FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-13265
UCI MEDICAL AFFILIATES, INC.
(Name of Small Business Issuer in its charter)
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Delaware 59-2225346
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
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1901 Main Street, Suite 1200, Mail Code 1105, Columbia, SC 29201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 252-3661
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.05 par value
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 the
filing requirements for the past 90 days. Yes X No
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ( X )
The registrant's revenue for the year ended September 30, 1997, the
registrant's most recent year end, was $27,924,772.
The aggregate market value of voting stock held by nonaffiliates of the
registrant on December 5, 1997, is approximately $5,801,885.*
The number of shares outstanding of the registrant's common stock, $.05 par
value, was 5,744,965 at September 30, 1997.
Transitional Small Business Disclosure Format (check one): Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be furnished in connection with
its 1998 Annual Meeting of Shareholders are incorporated by reference into Part
III of this form.
* Calculated by excluding all shares held by officers, directors and controlling
shareholder of registrant without conceding that all such persons are
"affiliates" of registrant for purposes of the federal securities laws.
Total number of pages, including the cover page, is 51. Exhibit
Index is on page 51.
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UCI MEDICAL AFFILIATES, INC.
INDEX TO FORM 10-KSB
PAGE
PART I
Item 1 Description of Business
................................................................ 3
Item 2 Description of Property
................................................................ 8
Item 3 Legal Proceedings
............................................................... 8
Item 4 Submission of Matters to a Vote of Security Holders... 8
PART II
Item 5 Market Common Equity and
Related Stockholder Matters
............................................................... 9
Item 6 Selected Financial Data
............................................................... 10
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
............................................................... 11
Item 8 Financial Statements ................................. 17
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 17
PART III
Item 10 Directors, Executive Officers, Promotions and Control
Persons; Compliance with Section 16(a) of the
Exchange Act.......................................... 18
Item 11 Executive Compensation................................ 19
Item 12 Security Ownership of Certain Beneficial Owners
and Management........................................ 21
Item 13 Certain Relationships and Related Transactions ...... 23
Item 14 Exhibits List and Reports on Form 8-K ............... 25
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PART I
Item 1. Description of Business
Introduction
The consolidated financial statements of UCI Medical Affiliates, Inc. include
the accounts of UCI Medical Affiliates, Inc. ("UCI"), its wholly owned
subsidiary, UCI Medical Affiliates of South Carolina, Inc. ("UCI-SC") and
Doctor's Care, PA (the "P.A."), collectively the "Company". The financial
statements of the P.A. are consolidated with UCI because UCI-SC has unilateral
control over the assets and operations of the P.A. and, notwithstanding the lack
of technical majority ownership, consolidation of the P.A. with UCI is necessary
to present fairly the financial position and results of operations of UCI. As of
the date of this filing, UCI-SC provides non-medical management and
administrative functions for 40 medical clinics (29 operating as Doctor's Care,
one as Doctor's Surgical Group, one as Doctor's Orthopedic Group, four as
Progressive Physical Therapy Services and five Family Practice offices operating
under different names) [collectively, the "Centers"]. All medical services at
the Centers are provided by or under the supervision of the P.A., which has
contracted with UCI-SC to provide the medical direction of the Centers. The
medical directors operate the Centers under the financial and operational
control of UCI-SC. However, medical supervision of the Centers is provided
solely by the P.A. The P.A. remits to UCI-SC all medical service revenues
generated by the Centers, net of expenses incurred by the P.A. All medical
service revenue is recorded in the accompanying financial statements as revenue
and all expenses (including those of the P.A.) are consolidated. Control of the
P.A. is perpetual and other than temporary because of the nature of this
relationship and the management's agreements between the entities. The net
assets of the P.A. are not material for any period presented and intercompany
accounts and transactions have been eliminated. For the fiscal year ended
September 30, 1997, the Company has shown a substantial increase in revenues and
in medical centers under management. This growth is a direct result of actions
taken by management to increase marketing efforts, to expand the state-wide
network in South Carolina and to focus on the field of occupational and
industrial medicine.
General
UCI-SC provides nonmedical management and administrative services for
freestanding medical centers. The Company as of December 1997 operates a network
of medical centers consisting of 40 freestanding Centers located throughout
South Carolina.
Federal law and the laws of South Carolina generally specify who may practice
medicine and limit the scope of relationships between medical practitioners and
other parties. Under such laws, UCI and UCI-SC are prohibited from practicing
medicine or exercising control over the provisions of medical services. In order
to comply with such laws, the P.A. is organized so that all physician services
are offered by the physicians who are employed by the P.A. Neither UCI nor
UCI-SC employ practicing physicians as practitioners, exert control over their
decisions regarding medical care or represent to the public that it offers
medical services. UCI-SC has entered into an administrative services agreement
with the P.A. for the performance of all administrative, management and support
functions. UCI-SC believes that the services it provides to the P.A. which
result in control over the assets of the P.A. and mandate financial statement
consolidation under Generally Accepted Accounting Principles do not constitute
the practice of medicine under applicable laws.
Nevertheless, because of the uniqueness of the structure of the relationship
described above, many aspects of the Company's business operations have not been
the subject of state or federal regulatory interpretation and there can be no
assurance that a review of the Company's business by the courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change so as to restrict the Company's existing operations or future
expansion.
In November 1997 the Emerging Issue Task Force (EITF)finalized EITF 97-2
which provides guidance on consolidation of physician practices and enhances
related disclosures of physician practice management companies. This EITF 97-2
is effective for fiscal years ending after December 15, 1998. The Company is in
the process of evaluating any potential effect on its reporting format.
The Centers are staffed by licensed physicians, other healthcare providers and
administrative support staff. The medical support staff includes licensed
nurses, certified medical assistants, laboratory technicians and x-ray
technicians.
The Centers typically are open for extended hours (weekends and evenings) and
out-patient care only. When hospitalization or specialty care is needed,
referrals to appropriate specialists are made.
The Company's Centers are broadly distributed throughout the state of South
Carolina. There are twenty-two primary care Centers in the Columbia region, five
in the Charleston region, five in the Myrtle Beach region, two in the Aiken
region, and six in the Greenville-Spartanburg region.
The Company is considering introducing its medical model into neighboring states
as management believes that the same conditions that led to the Company's growth
to date in South Carolina exist in other states. Although no specific plans
currently exist, management believes that expansion into neighboring states is
possible. However, there can be no assurance that expansion into other states
would be successful.
The Company's business, by its nature, is subject to various risks, including,
but not limited to, difficulties in controlling health care costs, uncertainty
of future expansion, availability of primary care physicians and possible
negative effects of government regulation.
The health care industry is subject to extensive federal and state regulation.
Changes in healthcare legislation or reinterpretations of existing regulations
could significantly affect the business of the Company.
Medical Services Provided at the Centers
The Company's Centers offer out-patient medical care, without appointment, for
treatment of acute and episodic medical problems. The Centers provide a broad
range of medical services which would generally be classified as within the
scope of family practice and occupational medicine. The medical services are
provided by licensed physicians, nurses and auxiliary support personnel. The
services provided at the Centers include, but are not limited to the following:
Routine care of general medical problems, including colds, flu, ear
infections, hypertension, asthma, pneumonia and other conditions typically
treated by primary care providers;
Treatment of injuries, such as simple fractures, dislocations, sprains,
bruises and cuts;
Minor surgery, including suturing of lacerations and removal of cysts and
foreign bodies;
Diagnostic tests, such as x-rays, electrocardiograms, complete blood
counts, urinalysis and various cultures; and
Occupational and industrial medical services, including drug testing,
workers' compensation and physical examinations.
At any of the Centers, a patient with a life-threatening condition would be
evaluated by the physician, stabilized and immediately referred to a nearby
hospital.
Patient Charges and Payments
The fees charged to a patient are determined by the nature of medical services
rendered. Management of the Company believes that the charges at its Centers are
significantly lower than the charges of hospital emergency departments and are
generally competitive with the charges of local physicians and other providers
in the area.
The Company's Centers accept payment from a wide range of sources. These include
patient payments at time of service (by cash, check or credit card), patient
billing and assignment of insurance benefits (including Blue Cross/Blue Shield,
Workers' Compensation and other private insurance). Private pay billings
represent the most significant source of revenues. The Company also provides
services for members of the four largest health maintenance organizations
("HMOs") operating in South Carolina - Companion HealthCare Corporation,
HealthSource South Carolina, Inc., Physician's Health Plan, and Maxicare.
Medical services traditionally have been provided on a fee-for-service basis
with insurance companies assuming responsibility for paying all or a portion of
such fees. The increase in medical costs under traditional indemnity health care
plans has been caused by a number of factors. These factors include: (i) the
lack of incentives on the part of health care providers to deliver
cost-effective medical care; (ii) the absence of controls over the utilization
of costly specialty care physicians and hospitals; (iii) a growing and aging
population which requires increased health care expenditures; and (iv) the
expense involved with the introduction and use of advanced pharmaceuticals and
medical technology.
As a result of escalating health care costs, employers, insurers and
governmental entities all sought cost-effective approaches to the delivery of
and payment for quality health care services. HMOs and other managed health care
organizations have emerged as integral components in this effort. HMOs enroll
members by entering into contracts with employer groups or directly with
individuals to provide a broad range of health care services for a capitation
payment, with minimal or no deductibles or co-payments required of the members.
HMOs, in turn, contract with health care providers like the Company to
administer medical care to HMO members. These contracts provide for payment to
the Company on either a discounted fee-for-service or through capitation
payments based on the number of members covered, regardless of the amount of
necessary medical care required within the covered benefit period.
The Company negotiates contracts with HMOs 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.'s physicians
provide virtually all covered primary care services in exchange for 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 HMOs
accounted for approximately 11% of the Company's net revenue in fiscal 1997.
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 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.
Certain third party payors are studying various alternatives for reducing
medical costs, some of which, if implemented, could affect reimbursement levels
to the Company. Management of the Company cannot predict whether changes in
present reimbursement methods or proposed future modifications in reimbursement
methods will affect payments for services provided by the Centers and, if so,
whether they will have an adverse impact upon the business of the Company.
Competition and Marketing
All of the Company's Centers face competition, in varying degrees, from hospital
emergency rooms, private doctor's offices and other competing freestanding
medical centers. Some of these providers have financial resources which are
greater than those of the Company. In addition, traditional sources of medical
services, such as hospital emergency rooms and private physicians, have had, in
the past, a higher degree of recognition and acceptance by patients than Centers
such as those operated by the Company. The Company's Centers compete on the
basis of accessibility, including evening and weekend hours, a no-appointment
policy, the attractiveness of its state-wide network to large employers and
third party payors, and on a basis of a competitive fee schedule. In an effort
to offset the competition's community recognition, the Company has substantially
increased its marketing efforts. Regional marketing representatives have been
added, focused promotional material has been developed and a newsletter for
employers promoting the Company's activities has been initiated. Additionally,
the Company has created a Family Practice Division to attract those patients who
desire to visit the more traditional type doctor's office - by appointment.
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Government Regulation
Federal law and the laws of South Carolina generally specify who may practice
medicine and limit the scope of relationships between medical practitioners and
other parties. Under such laws, UCI and UCI-SC are prohibited from practicing
medicine or exercising control over the provisions of medical services. In order
to comply with such laws, the P.A. is organized so that all physician services
are offered by the physicians who are employed by the P.A. Neither UCI nor
UCI-SC employ practicing physicians as practitioners, exert control over their
decisions regarding medical care or represent to the public that it offers
medical services. UCI-SC has entered into an administrative services agreement
with the P.A. for the performance of all administrative, management and support
functions. UCI-SC believes that the services it provides to the P.A. which
result in control over the assets of the P.A. and mandate financial statement
consolidation under Generally Accepted Accounting Principles do not constitute
the practice of medicine under applicable laws.
As a participant in the health care industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number of
governmental entities at the federal, state, and local levels. The Company
believes its operations are in material compliance with applicable laws.
Nevertheless, because of the uniqueness of the structure of the relationship
with the P.A., many aspects of the Company's business operations have not been
the subject of state or federal regulatory interpretation and there can be no
assurance that a review of the Company's or the P.A.'s business by courts or
regulatory authorities will not result in a determination that could adversely
affect the operations of the Company or that the health care regulatory
environment will not change so as to restrict the Company's existing operations
or its expansion.
Approximately five (5%) percent of the revenues of the Company is derived from
payments made by government-sponsored health care programs (principally,
Medicare and Medicaid). As a result, any change in reimbursement regulations,
policies, practices, interpretations or statutes could adversely affect the
operations of the Company. There are also state and federal civil and criminal
statutes imposing substantial penalties, including civil and criminal fines and
imprisonment, on health care providers that fraudulently or wrongfully bill
governmental or other third-party payors for health care services. The Company
believes it is in material compliance with such laws, but there can be no
assurance that the Company's activities will not be challenged or scrutinized by
governmental authorities.
The laws of many states prohibit business corporations such as the Company from
practicing medicine and employing physicians to practice medicine. UCI-SC
performs only non-medical administration services, does not represent to the
public or its clients that it offers medical services, and does not exercise
influence or control over the practice of medicine by the P.A. with whom it
contracts. Accordingly, the Company believes that it is not in violation of
applicable state laws relating to the practice of medicine. In addition to
prohibiting the practice of medicine, numerous states prohibit entities like the
Company from engaging in certain health care related activities, such as
fee-splitting with physicians.
Certain provisions of the Social Security Act, commonly referred to as the
"Anti-kickback Statute", prohibit the offer, payment, solicitation, or receipt
of any form of remuneration in return for the referral of Medicare or state
health program patients or patient care opportunities, or in return for the
recommendation, arrangement, purchase, lease or order of items or services that
are covered by Medicare or state health programs. Many states have adopted
similar prohibitions against payments intended to induce referrals of Medicaid
and other third-party payor patients. Although the Company believes that it is
not in violation of the Anti-kickback Statute or similar state statutes, its
operations do not fit within any of the existing or proposed federal safe
harbors.
Significant prohibitions against physician referrals were enacted by the U.S.
Congress in the Omnibus Budget Reconciliation Act of 1993. Subject to certain
exemptions, a physician or a member of his immediate family is prohibited from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment interest
or with which the physician has entered into a compensation arrangement. While
the Company believes it is in compliance with such legislation, future
regulations could require the Company to modify the form of its relationships
with physician groups. Some states have also enacted similar self-referral laws
and the Company believes it is likely that more states will follow. The Company
believes that its practices fit within exemptions contained in such statutes.
Nevertheless, expansion of the operations of the Company to certain
jurisdictions may require structural and organizational modifications of the
Company's relationships with physician groups to comply with new or revised
state statutes.
Because the P.A. remains a separate legal entity, it may be deemed a competitor
subject to a range of antitrust laws which prohibit anti-competitive conduct,
including price fixing, concerted refusals to deal and division of market. The
Company intends to comply with such state and federal laws which may affect its
development of integrated health care delivery networks, but there can be no
assurance that a review of the Company's business by courts or regulatory
authorities will not result in a determination that could adversely affect the
operation of the Company.
As a result of the continued escalation of health care costs and the inability
of many individuals to obtain health insurance, numerous proposals have been or
may be introduced in the U.S. Congress and state legislatures relating to health
care reform. There can be no assurance as to the ultimate content, timing or
effect of any health care reform legislation, nor is it possible at this time to
estimate the impact of potential legislation, which may be material, on the
Company.
Federal and state laws regulate insurance companies, HMOs and other managed care
organizations. Generally, these laws apply to entities that accept financial
risk. Certain of the risk arrangements entered into by the Company could
possibly be characterized by some states as the business of insurance. The
Company, however, believes that the acceptance of capitation payments by a
healthcare provider does not constitute the conduct of the business of
insurance. Many states also regulate the establishment and operation of networks
of healthcare providers. Generally, these laws do not apply to the hiring and
contracting of physicians by other healthcare providers. There can be no
assurance that regulators of the states in which the Company may operate would
not apply these laws to require licensure of the Company's operations as an
insurer or provider network. The Company believes that it is in compliance with
these laws in the state in which it currently does business, but there can be no
assurance that future interpretations of these laws by the regulatory
authorities in South Carolina or the states in which the Company may expand will
not require licensure or a restructuring of some or all of the Company's
operations. In the event that the Company is required to become licensed under
these laws, the licensure process can be lengthy and time consuming and, unless
the regulatory authority permits the Company to continue to operate while the
licensure process is progressing, the Company could experience a material
adverse change in its business while the licensure process is pending. In
addition, many of the licensing requirements mandate strict financial and other
requirements which the Company may not immediately be able to meet. Further,
once licensed, the Company would be subject to continuing oversight by and
reporting to the respective regulatory agency.
Employees
As of September 30, 1997 and 1996, the Company had 480 and 429 employees,
respectively (384 and 330, respectively, on a full-time equivalent basis).
Advisory Note Regarding Forward-Looking Statements
Certain of the statements contained in this PART I, Item 1 (Description of
Business) and PART II, Item 6 (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
Annual Report on Form 10-KSB that such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from those expressed or implied by such forward-looking statements. Although the
Company's management believes that their expectations of future performance are
based on reasonable assumptions within the bounds of their knowledge of their
business and operations, there can be no assurance that actual results will not
differ materially from their expectations. Factors which could cause actual
results to differ from expectations include, among other things, the difficulty
in controlling the Company's cost of providing healthcare and administering its
network of Centers; the possible negative effects from changes in reimbursement
and capitation payment levels and payment practices by insurance companies,
healthcare plans, government payors and other payment sources; the difficulty of
attracting primary care physicians; the increasing competition for patients
among healthcare providers; possible government regulations negatively impacting
the existing organizational structure of the Company; the possible negative
effects of prospective healthcare reform; the challenges and uncertainties in
the implementation of the Company's expansion and development strategy; the
dependence on key personnel, and other factors described in this report and in
other reports filed by the Company with the Securities and Exchange Commission.
Item 2. Description of Properties
All but one of the Company's primary care Centers' facilities are leased. The
properties are generally located on well-traveled major highways, with easy
access. Each property offers free, off-street parking immediately adjacent to
the center. One (1) Center is leased from an entity affiliated with the
Company's Chairman. Six (6) Centers are leased from Companion HealthCare
Corporation and one (1) Center is leased from Companion Property and Casualty
Insurance Company, principal shareholders of the Company. Ten (10) of the
Centers are leased from physician employees of the P.A. See additional
information regarding these leases at Item 13, "Certain Relationships and
Related Transactions."
Item 3. Legal Proceedings
The Company is party to various claims, legal activities and complaints arising
in the normal course of business. In the opinion of management and legal
counsel, aggregate liabilities, if any, arising from legal actions would not
have a material adverse effect on the financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The common stock of the Company is traded on the Nasdaq SmallCap Market under
the symbol UCIA. The prices set forth below indicate the high and low bid
prices.
Bid Price
Fiscal Year ended September 30, 1997 High Low
1st quarter (10/01/96 - 12/31/96) 3-3/8 2-3/8
2nd quarter (01/01/97 - 03/31/97) 3-3/8 2-1/2
3rd quarter (04/01/97 - 06/30/97) 2-11/16 1-11/16
4th quarter (07/01/97 - 09/30/97) 2-3/4 1-5/16
Bid Price
Fiscal Year ended September 30, 1996 High Low
1st quarter (10/01/95 - 12/31/95) 4-1/4 3-1/8
2nd quarter (01/01/96 - 03/31/96) 5-1/8 3-1/4
3rd quarter (04/01/96 - 06/30/96) 4 3-1/4
4th quarter (07/01/96 - 09/30/96) 3-3/4 2-7/8
Bid Price
Fiscal Year ended September 30, 1995 High Low
1st quarter (10/01/94 - 12/31/94) 3-1/8 1-1/2
2nd quarter (01/01/95 - 03/31/95) 3-1/4 1-1/2
3rd quarter (04/01/95 - 06/30/95) 3-3/8 2-1/4
4th quarter (07/01/95 - 09/30/95) 3-1/4 1-3/4
The foregoing quotations reflect inter-dealer prices without retail markup,
markdown or commission and may not necessarily reflect actual transactions.
As of September 30, 1997, there were 652 stockholders of record of the Company's
common stock, excluding individual participants in security position listings.
The Company has not paid cash dividends on its common stock since inception and
has no plans to declare cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
During the Company's fiscal year ended September 30, 1997, the securities
identified below were issued by the Company without registration under the
Securities Act of 1933. In each case, all of the shares were issued pursuant to
the exemption from registration contained in Section 4(2) of the Securities Act
of 1933 as a transaction, not involving a general solicitation in which the
purchaser was purchasing for investment. The Company believes that each
purchaser was given or had access to detailed financial and other information
with respect to the Company and possessed requisite financial sophistication.
On August 1, 1997, the Company issued 253,648 shares of its common stock to Dr.
Stephen F. Serbin, 253,648 shares of its common stock to Dr. Peter J. Stahl and
10,353 shares of its common stock to Dr. Sharon Silverman as consideration in
connection with the merger of the medical practice of Doctors Serbin, Stahl, and
Silverman with UCI-SC.
On September 9, 1997, the Company issued 19,513 shares of its common stock to
Dr. Leif M. Adams as part of the purchase price in connection with the Company's
acquisition of substantially all of the assets of the medical practice of Dr.
Adams.
Item 6. Selected Financial Data (In thousands, except per share data)
The following selected financial data should be read in conjunction with the
Company's consolidated financial statements and the accompanying notes presented
elsewhere herein.
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STATEMENT OF OPERATIONS DATA
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For the year ended September 30,
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1997 1996 1995 1994 1993
----------- --------- ----------- ---------- ----------
Revenues $27,925 $23,254 $17,987 $12,540 $9,799
Income (loss) before extraordinary items (84) 466 (1,360) 644 268
Net income (loss) (84) 466 (1,360) 644 407
Net income (loss) per share1 (.02) .11 (.43) .28 .21
Weighted average number of shares
outstanding1 5,005 4,294 3,137 2,324 1,971
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BALANCE SHEET DATA
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At September 30,
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1997 1996 1995 1994 1993
---------- ----------- ----------- --------- ----------
Working capital $ 2,921 $ 2,020 $ (383) $ 763 $ (845)
Premises & equipment, net 4,003 3,300 2,795 1,098 487
Total assets 20,864 15,733 10,216 6,674 2,940
Long-term debt 7,939 5,373 4,366 2,838 667
Stockholders' equity 9,488 7,822 3,253 2,603 457
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1 The net income (loss) per share and the weighted average number of shares
outstanding has been restated for all periods presented to reflect the one for
five reverse stock split effected on July 27, 1994.
<PAGE>
Item 7. 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 UCI Medical Affiliates, Inc. include
the accounts of UCI Medical Affiliates, Inc. ("UCI"), its wholly owned
subsidiary, UCI Medical Affiliates of SC ("UCI-SC") and Doctor's Care, PA ("the
P.A."), collectively the "Company". The financial statements of the P.A. are
consolidated with UCI because UCI-SC has unilateral control over the assets and
operations of the P.A. and, notwithstanding the lack of technical majority
ownership, consolidation of the P.A. with UCI is necessary to present fairly the
financial position and results of operations of UCI. The management agreement
between UCI-SC and the P.A. convey to the Company perpetual, unilateral control
over the assets and operations of the P.A. Control is perpetual rather than
temporary because of (i) the length of the term of the agreement, (ii) the
continuing investment of capital by the Company, (iii) the employment of all of
the non-physician personnel by UCI-SC and (iv) the nature of the services
provided to the P.A. by UCI-SC.
Procedurally, the management agreement calls for the P.A. to provide medical
services and charge a fee to the patient or to the patient's insurance carrier
or employer for such services. Physician salaries are paid out of these revenues
and all remaining revenues are passed to UCI-SC as a management fee. UCI-SC
provides all support personnel (nurses, technicians, receptionists), all
administrative functions (billing, collecting, vendor payment), and all
facilities, supplies and equipment. The consolidated accounts of the Company
include all revenue and all expenses (including physician salaries) of all three
entities.
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 80% of the physicians employed by the P.A. are paid on an
hourly basis for time scheduled and worked at the medical centers. The other
physicians are salaried. A few of the physicians have incentive compensation
arrangements, however, no amounts were accrued or paid during the Company's
three prior fiscal years that were significant. As of September 30, 1997 and
1996, the Company employed 84 and 72 providers, respectively.
Results of Operations for the Year Ended September 30, 1997 Compared to the Year
Ended September 30, 1996
For fiscal year 1997, revenues of $27,925,000 reflect an increase of 20% from
the amount reported for fiscal year 1996. The following reflects revenue trends
from fiscal year 1993 through fiscal year 1997:
<TABLE>
<S> <C> <C> <C> <C> <C>
For the year ended September 30, (in thousands)
----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ---------- ----------
Revenues $27,925 $23,254 $17,987 $12,540 $9,799
Operating Costs 26,466 21,525 18,180 11,881 9,133
Operating Margin 1,458 1,729 (193) 660 666
</TABLE>
The increase in revenue for fiscal year 1997 is attributable to a number of
factors. The Company engaged in a significant expansion, increasing the number
of primary care medical Centers in South Carolina from 29 to 33 (as of September
30, 1997). The expansion included the net addition of three Centers to the
cluster in Columbia (bringing the total to 18) and one Center in Greenville
(bringing the total to six in this region). Myrtle Beach has four (4) locations
and the Charleston area has the remaining five (5) sites. The revenue from the
new locations added in fiscal year 1997 and from the full year of operations of
the locations added in fiscal year 1996 represented the most significant portion
of the revenue growth. Of the $4,671,000 in revenue growth, approximately
$876,000 was from the four locations opened in fiscal year 1997 and
approximately $2,462,000 was the result of having the four locations opened
during fiscal year 1996 operating for all of fiscal 1997.
The above additions were net of two centers in the Columbia area and one center
in the Myrtle Beach area that were closed during fiscal year 1997. Each of these
centers were start-ups versus acquisitions and, therefore, had no related
intangible assets recorded and each had not proven to be profitable in a
reasonable period of time. The three centers closed had costs of $253,000 in
total that exceeded their revenues during fiscal 1997 prior to being closed.
The remainder of the revenue growth in fiscal year 1997 (approximately
$1,333,000) was the result of "same center" growth in patient visits and
charges. This represents an average growth of approximately seven (7%) percent
in revenue at these established centers.
The Company, in fiscal year 1997, increased 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 capitated lives in
fiscal year 1997 compared to 18,000 in fiscal year 1996 and 11,000 is fiscal
year 1995. While HMOs do not, at this time, have a significant penetration into
the South Carolina market, the Company believes that HMOs and other managed care
plans will experience a substantial increase in market share in the next few
years, and the Company is therefore positioning itself for this possibility.
Capitated revenue grew from approximately $2,400,000 for fiscal 1996 to
$3,100,000 ($700,000 of the $4,671,000 in total revenue growth) in fiscal year
1997.
The Company negotiates contracts with HMOs 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 HMOs accounted for
approximately 11% of the Company's net revenue in fiscal year 1997 compared to
10% in fiscal year 1996 and 8% in fiscal year 1995.
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. 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 revenues in fiscal year 1997 also reflect the Company's heightened
focus on occupational medicine and industrial health services. Focused marketing
materials, including quarterly newsletters for employers, were developed to
spotlight the Company's services for industry. The Company also entered into an
agreement with Companion Property and Casualty Insurance Company ("CP&C")
wherein the Company acts as the primary care provider for injured workers of
firms insured through CP&C. CP&C is a primary stockholder of the Company. See
additional related information at Item 13, "Certain Relationships and Related
Transactions".
Patient encounters increased to 393,000 in fiscal year 1997, from 338,000 in
fiscal year 1996.
Even with the positive effects of the factors mentioned above, revenues were
short of goals for the year, due in part to the increased competition from
hospitals and other providers in Columbia, Greenville, Sumter and Myrtle Beach.
In each of these areas, regional hospitals have acquired or opened new primary
care physician practices that compete directly with the Company for patients. In
each case, the hospital owner of the Company's competition is believed to have
significantly greater resources than the Company. Management believes that such
competition will continue into the future and plans to compete on a basis of
quality service and accessibility.
<PAGE>
An operating margin of $1,458,000 was realized in fiscal year 1997 as compared
to an operating margin of $1,729,000 in fiscal year 1996. This margin
deterioration was primarily the result of the increased cost-cutting pressures
being applied by managed care insurance payors that cover many of the Company's
patients. The following table breaks out the Company's revenue and patient
visits by revenue source for fiscal year 1997:
Percent (%) of Percent (%) of
Payor Patient Visits Revenue
- ---------------------------- ------------------- -----------------
Patient Pay 24% 24%
Employer Paid 15% 11%
HMO 10% 11%
Workers Compensation 10% 14%
Medicare/Medicaid 12% 7%
Managed Care Insurance 24% 28%
Other 5% 5%
As managed care plans attempt to cut costs, they typically increase the
administrative burden of providers by requiring referral approvals and by
requesting hard copies of medical records before they will pay claims. The
number of patients covered by a managed care plan versus a traditional indemnity
plan continues to grow.
Management expects this trend to continue.
The operating margin deterioration was also contributed to by the high costs of
the three centers closed during fiscal 1997. Costs exceeded revenues by $253,000
at these three centers during the fiscal year 1997.
Depreciation and amortization expense increased to $1,250,000 in fiscal year
1997, up from $961,000 in fiscal year 1996. This increase reflects higher
depreciation expense as a result of significant leasehold improvements and
equipment upgrades at a number of the Company's medical centers, as well as an
increase in amortization expense related to the intangible assets acquired from
the Company's purchase of existing practices in Greenville and Columbia. Net
interest expense increased from $583,000 in fiscal year 1996 to $813,000 in
fiscal year 1997 primarily as a result of the interest costs associated with the
indebtedness incurred in the leasehold improvements, the operating line of
credit the Company has with its primary bank, and debt associated with the
acquisitions noted above.
Effective October 1, 1993, the Company adopted Statement of Financial Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires the use of an
asset and liability approach to accounting for income taxes. As part of the
adoption of SFAS 109, the Company has recognized a deferred tax asset relating
to net operating loss carry forwards which are available to offset future
taxable income.
In determining that it was more likely than not that the recorded deferred tax
asset would be realized, management of the Company considered the following:
The generation of future taxable income in excess of
income reported on the consolidated financial statements.
The budgets and forecasts that management and the Board
of Directors had adopted for the next five fiscal years
including plans for expansion.
The ability to utilize NOL's prior to their expiration.
The potential limitation of NOL utilization in the event
of a change in ownership.
<PAGE>
Financial Condition at September 30, 1997
The Company grew significantly during the year ended September 30, 1997.
Cash and cash equivalents decreased from $238,000 at September 30, 1996 to
$15,000 at September 30, 1997. Cash was used mainly for acquisitions of
equipment and practice intangibles.
Accounts receivable increased from $4,187,000 at September 30, 1996 to
$5,944,000 at September 30, 1997. This was attributable to the net growth of
four additional primary care Centers and the overall growth in patient visits to
existing Centers. This growth was expected and management does not believe that
there has been a decline in the collectibility of accounts receivable.
The increase in property and equipment is attributable to the equipment needs of
new Centers and to the up-grading of equipment at established Centers. The
excess of cost over the net assets of acquired businesses (goodwill) totaled
$7,802,000 at September 30, 1997 compared to $5,829,000 at the end of the
previous fiscal year and reflects the medical practices acquired.
The growth in accounts payable ($1,392,000 at September 30, 1996 to $2,040,000
at September 30, 1997) and in accrued salaries ($751,000 at September 30, 1996
to $959,000 at September 30, 1997) is attributable to the overall growth in the
Company in terms of the number of centers and employees. Long-term debt
increased from $4,459,000 to $6,920,000 primarily as a result of indebtedness
incurred in capital leases for Center upfits, in the utilization of an operating
line of credit, and as part of practice acquisitions. Management believes that
it will be able to fund debt service requirements for the foreseeable future 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), internally generated funds and credit
extended by suppliers.
The Company has a $3,000,000 bank line of credit with an outstanding
indebtedness of $2,906,000 at September 30, 1997. The line of credit bears
interest of prime plus 1% with a maturity of December 1997. (Prime rate is 8.5%
as of September 30, 1997.) In December 1997, the Company renewed the line of
credit with an interest rate of prime plus 1% which would mature in December
1998. The line of credit is used to fund the working capital needs of the
Company's expansion.
Operating activities used $461,000 of cash during fiscal year 1997, compared
with $1,197,000 used during fiscal year 1996. The increased utilization of cash
for the increase of accounts receivable resulting from the growth in the number
of Centers and in the number of patient visits was offset by an increase in
accounts payable.
Investing activities used $808,000 of cash during fiscal year 1997 compared with
$693,000 in fiscal year 1996 as a result of continued expansion activity.
Continued growth is anticipated during fiscal year 1998. (See "Subsequent
Events" for a description of acquisition activity in the first quarter of fiscal
year 1998.)
The Company received $600,000 in cash during fiscal year 1997 resulting from
private placements of stock with CP&C which was used in part to manage the
Company's rapid growth. Should additional needs arise, the Company may consider
additional capital sources to obtain funding. There is no assurance that any
additional financing, if required, will be available on terms acceptable to the
Company. (See "Subsequent Events" for a description of $1,500,000 in funding
received by the Company in the first quarter of fiscal year 1998.)
Overall, the Company's current assets exceeded its current liabilities at
September 30, 1997 by $2,921,000 and by $2,020,000 at September 30, 1996.
The Company has a plan in place to ensure that the critical computer systems
that support the Company's business will be year 2000 compatible.
Results of Operations and Balance Sheet Analysis for Fiscal Year 1996
Compared to Fiscal Year 1995
Total revenues for fiscal year 1996 increased by 29% to $23,254,000 from
$17,987,000 for fiscal year 1995. The Company expanded from 25 to 29 Centers
during fiscal year 1996.
The Company, in fiscal year 1996, increased 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. The Company
participated in four HMOs during fiscal 1996 and was the primary care
"gatekeeper" for more than 18,000 capitated lives.
Patient encounters increased to 393,000 in fiscal year 1996 from 283,000 in
fiscal year 1995.
An operating margin of $1,729,000 was realized in fiscal 1996 as compared to an
operating loss of $193,000 in fiscal year 1995. This improvement was attributed
to cost cutting measures put into place in the third quarter of fiscal year 1995
which focused on personnel costs.
Depreciation and amortization expense increased to $961,000 in fiscal year 1996,
up from $579,000 in fiscal year 1995. This increase reflects higher depreciation
expense as a result of significant leasehold improvements and equipment upgrades
at a number of the Company's medical centers, as well as an increase in
amortization expense related to the intangible assets acquired from the
Company's purchase of existing practices in Greenville and Columbia. Net
interest expense increased from $505,000 in fiscal year 1995 to $583,000 in
fiscal year 1996 primarily as a result of the interest costs associated with the
indebtedness incurred in leasehold improvements and the operating line of credit
the Company had with its primary bank.
Effective October 1, 1993, the Company adopted Statement of Financial Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires the use of an
asset and liability approach to accounting for income taxes. As part of the
adoption of SFAS 109, the Company has recognized a deferred tax asset relating
to net operating loss carry forwards which are available to offset future
taxable income.
Cash and cash equivalents increased from $77,000 at September 30, 1995 to
$238,000 at September 30, 1996. Cash was provided mainly via the sale of stock
and the increase in debt.
Accounts receivable increased from $2,343,000 at September 30, 1995 to
$4,187,000 at September 30, 1996. This was attributable to the opening of four
additional primary care Centers and the overall growth in patient visits to
existing Centers.
The increase in property and equipment during fiscal year 1996 is attributable
to the equipment needs of new centers and the upgrading of equipment at
established centers. The excess of cost over the net assets of acquired
businesses (goodwill) totaled $5,829,000 at September 30, 1996 compared to
$3,578,000 at the end of the previous fiscal year and reflects the medical
practices acquired.
The current portion of debt decreased in fiscal year 1996 to $914,000 from
$1,245,000 at the end of fiscal year 1995. This reduction was mainly due to the
refinancing of the Line of Credit to a long-term maturity. Long-term debt
increased from $3,121,000 to $4,459,000 primarily as a result of indebtedness
incurred in capital leases for Center upfits and in the utilization of an
operating Line of Credit.
Overall, the Company's current assets exceeded its current liabilities at
September 30, 1996 by $2,020,000.
<PAGE>
Release of Operations for the Three Months Ended September 30, 1997 as Compared
to the Three Months Ended September 30, 1996:
The following summarizes the fiscal 1997 fourth quarter results of operations as
compared to the prior year:
For the Three Months Ended
------------------------------------------------
September 30, 1997 September 30, 1996
(in 000's) (in 000's)
---------------------- ----------------------
Revenues $ 7,625 $ 6,250
Operating Costs 7,590 6,012
Operating Margin 35 238
G&A Expenses 25 59
Depreciation & Amortization 358 273
Interest Expense, net 242 156
Benefit for Income Taxes 167 266
Net Income (loss) (423) 16
Revenues of $7,625,000 for the quarter ending September 30, 1997 reflect an
increase of twenty-two (22%) percent from those of the quarter ending September
30, 1996.
Of the net increase of four centers during the year, discussed earlier, three
were added during the fourth quarter and represented $530,000 of the total
$1,375,000 in revenue growth from quarter to quarter.
Patient encounters increased to 106,000 in the fourth quarter of fiscal
1997 from 88,000 in the fourth quarter of fiscal 1996.
Even with the positive effects of the factors mentioned above, revenues were
short of goals for the quarter, due in part to the increased competition from
hospitals and other providers in Columbia, Greenville, Sumter and Myrtle Beach.
In each of these areas, regional hospitals have acquired or opened new primary
care physician practices that compete directly with the Company for patients. In
each case, the hospital owners of our competition are believed to have
significantly greater resources than the Company. Management believes that such
competition will continue into the future and plans to compete on a basis of
quality service and accessibility.
During the fourth quarter of fiscal year 1997, the Company increased its
allowance for doubtful accounts by $279,000.
The increases in depreciation, amortization and interest expense are all related
to the items discussed in the year-to-date results with nothing unusual being
recorded in the fourth quarter.
Subsequent Events
On October 1, 1997, the Company acquired certain assets of a three facility
physical therapy practice in Columbia, South Carolina for $856,756 by assuming
certain liabilities and issuing 276,976 shares of the common stock of the
Company. The Company entered into employment agreements with the physical
therapists who had been the owners of the practice. The Company also entered
into lease agreements or assumed existing lease agreements from the previous
owners. The practice previously had annual revenues of approximately $964,000.
On October 6, 1997, the Company completed a private placement of a $1.5 million,
6.5% five-year convertible subordinated debenture with FPA Medical Management,
Inc., a national physician practice management company headquartered in San
Diego, California. The debentures are convertible to common stock at any time
within the five year period at a fixed price premium to the current stock price
and are subject to Rule 144 of the Securities and Exchange Commission when
converted.
On November 1, 1997, the Company acquired certain assets of a medical practice
in New Ellenton, South Carolina for $262,004 by paying $17,468 at closing,
financing $159,536 with the seller, and issuing 30,223 shares of the common
stock of the Company. The Company entered into an employment agreement with the
physician who had been the sole shareholder of the acquired medical practice.
The Company also entered into a lease agreement with the physician owner for the
facility occupied by the acquired medical practice. The practice previously had
annual revenues of approximately $409,000.
On December 11, 1997, the Company renewed its long-term debt agreement with
Carolina First Bank for a $3,000,000 line of credit, bearing interest at an
annual rate of prime plus one (1%) percent (prime rate is 8.5% as of September
30, 1997). This line of credit balance at September 30, 1997 is classified as
long-term on the accompanying balance sheet.
Item 8. Financial Statements
Reference is made to the Index to Financial Statements on Page 24.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Much of the information required by this Item is incorporated herein by
reference to the Proxy Statement for the Company's March 25, 1998 Annual Meeting
of Stockholders.
Directors
The Company's Restated Certificate of Incorporation provides for a classified
Board of Directors so that, as nearly possible, one-third of the Company's Board
of Directors is elected each year to serve a three-year term. Currently, the
Board of Directors consists of seven directorships with staggered terms expiring
at the Annual Meetings of Shareholders in 1998, 1999 and 2000. The Company's
Bylaws provide the Board of Directors with the power and authority to determine
the number of directors constituting the entire Board of Directors. At a meeting
of the Board of Directors on August 21, 1996, the Board of Directors voted to
increase the size of the Board from five members to the current seven members,
with such increase to be effective immediately after the Annual Meeting, which
was held August 21, 1996. To give effect to such increase, the Board of
Directors approved the addition of one directorship to each of the classes of
directors whose terms expire at the Annual Meetings of Shareholders in 1998 and
1999. Set forth below is the certain biographical information with respect to
the directors of the Company.
M.F. McFarland, III, M.D., 49, has served as Chairman of the Board, President
and Chief Executive Officer of the Company since January 1987 and as a director
of the Company since September 1984. From September 1984 until January 1987, he
served as Vice President of the Company. He served as Associate Professional
Director of the Emergency Department of Richland Memorial Hospital in Columbia,
South Carolina from 1978 to 1981 and was President of the South Carolina Chapter
of the American College of Emergency Physicians in 1979. Dr. McFarland is
currently a member of the Columbia Medical Society, the South Carolina Medical
Association and the American Medical Association.
Harold H. Adams, Jr., 50, has served as Director of the Company since June 1994
and as President and owner of Adams and Associates, International, Adams and
Associates, and Southern Insurance Managers since June 1992, and served as
President of Adams Eaddy and Associates, an independent insurance agency, from
1980 to 1992. Mr. Adams has been awarded the Chartered Property Casualty
Underwriter designation and is currently a member of the President's Board of
Visitors of Charleston Southern University in Charleston, South Carolina. He has
received numerous professional awards as the result of over 25 years of
involvement in the insurance industry and is a member of many professional and
civic organizations.
Charles P. Cannon, 47, has served as Director of the Company since September
1995 and as Vice President, Corporate Controller and Assistant Treasurer for
Blue Cross Blue Shield of South Carolina ("BCBS") since April 1988 and as
Assistant Treasurer for its subsidiary, Companion HealthCare Corporation, since
April 1988. Prior to joining BCBS in April 1988, he was a Senior Manager and
consultant for Price Waterhouse LLP for eleven (11) years. Mr. Cannon is a
member of the American Institute of Certified Public Accountants, the South
Carolina Association of Certified Public Accountants, the Institute of
Management Accountants, and the Tennessee Society of Certified Public
Accountants.
Thomas G. Faulds, 56, has served as Director of the Company since August 1996
and as Executive Vice President of Private Business for Blue Cross Blue Shield
of South Carolina since October 1991. Mr. Faulds has been with Blue Cross Blue
Shield of South Carolina since March 1972 and has served in key senior
management positions in government programs, information systems and operations.
Russell J. Froneberger, 52, has served as Director of the Company since June
1994 and as President of Global Consulting, a multinational marketing and
financial consulting firm, since 1991. Mr. Froneberger has over twenty-eight
years of international corporate finance and marketing experience, having been
associated with Manufacturers Hanover Trust Company from 1967 to 1972, and South
Carolina National Bank, where he served as Senior Vice President of Marketing
and Corporate Development Relations from 1972 to 1991. He has lectured on
finance and capital formation at major universities and was the founder and
first Chairman of the Midlands International Trade Association in Columbia,
South Carolina.
Ashby Jordan, M.D., 58, has served as a Director of the Company since August
1996 and as Vice President of Medical Affairs of Blue Cross Blue Shield of South
Carolina since December 1986. Prior to Blue Cross Blue Shield, Dr. Jordan was
the Vice President of Medical Affairs for CIGNA HealthPlan of South Florida,
Inc. Dr.
Jordan is Board Certified by the American Board of Pediatrics.
Charles M. Potok, 48, has served as Director of the Company since September 1995
and as Executive Vice President and Chief Operating Officer of Companion
Property and Casualty Insurance Company ("CP&C") since March 1984. Mr. Potok is
an Associate of the Casualty Actuarial Society and a member of the American
Academy of Actuaries. Prior to joining CP&C, Mr. Potok served as Chief Property
and Casualty Actuary and Director of the Property and Casualty Division of the
South Carolina Department of Insurance.
Executive Officers
The names of the executive officers, who are not also directors of the Company,
and certain other biographical information are as follows:
Jerry F. Wells, Jr., 35, has served as Chief Financial Officer and Executive
Vice President of Finance of the Company since he joined the Company in February
1995. As of December 18, 1996, Mr. Wells is serving as Corporate Secretary of
the Company. Prior to that time, he served as a Senior Manager and consultant
for Price Waterhouse LLP from 1985 until February 1995. Mr. Wells is a certified
public accountant and is a member of the American Institute of Certified Public
Accountants, the South Carolina Association of Certified Public Accountants and
the North Carolina CPA Association.
D. Michael Stout, M.D., 52, has served as Executive Vice President of Medical
Affairs of the Company since 1985. He is Board Certified in Emergency Medicine
and is a member of the American College of Emergency Physicians and the Columbia
Medical Society. Dr. Stout is also a member of the American College of Physician
Executives.
Jon G. Keith, 48, as served as Executive Vice President and Chief Operating
Officer of the Company since January 1997. Prior to that time, Mr. Keith served
as Vice President for Corporate Services and Vice President for Administration
for Baptist Healthcare System of South Carolina and Baptist Medical Center from
1985 until January 1997. Mr. Keith is a Diplomate with the American College of
Healthcare Executives and a member of the Medical Group Management Association.
Jitendra S. Mehta, 46, has served as Executive Vice President of Development and
Procurement of the Company since November 1993. Mr. Mehta has an extensive
background in hospital and medical personnel administration. He served as
Business Director of Multispecialty Clinic in Maryland from 1985 to 1989 and
served as Vice President and Partner of Citrus Diagnostic Center from 1990 to
1993. Mr. Mehta is currently a member of American Registry for Radiological
Technology and the Nuclear Medicine Technologist Certification Board.
Section 16(a) of the Securities and Exchange Act of 1934 requires the Company's
directors and officers to file reports of holdings and transactions in the
Company's common stock with the Securities and Exchange Commission ("SEC").
Based on Company records and other information, the Company believes that all
SEC filing requirements applicable to its directors and officers were complied
with in respect to the Company's fiscal year ending September 30, 1997.
Item 11. Executive Compensation
Much of the information required by this Item is incorporated herein by
reference to the Proxy Statement for the Company's March 25, 1998 Annual Meeting
of Stockholders.
Compensation of Directors
Non-employee directors are paid a fee of $500 for attendance at each meeting of
the Board of Directors. Non-employee directors of the Company are reimbursed by
the Company for all out-of-pocket expenses reasonably incurred by them in the
discharge of their duties as directors, including out-of-pocket expenses
incurred in attending meetings of the Board of Directors.
Compensation of Officers
Effective October 1, 1995 and November 1, 1995, Dr. McFarland and Dr. Stout,
respectively, entered into new employment contracts with both the Company and
the P.A., with the following terms:
Dr. McFarland: Effective October 1, 1995, Dr. McFarland entered into a
five (5) year contract with UCI-SC that provides for annual
compensation of $157,500, the use of one automobile, and an incentive
bonus payable at the end of the Company's fiscal year subject to the
Board of Directors' determination and based upon net income and gross
revenue of the Company for the same year. Also, effective October 1,
1995, Dr. McFarland entered into a five (5) year contract with the P.A.
that provides for annual compensation of $157,500.
Dr. Stout: Effective November 1, 1995, Dr. Stout entered into a five (5)
year contract with UCI-SC that provides for annual compensation of $50,000.
Also, effective November 1, 1995, Dr. Stout entered into a five (5) year
contract with the P.A. that provides for annual compensation of $160,000.
During the Company's 1995 fiscal year, M.F. McFarland, III, M.D., the Company's
Chief Executive Officer and President, and D. Michael Stout, M.D., the Company's
Executive Vice President of Medical Affairs, served without compensation from
UCI-SC for their services in the executive offices they held with the Company
during that periods.
During the Company's 1995 fiscal year, Dr. McFarland and Dr. Stout received
compensation for the services they performed for the P.A. For services performed
for the P.A. during fiscal 1995, Dr. McFarland was paid aggregate compensation,
including bonuses, of $362,046. For services performed for the P.A. during
fiscal 1995, Dr. Stout was paid aggregate compensation, including bonuses, of
$189,600.
No other executive officer of the Company earned compensation in excess of
$100,000 for services provided to the Company in any of the Company's three
prior fiscal years.
Existing Stock Option Plans
Pursuant to the Company's incentive stock option plan adopted in 1994, (the
"1994 Plan"), "incentive stock options", within the meaning of Section 422 of
the Internal Revenue Code, may be granted to employees of the Company. The 1994
Plan provides for the granting of options for the purchase of 750,000 shares at
100% of the fair market value of the stock at the date of grant. Options granted
under the 1994 Plan vest at a rate of 33% in each of the three years following
the grant. Vested options become exercisable one year after the date of grant
and can be exercised within ten years of the date of grant, subject to earlier
termination upon cessation of employment. During fiscal year 1997, no options
were exercised, 445,500 options were granted and 55,000 options expired. At
September 30, 1997, there were stock options outstanding under the 1994 plan for
750,000 shares, 445,500 of which were granted in fiscal year 1997, 115,500 of
which were granted in fiscal year 1996 and 189,000 of which were granted in
fiscal year 1995. Of the 750,000 options outstanding at September 30, 1997,
164,500 were exercisable.
The incentive stock option plan adopted in 1984 (the "1984 Plan") expired under
its terms in December 1993. During fiscal year 1997, no options were exercised
and none expired. At September 30, 1997, there were stock options outstanding
under the 1984 Plan for 12,800 shares at $.25 per share, all of which were
exercisable.
During fiscal year 1996, the Company adopted a Non-Employee Director Stock
Option Plan (the "1996 Non-Employee Plan"). The 1996 Non-Employee Plan provides
for the granting of options to two non-employee directors for the purchase of
10,000 shares of the Company's common stock at the fair market value as of the
date of grant. Under this plan, 5,000 options were issued to Harold H. Adams,
Jr. and 5,000 options were issued to Russell J. Froneberger. These options are
exercisable during the period commencing on March 20, 1999 and ending on March
20, 2006. At September 30, 1997, there were stock options outstanding under the
1996 Non-Employee Plan for 10,000 shares, none of which were exercisable.
During fiscal year 1997, the Company adopted a Non-Employee Director Stock
Option Plan (the "1997 Non-Employee Plan"). The 1997 Non-Employee Plan provides
for the granting of options to four non-employee directors for the purchase of
20,000 shares of the Company's common stock at the fair market value of the date
of grant. Under this plan, 5,000 options were issued each to Charles P. Cannon,
Thomas G. Faulds, Ashby H. Jordan, M.D., and Charles M. Potok. These options are
exercisable during the period commencing on March 28, 2000 and ending on March
28, 2007. At September 30, 1997, there were stock options outstanding under the
1997 Non-Employee Plan for 20,000 shares, none of which were exercisable.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the common stock of the Company as of
September 30, 1997. Information is presented for (i) shareholders owning more
than five percent of the outstanding common stock, (ii) each director and
executive officer of the Company, individually, and (iii) all directors and
executive officers of the Company, as a group. Except as otherwise specified,
each of the shareholders named in the table has indicated to the Company that
such shareholder has sole voting and investment power with respect to all shares
of common stock beneficially owned by that shareholder. Beneficial ownership
reflected in the table below is determined in accordance with the rules and
regulations of the SEC and generally includes voting or investment power with
respect to securities. Shares of common stock issuable upon the exercise of
options currently exercisable or convertible, or exercisable or convertible
within sixty days, are deemed outstanding for computing the percentage ownership
of the person holding such options, but are not deemed outstanding for computing
the percentage ownership of any other person.
<PAGE>
Number of Shares
Beneficially
Name Owned Percentage
- ------------------------------------------- ---------------- ----------
Blue Cross Blue Shield of South Carolina 2,624,6231 45.69%
I-20 at Alpine Road
Columbia, SC 29219
M.F. McFarland, III, M.D. 560,7952 9.76%
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
D. Michael Stout, M.D. 268,4603 4.67%
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
Harold H. Adams, Jr. 2,000 *
6137 Hampton Ridge Road
Columbia, SC 29209
Charles P. Cannon 0 0
I-20 at Alpine Road
Columbia, SC 29219
Thomas G. Faulds 0 0
I-20 at Alpine Road
Columbia, SC 29219
Russell J. Froneberger 0 0
1201 Main Street, Suite 1980
Columbia, SC 29201
Ashby Jordan, M.D. 0 0
I-20 at Alpine Road
Columbia, SC 29219
Jitendra Mehta 10,0004 *
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
Jon G. Keith 0 0
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
Charles M. Potok 0 0
I-20 at Clemson Road
Columbia, SC 29219
Jerry F. Wells, Jr. 21,6665 *
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
All current directors and executive officers
as a group (10 persons) 862,921 15.02%
* Amount represents less than 1.0%.
1 Shares are held of record by CHC (2,006,442 shares) and CP&C (618,181
shares), each of which is a wholly-owned subsidiary of BCBS.
2 Includes 21,667 shares which may be acquired pursuant to the exercise of
stock options.
3 Includes 10,000 shares which may be acquired pursuant to the exercise of
stock options.
4 Includes 10,000 shares which may be acquired pursuant to the exercise of
stock options. 5 Includes 21,666 shares which may be acquired pursuant to the
exercise of stock options
Item 13. Certain Relationships and Related Transactions
Agreements with Doctor's Care
General. All of the Company's operations are conducted through its wholly-owned
subsidiary, UCI-SC, which operates a network of forty (40) freestanding primary
care medical Centers located throughout South Carolina. In order to comply with
prohibitions against corporations providing medical care, all medical services
at these medical facilities are provided by or under the supervision of Doctor's
Care, P.A., a South Carolina professional association (the "P.A.").
Facilities Agreement. Pursuant to a Facilities Agreement between UCI-SC and the
P.A. (the "Facilities Agreement"), UCI-SC supplies to the P.A. the facilities,
equipment and assets of the Centers, as well as such non-medical personnel as
are reasonably required by the P.A. in the operation of the Centers. In
exchange, the P.A. provides the necessary staffing for the performance of
medical services at the Centers, including a physician to serve as Executive
Medical Director having overall responsibility for the operations of the
Centers. Pursuant to an employment agreement between M.F. McFarland, III, M.D.,
President and Chief Executive Officer of the Company ("Dr. McFarland") and sole
shareholder of the P.A., Dr. McFarland serves as Executive Medical Director of
the Centers. In September 1996, the Facilities Agreement was renewed for an
additional fifteen (15) year term. In January 1995, the Facilities Agreement was
modified to provide UCI-SC with certain rights to terminate the Facilities
Agreement (a) upon the death of Dr. McFarland, (b) upon Dr. McFarland ceasing to
own, either directly or indirectly, a controlling interest in the P.A., or (c)
upon Dr. McFarland becoming a "disqualified person" as defined by the South
Carolina Business Corporation Act of 1988, as amended.
Facility Leases
UCI-SC leases six medical center facilities from CHC and one medical center
facility from CP&C under operating leases with fifteen year terms expiring in
2008, 2009 and 2010. The terms of these leases are believed to be no more or
less favorable to UCI-SC than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar arrangements.
Each of these leases has a five year renewal option, and a rent guarantee by the
P.A. One of the leases has a purchase option allowing UCI-SC to purchase the
center at fair market value after February 1, 1995. Total lease payments made by
UCI-SC under these leases during the Company's fiscal years ended September 30,
1997, 1996, and 1995 were $319,730, $306,178, and $271,100, respectively.
Several of the medical center facilities operated by UCI-SC are leased from
entities owned or controlled by certain principal shareholders and/or members of
the Company's management. The terms of these leases are believed to be no more
or less favorable to UCI-SC than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar arrangements.
Total lease payments made by UCI-SC under these leases during the fiscal years
ended September 30, 1997, 1996 and 1995 were $45,600, $122,854, and $244,300,
respectively.
Ten (10) of the medical center facilities operated by UCI-SC are or were leased
from physician employees of the P.A. The terms of these leases are believed to
be no more or less favorable to UCI-SC than those that would have been
obtainable through arm's-length negotiations with unrelated third parties for
similar arrangements. Total lease payments made by UCI-SC under these leases
during the Company's fiscal years ended September 30, 1997, 1996 and 1995 were
$258,026, $189,945, and $140,100, respectively.
Other Transactions with Related Parties
Blue Cross Blue Shield of South Carolina (BCBS) owns 100% of Companion
HealthCare Corporation ("CHC"), Companion Property & Casualty Insurance Company
("CP&C") and Companion Technologies, Inc. ("CT"). At September 30,1997, CHC
owned 2,006,442 shares of the Company's outstanding common stock and CP&C owned
618,181 shares of the Company's outstanding common stock, which combine to
approximately 46% of the Company's outstanding common stock.
The following is a historical summary of BCBS and its subsidiaries' purchases of
the Company's common stock.
<TABLE>
<S> <C> <C> <C> <C> <C>
Price Total
Date Number per Purchase
Purchased Entity of Shares Share Price
----------------- ---------- -------------- ---------- --------------
12/10/93 CHC 333,333 1.50 $ 500,000
06/08/94 CHC 333,333 3.00 $ 1,000,000
01/16/95 CHC 470,588 2.13 $ 1,000,000
05/24/95 CHC 117,647 2.13 $ 250,000
11/03/95 CHC 218,180 2.75 $ 599,995
12/15/95 CHC 218,180 2.75 $ 599,995
03/01/96 CHC 109,091 2.75 $ 300,000
06/04/96 CP&C 218,181 2.75 $ 599,998
06/23/97 CP&C 400,000 1.50 $ 600,000
</TABLE>
Including shares purchased by CHC from third parties, at September 30, 1997,
BCBS controls 2,624,623 shares, or approximately 46% of the Company's
outstanding common stock. The shares acquired by CHC and CP&C from the Company
were purchased pursuant to stock purchase agreements and were not registered.
The shares acquired by CHC and CP&C were purchased at amounts below fair value
at time of purchase due to lower issuance costs incurred by the Company of these
unregistered securities. CHC and CP&C have the right to require registration of
the stock under certain circumstances as described in the agreement. BCBS and
its subsidiaries have the option to purchase as many shares as may be necessary
for BCBS to maintain ownership of 47% of the outstanding common stock of the
Company in the event that the Company issues additional stock to other parties
(excluding shares issued to employees or directors of the Company).
During the Company's fiscal year ended September 30, 1994, UCI-SC purchased a
new billing and accounts receivable system from CT for an aggregate purchase
price of $504,000. The Company entered into a capital lease agreement for this
system, which includes computer equipment. The Company has the option to
purchase the equipment at the end of the lease term for $1. The lease obligation
recorded at September 30, 1997 is $340,916, which includes lease addenda. The
terms of the purchase agreement are believed to have been no more or less
favorable to UCI-SC than the terms that would have been obtainable through
arm's-length negotiations with unrelated third parties for a similar billing and
accounts receivable system, which includes computer equipment.
During the Company's fiscal year ended September 30, 1994, UCI-SC entered into
an agreement with CP&C pursuant to which UCI-SC, through the P.A., acts as the
primary care provider for injured workers of firms carrying worker's
compensation insurance through CP&C. Additionally, during the Company's fiscal
year ended September 30, 1995, UCI-SC executed a note payable to CP&C consisting
of monthly installments of $4,546 (including 11% interest) from April 1, 1995 to
March 1, 2010, collateralized by certain accounts receivable. The terms of the
agreement with CP&C are believed to be no more or less favorable to UCI-SC than
those that would have been obtainable through arm's-length negotiations with
unrelated third parties for similar arrangements.
UCI-SC, through the P.A., provides services to members of a health maintenance
organization ("HMO") operated by CHC who have selected the P.A. as their primary
care provider. The terms of the agreement with CHC are believed to be no more or
less favorable to UCI-SC than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar arrangements.
During the year ended September 30, 1996, BCBS provided a non-interest bearing
advance to the Company in the amount of $600,000. This advance was paid in full
in December 1996. Management of the Company believes that the terms of this
advance are no less favorable than those that would have been obtainable through
arm's-length negotiations with related third parties for similar services.
The employees of the Company are offered health, life, and dental insurance
coverage at group rates from BCBS and its subsidiaries. The group rates offered
to the employees of the Company are believed to be no more or less favorable to
the Company than those that would have been obtainable through arm's-length
negotiations with unrelated third parties for similar services.
The Company contracts with Adams and Associates for its workers compensation and
professional liability insurance coverage. Aggregate premiums paid during the
fiscal year ended September 30, 1997 in connection with such policies were
approximately $155,000. Adams and Associates contracts with CP&C to be the
insurance carrier for the Company's workers compensation insurance coverage.
During the fiscal year ended September 30, 1996, Adams and Associates provided
short-term financing to the Company for approximately $17,000 in workers
compensation audit premiums, which was paid in full during the fiscal year ended
September 30, 1997. Harold H. Adams, Jr. is the President and owner of Adams and
Associates and is also a director of the Company. Management of the Company
believes that the terms of its contracts with Adams and Associates are no more
or less favorable to the Company than those that would have been obtainable
through arm's-length negotiations with unrelated third parties for similar
services.
The Company has contracted since September 1994 with Global Consulting, Inc. for
financial and marketing consulting services. Russell J. Froneberger is the
President and owner of Global Consulting, Inc. and is also a director of the
Company. Fees paid during the fiscal year ended September 30, 1997 in connection
with these services were approximately $96,000. Management of the Company
believes that the terms of its contracts with Global Consulting, Inc. are no
more or less favorable to the Company than those that would have been obtainable
through arm's-length negotiations with unrelated third parties for similar
services.
Item 14. Exhibits List and Reports on Form 8-K
(a) (1) Reference is made to the Index to Financial Statements on page 24.
(2) A listing of the exhibits to the Form 10-KSB is set forth on the
Exhibit Index which immediately precedes such exhibits in this Form
10-KSB.
(b) Reports on Form 8-K
The Company filed a Form 8-K in August 1997 which reported the
acquisition by UCI-SC of Springwood Lake Family Practice Center, P.A.
of Columbia, South Carolina. Financial statements of the acquired
entity and pro forma financial information regarding the combined
entity were filed in a Form 8-K/A in October 1997.
The Company filed a Form 8-K in September 1997 which reported the
acquisition by UCI-SC of Clifton G. Aycock, M.D., P.A. of Camden, South
Carolina. Financial statements of the acquired entity and pro forma financial
information regarding the combined entity were filed in a Form 8-K/A in November
1997.
The Company filed a Form 8-K in September 1997 which reported the
acquisition by UCI-SC of Leif Martin Adams, D.O., P.A. of Summerville,
South Carolina. Financial statements of the acquired entity and pro
forma financial information regarding the combined entity were filed in
a Form 8-K/A in November 1997.
<PAGE>
The Company filed a Form 8-K in November 1997 which reported the
acquisition by UCI-SC of Progressive Therapy Services, Inc. of
Columbia, South Carolina. Financial statements of the acquired entity
and pro forma financial information regarding the combined entity were
filed in a Form 8-K/A in December 1997.
The Company filed a Form 8-K in November 1997 which reported the
acquisition by UCI-SC of Marvin Dees, M.D., P.A. of New Ellenton, South
Carolina. Financial statements of the acquired entity and pro forma
financial information regarding the combined entity will be filed in a
Form 8-K/A in January 1998.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Report of Independent Accountants............................. 29
Consolidated Balance Sheets at September 30, 1997 and 1996.... 30
Consolidated Statements of Operations for the years
ended September 30, 1997, 1996 and 1995 .................. 31
Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 1997, 1996 and 1995 .... 32
Consolidated Statements of Cash Flows for the years
ended September 30, 1997, 1996 and 1995 ............ 33
Notes to Consolidated Financial Statements.................... 34-49
All other schedules are omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes
thereto.
<PAGE>
UCI MEDICAL AFFILIATES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
<PAGE>
Report of Independent Accountants
December 4, 1997
To the Board of Directors and
Stockholders of UCI Medical Affiliates, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
UCI Medical Affiliates, Inc. at September 30, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Columbia, South Carolina
ORIGINAL SIGNED OPINION ON PRICE WATERHOUSE LLP LETTERHEAD
IS ON FILE WITH
UCI MEDICAL AFFILIATES, INC.
<PAGE>
UCI Medical Affiliates, Inc.
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
September 30,
----------------------------------------
1997 1996
------------------- ----------------
Assets
Current assets
Cash and cash equivalents $ 14,676 $ 237,684
Accounts receivable, less allowance for doubtful accounts
of $878,469 and $1,021,856 5,943,884 4,187,394
Inventory 502,888 407,617
Deferred taxes 334,945 197,056
Prepaid expenses and other current assets 579,217 441,384
------------------- ----------------
Total current assets 7,375,610 5,471,135
Property and equipment less accumulated depreciation of
$2,724,222 and $2,025,970 4,002,699 3,300,048
Deferred taxes 1,417,237 855,126
Excess of cost over fair value of assets acquired, less
accumulated amortization of $1,664,739 and
$1,210,569 7,801,607 5,828,963
Other assets 266,379 277,422
------------------- ----------------
Total Assets $ 20,863,532 $15,732,694
=================== ================
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $ 840,879 $ 795,652
Current portion of long-term debt payable to employees 177,445 118,097
Accounts payable 2,039,506 1,391,858
Accrued salaries and payroll taxes 959,068 750,745
Other accrued liabilities 437,667 394,635
------------------- ----------------
Total current liabilities 4,454,565 3,450,987
Long-term debt, net of current portion 6,438,655 4,442,503
Long-term debt payable to employees, net of current portion 481,815 16,981
------------------- ----------------
Total Liabilities 11,375,035 7,910,471
------------------- ----------------
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- 5,744,965 and 4,807,807
shares 287,248 240,390
Paid-in capital 15,435,535 13,732,393
Accumulated deficit (6,234,286) (6,150,560)
------------------- ----------------
Total Stockholders' Equity 9,488,497 7,822,223
------------------- ----------------
Total Liabilities and Stockholders' Equity $ 20,863,532 $ 15,732,694
=================== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
UCI Medical Affiliates, Inc.
Consolidated Statements of Operations
<TABLE>
<S> <C> <C> <C>
For the Years Ended September 30,
-----------------------------------------------------------------
1997 1996 1995
----------------- ------------------- -------------------
Revenues $ 27,924,772 $ 23,254,351 $ 17,987,147
Operating costs 26,466,294 21,525,421 18,180,080
----------------- ------------------- -------------------
Operating margin 1,458,478 1,728,930 (192,933)
General and administrative expenses 153,445 148,637 87,616
Depreciation and amortization 1,250,349 961,115 579,224
----------------- ------------------- -------------------
Income (loss) from operations 54,684 619,178 (859,773)
Other income (expenses)
Interest expense, net of interest income (812,749) (582,937) (505,459)
Gain (loss) on disposal of equipment 8,809 2,105 5,493
----------------- ------------------- -------------------
Other income (expense) (803,940) (580,832) (499,966)
Income (loss) before benefit for income taxes (749,256) 38,346 (1,359,739)
Benefit for income taxes 665,530 427,733 0
================= =================== ===================
Net income (loss) $ (83,726) $ 466,079 $ (1,359,739)
================= =================== ===================
Net Income (loss) per common and
common equivalent share $ (.02) $ .11 $ (.43)
================= =================== ===================
Weighted average common shares
outstanding 5,005,081 4,294,137 3,136,544
================= =================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
UCI Medical Affiliates, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock Paid-In Accumulated
--------------------------------
Shares Par Value Capital Deficit Total
---------------- ------------- --------------- ------------------ ----------------
Balance, September 30, 1994 2,622,178 $131,109 $7,728,554 $ (5,256,896) $ 2,602,767
Net income (loss) -- -- -- (1,359,739) (1,359,739)
Issuance of common stock 885,888 44,294 1,975,706 -- 2,020,000
Other 98 5 (10,004) (4) (10,003)
---------------- ------------- --------------- ------------------ ----------------
Balance, September 30, 1995 3,508,164 175,408 9,694,256 (6,616,639) 3,253,025
---------------- ------------- --------------- ------------------ ----------------
Net income (loss) -- -- -- 466,079 466,079
Exercise of Stock Options 2,300 115 460 -- 575
Issuance of common stock 1,297,350 64,868 4,077,677 -- 4,142,545
Other (7) (1) (40,000) -- (40,001)
---------------- ------------- --------------- ------------------ ----------------
Balance, September 30, 1996 4,807,807 240,390 13,732,393 (6,150,560) 7,822,223
---------------- ------------- --------------- ------------------ ----------------
Net income (loss) -- -- -- (83,726) (83,726)
Issuance of common stock 937,162 46,858 1,703,142 -- 1,750,000
Other (4) -- -- -- --
================ ============= =============== ================== ================
Balance, September 30, 1997 5,744,965 $ 287,248 $ 15,435,535 $ (6,234,286) $ 9,488,497
================ ============= =============== ================== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
UCI Medical Affiliates, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C>
-----------------------------------------------------------
For the Years Ended September 30,
1997 1996 1995
------------------ ---------------- ----------------
Operating activities:
Net income (loss) $ (83,726) $ 466,079 $ (1,359,739)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
(Gain) loss on disposal of equipment (8,809) (2,105) (5,493)
Provision for losses on accounts receivable 1,106,252 627,508 544,208
Depreciation and amortization 1,250,349 961,115 579,224
Common stock issued 0 0 4,125
Deferred taxes (700,000) (440,000) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,679,489) (2,447,650) (1,379,019)
(Increase) decrease in inventory (83,521) (142,549) (47,992)
(Increase) decrease in prepaid expenses and other
current assets (137,833) (159,324) (158,536)
Increase (decrease) in accounts payable and accrued
expenses 876,253 (59,707) 1,363,180
------------------ ---------------- ----------------
Cash provided by (used in) operating activities (460,524) (1,196,633) (460,042)
------------------ ---------------- ----------------
Investing activities:
Purchases of property and equipment (531,941) (438,491) (620,584)
Acquisitions of goodwill (286,896) (239,832) (24,426)
(Increase) decrease in other assets 11,042 (14,654) 2,760
------------------ ---------------- ----------------
Cash provided by (used in) investing activities (807,795) (692,977) (642,250)
------------------ ---------------- ----------------
Financing activities:
Proceeds from issuance of common stock,
net of redemptions 600,000 2,089,990 1,240,000
Net borrowings (payments) under line-of-credit agreement 2,030,844 400,000 475,000
Proceeds from issuance of common stock under
stock option plan 0 575 0
Proceeds from increase in long-term debt 280,000 600,095 0
Payments on long-term debt (1,865,533) (1,039,879) (746,481)
------------------ ---------------- ----------------
Cash provided by financing activities 1,045,311 2,050,781 968,519
------------------ ---------------- ----------------
Increase (decrease) in cash and cash equivalents (223,008) 161,171 (133,773)
Cash and cash equivalents at beginning of year 237,684 76,513 210,286
------------------ ---------------- ------------------
Cash and cash equivalents at end of year $ 14,676 $ 237,684 $ 76,513
================== ================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
UCI MEDICAL AFFILIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of UCI Medical Affiliates, Inc. include
the accounts of UCI Medical Affiliates, Inc. ("UCI"), its wholly owned
subsidiary, UCI Medical Affiliates of South Carolina, Inc. ("UCI-SC") and
Doctor's Care, PA ("the P.A."), collectively the "Company". The financial
statements of the P.A. are consolidated with UCI because UCI-SC has unilateral
control over the assets and operations of the P.A. and, notwithstanding the lack
of technical majority ownership, consolidation of the P.A. with UCI is necessary
to present fairly the financial position and results of operations of UCI.
UCI-SC provides non-medical management and administrative functions for 40
medical clinics (the "Centers"). All medical services at the Centers are
provided by or under the supervision of the P.A., which has contracted with
UCI-SC to provide the medical direction of the Centers. The P.A. is wholly owned
by M.F. McFarland, III, M.D., who also serves as the President, Chairman and
Chief Executive Officer of the Company. The medical directors operate the
Centers under the financial and operational control of UCI-SC. However, medical
supervision of the centers is provided solely by the P.A. The P.A. remits to
UCI-SC all medical service revenues generated by the Centers, net of expenses
incurred by the P.A. All medical service revenues are recorded in the
accompanying financial statements as revenue. Control of the P.A. is perpetual
and other than temporary because of the nature of this relationship and the
management agreements between the entities. The management and facilities
agreement expires on September 30, 2010. The net assets of the P.A. are not
material for any period presented and intercompany accounts and transactions
have been eliminated.
Refer to Note 9 for additional information.
In November 1997 the Emerging Issue Task Force (EITF) finalized EITF 97-2
which provides guidance on consolidation of physician practices and enhances
related disclosures of physician practice management companies. This EITF 97-2
is effective for fiscal years ending after December 15, 1998. The Company is in
the process of evaluating any potential effect on its reporting format.
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 80% 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. A few 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 these footnotes, as applicable.
The Company operates as one segment as defined by SFAS 131.
Medical Supplies and Drug Inventory
The inventory of medical supplies and drugs is carried at the lower of average
cost or market.
Property and Equipment
Depreciation is provided principally by the straight-line method over the
estimated useful lives of the assets, ranging from three to thirty years.
Maintenance, repairs and minor renewals are charged to expense. Major renewals
or betterments, which prolong the life of the assets, are capitalized.
Upon disposal of depreciable property, the asset accounts are reduced by the
related cost and accumulated depreciation. The resulting gains and losses are
reflected in the consolidated statements of operations.
Intangible Assets
Prior to September 30, 1994, the excess of cost over fair value of assets
acquired (goodwill) was amortized on the straight-line method over periods from
15 to 30 years. Since October 1, 1994, goodwill arising from acquisitions has
been amortized on the straight line method over 15 years. Subsequent to an
acquisition, the Company periodically evaluates whether later events and
circumstances have occurred that indicate that the remaining balance of goodwill
may not be recoverable or that the remaining useful life may warrant revision.
When external factors indicate that goodwill should be evaluated for possible
impairment, the Company uses an estimate of the related center's discounted cash
flows over the remaining life of the goodwill and compares it to the center's
goodwill balance to determine whether the goodwill is recoverable or if
impairment exists, in which case an adjustment is made to the carrying value of
the asset.
Revenue Recognition
Revenue is recognized at estimated net amounts to be received from employers,
third party payors, and others at the time the related services are rendered.
Capitation payments from payors are paid monthly and are recognized as revenue
during the period in which enrollees are entitled to receive services. The
Company recognizes capitation revenue from HMOs that contract with the Company
for the delivery of health care services on a monthly basis. This capitation
revenue is at the contractually agreed-upon per-member, per-month rates.
Capitation revenue was approximately $3,100,000, $2,400,000 and $1,400,000 for
the fiscal years ended September 30, 1997, 1996 and 1995, respectively.
Earnings Per Share
The computation of income per common and common equivalent share is based on the
weighted average number of common shares outstanding during the period plus (in
periods in which they have a dilutive effect) the effect of common shares
issuable from stock options and warrants, using the treasury stock method. SFAS
128 redefines the terms and method of calculating earnings per share. SFAS 128
is effective for periods ended after December 15, 1997. Had the Company adopted
SFAS 128 during the year ended September 30, 1997, there would be no change to
the earnings per share reported.
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 (benefit) provision is the result of the
net change in the deferred tax assets to amounts expected to be realized.
Cash and Cash Equivalents
The Company considers all short-term deposits with a maturity of three months or
less at acquisition date to be cash equivalents.
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented herein
are based on pertinent information available to management as of September 30,
1997 and 1996. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
that date and current estimates of fair value may differ significantly from the
amounts presented herein. The fair values of the Company's financial instruments
are estimated based on current market rates and instruments with the same risk
and maturities. The fair values of cash and cash equivalents, accounts
receivable, accounts payable, notes payable and payables to related parties
approximate the carrying values of these financial instruments.
Reclassifications
Certain 1995 amounts have been reclassified to conform with the 1996 and 1997
presentation.
2. Property and Equipment
Property and equipment consists of the following at September 30:
<TABLE>
<S> <C> <C>
1997 1996
--------------------- ---------------------
Leasehold improvements $ 827,218 $ 558,098
Property and equipment, including capitalized leases 5,899,703 4,767,920
--------------------- ---------------------
6,726,921 5,326,018
Less, accumulated depreciation and amortization (2,724,222) (2,025,970)
--------------------- ---------------------
$ 4,002,699 $ 3,300,048
===================== =====================
</TABLE>
At September 30, 1997 and 1996 capitalized leased equipment included above
amounted to approximately $3,063,000 and $2,298,000, net of accumulated
amortization of $969,000 and $538,000, respectively. Depreciation and
amortization expense equaled $796,179, $619,817 and $384,638 for the years ended
September 30, 1997, 1996 and 1995, respectively.
3. Business Combinations
During the fiscal year ended September 30, 1997, the Company acquired the net
assets of five medical practices, and in most cases, entered into employment
agreements with the physician owners of those practices. The acquisitions were
accounted for under the purchase method, and the financial activity since the
date of acquisition of these acquired practices has been included in the
accompanying consolidated financial statements. The combined pro forma results
listed below reflect purchase price accounting adjustments assuming the
acquisitions occurred at the beginning of each fiscal year presented. Individual
pro forma disclosures are not provided here as the information is deemed to be
insignificant for separate presentation.
Refer to Note 14 for details regarding business combinations in fiscal year
1997.
Unaudited
-----------------------------------
1997 1996
--------------- ---------------
Revenue $30,124,821 $26,287,192
Net income (loss) $ 26,717 $ 583,222
Net income (loss) per common
and common equivalent share $ 0 $ .12
<PAGE>
4. Income Taxes
The components of the (benefit) provision for income taxes for the years ended
September 30 are as follows:
<PAGE>
1997 1996
----------------- -----------------
Current:
Federal $ 31,675 $ 12,267
State 2,795 --
----------------- -----------------
34,470 12,267
----------------- -----------------
Deferred:
Federal (643,243) (404,324)
State (56,757) (35,676)
----------------- -----------------
(700,000) (440,000)
----------------- -----------------
Total income tax benefit $(665,530) $(427,733)
================== =================
<PAGE>
Deferred taxes result from temporary differences in the recognition of certain
items of income and expense, and the changes in the valuation allowance
attributable to deferred tax assets.
The principal sources of temporary differences and the related deferred tax
effects as of September 30, were as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
----------------- ----------------- -----------------
Allowance for doubtful accounts $ 53,053 $ (151,008) $ 169,043
Related party accruals 22,940 21,734 (7,673)
Operating loss carryforwards (238,726) 180,489 (687,242)
Accumulated depreciation 68,809 75,388 58,324
----------------- ----------------- -----------------
(93,924) 126,603 (467,548)
Changes in valuation allowance (606,076) (566,603) 467,548
----------------- ----------------- ----------------
$ (700,000) $ (440,000) $ --
================= ================= =================
</TABLE>
At September 30, 1997, 1996 and 1995 the Company's deferred tax assets
(liabilities) and the related valuation allowances are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
------------------ ----------------- -----------------
Allowance for doubtful accounts $ 325,034 $ 378,087 $ 227,079
Related party accruals 58,420 81,360 103,094
Operating loss carryforwards 2,993,578 2,754,874 2,935,363
Accumulated depreciation (279,548) (210,762) (135,374)
------------------ ----------------- -----------------
$ 3,097,483 $ 3,003,559 $ 3,130,162
================= ================= =================
Valuation allowance $ 1,345,301 $ 1,951,377 $ 2,517,980
================== ================= =================
</TABLE>
<PAGE>
The principal reasons for the differences between the consolidated income tax
(benefit) expense and the amount computed by applying the statutory federal
income tax rate of 34% to pre-tax income were as follows for the years ended
September 30:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
----------------- ----------------- ------------------
Tax at federal statutory rate $ (254,747) $ 13,038 $ (462,311)
Effect on rate of:
Amortization of goodwill 67,528 48,704 15,708
Non deductible expenses 12,068 32,091 21,107
Life insurance premiums 815 5,392 3,044
Other, net 114,882 27,378 (45,096)
Change in valuation allowance (606,076) (566,603) 467,548
----------------- ------------------ -----------------
$(665,530) $(440,000) $ --
================= ================= ==================
</TABLE>
At September 30, 1997, the Company has net tax operating loss (NOL)
carryforwards expiring in the following years ending September 30,
2000 $ 910,935
2001 1,783,595
2002 1,802,220
2003 458,112
2005 470,006
2006 76,306
2010 1,944,371
2012 645,206
----------------
$ 8,090,751
================
During the year ended September 30, 1996, the Company experienced an ownership
change which limits the amount of net operating losses the Company may use on an
annual basis for income tax purposes. The Company may use $893,507 of net
operating losses on an annual basis. This limitation should not severely limit
the Company's ability to utilize its net operating loss carryforwards.
In determining that it was more likely than not that the recorded deferred tax
asset would be realized, management of the Company considered the following:
The generation of future taxable income in excess of income
reported on the consolidated financial statements.
The budgets and forecasts that management and the Board of
Directors had adopted for the next five fiscal years including
plans for expansion.
The ability to utilize NOL's prior to their expiration.
The potential limitation of NOL utilization in the event of a
change in ownership.
The Company has $7,800 and $8,450 of investment tax credit carryforwards which
expire in 1999 and 2000, respectively.
<PAGE>
5. Long-Term Debt
Long-term debt consists of the following at September 30:
<TABLE>
<S> <C> <C>
1997 1996
----------------- -----------------
Line of Credit with a financial institution in the amount of $3,000,000 dated
December 9, 1996, bearing interest at a rate of prime plus 1% (prime rate is
8.5% as of September 30, 1997), secured by certain accounts receivable and
inventory, and the personal guarantee of an
officer of the Company, renewable annually in December of each year. $2,905,845 $ 0
Note payable in the amount of $1,600,000 with monthly installments of $8,889
plus interest at prime plus 6% (prime rate is 8.5% as of September 30, 1997),
through February 1, 2009 collateralized by certain accounts
receivable and leasehold interests and the guarantee of the P.A. 1,208,889 1,315,556
Note payable to Companion Property & Casualty Insurance Company (a shareholder)
in the amount of $400,000, with monthly installments of $4,546 (including 11%
interest) from April 1, 1995 to March 1, 2010,
collateralized by certain accounts receivable 368,624 381,832
Note payable to a financial institution in the amount of $280,000, dated March
11, 1997, with monthly installments (including interest at a variable rate of
prime plus 1%) (prime rate is 8.5% as of September 30, 1997) of $3,100 from
April 1997 to February 2002, with a final payment of all remaining principal and
accrued interest due in March 2002,
collateralized by a mortgage on one of the Company's medical facilities. 274,715 0
Note payable to a financial institution in the amount of $194,782, payable in
monthly installments of interest only at a rate of 9.25%, maturing on January 1,
2005, personally guaranteed by three physician
employees of the P.A. 194,782 0
Note payable in the amount of $250,000 with monthly installments of $1,389 plus
interest at prime plus 2% (prime rate is 8.5% as of September
30, 1997), through February 1, 2009 collateralized by a condominium 188,889 205,556
Note payable to a financial institution in the amount of $99,209, payable in
monthly installments of interest only at a rate of 9%, maturing on May
1, 2002, personally guaranteed by three physician employees of the P.A. 99,209 0
Note payable in the amount of $240,000 dated March 1, 1996, with monthly
installments of $11,075 (including 10% interest) from April 1, 1996 to March 1,
1998, collateralized by a security agreement executed by UCI-SC
and the P.A. 54,016 174,866
Note payable in the amount of $43,500 dated September 1, 1997, with monthly
installments (including 8% interest) of $1,500, payable from
January 1998 to September 2000. 43,500 0
Notes payable in monthly installments over three to four years at
interest rates ranging from 3.9% to 10.5%, collateralized by related 18,508 39,662
vehicles
</TABLE>
<PAGE>
5. Long-Term Debt (Continued)
<TABLE>
<S> <C> <C>
1997 1996
----------------- -----------------
Note payable in the amount of $725,000 dated March 22, 1996, bearing interest at
a rate of prime plus 1.5% (prime rate is 8.5% as of September
30, 1997), due October 23, 1996, collateralized by a personal investment 0 725,000
of an officer of the Company
Note payable in the amount of $150,000 dated August 15, 1996, bearing interest
at a rate of prime plus 1.5% (prime rate is 8.5% at September
30, 1997), due October 23, 1996, collateralized by a personal investment 0 150,000
of an officer of the Company
Advance payable to Blue Cross Blue Shield of SC (a shareholder) in the
amount of $600,000 dated September 24, 1996, bearing no interest. 0 600,000
----------------- -----------------
Subtotal 5,356,977 3,592,472
Note payable to a physician employee of the P.A. in the amount of
$294,000 with monthly installments (including 8.5% interest) of $6,032
from August 1997 to August 2002. 286,073 0
Note payable to a physician employee of the P.A. in the amount of
$294,000 with monthly installments (including 8.5% interest) of $6,032
from August 1997 to August 2002. 286,073 0
Note payable to a physician employee of the P.A. in the amount of $43,000, with
monthly principal payments of $4,000 from October 1997 to January 1998 and
$3,000 from February 1998 to October 1998, plus interest
at 8%. 39,000 0
Note payable to a physician employee of the P.A. in the amount of $80,000
with monthly installments (including 8.25% interest) of $3,174 from
October 1996 to October 1998. 36,438 0
Note payable to a physician employee of the P.A. in the amount of $12,000
with monthly installments (including 8.5% interest) of $246 from August
1997 to August 2002. 11,676 0
Note payable to a physician employee of the P.A. in the amount of $350,000 with
monthly installments (including 9% interest) of $25,000 from July 15, 1995 to
September 15, 1995, and $12,842 from October 15,
1995 to September 15, 1997. 0 135,078
----------------- -----------------
Subtotal - payable to employees 659,260 135,078
----------------- -----------------
Capitalized lease obligations 1,920,725 1,617,400
Other 1,832 28,283
----------------- -----------------
7,938,794 5,373,233
Less, current portion -840,879 -795,652
Less, current portion payable to employees -177,445 -118,097
----------------- -----------------
$ 6,920,470 $ 4,459,484
================= =================
</TABLE>
<PAGE>
Aggregate maturities of notes payable and capital leases in each of the five
years 1998 through 2002 are as follows:
<TABLE>
<S> <C> <C> <C>
Notes Payable Capital Leases
Year ending September 30: Total
---------------- ----------------- ----------------
1998 $ 402,144 $ 616,180 $ 1,018,324
1999 3,188,388 589,373 3,777,761
2000 292,597 390,557 683,154
2001 284,319 228,674 512,993
2002 598,929 95,941 694,870
Thereafter 1,251,692 0 1,251,692
================ ================= ================
$ 6,018,069 $ 1,920,725 $ 7,938,794
================ ================= ================
</TABLE>
At September 30, 1997, the Company is in default of a debt covenant related to
the Line of Credit. The Company has received a written waiver from the financial
institution indicating that the financial institution does not intend to take
action related to this default. This Line of Credit is classified as long-term
debt on the Balance Sheet at September 30, 1997, as the line was renewed for an
additional twelve (12) month period in December 1997. (See Note 15, "Subsequent
Events.")
6. Employee Benefit Plans
The Company has an employee savings plan ( the "Savings Plan") that qualifies as
a deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limit.
Effective in June 1995, the Company discontinued its matching contribution. In
February 1996, the Company reinstated its matching contribution. Effective
January 1, 1997, the Company increased its matching contribution from 50% to 75%
of each employee's contribution up to a maximum of 3.75% of the employee's
earnings. The company's matching contributions were $172,792, $97,610 and
$71,463 in fiscal years 1997, 1996, and 1995, respectively.
The incentive stock option plan adopted in 1984 (the "1984 Plan") expired under
its terms in December 1993.
Pursuant to the Company's incentive stock option plan adopted in 1994, (the
"1994 Plan"), "incentive stock options", within the meaning of Section 422 of
the Internal Revenue Code, may be granted to employees of the Company. The 1994
Plan provides for the granting of options for the purchase of 750,000 shares at
100% of the fair market value of the stock at the date of grant (or for 10% or
higher shareholders, at 110% of the fair market value of the stock at the date
of grant). Options granted under the 1994 Plan vest at a rate of 33% in each of
the three years following the grant. Vested options become exercisable one year
after the date of grant and can be exercised within ten years of the date of
grant, subject to earlier termination upon cessation of employment.
During the fiscal year ended September 30, 1996, the Company adopted a
Non-Employee Director Stock Option Plan (the "1996 Non-Employee Plan"). The 1996
Non-Employee Plan provides for the granting of options to two non-employee
directors for the purchase of 10,000 shares of the Company's common stock at the
fair market value as of the date of grant. Under this plan, 5,000 options were
issued to Harold H. Adams, Jr. and 5,000 options were issued to Russell J.
Froneberger. These options are exercisable during the period commencing on March
20, 1999 and ending on March 20, 2006.
During the fiscal year ended September 30, 1997, the Company adopted a
Non-Employee Director Stock Option Plan (the "1997 Non-Employee Plan"). The 1997
Non-Employee Plan provides for the granting of options to four non-employee
directors for the purchase of 20,000 shares of the Company's common stock at the
fair market value of the date of grant. Under this plan, 5,000 options were
issued each to Charles P. Cannon, Thomas G. Faulds, Ashby Jordan, M.D., and
Charles M. Potok. These options are exercisable during the period commencing on
March 28, 2000 and ending on March 28, 2007.
Please refer to Note 7, "Stockholders' Equity" for activity information
regarding these four stock option plans.
7. Stockholders' Equity
On June 30, 1994, the Company's shareholders approved an amendment to, and a
restatement of, the Restated Certificate of Incorporation to provide for a 1 for
5 reverse stock split. The Amended and Restated Certificate of Incorporation
increased the number of authorized shares of common stock from 4,000,000 to
10,000,000 (as adjusted for the reverse stock split as discussed above) and
increased the par value per share of common stock from one cent ($.01) to five
cents ($.05). In addition, the Amended and Restated Certificate of Incorporation
authorized the Company to issue up to 10,000,000 shares of $.01 par value
preferred stock to be issued in one or more series. The Board of Directors is
authorized, without further action by the stockholders, to designate the rights,
preferences, limitations and restrictions of and upon shares of each series,
including dividend voting, redemption and conversion rights. All references in
the financial statements to average number of shares outstanding and related
prices, per share amounts, common stock and stock option plan data have been
restated to reflect the split . The following table summarizes activity and
weighted average fair value of options granted for the three previous fiscal
years for the Company's four stock option plans. (Please refer also to Note 6,
"Employee Benefit Plans.")
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
1996 1996 1997 1997
Non-Employee Non- Non-Employee Non-
1984 1984 1994 1994 Plan Employee Plan Employee
Stock Options Plan Plan Plan Plan Plan Plan
- ---------------------------- ---------- -------- ---------- -------- ----------- ----------- ------------ -----------
Outstanding at 10/01/94 20,600 0
Granted FY 94/95 0 242,000
Exercised FY 94/95 0 0
Forfeited FY 94/95 (5,100) 0
---------- ---------- ----------- ------------
Outstanding at 09/30/95 15,500 242,000
---------- ---------- ----------- ------------
Exercisable at 09/30/95 15,500 0
---------- ---------- ----------- ------------
Weighted average fair
value of options
granted
during fiscal year
94/95
for options whose N/A 2.9318 N/A N/A
exercise price: N/A 2.8750 N/A N/A
(1) equals fair value
(2) exceeds fair
value
Granted FY 95/96 0 140,500 10,000
Exercised FY 95/96 (2,300) 0 0
Forfeited FY 95/96 (400) (23,000) 0
---------- ---------- ----------- ------------
Outstanding at 09/30/96 12,800 359,500 10,000
---------- ---------- ----------- ------------
Exercisable at 09/30/96 12,800 73,000 0
---------- ---------- ----------- ------------
Weighted average fair
value of options
granted
during fiscal year
95/96
for options whose N/A 3.5395 3.5000 N/A
exercise price: N/A 4.0000 N/A N/A
(1) equals fair value
(2) exceeds fair
value
Granted FY 96/97 0 445,500 0 20,000
Exercised FY 96/97 0 0 0 0
Forfeited FY 96/97 0 (55,000) 0 0
---------- ---------- ----------- ------------
Outstanding at 09/30/97 12,800 750,000 10,000 20,000
---------- ---------- ----------- ------------
Exercisable at 09/30/97 12,800 164,500 0 0
Weighted average fair
value of options
granted
during fiscal year
96/97
for options whose N/A 2.1608 N/A 2.5000
exercise price: N/A 2.6250 N/A N/A
(1) equals fair value
(2) exceeds fair
value
</TABLE>
<PAGE>
The following table summarizes the weighted average exercise price of stock
options exercisable at the end of each of the three previous fiscal years:
<TABLE>
<S> <C> <C> <C> <C>
1996 1997
Weighted Average Non-Employee Non-Employee
Exercise Price 1984 Plan 1994 Plan Plan Plan
- ------------------------------------ ------------- ------------- ----------------- ------------------
Outstanding at 10/01/94 .25 0
Granted FY 94/95 0 2.9941
Exercised FY 94/95 0 0
Forfeited FY 94/95 .25 0
------------- ------------- ----------------- ------------------
Outstanding at 09/30/95 .25 2.9941
------------- ------------- ----------------- ------------------
Exercisable at 09/30/95 .25 0
------------- ------------- ----------------- ------------------
Granted FY 95/96 0 3.7055 3.50
Exercised FY 95/96 .25 0 0
Forfeited FY 95/96 .25 2.8750 0
------------- ------------- ----------------- ------------------
Outstanding at 09/30/96 .25 3.2797 3.50
------------- ------------- ----------------- ------------------
Exercisable at 09/30/96 .25 3.0066 0
------------- ------------- ----------------- ------------------
Granted FY 96/97 0 2.1934 0 2.50
Exercised FY 96/97 0 0 0 0
Forfeited FY 96/97 0 3.3409 0 0
------------- ------------- ----------------- ------------------
Outstanding at 09/30/97 .25 2.6320 3.50 2.50
------------- ------------- ----------------- ------------------
Exercisable at 09/30/97 .25 3.1591 0 0
------------- ------------- ----------------- ------------------
</TABLE>
The following table summarizes options outstanding and exercisable by price
range as of September 30, 1997:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------------
Weighted-
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Range of Price Outstanding Life Price Exercisable Price
- ------------------- --------------- ---------------- ------------- -------------- -------------
$0.00 to $ .99 12,800 5.25 years .25 12,800 .25
$1.00 to $1.99 210,825 9.67 1.9375 0 N/A
$2.00 to $2.99 388,675 7.06 2.583 87,667 2.875
$3.00 to $3.99 137,500 6.81 3.364 62,500 3.301
$4.00 to $4.99 43,000 4.68 4.279 14,333 4.279
=============== ==============
792,800 177,300
=============== ==============
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation costs for the Company's stock option plans been
determined based on the fair value at the grant date for awards in fiscal 1997,
1996 and 1995 consistent with the provisions of SFAS
<PAGE>
No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below. The fair value of each option
granted is estimated on the date of grant using the Black-Scholes option-pricing
model.
<TABLE>
<S> <C> <C>
Fiscal Year Ended September 30
---------------------------------------
1997 1996
----------------- ------------------
Net income - as reported (83,726) 466,079
Net income - pro forma (171,232) 455,188
Earnings per share - as reported (.02) .11
Earnings per share - pro forma (.03) .11
Weighted average number of shares 5,005,081 4,294,137
</TABLE>
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
Expected Dividend Yield 0
Expected Stock Price Volatility 35.77%
Risk-free Interest Rate 5.45% to 6.75%
Expected Life of Options 1 to 6 years
During the year ended September 30, 1997, warrants for the purchase of shares of
the Company's common stock were issued, ranging in exercise price from $1.9375
to $5.00. Fifty-five thousand (55,000) warrants were issued in connection with
services to be rendered by an investor relations advisor to the Company. Two
hundred fifty thousand (250,000) warrants were issued in connection with
consulting and financial analysis services to be rendered (i.e., financial
analyst report, etc.). The following is a schedule of warrants issued and
outstanding during the year ended September 30, 1997:
<TABLE>
<S> <C> <C> <C> <C>
Number of Exercise Date Expiration
Warrants Price Exercisable Date
--------------- --------------- ---------------- ---------------
Outstanding at 09/30/96 0
Activity during FY 96/97:
Issued at $1.9375 30,000 1.9375 06/18/97 06/18/02
Issued at $3.125 137,500 3.1250 10/09/96 09/16/99
Issued at $5.00 137,500 5.0000 10/09/96 09/16/99
Exercised 0
Expired 0
===============
Outstanding at 09/30/97 305,000
===============
</TABLE>
In accordance with SFAS No. 123, no expense has been recognized in relation
to these warrants.
8. Lease Commitments
UCI-SC leases office and medical center space under various operating lease
agreements. Certain operating leases provide for escalation payments, exclusive
of renewal options.
<PAGE>
Future minimum lease payments under noncancellable operating leases with a
remaining term in excess of one year as of September 30, 1997, are as follows:
Operating
Leases
---------------
Year ending September 30:
1998 $ 1,848,037
1999 1,836,627
2000 1,697,263
2001 1,605,596
2002 1,289,692
Thereafter 7,685,245
----------------
Total minimum lease payments $ 15,962,460
================
Total rental expense under operating leases for fiscal 1997, 1996 and 1995 was
approximately $1,475,000, $1,188,000, and $923,000, respectively.
9. Related Party Transactions
Relationship between UCI-SC and the P.A.
Pursuant to an agreement between UCI-SC and the P.A., UCI-SC provides
non-medical management services and personnel, facilities, equipment and other
assets to the Centers . UCI-SC guarantees the compensation of the physicians
employed by the P.A. The agreement also allows UCI-SC to negotiate contracts
with HMOs and other organizations for the provision of medical services by the
P.A.'s physicians. Under the terms of the agreement, the P.A. assigns all
revenue generated from providing medical services to UCI-SC after paying
physician salaries. The P.A. is owned by M.F. McFarland, III, M.D. Dr. McFarland
is also President, Chief Executive Officer and Chairman of UCI and UCI-SC. .
Relationship between the Company and Blue Cross Blue Shield of South Carolina
Blue Cross Blue Shield of South Carolina (BCBS) owns 100% of Companion
HealthCare Corporation ("CHC"), Companion Property & Casualty Insurance Company
("CP&C") and Companion Technologies, Inc. ("CT"). At September 30,1997, CHC
owned 2,006,442 shares of the Company's outstanding common stock and CP&C owned
618,181 shares of the Company's outstanding common stock, which combine to
approximately 46% of the Company's outstanding common stock.
Facility Leases
UCI-SC leases six medical center facilities from CHC and one medical center
facility from CP&C under operating leases with fifteen year terms expiring in
2008, 2009 and 2010. Each of these leases has a five year renewal option, and a
rent guarantee by the P.A. One of the leases has a purchase option allowing
UCI-SC to purchase the center at fair market value after February 1, 1995. Total
lease payments made by UCI-SC under these leases during the Company's fiscal
years ended September 30, 1997, 1996, and 1995 were $319,730, $306,178, and
$271,100, respectively.
Several of the medical center facilities operated by UCI-SC are leased or were
leased from entities owned or controlled by certain principal shareholders
and/or members of the Company's management. Total lease payments made by UCI-SC
under these leases during the fiscal years ended September 30, 1997, 1996 and
1995 were $45,600, $122,854, and $244,300, respectively.
Ten of the medical center facilities operated by UCI-SC are or were leased from
physician employees of the P.A. Total lease payments made by UCI-SC under these
leases during the Company's fiscal years ended September 30, 1997, 1996 and 1995
were $258,026, $189,945, and $140,100, respectively.
Other Transactions with Related Parties
The following is a historical summary of BCBS and its subsidiaries' purchases of
the Company's common stock.
<TABLE>
<S> <C> <C> <C> <C>
Date Number Price Total
Purchased Entity of Shares Per Share Purchase Price
------------------ ----------- -------------- ------------- ------------------
12/10/93 CHC 333,333 1.50 $ 500,000
06/08/94 CHC 333,333 3.00 $ 1,000,000
01/16/95 CHC 470,588 2.13 $ 1,000,000
05/24/95 CHC 117,647 2.13 $ 250,000
11/03/95 CHC 218,180 2.75 $ 599,995
12/15/95 CHC 218,180 2.75 $ 599,995
03/01/96 CHC 109,091 2.75 $ 300,000
06/04/96 CP&C 218,181 2.75 $ 599,998
06/23/97 CP&C 400,000 1.50 $ 600,000
</TABLE>
Including shares purchased by CHC from third parties, at September 30, 1997,
BCBS controls 2,624,623 shares, or approximately 46% of the Company's
outstanding common stock. The shares acquired by CHC and CP&C from the Company
were purchased pursuant to stock purchase agreements and were not registered.
CHC and CP&C have the right to require registration of the stock under certain
circumstances as described in the agreement. BCBS and its subsidiaries have the
option to purchase as many shares as may be necessary for BCBS to maintain
ownership of 47% of the outstanding common stock of the Company in the event
that the Company issues additional stock to other parties (excluding shares
issued to employees or directors of the Company).
In June 1997, CP&C purchased 400,000 shares of the Company's common stock for
$600,000. The purchase price was below fair value due to lower issuance costs
incurred by the Company.
During the Company's fiscal year ended September 30, 1994, UCI-SC purchased a
new billing and accounts receivable system from CT for an aggregate purchase
price of $504,000. The Company entered into a capital lease agreement for this
system, which includes computer equipment. The Company has the option to
purchase the equipment at the end of the lease term for $1. The lease obligation
recorded at September 30, 1997 is $340,916, which includes lease addenda.
During the Company's fiscal year ended September 30, 1994, UCI-SC entered into
an agreement with CP&C pursuant to which UCI-SC, through the P.A., acts as the
primary care provider for injured workers of firms carrying worker's
compensation insurance through CP&C. Additionally, during the Company's fiscal
year ended September 30, 1995, UCI-SC executed a note payable to CP&C consisting
of monthly installments of $4,546 (including 11% interest) from April 1, 1995 to
March 1, 2010, collateralized by certain accounts receivable.
UCI-SC, through the P.A., provides services to members of a health maintenance
organization ("HMO") operated by CHC who have selected the P.A. as their primary
care provider.
During the year ended September 30, 1996, BCBS provided a non-interest bearing
advance to the Company in the amount of $600,000. This advance was paid in full
in December 1996.
The employees of the Company are offered health, life, and dental insurance
coverage at group rates from BCBS and its subsidiaries.
The Company contracts with Adams and Associates for its workers compensation and
professional liability insurance coverage. Aggregate premiums paid during the
fiscal year ended September 30, 1997 in connection with such policies were
approximately $155,000. Adams and Associates contracts with CP&C to be the
insurance carrier for the Company's workers compensation insurance coverage.
During the fiscal year ended September 30, 1996, Adams and Associates provided
short-term financing to the Company for approximately $17,000 in workers
compensation audit premiums, which was paid in full during the fiscal year ended
September 30, 1997. Harold H. Adams, Jr. is the President and owner of Adams and
Associates and is also a director of the Company.
The Company has contracted since September 1994 with Global Consulting,
Inc. for financial and marketing consulting services. Russell J. Froneberger is
the President and owner of Global Consulting, Inc. and is also a director of the
Company. Fees paid during the fiscal year ended September 30, 1997 in connection
with these services were approximately $96,000.
10. Earnings Per Share
The calculation of earnings per share and common equivalent share is based on
the weighted average number of shares outstanding (5,005,081 in fiscal 1997,
4,294,137 in fiscal 1996 and 3,136,544 in fiscal 1995). Outstanding stock
options and warrants are common stock equivalents, but had no dilutive effects
on earnings per share in either of the three fiscal years presented.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share," ("SFAS No. 128") which requires the
Company to disclose both basic and diluted earning per share. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997. SFAS 128 would have
had no impact on the reported earnings per share for the Company for each of the
three years ended September 30, 1997.
11. Concentration of Credit Risk
In the normal course of providing health care services, the Company may extend
credit to patients without requiring collateral. Each individual's ability to
pay balances due the Company is assessed and reserves are established to provide
for management's estimate of uncollectible balances.
Future revenues of the Company are largely dependent on third-party payors and
private insurance companies, especially in instances where the Company accepts
assignment.
12. Commitments and Contingencies
In the ordinary course of conducting its business, the Company becomes involved
in litigation, claims, and administrative proceedings. Certain litigation,
claims, and proceedings were pending at September 30, 1997, and management
intends to vigorously defend the Company in such matters. While the ultimate
results cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position or results
of operations of the Company.
13. Significant Fourth Quarter Adjustment
During the quarter ended September 30, 1997, the Company made a change in an
accounting estimate totalling approximately $279,000 ($.06 per share). The
change involved increasing the allowance for doubtful accounts to provide for
higher than anticipated write-offs of uncollectible accounts. Bad debt expense
is reflected as a component of operating costs on the Statement of Operations.
<PAGE>
14. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
The Company made interest payments of $813,569, $583,981, and $448,311, in the
years ended September 30, 1997, 1996, and 1995, respectively. The Company made
income tax payments of $0, $15,350 and $0 in the years ended September 30, 1997,
1996 and 1995, respectively.
Supplemental Non-Cash Operating Activities
In July 1995, the Company paid for certain corporate expenses through an
issuance of 6,000 shares of common stock of the Company in the amount of
$16,500, of which $4,125 was expensed in fiscal 1995 and the remainder was
expensed in fiscal 1996.
Supplemental Non-Cash Financing Activities
Capital lease obligations of $1,004,837, $711,569 and $1,069,915 were incurred
in fiscal 1997, 1996 and 1995. Additionally, in February 1995, the Company
acquired property which was financed through a note payable in the amount of
$400,000.
In January 1995, the Company acquired certain assets of a medical practice in
West Columbia, South Carolina for $291,000, consisting of 145,500 shares of
common stock of the Company.
In May 1995, the Company acquired a medical practice in Cayce, South Carolina
for $150,000, consisting of 46,153 shares of common stock of the Company.
In August 1995, the Company acquired certain assets of a medical practice in
Greenville, South Carolina for $662,500, by financing $350,000 with the seller,
and issuing 100,000 shares of common stock of the Company.
In December 1995, the Company acquired certain assets of a medical practice in
Greenville, South Carolina for $300,000, by paying $30,000 at closing, financing
$30,000 with the seller, and issuing 60,000 shares of the common stock of the
Company.
In December 1995, the Company acquired a medical practice in Myrtle Beach, South
Carolina for $334,400, consisting of 70,400 shares of the common stock of the
Company. The Company commenced management of the facility in January 1995, prior
to the closing date of the acquisition in December 1995. Financial results of
operations of the acquired facility since January 1995 are included in these
consolidated financial statements for fiscal years 1995 and 1996.
In March 1996, the Company acquired certain assets of a medical practice in
Columbia, South Carolina for $125,000, by assuming $25,000 in the seller's
accounts payable, and issuing 24,243 shares of the common stock of the Company.
In March 1996, the Company acquired certain assets of a medical practice in
Murrells Inlet, South Carolina for $600,000, by paying $60,000 at closing,
financing $240,000 with the seller, and issuing 72,728 shares of the common
stock of the Company.
In April 1996, the Company acquired certain assets of a medical practice in
Greenville, South Carolina for $513,931, by paying $6,315 at closing, financing
$69,462 with the seller, and issuing 125,187 shares of the common stock of the
Company.
In June 1996, the Company acquired certain assets of a medical practice in
Lugoff, South Carolina for $675,000, by paying $15,000 at closing, financing
$60,000 with the seller, and issuing 172,588 shares of the common stock of the
Company.
In October 1996, the Company acquired certain assets of a medical practice in
Aiken, South Carolina for $80,000 by financing $80,000 with the seller.
In October 1996, the Company acquired certain assets of a medical practice in
Simpsonville, South Carolina for $25,000 by financing $25,000 with the seller.
In August 1997, the Company acquired a three facility medical practice in
Columbia, South Carolina for $2,271,250, by paying $200,000 at closing, assuming
$371,250 in notes payable, financing $600,000 with the seller and issuing
517,649 shares of the common stock of the Company.
In September 1997, the Company acquired certain assets of a medical practice in
Camden, South Carolina for $45,000 by paying $1,500 at closing and financing
$43,500 with the seller.
In September 1997, the Company acquired certain assets of a medical practice in
Summerville, South Carolina for $100,000 by paying $7,000 at closing, financing
$43,000 with the seller and issuing 19,513 shares of the common stock of the
Company.
15. Subsequent Events
On October 1, 1997, the Company acquired certain assets of a three facility
physical therapy practice in Columbia, South Carolina for $856,756 by assuming
certain liabilities and issuing 276,976 shares of the common stock of the
Company. The Company entered into employment agreements with the physical
therapists who had been the owners of the practice. The Company also entered
into lease agreements or assumed existing lease agreements from the previous
owners. The practice previously had annual revenues of approximately $964,000.
On October 6, 1997, the Company completed a private placement of a $1.5 million,
6.5% five-year convertible subordinated debenture with FPA Medical Management,
Inc., a national physician practice management company headquartered in San
Diego, California. The debentures are convertible to common stock at any time
within the five year period at a fixed price premium to the current stock price
and are subject to Rule 144 of the Securities and Exchange Commission when
converted.
On November 1, 1997, the Company acquired certain assets of a medical practice
in New Ellenton, South Carolina for $262,004 by paying $17,468 at closing,
financing $159,536 with the seller, and issuing 30,223 shares of the common
stock of the Company. The Company entered into an employment agreement with the
physician who had been the sole shareholder of the acquired medical practice.
The Company also entered into a lease agreement with the physician owner for the
facility occupied by the acquired medical practice. The practice previously had
annual revenues of approximately $409,000.
On December 11, 1997, the Company renewed its long-term debt agreement with
Carolina First Bank for a $3,000,000 line of credit, bearing interest at an
annual rate of prime plus one (1%) percent (prime rate is 8.5% at September 30,
1997). This line of credit balance at September 30, 1997 is classified as
long-term on the accompanying balance sheet.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UCI MEDICAL AFFILIATES, INC.
Date: December 23, 1997 By: /s/ M. F. McFarland
M.F. McFarland, III, M.D.
President and Chief Executive Officer
By: /s/ Jerry F. Wells, Jr.
Jerry F. Wells, Jr.
Executive Vice President of Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Date: December 23, 1997 By: /s/ M.F. McFarland
M.F. McFarland, III, M.D.
Chairman of the Board
By: /s/ Harold H. Adams, Jr.
Harold H. Adams, Jr.
Director
By: /s/ Charles P. Cannon
Charles P. Cannon
Director
By: /s/ Thomas G. Faulds
Thomas G. Faulds
Director
By: /s/ Russell J. Froneberger
Russell J. Froneberger
Director
By: /s/ Ashby Jordan, M.D.
Ashby Jordan, M.D.
Director
By: /s/ Charles M. Potok
Charles M. Potok
Director
<PAGE>
UCI MEDICAL AFFILIATES, INC.
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
PAGE NUMBER OR INCORPORATION BY
EXHIBIT NUMBER REFERENCE TO
DESCRIPTION
- ---------------- ------------------------------------------------------- -------------------------------------
3.1 Amended and Restated Certificate of Incorporation Exhibit 3.1 on the Form 10-KSB
filed for fiscal year 1995
3.2 Amended and Restated Bylaws Exhibit 3.2 on the Form 10-KSB
filed for fiscal year 1995
3.3 Amendment to Amended and Restated Bylaws Exhibit 3.3 on the Form 10-KSB
filed for fiscal year 1996
10.1 Facilities Agreement Exhibit 10.1 on the Form 10-KSB
filed for fiscal year 1996
10.2 Employment Agreement between UCI Medical Affiliates Exhibit 10.4 on the Form 10-KSB
of South Carolina, Inc. and M.F. McFarland, III, M.D. filed for fiscal year 1995
10.3 Employment Agreement between Doctor's Care, P.A. and Exhibit 10.5 on the Form 10-KSB
M.F. McFarland, III, M.D. filed for fiscal year 1995
10.4 Employment Agreement between UCI Medical Affiliates Exhibit 10.6 on the Form 10-KSB
of South Carolina, Inc. and D. Michael Stout, M.D. filed for fiscal year 1995
10.5 Employment Agreement between Doctor's Care, P.A. and Exhibit 10.7 on the Form 10-KSB
D. Michael Stout, M.D. filed for fiscal year 1995
10.6 Lease and License Agreement with Companion Exhibit 10.8 on the Form 10-KSB
Technologies filed for fiscal year 1995
10.7 UCI Medical Affiliates, Inc. 1994 Incentive Stock Exhibit 10.9 on the Form 10-KSB
Option Plan filed for fiscal year 1995
21 Subsidiaries of the Registrant Exhibit 21 on the Form 10-KSB filed
for fiscal year 1996
27 Financial Data Schedule Filed separately as Article Type 5
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000737561
<NAME> Not Applicable
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 14,676
<SECURITIES> 0
<RECEIVABLES> 5,943,884
<ALLOWANCES> 878,469
<INVENTORY> 502,888
<CURRENT-ASSETS> 7,375,610
<PP&E> 4,002,699
<DEPRECIATION> 2,724,222
<TOTAL-ASSETS> 20,863,532
<CURRENT-LIABILITIES> 4,454,565
<BONDS> 0
0
0
<COMMON> 287,248
<OTHER-SE> 9,201,249
<TOTAL-LIABILITY-AND-EQUITY> 20,863,532
<SALES> 0
<TOTAL-REVENUES> 27,924,772
<CGS> 0
<TOTAL-COSTS> 25,360,042
<OTHER-EXPENSES> 1,403,794
<LOSS-PROVISION> 1,106,252
<INTEREST-EXPENSE> 812,749
<INCOME-PRETAX> (749,256)
<INCOME-TAX> (665,530)
<INCOME-CONTINUING> (83,726)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,726)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
