UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB/A
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
------------------------------
( ) 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:
7,299,245 shares of $.05 common stock outstanding at October 9, 1998
Transitional Small Business Disclosure Format (check one): ( )Yes ( X )
No
1
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UCI MEDICAL AFFILIATES, INC.
INDEX
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Page
Number
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - June 30, 1998
and September 30, 1997 3
Consolidated Statements of Operations for the quarters and
the nine months ending June 30, 1998 and June 30, 1997 4
Consolidated Statements of Cash Flows for the nine months
ending June 30, 1998 and June 30, 1997 5
Notes to Consolidated Financial Statements 6 - 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 12
PART II OTHER INFORMATION
Items 1-6 13-14
SIGNATURES 16
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2
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UCI Medical Affiliates, Inc.
Consolidated Balance Sheets
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June 30, 1998 September 30, 1997
-------------------- -----------------------
(unaudited) (audited)
Assets
Current assets
Cash and cash equivalents $ 0 $ 14,676
Accounts receivable, less allowance for doubtful accounts
of $1,544,495 and $878,469 10,100,755 5,943,884
Inventory 666,725 502,888
Deferred taxes 334,945 334,945
Prepaid expenses and other current assets 1,053,252 579,217
--------------------
Total current assets 12,155,677 ----------------------
7,375,610
Property and equipment, less accumulated depreciation of
$3,482,625 and $2,724,222 5,062,550 4,002,699
Deferred taxes 1,417,237 1,417,237
Excess of cost over fair value of assets acquired, less
accumulated amortization of $2,223,877 and
$1,664,739 14,763,872 7,801,607
Other assets 263,501 266,379
-------------------- -----------------------
Total Assets $ 33,662,837 $ 20,863,532
==================== =======================
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $ 2,276,193 $ 840,879
Current portion of long-term debt payable to employees 205,544 177,445
Accounts payable 3,879,941 2,039,506
Accrued salaries and payroll taxes 1,709,795 959,068
Other accrued liabilities 468,577 437,667
-------------------- -----------------------
Total current liabilities 8,540,050 4,454,565
Stock issuance pending 6,890,815 0
Long-term debt, net of current portion 7,545,140 6,438,655
Long-term debt payable to employees, net of current portion 550,653 481,815
-------------------- -----------------------
-------------------- -----------------------
Total Liabilities 23,526,658 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- 7,299,245 and 5,744,965 shares
364,962 287,248
Paid-in capital 17,365,891 15,435,535
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Accumulated deficit (7,594,674) (6,234,286)
-------------------- -----------------------
Total Stockholders' Equity 10,136,179 9,488,497
-------------------- -----------------------
Total Liabilities and Stockholders' Equity $ 33,662,837 $ 20,863,532
==================== =======================
See Notes to Consolidated Financial Statements.
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UCI Medical Affiliates, Inc.
Consolidated Statements of Operations
(unaudited)
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Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------ -------------------------------------
1998 1997 1998 1997
--------------- ---------------- ----------------- ----------------
Revenues $9,932,868 $7,097,114 $ 26,625,431 $20,299,676
Operating costs 9,436,121 6,600,665 25,748,944 18,876,302
--------------- ---------------- ----------------- ----------------
Operating margin 496,747 496,449 876,487 1,423,374
General and administrative expenses 20,729 37,978 127,881
66,817
Depreciation and amortization 521,837 306,055 1,349,851 892,372
--------------- ---------------- ----------------- ----------------
Income (loss) from operations (45,819) 152,416 (540,181) 403,121
Other income (expense)
Interest expense, net of interest income (290,904) (214,392) (846,864) (570,951)
Gain (loss) on disposal of equipment 27,654 14,028 27,215
8,809
--------------- ---------------- ----------------- ----------------
Other income (expense) (263,250) (200,364) (819,649) (562,142)
Income (loss) before benefit (provision )for
income taxes (309,069) (47,948) (1,359,830) (159,021)
Benefit (provision )for income taxes 166,383 499,148
0 (558)
--------------- ---------------- ----------------- ----------------
Net income (loss) $(309,069) $ 118,435 $(1,360,388) $ 340,127
================ ================= ================
===============
Basic earnings (loss) per share $ (.05) $ .02 $ (.22) $
.07
=============== ================ ================= ================
Basic weighted average common shares
outstanding 6,745,399 4,842,968 6,290,844 4,819,526
=============== ================ ================= ================
Diluted earnings (loss) per share $ (.05) $ .02 $ (.22) $ .07
=============== ================ ================= ================
Diluted weighted average common shares
outstanding 6,756,273 4,842,968 6,309,164 4,831,074
=============== ================ ================= ================
</TABLE>
See Notes to Consolidated Financial Statements.
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UCI Medical Affiliates, Inc.
Consolidated Statements of Cash Flows
(unaudited)
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Nine Months Ended June 30,
----------------------------------------
1998 1997
------------------ ------------------
Operating activities:
Net income (loss) $ (1,360,388) $ 340,127
Adjustments to reconcile net income (loss) to net
cash provided by (used-in) operating activities:
(Gain) loss on disposal of equipment (27,215) (8,809)
Provision for losses on accounts receivable 897,237 522,601
Depreciation and amortization 1,349,851 892,372
Deferred taxes (525,000)
0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,835,232) (2,078,914)
(Increase) decrease in inventories (163,837) 27,970
(Increase) decrease in prepaid expenses and other
current assets (433,935) (4,252)
Increase (decrease) in accounts payable and accrued
expenses 2,616,031 (125,737)
------------------
------------------
Cash provided by (used in) operating activities 42,512 (959,642)
------------------ ------------------
Investing activities:
Purchases of property and equipment (731,285) (478,274)
Disposals of property and equipment 1,500
0
Acquisitions of goodwill (933,554) (26,551)
(Increase) decrease in other assets 2,878 8,511
------------------
------------------
Cash provided by (used in) investing activities (1,660,461) (496,314)
------------------ ------------------
Financing activities:
Issuance of common stock, net of redemptions & expense 1,103,700 600,000
Net borrowings (payments) under line-of-credit agreement (570,632) 1,877,260
Increase in long-term debt 2,088,523 280,000
Payments on long-term debt (1,018,318) (1,419,450)
------------------ ------------------
Cash provided by (used in) financing activities 1,603,273 1,337,810
------------------ ------------------
Increase (decrease) in cash and cash equivalents (14,676) (118,146)
Cash and cash equivalents at beginning of period 14,676 237,684
------------------ ------------------
------------------
Cash and cash equivalents at end of period $ $ 119,538
0
================== ==================
</TABLE>
See Notes to Consolidated Financial Statements
6
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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 nine month or three month periods ended June 30, 1998
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/A for the year ended September 30, 1997.
The consolidated financial statements include the accounts of UCI Medical
Affiliates, Inc. ("UCI") and all wholly-owned and beneficially owned
subsidiaries (UCI Medical Affiliates of South Carolina, Inc. ("UCI-SC"); UCI
Medical Affiliates of Georgia, Inc. ("UCI-GA"); Doctor's Care of South Carolina,
P.A. ("PASC"); Doctor's Care of Georgia, P.C. ("PCGA"); and Doctor's Care of
Tennessee, P.C. ("PCTN")). Because of corporate practice of medicine laws in the
states in which the Company operates, the Company does not own medical practices
but instead enters into exclusive long-term management services agreements with
professional corporations which operate the medical practices. In addition, the
Company has the contractual right to designate, in its sole discretion and at
any time, the licensed medical provider who is the owner of the capital stock of
the professional corporation at a nominal cost ("nominee arrangements"). Through
the Management Services Agreements, the Company has exclusive authority over
decision making relating to all major ongoing operations of the underlying
professional corporations with the exception of the professional aspects of
medical practice as required by state law. Under the Management Services
Agreements, the Company establishes annual operating and capital budgets for the
professional corporations and compensation guidelines for the licensed medical
professionals. The Management Services Agreements have initial terms of forty
years. The method of computing the management fees are based on billings of the
affiliated practices less the amounts necessary to pay professional compensation
and other professional expenses. In all cases, these fees are meant to
compensate the Company for expenses incurred in providing covered services plus
a profit. These interest are unilaterally salable and transferable by the
Company and fluctuate based upon the actual performance of the operations of the
professional corporations.
Through the Management Services Agreements and the nominee arrangement, the
Company has a significant long-term financial interest in the affiliated
practices and, therefore, according to Emerging Issues Task Force Issue No.
97-2, "Application of FASB Statement No. 94, Consolidation of All Majority-Owned
Subsidiaries, and APB No. 16, Business Combinations, to Physician Practice
Management Entities and Certain Other Entities with Contractual management
Arrangements," must consolidate the results of the affiliated practices with
those of the Company. Because the Company must present consolidated financial
statements, net patient service revenues are presented in the accompanying
statement of operations. All significant intercompany accounts and transactions,
including management fees, have been eliminated.
Under EITF 97-2, the Company is consolidating the results of the affiliated
medical practices of the MHC-PCs acquired by the UCI-PCs in the Acquisition with
those of the Company. Such consolidation is required under EITF 97-2 as a
consequence of the nominee shareholder arrangement that exists with respect to
each of the UCI-PCs. In each case, the nominee (and sole) shareholder of the
UCI-PC has entered into an agreement with UCI-GA which satisfies the
requirements set forth in footnote 1 of EITF 97-2. Under each
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agreement, UCI-GA, in its sole discretion, can effect a change in the nominee
shareholder at any time for a payment of $100 from the new nominee shareholder
to the old nominee shareholder, with no limits placed on the identity of
any new nominee shareholder and no adverse impact resulting to either UCI-GA
or the UCI-PC resulting from such change.
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. Note that the 2,901,396 shares to be issued as
described below have not been included in the earnings per share calculation.
STOCKHOLDERS EQUITY
UCI of GA acquired substantially all the assets of MainStreet Healthcare
Corporation ("MHC") effective for accounting purposes as of May 1, 1998 (the
"Acquisition"). The closing of the Acquisition was completed on May 13, 1998. As
partial consideration for the Acquisition, the Company delivered to MHC at the
closing of the Acquisition a Conditional Delivery Agreement (the "Conditional
Delivery Agreement") by and between the Company, UCI of GA and MHC which
requires the Company to issue to MHC 2,901,396 shares of the common stock of the
Company after the approval of such issuance by the shareholders of the Company.
The Conditional Delivery Agreement states that in the event the shareholders of
the Company fail to approve the issuance of such shares to MHC, the Acquisition
shall be unwound, and the assets shall be returned to MHC. However, holders of
an aggregate of 54% of the issued and outstanding shares of the Company's common
stock as of the date of this filing have executed and delivered separate
agreements with MHC to vote their shares at the Annual Meeting in favor of the
issuance of such stock to MHC. Upon the vote of such shareholders as indicated,
the proposals relating to the Acquisition are assured to be approved, regardless
of the votes that may be cast by any other holders of common stock entitled to
vote. The Acquisition has already been approved by the shareholders of MHC. The
Company is, therefore, of the opinion that it is a remote possibility that the
Acquisition will be required to be unwound as contemplated in the Conditional
Delivery Agreement. These shares, however, have not been included on the balance
sheet as issued and outstanding.
UCI of GA treated the Acquisition as a purchase for accounting purposes per APB
16. Total consideration in the transaction consisted of 2,901,396 of the common
stock of the Company, a cash payment of $450,010 and a note payable of $800,000
bearing interest per annum at 10.5%, due October 1, 1998. The excess purchase
price over the fair value of assets is being amortized using the straight-line
method over 15 years.
The following unaudited proforma consolidated statements of operations give
effect to the Acquisition as though it had occurred at the beginning of each
period presented.
<TABLE>
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Summary Pro Forma Combined Nine Months Ended Fiscal Year Ended
Statement of Operations Data June 30, 1998 September 30, 1997
- ------------------------------------------------------- ----------------------- -----------------------
Revenues $ 30,374,871 $ 33,933,214
Income (loss) from operations (1,445,533) (2,302,180)
Net income (loss) (2,539,881) (2,845,301)
8
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Net income (loss) per common and common equivalent
share (basic) (0.37) (0.30)
Weighted average common shares and common share
equivalents outstanding 6,939,141 9,406,477
</TABLE>
9
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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 include the accounts of UCI Medical
Affiliates, Inc. ("UCI") and all wholly-owned and beneficially owned
subsidiaries (UCI Medical Affiliates of South Carolina, Inc. ("UCI-SC"); UCI
Medical Affiliates of Georgia, Inc. ("UCI-GA"); Doctor's Care of South Carolina,
P.A. ("PASC"); Doctor's Care of Georgia, P.C. ("PCGA"); and Doctor's Care of
Tennessee, P.C. ("PCTN")). Because of corporate practice of medicine laws in the
states in which the Company operates, the Company does not own medical practices
but instead enters into exclusive long-term management services agreements with
professional corporations which operate the medical practices. In addition, the
Company has the contractual right to designate, in its sole discretion and at
any time, the licensed medical provider who is the owner of the capital stock of
the professional corporation at a nominal cost ("nominee arrangements"). Through
the Management Services Agreements, the Company has exclusive authority over
decision making relating to all major ongoing operations of the underlying
professional corporations with the exception of the professional aspects of
medical practice as required by state law. Under the Management Services
Agreements, the Company establishes annual operating and capital budgets for the
professional corporations and compensation guidelines for the licensed medical
professionals. The Management Services Agreements have initial terms of forty
years. The method of computing the management fees are based on billings of the
affiliated practices less the amounts necessary to pay professional compensation
and other professional expenses. In all cases, these fees are meant to
compensate the Company for expenses incurred in providing covered services plus
a profit. These interest are unilaterally salable and transferable by the
Company and fluctuate based upon the actual performance of the operations of the
professional corporations.
Through the Management Services Agreements and the nominee arrangement, the
Company has a significant long-term financial interest in the affiliated
practices and, therefore, according to Emerging Issues Task Force Issue No.
97-2, "Application of FASB Statement No. 94, Consolidation of All Majority-Owned
Subsidiaries, and APB No. 16, Business Combinations, to Physician Practice
Management Entities and Certain Other Entities with Contractual management
Arrangements," must consolidate the results of the affiliated practices with
those of the Company. Because the Company must present consolidated financial
statements, net patient service revenues are presented in the accompanying
statement of operations. All significant intercompany accounts and transactions,
including management fees, have been eliminated.
Procedurally, the management agreements call for the P.A.'s and P.C.'s 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 or UCI-GA as a
management fee. UCI-SC and UCI-GA provide 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 six entities.
The P.A.'s and P.C.'s enter 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. and
10
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P.C.'s 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 June
30, 1998 and June 30, 1997, the Company employed 120 and 76 providers,
respectively.
Results of Operations
For the Three Months Ended June 30, 1998 as Compared to the Three Months
Ended June 30, 1997
Effective May 1, 1998, UCI acquired the assets of MainStreet Healthcare
Corporation of Atlanta, Georgia for a combination of cash, debt, UCI stock and
debt assumption. MainStreet, with annualized revenues of approximately $7
million and with approximately 100 employees, owns and operates six primary care
medical offices in the Atlanta, Georgia area and two primary care medical
offices in Knoxville, Tennessee.
Revenues of $9,933,000 for the quarter ending June 30, 1998 reflect an
increase of forty (40%) percent from those of the quarter ending June 30, 1997.
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 48. 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; Ridgeview Family Practice of Columbia, South Carolina, opened
in December 1997 and the eight practices purchased from MainStreet Healthcare on
May 1, 1998 (six in Atlanta, Georgia and two in Knoxville, Tennessee). Of the
$2,836,000 in revenue growth from the third quarter of fiscal 1997 to the third
quarter of fiscal 1998, approximately $2,468,000 was from the eighteen locations
opened after June 30, 1997.
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 in 1994. The Company now acts as primary care "gatekeeper" for
approximately 24,000 lives for four HMOs, including Companion. 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
decreased from approximately $859,000 in the third quarter of fiscal 1997 to
approximately $589,000 in the third quarter of fiscal 1998 because the Company
renegotiated with one of the larger HMOs to pay on a discounted fee-for-services
basis instead of on a capitated basis effective May 1, 1998. The Company
continues to act as the gatekeeper for the covered lives.
The Company negotiates contracts with two of the HMOs for the PASC physicians to
provide health care on a capitated reimbursement basis. Under these contracts,
which typically are automatically renewed on an annual basis, the PASC
physicians provide virtually all covered primary care services and receive a
fixed monthly capitation payment from the HMOs for each member who chooses a
PASC 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
which pay by capitation accounted for approximately 6% of the Company's net
revenue in the third 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. This has not occurred to date. 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.
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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.
Patient encounters increased to 127,000 in the third quarter of fiscal 1998
from 96,000 in the third 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 owners of our competition are 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 $497,000 was earned during the third quarter of fiscal
1998 as compared to an operating margin of $496,000 realized for the third
quarter of fiscal 1997. Management believes that lack of improvement in the
margin is mainly the result of some start-up costs, which are expensed as
incurred, being absorbed for the locations added since June 1997. Typically,
start-up costs are mainly the result of personnel costs necessary to staff a
center that is not yet being used to capacity.
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 $522,000 in the third quarter
of fiscal 1998, up from $306,000 in the third 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 purchases of existing practices as
noted above. Interest expense increased from $214,000 in the third quarter of
fiscal 1997 to $291,000 in the third 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 as a result of the usage of
the Company line of credit for operating expenses.
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 third 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 expansion.
The potential limitation of NOL utilization in the event of a change in
ownership.
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The generation of future taxable income in excess of income reported on
the consolidated financial statements.
For the Nine Months Ended June 30, 1998 as Compared to the Nine Months
Ended June 30, 1997
Revenues of $26,625,000 reflect an increase of thirty-one (31%) percent from the
same period in fiscal 1997 and is attributable to the expansion, marketing and
line of business factors discussed above. Patient encounters increased to
361,000 for the nine months ended June 30, 1998 from 287,000 for the nine months
ended June 30, 1997.
Financial Condition at June 30, 1998
Cash and cash equivalents decreased by $15,000 during the nine months ended June
30, 1998 as detailed on page 5 of this report. Cash was utilized mainly for
working capital needs and to fund the expansion previously discussed.
Accounts receivable increased 70% during the period. An increase of
approximately 30% is reflective of the addition of centers and the overall
growth in patient visits to existing centers. The remaining increase was the
result of the accounts receivable purchase from MainStreet. Management
anticipates that cash flow from the collection of the purchased accounts
receivable will enhance future periods.
The increase in goodwill attributable to the purchases of the sixteen practices
noted above was somewhat offset by the amortization recorded.
Long-term debt increased from $7,280,000 at September 30, 1997 to $9,821,000 at
June 30, 1998 primarily as a result of indebtedness incurred in the practice
acquisitions detailed earlier and due to 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 June
30, 1998 by $3,616,000.
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
and Casualty Insurance Company), internally generated funds and credit extended
by suppliers.
Operating activities provided $43,000 of cash during the nine months ended June
30, 1998. This reflects growth in the Company's accounts receivable as well as
prepaid expenses and an increase in accounts payable and accrued expenses. The
growth in accounts receivable and in accounts payable is the result of growth in
the number of Centers, patient visits and charges per patient visit.
Investing activities used $1,660,000 of cash during the nine months as a result
of expansion efforts. Continued growth is anticipated during the remainder of
fiscal 1998 and beyond.
In May 1998, the Company, through a private placement, issued 1,200,000 shares
of common stock at $1.00 per share through Allen & Company, Inc. and received
net $1,066,200 in cash.
13
<PAGE>
The Year 2000
It is possible that the Company's currently installed computer systems, or other
business systems, or those of the Company's vendors, working either alone or in
conjunction with other software or systems, will not accept input of, store,
manipulate or output dates in the years 1999, 2000 or thereafter without error
or interruption (commonly known as the "Year 2000" problem). The Company has
conducted a review of its business systems, including its computer systems, and
is querying its vendors as to their progress in identifying and addressing
problems that their computer systems may face in correctly processing date
information as the Year 2000 approaches and is reached. However, there can be no
assurance that the Company will identify all such Year 2000 problems in its
compute systems or those of its vendors or resellers in advance of their
occurrence or that the Company will be able to successfully remedy any problems
that are discovered. The expenses of the Company's efforts to identify and
address such problems, or the expenses or liabilities to which the Company may
become subject as a result of such problems, could have a material adverse
effect on the Company's business, financial condition and results of operations.
Maintenance or modification costs will be expensed as incurred, while the costs
of any new software will be capitalized over the software's useful life.
This Form 10-Q contains forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The Company
cautions readers of this press release that such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from those expressed or implied by such forward-looking statements.
Although the Company's management believes that their expectations of future
performance are based on reasonable assumptions within the bounds of their
knowledge of their business and operations, there can be no assurance that
actual results will not differ materially from their expectations. Factors which
could cause actual results to differ from expectations include, among other
things, the difficulty in controlling the Company's cost of providing healthcare
and administering its network of Centers; the possible negative effects from
changes in reimbursement and capitation payment levels and payment practices by
insurance companies, healthcare plans, government payors and other payment
sources; the difficulty of attracting primary care physicians; the increasing
competition for patients among healthcare providers; possible government
regulations in multiple jurisdictions negatively impacting the existing
organizational structure of the Company; the possible negative effects of
prospective healthcare reform; the challenges and uncertainties in the
implementation of the Company's expansion and development strategy; the
dependence on key personnel, and other factors described in other reports filed
by the Company with the Securities and Exchange Commission.
14
<PAGE>
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
During the three months ended June 30, 1998, 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) and Rule 506 of
Regulation D 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 May 12, 1998, the Company, through a private placement,
issued an aggregate of 1,200,000 shares of common stock at
$1.00 per share through Allen & Company, Inc. to two investors
and received $1,066,200 net of fees and commissions in cash.
UCI of GA acquired substantially all the assets of MainStreet
Healthcare Corporation ("MHC") effective for accounting
purposes as of May 1, 1998 (the "Acquisition"). The closing of
the Acquisition was completed on May 13, 1998. As partial
consideration for the Acquisition, the Company delivered to
MHC at the closing of the Acquisition a Conditional Delivery
Agreement (the "Conditional Delivery Agreement") by and
between the Company, UCI of GA and MHC which requires the
Company to issue to MHC 2,901,396 shares of the common stock
of the Company after the approval of such issuance by the
shareholders of the Company. The Conditional Delivery
Agreement states that in the event the shareholders of the
Company fail to approve the issuance of such shares to MHC,
the Acquisition shall be unwound, and the assets shall be
returned to MHC. However, holders of an aggregate of 54% of
the issued and outstanding shares of the Company's common
stock as of the date of this filing executed and delivered
separate agreements with MHC to vote their shares at the
Annual Meeting in favor of the issuance of such stock to MHC.
Upon the vote of such shareholders as indicated, the proposals
relating to the Acquisition are assured to be approved,
regardless of the votes that may be cast by any other holders
of common stock entitled to vote. The Acquisition has already
been approved by the shareholders of MHC. The Company is,
therefore, of the opinion that it is a remote possibility that
the Acquisition will be required to be unwound as contemplated
in the Conditional Delivery Agreement. Therefore, the
2,901,396 shares issued to MHC per the Conditional Delivery
Agreement have been included on the balance sheet as issued
and outstanding.
Item 3 Defaults upon Senior Securities
This item is not applicable.
15
<PAGE>
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 exhibit included on the attached Exhibit
Index is filed as part of this report.
(b) Reports on Form 8-K.
The Company filed a Form 8-K/A on April 20, 1998, which
amended the Form 8-K filed with the Securities and Exchange
Commission on February 17, 1998 by UCI Medical Affiliates,
Inc., a Delaware corporation ("UCI"), and was filed to
disclose an amendment to the Agreement reported in the initial
filing of this Form 8-K, and to include the financial
statements required by Item 7 of Form 8-K.
The Company filed a Form 8-K/A on May 11, 1998, which amended
the Form 8-K filed with the Securities and Exchange Commission
on March 1, 1998 by UCI Medical Affiliates, Inc., a Delaware
corporation (the "Company"), and was filed to include the
financial statements required by Item 7 of Form 8-K.
The Company filed a Form 8-K/A on May 28, 1998, which amended
the Form 8-K filed with the Securities and Exchange Commission
on February 17, 1998 by UCI Medical Affiliates, Inc., a
Delaware corporation ("UCI"), and that certain Form 8-K/A
filed with the Securities and Exchange Commission on April 20,
1998, and was filed to disclose a second amendment to the
Agreement reported in the initial filing of this Form 8-K, and
to include revised pro forma financial information related to
the MainStreet Acquisition.
The Company filed a Form 8-K/A on July 24, 1998, which amended
the Form 8-K filed with the Securities and Exchange Commission
on February 17, 1998 by UCI Medical Affiliates, Inc., a
Delaware corporation ("UCI"), that certain Form 8-K/A filed
with the Securities and Exchange Commission on April 20, 1998;
and that certain Form 8-K/A filed with the Securities and
Exchange Commission on May 28, 1998, and was filed to include
the financial statements and certain other exhibits required
by Item 7 of Form 8-K, all related to the MainStreet
Acquisition.
16
<PAGE>
UCI MEDICAL AFFILIATES, INC.
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
EXHIBIT NUMBER
DESCRIPTION PAGE NUMBER
- ---------------- ------------------------------------------------------- -------------------------------------
27 Financial Data Schedule Filed separately as Article Type 5
via Edgar
</TABLE>
17
<PAGE>
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., CPA
President, Chief Executive Officer, Executive Vice President of Finance and
and Chairman of the Board Chief Financial Officer
Date: October 13, 1998
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Exhibit 27 - Financial Data Schedule)
</LEGEND>
<CIK> 0000737561
<NAME> UCI Medical Affiliates, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 10,100,755
<ALLOWANCES> 1,544,495
<INVENTORY> 666,725
<CURRENT-ASSETS> 12,155,677
<PP&E> 5,062,550
<DEPRECIATION> 3,482,625
<TOTAL-ASSETS> 33,662,837
<CURRENT-LIABILITIES> 8,540,050
<BONDS> 0
0
0
<COMMON> 364,962
<OTHER-SE> 9,771,217
<TOTAL-LIABILITY-AND-EQUITY> 33,662,837
<SALES> 0
<TOTAL-REVENUES> 26,625,431
<CGS> 0
<TOTAL-COSTS> 24,851,773
<OTHER-EXPENSES> 1,416,668
<LOSS-PROVISION> 897,171
<INTEREST-EXPENSE> 846,864
<INCOME-PRETAX> (1,359,830)
<INCOME-TAX> (558)
<INCOME-CONTINUING> (1,360,388)
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<NET-INCOME> (1,360,388)
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