=============================================================================== As filed with the Securities and Exchange Commission on May 12, 2003 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 MARCH 31, 2003 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 incorporation Identification No.) 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 MAY 8, 2003 WAS 6,968,184. ================================================================================ UNITED AMERICAN HEALTHCARE CORPORATION FORM 10-Q TABLE OF CONTENTS PART I. PAGE Item 1. Unaudited Condensed Consolidated Financial Statements - Condensed Consolidated Balance Sheets - March 31, 2003 and June 30, 2002......................................................................1 Condensed Consolidated Statements of Operations - Three Months and Nine Months Ended March 31, 2003 and 2002..........................................................2 Condensed Consolidated Statements of Cash Flows - Nine Months Ended March 31, 2003 and 2002..........................................................3 Notes to the Unaudited Condensed Consolidated Financial Statements.......................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................12 Item 4. Controls and Procedures.................................................................21 PART II. Item 1. Legal Proceedings.......................................................................22 Item 2. Changes in Securities and Use of Proceeds...............................................22 Item 3. Defaults Upon Senior Securities.........................................................22 Item 4. Submission of Matters to a Vote of Security Holders.....................................22 Item 5. Other Information.......................................................................22 Item 6. Exhibits and Reports on Form 8-K........................................................25 Signatures..................................................................................................26 PART I. ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) MARCH 31, JUNE 30, 2003 2002 ----------------------------- ASSETS (Unaudited) Current assets Cash and cash equivalents 4,310 2,026 Marketable securities - 16,784 Accounts receivable - State of Tennessee 1,023 1,794 Other receivables 1,220 2,856 Refundable income taxes - 284 Prepaid expenses and other 269 621 Deferred income taxes 250 1,090 ----------------------------- Total current assets 7,072 25,455 Property and equipment held for sale 800 - Property and equipment, net 538 2,426 Goodwill, net 2,952 2,952 Marketable securities 2,136 1,826 Other assets 727 677 ----------------------------- $ 14,225 33,336 ============================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 1,108 1,032 Medical claims payable 986 24,495 Accounts payable and accrued expenses 2,547 1,148 Accrued compensation and related benefits 335 788 Other current liabilities 1,234 1,784 ----------------------------- Total current liabilities 6,210 29,247 Long-term debt, less current portion 847 1,837 Accrued rent 980 505 Shareholders' equity Preferred stock, 5,000,000 shares authorized; none issued - Common stock, no par, 15,000,000 shares authorized; 6,968,184 and 11,473 11,407 6,911,268 shares issued and outstanding at March 31, 2003 and June 30, 2002, respectively Retained deficit (5,303) (9,675) Accumulated other comprehensive income, net of income taxes 18 15 ----------------------------- Total shareholders' equity 6,188 1,747 ----------------------------- $ 14,225 $ 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 NINE MONTHS ENDED MARCH 31, MARCH 31, ------------------------------------------------------ 2003 2002 2003 2002 ------------------------------------------------------ REVENUES Medical premiums $ 777 $ 42,156 $ 7,352 $111,201 Fixed administrative fees 3,417 -- 11,200 -- Gain on sale of assets 7 -- 7 -- Interest and other income 516 523 1,308 1,116 ------------------------------------------------------ Total revenues 4,717 42,679 19,867 112,317 EXPENSES Medical services -- 37,186 380 95,954 Marketing, general and administrative 3,798 4,713 11,710 13,720 Depreciation and amortization 69 84 229 235 Interest expense 24 49 120 173 ------------------------------------------------------ Total expenses 3,891 42,032 12,439 110,082 ------------------------------------------------------ Earnings from continuing operations before income 826 647 7,428 2,235 taxes Income tax expense 298 348 929 1,170 ------------------------------------------------------ EARNINGS FROM CONTINUING OPERATIONS 528 299 6,499 1,065 DISCONTINUED OPERATIONS (NOTE 9) (Loss) gain from discontinued operations -- -- (2,127) 2,366 ------------------------------------------------------ NET EARNINGS 528 299 4,372 3,431 ====================================================== NET EARNINGS PER COMMON SHARE - BASIC Earnings from continuing operations $ 0.08 0.04 0.94 0.16 Discontinued operations $ 0.00 0.00 (0.31) 0.34 ------------------------------------------------------ Net earnings per common share $ 0.08 0.04 $ 0.63 0.50 ====================================================== Weighted average shares outstanding 6,939 6,854 6,920 6,811 ====================================================== NET EARNINGS PER COMMON SHARE - DILUTED Earnings from continuing operations $ 0.08 0.04 0.93 $ 0.15 Discontinued operations 0.00 0.00 (0.31) 0.34 Net earnings per common share 0.08 0.04 0.62 0.49 ====================================================== Weighted average shares outstanding 6,953 7,171 6,967 7,012 ====================================================== 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) NINE MONTHS ENDED MARCH 31, 2003 2002 --------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 4,372 $ 3,431 Adjustments to reconcile net earnings to net cash provided by operating activities Loss on disposal of assets 584 3 Gain on sale of equipment (7) -- Realized loss on investment 3 166 Depreciation and amortization 573 1,456 Bad debt expense 847 -- Accrued rent 475 (56) Stock awards 66 50 Deferred income taxes 840 1,140 Net changes in assets and liabilities (20,971) (7,410) --------------------------- Net cash used in operating activities (13,218) (1,220) CASH FLOWS FROM INVESTING ACTIVITIES Sale (purchase) of marketable securities 16,474 (9,146) Purchase of property and equipment (58) (936) --------------------------- Net cash provided by (used in) investing activities 16,416 (10,082) CASH FLOWS FROM FINANCING ACTIVITIES Payments made on long-term debt (914) (448) Issuance of common stock -- 165 --------------------------- Net cash used in financing activities (914) (283) --------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,284 (11,585) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,026 21,985 --------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,310 $ 10,400 =========================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 111 $ 164 =========================== Income taxes paid $ -- $ 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 MARCH 31, 2003 AND 2002 NOTE 1 - BASIS OF PREPARATION The accompanying consolidated financial statements include the accounts of United American Healthcare Corporation and its majority-owned subsidiary 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 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 accounting principles generally accepted in the United States of America 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 nine-month period ended March 31, 2003 are not necessarily indicative of the results of operations for the full fiscal year ending June 30, 2003. Audited June 30, 2002 financial statements, with accompanying footnotes, can be found in the Company's 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 NINE MONTHS ENDED MARCH 31, MARCH 31, ---------------------------------------------------------- 2003 2002 2003 2002 ---------------------------------------------------------- Net earnings $ 528 $ 299 $ 4,372 $ 3,431 Realized holding gains, net of deferred federal income taxes 3 - 3 166 ---------------------------------------------------------- Comprehensive income $ 531 $ 299 $ 4,375 $ 3,597 ---------------------------------------------------------- The components of accumulated other comprehensive income, included in shareholders' equity at March 31, 2003 and June 30, 2002, include net unrealized holding gains and (losses), net of deferred federal income taxes. 4 UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED MARCH 31, 2002 AND 2001 NOTE 3 - LONG TERM DEBT The Company currently has a $2.0 million term loan with Standard Federal Bank, N.A. It is repayable in monthly installments of principal and interest of $0.1 million, with an interest rate equal to the bank's prime rate (4.25% at March 31, 2003) 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 Company's outstanding debt is as follows (in thousands): MARCH 31, JUNE 30, 2003 2002 =========================== Term loan $ 1,955 $ 2,869 Less debt payable within one year 1,108 1,032 =========================== Long-term debt, less current portion $ 847 $ 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 nine months ended March, 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 write-off of certain tax liabilities that management deemed to be no longer needed reduced the effective tax rate by 1 percentage point. 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, and may incur financial penalties for not achieving certain performance requirements. 5 UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED MARCH 31, 2002 AND 2001 Another feature TennCare included in establishing the ASO program was that MCOs may earn limited additional administrative fees based on certain performance measures as an incentive to manage medical costs below the targets. Management has for some time believed that OmniCare-TN has qualified for incentive payments under that program, awaiting notification from TennCare that the incentive payment criteria have been met and when the payments would be made. However, the Governor of Tennessee and Tenncare representatives have since publicly stated in discussions with the Tennessee legislature and elsewhere that no incentive payments will be made because of that state's and TennCare's budget situation. 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. 6 UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED MARCH 31, 2002 AND 2001 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 is recorded in its fiscal 2003 financial statements as fiscal 2002 claims are processed. Based on an actuarial determination, an additional $0.4 million of fiscal 2002 medical claims liability was recorded as of March 31, 2003 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 in this Note 7. 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 March 31, 2003, $7.4 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. 7 UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED MARCH 31, 2002 AND 2001 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: - TennCare's assignment of 19,857 additional TennCare enrollees to OmniCare-TN with an effective date of June 1, 2003 (confirmed to OmniCare-TN on April 30, 2003). - OmniCare-TN's expected re-enrollment, in some instances retroactively to July 1, 2002, of some of its approximately 7,900 working uninsured or uninsurable members whom TennCare disenrolled in an eligibility reverification process that dropped approximately 166,000 TennCare enrollees statewide since July 1, 2002. In December 2002, a U.S. District Court judge in Tennessee ruled that such process was flawed. In March 2003, TennCare and Tennessee Governor Phil Bredesan announced that all disenrolled members will have a year-long grace period until March 31, 2004 to prove if they actually meet the eligibility requirements and thereby have their wrongful disenrollment cancelled and their enrollment restored retroactively. - 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. The Company expected to earn limited additional administrative fees under the current TennCare reimbursement system based on certain performance measures as an incentive to manage medical costs below the targets. However, the Governor of Tennessee and Tenncare representatives have since publicly stated in discussions with the Tennessee legislature and elsewhere that no incentive payments will be made because of that state's and TennCare's budget situation. On the basis of the 19,857 additional new OmniCare-TN members effective June 1, 2003 and the matters discussed in Note 7 of the unaudited condensed consolidated financial statements, 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 bank financial covenants, and maintain minimum statutory net worth requirements of OmniCare-TN. 8 UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED MARCH 31, 2002 AND 2001 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 fourth quarter of fiscal 2003. 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 nine months ended March 31, 2003 and 2002. 9 NOTE 11 -- STOCK OPTION PLANS SFAS No. 123, "Accounting for Stock-Based Compensation," prescribes a method of accounting for stock-based compensation that recognizes compensation cost based on the fair value of options at grant date. In lieu of applying this fair value based method, a company may elect to disclose only the pro forma effects of such application. The Company has adopted the disclosure-only provisions of SFAS No. 123. In December 2002, SFAS No. 148, "Stock-Based Compensation," was issued, which requires that the Company illustrate the effect on net income and earnings per share if it applied the fair value principles included in SFAS No. 123 for both annual and interim financial statements. Accordingly, if the Company had elected to recognize compensation cost based on the fair value of the options at grant date, the Company's earnings and earnings per share from continuing operations, assuming dilution, for the three and nine months ended 2003 and 2002 would have been the pro forma amounts indicated below (in thousands, except per share amounts: THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ------------------------------------------------------------- 2003 2002 2003 2002 ------------------------------------------------------------- Net earnings (loss): As reported $ 528 $ 299 $ 4,372 $ 3,431 Pro forma $ 454 $ 289 $ 4,275 $ 3,187 Net earnings (loss) per share: Basic as reported $ 0.08 $ 0.04 $ 0.63 $ 0.50 Dilutive as reported $ 0.04 $ 0.04 $ 0.63 $ 0.49 Basic Pro forma $ 0.05 $ 0.04 $ 0.62 $ 0.47 Dilutive Pro forma $ 0.05 $ 0.04 $ 0.61 $ 0.45 ------------------------------------------------------------- 10 UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED MARCH 31, 2002 AND 2001 NOTE 12 - UNAUDITED SEGMENT FINANCIAL INFORMATION Summarized financial information for the Company's principal operations as of and for the nine months ended March 31, 2003 and 2002, is as follows (in thousands): ---------------------------------------------------------------------------------------------------------------- Management HMOs & Companies Managed Plans Corporate & Consolidated MARCH 31, 2003 (1) (2) Eliminations Company ---------------------------------------------------------------------------------------------------------------- Revenues - external customers $ $ 18,552 $ $ 18,552 Revenues - intersegment 10,092 (10,092) Interest and other income 177 1,138 1,315 ------------------------------------------------------------------ Total revenues $ 10,269 $ 19,690 $ (10,092) $ 19,867 ================================================================================================================ Interest expense $ 120 $ - $ - $ 120 Earnings (loss) from continued operations (1,487) 7,985 - 6,499 Loss from discontinued operations (2,127) (2,127) Segment assets 26,640 8,840 (21,255) 14,225 Purchase of equipment 58 - - 58 Depreciation and amortization 573 - - 573 ---------------------------------------------------------------------------------------------------------------- Management HMOs & Companies Managed Plans Corporate & Consolidated MARCH 31, 2002 (1) (2) Eliminations Company ---------------------------------------------------------------------------------------------------------------- Revenues - external customers $ - $ 111,201 $ - $ 111,201 Revenues - intersegment 10,969 - (10,969) - Interest and other income (loss) (68) 1,184 - 1,116 ------------------------------------------------------------------ Total revenues $ 10,901 $ 112,385 $ (10,969) $ 112,317 ================================================================================================================ Interest expense $ 173 $ - $ - $ 173 Earnings (loss) from continued operations 420 1,815 - 2,235 Gain from discontinued operations 2,366 2,366 Segment assets 28,044 26,415 (15,026) 39,433 Purchase of equipment 939 - - 939 Depreciation and amortization 235 - - 235 ---------------------------------------------------------------------------------------------------------------- (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. 11 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 then 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., in Tennessee ("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 March 31, 2003, there were approximately 112,250 enrollees in OmniCare-TN. Total revenues decreased $37.9 million (89%) to $4.7 million for the quarter ended March 31, 2003 compared to $42.7 million for the quarter ended March 31, 2002, and decreased $92.5 million (82%) to $19.9 million for the nine months ended March 31, 2003 compared to $112.3 million for the nine months ended March 31, 2002, 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, 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. 12 Total expenses decreased $38.1 million (91%) to $3.9 million for the quarter ended March 31, 2003 compared to $42.0 million for the quarter ended March 31, 2002, and decreased $97.7 million (89%) to $12.4 million for the nine months ended March 31, 2003 from $110.1 million for the nine months ended March 31, 2002. The decreases were principally due to the TennCare ASO program in effect for OmniCare-TN since May 1, 2002, as described above. Earnings from continuing operations before income taxes were $0.8 million and $0.6 million for the quarters ended March 31, 2003 and 2002, respectively. Earnings from continuing operations were $0.5 million, or $0.08 per basic share, for the quarter ended March 31, 2003 compared to earnings from continuing operations of $0.3 million, or $0.04 per basic share, for the quarter ended March 31, 2002. Such increase in earnings from continuing operations of $0.2 million, or $0.04 per basic 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 $7.4 million for the nine months ended March 31, 2003 and earnings from continuing operations of $6.5 million, or $0.94 per basic share, for that period. For the nine months ended March 31, 2002, earnings from continuing operations before income taxes were $2.2 million and earnings from continuing operations were $1.1 million, or $0.16 per basic share. Such increase in earnings from continuing operations of $5.4 million, or $0.78 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, as more fully described in Note 7 of the unaudited condensed consolidated financial statements in this quarterly report. 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. 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 March 31, 2003, $7.4 million of such medical claims were processed, and the same aggregate amount was recognized as revenue by OmniCare-TN. The Company recognized no gain or loss from discontinued operations for the three months ended March 31, 2003 and March 31, 2002. For the nine months ended March 31, 2003 the company recognized a loss from discontinued operations of $2.1 million compared to a gain of $2.4 million for the nine months ended March 31, 2002, a change 13 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. 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 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 fourth 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 $0.5 million, or $0.08 per basic share, for the three months ended March 31, 2003 compared to net earnings of $0.3 million, or $0.04 per basic share, for the three months ended March 31, 2002. The Company recognized net earnings of $4.4 million, or $0.63 per basic share, for the nine months ended March 31, 2003 and net earnings of $3.4 million, or $0.50 per basic share, for the period ended March 31, 2002. Such increase in net earnings is principally due to OmniCare-TN's contractual amendment with TennCare, described above. 14 THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002 Medical premium revenues were $0.8 million in the three months ended March 31, 2003, a decrease of $41.4 million (98%) from $42.2 million in the three months ended March 31, 2002. Such $0.8 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 $3.4 million for the quarter ended March 31, 2003. Because of TennCare's new ASO reimbursement system, there were no medical services expenses in the three months ended March 31, 2003, as compared with medical services expenses of $37.2 million in the three months ended March 31, 2002. The percentage of medical services expenses to medical premium revenues -- the medical loss ratio ("MLR") -- was 87% for the three-month period ended March 31, 2002 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 $0.9 million (19%), to $3.8 million for the three months ended March 31, 2003 from $4.7 million for the three months ended March 31, 2002. The decrease is principally due to reduced advertising costs and TennCare's payment of premium tax as a result of the ASO arrangement referred to above, offset by the costs of claims processing associated with a membership increase. Depreciation and amortization expense decreased $0.015 million (18%), to $0.069 million for the three months ended March 31, 2003 from $0.084 million for the three months ended March 31, 2002. The decrease was due to the full depreciation of certain assets. Interest expense decreased $0.025 million (51%), to $0.024 million for the three months ended March 31, 2003 from $0.049 million for the three months ended March 31, 2002, due to debt reduction and decreases in the prime rate. Income tax expense decreased $0.05 million (14%), to $0.3 million for the three months ended March 31, 2003 from $0.35 million for the three months ended March 31, 2002. The Company's effective tax rate for the nine months ended March, 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 1 percentage point. 15 The Company recognized earnings from continuing operations before income taxes of $0.8 million for the three months ended March 31, 2003, compared to earnings before income taxes of $0.6 million for the three months ended March 31, 2002. Earnings from continuing operations were $0.5 million, or $0.08 per basic share, for the three months ended March 31, 2003, compared to earnings from continuing operations of $0.3 million, or $0.4 per basic share, for the three months ended March 31, 2002, an increase of $0.2 million, or $0.04 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. 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 $0.8 million were processed for the three months ended March 31, 2003, and the same aggregate amount was recognized as revenue by OmniCare TN. The Company recognized no gain or loss from discontinued operations for the three months ended March 31, 2003 and March 31, 2002 as the result of the termination of the Company's longstanding management agreement with OmniCare-MI, effective November 1, 2002. See "Overview" above for more detailed discussion and analysis of such loss from discontinued operations. Net earnings were $0.5 million, or $0.08 per basic share, for the three months ended March 31, 2003 compared to net earnings of $0.3 million, or $0.04 per basic share, for the three months ended March 31, 2002. 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. 16 NINE MONTHS ENDED MARCH 31, 2003 COMPARED TO NINE MONTHS ENDED MARCH 31, 2002 Total revenues decreased $92.5 million (82%) to $19.9 million for the nine months ended March 31, 2003 from $112.3 million for the nine months ended March 31, 2002 principally as the result of a change in the reimbursement system of TennCare referred to above. Medical premium revenues were $7.4 million for the nine months ended March 31, 2003, a decrease of $103.8 million (93%) from medical premium revenues of $111.2 million for the nine months ended March 31, 2002. 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 $11.2 million for the nine months ended March 31, 2003. Total expenses were $12.4 million for the nine months ended March 31, 2003, compared to $110.1 million for the nine months ended March 31, 2002, a decrease of $97.7 million (89%). The decreases were principally due to the TennCare ASO program for OmniCare-TN referred to above. Because of TennCare's new ASO reimbursement system, medical services expenses were $0.4 million in the nine months ended March 31, 2003, a decrease of $95.5 million, as compared with medical services expenses of $96.0 million in the nine months ended March 31, 2002. The percentage of medical services expenses to medical premium revenues (MLR) was 86% for the nine-month period ended March 31, 2002 for OmniCare-TN. Marketing, general and administrative expenses were $11.7 million for the nine-month period ended March 31, 2003, as compared with marketing, general and administrative expenses of $13.7 million for the comparable period a year earlier, a decrease of $2.0 million (15%). The decrease is principally due to reduced advertising costs and TennCare's payment of premium tax as a result of the ASO arrangement referred to above, offset by the costs of claims processing associated with a membership increase. Depreciation and amortization expense decreased $0.006 million (3%), to $0.229 million for the nine months ended March 31, 2003 from $0.235 million for the nine months ended March 31, 2002. The decrease was due primarily to the full depreciation of certain assets. Interest expense decreased $0.05 million (31%), to $0.12 million for the nine months ended March 31, 2003 from $0.17 million for the nine months ended March 31, 2002, principally due to debt reduction and decreases in the prime rate. As a result of the foregoing, the Company recognized earnings from continuing operations before income taxes of $7.4 million for the nine months ended March 31, 2003 17 and earnings from continuing operations of $6.5 million, or $0.94 per basic share. For the nine months ended March 31, 2002, earnings from continuing operations before income taxes were $2.2 million and earnings from continuing operations were $1.1 million, or $0.16 per basic share. The Company recognized a loss from discontinued operations of $2.1 million for the nine months ended March 31, 2003 as compared to a gain of $2.4 million for the nine months ended March 31, 2002, 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 more detailed discussion and analysis of such loss from discontinued operations. Net earnings were $4.4 million, or $0.63 per basic share, for the nine months ended March 31, 2003 compared to net earnings of $3.4 million, or $0.50 per basic share, for the nine months ended March 31, 2002. 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. 18 LIQUIDITY AND CAPITAL RESOURCES At March 31, 2003, the Company had (i) cash and cash equivalents and short-term marketable securities of $4.3 million, compared to $18.8 million at June 30, 2002; (ii) working capital of $0.9 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 1.14-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 nine months ended March 31, 2003 was $16.4 million provided from net investing activities. The principal uses of cash and cash equivalents for the period were $23.5 million for payment of medical claims and $0.9 million for debt repayment. Positive cash flow was $2.3 million compared to negative cash flow of $(11.6) million for the comparable nine-month period a year earlier. Accounts receivable decreased by $2.4 million at March 31, 2003 compared to June 30, 2002, primarily because of TennCare's new ASO reimbursement system referred to above. Property, plant and equipment decreased by $1.9 million at March 31, 2003 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 $0.6 million. Medical claims payable decreased by $23.5 million at March 31, 2003 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. Long-term debt decreased $0.9 million at March 31, 2003 compared to June 30, 2002. The Company currently has a $2.0 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 (4.25% at March 31, 2003) plus one percent per annum, and a maturity date of September 30, 2004. 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: - TennCare's assignment of 19,857 additional TennCare enrollees to OmniCare-TN with an effective date of June 1, 2003 (confirmed to OmniCare-TN on April 30, 2003). - OmniCare-TN's expected re-enrollment, in some instances retroactively to July 1, 2002, of some of its approximately 7,900 working uninsured or uninsurable members whom TennCare disenrolled in an eligibility reverification process that dropped approximately 166,000 TennCare enrollees statewide since July 1, 2002. 19 In December 2002, a U.S. District Court judge in Tennessee ruled that such process was flawed. In March 2003, TennCare and Tennessee Governor Phil Bredesan announced that all disenrolled members will have a year-long grace period until March 31, 2004 to prove if they actually meet the eligibility requirements and thereby have their wrongful disenrollment cancelled and their enrollment restored retroactively. - 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. The Company expected to earn limited additional administrative fees under the current TennCare reimbursement system based on certain performance measures as an incentive to manage medical costs below the targets. However, the Governor of Tennessee and TennCare representatives have since publicly stated in discussions with the Tennessee legislature and elsewhere that no incentive payments will be made because of that state's and TennCare's budget situation. On the basis of the 19,857 additional new OmniCare-TN members effective June 1, 2003 and the matters discussed in Note 7 of the unaudited condensed consolidated financial statements in this quarterly report, 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 bank financial covenants, and maintain minimum statutory net worth requirements of OmniCare-TN. 20 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. 21 PART II. ITEM 1. LEGAL PROCEEDINGS On April 17, 2003, the Chancery Court for Madison County, Tennessee, entered an Agreed Order of Dismissal dismissing with prejudice the entire action entitled Jackson-Madison County General Hospital District, Plaintiff and Counter-Defendant, v. OmniCare Health Plan, Inc. (i.e., OmniCare-TN), Defendant and Counter-Plaintiff. Pursuant to the Order and a Mutual Settlement Agreement and Release between the parties, both parties mutually released each other from all liability in the matter, with Jackson-Madison County General Hospital District responsible for court costs. There have been no new material developments in the action by Vanderbilt University against OmniCare-TN described in the Company's Form 10-Q quarterly report for the period ended December 31, 2002. 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 Gregory H. Moses, Jr., a director of the Company, died March 17, 2003. Mr. Moses served as President and Chief Executive Officer of the Company until his retirement November 22, 2002. On April 11, 2003, Linda A. Watters resigned as a director of the Company because of her appointment by Michigan Governor Jennifer Granholm as the state's new Commissioner of the Office of Financial and Insurance Services, effective that date. The resignation was required to avoid any possible appearance of a conflict of interest and was not the result of any disagreement with the Company. Ms. Watters served on the Company's Board of Directors since 2000, and she currently was Co-Chairperson of the Board's Finance and Audit Committee. The Committee continues to be chaired by its other Co-Chairperson, Darrel W. Francis. 22 On May 8, 2003, the Board of Directors elected Osbie Howard as a director of the Company, filling the vacancy created by the death of Mr. Moses. Mr. Howard will serve the remainder of that term, until the annual meeting of shareholders in 2005. Mr. Howard is Senior Vice President of the Company's wholly-owned subsidiary, United American of Tennessee, Inc. and also President of OmniCare-TN. Also on May 8, 2003, the Board of Directors amended the Company's Bylaws to reduce the minimum size of the Board from ten to nine directors, and the Board by resolution fixed the current size of the Board at nine directors. Accordingly, there are currently no vacancies on the nine-member Board of Directors. In addition, the Company has taken a strategic look at its corporate governance. In accordance with recommendations of its Governance Committee, on May 8, 2003 the Board adopted (i) a statement of Corporate Governance Principles, (ii) a Code of Ethics for Senior Financial Officers, (iii) a Code of Business Conduct and Ethics for its directors, officers and employees, (iv) a Conflict of Interest Policy, (v) a Governance Committee Charter and (vi) a Compensation Committee Charter, and ratified its previously adopted Finance and Audit Committee Charter. The Company's CEO and CFO have signed the code of ethics for senior financial officers. The Board has taken the above actions to ensure that UAHC was proactively ahead of the curve on all of the current governance activities. On the advice of an independent consultant, the Company's Compensation Committee has previously formalized the evaluation process for the President and Chief Executive Officer and other key executives of the Company. The Company also has established a policy to pay its Directors their periodic stipend as compensation for Director services in shares of Common Stock of the Company rather than cash. 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: 23 1. Inability to increase premium rates commensurate with increases in medical costs due to utilization, government regulation, or other factors. 2. Discontinuation of, limitations upon, or restructuring of government-funded programs, including but not limited to the TennCare program. 3. The potential reenrollment of some of the approximately 7,900 OmniCare TN members disenrolled by TennCare since July 1, 2002 pursuant to its court-challenged eligibility reverification process that disenrolled approximately 166,000 TennCare members statewide. 4. Delays in or nonoccurrence of TennCare's anticipated assignment of additional TennCare enrollees to OmniCare-TN. 5. Increases in medical costs, including increases in utilization and costs of medical services and the effects of actions by competitors or groups of providers. 6. Adverse state and federal legislation and initiatives, including: the State of Tennessee's nonpayment of earned incentive compensation; 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. 7. Failure to obtain new customer bases or members or retain or regain customer bases or members, or reductions in work force by existing customers. 8. Increased competition between current organizations, the entrance of new competitors and the introduction of new products by new and existing competitors. 9. Adverse publicity and media coverage. 10. Inability to carry out marketing and sales plans. 11. Loss or retirement of key executives. 12. Termination of provider contracts or renegotiations at less cost-effective rates or terms of payment. 13. The selection by employers and individuals of higher co-payment/deductible/ coinsurance plans with relatively lower premiums or margins. 14. Adverse regulatory determinations resulting in loss or limitations of licensure, certification or contracts with governmental payors. 15. Higher sales, administrative or general expenses occasioned by the need for additional advertising, marketing, administrative or management information systems expenditures. 16. Increases by regulatory authorities of minimum capital, reserve and other financial solvency requirements. 17. Denial of accreditation by quality accrediting agencies, e.g., the National Committee for Quality Assurance (NCQA). 18. Adverse results from significant litigation matters. 19. Inability to maintain or obtain satisfactory bank loan credit arrangements. 24 20. 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 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 1) The Company filed a Current Report on Form 8-K on March 5, 2003, announcing a change in its certifying accountant. 2) The Company filed a Current Report on Form 8-K/A on March 10, 2003, supplementing its above-described filing to attach as an exhibit a letter from its former certifying accountant. 3) The Company filed a Current Report on Form 8-K on April 15, 2003, announcing two vacancies on its Board of Directors, one by resignation (due to the director's appointment by Michigan's Governor as the state's Commissioner of the Office of Financial and Insurance Services) and the other by death. 25 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: May 12, 2003 By: /s/ William C. Brooks ------------------------- William C. Brooks President & Chief Executive Officer Dated: May 12, 2003 By: /s/ Stephen D. Harris ------------------------- Chief Financial Officer & Treasurer 26 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: May 12, 2003 /s/ William C. Brooks -------------------------------------------- President and Chief Executive Officer (principal executive officer) 27 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: May 12, 2003 /s/ Stephen D. Harris --------------------------------- Chief Financial Officer (principal financial officer) 28 10-Q EXHIBIT INDEX EXHIBIT NO. DESCRIPTION EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002