Medical Clinics

This Texas based medical service company operates medical clinics.  As of December 31, 2005, the Division had 13 company-owned clinics in Texas and approximately 30 clinics in its Affiliated Clinic Program located in Texas, Tennessee and Kansas.  The current annual run rate for patient billings exceeds $12 million.  For the three months ended September 30, 2005, patient billings for affiliated clinics comprised 20% of total patient billings.  Management plans to continue adding new affiliated clinics at the rate of two per month in fiscal 2006.

In June 2003, the Medical Clinics Division initiated an Affiliated Clinic Program whereby it has a contractual relationship with established clinics owned and/or operated by individual doctors.  Under this program, patients are directed to these clinics from established marketing sources.  The Division reports patient billings as revenue and then pays the treating doctor a contracted amount.  The primary financial benefit is additional operating income without new fixed costs such as employee salaries or office rent.  The arrangement is equally attractive to the treating doctor because of the increased number of patients and the resulting increased income.

The Division’s strategic business model for its Affiliated Clinic Program has two components.  First, a medical clinic owned by a physician with an established patient base and experience in treating personal injury and workers compensation patients.   Second, multiple marketing resources to direct prospective patients to the clinic.  Through June 2004, the Company added approximately 15 Texas clinics to the Affiliated Clinic Program.  The annual patient billings range from $200,000 to $600,000.  Total billings in fiscal year 2005 were approximately $1,500,000 for these clinics.  Two of these clinics were recently acquired and converted to company-owned clinics.

In August 2005, the Division established five new affiliated clinics in the Nashville, Tennessee area.  To date, billings have exceeded expectations with an annual run rate of approximately $600,000.  The average case settlement thus far has been greater than similar cases at the Texas clinics.  In December 2005, a clinic located in Kansas City, Kansas joined the program.

In fiscal 2006, the growth strategy for the company-owned clinics is to continue expanding the number of patients and increase the average settlement amount on cases.  In this regard, major attorneys working with the Texas clinics have agreed to increase the percentage of the total case settlement amount paid to the medical providers of which the Medical Clinics Division is the largest.  In addition, Management plans on adding new affiliated clinics at the rate of two per month.  Lastly, the Division may acquire two established medical clinics in Texas with patient billings in excess of $3,000,000 on an annual basis.