<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 1, 1996
---------------
COMPLETE MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 0-27260 11-3149119
- ----------------------------- ------------------- ---------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
254 West 31st Street, New York, New York 10001-2813
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(212) 868-1188
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code:
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Financial Statements of Business Acquired:
The financial statements of Advanced Alliance Management Corp.
listed on page F-2 hereof.
Pro Forma Financial Information:
The unaudited pro forma combined financial statements of
Complete Management, Inc. and its subsidiaries listed on page PFF-1 hereof.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
ADVANCED ALLIANCE MANAGEMENT CORP.
Report of Independent Public Accountants ......................................................... F-2
Consolidated Balance Sheets as of December 31, 1994, 1995, and September 30, 1996 (Unaudited) .... F-3
Consolidated Statements of Income for the years ended December 31, 1994 and 1995 and for the nine
month periods ended September 30, 1995 and 1996 (Unaudited) ................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994 and 1995 and
for the nine month period ended September 30, 1996 (Unaudited) ................................ F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1994 and 1995 and the nine
month periods ended September 30, 1995 and 1996 (Unaudited) ................................... F-6
Notes to Consolidated Financial Statements ....................................................... F-7
COMPLETE MANAGEMENT, INC.
Explanatory note ................................................................................. PFF-1
Unaudited Pro Forma Combined Balance Sheet as at September 30, 1996 .............................. PFF-2
Unaudited Pro Forma Combined Statements of Income for the year ended December 31, 1995 and for the
nine month period ended September 30, 1996 ..................................................... PFF-3
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Advanced Alliance Management Corp.:
We have audited the accompanying balance sheets of Advanced Alliance
Management Corp. (a New York corporation) as of December 31, 1994 and 1995,
and the related statements of income, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our 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 Advanced Alliance Management
Corp. as of December 31, 1994 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
October 18, 1996
F-2
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
BALANCE SHEETS AS OF
DECEMBER 31, 1994, 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
------------------------- ---------------
1994 1995 1996
---------- ----------- ---------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and Cash Equivalents (Note 2) ...................... $ -- $ 73,234 $ --
Accounts Receivable:
Others ............................................. 161,402 220,356 843,486
Related Parties .................................... 109,071 189,444 442,467
Note Receivable from Stockholder (Note 7) ............... -- 30,500 7,625
Prepaid Expenses ........................................ 17,500 8,108 --
---------- ----------- ---------------
Total Current Assets .......................... 287,973 521,642 1,293,578
Note Receivable from Stockholder, less current portion .. -- 30,500 --
Property and Equipment (Note 3) ......................... 279,470 395,438 432,555
Less: Accumulated Depreciation .......................... (82,435) (157,619) (220,768)
---------- ----------- ---------------
Property and Equipment, Net ................... 197,035 237,819 211,787
Management Agreement .................................... -- -- 2,025,254
Other Assets ............................................ 9,972 9,972 11,972
---------- ----------- ---------------
TOTAL ASSETS .................................. $494,980 $ 799,933 $3,542,591
========== =========== ===============
Liabilities and stockholders' equity
Current liabilities:
Accounts Payable:
Others ............................................. $ 37,537 $ 127,470 $ 957,267
Related Parties .................................... 37,689 14,489 --
Accrued Expenses ........................................ 93,702 43,875 593,751
Due to Related Parties .................................. -- -- 443,809
Note Payable to Stockholder (Note 6) .................... -- 40,664 --
Current Portion of Capital Lease Obligations (Note 4) ... 43,578 48,905 35,390
---------- ----------- ---------------
Total Current Liabilities ..................... 212,506 275,403 2,030,217
Capital Lease Obligations, less current portion (Note 4) 129,766 80,861 63,481
---------- ----------- ---------------
TOTAL LIABILITIES ............................. 342,272 356,264 2,093,698
Common Stock, no par value, 200 shares authorized, 40
shares issued and outstanding as of December 31, 1994;
and 45 shares issued and outstanding as of December 31,
1995; and 59 shares issued and outstanding as of
September 30, 1996 (Unaudited) ........................ 78,000 139,000 2,164,254
Retained Earnings (Deficit) ............................. 74,708 365,669 (715,361)
---------- ----------- ---------------
152,708 504,669 1,448,893
Less: Treasury Stock, at cost, 0 shares as of December
31, 1994; and 5 shares as of December 31, 1995; and 0
shares as of September 30, 1996 (Unaudited) (Note 6) .. -- (61,000) --
---------- ----------- ---------------
152,708 443,669 1,448,893
---------- ----------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........................ $494,980 $ 799,933 $3,542,591
========= =========== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
STATEMENTS OF INCOME FOR THE YEARS DECEMBER 31, 1994, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, Nine Months Ended September 30,
---------------------------- ------------------------------
1994 1995 1995 1996
------------ ------------ ------------ --------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Others ................................. $1,869,759 $2,645,692 $2,213,812 $ 2,468,953
Related parties ........................ 3,434,798 3,884,525 2,900,407 3,112,034
------------ ------------ ------------ --------------
5,304,557 6,530,217 5,114,219 5,580,987
------------ ------------ ------------ --------------
Cost of Revenue ............................. 3,442,932 3,905,168 2,919,932 4,712,530
General and Administrative expenses ......... 1,632,777 2,128,860 1,843,117 1,722,071
Expenses paid to related parties ............ 174,356 193,880 64,604 116,798
------------ ------------ ------------ --------------
5,250,065 6,227,908 4,827,653 6,551,399
------------ ------------ ------------ --------------
Operating income (loss) ..................... 54,492 302,309 286,566 (970,412)
Other expense ............................... 15,368 -- -- 63,770
Interest expense ............................ 14,009 10,803 7,309 6,848
------------ ------------ ------------ --------------
Income (loss) before provision of income tax 25,115 291,506 279,257 (1,041,030)
Provision of income tax ..................... 492 545 -- --
------------ ------------ ------------ --------------
Net income (loss) ........................... $ 24,623 $ 290,961 $ 279,257 $(1,041,030)
============ ============ ============ ==============
Net income (loss) per share ................. $ 456 $ 5,595 $ 5,476 $ (17,949)
Weighted Average number of shares
outstanding ............................... 54 52 51 58
Pro forma information (unaudited):
Net income (loss) (historical) ......... $ 24,623 $ 290,961 $ 279,257 $(1,041,030)
Pro forma adjustments -- income taxes .. 41,000 120,000 115,172 --
------------ ------------ ------------ --------------
Pro forma net (loss) income ............ $ (16,377) $ 170,961 $ 164,085 $(1,041,030)
============ ============ ============ ==============
Pro forma (loss) earnings per share .... $ (303) $ 3,287 $ 3,217 $ (17,949)
Pro forma weighted average number of
shares outstanding ................... 54 52 51 58
============ ============ ============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
Number Number Retained
of Shares Amount of Shares Amount Earnings/Deficit Total
----------- ------------ ----------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ..... 40 $ 78,000 $ $ 50,085 $ 128,085
Net income for the year ended
December 31, 1994 ............... -- -- -- -- 24,623 24,623
----------- ------------ ----------- ----------- ---------------- -------------
Balance at December 31, 1994 ..... 40 $ 78,000 -- -- 74,708 152,708
Purchase of Treasury Stock ....... -- (5) (61,000) -- (61,000)
Issuance of Common Stock ......... 5 61,000 -- -- -- 61,000
Net Income for the year ended
December 31, 1995 ............... -- -- -- -- 290,961 290,961
----------- ------------ ----------- ----------- ---------------- -------------
Balance at December 31, 1995 ..... 45 $ 139,000 (5) $(61,000) $ 365,669 $ 443,669
Issuance of Common Stock
(Unaudited) ..................... 5 61,000 -- -- -- 61,000
Retirement of Treasury Stock
(Unaudited) ..................... (5) (61,000) 5 61,000 -- --
Issuance of Common Stock in
exchange for management agreement
(unaudited) ..................... 14 2,025,254 -- -- -- 2,025,254
Dividends (unaudited) ............ -- -- -- -- (40,000) (40,000)
Net loss for the nine months ended
September 30, 1996 (unaudited) .. -- -- -- -- (1,041,030) (1,041,030)
----------- ------------ ----------- ----------- ---------------- -------------
Balance at September 30, 1996
(unaudited) ..................... 59 $2,164,254 -- $ -- $ (715,361) $ 1,448,893
=========== ============ =========== =========== ================ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
------------------------- ------------------------------
1994 1995 1995 1996
---------- ----------- ----------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Operating Activities
Net Income ............................. $ 24,623 $ 290,961 $ 279,257 $ (1,041,030)
Adjustments to reconcile net income to
net cash provided operating activities:
Depreciation ...................... 34,063 75,184 52,500 63,149
Loss on sale of property .......... 15,368 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable ............. (16,473) (139,327) (262,982) (876,153)
Prepaid expenses ................ (17,500) 9,392 (10,974) 8,108
Other Assets .................... (6,648) -- 9,972 (2,000)
Accounts payable ................ (11,446) 66,733 50,974 815,308
Accrued expenses ................ (666) (49,827) 4,099 549,876
Due to related parties .......... -- -- -- 443,809
---------- ----------- ----------- ---------------
Net cash provided by (used in) operating
activities ........................... 21,321 253,116 122,846 (38,933)
Investing activities
Purchases of property and equipment .... -- (115,968) (44,818) (37,117)
Proceeds from note receivable .......... -- -- -- 73,711
---------- ----------- ----------- ---------------
Net cash provided by (used in) investing
activities ........................... -- (115,968) (44,818) 36,594
---------- ----------- ----------- ---------------
Financing activities
Payment of note payable to a stockholder -- (20,336) (7,626) --
Dividends Paid ......................... -- -- -- (40,000)
Principal payment under capital lease
obligations .......................... (22,792) (43,578) (24,638) (30,895)
---------- ----------- ----------- ---------------
Net cash used in financing activities .. (22,792) (63,914) (32,264) (70,895)
---------- ----------- ----------- ---------------
Net (decrease) increase in cash ........ (1,471) 73,234 45,764 (73,234)
Cash and cash equivalents at the
beginning of the period .............. 1,471 -- -- 73,234
---------- ----------- ----------- ---------------
Cash and cash equivalents at the end of
the period ........................... $ 0 $ 73,234 $ 45,764 $ 0
========== =========== =========== ===============
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest .......................... $ 14,654 $ 13,868 $ 7,309 $ 6,848
Taxes ............................. 475 492 492 498
Noncash activities:
Investment in Capital Lease ....... $ 68,500 $ -- $ -- $ --
Note payable to stockholder ....... -- 61,000 61,000 --
Note receivable from stockholder .. -- 61,000 61,000 20,336
Issuance of stock in exchange for
management agreement ............ -- -- -- 2,025,254
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Advanced Alliance Management Corp. ("AAMC" or the "Company") was
incorporated on July 15, 1988 in the state of New York. The Company was
formed for the purpose of offering practice management services to Northern
Metropolitan Radiology Associates, P.C. ("NMRA"), an entity under common
ownership, which provides expertise in various radiological subspecialties
including, but not limited to: neuroradiology, mammography, and
interventional, pediatric and nuclear radiology. Presently, the Company
offers a variety of practice management and other services to its hospital
and physician-group client base. These services include: billing and
collection, transcription, provision of ultrasound, x-ray and nuclear
medicine technicians, mobile x-ray services, non-medical personnel staffing,
OSHA compliance and credentialling.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized when services are rendered for all but billing and
collection services. Revenue earned from billing and collection services
rendered are recognized only upon the collection of the customers' accounts
receivable balance by AAMC.
Property and Equipment
Medical equipment, office furniture and computer equipment are depreciated
on the straight-line basis over the estimated useful lives of the assets
(generally 5 years).
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less, when purchased, to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
Income taxes are determined under the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and liabilities are
determined based upon differences between financial reporting and tax basis
assets and liabilities.
Recently Issued Accounting Standards
During March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long Lived Assets and for Long Lived Assets to Be
Disposed Of." This statement establishes financial accounting and reporting
standards for the impairment of long lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and
for long lived assets and certain identifiable intangibles to be disposed of.
SFAS 121 is effective for financial statements for fiscal years beginning
after December 15, 1995, although earlier application is encouraged. The
Company does not expect that the adoption of SFAS 121 will have a material
effect on its financial statements.
Earnings Per Share
Earnings per share are computed using the weighted average number of
common shares outstanding.
F-7
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Medical equipment ............. $270,898 $ 369,172
Office furniture .............. 1,506 15,375
Computer equipment ............ 7,066 10,891
---------- -----------
279,470 395,438
Less: accumulated depreciation (82,435) (157,619)
---------- -----------
Property and equipment, net ... $197,035 $ 237,819
========== ===========
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
The Company leases medical and other equipment under capital leases
expiring through November 1998. At December 31, 1995, future minimum lease
payments including interest at 11% to 12% annually, were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------
<S> <C>
1996 ............................. $ 61,248
1997 ............................. 61,248
1998 ............................. 26,288
----------
148,784
Less: Amount representing interest (19,018)
----------
$129,766
</TABLE>
5. OPERATING LEASE OBLIGATIONS
The Company leases medical and other equipment under operating leases on a
month-to-month basis. Medical and other equipment rental amounted to
approximately $161,943 and $78,338 for the years ended December 31, 1995 and
1994, respectively.
6. TREASURY STOCK/NOTE PAYABLE TO FORMER SHAREHOLDER
In March 1995, the Company purchased five shares of its previously issued
stock. The purchase price of $61,000, in the form of a note, is payable in 24
equal monthly installments commencing in April 1995. At December 31, 1995,
the balance due to the former shareholder was approximately $41,000. The
treasury shares were then retired by the Company.
Subsequent to year end, the former shareholder purchased five new shares
of the Company's previously unissued common stock. As consideration for these
shares, the balance of the note payable due to the shareholder was forgiven
and a note approximating $20,000 was provided to the Company.
7. NOTES RECEIVABLE FROM RELATED PARTY
In July 1995, five shares of the Company's unissued common stock was sold
to an unrelated party for $61,000. The consideration received for the shares
was in the form of a note due in 24 equal monthly payments commencing in July
1995. Subsequent to December 31, 1995, the repayment terms of the note were
modified to commence in January 1996. At December 31, 1995, the entire
$61,000 face amount of the note was due.
F-8
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
8. PROFIT-SHARING PLAN
All eligible employees of the Company who meet certain requirements with
respect to age and years of service are covered under the NMRA Profit-Sharing
Plan and Trust. AAMC's contributions to the plan are determined annually by
the Board of Directors. The Company made no contributions and $56,702 to the
plan for the years ended December 31, 1995 and 1994, respectively.
9. RELATED PARTY TRANSACTIONS
Sales to NMRA and its divisions and subsidiaries under common ownership
totaled approximately $3,885,000 or 59% of total sales and approximately
$3,435,000 or 63% of total sales for the years ended December 31, 1995 and
1994, respectively.
The Company leases its office space, on a month-to-month basis, from
Northern Metropolitan Service Corporation ("NMSC"), a related party. During
the year ended December 31, 1994, the Company paid no rent expense to NMSC.
Rent expense for the year ended December 31, 1995 was approximately $82,000.
Certain operating expenses of the Company are paid to a related party.
Such operating expenses amounted to $193,880 and $174,356 for the years ended
December 31, 1995 and 1994, respectively.
As described in Note 8, the employees of the Company are covered under the
NMRA Profit Sharing Plan and Trust.
10. INCOME TAXES
Commencing July 15, 1988, the Company elected to be treated as a
Subchapter S Corporation and use the cash method of accounting under
applicable sections of the Internal Revenue Code for federal income tax
purposes. In addition, the Company elected to be treated for New York State
and New Jersey State income tax purposes as a Subchapter S Corporation. As
such, in lieu of corporate income taxes, the shareholders of the Company
report their proportionate share of the Company's income or loss on their
personal income tax returns. Consequently, no provision is made for federal
income taxes and a statutory minimum provision is made for state income
taxes.
Immediately after the transfer of ownership discussed in Note 12, the
Company will no longer be treated as a Subchapter S Corporation or be
eligible to use the cash method of accounting. The accompanying consolidated
financial statements reflect a provision for income taxes on a pro forma
basis as if the Company was liable for federal, state and local income taxes
as an accrual basis taxable corporate entity throughout the years presented.
The proforma adjustments reflected in the income statement for the year ended
December 31, 1994 includes a $30,000 income tax liability which would have
resulted due to the change from the cash to the accrual method of accounting
and from a nontaxable to taxable entity as of January 1, 1994.
The pro forma income taxes represent the liability which would have
occurred if the Company was a taxable entity from January 1, 1994.
The following summarizes pro forma income taxes provision:
Pro forma income tax adjustment:
<TABLE>
<CAPTION>
For the year ended For the year ended
------------------ ------------------
1994 1995
------------------ ------------------
Current
<S> <C> <C>
Federal .............. $30,000 $ 89,000
State ................ 11,000 31,000
------------------ ------------------
Total income tax provision $41,000 $120,000
</TABLE>
F-9
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
10. INCOME TAXES - (Continued)
The pro forma provision for income taxes differs from the amounts computed
by applying federal statutory rates due to the following:
<TABLE>
<CAPTION>
For the year ended For the year ended
---------------------- ----------------------
1994 1995
----- -----
<S> <C> <C>
Pro forma provision computed at the federal
statutory rate ................................ 34.0% 34.0%
Pro forma state income taxes, net of federal tax
benefit ....................................... 7.5% 7.5%
----- -----
Total .......................................... 41.5% 41.5%
</TABLE>
11. GOVERNMENT REGULATION
The healthcare industry is highly regulated. Requirements pertaining to
the ownership, operation and acquisition of medical equipment and the
provision of medical practice management services vary from state to state,
including licensing regulations, third-party payor regulations, corporate
practice of medicine, fee splitting, physician self-referral, anti-kickback
laws and regulations in certain jurisdictions requiring certificates of need
for certain types of "healthcare facilities" and "major medical equipment".
12. SUBSEQUENT EVENTS
On October 2, 1996, the Company was acquired by Complete Management, Inc.
("CMI") for approximately $8.5 million of consideration (the "Acquisition").
CMI, a New York corporation, provides comprehensive management services
primarily to high volume medical practices in New York State. These services
include development, administration and leasing of medical offices and
equipment, staffing and supervision of non-medical personnel, accounting,
billing and collection, and development and implementation of practice growth
and marketing strategies. Directly prior to the Acquisition, in September
1996, the Company issued 3.5 shares to each of four shareholders of NMRA for
a nominal amount, and, entered into a formal 30 year management agreement
with NMRA. As a result of these series of transactions, approximately $2.0
million has been assigned to the management agreement and will be amortized
over a period not to exceed 20 years. The value assigned to the management
agreement is based upon the fair value per share of the Company's outstanding
common stock based upon the Acquisition price.
13. UNAUDITED INTERIM PERIODS PRESENTED
The interim consolidated financial statements for the nine months periods
ended September 30, 1995 and 1996 are unaudited. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for the fair presentation have been included. Operating results for
the nine months period ended September 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1996.
14. SIGNIFICANT EVENTS (UNAUDITED)
During September 1996, the Company paid substantially all of its employees
(approximately 183 persons) a bonus aggregating approximately $473,646 for
past services. Such amount has been charged to operations.
F-10
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
EXPLANATORY NOTE
The Unaudited Pro Forma Combined Balance Sheet of CMI at September 30,
1996 and the Unaudited Pro Forma Combined Statements of Income of CMI for the
year ended December 31, 1995 and the nine months ended September 30, 1996
which are set forth below, give effect to all of the acquisitions consummated
through November 15, 1996, consisting of the MMI Merger, the AAMC Merger and
the Other Acquisitions, based upon the assumptions set forth below, and in
the notes to such statements. These acquisitions have each been accounted for
as a "purchase." However, because CMI and MMI have a common control group,
that portion of the assets of MMI attributable to such control group,
approximately 39.0% of total assets, was acquired at a carryover historical
basis. The excess of purchase price over the value of the remaining net
assets acquired as if these acquisitions occurred on December 31, 1995, is
estimated at approximately $21,843,000, and will be amortized over various
periods based upon appraisals and valuations by qualified independent
parties. A period of 20 years has been assumed for the amortization, for the
purpose of the pro forma financial statements. The unaudited pro forma
financial statements reflect amortization expense of such excess in the
amount of $1,092,000 for the year ended December 31, 1995. The unaudited pro
forma combined financial information assumes that (i) the AAMC Merger and the
Other Post 9/30/96 Acquisition were completed at September 30, 1996 for the
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1996, (ii) the
MMI Merger, the AAMC Merger and Other Acquisitions were completed at January
1, 1995 for the Unaudited Pro Forma Combined Statement of Income for the year
ended December 31, 1995, and (iii) the AAMC Merger and Other Acquisitions
were completed at January 1, 1996 for the Unaudited Pro Forma Combined
Statement of Income for the nine month period ended September 30, 1996. The
unaudited pro forma financial information has been included pursuant to the
requirements set forth in applicable rules of the SEC and is provided for
comparative purposes only. The unaudited pro forma financial information
presented is based upon the respective historical consolidated financial
statements of CMI and the acquired companies and should be read in
conjunction with such financial statements and related notes thereto to the
extent included in this document. The Company believes that the accompanying
unaudited pro forma combined financial information contains all the material
adjustments necessary to fairly present the financial position of CMI as of
December 31, 1995. The unaudited pro forma financial information presented
does not purport to be indicative of the financial position or operating
results which would have been achieved had the acquisitions taken place at
the dates indicated and should not be construed as representative of the
Company's financial position or results of operations for any future date or
period.
The unaudited pro forma adjustments are based on available information and
upon certain assumptions that the Company believes are reasonable under the
circumstances; however, the actual recording of the acquisitions will be
based on ultimate appraisals, evaluations and estimates of fair values. If
these appraisals and evaluations identify assets with lives shorter than 20
years, such assets will be amortized over their expected useful lives.
Periodically, but no less than quarterly, the Company will evaluate the
relative fair market value of the intangible assets identified (including
goodwill, if any) in its acquisitions by estimating the future earning
streams of the related business lines and comparing the present value of the
result of that estimation to the stated value of the related assets.
Impairments, if any, will be charged to operations when identified.
PFF-1
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS AT SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro forma Combined
Actual -------------------------------
---------------------- CMI, AAMC
& Other
Post 9/30/96
CMI AAMC Adjustments Acquisition
---------- -------- ------------- --------------
<S> <C> <C> <C> <C>
(1)
Cash and cash equivalents .................. $ 11,792 $ -- $(5,290)(2) $ 6,502
Marketable securities ...................... 25,177 -- 25,177
Notes receivable from related party --
current ................................... 1,953 8 1,961
Accounts receivable -- current, net ........ 16,436 1,286 17,722
Other current assets ....................... 1,998 -- 1,998
---------- -------- ------------- --------------
Total current assets ..................... 57,356 1,294 (5,290) 53,360
Notes receivable from related party --
non-current .............................. 67 -- 67
Accounts receivable -- non-current, net .... 23,172 -- 23,172
Marketable securities held to maturity --
non-current .............................. 674 -- 674
Property and equipment, net ................ 6,544 212 6,756
Purchase price in excess of net assets
acquired ................................. 12,068 -- 9,444(3) 21,512
Deferred & debt issuance costs ............. 4,692 2,025 6,717
Other long-term assets ..................... 635 12 647
---------- -------- ------------- --------------
Total assets .......................... $105,208 $3,543 $ 4,154 $112,905
========== ======== ============= ==============
Notes payable .............................. $ -- $ -- $ -- $ --
Accounts payable and accrued expenses ...... 1,845 1,551 3,396
Income taxes payable ....................... 2,354 -- 2,354
Due to clients, related parties ............ -- 444 444
Deferred income taxes -- current ........... 5,103 -- 5,103
Current portion of long-term debt .......... 317 -- 317
Current portion of obligations under capital
leases ................................... 522 35 557
---------- -------- ------------- --------------
Total current liabilities ............. 10,141 2,030 -- 12,171
Deferred income taxes -- non-current ....... 5,165 -- 5,165
Long-term debt, less current portion ....... 398 -- 398
Obligations under capital leases ........... 1,567 64 1,631
Convertible subordinated debt .............. 45,250 -- 45,250
Minority interest .......................... -- -- --
Common stock ............................... 8 2,164 (2,164)(4) 8
Paid-in capital ............................ 31,687 -- 5,603 (5) 37,290
Retained earnings .......................... 10,992 (715) 715 (4) 10,992
---------- -------- ------------- --------------
Total shareholders' equity ............... 42,687 1,449 4,154 48,290
---------- -------- ------------- --------------
Total liabilities and shareholders' equity . $105,208 $3,543 $ 4,154 $112,905
========== ======== ============= ==============
Working Capital ............................ $ 47,215 $ (736) $ 41,189
========== ======== ==============
</TABLE>
- ------
(1) Reflects the AAMC Merger in which the Company paid $4,034,000 and 286,000
Common Shares with a market value of $4,501,000. Such acquisition has
been accounted for as a purchase.
(2) Reflects the cash portion of the consideration paid in the AAMC Merger
and the Other Post 9/30/96 Acquisition.
(3) Reflects the effect of the AAMC Merger and the Other Post 9/30/96
Acquisition, which acquisitions were made after September 30, 1996. The
aggregate purchase price of the AAMC Merger and the Other Post 9/30/96
Acquisition was $15,699,000, which was in excess of the aggregate net
assets acquired in the amount of $13,168,000. The excess purchase price
is assumed to have a life of 20 years.
(4) Reflects the elimination of the shareholder's equity from the AAMC Merger
and the Other Post 9/30/96 Acquisition.
(5) Reflects the adjustments to increase paid-in capital arising from the
issuance of Common Shares in connection with the AAMC Merger and the
Other Post 9/30/96 Acquisition.
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<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Nine Months Ending September 30, 1996
-------------------------------------------------------------------------------
CMI AAMC Other Acquisitions Adjustments Pro forma
--------- ---------- ------------------ ------------- ----------------
(7) (6) (1)
<S> <C> <C> <C> <C> <C>
Revenue ................................. $20,030 $ 5,581 $1,787 $ -- $27,398
Interest discount (2) ................... (1,748) -- -- (1,748)
--------- ---------- ------------------ ------------- ----------------
Net revenue ............................. 18,282 5,581 1,787 -- 25,650
Cost of revenue ......................... 6,598 4,721 1,526 12,845
General and administrative expenses ..... 4,869 1,830 308 494(4) 7,501
--------- ---------- ------------------ ------------- ----------------
Operating income ........................ 6,815 (970) (47) (494) 5,304
Interest discount included in income (3) 1,855 -- -- 1,855
Other income/(expense) .................. (1,142) (71) (10) (1,223)
--------- ---------- ------------------ ------------- ----------------
Income before provision for income taxes 7,528 (1,041) (57) (494) 5,936
Provision for taxes ..................... 3,613 -- 1 (517)(5) 3,097
--------- ---------- ------------------ ------------- ----------------
Net income .............................. $ 3,915 $(1,041) $ (58) $ 23 $ 2,839
========= ========== ================== ============= ================
Primary net income per share ............ $ 0.50 $ 0.35
========= ================
Fully diluted net income per share ...... $ 0.42 $ 0.30
========= ================
Weighted average number of shares
outstanding ............................ 7,840 8,198
========= ================
Pro forma income taxes (5) .............. 340 340
------------------ ----------------
Pro forma net income .................... $ (398) $ 2,499
================== ================
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
----------------------------------------------------------------------------------------
CMI MMI AAMC Other Acquisitions Adjustments Pro forma
--------- -------- -------- ------------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(6) (1)
Revenue ..................... $12,294 $7,287 $6,530 $3,224 $ -- $29,335
Interest discount (2) ....... (2,017) (702) -- -- (2,719)
--------- -------- -------- ------------------ ------------- ---------------
Net revenue ................. 10,277 6,585 6,530 3,224 -- 26,616
Cost of revenue ............. 2,771 2,792 3,905 2,160 11,628
General and administrative
expenses ................... 2,974 2,382 2,323 851 1,092(4) 9,622
--------- -------- -------- ------------------ ------------- ---------------
Operating income ............ 4,532 1,411 302 213 (1,092) 5,366
Interest discount included in
income (3) ................. 1,585 651 -- -- 2,236
Other income/(expense) ...... (29) (170) (11) (3) (213)
--------- -------- -------- ------------------ ------------- ---------------
Income before provision for
income taxes ............... 6,088 1,892 291 210 (1,092) 7,389
Provision for taxes ......... 2,861 889 -- 1 234(5) 3,985
--------- -------- -------- ------------------ ------------- ---------------
Net income .................. $ 3,227 $1,003 $ 291 $ 209 $(1,326) $ 3,404
========= ======== ======== ================== ============= ===============
Primary net income per share $ 1.08 $ 0.33 $ 0.43
========= ======== ===============
Fully diluted net income per
share ...................... $ -- $ 0.29 $ --
========= ======== ===============
Weighted average number of
shares outstanding ......... 2,981 3,035 7,964
========= ======== ===============
Pro forma income taxes (5) .. 131 305 436
-------- ------------------ ---------------
Pro forma net income (loss) . $ 160 $ (96) $ 2,968
======== ================== ===============
</TABLE>
- ------
(1) Reflects the AAMC Merger and the Other Acquisitions as if they had
occurred at the beginning of each year and includes the MMI Merger at
January 1, 1995.
(2) Represents an interest discount taken to reflect the presumed collection
of revenues over a period in excess of one year. See "Notes to
Consolidated Financial Statements of CMI."
(3) Represents interest income included in income as a result of the
amortization over three and two year periods of the interest discount on
revenues for CMI and MMI, respectively. See "Notes to Consolidated
Financial Statements of CMI and MMI."
PFF-3
<PAGE>
(4) Reflects the amortization of purchase price in excess of net assets
acquired recorded at approximately $21,843,000 in 1995 assuming a useful
life of 20 years. In 1996, MMI is consolidated with CMI.
(5) Pro forma net income reflects a provision for income taxes since certain
acquisitions had been S Corporations before being acquired by CMI. Such
provision assumes an effective tax rate of 47%.
(6) The adjustments are based on available information and certain
assumptions that the Company believes are reasonable under the
circumstances; however, the actual recording of the MMI Merger, AAMC
Merger and the Other Acquisitions (which recording management does not
expect to vary materially) will be based on independent appraisals,
evaluations and estimates of fair values.
(7) Included in general and administrative expenses are bonuses aggregating
approximately $474,000 paid to substantially all AAMC employees for past
services.
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