expenditures related to the
new Medicare product as well as the premium taxes associated with The Plan's
business.
Federal income taxes decreased from $123,324 in 2000 from $219,943 in 1999
resulting from a year-to-date deferred tax adjustment.
Minority interest also decreased from $31,842 in 1999 to $(7,402) in 2000 as a
result of the risk in net income on the Company's majority owned subsidiary.
Liquidity and Capital Resources
At March 31, 2000, the Company had cash, cash equivalents and investment
securities at fair market value of approximately $12.7 million compared to
approximately $7.0 million at March 31, 1999.
The Company anticipates that the revenues generated by operations cash and cash
equivalents as of March 31, 2000 will be sufficient to meet its cash requirements
throughout 2000.
12
<PAGE> 13
Throughout 1999 and early 2000, the Plan contracted with Cascade Medical Group
(Cascade) for capitated health care services. The Plan did not have insurance
risk for the covered individuals to the extent that Cascade could continue to pay
the Plan for claims paid on Cascade's behalf. In March of 2000, Cascade
management dissolved the organization. The dissolution of Cascade does not
affect the financial position or results of operations in 1999 because the Plan
had a payable to Cascade as of December 31, 1999. Management has accrued $500,000
for losses associated with Cascade through March 31, 2000. However, management
believes that a total loss of $700,000 will be incurred in 2000 for all claims
paid for which the Plan does not expect to be reimbursed. Management will
continue to evaluate the financial impact of this event.
Part II Other Information
Item 1 Legal Proceedings
There are no material legal proceedings pending.
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
13
<PAGE> 14
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: May 15, 2000
By: / s /David Peel
David Peel
Vice President of Finance
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
14
14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY FIRST QUARTER 2000 FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 12,733,753
<SECURITIES> 0
<RECEIVABLES> 7,118,564
<ALLOWANCES> 380,130
<INVENTORY> 0
<CURRENT-ASSETS> 26,807,225
<PP&E> 3,884,552
<DEPRECIATION> 2,147,268
<TOTAL-ASSETS> 32,583,755
<CURRENT-LIABILITIES> 18,072,993
<BONDS> 0
0
0
<COMMON> 41,185
<OTHER-SE> 12,379,112
<TOTAL-LIABILITY-AND-EQUITY> 32,583,755
<SALES> 32,088,392
<TOTAL-REVENUES> 32,289,680
<CGS> 25,737,649
<TOTAL-COSTS> 31,928,486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 361,194
<INCOME-TAX> 123,324
<INCOME-CONTINUING> 237,870
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,468
<EPS-BASIC> 3.93
<EPS-DILUTED> 3.93
</TABLE>
