The Company currently leases approximately 26,200 square feet in Memphis, Tennessee, all of which is subleased relating to its prior operations.
From January 2007 to December 2009, UAHC-TN served as a Medicare Advantage qualified organization (the “Medicare contract”) pursuant to a contract with the Centers for Medicare & Medicaid Services (“CMS”). The contract authorized UAHC-TN to serve members enrolled in both the Tennessee Medicaid and Medicare programs, commonly referred to as “dual-eligibles,” specifically to offer a Special Needs Plan (“SNP”) to its eligible members in Shelby County, Tennessee (including the City of Memphis), and to operate a Voluntary Medicare Prescription Drug Plan. The Company did not seek renewal of the Medicare contract, which expired December 31, 2009. The Company is continuing to wind down the Medicare business and expects to continue to incur costs related to the
Medicare business through December 31, 2010, including labor, claim processing and the differential costs related to Tennessee facility sublease. The costs are expected to be approximate $0.1 million to $0.2 million.
Total revenues decreased $12.8 million (77%) to $3.8 million for the fiscal year ended June 30, 2010 compared to $16.7 million for the fiscal year ended June 30, 2009. The decrease in revenue is primarily attributable to discontinuance of the TennCare contract and the wind down of the Medicare contract, offset by $0.3 million in Pulse contract manufacturing service revenue, which represents Pulse revenue for the 12-day period from the date of acquistion.
MA-SNP medical premiums revenues were $3.1 million for the fiscal year ended June 30, 2010 compared to $11.1 million for the fiscal year ended June 30, 2009, all of which related to the Medicare contract. The decrease in medical premiums results from the wind down of the Medicare contract. Also, during fiscal year 2009, the medical premiums included $0.8 million in additional revenue from a CMS retroactive risk premium adjustment.
Medical expenses for MA-SNP were $2.7 million during the fiscal year ended June 30, 2010, a decrease of $7.5 million from $10.2 million during the fiscal year ended June 30, 2009. Medical expenses generally consist of claim payments, pharmacy costs, and estimates of future payments of claims provided for services rendered prior to the end of the reporting period (such estimates of medical claims incurred but not reported are also known as “IBNR”). The IBNR was primarily based on medical cost estimates from historical data provided by CMS and emerging medical claims experience together with current factors using accepted actuarial methods. The percentage of such medical expenses to medical premiums revenues for MA-SNP, referred to as the medical loss ratio, was 85.8% for the fiscal year ended June 30, 2010 compared to 90.6% for the fiscal year ended June 30, 2009.
Loss before income taxes was $5.4 million for the fiscal year ended June 30, 2010 compared to loss before income taxes of $8.7 million for the fiscal year ended June 30, 2009. Such decrease in loss from operations of $3.3 million, or $0.36 per basic share, is principally due to the $3.2 reduction in the legal reserve as the litigation settlement was paid during the first quarter of fiscal 2010.
Total expenses were $26.1 million for the fiscal year ended June 30, 2009, compared to $30.1 million for the prior fiscal year, a decrease of $4.1 million (13%) The decrease in total expenses was primarily the result of a decrease in marketing, general and administrative expenses and the fiscal year 2008 goodwill impairment charge of $3.5 million. The decrease in marketing, general and administrative expenses was offset by increased legal expenses and a legal reserve established of $3.1 million, net of an insurance recovery of $0.2 million resulting from the litigation settlement described in Note 14 “Legal Settlement” in Part IV Financial Statements.
Medical expenses for MA-SNP were $10.2 million during the fiscal year ended June 30, 2009, an increase of $0.6 million from $9.6 million during the fiscal year ended June 30, 2008. The medical loss ratio, was 90.6% for the fiscal year ended June 30, 2009 compared to 87.8% for the fiscal year ended June 30, 2008.
General and administrative expenses were $12.6 million for the fiscal year ended June 30, 2009, as compared with $16.9 million for the prior fiscal year, a decrease of $4.3 million. The decrease was principally due to reductions in labor costs, adminstrative costs and professional services expenses resulting from the TennCare contract expiration partially offset by severance and labor related expenses and the legal fees associated with the litigation as described in Note 14 “Legal Settlement” in Part IV Financial Statements.
Provision for legal settlement totaled $3.1 million, net of $0.2 million in insurance recovery for fiscal year ended June 30, 2009. There was no provision for legal settlement recorded for fiscal year ended June 30, 2008, as the amount was not determinable at the end of fiscal year ended June 30, 2008. Subsequent to June 30, 2009, the lawsuit was settled for $3.3 million and will be offset by insurance recovery of $0.2 million.
Loss before income taxes was $8.7 million for the fiscal year ended June 30, 2009 compared to loss before income taxes of $1.9 million for the fiscal year ended June 30, 2008. Such increase in loss from operations of $6.8 million, or $(0.79) per basic share, is principally due to reduction in revenue resulting from the expiration of the TennCare contract and the increase in legal expenses associated with litigation and the reserve established for the legal settlement.
Capital resources, which for us is primarily cash from operations and Pulse debt facility are required to maintain our current operations and fund planned capital spending and other commitments and contingencies. The Company’s ability to maintain adequate amounts of cash to meet its future cash needs depends on a number of factors, particularly including its ability to control wind down costs related to the Medicare contract, and controlling corporate overhead costs. On the basis of the matters discussed above, management believes at this time that the Company has the sufficient cash to adequately support its financial requirements through the next twelve months. To the extent we need to refinance debt obligations, or fund major capital improvements or acquisitions, we may need to access the capital markets. Market conditions may continue to limit our sources of funds for these activities and our ability to refinance our debt obligations at present interest rate and other terms.
On June 18, 2010, the Company entered into a Securities Purchase Agreement and a Warrant Purchase Agreement to acquire 100% of the outstanding common units and warrants to purchase common units of Pulse. The consideration paid to acquire the common units and warrants of Pulse totaled approximately $9.46 million, which consisted of (a) cash paid at closing of $3.40 million, (b) a non-interest bearing note payable of $1.75 million (secured by a subordinated pledge of all the common units of Pulse), (c) 1,608,039 shares of UAHC common stock determined based on an initial value of $1.6 million, (d) an estimated purchase price adjustment of $210,364 based on targeted levels of net working capital, cash and debt of Pulse at the acquisition date (e) and the funding of $2.5 million for certain obligations of Pulse. The Company also assumed Pulse’s outstanding term loan. See “- Acquisition of Pulse Systems, LLC” above for additional discussion.
Net cash used in operating activities was $9.7 million in fiscal 2010 compared to net cash used in operating activities of $6.2 million in fiscal 2009. Cash used in operations is primarily due to decreased revenue and income, resulting from the expiration of the TennCare and Medicare contracts. Excluding the impact of the Pulse acquisition, total receivables decreased by $1.3 million at June 30, 2010 compared to June 30, 2009, primarily due to the decrease in operating activity associated with the expiration of the TennCare contract, the $0.2 million in insurance recovery receivable related to the legal settlement and $0.8 million related to the CMS retroactive risk premium adjustment, offset by a $27,000 increase resulting from changes in Pulse net trade receivables. Medical claims payable decreased by $2.1 million at June 30, 2010 compared to June 30, 2009. The decrease is primarily due to wind-down of the Medicare contract. Accounts payable and accrued expenses decreased by $0.8 million at
June 30, 2010 compared to June 30, 2009, principally due to the decrease in operating activity associated with the expiration of the TennCare contract, which was offset by increased legal fees related to litigation. The reserve for legal settlement decreased by $3.3 million resulting from the litigation described in Note 14 “Legal Settlement” in Part IV Financial Statements.
Cash provided by investing activities of $0.3 million was primarily impacted by cash consideration paid in the Pulse acquisition of $5.6 million, net of cash acquired. Cash proceeds from the maturity of marketable securities of $9.2 million was offset by cash purchases of maturity securities of $3.3 million.
Net cash used in financing activities was $0.3 million and resulted from notes payable payments made to the bank. Cash used in financing activities of $1.0 million during fiscal year 2009 was due to a share repurchase program. On November 25, 2008, the Company’s board of directors approved the share repurchase program, authorizing the Company to repurchase up to $1.0 million of the Company’s outstanding common stock. In 2009, the Company had repurchased a total of 670,795 shares at an average price of $1.46 per share under the share repurchase program for a total of $981,370. No shares were repurchased in fiscal 2010. Effective, November 13, 2009, the board of directors discontinued the share repurchase program. As of such date, the Company had repurchased a total of 670,795 shares at an average price of $1.46 per share under the share repurchase program.
The net decrease in total cash flow was $9.6 million for the fiscal year ended June 30, 2010, compared to a net increase in cash flow of $2.4 million for the prior fiscal year.
The Company’s wholly owned subsidiary, UAHC-TN, had a required minimum net worth requirement using statutory accounting practices of $1.5 million at June 30, 2010. UAHC-TN had excess statutory net worth of approximately $2.4 million at June 30, 2010. The net worth and depository requirement was in effect through June 30, 2010. At such time, UAHC-TN, must continue to maintain a depository requirements of at least $0.9 million as statutory reserves for its ongoing Medicare operations.
In addition, UAHC has pledged its membership interests in Pulse Systems to Fifth Third as additional security for the loans, as set forth in the Membership Interest Pledge Agreement (the “Pledge Agreement”). The Pledge Agreement restricts the ability of UAHC to incur additional indebtedness, other than the Seller Note and up to $1.0 million of unsecured working capital financing. The Pledge Agreement also generally restricts the payments of dividends or distributions on, and redemptions of, UAHC common stock, except as permitted under the Standstill Agreement, as amended.