<PAGE>
UNITED STATES
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, 1996
----------------------------------
( ) 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:
4,807,807 shares of $.05 common stock outstanding at December 31, 1996
Transitional Small Business Disclosure Format (check one): ( )YES ( X ) NO
1
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UCI MEDICAL AFFILIATES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - December 31, 1996
and September 30, 1996 3
Consolidated Statements of Operations for the quarters
ended December 31, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows for the quarters
ended December 31, 1996 and December 31, 1995 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
PART II OTHER INFORMATION
Items 1-6 11
SIGNATURES 12
</TABLE>
2
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UCI Medical Affiliates, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 78,222 $ 237,684
Accounts receivable, less allowance for doubtful accounts
of $972,540 and $1,021,856 4,741,510 4,187,394
Inventory 412,393 407,617
Deferred taxes 197,056 197,056
Prepaid expenses and other current assets 607,365 441,384
------------ ------------
Total current assets 6,036,546 5,471,135
Property and equipment less accumulated depreciation of
$2,208,749 and $2,025,970 3,362,029 3,300,048
Deferred taxes 1,030,126 855,126
Excess of cost over fair value of assets acquired, less
accumulated amortization of $1,317,264 and
$1,210,569 5,842,892 5,828,963
Other assets 277,799 277,422
------------ ------------
Total Assets $ 16,549,392 $ 15,732,694
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 990,759 $ 913,749
Accounts payable 1,490,393 1,391,858
Accrued salaries and payroll taxes 484,539 750,745
------------
Other accrued liabilities 397,524 394,635
------------ ------------
Total current liabilities 3,363,215 3,450,987
Long-term debt, net of current portion 5,333,832 4,459,484
------------ ------------
Total Liabilities 8,697,047 7,910,471
------------ ------------
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- 4,807,807 shares 240,390 240,390
Paid-in capital 13,732,393 13,732,393
Accumulated deficit (6,120,438) (6,150,560)
------------ ------------
Total Stockholders' Equity 7,852,345 7,822,223
------------ ------------
Total Liabilities and Stockholders' Equity $ 16,549,392 $ 15,732,694
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
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UCI Medical Affiliates, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended December 31,
1996 1995
------------ -----------
Revenues $ 6,487,908 $ 5,160,284
Operating costs 6,130,191 4,652,831
----------- -----------
Operating margin 357,717 507,453
General and administrative expenses 37,709 18,396
Depreciation and amortization 289,474 204,556
----------- -----------
Income (loss) from operations 30,534 284,501
Other income (expense)
Interest expense, net of interest income (166,794) (151,497)
Gain (loss) on disposal of equipment 0 1,327
----------- -----------
Other income (expense) (166,794) (150,170)
Income (loss) before benefit (provision ) for
income taxes (136,260) 134,331
Benefit (provision )for income taxes 166,382 --
----------- -----------
Net income (loss) $ 30,122 $ 134,331
=========== ===========
Net income (loss) per common and common
equivalent share $ .01 $ .04
=========== ===========
Weighted average common shares
outstanding 4,807,807 3,709,784
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
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UCI Medical Affiliates, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1996 1995
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 30,122 $ 134,331
Adjustments to reconcile net income (loss) to net
cash provided by (used-in) operating activities:
(Gain) loss on disposal of equipment
0 (1,327)
Provision for losses on accounts receivable 130,720 154,309
Depreciation and amortization 289,474 204,556
Deferred Taxes (175,000) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (684,836) (652,938)
(Increase) decrease in inventory (4,776) 0
(Increase) decrease in prepaid expenses and other
current assets (165,981) (49,861)
Increase (decrease) in accounts payable and accrued
expenses (164,782) (756,834)
----------- -----------
Cash provided by (used in) operating activities (745,059) (967,764)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (135,519) (89,063)
Acquisitions of goodwill (20,718) (40,560)
(Increase) decrease in other assets (377) 2,129
----------- -----------
Cash provided by (used in) investing activities (156,614) (127,494)
----------- -----------
FINANCING ACTIVITIES:
Issuance of common stock, net of redemptions 0 1,214,992
Increase in long-term debt 2,800,160 0
Payments on long-term debt (2,057,949) (196,247)
----------- -----------
Cash provided by (used in) financing activities 742,211 1,018,745
----------- -----------
Increase (decrease) in cash and cash equivalents (159,462) (76,513)
Cash and cash equivalents at beginning of period 237,684 76,513
----------- -----------
Cash and cash equivalents at end of period $ 78,222 $ 0
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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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, 1996 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 1997. 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, 1996.
The consolidated financial statements of UCI Medical Affiliates, Inc. include
the accounts of UCI Medical Affiliates, Inc. ("UCI"), its wholly owned
subsidiary, UCI Medical Affiliates of SC, Inc. ("UCI-SC") and Doctor's Care, PA
("the P.A."), collectively the "Company". 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 technical majority
ownership, consolidation of the P.A. with UCI is necessary to present fairly the
financial position and results of operations of UCI. UCI-SC provides non-medical
management and administrative functions for 30 medical centers, operating as
Doctor's Care (the "Centers"). All medical services at the Centers are provided
by or under the supervision of the P.A., which has contracted with UCI-SC to
provide the medical direction of the Centers. The medical directors operate the
Centers under the financial and operational control of UCI-SC. However, medical
supervision of the centers is provided solely by the P.A. The P.A. remits to
UCI-SC all medical service revenues generated by the Centers, net of expenses
incurred by the P.A. This compensation is recorded in the accompanying financial
statements as revenue. Control of the P.A. is perpetual and other than temporary
because of the nature of this relationship and the management agreements between
the 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 income per common and common equivalent share is based on the
weighted average number of common shares outstanding during the period plus (in
periods in which they have a dilutive effect) the effect of common shares
issuable from stock options, using the treasury stock method.
6
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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 UCI Medical Affiliates, Inc. include
the accounts of UCI Medical Affiliates, Inc. ("UCI"), its wholly owned
subsidiary, UCI Medical Affiliates of South Carolina, Inc. ("UCI-SC") and
Doctor's Care, PA ("the P.A."), collectively the "Company". 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 technical majority ownership, consolidation of the P.A. with UCI is necessary
to present fairly the financial position and results of operations of UCI. The
management agreement between UCI-SC and the P.A. conveys to the Company
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 the Company, (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.
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.
Results of Operations
Revenues of $6,488,000 for the quarter ending December 31, 1996 reflect an
increase of 26% from those of the quarter ending December 31, 1995.
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 26 to 30. This expansion included Columbia's Doctor's Care-Wateree added in
June 1996; Beaufort's Doctor's Care-Port Royal added in July 1996; Greenville's
Doctor's Care-Simpsonville added in October 1996; and Aiken's Doctor's
Care-Aiken added in October 1996. Of the $1,328,000 in revenue growth from the
first quarter of fiscal 1996 to the first quarter of fiscal 1997, approximately
$516,000 was from the four locations opened after December 31, 1995.
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
7
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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 19,000 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 $512,000 in the first
quarter of fiscal 1996 to approximately $705,000 in the first quarter of fiscal
1997.
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 10% of the Company's net revenue in fiscal 1996 and in the first
quarter of fiscal 1997.
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 96,000 in the first quarter of fiscal 1997 from
79,000 in the first quarter of fiscal 1996.
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 $507,000 realized for the first quarter of fiscal 1996.
Management believes that this margin deterioration is mainly the result of some
start-up costs being absorbed for the locations added since December 1995.
Additionally, patient visits did not meet budget for the first quarter of fiscal
1997, 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 1997.
Depreciation and amortization expense increased to $289,000 in the first quarter
of fiscal 1997, up from $205,000 in the first quarter of fiscal 1996. 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 $151,000 in the first quarter of
fiscal 1996 to $167,000 in the first quarter of fiscal 1997 primarily as a
result of the interest costs associated with the indebtedness incurred in the
Company's purchase of these assets and centers.
8
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Effective October 1, 1993, the Company adopted Statement of Financial Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires the use of an
asset and liability approach to accounting for income taxes. The effect of
adopting SFAS 109 was to reduce income tax expense for the first quarter of
fiscal 1997 by $175,000. As part of the adoption of SFAS 109, the Company has
recognized a deferred tax asset relating to net operating loss carry forwards
which are available to offset future taxable income.
In determining that it was more likely than not that the recorded deferred tax
asset would be realized, management of the Company considered the following:
The budgets and forecasts that management and the Board of
Directors had adopted for the next five fiscal years including
plans for expansion.
The ability to utilize NOL's prior to their expiration.
The potential limitation of NOL utilization in the event of a
change in ownership.
The generation of future taxable income in excess of income
reported on the consolidated financial statements.
Financial Condition at December 31, 1996
Cash and cash equivalents decreased by $160,000 during the quarter ended
December 31, 1996 and were utilized mainly for working capital needs and to fund
the expansion previously discussed.
Accounts receivable increased 13% during the quarter, reflecting the addition of
the Simpsonville and Aiken centers in October 1996 and the overall growth in
patient visits to existing centers.
The increase in goodwill attributable to the purchases of the four practices
since December 31, 1995 was offset by the amortization recorded.
Long-term debt increased from $4,459,000 at September 30, 1996 to $5,334,000 at
December 31, 1996 primarily as a result of indebtedness incurred in capital
leases for Center upfits, and in the utilization of an operating line of credit.
Management believes that it will be able to fund debt service requirements out
of cash generated through operations.
Overall, the Company's current assets exceeded its current liabilities at
December 31, 1996 by $2,673,000.
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 $745,000 of cash during the first quarter of fiscal
1997. 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 $157,000 of cash during the quarter as a result of
expansion efforts. Continued growth is anticipated during the remainder of
fiscal 1997.
9
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The Company entered into a long-term debt agreement with its primary lender in
November 1996 for a $3,000,000 line of credit bearing interest at an annual rate
of prime plus one (1%) percent. Proceeds from this line of credit were used to
pay off existing debt of $1,475,000.
10
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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
This item is not applicable.
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
The Company filed a Form 8-K during November 1996, which
announced the acquisition of an Aiken, South Carolina medical
practice which was opened as Doctor's Care-Aiken.
The Company filed a Form 8-K during November 1996, which
announced the acquisition of a medical practice near
Greenville, South Carolina which was opened as Doctor's
Care-Simpsonville.
The Financial Data Schedule is included herein as Exhibit 27.
11
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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
and Chairman of the Board Chief Financial Officer
Date: February 3, 1997
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 78,222
<SECURITIES> 0
<RECEIVABLES> 4,741,510
<ALLOWANCES> 972,540
<INVENTORY> 412,393
<CURRENT-ASSETS> 6,036,546
<PP&E> 3,362,029
<DEPRECIATION> 2,208,749
<TOTAL-ASSETS> 16,549,392
<CURRENT-LIABILITIES> 3,363,215
<BONDS> 0
0
0
<COMMON> 240,390
<OTHER-SE> 7,611,955
<TOTAL-LIABILITY-AND-EQUITY> 16,549,392
<SALES> 0
<TOTAL-REVENUES> 6,487,908
<CGS> 0
<TOTAL-COSTS> 6,130,191
<OTHER-EXPENSES> 37,709
<LOSS-PROVISION> 130,720
<INTEREST-EXPENSE> 166,794
<INCOME-PRETAX> (136,260)
<INCOME-TAX> (166,382)
<INCOME-CONTINUING> 30,122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,122
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
