Wednesday, November 25, 2009

United American Healthcare Corporation (UAHC)

The United American Healthcare Corporation (Nasdaq:UAHC) is a tiny micro-cap company that is involved in management, consulting and financial services for the healthcare industry in the United States. Up until last year, the company was contracted by two customers to provide healthcare services. Unfortunately, the provider of these contracts (the State of Tennessee) has renegotiated with other entities to provide these services, leaving UAHC with no customers and no revenue as of the end of December 2009.

Since the cancellation of these contracts last year, management have been engaging in exploring "strategic alternatives" or to elaborate in their own words.

"During this review, all feasible options are being considered, including pursuing a joint venture or other strategic partnership, completing a strategic acquisition or merger, or liquidating our assets. Further, it is important to note that the exploration of strategic alternatives includes all industries that satisfy the three primary objectives, not solely the healthcare industry." From the most recent 10Q.

Reading between the lines, I don't think it would be unreasonable to conclude that management have too much confidence in their ability to continue in the healthcare industry. If logical consequence was to follow, the company would be liquidated, with the remaining assets being distributed to shareholders. Unfortunately for shareholders however, management appear reluctant to follow this path (which is natural self-preservation, given they would lose their jobs, sizeable salaries and benefits). Judging from a recent 13D filing from Strategic Turnaround Equity Partners (9% owners of common stock of UAHC and on the Board of Directors), it would seem that not only are management reluctant to liquidate, but hostile to the idea of shareholders taking control of the company.

"Dear Gentlemen:

As you are aware, Strategic Turnaround Equity Partners, LP (Cayman) and its affiliates (“STEP”), own approximately 9% of the common shares of United American Healthcare Corporation.

As you know, November 6, 2009 will be the one year anniversary of the Company’s last Annual Shareholders Meeting. Since the filing of our Preliminary Proxy on September 11, 2009 it is our strong belief that management and certain members of the Board of Directors including the Chairman and the Chairman of the Governance Committee have taken steps to intentionally delay the setting of a date for the 2009 Annual Shareholders Meeting. Furthermore, later that same day the Company issued a press release announcing the release of its year end results. The Company also announced that:

“It would not host an investor conference call for the fourth quarter and full year results in an effort to reduce costs and conserve resources.”

This was the first time in 10 years that management did not hold a quarterly or year-end investor call.

We believe that this is nothing but a ruse and smoke screen to avoid accountability to shareholders. Management and the Board are well aware of shareholder dissatisfaction from various 13D filings and past investor calls. It is obvious that management does not want to answer shareholders’ questions to explain a loss from operations for the fiscal year ending June 30, 2009 of $8.7 million compared to a loss from operations of $1.9 million in the previous fiscal year. We believe that with such significant losses management has a greater obligation to hold an investor call. The last investor conference call this Company held was almost 6 months ago on May 7, 2009.

If management was so concerned about reducing expenses, they would have implemented many of our suggestions over the past 18 months which would have saved the Company significant sums of money including the elimination or reduction in bonuses, salaries and investment banking fees. Rather than focus on this, management decided to save $1,000 on an investor conference call!!! A company that is concerned about saving money does not have executive offices in 4,000 sq. ft. of luxury office space with art adorned walls for 4 people, including 2 administrative. If management truly wanted to have a conference call they could have set up a free call at If asked, our fund would have underwritten the cost of a conference call for the sake of good corporate governance so that shareholders have a forum to ask questions of management.

As we have stated in the past, the Board and management of the Company are obligated to manage in the best interests of all of the shareholders. In our opinion management and various members of the Board seek to avoid accountability to shareholders and maintain the status quo.
Furthermore, if the Company sent notice of an Annual Shareholders Meeting today, it would make it the latest that notice has been sent to shareholders in over 10 years. This is not right and a breach of your duties to the shareholders.

This must change and the shareholders of United American Healthcare Corporation demand the setting of the date of the 2009 Annual Shareholder Meeting immediately.

Very truly yours,

Strategic Turnaround Equity Partners, LP (Cayman)"

When a situation like this occurs, it is often up to the inititive of shareholders to user their voting rights as owners of the business to force the issue. Often in these situations however, shareholders are fragmented, and there is no single voice, with a large enough bloc of voting rights to demand that management liquidate, rather than plundering the remaining assets of the company for themselves. In this case however, things are different, and even as of yesterday (November 24th, 2009) the situation is looking more promising for shareholders as per the following 13D filed by activist investor, John M. Fife, who is now 10.31% owner.

This means, that we now have a significant catalyst that can force the liquidation of the company (Strategic Turnaround Equity Partners - 9% owners, John M. Fife - 10.31% owners, value investor Lloyd I. Miller, III - 9.7% and activists WC Capital Management - 10.8%) link. With management holding small amounts of stock (circa 15%), there should be no impediment to a liquidation.

The pertinent question at this point, would be to evaluate the liquidation value of the company against the current share price. Going from the last 10Q, we can see that the balance sheet of UAHC is simple to understand, has few liabilities and is comprised mainly of cash and cash equivalents.

Cash and cash equivalents - $9,747 (million)
Marketable securities - $3,922
Accounts receivable — State of Tennessee, net - $12
Interest receivable - $57
Other receivables - $708
Prepaid expenses and other - $135
Property and equipment, net - $94
Marketable securities — restricted - $2,370
Other assets - $486
Total Assets - $17,531

Total Liabilities - $3,863

Shareholder Equity - $13,668 or $1.68 per share
Market Cap - $7,730 or $0.95 per share

While it's unlikely that the full value of shareholder equity would be realised in the event of liquidation, the 75% difference between book value and market value offers a huge margin of safety.

I believe that UAHC at, or near current prices offers good value. I am currently initiating a position.

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