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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, 2001
( ) 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)
4416 Forest Drive, Columbia, SC 29206
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 782-4278
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 31, 2001, was approximately $1,206,992.*
The number of shares outstanding of the registrant's common stock, $.05 par
value, was 9,650,515 at December 31, 2001.
* Calculated by excluding all shares held by officers, directors and controlling
shareholders 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...................................................................................12
Item 4. Submission of Matters to a Vote of Security Holders.................................................12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...............................13
Item 6. Selected Financial Data.............................................................................14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..........................................21
Item 8. Financial Statements and Supplementary Data.........................................................22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................22
PART III
Item 10. Directors and Executive Officers of the Registrant..................................................23
Item 11. Executive Compensation..............................................................................25
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................29
Item 13. Certain Relationships and Related Transactions......................................................30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................33
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 36 freestanding medical centers (the "Centers"), 34 of
which are located throughout South Carolina and two are located in Knoxville,
Tennessee (29 operating as Doctorss.s Care in South Carolina, one as Doctor's
Care in Knoxville, Tennessee, five as Progressive Physical Therapy Services in
South Carolina, and one as Progressive Physical Therapy Services in Knoxville,
Tennessee).
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 Doctorss.s Care, P.A. or Doctor's
Care of Tennessee, P.C. (together 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. Neither
UCI-SC nor UCI-GA loans or otherwise advances funds to any P.A. for any
purposes.
The P.A.'s and UCI-SC 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 Tennessee P.C. 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.
Chapter 11 Bankruptcy Filing
On November 2, 2001, the Company (the "Debtors") filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
South Carolina (the "Bankruptcy Court"). The Debtors remain in possession of
their properties and assets and management of the Company continues to operate
the business of the Debtors as a debtor-in-possession. As a
debtor-in-possession, the Company is authorized to continue to operate its
businesses, but may not engage in transactions outside the ordinary course of
business without the approval, after notice and an opportunity for a hearing, of
the Bankruptcy Court. Pursuant to the automatic stay provisions of the
Bankruptcy Code, all actions to collect pre-petition indebtedness of the
Debtors, as well as most other pending litigation against the Debtors are
currently stayed. In addition, as debtor-in-possession, the Debtors have the
right, subject to the approval of the Bankruptcy Court and certain other
conditions, to assume or reject any pre-petition executory contracts or
unexpired leases.
The Bankruptcy Court has approved payment of certain pre-petition liabilities,
such as employee wages and benefits, and settlement of certain trade payable
claims. In addition, the Bankruptcy Court has allowed for the retention of legal
and financial professionals to advise in the bankruptcy proceedings.
The Company presently intends to reorganize the Company's business and
restructure the Company's liabilities through a plan of reorganization to be
filed with the Bankruptcy Court. In connection with the development of a plan or
plans of reorganization alternatives, the Company will evaluate any and all
proposals to maximize the value of the Debtors.
Currently, it is not possible to predict with certainty the length of time the
Company will operate under the protection of Chapter 11, the outcome of the
Chapter 11 proceedings in general, or the effect of the proceedings on the
business of the Company or on the interests of the various creditors and
security holders. Under the priority scheme established by the Bankruptcy Code,
certain post-petition liabilities and pre-petition liabilities need to be
satisfied before shareholders can receive any distribution. The ultimate
recovery to shareholders, if any, will not be determined until confirmation of a
plan of reorganization. There can be no assurance as to what value, if any, will
be ascribed to the Company's common stock in the bankruptcy proceedings.
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 and there are two in Knoxville, Tennessee. There are fifteen primary
care Centers in the Columbia region (including the three physical therapy
offices), seven in the Charleston region (including one physical therapy
office), four in the Myrtle Beach region, one in the Aiken region, seven in the
Greenville-Spartanburg region (including one physical therapy office) and two in
Knoxville, Tennessee (including one physical therapy office).
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:
o Routine care of general medical problems, including colds, flu, ear
infections, hypertension, asthma, pneumonia and other conditions typically
treated by primary care providers;
o Treatment of injuries, such as simple fractures, dislocations, sprains,
bruises and cuts;
o Minor surgery, including suturing of lacerations and removal of cysts and
foreign bodies;
o Diagnostic tests, such as x-rays, electrocardiograms, complete blood
counts, urinalysis and various cultures; and
o 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 four largest health maintenance organizations
("HMOs") operating in South Carolina - Companion HealthCare Corporation, HMO
Blue, Cigna/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 2001:
Percent of Percent of
Payor Patient Visits Revenue
- ------------------------------- ------------------- ---------------
19% 17%
Patient Pay
12% 7%
Employer Paid
12% 12%
HMO
10% 15%
Workers Compensation
8% 6%
Medicare/Medicaid
35% 38%
Managed Care Insurance
Other (Commercial Indemnity, 4% 5%
Champus, etc.)
In accordance with the Administrative Services Agreements described above,
UCI-SC and UCI-GA, as the agents for the P.A.'s, process all payments for the
P.A.'s. When 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 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 a discounted fee-for-service
basis.
The Company currently does not provide any services on a capitated basis.
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
substantial 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 P.A.'s pursuant to
contracts with the Company's wholly-owned subsidiaries. The P.A.'s are organized
so that all physician services are offered by the physicians who are employed by
the P.A.'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 Agreement with the P.A. operating in Tennessee pursuant to which UCI-SC
and UCI-GA, as applicable, perform all non-medical management of the applicable
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). (See Item 1.
Business - Organizational Structure.)
Because of the unique structure of the relationships existing between UCI-SC,
UCI-GA and the P.A.'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 South Carolina and
Tennessee. 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.
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 P.A. There are no
provider investors in the P.A. 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/disclosure 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 P.A. There
are no provider investors in the P.A. that refer patients for designated health
care services except the sole physician shareholder of the P.A. The Company
believes that referrals by the sole shareholder of the P.A. 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 P.A.'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. 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 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 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, 2001, the Company had 530 employees (403 on a full-time
equivalent basis). This includes 109 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 and one Center is leased from Companion HealthCare Corporation, a
principal shareholder of the Company. One of the Centers is leased from a
physician employee of the P.A.'s.
The Company's Centers are broadly distributed throughout the state of South
Carolina and two are in Knoxville, Tennessee. There are 15 primary care Centers
in the Columbia, South Carolina region (including three physical therapy
offices), seven in the Charleston, South Carolina region (including one physical
therapy office), 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 physical therapy office) and two in the
Knoxville, Tennessee region (including one physical therapy office). The
Company's corporate offices are located on the second floor of one of the
Columbia, South Carolina locations. 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.
Chapter 11 Bankruptcy Filing
On November 2, 2001, the Company (the "Debtors") filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
South Carolina (the "Bankruptcy Court"). The Debtors remain in possession of
their properties and assets and management of the Company continues to operate
the business of the Debtors as a debtor-in-possession. As a
debtor-in-possession, the Company is authorized to continue to operate its
businesses, but may not engage in transactions outside the ordinary course of
business without the approval, after notice and an opportunity for a hearing, of
the Bankruptcy Court. Pursuant to the automatic stay provisions of the
Bankruptcy Code, all actions to collect pre-petition indebtedness of the
Debtors, as well as most other pending litigation against the Debtors are
currently stayed. In addition, as debtor-in-possession, the Debtors have the
right, subject to the approval of the Bankruptcy Court and certain other
conditions, to assume or reject any pre-petition executory contracts or
unexpired leases.
The Bankruptcy Court has approved payment of certain pre-petition liabilities,
such as employee wages and benefits, and settlement of certain trade payable
claims. In addition, the Bankruptcy Court has allowed for the retention of legal
and financial professionals to advise in the bankruptcy proceedings.
The Company presently intends to reorganize the Company's business and
restructure the Company's liabilities through a plan of reorganization to be
filed with the Bankruptcy Court. In connection with the development of a plan or
plans of reorganization alternatives, the Company will evaluate any and all
proposals to maximize the value of the Debtors.
Currently, it is not possible to predict with certainty the length of time the
Company will operate under the protection of Chapter 11, the outcome of the
Chapter 11 proceedings in general, or the effect of the proceedings on the
business of the Company or on the interests of the various creditors and
security holders. Under the priority scheme established by the Bankruptcy Code,
certain post-petition liabilities and pre-petition liabilities need to be
satisfied before shareholders can receive any distribution. The ultimate
recovery to shareholders, if any, will not be determined until confirmation of a
plan of reorganization There can be no assurance as to what value, if any, will
be ascribed to the Company's common stock in the bankruptcy proceedings.
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 over-the-counter bulletin board. 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, 2001
1st quarter (10/01/00 - 12/31/00) $.41 $.31
2nd quarter (01/01/01 - 03/31/01) .39 .30
3rd quarter (04/01/01 - 06/30/01) .35 .28
4th quarter (07/01/01 - 09/30/01) .37 .26
Fiscal Year Ended September 30, 2000
1st quarter (10/01/99 - 12/31/99) $.94 $.50
2nd quarter (01/01/00 - 03/31/00) .69 .50
3rd quarter (04/01/00 - 06/30/00) .59 .33
4th quarter (07/01/00 - 09/30/00) .45 .31
As of December 31, 2001, there were 310 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,
-------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ----------- ----------- ------------ ----------
Revenues $38,117 $39,953 $40,470 $37,566 $27,925
Net income (loss) (1,475) (6,102) 910 (10,508)
(84)
Basic and diluted earnings (loss) per share (.15) (.63) .11
(1.61) (.02)
Basic weighted average number of
shares outstanding 9,651 9,651 8,537 6,545 5,005
Diluted weighted average number of
shares outstanding 9,654 9,657 8,544 6,545 5,005
BALANCE SHEET DATA
- -------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
-----------------------------------------------------------------------
At September 30,
-----------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ----------- ----------- ----------
Working capital $(6,245) $(6,230) $(2,289) $(3,718) $ 2,921
Property and equipment, net 3,977 4,326 4,797 5,475 4,003
Total assets 14,983 17,782 23,354 26,202 21,082
Long-term debt, including current portion 7,210 8,952 9,444 11,988 7,939
Stockholders' equity (deficiency) (1,204) 271 6,373 9,488
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 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 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 five 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, 2001 and 2000, the P.A.'s
employed 109 and 106 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, 2001, the Company has shown a decrease of approximately 5%
in revenues. This decrease is a direct result of actions taken by management to
close unprofitable centers in the Atlanta region.
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.
Chapter 11 Bankruptcy Filing
On November 2, 2001, the Company (the "Debtors") filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
South Carolina (the "Bankruptcy Court"). The Debtors remain in possession of
their properties and assets and management of the Company continues to operate
the business of the Debtors as a debtor-in-possession. As a
debtor-in-possession, the Company is authorized to continue to operate its
businesses, but may not engage in transactions outside the ordinary course of
business without the approval, after notice and an opportunity for a hearing, of
the Bankruptcy Court. Pursuant to the automatic stay provisions of the
Bankruptcy Code, all actions to collect pre-petition indebtedness of the
Debtors, as well as most other pending litigation against the Debtors are
currently stayed. In addition, as debtor-in-possession, the Debtors have the
right, subject to the approval of the Bankruptcy Court and certain other
conditions, to assume or reject any pre-petition executory contracts or
unexpired leases.
The Bankruptcy Court has approved payment of certain pre-petition liabilities,
such as employee wages and benefits, and settlement of certain trade payable
claims. In addition, the Bankruptcy Court has allowed for the retention of legal
and financial professionals to advise in the bankruptcy proceedings.
The Company presently intends to reorganize the Company's business and
restructure the Company's liabilities through a plan of reorganization to be
filed with the Bankruptcy Court. In connection with the development of a plan or
plans of reorganization alternatives, the Company will evaluate any and all
proposals to maximize the value of the Debtors.
Comparison of Results of Operations for Fiscal Years 2001, 2000, and 1999
- -------------------------------------------------------------------------
Revenues of $38,117,000 in fiscal year 2001 reflected a decrease of
approximately 5% from the fiscal year 2000 revenues of $39,953,000 which
reflected a decrease of 1% from the amount reported for fiscal year 1999. The
following reflects revenue trends from fiscal year 1997 through fiscal year
2001:
For the year ended September 30, (in thousands)
2001 2000 1999 1998 1997
----------- ---------- ---------- ----------- -----------
$38,117 $39,953 $40,470 $37,566
Revenues $27,925
35,546 38,127 35,975 39,094
Operating Costs 26,466
2,572 1,827 4,495 (1,528)
Operating Margin 1,459
The decrease in revenue for fiscal year 2001 is attributed primarily to the
shutdown of the Atlanta centers to be discussed later. Revenues for the Atlanta
centers declined by $1,059,000 from $2,648,000 for fiscal year 1999 to
$1,589,000 for fiscal year 2000 and was zero ($0.00) in fiscal year 2001.
The number of centers operated by the Company increased from 34 to 36 from
September 30, 2000 to September 30, 2001. The additions were two physical
therapy offices (one in the Greenville-Spartanburg region and one in the
Charleston region).
The number of centers operated by the Company decreased from 40 to 34 from
September 30, 1999 to September 30, 2000. Of the six centers closed, five were
in the Atlanta region and the sixth was a physical therapy site in the
Greenville-Spartanburg region which was opened for only a short period in the
fourth quarter of fiscal year 1999 and the first quarter of fiscal year 2000.
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 years 2001, 2000, and 1999. As of September 30, 2001, all
of these HMOs use a discounted fee-for-service basis for payment. HMOs do not,
at this time, have a significant penetration into the South Carolina market; the
Company is not certain if there will be growth in the market share of HMOs in
the areas in which it operates clinics. 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. During fiscal years 2000 and 2001, none of the four HMOs paid via
a capitation arrangement.
Sustained revenues in fiscal years 2001, 2000 and 1999 also reflect the
Company's heightened focus on occupational medicine and industrial health
services (these revenues are referred to as "employer paid" and "workers
compensation" on the table below). Focused marketing materials, including
quarterly newsletters for employers, were developed to spotlight the Company's
services for industry. Approximately 22% of the Company's total revenue was
derived from these occupational medicine services in fiscal year 2001, 25% in
fiscal year 2000 and 24.5% in fiscal year 1999. 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 were 472,000 in fiscal year 2001, 504,000 in fiscal year 2000
and 509,000 in fiscal year 1999. The small decrease in fiscal year 2000 is due
to the closure of the Atlanta centers effective June 30, 2000. Patient
encounters in the Atlanta centers were 21,000 in fiscal year 2000 as compared to
32,000 in fiscal year 1999 and were zero (0) in fiscal year 2001.
No new significant competition entered the Company's market during fiscal years
2001, 2000 or 1999.
The improvement in the operating margin during fiscal year 2001 was due to the
elimination of the Atlanta operations during fiscal year 2000.
The operating margin decreased to $1,827,000 in fiscal year 2000 from $4,495,000
in fiscal year 1999 partially due to the poor performance of the Atlanta centers
for the first nine months of the fiscal year until their closure on June 30,
2000. For the nine months ending June 30, 2000, the Atlanta centers had an
operating deficit of approximately $1,143,000 as compared to an operating
deficit of approximately $730,000 for the twelve months of fiscal year 1999.
Approximately $400,000 of the decline in the operating deficit from fiscal year
1999 to fiscal year 2000 was attributable to the two Knoxville centers, one of
which moved to a new location in early fiscal year 2000. This move resulted in a
severe reduction of business for approximately six months which began to improve
over the last quarter of fiscal year 2000. The remainder of the decrease was
primarily due to continuing costs pressures of managed care and due to an
increase of $519,000 in bad debt expense in fiscal year 2000 as compared to
fiscal year 1999, and a $379,000 change in estimate in fiscal year 1999 reducing
lease expense, as discussed in Note 14 to the financial statements.
An operating margin of $4,495,000 was achieved in fiscal year 1999. This
significant improvement over fiscal year 1998 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 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. The following table breaks out the
Company's revenue and patient visits by revenue source for fiscal years 2001,
2000, and 1999.
Percent of Patient Percent of Revenue
Visits
------------------------- --------------------------
2001 2000 1999 2001 2000 1999
------- ------- --------- -------- -------- --------
19 17 18 17 18
Patient Pay 18
12 14 7 8
Employer Paid 15 9
12 12 12 14 9
HMO 11
10 8 15 17
Workers Compensation 8 16
8 7 6 6
Medicare/Medicaid 7 6
35 36 38 30
Managed Care Insurance 34 31
4 6 7 5 7 11
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.
Bad debt expense, a component of operating costs, was approximately $1,495,000
(or approximately 4% of revenue) for fiscal year 2001, $2,808,000 (or
approximately 7% of revenue) for fiscal year 2000 and $2,289,000 (or
approximately 6% of revenue) for fiscal year 1999. The expenses from bad debts
were higher in fiscal years 1999 and 2000 due to the difficulties encountered in
the collection of amounts associated with patients seen at the centers acquired
during fiscal year 1998 (Georgia centers) which were closed in fiscal year 2000.
The collection percentage for the established South Carolina centers has
remained constant at approximately 96% for the past 5 to 6 years.
The Company continually evaluates the operations of its physician practice
centers and assesses the centers for impairment when certain indicators of
impairment are present. At September 30, 2001, three centers were, upon review,
deemed to have impaired goodwill. One center in the Columbia region and one
center in the Greenville-Spartanburg region had decreased profitability during
fiscal year 2001 due to changes in the assigned physicians. Even though
management has made changes to the staffing and marketing focus on these two
centers and now believes they are on the track to meeting expected goals and
profitability in the next few months; the goodwill was considered impaired at
September 30, 2001 and was, therefore, written off. Additionally, as of
September 30, 2001, a decision had been made to combine the two Knoxville
locations into one and, therefore, the goodwill associated with the closed
locations was deemed to be impaired and, therefore, written off. In May 2000,
the Company announced its intention to close its Georgia physician practice
centers effective June 30, 2000. The performance of these centers, which were
originally acquired in May 1998, did not meet the expectations of the Company
during fiscal year 2000 and the Company was no longer committed to the Georgia
market. The Company sold the property and equipment at these centers for an
amount approximating the net book value of the fixed assets or transferred the
property and equipment to other Company locations. The long-lived assets and
related goodwill for these centers was assessed for impairment under a held for
use model as of March 31, 2000. As a result of the decision to close these
centers coupled with the fact that the remaining projected undiscounted cash
flows were less than the carrying value of the long-lived assets and goodwill
for these centers, the Company recorded an impairment in the quarter ended March
31, 2000 of approximately $3,567,000 to reduce the goodwill to its fair value.
This is a component of the line item Realignment and Impairment Charges.
Additionally, the Company incurred additional costs associated with the decision
to close the Georgia centers during the third and fourth quarters of fiscal year
2000. These costs relate primarily to exiting certain lease obligations. The
estimated lease obligations, net of estimated sub-lease income, are expected to
be approximately $242,000 at September 30, 2000. The total costs related to
lease obligations and employee contractual liabilities for the Atlanta centers
closed June 30, 2000 was $561,000 which is the other component of the line item
Realignment and Impairment Charges.
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 second quarter of fiscal year 2000 and the fourth quarter of fiscal
year 2001, the above analysis resulted in an impairment charge of approximately
$3,567,000 and $753,000 to goodwill for centers that had been closed (i.e.,
Atlanta region) in fiscal year 2000 and for three underperforming centers in
fiscal year 2001. This is a component of the line item Realignment and
Impairment Charges.
It should be noted that the Company also has launched medical centers as
start-up operations, which have contributed in fiscal year 1999 to the Company's
overall cash used in operations. Costs of starting up new centers are expensed
as incurred.
Depreciation and amortization expense decreased to $1,544,000 in fiscal year
2000, down from $1,720,000 in fiscal year 2000 and $1,954,000 in fiscal year
1999. This decrease reflects lower amortization and depreciation resulting from
the closure of the Atlanta region. Net interest expense decreased to $1,699,000
in fiscal year 2001 from $1,995,000 in fiscal year 2000 as a result of the
overall decrease in long-term debt due to principal pay downs and due to a
continuing decline in interest rates over the year. Net interest expense
increased to $1,995,000 in fiscal year 2000 from $1,472,000 in fiscal year 1999
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, increase in bank fees and interest penalties, and
debt associated with the acquisitions noted above.
The Company evaluates the valuation allowance regarding deferred tax assets on a
more likely than not basis. In determining that it was more likely than not that
the recorded deferred tax asset would be not realized, management of the Company
considered the following:
o Recent historical operating results.
o Lack of sufficient liquidity to support operations.
o The budgets and forecasts that management and the Board of
Directors had adopted for the next five fiscal years including
plans for expansion.
o The ability to utilize NOL's prior to their expiration.
o The potential limitation of NOL utilization in the event of a change in
ownership.
o The generation of future taxable income in excess of income
reported on the consolidated financial statements.
A valuation allowance of $7.2 million and $7.6 million at September 30, 2001 and
2000, 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 $7,184,000 at September 30, 2001, leaving no tax related
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 and an accumulated
deficit. 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 Chapter 11 Bankruptcy Reorganization Plan filed by the Company and discussed
earlier should allow the restructuring of long-term liabilities on a plan that
will greatly improve the Company's cash flow. The closure of the Atlanta
centers, which were unprofitable, had an immediate positive effect on the
Company in the fourth quarter of fiscal year 2000. This improvement is expected
to continue into fiscal year 2002 and beyond. However, there can be no
assurances that such improvement will occur.
Results of Operations for the Three Months Ended September 30, 2001 as Compared
to the Three Months Ended September 30, 2000:
The following summarizes the fiscal 2001 fourth quarter results of operations as
compared to the prior year:
For the Three Months Ended
(in 000's)
09/30/2001 09/30/2000
------------- -----------
$9,195 $9,171
Revenues
9,272 8,378
Operating Costs
(77) 793
Operating Margin
12 16
General and Administrative Expenses
Realignment and Impairment Charges 753 70
389 387
Depreciation and Amortization
532 622
Interest Expense, net
(1,763) (302)
Net Income (loss)
Revenues of $9,195,000 for the quarter ending September 30, 2001 remained
consistent with those of the fourth quarter of fiscal year 2000.
Patient encounters decreased to 110,000 in the fourth quarter of fiscal year
2001 from 117,000 in the fourth quarter of fiscal year 2000 due to the reduction
in the number of centers as discussed above.
The decrease in interest expense is due to the reduction in long-term debt due
to regular principal payments and to the steady decline in interest rates during
the year.
Financial Condition at September 30, 2001 and September 30, 2000
Cash and cash equivalents decreased by $204,000 from September 30, 2000 to
September 30, 2001.
Accounts receivable decreased from $6,959,000 at September 30, 2000 to
$6,297,000 at September 30, 2001. This decrease was attributable to increased
focus on collections at the Corporate billing department that involved a
reorganization of functional duties and slightly lower revenues in fiscal year
2001 as compared to fiscal year 2000. As the payor mix of the Company continues
to change, the billing and collection functions will need to be continually
modified and updated. The decrease in the number of centers in operation and the
small decrease in revenue also result in a lower accounts receivable balance.
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 and the write-off of the goodwill
discussed above. Depreciation charges were somewhat offset on the Property and
Equipment balance by the net equipment purchases of approximately $744,000.
The reductions in long-term debt from September 30, 2000 to September 30, 2001
were the result of the regularly scheduled principal payments. 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.
As of September 30, 2001, the Company had no material commitments for capital
expenditures or for acquisition or start-ups.
Operating activities generated $2,716,000 of cash during fiscal year 2001,
compared to $1,048,000 during fiscal year 2000. The improvement from fiscal year
2000 to fiscal year 2001 was mainly due to an improvement in the overall
operations of the Company, much of which was the result of cost reductions that
have remained in place throughout 2001, which shows up as the increase in
operating margin on the income statement.
Investing activities used $727,000 of cash during fiscal year 2001 and $701,000
used in fiscal year 2000 as a result of normal equipment upgrades in existing
centers.
Approximately $2,193,000 of cash was used by the Company for financing
activities in fiscal year 2001 to pay down the Line of Credit and a temporary
year-end bank overdraft. 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. 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, 2001 and 2000 by $6,245,000 and $6,230,000. The Company intends to
renegotiate or renew all of its debt instruments during fiscal year 2002 and
does not expect to pay them off during fiscal year 2002 as part of its Chapter
11 Reorganization Plan. There can be no assurances that these instruments will
be reinstated or renewed. There can be no assurance that sources of cash will
exceed uses of cash.
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 $2,200,000 of the Company's debt at September 30, 2001 was subject
to fixed interest rates and principal payments. Approximately $4,900,000 of the
Company's debt at September 30, 2001 was subject to variable interest rates.
Based on the outstanding amounts of variable rate debt at September 30, 2001,
the Company's interest expense on an annualized basis would increase
approximately $49,000 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 34.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
(a) On November 29, 2001, UCI Medical Affiliates, Inc. (the "Company") notified
PricewaterhouseCoopers LLP that it would not be retained by the Company to
perform the audit of the financial statements of the Company for the fiscal year
ended September 30, 2001. The decision to change independent accountants was
approved by the Audit Committee of the Company. PricewaterhouseCoopers LLP had
served as the Company's principal independent accountants for the fiscal years
ended September 30, 1995 through 2000. The Company's decision to dismiss
PricewaterhouseCoopers LLP for the fiscal 2001 audit was not the result of any
prior, current or expected disagreement with the Company.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Company for each of the past two fiscal years ended September 30, 2000 and 1999
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle, except that the
reports for each of the past two fiscal years contain an explanatory paragraph
relating to the Company's ability to continue as a going concern as a
consequence of losses incurred from continuing operations.
In connection with its audits of the financial statements of the Company for the
fiscal years ended September 30, 2000 and 1999, and through November 29, 2001,
the Company had no disagreement with PricewaterhouseCoopers LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their reports on the financial statements for such years.
The Company requested PricewaterhouseCoopers LLP to furnish the Company with a
letter addressed to the Securities and Exchange Commission stating whether they
agree with the statements made by the Company in responding to this item 4(a),
and if not, stating the respects to which they do not agree.
(b) At its meeting on November 29, 2001, the Audit Committee of the Company
approved the engagement of the accounting firm of Scott McElveen, LLP as
independent accountants to audit the Company's financial statements for the
fiscal year ended September 30, 2001. As of November 29, 2001, the Company had
not on any occasion consulted with Scott McElveen, LLP regarding any of the
matters set forth in item 304 (a)(2) of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
M.F. McFarland, III, M.D., 54, has served as Chairman of the Board, President
and Chief Executive Officer of UCI since January 1987 and as a director of UCI
since September 1984. From September 1984 until January 1987, he served as Vice
President of UCI. He has served as President and as the sole director of UCI-SC
and Doctor's Care, P.A. ("DC-SC") for over five years and of UCI-GA since its
organization in February 1998. He served as Associate Professional Director of
the Emergency Department of Richland Memorial Hospital in Columbia, South
Carolina from 1978 to 1981 and was President of the South Carolina Chapter of
the American College of Emergency Physicians in 1979. Dr. McFarland is currently
a member of the Columbia Medical Society, the South Carolina Medical Association
and the American Medical Association. Dr. McFarland was most recently reelected
as a director at the annual meeting of stockholders in 1997.
Charles M. Potok, 53, has served as a director of UCI since September 1995 and
as Executive Vice President and Chief Operating Officer of Companion Property
and Casualty Company ("CP&C"), a wholly-owned subsidiary of BCBS, since March
1984. Mr. Potok is an Associate of the Casualty Actuarial Society and a member
of the American Academy of Actuaries. Prior to joining CP&C, Mr. Potok served as
Chief Property and Casualty Actuary and Director of the Property and Casualty
Division of the South Carolina Department of Insurance. Mr. Potok was most
recently reelected as a director at the annual meeting of stockholders in 1997.
A. Wayne Johnson, 51, has served as Chairman and Chief Executive Officer of
MainStreet Healthcare Corporation ("MHC") from its inception in February 1996.
In addition to Mr. Johnson's MainStreet responsibilities, effective December 8,
1999, he assumed the role of Executive Vice President of Providan Financial, a
San Francisco-based financial services company. Mr. Johnson has 24 years of
entrepreneurial and business operations experience in the field of financial
services and corporate development. Prior to co-founding MHC in February 1996,
Mr. Johnson had served since 1991 as President of one of the major operating
subsidiaries of First Data Corporation and Chief Marketing Officer and strategic
planner for First Data Card Services Group, a subsidiary of First Data
Corporation. Mr. Johnson was the founder of both Integratec, a collection
company, and QualiServ, a credit card outsourcing service company. Mr. Johnson
was initially elected as a director at the annual meeting of stockholders in
1999.
Ashby M. Jordan, M.D., 63, has served as a director of UCI since August
1996 and as Vice President of Medical Affairs of BCBS since December 1986. Prior
to joining BCBS, Dr. Jordan was the Vice President of Medical Affairs for CIGNA
HealthPlan of South Florida, Inc. Dr. Jordan is Board Certified by the American
Board of Pediatrics. Dr. Jordan was most recently reelected as a director at the
annual meeting of stockholders in 1999.
John M. Little, Jr., M.D., 52, has served as a director of UCI since August 11,
1998 and as Chief Medical Officer of Companion HealthCare Corporation ("CHC"), a
wholly-owned subsidiary of BCBS, since 1996. Additionally, he has served since
1994 as Medical Director of Managed Care Services of CHC, as Chairman of the
Quality Assurance Committee and the Pharmacy and Therapeutics Committee of CHC
and as a Co-Chair of the Managed Care Oversight Committee of CHC. Prior to
joining CHC in 1994, Dr. Little served as Assistant Chairman for Academic
Affairs, Department of Family Practice, Carolinas Medical Center, Charlotte,
North Carolina from 1992 to 1994. Dr. Little was most recently reelected as a
director at the annual meeting of stockholders in 1999.
Harold H. Adams, Jr., 55, has served as a director of UCI since June 1994 and as
President and owner of Adams and Associates, International, Adams and
Associates, and Southern Insurance Managers since June 1992. He served as
President of Adams Eaddy and Associates, an independent insurance agency, from
1980 to 1992. Mr. Adams has been awarded the Chartered Property Casualty
Underwriter designation and is currently a member of the President's Board of
Visitors of Charleston Southern University in Charleston, South Carolina. He has
received numerous professional awards as the result of over 26 years of
involvement in the insurance industry and is a member of many professional and
civic organizations. Mr. Adams was most recently reelected as a director at the
annual meeting of stockholders in 2000.
Thomas G. Faulds, 61, has served as a director of UCI since August 1996 and as
President and Chief Operating Officer, Blue Cross Blue Shield Division, Blue
Cross Blue Shield of South Carolina ("BCBS") since October 1991. Mr. Faulds has
been with BCBS since March 1972 where he has served in key senior management
positions in government programs, information systems and operations. Mr. Faulds
was most recently reelected as a director at the annual meeting of stockholders
in 2000.
Executive Officers
The following sets forth certain information concerning the persons who
currently serve as executive officers of the Company who do not also serve on
the Board of Directors.
Jerry F. Wells, Jr., 39, has served as Chief Financial Officer and Executive
Vice President of Finance of UCI since he joined UCI in February 1995 and as
Corporate Secretary of the Company since December 1996. He has served as
Executive Vice President of Finance, Chief Financial Officer and Corporate
Secretary of UCI-SC since December 1996, and of UCI-GA since its organization in
February 1998, and as Corporate Secretary of DC-SC since December 1996. Prior to
joining the Company, he served as a Senior Manager and consultant for
PricewaterhouseCoopers LLP from 1985 until February 1995. Mr. Wells is a
certified public accountant and is a member of the American Institute of
Certified Public Accountants, the South Carolina Association of Certified Public
Accountants and the North Carolina CPA Association.
D. Michael Stout, M.D., 57, has served as Executive Vice President of
Medical Affairs of UCI and DC-SC since 1985. He is Board Certified in Emergency
Medicine and is a member of the American College of Emergency Physicians, the
Columbia Medical Society and the American College of Physician Executives.
Board of Directors and Board Committees
Board of Directors
The Board of Directors met or acted by written consent a total of four times
during UCI's fiscal year ended September 30, 2001. No director attended fewer
than 75 percent of the total of such Board meetings and the meetings of the
committees upon which the director served. Among the standing committees
established by the Board of Directors are a Compensation Committee, an Audit
Committee, and a Revenue Enhancement Committee. The Board of Directors has not
established a nominating committee for recommending to stockholders candidates
for positions on the Board of Directors. Such functions are currently performed
by the Board of Directors acting as a whole. Currently, seven directors serve on
the Board of Directors.
Audit Committee
The Audit Committee consists of Mr. Adams and Dr. Jordan. This committee
recommends to the Board of Directors the engagement of the independent auditors
for UCI, determines the scope of the auditing of the books and accounts of UCI,
reviews the reports submitted by the auditors, examines procedures employed in
connection with UCI's internal control structure, reviews and approves the terms
of acquisitions between UCI and any related party entities, undertakes certain
other activities related to the fiscal affairs of UCI and makes recommendations
to the Board of Directors as may be appropriate. This committee met one time
during UCI's fiscal year ended September 30, 2001.
Compensation Committee
The Compensation Committee consists of Messrs Adams and Potok. This committee
monitors UCI's executive compensation plan, practice and policies, including all
salaries, bonus awards and fringe benefits, and makes recommendations to the
Board of Directors with respect to changes in existing executive compensation
plans and the formation and adoption of new executive compensation plans. This
committee met one time during UCI's fiscal year ended September 30, 2001.
Revenue Enhancement Committee
The Revenue Enhancement Committee consists of Messrs. Adams, Faulds and Potok.
This committee monitors UCI's ancillary and complementary services, and makes
recommendations to the Board of Directors with respect to changes in such
existing services. This committee did not meet during UCI's fiscal year ended
September 30, 2001.
Item 11. Executive Compensation
The following table sets forth the total compensation earned during the fiscal
year ended September 30, 2001 and during each of the two prior fiscal years by
the President and Chief Executive Officer of UCI and the executive officers of
UCI whose annual compensation from UCI exceeded $100,000 for all services
provided to UCI. No other executive officer of the Company earned compensation
in excess of $100,000 for services provided to the Company in any of the three
fiscal years reflected in the table.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------
Long Term
Compensation
Annual Compensation Awards
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary (1) Bonus(1) Compensation (2)
- --------------------------- ---- ------------- - --------- ------ ----------------
Options
-------
2001 $325,000 (3) 0 0 $9,272
M.F. McFarland, III, M.D.
2000 325,000 (3) 0 0 9,272
Chairman, President and
0
Chief Executive Officer 1999 325,000 (3) 200,000 5,561
2001 210,000 (4) 0 0 0
D. Michael Stout, M.D.
2000 210,000 (4) 0 0 0
Executive Vice President of
0 0
Medical Affairs 1999 210,000 (4) 42,000
2001 0 0 0
Jerry F. Wells, Jr. 112,000
2000 0 0 0
Executive Vice President of 99,640
0 0
Finance, Chief Financial 1999 17,260
Officer 99,640
(1) Amounts included under the heading "Salary" and "Bonus" include
compensation from both UCI-SC and DC-SC. The remuneration described in
the table above does not include the cost to UCI of benefits furnished
to certain officers that were extended in connection with the conduct
of UCI's business. The amount of such benefits accrued for each of the
named executives in each of the years reflected in the table did not
exceed 10% of the total annual salary and bonus reported for such
executive in such year.
(2) Amounts included under the heading "All Other Compensation" are
comprised of premiums for long-term disability and life insurance
provided by UCI for the benefit of Dr. McFarland.
(3) For services performed by Dr. McFarland for UCI-SC, a wholly-owned
subsidiary of UCI, Dr. McFarland received an annual salary of $157,500
during each of the fiscal years ended September 30, 2001, 2000, and
1999. For services performed by Dr. McFarland for DC-SC, an affiliated
professional association wholly owned by Dr. McFarland that contracts
with UCI-SC to provide all medical services at UCI's medical
facilities, Dr. McFarland received an annual salary of $167,500 for
each of the fiscal years ended September 30, 2001, 2000, and 1999,
respectively.
(4) For services performed by Dr. Stout for UCI-SC, Dr. Stout received an
annual salary of $50,000 in each of the fiscal years ended September
30, 2001, 2000, and 1999. For services performed by Dr. Stout for
DC-SC, Dr. Stout received an annual salary of $160,000 in each of the
fiscal years ended September 30, 2001, 2000, and 1999.
Fiscal Year-End Option Values
The following table sets forth certain information with respect to unexercised
options to purchase Common Stock held at September 30, 2001. None of the named
executive officers exercised any options during the fiscal year ended September
30, 2001. Additionally, no options were granted to any officer or director
during the fiscal year ended September 30, 2001.
2001 FISCAL YEAR-END
OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money
Fiscal Year End Options at Fiscal Year End
------------------------------------------ ---------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------- ---------------------- -------------------- -------------------
M.F. McFarland, III, M.D. 206,675 0 $ $
Chairman, President and -0- -0-
Chief Executive Officer
109,825
A. Michael Stout, M.D. 0 -0- -0-
Executive Vice President of
Medical Affairs
134,825
Jerry F. Wells, Jr. 0 -0- -0-
Executive Vice President of
Finance, Chief
Financial Officer
Director Compensation
Non-employee directors are paid a fee of $500 for attendance at each meeting of
the Board of Directors. Non-employee directors of UCI are reimbursed by UCI for
all out-of-pocket expenses reasonably incurred by them in the discharge of their
duties as directors, including out-of-pocket expenses incurred in attending
meetings of the Board of Directors.
During the fiscal year ended September 30, 1996, UCI adopted a Non-Employee
Director Stock Option Plan (the "1996 Non-Employee Plan"). The 1996 Non-Employee
Plan provided for the granting of options to two non-employee directors for the
purchase of 10,000 shares of Common Stock at the fair market value as of the
date of grant. Under this plan, 5,000 options were issued to Harold H. Adams,
Jr. and 5,000 options were issued to Russell J. Froneberger. These options are
exercisable during the period commencing on March 20, 1999 and ending on March
20, 2006. At September 30, 2000, there were stock options outstanding under the
1996 Non-Employee Plan for 10,000 shares, all of which were exercisable.
During the fiscal year ended September 30, 1997, UCI adopted a Non-Employee
Director Stock Option Plan (the "1997 Non-Employee Plan"). The 1997 Non-Employee
Plan provided for the granting of options to four non-employee directors for the
purchase of 20,000 shares of Common Stock at the fair market value as of the
date of grant. Under this plan, 5,000 options were issued each to Thomas G.
Faulds, Ashby M. Jordan, M.D., and Charles M. Potok. These options are
exercisable during the period commencing on March 28, 2000 and ending on March
28, 2007. At September 30, 2000, there were stock options outstanding under the
1997 Non-Employee Plan for 15,000 shares, all of which were exercisable.
Employment Contracts
Effective August 19, 1999, Dr. McFarland entered into a five-year contract with
UCI-SC that provides for annual compensation of $157,500, the use of one
automobile and an incentive bonus payable at the end of the fiscal year, subject
to the determination of the Board of Directors and based upon net income and
gross revenue of the Company for the same year. Also, effective August 19, 1999,
Dr. McFarland entered into a five-year contract with DC-SC that provides for
annual compensation of $167,500.
Effective November 1, 1995, Dr. Stout entered into a five-year contract with
UCI-SC that provides for annual compensation of $50,000. Also, effective
November 1, 1995, Dr. Stout entered into a five-year contract with DC-SC that
provides for annual compensation of $160,000.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended September 30, 2001, matters of executive
compensation were decided by the Compensation Committee of the Board of
Directors. The Compensation Committee is currently composed of Messrs. Adams and
Potok.
Compensation Committee Report on Executive Compensation
The compensation of the Company's executive officers is generally determined by
the Compensation Committee of the Board of Directors. The following report with
respect to certain compensation paid or awarded to UCI's executive officers
during the fiscal year ended September 30, 2001 is furnished by the directors
who comprise the Compensation Committee.
General Policies. UCI's compensation program is intended to enable UCI to
attract, motivate, reward and retain the management talent to achieve corporate
objectives, and thereby increase shareholder value. It is UCI's policy to
provide incentives to senior management to achieve both short-term and long-term
objectives. To attain these objectives, UCI's executive compensation program is
composed of a base salary and bonus, which is generally established for the
executive officers in an employment agreement.
Base Salary. Base salaries for each of Dr. McFarland, Dr. Stout and Mr. Wells
were determined by a subjective assessment of the executive officer's
performance, in light of the officer's responsibilities and position with UCI
and UCI's performance during prior periods. In evaluating overall UCI
performance, the primary focus is upon not only UCI's financial performance, but
also on the personal performance of the executives in areas such as quality
assurance and personal development.
Incentive Compensation. Incentive compensation for each of Dr. McFarland and Dr.
Stout is established in his employment agreement and is most influenced by UCI's
profitability. It is completely "at risk" depending upon UCI's performance.
Incentive compensation is reviewed periodically and from time to time by the
Compensation Committee and adjusted accordingly.
Chief Executive Officer Compensation. Dr. McFarland is one of the original
founders of UCI and has devoted his career to UCI since its inception in 1984.
The Compensation Committee believes that Dr. McFarland's drive, dedication,
commitment and knowledge have been vitally important to the successful and
ongoing growth of UCI. Dr. McFarland's overall compensation for the fiscal year
ended September 30, 2001 consisted of his base salary. In determining Dr.
McFarland's compensation, the Compensation Committee evaluated Dr. McFarland's
personal performance, the performance of UCI and Dr. McFarland's long-term
commitment to the success of and ownership position in UCI.
Stock Options. Executive compensation includes the grant of stock options in
order to more closely align the interests of the executive with the long-term
interests of the shareholders.
Report of Compensation Committee: Harold H. Adams, Jr. and Charles M. Potok
Performance Graph
The following graph compares cumulative total shareholder return of the Common
Stock over a five-year period with The Nasdaq Stock Market (US) Index and with a
Peer Group of companies for the same period. Total shareholder return represents
stock price changes and assumes the reinvestment of dividends. The graph assumes
the investment of $100 on November 1, 1995.
GRAPH DEPICTED HERE
Fiscal Year Ended
-----------------------------------------------------------------------------------
09/30/95 09/30/96 09/30/97 09/30/98 09/30/99 09/30/00
----------- ---------- ----------- ---------- ---------- ----------
UCI Medical Affiliates, Inc. 100.00 125.00 100.00 45.00 22.50 16.25
Nasdaq Market Index 100.00 116.75 158.69 164.91 266.79 364.95
Peer Group 100.00 180.09 142.62 57.10 28.95 22.72
The members of the Peer Group are AmeriPath, Inc., Continucare Corporation,
IntegraMed America, Inc., Pediatrix Medical Group, Inc., and PhyCor, Inc. The
returns of each company in the Peer Group have been weighted according to their
respective stock market capitalization for purposes of arriving at a Peer Group
average. The September 30, 1995 and 1996 prices of the Company's Common Stock
used in computing the returns reflected above are the average of the high and
low bid prices reported for the Common Stock during the fiscal quarter ended on
such dates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to UCI regarding the
beneficial ownership of Common Stock as of December 31, 2001. Information is
presented for (i) stockholders owning more than five percent of the outstanding
Common Stock, (ii) each director and executive officer of UCI, individually, and
(iii) all directors and executive officers of UCI, as a group. The percentages
are calculated based on 9,650,515 shares of Common Stock outstanding on December
31, 2001.
Shares
Name Percentage
Beneficially
Owned (1)
- ---------------------------------------------------------------------- ---------------------- ---------------
MainStreet Healthcare Corporation (2)...........................................2,901,396 30.10
Blue Cross Blue Shield of South Carolina (3)....................................2,624,623 27.20
7.55
M.F. McFarland, III, M.D. (4)..............................................................728,519
Harold H. Adams, Jr......................................................................2,500 0
Thomas G. Faulds .................................................................................-0- 0
A. Wayne Johnson (5).............................................................2,901,396 30.10
Ashby M. Jordan, M.D..................................................................-0- 0
John M. Little, Jr., M.D..............................................................-0- 0
Charles M. Potok. ........................................................................-0- 0
D. Michael Stout, M.D. (6) ...............................................................357,185 3.70
Jerry F. Wells, Jr. (7) .............................................................134,825 1.40
All current directors and executive officers
as a group (9 persons).......................................................4,124,425 42.74
- ----------------------
* Amount represents less than 1.0 percent.
(1) Beneficial ownership reflected in the table is determined in accordance
with the rules and regulations of the SEC and generally includes voting
or investment power with respect to securities. Shares of Common Stock
issuable upon the exercise of options currently exercisable or
convertible, or exercisable or convertible within 60 days, are deemed
outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person. Except as otherwise
specified, each of the stockholders named in the table has indicated to
the Company that such stockholder has sole voting and investment power
with respect to all shares of Common Stock beneficially owned by that
stockholder.
(2) The business address of the named beneficial owner is 2370 Main Street,
Tucker, Georgia 30084.
(3) The business address of the named beneficial owner is I-20 at Alpine
Road, Columbia, SC 29219. The shares reflected in the table are held of record
by CHC (2,006,442 shares) and CP&C (618,181 shares), each of which is a
wholly-owned subsidiary of BCBS.
(4) The business address of the named beneficial owner is 4416 Forest
Drive, Columbia, SC 29206. Shares reflected in the table include
206,675 shares issuable pursuant to currently exercisable stock
options.
(5) All shares reflected as beneficially owned are held of record by
MainStreet Healthcare Corporation. Mr. Johnson is Chairman, Chief Executive
Officer and a principal shareholder of MainStreet Healthcare Corporation.
(6) Includes 109,825 shares issuable pursuant to currently exercisable
stock options.
(7) All shares are issuable pursuant to currently exercisable stock
options.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act requires the directors and officers of UCI to file
reports of holdings and acquisitions in Common Stock with the Securities and
Exchange Commission (the "SEC"). Based on the Company records and other
information, UCI believes that all SEC filing requirements applicable to its
directors and officers were complied with in respect to UCI's fiscal year ended
September 30, 2001.
Item 13. Certain Relationships and Related Transactions
Administrative Services Agreements
UCI-SC has entered into an Administrative Services Agreement with DC-SC. UCI-GA
has entered into Administrative Services Agreements with Doctor's Care of
Tennessee, P.C. Under these Administrative Services Agreements, UCI-SC and
UCI-GA perform all non-medical management of the UCI-PCs and have exclusive
authority over all aspects of the business of the PCs (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 PCs 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.
During UCI's fiscal years ended September 30, 2001 and 2000, the P.A.'s received
an aggregate of approximately $38,117,000 and $39,953,000, respectively, in fees
prior to deduction by the P.A.'s of their payroll and other related deductible
costs covered under the Administrative Agreement and its predecessor agreement.
For accounting purposes, the operations of the P.A.'s are combined with the
operations of UCI and are reflected in the consolidated financial statements of
the Company. Pursuant to the employment agreement between DC-SC and Dr.
McFarland, Dr. McFarland serves as Executive Medical Director of the Centers,
and is paid an annual salary for his services in such position. Pursuant to the
employment agreement between DC-SC and Dr. Stout, Dr. Stout provides medical
services to DC-SC, and is paid an annual salary for such services. Dr. McFarland
is the Chief Executive Officer of UCI and is the President, sole director and
sole owner of DC-SC. Dr. Stout is the Executive Vice President of Medical
Affairs for the Company, UCI-SC and UCI-GA, and is the President, sole director
and sole stockholder of Doctor's Care of Georgia, P.C. and Doctor's Care of
Tennessee, P.C.
Medical Center Leases
At September 30, 2001, UCI-SC leased one medical center facility from CHC under
an operating lease with a fifteen-year term expiring in 2009. The terms of this
lease is believed to be no more or less favorable to UCI-SC than those that
would have been obtainable through arm's-length negotiations with unrelated
third parties for similar arrangements. This lease has a five-year renewal
option, and a rent guarantee by DC-SC. Total lease payments made by UCI-SC under
this lease during the fiscal years ended September 30, 2001 and 2000 were
$64,968 and $64,968, respectively.
The Doctor's Care Northeast facility is leased from a partnership in which Dr.
McFarland is a general partner. The lease was renewed in October 1997 for a
fifteen-year term. The terms of this lease are believed to be no more or less
favorable to UCI-SC than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar arrangements.
Total lease payments made by UCI-SC under this lease during the fiscal years
ended September 30, 2001 and 2000 were $96,000 each year, plus utilities and
real estate taxes.
Beginning in August 1999, the Doctor's Care facility in Tucker, Georgia was
leased from A. Wayne Johnson. The terms of this lease are believed to be no more
or less favorable to UCI-SC than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar arrangements.
The lease agreement expires in March 2008. Total lease payments made by UCI-SC
under this lease during the fiscal years ended September 30, 2001 and 2000 were
$57,600 each year.
Other Transactions with Related Parties
At December 31, 2001, CHC owned 2,006,442 shares of Common Stock and CP&C owned
618,181 shares of Common Stock, which combine to approximately 27.2 percent of
the outstanding Common Stock. Each of CHC and CP&C is a wholly-owned subsidiary
of BCBS. The following is a historical summary of purchases of Common Stock by
BCBS subsidiaries directly from UCI.
Price Total
Date BCBS Number per Purchase
Purchased Subsidiary of Shares Share Price
------------------- ----------------- ---------------- ---------------- ------------------
12/10/93 CHC 333,333 $1.50 $ 500,000
06/08/94 CHC 333,333 3.00 1,000,000
01/16/95 CHC 470,588 2.13 1,000,000
05/24/95 CHC 117,647 2.13 250,000
11/03/95 CHC 218,180 2.75 599,995
12/15/95 CHC 218,180 2.75 599,995
03/01/96 CHC 109,091 2.75 300,000
06/04/96 CP&C 218,181 2.75 599,998
06/23/97 CP&C 400,000 1.50 600,000
The Common Stock acquired by CHC and CP&C directly from UCI was purchased
pursuant to exemptions from the registration requirements of federal securities
laws available under Section 4(2) of the 1933 Act. Consequently, the ability of
the holders to resell such shares in the public market is subject to certain
limitations and conditions. The shares acquired by CHC and CP&C were purchased
at share prices below market value at the respective dates of purchase in part
as a consequence of the lower issuance costs incurred by the Company in the sale
of these unregistered securities and in part as consequence of the restricted
nature of the shares. CHC and CP&C have the right to require registration of the
stock under certain circumstances as described in the respective stock purchase
agreements. BCBS and its subsidiaries have the option to purchase as many shares
as may be necessary for BCBS and its subsidiaries to obtain ownership of 47
percent of the outstanding Common Stock in the event that UCI issues additional
stock to other parties (excluding shares issued to employees or directors of
UCI).
During the fiscal year ended September 30, 1998, UCI-SC entered into a capital
lease purchase agreement with BCBS for a new billing and accounts receivable
system, which includes computer equipment, for an aggregate purchase price of
$1,253,000. UCI-SC has the option to purchase the equipment at the end of the
lease term for $1. The lease obligation recorded at September 30, 2001 is
$532,000, which includes lease addenda. The terms of the lease purchase
agreement are believed to be no more or less favorable to UCI-SC than the terms
that would have been obtainable through arm's-length negotiations with unrelated
third parties for a similar billing and accounts receivable system, which
includes computer equipment.
During the fiscal year ended September 30, 1994, UCI-SC entered into an
agreement with CP&C pursuant to which UCI-SC, through DC-SC, acts as the primary
care provider for injured workers of firms carrying worker's compensation
insurance through CP&C. Additionally, during the fiscal year ended September 30,
1995, UCI-SC executed a $400,000 note payable to CP&C payable in monthly
installments of $4,546 (including 11 percent interest) from April 1, 1995 to
March 1, 2010, collateralized by certain accounts receivable. The terms of the
agreement with CP&C are believed to be no more or less favorable to UCI-SC than
those that would have been obtainable through arm's-length negotiations with
unrelated third parties for similar arrangements.
UCI-SC, through DC-SC, provides services to members of a health maintenance
organization operated by CHC who have selected DC-SC as their primary care
provider. The terms of the agreement with CHC are believed to be no more or less
favorable to UCI-SC than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar arrangements.
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 35 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, 2001.
The Company filed a Form 8-K on November 9, 2001 to report that the
Company had filed, on November 2, 2001, voluntary petitions for
protection under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of South Carolina. The Bankruptcy
Court assumed jurisdiction over the Company, the Subsidiaries, and the
Affiliates on November 2, 2001, and the existing officers and directors
have been left in possession of the respective bankruptcy estates
subject to the supervision and orders of the Bankruptcy Court.
The Company filed a Form 8-K on December 3, 2001 to report that on
November 29, 2001, the Company notified PricewaterhouseCoopers LLP that
it would not be retained by the Company to perform the audit of the
financial statements of the Company for the fiscal year ended September
30, 2001. The decision to change independent accountants was approved
by the Audit Committee of the Company. PricewaterhouseCoopers LLP had
served as the Company's principal independent accountants for the
fiscal years ended September 30, 1995 through 2000. The Company's
decision to dismiss PricewaterhouseCoopers LLP for the fiscal year
ended 2001 audit was not the result of any prior, current or expected
disagreement with the Company.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Reports of Independent Accountants........................................................................35-36
Consolidated Balance Sheets at September 30, 2001 and 2000...................................................37
Consolidated Statements of Operations for the years
ended September 30, 2001, 2000 and 1999.............................................................38
Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 2001, 2000 and 1999...............................................39
Consolidated Statements of Cash Flows for the years
ended September 30, 2001, 2000 and 1999.............................................................40
Notes to Consolidated Financial Statements................................................................41-57
Schedule II, Valuation and Qualifying Accounts, is omitted because the
information is included in the financial statements and notes.
Report of Independent Accountants
To the Board of Directors and
Stockholders of UCI Medical Affiliates, Inc.
We have audited the accompanying consolidated balance sheet of UCI Medical
Affiliates, Inc. and its subsidiaries (the "Company") as of September 30, 2001,
and the related consolidated statement of operations, changes in stockholders'
equity, and cash flows for the year then ended. 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 audit. The financial
statements of UCI Medical Affiliates, Inc. as of September 30, 2000 and 1999,
were audited by other auditors whose report dated December 27, 2000 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
September 30, 2001, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
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 a current year net loss, an accumulated
deficit, and a working capital deficiency. 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/ SCOTT MCELVEEN, LLP
Columbia, South Carolina
January 15, 2002
.
SIGNED ORIGINAL ON SCOTT MCELVEEN LETTERHEAD
IS ON FILE IN THE CORPORATE OFFICE OF
UCI MEDICAL AFFILIATES, INC.
Report of Independent Accountants
To the Board of Directors and
Stockholders of UCI Medical Affiliates, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
UCI Medical Affiliates, Inc. and its subsidiaries (the "Company") at September
30, 2000, and the results of their operations and their cash flows for each of
the two years in the period ended September 30, 2000, in conformity with
accounting principles generally accepted in the United States of America. 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 of America, 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 our opinion.
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 a current year net loss, an accumulated
deficit, and a working capital deficiency. 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
December 27, 2000
Charlotte, North Carolina
ORIGINAL SIGNED OPINION
IS ON FILE WITH
UCI MEDICAL AFFILIATES, INC.
UCI Medical Affiliates, Inc.
Consolidated Balance Sheets
September 30,
---------------------------------------
2001 2000
------------------- ----------------
Assets
Current assets
Cash and cash equivalents $ 99,429 $ 302,927
Accounts receivable, less allowance for doubtful accounts
of $1,386,416 and $1,549,048 6,296,586 6,958,745
Inventory 360,560 623,497
Prepaid expenses and other current assets 833,732 933,130
------------------- ----------------
Total current assets 7,590,307 8,818,299
Property and equipment less accumulated depreciation of
$7,128,248 and $6,035,106 3,977,014 4,326,093
Excess of cost over fair value of assets acquired, less
accumulated amortization of $2,451,814 and $2,616,455 3,391,942 4,595,690
Other assets 23,951 41,500
------------------- ----------------
Total Assets $14,983,214 $17,781,582
=================== ================
Liabilities and Stockholders' Equity
Current liabilities
Book overdraft $733,094 $ 1,184,257
Current portion of long-term debt 4,858,216 6,489,280
Accounts payable 2,801,450 3,511,545
Accrued salaries and payroll taxes 3,651,068 2,544,102
Other accrued liabilities 1,790,931 1,318,362
------------------- ----------------
Total current liabilities 13,834,759 15,047,546
Long-term debt, net of current portion 2,352,054 2,463,034
------------------- ----------------
Total Liabilities 16,186,813 17,510,580
------------------- ----------------
Commitments and contingencies (Note 12)
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 9,650,515 shares 482,526 482,526
Paid-in capital 21,723,628 21,723,628
Accumulated deficit (23,409,753) (21,935,152)
------------------- ----------------
Total Stockholders' Equity (Deficiency) (1,203,599) 271,002
------------------- ----------------
Total Liabilities and Stockholders' Equity $ 14,983,214 $17,781,582
=================== ================
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,
-----------------------------------------------------------------
2001 2000 1999
------------------ ------------------- ------------------
Revenues $ 38,117,161 $39,953,311 $40,470,462
Operating costs 35,545,631 38,126,570 35,975,055
------------------ ------------------- ------------------
Operating margin 2,571,530 1,826,741 4,495,407
General and administrative expenses 50,293 86,025 94,431
Realignment and impairment charges 752,737 4,128,376 0
Depreciation and amortization 1,544,153 1,719,502 1,954,109
------------------ ------------------- ------------------
Income (loss) from operations 224,347 (4,107,162) 2,446,867
------------------ ------------------- ------------------
Other income (expenses)
Interest expense and other charges (1,698,948) (1,995,319) (1,471,864)
Gain (loss) on disposal of equipment 0 0 (65,245)
------------------ ------------------- ------------------
Other income (expense) (1,698,948) (1,995,319) (1,537,109)
Income (loss) before income tax (expense) benefit (1,474,601) (6,102,481) 909,758
------------------ ------------------- ------------------
Net income (loss) $(1,474,601) $(6,102,481) $ 909,758
================== =================== ==================
Basic and diluted earnings (loss) per share $ (.15) $ (.63) $ .11
================== =================== ==================
Basic weighted average common shares outstanding 9,650,515 9,650,515 8,536,720
================== =================== ==================
Diluted weighted average common shares outstanding 9,653,554 9,656,563 8,543,515
================== =================== ==================
The accompanying notes are an integral part of these consolidated
financial statements.
UCI Medical Affiliates, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the Three Years Ended September 30, 2001
Common Stock Paid-In Accumulated
-------------------------------
Shares Par Value Capital Deficit Total
--------------- ------------- --------------- ------------------ ----------------
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
Net income (loss) (6,102,481) (6,102,481)
-- -- --
--------------- ------------- --------------- ------------------ ----------------
Balance, September 30, 2000 9,650,515 482,526 21,723,628 (21,935,152) 271,002
Net income (loss) (1,474,601) (1,474,601)
-- -- --
--------------- ------------- --------------- ------------------ ----------------
Balance, September 30, 2001 9,650,515 482,526 21,723,628 (23,409,753) (1,203,599)
=============== ============= =============== ================== ================
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,
-----------------------------------------------------------
2001 2000 1999
------------------ ----------------- ----------------
Operating activities:
Net income (loss) $ (1,474,601) $(6,102,481) $909,758
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
(Gain) loss on disposal of equipment 0 0 65,245
Provision for losses on accounts receivable 1,494,915 2,808,486 2,289,187
Depreciation and amortization 1,544,153 1,719,502 1,954,109
Non-cash realignment and impairment charges 752,737 3,567,376 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (832,756) (1,367,488) (1,900,310)
(Increase) decrease in inventory 262,937 (33,179) (99,977)
(Increase) decrease in prepaid expenses and other
current assets 99,398 (184,663) 126,942
Increase (decrease) in accounts payable and accrued
expenses 869,440 640,894 (699,626)
------------------ ----------------- ----------------
Cash provided by operating activities 2,716,223 1,048,447 2,645,328
------------------ ----------------- ----------------
Investing activities:
Purchases of property and equipment (744,063) (857,609) (617,566)
Disposals of property and equipment 0 156,845 41,083
Acquisitions of goodwill 0 0 (73,763)
(Increase) decrease in other assets 17,549 0 202,177
------------------ ----------------- ----------------
Cash used in investing activities (726,514) (700,764) (448,069)
------------------ ----------------- ----------------
Financing activities:
Net borrowings (payments) under line-of-credit agreement (826,202) 773,001 (767,704)
Increase (decrease) in book overdraft (451,163) 381,000 (325,660)
Payments on long-term debt (915,842) (1,264,916) (1,373,659)
------------------ ----------------- ----------------
Cash used in financing activities (2,193,207) (110,915) (2,467,023)
------------------ ----------------- ----------------
Increase (decrease) in cash and cash equivalents (203,498) 236,768 (269,764)
Cash and cash equivalents at beginning of year 302,927 66,159 335,923
------------------ -----------------
------------------ ----------------- ----------------
Cash and cash equivalents at end of year $ 99,429 $ 302,927 $ 66,159
================== ================= ================
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 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. 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 P.A. 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 Financial
Accounting Standards Board ("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.
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.
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
Property and equipment is recorded at cost.
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
During fiscal year 1998, the Company changed prospectively the estimated life
recorded on all goodwill to a maximum life of 15 years.
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 the
individual 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.
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,
2001 and 2000. 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.
Segment Information
UCI adopted FASB Statement of Financial Accounting Standards No. ("SFAS") 131,
"Disclosure about Segments of an Enterprise and Related Information," in fiscal
year 1999. SFAS No. 131 requires companies to report financial and descriptive
information about their reportable operating segments, including segment profit
or loss, certain specific revenue and expense items, and segment assets, as well
as information about the revenues derived from the Company's products and
services, the countries in which the Company earns revenues and holds assets,
and major customers. This statement also requires companies that have a single
reportable segment to disclose information about products and services,
information about geographic areas, and information about major customers. This
statement requires the use of the management approach to determine the
information to be reported. The management approach is based on the way
management organizes the enterprise to assess performance and make operating
decisions regarding the allocation of resources. It is management's opinion
that, at this time, UCI has several operating segments, however, only one
reportable segment. The following discussion sets forth the required disclosures
regarding single segment information.
UCI provides nonmedical management and administrative services for a network of
36-freestanding medical centers, 34 of which are located throughout South
Carolina and two are located in Knoxville, Tennessee (29 operating as Doctor's
Care in South Carolina, one as Doctor's Care in Knoxville, Tennessee, five as
Progressive Physical Therapy Services in South Carolina, and one as Progressive
Physical Therapy Services in Knoxville, Tennessee.
Recent Pronouncements
In July 2001, FASB issued SFAS No. 141, "Business Combinations" ("SFAS No. 141")
and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS
No. 141 addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS No. 142 addresses the
initial recognition and measurement of intangible assets acquired outside of a
business combination, whether acquired individually or with a group of other
assets, and the accounting and reporting for goodwill and other intangibles
subsequent to their acquisition. These standards require all future business
combinations to be accounted for using the purchase method of accounting.
Goodwill will no longer be amortized but instead will be subject to impairment
tests, at least annually. UCI has elected to adopt SFAS No. 141 and SFAS No. 142
on a prospective basis as of October 1, 2001; however, certain provisions of
these new standards also apply to any acquisitions concluded subsequent to June
30, 2001. As a result of implementing these new standards, UCI will discontinue
the amortization of goodwill as of September 30, 2001. Management believes the
adoption of this standard will have a material impact on its financial
statements in that its income before taxes will be increased by an amount equal
to the amortization expenses that would have otherwise been charged to earnings
under current accounting standards, approximately $450,000 annually.
Additionally, UCI's future earnings may periodically be affected in a materially
adverse manner should particular segments of its goodwill balances become
impaired pursuant to the valuation methodology.
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 and an accumulated
deficit of approximately $6,245,000 and $1,204,000, respectively at September
30, 2001. 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.
However, there can be no assurances that the Company will be successful in
refinancing or renewing outstanding debt instruments.
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 closure of the Atlanta centers, which were unprofitable, had an immediate
positive offset on the Company in the fourth quarter of fiscal year 2000.
Management expects improvement to continue into fiscal year 2002 and beyond.
However, there can be no assurances that these improvements will continue.
3.
Property and Equipment
Property and equipment consists of the following at September 30:
September 30, 2001 September 30, 2000
------------------------------- --------------------------------
Useful Life
Range Accum Accum
(in years) Cost Depreciation Cost Depreciation
---------- ---- ------------ ---- ------------
5-40 $ 412,750 $ 88,656 $ 412,750 $ 74,218
Building
N/A 66,000 0 66,000 0
Land
5-39 1,623,176 1,069,213 1,281,450 881,784
Leasehold Improvements
1-5 1,555,451 1,124,669 1,472,377 931,639
Furniture & Fixtures
1-5 1,402,274 1,122,277 1,402,274 985,697
EDP - Companion
1-5 1,032,053 743,740 998,511 627,049
EDP - Other
5-10 3,765,883 2,255,019 3,630,184 1,962,494
Medical Equipment
1-5 1,212,576 693,857 1,062,553 544,490
Other Equipment
3-10 35,099 30,817 35,100 27,735
Autos
--------------- --------------- --------------- ----------------
$11,105,262 $7,128,248 $10,361,199 $6,035,106
Totals
=============== =============== =============== ================
At September 30, 2001 and 2000, capitalized leased equipment included above
amounted to approximately $1,414,000 and $1,829,000, net of accumulated
amortization of $841,000 and $873,000, respectively.
Depreciation expense equaled $1,093,142, $1,167,676, and $1,209,262 for the
years ended September 30, 2001, 2000, and 1999, respectively.
4. Income Taxes
The components of the (benefit) provision for income taxes for the years ended
September 30 are as follows:
2001 2000
------------- ---------------
Deferred:
$ 0 $ 0
Federal
0 0
State
------------- ---------------
$ 0 $ 0
Total income tax expense (benefit)
============= ===============
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, 2001, 2000, and 1999, the Company's deferred tax assets
(liabilities) and the related valuation allowances are as follows:
2001 2000 1999
------------- ------------- --------------
$ 512,974 $573,148 $ 548,533
Accounts receivable
15,950 12,283 9,512
Other
6,890,796 7,402,625 5,860,524
Operating loss carryforwards
(411,518) (429,151) (200,761)
Fixed assets
Accounts payable 56,808 82,655 104,670
------------- ------------- --------------
$7,065,010 $7,641,560 $6,322,478
Available deferred tax assets
=============
============= ==============
$7,065,010 $7,641,560 $6,322,478
Valuation allowance
============= ============= ==============
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:
2001 2000 1999
-------------- -------------- --------------
$(501,364) $(1,964,344) $ 309,318
Tax at federal statutory rate
Effect on rate of:
119,935 730,838 (66,442)
Amortization of goodwill
105,430 20,562 50,752
Non deductible expenses
815 815 815
Life insurance premiums
(24,281) (106,953) 25,980
State income taxes & other
299,465 1,319,082 (320,423)
Change in valuation allowance
-------------- -------------- --------------
$ 0 $ 0 $ 0
============== ============== ==============
At September 30, 2001, the Company has net tax operating loss (NOL)
carryforwards expiring in the following years ending September 30,
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
2020 4,494,758
2021 984,289
----------------
$18,623,772
================
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 for years with NOL's that expire prior
to 2011. The Company may use $893,507 of net operating losses on an annual
basis.
In determining that it was more likely than not that the recorded deferred tax
asset would not be realized, management of the Company considered the following:
o Recent historical operations results.
o The budgets and forecasts that management and the Board of
Directors had adopted for the next fiscal year.
o The ability to utilize NOL's prior to their expiration.
o The potential limitation of NOL utilization in the event of a change in
ownership.
o The generation of future taxable income in excess of income
reported on the consolidated financial statements.
A valuation allowance of $7.0 million and $7.6 million at September 30, 2001 and
2000, 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.
5. Long-Term Debt
Long-term debt consists of the following at September 30:
2001 2000
----------------- -----------------
Term note in the amount of $3,100,000 dated July 1, 2001, payable in monthly
installments of principal and interest at a rate of prime plus 4%
(prime rate is 6.00% as of 09/30/01), maturing December 2002. $2,624,837 $3,451,039
Convertible subordinated debenture (to the Company's common stock at $3.20 per
share) 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 6.00 % as of
September 30, 2001), through February 1, 2009 collateralized by accounts 808,555 915,222
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 October 31, 2001. 374,109 422,859
Note payable to a financial institution in the amount of $408,000, dated April
17, 2000, payable in monthly installments of principal and interest at a rate of
prime plus 1% (prime rate is 6.00% as of September 30, 2001) maturing on May 2,
2004, collateralized by common stock of the Company
owned by the President as well as a life insurance policy on the president 267,222 369,306
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, 298,635 319,102
collateralized by accounts receivable from patients.
2001 2000
----------------- -----------------
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 6.00% as of September 30, 2001) of $3,100 from
April 1997 to February 2002, with a final payment of
all remaining principal and accrued interest due in March 2002, 221,075 236,760
collateralized by a mortgage on one of the Company's medical facilities
with a net book value of approximately $405,000.
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% (prime rate is 6.0% as of September 30, 2001), maturing on January 1, 167,391 199,467
2005, personally guaranteed by three former physician employees of the P.A.
Notes payable in monthly installments over three to four years at interest 0 522
rates ranging from 3.9% to 10.5%, collateralized by related vehicles.
----------------- -----------------
6,261,824 7,414,277
Subtotal
948,446 1,538,037
Capitalized lease obligations
----------------- -----------------
7,210,270 8,952,314
(4,858,216) (6,489,280)
Less, current portion
----------------- -----------------
$2,352,054 $2,463,034
================= =================
The MainStreet note to a financial institution has been classified as current
due to payment term violations at September 30, 2001.
Aggregate maturities of notes payable and capital leases are as follows:
Notes Payable Capital Leases
Year ending September 30: Total
---------------- ---------------- ----------------
$4,347,329 $510,887 $4,858,216
2002
882,977 365,423 1,248,400
2003
272,674 52,995 325,669
2004
190,503 8,535 199,038
2005
179,253 5,370 184,623
2006
389,088 5,236 394,324
Thereafter
---------------- ---------------- ----------------
$6,261,824 $948,446 $7,210,270
================ ================ ================
6. Employee Benefit Plans
The Company has an employee savings plan ( the "Savings Plan") that qualifies as
a deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limit.
Effective 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 $226,656,
$221,966, and $159,201 in fiscal years 2001, 2000, and 1999, 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
$114,507, $65,112, and $49,640 in fiscal years 2001, 2000 and 1999,
respectively.
During the fiscal year ended September 30, 1984, the Company adopted an
incentive stock plan (the "1984 Plan"). The 1984 Plan expired under its terms in
December 1993. At September 30, 2001, there were stock options outstanding under
the 1984 Plan for 11,100 shares at $.25 per share, all of which were
exercisable.
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 7, "Stockholders' Equity" for activity information
regarding these four stock option plans.
7. Stockholders' Equity
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 6,
"Employee Benefit Plans.")
1996
Non-Employee 1997
Stock Options 1984 1994 Plan Non-Employee
Plan Plan Plan
- ----------------------------- ----------- ----------- -----------
----------
Outstanding at 09/30/99 582,825
11,600 10,000 15,000
---------- ----------- ----------- -----------
Exercisable at 09/30/99
11,600 0 0 0
Forfeited FY 99/00 (500) (17,500) 0
0
---------- ----------- ----------- -----------
Outstanding at 09/30/00 11,100 565,325
10,000 15,000
---------- ----------- ----------- -----------
Exercisable at 09/30/00 11,100
0 0 0
Forfeited FY 00/01 0 0 0 0
---------- ----------- ----------- -----------
Outstanding at 09/30/01 11,100 565,325 10,000 15,000
---------- ----------- ----------- -----------
Exercisable at 09/30/01 0 0 0 0
The Company has not granted options under any plans during fiscal years 2001,
2000 and 1999 and there have been no shares exercised during 2001, 2000, or
1999.
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 09/30/99 0.25 2.6475 3.50 2.50
------------- ------------- ------------------ ------------------
Exercisable at 09/30/99 0.25 0 0 0
------------- ------------- ------------------ ------------------
Granted FY 99/00 0 0 0 0
Exercised FY 99/00 0 0 0 0
Forfeited FY 99/00 .25 3.04 0 0
------------- ------------- ------------------ ------------------
Outstanding at 09/30/00 0.25 2.63 3.50 2.50
------------- ------------- ------------------ ------------------
Exercisable at 09/30/00 0.25 0 0 0
------------- ------------- ------------------ ------------------
Granted FY 00/01 0 0 0 0
Exercised FY 00/01 0 0 0 0
Forfeited FY 00/01 0 0 0 0
------------- ------------- ------------------ ------------------
Outstanding at 09/30/01 .25 2.63 3.50 2.50
------------- ------------- ------------------ ------------------
Exercisable at 09/30/01 0 0 0 0
------------- ------------- ------------------ ------------------
The following table summarizes options outstanding and exercisable by price
range as of September 30, 2001:
Options Outstanding Options Exercisable
- -------------------- --- --------------------------------------------------- -- ------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Range of Price Outstanding Life Price Exercisable Price
- -------------------- --------------- --------------- ------------ -------------- ------------
11,100 2.25 years $.25 0 $.25
$0.00 to $ .99
154,650 6.67 years 1.94 0 N/A
$1.00 to $1.99
288,675 3.72 years 2.56 0 N/A
$2.00 to $2.99
104,000 3.65 years 3.35 0 N/A
$3.00 to $3.99
43,000 1.68 years 4.28 0 N/A
$4.00 to $4.99
------------
--------------- --------------
601,425 0
=============== ==============
The Company has adopted the disclosure-only provisions of SFAS 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 2001, 2000 and 1999 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
--------------------------------------------------------
2001 2000 1999
------------- ------------------ -----------------
$(1,474,601) $(6,102,481) $909,758
Net income (loss) - as reported
(1,474,601) (6,147,481) 774,143
Net income (loss) - pro forma
Basic and diluted earnings (loss) per (.15) (.63) .11
share - as reported
Basic and diluted earnings (loss) per (.15) (.64) .09
share - pro forma
9,650,515 9,650,515 8,536,720
Basic weighted average number of shares
Diluted weighted average number of shares 9,653,554 9,656,563 8,543,515
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:
Zero
Expected Dividend Yield
35.77%
Expected Stock Price Volatility
5.45% to 6.75%
Risk-free Interest Rate
1 - 5 years
Expected Life of Options
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 the convertible debenture holder
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. No warrants were issued in fiscal years
ended September 30, 2000 or September 30, 2001.
The following is a schedule of warrants issued and outstanding during the years
ended September 30, 2001, 2000 and 1999:
Number of Exercise Date Expiration
Warrants Price Exercisable Date
-------------- --------------- --------------- --------------
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 10/05/04
Exercised 0 5.00 10/09/96 09/16/99
Expired (25,000) 3.12 10/09/96 09/16/99
--------------
Outstanding at 09/30/99 225,000
Activity during FY 99/00:
Exercised 0
Expired 0
--------------
Outstanding at 09/30/00 225,000
Activity during FY 00/01:
Exercised 0
Expired (75,000) 2.5625 09/30/01 09/30/01
--------------
Outstanding at 09/30/01 150,000
==============
8. Lease Commitments
UCI-SC leases office and medical center space under various operating lease
agreements. Certain operating leases provide for escalation payments, exclusive
of renewal options.
Future minimum lease payments under noncancellable operating leases with a
remaining term in excess of one year as of September 30, 2001, are as follows:
Operating
Leases
----------------
Year ending September 30:
$ 2,640,802
2002
2,397,046
2003
2,341,840
2004
2005 2,316,212
2006 2,357,982
14,451,372
Thereafter
----------------
$26,505,254
Total minimum lease payments
================
Total rental expense under operating leases for fiscal 2001, 2000, and 1999 was
approximately $2,907,963, $2,708,000, and $2,510,000, respectively.
9. 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, 2001, 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
At September 30, 2001, UCI-SC leases one medical center facility from CHC under
an operating lease with a fifteen-year term expiring in 2008. This lease has a
five year renewal option, and a rent guarantee by the South Carolina P.A. Total
lease payments made by UCI-SC under this lease during the Company's fiscal years
ended September 30, 2001, 2000, and 1999 were $64,968 each year.
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,
2001, 2000 and 1999 were $153,600, $153,600, and $103,200, respectively.
One medical facility operated by UCI-SC is or was 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, 2001, 2000, and 1999 were
$49,250, $49,250, and $205,981, respectively.
Other Transactions with Related Parties
At September 30, 2001, BCBS and its subsidiaries control 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 obtain 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).
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, 2001 is $546,000.
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.
During fiscal year 2001, 2000, and 1999, the Company paid BCBS and its
subsidiaries $110,295, $170,517, and $208,000, respectively, in interest.
Revenues generated from billings to BCBS and its subsidiaries totaled
approximately 29%, 26%, and 18% of the Company's total revenues for fiscal years
2001, 2000, and 1999.
10. Income (Loss) Per Share
The calculation of basic income (loss) per share is based on the weighted
average number of shares outstanding (9,650,515 in fiscal 2001, 9,650,515 in
fiscal 2000, and 8,536,720 in fiscal 1999). Fully diluted weighted average
common shares outstanding during fiscal year 2001 were 9,653,728. Warrants and
options to purchase 751,425 shares, 826,425 shares, and 903,050 shares of common
stock were excluded from the calculation at September 30, 2001, September 30,
2000 and September 30, 1999, respectively, because of their antidilutive effect.
11. Concentration of Credit Risk
In the normal course of providing health care services, the Company may extend
credit to patients without requiring collateral. Each individual's ability to
pay balances due the Company is assessed and reserves are established to provide
for management's estimate of uncollectible balances. Approximately 6% of the
Company's year end accounts receivable balance is due from Blue Cross Blue
Shield of South Carolina. No other single payor represents more than 5% of the
year end balance.
Future revenues of the Company are largely dependent on third-party payors and
private insurance companies, especially in instances where the Company accepts
assignment.
12. Commitments and Contingencies
The Company is insured for professional and general liability on a claims-made
basis, with additional tail coverage being obtained when necessary.
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, 2001, and management
intends to vigorously defend the Company in such matters. As of September 30,
2001, a default judgment in the approximate amount of $233,000 had been rendered
against the Company for supplies and services that the plaintiff claims had not
been paid by the Company. The Company's accrued expenses include an adequate
reserve for the payable should the Company lose in its defenses. 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.
13. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
The Company made interest payments of $1,447,045, $1,682,329, and $1,374,364, in
the years ended September 30, 2001, 2000, and 1999, respectively. The Company
made no income tax payments in the years ended September 30, 2001, 2000, and
1999, respectively.
Supplemental Non-Cash Financing Activities
Capital lease obligations of $0, 0, and $255,862, were incurred in fiscal 2001,
2000, and 1999.
14. Realignment and Impairment Charges
At September 30, 2001, three centers were deemed to have impaired goodwill. One
center in the Columbia region and one center in the Greenville-Spartanburg
region had decreased profitability during fiscal year 2001 due to changes in the
assigned physicians. Even though management has made changes to the staffing and
marketing focus on these two centers and now believes they are on the track to
meeting goals and profitability in the next few months, the goodwill was
considered impaired and was written off at September 30, 2001. Additionally, as
of September 30, 2001, a decision had been made to combine the two Knoxville
locations into one and, therefore, the goodwill associated with the closed
location was deemed to be impaired and, therefore, was written off. The combined
impairment charge for all three locations was approximately $753,000.
Effective June 30, 2000, the Company closed its Atlanta physician practices. The
performance of these centers, which were originally acquired in May 1998, did
not meet the expectations of the Company and the Company was no longer committed
to the Georgia market. As a result of the decision to close these centers
coupled with the fact that the remaining projected undiscounted cash flows were
less than the carrying value of the long-lived assets and goodwill for these
centers, the Company recorded an impairment in the quarter ended March 31, 2000
of $3,567,376 to reduce the goodwill to its fair value.
Additionally, the Company has incurred and expects to incur additional costs
associated with the decision to close the Atlanta centers. These costs relate
primarily to exiting certain lease obligations and paying severance benefits to
certain employees at the closed locations. Severance costs of $185,000 and lease
obligations, net of estimated sub-lease income, of $376,000 are included in the
line item Realignment and Impairment Charges. At September 30, 2000, $242,000
remains accrued and unpaid relating to these lease obligations. All severance
has been paid as of September 30, 2001.
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
cost line item in fiscal year 1998). 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 by $329,094 when three landlords
released the Company from its obligation and during fiscal year 2000, the
Company changed its estimate by $29,500 relating to the one remaining lease
obligation.
Estimated lease and severance obligations at September 30, 1997 $ 0
Accrued lease obligations during fiscal year 1998 599,975
--------------
Balance at September 30, 1998 599,975
Lease payments (108,381)
Change in estimated lease obligations (329,094)
--------------
Balance at September 30, 1999 162,500
Lease payments on 1998 estimate (48,000)
Change in estimated lease obligations from fiscal year 1998 29,500
Change in accrued lease obligations from fiscal year 1998 (290,000)
Accrued lease obligations during fiscal year 2000 376,000
Accrued severance obligations during fiscal year 2000 185,000
Severance payments (185,000)
Lease payments on 2000 estimate (134,000)
--------------
Balance at September 30, 2001 $96,000
==============
At the time management decides to close a center, management records an accrual
for the remaining estimated net lease obligations that will be incurred by the
Company. The accrual represents management's best estimate of the likely events
that could occur, which include estimates for lease termination, fees, or
estimated sub rental income. The estimate is based upon an assessment of the
market conditions at the specific center, the estimated sub rental revenues, and
the past experience of the Company. The Company reviews the net lease
obligations quarterly and revises estimates as additional facts and
circumstances require adjustment. The Company has accrued at September 30, 2001
an estimate of $96,000 for net lease obligations, as discussed above.
A schedule of total obligations without consideration of management's estimates
for early terminations and sublease rentals not subject to long-term commitments
is as follows at September 30, 2001:
Lease
Obligations
--------------
2002 48,000
2003 48,000
2004 48,000
2005 48,000
2006 48,000
2007 and beyond 300,000
15. Chapter 11 Bankruptcy Filing
On November 2, 2001, the Company (the "Debtors") filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
South Carolina (the "Bankruptcy Court"). The Debtors remain in possession of
their properties and assets and management of the Company continues to operate
the business of the Debtors as a debtor-in-possession. As a
debtor-in-possession, the Company is authorized to continue to operate its
businesses, but may not engage in transactions outside the ordinary course of
business without the approval, after notice and an opportunity for a hearing, of
the Bankruptcy Court. Pursuant to the automatic stay provisions of the
Bankruptcy Code, all actions to collect pre-petition indebtedness of the
Debtors, as well as most other pending litigation against the Debtors are
currently stayed. In addition, as debtor-in-possession, the Debtors have the
right, subject to the approval of the Bankruptcy Court and certain other
conditions, to assume or reject any pre-petition executory contracts or
unexpired leases.
The Bankruptcy Court has approved payment of certain pre-petition liabilities,
such as employee wages and benefits, and settlement of certain trade payable
claims. In addition, the Bankruptcy Court has allowed for the retention of legal
and financial professionals to advise in the bankruptcy proceedings.
The Company presently intends to reorganize the Company's business and
restructure the Company's liabilities through a plan of reorganization to be
filed with the Bankruptcy Court. In connection with the development of a plan or
plans of reorganization alternatives, the Company will evaluate any and all
proposals to maximize the value of the Debtors.
Currently, it is not possible to predict with certainty the length of time the
Company will operate under the protection of Chapter 11, the outcome of the
Chapter 11 proceedings in general, or the effect of the proceedings on the
business of the Company or on the interests of the various creditors and
security holders. Under the priority scheme established by the Bankruptcy Code,
certain post-petition liabilities and pre-petition liabilities need to be
satisfied before shareholders can receive any distribution. The ultimate
recovery to shareholders, if any, will not be determined until confirmation of a
plan of reorganization. There can be no assurance as to what value, if any, will
be ascribed to the Company's common stock in the bankruptcy proceedings.
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 February 6, 2002
- ------------------------------
M.F. McFarland, III, M.D. and Chairman of the Board
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 February 6, 2002
- -------------------------------
M.F. McFarland, III, M.D. and Chairman of the Board
/S/ JERRY F. WELLS, JR. Executive Vice President of Finance February 6, 2002
- -------------------------------------
Jerry F. Wells, Jr. and Chief Financial Officer
February 6, 2002
/S/ A. WAYNE JOHNSON Director
- -----------------------
A. Wayne Johnson
February 6,2002
/S/ HAROLD H. ADAMS, JR. Director
- --------------------------------
Harold H. Adams, Jr.
February 6, 2002
/S/ CHARLES M. POTOK Director
- ---------------------------------
Charles M. Potok
February 6, 2002
/S/ THOMAS G. FAULDS Director
- --------------------------------
Thomas G. Faulds
February 6, 2002
/S/ ASHBY JORDAN, M.D. Director
- ------------------------------
Ashby Jordan, M.D.
February 6, 2002
/S/ JOHN M. LITTLE, Jr., M.D. Director
- ------------------------------
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-K/ASB
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-K/ASB
filed for fiscal year 1995
3.3 Amendment to Amended and Restated Bylaws of UCI Exhibit 3.3 on the Form 10-K/ASB
filed for fiscal year 1996
Exhibit 4.1 on the Form 10-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
Option Plan filed for fiscal year 1995
10.17 Consulting Agreement dated December 10, 1996 between Exhibit 10.17 on the Form 10-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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-K/ASB
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 Exhibit 10.31 on Form 10-K/A filed
between UCI Medical Affiliates of South Carolina, for fiscal year 1999
Inc. and M.F. McFarland, III, M.D.
10.32 Second Amended Employment Agreement dated August 19, Exhibit 10.32 on Form 10-K/A filed
1999 between Doctor's Care, P.A. and M.F. McFarland, for fiscal year 1999
III, M.D.
21 Subsidiaries of the Registrant Exhibit 21 on the Form 10-QSB
filed for period ending December
31, 1997