1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: December 31, 1997
----------------------------------
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from: to
Commission file number: 0-13265
UCI MEDICAL AFFILIATES, INC,
(Exact name of small business issuer as specified in its charter)
Delaware 59-2225346
(State or other jurisdiction of
incorporation (IRS Employer Identification No.)
or organization)
1901 Main Street, Suite 1200, Mail Code 1105, Columbia, SC 29201
(Address of principal executive offices)
(803) 252-3661
(Issuer's telephone number)
(Former name, address or fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. ( X )Yes ( )
No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. ( )Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
6,052,164 shares of $.05 common stock outstanding at December 31, 1997
Transitional Small Business Disclosure Format (check one): ( )Yes ( X ) No
UCI MEDICAL AFFILIATES, INC.
INDEX
Page
Number
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - December 31, 1997
and September 30, 1997 3
Consolidated Statements of Operations for the quarters
ended December 31, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flows for the quarters
ended December 31, 1997 and December 31, 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
PART II OTHER INFORMATION
Items 1-6 10
SIGNATURES 11
UCI Medical Affiliates, Inc.
Consolidated Balance Sheets
December 31, 1997 September 30,
1997
------------------- -----------------
(unaudited) (audited)
Assets
Current assets
Cash and cash equivalents $ 0 $ 14,676
Accounts receivable, less allowance for doubtful accounts
of $923,721 and $878,469 6,862,480 5,943,884
Inventory 538,396 502,888
Deferred taxes 334,945 334,945
Prepaid expenses and other current assets 629,653 579,217
------------------- ----------------
Total current assets 8,365,474 7,375,610
Property and equipment less accumulated depreciation of
$2,957,691 and $2,724,222 4,474,621 4,002,699
Deferred taxes 1,417,237 1,417,237
Excess of cost over fair value of assets acquired, less
accumulated amortization of $1,821,679 and
$1,664,739 8,437,440 7,801,607
Other assets 266,380 266,379
------------------- -----------------
Total Assets $ 22,961,152 $ 20,863,532
=================== =================
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $ 916,411 $ 840,879
Current portion of long-term debt payable to employees 201,518 177,445
Accounts payable 2,956,625 2,039,506
Accrued salaries and payroll taxes 676,107 959,068
Other accrued liabilities 371,630 437,667
---------------- -----------------
Total current liabilities 5,122,291 4,454,565
Long-term debt, net of current portion 7,833,551 6,438,655
Long-term debt payable to employees, net of current portion 564,782 481,815
------------------- -----------------
Total Liabilities 13,520,624 11,375,035
------------------- -----------------
Commitments and contingencies 0 0
Stockholders' Equity
Preferred stock, par value $.01 per share:
Authorized shares - 10,000,000; none issued 0 0
Common stock, par value $.05 per share:
Authorized shares - 10,000,000
Issued and outstanding- 6,052,164 and 5,744,965 shares 302,608 287,248
Paid-in capital 16,249,546 15,435,535
Accumulated deficit (7,111,626) (6,234,286)
------------------- -----------------
Total Stockholders' Equity 9,440,528 9,488,497
------------------- -----------------
Total Liabilities and Stockholders' Equity $ 22,961,152 $ 20,863,532
=================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
UCI Medical Affiliates, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended December 31,
1997 1996
-------------------- ------------------
Revenues $ 8,077,876 $ 6,487,908
Operating costs 8,243,266 6,130,191
-------------------- ------------------
Operating margin (165,390) 357,717
General and administrative expenses 25,434 37,709
Depreciation and amortization 406,168 289,474
-------------------- ------------------
Income (loss) from operations (596,992) 30,534
Other income (expense)
Interest expense, net of interest income (279,351) (166,794)
Gain (loss) on disposal of equipment (439) 0
-------------------- ------------------
Other income (expense) (279,790) (166,794)
Income (loss) before benefit (provision ) for
income taxes (876,782) (136,260)
Benefit (provision )for income taxes (558) 166,382
-------------------- ------------------
Net income (loss) $ (877,340) $ 30,122
================== ====================
Basic earnings (loss) per share $ (.15) $ .01
==================== ==================
Basic weighted average common shares outstanding 6,041,980 4,807,807
==================== ==================
Diluted earnings (loss) per share $ (.14) $ .01
==================== ==================
Diluted weighted average common shares outstanding 6,061,945 4,819,491
==================== ==================
The accompanying notes are an integral part of these consolidated
financial statements.
UCI Medical Affiliates, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended December 31,
1997 1996
------------------ ----------------
Operating activities:
Net income (loss) $ (877,340) $ 30,122
Adjustments to reconcile net income (loss) to net
cash provided by (used-in) operating activities:
(Gain) loss on disposal of equipment 439 0
Provision for losses on accounts receivable 244,613 130,720
Depreciation and amortization 406,168 289,474
Deferred Taxes 0 (175,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (899,080) (684,836)
(Increase) decrease in inventory (35,508) (4,776)
(Increase) decrease in prepaid expenses and other
current assets (50,435) (165,981)
Increase (decrease) in accounts payable and accrued
expenses 562,078 (164,782)
---------------- ------------------
Cash provided by (used in) operating activities (649,065) (745,059)
------------------ ------------------
Investing activities:
Purchases of property and equipment (289,260) (135,519)
Acquisitions of goodwill (106,863) (20,718)
(Increase) decrease in other assets 0 (377)
---------------- ------------------
Cash provided by (used in) investing activities (396,123) (156,614)
------------------ ----------------
Financing activities:
Net borrowings (payments) under line-of-credit agreement (125,921) 1,355,760
Increase in long-term debt 1,500,000 269,400
Payments on long-term debt (343,567) (882,949)
------------------ ----------------
Cash provided by (used in) financing activities 1,030,512 742,211
------------------ ----------------
Increase (decrease) in cash and cash equivalents (14,676) (159,462)
Cash and cash equivalents at beginning of period 14,676 237,684
------------------ ---------------
Cash and cash equivalents at end of period $ 0 $ 78,222
================== ================
The accompanying notes are an integral part of these consolidated
financial statements.
UCI MEDICAL AFFILIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of those of a normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the three month period ended December 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 1998. For further information, refer to the audited
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended September 30, 1997.
The consolidated financial statements of the Company include the accounts
of UCI Medical Affiliates, Inc. ("UCI"), UCI Medical Affiliates of South
Carolina, Inc. ("UCI-SC") and Doctor's Care, P.A. (the "P.A."). The financial
statements of the P.A. are consolidated with UCI because UCI-SC has unilateral
control over the assets and operations of the P.A., and notwithstanding the lack
of majority ownership of the P.A. by UCI and UCI-SC, consolidation of the P.A.
with UCI and UCI-SC is necessary to present fairly the financial position and
results of operations of UCI and UCI-SC. The management agreement between UCI-SC
and the P.A. conveys to UCI-SC perpetual, unilateral control over the assets and
operations of the P.A. Control is perpetual rather than temporary because of (i)
the length of the term of the agreement, (ii) the continuing investment of
capital by UCI-SC, (iii) the employment of all of the non-physician personnel by
UCI-SC and (iv) the nature of the services provided to the P.A. by UCI-SC.
In November 1997 the Emerging Issue Task Force (EITF) finalized EITF 97-2 which
provides guidance on consolidation of physician practices and enhances related
disclosures of physician practice management companies. This EITF 97-2 is
effective for fiscal years ending after December 15, 1998. The Company is in the
process of evaluating any potential effect on its financial reporting format.
Procedurally, the management agreement calls for the P.A. to provide medical
services and charge a fee to the patient or to the patient's insurance carrier
or employer for such services. Physician salaries are paid out of these revenues
and all remaining revenues are passed to UCI-SC as a management fee. UCI-SC
provides all support personnel (nurses, technicians, receptionists), all
administrative functions (billing, collecting, vendor payment), and all
facilities, supplies and equipment. The consolidated accounts of the Company
include all revenue and all expenses (including physician salaries) of all three
entities.
The net assets of the P.A. are not material for any period presented and
intercompany accounts and transactions have been eliminated.
EARNINGS PER SHARE
The computation of basic earnings (loss) per share and diluted earnings (loss)
per share is in conformity with the provisions of Statement of Financial
Accounting Standards No. 128.
PART I
FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information which the Company
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto.
The consolidated financial statements of the Company include the accounts of
UCI, UCI-SC and the P.A. The financial statements of the P.A. are consolidated
with UCI because UCI-SC has unilateral control over the assets and operations of
the P.A., and notwithstanding the lack of majority ownership of the P.A. by UCI
and UCI-SC, consolidation of the P.A. with UCI and UCI-SC is necessary to
present fairly the financial position and results of operations of UCI and
UCI-SC. The management agreement between UCI-SC and the P.A. conveys to UCI-SC
perpetual, unilateral control over the assets and operations of the P.A. Control
is perpetual rather than temporary because of (i) the length of the term of the
agreement, (ii) the continuing investment of capital by UCI-SC, (iii) the
employment of all of the non-physician personnel by UCI-SC and (iv) the nature
of the services provided to the P.A. by UCI-SC.
In November 1997 the Emerging Issue Task Force (EITF) finalized EITF 97-2 which
provides guidance on consolidation of physician practices and enhances related
disclosures of physician practice management companies. This EITF 97-2 is
effective for fiscal years ending after December 15 1998. The Company is in the
process of evaluating any potential effect on its financial reporting format.
Procedurally, the management agreement calls for the P.A. to provide medical
services and charge a fee to the patient or to the patient's insurance carrier
or employer for such services. Physician salaries are paid out of these revenues
and all remaining revenues are passed to UCI-SC as a management fee. UCI-SC
provides all support personnel (nurses, technicians, receptionists), all
administrative functions (billing, collecting, vendor payment), and all
facilities, supplies and equipment. The consolidated accounts of the Company
include all revenue and all expenses (including physician salaries) of all three
entities.
The P.A. enters into employment agreements with physicians for terms ranging
from one to ten years. All employment agreements have clauses that allow for
early termination of the agreement if certain events occur such as the loss of a
medical license. Over 80% of the physicians employed by the P.A. are paid on an
hourly basis for time scheduled and worked at the medical centers. The other
physicians are salaried. A few of the physicians have incentive compensation
arrangements, however, no amounts were accrued or paid during the Company's
three prior fiscal years that were significant. As of December 31, 1997 and
1996, the P.A. employed 98 and 71 medical providers, respectively.
The net assets of the P.A. are not material for any period presented and
intercompany accounts and transactions have been eliminated.
Results of Operations
Revenues of $8,078,000 for the quarter ending December 31, 1997 reflect an
increase of 25% from those of the quarter ending December 31, 1996.
This increase in revenue is attributable to a number of factors. The Company
engaged in a significant expansion, increasing the number of medical centers
from 30 to 40. This expansion included Springwood Lake Family Practice, Woodhill
Family Practice and Midtown Family Practice, all of Columbia, South Carolina and
all acquired in August 1997; Doctor's Care - Camden acquired in September 1997;
three Progressive Therapy Services offices all located in Columbia, South
Carolina and all acquired in October 1997; Doctor's Care - New Ellenton acquired
in November 1997; a Physical Therapy practice in Columbia, South Carolina opened
in November 1997; and Ridgeview Family Practice of Columbia, South Carolina
opened in December 1997. Of the $1,590,000 in revenue growth for the first
quarter of fiscal 1997 to the first quarter of fiscal 1998, approximately
$1,080,000 or 68% of this growth was from the ten locations opened after
December 31, 1996.
The Company has increased its services provided to members of Health Maintenance
Organizations (HMOs). In such arrangements, the Company, through Doctor's Care,
P.A., acts as the designated primary caregiver for members of the HMO who have
selected Doctor's Care as their primary care provider. The Company began
participating in an HMO operated by Companion HealthCare Corporation
("Companion"), a wholly owned subsidiary of Blue Cross Blue Shield of South
Carolina. The Company now acts as primary care provider for four HMOs, including
Companion and is the primary care "gatekeeper" for more than 23,000 capitated
lives. While HMOs do not, at this time, have a significant penetration into the
South Carolina market, the Company believes that HMOs and other managed care
plans will experience a substantial increase in market share in the next few
years, and the Company is therefore positioning itself for that possibility.
Capitated revenue grew from approximately $705,000 in the first quarter of
fiscal 1997 to approximately $900,000 in the first quarter of fiscal 1998.
The Company negotiates contracts with HMOs for the P.A.'s physicians to provide
health care on a capitated reimbursement basis. Under these contracts, which
typically are automatically renewed on an annual basis, the P.A. physicians
provide virtually all covered primary care services and receive a fixed monthly
capitation payment from the HMOs for each member who chooses a P.A. physician as
his or her primary care physician. The capitation amount is fixed depending upon
the age and sex of the HMO enrollee. Contracts with HMOs accounted for
approximately 11% of the Company's net revenue in fiscal 1997 and in the first
quarter of fiscal 1998.
To the extent that enrollees require more care than is anticipated, aggregate
capitation payments may be insufficient to cover the costs associated with the
treatment of enrollees. Higher capitation rates are typically received for
senior patients because their medical needs are generally greater and
consequently the cost of covered care is higher.
Increased revenues also reflect the Company's heightened focus on occupational
medicine and industrial health services. Focused marketing materials, including
quarterly newsletters for employers, were developed to spotlight the Company's
services for industry. The Company also entered into an agreement with Companion
Property and Casualty Insurance Company, wherein the Company acts as the primary
care provider for injured workers of firms insured through Companion Property
and Casualty Insurance Company. Companion Property and Casualty Insurance
Company is wholly owned by Blue Cross Blue Shield of South Carolina and is a
primary shareholder of the Company.
Patient encounters increased to 115,000 in the first quarter of fiscal 1998
from 96,000 in the first quarter of fiscal 1997.
Even with the positive effects of the factors mentioned above, revenues were
short of goals for the quarter, due in part to the increased competition from
hospitals and other providers in Columbia, Greenville, Sumter and Myrtle Beach.
In each of these areas, regional hospitals have acquired or opened new primary
care physician practices that compete directly with the Company for patients. In
each case, the hospital owner of our competition is believed to have
significantly greater resources than the Company. Management believes that such
competition will continue into the future and plans to compete on a basis of
quality service and accessibility.
An operating margin of $358,000 was earned during the first quarter of fiscal
1997 as compared to an operating deficit of $165,000 for the first quarter of
fiscal 1998.
Management believes that this margin deterioration is mainly the result of some
start-up costs being absorbed for the locations added since December 1996.
Additionally, patient visits did not meet budget for the first quarter of fiscal
1998, possibly due to the competition factors discussed above. Management does
not currently believe that this negative trend is indicative of the results that
may be expected for the fiscal year 1998.
This margin deterioration is also attributable to increased cost-cutting
pressures being applied by managed care insurance payors that cover many of the
Company's patients. As managed care plans attempt to cut costs, they typically
increase the administrative burden of providers such as the Company by requiring
referral approvals and by requesting hard copies of medical records before they
will pay claims. The number of patients at the Company's Centers that are
covered by a managed care plan versus a traditional indemnity plan continues to
grow.
Management expects this trend to continue.
Depreciation and amortization expense increased to $406,000 in the first quarter
of fiscal 1998, up from $289,000 in the first quarter of fiscal 1997. This
increase reflects higher depreciation expense as a result of significant
leasehold improvements and equipment upgrades at a number of the Company's
medical centers, as well as an increase in amortization expense related to the
intangible assets acquired from the Company's purchase of existing practices as
noted above. Interest expense increased from $167,000 in the first quarter of
fiscal 1997 to $279,000 in the first quarter of fiscal 1998 primarily as a
result of the interest costs associated with the indebtedness incurred in the
Company's purchase of these assets and centers and for the usage of the
operating line of credit.
Financial Condition at December 31, 1997
Cash and cash equivalents decreased by $15,000 during the quarter ended December
31, 1997 and were utilized mainly for working capital needs and to fund the
expansion previously discussed.
Accounts receivable increased 15% during the quarter, reflecting the addition of
the ten centers described above and the overall growth in patient visits to
existing centers.
The increase in goodwill attributable to the purchases of the eight practices
since December 31, 1996 was somewhat offset by the amortization recorded.
Long-term debt increased from $6,920,000 at September 30, 1997 to $8,398,000 at
December 31, 1997 primarily as a result of indebtedness incurred in capital
leases for Center upfits, the utilization of an operating line of credit, and
the debt incurred as a result of practice acquisitions. Management believes that
it will be able to fund debt service requirements out of cash generated through
operations.
On October 6, 1997, the Company completed a private placement of $1.5 million,
6.5% five-year convertible subordinated debenture with FPA Medical Management,
Inc., a national physician practice management company headquartered in San
Diego, California. The debentures are convertible to common stock at any time
within the five year period at a fixed price premium to the current stock price
and are subject to Rule 144 of the Securities and Exchange Commission when
converted.
Overall, the Company's current assets exceeded its current liabilities at
December 31, 1997 by $3,243,000.
Liquidity and Capital Resources
The Company requires capital principally to fund growth (acquire new centers),
for working capital needs and for the retirement of indebtedness. The Company's
capital requirements and working capital needs have been funded through a
combination of external financing (including bank debt and proceeds from the
sale of common stock to Companion HealthCare Corporation and Companion Property
& Casualty Insurance Company), internally generated funds and credit extended by
suppliers.
Operating activities used $649,000 of cash during the first quarter of fiscal
1998. This reflects growth in the Company's accounts receivable as well as
prepaid expenses and a decrease in accounts payable and accrued expenses. The
growth in accounts receivable is the result of growth in the number of Centers,
patient visits and charges per patient visit.
Investing activities used $396,000 of cash during the quarter as a result of
expansion efforts. Continued growth is anticipated during the remainder of
fiscal 1998.
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not a party to any pending litigation other
than routine litigation incidental to the business or that
which is immaterial in amount of damages sought.
Item 2 Changes in Securities
Recent Sales of Unregistered Securities
During the three months ended December 31, 1997, the
securities identified below were issued by the Company without
registration under the Securities Act of 1933. In each case,
all of the shares were issued pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act
of 1933 as a transaction, not involving a general
solicitation, in which the purchaser was purchasing for
investment. The Company believes that each purchaser was given
or had access to detailed financial and other information with
respect to the Company and possessed requisite financial
sophistication.
On October 1, 1997, the Company issued 163,102 shares of its
common stock to L.D., P.A. (formerly Progressive Therapy
Services, P.A.) and 113,874 shares to L.D., Jr., P.C.
(formerly Bar-Ed, Professional Corporation) as part of the
purchase prices in connection with the Company's acquisition
of substantially all the assets of such entities' physical
therapy practices.
On November 1, 1997, the Company issued 30,223 shares of its common stock
to Marvin Dees, M.D. as part of the purchase price in connection with the
Company's acquisition of substantially all the assets of the medical practice of
Dr. Dees.
Item 3 Defaults upon Senior Securities
This item is not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
This item is not applicable.
Item 5 Other Information
This item is not applicable.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits included on the attached Exhibit
Index are filed as part of this report.
(b) Reports on Form 8-K.
The Company filed a Form 8-K on October 15, 1997 which
reported the acquisition by UCI-SC of Progressive Therapy
Services, P.A. and Bar-Ed, Professional Corporation, each of
Columbia, South Carolina. Financial statements of the acquired
entity and pro forma financial information regarding the
combined entity were filed in a Form 8-K/A on December 11,
1997.
The Company filed a Form 8-K on November 5, 1997 which
reported the acquisition by UCI-SC of Marvin Dees, M.D. of New
Ellenton, South Carolina. Financial statements of the acquired
entity and pro forma financial information regarding the
combined entity were filed in a Form 8-K/A on January 7, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UCI Medical Affiliates, Inc.
(Registrant)
/s/ M.F. McFarland, III, M.D. /s/ Jerry F. Wells, Jr.
Marion F. McFarland, III, M.D. Jerry F. Wells, Jr.
President, Chief Executive Officer, Executive Vice President of Finance,
and Chairman of the Board Chief Financial Officer and
Principal Accounting Officer
Date: February 12, 1998
UCI MEDICAL AFFILIATES, INC.
EXHIBIT INDEX
EXHIBIT NUMBER
DESCRIPTION PAGE NUMBER
- ---------------- ------------------------------------------------------- -------------------------------------
10.18 Employment Agreement dated January 23, 1997 between 14
UCI Medical Affiliates of South Carolina, Inc. and
Jon G. Keith
21 Subsidiaries of the Registrant 26
27 Financial Data Schedule Filed separately as Article Type 5
via Edgar