UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the quarterly period ended March 31, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-25944
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FOHP, Inc.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3314813
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(State or other jurisdiction of incorporation or (IRS Employer
organization) Identification No.)
2 Bridge Avenue, Building 6, Red Bank, New Jersey 07701-1106
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(Address of principal executive offices) (Zip Code)
(908) 842 - 5000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 filing requirements
for the past 90 days. Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock-NJ, 2,100,173 outstanding as of May 13, 1996
<PAGE>
FOHP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- March 31, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations 4
For the period January 1, 1996 to March 31, 1996
For the period January 1, 1995 to March 31, 1995
Condensed Consolidated Statements of Shareholders' Equity 5
For the period January 1, 1995 to December 31, 1995
For the period January 1, 1996 to March 31, 1996
Condensed Consolidated Statements of Cash Flows 6
For the period January 1, 1996 to March 31, 1996
For the period January 1, 1995 to March 31, 1995
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
2
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FOHP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(unaudited) (audited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 23,134,587 $ 23,882,286
Accounts receivable from owners/ providers 11,559,677 6,341,092
Other accounts receivable (net of allowance for doubtful accounts
of $848,227 and $332,904, respectively) 4,491,888 3,252,639
Prepaid expenses 981,625 534,751
------------ ------------
Total current assets 40,167,777 34,010,768
Long-term Assets:
Restricted Cash 1,218,014 1,200,801
Furniture and equipment (at cost, net of accumulated depreciation
and amortization of $957,722 and $770,460, respectively) 1,981,829 1,859,131
Other assets 601,764 291,133
------------ ------------
Total Assets $ 43,969,384 $ 37,361,833
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Medical claims payable $ 34,589,110 $ 26,960,273
Accrued expenses 4,825,628 3,284,971
Accounts and loans payable 877,410 1,006,131
Unearned premium revenue 544,205 341,092
Other 1,218,012 890,327
------------ ------------
Total current liabilities 42,054,365 32,482,794
Shareholders' Equity:
Common Stock, $.01 par value, 100,000,000 shares authorized,
Common Stock-NJ, 2,100,173 shares issued and outstanding 21,002 21,002
Additional paid-in capital 30,648,489 30,648,489
Accumulated deficit (28,754,472) (25,790,452)
------------ ------------
Total shareholders' equity 1,915,019 4,879,039
------------ ------------
Total liabilities and shareholders' equity $ 43,969,384 $ 37,361,833
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
FOHP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the period For the period
January 1, 1996 January 1, 1995
to March 31, 1996 to March 31, 1995
----------------- -----------------
(unaudited) (unaudited)
Revenue:
Premiums-hospitals/physicians $ 34,350,853 $ 14,545,232
Other premiums 15,710,669 1,878,415
Other, principally administrative fees 1,507,295 1,791,045
Interest income 337,914 203,571
------------ ------------
Total Revenue 51,906,731 18,418,263
------------ ------------
Expenses:
Medical and hospital services 43,128,221 13,837,331
Selling, general and administrative 11,550,914 5,990,934
Depreciation and amortization 189,208 139,417
Interest 1,893 19,019
------------ ------------
Total Expenses 54,870,236 19,986,701
------------ ------------
Net loss before provision for income taxes (2,963,505) (1,568,438)
Provision for income taxes 515
------------ ------------
Net loss $ (2,964,020) $ (1,568,438)
============ ============
Net loss per common share $ (1.41) $ (1.00)
============ ============
See accompanying notes.
4
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<TABLE>
<CAPTION>
FOHP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
------------------------- Additional Total
Par Paid-In Accumulated Shareholders
Shares Value Capital Deficit Equity
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 1,060,053 10,601 15,341,561 (11,049,507) 4,302,655
Reclassification of FOHP-NJ Practitioner Provider
Common Stock from temporary equity 511,800 5,118 7,671,882 7,677,000
Redemption of FOHP-NJ Practitioner Provider
Common Stock (100) (1) (1,499) (1,500)
Conversion of following outstanding shares of
FOHP-NJ Common Stock to FOHP, Inc.
Common Stock - NJ:
FOHP-NJ Institutional Provider (1,020,051) (10,201) (10,201)
FOHP-NJ Other Provider (40,002) (400) (400)
FOHP-NJ Practitioner Provider (511,700) (5,117) (5,117)
FOHP, Inc. Common Stock - NJ
issued (at $15 per share) 2,100,173 21,002 7,931,516 7,952,518
Payment of issue costs (294,971) (294,971)
Net loss (14,740,945) (14,740,945)
---------------------------------------------------------------------------
Balance at December 31, 1995 2,100,173 21,002 30,648,489 (25,790,452) 4,879,039
Net loss for the period January 1, 1996 to
March 31, 1996 (2,964,020) (2,964,020)
---------------------------------------------------------------------------
Balance at March 31, 1996 (unaudited) 2,100,173 $ 21,002 $ 30,648,489 $(28,754,472) $ 1,915,019
===========================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
<CAPTION>
FOHP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period For the period
January 1, 199 January 1, 1995
to March 31, 1996 to March 31, 1995
--------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (2,964,020) $ (1,568,438)
Adjustments to reconcile net loss to cash flows from
(used in) operating activities:
Depreciation and amortization 189,208 139,417
Provision for accounts receivable bad debts/retro terms 515,323
Changes in operating assets and liabilities:
Increase in accounts receivable (6,973,157) (1,038,400)
Increase in prepaid expenses (446,874) (234,536)
Increase in other assets (102,501) (150,619)
(Decrease) increase in accounts payable and
accrued expenses 1,416,634 (407,919)
Increase in medical claims payable 7,628,837 5,070,345
Increase in unearned premium revenue 203,113 209,367
Increase in other liabilities 327,685
--------------------------------
Net cash flows from (used in) operating activities (205,752) 2,019,217
Cash flows from investing activities
Increase in restricted cash (17,213) (101,904)
Purchases of furniture and fixtures (309,960) (234,352)
--------------------------------
Net cash used in investing activities (327,173) (336,256)
Cash flows from financing activities
Proceeds from short-term loan 1,000,000
Repayment of debt (4,698)
Payment of stock issue costs (210,076) (6,940)
--------------------------------
Net cash provided by (used in) financing activities (214,774) 993,060
Net increase (decrease) in cash and cash equivalents
at the end of the period (747,699) 2,676,021
Cash and cash equivalents at the beginning of the period 23,882,286 13,030,295
--------------------------------
Cash and cash equivalents at the end of the period $ 23,134,587 $ 15,706,316
================================
Interest paid for the period $ 1,544 $ 19,019
================================
Income taxes paid for the period $ 515 $ --
================================
</TABLE>
See accompanying notes.
6
<PAGE>
FOHP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. General
FOHP, Inc. ("FOHP" or the "Holding Company") is a New Jersey corporation which
was formed in May 1994. The Holding Company was formed to effect a
reorganization (the "Reorganization") of First Option Health Plan of New Jersey,
Inc. ("FOHP-NJ"), which was consummated on June 8, 1995. The Reorganization was
completed through an exchange of FOHP-NJ's outstanding common stock for shares
of the Holding Company's Common Stock-NJ. In connection with the Reorganization,
FOHP-NJ distributed , as a dividend, all of the outstanding common stock of
First Managed Care Option, Inc. ("FMCO") to the Holding Company. Pursuant to the
Reorganization, FOHP-NJ and FMCO became wholly-owned subsidiaries of FOHP. Prior
to the Reorganization, the Holding Company did not conduct any business nor did
it have any significant assets or liabilities. The primary purpose of the
Reorganization was to facilitate the formation of additional health maintenance
organizations in states other than New Jersey.
The Holding Company serves as the holding company for its wholly-owned
subsidiaries to which it provides management and consulting services. The
Holding Company's principal operating subsidiaries are FOHP-NJ and FMCO which
was acquired by FOHP-NJ, in November 1994. FOHP-NJ, a New Jersey corporation
formed in May 1993, received its Certificate of Authority ("COA") to operate as
a health maintenance organization ("HMO") in New Jersey in June 1994. FMCO
performs independent case management services for workers' compensation claims.
Other wholly-owned subsidiaries of the Holding Company, each formed in 1995,
include First Option Health Plan of New York, Inc. ("FOHP-NY"), a New York
corporation, First Option Health Plan of Pennsylvania, Inc. ("FOHP-PA"), a
Pennsylvania corporation, First Option Health Plan of Maryland, Inc.
("FOHP-MD"), a Maryland corporation, First Option Health Plan of Delaware, Inc.
("FOHP-DE"), a Delaware corporation, and FOHP Agency, Inc. ("FOHP Agency"), a
New Jersey corporation. These newly formed subsidiaries are in the start-up
phase. Each of FOHP-NY and FOHP-PA has filed an application for a COA to operate
as an HMO in its state of incorporation.
The financial information for the three month periods ended March 31, 1996 and
March 31, 1995 included herein are unaudited. Such information includes all
adjustments, including adjustments of a normal and recurring nature, which, in
the opinion of management, are necessary for a fair presentation of the Holding
Company's financial position, results of operations and cash flows.
Additionally, such information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Part I - Item 2 hereof.
2. Basis of Presentation and Significant Accounting Policies
The Holding Company has incurred a loss of $2,964,020 for the three month period
ended March 31, 1996 and has an accumulated deficit of $28,754,472 as of March
31, 1996. Also, in order for the Holding Company's principal operating
subsidiary FOHP-NJ to meet its 1996 statutory net worth requirements pursuant to
its COA granted by the New Jersey Departments of Insurance and Health (the
"Departments"), the Holding Company must generate sufficient operating profits
and/or obtain additional equity financing. Management's plans include a program
to generate operating profits by implementing enrollment mandates from
owner/provider hospitals that have not met their membership commitments, by
reducing the Holding Company's administrative cost structure and by reducing
medical costs and statutory net worth requirements through the implementation of
a reduced provider fee schedule and premium sharing
7
<PAGE>
agreements. The Holding Company also anticipates raising additional capital
through the sale of common stock. In addition, the Holding Company has obtained
certain financial commitments and guarantees which, in management's opinion,
provide the capital necessary for FOHP-NJ to meet the Department's requirements
for 1996. The satisfactory completion of these efforts and negotiations is
essential in order for FOHP-NJ to meet its statutory net worth requirement
through the year ending December 31, 1996. In addition, the financial
commitments and guarantees and the Company's plans to meet the statutory net
worth requirements are subject to the approval of the Departments, which
approvals are currently being sought. Accordingly, these matters raise
substantial doubt about the Holding Company's ability to continue as a going
concern.
These consolidated financial statements have been prepared assuming the Holding
Company will continue as a going concern and do not include any adjustments that
might result from the outcome of this uncertainty.
The following are significant accounting policies of the Holding Company:
Principles of Consolidation. The consolidated financial statements
include the accounts of the Holding Company and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.
Restricted Cash. FOHP-NJ is required to maintain, at a minimum,
$1,000,000 on deposit with the New Jersey Department of Insurance.
Other Assets. Included in other assets are deferred stock issue costs.
Stock issue costs are accounted for using the offset method and represent legal,
accounting, and other costs incurred for the stock offering. Under this method,
stock issue costs are treated as a reduction of the amount received from the
sale of the related common stock.
Income Taxes. The Holding Company provides for income taxes based on
income recognized for financial statement purposes. The Holding Company
recognizes a deferred tax asset or liability for the expected future tax effects
attributable to the temporary differences between the tax and financial
statement basis of assets and liabilities. Deferred tax assets and liabilities
are adjusted to reflect changes in tax rates or other provisions of applicable
federal and state tax laws in the period in which such changes are enacted.
Deferred tax assets are recognized unless it is more likely than not that some
portion or all of the deferred tax assets will not be recovered.
Per Share Data. Per share data are based on the weighted average number
of shares of all classes of Common Stock outstanding during the comparative
three month period ended March 31, 1996 and March 31, 1995 (2,100,173 at March
31, 1996 and 1,571,853 at March 31, 1995).
3. Common Stock
At March 31, 1996, the authorized Common Stock of the Holding Company totaled
100 million shares. The authorized Common Stock of the Holding Company is
comprised of the following classes of Common Stock, $.01 par value: Common
Stock-NJ, Common Stock-NY, Common Stock-PA, Common Stock-DE and Unclassified
Common Stock which may be classified by the Board of Directors as provided in
the Certificate of Incorporation of the Holding Company. During 1995, the
Holding Company issued 2,100,173 shares of Common Stock-NJ.
At December 31, 1994, the authorized common stock of FOHP-NJ, the predecessor to
the Holding Company, totaled 10 million shares. The authorized common stock of
FOHP-NJ was comprised of the following classes of common stock, $.01 par value:
Institutional Provider Common Stock; Practitioner
8
<PAGE>
Provider Common Stock and Other Provider Common Stock. During 1994, FOHP-NJ
issued 1,020,051 shares of Institutional Provider Common Stock, 511,800 shares
of Practitioner Provider Common Stock, and 40,002 shares of Other Provider
Common Stock.
The Certificate of Incorporation and By-Laws of the Holding Company include
significant restrictions on the issuance and transfer of shares of Common Stock.
The Certificate of Incorporation of the Holding Company requires that only
health care providers who enter into and maintain a provider agreement with a
subsidiary of the Holding Company may purchase the Holding Company's Common
Stock. Acute care institutions which enter into a provider agreement with a
subsidiary of the Holding Company may purchase shares of Common Stock directly
or through an affiliate.
The Holding Company may, but is not obligated to, repurchase shares of Common
Stock from any shareholder whose provider agreement terminates for any reason or
upon the occurrence of certain events, as described in the Certificate of
Incorporation. The determination of the repurchase price of the shares is also
described in the Certificate of Incorporation.
4. Statutory Net Worth & Dividend Restrictions
FOHP-NJ, pursuant to its COA to operate as an HMO in New Jersey, is required to
maintain a minimum statutory net worth. The minimum statutory net worth
requirement at March 31, 1996 amounted to $7,334,000. In addition, under the
terms of its COA, if statutory net worth is less than 125% of the minimum
required ($9,168,000 at March 31, 1996), FOHP-NJ is required to submit a plan of
action to the New Jersey Department of Insurance to remedy the shortfall.
Without consideration to financial commitments and guarantees, discussed below
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations included in Part I -- Item 2 hereof, statutory net worth at March
31, 1996 approximated ($1,869,000), which was $11,037,000 below the 125%
requirement. If effect is given to the financial commitments and guarantees, the
statutory net worth at March 31, 1996 approximated $7,501,000. FOHP-NJ's plan
(the "Plan") to meet its COA net worth requirements was presented to the
Departments for approval, which approval is currently being sought. The Plan
includes mandating enrollment from owners/providers, reducing administrative
costs, and reducing medical costs and statutory net worth requirements through
the implementation of a reduced physician fee schedule and premium sharing
arrangements. In addition, the Holding Company has obtained certain financial
commitments and guarantees which, in management's opinion, when combined with
the other elements of the Plan, will enable FOHP-NJ to meet its statutory net
worth requirement at March 31, 1996 and for the balance of the year.
In addition to the minimum statutory net worth requirement, FOHP-NJ may not pay
dividends to its parent without prior approval of the Commissioner of Insurance.
9
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation.
Overview
The Holding Company, a New Jersey corporation, was formed in May 1994
to effect the Reorganization which was consummated on June 8, 1995. Pursuant to
the Reorganization, FOHP-NJ and FMCO became wholly-owned subsidiaries of the
Holding Company. Prior to the Reorganization, the Holding Company did not
conduct any business nor did it have any significant assets or liabilities.
Except for providing limited administrative assistance and consulting services
to prepaid health service plans affiliated with providers to the Holding
Company's subsidiaries, the Holding Company does not conduct, nor does
management believe that it will conduct, any business other than to provide
management and consulting services to its subsidiaries. All health care benefit
products and services are, and will be, provided by the Holding Company's
subsidiaries. The Holding Company does not intend to achieve profits by taking
any action which could have an adverse effect on the operations of a subsidiary
formed to operate as an HMO.
FOHP-NJ, a New Jersey corporation, was formed in May 1993 to operate as
an HMO in the State of New Jersey. FOHP-NJ received its COA in June 1994 to
operate as an HMO in the service area encompassing the entire State of New
Jersey and commenced operations on July 1, 1994. Pursuant to the Reorganization,
FOHP-NJ became a wholly-owned subsidiary of the Holding Company on June 8, 1995.
Currently, it is the Holding Company's principal subsidiary.
FOHP-NJ markets a comprehensive range of health care benefit plan
products pursuant to contractual arrangements with physicians, hospitals and
other health care providers. As of March 15, 1996, FOHP-NJ had entered into
provider agreements with fifty-one (51) acute care institutions ("NJ Acute Care
Institutions"), approximately ten thousand (10,000) practitioners ("NJ
Practitioners"), and approximately seventy-five (75) other health care providers
("NJ Other Providers"). The provider agreements have an initial term of one year
and are renewable annually. Such agreements with NJ Acute Care Institutions and
NJ Other Providers may be terminated by mutual consent or, after the initial one
year term, by either party upon ninety (90) days notice; agreements with NJ
Practitioners may be terminated by either party upon sixty (60) days notice. The
agreements also may be terminated for breaches specified therein.
FOHP-NJ's agreements with NJ Acute Care Institutions provide for, among
other things, a reimbursement schedule setting the amounts to be paid to the NJ
Acute Care Institutions by FOHP-NJ for services provided to members. Agreements
with participating NJ Acute Care Institutions prohibit the NJ Acute Care
Institutions from billing a member of a FOHP-NJ plan for any services paid for
under such plan except for any applicable copayment.
NJ Practitioners are paid pursuant to a fee schedule established by
FOHP-NJ and are prohibited from billing members of a FOHP-NJ plan except for
copayments and non-covered services, if any. Copayments, in amounts approved by
FOHP-NJ, are collected directly by the NJ Practitioner from the member.
Subscriber contracts are entered into with large employer groups (50 or
more employees) and small employer groups (less than 50 employees). Such
contracts are generally for a term of one year, but may be canceled by the
employer group upon thirty (30)
10
<PAGE>
days written notice. Under these contracts, FOHP-NJ has agreed to provide the
employer groups with health insurance coverage in return for a monthly premium.
FOHP-NJ utilizes a system of community rating by class, adjusted (with respect
to employer groups of 50 or more employees) by age, sex and industry
classification, in determining its rates for various employers in the proposed
service area. Premium revenue generated from subscriber contracts is recorded as
revenue in the month in which subscribers are entitled to service. Premiums
collected in advance are reported as unearned premium revenue.
Results of Operations
For the Period January 1, 1996 to March 31, 1996
Premium Revenue. For the three month period ended March 31, 1996,
medical premium revenue totaled $50.1 million or $33.7 million more than the
$16.4 million of medical premium revenue generated during the same period in
1995. Medical premium revenue generated by the Holding Company during the three
month period ended March 31, 1996 was substantially greater than the medical
premium revenue generated by FOHP-NJ during the same period in 1995 due to the
significant subscriber growth experienced since the end of the first quarter of
1995. Approximately 69% of medical premium revenue generated in the first three
months of 1996 and approximately 89% of medical premium revenue generated in the
first quarter of 1995 was attributable to NJ Acute Care Institutions which are
obligated to enroll their employees in FOHP-NJ plans. The Holding Company
believes that the percentage of medical premium revenue attributable to NJ Acute
Care Institutions will continue to decrease as FOHP-NJ's operations grow and
FOHP-NJ begins to fully benefit from current marketing efforts focused on
individuals and businesses who or which are not providers to FOHP-NJ.
Other Revenue. Other revenue for the three month period ended March 31,
1996 was $1.8 million compared to $2.0 million of other revenue for the same
period of the prior year. This decrease is attributed to a large self-insured
group converting to an insured product and,as a result the group premium is now
captured in premium revenue. Interest income increased by $134 thousand from
$204 thousand in 1995 to $338 thousand in 1996. The increase in interest income
was due to the larger cash reserves maintained by the Holding Company in 1996.
Medical Claims Costs. Total costs attributable to medical claims for
the three month period ended March 31, 1996 were $43.1 million or $29.3 million
higher than such costs incurred for the same period in 1995. The increase in
medical claims costs from 1995 to 1996 was primarily attributable to an increase
in enrollees in FOHP-NJ plans. Moreover, the increase in medical claims costs in
1996 is a direct function of the significant increase in medical premium revenue
generated in 1996.
Selling, General and Administrative Costs. Selling, general and
administrative costs totaled $11.6 million for the three month period ended
March 31. 1996 compared to $6.0 million incurred for the same period in 1995.
This increase was the result of the significant growth of FOHP-NJ and the
expansion activities of the Holding Company during 1996.
Other Expenses. Depreciation and amortization expenses for the three
month period ended March 31, 1996 increased by $50 thousand from the $139
thousand incurred during the same period in 1995. This increase was a result of
the significant investment in capital equipment in 1995 and 1996. Interest
expense decreased in 1996 to $2 thousand from the $19
11
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thousand incurred for the same period in 1995. This decrease was primarily the
result of the repayment of the short-term financing for the acquisition of FMCO.
Liquidity and Capital Resources
Gross proceeds of approximately $12,400,000, received by FOHP-NJ from
the private offering and sale of 826,708 shares of common stock in 1993, were
sufficient to cover the expenses incurred by FOHP-NJ in connection with the
formation and development of its business. In order to fund its continuing
development activities, FOHP-NJ sold 744,445 shares of common stock in a public
offering which closed on October 31, 1994. Gross proceeds received by FOHP-NJ as
a result of the sale of stock in the public offering amounted to $11,166,675.
Further, in order to fund its continuing development of HMOs in New York,
Pennsylvania and several other states, the Holding Company sold 529,120 shares
of Common Stock-NJ to NJ Practitioners in an offering which ended on September
1, 1995. Gross proceeds received by the Holding Company as a result of the sale
of Common Stock-NJ in the offering to NJ Practitioners amounted to $7,937,000.
FOHP-NJ is required by the New Jersey Department of Insurance to
maintain a minimum statutory net worth. The minimum statutory net worth
requirement at March 31, 1996 amounted to $7,334,000. In addition, if FOHP-NJ's
statutory net worth is, or is expected to be, less than 125% of the minimum
requirement, FOHP-NJ is required to submit to the New Jersey Department of
Insurance a plan of action to address the deficiency or expected deficiency. The
Holding Company believes that FOHP-NJ's statutory net worth at March 31, 1996
approximated $7,500,655, of which $9,369,000 represents the amount, as of March
31, 1996, of the Holding Company's capital obligation to FOHP-NJ, which is
either secured by letters of credit or guaranteed.
In the event that either the New Jersey Department of Insurance or the
New Jersey Department of Health requires that FOHP-NJ obtain additional capital
to remain in compliance with the statutory net worth and other capital
requirements applicable to FOHP-NJ as an HMO licensed in New Jersey, the Holding
Company is obligated to contribute such capital to FOHP-NJ. John L. Adessa,
President and Chief Executive Officer of the Holding Company, William B.
Roberts, Chairman of the Board of the Holding Company, and certain NJ
Practitioners who own shares of Common Stock-NJ, have arranged for the issuance
of letters of credit by various banks that provide, in the aggregate, $7,098,000
against which the Holding Company may draw if obliged to fund the payment of its
obligations to FOHP-NJ so as to allow FOHP-NJ to remain in compliance with the
statutory net worth and other capital requirements applicable to it. In
addition, certain NJ Acute Care Institutions and Eligible Affiliates have
guaranteed payment, in the aggregate, of $4,350,000 of the Holding Company's
capital obligation to FOHP-NJ. The letter of credit and guarantees expire on
either January 1 or January 2, 1997
The New Jersey Department of Insurance is currently reviewing whether
the amount of the Holding Company's capital obligation to FOHP-NJ, which is
either secured by a letter of credit or guaranteed, is acceptable for inclusion
in FOHP-NJ's net worth determination. If the New Jersey Department of Insurance
does not permit such amount to be included in FOHP-NJ's statutory net worth
determination, FOHP-NJ's statutory net worth at March 31, 1996 would be
approximately $11,036,000 below the 125% minimum. FOHP-NJ has addressed this
potential deficiency by submitting a Plan to the New Jersey Department of
Insurance that outlines the actions which have been taken and the measures to be
used by FOHP-NJ to
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<PAGE>
correct the potential deficiency. The Plan also outlines the actions to be taken
by the Holding Company to ensure that FOHP-NJ remains in compliance with
applicable statutory net worth requirements in 1996.
Pursuant to the Plan submitted to the New Jersey Department of
Insurance, the Holding Company plans to increase capital in 1996 by effecting
several operational changes, including implementing a program to generate
increased operating profits by requiring NJ Acute Care Institutions which have
not met their enrollment commitments to meet such commitments if they want to
remain shareholders of the Holding Company and providers in the FOHP-NJ provider
network, reducing the Holding Company's administrative cost structure and
reducing medical costs through the implementation of a modified provider
reimbursement schedule. The Holding Company also anticipates raising additional
capital through the sale of Common Stock.
In addition, the Holding Company is considering developing a revenue
sharing plan which would allow certain FOHP-NJ providers share in the revenues
of FOHP-NJ in exchange for prudent and appropriate utilization management by
such providers. If FOHP-NJ develops and implements a revenue sharing plan, the
statutory net worth required to be maintained by FOHP-NJ could be reduced.
The New Jersey Department of Insurance has not reached a final
determination on the plan of action submitted by FOHP-NJ and, therefore, the
Holding Company cannot predict at this time what effect, if any, the matters
addressed in the plan of action will have on the operations and business of
FOHP-NJ or the Holding Company. As a result of this uncertainty, the Holding
Company's independent auditors were unable to conclude in their report issued in
connection with the audit of the Holding Company's financial statements for the
year ended December 31, 1995, that the Holding Company will be able to continue
as a going concern.
In the event that the Holding Company does not raise or generate
sufficient capital, whether through the sale of Common Stock or through
operations, in order for FOHP-NJ to remain in compliance with the statutory net
worth and other capital requirements applicable to it, the Holding Company may
have to implement other means to preserve capital to make available to FOHP-NJ
so that FOHP-NJ can remain in compliance with applicable statutory net worth and
other capital requirements, such as (i) limit funding in connection with
expansion efforts in New York, Pennsylvania and other states until such time as
the Holding Company has sufficient capital reserves, and (ii) controlling
expenses associated with the Holding Company's infrastructure.
After the conclusion of fiscal 1996, the capital needs of the Holding
Company will be dependent upon the success of the corrective actions implemented
in 1996 and the growth of existing operations.
Substantially all of the Holding Company's cash and cash equivalents
are maintained within one financial institution. The majority of the funds are
held within the trust department of such institution and therefore are not
subject to the claims of general creditors of the bank. To further reduce the
risk of loss, the Holding Company has invested substantially all of such funds
in U.S. Treasury bills.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Computation of earnings per share
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K - During the first quarter ended March 31, 1996, the
following Current Report on Form 8-K was filed by the Holding Company with the
Securities and Exchange Commission:
Form 8-K (Item 5. Other Events), date of earliest event reported, February 6,
1996, with respect to the execution by the Holding Company and Atlantic Health,
LLC of a letter of intent which contemplates the formation by such entities of a
health maintenance organization in Maryland.
14
<PAGE>
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.
FOHP, Inc.
--------------------------------------------
(Registrant)
May 14, 1996 /s/ John L. Adessa
- - ------------
--------------------------------------------
Date (Signature)**
John L. Adessa
President and Chief Executive Officer
May 14, 1996 /s/ James S. Vaccaro
- - ------------
--------------------------------------------
Date (Signature)**
James S. Vaccaro
Principal Financial and Accounting Officer
15
FOHP, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
March 31,
1996 1995
----------------------------
Net Income (Loss) (2,964,020) (1,568,438)
Weighted average number of common shares
outstanding:
For the three months ended March 31, 1996 2,100,173
For the three months ended March 31, 1995 1,571,853
Net (loss) per common share $ (1.41) $ (1.00)
===========================
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q FOR THE 3 MONTH PERIOD ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-START> JAN-01-1996
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 23,134,587
<SECURITIES> 0
<RECEIVABLES> 16,899,792
<ALLOWANCES> 848,227
<INVENTORY> 0
<CURRENT-ASSETS> 40,167,777
<PP&E> 2,939,551
<DEPRECIATION> 957,722
<TOTAL-ASSETS> 43,969,384
<CURRENT-LIABILITIES> 42,054,365
<BONDS> 0
0
0
<COMMON> 21,002
<OTHER-SE> 1,894,017
<TOTAL-LIABILITY-AND-EQUITY> 43,969,384
<SALES> 0
<TOTAL-REVENUES> 51,906,731
<CGS> 0
<TOTAL-COSTS> 43,128,221
<OTHER-EXPENSES> 189,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,893
<INCOME-PRETAX> (2,963,505)
<INCOME-TAX> 515
<INCOME-CONTINUING> (2,964,020)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,964,020)
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> (1.41)
</TABLE>
