e10vq
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2009
Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from
to
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Commission File Number: 001-11638
United American Healthcare Corporation
(Exact name of registrant as specified in its charter)
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Michigan
(State or other jurisdiction of
incorporation or organization)
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38-2526913
(I.R.S. Employer Identification No.) |
300 River Place, Suite 4950
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
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):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Small 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 February 12, 2010 is 8,137,903.
United American Healthcare Corporation
Form 10-Q
Table of Contents
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
United American Healthcare Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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December 31, |
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June 30, |
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2009 |
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2009 |
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(Unaudited) |
Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
11,837 |
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$ |
13,100 |
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Marketable securities |
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4,475 |
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Accounts receivable State of Tennessee, net |
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358 |
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39 |
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Other receivables |
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267 |
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1,419 |
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Prepaid expenses and other |
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127 |
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215 |
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Total current assets |
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12,589 |
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19,248 |
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Property and equipment, net |
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54 |
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134 |
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Marketable securities restricted |
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2,370 |
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2,370 |
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Other assets |
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486 |
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486 |
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Total assets |
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$ |
15,499 |
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$ |
22,238 |
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Liabilities and Shareholders Equity |
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Current liabilities |
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Medical claims payable |
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$ |
1,591 |
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$ |
2,160 |
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Accounts payable and accrued expenses |
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1,043 |
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1,228 |
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Accrual for legal settlement |
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3,250 |
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Accrued compensation and related benefits |
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297 |
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388 |
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Other current liabilities |
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15 |
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57 |
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Total current liabilities |
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2,946 |
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7,083 |
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Total liabilities |
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2,946 |
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7,083 |
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Commitments and contingencies |
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Shareholders equity |
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Preferred stock, 5,000,000 shares authorized; none issued. |
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Common stock, no par, 15,000,000 shares authorized
8,137,903 issued and outstanding at both December 31,
2009 and June 30, 2009 |
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17,684 |
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17,684 |
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Additional paid in capital stock options |
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1,617 |
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1,480 |
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Additional paid in capital warrants |
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444 |
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444 |
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Accumulated deficit |
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(7,134 |
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(4,444 |
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Accumulated other comprehensive loss, net of tax |
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(58 |
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(9 |
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Total shareholders equity |
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12,553 |
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15,155 |
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Total liabilities and shareholders equity |
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$ |
15,499 |
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$ |
22,238 |
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See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
2
United American Healthcare Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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December 31, |
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December 31, |
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2009 |
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2008 |
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2009 |
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2008 |
Revenues |
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Fixed administrative fees |
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$ |
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$ |
1,173 |
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$ |
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$ |
4,596 |
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Variable administrative fees |
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345 |
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944 |
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345 |
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944 |
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Medical premiums |
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1,356 |
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2,395 |
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3,116 |
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5,257 |
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Total revenues |
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1,701 |
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4,512 |
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3,461 |
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10,797 |
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Expenses |
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Medical expenses |
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1,300 |
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2,267 |
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3,029 |
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4,790 |
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Marketing, general and administrative |
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1,524 |
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3,692 |
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3,118 |
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7,331 |
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Depreciation and amortization |
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40 |
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56 |
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80 |
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117 |
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Loss on disposal of fixed assets |
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135 |
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135 |
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Total expenses |
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2,864 |
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6,150 |
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6,227 |
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12,373 |
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Operating loss |
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(1,163 |
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(1,638 |
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(2,766 |
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(1,576 |
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Interest and other income |
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36 |
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274 |
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76 |
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482 |
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Loss before income tax |
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(1,127 |
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(1,364 |
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(2,690 |
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(1,094 |
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Income tax expense |
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80 |
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Net loss |
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$ |
(1,127 |
) |
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$ |
(1,364) |
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$ |
(2,690 |
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$ |
(1,174 |
) |
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Net loss per common share basic and diluted |
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Net loss per common share |
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$ |
(0.14 |
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$ |
(0.16 |
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$ |
(0.33 |
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$ |
(0.13 |
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Weighted average shares outstanding |
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8,138 |
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8,728 |
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8,138 |
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8,731 |
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See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
3
United American Healthcare Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
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Six Months Ended |
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December 31, |
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2009 |
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2008 |
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Operating activities |
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Net loss |
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$ |
(2,690 |
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$ |
(1,174 |
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Adjustments to reconcile net loss to net cash
used in operating activities: |
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Depreciation and amortization |
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80 |
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117 |
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Loss on disposal of fixed assets |
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135 |
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Stock-based compensation |
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137 |
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181 |
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Net changes in other operating assets and liabilities |
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(3,216 |
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(2,038 |
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Net cash used in operating activities |
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(5,689 |
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(2,779 |
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Investing activities |
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Proceeds from sale of marketable securities |
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6,850 |
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16,412 |
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Purchase of marketable securities |
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(2,424 |
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(18,271 |
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Purchase of property and equipment |
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(3 |
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Proceeds from sale of property and equipment |
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12 |
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Net cash provided by (used in) investing activities |
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4,426 |
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(1,850 |
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Financing activities |
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Purchase of treasury stock |
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(59 |
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Net cash used in financing activities |
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(59 |
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Net decrease in cash and cash equivalents |
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(1,263 |
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(4,688 |
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Cash and cash equivalents at beginning of period |
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13,100 |
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10,713 |
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Cash and cash equivalents at end of period |
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$ |
11,837 |
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$ |
6,025 |
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Supplemental disclosure of cash flow information |
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Income taxes paid |
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$ |
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$ |
128 |
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See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
4
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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.
The accompanying unaudited condensed consolidated financial statements of the Company have
been prepared in conformity with U.S. generally accepted accounting principles (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 and
six months ended December 31, 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.
Reclassifications were made to the prior period balance sheet in order to conform with the
December 31, 2009 presentation.
NOTE 2 COMPREHENSIVE LOSS
The components of comprehensive loss, net of related tax, are summarized as follows (in thousands):
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Three Months Ended |
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Six Months Ended |
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December 31, |
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December 31, |
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2009 |
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2008 |
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2009 |
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2008 |
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Net loss |
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$ |
(1,127 |
) |
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(1,364 |
) |
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$ |
(2,690 |
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(1,174 |
) |
Unrealized holding
gain (loss), net of
tax |
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(54 |
) |
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63 |
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(49 |
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95 |
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Comprehensive loss |
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$ |
(1,181 |
) |
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(1,301 |
) |
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$ |
(2,739 |
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(1,079 |
) |
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5
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
NOTE 3 NET LOSS PER COMMON SHARE
Basic net loss per share excluding dilution has been computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Diluted loss per share are computed
using the treasury stock method for outstanding stock options and warrants. For the three and six
months ended December 31, 2009 and 2008, 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 periods as the impact would be anti-dilutive.
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 and six months ended December 31, 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 December 31, 2009. The Company expects no significant increases or
decreases in unrecognized tax benefits due to changes in tax positions within one year of December
31, 2009. The Company has no interest or penalties relating to income taxes recognized in the
condensed consolidated statement of operations for the three and six months ended December 31, 2009
or in the condensed consolidated balance sheet as of December 31, 2009.
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, fixed fee revenue under this contract was only earned through October 31, 2008.
Modified Risk Arrangement (MRA) of $0.3 million was received in fiscal 2010 that related to
fiscal 2009. Revenue under the
6
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Tenncare contract represented 10% and 51% of the Companys total
revenue for the six months ended December 31, 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 was through December 31,
2009. The Company did not seek renewal of this contract. As of February 15, 2010, there were no
enrollees in UAHC-TNs Medicare Advantage Special Needs Plan. The Company will continue to
processing claims for the Medicare Advantage plan through April 30, 2010.
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 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 expiration of the CMS contract (in thousands):
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Balance at |
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Expense/ |
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Balance at |
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Item |
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July 1, 2009 |
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Adj.* |
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Payments |
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December 31, 2009 |
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Workforce reduction |
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$ |
142 |
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$ |
59 |
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$ |
(53 |
) |
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$ |
148 |
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Lease abandonment, net |
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17 |
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(5 |
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12 |
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Total |
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$ |
159 |
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$ |
59 |
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|
$ |
(58 |
) |
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$ |
160 |
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* |
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Amount includes forfeited employee retention benefits. |
The cumulative costs incurred through December 31, 2009 amounted to $0.9 million. These costs are
included in marketing, general and administrative expenses in our statement of operations.
Approximately $0.2 million of these costs related to the Management Companies and $0.7 million
relate to the HMO & Managed Plan. In connection with the termination of the TennCare contract and
the 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 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 of
$0.1 million for each of the three months ended December 31, 2009 and 2008 and $0.1 million and
$0.2 million for the six months ended December 31, 2009 and 2008, respectively.
7
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
NOTE 7 FAIR VALUE
The Companys unaudited condensed consolidated balance sheets include the following financial
instruments: cash and cash equivalents, marketable securities, 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 December 31, 2009:
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Fair Value Measurements |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets |
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Marketable Securities-short-term |
|
$ |
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|
$ |
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|
$ |
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$ |
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|
Marketable Securities- long-term |
|
$ |
2,370 |
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|
$ |
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|
|
$ |
|
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|
$ |
2,370 |
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The Company classifies 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 loss, net of
tax. 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.
8
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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 December 31, 2009, the Company had accrued $0.1 million related to such
executive retention and severance agreement. These amounts have been reflected in exit costs
disclosed in Note 5 above. The Company has a potential remaining liability of $0.1 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. In the fourth quarter of fiscal 2009, the Company recorded a provision for this
legal settlement of $3.1 million, which was net of the insurance reimbursement of $0.2 million in
the fiscal year 2009 statement of operations. As of December 31, 2009, the related liability of
$3.3 million was paid in full. The Company recovered $0.2 million through insurance in January
2010.
NOTE 10 UNAUDITED SEGMENT FINANCIAL INFORMATION
Summarized financial information for the Companys principal operations, as of and for the six
months ended December 31, 2009 and 2008, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HMO & |
|
|
|
|
|
|
|
Three Months Ended |
|
Management |
|
|
Managed Plan |
|
|
Corporate & |
|
|
Consolidated |
|
December 31, 2009 |
|
Companies (1) |
|
|
(2) |
|
|
Eliminations |
|
|
Company |
|
|
Revenue external customers |
|
$ |
|
|
|
$ |
1,701 |
|
|
$ |
|
|
|
$ |
1,701 |
|
Revenue intersegment |
|
|
80 |
|
|
|
|
|
|
|
(80 |
) |
|
|
|
|
|
|
|
Total revenue |
|
$ |
80 |
|
|
$ |
1,701 |
|
|
$ |
(80 |
) |
|
$ |
1,701 |
|
|
Net earnings (loss) |
|
$ |
(1,441 |
) |
|
|
314 |
|
|
|
|
|
|
|
(1,127 |
) |
Depreciation and amortization |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
40 |
|
As of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
41,328 |
|
|
|
10,619 |
|
|
|
(36,448 |
) |
|
|
15,499 |
|
|
9
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HMO & |
|
|
|
|
Three Months Ended |
|
Management |
|
Managed Plan |
|
Corporate & |
|
Consolidated |
December 31, 2008 |
|
Companies (1) |
|
(2) |
|
Eliminations |
|
Company |
|
Revenue external customers |
|
$ |
|
|
|
$ |
4,512 |
|
|
$ |
|
|
|
$ |
4,512 |
|
Revenue intersegment |
|
|
3,226 |
|
|
|
|
|
|
|
(3,226 |
) |
|
|
|
|
|
|
|
Total revenue |
|
$ |
3,226 |
|
|
$ |
4,512 |
|
|
$ |
(3,226 |
) |
|
$ |
4,512 |
|
|
Net earnings (loss) |
|
$ |
(1,627 |
) |
|
$ |
263 |
|
|
$ |
|
|
|
$ |
(1,364 |
) |
Depreciation and amortization |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
56 |
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
60,553 |
|
|
|
19,171 |
|
|
|
(51,429 |
) |
|
|
28,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HMO & |
|
|
|
|
Six Months Ended |
|
Management |
|
Managed Plan |
|
Corporate & |
|
Consolidated |
December 31, 2009 |
|
Companies (1) |
|
(2) |
|
Eliminations |
|
Company |
|
Revenue external customers |
|
$ |
|
|
|
$ |
3,461 |
|
|
$ |
|
|
|
$ |
3,461 |
|
Revenue intersegment |
|
|
343 |
|
|
|
|
|
|
|
(343 |
) |
|
|
|
|
|
|
|
Total revenue |
|
$ |
343 |
|
|
$ |
3,461 |
|
|
$ |
(343 |
) |
|
$ |
3,461 |
|
|
Net earnings (loss) |
|
$ |
(2,777 |
) |
|
|
87 |
|
|
|
|
|
|
|
(2,690 |
) |
Depreciation and amortization |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
80 |
|
As of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
41,328 |
|
|
|
10,619 |
|
|
|
(36,448 |
) |
|
|
15,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HMO & |
|
|
|
|
Six Months Ended |
|
Management |
|
Managed Plan |
|
Corporate & |
|
Consolidated |
December 31, 2008 |
|
Companies (1) |
|
(2) |
|
Eliminations |
|
Company |
|
Revenue external customers |
|
$ |
|
|
|
$ |
10,797 |
|
|
$ |
|
|
|
$ |
10,797 |
|
Revenue intersegment |
|
|
6,487 |
|
|
|
|
|
|
|
(6,487 |
) |
|
|
|
|
|
|
|
Total revenue |
|
$ |
6,487 |
|
|
$ |
10,797 |
|
|
$ |
(6,487 |
) |
|
$ |
10,797 |
|
|
Net earnings (loss) |
|
$ |
(705 |
) |
|
$ |
(469 |
) |
|
$ |
|
|
|
$ |
(1,174 |
) |
Depreciation and amortization |
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
117 |
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
60,553 |
|
|
|
19,171 |
|
|
|
(51,429 |
) |
|
|
28,295 |
|
|
|
|
|
(1) |
|
Management Companies: United American Healthcare Corporation and United American of
Tennessee, Inc. |
|
(2) |
|
HMO & Managed Plan: UAHC Health Plan of Tennessee, Inc. |
10
United American Healthcare Corporation and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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 beginning in the
second fiscal quarter of 2010. ASU 2009-05 does not have an effect on its financial statements.
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.
Effective, November 13, 2009, the board of directors discontinued the share repurchase program.
As of December 31, 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.
NOTE 13 SUBSEQUENT EVENT
On January 15, 2010, Anita R. Davis, the Chief Financial Officer and Treasurer of the Company,
resigned from such positions. On January 16, 2010, the Board of Directors appointed William L.
Dennis as Chief Financial Officer and Treasurer of the Company.
The Company has performed a review of events subsequent to the balance
sheet date through February 16, 2010, the date that the financial statements were issued.
11
|
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|
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 obligations through its TennCare
contract expiration date of June 30, 2009. However, fixed
12
fee revenue under this contract was only earned through October 31, 2008. Modified Risk
Arrangement (MRA) of $0.3 million was received in fiscal 2010 related to fiscal 2009. Revenue
under the TennCare contract represented 20% and 47% of the Companys total revenue for the three
months ended December 31, 2009 and 2008, respectively and 10% and 51% for the six months ended
December 31, 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 December 31,
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 was through December 31,
2009. The Company did not seek renewal of this contract. As of February 15, 2010 there were no
members in the UAHCs Medicare Advantage Special Needs Plan (our MA-SNP).
The total number of employees of the Company at December 31, 2009 was 12 compared to 29 at December
31, 2008. The termination of the TennCare contract and expiration of the CMS contract has resulted
in a substantial decrease in the total number of employees.
Due to the expiration of the TennCare contract and the 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 insurance recovery of $0.2 million.
Operating Results
For the Three Months Ended December 31, 2009 Compared to the Three Months Ended December 31,
2008
Total revenues decreased $2.8 million (62%) to $1.7 million for the three months ended December 31,
2009, compared to $4.5 million for the three months ended December 31, 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
13
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.
The fixed administrative fees decreased by $1.2 million (100%) to $0 for the three months ended
December 31, 2009 compared to the three months ended December 31, 2008. The decrease is due to the
discontinuance of the TennCare contract.
Variable administrative fees resulting from modified risk arrangement (MRA) revenue were $0.3
million for the three months ended December 31, 2009, compared to $0.9 million for the three months
ended December 31, 2008. The $0.3 million received in fiscal 2010 related to fiscal 2009. The $0.9
million MRA revenue received in fiscal 2009 relates to fiscal 2008.
Our MA-SNP medical premiums revenues were $1.4 million for the three months ended December 31, 2009
compared to $2.4 million for the three months ended December 31, 2008. The decrease of $1.0
million (43%) is attributable to the decrease in our MA-SNP enrollees resulting from the expiration
of the CMS contract.
Our MA-SNP per member per month premium rate for the three months ended December 31, 2009 was
$1,087 compared to $1,124 for the three months ended December 31, 2008.
Total expenses decreased $3.3 million (53%) to $2.9 million for the three months ended December 31,
2009 as compared to $6.2 million for the three months ended December 31, 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 $1.0 million (43%) to $1.3 million for the three months
ended December 31, 2009 compared to $2.3 million for the three months ended December 31, 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 95.8% for the three
months ended December 31, 2009 compared to 94.7% for the three months ended December 31, 2008.
Marketing, general and administrative expenses decreased $2.2 million (59%) to $1.5 million for the
three months ended December 31, 2009 from $3.7 million for the three months ended December 31,
2008. The decrease was principally due to reductions in labor costs, adminstrative costs and
professional services expenses.
There was no income tax expense for the three months ended December 31, 2009 or 2008. The Companys
effective tax rate for the three months ended December 31, 2009 of 0% 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 December 31,
2009, a decrease from $0.06 million for the three months ended December 31, 2008.
14
Loss before income taxes was $1.1 million for the quarter ended December 31, 2009 compared to loss
before income taxes of $1.4 million for the quarter ended December 31, 2008.
Net loss was $1.1 million, or ($0.14) per basic share, for the quarter ended December 31, 2009,
compared to net loss of $1.4 million, or $(0.16) per basic share, for the quarter ended December
31, 2008.
For the Six Months Ended December 31, 2009 Compared to
Six Months Ended December 31, 2008
Total revenues decreased $7.3 million (68%) to $3.5 million for the six months ended December 31,
2009, compared to $10.8 million for the six months ended December 31, 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.
The fixed administrative fees decreased by $4.6 million to $0 million for the six months ended
December 31, 2009, compared to $4.6 million for the six months ended December 31, 2008. The
decrease is due to the discontinuance of its managed care services as a TennCare contractor.
Variable administrative fees resulting from MRA revenue were $0.3 million for the six months ended
December 31, 2009, compared to $0.9 million for the six months ended December 31, 2008. The $0.3
million received in fiscal 2010 related to fiscal 2009. The $0.9 million MRA revenue received in
fiscal 2009 relates to fiscal 2008.
Our MA-SNP medical premiums revenues were $3.1 million for the six months ended December 31, 2009
compared to $5.3 million for the six months ended December 31, 2008. The decrease of $2.2 million
is attributable to the decrease in our MA-SNP enrollees.
Our MA-SNP per member per month premium rate for the six months ended December 31, 2009 was $1,123,
compared to $1,202 for the six months ended December 31, 2008.
Total expenses decreased $6.1 million to $6.2 million for the six months ended December 31, 2009 as
compared to $12.4 million for the six months ended December 31, 2008. The decrease is primarily
due to a decrease in marketing, general and administrative expenses and medical expenses.
Medical expenses for our MA-SNP were $3.0 million for the six months ended December 31, 2009,
compared to $4.8 million for the six months ended December 31, 2008. The decrease in medical
expenses is attributable to the expiration of the MA-SNP plan offset by an increase in outpatient
claims. The ratio of such medical expenses to medical premiums revenues for our MA -SNP, expressed
as a percentage the medical loss ratio was 97.5% for the six months ended December 31, 2009.
15
Marketing, general and administrative expenses decreased $4.2 million (57%) to $3.1 million for the
six months ended December 31, 2009 from $7.3 million for the six months ended December 31, 2008.
The decrease was principally due to reductions in labor costs, adminstrative costs and professional
services expenses resulting from the discontinuance of the TennCare contract expiration and the
expiration of the CMS contract.
Depreciation and amortization expense was $0.08 million for the six months ended December 31, 2009,
a $0.02 million decrease from $0.11 million for the six months ended December 31, 2008.
There was no income tax expense for the six months ended December 31, 2009 compared to income tax
expense of $0.08 million for the six months ended December 31, 2008. The Companys effective tax
rate for the six months ended December 31, 2009 of 0% 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.
Loss before income taxes was $2.7 million for the six months ended December 31, 2009 compared to
loss before income taxes of $1.1 million for the six months ended December 31, 2008.
Net loss was $2.7 million, or ($0.33) per basic share, for the six months ended December 31, 2009,
compared to net loss of $1.2 million, or ($0.13) per basic share, for the six months ended December
31, 2008. The decrease is primarily due to the decrease in overall revenue resulting from the
discontinuance of the TennCare contract and the expiration of the CMS contract.
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
December 31, 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 did 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 December 31, 2009, the Company had (i) cash and cash equivalents and short-term marketable
securities of $11.8 million, compared to $17.6 million at June 30, 2009; (ii) working capital of
$9.6 million, compared to working capital of $12.2 million at June 30, 2009; and (iii) a current
assets-to-current liabilities ratio of 4.27-to-1, compared to 2.72-to-1 at June 30, 2009.
16
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 runoff period of 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 $5.7 million in the six months ended December 31, 2009 was
primarily due to the $3.3 million litigation settlement. (See Note 9 to our Unaudited Condensed
Consolidated Financial Statements.) Medical claims payable decreased by $0.6 million at December
31, 2009 compared to June 30, 2009. The decrease in primarily due to a decrease in members as of
December 31, 2009 compared to June 30, 2009. Accounts payable and accrued expenses decreased by
$0.2 million at December 31, 2009 compared to June 30, 2009, principally due to the payment of
legal fees related to litigation.
Net cash provided by investing activities of $4.4 million for the six months ended December 31,
2009 was primarily due to cash proceeds from the maturity of marketable securities of $6.9 million
which was partially offset by cash purchases of marketable securities of $2.4 million.
Decrease in cash was $1.3 million for the six months ended December 31, 2009, compared to decrease
in cash of $4.7 million for the comparable period a year earlier.
The Companys subsidiary, UAHC-TN, had a required minimum net worth requirement using statutory
accounting practices of $7.2 million at December 31, 2009. UAHC-TN had excess statutory net worth
of approximately $1.5 million at December 31, 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 December 31, 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 second quarter
ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
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 and otherwise
subsequently disclosed in our reports filed with the SEC. 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.
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.
Effective, November 13, 2009, the board of directors discontinued the share repurchase program. As
of December 31, 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 December 31, 2009.
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. We had a
grace period of 180 calendar days, or until May 11, 2010, in which to regain compliance. On
January 25, 2010, we regained compliance as the bid price of our common stock closed at $1.00 per
share or more for a minimum of 10 consecutive business days.
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Item 6. Exhibits
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10.1
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Employment Agreement, dated January 16, 2010, by and between the
Company and William L. Dennis, incorporated herein by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K filed
January 21, 2010. |
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31.1*
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Certifications of Chief Executive Officer pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
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31.2*
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Certifications of Chief Financial Officer pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
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32.1*
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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. |
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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.
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United American Healthcare Corporation
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Dated: February 16, 2010 |
By: |
/s/ William C. Brooks
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William C. Brooks |
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President & Chief Executive Officer
(Principal Executive Officer) |
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Dated: February 16, 2010 |
By: |
/s/ William L. Dennis
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William L. Dennis |
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Chief Financial Officer & Treasurer
(Principal Financial Officer) |
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20