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 June 30, 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
FOHP, Inc.
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(Exact name of registrant as specified in its charter)
New Jersey 22-3314813
- ------------------------------------- ------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2 Bridge Avenue, Building 6, Red Bank, New Jersey 07701-1106
- -------------------------------------------------- -------------
(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
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
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 shares outstanding as of August 13, 1996
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations 4
For the period January 1 to June 30, 1996 & 1995
For the period April 1 to June 30, 1996 & 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 June 30, 1996
Condensed Consolidated Statements of Cash Flows 6
For the period January 1, 1996 to June 30, 1996
For the period January 1, 1995 to June 30, 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 15
Signature Page 16
<PAGE>
FOHP, INC. & SUBSIDIARIES
(SUCCESSOR TO FIRST OPTION HEALTH PLAN OF NEW JERSEY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(unaudited) (audited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 33,575,197 $ 23,882,286
Accounts receivable from owners/providers 7,642,216 6,341,092
Other accounts receivable (net of allowance for doubtful accounts
of $176,048 and $332,904, respectively) 2,285,531 3,252,639
Prepaid expenses 403,571 534,751
------------ ------------
Total current assets 43,906,515 34,010,768
Long-term Assets:
Restricted Cash 1,232,665 1,200,801
Furniture and equipment (at cost, net of accumulated depreciation
and amortization of $1,182,791 and $770,460, respectively) 2,304,285 1,859,131
Other assets 232,858 291,133
------------ ------------
Total Assets $ 47,676,323 $ 37,361,833
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Medical claims payable $ 44,676,694 $ 26,960,273
Accrued expenses 3,887,237 3,284,971
Accounts payable 3,058,900 935,907
Unearned premium revenue 539,945 341,092
Other 1,390,731 960,551
------------ ------------
Total current liabilities 53,553,507 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 (36,546,675) (25,790,452)
------------ ------------
Total shareholders' (deficiency) equity (5,877,184) 4,879,039
------------ ------------
Total liabilities and shareholders' equity $ 47,676,323 $ 37,361,833
============ ============
</TABLE>
See accompanying notes
3
<PAGE>
FOHP, INC. & SUBSIDIARIES
(SUCCESSOR TO FIRST OPTION HEALTH PLAN OF NEW JERSEY, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------ ------------- ------------ -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Premiums-hospitals/physicians $ 33,627,616 $ 16,897,439 $ 67,978,469 $ 31,442,671
Other premiums 21,182,170 3,898,477 36,892,839 5,776,892
Other, principally administrative fees 2,374,189 2,043,871 3,881,484 3,834,916
Interest income 413,265 290,932 751,179 494,503
------------- ------------- ------------- -------------
Total Revenue $ 57,597,240 23,130,719 109,503,971 41,548,982
------------- ------------- ------------- -------------
Expenses:
Medical and hospital services 50,257,395 18,133,874 93,385,616 31,971,205
Selling, general and administrative 14,903,597 7,071,755 26,455,026 13,062,689
Depreciation and amortization 227,015 151,830 416,223 291,247
Interest 1,436 58,131 3,329 77,150
------------- ------------- ------------- -------------
Total Expenses 65,389,443 25,415,590 120,260,194 45,402,291
------------- ------------- ------------- -------------
Net loss $ (7,792,203) $ (2,284,871) $ (10,756,223) $ (3,853,309)
============= ============= ============= =============
Net loss per common share $ (3.71) $ (1.45) $ (5.12) $ (2.45)
============= ============= ============= =============
</TABLE>
See accompanying notes
4
<PAGE>
FOHP, INC. & SUBSIDIARIES
(SUCCESSOR TO FIRST OPTION HEALTH PLAN OF NEW JERSEY, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
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
June 30, 1996 (10,756,223) (10,756,223)
--------- ------ ---------- ----------- -----------
Balance at June 30, 1996 (unaudited) 2,100,173 $21,002 $ 30,648,489 $(36,546,675) $ (5,877,184)
========= ======= ============ ============ ============
</TABLE>
See accompanying notes
5
<PAGE>
FOHP, INC. & SUBSIDIARIES
(SUCCESSOR TO FIRST OPTION HEALTH PLAN OF NEW JERSEY, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period For the period
January 1, 1996 January 1, 1995
to June 30, 1996 to June 30, 1995
----------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $(10,756,223) $ (3,853,309)
Adjustments to reconcile net loss to cash flows from
(used in) operating activities:
Depreciation and amortization 416,223 291,247
Amortization of investment discounts (31,864) (14,427)
Changes in operating assets and liabilities:
Increase in accounts receivable, net (334,016) (1,397,008)
Decrease in prepaids and other current assets 131,180 222,675
Decrease (increase) in other assets 58,275 (760,119)
Increase (decrease) in accounts payable and
accrued expenses 2,725,259 (553,664)
Increase in medical claims payable 17,716,421 8,889,332
Increase in unearned premium revenue 198,853 46,132
Increase (decrease) in other current liabilities 430,180 (8,670)
------------ ------------
Net cash flows from operating activities 10,554,288 2,862,189
Cash flows from investing activities
Increase in restricted cash (100,000)
Purchases of furniture and fixtures (861,377) (414,249)
------------ ------------
Net cash used in investing activities (861,377) (514,249)
Cash flows from financing activities
Proceeds from short-term loan 1,000,000
Redemption of common stock (1,500)
Payment of stock issue costs (19,638)
------------ ------------
Net cash provided by financing activities 0 978,862
Net increase in cash and cash equivalents
at the end of the period 9,692,911 3,326,802
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 $ 33,575,197 $ 16,357,097
============ ============
Interest paid for the period $ 3,329 $ 26,811
============ ============
State income taxes paid for the period $ 1,090 $ 1,266
============ ============
</TABLE>
See accompanying notes
6
<PAGE>
FOHP, INC. & SUBSIDIARIES
(SUCCESSOR TO FIRST OPTION HEALTH PLAN OF NEW JERSEY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 and six month periods ended June 30,
1996 and June 30, 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 $10,756,223 for the six month period
ended June 30, 1996 and has an accumulated deficit of $36,546,675 as of June 30,
1996. 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. In an effort to increase capital in 1996, FOHP
effected several operational changes. The operational changes made by FOHP
included (a) the implementation of a program to generate increased operating
profits by requiring certain acute care shareholders which had not met their
enrollment commitments to meet such commitments if they want to remain
shareholders of FOHP and providers in the FOHP-NJ network, (b) the
<PAGE>
implementation of a hiring freeze and suspension of bonus payments and the use
of consultants in order to control FOHP's administrative costs, and (c) the
implementation of a modified provider reimbursement schedule which became
effective on April 1, 1996, for purposes of reducing medical costs. The Holding
Company is also considering raising capital through private placement and/or
public sale of common stock. The success of the Holding Company's efforts to
increase capital in 1996 is essential in order for FOHP-NJ to meet its statutory
net worth requirement through the year ending December 31, 1996. 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.
Cash and Cash Equivalents. Includes approximately $1,074,000 that is
not currently available for operations. Such amount consists of refundable
moneys collected from third parties wanting to secure a place in the anticipated
New York provider network.
Restricted Cash. FOHP-NJ is required to maintain, at a minimum,
$1,000,000 on deposit with the New Jersey Department of Insurance.
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 six
month period ended June 30, 1996 and June 30, 1995 (2,100,173 at June 30, 1996
and 1,571,753 at June 30, 1995).
3. Common Stock
At June 30, 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 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.
<PAGE>
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 June 30, 1996 amounted to $9,309,000. In addition, under the
terms of its COA, if statutory net worth is less than 125% of the minimum
required ($11,637,000 at June 30, 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 in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Part I - Item 2 hereof, statutory net deficiency at June
30, 1996 approximated $6,655,000, which was $18,292,000 below the 125%
requirement. FOHP-NJ's plan of action to meet its COA net worth requirements was
presented in April, 1996 to the Departments for approval. The plan of action is
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Part I - Item 2 hereof. On June 12, 1996, the
Departments approved the plan of action subject to certain reporting and other
conditions. Such conditions are also discussed in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<PAGE>
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 June 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 an 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 an 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.
<PAGE>
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) 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 THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Premium Revenue. For the three-month period ended June 30, 1996, medical premium
revenue totaled $54,810,000 or $34,014,000 more than the $20,796,000 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
June 30, 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 second quarter of 1995.
Approximately 61% of medical premium revenue generated in the second quarter of
1996 and approximately 81% of medical premium revenue generated in the second
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, principally administrative fees for the
three-month period ended June 30, 1996 was $2,374,000 compared to $2,044,000 of
other revenue for the same period of the prior year. This increase is attributed
to the significant subscriber growth in self-insured products. Interest income
for the second quarter of 1996 was $413,000, a $122,000 increase from the
$291,000 generated in the second quarter of 1995. The increase in interest
income was due to the larger cash reserves maintained by the Holding Company in
1996.
Medical and Hospital Service Expenses. Total expenses versus total costs
attributable to medical and hospital services for the three-month period ended
June 30, 1996 were $50,257,000 or $32,124,000 higher than such expenses incurred
for the same period in 1995. The increase in medical and hospital service
expenses from 1995 to 1996 was primarily attributable to a significant increase
in enrollees in FOHP-NJ plans. In addition, for the three-month period ended
June 30, 1996, the percentage of medical expenses to premium dollars was higher
than the percentage of medical expenses to premium dollars for the previous
quarter. The Company believes that recent operational changes, specifically the
implementation of a modified provider reimbursement schedule, will lower the
percentage of medical expenses to premium dollars in future quarters.
Selling, General and Administrative Expenses. Selling, general and
administrative costs totaled $14,904,000 for the three-month period ended June
30, 1996 compared to $7,072,000 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.
<PAGE>
Other Expenses. Depreciation and amortization expenses for the three-month
period ended June 30, 1996 increased by $75,000 from the $152,000 incurred
during the same period in 1995. This increase was a result of the significant
investment in capital equipment in the end of 1995 and the beginning of 1996.
Interest expense decreased in 1996 to $1,000 from the $58,000 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.
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Premium Revenue. For the six-month period ended June 30, 1996, medical premium
revenue totaled $104,871,000 or $67,652,000 more than the $37,219,000 of medical
premium revenue generated during the same period in 1995. Medical premium
revenue generated by the Holding Company during the period ended June 30, 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 second quarter of 1995. Approximately 65% of
medical premium revenue generated in the first six months of 1996 and
approximately 84% of medical premium revenue generated in the first six months
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, principally administrative fees for the six-month
period ended June 30, 1996 was $3,881,000 compared to $3,833,000 of other
revenue for the same period of the prior year. Interest income for the first six
months of 1996 was $751,000, a $256,000 increase from the $495,000 generated in
the first six months of 1995. The increase in interest income was due to the
larger cash reserves maintained by the Holding Company in the first six months
of 1996.
Medical and Hospital Service Expenses. Total expenses versus total costs
attributable to medical and hospital services for the six-month period ended
June 30, 1996 were $93,386,000 or $61,415,000 higher than such expenses incurred
for the same period in 1995. The increase in medical and hospital service
expenses from 1995 to 1996 was primarily attributable to an increase in
enrollees in FOHP-NJ plans.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses versus costs totaled $26,455,000 during the first six
months of 1996 compared to $13,063,000 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 six-month period
ended June 30, 1996 increased by $125,000 from the $291,000 incurred during the
same period in 1995. This increase was a result of the significant investment in
capital equipment in the end of 1995 and the beginning of 1996. Interest expense
decreased in the first six months of 1996 to $3,000 from the $77,000 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.
<PAGE>
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, ("DOI") to
maintain a minimum statutory net worth. 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 DOI a plan of action to address the
deficiency or expected deficiency. During the first quarter of 1996, FOHP
learned that FOHP-NJ's statutory net worth as of December 31, 1995 may have been
below the 125% of the minimum requirement. FOHP-NJ addressed this potential
deficiency by submitting in April 1996 a plan of action to the DOI which
outlined the actions which had been taken and measures to be used by FOHP-NJ to
correct the potential deficiency. The plan of action also outlined the actions
to be taken by FOHP and FOHP-NJ to ensure that FOHP-NJ remained in compliance
with applicable statutory net worth requirements in 1996.
The plan of action submitted by FOHP-NJ provides that in the event that either
the DOI or the New Jersey Department of Health ("DOH") 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, FOHP will contribute such capital to FOHP-NJ. To assure that FOHP has
sufficient capital to contribute to FOHP-NJ in the event that FOHP-NJ is
required to obtain additional capital to remain in compliance with the statutory
net worth and other capital requirements applicable to it, certain officers,
directors, and shareholders of FOHP either (i) arranged for the issuance of
letters of credit by various banks, against which FOHP may draw if required 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, or (ii) guaranteed a portion of FOHP's capital obligation to
FOHP-NJ. In addition, pursuant to the plan of action, FOHP effected several
operational changes in order to increase capital in 1996. The operational
changes made by FOHP included (a) the implementation of a program to generate
increased operating profits by requiring certain acute care shareholders which
had not met their enrollment commitments to meet such commitments if they want
to remain shareholders of FOHP and providers in the FOHP-NJ network, (b) the
implementation of a hiring freeze and suspension of bonus payments and the use
of consultants in order to control FOHP's administrative costs, and (c) the
implementation of a modified provider reimbursement schedule which became
effective on April 1, 1996, for purposes of reducing medical costs.
On June 12, 1996, the DOI and DOH approved FOHP-NJ's plan of action subject to
certain reporting and other conditions. Such conditions include: (i) the
submission of a monthly report to the DOI which is to contain a comparison of
actual results for the month just ended to the budgeted results for such month;
(ii) the administrative expenses saving measures specified in the plan of action
including the hiring freeze and the suspension of bonuses and consultant use,
shall not be discontinued or modified
<PAGE>
unless the DOI has received written notice of any such proposed discontinuance
or modification and has not objected to the proposed discontinuance or
modification within five (5) days of receiving such notice; (iii) the submission
to the DOI of the minutes of any FOHP or FOHP-NJ board meeting and the minutes
of certain committee meetings within thirty (30) days of the date of any such
meeting; (iv) neither FOHP nor FOHP-NJ shall enter into any joint venture,
acquisition, merger, intercompany related party transaction, or other material
transaction (defined as one half of one percent or greater of net admitted
assets as of the prior year) without the prior written approval of the DOI; (v)
neither FOHP nor FOHP-NJ shall declare or apply any dividends or bonuses or make
any distributions other than in the course of ordinary business without the
prior written approval of the DOI; (vi) any proceeds from the sale of FOHP stock
to New Jersey providers must first be used to pay the payable from FOHP to
FOHP-NJ; (vii) a claim reserve lag study shall be provided to the DOI on a
quarterly basis in a format prescribed by the DOI; (viii) prior written approval
of the Commissioner of the DOI must be obtained before either FOHP or FOHP-NJ
makes any expenditure related to activities in jurisdictions other than New
Jersey; and (ix) on or before October 1, 1996, at least one third of the members
of each committee of the Boards of Directors of FOHP and FOHP-NJ shall be
persons who are not affiliated with FOHP or FOHP-NJ or any subsidiaries thereof,
and who do not have any contractual relationship with FOHP or FOHP-NJ or any
subsidiaries thereof, including any health care provider in the FOHP-NJ provider
network. The aforementioned conditions are to continue until the DOI and DOH
issue a written determination that (a) FOHP-NJ has had two (2) consecutive
quarters with a net gain from operations in each quarter of at least $2 million,
(b) FOHP-NJ surplus equals or exceeds 125% of its minimum net worth requirement
for the same two consecutive quarters, and (c) the payable from FOHP to FOHP-NJ
has been paid in full. The Company intends to comply with each of the conditions
established by the DOI and DOH. The Board of Directors of FOHP is currently
reviewing various changes to FOHP's governance structure which the Company
believes will address the condition set forth in Subsection (ix) above. Further,
the Holding Company is also considering raising capital through one or more
private placements and/or public offerings of its common stock.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - See attached exhibit on following page regarding computation of
earnings per share.
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K - During the second quarter ended June 30, 1996, the
following Current Reports on Form 8-K were filed by the Holding Company with
the Securities and Exchange Commission:
Form 8-K (Item 5. Other Events), date of earliest event reported, May 2,
1996, with respect to the execution by the Holding Company and QualCare, Inc.
("QualCare") of a letter of intent which contemplated the issuance of FOHP stock
to the shareholders of QualCare in exchange for their interest in QualCare and
cash.
Form 8-K (Item 5. Other Events), date of earliest event reported, June 12,
1996, with respect to (i) the termination of the letter of intent between FOHP
and QualCare, and (ii) the expiration of the letter of intent between FOHP and
Atlantic Health, LLC.
Form 8-K (Item 5. Other Events), date of earliest event reported, June 12,
1996, with respect to (i) the New Jersey Departments of Insurance and Health
approval of the plan of action submitted by FOHP-NJ to address a potential
deficiency to statutory net worth, and (ii) the replacement of the President and
Chief Executive Officer of FOHP.
<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)
Aug. 14, 1996 /s/ John W. Rohfritch
------------- -----------------------------------------
Date (Signature)**
John W. Rohfritch
President and Chief Executive Officer
Aug. 14, 1996 /s/ Albert E. Wareikis
------------- ------------------------------------------
Date (Signature)**
Albert E. Wareikis
Principal Financial and Accounting Officer
<PAGE>
FOHP, INC. & SUBSIDIARIES
(SUCCESSOR TO FIRST OPTION HEALTH PLAN OF NEW JERSEY, INC.)
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
-------------- ------------
<S> <C> <C>
Net Income (Loss) (10,756,223) (3,853,309)
Weighted average number of common shares outstanding:
For the six months ended June 30, 1996 2,100,173
For the six months ended June 30, 1995 1,571,753
Net (loss) per common share $ (5.12) $ (2.45)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quater ended June 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 33,575,197
<SECURITIES> 0
<RECEIVABLES> 2,461,579
<ALLOWANCES> 176,048
<INVENTORY> 0
<CURRENT-ASSETS> 43,906,515
<PP&E> 3,487,076
<DEPRECIATION> 1,182,791
<TOTAL-ASSETS> 47,678,323
<CURRENT-LIABILITIES> 53,553,507
<BONDS> 0
0
0
<COMMON> 21,002
<OTHER-SE> (5,898,186)
<TOTAL-LIABILITY-AND-EQUITY> 47,676,323
<SALES> 0
<TOTAL-REVENUES> 109,503,971
<CGS> 0
<TOTAL-COSTS> 93,385,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,329
<INCOME-PRETAX> (10,756,223)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,756,223)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,756,223)
<EPS-PRIMARY> (5.12)
<EPS-DILUTED> (5.12)
</TABLE>
