Attached files
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EX-31.1 - EX-31.1 - UNITED AMERICAN HEALTHCARE CORP | k48568exv31w1.htm |
EX-32.1 - EX-32.1 - UNITED AMERICAN HEALTHCARE CORP | k48568exv32w1.htm |
EX-31.2 - EX-31.2 - UNITED AMERICAN HEALTHCARE CORP | k48568exv31w2.htm |
Table of Contents
United States
Securities and Exchange Commission
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
Or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-11638
United American Healthcare Corporation
(Exact name of registrant as specified in its charter)
Michigan | 38-2526913 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
300 River Place, Suite 4950
Detroit, Michigan 48207
Detroit, Michigan 48207
(Address of principal executive offices) (Zip code)
None
(Former name, former address and former fiscal year, if changed since last report)
Registrants telephone number, including area code: (313) 393-4571
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ.
The number of outstanding shares of registrants common stock as of November 10, 2009 is 8,137,903.
United American Healthcare Corporation
Form 10-Q
Table of Contents
Page | ||||||||
Part I. FINANCIAL INFORMATION | ||||||||
Item 1. | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
Item 2. | 12 | |||||||
Item 4T. | 16 | |||||||
Part II. OTHER INFORMATION | ||||||||
Item 1. | 17 | |||||||
Item 1A. | 17 | |||||||
Item 2. | 17 | |||||||
Item 5. | 18 | |||||||
Item 6. | 19 | |||||||
Signatures | 20 | |||||||
Exhibits | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 |
1
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
United American Healthcare Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, | ||||||||
2009 | June 30, | |||||||
(Unaudited) | 2009 | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 9,747 | $ | 13,100 | ||||
Marketable securities |
3,922 | 4,475 | ||||||
Accounts receivable State of Tennessee, net |
12 | 39 | ||||||
Interest receivable |
57 | 42 | ||||||
Other receivables |
708 | 1,377 | ||||||
Prepaid expenses and other |
135 | 215 | ||||||
Total current assets |
14,581 | 19,248 | ||||||
Property and equipment, net |
94 | 134 | ||||||
Marketable securities restricted |
2,370 | 2,370 | ||||||
Other assets |
486 | 486 | ||||||
Total assets |
$ | 17,531 | $ | 22,238 | ||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities |
||||||||
Medical claims payable |
$ | 1,872 | $ | 2,160 | ||||
Accounts payable and accrued expenses |
1,747 | 1,228 | ||||||
Reserve for legal settlement |
| 3,250 | ||||||
Accrued compensation and related benefits |
231 | 388 | ||||||
Other current liabilities |
13 | 57 | ||||||
Total current liabilities |
3,863 | 7,083 | ||||||
Total liabilities |
3,863 | 7,083 | ||||||
Commitments and contingencies |
||||||||
Shareholders equity |
||||||||
Preferred stock, 5,000,000 shares authorized; none issued. |
| | ||||||
Common stock, no par, 15,000,000 shares authorized;
8,137,903 issued and outstanding at both September 30,
2009 and June 30, 2009 |
17,684 | 17,684 | ||||||
Additional paid in capital stock options |
1,551 | 1,480 | ||||||
Additional paid in capital warrants |
444 | 444 | ||||||
Accumulated deficit |
(6,007 | ) | (4,444 | ) | ||||
Accumulated other comprehensive loss, net of tax |
(4 | ) | (9 | ) | ||||
Total shareholders equity |
13,668 | 15,155 | ||||||
Total liabilities and shareholders equity |
$ | 17,531 | $ | 22,238 | ||||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
2
Table of Contents
United American Healthcare Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
Three Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Revenue |
||||||||
Fixed administrative fees |
$ | | $ | 3,423 | ||||
Medical premiums |
1,760 | 2,862 | ||||||
Total revenue |
1,760 | 6,285 | ||||||
Expenses |
||||||||
Medical expenses |
1,729 | 2,523 | ||||||
Marketing, general and administrative |
1,594 | 3,639 | ||||||
Depreciation and amortization |
40 | 61 | ||||||
Total expenses |
3,363 | 6,223 | ||||||
Operating income (loss) |
(1,603 | ) | 62 | |||||
Interest and other income |
40 | 208 | ||||||
Income (loss) before income taxes |
(1,563 | ) | 270 | |||||
Income tax expense |
| 80 | ||||||
Net earnings (loss) |
$ | (1,563 | ) | $ | 190 | |||
Net earnings (loss) per common share basic |
||||||||
Net earnings (loss) per common share |
$ | (0.19 | ) | $ | 0.02 | |||
Weighted average shares outstanding |
8,138 | 8,734 | ||||||
Net earnings (loss) per common share diluted |
||||||||
Net earnings (loss) per common share |
$ | (0.19 | ) | $ | 0.02 | |||
Weighted average shares outstanding |
8,138 | 8,753 | ||||||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
3
Table of Contents
United American Healthcare Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Three Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Operating activities |
||||||||
Net earnings (loss) |
$ | (1,563 | ) | $ | 190 | |||
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities: |
||||||||
Depreciation and amortization |
40 | 61 | ||||||
Stock-based compensation |
71 | 99 | ||||||
Net changes in other operating assets and liabilities |
(2,459 | ) | (579 | ) | ||||
Net cash used in operating activities |
(3,911 | ) | (229 | ) | ||||
Investing activities |
||||||||
Proceeds from sale of marketable securities |
608 | 9,925 | ||||||
Purchase of marketable securities |
(50 | ) | (10,328 | ) | ||||
Net cash provided by (used in) investing activities |
558 | (403 | ) | |||||
Financing activities |
| | ||||||
Net decrease in cash and cash equivalents |
(3,353 | ) | (632 | ) | ||||
Cash and cash equivalents at beginning of period |
13,100 | 10,713 | ||||||
Cash and cash equivalents at end of period |
$ | 9,747 | $ | 10,081 | ||||
Supplemental disclosure of cash flow information |
||||||||
Income taxes paid |
$ | | $ | 38 | ||||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
4
Table of Contents
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
NOTE 1 BASIS OF PREPARATION
The accompanying unaudited condensed consolidated financial statements include the accounts
of United American Healthcare Corporation, a Michigan corporation, and its wholly and
majority-owned subsidiaries (together referred to as the Company, we, us, or our).
All significant intercompany transactions and balances have been eliminated in
consolidation.
In June 2009, the Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) 105, Generally Accepted Accounting Priniciples (GAAP),
which establishes the ASC as the sole source of authoritative generally accepted accounting
principles. Pursuant to the provisions of ASC 105, the Company has updated references to
GAAP in its unaudited condensed consolidated financial statements for the three months
ended September 30, 2009. The adoption of ASC 105 did not impact the Companys financial
position or results of operations. The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in conformity with GAAP and with the
instructions for Form 10-Q and Article 10 of Regulation S-X as they apply to interim
financial information. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the financial position, results of
operations and cash flows have been included. The results of operations for the three
months ended September 30, 2009 are not necessarily indicative of the results of operations
expected for the full fiscal year ended June 30, 2010 (fiscal 2010) or for any other
period. The accompanying interim unaudited condensed consolidated financial statements
should be read in conjunction with our annual consolidated financial statements contained
in our most recent annual report on Form 10-K filed with the Securities and Exchange
Commission (SEC) on September 24, 2009.
NOTE 2 COMPREHENSIVE EARNINGS (LOSS)
The components of comprehensive earnings (loss), net of related tax, are summarized as follows (in
thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Net earnings (loss) |
$ | (1,563 | ) | $ | 190 | |||
Unrealized holding gains, net of tax |
5 | 32 | ||||||
Comprehensive earnings (loss) |
$ | (1,558 | ) | $ | 222 | |||
5
Table of Contents
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
NOTE 3 NET EARNINGS (LOSS) PER COMMON SHARE
Basic net earnings (loss) per share excluding dilution has been computed by dividing net earnings
(loss) by the weighted average number of common shares outstanding for the period. Diluted earnings
(loss) per share are computed using the treasury stock method for outstanding stock options and
warrants. For the three months ended September 30, 2009, the Company incurred a net loss.
Accordingly, no common stock equivalents for outstanding stock options and warrants have been
included in the computation of diluted loss per share for such period as the impact would be
anti-dilutive. For the three months ended September 30, 2008, common stock equivalents for 955,697
stock options and warrants were excluded from the computation of diluted earnings per share because
the exercise prices of the equity securities were higher than the average price of the Companys
common stock for the period.
NOTE 4 INCOME TAXES
In accordance with GAAP, the Company periodically assesses whether valuation allowances against its
deferred tax assets are adequate based on the consideration of all available evidence. The
Companys effective tax rate for the three months ended September 30, 2009 is zero percent (0%) and
differs from the statutory rate of 34%. The difference is primarily related to an increase in the
valuation allowance against the future tax benefit of the current period losses as the Company does
not believe that the realization of the benefit is more likely than not.
The Company recognizes the impact of a tax position if that position is more likely than not of
being sustained on audit, based on the technical merits of the position. The Company had no
unrecognized tax benefits as of September 30, 2009. The Company expects no significant increases or
decreases in unrecognized tax benefits due to changes in tax positions within one year of September
30, 2009. The Company has no interest or penalties relating to income taxes recognized in the
condensed consolidated statement of operations for the three months ended September 30, 2009 or in
the condensed consolidated balance sheet as of September 30, 2009.
6
Table of Contents
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
NOTE 5 TENNESSEE OPERATIONS
The Companys indirect, wholly owned subsidiary, UAHC Health Plan of Tennessee, Inc.
(UAHC-TN), was for many consecutive years a managed care organization in the
TennCare program, a State of Tennessee program that provided medical benefits to Medicaid and
working uninsured recipients. On April 22, 2008, the Company learned that UAHC-TN would
no longer be authorized to provide managed care services as a TennCare contractor when its present
TennCare contract expired on June 30, 2009. On November 1, 2008, UAHC-TNs TennCare
members transferred to other managed care organizations, after which UAHC-TN continued to perform
its remaining contractual obligations through its TennCare contract expiration date of June 30,
2009. However, revenue under this contract was only earned through October 31, 2008. Revenue
under this contract represented 0% and 54% of the Companys total revenue for the three months
ended September 30, 2009 and 2008, respectively.
On October 10, 2006, UAHC-TN entered into a contract with the Centers for Medicare & Medicaid
Services (CMS) to act as a Medicare Advantage qualified organization. The contract authorizes
UAHC-TN to serve members enrolled in both the Tennessee Medicaid and Medicare programs, commonly
referred to as dual-eligibles, specifically to offer a Special Needs Plan to its eligible members
in Shelby County, Tennessee (including the City of Memphis), and to operate a Voluntary Medicare
Prescription Drug Plan, both beginning January 1, 2007. The contract term is through December 31,
2009. The Company will not seek renewal of this contract. As of November 3, 2009, there were approximately 449
enrollees in UAHC-TNs Medicare Advantage Special Needs Plan.
The Company recognizes a liability for certain costs associated with an exit or disposal activity
and measures the liability initially at its fair value in the period in which the liability is
incurred. The costs to be recognized include employee termination benefits, lease termination and
costs to relocate the Companys facility. The following table summarizes certain exit costs
resulting from the TennCare contract expiration and the pending expiration of the CMS contract (in
thousands):
Balance at | Expense/ | Balance at | ||||||||||||||
Item | July 1, 2009 | Adj.* | Payments | September 30, 2009 | ||||||||||||
Workforce reduction |
$ | 142 | $ | (21 | ) | $ | (53 | ) | $ | 68 | ||||||
Lease abandonment, net |
17 | | (3 | ) | 14 | |||||||||||
Total |
$ | 159 | $ | (21 | ) | $ | (56 | ) | $ | 82 | ||||||
* | Amount includes forfeited employee retention benefits. |
7
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
The
cumulative expense incurred to date was $0.8 million. These
expenses are included in the marketing,
general and administrative expense in our statement of operations.
Approximately $0.1 million of this expense related to the
Management Companies and $0.7 million related to the HMO & Managed Plan. In
connection with the termination of the TennCare contract and the pending expiration of the CMS
contract, the Company reduced its workforce, subleased its leased Tennessee facility to a third
party effective April 2009 and ending December 31, 2010, and relocated the Tennessee office. The
discontinuance of the TennCare contract and the pending expiration of the CMS contract has had a
material adverse impact on the Companys operations and financial statements.
NOTE 6 STOCK OPTION PLANS
The Company recognizes the compensation cost relating to share-based payment transactions in the
Companys financial statements. That cost is measured based on the fair value of the equity
instruments issued on the date of grant. The Company recorded stock-based compensation expense
$0.1 million for the three months ended September 30, 2009 and 2008, respectively.
NOTE 7 FAIR VALUE
The Companys unaudited condensed consolidated balance sheets include the following financial
instruments: cash and cash equivalents, investments, receivables, accounts payable, medical claims
and benefits payable, and other liabilities. The Company considers the carrying amounts of cash and
cash equivalents, receivables, other current assets and current liabilities to approximate their
fair value because of the relatively short period of time between the origination of these
instruments and their expected realization or payment.
To prioritize the inputs the Company uses in measuring fair value, the Company applies a three-tier
fair value hierarchy. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, reflects managements best estimate
of what market participants would use in pricing the asset or liability at the measurement date.
Consideration was given to the risk inherent in the valuation technique and the risk inherent in
the inputs to the mode. Determining which hierarchical level an asset or liability falls within
requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The
following table summarizes the financial instruments measured at fair value in the Condensed
Consolidated Balance Sheet as of September 30, 2009:
8
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Fair Value Measurements | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
||||||||||||||||
Marketable Securities-short-term |
$ | 3,922 | $ | | $ | | $ | 3,922 | ||||||||
Marketable Securities- long-term |
$ | 2,370 | $ | | $ | | $ | 2,370 |
The Company classified its short-term marketable securities as available-for-sale which are
reported at fair market value. Unrealized gains and losses, to the extent such gains and losses
are considered temporary in nature, are included in accumulated other comprehensive income (loss),
net of applicable taxes. At such time as the decline in fair market value and the related
unrealized loss is determined to be a result of impairment of the underlying instrument, the loss
is recorded as a charge to earnings. Fair values for marketable securities are based upon market
prices.
NOTE 8 ACCRUED COMPENSATION AND RELATED BENEFITS
The Company has a retention and severance agreement with the Companys Chief Executive Officer,
William C. Brooks, to incentivize his continued service to the Company. This agreement was dated
and effective as of October 31, 2008, the date on which the agreement was approved by the Companys
board of directors. As of September 30, 2009, the Company had accrued $0.07 million related to such
executive retention and severance agreement. The Company has a potential remaining liability of
$0.2 million related to such agreements.
NOTE 9
LEGAL SETTLEMENT
The Company was a defendant with others in a lawsuit that commenced in February 2005 in the Circuit
Court for the 30th Judicial Circuit, in the County of Ingham, Michigan, Case No. 05127CK, entitled
Provider Creditors Committee on behalf of Michigan Health Maintenance Organizations Plans, Inc. v.
United American Healthcare Corporation and others, et al. On September 22, 2009, the Company
settled this litigation for $3.3 million and all claims have been dismissed against the Company and
the individuals. The Company expects to recover $0.2 million through insurance. In the fourth
quarter of fiscal 2009, the Company recorded a provision for this legal settlement of $3.1 million,
which is net of the insurance reimbursement of $0.2 million in the fiscal year 2009 statement of
operations. As of September 30, 2009, the related liability of $3.3 million was paid in full.
9
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
NOTE 10 UNAUDITED SEGMENT FINANCIAL INFORMATION
Summarized financial information for the Companys principal operations, as of and for the three
months ended September 30, 2009 and 2008, is as follows (in thousands):
Management | HMO & | Corporate & | Consolidated | |||||||||||||
Companies (1) | Managed Plan (2) | Eliminations | Company | |||||||||||||
Three Months Ended
September 30, 2009 |
||||||||||||||||
Revenue external customers |
$ | | $ | 1,760 | $ | | $ | 1,760 | ||||||||
Revenue intersegment |
263 | | (263 | ) | | |||||||||||
Total revenue |
$ | 263 | $ | 1,760 | $ | (263 | ) | $ | 1,760 | |||||||
Loss from operations |
$ | (1,336 | ) | $ | (227 | ) | $ | | $ | (1,563 | ) | |||||
Depreciation and amortization |
40 | | | 40 | ||||||||||||
As of September 30, 2009 |
||||||||||||||||
Segment assets |
$ | 41,007 | $ | 12,416 | $ | (35,892 | ) | $ | 17,531 | |||||||
Three Months Ended
September 30, 2008 |
||||||||||||||||
Revenue external customers |
$ | | $ | 6,285 | $ | | $ | 6,285 | ||||||||
Revenue intersegment |
3,261 | | (3,261 | ) | | |||||||||||
Total revenue |
$ | 3,261 | $ | 6,285 | $ | (3,261 | ) | $ | 6,285 | |||||||
Earnings (loss) from operations |
$ | 922 | $ | (732 | ) | $ | | $ | 190 | |||||||
Depreciation and amortization |
61 | | | 61 | ||||||||||||
As of September 30, 2008 |
||||||||||||||||
Segment assets |
$ | 62,286 | $ | 20,595 | $ | (52,722 | ) | $ | 30,159 | |||||||
(1) | Management Companies: United American Healthcare Corporation and United American of Tennessee, Inc. | |
(2) | HMO & Managed Plan: UAHC Health Plan of Tennessee, Inc. |
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
NOTE 11 RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
The following are new accounting standards and interpretations that may be applicable in the future
to the Company:
On August 28, 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, Measuring
Liabilities at Fair Value (ASU 2009-05). ASU 2009-05 provides additional guidance clarifying the
measurement of liabilities at fair value. This update is effective for
the Company starting in the second quarter of fiscal 2010. The Company is currently evaluating the impact of
ASU 2009-05 on its financial position, results of operations, cash flows, and disclosures.
NOTE 12 SHARE REPURCHASE PROGRAM
On November 25, 2008, the Companys board of directors approved a share repurchase program,
authorizing the Company to repurchase up to $1.0 million of the Companys outstanding common stock.
As of September 30, 2009, the Company had repurchased a total of 670,795 shares at an average
price of $1.46 per share under the share repurchase program for a
total of $981,370. Subsequent to September 30, 2009, there was no
additional activity. Effective,
November 13, 2009, the board of directors discontinued the share repurchase program.
NOTE 13 SUBSEQUENT EVENT
In accordance with GAAP, the Company has performed a review of events subsequent to the balance
sheet date through November 16, 2009, the date that the financial statements were issued.
11
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The following Managements Discussion and Analysis of Financial Condition and Results of Operations
and other sections of this report contains various forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or
beliefs concerning future events, including statements regarding future plans and strategy for our
business, earnings and the sufficiency of our cash balances and cash generated from operating,
investing, and financing activities for our future liquidity and capital resource needs. We caution
that although forward-looking statements reflect our good faith beliefs and reasonable judgment
based upon current information, these statements are qualified by important factors that could
cause actual results to differ materially from those in the forward-looking statements, because of
risks, uncertainties, and factors including, but not limited, to: the ongoing impact of the U.S.
recession, the termination of the TennCare contract, the wind-down of the CMS contract, the review
of strategic alternatives, the ongoing impact of the global credit and financial crisis and other
changes in general economic conditions, and adverse changes in the health care industry. Other
risks and uncertainties are detailed from time to time in reports filed with the SEC, and in
particular those set forth under Risk Factors in our Annual Report on Form 10-K for fiscal 2009.
Given such uncertainties, you should not place undue reliance on any such forward-looking
statements. Except as required by law, we may not update these forward-looking statements, even if
new information becomes available in the future.
Overview
We intend for the following discussion and analysis regarding the Companys results of operations,
financial position and liquidity to provide you with information that will assist you in
understanding our condensed consolidated financial statements. This discussion and analysis should
be read in conjunction with our condensed consolidated financial statements and related notes
contained in this quarterly report.
The Company provides comprehensive management and consulting services to UAHC Health Plan of
Tennessee, Inc. (UAHC-TN), a managed care organization (MCO) which is a wholly-owned,
second-tier subsidiary of United American Healthcare Corporation. From November 1993 to June 30,
2009, UAHC-TN had a contract with the State of Tennessee, Bureau of TennCare (TennCare), to
arrange for the financing and delivery of healthcare services on a capitated basis to eligible
Medicaid beneficiaries and non-Medicaid
individuals who lack access to private or employer sponsored health insurance or to another
government health plan.
On November 1, 2008, UAHC-TNs TennCare members transferred to other managed care organizations,
after which UAHC-TN continued to perform its remaining contractual
12
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
obligations through its TennCare contract expiration date of June 30, 2009. Revenue under this
contract represented 0% and 54% of the Companys total revenue for the three months ended September
30, 2009 and 2008, respectively. The discontinuance of the TennCare contract has had a material
adverse impact on the Companys operations and financial statements. As of September 30, 2009,
there were no TennCare enrollees in UAHC-TN.
On October 10, 2006, UAHC-TN entered into a contract with the Centers for Medicare & Medicaid
Services (CMS) to act as a Medicare Advantage qualified organization. The contract authorizes
UAHC-TN to serve members enrolled in both the Tennessee Medicaid and Medicare programs, commonly
referred to as dual-eligibles, specifically to offer a Special Needs Plan to its eligible members
in Shelby County, Tennessee (including the City of Memphis), and to operate a Voluntary Medicare
Prescription Drug Plan, both beginning January 1, 2007. The contract term is through December 31,
2009. The Company will not seek renewal of this contract. As of November 3, 2009 there were
approximately 449 enrollees in UAHC-TNs Medicare Advantage Special Needs Plan (our MA-SNP).
The total number of employees of the Company at September 30, 2009 was 12 compared to 41 at
September 30, 2008. The termination of the TennCare contract has resulted in a substantial decrease
in the total number of employees, and management expects a further substantial decrease by the CMS
contracts December 31, 2009 expiration date.
Due to the expiration of the TennCare contract and the impending expiration of the CMS contract,
our board of directors and management have been engaged in a review of a variety of long-term
strategic alternatives with the objective of pursuing a strategic alternative that satisfies three
primary objectives: providing significant revenues; providing immediate positive EBITDA; and
having long-term growth opportunities. During this review, all feasible options are being
considered, including pursuing a joint venture or other strategic partnership, completing a
strategic acquisition or merger, or liquidating our assets. Further, it is important to note that
the exploration of strategic alternatives includes all industries that satisfy the three primary
objectives, not solely the healthcare industry.
Since 2005, the Company had been a defendant in a lawsuit as described in Note 9 to the unaudited
condensed consolidated financial statements. In September 2009, the lawsuit was settled and paid
for $3.3 million. The settlement is offset by an expected insurance recovery of $0.2 million.
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Operating Results
For the Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30,
2008
Total revenue decreased $4.5 million (72%) to $1.8 million for the three months ended September 30,
2009, compared to $6.3 million for the three months ended September 30, 2008. The decrease was
principally due to the discontinuance of its managed care services as a TennCare contractor, as
described in the overview to this section and in Note 5 to our Unaudited Condensed Consolidated
Financial Statements. In addition, the decrease is also attributable to the decrease in MA-SNP
revenue resulting from the decrease in MA-SNP enrollees.
Total fixed administrative fees decreased by $3.4 million (100%) to $0 for the three months ended
September 30, 2009 compared to the three months ended September 30, 2008. The decrease is due to
the discontinuance of the TennCare contract.
Our MA-SNP medical premiums revenue was $1.8 million for the three months ended September 30, 2009
compared to $2.9 million for the three months ended September 30, 2008. The decrease of $1.1
million (39%) is attributable to the decrease in our MA-SNP enrollees.
Our MA-SNP per member per month premium rate for the three months ended September 30, 2009 was
$1,152 compared to $1,216 for the three months ended September 30, 2008.
Total expenses decreased $2.9 million (46%) to $3.3 million for the three months ended September
30, 2009 as compared to $6.2 million for the three months ended September 30, 2008. The decrease
in total expenses was primarily the result of a decrease in marketing, general and administrative
expenses and medical expenses.
Medical expenses for our MA-SNP decreased $0.8 million (31%) to $1.7 million for the three months
ended September 30, 2009 compared to $2.5 million for the three months ended September 30, 2008.
The decrease in medical expenses is primarily attributable to the decrease in MA-SNP enrollees
offset by an increase in outpatient claims. The ratio of such medical expenses to medical premiums
revenue for our MA-SNP, expressed as a percentage the medical
loss ratio was 92.4% for the
three months ended September 30, 2009 compared to 88.1% for the three months ended September 30,
2008.
Marketing, general and administrative expenses decreased $2.0 million (56%) to $1.6 million for the
three months ended September 30, 2009 from $3.6 million for the three months ended
September 30, 2008. The decrease was principally due to reductions in labor costs, adminstrative
costs and professional services expenses partially offset by increased legal fees resulting from
the litigation described in Note 9 to our Unaudited Condensed Consolidated Financial Statements.
There was no income tax expense for the three months ended September 30, 2009 compared to income
tax expense of $0.08 million for the three months ended September 30, 2008. The
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Companys effective tax rate for the three months ended September 30, 2009 differs from the
statutory rate of 34%. This difference is primarily related to an increase in the valuation
allowance against the future tax benefit of the current period losses as the Company does not
believe that the realization of the benefit is more likely than not.
Depreciation and amortization expense was $0.04 million for the three months ended September 30,
2009, a decrease from $0.06 million for the three months ended September 30, 2008.
Loss before income taxes was $1.6 million for the quarter ended September 30, 2009 compared to
income before income taxes of $0.3 million for the quarter ended September 30, 2008.
Net loss was $1.6 million, or ($0.19) per basic share, for the quarter ended September 30, 2009,
compared to net earnings of $0.2 million, or $0.02 per basic share, for the quarter ended September
30, 2008.
Liquidity and Capital Resources
Capital resources, which for us is primarily cash from operations, are required to maintain our
current operations and other commitments and contingencies. Capital resources may also be used for
strategic alternatives which may include merger and/or acquisitions. We have no indebtedness as of
September 30, 2009.
As described in the overview to this section and Note 5 to our Unaudited Condensed Consolidated
Financial Statements in Part I, Item 1, the Company ceased providing managed care services as a
TennCare contractor on June 30, 2009. The discontinuance of the TennCare contract has had a
material adverse impact on the Companys operations and financial statments. In addition, the CMS
contract term is through December 31, 2009. The Company will not seek renewal of this contract.
The discontinuance of the CMS contract has had and will continue to have a material adverse impact
on the Companys operations and financial statements.
At September 30, 2009, the Company had (i) cash and cash equivalents and short-term marketable
securities of $13.7 million, compared to $17.6 million at June 30, 2009; (ii)
working capital of $10.7 million, compared to working capital of $12.2 million at June 30, 2009;
and (iii) a current assets-to-current liabilities ratio of 3.77-to-1, compared to 2.72-to-1 at June
30, 2009.
The Companys ability to maintain adequate amounts of cash to meet its future cash needs depends on
a number of factors, particularly including its ability to control administrative costs related to
the CMS contract, and controlling corporate overhead costs. On the basis of the matters discussed
above, management believes at this time that the Company has the sufficient cash to adequately
support its financial requirements through the next twelve months, and maintain minimum statutory
net worth requirements of UAHC-TN.
Net cash used in operating activities of $3.9 million in the three months ended September 30, 2009
was primarily due to the $3.3 million litigation settlement. (See Note 9 to our
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Unaudited Condensed Consolidated Financial Statements.) Medical claims payable decreased by $0.3
million at September 30, 2009 compared to June 30, 2009. The decrease in primarily due to a
decrease in members as of September 30, 2009 compared to June 30, 2009. Accounts payable and
accrued expenses increased by $0.6 million at September 30, 2009 compared to June 30, 2009,
principally due to the increased legal fees related to litigation.
Net cash provided by investing activities of $0.55 million was primarily due to cash proceeds from
the maturity of marketable securities of $0.60 million which was partially offset by cash purchases
of marketable securities of $0.05 million.
Decrease in cash was $3.4 million for the three months ended September 30, 2009, compared to
decrease in cash of $0.6 million for the comparable period a year earlier. The decrease in cash
was principally due to $3.3 million litigation settlement as described in Note 9 to our Unaudited
Condensed Consolidated Financial Statements in Part I, Item 1.
The Companys subsidiary, UAHC-TN, had a required minimum net worth requirement using statutory
accounting practices of $7.2 million at September 30, 2009. UAHC-TN had excess statutory net worth
of approximately $1.1 million at September 30, 2009.
Item 4T. Controls and Procedures
Under the supervision and with the participation of our management, including our principal
executive and principal financial officers, we have evaluated the effectiveness of our disclosure
controls and procedures as of September 30, 2009. Based upon that evaluation, our principal
executive and principal financial officers have concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this report to
provide reasonable assurance that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934, as amended (Exchange
Act), is recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms and is accumulated and communicated to our management, including our
principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure.
There was no change in our internal control over financial reporting during our fiscal quarter
ended September 30, 2009 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company was a defendant with others in a lawsuit that commenced in February 2005 in the Circuit
Court for the 30th Judicial Circuit, in the County of Ingham, Michigan, Case No. 05127CK, entitled
Provider Creditors Committee on behalf of Michigan Health Maintenance Organizations Plans, Inc. v.
United American Healthcare Corporation and others, et al. On September 22, 2009, the Company
settled this litigation for $3.3 million and all claims have been dismissed against the Company and
the individuals. See Note 9 to the Unaudited Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
Except as set forth below, there are no material changes to the risk factors previously disclosed
in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30,
2009. You should carefully consider the risks and uncertainties we describe in such report and in
other reports filed or furnished thereafter with the SEC before deciding to invest in or retain
shares of our common stock. If any of these risks or uncertainties actually occurs, our business,
financial condition, operating results or liquidity could be materially and adversely affected.
We have been notified that we currently fail to satisfy the continued listing standards of the
NASDAQ Capital Market. If we do not regain compliance within the requisite time periods, NASDAQ
will delist us from the NASDAQ Capital Market.
On November 12, 2009, we received a letter from The NASDAQ Stock Market advising that, for the
previous 30 consecutive business days, the closing bid price of our common stock was below the
minimum $1.00 per share requirement for continued listing on The NASDAQ Capital Market. We have a
grace period of 180 calendar days, or until May 11, 2010, in which to regain compliance. We will
regain compliance if at any time before May 11, 2010, the bid price of our common stock closes at
$1.00 per share or more for a minimum of 10 consecutive business days. We also may be eligible for
an additional 180-calendar day grace period if we satisfy the initial listing standards, with the
exception of bid price, for The NASDAQ Capital Market. If we do not regain compliance within the
required period, NASDAQ will provide us with written notification that our common stock is subject
to delisting.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 25, 2008, the Companys board of directors approved a share repurchase program,
authorizing the Company to repurchase up to $1.0 million of the Companys outstanding common stock.
As of September 30, 2009, the Company had repurchased a total of 670,795 shares at an average
price of $1.46 per share under the share repurchase program for a total of $981,370. There were no
repurchases during the three months ended September 30, 2009. Effective, November 13, 2009, the
board of directors discontinued the share repurchase program.
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United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2009 and 2008
Item 5. Other Information
On November 12, 2009, we received a letter from The NASDAQ Stock Market advising that, for the
previous 30 consecutive business days, the closing bid price of our common stock was below the
minimum $1.00 per share requirement for continued listing on The NASDAQ Capital Market. This
notification has no effect at this time on the listing of our common stock, which will continue to
trade on The NASDAQ Capital Market under the symbol UAHC.
We have a grace period of 180 calendar days, or until May 11, 2010, in which to regain compliance.
We will regain compliance if at any time before May 11, 2010, the bid price of our common stock
closes at $1.00 per share or more for a minimum of 10 consecutive business days. We also may be
eligible for an additional 180-calendar day grace period if we satisfy the initial listing
standards, with the exception of bid price, for The NASDAQ Capital Market. If we do not regain
compliance within the required period, NASDAQ will provide us with written notification that our
common stock is subject to delisting, which is subject to appeal and hearing.
We intend to actively monitor the bid price for our common stock and will consider available
options to resolve the deficiency and regain compliance with the
foregoing listing standards.
Effective
November 13, 2009, Stephen D. Harris resigned as Treasurer of the Company. On November
13, 2009, the board of directors appointed Anita R. Davis as Treasurer of the Company.
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Item 6. Exhibits
10.1
|
Employment Agreement, dated August 28, 2009, by and between the Company and Anita R. Davis, incorporated herein by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed August 31, 2009. | |
10.2
|
Summary of Director Compensation, incorporated herein by reference to Exhibit 10.1 to the Companys Annual Report on Form 10-K filed September 24, 2009. | |
31.1*
|
Certifications of Chief Executive Officer pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2*
|
Certifications of Chief Financial Officer pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1*
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
United American Healthcare Corporation |
||||
Dated: November 16, 2009 | By: | /s/ William C. Brooks | ||
William C. Brooks | ||||
President & Chief Executive Officer | ||||
Dated: November 16, 2009 | By: | /s/ Anita R. Davis | ||
Anita R. Davis | ||||
Chief Financial Officer & Treasurer | ||||
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