-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DiZCjUKUHHwq640fM9vml1U1lI/5QbE2jXcTYfNJMxqNuZaAakXcwS9cV1778SM8 5OlM70ngghNWXErSMC17Bw== 0000737561-00-000006.txt : 20000215 0000737561-00-000006.hdr.sgml : 20000215 ACCESSION NUMBER: 0000737561-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UCI MEDICAL AFFILIATES INC CENTRAL INDEX KEY: 0000737561 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 592225346 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13265 FILM NUMBER: 539768 BUSINESS ADDRESS: STREET 1: 1901 MAIN ST MAIL CODE 1105 STREET 2: STE 1200 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8032523661 MAIL ADDRESS: STREET 1: 1901 MAIN ST MAIL CODE 1105 STREET 2: SUITE 1200 CITY: COLUMBIA STATE: SC ZIP: 29201 10-Q 1 FORM 10-Q FOR UCI MEDICAL AFFILIATES, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q (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, 1999 ---------------------------------- ( ) 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: 9,650,515 shares of $.05 common stock outstanding at December 31, 1999 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 Condensed Consolidated Balance Sheets - December 31, 1999 and September 30, 1999 3 Condensed Consolidated Statements of Operations for the quarters ended December 31, 1999 and December 31, 1998 4 Condensed Consolidated Statements of Cash Flows for the quarters ended December 31, 1999 and December 31, 1998 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 12 Item 3 Quantitative and Qualitative Disclosures About Market Risk 13 PART II OTHER INFORMATION Items 1-6 14 SIGNATURES 15
UCI Medical Affiliates, Inc. Condensed Consolidated Balance Sheets December 31, 1999 September 30, 1999 ------------------- ----------------- (unaudited) (audited) Assets Current assets Cash and cash equivalents $ 229,048 $ 66,159 Accounts receivable, less allowance for doubtful accounts of $1,156,285 and $1,482,522 8,439,897 8,399,743 Inventory 602,858 590,318 Prepaid expenses and other current assets 914,217 748,467 ------------------- ----------------- Total current assets 10,186,020 ---------------- 9,804,687 Property and equipment less accumulated depreciation of $5,214,524 and $4,921,458 4,725,583 4,796,643 Excess of cost over fair value of assets acquired, less accumulated amortization of $2,823,331 and $2,650,249 8,538,173 8,711,255 Other assets 41,500 41,500 ------------------- ----------------- Total Assets $23,491,276 $23,354,085 =================== ================= Liabilities and Stockholders' Equity Current liabilities Book overdraft $ 720,291 $ 803,257 Current portion of long-term debt 5,053,613 4,557,797 Accounts payable 3,300,630 3,341,712 Accrued salaries and payroll taxes 2,619,726 2,292,542 Other accrued liabilities 923,619 ---------------- 1,098,859 ----------------- ------------------- Total current liabilities 12,617,879 12,094,167 Long-term debt, net of current portion 4,349,794 4,886,435 ------------------- ----------------- Total Liabilities 16,967,673 16,980,602 ------------------- ----------------- Commitments and contingencies 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- 9,650,515 and 9,650,515 shares 482,526 482,526 Paid-in capital 21,723,628 21,723,628 Accumulated deficit (15,682,551) (15,832,671) ------------------- ----------------- Total Stockholders' Equity 6,523,603 6,373,483 ------------------- ----------------- Total Liabilities and Stockholders' Equity $23,491,276 $ 23,354,085 =================== =================
The accompanying notes are an integral part of these condensed consolidated financial statements. UCI Medical Affiliates, Inc. Condensed Consolidated Statements of Operations (unaudited) Three Months Ended December 31, 1999 1998 -------------------- ------------------ Revenues $10,198,849 $ 9,681,398 Operating costs 9,218,809 8,337,860 -------------------- ------------------ Operating margin 980,040 1,343,538 General and administrative expenses 25,843 17,817 Depreciation and amortization 466,147 480,513 -------------------- ------------------ Income (loss) from operations 488,050 845,208 Other income (expense) Interest expense, net of interest income (337,930) (368,481) Income before benefit (provision ) for income taxes 150,120 476,727 Benefit (provision )for income taxes 0 0 -------------------- ------------------ Net income $ 150,120 $ 476,727 ================== ==================== Basic earnings per share $ .02 $ .07 ==================== ================== Basic weighted average common shares outstanding 9,650,515 6,934,517 ==================== ================== Diluted earnings per share $ .02 $ .07 ==================== ================== Diluted weighted average common shares outstanding 9,657,258 6,934,574 ==================== ==================
The accompanying notes are an integral part of these condensed consolidated financial statements. UCI Medical Affiliates, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended December 31, 1999 1998 ------------------ ----------------- Operating activities: Net income (loss) $ 150,120 $ 476,727 Adjustments to reconcile net income (loss) to net cash provided by (used-in) operating activities: Provision for losses on accounts receivable 403,164 387,238 Depreciation and amortization 466,147 480,513 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (434,000) (268,722) (Increase) decrease in inventory (12,540) 0 (Increase) decrease in prepaid expenses and other current assets (165,750) 202,177 Increase (decrease) in accounts payable and accrued expenses 101,544 (945,698) ----------------- ------------------ Cash provided by (used in) operating activities 508,685 332,235 ------------------ ----------------- Investing activities: Purchases of property and equipment (222,006) (125,658) Acquisitions of goodwill 0 (62,674) (Increase) decrease in other assets 0 360,749 ----------------- ------------------ Cash provided by (used in) investing activities (222,006) 172,417 ------------------ ----------------- Financing activities: Net borrowings (payments) under line-of-credit agreement 303,826 (519,938) Increase (decrease) in book overdraft (82,966) 525,018 Payments on long-term debt (344,650) (461,042) ------------------ ----------------- Cash provided by (used in) financing activities (123,790) (455,962) ------------------ ----------------- Increase (decrease) in cash and cash equivalents 162,889 48,690 Cash and cash equivalents at beginning of period 66,159 335,923 ------------------ ----------------- ------------------ Cash and cash equivalents at end of period $ 229,048 $ 384,613 ================== =================
The accompanying notes are an integral part of these condensed consolidated financial statements. UCI MEDICAL AFFILIATES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) BASIS OF PRESENTATION: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q 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, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2000. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended September 30, 1999. The consolidated financial statements include the accounts of UCI Medical Affiliates, Inc. ("UCI"), UCI Medical Affiliates of South Carolina, Inc. ("UCI-SC"), UCI Medical Affiliates of Georgia, Inc. ("UCI-GA"), Doctor's Care, P.A., Doctor's Care of Georgia, P.C., and Doctor's Care of Tennessee, P.C. (the three together as the "P.A."). (As used herein, the term "Company" refers to UCI, UCI-SC, UCI-GA, and the P.A., collectively.) Because of the corporate practice of medicine laws in the states in which the Company operates, the Company does not own medical practices but instead enters into an exclusive long-term management services agreements with the P.A. which operate the medical practices. Consolidation of the financial statements is required under Emerging Issues Task Force (EITF) 97-2 as a consequence of the nominee shareholder arrangement that exists with respect to each of the P.A.'s. In each case, the nominee (and sole) shareholder of the P.A. has entered into an agreement with UCI-SC or UCI-GA, as applicable, which satisfies the requirements set forth in footnote 1 of EITF 97-2. Under the agreement, UCI-SC or UCI-GA, as applicable, 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 any of UCI-SC, UCI-GA or the P.A. resulting from such change. In addition to the nominee shareholder arrangements described above, each of UCI-SC and UCI-GA have entered into Administrative Service Agreements with the P.A.'s. As a consequence of the nominee shareholder arrangements and the Administrative Service Agreements, the Company has a long-term financial interest in the affiliated practices of the P.A.'s. Through the Administrative Services Agreement, the Company has exclusive authority over decision making relating to all major on-going operations. The Company establishes annual operating and capital budgets for the P.A. and compensation guidelines for the licensed medical professionals. The Administrative Services Agreements have an initial term of forty years. According to EITF 97-2, the application of FASB Statement No. 94 (Consolidation of All Majority-Owned Subsidiaries), and APB No. 16 (Business Combinations), the Company must consolidate the results of the affiliated practices with those of the Company. All significant intercompany accounts and transactions are eliminated in consolidation, including management fees. The method of computing the management fees is 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 interests are unilaterally salable and transferable by the Company and fluctuate based upon the actual performance of the operations of the professional corporation. 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 79% of the physicians employed by the P.A. are paid on an hourly basis for time scheduled and worked at the medical centers, while other physicians are salaried. Approximately 25 of the physicians have incentive compensation arrangements which are contractually based upon factors such as productivity, collections and quality. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates and assumptions. Significant estimates are discussed in the footnotes, as applicable, of the Form 10-K for the year ended September 30, 1999. The Company operates as one segment. 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, UCI-GA and the P.A.'s. Such consolidation is required under Emerging Issues Task Force (EITF) 97-2 as a consequence of the nominee shareholder arrangement that exists with respect to each of the PA's. In each case, the nominee (and sole) shareholder of the P.A. has entered into an agreement with UCI-SC or UCI-GA, as applicable, which satisfies the requirements set forth in footnote 1 of EITF 97-2. Under the agreement, UCI-SC or UCI-GA, as applicable, 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 any of UCI-SC, UCI-GA or the P.A. resulting from such change. In addition to the nominee shareholder arrangements described above, each of UCI-SC and UCI-GA have entered into Administrative Service Agreements with the P.A.'s. As a consequence of the nominee shareholder arrangements and the Administrative Service Agreements, the Company has a long-term financial interest in the affiliated practices of the P.A.'s. According to EITF 97-2, the application of FASB Statement No. 94 (Consolidation of All Majority-Owned Subsidiaries), and APB No. 16 (Business Combinations), the Company must consolidate the results of the affiliated practices with those of the Company. The P.A.'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 79% of the physicians employed by the P.A.'s are paid on an hourly basis for time scheduled and worked at the medical centers. The other physicians are salaried. Approximately 25 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. Any incentive compensation is based upon a percentage of non-ancillary collectible charges for services performed by a provider. Percentages range from 3% to 17% and vary by individual employment contract. As of December 31, 1999 and 1998, the P.A.'s employed 121 and 95 medical providers, respectively. The net assets of the P.A.'s are not material for any period presented, and intercompany accounts and transactions have been eliminated. The Company does not allocate all indirect costs incurred at the corporate offices to the Centers on a center-by-center basis. Therefore, all discussions below are intended to be in the aggregate for the Company as a whole. Results of Operations Revenues of $10,199,000 for the quarter ended December 31, 1999 reflect an increase of 5% from those of the quarter ended December 31, 1998. This increase in revenue is the result of "same-store" growth in patient visits and patient charges. The same 41 locations were operating at both December 31, 1999 and December 31, 1998. Patient encounters increased to approximately 131,000 in the first quarter of fiscal year 2000 from 127,000 in the first quarter of fiscal year 1999. During the past three fiscal years, the Company has continued its services provided to members of HMOs. In these arrangements, the Company, through the P.A., acts as the designated primary caregiver for members of HMOs who have selected one of the Company's centers or providers as their primary care provider. In fiscal year 1994, the Company began participating in an HMO operated by Companion HealthCare Corporation ("CHC"), a wholly owned subsidiary of Blue Cross Blue Shield of South Carolina ("BCBS"). BCBS, through CHC, is a primary stockholder of UCI. Including its arrangement with CHC, the Company now participates in four HMOs and is the primary care "gatekeeper" for more than 20,000 lives at December 31, 1999. One of these HMOs uses a capitation scheme for payments and three pay on a discounted fee-for-service basis. HMOs do not, at this time, have a significant penetration into the South Carolina market. The Company is not certain if there will be growth in the market share of HMOs in the areas in which it operates clinics. Capitated revenue decreased from approximately $360,000 in the first quarter of fiscal year 1999 to approximately $340,000 in the first quarter of fiscal year 2000. The Company currently negotiates contracts with one HMO 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 capitated HMOs accounted for approximately 3% of the Company's net revenue in the first quarter of fiscal year 2000 compared to 4% the first quarter of fiscal year 1999. 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. No capitation contracts currently in place at the Company have been determined to be insufficient to cover related costs of treatment. 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 and sustained revenues in fiscal years 2000 and 1999 also reflect the Company's heightened focus on occupational medicine and industrial health services (these revenues are referred to as "employer paid" on the table below). Focused marketing materials, including quarterly newsletters for employers, were developed to spotlight the Company's services for industry. The following table breaks out the Company's revenue and patient visits by revenue source for the first quarter of fiscal years 2000 and 1999. Percent of Percent of Payor Patient Visits Revenue ------------------------------------------------ ------------------------ ----------------------- 2000 1999 2000 1999 ------------ ----------- ------------ ---------- 17 19 16 19 Patient Pay 9 11 5 8 Employer Paid 13 10 15 10 HMO 6 8 12 12 Workers Compensation 8 10 6 7 Medicare/Medicaid 38 34 33 34 Managed Care Insurance 9 8 13 10 Other (Commercial Indemnity, Champus, etc.)
An operating margin of $980,000 was earned during the first quarter of fiscal 2000 as compared to an operating margin of $1,344,000 for the first quarter of fiscal 1999. Management believes that the decline in margin was the result of personnel and supply costs overruns that it is in the process of reducing. However, the personnel cost increases are in part 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 decreased to $466,000 in the first quarter of fiscal 2000, down from $481,000 in the first quarter of fiscal 1999. This decrease reflects higher depreciation expense as a result of leasehold improvements and equipment upgrades at a number of the Company's medical centers, offset by a greater reduction in amortization expense for fully amortized acquisitions. Interest expense decreased from $368,000 in the first quarter of fiscal 1999 to $338,000 in the first quarter of fiscal 2000 primarily as a result of the overall reduction in long-term debt. Going Concern Matters The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company has a working capital deficiency, an accumulated deficit, and the line of credit agreement which expires in March 2000 and the Company currently is in violation of a loan covenant related to its line of credit. Ultimately, the Company's viability as a going concern is dependent upon its ability to continue to generate positive cash flows from operations, maintain adequate working capital and obtain satisfactory long-term financing. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company plans include the following, although it is not possible to predict the ultimate outcome of the Company's efforts. The Company is currently seeking sources of financing from other financing sources with terms more suitable and favorable to the Company's financing requirements. The Company anticipates that a new financing arrangement will be in place prior to the expiration of the current line of credit agreement. The Company management believes that due to the improved financial results for fiscal year 1999 and the first quarter of fiscal year 2000 and the existence of an adequate asset base, lenders will be interested in finalizing a financial agreement. The Company expects to have availability of the existing line of credit until the expiration date of the credit agreement. Financial Condition at December 31, 1999 Cash and cash equivalents increased by $163,000 during the quarter ended December 31, 1999 mainly as a result of the continuing profitability. Accounts receivable increased slightly during the quarter, reflecting the slight growth in revenue. The reduction in goodwill is attributable to regularly scheduled amortization. Long-term debt decreased from $9,444,000 at September 30, 1999 to $9,403,000 at December 31, 1999. Regular principal pay-downs of approximately $345,000 during the quarter were offset by a temporary increase in the Company's line of credit balance. This balance fluctuates daily. Management believes that it will be able to fund debt service requirements out of cash generated through operations. 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 CHC and CP&C), and credit extended by suppliers. The Company has a $7,000,000 bank line of credit with an outstanding indebtedness of approximately $3,200,000 at December 31, 1999. The availability under this line of credit is limited by accounts receivable type and age as defined in the agreement. As of December 31, 1999, the Company had borrowed approximately the maximum allowable amounts. The line of credit bears interest of prime plus 2.5% with a maturity of March 2000. (Prime rate was 8.50% at December 31, 1999.) The line of credit is used to fund the working capital needs of the Company. At December 31, 1999, the Company is in default of a debt covenant related to the line of credit in regard to a net worth. The covenant requires that net worth of the Company not drop below $7,650,000. The Company believes, but cannot be certain, that the financial institution does not intend to take action related to this default and continues to utilize the line on a daily basis. This line of credit expires under its original terms on March 24, 2000 and the Company is currently in negotiations with its current lender and various other potential lenders to refinance this debt. It is, therefore, being temporarily classified as current. As of December 31, 1999, the Company had no material commitments for capital expenditures or for acquisition or start-ups. Operating activities produced $509,000 of cash during the first quarter of fiscal year 2000, compared with $332,000 during the first quarter of fiscal year 1999. Investing activities produced $172,000 in the first quarter of fiscal year 1999 in cash mainly as the result of the Company selling a piece of investment property for approximately $225,000 (sold for approximately the recorded book value). Financing activities utilized $345,000 in cash during the quarter for debt reduction offset by an approximate $304,000 increase in the line of credit that was temporary in nature due to the daily fluctuation of the primary line of credit. The Year 2000 During the years leading up to the Year 2000, an important business issue arose over the concern that the Company's computer systems, or other business systems, or those of the Company's vendors, working either alone or in conjunction with other software or systems, would fail to, or work incorrectly, accept input of, store, manipulate or output dates in the years 1999, 2000 or thereafter (commonly known as the "Year 2000" problem). In response, the Company conducted a review of its business systems, including its computer systems, on a system-by-system basis, and queried third parties with whom it conducts business as to their progress in identifying and addressing problems that their computer systems might face in correctly processing date information. The Company reviewed its information technology ("IT") hardware and software, including personal computers, application and network software for Year 2000 compliance readiness. The review process entailed evaluation of hardware/software and testing. The cost to bring the Company's IT systems into Year 2000 compliance was approximately $25,000. The Company determined that its general accounting systems (which includes invoicing, accounts receivable, payroll, etc.) needed to be upgraded to make the systems Year 2000 compliant. The Company has upgraded their system at a cost of approximately $20,000. The Company also reviewed its non-IT systems (including voice communications). The costs to remedy non-IT systems was not material. The source of funds for evaluation and remediation of Year 2000 compliance issues was cash flow from operations. The third parties whose Year 2000 problems could have the greatest effect on the Company are believed by the Company to be banks that maintain the Company's depository accounts' credit card processing systems (including related telecommunication systems), the companies which supply the Company with medical supplies, and the insurance company payors for the Company's patients' medical claims. To date, however, the Company is not aware of the failure of any of the systems of these third parties relating to Year 2000 problems. Evidence of system performance in the IT and non-IT systems of the Company and third parties with whom it conducts business following January 1, 2000 indicates that most of the areas of exposure to system malfunctions associated with Year 2000 issues have been properly addressed. Nevertheless, there can be no assurance that the Company has identified all Year 2000 problems in its computer systems or those of third parties 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. Any additional maintenance or modification costs will be expensed as incurred. Advisory Note Regarding Forward-Looking Statements Certain of the statements contained in this PART I, Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations) that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The Company cautions readers of this Quarterly Report on Form 10-Q 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 costs 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 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, the ability to successfully integrate the management structures and consolidate the operations of recently acquired entities or practices with those of the Company, and other factors described in this report and in other reports filed by the Company with the Securities and Exchange Commission. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to changes in interest rates primarily as a result of its borrowing activities, which includes credit facilities with financial institutions used to maintain liquidity and fund the Company's business operations, as well as notes payable to various third parties in connection with certain acquisitions of property and equipment. The nature and amount of the Company's debt may vary as a result of future business requirements, market conditions and other factors. The definitive extent of the Company's interest rate risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. The Company does not currently use derivative instruments to adjust the Company's interest rate risk profile. Approximately $5,500,000 of the Company's debt at December 31, 1999 was subject to fixed interest rates and principal payments. Approximately $4,000,000 of the Company's debt at December 31, 1999 was subject to variable interest rates. Based on the outstanding amounts of variable rate debt at December 31, 1999, the Company's interest expense on an annualized basis would increase approximately $40,000 for each increase of one percent in the prime rate. The Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments. 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 (a) Exhibits. The exhibits included on the attached Exhibit Index are filed as part of this report. (b) Reports on Form 8-K. None. 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 14, 2000 UCI MEDICAL AFFILIATES, INC. EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION PAGE NUMBER - ----------------- ------------------------------------------------------- ------------------------------------ 27 Financial Data Schedule Filed separately as Article Type 5 via Edgar
EX-27 2 FDS --
5 (Replace this text with the legend) 0000737561 UCI Medical Affiliates, Inc. 1,000 3-MOS SEP-30-2000 OCT-01-1999 DEC-31-1999 229,048 0 8,439,897 1,156,285 602,858 10,186,020 4,725,583 5,214,524 23,491,276 12,617,879 0 0 0 482,526 6,041,077 23,491,276 0 10,198,849 0 8,815,645 491,990 403,164 337,930 150,120 0 0 0 0 0 150,120 .02 .02
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