FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-13265
UCI MEDICAL AFFILIATES, INC.
(Name of Small Business Issuer in its charter)
Delaware 59-2225346
(State or other jurisdiction of incorporation or organization) (IRS Employer
Identification
Number)
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-K or any
amendment to this Form 10-K. ( X )
The aggregate market value of voting stock held by nonaffiliates of the
registrant on December 15, 1999, was approximately $1,762,000.*
The number of shares outstanding of the registrant's common stock, $.05 par
value, was 9,650,515 at December 15, 1999.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement to be furnished in connection with
its 2000 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Form 10-K.
* 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.
UCI MEDICAL AFFILIATES, INC.
INDEX TO FORM 10-K
PART I PAGE
Item 1. Business.............................................................................................3
Item 2. Properties..........................................................................................11
Item 3. Legal Proceedings...................................................................................11
Item 4. Submission of Matters to a Vote of Security Holders.................................................11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...............................12
Item 6. Selected Financial Data.............................................................................13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..........................................23
Item 8. Financial Statements and Supplementary Data.........................................................23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................23
PART III
Item 10. Directors and Executive Officers of the Registrant..................................................24
Item 11. Executive Compensation..............................................................................24
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................24
Item 13. Certain Relationships and Related Transactions......................................................24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................25
PART I
Item 1. Business
General
UCI Medical Affiliates, Inc. ("UCI") is a Delaware corporation incorporated on
August 25, 1982. Operating through its wholly-owned subsidiaries, UCI Medical
Affiliates of South Carolina, Inc. ("UCI-SC") and UCI Medical Affiliates of
Georgia, Inc. ("UCI-GA"), UCI provides nonmedical management and administrative
services for a network of 40 freestanding medical centers (the "Centers")
located throughout South Carolina, Georgia and Tennessee (28 operating as
Doctor's Care in South Carolina, five as Doctor's Care in Georgia, two as
Doctor's Care in Tennessee, and five as Progressive Physical Therapy Services in
South Carolina).
Organizational Structure
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, UCI-SC and UCI-GA are prohibited from
practicing medicine or exercising control over the provision of medical
services. In order to comply with such laws, all medical services at the Centers
are provided by or under the supervision of Doctor's Care, P.A., Doctor's Care
of Georgia, P.C. or Doctor's Care of Tennessee, P.C. (collectively the "P.A.'s,"
and together with UCI, UCI-SC and UCI-GA, the "Company"), each of which has
contracted with UCI-SC or UCI-GA, as applicable, to be the sole provider of all
non-medical direction and supervision of the Centers operating in its respective
state of organization. Each P.A. is organized so that all physician services are
offered by the physicians who are employed by the P.A. Neither UCI, UCI-SC nor
UCI-GA 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 and UCI-GA have entered into Administrative Services Agreements with the
P.A.'s pursuant to which UCI-SC and UCI-GA perform all non-medical management of
the P.A.'s and have exclusive authority over all aspects of the business of the
P.A.'s (other than those directly related to the provision of patient medical
services or as otherwise prohibited by state law). The non-medical management
provided by UCI-SC and UCI-GA includes, among other functions, treasury and
capital planning, financial reporting and accounting, pricing decisions, patient
acceptance policies, setting office hours, contracting with third party payors
and all administrative services. UCI-SC and UCI-GA provide all of the resources
(systems, procedures, and staffing) to bill third party payors or patients, and
provide all of the resources (systems, procedures, and staffing) for cash
collection and management of accounts receivables, including custody of the
lockbox where cash receipts are deposited. From the cash receipts, UCI-SC and
UCI-GA pay all physician salaries, operating costs of the centers and operating
costs of UCI-SC and UCI-GA. Compensation guidelines for the licensed medical
professionals at the P.A.'s are set by UCI-SC and UCI-GA, and UCI-SC and UCI-GA
establish guidelines for establishing, selecting, hiring and firing the licensed
medical professionals. UCI-SC and UCI-GA also negotiate and execute
substantially all of the provider contracts with third party payors, with the
P.A.'s executing certain of the contracts at the request of a minority of
payors. Neither UCI-SC nor UCI-GA loans or otherwise advances funds to any P.A.
for any purposes.
The P.A. and UCI-SC share a common management team, and the Georgia and
Tennessee P.C.'s and UCI-GA share a common management team. In each case, the
same individuals serve as President, Medical Director and as Chief Financial
Officer of each entity. The sole shareholder and President of the South Carolina
P.A. is M.F. McFarland, III, M.D., the President and Chief Executive Officer of
UCI, UCI-SC and UCI-GA. The sole shareholder of the Georgia and Tennessee P.C.'s
is D. Michael Stout, M.D., the Executive Vice President of Medical Affairs for
UCI, UCI-SC and UCI-GA.
UCI-SC and UCI-GA believe that the services they provide to the P.A.'s do not
constitute the practice of medicine under applicable laws. Nevertheless, because
of the uniqueness of the structure of the relationships 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.
The Centers
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, Georgia and Tennessee. There are sixteen primary care Centers in the
Columbia region (including four of the physical therapy offices), five in the
Charleston region, four in the Myrtle Beach region, one in the Aiken region,
seven in the Greenville-Spartanburg region (including the other physical therapy
office), five in Georgia and two in Tennessee.
The Company may consider further introduction of its medical model into
neighboring states as management believes that the same conditions that led to
the Company's growth to date exist in other states. Although management believes
that expansion into neighboring states is possible, there can be no assurance
that expansion into other states would be successful.
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). Managed care billings
represent the most significant source of revenues. The Company also provides
services for members of the three largest health maintenance organizations
("HMOs") operating in South Carolina - Companion HealthCare Corporation,
HealthSource South Carolina, Inc., and Physician's Health Plan.
The following table breaks out the Company's approximate revenue and patient
visits by revenue source for fiscal year 1999:
Percent of Percent of
Payor Patient Visits Revenue
- ------------------------------- ------------------- --------------
Patient Pay 18% 18%
Employer Paid 15% 9%
HMO 11% 9%
Workers Compensation 8% 16%
Medicare/Medicaid 7% 6%
Managed Care Insurance 34% 31%
Other (Commercial Indemnity,
Champus, etc.) 7% 11%
In accordance with the Administrative Services Agreements described above,
UCI-SC and UCI-GA, as the agents for the P.A.'s, process all billings and
capitation payments for the P.A.'s. When the billings and capitation payments
for the P.A.'s are received, they are deposited in accounts owned by each P.A.
and are automatically transferred to lockbox accounts owned by UCI-SC and
UCI-GA. In no event are the physicians entitled to receive such billings and
capitation payments. The patient mix in no way affects the Company's management
service fees per the Administrative Services Agreements.
Capitated Reimbursement Arrangements
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 have 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 or a discounted fee-for-service schedule, 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 basis 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 one significant HMO for the P.A.s'
physicians to provide health care on a capitated reimbursement basis. Under this
contract, which typically is automatically renewed on an annual basis, the P.A.
physicians provide virtually all covered primary care services in exchange for a
fixed monthly capitation payment from the HMO for each member who chooses a P.A.
physician as his or her primary care physician. Note that the Company is only
capitated for and obligated to provide the primary care services for the
patient. The Company is not at risk for specialty care or hospital services. The
capitation amount is fixed depending upon the age and sex of the HMO enrollee.
Contracts with capitated HMOs accounted for approximately 3% of the Company's
net revenues in fiscal year 1999.
To the extent that enrollees require more care than is anticipated, aggregate
capitation payments may be insufficient to cover the costs associated with the
treatment of enrollees. Neither of the contracts currently in place at the
Company has 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 the Company's 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.
Government Regulation
As participants 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.
Limitations on the Corporate Practice of Medicine
Federal law and the laws of many states, including Georgia, South Carolina and
Tennessee, generally specify who may practice medicine and limit the scope of
relationships between medical practitioners and other parties. Under such laws,
business corporations such as UCI, UCI-SC and UCI-GA are prohibited from
practicing medicine or exercising control over the provision of medical
services. In order to comply with such laws, all medical services at the UCI
Centers are provided by or under the supervision of the PA's pursuant to
contracts with the Company's wholly-owned subsidiaries. The PA's are organized
so that all physician services are offered by the physicians who are employed by
the PA's. None of UCI, UCI-SC or UCI-GA employs practicing physicians as
practitioners, exerts control over any physician's decisions regarding medical
care or represents to the public that it offers medical services.
As described above, UCI-SC has entered into an Administrative Services Agreement
with Doctor's Care, P.A. and UCI-GA has entered into a similar Administrative
Services Agreements with each of the PA's operating in Georgia and Tennessee
pursuant to which UCI-SC and UCI-GA, as applicable, perform all non-medical
management of the applicable PA's and have exclusive authority over all aspects
of the business of the PA's (other than those directly related to the provision
of patient medical services or as otherwise prohibited by state law).
(See Item 1. Business - Organizational Structure.)
Because of the unique structure of the relationships existing between UCI-SC,
UCI-GA and the PA's, many aspects of UCI's business operations have not been the
subject of state or federal regulatory interpretation. There can be no assurance
that a review by the courts or regulatory authorities of the business formerly
or currently conducted by the Company will not result in a determination that
could adversely affect the operations of the Company or that the healthcare
regulatory environment will not change so as to restrict the existing operations
or proposed expansion of the Company's business.
Third Party Reimbursements
Approximately six percent (6%) 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 healthcare providers that fraudulently or wrongfully bill
governmental or other third-party payors for healthcare 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.
Federal Anti-Kickback and Self-Referral Laws
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. 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.
The Office of the Inspector General (the "OIG"), the government office that is
charged with the enforcement of the federal Anti-kickback Statute, recently
issued an advisory opinion regarding a proposed management services contract
that involved a cost plus a percentage of net revenue payment arrangement
("Advisory Opinion 98-4"). Based on its analysis of the intent and scope of the
Anti-kickback Statute, the OIG determined that it could not approve the
arrangement because the structure of the management agreement raised the
following concerns under the Anti-kickback Statute: (i) the agreement might
include financial incentives to increase patient referrals; (ii) the agreement
did not include any controls to prevent over utilization; and (iii) the
percentage billing arrangement may include financial incentives that increase
the risk of abusive billing practices. The OIG opinion did not find that the
management arrangement violated the Anti-kickback Statute, rather that the
arrangement may involve prohibited remuneration absent sufficient controls to
minimize potential fraud and abuse. An OIG advisory opinion is only legally
binding on the Department of Health and Human Services (including the OIG) and
the requesting party and is limited to the specific conduct of the requesting
party because additional facts and circumstances could be involved in each
particular case. Accordingly, the Company believes that Advisory Opinion 98-4
does not have broad application to the Company's provision of nonmedical
management and administrative services for the Centers. The Company also
believes that the Company and the Centers have implemented appropriate controls
to ensure that the arrangements between the Company and the Centers do not
result in abusive billing practices or the over utilization of items and
services paid for by Federal health programs.
The applicability of the Anti-kickback Statute to many business transactions in
the health care industry, including the Company's service agreements with the
Centers and the development of ancillary services by the Company, has not been
subject to any significant judicial and regulatory interpretation. The Company
believes that although it receives remuneration for its management services
under its service agreements with the Centers, the Company is not in a position
to make or influence referrals of patients or services reimbursed under Medicare
or state health programs to the Centers. In addition, the Company is not a
separate provider of Medicare or state health program reimbursed services.
Consequently, the Company does not believe that the service and management fees
payable to it should be viewed as remuneration for referring or influencing
referrals of patients or services covered by such programs as prohibited by the
Anti-kickback Statute.
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 currently in compliance with such legislation, future
regulations could require the Company to modify the form of its relationships
with physician groups.
State Anti-Kickback and Self-Referral Laws
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 laws. Nevertheless, in the
event the Company expands its operations to certain additional jurisdictions,
structural and organizational modifications of the Company's relationships with
physician groups might be required to comply with new or revised state statutes.
Such modifications could adversely affect the operations of the Company.
Through its wholly-owned subsidiaries, UCI-SC and UCI-GA, the Company provides
management and administrative services to the UCI Centers in Georgia, South
Carolina and Tennessee. Georgia, South Carolina and Tennessee have adopted
anti-kickback and self-referral laws that regulate financial relationships
between health care providers and entities that provide health care services.
The following is a summary of the applicable state anti-kickback and
self-referral laws.
Georgia
Georgia's "Patient Self-Referral Act of 1993" forbids a health care provider
from referring a patient for the provision of designated health services to an
entity in which the provider has an investment interest. Designated health
services are defined as clinical laboratory services, physical therapy services,
rehabilitation services, diagnostic imaging services, pharmaceutical services,
durable medical equipment, home infusion therapy services (including related
pharmaceuticals and equipment), home health care services, and outpatient
surgical services. Under the Company's current operations, the Company does not
believe it is an entity providing designated health services for purposes of
Georgia's Patient Self-Referral Act. Further, the Company believes that the
Georgia Patient Self-Referral Act does not prohibit referrals for designated
health services by providers employed by the PA in Georgia, including referrals
to physical therapy centers, because the health care providers that refer
patients for designated health services are not investors in the Centers except
the sole physician shareholder of the PA in Georgia. The Company believes that
referrals by the sole physician shareholder of the PA are not within the
definition of referrals and would not be prohibited under Georgia law.
Georgia's Patient Self-Referral Act also prohibits the payment of any
consideration which is intended to compensate a person for a referral. This
prohibition applies to all payors. The Company believes that all payments
between the Company and the Centers are reasonable compensation for services
rendered and are not intended as compensation for referrals.
South Carolina
South Carolina's Provider Self-Referral Act of 1993 generally provides that a
health care provider may not refer a patient for the provision of any designated
health service to an entity in which the health care provider is an investor or
has an investment interest. Under the Company's current operations, the Company
does not believe it is an entity providing designated health services for
purposes of the South Carolina Provider Self-Referral Act. The Centers provide
all health care services to patients through employees of the PA. There are no
provider investors in the PA that refer patients to the Centers for designated
health care services. Accordingly, under South Carolina law, the Company
believes that the provider self-referral prohibition would not apply to the
Centers' or the Company's operations in South Carolina.
In addition to self-referral prohibitions, South Carolina's Provider
Self-Referral Act of 1993 also prohibits the offer, payment, solicitation, or
receipt of a kickback, directly or indirectly, overtly or covertly, in cash or
in kind, for referring or soliciting patients. The Company believes that its
payment arrangements are reasonable compensation for services rendered and do
not constitute payments for referrals.
Tennessee
The Tennessee physician conflict of interest law provides that physicians are
free to enter into lawful contractual relationships, including the acquisition
of ownership interests in health facilities. The law further recognizes that
these relationships can create potential conflicts of interests, which shall be
addressed by the following: (a) the physician has a duty to disclose to the
patient or referring colleagues such physician's ownership interest in the
facility or therapy at the time of referral and prior to utilization; (b) the
physician shall not exploit the patient in any way, as by inappropriate or
unnecessary utilization; (c) the physician's activities shall be in strict
conformity with the law; (d) the patient shall have free choice either to use
the physician's proprietary facility or therapy or to seek the needed medical
services elsewhere; and (e) when a physician's commercial interest conflict so
greatly with the patient's interest as to be incompatible, the physician shall
make alternative arrangements for the care of the patient.
Because the Company is not a provider of health services, the Company believes
that Tennessee's conflict of interest/disclosure law does not apply to its
current operations. Even if the Tennessee conflict of interest/disclosure law
were to apply, the Company's internal quality assurance/utilization review
programs will help identify any inappropriate utilization by a Center.
Tennessee also has a law regulating healthcare referrals. The general rule is
that a physician who has an investment interest in a healthcare entity shall not
refer patients to the entity unless a statutory exception exists. A healthcare
entity is defined as an entity which provides healthcare services. The Company
believes that it does not fit within the definition of a "healthcare entity"
because the Company is not a provider of healthcare services. The Centers
provide all health care services to patients through employees of the PA. There
are no provider investors in the PA that refer patients for designated health
care services except the sole physician shareholder of the PA. The Company
believes that referrals by the sole shareholder of the PA come within a
statutory exception. Accordingly, under Tennessee law, the Company believes that
the provider self-referral prohibition would not apply to the Centers' or the
Company's operations in Tennessee.
Tennessee's anti-kickback provision prohibits a physician from making payments
in exchange for the referral of a patient. In addition, under Tennessee law a
physician may not split or divide fees with any person for referring a patient.
The Tennessee Attorney General has issued opinions that determined that the
fee-splitting prohibition applied to management services arrangements. The
Tennessee fee-splitting prohibition contains an exception for reasonable
compensation for goods or services. The Company believes that its payment
arrangements with the Centers are reasonable compensation for services rendered
and do not constitute payments for referrals or a fee-splitting arrangement.
Antitrust Laws
Because each of the PA's is a separate legal entity, each 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 believes it is in compliance with such state and federal
laws which may affect its development of integrated healthcare 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 operations of the Company.
Healthcare Reform
As a result of the continued escalation of healthcare 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 in state legislatures relating to
healthcare reform. There can be no assurance as to the ultimate content, timing
or effect of any healthcare reform legislation, nor is it possible at this time
to estimate the impact of potential legislation, which may be material, on the
Company.
Regulation of Risk Arrangements and Provider Networks
Federal and state laws regulate insurance companies, health maintenance
organizations 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. Under Georgia law, pursuant to regulations issued by
the Georgia Insurance Commissioner in 1996, a provider sponsored health care
corporation may obtain a certificate of authority to establish, maintain and
operate one or more health plans to provide service to enrollees if the
corporation has an initial net worth of one million dollars and meets certain
filing and administrative requirements. The Company believes that the acceptance
of capitated payments by the Centers under managed care agreements with payors
does not constitute the operation of a health plan that would require the
Company to obtain a certificate of authority under Georgia law. 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. South Carolina, Georgia and Tennessee do not
currently regulate the establishment or operation of networks of healthcare
providers except where such entities provide utilization review services through
private review agents. 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 states in which it
currently does business, but there can be no assurance that future
interpretations of these laws by the regulatory authorities in Georgia, South
Carolina, Tennessee or the states in which the Company may expand in the future
will not require licensure of the Company's operations as an insurer or provider
network or a restructuring of some or all of the Company's operations. In the
event 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, 1999, the Company had 672 employees (455 on a full-time
equivalent basis). This includes 121 medical providers employed by the P.A.'s.
Advisory Note Regarding Forward-Looking Statements
Certain of the statements contained in this PART I, Item 1 (Business) and in
PART II, Item 7 (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-K that such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from those expressed or implied by such forward-looking statements. Although the
Company's management believes that their expectations of future performance are
based on reasonable assumptions within the bounds of their knowledge of their
business and operations, there can be no assurance that actual results will not
differ materially from their expectations. Factors which could cause actual
results to differ from expectations include, among other things, the difficulty
in controlling the Company's costs of providing healthcare and administering its
network of Centers; the possible negative effects from changes in reimbursement
and capitation payment levels and payment practices by insurance companies,
healthcare plans, government payors and other payment sources; the difficulty of
attracting primary care physicians; the increasing competition for patients
among healthcare providers; possible government regulations negatively impacting
the existing organizational structure of the Company; the possible negative
effects of prospective healthcare reform; the challenges and uncertainties in
the implementation of the Company's expansion and development strategy; the
dependence on key personnel, the ability to successfully integrate the
management structures and consolidate the operations of recently acquired
entities or practices with those of the Company, and other factors described in
this report and in other reports filed by the Company with the Securities and
Exchange Commission.
Item 2. 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 Center is leased from an entity affiliated with the Company's
Chairman. Four Centers are leased from Companion HealthCare Corporation and one
Center is leased from Companion Property and Casualty Insurance Company,
principal shareholders of the Company. Three of the Centers are leased from
physician employees of the P.A.'s.
The Company's Centers are broadly distributed throughout the states of South
Carolina, Georgia and Tennessee. There are 16 primary care Centers in the
Columbia, South Carolina region (including four physical therapy offices), five
in the Charleston, South Carolina region, four in the Myrtle Beach, South
Carolina region, one in the Aiken, South Carolina region, seven in the
Greenville-Spartanburg, South Carolina region (including one of the physical
therapy offices), five in the Atlanta, Georgia region and two in the Knoxville,
Tennessee region. The Company's corporate offices are located in downtown
Columbia, South Carolina in 13,000 square feet of leased space. The Centers are
all in free-standing buildings in good repair.
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.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Until October 19, 1998, the Common Stock was traded on the NASDAQ SmallCap
Market under the symbol UCIA. On October 20, 1998, the Common Stock was delisted
for trading on the NASDAQ SmallCap Market as a consequence of the Company's
failure to meet certain quantitative requirements under the NASD's expanded
listing criteria. Trading in the Common Stock is currently conducted in the
over-the-counter market. The prices set forth below indicate the high and low
bid prices reported on the NASDAQ SmallCap Market through October 20, 1998 and
on the over-the-counter bulletin board thereafter. The quotations reflect
inter-dealer prices without retail markup, markdown or commission and may not
necessarily reflect actual transactions.
Bid Price
-------------------------------
High Low
------- -------
Fiscal Year Ended September 30, 1999
1st quarter (10/01/98 - 12/31/98) $.56 $.41
2nd quarter (01/01/99 - 03/31/99) .59 .34
3rd quarter (04/01/99 - 06/30/99) .80 .45
4th quarter (07/01/99 - 09/30/99) .75 .50
Fiscal Year Ended September 30, 1998
1st quarter (10/01/97 - 12/31/97) 3.25 1.75
2nd quarter (01/01/98 - 03/31/98) 2.50 2.00
3rd quarter (04/01/98 - 06/30/98) 2.06 1.38
4th quarter (07/01/98 - 09/30/98) 1.47 .75
As of December 15, 1999, there were 484 stockholders of record of Common Stock,
excluding individual participants in security position listings.
UCI has not paid cash dividends on the Common Stock since its inception and has
no plans to declare cash dividends in the foreseeable future.
Item 6. Selected Financial Data
STATEMENT OF OPERATIONS DATA
- -------------------------------------------------------------------------------
(In thousands, except per share data)
--------------------------------------------------------------------------
For the year ended September 30,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ----------- ----------- ------------ ----------
Revenues $40,470 $ 37,566 $27,925 $23,254 $17,987
Net income (loss) 910 (10,508) 466 (1,360)
(84)
Basic and diluted earnings (loss) per .11 .11
share (1.61) (.02) (.43)
Basic weighted average number of
shares outstanding 8,537 5,005 4,294 3,137
6,545
Diluted weighted average number of
shares outstanding 8,544 6,545 5,005 4,294 3,137
BALANCE SHEET DATA
- -----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
-------------------------------------------------------------------------
At September 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- ---------
Working capital $(2,289) $(3,718) $ 2,921 $ 2,020 $ (383)
Property and equipment, net 4,797 5,475 4,003 3,300 2,795
Total assets 23,354 26,202 21,082 15,733 10,216
Long-term debt 9,444 11,988 7,939 5,373 4,366
Stockholders' equity 6,373 9,488 7,822 3,253
987
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.
Basis of Presentation
The consolidated financial statements of the Company include the accounts of
UCI, UCI-SC, UCI-GA and the P.A.'s. Such consolidation is required under
Emerging Issues Task Force (EITF) 97-2 as a consequence of the nominee
shareholder arrangement that exists with respect to each of the PA's. In each
case, the nominee (and sole) shareholder of the P.A. has entered into an
agreement with UCI-SC or UCI-GA, as applicable, which satisfies the requirements
set forth in footnote 1 of EITF 97-2. Under the agreement, UCI-SC or UCI-GA, as
applicable, in its sole discretion, can effect a change in the nominee
shareholder at any time for a payment of $100 from the new nominee shareholder
to the old nominee shareholder, with no limits placed on the identity of any new
nominee shareholder and no adverse impact resulting to any of UCI-SC, UCI-GA or
the P.A.resulting from such change.
In addition to the nominee shareholder arrangements described above, each of
UCI-SC and UCI-GA have entered into Administrative Service Agreements with the
P.A.'s. (See Item 1. Business - "Organizational Structure" for a detailed
description of the Administrative Service Agreements.) As a consequence of the
nominee shareholder arrangements and the Administrative Service Agreements, the
Company has a long-term financial interest in the affiliated practices of the
P.A.'s. According to EITF 97-2, the application of FASB Statement No. 94
(Consolidation of All Majority-Owned Subsidiaries), and APB No. 16 (Business
Combinations), the Company must consolidate the results of the affiliated
practices with those of the Company.
The P.A.'s enter into employment agreements with physicians for terms ranging
from one to ten years. All employment agreements have clauses that allow for
early termination of the agreement if certain events occur such as the loss of a
medical license. Over 79% of the physicians employed by the P.A.'s are paid on
an hourly basis for time scheduled and worked at the medical centers. The other
physicians are salaried. Approximately 25 of the physicians have incentive
compensation arrangements, however, no amounts were accrued or paid during the
Company's three prior fiscal years that were significant. Any incentive
compensation is based upon a percentage of non-ancillary collectible charges for
services performed by a provider. Percentages range from 3% to 17% and vary by
individual employment contract. As of September 30, 1999 and 1998, the P.A.'s
employed 121 and 115 medical providers, respectively.
The net assets of the P.A.'s are not material for any period presented, and
intercompany accounts and transactions have been eliminated. For the fiscal year
ended September 30, 1999, the Company has shown an increase in revenues. 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.
The Company does not allocate all indirect costs incurred at the corporate
offices to the Centers on a center-by-center basis. Therefore, all discussions
below are intended to be in the aggregate for the Company as a whole.
Comparison of Results of Operations for Fiscal Years 1999, 1998 and 1997
Revenues of $40,470,000 in fiscal year 1999 reflected an increase of 8% from the
fiscal year 1998 revenues of $37,566,000 which reflected an increase of 35% from
the amount reported for fiscal year 1997. The following reflects revenue trends
from fiscal year 1995 through fiscal year 1999:
For the year ended September 30, (in thousands)
--------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ----------- -----------
$40,470 $37,566
Revenues $27,925 $23,254 $17,987
35,975 39,094
Operating Costs 26,466 21,525 18,180
4,495
Operating Margin (1,528) 1,459 1,729
(193)
The increase in revenue for fiscal year 1999 was approximately 8% and was
derived almost exclusively from growth in "same center" patient visits and
charges. Approximately $2,900,000 of this was the result of center maturation
for the locations opened in the prior fiscal year and was offset somewhat by the
revenues of the centers open in fiscal year 1998 and closed during fiscal year
1999.
The number of centers operated by the Company decreased from 41 to 40 from
September 30, 1998 to September 30, 1999. The orthopedic center in Columbia and
one other Columbia, South Carolina location were closed due to poor performance.
This was offset by the opening of the fifth physical therapy location. The
difference in the revenues for the two centers closed in fiscal year 1999 and
the one new location was not significant to the overall change in revenue from
fiscal year 1998 to fiscal year 1999.
The increase in revenue for fiscal year 1998 is attributable to a number of
factors. The Company engaged in a significant expansion, increasing the number
of primary care medical Centers from 33 to 41 (as of September 30, 1998). The
expansion included the addition of fourteen Centers and the closure or
divestiture of six Centers, for a net addition of eight Centers.
The fourteen additions were:
1. Doctor's Care Conway Myrtle Beach, SC Region Opened as a start-up facility in November
1997.
2. Doctor's Care New Ellenton Aiken, SC Region Acquired from Primary Care Provider/Owner in
November 1997.
3. Doctor's Care Ridgeview Columbia, SC Region Opened as a start-up facility in December
1997.
4.
Progressive
Therapy
Bush River
Columbia,
SC Region
Acquired
from
Therapist/Owner
in October
1997.
5.
Progressive
Therapy
West
Columbia
Columbia,
SC Region
Acquired
from
Therapist/Owner
in October
1997.
6.
Progressive
Therapy
Columbia
East
Columbia,
SC Region
Acquired
from
Therapist/Owner
in October
1997.
7.
Progressive
Therapy
Forest
Acres
Columbia,
SC Region
Opened as
a start-up
facility
in
November
1997.
8. Doctor's
Care Stone
Mountain
Atlanta,
GA Region
Acquired
in May
1998 from
MainStreet
Healthcare,
Inc. as
part of
five
centers in
Atlanta,
Georgia
and two in
Knoxville,
Tennessee.
9. Doctor's Care Tucker Atlanta, GA Region Acquired in May 1998 from MainStreet
Healthcare, Inc. as part of five centers in
Atlanta, Georgia and two in Knoxville,
Tennessee.
10. Doctor's
Care
Lawrenceville
Atlanta,
GA Region
Acquired
in May
1998 from
MainStreet
Healthcare,
Inc. as
part of
five
centers in
Atlanta,
Georgia
and two in
Knoxville,
Tennessee.
11. Doctor's Care Austell Atlanta, GA Region Acquired in May 1998 from MainStreet
Healthcare, Inc. as part of five centers in
Atlanta, Georgia and two in Knoxville,
Tennessee.
12. Doctor's Care Snellville Atlanta, GA Region Acquired in May 1998 from MainStreet
Healthcare, Inc. as part of five centers in
Atlanta, Georgia and two in Knoxville,
Tennessee.
13. Doctor's
Care
Knoxville
West
Knoxville,
TN Region
Acquired
in May
1998 from
MainStreet
Healthcare,
Inc. as
part of
five
centers in
Atlanta,
Georgia
and two in
Knoxville,
Tennessee.
14. Doctor's
Care
Knoxville
North
Knoxville,
TN Region
Acquired
in May
1998 from
MainStreet
Healthcare,
Inc. as
part of
five
centers in
Atlanta,
Georgia
and two in
Knoxville,
Tennessee.
The six closures or divestitures were:
1. Doctor's Care Waccamaw Myrtle Beach, SC Region This acquired center (01/95) was closed
effective September 1998 and the provider
and patient records were transferred to the
near-by Doctor's Care Strand Medical Center.
2. Doctor's Care Camden Columbia, SC Region This acquired center (09/97) was closed in
August 1998 and the provider and patient
records were transferred to near-by Doctor's
Care Wateree.
3. Doctor's
Surgical
Group
Columbia,
SC Region
This
start-up
facility
(06/93)
was closed
effective
February
1998.
4. Springwood
Lake
Family
Practice
Columbia,
SC Region
Acquired
in August
1997 along
with two
more
centers
and were
divested
of (sold
back to
the seller
on
November
1, 1998)
effective
September
1998.
5. Woodhill Family Practice Columbia, SC Region Acquired in August 1997 along with two more
centers and were divested of (sold back to
the seller on November 1, 1998) effective
September 1998.
6. Midtown Family Practice Columbia, SC Region Acquired in August 1997 along with two more
centers and were divested of (sold back to
the seller on November 1, 1998) effective
September 1998.
The revenue from the increase in centers in fiscal year 1998 and from the full
year of operations of the locations added in fiscal year 1997 represented the
most significant portion of the revenue growth. Of the $9,641,000 in revenue
growth, approximately $4,999,000 was from the fourteen locations opened during
fiscal year 1998 and approximately $900,000 was the result of having the four
locations opened during fiscal year 1997 operating for all of fiscal year 1998.
The remainder of the revenue growth in fiscal year 1998 (approximately
$3,742,000) was the result of two factors:
1. Approximately $2,960,000 was from revenue for centers acquired at the end
of fiscal year 1997 and divested of on November 1, 1998, to be effective
September 30, 1998 (Springwood Lake Family Practice, Woodhill Family
Practice and Midtown Family Practice).
2. The remaining $782,000 in revenue growth represents approximately a three
(3%) percent growth in "same center" patient visits and charges.
During the past three fiscal years, the Company has continued its services
provided to members of HMOs. In these arrangements, the Company, through the
P.A., acts as the designated primary caregiver for members of HMOs who have
selected one of the Company's centers or providers as their primary care
provider. In fiscal year 1994, the Company began participating in an HMO
operated by Companion HealthCare Corporation ("CHC"), a wholly owned subsidiary
of Blue Cross Blue Shield of South Carolina ("BCBS"). BCBS, through CHC, is a
primary stockholder of UCI. Including its arrangement with CHC, the Company now
participates in four HMOs and is the primary care "gatekeeper" for more than
18,000 lives in fiscal year 1999 compared to 19,000 in fiscal year 1998 and
20,000 in fiscal year 1997. One of the HMOs was a capitation scheme for payments
and three pay on a discounted fee-for-service basis. HMOs do not, at this time,
have a significant penetration into the South Carolina market; the Company is
not certain if there will be growth in the market share of HMOs in the areas in
which it operates clinics. For fiscal year 1998, capitated revenue declined to
$2,700,000 from $3,100,000 in fiscal year 1997. This decline was primarily the
result of one of the "gatekeeper" HMO's (Companion) switching from a capitation
payment scheme to a discounted fee for service scheme during the middle of
fiscal year 1998. In fiscal year 1999, there was only one HMO that paid by
capitated revenue which was approximately $1,400,000 or 3% of total revenue.
The Company currently negotiates contracts with one significant HMO for the
P.A.'s physicians to provide health care on a capitated reimbursement basis.
Under this contract, which typically is automatically renewed on an annual
basis, the P.A. physicians provide virtually all covered primary care services
and receive a fixed monthly capitation payment from the HMOs for each member who
chooses a P.A. physician as his or her primary care physician. The capitation
amount is fixed depending upon the age and sex of the HMO enrollee. Contracts
with capitated HMOs accounted for approximately 3% of the Company's net revenue
in fiscal year 1999 compared to 7% in fiscal year 1998 and 11% in fiscal year
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 at the
Company have been determined to be insufficient to cover related costs of
treatment. Higher capitation rates are typically received for senior patients
because their medical needs are generally greater and consequently the cost of
covered care is higher.
Increased and sustained revenues in fiscal years 1999 and 1998 also reflect the
Company's heightened focus on occupational medicine and industrial health
services (these revenues are referred to as "employer paid" on the table below).
Focused marketing materials, including quarterly newsletters for employers, were
developed to spotlight the Company's services for industry. The 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 UCI.
Patient encounters increased to 509,000 in fiscal year 1999, from 497,000 in
fiscal year 1998 and 393,000 in fiscal year 1997. The increase from fiscal year
1998 to fiscal year 1999 was achieved despite the net reduction of one location
during the year due to center maturation and marketing efforts. Of the 104,000
increase in fiscal year 1998, 55,000 is attributable to the Centers opened
during the fiscal year. A decrease in patient encounters in fiscal year 1998 is
not believed to have resulted from the six center closures noted above due to
timing (divestiture or closure in September 1998) or because the Company had a
nearby operating location.
No new significant competition entered the Company's market during fiscal year
1999. However, revenues were short of goals for fiscal years 1998 and 1997, due
in part to the increased competition from hospitals and other providers in
Columbia, Greenville, Myrtle Beach and Atlanta during fiscal year 1998 and in
Columbia, Greenville, Myrtle Beach and Sumter during fiscal year 1997. 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.
An operating margin of $4,495,000 was achieved in fiscal year 1999. This
significant improvement was the result of a decisive cost reduction plan put
into place by management during the fourth quarter of fiscal year 1998 that
included staff reductions and the closure or divestiture of several unprofitable
centers. For the six centers, previously noted, that were closed or divested of
during fiscal year 1998 the combined losses were approximately $775,000 during
fiscal year 1998. Salary savings from the staff reductions are estimated to be
approximately $1,000,000 at the corporate level and between $3,000,000 and
$4,000,000 at the remaining centers. An operating deficit of $(1,528,000) was
realized in fiscal year 1998 as compared to an operating margin of $1,459,000 in
fiscal year 1997. 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 and to the incurred and accrued
restructuring charges posted in fiscal year 1998 resulting from the closed or
divested centers as discussed below (approximately $3,700,000 in total). The
following table breaks out the Company's revenue and patient visits by revenue
source for fiscal years 1999, 1998 and 1997.
Percent of
Percent of Revenue
Payor Patient Visits
------------------------------------------- ------------------------ -----------------------
1999 1998 1997 1999 1998 1997
------- ------- -------- ------ ------- --------
18 20 24 24
Patient Pay 18 18
15 11
Employer Paid 15 13 9 9
10 9 11
HMO 11 13 12
10 14
Workers Compensation 8 10 16 14
12 7
Medicare/Medicaid 7 11 6 7
24 28
Managed Care Insurance 34 27 31 30
7 6 5 11 10 5
Other (Commercial Indemnity, Champus,
etc.)
As managed care plans attempt to cut costs, they typically increase the
administrative burden of providers such as the Company by requiring referral
approvals and by requesting hard copies of medical records before they will pay
claims. The number of patients at the Company's Centers that are covered by a
managed care plan versus a traditional indemnity plan continues to grow.
Management expects this trend to continue.
The operating margin deterioration during fiscal year 1998 and 1997 was also
contributed to by the high costs of the six centers closed during fiscal year
1998 and the three centers closed during fiscal year 1997. Aggregate costs
exceeded revenues by $770,000 at the six centers closed during the fiscal year
1998 and by $253,000 at the three centers closed during the fiscal year 1997.
Five of the six centers closed during fiscal year 1998 were acquisitions and the
closure or divestiture resulted in significant write-offs of intangible assets
(goodwill) and/or the recognition of a loss on the divestiture.
Bad debt expense, a component of operating costs, was approximately $2,289,000
(or approximately 6% of revenue) for fiscal year 1999; $2,978,000 (or
approximately 8% of revenue) for fiscal year 1998; and approximately $1,106,000
(or approximately 4% of revenue) for fiscal year 1997. This increase is believed
to be primarily due to the difficulties encountered in the collection of amounts
associated with patients seen at the centers acquired during fiscal year 1998.
Management is not yet certain if the collection difficulties being encountered
will continue but intends to evaluate collectibility on a monthly basis.
November 1, 1998, the Company sold the three centers of the Springwood Lake
Family Practice that had been acquired approximately one year earlier in
September 1997. The three centers were operated by the Company as Springwood
Lake Family Practice, Woodhill Family Practice and Midtown Family Practice.
These centers operated more along the lines of traditional family practices
(taking appointments, doing hospital admissions, etc.) than the Company's other
centers and had not been profitable. They were also a drain on cash flow to the
Company of approximately $460,000 during fiscal year 1998. The time needed to
correct these problems was determined to be excessive by the Company's
management and these three centers were sold back to the former owners
(providers). As of September 30, 1998, the Company recorded a loss on the
disposition of approximately $1,668,000. This is a component of the line item
Realignment and Other Expenses.
When the Company acquires medical practices, the excess of cost over fair value
of assets acquired (goodwill) is recorded as an asset and is amortized on a
straight-line basis 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. When
external factors indicate that goodwill should be evaluated for possible
impairment, the Company uses an estimate of the related center's undiscounted
cash flows to determine if an impairment exists. If an impairment exists, it is
measured based on the difference between the carrying amount and fair value, for
which discounted cash flows are used. Examples of external factors that are
considered in evaluation for possible impairment include significant changes in
the third party payor reimbursement rates and unusual turnover or licensure
difficulties of clinical staff at a center.
During the fourth quarter of fiscal year 1998, the above analysis resulted in an
impairment change of approximately $1,642,000 to goodwill for centers that had
been closed (i.e., Waccamaw and Camden) and for two underperforming centers.
This is a component of the line item Realignment and Other Expenses.
It should be noted that the Company also has launched medical centers as
start-up operations, which have contributed in fiscal years 1999, 1998 and 1997
to the Company's overall cash used in operations. Costs of starting up new
centers are expensed as incurred.
Depreciation and amortization expense increased to $1,954,000 in fiscal year
1999, up from $1,950,000 in fiscal year 1998 and $1,250,000 in fiscal year 1997.
This increase reflects higher depreciation expense as a result of significant
leasehold improvements and equipment upgrades at a number of the Company's
Centers, as well as an increase in amortization expense related to the
intangible assets acquired from the Company's purchase of existing practices in
Atlanta, Knoxville, Aiken and Columbia in fiscal year 1998 and in Greenville and
Columbia in fiscal year 1997. Net interest expense increased to $1,472,000 in
fiscal year 1999 from $1,464,000 in fiscal year 1998 and $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.
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:
Recent historical operating results.
Lack of sufficient liquidity to support operations.
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 generation of future taxable income in excess of income
reported on the consolidated financial statements.
A valuation allowance of $6.3 million and $6.6 million at September 30, 1999 and
1998, respectively, remained necessary in the judgement of management because
the factors noted above (i.e. forecasts) did not support the utilization of less
than a full valuation allowance. The lack of consistent earnings and liquidity
concerns, discussed above, was considered in the decision to maintain a 100%
valuation allowance of $6.6 million at September 30, 1998, leaving no asset
recorded.
Going Concern Matters
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has a working capital deficiency, an accumulated
deficit, and the line of credit agreement which expires in March 2000 and the
Company currently is in violation of a loan covenant related to its line of
credit. Ultimately, the Company's viability as a going concern is dependent upon
its ability to continue to generate positive cash flows from operations,
maintain adequate working capital and obtain satisfactory long-term financing.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company plans include
the following, although it is not possible to predict the ultimate outcome of
the Company's efforts. The Company is currently seeking sources of financing
from other financing sources with terms more suitable and favorable to the
Company's financing requirements. The Company anticipates that a new financing
arrangement will be in place prior to the expiration of the current line of
credit agreement. The Company management believes that due to the improved
financial results for 1999 and the existence of an adequate asset base, lenders
will be interested in finalizing a financial agreement. The Company expects to
have availability of the existing line of credit until the expiration date of
the credit agreement.
Results of Operations for the Three Months Ended September 30, 1999 as Compared
to the Three Months Ended September 30, 1998:
The following summarizes the fiscal 1999 fourth quarter results of operations as
compared to the prior year:
For the Three Months Ended (in 000's)
September 30, 1999 September 30, 1998
---------------------- -----------------------
Revenues $ 10,360 $ 10,941
9,907 13,345
Operating Costs
(2,404)
Operating Margin 453
General and Administrative Expenses
26 46
Realignment and Other Expenses 3,703
0
Depreciation and Amortization 600
486
Interest Expense, net 616
412
Benefit for Income Taxes (1,753)
0
(9,148)
Net Income (loss) (471)
Revenues of $10,360,000 for the quarter ending September 30, 1999 reflect a
decrease of five (5%) percent from those of the quarter ending September 30,
1998.
As noted earlier, many of the centers closed during fiscal year 1998 were closed
in the fourth quarter of that year and, therefore, produced some revenue. The
increase in "same center" patient visits and charges due to center maturation
was offset by the loss of the revenue from the centers open for parts of the
fourth quarter of fiscal year 1998 but closed for all of the fourth quarter of
fiscal year 1999.
Patient encounters decreased to 125,000 in the fourth quarter of fiscal year
1999 from 137,000 in the fourth quarter of fiscal year 1998 due to the reduction
in the number of centers as discussed above.
The decreases in depreciation, amortization and interest expenses are all
related to the divestitures and closures of the centers discussed above and the
related realignment expenses posted in fiscal year 1998 (i.e., the write-off of
goodwill).
Financial Condition at September 30, 1999 and September 30, 1998
Cash and cash equivalents decreased by $270,000 from September 30, 1998 to
September 30, 1999.
Accounts receivable decreased from $8,789,000 at September 30, 1998 to
$8,400,000 at September 30, 1999. This decrease was attributable to increased
focus on collections at the Corporate billing department that involved a
reorganization of functional duties and lower revenues in the fourth quarter of
1999 as compared to 1998. As the payor mix of the Company continues to change,
the billing and collection functions will need to be continually modified and
updated.
The decreases in property and equipment and in the excess of cost over fair
value of assets acquired ("goodwill") are both the result of regular
depreciation and amortization charges.
The reductions in long-term debt and accounts payable from September 30, 1998 to
September 30, 1999 were the result of the overall improved operating results of
the Company. 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), and credit extended by suppliers.
The Company has a $7,000,000 bank line of credit with an outstanding
indebtedness of $2,678,000 at September 30, 1999. The availability under this
line of credit is limited by accounts receivable type and age as defined in the
agreement. As of the fiscal year end, the Company had borrowed approximately the
maximum allowable amounts. The line of credit bears interest of prime plus 2.5%
with a maturity of March 2000. (Prime rate was 8.25% as of September 30, 1999.)
The line of credit is used to fund the working capital needs of the Company. At
September 30, 1999, the Company is in default of a debt covenant related to the
Line of Credit in regard to a net worth. The covenant requires that net worth of
the Company not drop below $7,650,000. The Company believes that the financial
institution does not intend to take action related to this default and continues
to utilize the Line on a daily basis. This Line of Credit expires under its
original terms on March 24, 2000 and the Company is currently in negotiations
with its current lender and various other potential lenders to refinance this
debt.
As of September 30, 1999, the Company had no material commitments for capital
expenditures or for acquisition or start-ups.
Operating activities generated $2,645,000 of cash during fiscal year 1999,
compared to using $1,495,000 during fiscal year 1998. This is indicative of the
overall improvement in the operations of the Company due to the cost reductions,
divestitures and closures discussed above.
Investing activities used only $448,000 of cash during fiscal year 1999 compared
with $1,399,000 used in fiscal year 1998 as a result of a slow-down in expansion
activity.
Approximately $2,467,000 of cash was used during fiscal year 1999 to reduce
debt. This was made possible by the positive performance of the Company and by
the discontinuation of growth through acquisitions during the year. Liquidity in
fiscal year 1999 was adequate to meet the operating needs of the Company;
therefore, no financing sources of cash were required. The Company received
$1,102,000 in cash during fiscal year 1998 resulting from private placements of
stock 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.
Overall, the Company's current liabilities exceed its current assets at
September 30, 1999 and 1998 by $2,289,000 and $3,718,000.
The Year 2000
It is possible that the Company's currently installed computer systems, or other
business systems, or those of the Company's vendors, working either alone or in
conjunction with other software or systems, will not accept input of, store,
manipulate or output dates in the years 1999, 2000 or thereafter without error
or interruption (commonly known as the "Year 2000" problem). The Company has
conducted a review of its business systems, including its computer systems, on a
system-by-system basis, and has queried third parties with whom it conducts
business as to their progress in identifying and addressing problems that their
computer systems may face in correctly processing date information as the Year
2000 approaches and is reached.
The Company has upgraded its general accounting systems (which includes
invoicing, accounts receivable, payroll, etc.) to make the systems Year 2000
compliant. The Company estimates that the cost of this upgrade to the accounting
systems was approximately $20,000.
The Company has reviewed its information technology ("IT") hardware and
software, including personal computers, application and network software for
Year 2000 compliance readiness. The review process entailed evaluation of
hardware/software and testing. The costs of the necessary upgrades were
approximately $25,000.
The Company's review of non-IT systems (including voice communications) is
complete and the estimated costs to remedy non-IT systems was not material.
The Company believes that its most significant internal risk posed by the Year
2000 Problem is the possibility of a failure of its accounting systems. If the
accounting systems were to fail, the Company would have to implement manual
processes, which may slow the timeliness of information needed to manage the
business. As discussed above, the Company plans to avoid this risk through its
recent upgrading of its accounting systems; however, there can be no assurance
that such actions will avoid problems that may arise.
The third parties whose Year 2000 problems could have the greatest effect on the
Company are believed by the Company to be banks that maintain the Company's
depository accounts' credit card processing systems (including related
telecommunication systems), the companies which supply the Company with medical
supplies, and the insurance company payors for the Company's patients' medical
claims.
There can be no assurance that the Company has identified all Year 2000 problems
in its computer systems or those of third parties in advance of their occurrence
or that the Company will be able to successfully remedy any problems that are
discovered. The expenses of the Company's efforts to identify and address such
problems, or the expenses or liabilities to which the Company may become subject
as a result of such problems, could have a material adverse effect on the
Company's business, financial condition and results of operations. Maintenance
or modification costs will be expensed as incurred.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to changes in interest rates primarily as a result of its
borrowing activities, which includes credit facilities with financial
institutions used to maintain liquidity and fund the Company's business
operations, as well as notes payable to various third parties in connection with
certain acquisitions of property and equipment. The nature and amount of the
Company's debt may vary as a result of future business requirements, market
conditions and other factors. The definitive extent of the Company's interest
rate risk is not quantifiable or predictable because of the variability of
future interest rates and business financing requirements. The Company does not
currently use derivative instruments to adjust the Company's interest rate risk
profile.
Approximately $5,500,000 of the Company's debt at September 30, 1999 was subject
to fixed interest rates and principal payments. Approximately $4,000,000 of the
Company's debt at September 30, 1999 was subject to variable interest rates.
Based on the outstanding amounts of variable rate debt at September 30, 1999,
the Company's interest expense on an annualized basis would increase
approximately $40,000 for each increase of one percent in the prime rate.
The Company does not utilize financial instruments for trading or other
speculative purposes, nor does it utilize leveraged financial instruments.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Index to Financial Statements on Page 25.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Information called for by Part III (Items 10, 11, 12 and 13) of this report on
Form 10-K has been omitted as the Company intends to file with the Securities
and Exchange Commission not later than 120 days after the close of its fiscal
year ended September 30, 1999, a definitive Proxy Statement pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934. Such
information will be set forth in such Proxy Statement and is incorporated herein
by reference.
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated herein by reference to the
Proxy Statement for the Company's forthcoming Annual Meeting of Shareholders.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the
Proxy Statement for the Company's forthcoming Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated herein by reference to the
Proxy Statement for the Company's forthcoming Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated herein by reference to the
Proxy Statement for the Company's forthcoming Annual Meeting of Shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Consolidated Financial Statements
The financial statements listed on the Index to Financial Statements
on page 26 are filed as part of this report on Form 10-K.
(a) (2) Exhibits
A listing of the exhibits to the Form 10-K is set forth on the
Exhibit Index which immediately precedes such exhibits in this Form
10-K.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended September
30, 1999.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Report of Independent Accountants............................................................................27
Consolidated Balance Sheets at September 30, 1999 and 1998...................................................28
Consolidated Statements of Operations for the years
ended September 30, 1999, 1998 and 1997.............................................................29
Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 1999, 1998 and 1997...............................................30
Consolidated Statements of Cash Flows for the years
ended September 30, 1999, 1998 and 1997.............................................................31
Notes to Consolidated Financial Statements................................................................32-51
Schedule II, Valuation and Qualifying Accounts, is omitted because the
information is included in the financial statements and notes.
Independent Auditor's Report
December 9, 1999
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, changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
UCI Medical Affiliates, Inc. and its subsidiaries (the "Company") at September
30, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended September 30, 1999, in conformity
with accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has an accumulated deficit, a working capital
deficiency, the Company's working capital line of credit expires in March 2000,
and the Company is currently in violation of a loan covenant related to the line
of credit. These matters raise substantial doubt about the ability of the
Company to continue as a going concern. Management's plans in regard to these
matters are also discussed in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/S/ PRICEWATERHOUSECOOPERS, LLP
ORIGINAL SIGNED OPINION ON PRICEWATERHOUSECOOPERS LLP LETTERHEAD
IS ON FILE WITH
UCI MEDICAL AFFILIATES, INC.
UCI Medical Affiliates, Inc.
Consolidated Balance Sheets
September 30,
----------------------------------------
1999 1998
------------------- ----------------
Assets
Current assets
Cash and cash equivalents $ 66,159 $
335,923
Accounts receivable, less allowance for doubtful accounts
of $1,482,522 and $3,758,771 8,399,743
8,788,620
Inventory 590,318
539,564
Prepaid expenses and other current assets 748,467
875,409
------------------- ----------------
Total current assets 9,804,687
10,539,516
Property and equipment less accumulated depreciation of
$4,921,458 and $3,762,865 4,796,643
5,475,051
Excess of cost over fair value of assets acquired, less
accumulated amortization of $2,650,249 and $2,097,149 8,711,255
9,944,039
Other assets 41,500
243,677
------------------- ----------------
Total Assets $ 23,354,085 $ 26,202,283
=================== ================
Liabilities and Stockholders' Equity
Current liabilities
Book overdraft $ 803,257 $
1,128,917
Current portion of long-term debt 4,557,797 5,540,552
Current portion of long-term debt payable to employees 0
190,452
Accounts payable 3,341,712
4,154,106
Accrued salaries and payroll taxes 2,292,542
1,837,880
Other accrued liabilities 1,098,859
1,406,033
------------------- ----------------
Total current liabilities 12,094,167
14,257,940
Long-term debt, net of current portion 4,886,435
5,755,502
Long-term debt payable to employees, net of current portion 0
501,783
Common stock to be issued 0
4,700,262
------------------- ----------------
Total Liabilities 16,980,602
25,215,487
------------------- ----------------
Commitments and contingencies (Note 13)
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 - 50,000,000 and 10,000,000
Issued and outstanding- 9,650,515 and 7,299,245 shares 482,526
364,962
Paid-in capital 21,723,628
17,364,263
Accumulated deficit (15,832,671) (16,742,429)
------------------- ----------------
Total Stockholders' Equity 6,373,483
986,796
------------------- ----------------
Total Liabilities and Stockholders' Equity $ 23,354,085 $ 26,202,283
=================== ================
The accompanying notes are an integral part of these consolidated
financial statements.
UCI Medical Affiliates, Inc.
Consolidated Statements of Operations
For the Years Ended September 30,
-----------------------------------------------------------------
1999 1998 1997
----------------- ------------------- -------------------
Revenues $ 40,470,462 $ 37,566,037 $ 27,924,772
Operating costs 35,975,055 39,094,276 26,466,294
----------------- ------------------- -------------------
Operating margin 4,495,407 (1,528,239) 1,458,478
General and administrative expenses 94,431 113,172 153,445
Realignment and other expenses 0 3,702,546
0
Depreciation and amortization 1,954,109 1,950,148 1,250,349
----------------- ------------------- -------------------
Income (loss) from operations 2,446,867 (7,294,105) 54,684
Other income (expenses)
Interest expense, net of interest income (1,471,864) (1,463,792) (812,749)
Gain (loss) on disposal of equipment (65,245) 1,936 8,809
----------------- ------------------- -------------------
Other income (expense) (1,537,109) (1,461,856) (803,940)
Income (loss) before income tax (expense) benefit 909,758 (8,755,961) (749,256)
Income tax (expense) benefit 0 (1,752,182) 665,530
================= =================== ===================
Net income (loss) $ 909,758 $(10,508,143) $ (83,726)
================= =================== ===================
Basic and diluted earnings (loss) per share $ $ (1.61) $
.11 (.02)
================= =================== ===================
Basic weighted average common shares outstanding 8,536,720 6,545,016 5,005,081
================= =================== ===================
Diluted weighted average common shares outstanding 8,543,515 6,545,016 5,005,081
================= =================== ===================
The accompanying notes are an integral part of these consolidated
financial statements.
UCI Medical Affiliates, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Common Stock Paid-In Accumulated
--------------------------------
Shares Par Value Capital Deficit Total
---------------- ------------- --------------- ------------------ ----------------
---------------- ------------- --------------- ------------------ ----------------
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
---------------- ------------- --------------- ------------------ ----------------
Net income (loss) (10,508,143) (10,508,143)
-- -- --
Issuance of common stock 1,554,280 77,714 1,928,728 -- 2,006,442
---------------- ------------- --------------- ------------------ ----------------
Balance, September 30, 1998 7,299,245 364,962 17,364,263 (16,742,429) 986,796
---------------- ------------- --------------- ------------------ ----------------
Net income (loss) 909,758 909,758
-- -- --
Issuance of common stock 2,901,396 145,070 4,555,192 -- 4,700,262
Retirement of common stock (550,126) (27,506) (195,827) -- (223,333)
---------------- ------------- --------------- ------------------ ----------------
Balance, September 30, 1999 9,650,515 $ 482,526 $ 21,723,628 $ (15,832,671) $ 6,373,483
================ ============= =============== ================== ================
The accompanying notes are an integral part of these consolidated
financial statements.
UCI Medical Affiliates, Inc.
Consolidated Statements of Cash Flows
For the Years Ended September 30,
-----------------------------------------------------------
1999 1998 1997
------------------ ---------------- ----------------
Operating activities:
Net income (loss) $ 909,758 $(10,508,143) $ (83,726)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
(Gain) loss on disposal of equipment 65,245
(1,936) (8,809)
Provision for losses on accounts receivable 2,289,187 2,978,024 1,106,252
Depreciation and amortization 1,954,109 1,950,148 1,250,349
Deferred taxes 0 1,752,182 (700,000)
Realignment and other expenses 0 3,724,215
0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,900,310) (4,337,212) (2,679,489)
(Increase) decrease in inventory (99,977) (40,466) (83,521)
(Increase) decrease in prepaid expenses and other
current assets 126,942 (256,092) (137,833)
Increase (decrease) in accounts payable and accrued
expenses (699,626) 3,244,172 876,253
------------------ ---------------- ----------------
Cash provided by (used in) operating activities 2,645,328 (1,495,108) (460,524)
------------------ ---------------- ----------------
Investing activities:
Purchases of property and equipment (617,566) (334,121) (531,941)
Disposals of property and equipment 41,083
3,500
Acquisitions of goodwill (73,763) (1,090,978) (286,896)
(Increase) decrease in other assets 202,177 22,701 11,042
------------------ ---------------- ----------------
Cash used in investing activities (448,069) (1,398,898) (807,795)
------------------ ---------------- ----------------
Financing activities:
Proceeds from issuance of common stock,
net of redemptions 0 1,102,072 600,000
Net borrowings (payments) under line-of-credit agreement (767,704) 539,899 2,030,844
Proceeds from increase in long-term debt 0 2,091,232 280,000
Increase (decrease) in book overdraft (325,660) 1,122,243 218,837
Payments on long-term debt (1,373,659) (1,859,030) (1,865,533)
------------------ ---------------- ----------------
Cash provided by (used in) financing activities (2,467,023) 2,996,416 1,264,148
------------------ ---------------- ----------------
Increase (decrease) in cash and cash equivalents (269,764) 102,410
(4,171)
Cash and cash equivalents at beginning of year 335,923 233,513 237,684
------------------ ----------------
------------------ ---------------- ----------------
Cash and cash equivalents at end of year $ 66,159 $ 335,923 $ 233,513
================== ================ ================
The accompanying notes are an integral part of these consolidated
financial statements.
UCI MEDICAL AFFILIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of UCI Medical
Affiliates, Inc. ("UCI"), UCI Medical Affiliates of South Carolina, Inc.
("UCI-SC"), UCI Medical Affiliates of Georgia, Inc. ("UCI-GA"), Doctor's Care,
P.A., Doctor's Care of Georgia, P.C., and Doctor's Care of Tennessee, P.C. (the
three together as the "P.A." and together with UCI, UCI-SC and UCI-GA, the
"Company"). Because of the corporate practice of medicine laws in the states in
which the Company operates, the Company does not own medical practices but
instead enters into exclusive long-term management services agreements with the
P.A. which operate the medical practices. Consolidation of the financial
statements is required under Emerging Issues Task Force (EITF) 97-2 as a
consequence of the nominee shareholder arrangement that exists with respect to
each of the P.A.'s. In each case, the nominee (and sole) shareholder of the P.A.
has entered into an agreement with UCI-SC or UCI-GA, as applicable, which
satisfies the requirements set forth in footnote 1 of EITF 97-2. Under the
agreement, UCI-SC or UCI-GA, as applicable, in its sole discretion, can effect a
change in the nominee shareholder at any time for a payment of $100 from the new
nominee shareholder to the old nominee shareholder, with no limits placed on the
identity of any new nominee shareholder and no adverse impact resulting to any
of UCI-SC, UCI-GA or the PA resulting from such change.
In addition to the nominee shareholder arrangements described above, each of
UCI-SC and UCI-GA have entered into Administrative Service Agreements with the
P.A.'s. As a consequence of the nominee shareholder arrangements and the
Administrative Service Agreements, the Company has a long-term financial
interest in the affiliated practices of the P.A.'s through the Administrative
Services Agreement, the Company has exclusive authority over decision making
relating to all major on-going operations. The Company establishes annual
operating and capital budgets for the PA and compensation guidelines for the
licensed medical professionals. The Administrative Services Agreements have an
initial term of forty years. According to EITF 97-2 the application of FASB
Statement No. 94 (Consolidation of All Majority-Owned Subsidiaries), and APB No.
16 (Business Combinations), the Company must consolidate the results of the
affiliated practices with those of the Company. All significant intercompany
accounts and transactions are eliminated in consolidation, including management
fees.
The method of computing the management fees are based on billings of the
affiliated practices less the amounts necessary to pay professional compensation
and other professional expenses. In all cases, these fees are meant to
compensate the Company for expenses incurred in providing covered services plus
a profit. These interests are unilaterally salable and transferable by the
Company and fluctuate based upon the actual performance of the operations of the
professional corporation.
The P.A. enters into employment agreements with physicians for terms ranging
from one to ten years. All employment agreements have clauses that allow for
early termination of the agreement if certain events occur such as the loss of a
medical license. Over 79% of the physicians employed by the P.A. are paid on an
hourly basis for time scheduled and worked at the medical centers, while other
physicians are salaried. Approximately 25 of the physicians have incentive
compensation arrangements which are contractually based upon factors such as
productivity, collections and quality.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and revenues and expenses
and the disclosure of contingent assets and liabilities. Actual results could
differ from those estimates and assumptions. Significant estimates are discussed
in these footnotes, as applicable.
The Company operates as one segment.
Medical Supplies and Drug Inventory
The inventory of medical supplies and drugs is carried at the lower of average
cost (first in, first out) 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. During fiscal year
1998, the Company changed prospectively the estimated life recorded on all
goodwill acquired prior to September 30, 1994 to a maximum life of 15 years.
This reduced net income by approximately $252,000 for fiscal year 1998.
Long-Lived Assets
The Company periodically evaluates whether later events and circumstances have
occurred that indicate that the remaining balance of long-lived assets including
goodwill and property and equipment may not be recoverable or that the remaining
useful life may warrant revision. The Company's evaluation is performed at a
center level. When external factors indicate that a long-lived asset should be
evaluated for possible impairment, the Company uses an estimate of the related
center's undiscounted cash flows to determine if an impairment exists. If an
impairment exists, it is measured based on the difference between the carrying
amount and fair value of the sums of expected future discounted cash flows.
Examples of external factors that are considered in evaluation of possible
impairment include significant changes in the third party payor reimbursement
rates and unusual turnover or licensure difficulties of clinical staff at a
center.
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 $1,400,000, $2,700,000, and $3,100,000 for
the fiscal years ended September 30, 1999, 1998 and 1997, respectively. The
Company records contractual adjustments at the time bills are generated for
services rendered. Third parties are billed at the discounted amounts. As such,
estimates of outstanding contractual adjustments or any type of third party
settlements of contractual adjustments are not necessary.
Income (Loss) Per Share
The computation of basic income (loss) per share is based on the weighted
average number of common shares outstanding during the period. Diluted income
per share is similar to basic income (loss) per share except that the weighted
average common shares outstanding is increased to include the number of shares
that would have been outstanding had the dilutive potential common shares been
issued, such as common stock options and warrants.
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.
Valuation allowances are provided against deferred tax assets when the Company
determines it is more likely than not that the deferred tax asset will not be
realized.
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,
1999 and 1998. 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 1998 and 1997 amounts have been reclassified to conform with the 1999
presentation.
Note 2. Going Concern Matters
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has a working capital deficiency, an accumulated
deficit, a line of credit agreement which expires in March 2000, and the Company
is currently in violation of a loan covenant related to the line of credit
agreement. Ultimately, the Company's viability as a going concern is dependent
upon its ability to continue to generate positive cash flows from operations,
maintain adequate working capital and obtain satisfactory long-term financing.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company plans include
the following, although it is not possible to predict the ultimate outcome of
the Company's efforts. The Company is currently seeking sources of financing
from other financing sources with terms more suitable and favorable to the
Company's financing requirements. The Company anticipates that a new financing
arrangement will be in place prior to the expiration of the current line of
credit agreement. The Company's management believes that due to the improved
financial results for 1999 and the existence of an adequate asset base, lenders
will be interested in finalizing a financial agreement more favorable to the
Company. The Company expects to have availability of the existing line of credit
until the expiration date of the credit agreement.
3. Property and Equipment
Property and equipment consists of the following at September 30:
September 30, 1999 September 30, 1998
------------------------------ ---------------------------------
Useful Life
Range Accum Accum
(in years) Cost Depreciation Cost Depreciation
5-40 $412,750 $59,781
Building $ 437,583 $
49,672
N/A 66,000 0
Land 66,000 0
5-39 1,128,841 694,406
Leasehold Improvements 1,055,715 510,945
1-5 1,447,516 731,348
Furniture & Fixtures 1,309,483 520,683
1-5 1,404,267 835,735
EDP - Companion 1,464,985 623,376
1-5 898,973 485,500
EDP - Other 733,539 366,338
5-10 3,527,323 1,671,350
Medical Equipment 3,495,054 1,345,783
1-5 797,332 418,688
Other Equipment 640,458 326,619
3-10 35,099 24,650
Autos 35,099 19,449
============== =============== ================ ================
$9,718,101 $4,921,458
Totals $ 9,237,916 $ 3,762,865
============== =============== ================ ================
At September 30, 1999 and 1998 capitalized leased equipment included above
amounted to approximately $3,904,000 and $3,776,000, net of accumulated
depreciation of $1,961,000 and $1,470,000, respectively.
Depreciation expense equaled $1,209,262, $1,092,579, and $796,179 for the
years ended September 30, 1999, 1998 and 1997, respectively.
4. Business Combinations
During the fiscal year ended September 30, 1998, the Company acquired the net
assets of 12 medical practices, and in most cases, entered into employment
agreements with the physician owners of those practices. The Company values
stock issued in business combinations based on the market price of the
securities over a two to three day period before and after the companies have
reached agreement on the purchase price and the transaction is announced. 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 13 for details regarding business combinations in fiscal year
1997.
Unaudited
--------------------------------------
1998 1997
---------------- -----------------
$ 35,571,950
Revenue $41,216,534
$ (2,854,912)
Net income (loss) $(12,177,005)
Basic earnings (loss) per share $(1.86) $ (0.53)
The Company acquired substantially all the assets of MainStreet Healthcare
Corporation ("MHC") effective for accounting purposes as of May 1, 1998 (the
"Acquisition"). The closing of the Acquisition was completed on May 13, 1998.
This Acquisition is part of the above unaudited pro forma presentation. As
partial consideration for the Acquisition, the Company delivered to MHC at the
closing of the Acquisition a Conditional Delivery Agreement (the "Conditional
Delivery Agreement") by and between the Company and MHC which requires the
Company to issue to MHC 2,901,396 shares of the common stock of the Company upon
the approval to increase the number of authorized shares of the Company by the
shareholders.
The Company treated the Acquisition as a purchase for accounting purposes per
APB 16. Total consideration amounted to $5,255,347, consisting of 2,901,396
shares of common stock of the Company valued at $1.62 per share, a cash payment
of $450,010, note payable of $800,000 bearing interest per annum at 10.5%, due
October 1, 1998 and acquisition related expense of approximately $894,000. The
excess purchase price over the fair value of assets of $5,492,404 is amortized
using the straight-line method over 15 years. The Company has reflected the
obligation to issue the common shares under the Conditional Delivery Agreement
as a long term liability described as common stock to be issued. The stock was
issued upon shareholder approval in February 1999.
The Company also purchased the assets of other physician practices during the
year ended September 30, 1998. The total purchase price of the acquisitions was
$1,118,760 including acquisition related costs. The purchase price consisted of
cash of $17,468, notes payable to the physicians of $159,536 and the issuance of
common stock of $829,370. The excess purchase price over the fair value of
assets acquired of the practices is amortized over a 15-year period.
The purchase price for all asset purchases has been allocated to the assets
purchased, and liabilities assumed based upon the fair values on the dates of
acquisitions as follows:
Working capital, other than cash $ 289,390
Property and equipment
157,295
Goodwill
685,910
Other assets
264,130
Liabilities assumed
(277,965)
=================
Purchase price $ 1,118,760
=================
5. Income Taxes
The components of the (benefit) provision for income taxes for the years ended
September 30 are as follows:
1999 1998
------------- ---------------
Deferred:
$ 0
Federal $1,610,113
0
State 142,069
============= ===============
$ 0
Total income tax expense (benefit) $1,752,182
============= ===============
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.
At September 30, 1999, 1998 and 1997 the Company's deferred tax assets
(liabilities) and the related valuation allowances are as follows:
1999
1998 1997
------------------ ----------------- ----------------
$ 548,533 $ 1,302,267
Accounts receivable $ 325,033
9,512
Other 52,604
58,420
5,860,524
Operating loss carryforwards 4,069,762 2,993,578
(200,761)
Fixed assets 923,200
(279,548)
Accounts payable 104,670 295,068
0
----------------- ----------------
==================
$6,322,478
$ 6,642,901 $ 3,097,483
================== ================= ================
$6,322,478
Valuation allowance $ 6,642,901 $ 1,345,301
================== ================= ================
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:
1999
1998 1997
------------------ ----------------- ----------------
$ 309,318
Tax at federal statutory rate $ (2,977,027) $ (254,747)
Effect on rate of:
(66,442)
Amortization of goodwill 893,281 67,528
50,752
Non deductible expenses 33,502 12,068
815
Life insurance premiums 887 815
25,980
State income taxes & other (262,679) 114,882
0
Acquisitions of medical practices (1,233,382) 0
(320,423)
Change in valuation allowance 5,297,600 (606,076)
================== ================= ================
$ 0
$ 1,752,182 $ (665,530)
================== ================= ================
At September 30, 1999, 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
2018
2,908,607
2019 4,839,897
----------------
$15,839,255
================
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.
The Company has $8,450 of investment tax credit carryforwards which expire in
2000.
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:
Recent historical operations results.
The budgets and forecasts that management and the Board of
Directors had adopted for the next fiscal year.
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 generation of future taxable income in excess of income
reported on the consolidated financial statements.
A valuation allowance of $6.3 million and $6.6 million at September 30, 1999 and
1998, respectively, remained necessary in the judgement of management because
the factors noted above (i.e. forecasts) did not support the utilization of less
than a full valuation allowance.
6. Long-Term Debt
Long-term debt consists of the following at September 30:
1999 1998
----------------- -----------------
Revolving line of credit with a financial institution in the maximum amount of
$7,000,000 dated March 24, 1998, bearing interest at a rate of prime plus 2.5%
(prime rate is 8.25% as of September 30, 1999), collateralized by accounts
receivable from third party payors , fixed assets, and inventory, renewable
annually after first term of two years.
Availability is limited by accounts receivable type and age as defined in $2,678,039 $ 3,445,743
the agreement.
Convertible subordinated debenture (to the Company's common stock at $3.20 per
share) with a national physician practice management company, in the amount of
$1,500,000, dated October 6, 1997, interest only payable
annually at the rate of 6.5%, maturing October 5, 2002. 1,500,000 1,500,000
Note payable in the amount of $1,600,000 with monthly installments of $8,889
plus interest at prime plus 6% (prime rate is 8.25 % as of
September 30, 1999), through February 1, 2009 collateralized by accounts 1,021,889 1,102,222
receivable from patients and leasehold interests and the guarantee of the
P.A.
Note payable to MainStreet Healthcare Corporation in the amount of $800,000
dated July 31, 1998, payable in monthly installments of interest
only at a rate of 10.5% maturing January 31, 2000. 593,579 800,000
Note payable to a financial institution in the amount of $500,000, dated
February 23, 1999, payable in monthly installments of principal and interest at
a rate of prime plus 1% (prime rate is 8.25% as of September 30, 1999) maturing
on March 15, 2000, collateralized by common stock of
the Company owned by the President as well as a life insurance policy of 450,000 500,000
president of the Company.
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, 337,446 353,888
collateralized by accounts receivable from patients.
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 8.25% as of September 30, 1999) of $3,100 from
April 1997 to February 2002, with a final payment of
all remaining principal and accrued interest due in March 2002, 249,520 263,525
collateralized by a mortgage on one of the Company's medical facilities.
Note payable to a financial institution in the amount of $293,991, payable in
monthly installments of principal and interest at a rate of prime plus
.5%, maturing on January 1, 2005, personally guaranteed by three former 227,113 263,915
physician employees of the P.A.
Note payable in the amount of $250,000 with monthly installments of $1,389 plus
interest at prime plus 2% (prime rate is 8.25% as of September 30,
1999), through February 1, 2009 collateralized by a condominium. 0 172,222
1999 1998
----------------- -----------------
Note payable in the amount of $43,500 dated September 1, 1997, with
monthly installments (including 8% interest) of $1,500, payable from 17,302
January 1998 to September 2000. 31,966
Notes payable in monthly installments over three to four years at interest 4,091
rates ranging from 3.9% to 10.5%, collateralized by related vehicles.
10,060
Note payable to a former physician employee of the P.A. in the amount of
$90,536 with monthly installments (including 6.5% interest) of $2,468 from
December 1997 to April 2001. 42,225 0
Note payable to a former physician employee of the P.A. in the amount of
$69,000 with monthly installments of $1,500 plus interest at 6.5% from
December 1997 to September 2001. 34,500 0
----------------- -----------------
7,155,704 8,443,541
Subtotal
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 0 236,090
1997 to August 2002.
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 0 236,090
1997 to August 2002.
Note payable to a physician employee of the P.A. in the amount of $110,000
with monthly installments (including 6% interest) of $3,346 from April
1998 to March 2001. 0
89,741
Note payable to a former physician employee of the P.A. in the amount of
$90,536 with monthly installments (including 6.5% interest) of $2,468 from
December 1997 to April 2001. 0
68,179
Note payable to a former physician employee of the P.A. in the amount of
$69,000 with monthly installments of $1,500 plus interest at 6.5% from
December 1997 to September 2001. 0
52,500
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 0
1997 to August 2002. 9,635
----------------- -----------------
0 692,235
Subtotal - payable to employees
2,288,528 2,852,513
Capitalized lease obligations
----------------- -----------------
9,444,232 11,988,289
(4,557,797) (5,540,552)
Less, current portion
0 (190,452)
Less, current portion payable to employees
----------------- -----------------
$4,886,435 $ 6,257,285
================= =================
Aggregate maturities of notes payable and capital leases in each of the
five years 2000 through 2004 are as follows:
Notes Payable Capital Leases
Year ending September 30: Total
---------------- ---------------- ----------------
$ 3,870,914 $ 686,883 $ 4,557,797
2000
107,045 556,072 663,117
2001
80,502 455,189 535,691
2002
1,585,513 374,596 1,960,109
2003
71,104 190,711 261,815
2004
1,440,626 25,077 1,465,703
Thereafter
================ ================ ================
$ 7,155,704 $ 2,288,528 $ 9,444,232
================ ================ ================
As of September 30, 1999, the Company had borrowed approximately the maximum
allowable amount under its operating line of credit and was in violation of one
of its debt covenants. The covenant requires that the net worth of the Company
did not drop below $7,650,000. This line of credit expires under its original
terms on March 24, 2000 and the Company is currently in negotiations with its
current lender and various other potential lenders to refinance this debt.
7. 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 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 $159,201,
$182,681, and $172,792 in fiscal years 1999, 1998, and 1997, respectively.
During June 1997, the Company's Board of Directors approved the UCI/Doctor's
Care Deferred Compensation Plan (the "Plan") for key employees of the Company
with an effective date of June 1998. To be eligible for the Plan, key employees
must have completed three years of full-time employment and hold a management or
physician position that is required to obtain specific operational goals that
benefit the corporation as a whole. Under the Plan, key employees may defer a
portion of their after tax earnings with the Company matching two times the
employee's contribution percentage. The Company's matching contribution was
$49,640 and $34,189 in fiscal years 1999 and 1998, respectively.
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 and are outstanding as of September 30, 1998 to 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 8, "Stockholders' Equity" for activity information
regarding these four stock option plans.
8. 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 . In February 1999, the shareholders approved an
increase in the number of authorized shares to 50,000,000. 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 7, "Employee Benefit Plans.")
1996 1996 Non- 1997 1997 Non-
1984 1984 1994 1994 Non-Employee Employee Non-Employee Employee
Stock Options Plan Plan Plan Plan Plan Plan Plan Plan
- ----------------------------- ------- --------- ----------- ----------- -----------
---------- ---------- -----------
Outstanding at 09/30/96 12,800 359,500 10,000
Granted FY 96/97 0 445,500 0 20,000
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 exercise price:
(1) (1) equals N/A $2.1608 N/A $2.5000
fair value N/A 2.6250 N/A N/A
(2) exceeds fair value
Forfeited FY 97/98 (13,000)
(500) 0 (5,000)
---------- ---------- ----------- -----------
Outstanding at 09/30/98 737,000
12,300 10,000 15,000
---------- ---------- ----------- -----------
Exercisable at 09/30/98
12,300 0 0 0
Forfeited FY 98/99 0 (83,950) 0
0
---------- ---------- ----------- -----------
Outstanding at 09/30/99 653,050
12,300 10,000 15,000
---------- ---------- ----------- -----------
Exercisable at 09/30/99
12,300 0 0 0
The Company has not granted options under any plans during fiscal years
1999 and 1998 and there have been no shares exercised during 1999, 1998, or
1997.
The following table summarizes the weighted average exercise price of stock
options exercisable at the end of each of the three previous fiscal years:
1996 1997
Weighted Average Non-Employee Plan Non-Employee
Exercise Price 1984 Plan 1994 Plan Plan
- ------------------------------------- ------------- ------------- ------------------ ------------------
Outstanding at 09/30/96 $ .25 $3.2797 $3.50 $ 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
------------- ------------- ------------------ ------------------
Granted FY 97/98 0 0 0 0
Exercised FY 97/98 0 0 0 0
Forfeited FY 97/98 0.25 3.2596 0 2.50
------------- ------------- ------------------ ------------------
Outstanding at 09/30/98 0.25 2.6209 3.50 2.50
------------- ------------- ------------------ ------------------
Exercisable at 09/30/98 0.25 0 0 0
------------- ------------- ------------------ ------------------
Granted FY 98/99 0 0 0 0
Exercised FY 98/99 0 0 0 0
Forfeited FY 98/99 0 2.4143 0 0
------------- ------------- ------------------ ------------------
Outstanding at 09/30/99 0.25 2.6475 3.50 0
------------- ------------- ------------------ ------------------
Exercisable at 09/30/99 0.25 0 0 0
------------- ------------- ------------------ ------------------
The following table summarizes options outstanding and exercisable by price
range as of September 3, 1999:
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 12,300 3.25 years $ .25 12,300 $ .25
173,375
$1.00 to $1.99 7.67 1.9375 0 N/A
335,675
$2.00 to $2.99 4.72 2.560 0 N/A
126,000
$3.00 to $3.99 4.65 3.352 0 N/A
$4.00 to $4.99 43,000 2.68 4.279 0 N/A
=============== ==============
690,350 12,300
=============== ==============
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 1998,
1997 and 1996 consistent with the provisions of SFAS 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.
Fiscal Year Ended September 30
--------------------------------------------------------
1999
1998 1997
------------- ------------------ -----------------
$909,758 $(10,508,143)
Net income (loss) - as reported $ (83,726)
774,143 (10,687,809)
Net income (loss) - pro forma (171,232)
Basic and diluted earnings (loss) per .11 (1.61)
share - as reported
(.02)
Basic and diluted earnings (loss) per .09 (1.63)
share - pro forma (.03)
8,536,720 6,545,016
Basic weighted average number of shares 5,005,081
Diluted weighted average number of shares 8,543,515 6,545,016 5,005,081
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 during the year ended
September 30, 1997 and cancelled during the year ended September 30, 1998, in
connection with consulting and financial analysis services to be rendered (i.e.,
financial analyst report, etc.). During the years ended September 30, 1998 and
September 30, 1999, the Company granted to FPA Medical Management, Inc. warrants
to purchase up to thirty-five thousand (35,000) and ten thousand (10,000)
warrant shares, respectively, as part of a $1,500,000 convertible subordinated
debenture. The Stock Purchase Warrant allows for 65,000 shares in total. In
addition, during the year ended September 30, 1999, the Company granted to Allen
& Company Incorporated, financial advisors, warrants to purchase 150,000 shares
of common stock. The following is a schedule of warrants issued and outstanding
during the years ended September 30, 1999 and 1998:
Number of Exercise Date Expiration
Warrants Price Exercisable Date
-------------- --------------- --------------- --------------
0
Outstanding at 09/30/96 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
Activity during FY 97/98:
Issued at $2.5625 25,000 $2.5625 10/06/97 09/30/00
Issued at $2.5625 10,000 2.5625 04/06/98 04/05/01
Cancelled at $3.125 (125,000) 3.1250
Cancelled at $5.00 (125,000) 5.0000
Exercised 0
Expired 0
--------------
Outstanding at 09/30/98 90,000
Activity during FY 98/99:
Issued at 0.7188 10,000 0.7188 10/06/98 10/05/01
Issued at 1.00 150,000 1.00 03/03/99 03/03/04
Exercised 0
Expired (12,500) 5.00 10/09/96 09/16/99
Expired (12,500) 3.125 10/09/96 09/16/99
--------------
Outstanding at 09/30/99 225,000
==============
9. 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.
Future minimum lease payments under noncancellable operating leases with a
remaining term in excess of one year as of September 30, 1999, are as follows:
Operating Leases
----------------------
Year ending September 30:
$ 2,621,344
2000
2,419,578
2001
2,108,017
2002
1,849,411
2003
2004 1,794,205
12,924,292
Thereafter
----------------------
$ 23,716,847
Total minimum lease payments
======================
Total rental expense under operating leases for fiscal 1999, 1998 and 1997
was approximately $2,510,000, $2,499,000, and $1,475,000, respectively.
10. Related Party Transactions
Relationship between UCI-SC and UCI-GA and the P.A.s
Pursuant to agreements between UCI-SC, UCI-GA and the P.A.'s, UCI-SC and UCI-GA
provide non-medical management services and personnel, facilities, equipment and
other assets to the Centers. UCI-SC and UCI-GA guarantee the compensation of the
physicians employed by the P.A.'s. The agreements also allow UCI-SC and UCI-GA
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.'s assign all revenue generated from providing medical services to UCI-SC or
UCI-GA after paying physician salaries and the cost of narcotic drugs held by
the P.A.'s. The South Carolina P.A. is owned by M.F. McFarland, III, M.D. Dr.
McFarland is also President, Chief Executive Officer and Chairman of UCI, UCI-SC
and UCI-GA. The Georgia and Tennessee P.A.'s are owned by D. Michael Stout,
M.D., who is also the Executive Vice President of Medical Affairs for UCI,
UCI-SC and UCI-GA.
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 30,1999, 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 27% of the Company's outstanding common stock.
Facility Leases
During fiscal year 1999, UCI-SC leased six medical center facilities from CHC
and one from CP&C. At September 30, 1999, UCI-SC leases four 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 South
Carolina 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, 1999, 1998, and 1997 were $257,025, $326,093 and $319,730,
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,
Board members, 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,
1999, 1998 and 1997 were $103,200, $62,400, and $45,600, respectively.
Ten of the medical center facilities operated by UCI-SC are or were leased from
physician employees of the P.A.'s. Total lease payments made by UCI-SC under
these leases during the Company's fiscal years ended September 30, 1999, 1998
and 1997 were $205,981, $444,153, and $258,026, respectively.
Other Transactions with Related Parties
At September 30, 1999, BCBS and its subsidiaries controls 2,624,623 shares, or
approximately 27% 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 by
the Company.
The Company enters into capital lease obligations with CT to purchase computer
equipment, software, and billing and accounts receivable upgrades. The total of
all lease obligations to CT recorded at September 30, 1999 is $1,053,687.
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.
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 employees of the Company are offered health, life, and dental insurance
coverage at group rates from BCBS and its subsidiaries. Effective March 1999,
the Company is self-insured through BCBS and has contracted BCBS to perform all
administrative services. During fiscal year 1999, the Company paid $102,687 to
BCBS in administrative fees. In fiscal years 1999, 1998 and 1997, the Company
paid $508,000, $939,000 and $654,000, respectively, in premiums.
During fiscal year 1999, 1998 and 1997, the Company paid BCBS and its
subsidiaries $208,000, $70,000 and $97,000, respectively, in interest.
Revenues generated from BCBS and its subsidiaries totaled approximately 18%
for fiscal years 1999, 1998 and 1997.
The Company contracted with Adams and Associates for its workers compensation
and professional liability insurance coverage through fiscal year 1997.
Aggregate premiums paid during the fiscal year ended September 30, 1997 in
connection with such policies were approximately $155,000. Adams and Associates
contracted with CP&C to be the insurance carrier for the Company's workers
compensation insurance coverage. Harold H. Adams, Jr. is the President and owner
of Adams and Associates and is also a director of the Company.
11. Income (Loss) Per Share
The calculation of basic income (loss) per share is based on the weighted
average number of shares outstanding (8,356,720 in fiscal 1999, 6,545,016 in
fiscal 1998, and 5,005,081 in fiscal 1997). Fully diluted weighted average
common shares outstanding during fiscal year 1999 were 8,543,515. Warrants and
options to purchase 903,050 shares, 852,000 shares and 920,500 shares of common
stock were excluded from the calculation at September 30, 1999, September 30,
1998 and September 30, 1997, respectively, because of their antidilutive effect.
12. 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.
13. 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, 1999, 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.
The health care industry is subject to numerous laws and regulations of federal,
state and local governments. These laws and regulations include, but are not
necessarily limited to, matters such as licensure, accreditation, government
health care program participation requirements, reimbursement for patient
services and Medicare and Medicaid fraud and abuse. Recently, government
activity has increased with respect to investigations and allegations concerning
possible violations of fraud and abuse statutes and regulations by health care
providers.
Violations of these laws and regulations could result in expulsion from
government health care programs together with the imposition of significant
fines and penalties, as well as significant repayments for patient services
previously billed. Management believes that the Company is in compliance with
fraud and abuse as well as other applicable government laws and regulations;
however, the possibility for future governmental review and interpretation
exists.
14. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
The Company made interest payments of $1,374,364, $1,463,991, and $813,569, in
the years ended September 30, 1999, 1998, and 1997, respectively. The Company
made no income tax payments in the years ended September 30, 1999, 1998 and
1997, respectively.
Supplemental Non-Cash Financing Activities
Capital lease obligations of $255,862, $1,138,231, and $1,004,837 were
incurred in fiscal 1999, 1998, and 1997.
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.
In October 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.
In November 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.
In May 1998, the Company acquired certain assets of an seven facility medical
practice (five in Georgia and two in Tennessee) for $5,255,437 by assuming
certain liabilities, paying $450,010 at closing, financing $800,000 with the
seller, and committing to issue 2,901,396 shares of the common stock of the
Company. In February 1999, the shares were issued to the seller with the Board's
approval, in satisfaction of the liability for $4,700,262.
The Company sold the three centers of the Springwood Lake Family Practice back
to the physicians in November 1998 in exchange for the return of 550,126 shares
of the Company's stock valued at $223,333 and the forgiveness of loans totaling
$658,554. A loss of $1,668,000 was recorded in fiscal year 1998. The centers
were purchased from the physicians in September 1997. The three centers were
operated by the Company as Springwood Lake Family Practice, Woodhill Family
Practice and Midtown Family Practice.
15. Realignment and Other Expenses
In the fourth quarter of fiscal year 1998, the Company recorded a charge of
$4,307,020 for the impairment of goodwill and the accrual of certain estimated
operating lease obligations. The impairment charge of $3,702,546 is related to a
write-off of $672,322 of goodwill impairment associated with Center closures,
$1,808,504 of goodwill impairment of Centers sold or which the Company had
agreed to sell as of September 30, 1998 $969,720 related to goodwill impairment
on two operating Centers and $252,000 related to changing the estimated life on
all goodwill acquired prior to September 30, 1994 from 30 years to 15 years. The
impairment includes a charge of $1,668,000 related to the sale of the Family
Medical Division, consisting of the Springwood Lake Family Practice, Midtown
Family Practice and the Woodhill Family Practice. The Company agreed to sell the
facilities back to the physicians in September, 1998. The Centers were purchased
from the physicians in September 1997. The closing of the sale occurred
effective November 1, 1998. The impairment charge was based upon the estimated
fair market value of consideration to be received from the sale less directly
related costs of sale.
In addition, the Company accrued $599,975 of estimated operating lease
obligations related to closed Centers (this amount is included in the operating
costs line item). The leasing obligation will be paid over a remaining term
ranging from one to fourteen years. During fiscal year 1999, the Company changed
its estimated lease obligation since three landlords released the Company from
its obligation.
Estimated lease obligation accrued for closed centers:
Balance, September 30, 1998 $ 599,975
Lease payments (108,381)
Change in estimated lease obligations (329,094)
================
Balance, September 30, 1999 $ 162,500
================
SIGNATURES
Pursuant to the requirements of Section 13 or 15() 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.
Signature Title Date
--------- ----- ---
/S/ M.F. MCFARLAND, III, M.D. President, Chief Executive Officer
- ------------------------------
M.F. McFarland, III, M.D. and Chairman of the Board December 22, 1999
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 dates indicated.
Signature Title Date
/S/ M.F. MCFARLAND, III, M.D. President, Chief Executive Officer December 22, 1999
- -------------------------------
M.F. McFarland, III, M.D. and Chairman of the Board
/S/ JERRY F. WELLS, JR. Executive Vice President of Finance December 22, 1999
- -------------------------------------
Jerry F. Wells, Jr. and Chief Financial Officer
/S/ A. WAYNE JOHNSON Director December 22, 1999
- -----------------------
A. Wayne Johnson
/S/ HAROLD H. ADAMS, JR. Director December 22, 1999
- --------------------------------
Harold H. Adams, Jr.
/S/ CHARLES M. POTOK Director December 22, 1999
- ---------------------------------
Charles M. Potok
/S/ THOMAS G. FAULDS Director December 22, 1999
- --------------------------------
Thomas G. Faulds
/S/ ASHBY JORDAN, M.D. Director December 22, 1999
- ------------------------------
Ashby Jordan, M.D.
/S/ JOHN M. LITTLE, Jr., M.D. Director December 22, 1999
- ------------------------------
John M. Little, Jr., M.D.
UCI MEDICAL AFFILIATES, INC.
EXHIBIT INDEX
PAGE NUMBER OR INCORPORATION BY
EXHIBIT NUMBER REFERENCE TO
DESCRIPTION
- ----------------- ------------------------------------------------------- ------------------------------------
3.1 Amended and Restated Certificate of Incorporation of Exhibit 3.1 on the Form 10-KSB
UCI Medical Affiliates, Inc. ("UCI") filed for fiscal year 1995
3.2 Amended and Restated Bylaws of UCI Exhibit 3.2 on the Form 10-KSB
filed for fiscal year 1995
3.3 Amendment to Amended and Restated Bylaws of UCI Exhibit 3.3 on the Form 10-KSB
filed for fiscal year 1996
Exhibit 4.1 on the Form 10-KSB
4.1 Convertible Subordinated Debenture of UCI dated filed for fiscal year 1997
October 6, 1997 payable to FPA Medical Management,
Inc. (AFPAMM")
4.2 Stock Purchase Warrant Agreement dated October 6, Exhibit 4.2 on the Form 10-KSB
1996 between UCI and FPAMM filed for fiscal year 1997
10.1 Facilities Agreement dated May 8, 1984 by and between Exhibit 10.1 on the Form 10-KSB
UCI Medical Affiliates of South Carolina, Inc. filed for fiscal year 1996
(AUCI-SC") and Doctor's Care, P.A., as amended
September 24, 1984 and January 13, 1995
10.2 Amendment No. 3 dated September 17, 1996 to the Exhibit 10.2 on the Form 10-KSB
Facilities Agreement listed as Exhibit 10.1 to this filed for fiscal year 1997
report
10.3 Employment Agreement dated October 1, 1995 between Exhibit 10.4 on the Form 10-KSB
UCI-SC and M.F. McFarland, III, M.D. filed for fiscal year 1995
10.4 Employment Agreement dated October 1, 1995 between Exhibit 10.5 on the Form 10-KSB
Doctor's Care, P.A. and M.F. McFarland, III, M.D. filed for fiscal year 1995
10.5 Employment Agreement dated November 1, 1995 between Exhibit 10.6 on the Form 10-KSB
UCI-SC and D. Michael Stout, M.D. filed for fiscal year 1995
10.6 Employment Agreement November 1, 1995 between Exhibit 10.7 on the Form 10-KSB
Doctor's Care, P.A. and D. Michael Stout, M.D. filed for fiscal year 1995
PAGE NUMBER OR INCORPORATION BY
EXHIBIT NUMBER REFERENCE TO
DESCRIPTION
- ----------------- ------------------------------------------------------- ------------------------------------
10.7 Lease and License Agreement dated March 30, 1994 Exhibit 10.8 on the Form 10-KSB
between Doctor's Care, P.A. and Blue Cross Blue filed for fiscal year 1995
Shield of South Carolina
Exhibit 10.8 on the Form 10-KSB
10.8 Note Payable dated February 28, 1995 between UCI-SC, filed for fiscal year 1997
as payor, and Companion Property and Casualty
Insurance Company, as payee
Exhibit 10.9 on the Form 10-KSB
10.9 Revolving Line of Credit dated November 11, 1996 filed for fiscal year 1997
between Carolina First Bank and UCI
Exhibit 10.10 on the Form 10-KSB
10.10 Stock Option Agreement dated March 20, 1996 between filed for fiscal year 1997
UCI and Harold H. Adams, Jr.
Exhibit 10.11 on the Form 10-KSB
10.11 Stock Option Agreement dated March 20, 1996 between filed for fiscal year 1997
UCI and Russell J. Froneberger
Exhibit 10.12 on the Form 10-KSB
10.12 Stock Option Agreement dated March 27, 1997 between filed for fiscal year 1997
UCI and Charles P. Cannon
Exhibit 10.13 on the Form 10-KSB
10.13 Stock Option Agreement dated March 27, 1997 between filed for fiscal year 1997
UCI and Thomas G. Faulds
Exhibit 10.14 on the Form 10-KSB
10.14 Stock Option Agreement dated March 27, 1997 between filed for fiscal year 1997
UCI and Ashby Jordan, M.D.
Exhibit 10.15 on the Form 10-KSB
10.15 Stock Option Agreement dated March 27, 1997 between filed for fiscal year 1997
UCI and Charles M. Potok
10.16 UCI Medical Affiliates, Inc. 1994 Incentive Stock Exhibit 10.9 on the Form 10-KSB
Option Plan filed for fiscal year 1995
10.17 Consulting Agreement dated December 10, 1996 between Exhibit 10.17 on the Form 10-KSB
UCI and Global Consulting, Inc. filed for fiscal year 1997
10.18 Amendment dated August 10, 1998 to Employment Exhibit 10.18 on the Form 10-KSB
Agreement dated October 6, 1995 between Doctor's filed for fiscal year 1998
Care, P.A. and M.F. McFarland, III, M.D.
10.19 Administrative Services Agreement dated April 24, Exhibit 10.19 on the Form 10-QSB
1998 by and between Doctor's Care of Georgia, P.C. filed for the quarter ended March
and UCI Medical Affiliates of Georgia, Inc. 31, 1998
10.20 Administrative Services Agreement dated April 24, Exhibit 10.20 on the Form 10-QSB
1998 by and between Doctor's Care of Tennessee, P.C. filed for the quarter ended March
and UCI Medical Affiliates of Tennessee, Inc. 31, 1998
PAGE NUMBER OR INCORPORATION BY
EXHIBIT NUMBER REFERENCE TO
DESCRIPTION
- ----------------- ------------------------------------------------------- ------------------------------------
10.21 Administrative Services Agreement dated August 11, Exhibit 10.21 on the Form 10-KSB
1998 between UCI Medical Affiliates of South filed for fiscal year 1997
Carolina, Inc. and Doctor's Care, P.A.
10.22 Stock Purchase Option and Restriction Agreement dated Exhibit 10.22 on the Form 10-KSB
August 11, 1998 by and among M.F. McFarland, III, filed for fiscal year 1998
M.D.; UCI Medical Affiliates of South Carolina, Inc.;
and Doctor's Care, P.A.
10.23 Stock Purchase Option and Restriction Agreement dated Exhibit 10.23 on the Form 10-KSB
September 1, 1998 by and among D. Michael Stout, filed for fiscal year 1998
M.D.; UCI Medical Affiliates of Georgia, Inc.; and
Doctor's Care of Georgia, P.C.
10.24 Stock Purchase Option and Restriction Agreement dated Exhibit 10.24 on the Form 10-KSB
July 15, 1998 by and among D. Michael Stout, M.D.; filed for fiscal year 1998
UCI Medical Affiliates of Georgia, Inc.; and Doctor's
Care of Tennessee, P.C.
10.25 Acquisition Agreement and Plan of Reorganization Exhibit 2 on the Form 8-K filed
dated February 9, 1998, by and among UCI Medical February 17, 1998
Affiliates of Georgia, Inc., UCI Medical Affiliates,
Inc., MainStreet Healthcare Corporation; MainStreet
Healthcare Medical Group, P.C.; MainStreet Healthcare
Medical Group, P.C.; Prompt Care Medical Center,
Inc.; Michael J. Dare; A. Wayne Johnson; Penman
Private Equity and Mezzanine Fund, L.P.; and Robert
G. Riddett, Jr.
10.26 First Amendment to Acquisition Agreement and Plan of Exhibit 2.1 on Form 8-K/A filed
Reorganization (included as Exhibit 10.25 hereof) April 20, 1998
dated April 15, 1998.
10.27 Second Amendment to Acquisition Agreement and Plan of Exhibit 2.2 on Form 8-K/A filed
Reorganization (included as Exhibit 10.25 hereof) May 28, 1998
dated May 7, 1998.
10.28 Conditional Delivery Agreement dated effective as of Exhibit 2.3 on Form 8-K/A filed
May 1, 1998, by and among UCI Medical Affiliates, July 24, 1998
Inc.; UCI Medical Affiliates of Georgia, Inc.; and
MainStreet Healthcare Corporation.
10.29 Amendment to Conditional Delivery Agreement dated as Exhibit 2.4 on Form 8-K/A filed
of July 21, 1998, by and among UCI Medical July 24, 1998
Affiliates, Inc.; UCI Medical Affiliates of Georgia,
Inc.; and MainStreet Healthcare Corporation.
10.30 Second Amendment to Conditional Delivery Agreement Exhibit 2.5 on Form 8-K/A filed on
dated as of December 7, 1998, by and among UCI December 7, 1998
Medical Affiliates, Inc.; UCI Medical Affiliates of
Georgia, Inc.; and MainStreet Healthcare Corporation.
10.31 Amended Employment Agreement dated August 19, 1999 57
between UCI Medical Affiliates of South Carolina,
Inc. and M.F. McFarland, III, M.D.
PAGE NUMBER OR INCORPORATION BY
EXHIBIT NUMBER REFERENCE TO
DESCRIPTION
10.32 Second Amended Employment Agreement dated August 19, 66
1999 between Doctor's Care, P.A. and M.F. McFarland,
III, M.D.
21 Subsidiaries of the Registrant Exhibit 21 on the Form 10-QSB
filed for period ending December
31, 1997
27 Financial Data Schedule Filed separately as Article Type 5
via Edgar