DC: Could you give us an overview of where CliniCorp is in its overall business plan, and highlight what changes you're making to prepare CliniCorp for the changes in health care?
Mr. Goldsamt: As everyone is aware, CliniCorp had some difficulties in trying to figure out how to manage its clinics. Initially, we tried to follow the conventional medical approach, where we bought a clinic and hired a doctor. We discovered that under the fraud and abuse laws, we were unable to give the doctors sufficient incentives. As a result, a reasonable number of our doctors slowed down their volume. We also discovered that chiropractic clinics, not being part of the medical referral network, were more volatile than medical clinics, and therefore went up and down to a greater percentage.
That left us with a problem. We wound up with about 75 clinics, half of which were underperforming; some which were seriously underperforming. We decided to cut back to a core of 35-40 clinics and to dramatically change the way which we managed those. We discovered in our journey that everybody was having problems with small clinics, in terms of management. We decided to reverse our protocol, and essentially let the doctors manage the practice. Early on we tried to centralize our receivables and a lot of the other management activities, taking the doctors out of the loop and killing their incentives. Now what we're doing is we're getting paid first; the doctor has approximately 80 percent of his revenues to cover his practice.
In addition to that, we're attempting to add a medical doctor who can rotate between a number of our units, which we believe will enhance our clinics quite dramatically. We hope in the next 90 days to have medical doctors in with our chiropractors, giving us mixed practices, which we believe is the next generation of clinics. Once you have a mixed practice, you will have the opportunity to do primary care, rather than just chiropractic.
So, what we've been doing, once again, is cutting back to core business that is profitable, and from there, revising a managerial structure, revising our format somewhat, and we would hope that within six months we'll be ready to go forward.
"DC": There have been rumors flying back and forth that CliniCorp is near or anticipating bankruptcy. Would you comment on these rumors and give us a rundown of CliniCorp's financial health.
Goldsamt: These rumors are absolute, total nonsense. Both rumors were placed by disgruntled employees. The first rumor occurred when we had a $40 million net worth and no debt, although we had no cash flow. The rumors we're planted to try to injure our financing capabilities. At this point, we have a considerably smaller net worth, as we've written off a number of our clinics, but we once again have no debt. We have nine million in unfinanced receivables, plus a number of other assets that we can liquidate. So we see no particular threat of bankruptcy; there never has been one. It's strictly rumors placed by disgruntled employees.
"DC": There's been quite a bit of anticipation that CliniCorp would be buying an HMO, which apparently hasn't happened.
Goldsamt: That's been one of the real travesties of justice over this last year. Essentially, as you know, CliniCorp has had its own managerial problems; we blame no one for that. We do think we have them straightened out. However in the process, we agreed to acquire a prepaid plan which was vying for an HMO license. That plan got them in some difficulties with the state regualtors. We interceded and managed to get the plan an extension and an extension for us to acquire it. But our problems, plus their problems, gave us some difficulties with the regulators. Their plan has just now been cleaned up, and they refused to honor their extension. We're settling the dispute in arbitration, unfortunately. It's too bad, because the HMO belongs with CliniCorp and would be a tremendous benefit to the chiropractic profession and to the members.
"DC": Are you suggesting that there's not too much chance that the acquisition will go through, even after arbitration?
Goldsamt: The arbitration at this point will be for damages. We filed a preliminary injunction to try to prevent them from selling to someone else, put we did not prevail. The judge felt that damages alone would be adequate. We have been looking for another prepaid plan and other HMOs, and we will no doubt find one. But it's going to take time. This one was a particularly good one and particularly suitable for CliniCorp, as it was based in Florida.
"DC": Recently there was a stockholders' meeting. Can you give us some of the highlights of that meeting?
Goldsamt: It was not one of my most fun meetings. Obviously with the stock having gone from a high of $10 to a low of 12 cents, no one was terribly pleased. By the end of the day we had explained our situation and strategy to cut back and get the format right. It's still very early. We have 35 out of 35,000 clinics. There's no purpose in acquiring more until we know how to run them properly. We have plenty of time to rule them out. The meeting was no terribly acrimonious. We explained to the shareholders what the problems were and how we were dealing with them. There we some disgruntled employees; we explained we had no choice. We did not get the cash flows we'd hoped to get; therefore we had to cut it back to its core business and go forward.
"DC": We've spoken to some chiropractors who sold their practices for stock, and who are now looking at stock that is worth considerably less than what they originally sold for. What kind of future do you see for those DCs?
Goldsamt: Our first problem was to try to negotiate our problem clinics out. Our second agenda is to restructure our purchases of clinics that were already made. We're doing so by developing a methodology of reselling their shares in two increments, based somewhat on performance, starting at six months and ending at another 18 months. So that the doctors who theoretically had no consideration will in fact have gotten what they bargained for. Doctors are our most important component.
"DC": By your plan of basing stock on consideration, doctors and clinics that continue to perform well will be made whole again?
Goldsamt: That's correct.
"DC": At the stockholders' meeting, I understand you were looking to expand the number of shares you could offer from 50 to 75 million.
Goldsamt: Yes.
"DC": Did that happen?
Goldsamt: Yes.
"DC": What will that do to the price of shares and to CliniCorp as a whole?
Goldsamt: Well, once again, CliniCorp is a very small company at this point, relative to anything that we anticipated or that I've ever done. We believe it will get to be large. The number of shares gives us the flexibility to issue more stock. It gives us the ability to use those shares as we see fit.
"DC": Should you issue those shares, wouldn't that put pressure on the stock price to remain at its current low?
Goldsamt: Not necessarily. As we turn the company to profitability, the share price should respond. It probably went way too high and now it is way too low. As earnings come on from the clinics we have, we should begin to see some kind of normal share price. We hope to see a reasonable number of shares outstanding. Those shares could be used to going forward in further acquisitions once we're ready.
"DC": Currently there appears to be two or three other organizations copying the CliniCorp model. Do you have any thoughts about those organizations?
Goldsamt: Good luck to them.
"DC": Where do you see yourself a year from now; five years from now?
Goldsamt: We're hoping in 90 days to have medical doctors in our clinics and have a reasonable test period. We think that all units should be profitable and all divisions should be profitable. Once we're confident that we really have our arms around how to manage these clinics, we'll probably start rolling out again, I would think, and try to build more business. We're not in this to be a small company, but it does us no good to become a large company that's a disaster.
"DC": Are there any other comments you'd like to make in respect to CliniCorp.
Goldsamt: Well I think we've had a lot of problems, a lot of managerial problems; I think that at this time I can say with impunity that we have a very high quality staff. We have the best people in the best positions at this time. We're in great shape managerially, and we have solid methodology. We've made every mistake in the book in trying to figure out how to manage these things. We think our concept of mixed practices and is valid and very large and meaningful, both to the chiropractic profession and the health care field. I think it's just a question of time now until we get it fixed. All these rumors are absolute nonsense. We've been attacked by a lot of disgruntled employees for reasons that are beyond our imagination. But we just keep on moving forward and we believe that we'll do the task that we set out to do. It may take us an extra couple of years.
