SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED DECEMBER 31, 2002
Commission File Number: 000-18839
UNITED AMERICAN HEALTHCARE CORPORATION
(Exact Name of Registrant as Specified in Charter)
MICHIGAN 38-2526913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 RIVER PLACE, SUITE 4700
DETROIT, MICHIGAN 48207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 393-4571
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF JANUARY 31,
2003 WAS 6,913,803.
================================================================================
As filed with the Securities and Exchange Commission on February 12, 2003
UNITED AMERICAN HEALTHCARE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART I. PAGE
Item 1. Unaudited Condensed Consolidated Financial Statements -
Condensed Consolidated Balance Sheets -- December 31, 2002
and June 30, 2002.................................................................................1
Condensed Consolidated Statements of Operations - Three Months and Six Months
Ended December 31, 2002 and 2001..................................................................2
Condensed Consolidated Statements of Cash Flows - Six Months
Ended December 31, 2002 and 2001..................................................................3
Notes to the Unaudited Condensed Consolidated Financial Statements..................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................................................9
Item 4. Controls and Procedures............................................................................16
PART II.
Item 1. Legal Proceedings..................................................................................17
Item 2. Changes in Securities and Use of Proceeds..........................................................18
Item 3. Defaults Upon Senior Securities....................................................................18
Item 4. Submission of Matters to a Vote of Security Holders................................................18
Item 5. Other Information..................................................................................18
Item 6. Exhibits and Reports on Form 8-K...................................................................20
Signatures.............................................................................................................21
PART I.
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30,
2002 2002
------------------------------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 3,774 $ 2,026
Marketable securities -- 16,784
Accounts receivable - State of Tennessee 1,183 1,794
Other receivables 1,614 2,856
Refundable income taxes 284 284
Prepaid expenses and other 215 621
Deferred income taxes 420 1,090
-------- --------
Total current assets 7,490 25,455
Property and equipment held for sale 800 --
Property and equipment, net 600 2,426
Intangible assets, net 2,952 2,952
Marketable securities 2,145 1,826
Other assets 654 677
-------- --------
$ 14,641 $ 33,336
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 1,108 $ 1,032
Medical claims payable 1,570 24,495
Accounts payable and accrued expenses 2,321 1,148
Accrued compensation and related benefits 313 788
Other current liabilities 1,512 1,784
-------- --------
Total current liabilities 6,824 29,247
Long-term debt, less current portion 1,126 1,837
Accrued rent 1,086 505
Shareholders' equity
Preferred stock, 5,000,000 shares authorized; none issued -- --
Common stock, no par, 15,000,000 shares authorized; 6,913,803 and 11,418 11,407
6,911,268 shares issued and outstanding at December 31, 2002 and June
30, 2002, respectively
Retained deficit (5,823) (9,675)
Accumulated other comprehensive income, net of income taxes 10 15
-------- --------
Total shareholders' equity 5,605 1,747
-------- --------
$ 14,641 $ 33,336
======== ========
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
1
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------------------------------------
2002 2001 2002 2001
-------------------------------------------------------------
REVENUES
Medical premiums $ 3,883 $ 33,532 $ 6,575 $ 69,045
Fixed administrative fees 3,700 -- 7,783 --
Gain on sale of assets 7 -- 7 --
Interest and other income 452 183 792 593
-------- -------- -------- --------
Total revenues 8,042 33,715 15,157 69,638
EXPENSES
Medical services 380 28,418 380 58,768
Marketing, general and administrative 4,137 4,413 7,911 8,987
Depreciation and amortization 79 81 160 151
Interest expense 42 58 96 124
-------- -------- -------- --------
Total expenses 4,638 32,970 8,547 68,030
-------- -------- -------- --------
Earnings from continuing operations before 3,404 745 6,610 1,608
income taxes
Income tax expense 203 381 631 822
-------- -------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS 3,201 364 5,979 786
DISCONTINUED OPERATIONS (NOTE 9)
(Loss) gain from discontinued operations (1,753) 669 (2,127) 2,366
-------- -------- -------- --------
NET EARNINGS $ 1,448 $ 1,033 $ 3,852 $ 3,152
======== ======== ======== ========
NET EARNINGS PER COMMON SHARE - BASIC
Earnings from continuing operations $ 0.46 $ 0.05 $ 0.87 $ 0.11
Discontinued operations (0.25) 0.10 (0.31) 0.35
-------- -------- -------- --------
Net earnings per common share $ 0.21 $ 0.15 $ 0.56 $ 0.46
======== ======== ======== ========
Weighted average shares outstanding 6,912 6,800 6,912 6,789
======== ======== ======== ========
NET EARNINGS PER COMMON SHARE - DILUTED
Earnings from continuing operations $ 0.46 $ 0.05 $ 0.85 $ 0.11
Discontinued operations (0.25) 0.10 (0.30) 0.34
Net earnings per common share 0.21 0.15 0.55 0.45
======== ======== ======== ========
Weighted average shares outstanding 6,931 7,084 7,015 6,946
======== ======== ======== ========
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
2
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
2002 2001
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,852 $ 3,152
Adjustments to reconcile net earnings to net cash provided by operating
activities
Loss on disposal of assets 584 3
Gain on sale of assets (7) --
Realized (gain) loss on investment (5) 166
Depreciation and amortization 504 1,113
Bad debt expense 847 --
Accrued rent 581 (38)
Stock awards 11 --
Deferred income taxes 670 701
Net changes in assets and liabilities (21,064) (4,520)
-------- --------
Net cash provided by (used in) operating activities (14,027) 577
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchase) of marketable securities 16,465 (1,331)
Purchase of property and equipment (55) (648)
-------- --------
Net cash provided by (used in) investing activities 16,410 (1,979)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments made on long-term debt (635) (188)
Issuance of common stock -- 88
-------- --------
Net cash used in financing activities (635) (100)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,748 (1,502)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,026 21,985
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,774 $ 20,483
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 84 $ 124
======== ========
Income taxes paid $ 0 $ 110
======== ========
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
3
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 1 - BASIS OF PREPARATION
The accompanying consolidated financial statements include the accounts of
United American Healthcare Corporation and all of its majority-owned
subsidiaries, together referred to as the "Company". 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 accounting principles generally
accepted in the United States of America (GAAP) and with the instructions for
Form 10-Q and Rule 10-01 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 and results of operations have been included. The results of operations
for the six-month period ended December 31, 2002 are not necessarily indicative
of the results of operations for the full fiscal year ending June 30, 2003. The
accompanying condensed consolidated financial statements should be read in
conjunction with the notes to the financial statements contained in the most
recent annual report on Form 10-K.
NOTE 2 - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are summarized as
follows (in thousands):
Three months ended Six months ended
December 31, December 31,
---------------------------------------------------------------
2002 2001 2002 2001
---------------------------------------------------------------
Net earnings $ 1,448 $ 1,033 $ 3,852 $ 3,152
Realized holding gains, net of deferred
federal income taxes (5) 166 (5) 166
------- ------- ------- -------
Comprehensive income $ 1,443 $ 1,199 $ 3,847 $ 3,318
======= ======= ======= =======
The components of accumulated other comprehensive income, included in
shareholders' equity at December 31, 2002 and June 30, 2002, include net
unrealized holding gains and losses, net of deferred federal income taxes.
4
NOTE 3 - LONG TERM DEBT
The Company currently has a $2.2 million term loan with Standard Federal Bank,
N.A. repayable in monthly installments of principal and interest of $0.1
million, with an interest rate equal to the bank's prime rate (4.75% at December
31, 2002) plus one percent per annum, and a maturity date of September 30, 2004.
The loan agreement is collateralized by a security interest in all of the
Company's personal property. The bank has waived the requirement of compliance
with the Company's net worth covenant as of December 31, 2002, and the bank and
the Company have amended the loan agreement to reduce the Company's minimum net
worth requirement for succeeding fiscal quarters to $6.0 million. At December
31, 2002, the Company's net worth was $5.6 million. Management expects to
satisfy this and all financial covenants in the future. See Note 8.
The Company's outstanding debt is as follows (in thousands):
DECEMBER 31, JUNE 30,
2002 2002
============ ========
Term loan $2,234 $2,869
Less debt payable within one year 1,108 1,032
====== ======
Long-term debt, less current portion $1,126 $1,837
====== ======
NOTE 4 - NET EARNINGS PER COMMON SHARE
Basic net earnings per share excluding dilution have been computed by dividing
net earnings by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share are computed using the treasury stock method
for outstanding stock options.
NOTE 5 - EFFECTIVE TAX RATE
The Company's effective tax rate for the six months ended December, 31, 2003 is
15% and differs from the statutory rate of 34%. This difference is primarily a
result of the utilization of net operating loss carryforwards which reduced the
effective tax rate by 17 percentage points. Furthermore, the release of certain
tax liabilities that were deemed to be no longer needed reduced the effective
tax rate by another 2 percentage points. In the second quarter of 2002, the
effective tax rate was 12%, principally impacted by the Company's net operating
loss carryforward position.
NOTE 6 - CHANGE IN TENNCARE CONTRACT
For all its contracted managed care organizations ("MCOs"), the State of
Tennessee, doing business as TennCare, changed its reimbursement system to an
administrative services only ("ASO") program for an 18-month stabilization
period (July 1, 2002 through December 31, 2003), during which the MCOs -
including OmniCare Health Plan, Inc., in Tennessee ("OmniCare-TN"), a MCO 75%
owned by the Company's wholly owned subsidiary - have no medical cost risk
(i.e., no risk for medical losses), earn fixed administrative fees, are subject
to increased oversight, may earn limited additional
5
administrative fees based on certain performance measures as an incentive to
manage medical costs below the targets, and may incur financial penalties for
not achieving certain performance requirements. TennCare has stated it intends
to return to a full-risk system after the end of the 18-month stabilization
period at January 1, 2004.
NOTE 7 - CONTRACTUAL RISK AGREEMENT
In September 2002, OmniCare-TN and the State of Tennessee, doing business as
TennCare, amended the Contractor Risk Agreement between them. Pursuant to the
amendment:
- Retroactively effective July 1, 2001 through April 30, 2002, OmniCare-TN
elected to operate under a shared risk arrangement, under which gains or losses
are shared with the State of Tennessee;
- retroactively effective beginning May 1, 2002, OmniCare-TN is reimbursed under
an administrative services only agreement with no risk of medical loss; and
- the State of Tennessee agreed to pay OmniCare-TN up to $7.5 million as
necessary to meet its statutory net worth requirement as of June 30, 2002.
Pursuant to a further agreement with OmniCare-TN in October 2002, the State of
Tennessee agreed to pay additional funds to OmniCare-TN if future certified
actuarial data confirm they are needed by OmniCare-TN to meet its statutory net
worth requirement as of June 30, 2002.
OmniCare-TN received a permitted practice letter from the State of Tennessee to
include such $7.5 million receivable in its statutory net worth at June 30,
2002. Under generally accepted accounting principles, such $7.5 million was not
recorded in the Company's fiscal 2002 financial statements but will be recorded
in its fiscal 2003 financial statements as fiscal 2002 claims are processed.
Based on an actuarial determination, an additional $0.4 million of medical
claims liability was recorded as of December 31, 2002 and the same aggregate
amount will be reimbursed by the State of Tennessee pursuant to the State's
TennCare amendment and further agreement discussed above. The change in the
estimated reimbursement from the State of Tennessee and the corresponding change
in the medical claims liability should offset, still resulting in $7.5 million
of net earnings in fiscal year 2003. As of December 31, 2002, $6.6 million of
such medical claims were processed, and the same aggregate amount was recognized
as revenue by OmniCare TN.
Based on the foregoing as well as continuing operations under the ASO
arrangement in fiscal 2003, management believes that OmniCare-TN will remain in
compliance with its statutory net worth requirements through June 30, 2003.
NOTE 8 - LIQUIDITY
The Company's ability to generate adequate earnings and cash to meet its
future cash needs depends on a number of factors, which include the following:
- Management believes OmniCare-TN has qualified for incentive payments under
the current TennCare reimbursement system, although awaiting notification
from TennCare that the incentive payment criteria have been met and when
the payments will be made. Under the current management agreement between
OmniCare-TN and its parent, all incentive payments received from TennCare
are paid to OmniCare-TN's parent.
- OmniCare-TN's regaining (perhaps retroactively to July 1, 2002) some of its
approximately 7,900 working uninsured or uninsurable members whom TennCare
disenrolled in an eligibility reverification process that dropped
150,000-200,000 TennCare enrollees statewide since July 1, 2002 and which
has been challenged as legally flawed in a pending lawsuit that seeks
reinstatement of all unfairly dropped enrollees.
- TennCare's anticipated assignment of 10,000-15,000 additional TennCare
enrollees to OmniCare-TN by the fourth quarter of fiscal 2003, which has
been held up by the pendency of such lawsuit.
- The Company's ability to control administrative costs related to managing
medical costs for the TennCare program and corporate overhead costs.
The outcome of the above matters could have an impact on the Company's ability
to successfully meet ongoing obligations. On the basis of the matters discussed
above, management believes at this time that the Company has the ability to
generate sufficient earnings and cash to adequately support its financial
requirements through the next twelve months, maintain compliance with revised
bank financial covenants, and maintain minimum statutory net worth requirements
of OmniCare-TN.
6
NOTE 9 - DISCONTINUED OPERATIONS
The Company's longstanding management agreement with OmniCare Health Plan, in
Michigan ("OmniCare-MI"), ended effective November 1, 2002. Because of its
resulting workforce reduction, the Company made plans to sublease all of its
principal office premises in Detroit, Michigan, to OmniCare-MI, retroactive to
November 1, 2002, and expiring at the lease end in May 2005, and to sell to
OmniCare-MI furniture, a telephone system and certain computer hardware and
software that the Company chose to leave there. Management expects both parties
will finalize and sign the sublease, and close the sale of such assets, in the
third quarter of fiscal 2003. Meanwhile, OmniCare-MI commenced its occupancy of
the premises on November 1, 2002 and the Company remained in a portion of the
premises until it moved its principal offices to new leased premises in Detroit
on February 3, 2002.
In connection with the November 1, 2002 termination of its OmniCare-MI
management agreement, the Company recorded a $1.8 million loss from discontinued
operations in the second quarter of fiscal 2003. Such loss was due in part to:
(i) a $0.6 million write-down of assets held for sale in excess of the
anticipated selling price for the pending sale of assets described above; (ii)
the above-described sublease, which is expected to cost the Company
approximately $0.04 million per month through the remainder of the lease, ending
in May 2005, resulting in a loss of $1.2 million recorded in the second quarter
of fiscal 2003, which was offset by a $0.6 million write-down of a deferred rent
liability associated with the original lease; and (iii) a bad debt charge of
$0.3 million recorded because management determined the collectability of that
amount of receivables from OmniCare-MI is doubtful. The recorded charges
discussed above were offset by management fees from OmniCare-MI of $0.8 million.
NOTE 10 - GOODWILL
Goodwill resulting from business acquisitions is carried at cost. Effective July
1, 2001, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142
eliminates the amortization of goodwill, but requires that the carrying amount
of goodwill be tested for impairment at least annually at the reporting unit
level, as defined, and will only be reduced if it is found to be impaired or is
associated with assets sold or otherwise disposed of.
Management has assessed the remaining carrying amount of previously recorded
goodwill of $3.0 million and determined that such amount is not impaired in
accordance with SFAS No. 142. Accordingly, goodwill amortization was not
recorded for the six months ended December 31, 2002 and 2001.
7
NOTE 11 - UNAUDITED SEGMENT FINANCIAL INFORMATION
Summarized financial information for the Company's principal operations as of
and for the six months ended December 31, 2002 and 2001, is as follows (in
thousands):
------------------------------------------------------------------------------------------------------------------------------------
Management HMOs &
Companies Managed Plans Corporate & Consolidated
DECEMBER 31, 2002 (1) (2) Eliminations Company
------------------------------------------------------------------------------------------------------------------------------------
Revenues - external customers $ -- $ 14,358 $ -- $ 14,358
Revenues - intersegment 6,229 -- (6,229) --
Interest and other income 104 695 799
-------- -------- -------- --------
Total revenues $ 6,333 $ 15,053 $ (6,229) $ 15,157
======== ======== ======== ========
Interest expense $ 96 $ -- $ -- $ 96
Earnings (loss) from continued
operations (1,530) 7,509 -- 5,979
Loss from discontinued
operations (2,127) (2,127)
Segment assets 26,498 9,272 (21,129) 14,641
Purchase of equipment 55 -- -- 55
Depreciation and amortization 504 -- -- 504
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Management HMOs &
Companies Managed Plans Corporate & Consolidated
DECEMBER 31, 2001 (1) (2) Eliminations Company
------------------------------------------------------------------------------------------------------------------------------------
Revenues - external customers $ -- $ 69,045 $ -- $ 69,045
Revenues - intersegment 7,144 -- (7,144) --
Interest and other income (loss) (118) 711 -- 593
--------- --------- -------- --------
Total revenues $ 7,026 $ 69,756 $ (7,144) $ 69,638
========= ========= ======== ========
Interest expense $ 124 $ -- $ -- $ 124
Earnings (loss) from continued operations (1,575) 2,361 -- 786
Gain from discontinued
operations 2,366 2,366
Segment assets 37,784 27,889 (25,181) 40,492
Purchase of equipment 648 -- -- 648
Depreciation and amortization 1,113 -- -- 1,113
------------------------------------------------------------------------------------------------------------------------------------
(1) Management Companies: United American Healthcare Corporation and United
American of Tennessee, Inc.
(2) HMOs and Managed Plans: OmniCare Health Plan, Inc. of Tennessee and
County Care.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
This Financial Review discusses the Company's results of operations, financial
position and liquidity. This discussion should be read in conjunction with the
consolidated financial statements and related notes thereto contained elsewhere
in this quarterly report.
The Company provides comprehensive management and consulting services to managed
care organizations, including health maintenance organizations ("HMOs") in
Tennessee and (until November 1, 2002) Michigan, with a targeted mix of Medicaid
and commercial enrollment. OmniCare Health Plan, in Michigan ("OmniCare-MI"), an
HMO administered by the Company under a management agreement, was placed in
court-ordered rehabilitation proceedings on July 31, 2001, which relieved the
Company from further funding OmniCare-MI's capital deficiencies and which
continued its OmniCare-MI management agreement, with substantially reduced
management fee revenues from OmniCare-MI beginning August 1, 2001. In March
2002, upon the court-appointed Rehabilitator's filing a proposed rehabilitation
plan for OmniCare-MI, the Company announced it anticipated eventual termination
of the management agreement. Such termination occurred November 1, 2002, after
which the Company's only managed plan is OmniCare Health Plan, Inc.
("OmniCare-TN"), an HMO which is 75% owned by the Company's wholly owned
subsidiary. Accordingly the consolidated financial statements have been restated
to present the operations related to managing OmniCare-MI as a discontinued
operation. As of December 31, 2002, there were approximately 114,000 enrollees
in OmniCare-TN.
Total revenues decreased $25.7 million (76%) to $8.0 million for the quarter
ended December 31, 2002 compared to $33.7 million for the quarter ended December
31, 2001, and decreased $54.4 million (78%) to $15.2 million for the six months
ended December 31, 2002 compared to $69.6 million for the six months ended
December 31, 2001, principally as the result of a change in the reimbursement
system of TennCare, a State of Tennessee program that provides medical benefits
to Medicaid and working uninsured and uninsurable recipients. For all its
contracted managed care organizations ("MCOs"), TennCare changed its
reimbursement system to an administrative services only ("ASO") program for an
18-month stabilization period (July 1, 2002 through December 31, 2003), during
which the MCOs - including OmniCare-TN - have no medical cost risk (i.e., no
risk for medical losses), earn fixed administrative fees, are subject to
increased oversight, may earn limited additional administrative fees based on
certain performance measures as an incentive to manage medical costs below the
targets, and may incur financial penalties for not achieving certain performance
requirements. (Incidentally, such ASO period began May 1, 2002 for OmniCare-TN
pursuant to an amendment to its TennCare contract.) TennCare has stated it
intends to return to a full-risk system after the end of the 18-month
stabilization period at January 1, 2004.
9
Total expenses decreased $28.4 million (86%) to $4.6 million for the quarter
ended December 31, 2002 compared to $33.0 million for the quarter ended December
31, 2001, and decreased $59.5 million (88%) to $8.5 million for the six months
ended December 31, 2002 from $68.0 million for the six months ended December 31,
2001. The decreases were principally due to the TennCare ASO program for
OmniCare-TN discussed above.
Earnings from continuing operations before income taxes were $3.4 million and
$0.7 million for the quarters ended December 31, 2002 and 2001, respectively.
Earnings from continuing operations were $3.2 million, or $0.46 per basic share,
for the quarter ended December 31, 2002 compared to earnings from continuing
operations of $0.4 million, or $0.05 per basic share, for the quarter ended
December 31, 2001. Such increase in earnings from continuing operations of $2.8
million, or $0.41 per share, is principally due to OmniCare-TN's contractual
amendment with TennCare, described in the next paragraph below.
The Company recognized earnings from continuing operations before income taxes
of $6.6 million for the six months ended December 31, 2002 and earnings from
continuing operations of $6.0 million, or $0.87 per basic share, for that
period. For the six months ended December 31, 2001, earnings from continuing
operations before income taxes were $1.6 million and earnings from continuing
operations were $0.8 million, or $0.11 per basic share. Such increase in
earnings from continuing operations of $5.2 million, or $0.76 per basic share,
is principally due to a contractual amendment in September 2002, retroactive to
July 1, 2001 in some respects and to May 1, 2002 in other respects. In the
amendment, TennCare agreed to pay OmniCare-TN up to $7.5 million as necessary to
meet its statutory net worth requirement as of June 30, 2002. OmniCare-TN
received a permitted practice letter from the State of Tennessee to include such
$7.5 million receivable in its statutory net worth at June 30, 2002. Under
generally accepted accounting principles, such $7.5 million was not recorded in
the Company's fiscal 2002 financial statements but will be recorded in its
fiscal 2003 financial statements as fiscal 2002 claims are processed. Based on
an actuarial determination, an additional $0.4 million of medical claims
liability was recorded as of December 31, 2002 and the same aggregate amount
will be reimbursed by the State of Tennessee pursuant to the TennCare
contractual amendment discussed above. The change in the estimated reimbursement
from the State of Tennessee and the corresponding change in the medical claims
liability should offset, still resulting in $7.5 million of net earnings in
fiscal year 2003. For the six months ended December 31, 2002, $6.6 million of
such medical claims were processed, and the same aggregate amount was recognized
as revenue by OmniCare-TN.
The Company recognized a loss from discontinued operations of $1.8 million, or
($0.25) per basic share for the three months ended December 31, 2002 as compared
to a gain of $0.7 million, or $0.10 per basic share, for the three months ended
December 31, 2001, a change of $2.5 million. The recorded loss was the result of
the termination of the Company's longstanding management agreement with OmniCare
Health Plan, in Michigan ("OmniCare-MI"), effective November 1, 2002. Because of
its resulting workforce reduction, the Company made plans to sublease all of its
principal office premises in Detroit, Michigan, to OmniCare-MI, retroactively to
November, 1, 2002 and
10
expiring at the lease end in May 2005, and to sell to OmniCare-MI furniture, a
telephone system and certain computer hardware and software that the Company
chose to leave there. Management expects both parties will finalize and sign the
sublease, and close the sale of such assets, in the third quarter of fiscal
2003. Meanwhile, OmniCare-MI commenced its occupancy of the premises on November
1, 2002 and the Company remained in a portion of the premises until it moved its
principal offices to new leased premises in Detroit on February 3, 2002. Such
loss was due in part to: (i) a $0.6 million write-down of net assets in excess
of the anticipated selling price for the pending sale of assets described above;
(ii) the above described sublease, which is expected to cost the Company
approximately $0.04 million per month through the remainder of the lease, ending
in May 2005, resulting in a net loss of $0.6 million recorded in the second
quarter of fiscal 2003; and (iii) a bad debt charge of $0.3 million recorded
because management determined the collectability of that amount of receivables
from OmniCare-MI is doubtful. The recorded charges discussed above were offset
by management fees of $0.8 million.
Net earnings were $1.4 million, or $0.21 per basic share, for the three months
ended December 31, 2002 compared to net earnings of $1.0 million, or $0.15 per
basic share, for the three months ended December 31, 2001. The Company
recognized net earnings of $3.9 million, or $0.56 per basic share, for the six
months ended December 31, 2002 and net earnings of $3.2 million, or $0.46 per
basic share, for the comparable period ended December 31, 2001. Such increase in
net earnings is principally due to OmniCare-TN's contractual amendment with
TennCare, described above.
11
FOR THREE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 2001
Medical premium revenues were $3.9 million in the three months ended December
31, 2002, a decrease of $29.6 million (88%) from $33.5 million in the three
months ended December 31, 2001. Such $3.9 million of medical premium revenues in
the second quarter of fiscal 2003 represent the disbursed portion of the above
$7.5 million TennCare commitment actually reimbursed by the State of Tennessee
in the that fiscal quarter. The decrease from the prior year came from
OmniCare-TN as the result of TennCare's changing its reimbursement system to an
ASO program for an 18-month stabilization period beginning July 1, 2002, as
described under "Overview" above. Fixed administrative fees related to the ASO
program were $3.7 million for the quarter ended December 31, 2002.
Because of TennCare's new ASO reimbursement system, there were medical services
expenses of $0.4 million in the three months ended December 31, 2002, a decrease
of $28.0 million (99%), as compared with medical services expenses of $28.4
million in the three months ended December 31, 2001. The percentage of medical
services expenses to medical premium revenues--the medical loss ratio ("MLR")--
was 85% for the three-month period ended December 31, 2001 for OmniCare-TN.
Effective July 1, 2000, OmniCare-TN's new contract with TennCare required a
minimum of 85% of capitated revenue to be paid to medical service providers.
Marketing, general and administrative expenses decreased approximately $0.3
million (7%), to $4.1 million for the three months ended December 31, 2002 from
$4.4 million for the three months ended December 31, 2001. The decrease is
principally due to reduced advertising costs and TennCare's payment of premium
tax as a result of the ASO arrangement discussed above, offset by the costs of
claims processing associated with a membership increase.
Depreciation and amortization expense decreased $0.002 million (2%), to $0.079
million for the three months ended December 31, 2002 from $0.081 million for the
three months ended December 31, 2001.
Interest expense decreased $0.02 million (33%), to $0.04 million for the three
months ended December 31, 2002 from $0.06 million for the three months ended
December 31, 2001, due to debt reduction and decreases in the prime rate.
Income tax expense decreased $0.2 million (47%), to $0.2 million for the three
months ended December 31, 2002 from $0.4 million for the three months ended
December 31, 2001. The Company's effective tax rate for the six months ended
December, 31, 2002 is 15% and differs from the statutory rate of 34%. This
difference is primarily a result of the utilization of net operating loss
carryforwards, which reduced the effective tax rate by 17 percentage points.
Furthermore, the release of certain tax liabilities that were deemed to be no
longer needed reduced the effective tax rate by another 2 percentage points. In
12
the second quarter of 2002, the effective tax rate was 12%, principally impacted
by the Company's net operating loss carryforward position.
The Company recognized earnings from continuing operations before income taxes
of $3.4 million for the three months ended December 31, 2002, compared to
earnings before income taxes of $0.7 million for the three months ended December
31, 2001. Earnings from continuing operations were $3.2 million, or $0.46 per
basic share, for the three months ended December 31, 2002, compared to earnings
from continuing operations of $0.4 million, or $0.05 per basic share, for the
three months ended December 31, 2001, an increase of $2.8 million, or $0.41 per
basic share. The increase in earnings is primarily due to the amendment to
OmniCare-TN's TennCare contract in September 2002, retroactive to July 1, 2001
in some respects and to May 1, 2002 in other respects, as described under
"Overview" above. In the amendment, the State of Tennessee agreed to pay
OmniCare-TN up to $7.5 million as necessary to meet its statutory net worth
requirement as of June 30, 2002. OmniCare-TN received a permitted practice
letter from the State of Tennessee to include such $7.5 million receivable in
its statutory net worth at June 30, 2002. Under generally accepted accounting
principles, such $7.5 million was not recorded in the Company's fiscal 2002
financial statements but will be recorded in its fiscal 2003 financial
statements as fiscal 2002 claims are processed. Based on an actuarial
determination, an additional $0.4 million of medical claims liability was
recorded as of December 31, 2002 and the same aggregate amount will be
reimbursed by the State of Tennessee pursuant to the TennCare contractual
amendment discussed above. The change in the estimated reimbursement from the
State of Tennessee and the corresponding change in the medical claims liability
should offset, still resulting in $7.5 million of net earnings in fiscal year
2003. Medical claims of $3.9 million were processed for the three months ended
December 31, 2002, and the same aggregate amount was recognized as revenue by
OmniCare TN.
The Company recognized a loss from discontinued operations of $1.8 million for
the three months ended December 31, 2002 as compared to a gain of $0.7 million
for the three months ended December 31, 2001, a change of $2.5 million. The
recorded loss was the result of the termination of the Company's longstanding
management agreement with OmniCare-MI, effective November 1, 2002. See
"Overview" above for a fuller discussion and analysis of such loss from
discontinued operations.
Net earnings were $1.4 million, or $0.21 per basic share, for the three months
ended December 31, 2002 compared to net earnings of $1.0 million, or $0.15 per
basic share, for the three months ended December 31, 2001. Such increase in net
earnings is principally due to OmniCare-TN's contractual amendment with TennCare
offset by the loss from discontinued operations, described above.
13
FOR SIX MONTHS ENDED DECEMBER 31, 2002 COMPARED TO
SIX MONTHS ENDED DECEMBER 31, 2001
Total revenues decreased $54.4 million (78%) to $15.2 million for the six months
ended December 31, 2002 from $69.6 million for the six months ended December 31,
2001 principally as the result of a change in the reimbursement system of
TennCare, as discussed above.
Medical premium revenues were $6.6 million for the six months ended December 31,
2002, a decrease of $62.4 million (90%) from medical premium revenues of $69.0
million for the six months ended December 31, 2001. The decrease came from
OmniCare-TN as the result of TennCare's changing its reimbursement system to an
ASO program for an 18-month stabilization period beginning July 1, 2002. Fixed
administrative fees related to the ASO program were $7.8 million for the six
months ended December 31, 2002.
Total expenses were $8.5 million for the six months ended December 31, 2002,
compared to $68.0 million for the six months ended December 31, 2001, a decrease
of $59.5 million (88%). The decreases were principally due to the TennCare ASO
program for OmniCare-TN discussed above.
Because of TennCare's new ASO reimbursement system, medical services expenses
were $0.4 million in the six months ended December 31, 2002, a decrease of $58.4
million (99%), as compared with medical services expenses of $58.8 million in
the six months ended December 31, 2001. The percentage of medical services
expenses to medical premium revenues (MLR) was 85% for the six-month period
ended December 31, 2001 for OmniCare-TN.
Marketing, general and administrative expenses were $7.9 million for the
six-month period ended December 31, 2002, as compared with marketing, general
and administrative expenses of $9.0 million for the comparable period a year
earlier, a decrease of $1.1 million (12%). The decrease is principally due to
reduced advertising costs and TennCare's payment of premium tax as a result of
the ASO arrangement discussed above, offset by the costs of claims processing
associated with a membership increase.
Depreciation and amortization expense increased $0.01 million (7%), to $0.16
million for the six months ended December 31, 2002 from $0.15 million for the
six months ended December 31, 2001. The increase was due to incremental
depreciation associated with capital expenditures.
Interest expense decreased $0.028 million (23%), to $0.096 million for the six
months ended December 31, 2002 from $0.124 million for the six months ended
December 31, 2001, principally due to debt reduction.
As a result of the foregoing, the Company recognized earnings from continuing
operations before income taxes of $6.6 million for the six months ended December
31, 2002 and earnings from continuing operations of $6.0 million, or $0.87 per
basic share. For the six months ended December 31, 2001, earnings from
continuing operations before income taxes were $1.6 million and earnings from
continuing operations were $0.8 million, or $0.11 per basic share.
The Company recognized a loss from discontinued operations of $2.1 million for
the six months ended December 31, 2002 as compared to a gain of $2.4 million for
the three months ended December 31, 2001, a change of $4.5 million. The recorded
loss was the result of the termination of the Company's longstanding management
agreement with OmniCare-MI, effective November 1, 2002. See "Overview" above for
a fuller discussion and analysis of such loss from discontinued operations.
Net earnings were $3.9 million, or $0.56 per basic share, for the six months
ended December 31, 2002 compared to net earnings of $3.2 million, or $0.46 per
basic share, for the six months ended December 31, 2001. Such increase in net
earnings is principally due to OmniCare-TN's contractual amendment with TennCare
offset by the loss from discontinued operations, described above.
14
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, the Company had (i) cash and cash equivalents and
short-term marketable securities of $3.8 million, compared to $18.8 million at
June 30, 2002; (ii) working capital of $0.7 million, compared to a working
capital deficit of $(3.8) million at June 30, 2002; and (iii) a current
assets-to-current liabilities ratio of 1.10-to-1, compared to 0.87-to-1 at June
30, 2002. The principal source of cash and cash equivalents for the Company
during the six months ended December 31, 2002 was $16.4 million provided from
net investing activities. The principal uses of cash and cash equivalents for
the period were $22.9 million for payment of medical claims and $0.6 million for
debt repayment. Positive cash flow was $1.7 million compared to negative cash
flow of $(1.5) million for the comparable period a year earlier.
Accounts receivable decreased by $1.9 million at December 31, 2002 compared to
June 30, 2002, primarily because of TennCare's new ASO reimbursement system
discussed above.
Property, plant and equipment decreased by $1.8 million at December 31, 2002
compared to June 30, 2002, due an impairment charge associated with a pending
sale of certain furniture, equipment and software and the recording of
depreciation of $0.5 million.
Medical claims payable decreased by $22.9 million at December 31, 2002 compared
to June 30, 2002, which is directly related to the payment of OmniCare-TN
medical claims processed during the period, and TennCare's new ASO reimbursement
system discussed above.
The Company currently has a $2.2 million term loan with Standard Federal Bank,
N.A. repayable in monthly installments of principal and interest of $0.1
million, with an interest rate equal to the bank's prime rate (4.75% at December
31, 2002) plus one percent per annum, and a maturity date of September 30, 2004.
The bank has waived the requirement of compliance with the Company's net worth
covenant as of December 31, 2002, and the Bank and the Company have amended the
loan agreement to reduce the Company's minimum net worth requirement for
succeeding fiscal quarters to $6.0 million. At December 31, 2002, the Company's
net worth was $5.6 million. Management expects to satisfy this and all financial
covenants in the future.
The Company's ability to generate adequate earnings and cash to meet its future
cash needs depends on a number of factors, which include the following:
- Management believes OmniCare-TN has qualified for incentive payments under
the current TennCare reimbursement system, although awaiting notification
from TennCare that the incentive payment criteria have been met and when
the payments will be made. Under the current management agreement between
OmniCare-TN and its parent, all incentive payments received from TennCare
are paid to OmniCare-TN's parent.
- OmniCare-TN's regaining (perhaps retroactively to July 1, 2002) some of its
approximately 7,900 working uninsured or uninsurable members whom TennCare
disenrolled in an eligibility reverification process that dropped
150,000-200,000 TennCare enrollees statewide since July 1, 2002 and which
has been challenged as legally flawed in a pending lawsuit that seeks
reinstatement of all unfairly dropped enrollees.
- TennCare's anticipated assignment of 10,000-15,000 additional TennCare
enrollees to OmniCare-TN by the fourth quarter of fiscal 2003, which has
been held up by the pendency of such lawsuit.
- The Company's ability to control administrative costs related to managing
medical costs for the TennCare program and corporate overhead costs.
The outcome of the above matters could have an impact on the Company's ability
to successfully meet ongoing obligations. On the basis of the matters discussed
above, management believes at this time that the Company has the ability to
generate sufficient earnings and cash to adequately support its financial
requirements through the next twelve months, maintain compliance with revised
bank financial covenants, and maintain minimum statutory net worth requirements
of OmniCare-TN.
15
ITEM 4. CONTROLS AND PROCEDURES
The Company's President and Chief Executive Officer, William C. Brooks, and the
Company's Chief Financial Officer, Stephen D. Harris, have evaluated the
Company's internal controls and disclosure controls systems within 90 days of
the filing of this report. Messrs. Brooks and Harris have concluded that the
Company's disclosure controls systems are functioning effectively to provide
reasonable assurance that the Company can meet its disclosure obligations. The
Company's disclosure controls system and reporting process are designed to
ensure that information required to be disclosed by the Company in the reports
that it files with or submits to the Commission is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms. Since Messrs. Brooks' and Harris' most recent review of the
Company's internal controls systems, there have been no significant changes in
internal controls or in other factors that could significantly affect these
controls.
16
PART II.
ITEM 1. LEGAL PROCEEDINGS
The Company's second-tier subsidiary, OmniCare-TN, is a defendant in two
lawsuits that involve substantially similar legal and factual issues, described
below.
(A) An action by Vanderbilt University in the Chancery Court for Davidson
County, Tennessee: The plaintiff's complaint, filed February 18, 2002, alleged
that OmniCare-TN breached a contract by paying less than the plaintiff's full
charges for health services provided by its hospital and physician group to
OmniCare-TN members. The plaintiff was not an OmniCare-TN participating
provider, and OmniCare-TN reimbursed the plaintiff at non-participating provider
rates. The complaint sought additional reimbursement of the difference between
the rates paid by OmniCare-TN and 100% of the plaintiff's billed charges. On May
28, 2002, the court denied the plaintiff's motion for partial summary judgment
on the issue of liability and further held there was no enforceable contract as
a matter of law. On July 31, 2002, the plaintiff amended the complaint to add an
equitable claim based on quantum meruit/implied contract, seeking payment of the
reasonable value of its services to OmniCare-TN members. OmniCare-TN answered
the amended complaint on August 30, 2002, stating that it has paid the plaintiff
in full for any services provided and asserting affirmative defenses, including
that no express or implied contract existed between the parties. On January 23,
2003, the court entered a scheduling order setting an August 29, 2003 deadline
for pretrial discovery and a trial date in February 2004.
(B) An action by Jackson-Madison County General Hospital District in the
Chancery Court for Madison County, Tennessee: The plaintiff's complaint, filed
on November 12, 2002, indicates that the plaintiff has no participating provider
contract with OmniCare-TN and alleges that OmniCare-TN has paid amounts to the
plaintiff for its health services to OmniCare-TN members which were less than
the plaintiff's standard charges and unreasonably inadequate. The complaint
asserts an equitable claim for unjust enrichment and breach of implied contract
and seeks a declaratory judgment that OmniCare-TN violated its legal and
contractual obligations. The complaint seeks unspecified compensatory damages
plus punitive damages up to $5 million from OmniCare-TN. On January 31, 2003,
OmniCare-TN filed an answer and counterclaim against the plaintiff. The answer
stated affirmative defenses, including that the plaintiff is legally barred or
equitably estopped from pursuing its reimbursement claim and that OmniCare-TN is
not the financially responsible party for reimbursement of provider fees for the
plaintiff's services rendered to OmniCare-TN members for the period from May 1,
2002 to the present. OmniCare-TN's counterclaim alleges that the plaintiff
intentionally failed and refused to negotiate in good faith with it on a payor
agreement and that the plaintiff is proceeding in the lawsuit in bad faith.
OmniCare-TN's counterclaim seeks punitive damages of $10 million from the
plaintiff.
17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 5. OTHER INFORMATION
(A) NEW ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
The Company earlier disclosed (in its Form 10-K Annual Report for the fiscal
year ended June 30, 2002, in Part I, Item 2) that it anticipated moving its
principal offices to smaller premises not yet then determined, with prompt
public notice of any new location when determined. Effective February 3, 2003,
the Company has relocated its principal executive offices to 300 River Place,
Suite 4700, Detroit, Michigan 48207. Its new telephone number is (313) 393-4571.
(B) CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage management to provide prospective
information about their companies without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the statements. Certain
statements contained in this Form 10-Q report, including, without limitation,
statements containing the words "believes," "anticipates," "will," "could,"
"may," "might" and words of similar import constitute "forward-looking
statements" within the meaning of this "safe harbor."
Such forward-looking statements are based on management's current expectations
and involve known and unknown risks, uncertainties and other factors, many of
which the Company is unable to predict or control, that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors potentially include, among others,
the following:
1. Inability to increase premium rates commensurate with
increases in medical costs due to utilization, government
regulation, or other factors.
18
2. Discontinuation of, limitations upon, or restructuring of
government-funded programs, including but not limited to the
TennCare program.
3. A final, nonappealable judicial decision upholding TennCare's
disenrollment of several hundred thousand TennCare enrollees
(including approximately 7,900 OmniCare-TN members) since July
1, 2002 pursuant to its eligibility reverification process
which is being challenged in a pending lawsuit.
4. Delay or failure by the State of Tennessee to pay
TennCare-contracted MCOs additional administrative fees to
which they are entitled based on prescribed incentives to
manage medical costs below applicable targets.
5. Delays in or nonoccurrence of TennCare's anticipated
assignment of additional TennCare enrollees to OmniCare-TN.
6. Increases in medical costs, including increases in utilization
and costs of medical services and the effects of actions by
competitors or groups of providers.
7. Adverse state and federal legislation and initiatives,
including limitations upon or reductions in premium payments;
prohibition or limitation of capitated arrangements or
financial incentives to providers; federal and state benefit
mandates (including mandatory length of stay and emergency
room coverage); limitations on the ability to manage care and
utilization; and any willing provider or pharmacy laws.
8. Failure to obtain new customer bases or members or retain or
regain customer bases or members, or reductions in work force
by existing customers.
9. Increased competition between current organizations, the
entrance of new competitors and the introduction of new
products by new and existing competitors.
10. Adverse publicity and media coverage.
11. Inability to carry out marketing and sales plans.
12. Loss or retirement of key executives.
13. Termination of provider contracts or renegotiations at less
cost-effective rates or terms of payment.
14. The selection by employers and individuals of higher
co-payment/deductible/ coinsurance plans with relatively lower
premiums or margins.
15. Adverse regulatory determinations resulting in loss or
limitations of licensure, certification or contracts with
governmental payors.
16. Higher sales, administrative or general expenses occasioned by
the need for additional advertising, marketing, administrative
or management information systems expenditures.
17. Increases by regulatory authorities of minimum capital,
reserve and other financial solvency requirements.
18. Denial of accreditation by quality accrediting agencies, e.g.,
the National Committee for Quality Assurance (NCQA).
19. Adverse results from significant litigation matters.
19
20. Inability to maintain or obtain satisfactory bank loan credit
arrangements.
21. Increased costs to comply with the Health Insurance
Portability and Accountability Act of 1996 (HIPAA).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.62 Letter amendment of Business Loan Agreement with
Standard Federal Bank N.A., dated February 5, 2003.
99.1 Certification of William C. Brooks, Chief Executive
Officer of the Company, as required by Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of Stephen D. Harris, Chief Financial
Officer of the Company, as required by Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
UNITED AMERICAN HEALTHCARE CORPORATION
Dated: February 12, 2003 By: /s/ William C. Brooks
--------------------------------
William C. Brooks
President & Chief Executive Officer
Dated: February 12, 2003 By: /s/ Stephen D. Harris
--------------------------------
Chief Financial Officer & Treasurer
21
I, William C. Brooks, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United American
Healthcare Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ William C. Brooks
--------------------------------------------
President and Chief Executive Officer
(principal executive officer)
22
I, Stephen D. Harris, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United American
Healthcare Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ Stephen D. Harris
--------------------------------------------
Chief Financial Officer
(principal financial officer)
23
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-10.62 Letter amendment of Business Loan Agreement with Standard Federal
Bank N.A., dated February 5, 2003.
EX-99.1 Certification of William C. Brooks, Chief Executive Officer of the
Company, as required by Section 906 of the Sarbanes-Oxley Act of
2002.
EX-99.2 Certification of Stephen D. Harris, Chief Financial Officer of the
Company, as required by Section 906 of the Sarbanes-Oxley Act of
2002.
24