UCI MEDICAL AFFILIATES INC - 10-K Annual Report

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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 For the transition period from _________________ to
_________________
Commission File Number: 0-13265

UCI MEDICAL AFFILIATES, INC.

(Exact name of registrant as specified in its charter)

Delaware 59-2225346

(State or other jurisdiction of incorporation (IRS Employer Identification
or organization) Number)
6168 St. Andrews Road, Columbia, SC 29212
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (803) 772-8840

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.05
par value

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No

Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ( X )

The registrant's revenue for the year ended September 30, 1995, the
registrant's most recent year end, was $17,987,147.
The aggregate market value of voting stock held by nonaffiliates of the
registrant on December 15, 1995, is approximately $4,166,000.*
The number of shares outstanding of the registrant's common stock, $.05 par
value was 3,794,916 at December 15, 1995.
DOCUMENTS INCORPORATED BY REFERENCE

None

* Calculated by excluding all shares held by officers, directors and
controlling shareholder of registrant without conceding that all such persons
are "affiliates" of registrant for purposes of the federal securities laws.
Total number of pages, including the cover page, is 123 . Exhibit Index is
on page 41 .

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UCI MEDICAL AFFILIATES, INC.

INDEX TO FORM 10-K

PAGE

PART I

Item 1 Business ..........................................................3

Item 2 Properties .........................................................5

Item 3 Legal Proceedings ..................................................6

Item 4 Submission of Matters to a Vote of Security Holders ............. 6

PART II

Item 5 Market for the Registrant's Common Stock and

Related Security Holder Matters ............................... 7

Item 6 Selected Financial Data ........................................ 8

Item 7 Management's Discussion and Analysis of Financial

Condition and Results of Operations .............................. 9

Item 8 Financial Statements and Supplementary Data .......................12

Item 9 Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure ......................... 12
PART III

Item 10 Directors and Executive Officers of the Registrant ................12

Item 11 Executive Compensation ........................................... 14

Item 12 Security Ownership of Certain Beneficial Owners

and Management ................................................ 15

Item 13 Certain Relationships and Related Transactions ....................17

PART IV

Item 14 Exhibits, Financial Statement Schedules and

Reports on Form 8-K ...............................................19

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PART I

Item 1. Business

Introduction

The consolidated financial statements of UCI Medical Affiliates, Inc.
include the accounts of UCI Medical Affiliates, Inc. ("UCI"), its wholly owned
subsidiary, UCI Medical Affiliates of SC, Inc. ("UCI-SC") and Doctor's Care, PA
(the "P.A."), collectively the "Company". The financial statements of the P.A.
are consolidated with UCI because UCI-SC has unilateral control over the assets
and operations of the P.A. and, notwithstanding the lack of technical majority
ownership, consolidation of the P.A. with UCI is necessary to present fairly the
financial position and results of operations of UCI. UCI-SC provides non-medical
management and administrative functions for 25 medical clinics, operating as
Doctor's Care (the "Centers"). All medical services at the Centers are provided
by or under the supervision of the P.A., which has contracted with UCI-SC to
provide the medical direction of the Centers. The medical directors operate the
Centers under the financial and operational control of UCI-SC. However, medical
supervision of the Centers is provided solely by the P.A. The P.A. remits to
UCI-SC all medical service revenues generated by the Centers, net of expenses
incurred by the P.A. This compensation is recorded in the accompanying financial
statements as revenue. Control of the P.A. is perpetual and other than temporary
because of the nature of this relationship and the management's agreements
between the entities. The net assets of the P.A. are not material for any period
presented and intercompany accounts and transactions have been eliminated. For
the fiscal year ended September 30, 1995, the Company has shown a substantial
increase in revenues and in medical centers under management. This growth is a
direct result of actions taken by management to increase marketing efforts, to
expand the state-wide network in South Carolina and to focus on the field of
occupational and industrial medicine.

General

UCI-SC provides nonmedical management and administrative services for
freestanding medical centers. The Company as of September 1995 owns a network of
medical centers consisting of 25 freestanding Centers located throughout South
Carolina.

In order to comply with prohibitions against corporations, other than
medical professional associations, providing medical care; all medical services
at the Centers are provided by or under the supervision of the P.A., a South
Carolina professional association.

The Centers are staffed by licensed physicians, other healthcare
providers and administrative support staff. The medical support staff includes
licensed nurses, certified medical assistants, laboratory technicians and x-ray
technicians.

The Centers typically are open for extended hours (weekends and
evenings) and out-patient care only. When hospitalization or specialty care is
needed, referrals to appropriate specialists are made.

The Company's Centers are broadly distributed throughout the state of
South Carolina. There are eleven primary care Centers in the Columbia region,
four in the Charleston region, four in the Myrtle Beach region and four in the
Greenville-Spartanburg region. In addition to these 23 Centers, the Company
operates a surgical practice and an orthopedic practice, both of which are
located in Columbia.

The Company's business, by its nature, is subject to various risks,
including, but not limited to, difficulties in controlling health care costs,
uncertainty of future expansion, availability of primary care physicians and
possible negative effects of government regulation.

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The health care industry is subject to extensive federal and state
regulation. Changes in healthcare legislation or reinterpretations of existing
regulations could significantly affect the business of the Company.

Medical Services Provided at the Centers

The Company's Centers offer reasonably priced 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:

(bullet) Routine care of general medical problems, including colds, flu,
ear infections, hypertension, asthma, pneumonia and other
conditions typically treated by primary care providers;

(bullet) Treatment of injuries, such as simple fractures, dislocations,
sprains, bruises and cuts;

(bullet) Minor surgery, including suturing of lacerations and removal of
cysts and foreign bodies;

(bullet) Diagnostic tests, such as x-rays, electrocardiograms, complete
blood counts, urinalysis and various cultures; and,

(bullet) Occupational and industrial medical services, including drug
testing, worker's 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 transferred 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, Medicare, Worker's Compensation and other private insurance).
Private pay billings represent the most significant source of revenues. The
Company also provides services for members of three of the largest health
maintenance organizations ("HMOs") operating in South Carolina - Companion
HealthCare Corporation, HealthSource South Carolina, Inc., and Maxicare South
Carolina (a division of Maxicare Southeast Health Plan, Inc.).

Medical services traditionally have been provided on a fee-for-service
basis with insurance companies assuming responsibility for paying all or a
portion of such fees. The increase in medical costs under traditional indemnity
health care plans has been caused by a number of factors. These factors include:
(i) the lack of incentives on the part of health care providers to deliver
cost-effective medical care; (ii) the absence of controls over the utilization
of costly specialty care physicians and hospitals; (iii) a growing and aging
population which requires increased health care expenditures; and (iv) the
expense involved with the introduction and use of advanced pharmaceuticals and
medical technology.

As a result of escalating health care costs, employers, insurers and
governmental entities all sought cost-effective approaches to the delivery of
and payment for quality health care services. HMOs and other managed health care
organizations have emerged as integral components in this effort. HMOs enroll

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members by entering into contracts with employer groups or directly with
individuals to provide a broad range of health care services for a capitation
payment, with minimal or no deductibles or co-payments required of the members.
HMOs, in turn, contract with health care providers like the Company to
administer medical care to HMO members. These contracts provide for payment to
the Company on either a discounted fee-for-service or through capitation
payments based on the number of members covered, regardless of the amount of
necessary medical care required within the covered benefit period.

Certain third party payors are studying various alternatives for
reducing medical costs, some of which, if implemented, could affect
reimbursement levels to the Company. The Company cannot predict whether changes
in present reimbursement methods or proposed future modifications in
reimbursement methods will affect payments for services provided by the Centers
and, if so, whether they will have an adverse impact upon the business of the
Company.

Competition and Marketing

All of the Company's Centers face competition, in varying degrees, from
hospital emergency rooms, private doctor's offices and other competing
freestanding medical centers. Some of these providers have financial resources
which are greater than those of the Company. In addition, traditional sources of
medical services, such as hospital emergency rooms and private physicians, have
had, in the past, a higher degree of recognition and acceptance by patients than
Centers such as those operated by the Company. The Company's Centers compete on
the basis of accessibility, including evening and weekend hours, a
no-appointment policy, the attractiveness of its state-wide network to large
employers and third party payors, and on a basis of a competitive fee schedule.
In an effort to offset the competition's community recognition, the Company has
substantially increased its marketing efforts. Regional marketing
representatives have been added, focused promotional material has been developed
and a newsletter for employers promoting the Company's activities has been
initiated.

Government Regulation

South Carolina prohibits the corporate practice of medicine. By virtue
of its relationship with the P.A., the Company believes that it is in full
compliance with this law.

The health care industry is highly regulated, and there can be no
assurance that the regulatory environment in which the Company operates will not
change significantly in the future. Generally, regulation of health care
companies is increasing.

Various proposals affecting federal and state regulation of the health
care industry, including limitations on Medicare and Medicaid payments, have
been introduced in the past, including provisions in legislation currently
pending.

Employees

As of September 30, 1995 and 1994, the Company had 301 and 202 employees,
respectively (270 and 170 , respectively, on a full-time equivalent basis).

Item 2. Properties

All but one of the Company's primary care Centers 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. Four (4) Centers are leased from entities affiliated with the
Company's Chairman and one (1) center is leased directly from the Chairman.
Seven (7) Centers are leased from Companion HealthCare Corporation, a principal
shareholder of the Company. See additional information regarding these leases at
Item 13, "Certain Relationships and Related Transactions."

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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, there are no material pending legal proceedings to which the Company is
party.

Item 4. Submission of Matters to a Vote of Security Holders

On September 13, 1995, the annual meeting of the shareholders of the
Company was held and the following actions were taken:

1. The shares of Common Stock represented at the meeting were voted to
elect Charles M. Potok, Charles P. Cannon and Russell J. Froneberger to the
Board of Directors for terms expiring in 1997, 1998 and 1998, respectively, as
follows:

Number Voting For Against Abstain

Charles M. Potok 2,804,675 2,665,941 - 138,734
Charles P. Cannon 2,804,675 2,665,941 - 138,734
Russell J. Froneberger 2,804,675 2,665,941 - 138,734

Two other Directors, M.F. McFarland, III, M.D. and Harold H.
Adams, Jr., whose terms expire in 1997 and 1996,
respectively, continued to serve as elected.

2. The shares of Common Stock represented at the meeting were voted
to approve an amendment to the 1994 Incentive Stock Option Plan to
increase the number of shares of Common Stock that may be issued
under the Stock Option Plan from 50,000 shares to 750,000 shares
as follows:

Number Voting For Against Abstain

2,578,837 2,552,639 24,339 1,859

3. The shares of Common Stock represented at the meeting were voted
to ratify the appointment of Price Waterhouse LLP as independent
auditors for the Company as follows:

Number Voting For Against Abstain

2,804,675 2,803,922 446 337

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PART II

Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters

The Common Stock of the Company is traded on the over-the-counter
market. The prices set forth below indicate the high and low bid prices. All
stock prices have been adjusted to reflect the Company's one for five reverse
stock split effected on July 27, 1994.

Bid Price

Fiscal Year ended September 30, 1995 High Low

1st quarter (10/01/94 - 12/31/94) 3-1/8 1-1/2
2nd quarter (01/01/95 - 03/31/95) 3-1/4 1-1/2
3rd quarter (04/01/95 - 06/30/95) 3-3/8 2-1/4
4th quarter (07/01/95 - 09/30/95) 3-1/4 1-3/4

Bid Price

Fiscal Year ended September 30, 1994 High Low

1st quarter (10/01/93 - 12/31/93) 5/8 5/8
2nd quarter (01/01/94 - 03/31/94) 2-1/2 15/100
3rd quarter (04/01/94 - 06/30/94) 4-1/16 1-1/4
4th quarter (07/01/94 - 09/30/94) 3-6/10 1-1/4

From October 1, 1992 through September 30, 1993, the Company's stock
had been quoted at 5/32.

The foregoing quotations reflect inter-dealer prices without retail
markup, markdown or commission and may not necessarily reflect actual
transactions.

As of September 30, 1995, there were 698 stockholders of record of the
Company's Common Stock, excluding individual participants in security position
listings.

The Company has not paid dividends on its Common Stock since inception
and has no plans to declare cash dividends in the foreseeable future.

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Item 6. Selected Financial Data (In thousands, except per share data)

The following selected financial data should be read in conjunction
with the Company's consolidated financial statements and the accompanying notes
presented elsewhere herein.

STATEMENT OF OPERATIONS DATA

For the year ended September 30,

1995 1994 1993 1992 1991

Revenues ............................................... $ 17,987 $12,540 $9,799 $8,330 $ 8,542
Income (loss) before extraordinary items ............... (1,360) 644 268 3 (76)
Net income (loss) (1) .................................. (1,360) 644 407 3 (76)
Net income (loss) per share (2) ........................ (.43) .28 .21 -- (.04)
Weighted average number of
shares outstanding (2) ............................... 3,137 2,324 1,971 1,946 1,946

BALANCE SHEET DATA

September 30,

1995 1994 1993 1992 1991

Working capital ................................ (383) 763 (845) (921) (1,394)
Premises & equipment, net ...................... 2,795 1,098 487 268 404
Total assets ................................... 10,216 6,674 2,940 2,452 2,748
Long-term debt ................................. 4,366 2,838 667 634 473
Stockholders' equity ........................... 3,253 2,603 457 49 473

(1) Effective October 1, 1993, the Company adopted Statement of Financial
Standards No. 109, "Accounting for Income Taxes." The effect of adopting
SFAS 109 was to reduce income tax expense for 1994 by approximately
$612,000 or $.26 per share.

(2) The net income (loss) per share and the weighted average number of shares
outstanding has been restated for all periods presented to reflect the one for
five reverse stock split effected on July 27, 1994.

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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.

Results of Operations for the Year Ended September 30, 1995 Compared to
Year Ended September 30, 1994

For fiscal year 1995, revenues of $17,987,000 reflect an increase of
43% from the amount reported for fiscal year 1994. The following reflects
revenue trends from fiscal year 1991 through fiscal year 1995:

For the year ended September 30, (in thousands)

1995 1994 1993 1992 1991

Revenues $17,987 $12,540 $9,799 $8,330 $8,542
Operating Costs 18,180 11,881 9,133 8,004 8,232
Operating Margin (193) 660 666 326 310

The increase in revenue for fiscal year 1995 is attributable to a
number of factors. The Company engaged in a significant expansion, increasing
the number of primary care medical Centers from 19 to 25. The expansion included
the addition of two Centers each to the clusters in Columbia (bringing the total
to eleven plus two specialty practices in this region), Greenville (bringing the
total to four in this region) and Myrtle Beach (bringing the total to four in
this region).

The Company, in fiscal year 1995, increased its services provided to
members of HMOs. In these arrangements, the Company, through Doctor's Care,
P.A., acts as the designated primary caregiver for members of the HMO who have
selected Doctor's Care as their primary care provider. In fiscal year 1994, the
Company began participating in an HMO operated by Companion HealthCare
Corporation ("Companion"), a wholly owned subsidiary of Blue Cross Blue Shield
of South Carolina. With its arrangement with Companion, the Company now
participates in three HMOs and is the primary care "gatekeeper" for more than
11,000 capitated lives. While HMOs do not, at this time, have a significant
penetration into the South Carolina market, the Company believes that HMOs and
other managed care plans will experience a substantial increase in market share
in the next few years, and the Company is therefore positioning itself for this
possibility.

Increased revenues in fiscal year 1995 also reflect the Company's
heightened focus on occupational medicine and industrial health services.
Focused marketing materials, including quarterly newsletters for employers, were
developed to spotlight the Company's services for industry. The Company also
entered into an agreement with Companion Property and Casualty Insurance Company
wherein the Company acts as the primary care provider for injured workers of
firms insured through Companion Property and Casualty Insurance Company.
Companion Property and Casualty Insurance Company is wholly owned by Blue Cross
Blue Shield of South Carolina and is therefore affiliated with Companion
HealthCare Corporation, a primary shareholder of the Company. See additional
related information at Item 13, "Certain Relationships and Related
Transactions."

Patient encounters increased to 283,000 in fiscal 1995 from 216,000 in
fiscal 1994.

Even with the positive effects of the factors mentioned above, revenues
were short of goals for the year, due in part to the increased competition from
hospitals and other providers in Greenville, Sumter and Myrtle Beach and to
certain short-term disruptions related to the practices acquired during the
year.

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Operating losses of $193,000 were realized in fiscal 1995 as compared
to an operating margin of $660,000 in fiscal 1994. This is due, in part, to
start-up costs being incurred at the six Centers added in fiscal 1995. Operating
costs of $18,180,000 for fiscal 1995 exceeded management's budgets primarily in
the areas of personnel costs and medical supplies. Management has aggressively
addressed these areas, implementing significant cost cutting measures during the
latter part of the third quarter. These include very substantial and across the
board reductions in personnel costs, severe reductions in overtime and
aggressive negotiations with vendors to obtain more substantial discounts on
medical supplies.

Depreciation and amortization expense increased to $579,000 in fiscal
1995, up from $320,000 in fiscal 1994. This increase reflects higher
depreciation expense as a result of significant leasehold improvements and
equipment upgrades at a number of the Company's medical centers, as well as an
increase in amortization expense related to the intangible assets acquired from
the Company's purchase of existing practices in Surfside Beach, Columbia, and
Myrtle Beach. Interest expense increased from $164,000 in fiscal 1994 to
$505,000 in fiscal 1995 primarily as a result of the interest costs associated
with the indebtedness incurred in the Company's purchase of the Surfside Beach
Center and in the leasehold improvements.

In the latter part of fiscal year 1994, the Company converted to a
centralized computer system acquired from Companion Technologies. Companion
Technologies is wholly owned by Blue Cross Blue Shield of South Carolina and is
therefore affiliated with Companion HealthCare Corporation, a primary
shareholder of the Company. See additional related information at Item 13,
"Certain Relationships and Related Transactions." This conversion was
necessitated by the Company's expansion, the need for a centralized, specialized
billings and collections unit, and by the Company's recognition that increased
managed care participation required more exacting data. With billing done from a
centralized location rather than from each medical center, the Company believes
that both increased billing efficiency, and greater focus on collections, will
result. The new computer system will also cause a reduction in computer-related
expansion costs should the Company add additional Centers. In making this
conversion, the Company traded in its old computer equipment, giving rise to a
loss of approximately $69,000 in fiscal 1994.

Effective October 1, 1993, the Company adopted Statement of Financial
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires the
use of an asset and liability approach to accounting for income taxes. The
effect of adopting SFAS 109 was to reduce income tax expense for 1994 by
approximately $612,000 or $.26 per share. Financial statements presented for
1993 and prior years reflected income taxes recorded under the deferred method
previously required by previous accounting standards. As part of the adoption of
SFAS 109, the Company has recognized a deferred tax asset relating to net
operating loss carry forwards which are available to offset future taxable
income. Under certain circumstances, a significant change in the Company's
ownership could severely limit utilization of the Company's net operating loss
carry forwards.

Financial Condition at September 30, 1995

The Company grew significantly during the year ending September 30,
1995.

Cash and cash equivalents have decreased from $210,000 at September 30,
1994 to $77,000 at September 30, 1995. Cash was utilized mainly for working
capital needs and to fund the expansion previously discussed.

Accounts receivables increased notably from fiscal year 1994. This was
attributable to the opening of six additional primary care Centers and the
overall growth in patient visits to existing Centers.

The increase in property and equipment is attributable to the purchase
of the Donaldson Center, the equipment needs of new Centers and the up-grading
of equipment at established Centers. The excess of cost over the net assets of
acquired businesses (goodwill) totaled $3,578,000 at September 30, 1995 compared
to $2,651,000 at the end of the previous fiscal year and reflects the medical
practices acquired.

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The current portion of debt increased in fiscal year 1995 to $1,245,000
from $543,000 at the end of fiscal year 1994. Long-term debt also increased.
These increases are primarily the result of indebtedness incurred in the
purchases of the Donaldson Center, in the purchase of Summit Medical, and in the
utilization of an operating line of credit.

Accounts payable increased $1,186,000 during 1995 to $1,653,000 as a
result of the tight cash position of the Company and as a result of the
accelerated growth of the Company during this period. Overall, the Company's
current liabilities exceeded its current assets at September 30, 1995 by
$383,000; working capital needs were funded, in part, by the sale of stock to
Companion HealthCare (a private placement) for $600,000 on November 3, 1995 (see
Subsequent Events section below.)

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 Companion HealthCare Corporation), internally
generated funds and credit extended by suppliers.

Operating activities used $460,000 of cash during fiscal year 1995,
compared with $744,000 used during fiscal year 1994. The decrease in operating
cash used during fiscal 1995 is mainly the result of growth in accounts payable
and accrued expenses. Some of these payables were reduced via utilization of the
$600,000 from the November 3, 1995 common stock sale to Companion HealthCare
(see Subsequent Events section below).

Investing activities used $642,000 of cash during fiscal year 1995
compared with $120,000 in 1994 as a result of expansion efforts. Continued
growth is anticipated during 1996. (See "Subsequent Events" for acquisition
activity in the first quarter of fiscal year 1996.)

The Company received $1,240,000 during fiscal 1995 in cash resulting
from two private placements of stock with Companion HealthCare Corporation which
was used in part to manage the Company's rapid growth and in part to reduce
debt. Should additional needs arise, the Company may consider additional capital
sources to obtain funding. There is no assurance that any additional financing,
if required, will be available on terms acceptable to the Company.

Earnings and Balance Sheet Analysis for Fiscal Year 1994 Compared to 1993

Total revenues for fiscal year 1994 increased by 28% to $12,540,000
from $9,799,000 for fiscal year 1993. The Company expanded from 14 to 19 Centers
during this year and was able to hold gross profit margin at about $660,000 for
both years. Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" was adopted at the start of fiscal 1994 with the result of
reducing income tax expense for 1994 by approximately $612,000.

Subsequent Events

In January 1995, the Company entered into an acquisition agreement for
a medical practice in Myrtle Beach, South Carolina. The acquisition is expected
to become effective prior to December 31, 1995, after certain conditions
precedent occur.

On November 3, 1995, Companion purchased 218,180 shares of newly issued
common stock of the Company for $2.75 a share, or $599,995. Subsequent to the
transaction, Companion's ownership in the Company was approximately 45%.
Companion has the option to purchase as many shares as may be necessary for
Companion to maintain ownership of 47% of the outstanding common stock of the
Company in the event that the Company issues additional stock to other parties
(excluding shares issued to employees or directors of the Company).

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On December 1, 1995, the Company acquired a medical practice in
Greenville, South Carolina. The Company entered into an employment agreement
with the physician who had been the sole shareholder of the acquired medical
practice. The Company also entered into lease agreements for the facility
occupied by and the computer system used by the acquired medical practice.

Item 8. Financial Statements and Supplementary Data

Reference is made to the Index to Financial Statements on Page 20 .

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

On July 27, 1995, the Company notified Scott and Holloway, LLP
(formerly Moore Kirkland Scott & Beauston) that it would not be retained as the
Company's independent accountants for the fiscal year ending September 30, 1995.
The Company's decision not to retain Scott and Holloway, LLP was approved by the
Board of Directors at a meeting held on July 26, 1995 and was not the result of
any prior, existing or expected disagreement with the Company. The reports of
Moore Kirkland Scott & Beauston on the financial statements of the Company for
the fiscal years ended September 30, 1994 and 1993 contained no adverse opinion
or disclaimer of opinion. The reports were modified because of an uncertainty as
to the Company's ability to continue as a going concern as a consequence of
losses incurred from continuing operations. This modification has been
subsequently rescended and an unqualified opinion for the fiscal years ended
September 30, 1994 and 1993 has been issued. In connection with its audits of
financial statements of the Company for the fiscal years ended September 30,
1994 and 1993, and the interim period through July 27, 1995, the Company had no
disagreement with Moore Kirkland Scott & Beauston on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of Moore
Kirkland Scott & Beauston, would have caused them to make reference to the
subject matter of the disagreement in connection with their report on the
financial statements for such periods.

Scott and Holloway, LLP has furnished the Company with a letter
addressed to the SEC stating that they agree with the statements made by the
Company with respect to their dismissal.

On July 26, 1995, the Company engaged Price Waterhouse LLP as its
independent accountants to audit the Company's financial statements for the
fiscal year ending September 30, 1995. The decision to engage Price Waterhouse
LLP was approved by the Board of Directors of the Company at a meeting held on
July 26, 1995. During the Company's fiscal years ended September 30, 1994 and
1993, the Company did not consult with Price Waterhouse LLP regarding any
matters (a) which were, or should have been, subject to SAS 50, or (b)
concerning the subject matter of a disagreement or reportable event with the
Company's former independent accountants (as described in Regulation S-B, Item
304(a)(2)).

Item 10. Directors and Executive Officers of the Registrant

Directors

The Company's Restated Certificate of Incorporation provides for a
classified Board of Directors so that, as nearly possible, one-third of the
Company's Board of Directors is elected each year to serve a three-year term.
Currently, the Board of Directors consists of five directorships with staggered
terms expiring at the Annual Meetings of Shareholders in 1996, 1997 and 1998.
The Company's Bylaws provide the Board of Directors with the power and authority
to determine the number of directors constituting the entire Board of Directors.
At a meeting of the Board of Directors on July 26, 1995, the Board of Directors
voted to increase the size of the Board from three members to the current five
members, with such increase to be effective immediately prior to the election of
directors at the Annual Meeting, which was held September 13, 1995. To give
effect to such increase, the Board of Directors approved the addition of one
directorship to each of the classes of directors whose terms expire at the
Annual Meetings of Shareholders

-12-

in 1997 and 1998. Set forth below is the certain
biographical information with respect to the directors of the Company.

M.F. McFarland, III, M.D., 47, has served as Chairman of the Board,
President and Chief Executive Officer of the Company since January 1987 and as a
director of the Company since September 1984. From September 1984 until January
1987, he served as Vice President of the Company. He served as Associate
Professional Director of the Emergency Department of Richland Memorial Hospital
in Columbia, South Carolina from 1978 to 1981 and was President of the South
Carolina Chapter of the American College of Emergency Physicians in 1979. Dr.
McFarland is currently a member of the Columbia Medical Society, the South
Carolina Medical Society and the American Medical Association. In November 1992,
a voluntary proceeding under Chapter 11 of the United States Bankruptcy Code was
filed with respect to Dr. McFarland.

Harold H. Adams, Jr., 48, has served as Director of the Company since
June 1994 and as President and owner of Adams and Associates, International,
Adams and Associates, and Southern Insurance Managers since June 1992, and
served as President of Adams Eaddy and Associates, an independent insurance
agency, from 1980 to 1992. Mr. Adams has been awarded the Chartered Property
Casualty Underwriter designation and is currently a member of the President's
Board of Visitors of Charleston Southern University in Charleston, South
Carolina. He has received numerous professional awards as the result of over 25
years of involvement in the insurance industry and is a member of many
professional and civic organizations.

Charles P. Cannon, 45, has served as Director of the Company since
September 1995 and as Vice President, Corporate Controller and Assistant
Treasurer for Blue Cross Blue Shield of South Carolina ("Blue Cross") since
April 1988 and as Assistant Treasurer for its subsidiary, Companion HealthCare
Corporation, since April 1988. Prior to joining Blue Cross in April 1988, he was
a Senior Manager and consultant for Price Waterhouse LLP for eleven (11) years.
Mr. Cannon is a member of the American Institute of Certified Public
Accountants, the South Carolina Association of Certified Public Accountants, the
Institute of Management Accountants, and the Tennessee Society of Certified
Public Accountants.

Russell J. Froneberger, 50, has served as Director of the Company since
June 1994 and as President of Global Consulting, a multinational marketing and
financial consulting firm, since 1991. Mr. Froneberger has over twenty-eight
years of international corporate finance and marketing experience, having been
associated with Manufacturers Hanover Trust Company from 1967 to 1972, and South
Carolina National Bank, where he served as Senior Vice President of Marketing
and Corporate Development Relations from 1972 to 1991. He has lectured on
finance and capital formation at major universities and was the founder and
first Chairman of the Midlands International Trade Association in Columbia,
South Carolina.

Charles M. Potok, 46, has served as Director of the Company since
September 1995 and as Executive Vice President and Chief Operating Officer of
Companion Property and Casualty Insurance Company ("CPCIC") 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 CPCIC, Mr. Potok served as Chief
Property and Casualty Actuary and Director of the Property and Casualty Division
of the South Carolina Department of Insurance.

Executive Officers

The names of the executive officers, who are not also directors of the
Company, and certain other biographical information are as follows:

Stephen S. Seeling, 46, has served as Chief Operating Officer and
Counsel and Corporate Secretary of the Company since he joined the Company in
January 1994. Prior to that time, Mr. Seeling served as the Executive Director
of the South Carolina State Board of Medical Examiners from 1987 to

-13-

January 1994, as the Assistant Attorney General for the South Carolina State
Board of Medical Examiners from 1983 to 1987, and as Assistant District
Attorney for Philadelphia, Pennsylvania from 1976 to 1981.

Jerry F. Wells, Jr., 33, has served as Chief Financial Officer of the
Company since he joined the Company in February 1995. Prior to that time, he
served as a Senior Manager and consultant for Price Waterhouse LLP from 1985
until February 1995. Mr. Wells is a certified public accountant and is a member
of the American Institute of Certified Public Accountants, the South Carolina
Association of Certified Public Accountants and the North Carolina CPA
Association.

D. Michael Stout, M.D., 50, has served as Vice President of Medical Affairs
of the Company since 1985. He is Board Certified in Emergency Medicine and is a
member of the American College of Emergency Physicians and the Columbia Medical
Society. Dr. Stout is also a member of the American College of Physician
Executives.

Jitendra S. Mehta, 44, has served as Vice President of Operations for the
Company since November 1993. Mr. Mehta has an extensive background in hospital
and medical personnel administration. He served as Business Director of
Multispecialty Clinic in Maryland from 1985 to 1989 and served as Vice President
and Partner of Citrus Diagnostic Center from 1990 to 1993. Mr. Mehta is
currently a member of American Registry for Radiological Technology and the
Nuclear Medicine Technologist Certification Board.

Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and officers to file reports of holdings and transactions in
the Company's common stock with the Securities and Exchange Commission ("SEC").
Based on Company records and other information, the Company believes that all
SEC filing requirements applicable to its directors and officers were complied
with in respect to the Company's fiscal year ending September 30, 1995.

Item 11. Executive Compensation

Compensation of Directors

Directors are paid a fee of $500 for attendance at each meeting of the
Board of Directors. Directors of the Company are reimbursed by the Company for
all out-of-pocket expenses reasonably incurred by them in the discharge of their
duties as directors, including out-of-pocket expenses incurred in attending
meetings of the Board of Directors.

Compensation of Officers

During each of the Company's three prior fiscal years, M.F. McFarland,
III, M.D., the Company's Chief Executive Officer and President, and D. Michael
Stout, M.D., the Company's Vice President of Medical Affairs, served without
compensation from UCI-SC for their services in the executive offices they have
held with the Company during such periods. No other executive officer of the
Company earned compensation in excess of $100,000 for services provided to the
Company in any of the Company's three prior fiscal years.

During each of the Company's three prior fiscal years, Dr. McFarland
and Dr. Stout have received compensation for the services they performed for the
P.A. For services performed for the P.A. during each of the Company's fiscal
years ended September 30, 1995, 1994 and 1993, Dr. McFarland was paid aggregate
compensation, including bonuses, of $362,046, $343,500 and $253,603,
respectively. For services performed for the P.A. during each of the Company's
fiscal years ended September 30, 1995, 1994 and 1993, Dr. Stout was paid
aggregate compensation, including bonuses, of $189,600, $180,394 and $169,665,
respectively. See "Certain Transactions - Agreements with Doctor's Care."

-14-

Effective October 1, 1995 and November 1, 1995, Dr. McFarland and Dr.
Stout, respectively, entered into new employment contracts with both the Company
and the P.A., with the following terms:

Dr. McFarland: Effective October 1, 1995, Dr. McFarland entered into a
five (5) year contract with UCI-SC that provides for annual
compensation of $157,500, the use of one automobile, and an incentive
bonus payable at the end of the Company's fiscal year subject to the
Board of Directors' determination and based upon net income and gross
revenue of the Company for the same year. Also, effective October 1,
1995, Dr. McFarland entered into a five (5) year contract with the P.A.
that provides for annual compensation of $157,500.

Dr. Stout: Effective November 1, 1995, Dr. Stout entered into a five
(5) year contract with UCI-SC that provides for annual compensation of
$50,000. Also, effective November 1, 1995, Dr. Stout entered into
a five (5) year contract with the P.A. that provides for annual
compensation of $160,000.

Existing Stock Option Plans

Pursuant to the Company's Incentive Stock Option Plan adopted in 1994,
(the "1994 Plan"), "incentive stock options", within the meaning of Section 422
of the Internal Revenue Code, may be granted to employees of the Company. The
1994 Plan provides for the granting of options for the purchase of 750,000
shares at 100% of the fair market value of the stock at the date of grant.
Options granted under the 1994 Plan vest at a rate of 33% in each of the three
years following the grant. Vested options become exercisable one year after the
date of grant and can be exercised within ten years of the date of grant,
subject to earlier termination upon cessation of employment. During the year
ended September 30, 1995, no options were exercised. At September 30, 1995,
there were stock options outstanding under the 1994 Plan for 242,000 shares, all
of which were granted in the year ended September 30, 1995.

The Incentive Stock Option Plan adopted in 1984 (the "1984 Plan")
expired under its terms in December 1993. During the year ended September 30,
1995, no options were exercised and 5,100 options expired. At September 30,
1995, there were stock options outstanding under the 1984 Plan for 15,500 shares
at $.25 per share, all of which were exercisable.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information known to the Company
regarding the beneficial ownership of the common stock of the Company as of
September 30, 1995. Information is presented for (i) shareholders owning more
than five percent of the outstanding common stock, (ii) each director and
executive officer of the Company, individually, and (iii) all directors and
executive officers of the Company, as a group. Except as otherwise specified,
each of the shareholders named in the table has indicated to the Company that
such shareholder has sole voting and investment power with respect to all shares
of common stock beneficially owned by that shareholder. Beneficial ownership
reflected in the table below is determined in accordance with the rules and
regulations of the SEC and generally includes voting or investment power with
respect to securities. Shares of common stock issuable upon the exercise of
options currently exercisable or convertible, or exercisable or convertible
within sixty days, are deemed outstanding for computing the percentage ownership
of the person holding such options, but are not deemed outstanding for computing
the percentage ownership of any other person.

-15-

Number of Shares

Name Beneficially Owned Percentage

Companion HealthCare Corporation 1,460,991 41.65%
I-20 at Alpine Road
Columbia, SC 29219

M.F. McFarland, III, M.D. 521,844 14.88%
6168 St. Andrews Road
Columbia, SC 29212

D. Michael Stout, M.D. 240,360 6.85%
512 Sims Avenue
Columbia, SC 29205

Manufacturers Hanover Trust Co. 202,200 5.76%
350 Fifth Avenue, Suite 426
New York, NY 10118

Harold H. Adams, Jr. 2,000 -
6137 Hampton Ridge Road
Columbia, SC 29209

Charles P. Cannon - -
I-20 at Alpine Road
Columbia, SC 29219

Russell J. Froneberger - -
1201 Main Street, Suite 1980
Columbia, SC 29201

Jitendra S. Mehta - -
6168 St. Andrews Road
Columbia, SC 29212

Charles M. Potok - -
I-20 at Clemson Road
Columbia, SC 29219

Stephen S. Seeling - -
6168 St. Andrews Road
Columbia, SC 29212

Jerry F. Wells, Jr. - -
6168 St. Andrews Road
Columbia, SC 29212

All directors and executive officers 764,204 21.78%
as a group (7 persons)

-16-

Item 13. Certain Relationships and Related Transactions

Agreements with Doctor's Care

General. All of the Company's operations are conducted through its
wholly-owned subsidiary, UCI-SC, which operates a network of twenty-five
freestanding primary care medical Centers located throughout South Carolina, all
of which conduct business under the name "Doctor's Care." In order to comply
with prohibitions of providing medical care, all medical services at these
medical facilities are provided by or under the supervision of Doctor's Care,
P.A., a South Carolina professional association (the "P.A.").

Facilities Agreement. Pursuant to a Facilities Agreement between UCI-SC
and the P.A. (the "Facilities Agreement"), UCI-SC supplies to the P.A. the
facilities, equipment and assets of the Centers, as well as such non-medical
personnel as are reasonably required by the P.A. in the operation of the
Centers. In exchange, the P.A. provides the necessary staffing for the
performance of medical services at the Centers, including a physician to serve
as Executive Medical Director having overall responsibility for the operations
of the Centers. Pursuant to an employment agreement between M.F. McFarland, III,
M.D., President and Chief Executive Officer of the Company ("Dr. McFarland") and
the P.A., Dr. McFarland serves as Executive Medical Director of the Centers. In
September 1994, the Facilities Agreement was renewed for an additional five year
term. In January 1995, the Facilities Agreement was modified to provide UCI-SC
with certain rights to terminate the Facilities Agreement (a) upon the death of
Dr. McFarland, (b) upon Dr. McFarland ceasing to own, either directly or
indirectly, a controlling interest in the P.A., or (c) upon Dr. McFarland
becoming a "disqualified person" as defined by the South Carolina Business
Corporation Act of 1988, as amended.

Refund Agreement. Pursuant to a Facilities Fee Refund Agreement (the
"Refund Agreement"), entered into among UCI-SC and the P.A., the P.A. was
entitled to receive a refund of a portion of the fees payable to UCI-SC under
the Facilities Agreement with respect to certain Centers. This agreement was
terminated effective October 1, 1995. During the year ended September 30, 1995,
UCI-SC accrued total refunds payable to the P.A. under the Refund Agreement of
$177,000 and made payments of $200,000 against accumulated payables. During the
year ended September 30, 1994, UCI-SC accrued total refunds payable to the P.A.
under the Refund Agreement of $131,000 and made payments of $213,500 against
accumulated payables. At September 30, 1995 and 1994, UCI-SC had a refund
payable to the P.A. of approximately $276,000 and $299,000, respectively.

Facility Leases

UCI-SC leases seven Centers from Companion HealthCare Corporation under
operating leases with fifteen year terms expiring in 2008, 2009 and 2010. Each
of these leases has a five year renewal option, and a rent guarantee by the P.A.
One of the leases has a purchase option allowing UCI-SC to purchase the facility
at fair market value after February 1, 1995. Total lease payments made by UCI-SC
under these leases during the Company's fiscal years ended September 30, 1995,
1994 and 1993 were $271,100, $205,901 and zero, respectively.

Several of the Centers operated by UCI-SC are leased from entities owned or
controlled by certain principal shareholders and/or members of the Company's
management. The Doctor's Care-Northeast Center is leased from a partnership in
which Dr. McFarland is a general partner. The lease was renewed in October 1994
for a five year term. The lease has two five year renewal options and provides
UCI-SC with an option to purchase the facility at its fair market value after
October 1995. Total lease payments made by UCI-SC under the lease during the
Company's fiscal years ended September 30, 1995, 1994 and 1993 were $45,600,
$42,696 and $39,554, respectively, plus utilities and real estate taxes. During
the year ended September 30, 1995, the Doctor's Care-Lexington and the Doctor's
Care-Forest Acres Centers were leased from a general partnership in which Dr.
McFarland and Dr. Stout are general partners. The Doctor's Care-Lexington lease
was renewed in October 1994 for a five year term. In August 1995, the Doctor's
Care-

-17-

Forest Acres facility was sold to an unrelated third
party who leases it to the Company. The Doctor's Care-Lexington lease has a five
year renewal option and provides UCI-SC with an option to purchase the property
at its fair market value at any time during the lease term. Total lease payments
made by UCI-SC under these two leases during the Company's fiscal years ended
September 30, 1995, 1994 and 1993 were $90,000, $75,166 and $78,012,
respectively, plus utilities and real estate taxes. The Doctor's Care-West
Columbia and the Doctor's Care-Beltline Centers are leased from a general
partnership in which Dr. McFarland and Dr. Stout are general partners. These two
leases expire in October 1998 and provide for a five year renewal option. Total
lease payments made by UCI-SC under these two leases during the Company's fiscal
years ended September 30, 1995, 1994 and 1993 were $84,000, $87,000 and $78,000,
respectively, plus utilities and real estate taxes. In connection with its
agreement to lease these two Centers, UCI-SC guaranteed the lessor's mortgage
debt relating to the two Centers. At September 30, 1995, 1994 and 1993, the
outstanding balance of such debt was $382,697, $386,110 and $395,000,
respectively. The Doctor's Care-West Wateree Center is leased directly from Dr.
McFarland. Total lease payments made by UCI-SC under this lease during the
Company's fiscal years ended September 30, 1995, 1994 and 1993, were $24,666,
$23,333 and $21,522, respectively.

Other Transactions with Related Companies

Blue Cross Blue Shield of South Carolina ("Blue Cross") owns 100% of
Companion HealthCare Corporation, which owns approximately 45% of the Company's
outstanding common stock. During the Company's fiscal year ended September 30,
1994, UCI-SC purchased a new billing and accounts receivable system from
Companion Technologies, Inc., a wholly-owned subsidiary of Blue Cross for an
aggregate purchase price of $504,000. The terms of the purchase agreement are
believed to have been no more or less favorable to UCI-SC than the terms that
would have been obtainable through arm's-length negotiations with unrelated
third parties for a similar billing and accounts receivable system, which
includes computer equipment. The Company has the option to purchase the
equipment at the end of the five year lease term for $1. The lease obligation
recorded at September 30, 1995 is $464,361 which includes lease addenda.

During the Company's fiscal year ended September 30, 1994, UCI-SC
entered into an agreement with Company Property and Casualty Insurance Company,
a wholly-owned subsidiary of Blue Cross, pursuant to which UCI-SC acts as the
primary care provider for injured workers of firms carrying worker's
compensation insurance through Companion Property and Casualty Insurance Company
("CP&C"). Additionally, during the Company's fiscal year ended September 30,
1995, UCI-SC entered into a financing arrangement with CP&C for the purchase of
the Doctor's Care-Donaldson facility, which consists of a note payable in
monthly installments of $4,546 (including 11% interest) from April 1, 1995 to
March 1, 2010, collateralized by certain accounts receivable. The terms of the
agreement with Companion Property and Casualty Insurance Company are believed to
be no more or less favorable to UCI-SC than those that would have been
obtainable through arm's-length negotiations with unrelated third parties for
similar arrangements.

During the Company's fiscal year ended September 30, 1994, UCI-SC began
providing services for a health maintenance organization ("HMO") operated by
Companion HealthCare Corporation, pursuant to which UCI-SC, through the P.A.,
acts as the designated primary care provider for members of the HMO who have
selected the P.A. as their primary care provider. The terms of the agreement
with Companion HealthCare Corporation 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 employees of the Company are offered health, life, dental and
disability coverage at group rates from Blue Cross and its subsidiaries. The
group rates offered to the employees of the Company are believed to be no more
or less favorable to the Company than those that would have been obtainable
through arm's-length negotiations with unrelated third parties for similar
services.

-18-

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) (1) Reference is made to the Index to Financial Statements on
page 21 .

(2) A listing of the exhibits to the Form 10-KSB is set forth
on the Exhibit Index which immediately precedes such
exhibits in this Form 10-KSB.

(b) Reports on Form 8-K

The Company filed a Form 8-K during the quarter ended
September 30, 1995, which reported the acquisition of Summit Medical of
Greenville, South Carolina.

The Company filed a Form 8-K during July 1995 which reported a
change in the Company's independent accountants from Scott & Holloway, LLP to
Price Waterhouse LLP.

-19-

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Reports of Independent Accountants ......................................22-23

Consolidated Balance Sheets at September 30, 1995 and 1994 ............ 24

Consolidated Statements of Operations for the three years

ended September 30, 1995 ................................... 25

Consolidated Statements of Changes in Stockholder's Equity

for the three years ended September 30, 1995 ......................26

Consolidated Statements of Cash Flows for the three years

ended September 30, 1995 ....................................... 27

Notes to Consolidated Financial Statements ............................. 28-39

All other schedules are omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes
thereto.

-20-

UCI MEDICAL AFFILIATES, INC.

CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1995 AND 1994

-21-

Report of Independent Accountants

November 21, 1995

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. at September 30, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. The financial statements of
UCI Medical Affiliates, Inc. at September 30, 1994 and for each of the two years
in the period then ended were audited by other independent accountants whose
report dated January 26, 1995 expressed an unqualified opinion on those
statements with an explanatory paragraph that the Company prospectively changed
its method of accounting for income taxes for the year ended September 30, 1994.
This change is described in Notes 1 and 4 to the accompanying consolidated
financial statements.

/s/ Price Waterhouse LLP

ORIGINAL SIGNED OPINION ON PRICE WATERHOUSE LLP LETTERHEAD
IS ON FILE WITH

UCI MEDICAL AFFILIATES, INC.

-22-

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
UCI Medical Affiliates, Inc.

We have audited the accompanying balance sheet of UCI Medical Affiliates, Inc.
as of September 30, 1994, and the related statements of income, retained
earnings, and cash flows for each of the two years in the period then ended that
appear in this annual report. 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 in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UCI Medical Affiliates, Inc. as
of September 30, 1994, and the results of its operations and its cash flows for
each of the two years in the period then ended in conformity with generally
accepted accounting principles.

/s/ Moore Kirkland Scott & Beauston

West Columbia, South Carolina
January 26, 1995

ORIGINAL SIGNED OPINION ON MOORE KIRKLAND SCOTT & BEAUSTON LETTERHEAD
IS ON FILE WITH

UCI MEDICAL AFFILIATES, INC.

-23-

UCI Medical Affiliates, Inc.

Consolidated Balance Sheets

September 30,

1995 1994
------------ -----------

Assets
Current assets

Cash and cash equivalents ................................. $ 76,513 $ 210,286
Accounts receivable, less allowance for doubtful accounts
of $608,792 and $1,061,987 ............................ 2,343,325 1,508,514
Inventory ................................................. 265,068 217,076
Deferred taxes ............................................ 491,543 491,543
Prepaid expenses and other current assets ................. 282,060 111,149
------------ -----------
Total current assets ......................................... 3,458,509 2,538,568

Property and equipment less accumulated depreciation of

$1,529,999 and $1,173,667 ................................. 2,795,384 1,098,310
Deferred taxes ............................................... 120,639 120,639
Excess of cost over fair value of assets acquired, less
accumulated amortization of $869,271 and
$532,763 3,578,371 2,651,245
Other assets ................................................. 262,768 265,531
------------ -----------

Total Assets ................................................. $ 10,215,671 $ 6,674,293
============ ===========

Liabilities and Stockholders' Equity
Current liabilities

Current portion of long-term debt ......................... $ 1,244,603 $ 542,564
Accounts payable .......................................... 1,652,792 467,371
Accrued salaries and payroll taxes ........................ 498,791 307,612
Other accrued liabilities ................................. 445,362 458,782
------------ -----------
Total current liabilities .................................... 3,841,548 1,776,329

Long-term debt, net of current portion ....................... 3,121,098 2,295,197
------------ -----------
Total Liabilities ............................................ 6,962,646 4,071,526
------------ -----------

Commitments and contingencies

Stockholders' Equity

Preferred stock, par value $.01 per share:
Authorized shares - 10,000,000; none issued

0 0
Common stock, par value $.05 per share:
Authorized shares - 10,000,000
Issued and outstanding- 3,508,164 and 2,622,178

shares .............................................. 175,408 131,109
Paid-in capital ........................................... 9,694,256 7,728,554
Accumulated deficit ....................................... (6,616,639) (5,256,896)
------------ -----------
Total Stockholders' Equity ................................... 3,253,025 2,602,767
------------ -----------

Total Liabilities and Stockholders' Equity ................... $ 10,215,671 $ 6,674,293
============ ===========

The accompanying notes are an integral part of these
consolidated financial statements.

-24-

UCI Medical Affiliates, Inc.

Consolidated Statements of Operations

For the Years Ended September 30,

1995 1994 1993
----------- ------------ ------------

Revenues ........................................................... $ 17,987,147 $ 12,540,040 $ 9,799,387
Operating costs .................................................... 18,180,080 11,880,508 9,133,104
------------ ------------ ------------
Operating margin ................................................... (192,933) 659,532 666,283

General and administrative expenses ................................ 87,616 74,698 45,075
Depreciation and amortization ...................................... 579,224 319,554 161,149
------------ ------------ ------------
Income (loss) from operations ...................................... (859,773) 265,280 460,059

Other income (expenses)

Interest expense (net of interest income) ....................... (505,459) (164,182) (53,507)
Gain (loss) on disposal of equipment ............................ 5,493
(68,892) 0
------------ ------------ ------------
Other income (expense) ............................................. (499,966) (233,074) (53,507)

Income (loss) before benefit (provision )for

income taxes and extraordinary credit ........................... (1,359,739) 32,206 406,552
Benefit (provision )for income taxes ............................... 0 612,182 (138,228)
------------ ------------ ------------
Income before extraordinary credit ................................. (1,359,739) 644,388 268,324

Extraordinary credit, utilization of net

operating loss carryforward ..................................... 138,228
0 0
============ ============ ============
Net income (loss) .................................................. $ (1,359,739) $ 644,388 $ 406,552
============ ============ ============

Earnings (loss) per common and common equivalent share:

Income (loss) before extraordinary credit ....................... $ (.43) $ .28 $ .14
Extraordinary credit 0 0 .07
------------ ------------ ------------
Net Income (loss) per common equivalent share ...................... $ (.43) $ .28 $ .21
============ ============ ============

Weighted average common shares

outstanding ..................................................... 3,136,544 2,324,241 1,970,693
============ ============ ============

The accompanying notes are an integral part of these
consolidated financial statements.

-25-

UCI Medical Affiliates, Inc.

Consolidated Statements of Changes in Stockholders' Equity

Common Stock Paid-In Accumulated

Shares Par Value Capital Deficit Total
----------- ----------- ----------- ----------- -----------

Balance, September 30, 1992 ................ 1,945,988 $ 97,299 $ 6,259,940 $(6,307,836) $ 49,403

Net income (loss) ....................... -- -- -- 406,552 406,552

Exercise of stock options ............... 4,000 200 800 -- 1,000

Balance, September 30, 1993 ................ 1,949,988 97,499 6,260,740 (5,901,284) 456,955

Net income (loss) ....................... -- 644,388 644,388
-

Exercise of stock options ............... 5,700 285 1,139 1,424
-----------
-----------

Issuance of common stock ................ 666,666 33,333 1,466,667 1,500,000
-----------
-----------

Other ................................... (8)
(176) 8 -- --
----------- ----------- -----------
----------- -----------

Balance, September 30, 1994 ................ 2,622,178 131,109 7,728,554 (5,256,896) 2,602,767

Net income (loss) ....................... -- -- (1,359,739) (1,359,739)
-----------

Issuance of common stock ................ 885,888 44,294 1,975,706 2,020,000
-----------

Other ................................... 5 (10,004) (10,003)
98 (4)
=========== =========== =========== =========== ===========

Balance, September 30, 1995 ................ 3,508,164 $ 175,408 $ 9,694,256 $(6,616,639) $ 3,253,025
=========== =========== =========== =========== ===========

The accompanying notes are an integral part of these consolidated
financial statements.

-26-

UCI Medical Affiliates, Inc.

Consolidated Statements of Cash Flows

For the Years Ended September 30,

1995 1994 1993
----------- ----------- ---------

Net income (loss) .................................................... $(1,359,739) $ 644,388 $ 406,552
Adjustments to reconcile net income (loss) to net
cash provided by (used-in) operating activities:
(Gain) loss on disposal of equipment ........................... (5,493) 68,892 0
Provision for losses on accounts receivable .................... 544,208 778,213 308,302
Depreciation and amortization .................................. 579,224 319,554 161,149
Common stock issued ............................................ 4,125 0 0
Deferred taxes ................................................. 0 (612,182) 0
Changes in operating assets and liabilities:

(Increase) decrease in accounts receivable ........................ (1,379,019) (1,318,998) (629,342)
(Increase) decrease in inventory .................................. (47,992) (4,531) (4,412)
(Increase) decrease in prepaid expenses and other

current assets ................................................. (158,536) (37,001) (261)
Increase (decrease) in accounts payable and accrued

expenses ....................................................... 1,363,180 (582,542) 47,663
----------- ----------- ---------

Cash provided by (used in) operating activities ...................... (460,042) (744,207) 289,651
----------- ----------- ---------

Investing activities:

Purchases of property and equipment .................................. (620,584) (226,362) (67,244)

Acquisitions of goodwill ............................................. (24,426) (50,000) 0

(Increase) decrease in other assets .................................. 2,760 (2,979) 26,380
----------- ----------- ---------

Cash provided by (used in) investing activities ...................... (642,250) (120,223) (199,982)
----------- ----------- ---------

Financing activities:

Issuance of common stock, net of redemptions ......................... 1,240,000 1,500,000
0
Proceeds from issuance of common stock under
stock option plan ................................................. 0 1,424 1,000

Increase in long-term debt ........................................... 475,000 0 106,608

Payments on long-term debt ........................................... (746,481) (450,589) (181,786)
----------- ----------- ---------

Cash provided by (used in) financing activities ...................... 968,519 1,050,835 (74,178)
----------- ----------- ---------

Increase (decrease) in cash and cash equivalents ..................... (133,773) 186,405 15,491
Cash and cash equivalents at beginning of year ....................... 210,286 23,881 8,390
----------- ----------- ---------

Cash and cash equivalents at end of year ............................. $ 76,513 $ 210,286 $ 23,881
=========== =========== =========

The accompanying notes are an integral part of these
consolidated financial statements.

-27-

UCI Medical Affiliates, Inc.
Notes To Consolidated Financial Statements

September 30, 1995

1. Significant Accounting Policies

Basis of Presentation

The consolidated financial statements of UCI Medical Affiliates, Inc. include
the accounts of UCI Medical Affiliates, Inc. ("UCI"), its wholly owned
subsidiary, UCI Medical Affiliates of SC ("UCI-SC") and Doctor's Care, PA ("the
P.A."), collectively the "Company". The financial statements of the P.A. are
consolidated with UCI because UCI-SC has unilateral control over the assets and
operations of the P.A. and, notwithstanding the lack of technical majority
ownership, consolidation of the P.A. with UCI is necessary to present fairly the
financial position and results of operations of UCI. UCI-SC provides non-medical
management and administrative functions for 25 medical clinics, operating as
Doctor's Care (the "Centers"). All medical services at the Centers are provided
by or under the supervision of the P.A., which has contracted with UCI-SC to
provide the medical direction of the Centers. The medical directors operate the
Centers under the financial and operational control of UCI-SC. However, medical
supervision of the centers is provided solely by the P.A. The P.A. remits to
UCI-SC all medical service revenues generated by the Centers, net of expenses
incurred by the P.A. This compensation is recorded in the accompanying financial
statements as revenue. Control of the P.A. is perpetual and other than temporary
because of the nature of this relationship and the management agreements between
the entities. The net assets of the P.A. are not material for any period
presented and intercompany accounts and transactions have been eliminated.

Medical Supplies Inventory

The inventory of medical supplies and drugs is carried at the lower of average
cost or market.

Property and Equipment

Depreciation is provided principally by the straight-line method over the
estimated useful lives of the assets, ranging from three to twenty years.

Maintenance, repairs and minor renewals are charged to expense. Major renewals
or betterments, which prolong the life of the assets, are capitalized.

-28-

1. Significant Accounting Policies (continued)

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

The excess of cost over fair value of assets acquired (goodwill) is amortized on
the straight-line method over periods from 15 to 30 years. Subsequent to an
acquisition, the Company continually evaluates whether later events and
circumstances have occurred that indicate that the remaining balance of goodwill
may not be recoverable or that the remaining useful life may warrant revision.
When external factors indicate that goodwill should be evaluated for possible
impairment, the Company uses an estimate of the related business segment's
discounted cash flows over the remaining life of the goodwill and compares it to
the business segment's goodwill balance to determine whether the goodwill is
recoverable or if impairment exists, in which case an adjustment is made to the
carrying value of the asset.

Revenue Recognition

Revenue is recognized at estimated net amounts to be received from employers,
third party payors, and others at the time the related services are rendered.
Capitation payments from payors are paid monthly and are recognized as revenue
during the period in which enrollees are entitled to receive services.

Earnings Per Share

The computation of income per common and common equivalent share is based on the
weighted average number of common shares outstanding during the period plus (in
periods in which they have a dilutive effect) the effect of common shares
issuable from stock options, using the treasury stock method.

Income Taxes

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), as of October 1,
1993. Under the liability method specified by SFAS 109, deferred tax assets and
liabilities are 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. Financial statements for the year ended
September 30,1993 reflect income taxes recorded under the deferred method
required under previous accounting standards.

-29-

1. Significant Accounting Policies (continued)

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.

Reclassifications

Certain 1994 and 1993 amounts have been reclassified to conform with the 1995
presentation.

2. Property and Equipment

Property and equipment consists of the following at September 30:

1995 1994
----------------------- -----------------------

Leasehold improvements $ 382,659 $ 158,854
Property and equipment, including capitalized leases 3,942,724 2,113,123
----------------------- -----------------------
4,325,383 2,271,977
Less, accumulated depreciation and amortization (1,529,999) (1,173,667)
----------------------- -----------------------
$ 2,795,384 $ 1,098,310
======================= =======================

At September 30, 1995 and 1994, capitalized leased equipment included above
amounted to approximately $1,651,000 and $647,000, net of accumulated
amortization of $203,000 and $18,000, respectively. Depreciation and
amortization expense equalled $384,638, $196,756 and $114,949 for the years
ended September 30, 1995, 1994 and 1993, respectively.

3. Business Combinations

In August 1995, the Company acquired the net assets of Summit Medical and
entered into an employment agreement with the physician owner of Summit Medical.
The acquisition has been accounted for as a purchase, and the financial activity
of Summit Medical has been included in the accompanying consolidated financial
statements since the date of the acquisition.

-30-

3. Business Combinations (continued)

The pro forma results listed below are unaudited and reflect purchase price
accounting adjustments assuming the acquisition occurred at the beginning of
each fiscal year presented.

1995 1994
------------------ --------------

Revenue $ 18,393,000 $ 13,082,000

Net Income (loss) $ (1,358,624) $ 645,875

Net income (loss) per common and common
equivalent share $ (.43) $ .28

Certain other acquisition during fiscal year 1995 have not been included in this
pro forma disclosure as the relevant information is not readily available.
(Refer to note 12 for additional information provided on these acquisitions.)

4. Income Taxes

Effective October 1, 1993, the Company prospectively adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). As permitted under SFAS 109, prior years' financial
statements have not been restated. As of October 1, 1993, the Company had a net
deferred tax asset of $2,718,407, which was fully offset by a valuation
allowance.

The components of the (benefit) provision for income taxes for the years ended
September 30 are as follows:

1995 1994 1993
---------------------- ----------------- ----------------
Current:

Federal $ -- $ -- $ 16,694
State -- -- 2,584
---------------------- ----------------- -------------

-- -- 19,278
---------------------- ----------------- -------------
Deferred: --
Federal -- (530,120) 103,005
State -- (82,062) 15,945
---------------------- ----------------- -------------
-- (612,182) 118,950
---------------------- ----------------- -------------
Total (benefit)
provision
before
extraordinary
credit -- (612,182) 138,228
Extraordinary credit -- -- (138,228)
---------------------- ---------------- --------------

Total income tax benefit $ $ (612,182) $ --
====================== ================= ============

-31-

4. Income Taxes (continued)

Deferred taxes result from temporary differences in the recognition of certain
items of income and expense, and the changes in the valuation allowance
attributable to deferred tax assets.

The principal sources of temporary differences and the related deferred tax
effects as of September 30, were as follows:

1995 1994
------------- ------------
Allowance for doubtful accounts $ (169,043) $ (155,852)

Related party accruals 7,673 46,812

Operating loss carryforwards 687,242 95,183

Accumulated depreciation (58,324) 69,650
------------- --------------

467,548 55,793
Changes in valuation allowance (467,548) (667,975)
============= ==============
$ -- $ (612,182)
============= ==============

The sources of significant timing differences for the year ended September 30,
1993 which gave rise to deferred taxes and their effects were as follows:

1993
-------------------
Allowance for doubtful accounts $ 137,686
Related party accruals (20,480)
Other 1,744
-------------------
$ 118,950
===================

At September 30, 1995 and 1994, the Company's deferred tax assets (liabilities)
and the related valuation allowances are as follows:

1995 1994
----------- -----------
Allowance for doubtful accounts $ $ 396,122

Related party accruals 227,079 95,421

Operating loss carryforwards 103,094 2,248,121

Accumulated depreciation 2,935,363

(135,374) (77,050)
----------- -----------
$ 3,130,162 $ 2,662,614
=========== ===========

Valuation allowance $ 2,517,980 $ 2,050,432
=========== ===========

-32-

4. Income Taxes (continued)

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% were as follows for the years ended September 30:

1995 1994 1993
--------- --------- ---------

Tax at federal statutory rate $(462,311) $ 10,950 $ 138,228
Effect on rate of:
Amortization of goodwill 15,708 15,708
15,708

Non deductible expenses 21,107 10,485 28,601

Life insurance premiums
3,044 3,862 754

Other net (45,096) 14,788 (45,063)

Change in valuation allowance 467,548 (667,975) --
--------- --------- ---------
(612,182) 138,228
---------

Extraordinary credit -- -- 138,228
--------- --------- ---------
$ -- $(612,182) $ --
========= ========= =========

At September 30, 1995, the Company has net tax operating loss (NOL)
carryforwards expiring in the following years ending September 30,

2000 $ 1,347,851
2001 1,783,595
2002 1,802,220
2003 458,112
2005 470,006
2006 76,306
2010 1,931,517
---------------------
$ 7,869,607
=====================

Under certain circumstances, a significant change in the Company's ownership
could severely limit utilization of the net operating loss carryforwards.

The Company has $7,800 and $8,450 of investment tax credit carryforwards which
expire in 1999 and 2000, respectively.

-33-

5. Long-Term Debt

Long-term debt consists of the following at September 30:

1995 1994
---------- ----------
............................................................................................
Note to Chemical Bank, monthly payments (including 6% interest) range from
$7,500 to $12,000 from December 30, 1992 to March 31, 1996 and $32,750 on
April 30,1996, collateralized by premises and equipment, accounts receivable
and stock

of UCI-SC and the guarantee of UCI-SC ....................................................... $ 97,921 $ 253,215
Note payable in monthly installments of $8,889 plus interest at
prime plus 6%, through February 1, 2009 collateralized by
certain accounts receivable and leasehold interests and the

guarantee of the P.A ........................................................................ 1,422,222 1,537,778
Note payable in monthly installments of $1,389 plus interest at
prime plus 2% , through February 1, 2009 collateralized by a

condominium ................................................................................. 222,222 240,278
Notes payable in monthly installments over three to
four years at interest rates ranging from 3.9% to 10.5%,

collateralized by related vehicles .......................................................... 90,569 106,547
Line of Credit in the amount of $500,000 dated March 10,
1995, bearing interest at a rate of prime plus 1.5%, for a
period of 12 months, secured by the personal guarantee of an

officer of the Company ...................................................................... 475,000
0
Note payable in monthly installments of $4,546 (including 11% interest) from
April 1, 1995 to March 1, 2010,

collateralized by certain accounts receivable ............................................... 393,670
0
Note payable in monthly installments (including 9% interest) of $25,000 from
July 15, 1995 to September 15, 1995, and $12,842 from October 15, 1995 to
September 15,

1997 ....................................................................................... 270,243
0
Capitalized lease obligations .................................................................. 1,384,172 678,259
Other .......................................................................................... 9,682 21,684
---------- ----------
4,365,701 2,837,761
Less, current portion .......................................................................... 1,244,603 542,564
---------- ----------
$3,121,098 $2,295,197
========== ==========

-34-

5. Long-Term Debt (continued)

Aggregate maturities of notes payable and capital leases in each of the five
years 1996 through 2000 are as follows:

Year ending September 30:
Notes Payable Capital Leases Total
------------------- ------------------ -----------------
1996 $ 878,399 $ 366,204 $ 1,244,603
1997 310,255 349,395 659,650
1998 145,207 340,483 485,690
1999 154,808 250,637 405,445
2000 141,678 67,862 209,540
Thereafter 1,351,182 9,591 1,360,773
=================== ================== =================
$ 2,981,529 $ 1,384,172 $ 4,365,701
=================== ================== =================

6. Employee Benefit Plans

Pursuant to the Company's incentive stock option plan adopted in 1994, (the
"1994 Plan"), "incentive stock options", within the meaning of Section 422 of
the Internal Revenue Code, may be granted to employees of the Company. The 1994
Plan provides for the granting of options for the purchase of 750,000 shares at
100% of the fair market value of the stock at the date of grant. Options granted
under the 1994 Plan vest at a rate of 33% in each of the three years following
the grant. Vested options become exercisable one year after the date of grant
and can be exercised within ten years of the date of grant, subject to earlier
termination upon cessation of employment. During the year ending September 30,
1995, no options were exercised. At September 30, 1995, there were stock options
outstanding under the 1994 plan for 242,000 shares, all of which were granted in
the year ended September 30,1995.

The incentive stock option plan adopted in 1984 (the "1984 Plan") expired under
its terms in December 1993. During the year ending September 30, 1995, no
options were exercised and 5,100 options expired. At September 30, 1995, there
were stock options outstanding under the 1984 Plan for 15,500 shares at $.25 per
share, all of which were exercisable.

The Company has an employee savings plan ( the "Savings Plan") that qualifies as
a deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limit.
Effective in June 1995, the Company discontinued its matching contribution.
Prior to that date, the company matched 50% of each employee's contributions up
to a maximum of 2.5% of the employee's earnings. The company's matching
contributions were $71,463, $50,805 and $35,788 in fiscal years 1995, 1994, and
1993, respectively.

-35-

7. Stockholders' Equity

On June 30, 1994, the Company's shareholders approved an amendment to, and a
restatement of, the Restated Certificate of Incorporation to provide for a 1 for
5 reverse stock split. The Amended and Restated Certificate of Incorporation
increased the number of authorized shares of common stock from 4,000,000 to
10,000,000 ( as adjusted for the reverse stock split as discussed above) and
increased the par value per share of common stock from one cent ($.01) to five
cents ($.05). In addition, the Amended and Restated Certificate of Incorporation
authorized the Company to issue up to 10,000,000 shares of $.01 par value
preferred stock to be issued in one or more series. The Board of Directors is
authorized, without further action by the stockholders, to designate the rights,
preferences, limitations and restrictions of and upon shares of each series,
including dividend voting, redemption and conversion rights. All references in
the financial statements to average number of shares outstanding and related
prices, per share amounts, common stock and stock option plan data have been
restated to reflect the split .

At September 30, 1995, 257,500 shares of common stock were reserved for issuance
under the Company's incentive stock option plans.

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, 1995, are as follows:

Operating
Leases
Year ending September 30:
1996 $ 1,053,794
1997 1,029,697
1998 1,020,409
1999 900,476
2000 742,169
Thereafter 5,420,154
-----------------
Total minimum lease payments $ 10,166,699
===================

Total rental expense under operating leases for 1995, 1994 and 1993 was
approximately $923,000, $714,000, and $775,000, respectively.

9. Related Party Transactions

Facility Leases

UCI-SC leases seven medical centers from Companion HealthCare Corporation under
operating leases with fifteen year terms expiring in 2008, 2009 and 2010. At
September 30,1995, Companion owned 1,460,991 shares or approximately 42% of the
Company's outstanding common stock. Each of these leases has a five year renewal
option, and a rent guarantee by Doctor's Care. One of the leases has a purchase
option allowing UCI-SC to purchase the center at fair market value after
February 1, 1995. Total lease payments made by UCI-SC under these leases during
the Company's fiscal years ended September 30, 1995,1994, and 1993 were
$271,100, $205,901, and zero, respectively.

-36-

9. Related Party Transactions (continued)

Several of the medical centers operated by UCI-SC are leased from entities owned
or controlled by certain principal shareholders and/or members of the Company's
management. Total lease payments made by UCI-SC under these leases during the
fiscal years ended September 30,1995, 1994 and 1993 were $244,300, $228,200 and
$217,100, respectively.

Other Transactions with Related Companies

On December 10, 1993, Companion HealthCare Corporation ("Companion") acquired
333,333 shares of the Company's common stock for $500,000. On June 8, 1994,
Companion purchased an additional 333,333 shares for $1,000,000. On January 16,
1995, Companion purchased 470,588 shares for $1,000,000, and on May 24, 1995,
Companion purchased 117,647 shares for $250,000. Including shares purchased by
Companion from third parties, at September 30, 1995, Companion owned 1,460,991
shares, or approximately 42% of the Company's outstanding Common Stock.
Companion purchased additional shares in November 1995, as discussed in note 12.
The shares acquired by Companion from the Company were purchased pursuant to
stock purchase agreements and were not registered. Companion has the right to
require registration of the stock under certain circumstances as described in
the agreement.

Blue Cross Blue Shield of South Carolina ("Blue Cross") owns 100% of Companion
HealthCare Corporation. During the Company's fiscal year ended September 30,
1994, UCI-SC purchased a new billing and accounts receivable system from
Companion Technologies, Inc., a wholly-owned subsidiary of Blue Cross for an
aggregate purchase price of $504,000. The Company entered into a capital lease
agreement for this system, which includes computer equipment. The Company has
the option to purchase the equipment at the end of the five year lease term for
$1. The lease obligation recorded at September 30, 1995 is $464,361, which
includes lease addendums.

During the Company's fiscal year ended September 30, 1994, UCI-SC entered into
an agreement with Companion Property and Casualty Insurance Company ("CP&C"), a
wholly-owned subsidiary of Blue Cross, pursuant to which UCI-SC acts as the
primary care provider for injured workers of firms carrying worker's
compensation insurance through CP&C. Additionally, during the Company's fiscal
year ended September 30, 1995, UCI-SC entered into a financing arrangement with
CP&C for the purchase of the Doctor's Care - Donaldson facility, which consists
of a note payable in monthly installments of $4,546 (including 11% interest)
from April 1, 1995 to March 1, 2010, collateralized by certain accounts
receivable.

During the Company's fiscal year ended September 30, 1994, UCI-SC began
providing services for a health maintenance organization ("HMO") operated by
Companion HealthCare Corporation, pursuant to which UCI-SC, through Doctor's
Care, acts as the designated primary care provider for members of the HMO who
have selected Doctor's Care as their primary care provider.

The employees of the Company are offered health, life, dental and disability
coverage at group rates from Blue Cross and its subsidiaries.

10. Concentration of Credit Risk

In the normal course of providing health care services, the Company may extend
credit to patients without requiring collateral. Each individual's ability to
pay balances due the Company is assessed and reserves are established to provide
for management's estimate of uncollectible balances.

Future revenues of the Company are largely dependent on third-party payors and
private insurance companies, especially in instances where the Company accepts
assignment.

-37-

11. Commitments and Contingencies

In the ordinary course of conducting its business, the Company becomes involved
in litigation, claims, and administrative proceedings. Certain litigation,
claims, and proceedings were pending at September 30, 1995, and management
intends to vigorously defend the Company in such matters. While the ultimate
results cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position or results
of operations of the Company.

12. Supplemental Cash Flow Information

Supplemental Disclosure of Cash Flow Information

The Company made interest payments of $448,311, $147,208, and $53,507 for the
years ended September 30, 1995, 1994, and 1993, respectively. There were no
amounts paid for income taxes during the three years ended September 30, 1995.

Supplemental Non-Cash Operating Activities

In July 1995, the Company paid for certain corporate expenses through an
issuance of 6,000 shares of common stock of the Company in the amount of
$16,500, of which $4,125 was expensed and the remainder classified as prepaid
expenses.

Supplemental Non-Cash Financing Activities

Capital lease obligations of $1,069,915 and $683,119 were incurred in 1995 and
1994. Additionally, in February 1995, the Company acquired property which was
financed through a note payable in the amount of $400,000.

Supplemental Non-Cash Investing Activities

In February 1993, the Company acquired a medical facility in Surfside Beach,
South Carolina for $1,697,000 including $50,000 in cash, a $1,600,000 note
payable to the seller and the assumption of approximately $47,000 of trade
accounts payable. Also, as part of the transaction the Company acquired a
condominium for $250,000, which was financed by the seller.

In February 1994, the Company entered into a management agreement with an
orthopedic practice and purchased the practice's accounts receivable and
inventory for $56,873 and $15,000, respectively with a note payable to the
seller.

In January 1995, the Company acquired certain assets of a medical practice in
West Columbia, South Carolina for $291,000, consisting of 145,500 shares of
common stock of the Company.

In May 1995, the Company acquired a medical practice in Cayce, South Carolina
for $150,000, consisting of 46,153 shares of common stock of the Company.

In August 1995, the Company acquired certain assets of a medical practice in
Greenville, South Carolina for $662,500, by financing $350,000 with the seller,
and issuing 100,000 shares of common stock of the Company.

-38-

13. Subsequent Events

In January 1995, the Company entered into an acquisition agreement for a medical
practice in Myrtle Beach, South Carolina. The acquisition is expected to become
effective prior to December 31, 1995, after certain conditions precedent occur.

On November 3, 1995, Companion purchased 218,180 shares of newly issued common
stock of the Company for $2.75 a share, or $599,995. Subsequent to the
transaction, Companion's ownership in the Company was approximately 45%.
Companion has the option to purchase as many shares as may be necessary for
Companion to maintain ownership of 47% of the outstanding common stock of the
Company in the event that the Company issues additional stock to other parties
(excluding shares issued to employees or directors of the Company).

On December 1, 1995, the Company acquired a medical practice in Greenville,
South Carolina for $300,000. The Company entered into an employment agreement
with the physician who had been the sole shareholder of the acquired medical
practice. The Company also entered into lease agreements for the facility
occupied by and the computer system used by the acquired medical practice.

-39-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

UCI MEDICAL AFFILIATES, INC.

Date: December 27, 1995 By: /s/ M. F. McFarland
M.F. McFarland, III, M.D.

Chief Executive Officer

By: /s/ Jerry F. Wells, Jr.
Jerry F. Wells, Jr.
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

Date: December 27, 1995 By: /s/ M.F. McFarland
M.F. McFarland, III, M.D.
Chairman of the Board

By: /s/ Harold H. Adams, Jr.
Harold H. Adams, Jr.
Director

By: /s/ Charles P. Cannon
Charles P. Cannon
Director

By: /s/ Russell J. Froneberger
Russell J. Froneberger
Director

By: /s/ Charles M. Potok
Charles M. Potok
Director

-40-

UCI MEDICAL AFFILIATES, INC.

EXHIBIT INDEX

PAGE NUMBER OR

EXHIBIT INCORPORATION BY
NO. DESCRIPTION REFERENCE TO

3.1 Amended and Restated Certificate of Incorporation .. 42

3.2 Amended and Restated Bylaws ...................... 51

10.1 Facilities Agreement .................................... 61
10.2 Facilities Fee Refund Agreement .................... 66

10.3 Amendments to the Facilities Agreement and
the Facilities Fee Refund Agreement ................ 68

10.4 Employment Agreement Between

UCI Medical Affiliates of South Carolina, Inc. and

M.F. McFarland, III, M.D. ............................ 72

10.5 Employment Agreement Between

Doctor's Care, P.A. and M.F. McFarland, III, M.D. .. 80

10.6 Employment Agreement Between

UCI Medical Affiliates of South Carolina, Inc. and

D. Michael Stout, M.D. ................. 87

10.7 Employment Agreement Between

Doctor's Care, P.A. and D. Michael Stout, M.D. ..... 93

10.8 Lease and License Agreement with

Companion Technologies .......................... 102

10.9 UCI Medical Affiliates, Inc.

1994 Incentive Stock Option Plan ............... 112

10.10 Consent of Independent Accountants ................ 120

21 Subsidiaries of the Registrant ........... 122

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