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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended June 30, 2001
Commission file number: 000-18839
UNITED AMERICAN HEALTHCARE CORPORATION
(Exact name of registrant as specified in charter)
MICHIGAN 38-2526913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1155 BREWERY PARK BOULEVARD, SUITE 200
DETROIT, MICHIGAN 48207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 393-0200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY
NON-AFFILIATES AS OF SEPTEMBER 24, 2001, COMPUTED BY REFERENCE TO THE OTC
BULLETIN BOARD CLOSING PRICE ON SUCH DATE, WAS $7,457,041.
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF SEPTEMBER
24, 2001 WAS 6,779,128.
The following document (or portion thereof) has been incorporated by reference
in this Annual Report on Form 10-K: The definitive Proxy Statement for the 2000
Annual Meeting of Shareholders to be held on November 30, 2001 (Part III).
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As filed with the Securities and Exchange Commission on September 28, 2001
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UNITED AMERICAN HEALTHCARE CORPORATION
FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business....................................................................................1
Item 2. Properties.................................................................................12
Item 3. Legal Proceedings..........................................................................12
Item 4. Submission of Matters to a Vote of Security Holders........................................12
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters ..................................................................................13
Item 6. Selected Financial Data....................................................................14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................14
Item 8. Financial Statements.......................................................................26
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................................26
PART III
Item 10. Directors and Executive Officers of the Registrant.........................................27
Item 11. Executive Compensation.....................................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................27
Item 13. Certain Relationships and Related Transactions.............................................27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................28
Financial Statements..........................................................................................F-1
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PART I
ITEM 1. BUSINESS
GENERAL
United American Healthcare Corporation (the "Company") was incorporated in
Michigan on December 1, 1983 and commenced operations in May 1985. Unless the
context otherwise requires, all references to the Company indicated herein shall
mean United American Healthcare Corporation and its consolidated subsidiaries.
The Company provides comprehensive management and consulting services to managed
care organizations, including health maintenance organizations in Tennessee and
Michigan. The Company also arranges for the financing of health care services
and delivery of these services by primary care physicians and specialists,
hospitals, pharmacies and other ancillary providers to commercial employer
groups and government-sponsored populations in Tennessee and Michigan.
Management and consulting services provided by the Company are generally to
health maintenance organizations with a targeted mix of Medicaid and
non-Medicaid/commercial enrollment. As of September 1, 2001, there were
approximately 185,000 enrollees in the managed care organizations owned or
operated by the Company.
Management and consulting services provided by the Company include feasibility
studies for licensure, strategic planning, corporate governance, management
information systems, human resources, marketing, pre-certification, utilization
review programs, individual case management, budgeting, provider network
services, accreditation preparation, enrollment processing, claims processing,
member services and cost containment programs.
In 1985, the Company became one of the pioneers in arranging for the financing
and delivery of health care services to Medicaid recipients utilizing managed
care programs. Management believes the Company has gained substantial expertise
in understanding and serving the particular needs of the Medicaid population. As
of September 1, 2001, there were approximately 116,000 Medicaid enrollees in the
managed care organizations owned or managed by the Company, OmniCare Health
Plan, Inc., in Tennessee ("OmniCare-TN"), 75%-owned by the Company's wholly
owned subsidiary, and OmniCare Health Plan, in Michigan ("OmniCare-MI"). The
Company complements its Medicaid focus by targeting non-Medicaid/commercial
business in the same geographic markets, which has included its contract with
Urban Hospital Care Plus (the "County Care" plan). As of September 1, 2001,
there were approximately 69,000 non-Medicaid/commercial enrollees in
OmniCare-MI, OmniCare-TN and County Care (collectively, the "Managed Plans"),
including approximately 8,200 in County Care. At the Company's election, the
County Care contract will expire on September 30, 2001, after which OmniCare-MI
and OmniCare-TN will comprise the Company's Managed Plans.
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INDUSTRY
In an effort to control costs while assuring the delivery of quality health care
services, the public and private sectors have increasingly turned to managed
care solutions. As a result, the managed care industry, which includes health
maintenance organization ("HMO"), preferred provider organization ("PPO") and
prepaid health service plans, has grown substantially.
While the trend toward managed care solutions has traditionally been pursued
most aggressively by the private sector, the public sector has embraced the
trend in an effort to control the costs of health care provided to Medicaid
recipients. Consequently, many states are promoting managed care initiatives to
contain these rising costs and supporting programs that encourage or mandate
Medicaid beneficiaries to enroll in managed care plans.
MANAGED CARE PRODUCTS AND SERVICES
The Company has an ownership interest in and manages the operations of an HMO in
Tennessee, OmniCare-TN. The Company also manages the operations of an HMO in
which it has no ownership interest, OmniCare-MI. In addition, the Company
participates in the County Care plan, but will not after September 30, 2001.
The Company also has had an ownership interest in three other HMOs which are no
longer part of its business: UltraMedix Healthcare Systems, Inc., in Florida
("UltraMedix"), OmniCare Health Plan of Louisiana, Inc., in Louisiana
("OmniCare-LA") and PhilCare Health Systems, Inc., in Pennsylvania ("PhilCare"),
each briefly described below this Form 10-K annual report.
The following table shows the membership in the Managed Plans serviced by the
Company as of September 1, 2001:
Non-Medicaid/
Medicaid Commercial Total
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Managed Plans
Owned:
OmniCare-TN 49,423 27,987 77,410
County Care* - 8,167 8,167
Managed:
OmniCare-MI 67,042 32,441 99,483
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116,465 68,595 185,060
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*County Care will no longer be a Managed Plan of the Company after September 30,
2001.
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The following table shows the Company's principal revenue sources in dollar
amounts and as a percentage of the Company's total revenues for the periods
indicated. Such data are not indicative of the relative contributions to the
Company's net earnings.
YEAR ENDED JUNE 30,
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2001 2000 1999
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(in thousands, except percentages)
Revenues
OmniCare-TN $93,305 71% $77,005 71% $70,934 76%
OmniCare-MI 26,394 20% 18,769 17% 18,148 19%
County Care* 9,699 7% 9,169 8% 2,273 2%
*County Care will no longer be a Managed Plan of the Company after September 30,
2001.
The Company's gross revenues derived from OmniCare-MI are based on management
fees earned under a management agreement with OmniCare-MI. To enable OmniCare-MI
to meet its minimum statutory requirements for net worth and working capital, in
fiscal years 2001, 2000 and 1999 the Company either forgave, or converted to an
unsecured loan evidenced by surplus notes, some of such management fees in the
amounts of $2.6 million, $3.7 million and $1.3 million, respectively. See
"Managed Plan Operated By the Company-OmniCare-MI" below and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
MANAGED PLANS
The Company has entered into long-term management agreements with OmniCare-MI
and, through a wholly owned subsidiary of the Company, with OmniCare-TN.
Pursuant to these management agreements with OmniCare-MI and OmniCare-TN, the
Company provides management and consulting services associated with the
financing and delivery of health care services. The Company also participates in
the County Care plan pursuant to an agreement to arrange for the delivery of
health care services, which expires September 30, 2001. Table A summarizes the
terms of these agreements.
Services provided to the Managed Plans include strategic planning; corporate
governance; human resource functions; provider network services; provider
profiling and credentialing; premium rate setting and review; marketing services
(group and individual); accounting and budgeting functions; deposit,
disbursement and investment of funds; enrollment functions; collection of
accounts; claims processing; management information systems; utilization review;
and quality management.
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Table A- Summary of Terms of Agreements with the Managed Plans
Terms OmniCare-MI (1) OmniCare-TN County Care(2)
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(1) Duration:
(a) Effective dates:
(i) Commencement May 1, 1985 July 1, 1996 April 1, 1999
(ii) Expiration Dec. 31, 2010 June 30, 2005 Sept. 30, 2001
(b) Term extension:
(i) Automatically renewable No Yes - 4 successive Yes - unlimited
5-year periods
(ii) Terms of renewal/ Subject to review 5 years N/A
continuation every 5 years
(iii) Next review period May 1, 2005 January 1, 2005 N/A
(c) Termination:
(i) Without cause by the Plan
at such review dates Yes Yes Yes
(ii) Either party with cause Yes Yes Yes
(2) Fees paid to the Company:
(a) Percentage of revenues Yes Yes No
(b) Fixed premium rates No No Yes
(3) Expenses incurred by the Company:
All administrative expenses
necessary to carry out and perform
the functions of the Plan,
excluding:
(i) Audit No Yes No
(ii) Legal No Yes No
(iii) Marketing No No No
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(1) The Company's management agreement with OmniCare-MI is expected to be
amended soon after the date of this 10-K annual report by mutual agreement
between the Company and the Rehabilitator of OmniCare-MI who was appointed by
court order on July 31, 2001. The Company's management expects that the terms
summarized in this Table A will continue to accurately describe the management
agreement when it is so amended.
(2) At the Company's election, the County Care agreement will not be renewed
beyond the expiration of its current term on September 30, 2001.
Managed Plans Owned by the Company
OMNICARE-TN. OmniCare-TN was organized as a Tennessee corporation in October
1993, and is headquartered in Memphis, Tennessee. The Company was active in the
development of OmniCare-TN, and through the Company's wholly owned subsidiary,
United American of Tennessee, Inc., owns a 75% equity interest in OmniCare-TN; a
local partner owns the remaining 25%. OmniCare-TN began as a PPO contractor with
the Bureau of TennCare ("TennCare"), a State of Tennessee program that provides
medical benefits to Medicaid and
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working uninsured and uninsurable recipients, and operated as a full-risk
prepaid health services plan until it obtained its TennCare HMO license in March
1996. OmniCare-TN's TennCare HMO contract was executed in October 1996,
retroactive to the date of licensure.
In November 1993, OmniCare-TN contracted with TennCare as a Medicaid PPO to
arrange for the financing and delivery of health care services on a capitated
basis to eligible Medicaid beneficiaries and the Working Uninsured and
Uninsurable ("Non-Medicaid") individuals who lack access to private or employer
sponsored health insurance or to another government health plan. TennCare placed
an indefinite moratorium on Working Uninsured enrollment in December 1994;
however, such action did not affect persons enrolled in a plan prior to the
moratorium. In April 1997, enrollment was expanded to include the children of
the Working Uninsured up to age 18.
The TennCare contract was renewed on July 1, 2000 for a 42-month term, expiring
December 31, 2003. The new contract provides for increased capitation rates, but
eliminated the practice of providing retroactive payments to managed care
organizations for high cost chronic conditions of their members ("adverse
selection") and payments earmarked as adjustments for covered benefits. In
addition, the new contract requires that at least 85% of capitation revenues
received by OmniCare-TN must be passed on to medical service providers.
OmniCare-TN was assigned approximately 6,000 members by TennCare in the second
half of fiscal 2000 as a result of three other managed care organizations, which
had contracts with TennCare, ceasing to serve their enrollees or being unable to
take on new enrollees. Medical services expenses for such new OmniCare-TN
members disproportionately exceeded OmniCare-TN's normal per member per month
("PMPM") experience and adversely affected its earnings for and since that
period. OmniCare-TN received from TennCare in fiscal 2001 an adverse selection
payment of approximately $0.8 million for such fiscal 2000 expenses.
At June 30, 2001, OmniCare-TN was licensed in and served Shelby and Davidson
Counties in Tennessee (which include the cities of Memphis and Nashville,
respectively). Effective July 1, 2001, OmniCare-TN received approval from
TennCare to expand its service area to western Tennessee and to withdraw from
Davidson County. As of September 1, 2001, OmniCare-TN's total enrollment was
approximately 77,000 members, of which 49,000 (64%) and 28,000 (36%) represent
Medicaid and Non-Medicaid enrollees, respectively.
OmniCare-TN's application for a commercial HMO license was approved on September
7, 2001. Management believes that the receipt of the commercial license and
OmniCare-TN's efforts to expand its provider network to Shelby County
(southwestern Tennessee) will enable OmniCare-TN to increase its enrollment by
marketing its managed care products to the various employer groups in the
regions served. Management anticipates such increased enrollment beginning after
fiscal 2002.
COUNTY CARE. Wayne County, Michigan, encompasses Detroit and certain other
cities and communities. Effective April 1, 1999, the Company entered into the
County Care contract with a nonprofit corporation which administers the County's
patient care management system, for the Company to arrange for the delivery of
health care services, including the assumption of underwriting risk, on a
capitated basis to certain enrollees residing in the County who lack access to
health insurance or to another government health plan. At the Company's
election, the County Care
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contract will expire on September 30, 2001. The contract has not provided
significant earnings to the Company, and its termination is not expected to have
a material effect on future operations of the Company.
ULTRAMEDIX. Through a subsidiary, the Company owned 51% of UltraMedix, a Florida
HMO which became insolvent and was placed in liquidation by court order in early
1998. In April 1998, a Florida health care administration agency notified the
Company of intent to enforce its agreement to reimburse UltraMedix's contracted
Medicaid providers for certain services which the Agency had paid for on
enrollees' behalf, limited to the amount of surplus UltraMedix would have had to
maintain under the Medicaid contract absent such agreement. The Company
maintained a $6.4 million estimated medical claims liability reserve for
UltraMedix until March 31, 2000, when the Company concluded the continuing
reserve requirement should be $0.8 million and therefore reduced the $6.4
million reserve by $5.6 million and offset that amount against medical services
expenses. At March 31, 2001, the Company eliminated the remaining reserve of
$0.8 million.
Managed Plan Operated by the Company
OMNICARE-MI. OmniCare-MI is a not-for-profit, tax-exempt corporation
headquartered in Detroit, Michigan and serving southeastern Michigan, operating
in Wayne, Oakland, Macomb, Monroe and Washtenaw counties. Its history includes a
number of innovations that were adopted and proved successful for the industry.
It was the first network model HMO in the country and the first to capitate
physician services in an IPA-model HMO (an Independent Practice Association
model HMO does not employ physicians as staff, but instead contracts with
associations or groups of independent physicians to provide services to HMO
members). OmniCare-MI also created and implemented the first known mental health
capitation carve out in 1983.
OmniCare-MI's current enrollment is through approximately 850 companies that
offer the health plan coverage to employees and their family members, through
individual enrollment that is open once a year for a 30-day period, and through
the State of Michigan's Medicaid program pursuant to an agreement with the
Michigan Department of Community Health, which makes HMO coverage available to
eligible Medicaid beneficiaries in certain counties and mandatory in others.
Among the major employers that offer OmniCare-MI, ranked by enrollment, are: the
City of Detroit, the Federal Government, the Detroit Board of Education, the
State of Michigan, Ford Motor Company and DaimlerChrysler AG, the largest of
which represents approximately 5% of OmniCare-MI's total enrollment. These
employers, in aggregate, represent approximately 16% of OmniCare-MI's total
enrollment. No other group exceeds 2% of the Plan's total enrollment.
As of September 1, 2001, total enrollment in OmniCare-MI was approximately
99,000, of which 32,000 (32%) are commercial members, including approximately
3,800 point-of-service members, and approximately 67,000 (68%) are Medicaid
members.
On April 13, 2000 and June 30, 1998, the Company funded unsecured loans to
OmniCare-MI evidenced by surplus notes of $7.7 million and $4.6 million,
respectively, to enable OmniCare-MI to meet its minimum statutory requirements
for net worth and working capital. The $7.7 million loan consisted of $4.0
million in cash and conversion of $3.7 million of management fees
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owed to the Company and the $4.6 million loan was in cash. Pursuant to the terms
of the surplus notes, interest and principal payments require approval by the
Michigan Office of Financial & Insurance Services (the "OFIS") and are repayable
only from any statutory surplus earnings of OmniCare-MI. Note interest is
payable annually and forfeited if not then paid. Interest income of $1.1
million, $0.5 million and $0.4 million was forfeited for fiscal years 2001, 2000
and 1999, respectively. The note principal has no stated maturity or repayment
date. The surplus notes are subordinated to all other claimants of OmniCare-MI.
Based on an analysis of OmniCare-MI's projected cash flows, the Company recorded
impairment losses on the valuation of the surplus note which resulted in bad
debt expense of $6.9 million and $3.1 million for the years ended June 30, 2001
and 2000, respectively. In fiscal 1999, the Company provided additional funding
by forgiving $1.3 million in management fees owed to the Company by OmniCare-MI
to enable OmniCare-MI to meet its minimum statutory requirements for net worth
and working capital.
In June 1999, OmniCare-MI joined with Blue Cross Blue Shield of Michigan (the
"CasinoCare Venture") to provide health care, dental and prescription drug
benefits to casino employees in Detroit. There are currently approximately 3,000
CasinoCare Venture members receiving health coverage, generating medical
premiums of approximately $0.4 million monthly. The Company receives a
management fee based on the medical premiums generated from those members who
select the Company's products.
On May 1, 2000, approximately 28,000 members of the Detroit Medical Center's
Medicaid managed care program were transferred to OmniCare-MI. Since then,
OmniCare-MI's overall Medicaid enrollment has stayed relatively constant. During
fiscal 2000, the additional membership generated management fee revenue of $0.6
million and approximately $4.0 million in fiscal 2001.
On July 14, 2000, the State of Michigan notified OmniCare-MI that it was one of
the successful bidders in the State's extensive bid process for increased
Medicaid rates and continued eligibility as an HMO providing coverage to
enrollees of the State's Comprehensive Health Care Program for Medicaid
beneficiaries. As a result, OmniCare-MI was awarded a rate increase and an
extension of its contract with the State of Michigan to September 30, 2002, with
the potential for three one-year extensions.
As a Michigan HMO, OmniCare-MI is subject to oversight by the Commissioner of
the Office of Financial & Insurance Services of the State of Michigan (the
"Commissioner"). On July 31, 2001, pursuant to a motion by the Commissioner, a
State circuit court judge entered an order of rehabilitation of OmniCare-MI (the
"Order") and appointed the Commissioner to serve as Rehabilitator of
OmniCare-MI. The Order directs the Rehabilitator to administer all of
OmniCare-MI's assets and business while attempting to reform or revitalize
OmniCare-MI by any means so as to effectuate its rehabilitation, preserve its
provider network and maintain uninterrupted health care services to the greatest
extent possible. Pursuant to the Order, the Rehabilitator's appointed special
deputy, Bobby Jones (the "Special Deputy Rehabilitator"), who served some years
ago as the Senior Vice President of OmniCare-MI, is now acting as the Chief
Executive Officer of OmniCare-MI.
The Order expressly requires the Company to continue performing all services
under its management agreement with OmniCare-MI until further order of the
court, "as the continuation of these services is essential to the continuation
of health care service to over 100,000
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subscribers." The Company has continued to perform the management agreement
without interruption and has been paid in full its 14% management fee pursuant
to the agreement for July 2001. Meanwhile, the Company and the Special Deputy
Rehabilitator have negotiated and reached agreement on an amendment to the
management agreement, which is expected to be in final written form, signed and
effective soon after the date of this 10-K annual report. Company management
expects the already mutually agreed upon amendment will reduce the Company's
management fee percentage from 14% to approximately 10% beginning in August 2001
and will provide for reevaluation and adjustment from time to time to
appropriately reflect the Company's actual future costs of performing the
management agreement. The Company's management expects the amendment will
continue unchanged the other basic terms of its management agreement with
OmniCare-MI as summarized in Table A under "Managed Plans" above.
Previous Managed Plan Ventures
OMNICARE-LA. OmniCare-LA was a Louisiana HMO organized in 1994 and 100% owned by
a wholly owned subsidiary of the Company. In 1996, OmniCare-LA obtained its HMO
license, with the Company funding OmniCare-LA's statutory reserve and net worth
requirements through certain letters of credit and $1.0 million in cash
deposited at Louisiana banks. OmniCare-LA was in a pre-operational phase
continually since inception. The Company withdrew its $1.0 million statutory
reserve, terminated its letter of credit commitments and dissolved OmniCare-LA
in May 2000.
PHILCARE. PhilCare was a Pennsylvania HMO organized in 1994 and 49% owned by a
wholly owned subsidiary of the Company, United American of Pennsylvania, Inc.
("UA-PA"). In 1996, PhilCare obtained its HMO license, with the Company funding
PhilCare's statutory reserve and net worth requirements of $2.1 million through
cash deposited at a Pennsylvania bank. Subsequently, in fiscal 1998 the Company
recorded a full impairment loss against its $2.1 million investment. PhilCare
was dissolved in the Company's fiscal 2000. PhilCare assets were then
distributed to UA-PA pursuant to agreements under which UA-PA contributed those
assets, and the Company recovered its $2.1 million investment in PhilCare,
resulting in a gain in that amount for the fiscal year ended June 30, 2000. The
Company also had rent obligations for Philadelphia office spaces which were
substantially sublet in fiscal 1998. The landlord assumed the subleases and
released the Company from its lease obligations effective September 9, 1999.
ADVICA HEALTH MANAGEMENT. In March 1993, the Company agreed with the HealthScope
company to form a health care management company to access the Medicaid eligible
population in metropolitan New York. HealthScope became a subsidiary of Advica
Health Management ("Advica"). In May 1997, the Company converted its interest in
Advica to $4.0 million of Advica preferred stock and a warrant for Advica common
stock. Treated as a "troubled debt restructuring," the conversion resulted in a
$2.3 million recorded net investment in Advica. In fiscal 1998, the Company
recognized a full impairment loss on its investment that resulted in bad debt
expense of $2.3 million. Subsequently, the Company converted its Advica
preferred stock and warrant to Advica common stock. On November 8, 2000,
XCare.net, an electronic commerce service provider for health care businesses,
purchased all of Advica's common stock for approximately $2.2 million, including
cash and 70,000 XCare.net common shares. The Company's interest in Advica
converted to less than 3% of XCare.net common shares and is deemed to be
insignificant.
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Self-Funded Benefit Plan
In 1993, the Company acquired Corporate Healthcare Financing, Inc. ("CHF"),
which served self-funded employers with customized employee welfare plan
arrangements and marketing, management and administrative services generally. In
September 1998, the Company sold all of the stock of CHF to a corporation whose
owners included Louis J. Nicholas, the Chief Executive Officer of CHF and a
former officer and director of the Company, for $17.75 million, comprised of
$2.0 million in cash, a $13.25 million secured note and a $2.5 million unsecured
note. Including payments on the secured note, through June 30, 1999 the Company
received $9.2 million of the CHF sale price, plus $0.8 million of interest. On
August 16, 1999, both notes were paid in full with accrued interest, net of a
$0.25 million prepayment discount agreed to by the Company. The final payment on
the secured and unsecured notes was in the aggregate amount of $8.5 million.
GOVERNMENT REGULATION
The Company is subject to extensive federal and state health care and insurance
regulations designed primarily to protect enrollees in the Managed Plans,
particularly with respect to government sponsored enrollees. Such regulations
govern many aspects of the Company's business affairs and typically empower
state agencies to review management agreements with health care plans for, among
other things, reasonableness of charges. Among the other areas regulated by
federal and state law are licensure requirements, premium rate increases, new
product offerings, procedures for quality assurance, enrollment requirements,
covered benefits, service area expansion, provider relationships and the
financial condition of the managed plans, including cash reserve requirements
and dividend restrictions. There can be no assurances that the Company or its
Managed Plans will be granted the necessary approvals for new products or will
maintain federal qualifications or state licensure.
The licensing and operation of OmniCare-MI and OmniCare-TN are governed by the
respective states' statutes and regulations applicable to health maintenance
organizations. The licenses are subject to denial, limitation, suspension or
revocation if there is a determination that the plans are operating out of
compliance with the states' HMO statutes, failing to provide quality health
services, establishing rates that are unfair or unreasonable, failing to fulfill
obligations under outstanding agreements or operating on an unsound fiscal
basis. Unlike OmniCare-MI, OmniCare-TN is not a federally-qualified HMO and,
therefore, is not subject to the federal HMO Act.
Federal and state regulation of health care plans and managed care products is
subject to frequent change, varies from jurisdiction to jurisdiction and
generally gives responsible administrative agencies broad discretion. Laws and
regulations relating to the Company's business are subject to amendment and/or
interpretation in each jurisdiction. In particular, legislation mandating
managed care for Medicaid recipients is often subject to change and may not
initially be accompanied by administrative rules and guidelines. Changes in
federal or state governmental regulation could affect the Company's operations,
profitability and business prospects. While the Company is unable to predict
what additional government regulations, if any, affecting its business may be
enacted in the future or how existing or future regulations may be interpreted,
regulatory revisions may have a material adverse effect on the Company.
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INSURANCE
The Company presently carries comprehensive general liability, directors and
officers liability, property, business automobile, and workers' compensation
insurance. Management believes that coverage levels under these policies are
adequate in view of the risks associated with the Company's business. In
addition, the Managed Plans have professional liability insurance that covers
liability claims arising from medical malpractice. The individual Managed Plans
are required to pay the insurance premiums under the terms of the respective
management agreements. There can be no assurance as to the future availability
or cost of such insurance, or that the Company's business risks will be
maintained within the limits of such insurance coverage.
COMPETITION
The managed care industry is highly competitive. The Company directly competes
with other entities that provide health care plan management services, some of
which are nonprofit corporations and others which have significantly greater
financial and administrative resources. The Company primarily competes on the
basis of fee arrangements, cost effectiveness and the range and quality of
services offered to prospective health care clients. While the Company believes
that its experience gives it certain competitive advantages over existing and
potential new competitors, there can be no assurance that the Company will be
able to compete effectively in the future.
The Company competes with other HMOs, PPOs and insurance companies. The level of
this competition may affect, among other things, the operating revenues of the
Managed Plans and, therefore, the revenues of the Company. The predominant
competitors in fiscal 2001 in southeastern Michigan are Blue Cross Blue Shield
of Michigan, The Wellness Plan, Total Health Plan and Health Alliance Plan. The
competitors in western and southwestern Tennessee are Access Med Plus, TLC,
Xantus and Blue Cross Blue Shield. The Company's Managed Plans primarily compete
on the basis of enrollee premiums, covered benefits, provider networks,
utilization limitations, enrollee co-payments and other related plan features
and criteria. Management believes that the Company's Managed Plans are able to
compete effectively with their primary market competitors in these areas.
EMPLOYEES
The Company's ability to maintain its competitive position and expand its
business into new markets depends, in significant part, upon the maintenance of
its relationships with various existing senior officers, as well as its ability
to attract and retain qualified health care management professionals. The
Company neither has nor intends to pursue any long-term employment agreement
with any of its key personnel. Accordingly, there is no assurance that the
Company will be able to maintain such relationships or attract such
professionals.
The total number of employees at September 1, 2001 was 256 compared to 319 at
September 1, 2000. The Company's employees do not belong to a collective
bargaining unit and management considers its relations with employees to be
good.
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MANAGEMENT INFORMATION SYSTEMS
The Company is implementing a strategic information technology plan intended to
enhance operations, support provider, member and employer information
requirements, and reduce costs.
An initial phase of the strategic plan providing for automation of OmniCare-MI
claims entry by scanning, imaging and electronic data interchange was completed
and implemented in the fourth quarter of fiscal 2000. The Company also has
purchased a new computer system to replace its claims processing and payment
system. The new system is expected to begin initial operations for OmniCare-MI
in December 2001, and includes many features and capabilities that were
performed manually or in a mode that is not very responsive to Company needs.
The new system will operate in a real-time mode enabling rapid response to
information needs. The system will automate activities associated with
membership and enrollment, benefits management, premium billing, member
services, claims/encounter processing, medical management, case management,
quality management, referral management, provider contracting, and HEDIS (Health
Plan Employer Data and Information Set) reporting.
The Company contracted with a third party in the third quarter of fiscal 2001 to
outsource the claims processing function for OmniCare-TN.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage management to provide prospective
information about their companies without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the statements. Certain
statements contained in this Form 10-K annual report, including, without
limitation, statements containing the words "believes," "anticipates," "will,"
"could," "may," "might" and words of similar import, constitute "forward-looking
statements" within the meaning of this "safe harbor."
Such forward-looking statements are based on management's current expectations
and involve known and unknown risks, uncertainties and other factors, many of
which the Company is unable to predict or control, that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors potentially include, among others,
the following:
1. Inability of OmniCare-MI to remain as a viable entity.
2. Inability to increase premium rates commensurate with increases in
medical costs due to utilization, government regulation, or other
factors.
3. Discontinuation of, limitations upon, or restructuring of
government-funded programs, including but not limited to the
TennCare program.
4. Increases in medical costs, including increases in utilization and
costs of medical services and the effects of actions by
competitors or groups of providers.
5. Adverse state and federal legislation and initiatives, including
limitations upon or reductions in premium payments; prohibition or
limitation of capitated arrangements or financial incentives to
providers; federal and state benefit mandates (including
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mandatory length of stay and emergency room coverage); limitations
on the ability to manage care and utilization; and any willing
provider or pharmacy laws.
6. The shift of employers from insured to self-funded coverage,
resulting in reduced operating margins to the Company.
7. Failure to obtain new customer bases or retain existing customer
bases or reductions in work force by existing customers; and
failure to sustain commercial enrollment to maintain an enrollment
mix required by government programs.
8. Termination of the OmniCare-MI management agreement.
9. Increased competition between current organizations, the entrance
of new competitors and the introduction of new products by new and
existing competitors.
10. Adverse publicity and media coverage.
11. Inability to carry out marketing and sales plans.
12. Loss or retirement of key executives.
13. Termination of provider contracts or renegotiations at less
cost-effective rates or terms of payment.
14. The selection by employers and individuals of higher
co-payment/deductible/ coinsurance plans with relatively lower
premiums or margins.
15. Adverse regulatory determinations resulting in loss or limitations
of licensure, certification or contracts with governmental payors.
16. Higher sales, administrative or general expenses occasioned by the
need for additional advertising, marketing, administrative or MIS
expenditures.
17. Increases by regulatory authorities of minimum capital, reserve
and other financial solvency requirements.
18. Denial of accreditation by quality accrediting agencies, e.g., the
National Committee for Quality Assurance (NCQA).
19. Adverse results from significant litigation matters.
20. Inability to maintain or obtain satisfactory bank loan credit
arrangements.
21. Increased costs to comply with the Health Insurance Portability
and Accountability Act of 1996 (HIPPA).
ITEM 2. PROPERTIES
The Company currently leases approximately 86,000 aggregate square feet from
which it conducts its operations in Michigan and Tennessee. The principal
offices of the Company are located at 1155 Brewery Park Boulevard, Suite 200,
Detroit, Michigan, where it currently leases approximately 54,000 square feet of
office space.
The Company believes that its current facilities provide sufficient space
suitable for all of the Company's planned activities and that sufficient
additional space will be available on reasonable terms, if needed.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Shares of the Company's Common Stock have been traded since May 2, 2000 on the
OTC Bulletin Board with the symbol "UAHC," and earlier, during fiscal years 1999
and 2000, were traded on the New York Stock Exchange with the symbol "UAH"
through May 1, 2000.
The table below sets forth for the Common Stock the range of the high and low
sales prices on the New York Stock Exchange for each quarter in the past two
fiscal years. (For the fourth quarter of fiscal 2000, the range of the high and
low bid quotations on the OTC Bulletin Board from and after May 2, 2000 was
neither higher nor lower than the high and low sales prices, respectively, shown
in the table below.)
2001 SALES PRICE 2000 SALES PRICE
---------------- ----------------- ------------------ ------------------
FISCAL QUARTER HIGH LOW HIGH LOW
--------------------------- ---------------- ----------------- ------------------ ------------------
First $ 0.688 $ 0.375 $ 1.812 $ 0.937
Second 2.938 0.344 1.437 0.875
Third 3.719 1.250 1.437 1.000
Fourth 1.890 1.150 1.250 0.250
As of September 24, 2001, the closing price of the Common Stock was $1.10 per
share and there were approximately 240 shareholders of record of the Company.
The Company has not paid any cash dividends on its Common Stock since its
initial public offering in the fourth quarter of fiscal 1991 and does not
anticipate paying such dividends in the foreseeable future. The Company intends
to retain earnings for use in the operation and expansion of its business.
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ITEM 6. SELECTED FINANCIAL DATA
The following table shows consolidated financial data for the periods indicated:
2001 2000 1999 1998 1997
-------------- -------------- -------------- -------------- --------------
Operating Data (Year ended June 30): (in thousands, except per share data)
Operating revenues $131,724 $109,053 $ 93,522 $ 105,588 $112,549
Earnings (loss) from continuing
operations 1,229 984 575 (22,915) (5,260)
Earnings (loss) from discontinued
operation, net of income taxes - - - (2,581) 1,845
Net earnings (loss) 1,229 984 575 (25,496) (3,415)
Earnings (loss) per common share from
continuing operations - basic and
diluted $ 0.18 $ 0.15 $ 0.09 $ (3.48) $ (0.80)
Net earnings (loss) per common share -
basic and diluted $ 0.18 $ 0.15 $ 0.09 $ (3.88) $ (0.52)
Weighted average common shares
outstanding - diluted 6,808 6,779 6,764 6,578 6,553
Balance Sheet Data (June 30):
Cash and investments $ 24,766 $ 10,569 $ 18,576 $ 14,690 $ 17,442
Intangible assets, net 2,952 3,663 4,374 5,629 10,557
Net assets of discontinued operation - - - 16,703 19,746
Total assets 41,657 34,809 49,251 58,684 79,662
Medical claims and benefits payable 19,815 11,245 19,810 20,004 11,632
Debt 3,492 4,345 13,112 22,444 23,868
Shareholders' equity 12,313 11,051 10,360 9,081 34,406
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
In September 1998, effective August 31, 1998, CHF was sold for $17.75 million,
comprised of $2.0 million in cash and the buyer's secured and unsecured notes
for $13.25 million and $2.5 million, respectively. Including payments on the
secured note, $9.2 million of the sale price plus $0.8 million of interest in
cash was received through June 30, 1999. On August 16, 1999, the Company was
paid $8.5 million, the remaining principal balance of both notes and accrued
interest, net of a $0.25 million discount granted as an inducement for the buyer
to prepay the
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notes. As required by the Company's bank line of credit facility, the sale was
approved by the Company's bank lender and all proceeds were used to reduce the
Company's indebtedness to the bank.
In December 1998, a final court judgment approved the settlement of and
dismissed shareholder litigation which had alleged securities law violations by
certain former senior officers and the Company. All claims and damages sought by
the plaintiffs were released in exchange for $2.0 million in cash from the
Company's insurance carrier, a $0.625 million promissory note from the Company
payable in 15 equal monthly installments through March 2001, with interest at 4%
per annum from December 11, 1998, and 277,777 new shares of Company common stock
valued at $0.625 million and issued on March 29, 1999.
Effective April 1, 1999, the Company entered into the County Care contract to
arrange for the delivery of health care services, including the assumption of
underwriting risk, on a capitated basis to certain enrollees residing in Wayne
County (Michigan) who lack access to private or employer sponsored health
insurance or to another government health plan. At the Company's election, the
County Care contract will expire at the end of the current contract period on
September 30, 2001. The contract has not provided significant earnings to the
Company, and its termination is not expected to have a material effect on future
operations of the Company.
On May 6, 1999, the Company's Board of Directors authorized the repurchase and
retirement of up to 250,000 of the Company's common shares (approximately 3.6%
of the total outstanding common shares) in the open market. At June 30, 1999,
12,900 shares had been repurchased, and the remaining 237,100 shares were
repurchased in July 1999.
In June 1999, OmniCare-MI joined with Blue Cross Blue Shield of Michigan (the
"CasinoCare Venture") to provide health care, dental and prescription drug
benefits to casino employees in Detroit. There are currently approximately 3,000
CasinoCare Venture members receiving health coverage generating medical premiums
of approximately $0.4 million monthly. The Company receives a management fee
based on the medical premiums generated from those members who select the
Company's products.
On April 13, 2000 and June 30, 1998, the Company funded unsecured loans to
OmniCare-MI evidenced by surplus notes of $7.7 million and $4.6 million,
respectively, to enable OmniCare-MI to meet its minimum statutory requirements
for net worth and working capital. The $7.7 million loan consisted of $4.0
million in cash and conversion of $3.7 million of management fees owed to the
Company. Pursuant to the terms of the surplus notes, interest and principal
payments require approval by the Michigan Office of Financial and Industry
Services ("OFIS") and are repayable only from any statutory surplus earnings of
OmniCare-MI. Note interest is payable annually and forfeited if not then paid.
Interest income of $1.1, $0.5 and $0.4 million was forfeited for fiscal years
2001, 2000 and 1999, respectively. The note principal has no stated maturity or
repayment date. The surplus note is subordinated to all other claimants of
OmniCare-MI. Based on an analysis of OmniCare-MI's projected cash flows, the
Company recorded impairment losses on the valuation of the surplus note which
resulted in bad debt expense of$6.9 million and $3.1 million for the years ended
June 30, 2001 and 2000, respectively. In fiscal 1999, the Company provided
additional funding by forgiving $1.3 million
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in management fees owed to the Company by OmniCare-MI to enable OmniCare-MI to
meet its minimum statutory requirements for net worth and working capital.
On May 1, 2000, approximately 28,000 members of the Detroit Medical Center's
Medicaid managed care program were transferred to OmniCare-MI. Since then,
OmniCare-MI's overall Medicaid enrollment has stayed relatively constant. During
fiscal 2000, the additional membership generated management fee revenue of $0.6
million, and approximately $4.0 million in fiscal 2001.
On July 14, 2000, the State of Michigan notified OmniCare-MI that it was one of
the successful bidders in the State's extensive bid process for increased
Medicaid rates and continued eligibility as an HMO providing coverage to
enrollees of the State's Comprehensive Health Care Program for Medicaid
beneficiaries. As a result, OmniCare-MI was awarded a rate increase and an
extension of its contract with the State to September 30, 2002, with the
potential for three one-year extensions.
As a Michigan HMO, OmniCare-MI is subject to oversight by the Commissioner of
Financial & Insurance Services of the State of Michigan. On July 31, 2001,
pursuant to a motion by the Commissioner, a State circuit court judge entered an
order of rehabilitation of OmniCare-MI (the "Order") and appointed the
Commissioner to serve as Rehabilitator of OmniCare-MI. The order directs the
Rehabilitator to administer all of OmniCare-MI's assets and business while
attempting to reform or revitalize OmniCare-MI by any means so as to effectuate
its rehabilitation, preserve its provider network and maintain uninterrupted
health care services to the greatest extent possible. Pursuant to the Order, the
Rehabilitator's appointed Special Deputy Rehabilitator, Bobby Jones, who served
some years ago as the Senior Vice President of OmniCare-MI, is now acting as the
Chief Executive Officer of OmniCare-MI.
Two beneficial results of the Order are that management believes the Company
will have no future occasion to make loans to or forgive management fees from
OmniCare-MI, and the Order requires the Company to continue performing its
management contract with OmniCare-MI until further order of the court. The
Company has continued to perform the management contract without interruption
and has been paid its 14% management fee pursuant to the contract for July 2001.
Meanwhile, the Company and the Special Deputy Rehabilitator have reached
agreement on an amendment to the contract, which is expected to be in final form
and effective soon after the date of this 10-K annual report. Management expects
the already agreed upon amendment will reduce the Company's management fee
percentage from 14% to approximately 10% beginning in August 2001, will provide
for adjustment from time to time to appropriately reflect the Company's future
costs of performing the contract, and will continue unchanged the contract's
other basic terms.
In April 1998, a Florida health care administration agency notified the Company
of intent to enforce its agreement to reimburse UltraMedix's contracted Medicaid
providers for certain services which the Agency had paid for on enrollees'
behalf, limited to the amount of surplus UltraMedix would have had to maintain
under the Medicaid contract absent such agreement.
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The Company established at December 31, 1997 a $6.4 million estimated medical
claims reserve for UltraMedix and maintained it until March 31, 2000, when the
Company concluded the continuing reserve requirement should be $0.8 million, and
therefore reduced the $6.4 million reserve by $5.6 million and offset that
amount against medical services expenses. At March 31, 2001, the Company
eliminated the remaining reserve of $0.8 million.
In fiscal 1998, based on an evaluation of the net recoverable value of the
Company's investment in PhilCare, the Company recorded a full impairment loss
against its $2.1 million investment. PhilCare was dissolved in the Company's
fiscal 2000. PhilCare assets were then distributed to UA-PA pursuant to
agreements under which UA-PA contributed those assets, and the Company recovered
its $2.1 million investment in PhilCare, resulting in a gain in that amount for
the fiscal year ended June 30, 2000.
Effective July 1, 2000, OmniCare-TN entered into a new 42-month contract with
the State of Tennessee's TennCare Program. The provisions of the contract
provide for an approximate 4.5% increase in average premiums effective July 1,
2000 and a further 4% increase effective July 1, 2001, with future increases to
be determined by the State of Tennessee. Such increases are in lieu of the
quarterly adverse selection payments previously made by TennCare to compensate
managed care organizations for substantial adverse costs incurred due to the
nature of the services they offer and their treatment of a high risk population.
On September 20, 2000, the Company made an additional cash contribution of $0.9
million to OmniCare-TN in exchange for additional preferred stock of
OmniCare-TN. The cash contribution was made to enable OmniCare-TN to meet
minimum statutory requirements for net worth.
The Company currently has a $3.4 million bank loan with Michigan National Bank,
which is scheduled to merge into Standard Federal Bank FSB ("Standard Federal")
effective in early October 2001. The Company and Michigan National Bank have an
agreement to refinance the present loan agreement, promissory note and security
agreement promptly after the completion of the bank merger, replacing the prior
one-year loan, originally due September 30, 2001, with a $3.4 million term loan
from Standard Federal, repayable in monthly installments of principal and
interest of approximately $105,000. Michigan National Bank has waived the
requirement of payment of the current loan balance at September 30, 2001,
pending the expected refinancing. The proposed new term loan will have an
interest rate equal to the bank's prime rate (6.75% at June 30, 2001) plus one
percent per annum, and a maturity date of September 30, 2004. The new loan
agreement (like the prior one) will be collateralized by a security interest in
all of the Company's personal property. As a result of this agreement, principal
due subsequent to June 30, 2002 is classified as long-term debt in the
"Consolidated Balance Sheets" at June 30, 2001. See Note 9 in "Notes to
Consolidated Financial Statements" for further discussion of the refinancing of
the term loan.
The Company recognized a loss before income taxes of $0.3 million and earnings
before income taxes of $1.6 million for the fiscal years ended June 30, 2001 and
2000, respectively, a decrease of $1.9 million (119%). The Company's earnings
net of income taxes for the fiscal years ended June 30, 2001 and 2000 were $1.2
million and $1.0 million, respectively, an increase of $0.2 million (20%).
Excluding the earlier described reversal in part of an UltraMedix medical claims
liability reserve, recording of bad debt expense against amounts owed to the
Company by OmniCare-MI and recovery of the investment in PhilCare, resulting in
a gain, the Company would have recognized
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earnings before income taxes for the fiscal year ended June 30, 2001 of $10.4
million compared to a loss before income taxes of $3.0 million for the fiscal
year ended June 30, 2000.
YEAR ENDED JUNE 30, 2001 COMPARED TO YEAR ENDED JUNE 30, 2000
Total revenues increased $22.7 million (21%) to $131.7 million in the fiscal
year ended June 30, 2001 from $109.1 million in the fiscal year ended June 30,
2000.
Medical premium revenues were $103.0 million in the fiscal year ended June 30,
2001, an increase of $16.8 million (20%) from medical premium revenues of $86.2
million in the fiscal year ended June 30, 2000.
Medical premium revenues for OmniCare-TN increased $16.3 million (21%), to $93.3
million in the year fiscal ended June 30, 2001, from $77.0 million in the fiscal
year ended June 30, 2000. OmniCare-TN's premium rate increases accounted for
$5.2 million of the increase. Member months increased 82,000 (16%) to 606,000 in
the fiscal year ended June 30, 2001 from 524,000 in the fiscal year ended June
30, 2000, and accounted for a $12.3 million increase in premium revenues. Prior
to July 1, 2001, TennCare provided additional adverse selection payments to
managed care organizations for high cost chronic conditions of their members and
payments earmarked as adjustments for covered benefits. In the fiscal year ended
June 30, 2001, revenue adjustments for adverse selection and other covered
benefits for OmniCare-TN decreased $1.2 million compared to the prior fiscal
year. TennCare has ceased adverse selection payments as of July 1, 2001.
The total OmniCare-TN per member per month ("PMPM") revenue rate - based on an
average membership of 50,500 for the fiscal year ended June 30, 2001 compared to
43,700 for the fiscal year ended June 30, 2000 - was $154 PMPM for the fiscal
year ended June 30, 2001 compared to $147 PMPM for the fiscal year ended June
30, 2000, an increase of $7 PMPM (5%). The PMPM premium rate, based on the State
of Tennessee's estimate, increased 7%, to $151 PMPM for the fiscal year ended
June 30, 2001 from $141 PMPM for the fiscal year ended June 30, 2000, excluding
excess adverse selection payments and adjustments for covered benefits.
Premium revenues from the County Care program totaled $9.7 million for the
fiscal year ended June 30, 2001, compared to $9.2 million for the fiscal year
ended June 30, 2000.
Management fees earned from OmniCare-MI were $26.4 million in the fiscal year
ended June 30, 2001, an increase of $7.6 million (41%) from fees of $18.8
million in the fiscal year ended June 30, 2000. The $18.8 million of management
fees earned from OmniCare-MI in fiscal 2000 includes the portion of $3.7 million
which was converted into an unsecured loan to OmniCare-MI, evidenced by a
surplus note.
Interest and other income decreased $1.8 million (44%) to $2.3 million in the
fiscal year ended June 30, 2001 from $4.1 million in the fiscal year ended June
30, 2000. Other income for the fiscal year ended June 30, 2000 included a $2.1
million gain recorded on the Company's recovery of its $2.1 million investment
in PhilCare following PhilCare's dissolution.
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Total expenses were $132.1 million in the fiscal year ended June 30, 2001,
compared to $107.5 million in the fiscal year ended June 30, 2000, an increase
of $24.6 million (23%).
Medical services expenses were $85.7 million in the fiscal year ended June 30,
2001, an increase of $15.4 million (22%) from medical services expenses of $70.3
million in the fiscal year ended June 30, 2000. As described in "Overview"
above, the Company established at December 31, 1997 and maintained until March
31, 2000 an estimated medical claims liability reserve of $6.4 million for
UltraMedix. At March 31, 2000, Company management concluded that the continuing
reserve requirement should be $0.8 million, and accordingly, the Company reduced
the reserve by $5.6 million and offset that amount against medical services
expenses. Without that reversal, medical services expenses would have been $75.9
million in the fiscal year ended June 30, 2000, an increase of $16.0 million
(27%), resulting in an overall percentage of medical services expenses to
medical premium revenues - the medical loss ratio ("MLR") - of 88% for
OmniCare-TN and County Care for fiscal 2000.
Medical services expenses for OmniCare-TN increased $10.1 million (15%), to
$77.9 million in the fiscal year ended June 30, 2001 from $67.8 million in the
fiscal year ended June 30, 2000. The OmniCare-TN MLR was 85% for the fiscal year
ended June 30, 2001 and 88% for the fiscal year ended June 30, 2000. The fiscal
2000 OmniCare-TN MLR includes an approximate 4.5% increase due to a fourth
quarter increase in the medical claims liability of $3.4 million related to the
assignment of new members by TennCare. The fiscal 2001 contract with TennCare
requires that a minimum of 85% of capitation revenues be paid to medical service
providers. The fiscal 2000 OmniCare-TN MLR includes an approximate 3% reduction
due to offsets to medical services expenses related to the net recovery of $0.5
million in refundable advances made to a third party dental administrator and an
excess adverse selection payment of $1.0 million received in fiscal 1999 for the
period June 1997 and prior.
OmniCare-TN was assigned approximately 6,000 members by TennCare in the second
half of fiscal 2000 as a result of three other managed care organizations, which
had contracts with TennCare, ceasing to serve their enrollees or being unable to
take on new enrollees. Medical services expenses for such new OmniCare-TN
members disproportionately exceeded OmniCare-TN's normal PMPM experience and
adversely affected its earnings for and since that period. OmniCare-TN received
from TennCare in fiscal 2001 an adverse selection payment of approximately $0.8
million for such fiscal 2000 expenses.
Medical services expenses for County Care were $7.8 million in the fiscal year
ended June 30, 2001, a decrease of $0.3 million (4%) from medical services
expenses of $8.1 million in the fiscal year ended June 30, 2000. The County Care
MLR for the fiscal year ended June 30, 2001 was 88%. County Care operations
began with inception of the contract in April 1999 and will cease, at the
Company's election, after the contract's expiration on September 30, 2001.
Marketing, general and administrative expenses increased $2.2 million (7%), to
$32.4 million in the fiscal year ended June 30, 2001, from $30.2 million in the
fiscal year ended June 30, 2000. The increase was due primarily to increases in
wages, benefits and temporary labor costs.
Depreciation and amortization decreased $1.4 million (42%), to $2.0 million in
the fiscal year ended June 30, 2001 from $3.4 million in the fiscal year ended
June 30, 2000. The Company
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had previously capitalized costs for internally developed customized software.
At June 30, 2001, these costs were fully depreciated and accounted for
approximately $1.4 million of fiscal 2001 expense. The Company purchased $3.0
million of property and equipment, the majority of which was not yet placed in
service and, therefore, did not have a significant effect on depreciation
expense in the fiscal year ended June 30, 2001.
Interest expense decreased $0.1 million (26%), to $0.4 million in the fiscal
year ended June 30, 2001 from $0.5 million in the fiscal year ended June 30,
2000, due to debt reduction of $0.9 million as well as decreases in the prime
rate.
Bad debt expense in the fiscal year ended June 30, 2001 totaled $11.5 million as
a result of writing off the $2.0 million advance and $2.6 million of management
fee receivable owed by OmniCare-MI and the remaining carrying value of surplus
notes of $6.9 million. Bad debt expense in the fiscal year ended June 30, 2000
totaled $3.1 million as a result of recording an impairment loss on the
valuation of the unsecured loan made to OmniCare-MI.
The Company recognized a loss before income taxes of $0.3 million and earnings
before income taxes of $1.6 million for the fiscal years ended June 30, 2001 and
2000, respectively, a decrease of $1.9 million (119%). Earnings net of income
taxes for the fiscal years ended June 30, 2001 and 2000 were $1.2 million and
$1.0 million, respectively, an increase of $0.2 million (20%).
Excluding the earlier described reversal in part of an UltraMedix medical claims
liability reserve, recording of bad debt expense against amounts owed to the
Company by OmniCare-MI and recovery of the investment in PhilCare, resulting in
a gain, the Company would have recognized earnings before income taxes for the
fiscal year ended June 30, 2001 of $10.4 million compared to a loss before
income taxes of $3.0 million for the fiscal year ended June 30, 2000.
YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR ENDED JUNE 30, 1999
Total revenues increased $15.6 million (17%), to $109.1 million in the fiscal
year ended June 30, 2000 from $93.5 million in the fiscal year ended June 30,
1999.
Medical premium revenues were $86.2 million in the fiscal year ended June 30,
2000, an increase of $13.0 million (18%) from medical premium revenues of $73.2
million in the fiscal year ended June 30, 1999.
Medical premium revenues for OmniCare-TN increased $6.1 million (9%), to $77.0
million in the fiscal year ended June 30, 2000, from $70.9 million in the fiscal
year ended June 30, 1999. OmniCare-TN's premium rate increases accounted for
$3.1 million of the increase. Member months decreased 16,000 (3%) to 524,000 in
the fiscal year ended June 30, 2000 from 540,000 in the fiscal year ended June
30, 1999, and accounted for a $2.4 million decrease in premium revenues.
TennCare provided additional adverse selection payments to managed care
organizations for high cost chronic conditions of their members and payments
earmarked as adjustments for covered benefits. In the fiscal year ended June 30,
2000, revenue adjustments for adverse selection and other covered benefits
increased $4.5 million compared to the prior fiscal year. OmniCare-TN adverse
selection revenue related to fiscal 1999, recognized in the fiscal year ended
June 30, 2000, accounted for $0.9 million of the revenue increase.
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The total OmniCare-TN PMPM revenue rate - based on an average membership of
43,700 for the fiscal year ended June 30, 2000 compared to 45,000 for the fiscal
year ended June 30, 1999 - was $147 for the fiscal year ended June 30, 2000
compared to $131 for the fiscal year ended June 30, 1999, an increase of $16
(12%). The PMPM premium rate, based on the State of Tennessee's estimate,
increased 5%, to $129 for the fiscal year ended June 30, 2000 from $122 for the
fiscal year ended June 30, 1999, excluding excess adverse selection payments and
adjustments for covered benefits.
Premium revenues from the County Care program totaled $9.2 million for the
fiscal year ended June 30, 2000, compared to $2.3 million for the fiscal year
ended June 30, 1999. The $6.9 million (300%) increase was a result of the
Company's having participated in the County Care program in only three months of
fiscal 1999 versus a full year of participation in fiscal 2000.
Management fees earned from OmniCare-MI were $18.8 million in the fiscal year
ended June 30, 2000, an increase of $0.7 million (4%) from fees of $18.1 million
in the fiscal year ended June 30, 1999. Excluding the earlier described
forgiveness in fiscal 1999 of $1.3 million of management fee revenue, management
fees from OmniCare-MI earned in the fiscal year ended June 30, 2000 would have
decreased $0.6 million (3%) compared to management fees of $19.4 million earned
for the fiscal year ended June 30, 1999. The $18.8 million of management fees
earned from OmniCare-MI in fiscal 2000 includes the portion of $3.7 million
which was converted into an unsecured loan to OmniCare-MI, evidenced by a
surplus note.
Interest and other income increased $1.9 million (86%) to $4.1 million in the
fiscal year ended June 30, 2000 from $2.2 million in the fiscal year ended June
30, 1999. Other income increased $2.5 million in fiscal 2000 as a result of a
$2.1 million gain recorded on the Company's recovery of its $2.1 million
investment in PhilCare following PhilCare's dissolution and $0.4 million for
fees received for management of the Women, Infants and Children program for the
City of Detroit. Interest income decreased $0.6 million in fiscal 2000 due
primarily to the retirement of the CHF interest-bearing notes in August 1999.
Total expenses were $107.5 million in the fiscal year ended June 30, 2000,
compared to $92.4 million in the fiscal year ended June 30, 1999, an increase of
$15.1 million (16%).
Medical services expenses were $70.3 million in the fiscal year ended June 30,
2000, an increase of $10.4 million (17%) from medical services expenses of $59.9
million in the fiscal year ended June 30, 1999. As described in "Overview"
above, the Company established at December 31, 1997 and maintained until March
31, 2000 an estimated medical claims liability reserve of $6.4 million for
UltraMedix. At March 31, 2000, Company management concluded that the continuing
reserve requirement should be $0.8 million, and accordingly, the Company reduced
the reserve by $5.6 million and offset that amount against medical services
expenses. Without that reversal, medical services expenses would have been $75.9
million in the fiscal year ended June 30, 2000, an increase of $16.0 million
(27%), resulting in an overall percentage of medical services expenses to
medical premium revenues - the medical loss ratio ("MLR") - of 88% for
OmniCare-TN and County Care for fiscal 2000.
21
24
Medical services expenses for OmniCare-TN increased $10.0 million (17%), to
$67.8 million in the fiscal year ended June 30, 2000 from $57.8 million in the
fiscal year ended June 30, 1999. The OmniCare-TN MLR was 88% for the fiscal year
ended June 30, 2000 and 82% for the fiscal year ended June 30, 1999. The fiscal
2000 OmniCare-TN MLR includes an approximate 4.5% increase due to a fourth
quarter increase in the medical claims liability of $3.4 million related to the
assignment of new members by TennCare. The fiscal 1999 OmniCare-TN MLR includes
an approximate 3% reduction due to offsets to medical services expenses related
to the net recovery of $0.5 million in refundable advances made to a third party
dental administrator and an excess adverse selection payment of $1.0 million
received in fiscal 1999 for the period June 1997 and prior.
OmniCare-TN was assigned approximately 6,000 members by TennCare in the second
half of fiscal 2000 as a result of three other managed care organizations, which
had contracts with TennCare, ceasing to serve their enrollees or being unable to
take on new enrollees. Medical services expenses for such new OmniCare-TN
members disproportionately exceeded OmniCare-TN's normal PMPM experience and
adversely affected its earnings for and since that period. OmniCare-TN received
from TennCare in fiscal 2001 an adverse selection payment of approximately $0.8
million for such fiscal 2000 expenses.
Medical services expenses for County Care were $8.1 million in the fiscal year
ended June 30, 2000, an increase of $6.0 million (286%) from medical services
expenses of $2.1 million in the fiscal year ended June 30, 1999. The increase
was a result of the Company's having participated in the County Care program in
only three months in fiscal 1999 versus a full year of participation in fiscal
2000. The County Care MLR for the fiscal year ended June 30, 2000 was 88%.
County Care operations began with inception of the contract in April 1999.
Marketing, general and administrative expenses increased $2.9 million (11%), to
$30.2 million in the fiscal year ended June 30, 2000, from $27.3 million in the
fiscal year ended June 30, 1999. The increase was due primarily to increases in
wages and benefits of $1.8 million and increases in temporary labor costs of
$0.9 million.
Depreciation and amortization remained relatively constant at $3.3 million and
$3.4 million for the fiscal years ended June 30, 2000 and 1999, respectively.
The Company had previously capitalized costs for internally developed customized
software. At June 30, 2000, these costs were fully depreciated and accounted for
approximately $1.4 million of fiscal 2000 expense. The Company purchased $2.5
million of property and equipment, the majority of which was placed in service
in the last quarter of fiscal 2000 and therefore did not have a significant
effect on depreciation expense in the fiscal year ended June 30, 2000.
Interest expense decreased $1.2 million (68%), to $0.5 million in the fiscal
year ended June 30, 2000 from $1.7 million in the fiscal year ended June 30,
1999, due to reduction of outstanding debt from $13.1 million at June 30, 1999
to $4.3 million at June 30, 2000.
Bad debt expense in the fiscal year ended June 30, 2000 totaled $3.1 million as
a result of recording an impairment loss on the valuation of the unsecured loan
made to OmniCare-MI.
22
25
The Company recognized earnings before income taxes of $1.6 million and $1.2
million for the fiscal years ended June 30, 2000 and 1999, respectively, an
increase of $0.4 million (33%). Earnings net of income taxes for the fiscal
years ended June 30, 2000 and 1999 were $1.0 million and $0.6 million,
respectively, an increase of $0.4 million (67%). Excluding the earlier described
reversal in part of an UltraMedix medical claims liability reserve, recording of
bad debt expense against amounts owed to the Company by OmniCare-MI and recovery
of the investment in PhilCare, resulting in a gain, the Company would have
recognized a loss before income taxes of $3.0 million for the fiscal year ended
June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company had (i) cash and cash equivalents and short-term
marketable securities of $24.8 million, compared to $10.6 million at June 30,
2000; (ii) positive working capital of $3.6 million, compared to negative
working capital of $2.3 million at June 30, 2000; and (iii) a current
assets-to-current liabilities ratio of 1.14-to-1, compared to .88-to-1 at June
30, 2000.
Net cash provided by operating activities was $17.9 million in fiscal 2001
compared to cash used of $1.9 million in fiscal 2000. Investing activities in
fiscal 2001 included the purchase of equipment of $3.0 million and the purchase
of marketable securities of $1.3 million, offset by proceeds from the sale of
marketable securities of $0.9 million. Debt repayments were $0.9 million in
fiscal 2001 and, subsequent to the fiscal year end, $3.4 million of debt
originally due September 30, 2001 will be converted into a three-year term loan
due September 30, 2004.
The stock of CHF was sold effective August 31, 1998, for $17.75 million,
comprised of $2.0 million in cash and the buyer's secured and unsecured notes
for $13.25 million and $2.5 million, respectively. Including payments on the
secured note, $9.2 million of the sale price, plus $0.8 million of interest, in
cash was received through June 30, 1999. The remaining principal balance on the
secured and unsecured notes and accrued interest, net of a prepayment discount,
in the sum of $8.5 million was paid to the Company on August 16, 1999 and used
to reduce bank debt.
In previous fiscal years, to satisfy applicable statutory requirements, the
Company provided $1.0 million in letters of credit on behalf of, and a $1.0
million capital contribution to, OmniCare-LA, and made a $2.1 million capital
contribution to PhilCare. The funds were provided by the Company from its line
of credit arrangement. Due to the cessation of its Louisiana operations, the
Company withdrew the $1.0 million capital contribution and terminated its letter
of credit commitments in May 2000. PhilCare was dissolved under applicable law
in the Company's fiscal 2000. As a result of the dissolution, assets of PhilCare
were distributed to UA-PA pursuant to agreements under which UA-PA contributed
those assets, and the Company recovered its investment in PhilCare, receiving
approximately $2.1 million of cash and U.S. Treasury obligations during fiscal
2000.
On May 1, 2000 approximately 28,000 members of the Detroit Medical Center's
Medicaid managed care program were transferred to OmniCare-MI. Since then,
OmniCare-MI's overall Medicaid enrollment has stayed relatively constant. During
fiscal 2000, the additional membership generated management fee revenue of $0.6
million and approximately $4.0 million in fiscal 2001.
23
26
Effective July 1, 2000, OmniCare-TN entered into a new 42-month contract with
the State of Tennessee's TennCare Program. The provisions of the contract
provide for an approximate 4.5% increase in average premiums at July 1, 2000 and
a further 4% increase at July 1, 2001 with future increases to be determined by
the State of Tennessee. Such increases are in lieu of the quarterly adverse
selection payments previously made by TennCare to compensate managed care
organizations for substantial adverse costs incurred due to the nature of the
services they offer and their treatment of a high risk population.
On September 20, 2000, the Company made an additional cash contribution of $0.9
million to OmniCare-TN in exchange for additional preferred stock of OmniCare-TN
issued to the Company. The cash contribution was made to enable OmniCare-TN to
meet minimum statutory requirements for net worth, while allowing OmniCare-TN to
utilize the funds for working capital.
At June 30, 2001, OmniCare-TN was licensed in and served Shelby and Davidson
Counties in Tennessee (which include the cities of Memphis and Nashville,
respectively). Effective July 1, 2001, OmniCare-TN received approval from
TennCare to expand its service area to western Tennessee and to withdraw from
Davidson County. As of September 1, 2001, OmniCare-TN's total enrollment was
approximately 77,000 members, an increase of approximately 40% from June 30,
2001.
OmniCare-TN's application for a commercial HMO license was approved on September
7, 2001. Management believes that the receipt of the commercial license and
OmniCare-TN's efforts to expand its provider network to Shelby County
(southwestern Tennessee) will enable OmniCare-TN to increase its enrollment by
marketing its managed care products to the various employer groups in the
regions served. Management anticipates such increased enrollment beginning after
fiscal 2002.
As a Michigan HMO, OmniCare-MI is subject to oversight by the Commissioner of
the Office of Financial & Insurance Services of the State of Michigan (the
"Commissioner"). On July 31, 2001, pursuant to a motion by the Commissioner, a
State circuit court judge entered an order of rehabilitation of OmniCare-MI (the
"Order") and appointed the Commissioner to serve as Rehabilitator of
OmniCare-MI. The Order directs the Rehabilitator to administer all of
OmniCare-MI's assets and business while attempting to reform or revitalize
OmniCare-MI by any means so as to effectuate its rehabilitation, preserve its
provider network and maintain uninterrupted health care services to the greatest
extent possible. Pursuant to the Order, the Rehabilitator's appointed special
deputy, Bobby Jones (the "Special Deputy Rehabilitator"), who served some years
ago as the Senior Vice President of OmniCare-MI, is now acting as the Chief
Executive Officer of OmniCare-MI.
The Order expressly requires the Company to continue performing all services
under its management agreement with OmniCare-MI until further order of the
court, "as the continuation of these services is essential to the continuation
of health care service to over 100,000 subscribers." The Company has continued
to perform the management agreement without interruption and has been paid in
full its 14% management fee pursuant to the agreement for July 2001. Meanwhile,
the Company and the Special Deputy Rehabilitator have negotiated and
24
27
reached agreement on an amendment to the management agreement, which is expected
to be in final written form, signed and effective soon after the date of this
10-K annual report. Company management expects the already mutually agreed upon
amendment will reduce the Company's management fee percentage from 14% to
approximately 10% beginning in August 2001 and will provide for reevaluation and
adjustment from time to time to appropriately reflect the Company's actual
future costs of performing the management agreement. The Company's management
expects the amendment will continue unchanged the other basic terms of its
management agreement with OmniCare-MI as summarized in Table A under "Managed
Plans" above.
The Company currently has a $3.4 million bank loan with Michigan National Bank,
which is scheduled to merge into Standard Federal Bank FSB ("Standard Federal")
effective in early October 2001. The Company and Michigan National Bank have an
agreement to refinance the present loan agreement, promissory note and security
agreement promptly after the completion of the bank merger, replacing the prior
one-year loan, originally due September 30, 2001, with a $3.4 million term loan
from Standard Federal, repayable in monthly installments of principal and
interest of approximately $105,000. Michigan National Bank has waived the
requirement of payment of the current loan balance at September 30, 2001,
pending the expected refinancing. The proposed new term loan will have an
interest rate equal to the bank's prime rate (6.75% at June 30, 2001) plus one
percent per annum, and a maturity date of September 30, 2004. The new loan
agreement (like the prior one) will be collateralized by a security interest in
all of the Company's personal property. As a result of this agreement, principal
due subsequent to June 30, 2002 is classified as long-term debt in the
"Consolidated Balance Sheets" at June 30, 2001. See Note 9 in "Notes to
Consolidated Financial Statements" for further discussion of the refinancing of
the term loan.
The Company's ability to generate adequate amounts of cash to meet its future
cash needs depends on a number of factors noted above, including the
rehabilitation of OmniCare-MI and the ability of the Company to control
administrative costs related to managing OmniCare-MI and medical costs related
to the TennCare program. Based on these factors, management believes it has the
ability to generate sufficient cash to meet its current liabilities.
RECENTLY ENACTED PRONOUNCEMENTS
On July 20, 2001 the Financial Accounting Standards Board ("FASB) issued two new
accounting standards, SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." All business combinations initiated
after June 30, 2001 will be accounted for using the purchase method of
accounting; the use of the pooling-of-interests method will be prohibited.
Management has determined that the requirement of SFAS No. 141 will not have a
significant impact on the financial statements.
SFAS No. 142 eliminates the amortization of goodwill. Instead, under SFAS No.
142, the carrying amount of goodwill should be tested for impairment at least
annually at the reporting unit level, as defined, and will be reduced only if it
is found to be impaired or is associated with assets sold or otherwise disposed
of. The Statement is effective for fiscal years beginning after December 15,
200l, but early adoption is permitted for companies with a fiscal year beginning
after March 15, 2001.
The adoption of SFAS No. 142 would have an impact of future results of
operations. If the cessation of goodwill amortization had occurred on July 1,
1998, the Company's earnings before income taxes would have increased, on a
proforma basis, by $0.7 million in each of the three
25
28
years ended June 30, 2001. Earnings per share, on a proforma basis, would have
increased $0.10 per share in each of the three fiscal years ended June 30, 2001.
The Company has not yet determined whether it will adopt the new standard as of
July 1, 2001 or July 1, 2002.
ITEM 8. FINANCIAL STATEMENTS
Presented beginning at page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on November 30, 2001.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on November 30, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on November 30, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on November 30, 2001.
27
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) & (2) The financial statements listed in the accompanying Index to
Consolidated Financial Statements at page F-1 are filed as part of this Form
10-K report.
(3) The Exhibit Index lists the exhibits required by Item 601 of Regulation S-K
to be filed as a part of this Form 10-K report. The Exhibit Index identifies
those documents which are exhibits filed herewith or incorporated by reference
to (i) the Company's Form S-1 Registration Statement under the Securities Act of
1933, as amended, declared effective on April 23, 1991 (Commission File No.
33-36760); (ii) the Company's Form 10-K reports for its fiscal years ended June
30, 1993, 1994, 1995, 1996, 1997,1998 and 1999; (iii) the Company's 10-K/A
report filed October 14, 1996; (iv) the Company's Form 10-Q reports for its
quarters ended March 31, 1996, September 30, 1996, December 31, 1996, March 31,
1997, March 31, 1998 and December 31, 1998; (v) the Company's Form 8-K reports
filed with the Commission August 8, 1991, April 23, 1993, May 24, 1993, January
29, 1996, April 19, 1996, October 30, 1997, January 20, 1998 and January 14,
2000; or (vi) the Company's Form 8-K/A report filed with the Commission July 21,
1993 and November 12, 1997. The Exhibit Index is hereby incorporated by
reference into this Item 14.
No reports on Form 8-K were filed with respect to the last three months of
fiscal 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on September 28, 2001.
UNITED AMERICAN HEALTHCARE CORPORATION (Registrant)
By: /s/GREGORY H. MOSES, JR.
------------------------
Gregory H. Moses, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities indicated on September 28, 2001.
28
31
SIGNATURE CAPACITY
--------- --------
/s/GREGORY H. MOSES, JR. President, CEO and Director
----------------------------------------------------
Gregory H. Moses, Jr. (Principal Executive Officer)
/s/ANITA C.R. GORHAM Secretary and Director
----------------------------------------------------
Anita C.R. Gorham
/s/WILLIAM E. JACKSON, II Chief Financial Officer
----------------------------------------------------
William E. Jackson, II (Principal Financial Officer and Principal
Accounting Officer)
/s/WILLIAM C. BROOKS Director
----------------------------------------------------
William C. Brooks
/s/JULIUS V. COMBS, M.D. Director
----------------------------------------------------
Julius V. Combs, M.D.
/s/WILLIAM B. FITZGERALD Director
----------------------------------------------------
William B. Fitzgerald
/s/DARREL W. FRANCIS Director
----------------------------------------------------
Darrel W. Francis
/s/TOM A. GOSS Director
----------------------------------------------------
Tom A. Goss
/s/HARCOURT G. HARRIS, M.D. Director
----------------------------------------------------
Harcourt G. Harris, M.D.
/s/PEARL M. HOLFORTY Director
----------------------------------------------------
Pearl M. Holforty
/s/RONALD M. HORWITZ, Ph.D. Director
----------------------------------------------------
Ronald M. Horwitz, Ph.D.
/s/EMMETT S. MOTEN, JR. Director
----------------------------------------------------
Emmett S. Moten, Jr.
/s/LINDA A. WATTERS Director
----------------------------------------------------
Linda A. Watters
29
32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report....................................................................... F-2
Consolidated Balance Sheets as of June 30, 2001 and 2000........................................... F-3
Consolidated Statements of Operations for each of the years in the three-year period ended June 30,
2001.......................................................................................... F-4
Consolidated Statements of Shareholders' Equity and Comprehensive Income for each
of the years in the three-year period ended June 30, 2001.................................... F-5
Consolidated Statements of Cash Flows for each of the years in the three-year period ended June 30,
2001.......................................................................................... F-6
Notes to Consolidated Financial Statements......................................................... F-8
F-1
33
INDEPENDENT AUDITORS' REPORT
Board of Directors
United American Healthcare Corporation:
We have audited the accompanying consolidated balance sheets of United American
Healthcare Corporation and Subsidiaries as of June 30, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended June 30, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United American
Healthcare Corporation and Subsidiaries as of June 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Detroit, Michigan
September 26, 2001
F-2
34
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30,
--------------------
2001 2000
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 21,985 $ 8,257
Marketable securities 2,781 2,312
Premium receivables 436 2,472
Management fee receivable - 2,700
Other receivables 2,289 1,222
Refundable income taxes 284 -
Prepaid expenses and other 649 312
Deferred income taxes 1,360 -
-------- --------
Total current assets 29,784 17,275
Property and equipment, net 5,632 3,846
Intangible assets, net 2,952 3,663
Surplus notes receivable, net - 6,900
Marketable securities 2,426 2,548
Deferred income taxes 286 -
Other assets 577 577
-------- --------
$ 41,657 $ 34,809
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 890 $ 791
Medical claims payable 19,815 11,245
Accounts payable and accrued expenses 3,138 5,739
Accrued compensation and related benefits 1,093 796
Other current liabilities 1,226 981
-------- --------
Total current liabilities 26,162 19,552
Long-term debt, less current portion 2,602 3,554
Accrued rent 580 652
Shareholders' equity
Preferred stock, 5,000,000 shares authorized; none issued - -
Common stock, no par, 15,000,000 shares authorized; 6,779,128 issued and
outstanding at June 30, 2001 and 2000, respectively 11,188 11,152
Retained earnings 1,288 59
Accumulated other comprehensive loss, net of deferred federal income taxes
(163) (160)
-------- --------
12,313 11,051
-------- --------
$ 41,657 $ 34,809
======== ========
See accompanying notes to the consolidated financial statements.
F-3
35
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30,
-------------------------------
2001 2000 1999
-------- -------- --------
REVENUES
Medical premiums $103,004 $ 86,174 $ 73,207
Management fees from related parties 26,394 18,769 18,148
Interest and other income 2,326 4,110 2,167
-------- -------- --------
Total revenues 131,724 109,053 93,522
EXPENSES
Medical services 85,738 70,255 59,917
Marketing, general and administrative 32,437 30,224 27,291
Depreciation and amortization 1,953 3,345 3,449
Interest expense 401 539 1,708
Bad debt expense 11,532 3,100 -
-------- -------- --------
Total expenses 132,061 107,463 92,365
-------- -------- --------
Earnings (loss) before income taxes (337) 1,590 1,157
Income tax expense (benefit) (1,566) 606 582
-------- -------- --------
Net earnings $ 1,229 $ 984 $ 575
-------- -------- --------
NET EARNINGS PER COMMON SHARE - BASIC
NET EARNINGS PER COMMON SHARE $ 0.18 $ 0.15 $ 0.09
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 6,779 6,779 6,763
======== ======== ========
NET EARNINGS PER COMMON SHARE - DILUTED
NET EARNINGS PER COMMON SHARE $ 0.18 $ 0.15 $ 0.09
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 6,808 6,779 6,764
======== ======== ========
See accompanying notes to the consolidated financial statements.
F-4
36
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS)
RETAINED ACCUMULATED
NUMBER OF EARNINGS OTHER TOTAL
COMMON COMMON (ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES STOCK DEFICIT) INCOME (LOSS) EQUITY
--------------- ------------- ------------------ ------------------- ------------------
BALANCE AT JUNE 30, 1998 6,578 $ 10,715 $ (1,500) $ (134) $ 9,081
Issuance of common stock 383 748 - - 748
Repurchase of common stock (13) (18) - - (18)
Comprehensive income:
Net earnings - - 575 - 575
Unrealized loss on marketable
securities, net of tax of $ - - - - (26) (26)
--------------- ------------- ------------------ ------------------- ------------------
Total comprehensive income (loss) - - 575 (26) 549
--------------- ------------- ------------------ ------------------- ------------------
BALANCE AT JUNE 30, 1999 6,948 11,445 (925) (160) 10,360
Issuance of common stock 68 76 - - 76
Repurchase of common stock (237) (369) - - (369)
Comprehensive income:
Net earnings - - 984 - 984
--------------- ------------- ------------------ ------------------- ------------------
BALANCE AT JUNE 30, 2000 6,779 $ 11,152 $ 59 $ (160) $ 11,051
Issuance of stock options - 36 - - 36
Comprehensive income:
Net earnings - - 1,229 - 1,229
Unrealized loss on marketable
securities, net of tax of $5 - - - (3) (3)
--------------- ------------- ------------------ ------------------- ------------------
Total comprehensive income (loss) - - 1,229 (3) 1,226
--------------- ------------- ------------------ ------------------- ------------------
BALANCE AT JUNE 30, 2001 6,779 $ 11,188 $ 1,288 $ (163) $ 12,313
=============== ============= ================== =================== ==================
See accompanying notes to the consolidated financial statements.
F-5
37
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JUNE 30,
-----------------------------------------------------
2001 2000 1999
---------------- ----------------- ------------------
OPERATING ACTIVITIES
Net earnings $ 1,229 $ 984 $ 575
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Bad debt expense 11,532 3,100 -
Loss (gain) on disposal of assets (18) 18 (36)
Gain on liquidation of investment - (2,105) -
Depreciation and amortization 1,953 3,345 3,449
Accrued rent (72) (48) (235)
Deferred income taxes (1,940) 447 494
Changes in assets and liabilities
Premium receivables 2,036 2,973 (2,722)
Management fee receivable (2,008) (3,468) -
Other receivables (984) (879) (1,339)
Refundable federal income taxes (284) - 5,453
Prepaid expenses and other (337) (22) (2)
Medical claims payable 8,570 (8,565) (194)
Accounts payable and accrued expenses (2,601) 2,780 660
Accrued compensation and related benefits 333 (513) 69
Other current liabilities 539 86 28
------------- ------------- -------------
Net cash provided by (used in) operating activities 17,948 (1,867) 6,200
------------- ------------- -------------
INVESTING ACTIVITIES
Purchase of marketable securities (1,265) (1,255) (2,436)
Proceeds from the sale of marketable securities 921 125 2,631
Purchase of property and equipment (3,044) (2,478) (682)
Proceeds from the sale of property and equipment 21 3 127
Proceeds from liquidation of investment - 1,071 -
Issuance of surplus note - (4,000) -
Proceeds from collection of note receivable - 8,432 9,193
Cash used in discontinued operation - - (1,047)
------------- ------------- -------------
Net cash provided by (used in) investing activities (3,367) 1,898 7,786
------------- ------------- -------------
FINANCING ACTIVITIES
Payments made on debt (853) (8,767) (9,957)
Repurchase of common stock - (369) (18)
Issuance of common stock - 76 16
------------- ------------- -------------
Net cash used in financing activities (853) (9,060) (9,959)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 13,728 (9,029) 4,027
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,257 17,286 13,259
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 21,985 $ 8,257 $ 17,286
============= ============= =============
F-6
38
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
YEAR ENDED JUNE 30,
---------------------------------------------
2001 2000 1999
----------- ------------ -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 401 $ 520 $ 1,708
=========== ============ ===========
Income taxes paid $ 58 $ - $ -
=========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Investing - Conversion of management
fee receivable into a surplus note $ - $ 3,678 $ -
Investing - Receipt of marketable
securities on liquidation of investment - 892 -
Investing - Issuance of note receivables
in connection with sale of discontinued operation - - 15,750
Financing - Conversion of current liability
to common stock - - 625
Financing - Conversion of current liability
to long-term debt - - 625
See accompanying notes to the consolidated financial statements.
F-7
39
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 1 - DESCRIPTION OF BUSINESS
BUSINESS. United American Healthcare Corporation, together with its wholly
and majority owned subsidiaries (collectively, the "Company"), is a
multi-state provider of health care services, including consulting services
to managed care organizations and the provision of health care services in
Tennessee and Michigan.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of United American Healthcare Corporation,
and its wholly owned operational subsidiary: United American of
Tennessee, Inc. ("UA-TN") and Subsidiary. OmniCare Health Plan,
Inc. ("OmniCare-TN") is a 75%-owned subsidiary of UA-TN. Also
included in the consolidated financial statements are its
non-operational wholly owned subsidiaries: United American of
Pennsylvania, Inc. ("UA-PA"), Corporate Healthcare Financing, Inc.
and Subsidiaries ("CHF"), and United American of Louisiana, Inc.
and Subsidiary ("UA-LA"); and its non-operational 80%-owned
subsidiary: United American of Florida, Inc. ("UA-FL") and
Subsidiary. UltraMedix Healthcare Systems, Inc. ("UltraMedix") was
a 51%-owned subsidiary of UA-FL. The Company ceased activities
related to UA-FL, UltraMedix and UA-PA in fiscal 1998. All
significant intercompany transactions and balances have been
eliminated in consolidation.
B. USE OF ESTIMATES. The accompanying consolidated financial
statements have been prepared in conformity with accounting
principles generally accepted in the United States of America
which 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. Actual results could differ from those
estimates as more information becomes available and any such
difference could be significant. The most significant estimates
that are susceptible to change in the near term relate to the
determination of medical claims payable.
C. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
instruments purchased with original maturities of three months or
less to be cash equivalents.
D. FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of cash
and cash equivalents, receivables, marketable securities and debt
approximate fair values of these instruments at June 30, 2001 and
2000.
F-8
40
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
E. MARKETABLE SECURITIES. Investments in marketable securities are
primarily comprised of U.S. Treasury notes, debt issues of
municipalities and foreign countries and common stocks all carried
at fair value, based upon published quotations of the underlying
securities, and six month certificates of deposit carried at cost
plus interest earned, which approximates fair value. Marketable
securities placed in escrow to meet statutory funding
requirements, although considered available for sale, are not
reasonably expected to be used in the normal operating cycle of
the Company and are classified as non-current. All other
securities available for sale are classified as current.
Premiums and discounts are amortized or accreted, respectively,
over the life of the related debt security as adjustment to yield
using the yield-to-maturity method. Interest and dividend income
is recognized when earned. Realized gains and losses on
investments in marketable securities are included in investment
income and are derived using the specific identification method
for determining the cost of the securities sold; unrealized gains
and losses on marketable securities are reported as a separate
component of shareholders' equity, net of the provision for
deferred federal income taxes.
F. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Expenditures and improvements, which add significantly to the
productive capacity or extend the useful life of an asset, are
capitalized. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the
related assets. Estimated useful lives of the major classes of
property and equipment are as follows: furniture and fixtures - 5
to 13 years; equipment - 5 years; and computer software - 2 to 5
years. Leasehold improvements are included in furniture and
fixtures and are amortized on a straight-line basis over the
shorter of the lease term or the estimated useful life, which
ranges from 5 to 13 years. The Company uses accelerated methods
for income tax purposes. The Company has internally developed
customized software in which the related costs were capitalized.
These costs were fully depreciated during fiscal 2000.
G. INTANGIBLE ASSETS. Intangible assets resulting from business
acquisitions are carried at cost and are currently being amortized
on a straight-line basis over their estimated useful lives of 10
years.
H. LONG-LIVED ASSETS. Following the criteria set forth in Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," long-lived assets and certain identifiable
intangibles are reviewed by the Company for events or changes in
circumstances which would indicate that the carrying value may not
be recoverable. In making this determination, the Company
considers a number of factors, including estimated future
undiscounted cash flows associated with long-lived assets, current
and historical operating and cash flow results and other economic
factors. When any such impairment exists, the related assets are
written
F-9
41
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
down to fair value. Based upon its most recent analysis, the
Company believes that long-lived assets are recorded at their net
recoverable values. See Notes 4, 8 and 9.
I. MEDICAL CLAIMS PAYABLE. The Company provides for medical claims
incurred but not reported and the cost of adjudicating claims
based primarily on past experience, together with current factors,
using accepted actuarial methods. Although considerable
variability is inherent in such estimates, management believes
that these reserves are adequate.
J. REVENUE RECOGNITION. Medical premium revenues are recognized in
the month in which members are entitled to receive health care
services. Medical premiums collected in advance are recorded as
deferred revenues. Management fee revenues are recognized in the
period the related services are performed.
K. MEDICAL SERVICES EXPENSE RECOGNITION. The Company contracts with
various health care providers for the provision of certain medical
services to its members and generally compensates those providers
on a capitated and fee for service basis. The estimates for
medical claims payable are regularly reviewed and adjusted as
necessary, with such adjustments generally reflected in current
operations.
L. STOP LOSS INSURANCE. Stop loss insurance premiums are reported as
medical services expense, while the related insurance recoveries
are reported as deductions from medical services expense.
M. INCOME TAXES. Deferred income tax assets and liabilities are
recognized for the expected future tax consequences attributable
to differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases.
Deferred income tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which these temporary differences are expected to be recovered
or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in
the period that involves the deferred tax assets and liabilities
in the amount expected to be realized. Valuation allowances are
established when necessary to reduce the deferred tax assets and
liabilities in the amount expected to be realized. The deferred
income tax provision or benefit generally reflects the net change
in deferred income tax assets and liabilities during the year. The
current income tax provision reflects the tax consequences of
revenues and expenses currently taxable or deductible for the
period.
N. STOCK BASED COMPENSATION. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." The Company records compensation
expense for stock options only if the market price of the
Company's stock, on the date of grant, exceeds the amount an
individual must pay to acquire the stock, if dilutive.
F-10
42
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
O. EARNINGS PER SHARE. Basic net earnings per share excluding
dilution has been computed by dividing net earnings by the
weighted-average number of common shares outstanding for the
period. Diluted earnings per share is computed the same as basic
except that the denominator also includes shares issuable upon
assumed exercise of stock options.
For the fiscal years ended June 30, 2001 and June 30, 2000 the
Company had outstanding stock options of 29,030 and zero common
shares, respectively, having a dilutive effect on earnings per
share. The Company had no outstanding stock options in the fiscal
year ended June 30, 1999.
P. SEGMENT INFORMATION. The Company reports financial and descriptive
information about its reportable operating segments. Operating
segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by
the chief operating decision-maker in deciding how to allocate
resources and in assessing performance. Financial information is
reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to
segments.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
OMNICARE HEALTH PLAN, INC. OF TENNESSEE (OMNICARE-TN)
In February 1994, the Company and its wholly owned subsidiary, UA-TN, entered
into a long-term agreement to manage OmniCare-TN and, effective July 1994,
acquired a 50% equity interest in OmniCare-TN for approximately $1.3 million in
cash. Effective January 31, 1996, the Company purchased an additional 25% of the
voting common stock and 100% of the preferred stock of OmniCare-TN. This
increased the Company's ownership in the voting common stock of OmniCare-TN to
75%. The purchase price for the additional common stock and preferred stock of
OmniCare-TN was $0.1 million and $10.9 million, respectively, of which $8.7
million was the conversion of OmniCare-TN debt to the Company into equity and
$2.3 million was paid in cash. In July 1998 and September 2000, the Company made
additional cash contributions of $0.75 million and $0.9 million, respectively,
to OmniCare-TN, in exchange for additional preferred stock of OmniCare-TN.
This acquisition was accounted for under the purchase method of accounting. The
excess of the purchase price over the fair value of the net assets acquired of
approximately $7.4 million has been recorded as goodwill, and is being amortized
over ten years on a straight-line basis. Results of operations are included in
the accompanying financial statements effective with the date of purchase of the
majority common stock ownership interest. In fiscal 1999, goodwill was reduced
by $0.5 million as a result of the utilization of OmniCare-TN's net operating
loss carryforwards ("NOL" or "NOLs") generated prior to January 31, 1996. The
remaining NOLs related to OmniCare-TN were generated subsequent to January 31,
1996.
F-11
43
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
CORPORATE HEALTHCARE FINANCING, INC. (CHF)
On May 7, 1993, the Company acquired substantially all of the assets and assumed
certain liabilities of a Maryland limited partnership, in a business combination
accounted for as a purchase. The cost at the time of the acquisition was
approximately $9.6 million. Through August 31, 1998, the purchase price was
increased as defined in the asset purchase agreement by the maximum amount of
$6.6 million. Effective December 31, 1996, CHF acquired certain contract rights
and assets and assumed certain liabilities of Spectera, Inc. for approximately
$1.8 million in cash and debt. CHF provided administrative services to
self-funded employers and employee welfare plans, including health benefit plan
design and development of workers' compensation and unemployment benefit
programs.
The stock of CHF was sold effective August 31, 1998, for $17.75 million,
comprised of $2.0 million in cash and the buyer's secured and unsecured notes
for $13.25 million and $2.5 million, respectively, to an entity related to the
Company through certain common shareholders, including a former officer and
director of the Company. Including payments on the secured note, through June
30, 1999, the Company received $9.2 million of the CHF sale price, plus $0.8
million of interest. In June 1999, as an inducement for the buyer to prepay both
notes, the Company agreed to a discount of $0.25 million if both notes were
paid, with accrued interest, by mid-August 1999. Both notes were paid in full
with accrued interest, net of the discount, on August 16, 1999. The final
payment on the secured and unsecured notes was in the aggregate amount of $8.5
million. As required by the Company's line of credit facility, the CHF sale was
approved by the Company's bank lender and all proceeds were used to reduce the
Company's indebtedness to the bank.
ULTRAMEDIX HEALTHCARE SYSTEMS, INC. (ULTRAMEDIX)
In February 1994, the Company and its majority owned subsidiary, UA-FL, entered
into a long-term agreement to manage UltraMedix. As of January 1996, the
Company's ownership in the voting common stock of UltraMedix was 51%.
As of December 31, 1997, UltraMedix was not in compliance with the Florida
Department of Insurance's ("FDOI") statutory solvency requirement. UltraMedix's
statutory deficiency at December 31, 1997 was estimated at $4.5 million. As a
result of the deficiency, on February 26, 1998, UltraMedix and the Plan's
third-party administrator, UA-FL, were placed into receivership, and on March 3,
1998, into liquidation, by the FDOI.
Through the date of the commencement of liquidation, the results of these
operations were included in the 1998 consolidated results of operations of the
Company, which included a net loss totaling $9.3 million. In connection with the
liquidation, the Company wrote off goodwill and accumulated amortization of
approximately $4.5 million and $1.0 million, respectively, and recognized a loss
on the liquidation of approximately $2.3 million. See Note 10 for further
discussion of UltraMedix.
F-12
44
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 4 - MARKETABLE SECURITIES
A summary of estimated fair value, which approximates amortized cost of
marketable securities as of June 30, 2001 and 2000 was as follows (in
thousands):
2001 2000
-------------- -------------
Available for sale - Current:
Certificates of deposit $ 2,753 $ 1,664
Equity and other securities 28 53
U.S. government obligations - 595
-------------- -------------
2,781 2,312
-------------- -------------
Available for sale - Noncurrent:
Money market 816 772
U.S. government obligations 1,610 1,776
-------------- -------------
2,426 2,548
-------------- -------------
$ 5,207 $ 5,084
============== =============
Certain of the Company's operations are obligated by state regulations to
maintain a specified level of escrowed funds to assure the provision of
healthcare services to enrollees. To fulfill these statutory requirements, the
Company maintains funds in highly liquid escrowed investments, which amounted to
$2.4 million and $2.3 million at June 30, 2001 and 2000, respectively.
NOTE 5 - CONCENTRATION OF RISK
During the years ended June 30, 2001, 2000 and 1999, approximately 71%, 71%, and
76%, respectively, of the Company's revenues were derived from a single
customer, TennCare, a State of Tennessee program that provides medical benefits
to Medicaid and Working Uninsured recipients. TennCare withholds 5% of the
Company's monthly capitation payment. TennCare remits the monthly withheld
amounts to the Company when certain informational filing requirements are met by
the Company. Amounts withheld by TennCare as of June 30, 2001 and 2000 totaled
approximately $0.4 million and $0.9 million, respectively. The Company recorded
a receivable of approximately $1.6 million at June 30, 2000, from the TennCare
program adverse selection pool.
The Company has entered into a long-term management agreement with OmniCare
Health Plan, in Michigan ("OmniCare-MI"). Pursuant to the management agreement,
the Company provides management and consulting services to OmniCare-MI and is
generally paid a percentage of revenues to manage the plan. Management fee
revenues from OmniCare-MI as a percentage of the Company's total revenues were
20%, 17% and 19% for the years ended June 30, 2001, 2000 and 1999, respectively.
See Note 12 for further discussion.
F-13
45
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 6 - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment at each June 30 consists of the following (in thousands):
2001 2000
------- -------
Furniture and fixtures $ 2,234 $ 2,233
Equipment 11,214 10,703
Computer software 8,860 6,347
------- -------
22,308 19,283
Less accumulated depreciation and amortization 16,676 15,437
------- -------
$ 5,632 $ 3,846
======= =======
Intangible assets at each June 30 consists of the following (in thousands):
2001 2000
------- -------
Goodwill $ 6,972 $ 6,972
Less accumulated amortization 4,020 3,309
------- -------
$ 2,952 $ 3,663
======= =======
NOTE 7 - INVESTMENTS IN AND ADVANCES TO AFFILIATES
In fiscal 1998, the Company recorded full impairment losses against its
investments in PhilCare Health Systems, Inc. ("PhilCare") and Advica Health
Management ("Advica"). The establishment of the impairment losses was based on
the Company's evaluation of the net recoverable value of such investments.
On June 22, 2000, PhilCare's Board of Directors and shareholders approved the
voluntary dissolution of PhilCare. As a result of the dissolution, assets of
PhilCare were distributed to UA-PA, pursuant to agreements under which UA-PA
contributed those assets, and the Company recovered its $2.1 million investment
in PhilCare, resulting in a gain in that amount included in other income in the
accompanying consolidated statement of operations for the fiscal year ended June
30, 2000.
On November 8, 2000, XCare.net, an electronic commerce service provider for
health care businesses, purchased all of Advica's common shares for an aggregate
purchase of approximately $2.2 million including cash and 70,000 shares of
XCare.net common stock. The Company's interest in Advica converted to less than
three percent of XCare.net common shares and is deemed to be insignificant.
F-14
46
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 8 - SURPLUS NOTES RECEIVABLE
On April 13, 2000 and June 30, 1998, the Company funded unsecured loans to
OmniCare-MI, evidenced by surplus notes of $7.7 million and $4.6 million,
respectively, to enable OmniCare-MI to meet its minimum statutory requirements
for net worth and working capital. The $7.7 million loan consisted of $4.0
million in cash and conversion of $3.7 million of management fees owed to the
Company. Pursuant to the terms of the surplus notes, interest and principal
payments are subject to approval by the State of Michigan's Office of Financial
and Insurance Services ("OFIS") and shall be repaid only out of the statutory
surplus earnings of OmniCare-MI. The interest rate on the $7.7 million surplus
note is fixed at 8.5% per annum, while the interest rate on the $4.6 million
surplus note is at the prime rate (6.75% at June 30, 2001). Interest is payable
annually and if not paid annually is forfeited. Interest income of $1.1 million,
$0.5 million and $0.4 million was forfeited for fiscal 2001, 2000 and 1999,
respectively. The principal on the notes has no stated maturity or repayment
date. The surplus notes are subordinated to all other claimants of OmniCare-MI.
On July 31, 2001, as a result of OmniCare-MI's deteriorating financial
condition, the Ingham County Circuit Court of the State of Michigan granted a
petition issued by OFIS to place OmniCare-MI into rehabilitation. The
rehabilitation proceedings will include a plan for the payment of OmniCare-MI's
obligations to creditors existing prior to July 31, 2001, and will be dependent
upon OmniCare-MI's financial resources. Throughout fiscal 2001, the Company had
become aware of OmniCare-MI's adverse financial condition. As a result, there
existed an inability to determine the probability of collection and the amount
that would be potentially realized on the surplus notes outstanding. Therefore,
in the third quarter of fiscal 2001, the Company recorded an impairment loss
equal to the remaining carrying value of the surplus notes receivable from
OmniCare-MI, resulting in $6.9 million of bad debt expense. In fiscal 2000, the
Company evaluated the net recoverable value of its surplus notes receivable from
OmniCare-MI considering the estimate of OmniCare-MI's future undiscounted cash
flows and statutorily derived surplus earnings and repayments conditioned on
OFIS' approval. As a result of this evaluation, the Company recorded an
impairment loss on the valuation of the surplus notes, resulting in bad debt
expense of $3.1 million for the year ended June 30, 2000.
NOTE 9 - LONG TERM DEBT
The Company currently has a $3.4 million bank loan with Michigan National Bank,
which is scheduled to merge into Standard Federal Bank FSB ("Standard Federal")
effective in early October 2001. The Company and Michigan National Bank have an
agreement to refinance the present loan agreement, promissory note and security
agreement promptly after the completion of the bank merger, replacing the prior
one-year loan, originally due September 30, 2001, with a $3.4 million term loan
from Standard Federal, repayable in monthly installments of principal and
interest of approximately $105,000. Michigan National Bank has waived the
requirement of payment of the current loan balance at September 30, 2001,
pending the expected refinancing. The proposed new term loan will have an
interest rate equal to the bank's prime rate (6.75% at June 30, 2001) plus one
percent per annum, and a maturity date of September 30, 2004. The new loan
agreement (like the prior one) will be collateralized by a security interest in
all of the Company's personal property. As a result of this agreement, principal
due subsequent to June 30, 2002 is classified as long-term debt in the
"Consolidated Balance Sheets" at June 30, 2001.
F-15
47
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
The Company's outstanding debt at each June 30 is as follows (in thousands):
2001 2000
------------- -------------
Term loan $ 3,492 $ 3,970
Other - 375
------------- -------------
3,492 4,345
Less debt payable within one year 890 791
------------- -------------
Long-term debt, less current portion $ 2,602 $ 3,554
============= =============
NOTE 10 - MEDICAL CLAIMS PAYABLE
The Company has recorded a liability of $19.8 million, $11.2 million and $19.8
million at June 30, 2001, 2000 and 1999, respectively, for unpaid claims and
medical claims incurred by enrollees but not reported to the Company for payment
by the health care providers as of each date. The ultimate settlement of medical
claims may vary from the estimated amounts reported at June 30, 2001, 2000 and
1999.
The following table provides a reconciliation of the unpaid claims for the years
ended June 30, 2001, 2000 and 1999 (in thousands):
2001 2000 1999
------------ ------------- -------------
Balance at beginning of fiscal year $ 11,245 $ 19,810 $ 20,004
Incurred losses as related to current year 86,496 75,878 59,916
Reserve reversal related to prior year (758) (5,623) --
------------ ------------- -------------
Total losses incurred 85,738 70,255 59,916
Paid claims related to current year 67,845 65,437 47,442
Paid claims related to prior year 9,323 13,383 12,668
------------ ------------- -------------
Total paid claims 77,168 78,820 60,110
------------ ------------- -------------
Balance at end of fiscal year $ 19,815 $ 11,245 $ 19,810
============ ============= =============
Under an agreement with an insurer, 80% of inpatient medical claim costs in
excess of $0.2 million up to $1.0 million per enrollee per year are paid by the
insurer. The reserve reversal related to prior years of $0.8 million and $5.6
million in fiscal 2001 and 2000, respectively, was attributable to UltraMedix
which ceased operations and was placed in liquidation in March 1998. At March
31, 2000, Company management concluded that the previously established medical
claims liability of $6.4 million should be reduced to $0.8 million, and
subsequently at March 31, 2001 concluded that such reserve should be zero.
F-16
48
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 11 - INCOME TAXES
The components of income tax expense (benefit) for each year ended June 30 are
as follows (in thousands):
2001 2000 1999
------------- -------------- -------------
Continuing operations:
Current expense $ 374 $ 159 $ 89
Deferred expense (credit) (238) 280 562
Change in valuation allowance (1,702) 167 (69)
------------- -------------- -------------
$ (1,566) $ 606 $ 582
============= ============== =============
A reconciliation of the provision for income taxes for each year ended June 30
follows (in thousands):
2001 2000 1999
------------- -------------- -------------
Income tax expense (benefit) at the statutory tax rate $ (114) $ 540 $ 393
State and city income tax 237 115 148
Utilization of AMT credit (284) - -
Tax-exempt interest on municipal bonds (13) (14) (37)
Non-deductible goodwill amortization 242 242 258
Utilization of NOL carryforward - (446) -
NOL reduction of goodwill - - 494
Valuation allowance (1,702) 167 (551)
Other, net 68 2 (123)
------------- -------------- -------------
$ (1,566) $ 606 $ 582
============= ============== =============
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversals of deferred taxes, projected future taxable income, and tax
planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize the
benefits of these deductible differences, net of the existing valuation
allowance at June 30, 2001. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
F-17
49
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
As of June 30, 2001, the NOLs for federal income tax purposes expire from 2011
to 2021. Components of the Company's deferred tax assets and liabilities at each
June 30 are (in thousands):
2001 2000
-------------- -------------
Deferred tax assets
Accrued rent $ 198 $ 222
Bad debt expense 1,360 3,196
Deferred compensation 236 131
Unrealized net depreciation on marketable securities 85 75
Net operating loss carryforward of consolidated losses 4,832 1,171
Net operating loss carryforward of purchased subsidiary 1,646 3,075
Alternative minimum tax credit carryforward 403 687
Losses in unconsolidated affiliates - 258
-------------- -------------
Total gross deferred tax assets 8,759 8,815
Valuation allowance (7,113) (8,815)
-------------- -------------
Total gross deferred tax liabilities - -
-------------- -------------
Net deferred tax asset $ 1,646 $ -
============== =============
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company has had a long-term management agreement with OmniCare-MI since
1985. OmniCare-MI was related to the Company via certain common officers and
directors until July 31, 2001. The agreement commenced in May 1985 and expires
in December 2010, is subject to review every five years and can be terminated
without cause by OmniCare-MI at the time of the review or by either party with
cause. The Company is required to pay certain administrative expenses associated
with its activity on behalf of OmniCare-MI. All costs associated with the
management of OmniCare-MI are expensed as incurred.
A court Order issued on July 31, 2001 placed OmniCare-MI in rehabilitation.
Since that date, pursuant to the Order, the Company has continued to perform the
management contract without interruption and no Company officers or directors
are any longer OmniCare-MI officers or directors. The Company and OmniCare-MI
have reached agreement on an amendment to the contract that will reduce the
Company's management fee percentage from 14% to approximately 10% beginning in
August 2001, will provide for adjustment from time to time to appropriately
reflect the Company's future costs of performing the contract, and will continue
unchanged the contract's other basic terms.
Health insurance for some of the Company's employees was provided by
OmniCare-MI. The expense was approximately $1.0 million, $0.6 million and $0.4
million for the years ended June 30, 2001, 2000 and 1999, respectively.
NOTE 13 - BENEFIT AND OPTION PLANS
The Company offers a 401(k) retirement and savings plan that covers
substantially all of its employees. Effective April 1, 2001, the Company matches
50% of an employee's contribution up to 4% of the employee's salary. Prior to
April 1, 2001, the Company matched 1% of
F-18
50
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
compensation. Expenses related to the 401(k) plan were approximately $40,000,
$26,000 and $25,000 for the years ended June 30, 2001, 2000 and 1999,
respectively.
The Company has reserved 200,000 common shares for its Employee Stock Purchase
Plan ("ESPP"), which became effective October 1996, and enables all eligible
employees of the Company to subscribe for shares of common stock on an annual
offering date at a purchase price which is the lesser of 85% of the fair market
value of the shares on the first day or the last day of the annual period. There
were no employee contributions for the years ended June 30, 2001 and 2000.
Employee contributions to the ESPP were approximately $53,000 for the year ended
June 30, 1999.
On August 6, 1998, the Company's Board of Directors adopted the 1998 Stock
Option Plan ("1998 Plan"). The 1998 Plan was approved by the Company's
shareholders on November 12, 1998. The Company has an aggregate of 800,000
common shares reserved for issuance upon exercise of options under the 1998
Plan. On September 9, 1998, December 15, 1998, February 3, 1999, November 10,
1999 and May 3, 2001, nonqualified options for a total of 325,000, 26,000,
5,000, 8,000 and 50,000 common shares, respectively, were granted under the 1998
Plan. The exercise prices of the options range from $0.63 to $1.63.
Independent of any stock option plan, on May 11, 1998 the Company granted
nonqualified stock options for 100,000 common shares to the Company's President
and Chief Operating Officer, and reserved that number of common shares for
issuance upon exercise of such options. Such options expire May 11, 2003 and
were fully exercisable beginning May 11, 2000 at a price of $1.38 per share.
SFAS No. 123 prescribes a method of accounting for stock-based compensation that
recognizes compensation cost based on the fair value of options at grant date.
In lieu of applying this fair value based method, a company may elect to
disclose only the pro forma effects of such application. The Company has adopted
the disclosure-only provisions of SFAS No. 123. Accordingly, if the Company had
elected to recognize compensation cost based on the fair value of the options at
grant date, the Company's earnings and earnings per share from continuing
operations, assuming dilution, for fiscal 2001, 2000 and 1999 would have been
the pro forma amounts indicated below (in thousands, except per share amounts):
2001 2000 1999
----------- ---------- ----------
Earnings from continuing operations:
As reported $ 1,229 $ 984 $ 575
Pro forma $ 1,211 $ 979 $ 295
Earnings from continuing operations per share
(Basic and Diluted):
As reported $ 0.18 $ 0.15 $ 0.09
Pro forma $ 0.18 $ 0.15 $ 0.04
----------- ---------- ----------
F-19
51
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
The fair value of options at date of grant was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions used for
grants in fiscal 2001: dividend yield of 0%; expected volatility of 104.33%;
risk free interest rate of 5.35%; and expected life of 10 years. The effects of
applying SFAS No. 123 in the above pro forma disclosures are not necessarily
indicative of future amounts, because additional stock option awards could be
made in future years.
Information regarding the stock options for fiscal 2001, 2000 and 1999 follows
(in thousands except share prices):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -----------------------------------
AVERAGE NUMBER OF
WEIGHTED REMAINING SHARES WEIGHTED
SHARES AVERAGE CONTRACTUAL EXERCISABLE AT AVERAGE
EXERCISE PRICE LIFE AT JUNE JUNE 30, 2001 EXERCISE
30, 2001 PRICE
--------- -------------- ------------ -------------- -----------
Options
outstanding at
June 30, 1999 455 $ 1.55 7.0 years 402 $ 1.56
Granted 8 1.19 8.4 years 1 1.19
Exercised - - - - -
Expired - - - - -
Forfeited (5) 1.25 - - -
--------- ------- ----------- ----- -------
Options
outstanding at
June 30, 2000 458 $ 1.54 7.3 years 434 $ 1.56
Granted 50 0.63 9.0 years 50 0.63
Exercised - - - - -
Expired - - - - -
Forfeited (13) 1.23 - - -
--------- ------- ----------- ----- -------
Options
outstanding at
June 30, 2001 495 $ 1.46 7.7 years 484 $ 1.46
--------- ------- ----------- ----- -------
F-20
52
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
Options for 305,000 common shares were available for grant at the end of fiscal
2001.
NOTE 14 - LEASES
The Company leases its facilities and certain furniture and equipment under
operating leases expiring at various dates through May 2005. Terms of the
facility leases generally provide that the Company pay its pro rata share of all
operating expenses, including insurance, property taxes and maintenance.
Rent expense charged to operations for the years ended June 30, 2001, 2000 and
1999 totaled approximately $1.7 million, $1.6 million and $1.6 million,
respectively.
Minimum future rental payments under all non-cancelable operating leases having
remaining terms in excess of one year as of June 30, 2001 total $5.1 million as
follows (in thousands): 2002-$1,273; 2003-$1,333; 2004-$1,306; 2005-$1,225; none
thereafter.
F-21
53
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 15 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
The following table presents selected quarterly financial data for the years
ended June 30, 2001 and 2000 (in thousands, except per share data):
---------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, TOTAL
------------ ------------ ------------ ------------ ------------
2001
-------------------
Total revenues $ 33,554 $ 34,019 $ 33,343 $ 30,808 $ 131,724
Net earnings (loss) 4,463 (5,838) 939 1,665 1,229
Net earnings (loss)
per common share
assuming dilution $ 0.65 $ (0.86) $ 0.14 $ 0.25 $ 0.18
2000
-------------------
Total revenues $ 31,187 $ 27,104 $ 25,559 $ 25,203 $ 109,053
Net earnings (loss) (2,391) 3,414 (346) 307 984
Net earnings per
common share
assuming dilution $ (0.35) $ 0.50 $ (0.05) $ 0.05 $ 0.15
--------------------------------------------------------------------------------
In the quarter ended June 30, 2001, the Company made the following significant
adjustments: (i) reduced the valuation allowance previously recorded against a
portion net operating loss carryforwards, resulting in current and long-term
deferred tax assets totaling $1.6 million
In the quarter ended June 30, 2000, the Company made the following significant
adjustments: (i) recorded an increase to medical claims liability of $3.4
million; (ii) recorded a gain of $2.1 million on the recovery of its $2.1
million investment in PhilCare; and (iii) recorded additional bad debt expense
of $1.6 million on the $7.7 million surplus note due from OmniCare-MI.
F-22
54
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 16 - SEGMENT FINANCIAL INFORMATION
Summarized financial information for the Company's principal operations is as
follows (in thousands):
------------------------------------------------------------------------------------------------
MANAGEMENT HMOS & CORPORATE & CONSOLIDATED
COMPANIES (1) MANAGED PLANS ELIMINATIONS COMPANY
2001 (2)
================================================================================================
Revenues - external customers $ 26,394 $ 103,004 $ - $ 129,398
Revenues - intersegment 11,731 - (11,731) -
Interest and other income 571 1,862 (107) 2,326
--------- --------- --------- ---------
Total revenues $ 38,696 104,866 $ (11,838) $ 131,724
================================================================================================
Interest expense $ 401 $ - $ - $ 401
Bad debt expense 11,532 - - 11,532
Operating (losses) earnings (4,767) 5,246 (817) (337)
Segment assets 30,194 29,714 (18,251) 41,657
Purchase of equipment and
capitalized software 3,044 - - 3,044
Depreciation and amortization 1,242 - 711 1,953
========= ========= ========= =========
2000
==============================
Revenues - external customers $ 18,769 $ 86,174 $ - $ 104,943
Revenues - intersegment 12,502 - (12,502) -
Interest and other income 3,064 1,419 (373) 4,110
--------- --------- --------- ---------
Total revenues $ 34,335 $ 87,593 $ (12,875) $ 109,053
================================================================================================
Interest expense $ 539 $ - $ - $ 539
Bad debt expense 3,100 - - 3,100
Operating (losses) earnings (2,273) 4,574 (711) 1,590
Segment assets 28,350 13,813 (7,354) 34,809
Purchase of equipment and
capitalized software 2,478 - - 2,478
Depreciation and amortization 2,634 - 711 3,345
=========================================================
1999
==============================
Revenues - external customers $ 18,148 $ 73,207 $ - $ 91,355
Revenues - intersegment 9,932 - (9,932) -
Interest and other income 1,516 1,197 (546) 2,167
--------- --------- --------- ---------
Total revenues $ 29,596 $ 74,404 $ (10,478) $ 93,522
================================================================================================
Interest expense $ 1,708 $ - $ - $ 1,708
Operating losses (976) 2,893 (760) 1,157
Segment assets 37,238 18,553 (6,540) 49,251
Purchase of equipment and
capitalized software 682 - - 682
Depreciation and amortization 2,688 - 761 3,449
================================================================================================
(1) Management Companies: United American Healthcare Corporation (2001, 2000,
1999), United American of Tennessee, Inc. (2001, 2000, 1999), United
American of Louisiana, Inc. (1999), United American of Pennsylvania, Inc.
(2000, 1999), and United American of Florida, Inc. (2001, 2000, 1999).
(2) HMOs and Managed Plans: OmniCare Health Plan of Tennessee (2001, 2000,
1999) and County Care (2001, 2000, 1999)
F-23
55
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF DOCUMENT INCORPORATED HEREIN BY FILED
NUMBER REFERENCE TO HEREWITH
----------- ------------------------------------- -------------------------------------------- --------------
3.1 Restated Articles of Incorporation Exhibit 3.1 to the Registrant's Form S-1
of Registrant Registration Statement under the
Securities Act of 1933, as amended,
declared effective on April 23, 1991
("1991 S-1")
3.1(a) Certificate of Amendment to the Exhibit 3.1(a) to 1991 S-1
Articles of Incorporation of
Registrant
3.2 Amended and Restated Bylaws of Exhibit 3.2 to the Registrant's 1993 Form
Registrant 10-K
4.1 Incentive and Non-Incentive Stock Exhibit 4.1 to the Registrant's 1995 Form
Option Plan of Registrant effective 10-K
March 25, 1991, as amended
4.2 Form of Common Share Certificate Exhibit 4.2 to the Registrant's 1995 Form
10-K
10.1 Employees' Retirement Plan for Exhibit 10.1 to 1991 S-1
Registrant dated May 1, 1985, with
First Amendment thereto and Summary
Plan Description therefor
10.2 Management Agreement between Exhibit 10.2 to 1991 S-1
Michigan Health Maintenance
Organization Plans, Inc. and
Registrant dated March 15, 1985, as
amended June 12, 1985
10.3 Management Agreement between U.A. Exhibit 10.3 to 1991 S-1
Health Care Corporation and
Personal Physician Care, Inc. dated
March 18, 1987
10.4 Amendment dated February 16, 1993 Exhibit 10.5 to the Registrant's 1995 Form
to Management Agreement between 10-K
United American Healthcare
Corporation and Personal Physician
Care, Inc. dated March 18, 1987
10.5 Amendment dated June 16, 1994 to Exhibit 10.4 to the Registrant's 1994 Form
Management Agreement between U.A. 10-K
Health Care Corporation and
Personal Physician Care, Inc. dated
March 18, 1987
30
56
EXHIBIT DESCRIPTION OF DOCUMENT INCORPORATED HEREIN BY FILED
NUMBER REFERENCE TO HEREWITH
----------- ------------------------------------- -------------------------------------------- --------------
10.6 Management Agreement between Exhibit 10.5 to Registrant's 1994 Form 10-K
OmniCare Health Plan, Inc. and
United American of Tennessee, Inc.
dated February 2, 1994
10.7 Management Agreement between Exhibit 10.6 to Registrant's 1994 Form 10-K
UltraMedix Health Care Systems,
Inc. and United American of
Florida, Inc. dated February 1, 1994
10.8 Amendment dated September 4, 1995 Exhibit 10.9 to the Registrant's 1995 Form
to Management Agreement between 10-K
UltraMedix Healthcare Systems, Inc.
and United American of Florida,
Inc. dated February 1, 1995
10.9 Amendment dated September 20, 1995 Exhibit 10.10 to Registrant's 1995 Form
to Management Agreement between 10-K
UltraMedix Health Care Systems,
Inc. and United American of
Florida, Inc. dated February 1, 1995
10.10 Lease Agreement between 1155 Form 8-K filed August 8, 1991
Brewery Park Limited Partnership
and Registrant dated July 24, 1991,
effective May 1, 1992
10.11 Amendment dated December 8, 1993 to Exhibit 10.8 to the Registrant's 1994 Form
Lease agreement between 1155 10-K
Brewery Park Limited Partnership
and Registrant dated July 24, 1991
10.12 Amendment dated April 15, 1993 to Exhibit 10.13 to Registrant's 1995 Form
Lease Agreement between 1155 10-K
Brewery Park Limited Partnership
and Registrant dated July 24, 1991
31
57
EXHIBIT DESCRIPTION OF DOCUMENT INCORPORATED HEREIN BY FILED
NUMBER REFERENCE TO HEREWITH
----------- ------------------------------------- -------------------------------------------- --------------
10.13 Lease Agreement between Baltimore Exhibit 10.7 to the Registrant's 1993 Form
Center Associates Limited 10-K
Partnership and Corporate
Healthcare Financing, Inc. dated
August 24, 1988, as amended April
12, 1993, effective the later of
May 1, 1993 or the date premises
are ready for occupancy
10.14 Amendment dated May 11, 1994 Exhibit 10.11 to the Registrant's 1994
(effective June 30, 1994) to Lease Form 10-K
agreement between Baltimore Center
Associates Limited Partnership and
Corporate Healthcare Financing, Inc
10.15 Lease Agreement between CLW Realty Exhibit 10.2 to Registrant's 1994 Form 10-K
Asset Group, Inc., as agent for The
Prudential Insurance Company of
America and United American of
Florida dated May 31, 1994,
effective June 1, 1994
10.16 Lease Agreement between Fleming Exhibit 10.3 to Registrant's 1994 Form 10-K
Companies, Inc. and United American
of Tennessee dated June 30, 1994,
effective the date premises are
ready for occupancy
10.17 Lease Agreement between Exhibit 10.19 to Registrant's 1995 Form
International Business Machines 10-K
Corporation and Registrant dated
August 29, 1994
10.18 Amended and Restated Line of Credit Exhibit 10.20 to Registrant's 1995 Form
Facility Agreement between Michigan 10-K
National Bank and Registrant dated
March 14, 1995
32
58
EXHIBIT DESCRIPTION OF DOCUMENT INCORPORATED HEREIN BY FILED
NUMBER REFERENCE TO HEREWITH
----------- ------------------------------------- -------------------------------------------- --------------
10.19 Promissory notes between Michigan Exhibit 10.9 to the Registrant's 1993 Form
National Bank and Registrant dated 10-K
August 26, 1993
10.20 Asset Purchase Agreement between Form 8-K filed May 24, 1993 and Form 8-K/A
CHF, Inc., Healthcare Plan filed July 21, 1993
Management, Inc., CHF-HPM Limited
Partnership, Louis J. Nicholas and
Keith B. Sullivan and Registrant
dated May 7, 1993
10.21 Loan and Security Agreement between Exhibit 10.18 to Registrant's 1994 Form
UltraMedix Health Care Systems, 10-K
Inc. and United American of Florida
dated February 1, 1994
10.22 Amendment dated June 13, 1995 to Exhibit 10.26 to Registrant's 1995 Form
the Loan and Security Agreement 10-K
between UltraMedix Care Systems,
Inc. and United American of
Florida, Inc. dated February 1, 1994
10.23 Form of Stock Transfer Services Exhibit 10.19 to Registrant's 1994 Form
Agreement between Huntington 10-K
National Bank and Registrant
10.24 Employment Agreement between Julius Exhibit 10.15 to 1991 S-1
V. Combs, M.D. and Registrant dated
March 15, 1991
10.25 Employment Agreement between Ronald Exhibit 10.16 to 1991 S-1
R. Dobbins and Registrant dated
March 15, 1991
10.26 Employment Agreement between Louis Exhibit 10.22 to Registrant's 1994 Form
J. Nicholas and Corporate 10-K
Healthcare Financing, Inc. dated
May 7, 1993
33
59
EXHIBIT DESCRIPTION OF DOCUMENT INCORPORATED HEREIN BY FILED
NUMBER REFERENCE TO HEREWITH
----------- ------------------------------------- -------------------------------------------- --------------
10.27 First Amendment to Form 10-Q for the Quarter Ended
Contingent Note Promissory Note March 31, 1996, filed May 14, 1996
between CHF-HPM Limited Partnership
and the Registrant
10.28 Acquisition of majority interest in Form 8-K filed April 19, 1996
OmniCare Health Plan, Inc. of
Tennessee and UltraMedix Healthcare
Systems, Inc.
10.29 Injured Workers' Insurance Fund Form 10-K/A filed October 14, 1996, as
Contract No. IWIF 9-96 Managed Care amended
Contract with Statutory Benefits
Management Corporation dated June
19, 1996
10.30 Ernst & Young LLP Report of Exhibit 10.30 to Registrant's 1998 Form
Independent Auditors as of June 10-K
30, 1996
10.31 Renaissance Center Office Lease Form 10-Q for the Quarter Ended September
between Renaissance Center Venture 30, 1996, filed November 13, 1996
and Registrant
10.32 Purchase Agreement between Form 10-Q for the Quarter Ended December
Statutory Benefits Management 31, 1996, filed February 10, 1997
Corporation and Spectera, Inc.
10.33 Agreement of Purchase and Sale of Form 10-K filed October 14, 1997
Stock, between CHF Acquisition,
Inc. and the Registrant dated
September 12, 1997
10.34 Ernst & Young LLP Report of Form 10-K filed October 14, 1997
Independent Auditors as of June 30,
1997
10.35 Amended and Restated Business Loan Form 10-Q for the Quarter Ended
Agreement between Michigan National March 31, 1998, filed May 15, 1998
Bank and Registrant dated March 12,
1998 (effective as of February 1,
1998)
34
60
EXHIBIT DESCRIPTION OF DOCUMENT INCORPORATED HEREIN BY FILED
NUMBER REFERENCE TO HEREWITH
----------- ------------------------------------- -------------------------------------------- --------------
10.36 Business Loan Agreement Addendum Form 10-Q for the Quarter Ended
between Michigan National Bank and March 31, 1998, filed May 15, 1998
Registrant dated March 12, 1998
(effective as of February 1, 1998)
10.37 Promissory Note from Registrant to Form 10-Q for the Quarter Ended
Michigan National Bank dated March March 31, 1998, filed May 15, 1998
12, 1998 (effective as of February
1, 1998)
10.38 Employment Agreement between Exhibit 10.38 to Registrant's 1998
Gregory H. Moses, Jr. and Form 10-K
Registrant dated May 11, 1998
10.39 Amendment dated as of June 30, 1998 Exhibit 10.39 to Registrant's 1998
to Lease Agreement between 1155 Form 10-K
Brewery Park Limited Partnership
and Registrant dated June 24, 1991
10.40 Termination of Lease between Exhibit 10.40 to Registrant's 1998
Renaissance Holdings, Inc. Form 10-K
(successor to Renaissance Center
Venture) and Registrant dated June
24, 1998
10.41 United American Healthcare Exhibit 10.41 to Registrant's 1998
Corporation 1998 Stock Option Plan Form 10-K
10.42 Stock Purchase Agreement among Exhibit 10.42 to Registrant's 1998
Registrant, CHFA, Inc. and Form 10-K
Corporate Healthcare Financing,
Inc. dated August 31, 1998
10.43 Secured Promissory Note from CHFA, Exhibit 10.43 to Registrant's 1998
Inc. to Registrant dated August 31, Form 10-K
1998
10.44 Unsecured Promissory Note from Exhibit 10.44 to Registrant's 1998
CHFA, Inc. to Registrant dated Form 10-K
August 31, 1998
35
61
EXHIBIT DESCRIPTION OF DOCUMENT INCORPORATED HEREIN BY FILED
NUMBER REFERENCE TO HEREWITH
----------- ------------------------------------- -------------------------------------------- --------------
10.45 Guaranty Agreement of Louis J. Exhibit 10.45 to Registrant's 1998
Nicholas dated August 31, 1998 Form 10-K
10.46 Pledge Agreement between CHFA, Inc. Exhibit 10.46 to Registrant's 1998
and Registrant dated August 31, 1998 Form 10-K
10.47 Amendment of Business Loan Exhibit 10.47 to Registrant's 1998
Agreement between Registrant and Form 10-K
Michigan National Bank dated
September 1, 1998
10.48 Promissory Note of Registrant to Exhibit 10.48 to Registrant's 1998
Michigan National Bank dated Form 10-K
September 1, 1998
10.49 Pledge Agreement from Registrant to Exhibit 10.49 to Registrant's 1998
Michigan National Bank dated Form 10-K
September 1, 1998
10.50 Promissory Note from Registrant to Form 10-Q for the Quarter Ended December
UAH Securities Litigation Fund 31, 1998, filed February 16, 1999
dated December 11, 1998
10.51 Amendment of Promissory Note and Exhibit 10.51 to Registrant's 1999
Business Loan Agreement from Form 10-K
Michigan National Bank dated May 6,
1999
10.52 Provider Contract between Urban Exhibit 10.52 to Registrant's 1999
Hospital Care Plus and Registrant Form 10-K
dated April 1, 1999
10.53 Assignment and Assumption of Exhibit 10.53 to Registrant's 1999
Subleases and Security Deposits Form 10-K
between International Business
Machines Corporation and Registrant
dated September 9, 1999
10.54 Business Loan Agreement between
Registrant and Michigan National
Bank dated September 25, 2000
36
62
EXHIBIT DESCRIPTION OF DOCUMENT INCORPORATED HEREIN BY FILED
NUMBER REFERENCE TO HEREWITH
----------- ------------------------------------- -------------------------------------------- --------------
10.55 Promissory Note of Registrant to
Michigan National Bank dated
September 25, 2000
10.56 Security Agreement between
Registrant and Michigan National
Bank dated September 25, 2000
16.1 Concurring Letter regarding change Form 8-K filed October 30, 1997
in Certifying Accountants dated
October 30, 1997, from Grant
Thornton LLP
16.2 Concurring Letter regarding change Form 8-K/A filed November 12, 1997
in Certifying Accountants dated
November 12, 1997, from Grant
Thornton LLP
16.3 Concurring Letter regarding change Form 8-K/A filed November 12, 1997
in Certifying Accountants dated
November 12, 1997, from Ernst &
Young LLP
16.4 Concurring Letter regarding change Form 8-K filed January 20, 1998
in Certifying Accountants dated
January 16, 1998, from Arthur
Andersen LLP
21 Subsidiaries of the Registrant *
99.1 Press Release dated January 12, 1998 Form 8-K filed January 20, 1998
99.2 Press Release dated January 6, 2000 Form 8-K filed January 14, 2000
37