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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (date of earliest event reported):
October 8, 1997
ProMedCo Management Company
(Exact name of Registrant as specified in its charter)
Delaware 0-21373 75-2529809
(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
801 Cherry Street, Suite 1450
Fort Worth, Texas 76102
(Address of principal executive offices, including zip code)
(817)335-5035
(Registrant's telephone number, including area code)
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<PAGE>
The undersigned Registrant hereby amends Item 7 of its current report on Form
8-K which was filed with the Securities and Exchange Commission on October 23,
1997, as follows:
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
(i) The audited financial statements of IMG, Inc.
as of December 31, 1996
(b) Pro Forma Financial Information
(i) Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1996
(ii) Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1996
(iii) Unaudited Pro Forma Consolidated Balance Sheet as of
June 30, 1997
(iv) Unaudited Pro Forma Consolidated Statement of Operations
for the six months ended June 30, 1997
(v) Notes to Pro Forma Consolidated Financial Information
The unaudited pro forma consolidated financial statements
should be read in conjunction with the historical financial
statements and notes thereto, included in the Company's
registration statement on Form S-1 and related prospectus
dated March 12, 1997.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ProMedCo Management Company:
We have audited the accompanying balance sheet of IMG, Inc., a Florida
corporation, (formerly known as Intercoastal Medical Group, Inc.) as of December
31, 1996, and the related statements of operations, stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 IMG, Inc. (formerly known as
Intercoastal Medical Group, Inc.) as of December 31, 1996, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
November 19, 1997
<PAGE>
IMG, INC.
(Formerly known as Intercoastal Medical Group, Inc. - Note 1)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, July 31,
ASSETS 1996 1997
------ ---------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 78,589 $ 335,705
Accounts receivable - net of contractual and other
allowances of $1,000,000 and $1,007,000, respectively 1,974,567 1,726,601
Prepaid expenses 60,156 125,911
------------- -----------
Total current assets 2,113,312 2,188,217
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $896,221 and $1,130,013, respectively 1,154,619 1,065,239
OTHER ASSETS 120,333 95,886
------------ ------------
Total assets $3,388,264 $3,349,342
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 364,192 $ 226,718
Line of credit and current portion of long-term debt 1,045,903 1,046,558
Accrued expenses and other current liabilities 451,067 514,965
------------ ------------
Total current liabilities 1,861,162 1,788,241
LONG-TERM DEBT AND OBLIGATIONS UNDER
CAPITAL LEASES, net of current maturities 895,781 703,481
------------ -----------
Total liabilities 2,756,943 2,491,722
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 63,000 63,000
Paid-in capital 395,016 395,016
Retained earnings 173,305 399,604
------------ ------------
Total stockholders' equity 631,321 857,620
------------ ------------
Total liabilities and stockholders' equity $3,388,264 $3,349,342
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
IMG, INC.
(Formerly known as Intercoastal Medical Group, Inc. - Note 1)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Seven Months
December 31, Ended July 31,
1996 1997
------------- ---------------
(Unaudited)
<S> <C> <C>
NET REVENUES $12,152,260 $ 7,213,757
-------------- --------------
COSTS AND EXPENSES:
Cost of affiliated physician services 4,412,179 2,416,300
Clinic salaries and benefits 2,804,015 2,034,460
Clinic rent and lease expense 847,675 604,793
Clinic pharmaceuticals and supplies 787,512 383,475
General and administrative 2,916,854 1,073,092
Depreciation and amortization 354,515 229,757
Interest expense 149,768 96,927
-------------- ----------------
Total costs and expenses 12,272,518 6,838,804
------------ -------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (120,258) 374,953
PROVISION FOR INCOME TAXES - 148,654
------------ ---------------
NET INCOME (LOSS) $ (120,258) $ 226,299
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
IMG, INC.
(Formerly known as Intercoastal Medical Group, Inc. - Note 1)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 2,000 $63,000 $395,016 $293,563 $ 751,579
Net loss - - - (120,258) (120,258)
--------- ------------ --------- --------- ---------
BALANCE, December 31, 1996 2,000 63,000 395,016 173,305 631,321
Net income (unaudited) - - - 226,299 226,299
--------- ------------ --------- --------- ---------
BALANCE, July 31, 1997 (unaudited) 2,000 $63,000 $395,016 $399,604 $857,620
===== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
IMG, INC.
(Formerly known as Intercoastal Medical Group, Inc. - Note 1)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Seven Months
December 31, Ended July 31,
1996 1997
-------------- -------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(120,258) $226,299
Adjustments to reconcile net income (loss)
to net cash provided by operating activities-
Depreciation and amortization 354,515 229,757
Changes in assets and liabilities-
Accounts receivable, net (297,423) 247,966
Other current assets (57,189) (65,755)
Other noncurrent assets 31,210 24,447
Accounts payable 396,255 (137,474)
Accrued expenses and other current liabilities (48,606) 63,899
Other (9,980) 5,379
----------- -----------
Net cash provided by operating activities 248,524 594,518
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (454,907) (144,412)
--------- ---------
Net cash used in investing activities (454,907) (144,412)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (231,448) (192,990)
Proceeds from borrowings 645,805 -
--------- --------
Net cash provided by financing activities 414,357 (192,990)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 207,974 257,116
CASH AND CASH EQUIVALENTS, beginning of period (129,385) 78,589
--------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 78,589 $335,705
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (see also Note 1):
Cash paid during the year for interest $146,193 $110,502
Cash paid for income taxes - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
IMG, INC.
(Formerly known as Intercoastal Medical Group, Inc. - Note 1)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS:
IMG, Inc. (a Florida corporation) formerly known as Intercoastal Medical Group,
Inc. ("IMG" or the "Company"), was incorporated during 1994. IMG is the largest
physician group practice in Sarasota, Florida, consisting of 24 physicians and
two physician extenders at six sites. Effective August 1, 1997, IMG entered into
a service agreement with a wholly owned subsidiary of ProMedCo Management
Company ("ProMedCo") to manage all day-to-day operations of IMG other than the
provision of medical services. IMG also entered into a stock purchase agreement
with ProMedCo dated September 30, 1997. The transaction will be accounted for by
ProMedCo under the purchase method of accounting for business combinations.
The accompanying financial statements of IMG have been prepared for a Securities
and Exchange Commission filing requirement of ProMedCo.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of
accounting.
The interim financial statements as of July 31, 1997, have been prepared by the
Company without audit, pursuant to Accounting Principles Board ("APB") Opinion
No. 28, "Interim Financial Reporting". Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to APB Opinion No. 28; nevertheless, management of the Company believes
that the disclosures herein are adequate to prevent the information presented
from being misleading. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the financial
position of the Company with respect to the results of its operations for the
interim period from January 1, 1997, to July 31, 1997, have been included
herein. The results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third party
payors and others for services rendered.
Cash and Cash Equivalents
Cash and cash equivalents include all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments,
with original maturities of three months or less.
Accounts Receivable
Accounts receivable primarily consists of receivables from patients, insurers,
government programs and other third-party payors for medical services provided
by physicians. Such amounts are reduced by an allowance for contractual and
other uncollectable amounts.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated using the straight-line
method over the following useful lives:
Years
Furniture and fixtures 5-7
Equipment 3-15
Leasehold improvements Estimated Lease Life
Income Taxes
The Company accounts for income taxes under the liability method which states
that deferred taxes are to be determined based on the estimated future tax
effects of differences between the financial statement and tax bases and
liabilities given the provisions of enacted tax laws. Deferred income tax
provisions and benefits are based on the changes to the asset or liability
period to period.
Supplemental Cash Flow Information
The Company had the following noncash investing and financing activities for the
year ended December 31, 1996:
Property acquired in capital lease transactions
and other noncash financing arrangements $218,439
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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, July 31,
1996 1997
(Unaudited)
<S> <C> <C>
Furniture and fixtures $ 292,474 $ 396,800
Leasehold improvements 384,892 386,724
Equipment 1,373,474 1,411,728
Less-Accumulated depreciation and amortization (896,221) (1,130,013)
------------ -----------
Property and equipment, net $1,154,619 $1,065,239
========== ==========
</TABLE>
4. INCOME TAXES:
Deferred income taxes are attributable primarily to timing differences between
income tax reporting and financial reporting related to revenues and expenses.
The Company is a cash-basis taxpayer.
The following table summarizes the composition of the deferred tax assets and
liabilities.
<TABLE>
<CAPTION>
December 31, July 31,
1996 1997
(Unaudited)
<S> <C> <C>
Deferred tax assets-
Accounts payable and accrued expenses $322,027 $234,247
Net operating losses 495,434 495,434
--------- ---------
Total deferred tax assets 817,461 729,681
--------- ---------
Deferred tax liabilities-
Accounts receivable (779,954) (682,007)
Property and equipment (17,045) (26,920)
---------- ----------
Total deferred tax liabilities (796,999) (708,927)
--------- ---------
Net deferred tax asset 20,462 20,754
Less: valuation allowance (20,462) (20,754)
--------- ---------
$ - $ -
========= =========
</TABLE>
As of December 31, 1996, the Company had net operating losses available for
carryforward purposes of approximately $1.3 million which will begin to expire
in 2009. The following table summarizes the significant components of income tax
expense for the year ended December 31, 1996, and the period ended July 31, 1997
(unaudited):
December 31, July 31,
1996 1997
(unaudited)
Current tax provision $ - $ 148,654
Deferred tax provision - -
Provision for income taxes $ - $ 148,654
The Company's effective tax rate was different than the statutory federal income
tax rate for the year ended December 31, 1996, as follows:
1996
Federal income taxes of statutory rate $(40,888)
State taxes, net of federal income tax benefit (4,810)
Tax effect of nondeductible items 221
Change in valuation allowance 20,462
Other 25,015
---------
Provision for income taxes $ -
========
<PAGE>
5. LINE OF CREDIT AND LONG-TERM DEBT:
Line of credit and long-term debt consist of the following:
<TABLE>
<CAPTION>
December 31, July 31,
1996 1997
(Unaudited)
<S> <C> <C>
Line of credit with note payable to a bank, renewed quarterly, interest
payable monthly, bearing interest at 9.25%, secured by substantially
all assets of the Company $ 500,000 $ 750,000
Note payable to a bank, due in 1997, interest
payable monthly, bearing interest at 9.25%, secured
by substantially all assets of the Company 250,000 -
Note payable to a bank, due in 2000, principal and interest payable
monthly, bearing interest at 9.25%, secured by substantially all assets
of the Company 611,026 499,517
Notes payable to a bank, due in 2000, principal and interest payable
monthly, bearing interest at 9.25%, secured by substantially all assets
of the Company 238,750 188,750
Note payable to a bank, due in 2001, principal and interest payable
monthly, bearing interest at 9.25%, secured by substantially all assets
of the Company 195,027 171,885
Other notes payable and capital leases 146,881 139,887
------------ -----------
Total 1,941,684 1,750,039
Less- Current maturities (1,045,903) (1,046,558)
----------- -----------
Long-term debt payable, net of current maturities $ 895,781 $ 703,481
=========== ===========
</TABLE>
<PAGE>
The maturities of long-term debt and capital leases as of December 31, 1996, are
as follows:
1997 $1,045,903
1998 297,261
1999 298,747
2000 183,492
2001 and thereafter 116,281
------------
$1,941,684
Upon completion of the purchase of IMG's outstanding stock by ProMedCo (see Note
1), all debt outstanding at October 8, 1997, was paid in full by the Company.
6. OBLIGATIONS UNDER CAPITAL LEASES:
In connection with an acquisition, the Company assumed the obligation of various
equipment under capital leases. At December 31, 1996, future minimum lease
payments under capital leases are as follows:
1997 $10,036
1998 10,036
1999 10,036
2000 10,036
2001 5,854
---------
45,998
Less- Portion attributable to interest (8,563)
---------
Obligations under capital leases 37,435
Less- Current portion (6,886)
---------
$30,549
7. COMMITMENTS AND CONTINGENCIES:
The Company has several operating leases for certain equipment and office space.
These lease agreements vary in length and terms. Rent expense under these lease
agreements totaled $847,675 and $604,793 for the year ended December 31, 1996,
and the seven months ended July 31, 1997 (unaudited), respectively.
<PAGE>
At December 31, 1996, future minimum lease payments under these noncancelable
operating leases are as follows:
1997 $ 705,296
1998 560,501
1999 549,129
2000 549,129
2001 and thereafter 1,941,932
-------------
$4,305,987
=============
8. BENEFIT PLANS:
The Company began a defined contribution plan in June 1997. Contributions were
$2,007 for the seven months ended July 31, 1997.
9. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments approximate fair value as of December 31, 1996.
10. RELATED-PARTY TRANSACTIONS:
The Company leases office space which is owned by a shareholder of the Company.
The lease is classified as an operating lease and expires in 1998. The rent paid
under this related-party lease was approximately $276,000 for the year ended
December 31, 1996.
During 1996, the Company paid management service fees to a partnership owned 50%
by the Company and 50% by the Company's previous management service company. The
Company paid approximately $930,000 to the partnership for management services
during 1996. This service agreement was terminated by the Company during October
1996.
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma as adjusted consolidated balance sheet gives effect to the
acquisition of substantially all of the outstanding stock of IMG, Inc., formerly
known as Intercoastal Medical Group, Inc. (the "Sarasota Acquisition") as if it
had been completed on December 31, 1996 and also reflects the initial public
offering of ProMedCo Management Company's ("ProMedCo" or the "Company") Common
Stock in March 1997 (the "Offering") and the conversion of all outstanding
Series A Redeemable Convertible Preferred Stock and Class B Common Stock of the
Company into Common Stock and the termination of the Company's contingent
obligation to repurchase all outstanding Redeemable Common Stock, all of which
occurred simultaneously with the closing of the Offering, as if such
transactions had occurred on December 31, 1996.
The pro forma as adjusted consolidated statement of operations for the year
ended December 31, 1996, gives effect to the Sarasota Acquisition as if it had
been completed on January 1, 1996. The historical as adjusted statement of
operations gives effect to the Offering and to the prior affiliations with
Cullman Family Practice, P.C.; Family Medical Clinic, P.C.; Morgan-Haugh,
P.S.C.; HealthFirst Services, Inc.; Tarrant Family Practice, P.A., King's
Daughters Clinic, P.A., Naples Medical Center, P.A. and Naples Obstetrics &
Gynecology, M.D., P.A. (the "Prior Transactions"), completed during 1996 and
1997, as if they had been completed on January 1, 1996. The pro forma as
adjusted consolidated statement of operations information is based on the
financial statements of the Company and the affiliated physician groups, giving
effect to the Sarasota Acquisition and the Prior Transactions under the purchase
method of accounting, and the assumptions and adjustments in the accompanying
notes to pro forma consolidated financial information.
The pro forma consolidated financial information has been prepared by
management based on the audited financial statements of the affiliated physician
groups, adjusted where necessary to reflect the acquisitions and related
operations as if the service agreements between the Company and such groups had
been in effect during the entire periods presented. This pro forma consolidated
financial information is presented for illustrative purposes only and is not
indicative of the results that would have occurred if the Sarasota Acquisition
or the Prior Transactions had been completed on January 1, 1996 or that may be
obtained in the future. The pro forma consolidated financial information should
be read in conjunction with the audited consolidated financial statements and
notes thereto of IMG, Inc. included elsewhere in this filing and for the
Company, Cullman Family Practice, P.C., Family Medical Clinic, P.C.,
Morgan-Haugh, P.S.C., HealthFirst Services, Inc., and Tarrant Family Practice,
P.A., included in the Company's registration statement on Form S-1 and related
prospectus dated March 12, 1997 and the Southwest Florida Clinic Practices
included in the Company's 8-K filing dated April 23, 1997 and filed with the
Securities and Exchange Commission on July 7, 1997.
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Offering
Adjustments
and Equity Naples Naples Historical Sarasota Sarasota Pro Forma
Historical(a) Conversions(b) Historical(c) Adjustments As Adjusted Historical(f) Adjustments as Adjusted
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents $ 1,633,534 $ 31,764,065 $ 129,582 $(11,107,755)(e) $ 22,419,426 $ 78,589 $ (7,515,844)(h) $14,982,171
Accounts
receivable, net 6,227,228 - 3,666,759 (1,071,296)(d) 8,822,691 1,974,567 - 10,797,258
Inventory 225,212 - 30,989 - 256,201 - - 256,201
Management fees
receivable 1,266,598 - - - 1,266,598 - - 1,266,598
Due from
affiliated
physician
groups 660,278 - - - 660,278 - - 660,278
Prepaid expenses
and other
current assets 517,633 - - - 517,633 60,156 - 577,789
----------- ---------- -------- ------------ ----------- --------- ---------- ---------
Total current
assets 10,530,483 31,764,065 3,827,330 (12,179,051) 33,942,827 2,113,312 (7,515,844) 28,540,295
Property and
equipment, net 3,930,191 - 616,234 - 4,546,425 1,154,619 - 5,701,044
Intangible
assets, net 14,860,171 - - 1,993,699 (c) 16,853,870 - 11,260,069 (f) 28,113,939
Other assets 1,238,929 (564,427) 81,867 14,493,255 (c) 15,249,624 120,333 - 15,369,957
----------- ---------- -------- ------------ ---------- --------- ---------- ---------
Total assets $30,559,774 $ 31,199,638 $4,525,431 $ 4,307,903 $ 70,592,746 $3,388,264 $ 3,744,225 $77,725,235
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts
payable $ 1,505,762 $ - $ 234,900 $ (97,420)(d) $ 1,643,242 $ 364,192 $ - $ 2,007,434
Payable to
affiliated
physician groups 1,341,876 - - - 1,341,876 - - 1,341,876
Accrued
salaries, wages
and benefits 1,153,558 - - - 1,153,558 - - 1,153,558
Accrued
expenses and
other current
liabilities 2,353,381 1,035,573 838,664 (838,664)(d) 3,388,954 451,067 - 3,840,021
Advances from
affiliated company - - 700,174 (700,174)(d) - - - -
Current maturities
of long-
term debt 1,151,191 - - - 1,151,191 1,045,903 (1,045,903)(g) 1,151,191
Current
maturities of
capital leases 589,438 - 301,152 (301,152)(d) 589,438 - - 589,438
Deferred
purchase price 181,986 - - - 181,986 - - 181,986
----------- ---------- -------- ------------ ---------- --------- ---------- ---------
Total current
liabilities 8,277,192 1,035,573 2,074,890 (1,937,410) 9,450,245 1,861,162 (1,045,903) 10,265,504
Notes payable,
net 4,585,173 (1,715,935) 177,702 (177,702)(d) 11,565,092 721,456 (721,456)(g) 11,565,092
8,695,854 (e)
Obligations under
capital leases 1,030,171 - - - 1,030,171 174,325 (174,325)(g) 1,030,171
Convertible
subordinated
notes payable 1,800,274 - - - 1,800,274 - - 1,800,274
Deferred purchase
price - - - - - - 6,317,230 (h) 6,317,230
Other long term
liabilities 393,575 - - - 393,575 - - 393,575
----------- ---------- -------- ------------ ---------- --------- ---------- ---------
Total
liabilities 16,086,385 (680,362) 2,252,592 6,580,742 24,239,357 2,756,943 4,375,546 31,371,846
----------- ---------- -------- ------------ ---------- --------- ---------- ---------
Series A Redeemable
convertible
preferred
stock 2,957,641 (2,957,641) - - - - - -
Redeemable
common stock 991,776 (991,776) - - - - - -
Stockholders' equity:
Preferred stock - - - - - - - -
Class B common stock 12,262 (12,262) - - - - - -
Common stock 31,871 58,915 2,272,839 (2,272,839)(d) 90,786 63,000 (63,000)(g) 90,786
Additional paid
in capital 11,987,480 35,782,764 - - 47,770,244 395,016 (395,016)(g) 47,770,244
Common stock to
be issued 2,303,212 - - - 2,303,212 - - 2,303,212
Stockholder notes
receivable (151,306) - - - (151,306) - - (151,306)
Retained earnings
(Accumulated
deficit) (3,659,547) - - - (3,659,547) 173,305 (173,305)(g) (3,659,547)
----------- ---------- -------- ------------ ---------- --------- ---------- ---------
Total stockholders'
equity 10,523,972 35,829,417 2,272,839 (2,272,839) 46,353,389 631,321 (631,321) 46,353,389
----------- ---------- -------- ------------ ---------- --------- ---------- ---------
Total liabilities
and stockholders'
equity $30,559,774 $31,199,638 $4,525,431 $4,307,903 $ 70,592,746 $3,388,264 $3,744,225 $77,725,235
----------- ---------- -------- ------------ ---------- --------- ---------- ---------
</TABLE>
See accompanying notes to pro forma consolidated financial information
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Prior Offering Historical Sarasota Sarasota Pro Forma
Historical(i) Transactions(j) Adjustments Adjustments(r) As Adjusted Acquisition(s) Adjustments As Adjusted
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Physician
groups revenue,
net $46,996,262 $37,350,146 $ - $ - $84,346,408 $12,152,260 $ - $96,498,668
Less: amounts
retained by
physician
groups 20,791,607 17,379,022 (22,848,409)(k) - 37,199,931 4,412,179 (4,412,179)(t) 40,753,282
21,877,711 (k) 3,553,351 (t)
Management
fee revenue 26,204,655 19,971,124 970,698 - 47,146,477 7,740,081 858,828 55,745,386
Operating
expenses:
Clinic salaries
and benefits 11,778,563 8,957,927 (2,315,116)(l) - 18,421,374 2,804,015 - 21,225,389
Clinic rent
and lease
expense 2,684,002 1,933,222 17,630 (m) - 4,634,854 847,675 - 5,482,529
Clinic supplie 2,860,454 1,369,624 - - 4,230,078 787,512 - 5,017,590
Other clinic
costs 6,202,760 6,750,367 (478,609)(k) - 12,474,518 2,916,854 - 15,391,372
General
corporate
expenses 2,633,585 - - - 2,633,585 - - 2,633,585
Depreciation
and
amortization 723,641 503,678 (28,933)(n) - 1,593,865 354,515 390,672 (w) 2,339,052
395,479 (o)
Merger costs 682,269 - - - 682,269 - - 682,269
Interest
expense 210,234 148,899 (65,296)(p) (51,098) 1,084,944 149,768 (149,768)(x) 1,084,944
842,203 (p)
-------- --------- ---------- -------- --------- ------- ------- ---------
27,775,508 19,663,717 (1,632,640) (51,098) 45,755,487 7,860,339 240,904 53,856,730
-------- --------- ---------- -------- --------- ------- ------- ---------
Income (loss)
before
provision for
income taxes (1,570,853) 307,407 2,603,338 51,098 1,390,990 (120,258) 617,924 1,888,656
Provision
(benefit) for
income taxes - (93,974) 603,133 (q) 19,417 528,576 - 189,113 (y) 717,689
-------- --------- ---------- -------- --------- ------- ------- ---------
Net income
(loss) $(1,570,853) $401,381 $2,000,205 $31,681 $ 862,414 $(120,258) $428,811 $1,170,967
-------- --------- ---------- -------- --------- ------- ------- ---------
Net income
(loss) per
share $ (0.19) $ 0.06 $ 0.08
======== ========= ========
Weighted
average
number of
common shares
outstanding 8,395,186 14,673,492 14,673,492
========= ========== ==========
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Sarasota Sarasota Pro Forma
Historical Historical(f) Adjustments as Adjusted
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 19,713,154 $ 335,705 $ (7,515,844)(h) $ 12,533,015
Accounts receivable, net 9,502,714 1,726,601 - 11,229,315
Inventory 255,711 - - 255,711
Management fees receivable 800,826 - - 800,826
Due from affiliated physician groups 3,382,547 - - 3,382,547
Prepaid expenses and other current
assets 686,243 125,911 - 812,154
-------------- ------------- ------------- -------------
Total current assets 34,341,195 2,188,217 (7,515,844) 29,013,568
Property and equipment, net 5,448,069 1,065,239 6,513,308
Intangible assets, net 33,911,368 - 11,225,415 (f) 45,136,783
Other assets 16,558,105 95,886 - 16,653,991
-------------- ------------- ------------- -------------
Total assets $ 90,258,737 $ 3,349,342 $ 3,709,571 $ 97,317,650
============== ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,300,406 $ 226,718 $ - $ 1,527,124
Payable to affiliated physician groups 3,256,439 - - 3,256,439
Accrued salaries, wages and benefits 1,457,687 - - 1,457,687
Accrued expenses and other current
liabilities 1,941,327 514,965 - 2,456,292
Current maturities of long-term debt 3,395,289 1,046,558 (1,046,558)(g) 3,395,289
Current maturities of capital leases 535,458 - - 535,458
Deferred purchase price 1,577,505 - - 1,577,505
-------------- ------------- ------------- -------------
Total current liabilities 13,464,111 1,788,241 (1,046,558) 14,205,794
Notes payable, net 10,265,237 577,663 (577,663)(g) 10,265,237
Obligations under capital leases 877,154 125,818 (125,818)(g) 877,154
Convertible subordinated notes payable 1,800,274 - - 1,800,274
Deferred purchase price - - 6,317,230 (h) 6,317,230
Other long term liabilities 749,576 - - 749,576
-------------- ------------- ------------- -------------
Total liabilities 27,156,352 2,491,722 4,567,191 34,215,265
-------------- ------------- ------------- -------------
Stockholders' equity:
Preferred stock - - - -
Common stock 100,510 63,000 (63,000)(g) 100,510
Additional paid in capital 53,555,315 395,016 (395,016)(g) 53,555,315
Common stock to be issued 11,914,039 - - 11,914,039
Stockholder notes receivable (369,665) - - (369,665)
Retained earnings (Accumulated deficit) (2,097,814) 399,604 (399,604)(g) (2,097,814)
Total stockholders' equity 63,102,385 857,620 (857,620) 63,102,385
-------------- ------------- -------------- -------------
Total liabilities and stockholders'
equity $ 90,258,737 $ 3,349,342 $ 3,709,571 $ 97,317,650
============== ============= ============= =============
</TABLE>
See accompanying notes to pro forma consolidated financial information
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Prior Offering Historical Sarasota Sarasota Pro Forma
Historical(i) Transactions(j) Adjustments Adjustments(r) As Adjusted Acquisition(s) Adjustments As Adjusted
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Physician
groups revenue,
net $46,457,625 $4,669,844 $ - $ - $51,127,469 $7,213,757 $(1,083,460)(z) $57,257,766
Less: amounts
retained by
physician groups 19,540,348 1,309,215 (1,309,215)(k) - 21,557,658 2,416,300 (2,416,300)(t) 23,748,027
- 2,017,310 (k) 2,190,369 (t)
---------- --------- ---------- -------- ---------- --------- ---------- ----------
Management fee
revenue 26,917,277 3,360,629 (708,095) 29,569,811 4,797,457 (857,529) 33,509,739
Operating expenses:
Clinic salaries and
benefits 10,566,352 1,051,083 (279,907)(l) - 11,337,528 2,034,460 (506,941)(z) 12,865,047
Clinic rent and
lease expense 2,508,925 184,806 - - 2,693,731 604,793 (111,808)(z) 3,186,716
Clinic supplies 3,476,082 556,071 - - 4,032,153 383,475 (309)(z) 4,415,319
Other clinic costs 5,399,015 717,517 (1,263)(k) - 6,115,269 1,073,092 (293,938)(z) 6,894,423
General corporate
expenses 1,642,305 - - - 1,642,305 - - 1,642,305
Depreciation and
amortization 1,038,427 6,615 20,330 (n) - 1,306,788 229,757 (20,246)(z) 1,711,635
241,416 (o) 195,336 (z)
Interest expense 117,097 4,075 (4,075)(p) (30,386) 171,232 96,927 (96,927)(x) 171,232
- 84,521 (p)
---------- --------- ---------- -------- ---------- --------- ---------- ----------
24,748,203 2,520,167 61,02 (30,386) 27,299,006 4,422,504 (834,833) 30,886,677
---------- --------- ---------- -------- ---------- --------- ---------- ----------
Income (loss)
before provision
for income
taxes 2,169,074 840,462 (769,117) 30,386 2,270,805 374,953 (22,696) 2,623,062
Provision (benefit)
for income taxes 607,341 - 244,018 (q) 11,547 862,906 - 133,858 (y) 996,764
---------- --------- ---------- -------- ---------- --------- ---------- ----------
Net income (loss) $ 1,561,733 $840,462 $1,013,135) $ 18,839 $1,407,899 $ 374,953 $ (156,554) $1,626,298
---------- --------- ---------- -------- ---------- --------- ---------- ----------
Net income (loss)
per share $ 0.12 $ 0.10 $ 0.11
========== ========== =========
Weighted average
number of
common shares
outstanding 13,133,900 14,725,060 14,725,060
========== =========== ==========
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Through October 31, 1997 and during 1996 the Company, through its wholly
owned subsidiaries, acquired certain operating assets and assumed certain
operating liabilities of seven physician groups located in Alabama, Florida,
Kentucky, Pennsylvania and Texas.
Physician Groups Revenue, Net
Physician groups revenue represents the revenue of the affiliated physician
groups reported at the estimated realizable amounts from patients, third-party
payors, and others for services rendered, net of contractual and other
adjustments.
Management Fee Revenue
Management fee revenue represents physician groups revenue less amounts
retained by physician groups. The amounts retained by physician groups
(typically 85% of the physician group operating income) represent amounts paid
to the physician groups pursuant to the service agreements between the Company
and the physician groups. Under the service agreements, the Company provides
each physician group with the facilities and equipment used in its medical
practice, assumes responsibility for the management of the operations of the
practice, and employs substantially all of the non-physician personnel utilized
by the group.
The Company's management fee revenue is dependent upon the operating income
of the physician groups. Physician group operating income is defined in the
service agreements as the physician group's net medical revenue less certain
contractually agreed-upon clinic expenses, including non-physician clinic
salaries and benefits, rent, insurance, interest, and other direct clinic
expenses. The amount of the physician groups revenue retained and paid to the
physician groups primarily consists of the cost of the affiliated physicians'
services. The remaining amount of the physician group operating income
(typically 15%) and an amount equal to 100% of the clinic expenses are reflected
as management fee revenue earned by the Company.
Pro Forma Consolidated Balance Sheet
The adjustments reflected in the December 31, 1996 and June 30, 1997 pro forma
consolidated balance sheets are as follows:
(a) The December 31, 1996 historical consolidated balance sheet includes
the combined assets, liabilities and stockholders' equity of the
Company and Western Medical Management Corp. Inc. ("Reno") at December
31, 1996. The Reno business combination was completed on March 17,
1997, and has been accounted for as a pooling of interests.
(b) To reflect the effects of the Offering and the conversion of all Series
A Redeemable Convertible Preferred Stock and Class B Common Stock into
Common Stock and the termination of the Company's contingent obligation
to repurchase Redeemable Common Stock that occurred simultaneous with
the Offering. The equity conversions assume that all stock was
converted using a one-for-one conversion ratio, as provided in the
Company's Certificate of Incorporation.
(c) To record the assets acquired and liabilities assumed by ProMedCo in
the Naples Acquisition. The fair value of the clinic net assets was
determined based on an analysis of estimated future clinic operating
results. The following methods and assumptions were used to estimate
fair value:
Cash and cash equivalents--The historical carrying amount approximates
fair value.
Accounts receivable, net--The Company acquired only a specified portion
of the accounts receivable. The Company reviewed the specific
receivable balances and determined that their historical carrying
amount approximates their fair value.
Property and equipment, net--The Company performed an asset review and
determined that the historical carrying amount approximates fair
value.
Liabilities assumed--Given the short term nature of the liabilities
assumed, the historical carrying amount approximates their fair
value.
Intangible assets--In connection with the allocation of the purchase
price to identifiable intangible assets, the Company analyzes the
nature of each group, number of service sites and ability to
recruit additional physicians, the group's relative market
position, the length of time each group has been in existence, and
the term and enforceability of the service agreement. Because the
Company does not practice medicine, maintain patient
relationships, hire physicians, enter into employment and
non-competition agreements with the physicians, or directly
contract with payors, the intangible asset created in the purchase
allocation process is associated solely with the service agreement
with the physician group. The service agreements are for a term of
40 years and cannot be terminated by either party without cause,
consisting primarily of bankruptcy or material default.
The Company believes that there is no material value allocable to
the employment and non-competition agreements entered into between
the physician group and the individual physicians. The primary
economic beneficiary of these agreements is the physician group,
an entity that the Company does not legally control. In addition,
any damages under the agreements are paid solely to the physician
group for purposes of replacing departing physicians. Generally,
due to low expected physician turnover in the industry and the
ability of the physician group to replace departing physicians,
the Company believes there would be no significant economic loss
to either the physician group or the Company due to physician
departure. The physician groups continually recruit physicians
and, as appropriate and necessary, subsequently add qualified
physicians to the group. This manner of operations allows the
physician group to perpetuate itself as individual physicians
retire or are otherwise replaced. The Company believes that the
physician groups with which it has service agreements thus are
long-lived entities with an indeterminable life, and that the
physicians, customer demographics, and various contracts will be
continuously replaced. The service agreement intangible is being
amortized on a straight-line method over a composite average life
of 30 years.
Otherassets--The Company is entitled to receive, from the physicians,
amounts equal to premiums paid by the Company for split-dollar
life insurance arrangements covering the physicians. The long-term
receivables are collected upon the individual physician's death or
his early termination. The full amounts of the receivables are
guaranteed by the physicians and are stated at fair value.
(d) To eliminate assets not acquired and liabilities not assumed by
ProMedCo in the Naples Acquisition as stated in the purchase agreement,
and to eliminate the owner's equity of Naples in connection with the
purchase accounting for the acquisition.
(e) To record the cash paid and notes payable issued at closing in exchange
for assets acquired and liabilities assumed in connection with the
Naples acquisition.
(f) To record the assets acquired and liabilities assumed by ProMedCo in
the Sarasota Acquisition. This acquisition has been accounted for by
the purchase method of accounting and, accordingly, the purchase price
has been preliminary allocated to the assets acquired and liabilities
assumed based on the estimated fair values. The total consideration for
the transactions was approximately $14.4 million, which consisted of a
combination of cash and deferred cash payments and the assumption of
certain liabilities. The fair value of the clinic net assets was
determined based on an analysis of estimated future clinic operating
results.
The following methods and assumptions were used to estimate fair value:
Cash and cash equivalents--The historical carrying amount approximates
fair value.
Accounts receivable, net--The Company reviewed the specific receivable
balances and determined that their historical carrying amount
approximates their fair value.
Property and equipment, net and other assets--The Company performed an
asset review and determined that the historical carrying amount
approximates fair value.
Intangible assets--In connection with the allocation of the purchase
price to identifiable intangible assets, the Company analyzes the
nature of each group, number of service sites and ability to
recruit additional physicians, the group's relative market
position, the length of time each group has been in existence, and
the term and enforceability of the service agreement. Because the
Company does not practice medicine, maintain patient
relationships, hire physicians, enter into employment and
non-competition agreements with the physicians, or directly
contract with payors, the intangible asset created in the purchase
allocation process is associated solely with the service agreement
with the physician group. The service agreements are for a term of
40 years and cannot be terminated by either party without cause,
consisting primarily of bankruptcy or material default.
The Company believes that there is no material value allocable to
the employment and non-competition agreements entered into between
the physician group and the individual physicians. The primary
economic beneficiary of these agreements is the physician group,
an entity that the Company does not legally control. In addition,
any damages under the agreements are paid solely to the physician
group for purposes of replacing departing physicians. Generally,
due to low expected physician turnover in the industry and the
ability of the physician group to replace departing physicians,
the Company believes there would be no significant economic loss
to either the physician group or the Company due to physician
departure. The physician groups continually recruit physicians
and, as appropriate and necessary, subsequently add qualified
physicians to the group. This manner of operations allows the
physician group to perpetuate itself as individual physicians
retire or are otherwise replaced. The Company believes that the
physician groups with which it has service agreements thus are
long-lived entities with an indeterminable life, and that the
physicians, customer demographics, and various contracts will be
continuously replaced. The service agreement intangible is being
amortized on a straight-line method over a composite average life
of 30 years.
Liabilities assumed--Given the short term nature of the liabilities
assumed, the historical carrying amount approximates their fair
value.
(g) To reflect the notes payable that were paid in full by IMG, Inc. out of
proceeds from the closing, and to eliminate the owner's equity of
Sarasota in connection with the purchase accounting for the
acquisition.
(h) To record the cash paid and obligation for additional purchase
consideration incurred by the Company at closing in exchange all of the
outstanding stock of IMG, Inc. Through the year 2001, the Company has
an obligation to make an annual premium payment for split-dollar life
insurance arrangements covering the physicians.
Pro Forma Consolidated Statement of Operations
The adjustments reflected in the pro forma consolidated statement of operations
for the year ended December 31, 1996 and the six months ended June 30, 1997 are
as follows:
(i) The historical consolidated statement of operations includes the
combined results of operations of the Company and Reno for the year
ended December 31, 1996 and the six months ended June 30, 1997. The
Reno business combination was completed on March 17, 1997, and has been
accounted for as a pooling of interests.
(j) The Prior Transactions column represents the historical revenues and
expenses of the physician groups for that portion of the year preceding
the groups' affiliation with the Company. The Prior Transactions
include Cullman Family Practice, P.C., Family Medical Clinic, P.C.,
Morgan-Haugh, P.S.C., HealthFirst Services, Inc., Tarrant Family
Practice, P.A., King's Daughters Clinic, P.A., which were acquired in
1996 and Naples Medical Center, P.A. and Naples Obstetrics &
Gynecology, M.D., P.A. which were acquired in 1997.
(k) To eliminate the historical amounts retained by physician groups,
physician benefits, other physician-related costs and to record the
amounts retained by physician groups to the percentage specified in the
service agreement (typically 85% of each of the physician group's
operating income) for each affiliated physician group in the Prior
Transactions and Reno. The adjustment is for the periods that the
physician groups were not managed under the service agreements.
(l) To eliminate the salaries of physician extenders at historical levels
in the Prior Transactions for the periods not covered by the service
agreements. The service agreements provide that these costs are for the
account of the physician groups. The adjustment is for the periods the
physician groups were not managed under the service agreements.
(m) To record additional rental expense related to the rental of clinic
space from the physician groups in the Prior Transactions. The
adjustment is for the periods the physician groups were not managed
under the service agreements.
(n) To eliminate the depreciation and amortization expense recorded by the
physician groups in the Prior Transactions at historical values. The
adjustment is for the periods the physician groups were not managed
under the service agreements.
(o) To adjust depreciation expense and amortization expense in the Prior
Transactions. The adjustment for depreciation expense is computed by
dividing total fixed assets acquired by the weighted average life of
the fixed assets acquired (approximately seven years), less
depreciation expense recorded on an historical basis. The adjustment
for amortization expense is computed by dividing total service
agreement rights acquired by a composite average life of 30 years, less
agreement amortization expense recorded on an historical basis. The
adjustments assume the acquired assets were held for the entire period
presented.
(p) To eliminate interest expense related to liabilities not assumed in
connection with the Prior Transactions and record interest on debt
issued in connection with the acquisitions.
(q) To record an estimate of the overall provision for income taxes for the
consolidated operations of the historical results of the Company plus
the Prior Transactions, as adjusted, at an estimated effective rate of
38%.
(r) To reduce interest expense assuming repayment of the Company's Credit
Facility borrowings with a portion of the proceeds of the Offering
received by the Company as of January 1, 1996, net of estimated federal
and state income taxes at a combined rate of 38%.
(s) The Sarasota Acquisition represents the historical combined revenues
and expenses of the IMG, Inc., formerly known as Intercoastal Medical
Group, Inc..
(t) To eliminate the historical amounts retained by the physician group and
record the amounts retained by the physician group based on the
percentage specified in the service agreement entered into with the
physician group.
(u) To eliminate the salaries of physician extenders at historical levels
for the periods not covered by the service agreements. The service
agreements provide that these costs are for the account of the
physician groups.
(v) To eliminate physician benefits and other physician-related costs, such
as club dues and subscriptions, that will not be paid by the Company.
(w) To adjust depreciation expense and amortization expense. The adjustment
for depreciation expense is computed by dividing total fixed assets
acquired by the weighted average life of the fixed assets acquired
(approximately seven years), less depreciation expense recorded on an
historical basis. The adjustment for amortization expense is computed
by dividing total service agreement rights acquired by a composite
average life of 30 years, less agreement amortization expense recorded
on an historical basis. The adjustments assume the acquired assets were
held for the entire period presented.
(x) To eliminate interest expense related to liabilities not assumed and
record interest on debt issued in connection with the acquisition.
(y) To record an estimate of the provision for income taxes for the
Sarasota Acquisition at an estimated rate of 38%.
(z) To eliminate one month of historical income from the 1997 pro forma
consolidated statement of operations to reflect six months of activity
of IMG.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ProMedCo Management Company
By: /s/ Robert D. Smith
Robert D. Smith
Chief Accounting Officer
Dated: December 22, 1997
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated November 19, 1997, included in or made a part of this
ProMedCo Management Company Form 8-K/Amended filing.
ARTHUR ANDERSEN LLP
December 22, 1997
Fort Worth, Texas
