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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended June 30, 2006
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 or organization) Identification No.)
300 RIVER PLACE, SUITE 4950
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X].
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY
NON-AFFILIATES AS OF AUGUST 28, 2006, COMPUTED BY REFERENCE TO THE NASDAQ
SMALLCAP MARKET CLOSING PRICE ON SUCH DATE, WAS $26,359,473.
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF AUGUST 28,
2006 WAS 7,531,277.
Portions of the registrant's Proxy Statement for its 2006 Annual Meeting of
Shareholders have been incorporated by reference in Part III of this Annual
Report of Form 10-K.
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As filed with the Securities and Exchange Commission on August 31, 2006
UNITED AMERICAN HEALTHCARE CORPORATION
FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business..................................................... 2
Item 2. Properties................................................... 13
Item 3. Legal Proceedings............................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.......... 14
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.......................................... 14
Item 6. Selected Financial Data...................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 15
Item 8. Financial Statements......................................... 23
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 23
Item 9a. Controls and Procedures...................................... 23
PART III
Item 10. Directors and Executive Officers of the Registrant........... 24
Item 11. Executive Compensation....................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 24
Item 13. Certain Relationships and Related Transactions............... 24
Item 14. Principal Accounting Fees and Services....................... 24
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K.......................................................... 25
Financial Statements..................................................... F-1
PART I
ITEM 1. BUSINESS
GENERAL
United American Healthcare Corporation (the "Company") was incorporated in
Michigan on December 1, 1983 and commenced operations in May 1985. Unless the
context otherwise requires, all references to the Company indicated herein shall
mean United American Healthcare Corporation and its consolidated subsidiaries.
The Company provides comprehensive management and consulting services to a
managed care organization in Tennessee, and previously to other health
maintenance organizations in other states, principally (until November 1, 2002)
Michigan. The Company also arranges for the financing of health care services
and delivery of these services by primary care physicians and specialists,
hospitals, pharmacies and other ancillary providers to commercial employer
groups and government-sponsored populations in Tennessee and previously (until
November 1, 2002) Michigan.
Management and consulting services provided by the Company are and have been
generally to health maintenance organizations with a targeted mix of Medicaid
and non-Medicaid/commercial enrollment. As of August 14, 2006, there were
113,951 enrollees in UAHC Health Plan of Tennessee, Inc. ("UAHC-TN"), owned by
the Company's wholly owned subsidiary.
Pursuant to notice received from OmniCare Health Plan in Michigan
("OmniCare-MI"), the Company's management agreement with OmniCare-MI terminated
November 1, 2002. On that date, the Company ceased providing services to
OmniCare-MI, and UAHC-TN became the Company's only managed plan.
Management and consulting services provided by the Company include feasibility
studies for licensure, strategic planning, corporate governance, management
information systems, human resources, marketing, pre-certification, utilization
review programs, individual case management, budgeting, provider network
services, accreditation preparation, enrollment processing, claims processing,
member services and cost containment programs.
In 1985, the Company became one of the pioneers in arranging for the financing
and delivery of health care services to Medicaid recipients utilizing managed
care programs. Management believes the Company has gained substantial expertise
in understanding and serving the particular needs of the Medicaid population.
INDUSTRY
In an effort to control costs while assuring the delivery of quality health care
services, the public and private sectors have increasingly turned to managed
care solutions. As a result, the managed
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care industry, which includes health maintenance organization ("HMO"),
preferred provider organization ("PPO") and prepaid health service plans, has
grown substantially.
While the trend toward managed care solutions has traditionally been pursued
most aggressively by the private sector, the public sector has embraced the
trend in an effort to control the costs of health care provided to Medicaid
recipients. Consequently, many states are promoting managed care initiatives to
contain these rising costs and supporting programs that encourage or mandate
Medicaid beneficiaries to enroll in managed care plans.
MANAGED CARE PRODUCTS AND SERVICES
The Company owns and manages the operations of an HMO in Tennessee, UAHC-TN. The
Company also managed the operations of an HMO in which it had no ownership
interest, OmniCare-MI, pursuant to a management agreement, which terminated
November 1, 2002.
The following table shows the approximate number of UAHC-TN members serviced by
the Company as of August 1, 2006:
Medicaid Non-Medicaid Total
-------- ------------ -------
111,626 2,325 113,951
3
The following table shows the Company's principal revenue sources in dollar
amounts and as a percentage of the Company's total revenues for the periods
indicated. Such data are not indicative of the relative contributions to the
Company's net earnings.
YEAR ENDED JUNE 30,
------------------------------------------------
2006 2005 2004
-------------- -------------- --------------
(in thousands, except percentages)
Revenues
UAHC-TN $17,923 99.7% $21,794 98.7% $21,921 99.3%
MANAGED PLANS
The Company has entered into a long-term management agreement, through a wholly
owned subsidiary of the Company, with UAHC-TN. In addition, the Company had a
long-term management agreement with OmniCare-MI, which terminated November 1,
2002. Pursuant to these management agreements, the Company provides to UAHC-TN
and provided to OmniCare-MI management and consulting services associated with
the financing and delivery of health care services. Table A summarizes the terms
of these agreements.
Services provided to UAHC-TN and previously OmniCare-MI (the "Managed Plans")
include strategic planning; corporate governance; human resource functions;
provider network services; provider profiling and credentialing; premium rate
setting and review; marketing services (group and individual); accounting and
budgeting functions; deposit, disbursement and investment of funds; enrollment
functions; collection of accounts; claims processing; management information
systems; utilization review; and quality management.
4
Table A- Summary of Terms of Agreements with the Managed Plans
Terms UAHC-TN OmniCare-MI(1)
----- ------------------ --------------
(1) Duration:
(a) Effective dates:
(i) Commencement July 1, 1996 May 1, 1985
(ii) Expiration June 30, 2010 Nov. 1, 2002
(b) Term extension:
(i) Automatically renewable Yes - 3 successive N/A
5-year periods
(ii) Terms of renewal/ continuation 5 years N/A
(iii) Next review period January 1, 2010 N/A
(c) Termination:
(i) Without cause by the Plan at such review dates Yes N/A
(ii) Either party with cause Yes N/A
(2) Fees paid to the Company:
(a) Percentage of revenues Yes Yes(2)
(b) Fixed premium rates No No
(3) Expenses incurred by the Company:
All administrative expenses necessary to
carry out and perform the functions of the
Plan, excluding:
(i) Audit Yes No
(ii) Legal Yes No
(iii) Marketing No No
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(1) The Company's management agreement with OmniCare-MI was amended after the
Rehabilitator of OmniCare-MI was appointed by court order on July 31, 2001,
and terminated November 1, 2002, pursuant to notice the Company received
from OmniCare-MI.
(2) Fees paid to the Company were changed, however, to a cost-based fee, by
amendment dated December 14, 2001 and effective August 1, 2001.
5
MANAGED PLAN OWNED BY THE COMPANY
UAHC-TN. UAHC-TN was organized as a Tennessee corporation in October 1993, and
is headquartered in Memphis, Tennessee. The Company was active in the
development of UAHC-TN, and through the Company's wholly owned subsidiary,
United American of Tennessee, Inc., wholly owns UAHC-TN. UAHC-TN began as a PPO
contractor with the Bureau of TennCare, a State of Tennessee program that
provides medical benefits to Medicaid and working uninsured and uninsurable
recipients, and operated as a full-risk prepaid health services plan until it
obtained its TennCare HMO license in March 1996. UAHC-TN's TennCare HMO contract
was executed in October 1996, retroactive to the date of licensure.
In November 1993, UAHC-TN contracted with the State of Tennessee, doing business
as TennCare ("TennCare"), as a Medicaid PPO to arrange for the financing and
delivery of health care services on a capitated basis to eligible Medicaid
beneficiaries and the Working Uninsured and Uninsurable ("Non-Medicaid")
individuals who lack access to private or employer sponsored health insurance or
to another government health plan. TennCare placed an indefinite moratorium on
Working Uninsured enrollment in December 1994; however, such action did not
affect persons enrolled in a plan prior to the moratorium. In April 1997,
enrollment was expanded to include the children of the Working Uninsured up to
age 18.
The contract between UAHC-TN and TennCare was renewed July 1, 2000 for a
42-month term, expiring December 31, 2003. The new contract provided for
increased capitation rates, but eliminated the practice of providing retroactive
payments to managed care organizations for high cost chronic conditions of their
members ("adverse selection") and payments earmarked as adjustments for covered
benefits.
UAHC-TN was assigned approximately 6,000 members by TennCare in the second half
of fiscal 2000 as a result of three other managed care organizations, which had
contracts with TennCare, ceasing to serve their enrollees or being unable to
take on new enrollees. Medical services expenses for such new UAHC-TN members
disproportionately exceeded UAHC-TN's normal per member per month ("PMPM")
experience and adversely affected its earnings for and since that period.
UAHC-TN received from TennCare in fiscal 2001 an adverse selection payment of
$0.8 million for such fiscal 2000 expenses.
In June 2001, TennCare developed new risk-sharing options for its participating
managed care organizations (MCOs), including UAHC-TN. UAHC-TN entered into its
changed contract with TennCare effective July 1, 2001.
At June 30, 2001, UAHC-TN was licensed in and served Shelby and Davidson
Counties in Tennessee (which include the cities of Memphis and Nashville,
respectively). Effective July 1, 2001, UAHC-TN received approval from TennCare
to expand its service area to western Tennessee and to withdraw from Davidson
County. Additionally, a significant competitor of UAHC-TN ceased doing business
in October 2001, and TennCare assigned approximately 40,000 of that plan's
members to UAHC-TN on February 15, 2002.
6
Beginning July 1, 2002, TennCare implemented an 18-month stabilization program
which entailed changes to TennCare's contracts with MCOs, including UAHC-TN.
During that period, MCOs were generally compensated for administrative services
only (commonly called "ASO"), earned fixed administrative fees, were not at risk
for medical costs in excess of targets established based on various factors,
were subject to increased oversight, and could incur financial penalties for not
achieving certain performance requirements. Through successive contractual
amendments, TennCare extended the ASO reimbursement system applicable to
UAHC-TN, first through June 30, 2004, then through December 31, 2004, and then
through June 30, 2005.
UAHC-TN sought reimbursement from TennCare for exceptionally high medical
expenses incurred by new UAHC-TN enrollees in fiscal year 2002, including for
actuarially estimated claims incurred but not yet reported to UAHC-TN. In
response, TennCare amended its contract with UAHC-TN in September 2002,
retroactive to July 1, 2001 in some respects and to May 1, 2002 in other
respects. The amendment stated that UAHC-TN's outside actuary certified the plan
required $7.5 million to meet its statutory net worth requirement for the year
ended June 30, 2002 and that UAHC-TN "is a viable HMO under contract with
TennCare on the same basis as other comparable HMOs in the program effective
July 1, 2002."
Pursuant to such contractual amendment: UAHC-TN retroactively elected an
available risk option for the ten months from July 1, 2001 through April 30,
2002; TennCare retroactively agreed to reimburse UAHC-TN on a no-risk ASO basis
for medical services effective beginning May 1, 2002, and TennCare agreed to pay
UAHC-TN up to $7.5 million as necessary to meet its statutory net worth
requirement as of June 30, 2002. Pursuant to an agreement between TennCare and
UAHC-TN in October 2002, TennCare further agreed to pay additional funds to
UAHC-TN if future certified actuarial data confirmed they were needed by UAHC-TN
to meet that requirement.
UAHC-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, the $7.5 million
receivable and additional funds were not recorded in fiscal 2002 financial
statements but have been recorded in subsequent fiscal years as fiscal 2002
claims were processed.
UAHC-TN's application for a commercial HMO license was approved on September 7,
2001. Management is not yet actively pursuing that commercial business, however,
due to UAHC-TN's substantially increased enrollment from members TennCare
assigned to it from defunct other plans.
Through an amendment with an effective date of July 1, 2005, TennCare
implemented a modified risk arrangement with all its contracted MCOs, including
UAHC-TN, under which they are at risk for losing up to 10% of administrative fee
revenue and may receive up to 15% incentive bonus revenue based on performance
relative to benchmarks. TennCare also disenrolled approximately 100,000
non-medically needy adults who were not eligible for Medicaid from TennCare
coverage statewide, and imposed benefit limits on the 396,000 adults left in the
program who are eligible for Medicaid. As a result, UAHC-TN lost approximately
7
12,000 members during fiscal 2006. UAHC-TN has received notice from TennCare
that it earned additional revenue of $0.2 million and $0.2 million,
respectively, for its performance under the modified risk arrangement for the
first and second quarters of fiscal 2006. Such additional revenue has been
recorded. UAHC-TN expects to similarly earn additional bonus revenue of
approximately $0.2 million for each of the third and fourth quarters of fiscal
2006. The Company will record such earnings for the third and fourth quarters of
fiscal 2006 upon receipt of final performance notification from TennCare.
As of August 14, 2006, UAHC-TN's total enrollment was 113,951 members, of whom
98% were Medicaid enrollees and 2% were Non-Medicaid enrollees.
MANAGED PLAN PREVIOUSLY OPERATED BY THE COMPANY
OMNICARE-MI. As further described below, OmniCare-MI ceased to be a Managed Plan
operated by the Company effective November 1, 2002.
While managed by the Company, OmniCare-MI was a not-for-profit, tax-exempt
corporation headquartered in Detroit, Michigan and serving southeastern
Michigan, operating in Wayne, Oakland, Macomb, Monroe and Washtenaw counties.
Its history included a number of innovations that were adopted and proved
successful for the industry. While managed by the Company, it was the first
network model HMO in the country and the first to capitate physician services in
an IPA-model HMO (an Independent Practice Association model HMO does not employ
physicians as staff, but instead contracts with associations or groups of
independent physicians to provide services to HMO members). OmniCare-MI also
created and implemented the first known mental health capitation carve out in
1983.
While managed by the Company, OmniCare-MI's enrollment was through companies
that offered the health plan coverage to employees and their family members,
through individual enrollment and through the State of Michigan's Medicaid
program pursuant to an agreement with the Michigan Department of Community
Health, which made HMO coverage available to eligible Medicaid beneficiaries in
certain counties and mandatory in others.
As a Michigan HMO, OmniCare-MI was subject to oversight by the State of
Michigan's Commissioner of the Office of Financial and Insurance Services (the
"Commissioner"). On July 31, 2001, pursuant to a motion by the Commissioner, a
State circuit court judge entered an order of rehabilitation of OmniCare-MI (the
"Order") and appointed the Commissioner as Rehabilitator of OmniCare-MI. The
Order directed the Rehabilitator to administer all of OmniCare-MI's assets and
business while attempting to effectuate its rehabilitation, preserve its
provider network and maintain uninterrupted health care services to the greatest
extent possible.
The Order required the Company to continue performing all services under its
OmniCare-MI management agreement, which the Company did until that agreement's
termination on November 1, 2002, pursuant to OmniCare-MI's court-approved
rehabilitation plan.
GOVERNMENT REGULATION
The Company is and/or has been subject to extensive federal and state health
care and insurance regulations designed primarily to protect enrollees in the
Managed Plans, particularly with
8
respect to government sponsored enrollees. Such regulations govern many aspects
of the Company's business affairs and typically empower state agencies to review
management agreements with health care plans for, among other things,
reasonableness of charges. Among the other areas regulated by federal and state
law are licensure requirements, premium rate increases, new product offerings,
procedures for quality assurance, enrollment requirements, covered benefits,
service area expansion, provider relationships and the financial condition of
the managed plans, including cash reserve requirements and dividend
restrictions. There can be no assurances that the Company or UAHC-TN will be
granted the necessary approvals for new products or will maintain federal
qualifications or state licensure.
The licensing and operation of UAHC-TN are governed by the Tennessee statutes
and regulations applicable to health maintenance organizations. The licenses are
subject to denial, limitation, suspension or revocation if there is a
determination that the plan is operating out of compliance with the state's HMO
statute, failing to provide quality health services, establishing rates that are
unfair or unreasonable, failing to fulfill obligations under outstanding
agreements or operating on an unsound fiscal basis. UAHC-TN is not a
federally-qualified HMO and, therefore, is not subject to the federal HMO Act.
Federal and state regulation of health care plans and managed care products is
subject to frequent change, varies from jurisdiction to jurisdiction and
generally gives responsible administrative agencies broad discretion. Laws and
regulations relating to the Company's business are subject to amendment and/or
interpretation in each jurisdiction. In particular, legislation mandating
managed care for Medicaid recipients is often subject to change and may not
initially be accompanied by administrative rules and guidelines. Changes in
federal or state governmental regulation could affect the Company's operations,
profitability and business prospects. While the Company is unable to predict
what additional government regulations, if any, affecting its business may be
enacted in the future or how existing or future regulations may be interpreted,
regulatory revisions may have a material adverse effect on the Company.
INSURANCE
The Company presently carries comprehensive general liability, directors and
officers liability, property, business automobile, and workers' compensation
insurance. Management believes that coverage levels under these policies are
adequate in view of the risks associated with the Company's business. In
addition, UAHC-TN has (and OmniCare-MI while managed by the Company had)
professional liability insurance that covers liability claims arising from
medical malpractice. UAHC-TN is required to pay the professional liability
insurance premiums under the terms of the Company's management agreement. There
can be no assurance as to the future availability or cost of such insurance, or
that the Company's business risks will be maintained within the limits of such
insurance coverage.
COMPETITION
The managed care industry is highly competitive. The Company directly competes
with other entities that provide health care plan management services, some of
which are nonprofit corporations and others, which have significantly greater
financial and administrative resources.
9
The Company primarily competes on the basis of fee arrangements, cost
effectiveness and the range and quality of services offered to prospective
health care clients. While the Company believes that its experience gives it
certain competitive advantages over existing and potential new competitors,
there can be no assurance that the Company will be able to compete effectively
in the future.
The Company competes with other HMOs, PPOs and insurance companies. The level of
this competition may affect, among other things, the operating revenues of
UAHC-TN and, therefore, the revenues of the Company. UAHC-TN's primary market
competitors in western Tennessee are TLC, Unison Health Plan and TennCare
Select. UAHC-TN primarily competes on the basis of enrollment, provider networks
and other related plan features and criteria. Management believes that UAHC-TN
is able to compete effectively with its primary market competitors.
10
EMPLOYEES
The Company's ability to maintain its competitive position and expand its
business into new markets depends, in significant part, upon the maintenance of
its relationships with various existing senior officers, as well as its ability
to attract and retain qualified health care management professionals. The
Company neither has nor intends to pursue any long-term employment agreement
with any of its key personnel. Accordingly, there is no assurance that the
Company will be able to maintain such relationships or attract such
professionals.
The total number of employees at August 1, 2006 was 107 compared to 106 at
August 1, 2005. The Company's employees do not belong to a collective bargaining
unit and management considers its relations with employees to be good.
11
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage management to provide prospective
information about their companies without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the statements. Certain
statements contained in this Form 10-K annual report, including, without
limitation, statements containing the words "believes," "anticipates," "will,"
"could," "may," "might" and words of similar import, constitute "forward-looking
statements" within the meaning of this "safe harbor."
Such forward-looking statements are based on management's current expectations
and involve known and unknown risks, uncertainties and other factors, many of
which the Company is unable to predict or control, that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors potentially include, among others,
the following:
1. Inability 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. Increases in medical costs, including increases in utilization and
costs of medical services and the effects of actions by competitors or
groups of providers.
4. Adverse state and federal legislation and initiatives, including: the
State of Tennessee's 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.
5. Failure to obtain new customer bases or members or retain or regain
customer bases or members, or reductions in work force by existing
customers.
6. Increased competition between current organizations, the entrance of
new competitors and the introduction of new products by new and
existing competitors.
7. Adverse publicity and media coverage.
8. Inability to carry out marketing and sales plans.
9. Loss or retirement of key executives.
10. Termination of provider contracts or renegotiations at less
cost-effective rates or terms of payment.
11. Adverse regulatory determinations resulting in loss or limitations of
licensure, certification or contracts with governmental payers.
12. Higher sales, administrative or general expenses occasioned by the
need for additional advertising, marketing, administrative or
management information systems expenditures.
12
13. Increases by regulatory authorities of minimum capital, reserve and
other financial solvency requirements.
14. Denial of accreditation by quality accrediting agencies, e.g., the
National Committee for Quality Assurance (NCQA).
15. Adverse results from significant litigation matters.
16. Inability to obtain satisfactory bank loan credit arrangements, if
needed.
17. Increased costs to comply with the Health Insurance Portability and
Accountability Act of 1996 (HIPAA).
ITEM 2. PROPERTIES
The Company currently leases approximately 30,000 aggregate square feet from
which it conducts its operations in Michigan and Tennessee. The principal
offices of the Company are located at 300 River Place, Suite 4950, Detroit,
Michigan, where it currently leases approximately 3,800 square feet of office
space.
The Company believes that its current facilities provide sufficient space
suitable for all of its activities and that sufficient other space will be
available on reasonable terms, if needed.
ITEM 3. LEGAL PROCEEDINGS
On May 27, 2005 and June 16, 2005, complaints were filed in two similar lawsuits
against the Company and certain of its present and past officers in the United
States District Court for the Eastern District of Michigan. The plaintiffs in
the two respective cases are Gregory Zaluski and William Coleman, each on behalf
of himself and all others similarly situated. Both complaints allege that in the
period from May 26, 2000 through April 22, 2005, the Company made materially
false and misleading statements in violation of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder, with the alleged result of
artificially inflating the market price of the Company's stock during that
period. Both complaints allege that as a direct result of facts publicly
disclosed by the Company in April 2005, the Company's stock price dropped by
about $3.39. Each plaintiff claims to represent a class consisting of others
similarly situated, namely, those who purchased the Company's stock during the
specified period. The plaintiffs are seeking to recover damages on behalf of
themselves and the class, and any other relief the court may grant. On March 17,
2006, the court consolidated both cases for all purposes, collectively called
"In re United American Healthcare Corporation Securities Litigation," Master
File No. 2:2005cv72112(LPZ/RSW) and appointed lead plaintiffs and lead counsel
and liaison counsel for the proposed class in the consolidated action. The
Company and the other defendants have filed motions to dismiss the plaintiffs'
consolidated complaint, and the plaintiffs' response to motions to dismiss is
due by September 6, 2006.
13
The Company is a defendant with others in a lawsuit that commenced in February
2005 in the Circuit Court for the 30th Judicial Circuit, in the County of
Ingham, Michigan, Case No. 05127CK, entitled "Provider Creditors Committee on
behalf of Michigan Health Maintenance Organizations Plans, Inc. v. United
American Health Care Corporation and others, et al." The complaint seeks damages
in excess of $62 million from the Company and other defendants based on
allegations that the Company breached its management agreement with OmniCare
Health Plan in Michigan ("OmniCare-MI") and that the Company's actions as the
management company of OmniCare-MI resulted in such alleged damages. The Company
filed an answer and affirmative defenses and a motion for partial summary
disposition seeking dismissal of numerous counts; and the defendants filed a
joint motion for change of venue and for partial summary disposition seeking
dismissal of numerous counts. The trial judge denied the change-of-venue motion
but has ordered a stay of the case pending appeal of that decision to the
Michigan Court of Appeals. The defendants' appeal from denial of their
change-of-venue motion has been fully briefed in the appellate court, where the
parties await notice of a hearing date for oral argument. The Company intends to
vigorously defend the lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Shares of the Company's common stock are traded on the Nasdaq SmallCap Market
under the trading symbol "UAHC".
The table below sets forth for the Common Stock the range of the high and low
sales prices per share on the NASDAQ SmallCap Market for each quarter in the
past two fiscal years.
2006 2005
SALES PRICE SALES PRICE
----------- -------------
FISCAL QUARTER HIGH LOW HIGH LOW
-------------- ---- ---- ----- -----
First 3.44 2.01 $5.63 $3.52
Second 3.30 2.35 $7.89 $3.97
Third 3.04 2.45 $6.58 $5.21
Fourth 4.04 3.02 $5.83 $1.56
As of August 28, 2006, the closing price of the Common Stock was $3.50 per share
and there were approximately 116 shareholders of record of the Company.
The Company has not paid any cash dividends on its Common Stock since its
initial public offering in fiscal 1991 and does not anticipate paying such
dividends in the foreseeable future. The Company intends to retain earnings for
use in the operation and expansion of its business.
14
ITEM 6. SELECTED FINANCIAL DATA
The following table shows consolidated financial data for the periods indicated:
2006 2005 2004 2003 2002
------- ------- ------- ------- --------
(in thousands, except per share data)
Operating Data (Year ended June 30):
Operating revenues $18,114 $22,079 $22,084 $24,530 $165,176
Earnings (loss) from continuing
operations 1,373 5,474 7,871 7,333 (9,259)
Loss from discontinued operation, net
of income taxes -- (129) (700) (2,127) (1,704)
Net earnings (loss) 1,373 5,345 7,171 5,206 (10,963)
Earnings (loss) per common share from
continuing operations - basic $ 0.18 $ 0.74 $ 1.09 $ 1.06 $ (1.35)
Net earnings (loss) per common share -
basic $ 0.18 $ 0.72 $ 0.99 $ 0.75 $ (1.60)
Net earnings (loss) per common share
-diluted $ 0.18 $ 0.69 $ 0.99 $ 0.75 $ (1.60)
Weighted average common shares
outstanding - diluted 7,628 7,674 7,266 6,950 6,839
Balance Sheet Data (June 30):
Cash and investments $ 6,921 $13,573 $ 8,767 $ 4,693 $ 18,810
Goodwill 3,452 3,452 3,452 2,952 2,952
Total assets 25,226 24,235 20,081 15,114 33,336
Medical claims and benefits payable 156 172 406 591 24,495
Debt -- -- 847 1,766 2,869
Shareholders' equity 22,050 20,483 14,885 7,140 1,747
ITEM 7. 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 annual report.
The Company provides comprehensive management and consulting services to managed
care organizations, including health maintenance organizations ("HMOs") in
Tennessee and (until
15
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 has been UAHC Health Plan, Inc. (formerly
called OmniCare Health Plan, Inc.) ("UAHC-TN"), an HMO which is owned by the
Company's wholly owned subsidiary. Accordingly, the consolidated financial
statements in this annual report have been restated to present the operations
related to managing OmniCare-MI as a discontinued operation.
Beginning July 1, 2002, TennCare implemented an 18-month stabilization program
which entailed changes to TennCare's contracts with MCOs, including UAHC-TN.
During that period, MCOs were generally compensated for administrative services
only (commonly called "ASO"), earned fixed administrative fees, were not at risk
for medical costs in excess of targets established based on various factors,
were subject to increased oversight, and could incur financial penalties for not
achieving certain performance requirements. Through successive contractual
amendments, TennCare extended the ASO reimbursement system applicable to UAHC-TN
first through June 30, 2004, then through December 31, 2004, and then through
June 30, 2005. These matters are more fully discussed and analyzed below under
the heading "Review of Consolidated Results of Operations - 2005 Compared to
2004."
REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS - 2006 COMPARED TO 2005
UAHC-TN DEVELOPMENTS
UAHC-TN's results of operations for fiscal 2006 and 2005 are best understood in
the context of certain earlier events involving several of TennCare's major
contracted MCOs, which ceased doing business in fiscal 2002. Beginning in
February, March and April 2002, UAHC-TN unexpectedly noticed increases in its
claims payments, investigated, and found that approximately 9,500 new members
added in September-December 2001 represented children with special needs with
medical costs over 100% of the premiums received, and that many members
transferred to UAHC-TN from failed MCOs also had medical costs in excess of
UAHC-TN's premiums received. Beginning in April 2002, UAHC-TN wrote to TennCare
seeking risk adjustments and reimbursements to compensate UAHC-TN for such
medical expenses, including for actuarially estimated claims incurred but not
yet reported to UAHC-TN.
TennCare responded to its MCOs' situation generally and in some instances
individually. For all its contracted MCOs generally, 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 UAHC-TN - had no medical cost risk
16
(i.e., no risk for medical losses), earned fixed administrative fees and were
subject to increased oversight. Through successive contractual amendments,
TennCare extended the ASO reimbursement system applicable to UAHC-TN, first
through June 30, 2004, then through December 31, 2004, and then through June 30,
2005.
Through an amendment with an effective date of July 1, 2005, TennCare
implemented a modified risk arrangement with all its contracted MCOs, including
UAHC-TN, under which they are at risk for losing up to 10% of administrative fee
revenue and may receive up to 15% incentive bonus revenue based on performance
relative to benchmarks. TennCare also disenrolled approximately 100,000
non-medically needy adults who were not eligible for Medicaid from TennCare
coverage statewide, and imposed benefit limits on the 396,000 adults left in the
program who are eligible for Medicaid. As a result, UAHC-TN lost approximately
12,000 members during fiscal 2006.
The Company and the Department of Finance and Administration of the State of
Tennessee, Bureau of TennCare ("TennCare") are parties to two escrow agreements
under which the Company funded, on August 5, 2005, two escrow accounts held by
TennCare at the State Treasury. One, in the amount of $2,300,000, is security
for repayment to TennCare of any overpayments to UAHC-TN that may be determined
by a pending audit of all UAHC-TN process claims since 2002; and the other, in
the amount of $420,500, is security for any money damages that may be awarded to
TennCare in the event of any future litigation between the parties in connection
with certain pending investigations by state and federal authorities. The escrow
accounts bear interest at a rate no lower than the prevailing commercial
interest rates for savings accounts at financial institutions in Nashville,
Tennessee. The escrow accounts will terminate August 5, 2007 or sooner in
certain events, except if litigation is pursued by either party, in which event
the escrow accounts will continue until the end of such litigation. All amounts
(including interest earnings) credited to the escrow accounts will belong to the
Company, except to the extent, if any, they are paid to TennCare to satisfy
amounts determined to be owed to TennCare as provided in the escrow agreements.
Both escrow agreements recite that TennCare does not at that time assert there
has been any breach of UAHC-TN's TennCare contract and that the Company has
funded the escrow accounts as a show of goodwill and good faith in working with
TennCare.
As of June 30, 2006, UAHC-TN's total enrollment was 113,951 members, compared to
131,247 at June 30, 2005.
SPECIFIC COMPARISONS OF 2006 TO 2005
Total revenues were $18.1 million for the fiscal year ended June 30, 2006
compared to $22.1 million for the fiscal year ended June 30, 2005.
There were no medical premiums revenues for the fiscal year ended June 30, 2006,
compared to medical premiums revenues of $0.02 million for the fiscal year ended
June 30, 2005. Effective July 1, 2002, TennCare changed its reimbursement system
to an ASO program for an initially declared 18-month stabilization period,
subsequently extended through June 30, 2005. Beginning July 1, 2005, TennCare
currently operates a modified risk arrangement.
Fixed administrative fees related to the ASO program were $17.0 million for the
fiscal year ended June 30, 2006, a decrease of $3.9 million (19%) from fixed
administrative fees of $20.9
17
million for the fiscal year ended June 30, 2005. The decrease in fixed
administrative fees is principally due to a decrease in members. UAHC-TN has
received notice from TennCare that it earned additional revenue of $0.2 million
and $0.2 million, respectively, for its performance under the modified risk
arrangement for the first and second quarters of fiscal 2006. Such additional
revenue has been recorded. UAHC-TN expects to similarly earn additional revenue
of approximately $0.2 million for each of the third and fourth quarters of
fiscal 2006. The Company would record such earnings in fiscal 2007 only upon
receipt of final notification thereof from TennCare.
Total expenses were $16.6 million for the fiscal year ended June 30, 2006,
compared to $16.0 million for the fiscal year ended June 30, 2005, an increase
of $0.6 million (4%). The increase is principally due to legal fees associated
with ongoing litigation, and an increase in claims processing costs.
Because of TennCare's ASO reimbursement system, there were no medical services
expenses in the fiscal year ended June 30, 2006, as compared with medical
services expenses of $0.02 million in the fiscal year ended June 30, 2005. The
$0.02 million of medical services expenses represent fiscal 2002 claims
processed and reimbursed by TennCare in fiscal 2005 as explained in item 1 under
the heading "Managed Plans - Managed Plan Owned by the Company."
General and administrative expenses were $16.5 million for the fiscal year ended
June 30, 2006, as compared with general and administrative expenses of $15.7
million for the comparable period a year earlier, a increase of $0.8 million
(5%). The increase is principally due to legal fees associated with ongoing
litigation, and an increase in claims processing costs.
Depreciation and amortization expense decreased $0.05 million (28%), to $0.13
million for the fiscal year ended June 30, 2006 from $0.18 million for the
fiscal year ended June 30, 2005.
Earnings from continuing operations before income taxes were $1.5 million and
$6.1 million for the fiscal years ended June 30, 2006 and 2005, respectively.
Such decrease in earnings from continuing operations of $4.6 million, or $0.62
per basic share, is principally due to a decrease in administrative fee revenue,
coupled with an increase in general and administrative expenses as discussed
above.
Income tax expense decreased $0.5 million (78%), to $0.1 million for the fiscal
year ended June 30, 2006 from $0.7 million for the fiscal year ended June 30,
2005. The Company's effective tax rate for the fiscal year ended June 30, 2005
is 9% and differs from the statutory rate of 34%. This difference is the result
of the utilization of net operating loss carryforwards for which a valuation
allowance had previously been applied.
There were no charges from discontinued operations for the fiscal year ended
June 30, 2006. The Company recorded a liability in the first quarter of fiscal
2005 as it relates to an expired sublease obligation for its former office
premises in Detroit, Michigan. See "OVERVIEW" above for more detailed discussion
and analysis of such loss from discontinued operations.
18
Net earnings were $1.4 million, or $0.18 per basic share, for the fiscal year
ended June 30, 2006, compared to net earnings of $5.3 million, or $0.72 per
basic share, for the fiscal year ended June 30, 2005, a decrease of $3.9 million
(74%). Such decrease in net earnings is principally due to a decrease in
administrative fee revenue, coupled with an increase in general and
administrative expenses as discussed above.
REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS - 2005 TO 2004
Total revenues were $22.1 million for the fiscal year ended June 30, 2005
compared to $22.1 million for the fiscal year ended June 30, 2004, practically
unchanged year-over-year.
Medical premiums revenues were $0.02 million for the fiscal year ended June 30,
2005, a decrease of $0.48 million (96%) from medical premiums revenues of $0.5
million for the fiscal year ended June 30, 2004. The decrease came from UAHC-TN
as the result of TennCare's changing its reimbursement system to an ASO program
for an initially declared 18-month stabilization period beginning July 1, 2002,
subsequently extended through June 30, 2005.
Fixed administrative fees related to the ASO program were $20.9 million for the
fiscal year ended June 30, 2005, an increase of $0.5 million (3%) from fixed
administrative fees of $20.4 million for the fiscal year ended June 30, 2004.
The increase in fixed administrative fees is principally due to a slight
increase in members of UAHC-TN.
Total expenses were $16.0 million for the fiscal year ended June 30, 2005,
compared to $15.3 million for the fiscal year ended June 30, 2004, an increase
of $0.7 million (4%). The increase was principally due to an increase in costs
associated with the order of administrative supervision for UAHC-TN (described
under the heading " Liquidity and Capital Resources" below), and an increase in
claims processing costs.
Because of TennCare's ASO reimbursement system, medical services expenses were
$0.02 million in the fiscal year ended June 30, 2005, a decrease of $0.48
million (96%), as compared with medical services expenses of $0.5 million in the
fiscal year ended June 30, 2004. The $0.02 million of medical services expenses
represent fiscal 2002 claims processed and reimbursed by TennCare in fiscal 2005
as explained in item 1 under the heading "Managed Plans - Managed Plan Owned by
the Company."
Marketing, general and administrative expenses were $15.7 million for the fiscal
year ended June 30, 2005, as compared with marketing, general and administrative
expenses of $14.5 million for the comparable period a year earlier, an increase
of $1.2 million (8%). The increase was principally due to an increase in costs
associated with the administrative supervision order for UAHC-TN, and an
increase in claims processing costs.
Depreciation and amortization expense decreased $0.05 million (22%), to $0.17
million for the fiscal year ended June 30, 2005 from $0.23 million for the
fiscal year ended June 30, 2004.
19
Interest expense decreased $0.06 million (88%), to $0.008 million for the fiscal
year ended June 30, 2005 from $0.07 million for the fiscal year ended June 30,
2004, principally due to debt reduction.
Earnings from continuing operations before income taxes were $6.1 million and
$6.8 million for the fiscal years ended June 30, 2005 and 2004, respectively.
Such decrease in earnings from continuing operations of $0.7 million, or $0.08
per basic share, is principally due to an increase in marketing, general and
administrative expenses.
Income tax expense increased $1.8 million (160%), to $0.7 million for the fiscal
year ended June 30, 2005 from $(1.1) million for the fiscal year ended June 30,
2004. The Company's effective tax rate for the fiscal year ended June 30, 2005
is 11% and differs from the statutory rate of 34%. This difference is the result
of the utilization of net operating loss carryforwards for which a valuation
allowance had previously been applied.
The Company recognized a loss of $0.1 million from discontinued operations for
the fiscal year ended June 30, 2005, principally due to a liability relating to
a sublease, partially offset by the release of certain liabilities related to a
patient care software system no longer in use by the Company. For the fiscal
year ended June 30, 2004, the Company recognized a loss from discontinued
operatons of $0.7 million. The charges for discontinued operations are 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 $5.3 million, or $0.72 per basic share, for the fiscal year
ended June 30, 2005, compared to net earnings of $7.2 million, or $0.99 per
basic share, for the fiscal year ended June 30, 2004, a decrease of $1.9 million
(26%). Such decrease in net earnings is principally due to an increase in
marketing, general and administrative expenses and a higher effective tax rate
for the period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2006, the Company had (i) cash and cash equivalents and short-term
marketable securities of $6.9 million, compared to $13.5 million at June 30,
2005; (ii) working capital of $7.8 million, compared to working capital of $13.9
million at June 30, 2005; and (iii) a current assets-to-current liabilities
ratio of 3.46 to-1, compared to 4.70-to-1 at June 30, 2005.
Net cash from operating activities was $1.1 million in fiscal 2006 compared to
net cash from operating activities of $5.6 million in fiscal 2005. Investing
activities in fiscal 2006 included the purchase of marketable securities of $6.6
million.
Cash and marketable securities decreased by $6.6 million at June 30, 2006
compared to June 30, 2005 due primarily to the purchase of marketable
securities.
Accounts receivable decreased by $0.1 million at June 30, 2006 compared to June
30, 2005, primarily due to a decrease in premium tax reimbursements due from
TennCare.
20
Property, plant and equipment decreased by $0.04 million at June 30, 2006
compared to June 30, 2005, due to recording depreciation of $0.13 million offset
by equipment purchases of $0.1 million.
Medical claims payable decreased by $0.02 million at June 30, 2006 compared to
June 30, 2005, which is directly related to the payment of outstanding medical
claims.
The Company's wholly owned subsidiary, UAHC-TN, had a required minimum net worth
requirement using statutory accounting practices of $7.5 million at June 30,
2006. UAHC-TN had excess statutory net worth of approximately $3.9 million at
June 30, 2006.
UAHC-TN's application for a commercial HMO license was approved on September 7,
2001. Management is not yet actively pursuing that commercial business, however,
due to UAHC-TN's substantially increased enrollment from members TennCare
assigned from defunct other plans, together with adapting to TennCare's
stabilization program.
Beginning July 1, 2002, TennCare implemented an 18-month stabilization program,
which entailed changes to TennCare's contracts with MCOs, including UAHC-TN.
During that period, MCOs are generally compensated for administrative services
only (commonly called "ASO"), earned fixed administrative fees, were not at risk
for medical costs in excess of targets established based on various factors,
were subject to increased oversight, and could incur financial penalties for not
achieving certain performance requirements. Through successive contractual
amendments, TennCare extended the ASO reimbursement system applicable to
UAHC-TN, first through June 30, 2004, then through December 31, 2004, and then
through June 30, 2005. Through an amendment with an effective date of July 1,
2005, TennCare implemented a modified risk arrangement with all its contracted
MCOs, including UAHC-TN, under which they are at risk for losing up to 10% of
administrative fee revenue and may receive up to 15% incentive bonus revenue
based on performance relative to benchmarks. TennCare also disenrolled
approximately 100,000 non-medically needy adults who were not eligible for
Medicaid from TennCare coverage statewide, and imposed benefit limits on the
396,000 adults left in the program who are eligible for Medicaid. As a result,
UAHC-TN lost approximately 12,000 members during fiscal 2006. UAHC-TN has
received notice from TennCare that it earned additional revenue of $0.2 million
and $0.2 million, respectively, for its performance under the modified risk
arrangement for the first and second quarters of fiscal 2006. Such additional
revenue has been recorded. UAHC-TN expects to similarly earn additional revenue
of approximately $0.2 million for each of the third and fourth quarters of
fiscal 2006. The Company would record such earnings in fiscal 2007 only upon
receipt of final notification thereof from TennCare.
The Company and the Department of Finance and Administration of the State of
Tennessee, Bureau of TennCare ("TennCare") are parties to two escrow agreements
under which the Company funded, on August 5, 2005, two escrow accounts held by
TennCare at the State Treasury. One, in the amount of $2,300,000, is security
for repayment to TennCare of any overpayments to UAHC-TN that may be determined
by a pending audit of all UAHC-TN process claims since 2002; and the other, in
the amount of $420,500, is security for any money damages that may be awarded to
TennCare in the event of any future litigation between the parties in connection
with certain pending investigations by
21
state and federal authorities. The escrow accounts bear interest at a rate no
lower than the prevailing commercial interest rates for savings accounts at
financial institutions in Nashville, Tennessee. The escrow accounts will
terminate August 5, 2007 or sooner in certain events, except if litigation is
pursued by either party, in which event the escrow accounts will continue until
the end of such litigation. All amounts (including interest earnings) credited
to the escrow accounts will belong to the Company, except to the extent, if any,
they are paid to TennCare to satisfy amounts determined to be owed to TennCare
as provided in the escrow agreements. Both escrow agreements recite that
TennCare does not at that time assert there has been any breach of UAHC-TN's
TennCare contract and that the Company has funded the escrow accounts as a show
of goodwill and good faith in working with TennCare.
UAHC-TN is no longer subject to the Notice and order of administrative
supervision that the Commissioner of the State of Tennessee's Department of
Commerce and Insurance had issued to it on April 20, 2005. That notice and order
expired in accordance with its terms on December 31, 2005. The State of
Tennessee in June 2006 extended UAHC-TN's TennCare contract through December 31,
2006, by an amendment to the contract effective as of July 1, 2006.
The Company's ability to generate adequate amounts of cash to meet its future
cash needs depends on a number of factors, particularly including its ability to
control administrative costs, related to the new modified risk arrangement for
the TennCare program beginning July 1, 2005 and controlling corporate overhead
costs. On the basis of the matters discussed above, management believes at this
time that the Company has the ability to generate sufficient cash to adequately
support its financial requirements through the next twelve months, and maintain
minimum statutory net worth requirements of UAHC-TN.
RECENTLY ENACTED PRONOUNCEMENTS
The following are new accounting standards and interpretations that may be
applicable in the future to the Company:
SFAS No. 123(R), "Share-Based Payment," which is a replacement to SFAS No. 123
"Accounting for Stock Based Compensation," and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees," was issued in December 2004. The
revisions are intended to provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. SFAS No. 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. SFAS No. 123, as originally issued in 1995,
established a preferable fair-value-based method of accounting for share-based
payment transactions with employees. However, that Statement permitted entities
the option of continuing to apply the guidance in APB Opinion No. 25, as long as
the footnotes to financial statements disclosed what net income would have been
had the
22
preferable fair-value-based method been used. Publicly traded entities (other
than those filing as small business issuers are required to apply SFAS No.
123(R) as of the first annual reporting period that begins after June 15, 2005.
The Company adopted this standard, as required, in the first quarter of fiscal
2006.
The Financial Accounting Standards Board's final interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN 48"), was issued on July 13,
2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in the financial statements in accordance with SFAS No. 109, "Accounting for
Income Taxes." This interpretation provides guidance on the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. Further, FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosures and
transition. This interpretation is effective for fiscal years beginning after
December 15, 2006. The cumulative effects, if any, of applying FIN 48 will be
recorded as an adjustment to retained earnings as of the beginning of the period
of adoption. The Company is in the process of evaluating the expected effect of
FIN 48 and is currently unable to determine the impact, if any, that FIN 48 may
have on its results of operations, financial position and cash flows.
ITEM 8. FINANCIAL STATEMENTS
Presented beginning at page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including our Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this Report, and,
based on their evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that these controls and procedures are effective. There
were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that the Company files or submits under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
23
information required to be disclosed by the Company in the reports that we file
under the Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on November 3, 2006.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on November 3, 2006.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on November 3, 2006.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on November 3, 2006.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on November 3, 2006 is the
information set forth in such proxy statement under the headings "Audit Fees"
and "Audit Committees Pre-Approval Policies and Procedures."
24
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) (1) & (2) The financial statements listed in the accompanying Index to
Consolidated Financial Statements at page F-1 are filed as part of this Form
10-K report.
(3) The Exhibit Index lists the exhibits required by Item 601 of Regulation S-K
to be filed as a part of this Form 10-K report. The Exhibit Index identifies
those documents which are exhibits filed herewith or incorporated by reference
to (i) the Company's Form S-1 Registration Statement under the Securities Act of
1933, as amended, declared effective on April 23, 1991 (Commission File No.
33-36760); (ii) the Company's Form 10-K reports for its fiscal years ended June
30, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2001, and 2002; (iii) the
Company's 10-K/A report filed October 14, 1996; (iv) the Company's Form 10-Q
reports for its quarters ended March 31, 1996, September 30, 1996, December 31,
1996, March 31, 1997, March 31, 1998, December 31, 1998, December 31, 2001,
September 30, 2002, December 31, 2002, and March 31, 2005; (v) the Company's
Form 8-K reports filed with the Commission August 8, 1991, April 23, 1993, May
24, 1993, January 29, 1996, April 19, 1996, October 30, 1997, January 20, 1998,
January 14, 2000, March 5, 2003, April 15, 2003, November 22, 2004, January 11,
2005, February 7, 2005, April 21, 2005, and April 28, 2005; or (vi) the
Company's Form 8-K/A reports filed with the Commission July 21, 1993, November
12, 1997, March 10, 2003, and April 22, 2005. The Exhibit Index is hereby
incorporated by reference into this Item 15.
Reports on Form 8-K
1) The Company filed a Current Report on Form 8-K on August 22, 2005
reporting the receipt of a fully signed contractual amendment
extending UAHC-TN's TennCare contract through June 30, 2006, and
describing other aspects of the amendment.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
25
UNITED AMERICAN HEALTHCARE CORPORATION (REGISTRANT)
SIGNATURE CAPACITY
/s/ WILLIAM C. BROOKS Chairman, President and CEO
------------------------------------- (Principal Executive Officer)
William C. Brooks
/s/ STEPHEN D. HARRIS Executive Vice President and Chief
------------------------------------- Financial Officer
Stephen D. Harris (Principal Financial Officer and
Principal Accounting Officer)
/s/ STEPHANIE M. DOWELL Vice President; and President and CEO of
------------------------------------- UAHC-TN
Stephanie M. Dowell
/s/ EMMETT S. MOTEN, JR. Secretary and Director
-------------------------------------
Emmett S. Moten, Jr.
/s/ RICHARD M. BROWN, D.O. Director
-------------------------------------
Richard M. Brown, D.O.
/s/ DARREL W. FRANCIS Director
-------------------------------------
Darrel W. Francis
/s/ TOM A. GOSS Director
-------------------------------------
Tom A. Goss
/s/ RONALD E. HALL, SR. Director
-------------------------------------
Ronald E. Hall, Sr.
Date: August 31, 2006
26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting Firm ................. F-2
Report of Independent Registered Public Accounting Firm ................. F-3
Consolidated Balance Sheets as of June 30, 2006 and 2005 ................ F-4
Consolidated Statements of Operations for each of the years in the
three-year period ended June 30, 2006 ................................ F-5
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for each of the years in the three-year period ended June 30, 2006 ... F-6
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 2006 ................................ F-7
Notes to Consolidated Financial Statements .............................. F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
United American Healthcare Corporation:
We have audited the accompanying consolidated balance sheets of United American
Healthcare Corporation and Subsidiaries as of June 30, 2006 and 2005, and the
related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United American
Healthcare Corporation and Subsidiaries as of June 30, 2006 and 2005, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ UHY LLP
Southfield, Michigan
August 14, 2006
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
United American Healthcare Corporation:
We have audited the accompanying consolidated statement of operations,
shareholders' equity and comprehensive income, and cash flows of United American
Healthcare Corporation and Subsidiaries for the year ended June 30, 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the operations and cash flows of United
American Healthcare Corporation and Subsidiaries for the year ended June 30,
2004, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Follmer Rudzewicz PLC
Southfield, Michigan
August 5, 2004
F-3
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30,
-----------------
2006 2005
------- -------
ASSETS
Current assets
Cash and cash equivalents $ 4,316 $ 9,843
Marketable securities 2,605 3,730
Accounts receivable - State of Tennessee, net 1,463 1,360
Other receivables 384 583
Prepaid expenses and other 265 172
Deferred income taxes 1,950 1,950
------- -------
Total current assets 10,983 17,638
Property and equipment, net 142 179
Goodwill 3,452 3,452
Marketable securities 7,342 2,380
Restricted assets 2,721 --
Other assets 586 586
------- -------
$25,226 $24,235
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Medical claims payable $ 156 $ 172
Accounts payable and accrued expenses 1,131 1,096
Accrued compensation and related benefits 732 711
Accrued rent 33 235
Other current liabilities 1,124 1,538
------- -------
Total current liabilities 3,176 3,752
------- -------
Total liabilities 3,176 3,752
Shareholders' equity
Preferred stock, 5,000,000 shares
authorized; none issued -- --
Common stock, no par, 15,000,000 shares authorized;
7,527,023 and 7,450,235 shares issued and outstanding
at June 30, 2006 and June 30, 2005, respectively 12,800 12,476
Retained earnings 9,420 8,047
Accumulated other comprehensive loss net
of deferred federal income taxes (170) (40)
------- -------
Total shareholders' equity 22,050 20,483
------- -------
$25,226 $24,235
======= =======
See accompanying notes to the consolidated financial statements.
F-4
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30,
---------------------------
2006 2005 2004
------- ------- -------
REVENUES
Fixed administrative fees $16,989 $20,916 $20,391
Medical premiums -- 23 532
Interest and other income 1,125 1,140 1,161
------- ------- -------
Total revenues 18,114 22,079 22,084
EXPENSES
Medical services -- 23 532
Marketing, general and administrative 16,472 15,742 14,483
Depreciation and amortization 128 177 227
Interest expense -- 8 66
------- ------- -------
Total expenses 16,600 15,950 15,308
------- ------- -------
Earnings from continuing operations before
income taxes 1,514 6,129 6,776
Income tax expense (benefit) 141 655 (1,095)
------- ------- -------
Earnings from continuing operations 1,373 5,474 7,871
DISCONTINUED OPERATIONS
Loss from discontinued operations -- (129) (700)
------- ------- -------
Net earnings $ 1,373 $ 5,345 $ 7,171
======= ======= =======
NET EARNINGS PER COMMON SHARE - BASIC
Earnings from continuing operations 0.18 0.74 1.09
Loss from discontinued operations -- (0.02) (0.10)
------- ------- -------
Net earnings per common share $ 0.18 $ 0.72 $ 0.99
======= ======= =======
Weighted average shares outstanding 7,478 7,425 7,207
======= ======= =======
NET EARNINGS PER COMMON SHARE - DILUTED
Earnings from continuing operations 0.18 0.71 1.08
Loss from discontinued operations -- (0.02) (0.10)
------- ------- -------
Net earnings per common share $ 0.18 $ 0.69 $ 0.98
======= ======= =======
Weighted average shares outstanding 7,628 7,674 7,266
======= ======= =======
See accompanying notes to the consolidated financial statements.
F-5
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK OTHER TOTAL
---------------- RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT EARNINGS INCOME (LOSS) EQUITY
------ ------- -------- ------------- -------------
BALANCE AT JUNE 30, 2003 7,059 $11,570 $(4,469) $ 39 $ 7,140
Issuance of common stock 360 656 656
Comprehensive income:
Net earnings -- -- 7,171 -- 7,171
Unrealized loss on marketable
securities -- -- -- (82) (82)
----- ------- ------- ----- -------
Total comprehensive income -- -- 7,171 (82) 7,089
----- ------- ------- ----- -------
BALANCE AT JUNE 30, 2004 7,419 $12,226 $ 2,702 $ (43) $14,885
----- ------- ------- ----- -------
Issuance of common stock 31 250 250
Comprehensive income:
Net earnings 5,345 5,345
Unrealized gain on marketable
securities 3 3
----- ------- ------- ----- -------
Total comprehensive income 5,345 3 5,598
----- ------- ------- ----- -------
BALANCE AT JUNE 30, 2005 7,450 $12,476 $ 8,047 $ (40) $20,483
----- ------- ------- ----- -------
Issuance of common stock 77 324 324
Comprehensive income:
Net earnings 1,373 1,373
Unrealized loss on marketable
securities (130) (130)
----- ------- ------- ----- -------
Total comprehensive income (loss) 1,373 (130) 1,243
----- ------- ------- ----- -------
BALANCE AT JUNE 30, 2006 7,527 $12,800 $ 9,420 $(170) $22,050
===== ======= ======= ===== =======
See accompanying notes to the consolidated financial statements.
F-6
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JUNE 30,
---------------------------
2006 2005 2004
------- ------- -------
OPERATING ACTIVITIES
Net earnings $ 1,373 $ 5,345 $ 7,171
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loss on disposal of assets 4 6 700
Loss (gain) on liquidation of investment (130) 3 (82)
Depreciation and amortization 128 177 227
Deferred income taxes -- (11) (1,369)
Stock awards 259 219 385
Changes in assets and liabilities
Accounts receivable- State of Tennessee, net (103) (130) (17)
Other receivables 199 623 289
Prepaid expenses and other (93) (25) 20
Medical claims payable (16) (234) (185)
Accounts payable and accrued expenses 35 (44) (1,376)
Accrued rent (202) (602) (315)
Accrued compensation and related benefits 21 129 63
Other current liabilities (414) 154 (46)
------- ------- -------
Net cash provided by operating activities 1,061 5,610 5,465
------- ------- -------
INVESTING ACTIVITIES
Purchase of marketable securities (6,558) (2,779) (171)
Proceeds from the sale of marketable securities -- --
Purchase of property and equipment (95) 61 (72)
------- ------- -------
Net cash used in investing activities (6,653) (2,718) (243)
------- ------- -------
FINANCING ACTIVITIES
Payments made on debt -- (847) (1,419)
Issuance of common stock 65 31 271
------- ------- -------
Net cash provided by (used in) financing activities 65 (816) (1,148)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (5,527) 2,076 4,074
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,843 7,767 3,693
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,316 $ 9,843 $ 7,767
======= ======= =======
F-7
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
YEAR ENDED JUNE 30,
---------------------------
2006 2005 2004
------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $-- $ 8 $ 63
Income taxes paid $63 $82 $ --
Non-cash financing activity - Promissory note and
goodwill recorded upon purchase of minority interest -- -- 500
See accompanying notes to the consolidated financial statements.
F-8
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 1 - DESCRIPTION OF BUSINESS
United American Healthcare Corporation, together with its wholly owned
subsidiaries (collectively, the "Company"), is a provider of health care
services, including consulting services to managed care organizations and the
provision of health care services in Tennessee.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of United American Healthcare Corporation, and
its wholly owned operational subsidiary: United American of Tennessee,
Inc. ("UA-TN") and Subsidiary. UAHC Health Plan of Tennessee, Inc.
(formerly called OmniCare Health Plan, Inc.) ("UAHC-TN") is a wholly
owned subsidiary of UA-TN. All significant intercompany transactions
and balances have been eliminated in consolidation.
B. USE OF ESTIMATES. The accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally
accepted in the United States of America which require management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results
could differ from those estimates as more information becomes
available and any such difference could be significant. The most
significant estimates that are susceptible to change in the near term
relate to the determination of medical claims payable.
C. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
instruments purchased with original maturities of three months or less
to be cash equivalents.
D. FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of cash and
cash equivalents, receivables, marketable securities and debt
approximate fair values of these instruments at June 30, 2006 and
2005.
F-9
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
E. MARKETABLE SECURITIES. Investments in marketable securities are
primarily comprised of U.S. Treasury notes, debt issues of
municipalities and foreign countries and common stocks all carried at
fair value, based upon published quotations of the underlying
securities, and six-month certificates of deposit carried at cost plus
interest earned, which approximates fair value. Marketable securities
placed in escrow to meet statutory funding requirements, although
considered available for sale, are not reasonably expected to be used
in the normal operating cycle of the Company and are classified as
non-current. All other securities available for sale are classified as
current.
Premiums and discounts are amortized or accreted, respectively, over
the life of the related debt security as adjustment to yield using the
yield-to-maturity method. Interest and dividend income is recognized
when earned. Realized gains and losses on investments in marketable
securities are included in investment income and are derived using the
specific identification method for determining the cost of the
securities sold; unrealized gains and losses on marketable securities
are reported as a separate component of shareholders' equity, net of
the provision for deferred federal income taxes.
F. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Expenditures and improvements, which add significantly to the
productive capacity or extend the useful life of an asset, are
capitalized. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related
assets. Estimated useful lives of the major classes of property and
equipment are as follows: furniture and fixtures - 5 to 13 years;
equipment - 5 years; and computer software - 2 to 5 years. Leasehold
improvements are included in furniture and fixtures and are amortized
on a straight-line basis over the shorter of the lease term or the
estimated useful life, which ranges from 5 to 13 years. The Company
uses accelerated methods for income tax purposes.
G. 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 $3.5 million and determined that such amount is
not impaired in accordance with SFAS No. 142. Accordingly, goodwill
impairment was not recorded for the years ended June 30, 2006, 2005
and 2004.
F-10
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
H. LONG-LIVED ASSETS. Following the criteria set forth in SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets,"
long-lived assets and certain identifiable intangibles are reviewed by
the Company for events or changes in circumstances which would
indicate that the carrying value may not be recoverable. In making
this determination, the Company considers a number of factors,
including estimated future undiscounted cash flows associated with
long-lived assets, current and historical operating and cash flow
results and other economic factors. When any such impairment exists,
the related assets are written down to fair value. Based upon its most
recent analysis, the Company believes that long-lived assets are
recorded at their net recoverable values.
I. MEDICAL CLAIMS PAYABLE. The Company provides for medical claims
incurred but not reported and the cost of adjudicating claims based
primarily on past experience, together with current factors, using
accepted actuarial methods. Although considerable variability is
inherent in such estimates, management believes that these reserves
are adequate.
J. REVENUE RECOGNITION. Medical premiums revenues are recognized in the
month in which members are entitled to receive health care services.
Medical premiums collected in advance are recorded as deferred
revenues. Management fee revenues are recognized in the period the
related services are performed. In accordance with generally accepted
accounting principles ("GAAP"), when applicable, the Company's revenue
recognition policy has been adjusted to reflect TennCare's
administrative services only ("ASO") arrangement in which UAHC-TN
assumed no risk for medical claims. Modified risk arrangement revenues
are recognized in the period in which UAHC-TN is notified thereof by
TennCare. See Note 12 for further discussion.
K. MEDICAL SERVICES EXPENSE RECOGNITION. The Company contracts with
various health care providers for the provision of certain medical
services to its members and generally compensates those providers on a
capitated and fee for service basis. The estimates for medical claims
payable are regularly reviewed and adjusted as necessary, with such
adjustments generally reflected in current operations.
L. STOP LOSS INSURANCE. Stop loss insurance premiums are reported as
medical services expense, while the related insurance recoveries are
reported as deductions from medical services expense.
M. INCOME TAXES. Deferred income tax assets and liabilities are
recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases.
Deferred income tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
these temporary differences are expected to be recovered or settled.
The effect on deferred income tax assets and liabilities of a change
in tax rates is recognized in
F-11
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
income in the period that involves the deferred tax assets and
liabilities in the amount expected to be realized. Valuation
allowances are established when necessary to reduce the deferred tax
assets and liabilities in the amount expected to be realized. The
deferred income tax provision or benefit generally reflects the net
change in deferred income tax assets and liabilities during the year.
The current income tax provision reflects the tax consequences of
revenues and expenses currently taxable or deductible for the period.
N. EARNINGS PER SHARE. Basic net earnings per share excluding dilution
has been computed by dividing net earnings by the weighted-average
number of common shares outstanding for the period. Diluted earnings
per share is computed the same as basic except that the denominator
also includes shares issuable upon assumed exercise of stock options.
For the fiscal years ended June 30, 2006, June 30, 2005 and June 30,
2004 the Company had outstanding stock options of 149,844, 249,212,
and 59,488, respectively, having a dilutive effect on earnings per
share.
O. SEGMENT INFORMATION. The Company reports financial and descriptive
information about its reportable operating segments. Operating
segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the
chief operating decision-maker in deciding how to allocate resources
and in assessing performance. Financial information is reported on the
basis that it is used internally for evaluating segment performance
and deciding how to allocate resources to segments.
F-12
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 3 - ACQUISITIONS
UAHC HEALTH PLAN OF TENNESSEE, INC. (UAHC-TN)
On May 25, 2004, and effective as of January 1, 2004, the Company's wholly owned
subsidiary, United American of Tennessee, Inc. ("UA-TN"), which already owned
75% of the outstanding stock of UAHC-TN, purchased the remaining 25% of the
outstanding common stock of UAHC-TN. UAHC-TN thereby became a wholly owned
subsidiary of UA-TN and a wholly owned second-tier subsidiary of the Company.
The 25% minority interest was purchased under a longstanding option agreement
for $0.5 million evidenced by a Company promissory note that was paid by
December 31, 2004. This acquisition was accounted for under the purchase method
of accounting. The excess of the purchase price over the fair value of the net
assets acquired of $0.5 million has been recorded as goodwill.
NOTE 4 - MARKETABLE SECURITIES
A summary of estimated fair value, which approximates amortized cost, of
marketable securities as of June 30, 2006 and 2005 is as follows (in thousands):
2006 2005
------ ------
Available for sale - Current:
Certificates of deposit $2,605 $3,730
Available for sale - Noncurrent:
U.S. government obligations 7,342 2,380
------ ------
$9,947 $6,110
====== ======
Certain of the Company's operations are obligated by state regulations to
maintain a specified level of escrowed funds to assure the provision of
healthcare services to enrollees. To fulfill these statutory requirements, the
Company maintains funds in highly liquid escrowed investments, which amounted to
$7.3 million and $2.4 million at June 30, 2006 and 2005, respectively. These are
different from the escrow accounts described in Note 14. Unrealized losses
associated with these investments were $0.17 million and $0.04 million at June
30, 2006 and 2005, respectively. The decline is considered temporary as the
investments are required to be held to maturity under current statutory deposit
requirements of the State of Tennessee.
NOTE 5 - CONCENTRATION OF RISK
During the years ended June 30, 2006, 2005 and 2004, approximately 95.7%, 98.2%,
and 99.3%, respectively, of the Company's revenues were derived from a single
customer, TennCare, a State of Tennessee program that provides medical benefits
to Medicaid and Working Uninsured recipients. Prior to the administrative
services only arrangement discussed in Note 12, TennCare withheld 5% of the
Company's monthly capitation payment, which withheld amounts were
F-13
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
distributed to the Company when certain informational filing requirements were
met by the Company. There were no withholdings by TennCare under the
administrative services only arrangement, and there are none under the modified
risk arrangement that replaced the ASO arrangement beginning July 1, 2005.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment at each June 30 consists of the following (in thousands):
2006 2005
------- -------
Furniture and fixtures $ 840 $ 831
Equipment 1,031 1,007
Computer software 183 130
------- -------
2,054 1,968
Less accumulated depreciation and amortization (1,912) (1,789)
------- -------
$ 142 $ 179
======= =======
NOTE 7 - MEDICAL CLAIMS PAYABLE
The Company has recorded a liability of $0.2 million, $0.2 million, and $0.4
million at June 30, 2006, 2005, and 2004 respectively, for unpaid claims and
medical claims incurred by enrollees. The ultimate settlement of medical claims
may vary from the estimated amounts reported at June 30, 2006, 2005 and 2004.
The following table provides a reconciliation of the unpaid claims for the years
ended June 30, 2006, 2005 and 2004 (in thousands):
F-14
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
2006 2005 2004
---- ---- ----
Balance at beginning of fiscal year $172 $406 $591
Incurred losses related to current year -- -- --
Incurred losses related to prior year -- 23 532
---- ---- ----
Total losses incurred -- 23 532
Paid claims related to current year -- -- --
Paid claims related to prior year 16 257 717
---- ---- ----
Total paid claims 16 257 717
---- ---- ----
Balance at end of fiscal year $156 $172 $406
==== ==== ====
F-15
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 8 - INCOME TAXES
The components of income tax expense (benefit) for each year ended June 30 are
as follows (in thousands):
2006 2005 2004
----- ------- -------
Continuing operations:
Current expense $ 141 $ 666 $ 275
Deferred expense (credit) 249 3,630 408
Change in valuation allowance (249) (3,641) (1,778)
----- ------- -------
$ 141 $ 655 $(1,095)
===== ======= =======
A reconciliation of the provision for income taxes for each year ended June 30
follows (in thousands):
2006 2005 2004
----- ------- -------
Income tax expense (benefit) at the statutory tax rate $ 515 $ 1,911 $ 2,073
State and city income tax 110 479 313
Fixed asset write-offs -- 2,251 --
Utilization of net operating loss carryforward (361) (1,479) (1,462)
Valuation allowance (249) (3,641) (1,778)
Other, net 126 1,134 (241)
----- ------- -------
$ 141 $ 655 $(1,095)
===== ======= =======
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversals of deferred taxes, projected future taxable income, and tax
planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize the
benefits of these deductible differences, net of the existing valuation
allowance at June 30, 2006. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
As of June 30, 2006, the net operating loss carryforwards for federal income tax
purposes expire from 2011 to 2021. Components of the Company's deferred tax
assets and liabilities at each June 30 are (in thousands):
F-16
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
2006 2005
------- -------
Deferred tax assets
Accrued rent $ 11 $ 80
Bad debt expense 1,360 1,360
Deferred compensation 187 139
Net operating loss carryforward of consolidated losses 3,409 3,770
Net operating loss carryforward of purchased subsidiary -- --
Alternative minimum tax credit carryforward 592 561
Property and equipment 10 (4)
Stock awards 88 --
------- -------
Total gross deferred tax assets 5,657 5,906
Valuation allowance (3,707) (3,956)
------- -------
Total gross deferred tax liabilities --
------- -------
Net deferred tax asset $ 1,950 $ 1,950
======= =======
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company had a long-term management agreement with a health maintenance
organization in Michigan named OmniCare Health Plan ("OmniCare-MI") from 1985
until November 1, 2002. OmniCare-MI was related to the Company via certain
common officers and directors until July 31, 2001. During the period of such
relationship, the agreement provided that: it would expire in December 2010; it
was subject to review every five years and could be terminated without cause by
OmniCare-MI at the time of the review or by either party with cause; the Company
was required to pay certain administrative expenses associated with its activity
on behalf of OmniCare-MI; and all costs associated with the management of
OmniCare-MI were expensed as incurred.
A court order issued on July 31, 2001 placed OmniCare-MI in rehabilitation.
Pursuant to the court order, the Company continued to perform the management
agreement without interruption and no Company officers or directors were any
longer OmniCare-MI officers or directors. The Company and OmniCare-MI amended
the agreement effective as of August 1, 2001, reducing the Company's management
fee percentage from a fixed percentage (14%) of premiums earned by OmniCare-MI
to a cost-based fee beginning in August 2001, subject to adjustment to
appropriately reflect the Company's costs of performing the contract, and
continuing unchanged the agreement's other basic terms. The management agreement
terminated November 1, 2002.
The Company then arranged in October 2002 for a sublease to OmniCare-MI of all
of the Company's leased former office premises in Detroit, Michigan, commencing
November 1, 2002 and expiring at the end of the lease in May 2005. This
arrangement cost the Company approximately $40,000 per month through November
2005. Due to the subsequent liquidation of OmniCare-MI, effective October 1,
2004, the Company renegotiated sublease terms with Michigan HMO (formerly doing
business as OmniCare Health Plan), which continued to occupy and pay rent for
reduced space in such premises. Michigan HMO's occupancy of and rent obligation
for the subleased premises ceased on February 28, 2005, sooner than the primary
lease
F-17
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
end in May 2005. The Company recorded a liability in the first quarter of fiscal
year 2005 as it relates to the sublease obligation.
NOTE 10 - BENEFIT AND OPTION PLANS
The Company offers a 401(k) retirement and savings plan that covers
substantially all of its employees. Effective and since April 1, 2001, the
Company has matched 50% of an employee's contribution up to 4% of the employee's
salary. Prior to April 1, 2001, the Company matched 1% of compensation. Expenses
related to the 401(k) plan were $55,757, $61,491 and $65,862 for the years ended
June 30, 2006, 2005 and 2004, respectively.
The Company has reserved 200,000 common shares for its Employee Stock Purchase
Plan ("ESPP"), which became effective October 1996, and enables all eligible
employees of the Company to subscribe for shares of common stock on an annual
offering date at a purchase price which is the lesser of 85% of the fair market
value of the shares on the first day or the last day of the annual period.
Employee contributions for each of the years ended June 30, 2006 and 2005 were
$7,775 and $0, respectively.
On August 6, 1998, the Company's Board of Directors adopted the 1998 Stock
Option Plan ("1998 Plan"). The 1998 Plan was approved by the Company's
shareholders on November 12, 1998. The Company reserved an aggregate of 500,000
common shares for issuance upon exercise of options under the 1998 Plan. On
November 14, 2003 the Company's shareholders approved an increase in the number
of common shares reserved for issuance pursuant to the exercise of options
granted under the amended plan from 500,000 to 1,000,000 shares, and extended
the termination date of the plan by 5 years to August 6, 2013. On November 5,
2004 the Company's shareholders approved an increase in the number of common
shares reserved for issuance pursuant to the exercise of options granted under
the amended plan from 1,000,000 to 1,500,000 shares. On September 9, 1998,
December 15, 1998, February 3, 1999, November 10, 1999, May 3, 2001 November 30,
2001, May 8, 2003, December 4, 2003, April 29, 2004, November 5, 2004, December
2, 2004, November 5, 2004, December 2, 2004, November 4, 2005, and April 24,
2006 nonqualified options for a total of 325,000, 26,000, 5,000, 8,000, 50,000,
75,000, 25,000, 196,500, 280,000, 45,000, 153,000, 45,000, 153,000, 15,000, and
200,500 common shares, respectively, were granted under the amended and restated
1998 Plan. The exercise prices of the options range from $0.63 to $5.28.
Effective July 1, 2005 the Compensation Committee and Board of Directors
approved the immediate termination of 124,167 non-vested stock options to the
Company's directors and officers. The purpose of the termination was to enable
the Company to avoid recognizing compensation expense associated with these
options in future periods in its consolidated statements of earnings, as a
result of SFAS No. 123(R). The pre-tax charge thereby avoided totaled
approximately $650,581 which would have been recognized over fiscal years 2006
through 2008, and, accordingly, the Compensation Committee determined that the
expense savings from the termination for these particular option agreements
outweighed the objective of incentive compensation and retention.
F-18
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
On March 1, 2003, the Company granted nonqualified stock options for 100,000
common shares (outside the 1998 Plan) to the Company's President and CEO and
reserved that number of common shares for issuance upon exercise of such
options. Such options expire March 1, 2008 and became fully exercisable
beginning March 1, 2005 at a price of $1.10 per share.
F-19
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
Information regarding the stock options for fiscal 2006, 2005 and 2004 follows
(shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------------
NUMBER OF
WEIGHTED AVERAGE AVERAGE REMAINING SHARES WEIGHTED AVERAGE
SHARES EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
------ ---------------- ----------------- ----------- ---------------
Options 780 $2.94 8.0 years 304 $2.65
outstanding at
June 30, 2004
Granted 198 4.73 9.4 years 44 4.73
Exercisable -- -- -- 313 2.67
Exercised (16) 2.09 (16) 2.09
Expired -- -- -- -- --
Forfeited (60) 1.30 -- (17) --
---- ---- ---------- --- -----
Options
outstanding at
June 30, 2005 902 $3.30 7.32 years 628 $2.84
Granted 216 2.89 9.80 years 3 2.10
Exercisable -- -- -- 115 4.11
Exercised (40) 1.64 -- (40) 1.64
Expired -- -- -- -- --
Forfeited (124) 4.73 -- -- --
---- ---- ---------- --- -----
Options
outstanding at
June 30, 2006 954 $3.09 6.79 years 706 $3.12
Options for 309,167 common shares were available for grant under the amended and
restated 1998 Plan at the end of fiscal 2006.
The Company has adopted SFAS No. 123(R), "Share-Based Payment," which is a
revision of SFAS No. 123, "Accounting for Stock Based Compensation," and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," which
was issued in December 2004. The revisions are intended to provide investors and
other users of financial statements with more complete and neutral financial
information by requiring that the compensation cost relating to share-based
payment transactions be recognized in financial statements. That cost will be
measured based on the fair value of the equity or liability instruments issued.
The Company recorded stock option expense of $0.3 million for fiscal 2006.
Prior to fiscal 2005, the Company adopted the disclosure-only provisions of SFAS
No. 123. Accordingly, if the Company had elected to recognize compensation cost
based on the fair value of the options at grant date, the Company's earnings and
earnings per share from continuing
F-20
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
operations, assuming dilution, for fiscal 2005 and 2004 would have been the pro
forma amounts indicated below (in thousands, except per share amounts):
2005 2004
------ ------
Net earnings as reported $5,345 $7,171
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects 588 1,047
Pro forma net earnings $4,757 $6,124
Earnings per share:
As reported - Basic $ 0.72 $ 0.99
As reported - Diluted 0.70 0.98
Pro forma - Basic $ 0.64 $ 0.84
Pro forma - Diluted 0.62 0.84
The fair value of options at date of grant was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions used for
grants in fiscal 2006: dividend yield of 0%; expected volatility of 48.70%; risk
free interest rate of 4.56%; and expected life of 10.0 years. The effects of
applying SFAS No. 123 in the above pro forma disclosures are not necessarily
indicative of future amounts, because additional stock option awards could be
made in future years.
NOTE 11 - LEASES
The Company leases its facilities and certain furniture and equipment under
operating leases expiring at various dates through December 2010. Terms of the
facility leases generally provide that the Company pay its pro rata share of all
operating expenses, including insurance, property taxes and maintenance.
Rent expense for the years ended June 30, 2006, 2005 and 2004 totaled $0.4
million, $0.9 million and $0.6 million, respectively. Based on the current
commitments, the Company estimates rent expense of $0.4 million for each of its
fiscal years through 2010 and $0.2 million for fiscal 2011.
The Company's de facto sublease to OmniCare-MI of all of the Company's leased
former office premises in Detroit, Michigan, commencing November 1, 2002 and
expiring at the end of the lease in May 2005, cost the Company approximately
$40,000 per month through the remainder of the lease. The Company recognized a
charge 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 is included in discontinued operations. Due to the
subsequent liquidation of OmniCare-MI, effective October 1, 2004, the Company
renegotiated sublease
F-21
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
terms with Michigan HMO (formerly doing business as OmniCare Health Plan), which
continued to occupy and pay rent for reduced space in such premises. Michigan
HMO's occupancy of and rent obligation for the subleased premises ceased on
February 28, 2005, sooner than the primary lease end in May 2005. The Company
recorded a liability in the first quarter of fiscal 2005 as it relates to the
sublease obligation.
NOTE 12 - CONTRACTUAL RISK AGREEMENT
Beginning July 1, 2002, TennCare, a State of Tennessee program that provides
medical benefits to Medicaid and working uninsured recipients, implemented an
18-month stabilization program, which entailed changes to TennCare's contracts
with managed care organizations (" MCOs"), including the Company's subsidiary,
UAHC-TN. During that period, MCOs were generally compensated for administrative
services only (commonly called "ASO"), earned fixed administrative fees, were
not at risk for medical costs in excess of targets established based on various
factors, were subject to increased oversight, and could incur financial
penalties for not achieving certain performance requirements. Through successive
contractual amendments, TennCare extended the ASO reimbursement system
applicable to UAHC-TN, first through June 30, 2004, then through December 31,
2004, and then through June 30, 2005. Through an amendment with an effective
date of July 1, 2005, TennCare extended its contract with UAHC-TN through June
30, 2006 and implemented a modified risk arrangement with all its contracted
MCOs, including UAHC-TN, which are at risk for losing up to 10% of
administrative fee revenue and may receive up to 15% incentive bonus revenue
based on performance relative to benchmarks. UAHC-TN has received notice from
TennCare that it earned additional revenue of $0.2 million and $0.2 million,
respectively, for its performance under the modified risk arrangement for the
first and second quarters of fiscal 2006. Such additional revenue has been
recorded. UAHC-TN expects to similarly earn additional revenue of approximately
$0.2 million for each of the third and fourth quarters of fiscal 2006. The
Company would record such earnings in fiscal 2007 only upon receipt of final
notification thereof from TennCare. The Company also recorded an allowance of
$0.3 million in fiscal 2006 for a State of Tennessee receivable because
management determined the collectability is doubtful.
In September 2002, UAHC-TN and the State of Tennessee, doing business as
TennCare, amended the Contractor Risk Agreement between them. Pursuant to the
amendment, the State of Tennessee agreed to pay UAHC-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 UAHC-TN in October 2002, the State of
Tennessee agreed to pay additional funds to UAHC-TN if future certified
actuarial data confirm they are needed by UAHC-TN to meet its statutory net
worth requirement as of June 30, 2002.
UAHC-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, the $7.5 million
receivable and additional funds were not recorded in fiscal 2002 financial
statements but have been recorded in subsequent fiscal years as fiscal 2002
claims were processed.
F-22
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 13 - DISCONTINUED OPERATIONS
The Company's longstanding management agreement with OmniCare-MI ended effective
November 1, 2002. Because of its resulting workforce reduction, the Company made
plans to sublease all of its then 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. 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, 2003.
Management expected to complete the signing of the sublease and the sale of
assets by the third quarter of fiscal 2004; however, due to the subsequent sale
of OmniCare-MI members to Coventry of Michigan approved on May 10, 2004 and
effective October 1, 2004, the sale of assets did not occur, and the Company
recorded a loss from discontinued operations of $0.7 million in fiscal 2004. Due
to the subsequent liquidation of OmniCare-MI, effective October 1, 2004, the
Company renegotiated sublease terms with Michigan HMO (formerly doing business
as OmniCare Health Plan in Michigan), which continued to occupy and pay rent for
reduced space in such premises. Michigan HMO's occupancy of and rent obligation
for the subleased premises ceased on February 28, 2005, sooner than the primary
lease end in May 2005. The Company recorded a liability in the first quarter of
fiscal 2005 as it relates to the sublease obligation.
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 expected sale of assets described above; (ii)
the above-described sublease, with a cost to the Company of 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 was doubtful. The recorded charges discussed above
were offset by management fees from OmniCare-MI of $0.8 million.
Summarized selected financial information for the discontinued operations for
fiscal 2006, 2005 and 2004 is as follows:
2006 2005 2004
------ ------ -----
Management fees $-- $ -- $ --
Loss from discontinued operations net of
zero income taxes $-- $(129) $(700)
F-23
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 14 - RESTRICTED ASSETS
The Company and the Department of Finance and Administration of the State of
Tennessee, Bureau of TennCare ("TennCare") are parties to two escrow agreements
under which the Company funded, on August 5, 2005, two escrow accounts held by
TennCare at the State Treasury. One, in the amount of $2,300,000, is security
for repayment to TennCare of any overpayments to UAHC-TN that may be determined
by a pending audit of all UAHC-TN process claims since 2002; and the other, in
the amount of $420,500, is security for any money damages that may be awarded to
TennCare in the event of any future litigation between the parties in connection
with certain pending investigations by state and federal authorities. The escrow
accounts bear interest at a rate no lower than the prevailing commercial
interest rates for savings accounts at financial institutions in Nashville,
Tennessee. The escrow accounts will terminate August 5, 2007 or sooner in
certain events, except if litigation is pursued by either party, in which event
the escrow accounts will continue until the end of such litigation. All amounts
(including interest earnings) credited to the escrow accounts will belong to the
Company, except to the extent, if any, they are paid to TennCare to satisfy
amounts determined to be owed to TennCare as provided in the escrow agreements.
Both escrow agreements recite that TennCare does not at that time assert there
has been any breach of UAHC-TN's TennCare contract and that the Company has
funded the escrow accounts as a show of goodwill and good faith in working with
TennCare.
NOTE 15 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
The following table presents selected quarterly financial data for the years
ended June 30, 2006 and 2005 (in thousands, except per share data):
THREE MONTHS ENDED
-------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, TOTAL
--------- -------- --------- -------- -------
2006
Total revenues $4,508 $4,491 $4,279 $4,836 $18,114
Net earnings 403 440 433 97 1,373
Net earnings per common
share assuming dilution $ 0.05 $ 0.06 $ 0.06 $ 0.01 $ 0.18
2005
Total revenues $5,408 $5,399 $5,573 $5,699 $22,079
Net earnings 1,466 1,930 1,516 433 5,345
Net earnings per common
share assuming dilution $ 0.19 $ 0.26 $ 0.19 $ 0.05 $ 0.69
F-24
NOTE 16 - SEGMENT FINANCIAL INFORMATION
Summarized financial information for the Company's principal operations for
fiscal 2006, 2005 and 2004 is as follows (in thousands):
MANAGEMENT HMOS & MANAGED CORPORATE & CONSOLIDATED
COMPANIES (1) PLANS (2) ELIMINATIONS COMPANY
------------- -------------- ------------ ------------
2006
Revenues - external customers $ $ 16,989 $ $ 16,989
Revenues - intersegment 15,161 (15,161)
Interest and other income 191 934 1,125
-------- --------- -------- --------
Total revenues $ 15,352 $ 17,,923 $(15,161) $ 18,114
======== ========= ======== ========
Interest expense $ -- $ $ $ --
Earnings from continuing operations 342 1,031 -- 1,373
Loss from discontinued operations -- -- --
Segment assets 60,386 16,116 (51,276) 25,226
Purchase of equipment 95 -- -- 95
Depreciation and amortization 128 -- -- 128
-------- --------- -------- --------
2005
Revenues - external customers $ -- $ 20,939 $ -- $ 20,939
Revenues - intersegment 18,763 -- (18,763) --
Interest and other income 285 855 -- 1,140
-------- --------- -------- --------
Total revenues $ 19,048 $ 21,794 $(18,763) $ 22,079
======== ========= ======== ========
Interest expense $ 8 $ -- $ -- $ 8
Earnings from continuing operations 3,422 2,052 -- 5,474
Loss from discontinued operations (129) -- -- (129)
Segment assets 57,701 14,489 (47,955) 24,235
Purchase of equipment (61) -- -- (61)
Depreciation and amortization 177 -- -- 177
-------- --------- -------- --------
2004
Revenues - external customers $ -- $ 20,923 $ -- $ 20,923
Revenues - intersegment 18,352 -- (18,352) --
Interest and other income 163 998 -- 1,161
-------- --------- -------- --------
Total revenues $ 18,515 $ 21,921 $(18,352) $ 22,084
======== ========= ======== ========
Interest expense $ 66 $ -- $ -- $ 66
Earnings from continuing operations 4,967 2,904 -- 7,871
Loss from discontinued operations (700) -- -- (700)
Segment assets 44,633 12,175 (36,727) 20,081
Purchase of equipment 72 -- -- 72
Depreciation and amortization 227 -- -- 227
-------- --------- -------- --------
(1) Management Companies: United American Healthcare Corporation, United
American of Tennessee, Inc.
HMO and Managed Plan: UAHC Health Plan of Tennessee, Inc.
F-25
NOTE 17 - RECENTLY ENACTED PRONOUNCEMENTS
The following are new accounting standards and interpretations that may be
applicable in the future to the Company:
SFAS No. 123(R), "Share-Based Payment," which is a replacement to SFAS No. 123
"Accounting for Stock Based Compensation" and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees," was issued in December 2004. The
revisions are intended to provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. SFAS No. 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. SFAS No. 123, as originally issued in 1995,
established a preferable fair-value-based method of accounting for share-based
payment transactions with employees. However, that Statement permitted entities
the option of continuing to apply the guidance in APB Opinion No. 25, as long as
the footnotes to financial statements disclosed what net income would have been
had the preferable fair-value-based method been used. Publicly traded entities
(other than those filing as small business issuers) are required to apply SFAS
No. 123(R) as of the first annual reporting period that begins after June 15,
2005. The Company adopted this standard, as required, in the first quarter of
fiscal 2006.
The Financial Accounting Standards Board's final Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN 48"), was issued on July 13,
2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in the financial statements in accordance with SFAS No. 109, "Accounting for
Income Taxes." This interpretation provides guidance on the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. Further, FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosures and
transition. This interpretation is effective for fiscal years beginning after
December 15, 2006. The cumulative effects, if any, of applying FIN 48 will be
recorded as an adjustment to retained earnings as of the beginning of the period
of adoption. The Company is in the process of evaluating the expected effect of
FIN 48 and is currently unable to determine the impact, if any, that FIN 48 may
have on its results of operations, financial position and cash flows.
F-26
EXHIBIT INDEX
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
3.1 Restated Articles of Incorporation of Exhibit 3.1 to the Registrant's Form
Registrant S-1 Registration Statement under the
Securities Act of 1933, as amended,
declared effective on April 23, 1991
("1991 S-1")
3.1(a) Certificate of Amendment to the Exhibit 3.1(a) to 1991 S-1
Articles of Incorporation of
Registrant
3.2 Amended and Restated Bylaws of Exhibit 3.2 to the Registrant's 1993
Registrant Form 10-K
4.1 Incentive and Non-Incentive Stock Exhibit 4.1 to the Registrant's 1995
Option Plan of Registrant effective Form 10-K
March 25, 1991, as amended
4.2 Form of Common Share Certificate Exhibit 4.2 to the Registrant's 1995
Form 10-K
10.1 Employees' Retirement Plan for Exhibit 10.1 to 1991 S-1
Registrant dated May 1, 1985, with
First Amendment thereto and Summary
Plan Description therefore
10.2 Management Agreement between Michigan Exhibit 10.2 to 1991 S-1
Health Maintenance Organization
Plans, Inc. and Registrant dated
March 15, 1985, as amended June 12,
1985
10.3 Management Agreement between U.A. Exhibit 10.3 to 1991 S-1
Health Care Corporation and Personal
Physician Care, Inc. dated March 18,
1987
10.4 Amendment dated February 16, 1993 to Exhibit 10.5 to the Registrant's 1995
Management Agreement between United Form 10-K
American Healthcare Corporation and
Personal Physician Care, Inc. dated
March 18, 1987
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
10.5 Amendment dated June 16, 1994 to Exhibit 10.4 to the Registrant's 1994
Management Agreement between U.A. Form 10-K
Health Care Corporation and Personal
Physician Care, Inc. dated March 18,
1987
10.6 Management Agreement between OmniCare Exhibit 10.5 to Registrant's 1994
Health Plan, Inc. and United American Form 10-K
of Tennessee, Inc. dated February 2,
1994
10.7 Management Agreement between Exhibit 10.6 to Registrant's 1994
UltraMedix Health Care Systems, Inc. Form 10-K
and United American of Florida, Inc.
dated February 1, 1994
10.8 Amendment dated September 4, 1995 to Exhibit 10.9 to the Registrant's 1995
Management Agreement between Form 10-K
UltraMedix Healthcare Systems, Inc.
and United American of Florida, Inc.
dated February 1, 1995
10.9 Amendment dated September 20, 1995 to Exhibit 10.10 to Registrant's 1995
Management Agreement between Form 10-K
UltraMedix Health Care Systems, Inc.
and United American of Florida, Inc.
dated February 1, 1995
10.10 Lease Agreement between 1155 Brewery Form 8-K filed August 8, 1991
Park Limited Partnership and
Registrant dated July 24, 1991,
effective May 1, 1992
10.11 Amendment dated December 8, 1993 to Exhibit 10.8 to the Registrant's 1994
Lease agreement between 1155 Brewery Form 10-K
Park Limited Partnership and
Registrant dated July 24, 1991
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
10.12 Amendment dated April 15, 1993 to Exhibit 10.13 to Registrant's 1995
Lease Agreement between 1155 Brewery Form 10-K
Park Limited Partnership and
Registrant dated July 24, 1991
10.13 Lease Agreement between Baltimore Exhibit 10.7 to the Registrant's 1993
Center Associates Limited Partnership Form 10-K
and Corporate Healthcare Financing,
Inc. dated August 24, 1988, as
amended April 12, 1993, effective the
later of May 1, 1993 or the date
premises are ready for occupancy
10.14 Amendment dated May 11, 1994 Exhibit 10.11 to the Registrant's
(effective June 30, 1994) to Lease 1994 Form 10-K
agreement between Baltimore Center
Associates Limited Partnership and
Corporate Healthcare Financing, Inc
10.15 Lease Agreement between CLW Realty Exhibit 10.2 to Registrant's 1994
Asset Group, Inc., as agent for The Form 10-K
Prudential Insurance Company of
America and United American of
Florida dated May 31, 1994, effective
June 1, 1994
10.16 Lease Agreement between Fleming Exhibit 10.3 to Registrant's 1994
Companies, Inc. and United American Form 10-K
of Tennessee dated June 30, 1994,
effective the date premises are ready
for occupancy
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
10.17 Lease Agreement between International Exhibit 10.19 to Registrant's 1995
Business Machines Corporation and Form 10-K
Registrant dated August 29, 1994
10.18 Amended and Restated Line of Credit Exhibit 10.20 to Registrant's 1995
Facility Agreement between Michigan Form 10-K
National Bank and Registrant dated
March 14, 1995
10.19 Promissory notes between Michigan Exhibit 10.9 to the Registrant's 1993
National Bank and Registrant dated Form 10-K
August 26, 1993
10.20 Asset Purchase Agreement between CHF, Form 8-K filed May 24, 1993 and Form
Inc., Healthcare Plan Management, 8-K/A filed July 21, 1993
Inc., CHF-HPM Limited Partnership,
Louis J. Nicholas and Keith B.
Sullivan and Registrant dated May 7,
1993
10.21 Loan and Security Agreement between Exhibit 10.18 to Registrant's 1994
UltraMedix Health Care Systems, Inc. Form 10-K
and United American of Florida dated
February 1, 1994
10.22 Amendment dated June 13, 1995 to the Exhibit 10.26 to Registrant's 1995
Loan and Security Agreement between Form 10-K
UltraMedix Care Systems, Inc. and
United American of Florida, Inc.
dated February 1, 1994
10.23 Form of Stock Transfer Services Exhibit 10.19 to Registrant's 1994
Agreement between Huntington National Form 10-K
Bank and Registrant
10.24 Employment Agreement between Julius Exhibit 10.15 to 1991 S-1
V. Combs, M.D. and Registrant dated
March 15, 1991
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
10.25 Employment Agreement between Ronald Exhibit 10.16 to 1991 S-1
R. Dobbins and Registrant dated March
15, 1991
10.26 Employment Agreement between Louis J. Exhibit 10.22 to Registrant's 1994
Nicholas and Corporate Healthcare Form 10-K
Financing, Inc. dated May 7, 1993
10.27 First Amendment to Contingent Note Form 10-Q for the Quarter Ended March
Promissory Note between CHF-HPM 31, 1996, filed May 14, 1996
Limited Partnership and the
Registrant
10.28 Acquisition of majority interest in Form 8-K filed April 19, 1996
OmniCare Health Plan, Inc. of
Tennessee and UltraMedix Healthcare
Systems, Inc.
10.29 Injured Workers' Insurance Fund Form 10-K/A filed October 14, 1996,
Contract No. IWIF 9-96 Managed Care as amended
Contract with Statutory Benefits
Management Corporation dated June 19,
1996
10.30 Ernst & Young LLP Report of Exhibit 10.30 to Registrant's 1998
Independent Auditors as of June 30, Form 10-K
1996
10.31 Renaissance Center Office Lease Form 10-Q for the Quarter Ended
between Renaissance Center Venture September 30, 1996, filed November
and Registrant 13, 1996
10.32 Purchase Agreement between Statutory Form 10-Q for the Quarter Ended
Benefits Management Corporation and December 31, 1996, filed February 10,
Spectera, Inc. 1997
10.33 Agreement of Purchase and Sale of Form 10-K filed October 14, 1997
Stock, between CHF Acquisition, Inc.
and the Registrant dated September
12, 1997
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
10.34 Ernst & Young LLP Report of Form 10-K filed October 14, 1997
Independent Auditors as of June 30,
1997
10.35 Amended and Restated Business Loan Form 10-Q for the Quarter Ended
Agreement between Michigan National March 31, 1998, filed May 15, 1998
Bank and Registrant dated March 12,
1998 (effective as of February 1,
1998)
10.36 Business Loan Agreement Addendum Form 10-Q for the Quarter Ended
between Michigan National Bank and March 31, 1998, filed May 15, 1998
Registrant dated March 12, 1998
(effective as of February 1, 1998)
10.37 Promissory Note from Registrant to Form 10-Q for the Quarter Ended
Michigan National Bank dated March March 31, 1998, filed May 15, 1998
12, 1998 (effective as of February 1,
1998)
10.38 Employment Agreement between Gregory Exhibit 10.38 to Registrant's 1998
H. Moses, Jr. and Registrant dated Form 10-K
May 11, 1998
10.39 Amendment dated as of June 30, 1998 Exhibit 10.39 to Registrant's 1998
to Lease Agreement between 1155 Form 10-K
Brewery Park Limited Partnership and
Registrant dated June 24, 1991
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
10.40 Termination of Lease between Exhibit 10.40 to Registrant's 1998
Renaissance Holdings, Inc. (successor Form 10-K
to Renaissance Center Venture) and
Registrant dated June 24, 1998
10.41 United American Healthcare Exhibit 10.41 to Registrant's 1998
Corporation 1998 Stock Option Plan Form 10-K
10.42 Stock Purchase Agreement among Exhibit 10.42 to Registrant's 1998
Registrant, CHFA, Inc. and Corporate Form 10-K
Healthcare Financing, Inc. dated
August 31, 1998
10.43 Secured Promissory Note from CHFA, Exhibit 10.43 to Registrant's 1998
Inc. to Registrant dated August 31, Form 10-K
1998
10.44 Unsecured Promissory Note from CHFA, Exhibit 10.44 to Registrant's 1998
Inc. to Registrant dated August 31, Form 10-K
1998
10.45 Guaranty Agreement of Louis J. Exhibit 10.45 to Registrant's 1998
Nicholas dated August 31, 1998 Form 10-K
10.46 Pledge Agreement between CHFA, Inc. Exhibit 10.46 to Registrant's 1998
and Registrant dated August 31, 1998 Form 10-K
10.47 Amendment of Business Loan Agreement Exhibit 10.47 to Registrant's 1998
between Registrant and Michigan Form 10-K
National Bank dated September 1, 1998
10.48 Promissory Note of Registrant to Exhibit 10.48 to Registrant's 1998
Michigan National Bank dated Form 10-K
September 1, 1998
10.49 Pledge Agreement from Registrant to Exhibit 10.49 to Registrant's 1998
Michigan National Bank dated Form 10-K
September 1, 1998
10.50 Promissory Note from Registrant to Form 10-Q for the Quarter Ended
UAH Securities Litigation Fund dated December 31, 1998, filed February
December 11, 1998 16, 1999
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
10.51 Amendment of Promissory Note and Exhibit 10.51 to Registrant's 1999
Business Loan Agreement from Michigan Form 10-K
National Bank dated May 6, 1999
10.52 Provider Contract between Urban Exhibit 10.52 to Registrant's 1999
Hospital Care Plus and Registrant Form 10-K
dated April 1, 1999
10.53 Assignment and Assumption of Exhibit 10.53 to Registrant's 1999
Subleases and Security Deposits Form 10-K
between International Business
Machines Corporation and Registrant
dated September 9, 1999
10.54 Business Loan Agreement between Exhibit 10.54 to Registrant's 2001
Registrant and Michigan National Bank Form 10-K
dated September 25, 2000
10.55 Promissory Note of Registrant to Exhibit 10.55 to Registrant's 2001
Michigan National Bank dated Form 10-K
September 25, 2000
10.56 Security Agreement between Registrant Exhibit 10.56 to Registrant's 2001
and Michigan National Bank dated Form 10-K
September 25, 2000
10.57 Amendment of Business Loan Agreement Form 10-Q for the Quarter Ended
with Standard Federal Bank N.A., December 31, 2001, filed February 14,
dated November 29, 2001 and effective 2002
September 30, 2001.
10.58 Amended and Restated Promissory Note Form 10-Q for the Quarter Ended
to Standard Federal Bank N.A., dated December 31, 2001, filed February 14,
November 29, 2001 and effective 2002
September 30, 2001.
10.59 Amendment to Management Agreement Form 10-Q for the Quarter Ended
with OmniCare Health Plan dated December 31, 2001, filed February 14,
December 14, 2001 and effective 2002
August 1, 2001.
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
10.60 Amendment of Business Loan Agreement Exhibit 10.60 to Registrant's 2002
with Standard FederalBank N.A., dated Form 10-K
October 11, 2002
10.61 Amendment of Business Loan Agreement Form 10-Q for the Quarter Ended
with Standard Federal Bank N.A., September 30, 2002, filed November
dated October 11, 2002 and effective 13, 2003
September 30, 2002
10.62 Letter amendment of Business Loan Form 10-Q for the Quarter Ended
Agreement with Standard Federal Bank December 31, 2002, filed May 13, 2003
N.A., dated February 5, 2003
10.63 United American Healthcare Form 8-K filed January 11, 2005
Corporation Supplemental Executive
Retirement Plan
10.64 Severance Agreement dated as of April Form 10-Q filed April 28, 2005
15, 2005 between United American of
Tennessee, Inc and Osbie L. Howard
16.1 Concurring Letter regarding change in Form 8-K filed October 30, 1997
Certifying Accountants dated October
30, 1997, from Grant Thornton LLP
16.2 Concurring Letter regarding change in Form 8-K/A filed November 12, 1997
Certifying Accountants dated November
12, 1997, from Grant Thornton LLP
16.3 Concurring Letter regarding change in Form 8-K/A filed November 12, 1997
Certifying Accountants dated November
12, 1997, from Ernst & Young LLP
16.4 Concurring Letter regarding change in Form 8-K filed January 20, 1998
Certifying Accountants dated January
16, 1998, from Arthur Andersen LLP
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
------- ------------------------------------- ------------------------------------- --------
16.5 Letter of KPMG LLP dated March 5, Form 8-KA filed March 10, 2003
2003 to the Securities and Exchange
Commission.
16.6 Letter dated November 22, 2004, from Form 8-K filed November 22, 2004
Follmer Rudzewicz PLC to the
Securities and Exchange Commission
21 Subsidiaries of the Registrant
31.1 Certification of Chief Executive *
Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial *
Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive *
Officer Pursuant to 18 U.S.C. Section
1350
32.2 Certification of Chief Financial *
Officer Pursuant to 18 U.S.C. Section
1350
99.1 Press Release dated January 12, 1998 Form 8-K filed January 20, 1998
99.2 Press Release dated January 6, 2000 Form 8-K filed January 14, 2000
99.3 Press release dated April 15, 2005. Form 8-K filed April 15, 2005
99.3 Press release dated April 21, 2005. Form 8-K filed April 21, 2005
99.4 Notice of Administrative Supervision Form 8-K/A filed April 21, 2005
issued by the Commissioner of the
State of Tennessee Department of
Commerce and Insurance, dated April
20, 2005.