-----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, Cw99rQ/SlAcZb/1a5i5iXoZx61XZH2YT6sOprI4O8Ts087xQzW+GSVrxZ6EiA/mZ rbErc50HgVA5RY+TA5Jpgg== 0000737561-05-000002.txt : 20050210 0000737561-05-000002.hdr.sgml : 20050210 20050210124342 ACCESSION NUMBER: 0000737561-05-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050210 DATE AS OF CHANGE: 20050210 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: 1934 Act SEC FILE NUMBER: 000-13265 FILM NUMBER: 05591785 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 form10q123104.txt FORM 10-Q FOR QUARTER ENDED 12/31/2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: December 31, 2004 - ---------------------------------------------------------------------- ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: to ----------------------------------- - ------------------------------- Commission file number: 0-13265 - ---------------------------------------------------------------------- UCI MEDICAL AFFILIATES, INC. --------------------------- ----------------------------- (Exact name of Registrant as specified in its charter) Delaware 59-2225346 (State or other jurisdiction of incorporation (IRS Employer Identification No.) or organization) 4416 Forest Drive, Columbia, SC 29206 (Address of principal executive offices) (803) 782-4278 (Registrant's telephone number including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). ( ) Yes ( X ) No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by checkmark 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. ( X )Yes ( ) No APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of the registrant's common stock, $.05 par value, was 9,740,472 at December 31, 2004. UCI MEDICAL AFFILIATES, INC. INDEX Page Number PART I FINANCIAL INFORMATION Item 1 Financial Statements Condensed Consolidated Balance Sheets - December 31, 2004 and September 30, 2004 3 Condensed Consolidated Statements of Operations for the three months ended December 31, 2004 and December 31, 2003 4 Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2004 and December 31, 2003 5 Notes to Condensed Consolidated Financial Statements 6 - 8 Item 2 Management's Discussion and Analysis of Financial Condition, Critical Accounting Policies and Results of Operations 9 - 13 Item 3 Quantitative and Qualitative Disclosures About Market Risk 14 Item 4 Controls and Procedures 15 - 16 PART II OTHER INFORMATION Items 1-6 17 - 18 SIGNATURES 19
UCI Medical Affiliates, Inc. Condensed Consolidated Balance Sheets December 31, 2004 September 30, 2004 ------------------- ------------------- (unaudited) Assets Current assets Cash and cash equivalents $ 424,365 $ 533,533 Accounts receivable, less allowance for doubtful accounts of $2,535,377 and $2,368,464 7,678,216 7,382,619 Inventory 618,446 618,446 Deferred taxes 753,000 500,000 Prepaid expenses and other current assets 420,638 266,788 ------------------- ------------------- Total current assets 9,894,665 9,301,386 Property and equipment less accumulated depreciation of $10,557,826 and $10,307,556 4,954,808 4,845,296 Deferred taxes 4,241,966 0 Excess of cost over fair value of assets acquired, less accumulated amortization of $2,451,814 and $2,451,814 3,391,942 3,391,942 Other assets 10,322 10,322 ------------------- ------------------- Total Assets $ 22,493,703 $ 17,548,946 =================== =================== Liabilities and Stockholders' Equity Current liabilities Current portion of long-term debt $ 836,330 $ 972,108 Accounts payable 2,008,434 1,669,565 Accrued salaries and payroll taxes 1,866,668 1,926,095 Current portion of pre-petition payroll taxes 612,258 595,744 Other accrued liabilities 730,875 909,909 ------------------- ------------------- Total current liabilities 6,054,565 6,073,421 Long-term liabilities Accounts payable 954,157 1,193,935 Long-term portion of pre-petition payroll taxes 1,771,638 1,970,102 Long-term debt, net of current portion 2,471,203 2,531,789 ------------------- ------------------- ------------------- ------------------- Total long-term liabilities 5,196,998 5,695,826 ------------------- ------------------- Total Liabilities 11,251,563 11,769,247 ------------------- ------------------- Commitments and contingencies Stockholders' Equity Preferred stock, par value $.01 per share: Authorized shares - 10,000,000; none issued Common stock, par value $.05 per share: Authorized shares - 50,000,000 Issued and outstanding - 9,740,472 and 9,740,472 shares 487,024 487,024 Paid-in capital 21,719,130 21,719,130 Accumulated deficit (10,964,014) (16,426,455) ------------------- ------------------- Total Stockholders' Equity 11,242,140 5,779,699 ------------------- ------------------- Total Liabilities and Stockholders' Equity $ 22,493,703 $ 17,548,946 =================== ===================
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, 2004 2003 -------------------- ------------------ ------------------ Revenues $12,193,866 $ 12,770,309 Operating costs 9,153,706 9,381,717 -------------------- ------------------ ------------------ Operating margin 3,040,160 3,388,592 General and administrative expenses 1,665,466 1,633,400 Depreciation and amortization 250,270 252,914 -------------------- ------------------ ------------------ Income from operations 1,124,424 1,502,278 Other expense Interest expense, net of interest income (144,557) (177,968) -------------------- ------------------ -------------------- ------------------ Income before benefit (provision) for income taxes 979,867 1,324,310 Income tax benefit (provision) 4,482,574 (26,000) -------------------- ------------------ Net income $ 5,462,441 $ 1,298,310 ================== ==================== ================== Basic earnings per share $ .56 $ .13 ==================== ================== ================== Basic weighted average common shares outstanding 9,740,472 9,650,472 ==================== ================== ================== Diluted earnings per share $ .56 $ .13 ==================== ================== ================== Diluted weighted average common shares outstanding 9,740,472 9,650,472 ==================== ==================
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, 2004 2003 ------------------ ----------------- Operating activities: Net income $ 5,462,441 $ 1,298,310 Adjustments to reconcile net income to net cash provided by operating activities: Provision for losses on accounts receivable 487,755 820,705 Depreciation and amortization 250,270 252,914 Deferred taxes (4,494,966) 0 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (783,352) (2,354,196) (Increase) decrease in prepaid expenses and other current assets (153,850) (90,594) Increase (decrease) in accounts payable and accrued expenses 116,922 891,947 ----------------- ------------------ Cash provided by operating activities 885,220 819,086 ------------------ ----------------- Investing activities: Purchases of property and equipment (359,782) (602,563) ----------------- ------------------ ----------------- Cash used in investing activities (359,782) (602,563) ------------------ ----------------- Financing activities: Payments on term-note (120,249) (188,127) Payments on other long-term obligations (514,357) (416,020) ------------------ ----------------- Cash used in financing activities (634,606) (604,147) ------------------ ----------------- Decrease in cash and cash equivalents (109,168) (387,624) Cash and cash equivalents at beginning of period 533,533 683,135 ------------------ ----------------- ------------------ Cash and cash equivalents at end of period $ 424,365 $ 295,511 ================== =================
The accompanying notes are an integral part of these condensed consolidated financial statements. UCI MEDICAL AFFILIATES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1. BUSINESS AND 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, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2005. For further information, refer to the audited consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended September 30, 2004. The consolidated financial statements include the accounts of UCI Medical Affiliates, Inc. ("UCI"), UCI Medical Affiliates of South Carolina, Inc. ("UCI-SC"), Doctors Care, P.A., and Doctors Care of Tennessee, P.C. (the two together as the "P.A." and together with UCI and UCI-SC, the "Company"). 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 exclusive long-term management services agreements with the P.A. which operate the medical practices. Consolidation of the financial statements is required under Financial Accounting Standards Board (FASB) Interpretation No. 46, as revised, ("FIN 46") "Consolidation of Variable Interest Entities." Prior to the Company's adoption of FIN 46 on October 1, 2003, the Company consolidated P.A. as a result of Emerging Issues Task Force ("EITF 97-2"), "Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Arrangements." UCI-SC, 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 or the P.A. resulting from such change. In addition to the nominee shareholder arrangement described above, UCI-SC has entered into an Administrative Service Agreement with the P.A. As a consequence of the nominee shareholder arrangement and the Administrative Service Agreement, the Company has a long-term financial interest in the affiliated practices of the P.A. and 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 Service Agreements have an initial term of forty years. According to Financial Accounting Standards Board ("FASB") Statement No. 94 (Consolidation of All Majority-Owned Subsidiaries), Statement No. 141 (Business Combinations), and Interpretation No. 46 (Consolidation of Variable Interest Entities), 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 preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates are related to the allowance for doubtful accounts, goodwill and intangible assets, income taxes, contingencies, and health insurance accruals. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates in the near term. Revenue is recognized at estimated net amounts to be received from patients, employers, third party payors, and others at the time the related services are rendered. The Company records contractual adjustments at the time bills are generated for services rendered. Some third parties are billed at discounted and negotiated amounts. As such, estimates of outstanding contractual adjustments or any type of third party settlements are not necessary. Certain reclassifications have been made to the fiscal year 2004 financial statements to conform to the fiscal year 2005 presentation. The Company adopted FASB Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information," ("SFAS No. 131") in fiscal year 1999. SFAS No. 131 requires companies to report financial and descriptive information about their reportable operating segments, including segment profit or loss, certain specific revenue and expense items, and segment assets, as well as information about the revenues derived from the Company's products and services, the countries in which the Company earns revenues and holds assets, and major customers. This statement also requires companies that have a single reportable segment to disclose information about products and services, information about geographic areas, and information about major customers. This statement requires the use of the management approach to determine the information to be reported. The management approach is based on the way management organizes the enterprise to assess performance and make operating decisions regarding the allocation of resources. It is management's opinion that, at this time, the Company has several operating segments, however, only one reportable segment. The following discussion sets forth the required disclosures regarding single segment information. The Company provides nonmedical management and administrative services for a network of 44 freestanding medical centers, 43 of which are located throughout South Carolina and one is located in Knoxville, Tennessee (30 operating as Doctors Care in South Carolina, one as Doctors Care in Knoxville, Tennessee, and 14 as Progressive Physical Therapy Services in South Carolina). NOTE 2. MEDICAL SUPPLIES AND DRUG INVENTORY The inventory consists of medical supplies and drugs and both are carried at the lower of average cost or market. The volume of supplies carried at a center varies very little from month to month and management, therefore, does only an annual physical inventory count and does not maintain a perpetual inventory system. NOTE 3. INCOME TAXES Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which are anticipated to be in effect when these differences reverse. The deferred tax provision is the result of the net change in the deferred tax assets to amounts expected to be realized. Valuation allowances are provided against deferred tax assets when the Company determines it is more likely than not that the deferred tax asset will not be realized. NOTE 4. INTANGIBLES In June 2001, the Financial Accounting Standards Board issued Statement No. 142, "Goodwill and Other Intangible Assets". Statement No. 142 requires that goodwill and intangible assets with indefinite lives will no longer be amortized, but are reviewed at least annually for impairment. Pursuant to Statement No. 142, the Company tested goodwill for impairment in the fourth quarter of 2004, and determined there had not been any impairment. NOTE 5. EARNINGS PER SHARE Net income per share is computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per share are calculated by dividing income available to common shareholders by the weighted-average number of shares outstanding for each period. Diluted earnings per common share are calculated by adjusting the weighted-average shares outstanding assuming conversion of all potentially dilutive stock options. NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS In December 2004, FASB issued revised Financial Accounting Standards No. 123R, (Share-Based Payment), ("SFAS No. 123R"). This statement amends SFAS 123, "Accounting for Stock-Based Compensation". The statement eliminates the alternative to use APB Opinion No. 25, "Accounting for Stock Issued to Employees", that was provided in SFAS 123 as previously issued. SFAS 123R requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 and encourages early adoption. NOTE 7. CHAPTER 11 BANKRUPTCY FILING On November 2, 2001, the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of South Carolina (the "Bankruptcy Court"). By August 8, 2002, the Bankruptcy Court confirmed each of the Company's Plans of Reorganization, as amended, and the Company has, therefore, emerged from Chapter 11 protection of the Court. The Company continues to make payments to its creditors as outlined in the Plans. Advisory Note Regarding Forward-Looking Statements Certain of the statements contained in this Report on Form 10-Q that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. We caution readers of this Form 10-Q that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Although our management believes that their expectations of future performance are based on reasonable assumptions within the bounds of their knowledge of their business and operations, we have no assurance that actual results will not differ materially from their expectations. Factors that could cause actual results to differ from expectations include, among other things, (1) the difficulty in controlling our costs of providing healthcare and administering our network of centers; (2) 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; (3) the difficulty of attracting primary care physicians; (4) the increasing competition for patients among healthcare providers; (5) possible government regulations negatively impacting our existing organizational structure; (6) the possible negative effects of prospective healthcare reform; (7) the challenges and uncertainties in the implementation of our expansion and development strategy; (8) the dependence on key personnel; (9) adverse conditions in the stock market, the public debt market, and other capital markets (including changes in interest rate conditions); (10) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a reduced demand for practice management services; (11) the demand for our products and services; (12) technological changes; (13) the ability to increase market share; (14) the adequacy of expense projections and estimates of impairment loss; (15) the impact of change in accounting policies by the Securities and Exchange Commission; (16) unanticipated regulatory or judicial proceedings; (17) the impact on our business, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts; (18) other factors described in this report and in our other reports filed with the Securities and Exchange Commission; and (19) our success at managing the risks involved in the foregoing. PART I FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, CRITICAL ACCOUNTING POLICIES AND RESULTS OF OPERATIONS The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and notes thereto. Critical Accounting Policies We have adopted accounting policies that we believe will result in an accurate presentation of the financial statements. We consider critical accounting policies to be those that require more significant judgments and estimates in the preparation of our financial statements and include the following: (1) revenue recognition; (2) allowance for doubtful accounts; (3) consideration of impairment of intangible assets; and (4) valuation reserve on net deferred tax assets. Revenue recognition - We record revenues at the estimated net amount that we expect to receive from patients, employers, third party payors, and others at the time we perform the services. We record contractual adjustments when we prepare the related bills to our customers. We bill some third parties at discounted and negotiated amounts. Because we bill at the discounted amounts, we do not need to estimate third party settlements. Allowance for doubtful accounts - We maintain our allowance for doubtful accounts for estimated losses, which may result from the inability of our customers to make required payments. We base our allowance on the likelihood of recoverability of accounts receivable considering such factors as past experience and current collection trends. Factors taken into consideration in estimating the allowance include: amounts past due, in dispute, or a client that we believe might be having financial difficulties. If economic, industry, or specific customer business trends worsen beyond earlier estimates, we increase the allowance for doubtful accounts by recording additional expense. Consideration of impairment of intangible assets - We evaluate the recovery of the carrying amount of excess of cost over fair value of assets acquired by determining if a permanent impairment has occurred. This evaluation is done annually or more frequently if indicators of permanent impairment arise. Indicators of a permanent impairment include, among other things, significant adverse change in legal factors or the business climate, an adverse action by a regulator, unanticipated competition, loss of key personnel or allocation of goodwill to a portion of the business that is to be sold or otherwise disposed. We perform our impairment test on September 30th of each year. In addition to the annual impairment test, we are required to perform an impairment test any time an indicator occurs, such as those noted above. At such time as impairment is determined, the intangible assets are written off during that period. Valuation reserve on net deferred tax assets - We record a valuation allowance to reduce our deferred tax assets to the amount that management considers is more likely than not to be realized. We do not believe we currently need a valuation reserve. Our consolidated financial statements include the accounts of UCI, UCI-SC, and the P.A. Such consolidation is required under the Financial Accounting Standards Board (FASB) Interpretation No. 46 as revised. Under the agreement, UCI-SC, 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 or the P.A. resulting from such change. In addition to the nominee shareholder arrangement described above, UCI-SC has entered into an Administrative Service Agreement with the P.A. As a consequence of the nominee shareholder arrangement and the Administrative Service Agreement, we have a long-term financial interest in the affiliated practices of the P.A. According to the application of FASB Statement No. 94 (Consolidation of All Majority-Owned Subsidiaries), Statement No. 141 (Business Combinations), and Interpretation No. 46 (Consolidation of Variable Interest Entities), UCI must consolidate the results of the affiliated practices with those of UCI. Approximately 99% of the physicians employed by the P.A. are paid on an hourly basis for time scheduled and worked at the medical centers. Approximately 30% of the physicians have incentive compensation arrangements; however, no amounts were accrued or paid that were significant during our three prior fiscal years. We base any incentive compensation upon a percentage of non-ancillary collectible charges for services performed by a provider. As of December 31, 2004 and 2003, the P.A. employed 131 and 120 medical providers, respectively. The net assets of the P.A. are not material for any period presented, and intercompany accounts and transactions have been eliminated. We allocate all indirect costs incurred at the corporate office to the centers. Therefore, all discussions below are intended to be in the aggregate for us as a whole. Chapter 11 Bankruptcy Filing On November 2, 2001, we filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of South Carolina (the "Bankruptcy Court"). By August 8, 2002, the Bankruptcy Court confirmed each of our Plans of Reorganization, as amended, and we have, therefore, emerged from Chapter 11 protection of the Court. We continue to make payments to our creditors as outlined in the Plans. Results of Operations UCI provides nonmedical management and administrative services for a network of 44 freestanding medical centers (the "Centers"), 43 of which are located throughout South Carolina and one is located in Knoxville, Tennessee (30 operating as Doctors Care in South Carolina, one as Doctors Care in Knoxville, Tennessee, and 14 as Progressive Physical Therapy Services in South Carolina). Revenues of $12,194,000 for the quarter ended December 31, 2004 reflect a decrease of $576,000 or 5% from those of the quarter ended December 31, 2003. We believe this decrease in revenue is the result of a less severe flu season as compared to last year, as well as a reduction in the number of patient encounters. Patient encounters were approximately 126,000 in the first quarter of fiscal year 2005 and 131,000 in the first quarter of fiscal year 2004. Pursuant to SFAS No. 142, we tested goodwill for impairment in the fourth quarter of 2004, and we determined there had not been any impairment. We have continued our services provided to members of HMOs. In these arrangements, we, through the P.A., act as the designated primary caregiver for members of HMOs who have selected one of our centers or providers as their primary care provider. In fiscal year 1994, we 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 our arrangement with CHC, we now participate in four HMOs and are the primary care gatekeeper for more than 7,000 lives at December 31, 2004. As of December 31, 2004, all of these HMOs use a discounted fee-for-service basis for payment. HMOs do not, at this time, have a significant penetration into the South Carolina market. We are not certain if the market share of HMOs will grow in the areas in which we operate clinics. Sustained revenues in fiscal years 2005 and 2004 also reflect our continued focus on occupational medicine and industrial health services (these revenues are referred to as "employer paid" and "workers compensation" on the table below). We developed focused marketing materials, including quarterly newsletters for employers, to spotlight our services for industry. We derived approximately 17% of our total revenues from these occupational medicine services in both the first quarter of fiscal year 2005 and the first quarter of fiscal year 2004. The following table breaks out our revenue and patient visits by revenue source for the first quarter of fiscal years 2005 and 2004. Percent of Percent of Payor Patient Visits Revenue ------------------------------------------------ ------------------------ ----------------------- 2005 2004 2005 2004 ------------ ----------- ------------ ---------- 16 18 11 12 Patient Pay 9 9 4 5 Employer Paid 6 6 7 7 HMO 10 9 13 12 Workers Compensation 15 14 11 9 Medicare/Medicaid 41 41 50 51 Managed Care Insurance 3 3 4 4 Other (Commercial Indemnity, Champus, etc.)
We earned an operating margin of $3,040,000 during the first quarter of fiscal 2005 as compared to an operating margin of $3,389,000 for the first quarter of fiscal 2004. Management believes that the decreased margin as compared to last year is the result of fewer patient encounters in the first quarter of fiscal year 2005. In 2004, patient numbers were unusually elevated due to an early and severe flu epidemic. General and administrative expenses include all salaries, benefits, supplies, and other operating expenses not specifically related to the day-to-day operation of the Centers. General and administrative expenses increased to $1,665,000 in the first quarter of fiscal year 2005, up from $1,633,000 in the first quarter of fiscal year 2004. This increase is the result of wage increases. Depreciation and amortization expense decreased to $250,000 in the first quarter of fiscal 2005, down from $253,000 in the first quarter of fiscal 2004. This slight decrease is the result of reduced equipment purchases. Interest expense decreased to $145,000 in the first quarter of fiscal year 2005, down from $178,000 in the first quarter of fiscal 2004, due to the pay-down of debt. During the quarter ended December 31, 2004, our management determined that it was more likely than not that the Company's deferred tax asset would be fully realizable. Therefore, we recorded a $4,483,000 adjustment to the valuation allowance based upon our current financial position, results from operations, and our forecast of future earnings. Financial Condition at December 31, 2004 Cash and cash equivalents decreased by $109,000 during the quarter ended December 31, 2004, mainly as a result of payments on debt. Accounts receivable increased by $296,000 during the quarter and is a result of timing of payments. The increase in accounts receivable was due to a software conversion that caused a delay in billing and collections, during the first quarter of fiscal year 2005. Long-term debt decreased from $3,504,000 at September 30, 2004 to $3,308,000 at December 31, 2004. Regular principal pay-downs of approximately $196,000 were made during the quarter. Our management believes that it will be able to fund debt service requirements out of cash generated through operations. Liquidity and Capital Resources We require capital principally to fund growth (acquire new Centers), for working capital needs, and for the retirement of indebtedness. We fund our capital requirements and working capital needs through a combination of external financing and credit extended by suppliers. As of December 31, 2004, we have no material commitments for capital expenditures or for acquisitions or start-ups. Operating activities produced $885,000 of cash during the first quarter of fiscal year 2005, compared to $819,000 during the first quarter of fiscal year 2004. This increase is mainly due to improved operations as well as the decrease in accounts payable and accrued liabilities, as compared to the first quarter of fiscal year 2004. Investing activities used $360,000 in the first quarter of fiscal year 2005 as compared to $603,000 in the first quarter of fiscal year 2004. This decrease is due to a reduction in equipment purchases for our operating sites. Financing activities utilized $635,000 in cash during the first quarter of fiscal year 2005 as compared to $604,000 in the first quarter of fiscal year 2004, as a result of debt reduction. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to changes in interest rates primarily as a result of our borrowing activities, which includes credit facilities with financial institutions used to maintain liquidity and fund our 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 our debt may vary as a result of future business requirements, market conditions, and other factors. The definitive extent of our interest rate risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. We do not currently use derivative instruments to adjust our interest rate risk profile. Approximately $796,000 of our debt at December 31, 2004 was subject to fixed interest rates and principal payments. Approximately $2,512,000 of our debt at December 31, 2004 was subject to variable interest rates. Based on the outstanding amounts of variable rate debt at December 31, 2004, our interest expense on an annualized basis would increase approximately $25,000 for each increase of one percent in the prime rate. We do not utilize financial instruments for trading or other speculative purposes, nor do we utilize leveraged financial instruments. ITEM 4 CONTROLS AND PROCEDURES We conducted an evaluation of the effectiveness of the design and operation of our "disclosure controls and procedures" (Disclosure Controls) as of the end of the period covered by this Quarterly Report. The controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Attached as exhibits to this Quarterly Report are certifications of the CEO and the CFO, which are required in accord with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented. Definition of Disclosure Controls Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our Disclosure Controls include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with US generally accepted accounting principles. To the extent that components of our internal control over financial reporting are included within our Disclosure Controls, they are included in the scope of our quarterly controls evaluation. Limitations on the Effectiveness of Controls The company's management, including the CEO and CFO, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Scope of the Controls Evaluation The evaluation of our Disclosure Controls included a review of the controls' objectives and design, the company's implementation of the controls and the effect of the controls on the information generated for use in this Quarterly Report. In the course of the controls evaluation, we sought to identify data errors, controls problems or acts of fraud and confirm that appropriate corrective action, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning controls effectiveness can be reported in our Quarterly Reports on Form 10-Q and to supplement our disclosures made in our Annual Report on Form 10-K. Many of the components of our Disclosure Controls are also evaluated on an ongoing basis by our Internal Audit Department and by other personnel in our Finance organization, as well as our independent auditors who evaluate them in connection with determining their auditing procedures related to their report on our annual financial statements and not to provide assurance on our controls. The overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary; our intent is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant. Among other matters, we also considered whether our evaluation identified any "significant deficiencies" or "material weaknesses" in our internal control over financial reporting, and whether the company had identified any acts of fraud involving personnel with a significant role in our internal control over financial reporting. This information was important both for the controls evaluation generally, and because item 5 in the certifications of the CEO and CFO require that the CEO and CFO disclose that information to our Board's Audit Committee and to our independent auditors. In the professional auditing literature, "significant deficiencies" are referred to as "reportable conditions," which are deficiencies in the design or operation of controls that could adversely affect our ability to record, process, summarize and report financial data in the financial statements. Auditing literature defines "material weakness" as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and the risk that such misstatements would not be detected within a timely period by employees in the normal course of performing their assigned functions. We also sought to address other control matters in the controls evaluation, and in each case if a problem was identified, we considered what revision, improvement and/or correction to make in accordance with our ongoing procedures. Conclusions Based upon the controls evaluation, our CEO and CFO have concluded that, subject to the limitations noted above, as of the end of the period covered by this Quarterly Report, our Disclosure Controls were effective to provide reasonable assurance that material information relating to UCI and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared. PART II OTHER INFORMATION Item 1 Legal Proceedings On May 4, 2004, the P.A. along with physicians, a physical therapist, and a physical therapist assistant, joined as plaintiffs in a then pending declaratory judgment action in the Circuit Court for Richland County, South Carolina, brought by a South Carolina physician that employs physical therapists, to attempt to enjoin the South Carolina Board of Physical Therapy (the "Board") from disciplining physical therapists employed by physicians or professional corporations owned by physicians. The Board licenses physical therapists in the State of South Carolina. On March 30, 2004, the South Carolina Attorney General issued its opinion that Section 40-45-110(A)(1) of the South Carolina Code prohibits physical therapists from working for pay for a professional corporation owned by one or more licensed physicians when the physician owner or employees of the corporation refer patients to the physical therapist for physical therapy services. Federal law permits physical therapists to be employed by, and provided services on behalf of, physicians and corporations owned by physicians. Nevertheless, on April 8, 2004, the Board changed its formal position of five years that it was acceptable for physicians to employ physical therapists and announced that it would accept complaints against physical therapists employed by physicians and corporations owned by physicians after a ninety-day "grace period". On April 14, 2004, the Circuit Court issued an injunction enjoining the Board from disciplining physical therapists under section 40-45-110(A)(1) until a resolution of this case on its merits. A hearing on the merits was held on October 4, 2004, but the court has not yet issued a ruling. As of December 31, 2004, the P.A. employs approximately twenty physical therapists in its Progressive Physical Therapy division which generates approximately 8% of the Company's revenues. In the event of an unfavorable ruling from the court, the Company has investigated restructuring this division to reduce the likelihood of its employed physical therapists being disciplined by the Board. The Company anticipates that this restructuring of the division should not adversely affect the revenues of the Company; provided however, the Company can provide no assurance that this restructuring will in fact not adversely affect the revenues of the Company. 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 Exhibits. 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act. 31.2 Certification of Chief Financial Officer and Principal Accounting Officer Pursuant to Rule 13a-14(a) of the Exchange Act. 32.1 Certification of Chief Executive Officer and Chief Financial Officer and Principal Accounting Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Press Release dated February 10, 2005. Reports on Form 8-K. This item is not applicable. SIGNATURES 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/ D. Michael Stout, M.D. /s/ Jerry F. Wells, Jr., CPA - ------------------------------------ ------------------------------------- D. Michael Stout, M.D. Jerry F. Wells, Jr., CPA President and Chief Executive Officer Executive Vice President, Chief Financial Officer and Principal Accounting Officer Date: February 10, 2005 EX-31 2 exhibit31pt1.txt EXHIBIT 31.1 BY DR. MIKE STOUT EXHIBIT 31.1 The following certification includes references to an evaluation of the effectiveness of the design and operation of our "disclosure controls and procedures" and to certain matters related to our "internal control over financial reporting." Item 4 of Part II of this Quarterly Report presents the conclusions of the CEO and the CFO about the effectiveness of our disclosure controls and procedures based on and as of the date of such evaluation (relating to Item 4 of the certification), and contains additional information concerning disclosures to our Audit Committee and independent auditors with regard to deficiencies in internal control over financial reporting and fraud and related matters (Item 5 of the certification). CERTIFICATION I, D. Michael Stout, M.D., certify that: 1. I have reviewed this quarterly report on Form 10-Q of UCI Medical Affiliates, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. February 9, 2005 /s/ D. Michael Stout, M.D. --------------------------------- D. Michael Stout, M.D. President and Chief Executive Officer EX-31 3 exhibit31pt2.txt EXHIBIT 31.2 BY JERRY WELLS EXHIBIT 31.2 The following certification includes references to an evaluation of the effectiveness of the design and operation of our "disclosure controls and procedures" and to certain matters related to our "internal control over financial reporting." Item 4 of Part II of this Quarterly Report presents the conclusions of the CEO and the CFO about the effectiveness of our disclosure controls and procedures based on and as of the date of such evaluation (relating to Item 4 of the certification), and contains additional information concerning disclosures to our Audit Committee and independent auditors with regard to deficiencies in internal control over financial reporting and fraud and related matters (Item 5 of the certification). CERTIFICATION I, Jerry F. Wells, Jr., CPA, certify that: 1. I have reviewed this quarterly report on Form 10-Q of UCI Medical Affiliates, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. February 9, 2005 /s/ Jerry F. Wells, Jr., CPA ----------------------------------------- Jerry F. Wells, Jr., CPA Executive Vice President, Chief Financial Officer, and Principal Accounting Officer EX-32 4 exhibit32pt1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION Each of the undersigned hereby certifies, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of UCI Medical Affiliates, Inc. ("UCI"), that, to his knowledge, the Quarterly Report of UCI on Form 10-Q for the period ended December 31, 2004, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of UCI. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-Q. A signed original of this statement has been provided to UCI and will be retained by UCI and furnished to the Securities and Exchange Commission or its staff upon request. February 9, 2005 /s/ D. Michael Stout, M.D. -------------------------------------------- D. Michael Stout, M.D. President and Chief Executive Officer /s/ Jerry F. Wells, Jr., CPA -------------------------------------------- Jerry F. Wells, Jr., CPA Executive Vice President, Chief Financial Officer, and Principal Accounting Officer EX-99 5 exhibit99pt1.txt EXHIBIT 99.1 UCI MEDICAL AFFILIATES, INC. REPORTS FIRST QUARTER FISCAL YEAR 2005 RESULTS Columbia, SC - February 10, 2005 - UCI Medical Affiliates, Inc. (OTC Bulletin Board: UCIA) announced today that revenue for the quarter ended December 31, 2004 decreased to $12,194,000 from $12,770,000 for the quarter ended December 31, 2003. The Company reported net pretax income of $980,000 or $.10 per share for the quarter ended December 31, 2004, as compared to $1,324,000 or $.14 per share for the quarter ended December 31, 2003. Also, an additional tax benefit of $4,495,000 was recorded during the quarter ended December 31, 2004 increasing net income to $5,462,000 or $.56 per share as a result of management's determination that it was more likely than not that the Company's deferred tax asset would be fully realizable. "We continue to look for new areas of growth that benefit our Company and the communities we serve. We established our first specialty care practice in January of 2005 with the opening of Luberoff Pediatrics at the Doctors Care center in Lexington," said President and Chief Executive Officer D. Michael Stout, M.D. "We also continued a measured expansion of our core service, with a new location in Georgetown, South Carolina, that has been well received, and we have a Bluffton, South Carolina, location underway which is presently anticipated to open before the end of 2005." The Company's December 31, 2004 balance sheet reflects total assets of $22,494,000 as compared to $17,549,000 at September 30, 2004 while stockholders' equity at December 31, 2004 was $11,242,000 as compared to $5,780,000 at September 30, 2004. "We experienced a slight comparative decrease in revenue for the quarter ended December 31, 2004, as compared to the quarter ended December 31, 2003, stemming from the timing of the commencement of last winter's flu season. Last winter's flu season commenced in December of 2003 rather than in January of 2004 and was unusually severe," said Jerry F. Wells, Jr., CPA, Executive Vice President and Chief Financial Officer. "Our occupational medicine program shows consistent strength, and we are continuing to make renovations and other improvements at our facilities that will enhance the quality of our customer service and patient care." UCI Medical Affiliates, Inc. provides non-medical management and administrative services for freestanding medical centers, which operate as Doctors Care urgent and family care centers and Progressive Physical Therapy Services. Combined, Doctors Care and Progressive Physical Therapy have 44 locations throughout South Carolina and one in Knoxville, Tennessee. Certain of the statements contained in this Press Release that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. We caution readers of this Press Release that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Although our management believes that their expectations of future performance are based on reasonable assumptions within the bounds of their knowledge of their business and operations, we have no assurance that actual results will not differ materially from their expectations. Factors that could cause actual results to differ from expectations include, among other things, (1) the difficulty in controlling our costs of providing healthcare and administering our network of centers; (2) 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; (3) the difficulty of attracting primary care physicians; (4) the increasing competition for patients among healthcare providers; (5) possible government regulations negatively impacting our existing organizational structure; (6) the possible negative effects of prospective healthcare reform; (7) the challenges and uncertainties in the implementation of our expansion and development strategy; (8) the dependence on key personnel; (9) adverse conditions in the stock market, the public debt market, and other capital markets (including changes in interest rate conditions); (10) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a reduced demand for practice management services; (11) the demand for our products and services; (12) technological changes; (13) the ability to increase market share; (14) the adequacy of expense projections and estimates of impairment loss; (15) the impact of change in accounting policies by the Securities and Exchange Commission; (16) unanticipated regulatory or judicial proceedings; (17) the impact on our business, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts; (18) other factors described in this Press Release and in our other reports filed with the Securities and Exchange Commission; and (19) our success at managing the risks involved in the foregoing. Contact: Jerry F. Wells, Jr., CPA Executive Vice President and Chief Financial Officer UCI Medical Affiliates, Inc. 4416 Forest Drive Columbia, South Carolina 29206 (803) 782-4278 -----END PRIVACY-ENHANCED MESSAGE-----