<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(An Amendment to Form 8-K filed on September 30, 1997)
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): December 1, 1997
---------------------
VISION TWENTY-ONE, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 0-22977 59-3384581
- ---------------------------------------- -------------------------------- -------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
7209 BRYAN DAIRY ROAD
TAMPA, FLORIDA 33777
- ------------------------------------------------------------------------------ -------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: 813-545-4300
<PAGE> 2
This Form 8-K/A is filed to provide financial statements of
businesses acquired and pro forma financial information related to same
previously omitted from the Company's Form 8-K filed on September 30, 1997, and
to file the Company's press release related to the completion of its secondary
public offering of common stock.
ITEM 5. OTHER MATTERS.
On November 20, 1997, the Company issued a press release announcing
the completion of its secondary public offering of common stock, a copy of
which is filed herewith as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The financial statements of businesses acquired by the
Company which were omitted from the Form 8-K filed on September 30, 1997, are
filed with this Amendment as follows:
<TABLE>
FINANCIAL STATEMENTS OF MANAGED HEALTH SERVICE, INC.
<S> <C>
Report of Independent Certified Public Accounts......................................
Balance Sheets as of December 31, 1996 and August 31, 1997 (Unaudited)...............
Statements of Operations for the Year Ended December 31, 1996 and the
Eight-Month Periods Ended August 31, 1996 and 1997 (Unaudited).....................
Statements of Stockholders' Equity (Deficit) for the Year Ended
December 31, 1996 and the Eight-Month Period Ended August 31, 1997 (Unaudited).....
Statements of Cash Flows for the Year Ended December 31, 1996 and the
Eight-Month Periods Ended August 31, 1996 and 1997 (Unaudited).....................
Notes to Financial Statements........................................................
</TABLE>
2
<PAGE> 3
Report of Independent Certified Public Accountants
Board of Directors
Managed Health Service, Inc.
We have audited the accompanying balance sheet of Managed Health Service, Inc.
as of December 31, 1996, and the related statements of operations,
stockholders' equity (deficit), 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 Managed Health Service, Inc.
at 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.
Tampa, Florida
November 21, 1997
<PAGE> 4
Managed Health Service, Inc.
Balance Sheets
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<CAPTION>
DECEMBER 31 AUGUST 31
1996 1997
-------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ - $ 441,764
-------------------------
Total current assets - 441,764
Property and equipment, net 10,873 12,097
Other assets 5,447 4,925
-------------------------
Total assets $ 16,320 $ 458,786
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft $ 11,120 $ -
Medical claims payable 263,661 454,538
Due to related parties 8,712 2,554
-------------------------
Total current liabilities 283,493 457,092
Stockholders' equity (deficit):
Common stock, $1.00 par value: 7,500 shares authorized,
100 shares issued and outstanding 100 100
Retained earnings (accumulated deficit) (267,273) 1,594
-------------------------
Total stockholders' equity (deficit) (267,173) 1,694
-------------------------
Total liabilities and stockholders' equity (deficit) $ 16,320 $ 458,786
=========================
</TABLE>
See accompanying notes.
<PAGE> 5
Managed Health Service, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED EIGHT-MONTH PERIOD ENDED
DECEMBER 31 AUGUST 31
1996 1996 1997
----------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Managed care revenues $1,688,070 $1,082,327 $1,978,988
Other income 6,661 3,965 3,634
----------------------------------------------
Total revenues 1,694,731 1,086,292 1,982,622
Expenses:
Medical claims 1,178,866 721,778 1,462,132
Management fees to a related party 509,665 161,899 237,529
General and administrative 25,940 7,209 12,422
Depreciation and amortization 6,826 3,688 1,672
----------------------------------------------
Total expenses 1,721,297 894,574 1,713,755
----------------------------------------------
Net income (loss) $ (26,566) $ 191,718 $ 268,867
==============================================
</TABLE>
See accompanying notes.
<PAGE> 6
Managed Health Service, Inc.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK EARNINGS STOCKHOLDERS'
----------------------------- (ACCUMULATED) EQUITY
NUMBER AMOUNT DEFICIT) (DEFICIT)
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 100 $100 $(240,707) $(240,607)
Net loss (26,566) (26,566)
------------------------------------------------------------------------
Balance, December 31, 1996 100 100 (267,273) (267,173)
Net income (Unaudited) 268,867 268,867
------------------------------------------------------------------------
Balance, August 31, 1997
(Unaudited) 100 $100 $ 1,594 $ 1,694
========================================================================
</TABLE>
See accompanying notes.
<PAGE> 7
Managed Health Service, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED EIGHT-MONTH PERIOD ENDED
DECEMBER 31 AUGUST 31
1996 1996 1997
---------------------------------------------
(Unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(26,566) $191,718 $268,867
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,826 3,688 1,672
Changes in operating assets and liabilities:
Accounts receivable 106,146 106,146
Bank overdraft 11,120 (11,120)
Medical claims payable (66,826) (51,917) 190,877
Due to related parties (37,736) 2,502 (6,158)
---------------------------------------------
Net cash provided by (used in) operating activities (7,036) 252,137 444,138
INVESTING ACTIVITIES
Purchases of property and equipment (6,613) -- (2,374)
---------------------------------------------
Net cash used in investing activities (6,613) -- (2,374)
Increase (decrease) in cash (13,649) 252,137 441,764
Cash at beginning of period 13,649 13,649 --
---------------------------------------------
Cash at end of period $ -- $265,786 $441,764
=============================================
</TABLE>
See accompanying notes.
<PAGE> 8
Managed Health Service, Inc.
Notes to Financial Statements
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Managed Health Service, Inc. (the Company), a Florida corporation, is a managed
care organization which contracts with third-party health benefits payors in
the Tampa, Florida area to provide eye care services through a network of
associated optometry and ophthalmology practices and ambulatory surgical
centers. The managed care contracts are for one year terms which automatically
renew and the contracts are terminable by either party on sixty days notice.
Revenues from one payor (Note 3) constituted approximately 70%, 75% and 40% of
managed care revenues for the year ended December 31, 1996 and the eight-month
periods ended August 31, 1996 and 1997 (unaudited), respectively.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements as of August 31, 1997 and for the eight-month
periods ended August 31, 1996 and 1997 do not provide all disclosures included
in the annual financial statements. These interim statements should be read in
conjunction with the annual audited financial statements and the footnotes
thereto. Results for the 1997 interim period are not necessarily indicative of
the results for the year ending December 31, 1997. However, the accompanying
interim financial statements reflect all adjustments which are, in the opinion
of management, of a normal and recurring nature necessary for a fair
presentation of the financial position and results of operations of the
Company.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using the
straight-line method, with the assets' useful lives estimated at three to five
years. Routine maintenance and repairs are charged to expense as incurred,
while costs of betterments and renewals are capitalized.
<PAGE> 9
Managed Health Service, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MANAGED CARE REVENUES
Managed care revenues are derived from monthly capitation payments from health
benefits payors which contract with the Company for the delivery of eye care
services. The Company records this revenue on the accrual basis at
contractually agreed-upon rates.
INCOME TAXES
Effective January 1, 1996, the Company has elected to have its income taxed as
an S corporation for income tax purposes. As a result, in lieu of corporate
income tax, the Company's taxable income is passed through to the stockholders
of the Company and taxed at the individual level. Accordingly, no provision or
liability for income tax has been reflected in the financial statements.
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 amount reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
MANAGEMENT FEES TO A RELATED PARTY
Management fees to a related party were incurred through contractual
arrangements between the Company and an ophthalmology practice under common
control.
MEDICAL CLAIMS PAYABLE
In accordance with the capitation contracts entered into with certain health
benefits payors, the Company is responsible for payment of providers' claims.
Medical claims payable represent provider claims reported to the Company and an
estimate of provider claims incurred but not reported (IBNR).
The Company estimates the amount of IBNR using methodologies based upon the
average interval between the date services are rendered and the date claims are
reported and other factors considered relevant by the Company.
<PAGE> 10
Managed Health Service, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Certain medical claims were paid to an ophthalmology practice under common
control. The expense related to these transactions totaled approximately
$148,000, $72,000 and $87,000 for the year ended December 31, 1996 and the
eight-month periods ended August 31, 1996 and 1997 (unaudited), respectively.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996:
Computer equipment and software $18,312
Less accumulated depreciation and amortization (7,439)
-------
$10,873
=======
3. SUBSEQUENT EVENTS
On September 17, 1997, substantially all assets and liabilities of the Company
were acquired by Vision Twenty-One, Inc. (Vision) in exchange for $435,000 in
cash and contingent consideration of 76,622 shares of Vision common stock and
$395,000 in cash if certain post-acquisition performance targets are met. In
connection therewith, the Company entered into a 40-year service agreement with
Vision, whereby Vision will provide substantially all nonmedical services to
the Company.
The financial statements of the Company have been prepared as supplemental
information about the association to which Vision will provide management
services following consummation of the acquisition. The Company previously
operated as a separate independent association. The historical financial
position, results of operations and cash flows do not reflect any adjustments
relating to the acquisition.
A managed care contract with a third-party health benefits payor was terminated
effective January 1, 1998 (Note 1).
<PAGE> 11
<TABLE>
<CAPTION>
Page
FINANCIAL STATEMENTS OF RETINA ASSOCIATES, SOUTHWEST, P.C. AND
DGL PROPERTIES, INC.
<S> <C>
Report of Independent Certified Public Accountants ....................................
Combined Balance Sheet as of July 31, 1997 ............................................
Combined Statement of Operations for the Year Ended July 31, 1997 .....................
Combined Statement of Stockholders' Equity for the Year Ended July 31, 1997 ...........
Combined Statement of Cash Flows for the Year Ended July 31, 1997 .....................
Notes to Combined Financial Statements ................................................
</TABLE>
<PAGE> 12
Report of Independent Certified Public Accountants
Board of Directors
Retina Associates, Southwest, P.C. and
DGL Properties, Inc.
We have audited the accompanying combined balance sheet of Retina Associates,
Southwest, P.C. and DGL Properties, Inc. (collectively referred to as the
Company), as of July 31, 1997, and the related combined 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 combined financial position at July 31, 1997 of
Retina Associates, Southwest, P.C. and DGL Properties, Inc. and the combined
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Tampa, Florida
October 31, 1997
<PAGE> 13
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Combined Balance Sheet
July 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,806
Patient accounts receivable, net of allowance for uncollectible
accounts of approximately $163,000 303,774
Prepaid expenses 13,710
---------
Total current assets 336,290
Property, equipment and improvements, net 107,289
Deposits and other assets 22,489
---------
Total assets $ 466,068
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,864
Accrued compensation 13,949
Accrued pension contribution 7,310
Deferred rent 20,929
Deferred tax liability 111,286
---------
Total current liabilities 172,338
Deferred tax liability 654
Stockholders' equity:
Common stock, $1 par value: 2,000,000 shares authorized,
17,250 shares issued and outstanding 17,250
Retained earnings 275,826
---------
Total stockholders' equity 293,076
---------
Total liabilities and stockholders' equity $ 466,068
=========
</TABLE>
See accompanying notes.
<PAGE> 14
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Combined Statement of Operations
Year ended July 31, 1997
<TABLE>
<S> <C>
Revenues:
Net patient service revenues $ 2,980,662
Other income 53,444
-------------
Total revenues 3,034,106
Expenses:
Compensation to physician stockholders 1,731,361
Salaries, wages and benefits 563,052
General and administrative 193,312
Building rent 169,218
Professional fees 159,742
Insurance 58,579
Medical supplies 17,267
Advertising 14,261
Depreciation and amortization 32,766
-------------
Total expenses 2,939,558
-------------
Income before income taxes 94,548
Income tax benefit 13,091
-------------
Net income $ 107,639
=============
</TABLE>
See accompanying notes.
<PAGE> 15
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Combined Statement of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------------------- RETAINED STOCKHOLDERS'
NUMBER AMOUNT EARNINGS EQUITY
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, August 1, 1996 17,250 $ 17,250 $ 327,787 $ 345,037
Net income - - 107,639 107,639
Distributions to stockholders - - (159,600) (159,600)
------------------------------------------------------------------------
Balance, July 31, 1997 17,250 $ 17,250 $ 275,826 $ 293,076
========================================================================
</TABLE>
See accompanying notes.
<PAGE> 16
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Combined Statement of Cash Flows
Year ended July 31, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income $ 107,639
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 32,766
Amortization of deferred rent (23,952)
Income tax benefit (13,091)
Changes in operating assets and liabilities:
Patient accounts receivable, net 54,148
Prepaid expenses (2,208)
Accounts payable 10,993
Accrued compensation (7,016)
Accrued pension contribution 7,032
---------
Net cash provided by operating activities 166,311
INVESTING ACTIVITIES
Purchases of property and equipment (14,735)
Decrease in deposits and other assets 7,212
---------
Net cash used in investing activities (7,523)
FINANCING ACTIVITIES
Distributions to stockholders (159,600)
---------
Net cash used in financing activities (159,600)
Decrease in cash and cash equivalents (812)
Cash and cash equivalents at beginning of year 19,618
---------
Cash and cash equivalents at end of year $ 18,806
=========
</TABLE>
See accompanying notes.
<PAGE> 17
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Notes to Combined Financial Statements
July 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Retina Associates, Southwest, P.C. (RAS), an Arizona corporation, operates a
professional medical practice, specializing in general ophthalmology and
surgery. DGL Properties, Inc. (DGL), an Arizona corporation with common
ownership, invests in commercial property. Both corporations operate in Tucson,
Arizona, and surrounding communities in Pima County, and are hereinafter
collectively referred to as the Company. All significant intercompany
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are carried at cost. Depreciation is
computed using the straight-line method, with the assets' useful lives
estimated at five to fifteen years. Routine maintenance and repairs are charged
to expense as incurred, while costs of betterments and renewals are
capitalized.
ADVERTISING COSTS
The Company expenses advertising costs as incurred.
NET PATIENT SERVICE REVENUES
Net patient service revenues are based on established billing rates, less
allowances for contractual adjustments for patients covered by Medicare, the
Arizona Health Care Cost Containment System (AHCCS) and various other discount
arrangements. Payments received under these programs and arrangements, which
are based on predetermined rates, are generally less than the Company's
established billing rates and the differences are recorded as contractual
adjustments at the time the related service is rendered.
<PAGE> 18
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Notes to Combined Financial Statements (continued)
July 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the year ended July 31, 1997, approximately 33% of the Company's net
patient service revenues were derived from the Medicare and AHCCS programs. The
Company does not believe that there are any credit risks associated with
receivables due from governmental agencies. Concentration of credit risk from
other payors is limited by the number of patients and payors. The Company does
not require any form of collateral from its patients or third-party payors.
Laws and regulations governing the Medicare and AHCCS programs are complex and
subject to interpretation. The Company believes that it is in compliance with
all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing. While
no such regulatory inquires have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties and exclusion
from the Medicare and AHCCS programs.
INCOME TAXES
Income taxes for RAS have been provided using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
DGL is taxed under the provisions of Subchapter S of the Internal Revenue Code,
which generally provides that in lieu of corporate taxes, the stockholders
shall be taxed on DGL's taxable income in accordance with their ownership
interests. As a result, the accompanying combined financial statements include
no provision for income taxes for DGL.
USE OF ESTIMATES
The preparation of combined financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the combined financial
statements and accompanying footnotes. Actual results could differ from those
estimates.
<PAGE> 19
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Notes to Combined Financial Statements (continued)
2. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following at July 31, 1997:
Medical equipment $ 482,771
Office furniture and equipment 365,039
Leasehold improvements 18,019
Computer software 21,480
---------
887,309
(780,020)
Less accumulated depreciation and amortization ---------
$ 107,289
=========
3. LEASE COMMITMENTS
Future minimum lease commitments under noncancelable operating leases (with an
initial or remaining term in excess of one year) at July 31, 1997 are as
follows:
Year ending July 31:
1998 $ 174,654
1999 160,720
2000 156,682
2001 162,952
2002 169,474
Thereafter 28,428
---------
Total minimum lease payments $ 852,910
=========
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
<PAGE> 20
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Notes to Combined Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
Significant components of RAS's deferred tax assets and liabilities are as
follows on July 31, 1997:
DEFERRED TAX ASSETS
Noncurrent:
Deferred rent $ 8,549
NOL carryforward 2,453
Other 250
---------
Total deferred tax assets 11,252
DEFERRED TAX LIABILITIES
Current:
Accrual to cash 111,286
Noncurrent:
Depreciation 11,906
---------
Total deferred tax liabilities 123,192
---------
Net deferred tax liability $(111,940)
=========
Components of the income tax benefit consist of the following for the year
ended July 31, 1997:
Current:
Federal $ -
State -
Deferred:
Federal (10,206)
State (2,885)
---------
$ (13,091)
=========
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons
for the year ended July 31, 1997:
Income taxes at the statutory rate $ 32,146
Permanent differences 2,767
S-corporation income (45,809)
State taxes, net of federal benefit (1,903)
Personal service corporation status (292)
--------
$(13,091)
========
<PAGE> 21
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Notes to Combined Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that no valuation allowance at July 31, 1997 is necessary to reduce
the deferred tax assets to the amount that will, more likely than not, be
realized. At July 31, 1997, RAS has available net operating loss carryforwards
of $5,383, which expire in the year 2010.
5. MALPRACTICE INSURANCE
The Company carries claims-made medical malpractice insurance for each of its
physicians. This insurance provides coverage of $2,000,000 per incident, with a
$4,000,000 aggregate annual limit. In addition, the Company has an umbrella
policy which provides coverage of $5,000,000 per claim, with a $5,000,000
annual limit. Management is not aware of any reported claims pending against
the Company. Losses resulting from unreported claims cannot be estimated by
management and, therefore, are not included in the accompanying financial
statements.
6. RETIREMENT PLAN
The Company maintains a profit sharing plan under Section 401(k) of the
Internal Revenue Code. The plan allows employees with one year of service to
defer up to ten percent of their compensation with a matching Company
contribution equal to twenty-five percent of the employees eligible
contributions as defined in the plan document. The Company may also elect to
contribute a discretionary amount on behalf of all eligible employees. Total
Company expense related to the plan was approximately $93,500 for the year
ended July 31, 1997.
7. COMMITMENTS
The Company has an employment agreement with a physician-stockholder which
provides for, among other things, base pay and various insurance coverages.
Additionally, the Company has a deferred compensation agreement with a
physician-stockholder which provides for compensation in the event of voluntary
or involuntary termination. DGL has a stockholder's agreement which requires
the Company to purchase any shares of the Company's stock held by deceased
stockholders from their estate at a purchase price based upon the value of such
stock as set at the last regular meeting of the stockholders prior to the death
of the stockholder.
<PAGE> 22
Retina Associates, Southwest, P.C. and DGL Properties, Inc.
Notes to Combined Financial Statements (continued)
8. SUBSEQUENT EVENT
On September 15, 1997, substantially all assets and liabilities of the Company
were acquired by Vision Twenty-One, Inc. (Vision) in exchange for approximately
219,000 shares of Vision common stock and cash of $1,800,000. In connection
therewith, the Company entered into a 40-year service agreement with Vision,
whereby Vision will provide substantially all nonmedical services to the
Company.
The combined financial statements of the Company have been prepared as
supplemental information about the association to which Vision will provide
management services following consummation of the acquisition. The Company
previously operated as a separate independent association. The historical
financial position, results of operations and cash flows do not reflect any
adjustments relating to the acquisition.
<PAGE> 23
(b) Pro Forma Financial Information
The pro forma financial information required pursuant to Article 11 of
Regulation S-X previously omitted from the Company's Form 8-K filed on September
30, 1997 is incorporated by reference from the Company's Unaudited Pro Forma
Consolidated Financial Information set forth in its 424(b)4 Prospectus filed on
November 20, 1997. A copy of the Unaudited Pro Forma Consolidated Financial
Information is attached hereto as Exhibit 99.2. The financial statement
information of Retina Associates, Southwest, P.C. and DGL Properties, Inc. and
Managed Health Service, Inc. presented in this Form 8/KA, is included in such
Unaudited Pro Forma Consolidated Financial Information in the column designated
as the "1997 Acquisitions."
(c) Exhibits.
The Exhibits to this Report are listed in the Exhibit Index set
forth elsewhere herein.
<PAGE> 24
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.
VISION TWENTY-ONE, INC.
By:/s/ Richard T. Welch
------------------------------
Richard T. Welch
Its: Chief Financial Officer
Dated: December 1, 1997
<PAGE> 25
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
23 Consent of Ernst & Young LLP
99.1 Copy of Press Release of the Company
99.2 Unaudited Pro Forma Consolidated Financial Information from the
Company's Form S-1 Registration Statement No. 333-39031 (424(b)4
Prospectus)
- ---------------------
<PAGE> 1
Exhibit 23
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to Vision Twenty-One, Inc. 1996 Stock Incentive Plan of
our reports as follows in the Prospectus of Vision Twenty-One, Inc. dated
November 20, 1997 for the registration of 2,300,000 shares of its common stock
and with respect to the financial statements included in the Vision Twenty-One,
Inc. Form 8-K/A dated December 1, 1997 and filed with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
REPORT ON FINANCIAL STATEMENTS REPORT DATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Vision Twenty-One, Inc. and Subsidiaries March 22, 1997, except for Note 11, as to
which the date is July 29, 1997
Schedule I--Valuation and Qualifying Accounts July 29, 1997
Gillette, Beiler & Associates, P.A. March 22, 1997
Northwest Eye Specialists, P.L.L.C. January 15, 1997
Cambridge Eye Clinic, P.A.--John W. Lahr, Optometrist, P.A. January 10, 1997
and Eyeglass Express Optical Lab, Inc.
J & R Kennedy, O.D., P.A. and Roseville Opticians, Inc. March 21, 1997
Lindstrom, Samuelson & Hardten Ophthalmology Associates, P.A. January 14, 1997
and Vision Correction Centers, Inc.
Jerald B. Turner, M.D., P.A. February 26, 1997
Eye Institute of Southern Arizona, P.C. January 15, 1997
Optometric Eye Care Centers, Inc. January 17, 1997
Dr. Smith and Associates, P.A., #6950, Dr. Smith and January 17, 1997
Associates, P.A., #6958, and Dr. Smith and Associates,
P.A. #6966
Daniel B. Feller, M.D., P.C., d/a/a Paradise Valley Eye January 17, 1997
Specialists; Eye Specialists of Arizona Network, P.C., and
Sharona Optical, Inc.
Cochise Eye & Laser, P.C. March 28, 1997, except for Note 6, as to
which the date is May 1, 1997
Richard L. Short, D.O., P.A. March 14, 1997, except for Note 12, as to
d/b/a Eye Associates of Pinellas which the date is March 28, 1997
Swagel-Wootton Eye Center, Ltd. and Aztec Optical Limited October 12, 1997
Partnership
Managed Health Service, Inc. November 21, 1997
Retina Associates, Southwest, P.C. and DGL Properties, Inc. October 31, 1997
</TABLE>
/s/ Ernst & Young LLP
Tampa, Florida
December 1, 1997
<PAGE> 1
EXHIBIT 99.1
VISION TWENTY-ONE, INC.
7209 Bryan Dairy Road
Largo, FL 33777
FOR IMMEDIATE RELEASE THEODORE N. GILLETTE, CEO
NOVEMBER 21, 1997 813-545-4300
VISION TWENTY-ONE ANNOUNCES PUBLIC OFFERING
Vision Twenty-One, Inc. (the "Company") (NASDAQ National
Market Symbol: EYES) announced that it has completed a secondary public
offering of 2,300,000 shares of its common stock at a public offering price of
$9.50 per share. The Company has granted the underwriters an over-allotment
option to purchase 345,000 shares of common stock. The net proceeds from the
common stock to be sold by the Company will be used to finance part of the cash
portion of the Block Vision acquisition. The lead managing underwriter for the
offering is Prudential Securities Incorporated and the co-managing underwriter
is Wheat First Butcher Singer.
Vision Twenty-One Inc., is headquartered in Largo, Florida
and provides a wide range of management and administrative services to LADS
(local area delivery systems) established by the Company which are integrated
networks of optometrists, ophthalmologists, ASCs and retail optical centers.
A copy of the prospectus relating to the offering may be
obtained from Prudential Securities Incorporated, 111 Eighth Avenue, 5th Floor,
New York, NY 10011, telephone number (212) 776-8190.
<PAGE> 1
Exhibit 99.2
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
<S> <C>
Basis of Presentation ................................................................
Unaudited Pro Forma Consolidated Statements of Operations-Year Ended
December 31, 1996...................................................................
Pro Forma Statements of Operations-Nine Month Period Ended
September 30, 1997..................................................................
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1997)..............
Notes to Unaudited Pro Forma Combined Financial Information (Unaudited)...............
</TABLE>
<PAGE> 2
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION
Effective December 1, 1996, Vision Twenty-One, Inc. (the "Company")
acquired substantially all of the assets, primarily consisting of accounts
receivable, leases, contracts, equipment and other tangible and intangible
assets (the "business assets"), and assumed certain liabilities of 10
ophthalmology and optometry practices located in Minnesota, Arizona and Florida
(the "1996 Acquisitions"). In conjunction with the 1996 Acquisitions, the
Company entered into various business management agreements (the "Management
Agreements") with the professional associations operating those practices. From
March 1, 1997 to the Company's Initial Public Offering on August 18, 1997, the
Company acquired the business assets of one optometry clinic, 11 ophthalmology
clinics, six optical dispensaries and four ASCs located in Arizona and Florida
(the "Pre IPO Acquisitions"). In conjunction with the Pre IPO Acquisitions, the
Company entered into Management Agreements with the professional associations
operating the practices. In September 1997, the Company closed in escrow the
acquisition of the business assets of four ophthalmology clinics and two optical
dispensaries located in Arizona, Florida and New York and acquired the business
assets of a managed care company (the "September Acquisitions"). In October
1997, the Company closed in escrow one acquisition and entered into an agreement
with respect to another acquisition of the business assets of one optical
dispensary, two ophthalmology clinics and one ASC located in Florida (the
"October Acquisitions"). In conjunction with the September and October
Acquisitions, the Company entered into various Management Agreements with the
professional associations operating those practices. Effective October 31, 1997,
the Company acquired all of the issued and outstanding stock of BBG-COA, Inc.
(the "Block Acquisition"). The Pre IPO Acquisitions, the September Acquisitions
and the October Acquisitions are collectively referred to as the "1997
Acquisitions." Except for the Company's acquisitions of managed care companies
and the Block Acquisition, which were accounted for under the purchase method of
accounting, its acquisitions have been accounted for by recording the assets and
liabilities at fair value and allocating the remaining costs to the related
Management Agreements.
The following unaudited pro forma consolidated financial statements are
based on the historical consolidated financial statements of the Company,
adjusted to give effect to the transactions described below. The unaudited pro
forma consolidated statements of operations of the Company for the year ended
December 31, 1996 give effect to the following transactions as if they had
occurred on January 1, 1996: (i) the 1996 Acquisitions, (ii) the 1997
Acquisitions, (iii) the Block Acquisition, (iv) the Initial Public Offering and
the application of the net proceeds therefrom and (v) the Offering and the
application of the net proceeds therefrom. The unaudited pro forma consolidated
statements of operations of the Company for the nine-month period ended
September 30, 1997 give effect to the following transactions as if they had
occurred on January 1, 1996: (i) the 1997 Acquisitions, (ii) the Block
Acquisition, (iii) the Initial Public Offering and the application of the net
proceeds therefrom and (iv) the Offering and the application of the net proceeds
therefrom. The unaudited pro forma consolidated balance sheet of the Company as
of September 30, 1997 gives effect to the October Acquisitions and the Block
Acquisition at that date and the consummation of the Offering and the
application of the estimated net proceeds therefrom.
The unaudited pro forma consolidated financial statements are based on the
historical financial statements of the Company, Block Vision and the
professional or other entities which owned the business assets which were the
subject of the 1996 and 1997 Acquisitions and give effect to the 1996
Acquisitions, the 1997 Acquisitions, the Block Acquisition, the Initial Public
Offering and the Offering and the assumptions and adjustments described in the
notes thereto. The unaudited pro forma consolidated financial information does
not purport to indicate what the results of operations or financial condition of
the Company would have been if the 1996 and 1997 Acquisitions, the Block
Acquisition, the Initial Public Offering and the Offering had been effected on
the dates indicated or to project the future results of operations or financial
condition of the Company. Such pro forma financial information should be read in
conjunction with the consolidated financial statements of the Company and the
financial statements of the other entities included in this Prospectus.
<PAGE> 3
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
COMPANY BLOCK 1996 AND
FOR THE TWELVE-MONTH FOR THE TWELVE-MONTH BLOCK 1997
PERIOD ENDED PERIOD ENDED ACQUISITION ACQUISITIONS
DECEMBER 31, 1996 DECEMBER 31, 1996 ADJUSTMENTS ADJUSTMENTS
-------------------- -------------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Practice management
fees................... $ 1,942,843 $37,538,000(2)
Managed care............. 7,315,196 $12,279,598 3,492,000(1)
Buying group sales....... 54,832,374
Other revenue............ 305,654 26,244 3,000(1)
----------- ----------- ----------- -----------
9,563,693 67,138,216 -- 41,033,000
Operating expenses:
Practice management
expenses............... 1,244,173 30,504,000(2)
Medical claims........... 9,128,659 8,741,585 2,919,000(1)
Cost of buying group
sales.................. 52,084,442 --
Salaries, wages and
benefits............... 1,889,395 2,530,611 (90,000)(4) 38,000(1)
2,438,000(14)
Business development..... 1,926,895 --
General and
administrative......... 1,208,678 2,274,141 322,000(1)
230,000(14)
Depreciation and
amortization........... 126,046 556,000 (372,000)(5) 2,338,000(3)
1,371,000(5)
----------- ----------- ----------- -----------
15,523,846 66,186,779 909,000 38,789,000
Income (loss) from
operations............... (5,960,153) 951,437 (909,000) 2,244,000
Interest expense.......... 159,484 333,074 988,000(13) 204,000(6)
----------- ----------- ----------- -----------
Income (loss) before
income taxes............. (6,119,637) 618,363 (1,897,000) 2,040,000
Income tax expense
(benefit)................ -- 391,194 (356,194)(8) (1,536,000)(8)
----------- ----------- ----------- -----------
Net income (loss)......... $(6,119,637) $ 227,169 $(1,540,806) $ 3,576,000
=========== =========== =========== ===========
Net income (loss) per
common share............. $ (1.02)
===========
Weighted average number of
common shares
outstanding.............. 5,979,543
===========
<CAPTION>
INITIAL
PUBLIC
OFFERING PRO FORMA
PRO FORMA AND OTHER CONSOLIDATED
CONSOLIDATED ADJUSTMENTS AFTER OFFERING
------------ ----------- --------------
<S> <C> <C> <C>
Revenues:
Practice management
fees................... $ 39,480,843 $ 39,480,843
Managed care............. 23,086,794 23,086,794
Buying group sales....... 54,832,374 54,832,374
Other revenue............ 334,898 334,898
------------ --------- ------------
117,734,909 -- 117,734,909
Operating expenses:
Practice management
expenses............... 31,748,173 31,748,173
Medical claims........... 20,789,244 20,789,244
Cost of buying group
sales.................. 52,084,442 52,084,442
Salaries, wages and
benefits............... 6,806,006 6,806,006
Business development..... 1,926,895 1,926,895
General and
administrative......... 4,034,819 4,034,819
--
Depreciation and
amortization........... 4,019,046 4,019,046
------------ --------- ------------
121,408,625 -- 121,408,625
Income (loss) from
operations............... (3,673,716) -- (3,673,716)
Interest expense.......... 1,684,558 (359,000) 1,743,558
418,000(16)
------------ --------- ------------
Income (loss) before
income taxes............. (5,358,274) (59,000) (5,417,274)
Income tax expense
(benefit)................ (1,501,000) (22,000)(8) (1,523,000)
------------ --------- ------------
Net income (loss)......... $ (3,857,274) $ (37,000) $ (3,894,274)
============ ========= ============
Net income (loss) per
common share............. $ (0.50) $ (0.40)(9)
============ ============
Weighted average number of
common shares
outstanding.............. 7,647,492 9,751,176(9)
============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
<PAGE> 4
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
COMPANY BLOCK
FOR THE NINE-MONTH FOR THE NINE-MONTH BLOCK 1997
PERIOD ENDED PERIOD ENDED ACQUISITION ACQUISITIONS
SEPTEMBER 30, 1997 JULY 31, 1997 ADJUSTMENTS ADJUSTMENTS
------------------ ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Practice management fees.... $19,684,406 $11,388,000(2)
Managed care................ 9,307,430 $11,878,000 1,461,000(1)
Buying group revenue........ 40,389,000 --
Other revenue............... 451,925 147,000 --
----------- ----------- ----------- -----------
29,443,761 52,414,000 -- 12,849,000
----------- ----------- ----------- -----------
Operating expenses:
Practice management
expenses.................. 15,977,619 9,190,000(2)
Medical claims.............. 8,052,709 8,103,000 1,186,000(1)
Cost of buying group
sales..................... 38,360,000 --
Salaries, wages and
benefits.................. 3,405,067 2,228,000 (68,000)(4) --
General and
administrative............ 1,339,555 1,770,000 104,000(1)
Depreciation and
amortization.............. 954,313 530,000 (297,000)(5) 808,000(3)
1,028,000(5) --
----------- ----------- ----------- -----------
29,729,263 50,991,000 663,000 11,288,000
----------- ----------- ----------- -----------
Income (loss) from
operations.................. (285,502) 1,423,000 (663,000) 1,561,000
Interest expense............. 740,777 181,000 847,000(13) --
----------- ----------- ----------- -----------
Income (loss) before income
taxes....................... (1,026,279) 1,242,000 (1,510,000) 1,561,000
Income tax expense
(benefit)................... -- 601,000 (315,000)(8) 201,000(8)
----------- ----------- ----------- -----------
Income (loss) before
extraordinary charge(15).... $(1,026,279) $ 641,000 $(1,195,000) $ 1,360,000
=========== =========== =========== ===========
Income (loss) before
extraordinary charge per
common share(15)............ $ (0.15)
===========
Weighted average number of
common shares outstanding... 6,670,779
===========
<CAPTION>
INITIAL PUBLIC
OFFERING AND PRO FORMA
PRO FORMA OTHER CONSOLIDATED
CONSOLIDATED ADJUSTMENTS AFTER OFFERING
------------ -------------- --------------
<S> <C> <C> <C>
Revenues:
Practice management fees.... $31,072,406 $31,072,406
Managed care................ 22,646,430 22,646,430
Buying group revenue........ 40,389,000 40,389,000
Other revenue............... 598,925 598,925
----------- --------- -----------
94,706,761 94,706,761
----------- --------- -----------
Operating expenses:
Practice management
expenses.................. 25,167,619 25,167,619
Medical claims.............. 17,341,709 17,341,709
Cost of buying group
sales..................... 38,360,000 38,360,000
Salaries, wages and
benefits.................. 5,565,067 5,565,067
General and
administrative............ 3,213,555 3,213,555
Depreciation and
amortization.............. 3,023,313 3,023,313
--
----------- --------- -----------
92,671,263 -- 92,671,263
----------- --------- -----------
Income (loss) from
operations.................. 2,035,498 -- 2,035,498
Interest expense............. 1,768,777 (700,000)(7) 1,391,777
323,000(16)
----------- --------- -----------
Income (loss) before income
taxes....................... 266,721 377,000 643,721
Income tax expense
(benefit)................... 487,000 142,000(8) 629,000
----------- --------- -----------
Income (loss) before
extraordinary charge(15).... $ (220,279) $ 235,000 $ 14,721
=========== ========= ===========
Income (loss) before
extraordinary charge per
common share(15)............ $ (0.03) $ --
=========== ===========
Weighted average number of
common shares outstanding... 7,647,492 9,751,176
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
<PAGE> 5
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
COMPANY BLOCK
AS OF AS OF BLOCK OCTOBER
SEPTEMBER 30, JULY 31, ACQUISITION ACQUISITION
1997 1997 ADJUSTMENTS ADJUSTMENTS
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 2,615,335 $ 338,845 (750,000)(11) $(1,792,000)(10)
(426,000)(13)
204,000(13)
5,615,000(13)
Accounts receivable............. 7,471,833 6,562,298 --
Other receivables............... 1,321,389 --
Prepaid expenses and other
current assets................ 889,941 56,858 --
----------- ----------- ----------- -----------
Total current assets...... 12,298,498 6,958,001 4,643,000 (1,792,000)
Fixed assets, net................. 3,263,943 977,787 --
Intangible assets................. 28,050,825 5,051,204 29,211,942(11) 3,150,000(7)
590,000(7)
Other assets...................... 157,489 258,513 --
----------- ----------- ----------- -----------
Total assets.............. $43,770,755 $13,245,505 $33,854,942 $ 1,948,000
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 955,998 $ 6,601,635 --
Accrued expenses................ 967,261 193,956 421,000(13) --
Accrued acquisition and offering
costs......................... -- --
Accrued compensation............ 1,317,385 --
Due to managed professional
associations.................. 1,814,691 --
Due to selling shareholders..... 3,800,228 25,600,000(11)
Current portion of long-term
debt.......................... 112,889 5,615,000(13) --
Current portion of obligations
under capital leases.......... 289,742 27,511 --
Medical claims payable.......... 1,457,866 --
----------- ----------- ----------- -----------
Total current
liabilities............. 10,716,060 6,823,102 31,636,000 --
Deferred rent payable............. 262,376 --
Obligations under capital
leases.......................... 111,046 -- --
Long-term debt, less current
portion......................... 66,264 3,124,134 --
Other long-term liabilities....... 40,211
Deferred income taxes............. 1,716,000 590,000(10)
Stockholders' equity:
Common stock.................... 8,591 13,638 (13,638)(11) 101(10)
458(11)
Additional paid-in capital...... 40,269,136 3,828,365 (3,828,365)(11) 1,357,899(10)
6,049,542(11)
70,000(11)
204,000(13)
Deferred compensation........... (435,810) --
Accumulated deficit............. (8,942,908) (583,945) 583,945(11) --
(370,000)(13)
(477,000)(13)
----------- ----------- ----------- -----------
Total stockholders'
equity.................. 30,899,009 3,258,058 2,218,942 1,358,000
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity.... $43,770,755 $13,245,505 $33,854,942 $ 1,948,000
=========== =========== =========== ===========
<CAPTION>
OFFERING PRO FORMA
PRO FORMA AND OTHER CONSOLIDATED
CONSOLIDATED ADJUSTMENTS AFTER OFFERING
------------ ------------ --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 5,805,180 $ (5,615,000)(12) $ 195,180
43,000(16)
(38,000)(16)
Accounts receivable............. 14,034,131 14,034,131
Other receivables............... 1,321,389 1,321,389
Prepaid expenses and other
current assets................ 946,799 946,799
------------ ------------ -----------
Total current assets...... 22,107,499 (5,610,000) 16,497,499
Fixed assets, net................. 4,241,730 4,241,730
Intangible assets................. 66,053,971 66,053,971
Other assets...................... 416,002 416,002
------------ ------------ -----------
Total assets.............. $ 92,819,202 $ (5,610,000) $87,209,202
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUI
Current liabilities:
Accounts payable................ $ 7,557,633 $ 7,557,633
Accrued expenses................ 1,582,217 285,000(16) 1,867,217
Accrued acquisition and offering
costs......................... -- --
Accrued compensation............ 1,317,385 1,317,385
Due to managed professional
associations.................. 1,814,691 1,814,691
Due to selling shareholders..... 29,400,228 $ (3,800,228)(12) --
(25,600,000)(12)
Current portion of long-term
debt.......................... 5,727,889 3,800,228(16) 9,528,117
Current portion of obligations
under capital leases.......... 317,253 317,253
Medical claims payable.......... 1,457,866 1,457,866
------------ ------------ -----------
Total current
liabilities............. 49,175,162 (25,315,000) 23,860,162
Deferred rent payable............. 262,376 262,376
Obligations under capital
leases.......................... 111,046 111,046
Long-term debt, less current
portion......................... 3,190,398 3,190,398
Other long-term liabilities....... 40,211 40,211
Deferred income taxes............. 2,306,000 2,306,000
Stockholders' equity:
Common stock.................... 9,150 2,300(12) 11,450
Additional paid-in capital...... 47,950,577 19,982,700(12) 67,976,277
43,000(16)
Deferred compensation........... (435,810) (435,810)
Accumulated deficit............. (9,789,908) (38,000)(16) (10,112,908)
(285,000)(16)
------------ ------------ -----------
Total stockholders'
equity.................. 37,734,009 19,705,000 57,439,009
------------ ------------ -----------
Total liabilities and
stockholders' equity.... $ 92,819,202 $ (5,610,000) $87,209,202
============ ============ ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
<PAGE> 6
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(1) The Company has acquired two managed care businesses -- one on December
1, 1996 (a 1996 Acquisition) and the other on September 1, 1997 (a 1997
Acquisition). These adjustments reflect the pro forma additional managed care
revenue, medical claims, salaries, wages and benefits and general and
administrative expenses that would have been generated by each business if the
1996 Acquisition and the 1997 Acquisition had occurred on January 1, 1996. The
managed care revenue, medical claims, salaries, wages and benefits and general
and administrative expenses for the nine-month period ended September 30, 1996
reflect the pro forma additional amounts that would have been incurred if the
1997 Acquisition had occurred on January 1, 1996.
<TABLE>
<CAPTION>
TWELVE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
12/31/96 9/30/97
------------ ------------
<S> <C> <C>
Revenues:
Managed care.............................................. $3,492,000 $1,461,000
Other..................................................... 3,000 --
---------- ----------
3,495,000 1,461,000
---------- ----------
Expenses:
Medical claims............................................ 2,919,000 1,186,000
Salaries, wages and benefits.............................. 38,000 --
General and administrative................................ 322,000 104,000
---------- ----------
3,279,000 1,290,000
---------- ----------
Net......................................................... $ 216,000 $ 171,000
========== ==========
</TABLE>
(2) The practice management fees and practice management expenses for the
year ended December 31, 1996 reflect the pro forma additional practice
management fee revenue that would have been earned through the management of the
related managed professional entities under the Management Agreements if the
1996 Acquisitions (which were effective on December 1, 1996) and the 1997
Acquisitions had occurred on January 1, 1996, less approximately $479,000 earned
by the Company on a historical basis through a management agreement with managed
professional entities included in the 1996 Acquisitions. The practice management
fees and practice management expenses for the nine-month period ended September
30, 1997 reflect the pro forma additional practice management fee revenue that
would have been earned through the management of the related managed
professional entities under the Management Agreements if the 1997 Acquisitions
had occurred on January 1, 1996. This revenue represents reimbursement of
practice management expenses incurred by the Company, including depreciation of
fixed assets. In addition, the Company receives a percentage (ranging from 24 to
37 percent) of the related managed professional entities net earnings before
interest, taxes and shareholder physician expenses, as determined under the
related Management Agreements.
<PAGE> 7
The following analysis summarizes the adjustments related to practice
management fees:
<TABLE>
<CAPTION>
1996 AND 1997
ACQUISITION ADJUSTMENTS
---------------------------
TWELVE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
12/31/96 9/30/97
------------ ------------
<S> <C> <C>
Practice management fee summary:
Reimbursement of practice management expenses:
Practice management expenses.............................. $30,504,000 $ 9,190,000
Depreciation.............................................. 1,140,000 347,000
----------- -----------
31,644,000 9,537,000
Share of Managed Professional Associations' net earnings.... 6,373,000 1,851,000
----------- -----------
38,017,000 11,388,000
Less management fee earned by the Company through a
management agreement with a Managed Professional
Association for the eleven-month period ended November 30,
1996...................................................... (479,000) --
----------- -----------
Practice management fee revenue............................. $37,538,000 $11,388,000
=========== ===========
</TABLE>
The share of Managed Professional Associations' net earnings was computed
as follows:
<TABLE>
<CAPTION>
TWELVE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
12/31/96 9/30/97
------------ ------------
<S> <C> <C>
Gross practice revenues..................................... $52,887,000 $15,707,000
less defined practice expenses including depreciation..... 31,644,000 9,537,000
----------- -----------
Managed Professional Associations'
net earnings.............................................. $21,243,000 $ 6,170,000
Weighted-average management fee percentage.................. 30% 30%
----------- -----------
Share of Managed Professional Associations'
net earnings.............................................. $ 6,373,000 $ 1,851,000
=========== ===========
</TABLE>
The pro forma adjustments for practice management fees and practice
management expenses are based on the actual results of operations of the
individual practices, as adjusted for the terms of the Management Agreements.
While the Company expects the operations of the practices to improve under its
management, there can be no assurance that operations will not deteriorate.
However, the Company believes this information is the best available objective
information upon which to evaluate the performance of the practices.
(3) Depreciation and amortization reflect depreciation of the related
managed professional entities' fixed assets acquired over their estimated useful
life and amortization of intangible assets over an average life of 25 years:
<TABLE>
<CAPTION>
1996 AND 1997
ACQUISITION ADJUSTMENTS
---------------------------
TWELVE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
12/31/96 9/30/97
------------ ------------
<S> <C> <C>
Fixed assets(a)............................................. $ 1,140,000 $ 347,000
Intangible assets(b)........................................ 1,198,000 461,000
----------- ----------
$ 2,338,000 $ 808,000
=========== ==========
</TABLE>
(a) Depreciation on fixed assets is calculated on a straight-line method
over the estimated useful lives of the various classes of assets, which range
from three to seven years.
(b) Amortization of intangible assets is calculated on a straight-line
method over an average life of 25 years. Included in amortization expense is
$191,000 and $109,000 for the twelve-month period ended
<PAGE> 8
December 31, 1996 and the nine-month period ended September 30, 1997,
respectively, for the addition to intangible assets and corresponding increase
in deferred income taxes for the value of the portion of the Management
Agreements acquired in non-taxable transactions as if they had occurred on
January 1, 1996 and January 1, 1997, respectively.
(4) The adjustment reduces certain salaries of the management of Block by
$90,000 and $68,000 for the twelve-month period ended December 31, 1996 and the
nine-month period ended September 30, 1997, respectively, to levels that will be
paid by the Company.
(5) The adjustment removes the goodwill amortization previously recorded by
Block of $372,000 and $297,000 for the twelve-month period ended December 31,
1996 and the nine-month period ended September 30, 1997, respectively, and
records the goodwill amortization of $1,371,000 and $1,028,000 for the
twelve-month period ended December 31, 1996 and the nine-month period ended
September 30, 1997, respectively, related to the acquisition of Block by the
Company.
(6) The adjustment to interest expense reflects the additional interest on
the notes issued and the debt assumed in conjunction with the 1996 Acquisitions
as if the 1996 Acquisitions occurred on January 1, 1996, as follows:
<TABLE>
<CAPTION>
CARRYING
AMOUNT INTEREST INTEREST
DESCRIPTION 12/31/96 RATE PERIOD EXPENSE
- ----------- ---------- -------- ----------------- --------
<S> <C> <C> <C> <C>
Unsecured notes payable issued to
stockholders of the Managed
Professional Associations on
12/1/96............................ $1,924,959 8.00% 1/1/96 -- 11/30/96 $141,000
Certain notes payable and capital
lease obligations assumed of the
Managed Professional Associations
on 12/1/96......................... 744,481 9.25% 1/1/96 -- 11/30/96 63,000
--------
$204,000
========
</TABLE>
(7) The adjustment reflects the savings on interest expense due to the
repayment of debt with proceeds from the Initial Public Offering.
<TABLE>
<CAPTION>
TWELVE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
12/31/96 9/30/97
------------ ------------
<S> <C> <C>
Unsecured notes payable, 8%................................. $274,000 $275,000
Senior subordinated note, 10%............................... 1,300 114,000
Senior subordinated note, 10%............................... -- 122,000
Certain notes payable and capital lease obligations,
9.25%..................................................... 83,700 --
Credit facilities, 10%...................................... -- 189,000
-------- --------
$359,000 $700,000
======== ========
</TABLE>
(8) The adjustment records the income tax expense (benefit) that would have
been recorded if the transactions had occurred on January 1, 1996. The expense
(benefit) is calculated using an estimated average income tax rate of 38% and
income before income taxes adjusted for the amortization of the non-deductible
goodwill resulting from the Block Acquisition.
(9) To reflect the pro forma net income (loss) per common share assuming an
increase in the weighted average number of outstanding shares that would have
been necessary to repay the selling shareholders of Block $19,985,000,
representing an increase of 2,103,684 shares.
(10) The adjustment reflects the October Acquisitions. The fair value of
the net assets and Management Agreements associated with the October
Acquisitions is expected to approximate $3,150,000. The October Acquisitions
were financed through the payment of $1,792,000 in cash and the issuance of
101,000 shares of the Company's Common Stock, valued at the average closing
prices of the Company's Common Stock five days before and after the closing
dates. The acquisition adjustment assumes the fair value of the net business
assets is immaterial and, accordingly, allocates the entire fair value of
$3,150,000 to intangible assets, principally representing the fair value of the
Management Agreements. The Company has also recorded an
<PAGE> 9
addition to intangible assets of $590,000 with a corresponding increase in
deferred income taxes for the value of the portion of the Management Agreements
acquired in non-taxable transactions.
(11) The adjustments reflect the Block Acquisition which was effective
October 31, 1997. The Company delivered 458,365 shares of the Company's Common
Stock valued at $13.20 per share based on the average closing prices of the
Company's Common Stock in the five days before the closing date. The Company is
obligated to pay $25,600,000 in cash on the earlier of consummation of the
Offering or November 30, 1997. Goodwill was estimated as follows:
<TABLE>
<S> <C> <C>
Value of Company Common Stock............................... $ 6,050,000
Cash to be paid to selling shareholders..................... 25,600,000
Transaction fee paid in cash................................ 750,000
Transaction fee paid in warrants............................ 70,000
-----------
32,470,000
Recorded net book value of Block............................ $3,258,058
Less previously recorded goodwill........................... 5,051,204 (1,793,146)
---------- -----------
Resulting goodwill.......................................... 34,263,146
Previously recorded goodwill................................ 5,051,204
-----------
Net increase in goodwill.......................... $29,211,942
===========
</TABLE>
The Company anticipates that it will amortize the goodwill over a 25 year
life. The Company will continue to evaluate the appropriate value of the assets
and liabilities, the purchase price allocation and the amortization period for
the goodwill. The adjustments also record the amounts due to selling
shareholders of $25,600,000; the issuance of $6,050,000 in the Company Common
Stock; payment of $750,000 in cash and $70,000 in warrants for certain
transaction fees to be incurred in connection with the Block Acquisition; and
the elimination of Block's historical equity accounts. There is no adjustment to
deferred income taxes because the goodwill is non-deductible. If the Company
subsequently determines that there are identifiable intangible assets, the
amortization period for those amounts will be adjusted accordingly and deferred
income taxes will also be recorded, which will increase the amount of goodwill.
(12) The adjustments reflect the Company's intent to sell 2,300,000 shares
of Common Stock in the Offering resulting in net proceeds of $19,985,000. Such
proceeds will be used to repay the selling shareholders of Block of $19,985,000.
Additionally, the selling shareholders of Block will be paid $5,615,000 from
borrowings on the bridge loan credit facility, for a total payment of
$25,600,000 to the selling shareholders of Block.
(13) The adjustments reflect the Company's entering into a bridge loan
credit facility in October 1997 to borrow up to $37.0 million to complete the
acquisition of Block if the Offering is not completed in a timely manner and to
borrow approximately $5.6 million on the bridge loan credit facility to be used
to repay the selling shareholders of Block. To enter into the borrowing
arrangement, the Company paid $370,000 in cash and issued 50,000 warrants for
which it received $140,000 in cash. The terms of the bridge loan credit facility
require the Company to pay an additional funding fee and issue additional
warrants when it draws on the borrowing arrangement. The borrowing of
approximately $5.6 million on the bridge loan credit facility will result in the
Company's paying a funding fee of $56,000 and issuing 22,764 in additional
warrants for which the Company will receive $64,000 in cash. Because the cash
fees paid are not refundable, they are recognized as an expense in the unaudited
pro forma consolidated statement of operations for the year ended December 31,
1996 and the nine-month period ended September 30, 1997. The adjustment also
reflects the additional interest expense of $562,000 and $421,000 for the year
ended December 31, 1996 and the nine-month period ended September 30, 1997,
respectively, that would have been incurred from the borrowing of approximately
$5.6 million on the bridge loan credit facility at an estimated interest rate of
10.0%.
(14) The adjustment increases the salaries, wages and benefits for the year
ended December 31, 1996 by $2,438,000 and general and administrative expenses
for the year ended December 31, 1996 by $230,000 to the level incurred in the
first six months of 1997 to reflect the expense of the additional infrastructure
needed to
<PAGE> 10
manage the 1996 Acquisitions and the 1997 Acquisitions. The adjusted salaries,
wages and benefits and general and administrative expenses for the year ended
December 31, 1996 equal the annualized expenses incurred through June 30, 1997
for the same activities.
(15) Net income (loss) excludes the extraordinary charge for early
extinguishment of debt for $323,346.
(16) The adjustment reflects the borrowing of approximately $3.8 million on
the bridge loan credit facility to be used to repay the September acquisitions'
selling shareholders. The borrowing of approximately $3.8 million on the bridge
loan credit facility will result in the Company paying a funding fee of $38,000
and issuing 15,418 in additional warrants for which the Company will receive
$43,000 in cash. Because the cash fee paid is not refundable, it is recognized
as an expense in the unaudited pro forma consolidated statement of operations
for the year ended December 31, 1996 and the nine-month period ended September
30, 1997. The adjustment also reflects the additional interest expense of
$380,000 and $285,000 for the year ended December 31, 1996 and the nine-month
period ended September 30, 1997, respectively, that would have been incurred
from the borrowing of approximately $3.8 million on the bridge loan credit
facility at an estimated interest rate of 10.0%.
