<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(An Amendment to Form 8-K filed on January 14, 1998)
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): December 30, 1997
VISION TWENTY-ONE, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 0-22977 59-3384581
- ---------------------- ---------------- -------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
7209 BRYAN DAIRY ROAD
LARGO, FLORIDA 33777
- ---------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
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 January 14, 1998, and to
file the Company's press release related to the completion of its secondary
public offering of common stock.
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 January 14, 1998, are filed with this
Amendment as follows:
COMBINED FINANCIAL STATEMENTS OF MEC HEALTH CARE, INC. and LSI ACQUISITION
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants....................................................... 3
Combined Balance Sheet as of November 30, 1997........................................................... 4
Combined Statement of Operations for the Eleven-Month Period Ended November 30, 1997..................... 5
Combined Statement of Stockholder's Equity for the Eleven-Month Period ended November 30, 1997........... 6
Combined Statement of Cash Flows for the Eleven-Month Period ended November 30, 1997..................... 7
Notes to Combined Financial Statements................................................................... 8
</TABLE>
2
<PAGE> 3
Report of Independent Certified Public Accountants
Board of Directors
MEC Health Care, Inc. and LSI Acquisition, Inc.
We have audited the accompanying combined balance sheet of MEC Health Care, Inc.
and LSI Acquisition, Inc. (collectively referred to as the Company), as of
November 30, 1997, and the related combined statements of operations,
stockholder's equity, and cash flows for the eleven-month period ended November
30, 1997. These combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position at November
30, 1997 of MEC Health Care, Inc. and LSI Acquisition, Inc. and the combined
results of their operations and their cash flows for the eleven-month period
then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Tampa, Florida
March 5, 1998
3
<PAGE> 4
MEC Health Care, Inc. and LSI Acquisition, Inc.
Combined Balance Sheet
<TABLE>
<CAPTION>
NOVEMBER 30,
1997
--------------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 260,248
Due from NNJEI 491,047
Due from health benefits payors 111,266
Prepaid expenses 21,228
--------------
Total current assets 883,789
Property, equipment and improvements, net 829,727
Intangible assets, net of accumulated amortization of
approximately $86,000 1,515,724
Other assets 165,793
Deferred tax asset 5,000
--------------
Total assets $ 3,400,033
==============
NOVEMBER 30,
1997
--------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 87,417
Accrued compensation 144,780
Due to NNJEI 52,490
Note payable 26,500
Medical claims payable 1,104,662
Income taxes payable 313,000
Current portion of obligations under capital leases 232,095
--------------
Total current liabilities 1,960,944
Obligations under capital leases, net of current portion 463,434
Stockholder's equity :
Common stock, $.001 par value; 51,000 shares authorized;
6,000 shares issued and outstanding 6
Retained earnings 975,649
--------------
Total stockholder's equity 975,655
--------------
Total liabilities and stockholder's equity $ 3,400,033
==============
</TABLE>
See accompanying notes.
4
<PAGE> 5
MEC Health Care, Inc. and LSI Acquisition, Inc.
Combined Statement of Operations
<TABLE>
<CAPTION>
ELEVEN-MONTH PERIOD
NOVEMBER 30, 1997
--------------------
Revenues:
<S> <C>
Managed care $ 7,952,150
Practice management fees 2,920,873
Other revenue 119,954
------------
10,992,977
Operating expenses:
Practice management expenses 2,169,444
Medical claims 6,011,152
Salaries, wages and benefits 953,048
General and administrative 429,176
Management fee paid to Stockholder 292,989
Depreciation and amortization 341,882
------------
10,197,691
------------
Income from operations 795,286
Interest expense 76,600
------------
Income before income taxes 718,686
Income taxes 308,000
------------
Net income $ 410,686
============
</TABLE>
See accompanying notes.
5
<PAGE> 6
MEC Health Care, Inc. and LSI Acquisition, Inc.
Combined Statement of Stockholder's Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 6,000 $ 6 $ 2,552,765 $ 740,203 $ 3,292,974
Net income 410,686 410,686
Capital distribution (2,552,765) (175,240) (2,728,005)
-------------------------------------------------------------------
Balance at November 30, 1997 6,000 $ 6 $ - $ 975,649 $ 975,655
===== ===== =========== ========== ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
MEC Health Care, Inc. and LSI Acquisition, Inc.
Combined Statement of Cash Flows
<TABLE>
<CAPTION>
ELEVEN-MONTH
PERIOD ENDED
NOVEMBER 30,
1997
------------
OPERATING ACTIVITIES
<S> <C>
Net income $ 410,686
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 341,882
Deferred income tax benefit (5,000)
Changes in operating assets and liabilities
Due from NNJEI (121,210)
Due from health benefits payors (111,266)
Prepaid expenses (14,628)
Other assets (150,000)
Accounts payable and accrued expenses 34,105
Accrued compensation 50,193
Medical claims payable 509,951
Due from Stockholder 1,022,165
Due to NNJEI 52,490
Income taxes payable 313,000
-------------
Net cash provided by operating activities 2,332,368
INVESTING ACTIVITIES
Purchases of property, equipment and improvements (54,375)
-------------
Net cash used in investing activities (54,375)
FINANCING ACTIVITIES
Payments on note payable (100,000)
Payments on obligations under capital leases (172,889)
Capital distribution (2,728,005)
-------------
Net cash used in financing activities (3,000,894)
-------------
Decrease in cash and cash equivalents (722,901)
Cash and cash equivalents at beginning of period 983,149
=============
Cash and cash equivalents at end of period 260,248
=============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 78,000
=============
</TABLE>
See accompanying notes.
7
<PAGE> 8
MEC Health Care, Inc. and LSI Acquisition, Inc.
Notes to Combined Financial Statements
November 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
MEC Health Care, Inc. (MEC), a Maryland corporation, is a managed care
organization which contracts with third-party health benefits payors in Maryland
and Virginia to provide eye care services through a network of associated
optometry and ophthalmology practices. The managed care contracts range from one
to five years and are terminable by either party generally on sixty to ninety
days notice. The contracts generally are automatically renewable for a one-year
period. Revenues from two payors constituted approximately 63% of managed care
revenues for the eleven-month period ended November 30, 1997. LSI Acquisition,
Inc. (LSIA), a New Jersey corporation, is a physician practice management
company which provides business management services for Northern New Jersey Eye
Institute, P.A. (NNJEI), a group of eye care professionals. Both MEC and LSIA
operate under common ownership and are hereinafter collectively referred to as
the Company. All significant intercompany transactions have been eliminated. MEC
and LSIA are wholly-owned subsidiaries of LaserSight, Incorporated
(Stockholder).
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 four to thirty-one years. Routine maintenance and repairs are charged to
8
<PAGE> 9
MEC Health Care, Inc. and LSI Acquisition, Inc.
Notes to Combined Financial Statements (continued)
expense as incurred, while costs of betterments and renewals are capitalized
INTANGIBLE ASSETS
Intangible assets consists of the Services Agreement with NNJEI, which is being
amortized on a straight-line method over 25 years.
Amortization expense with respect to intangible assets was approximately $59,000
for the eleven-month period ended November 30, 1997.
OTHER ASSETS
The Company purchased certain patient records and a managed care contract in
1996 and 1997, respectively, for which costs of approximately $166,000 (net of
accumulated amortization of approximately $28,000) are included in other assets
in the combined balance sheet as of November 30, 1997. The costs are being
amortized on a straight-line method over four years. Amortization expense with
respect to other assets was approximately $27,000 for the eleven-month period
ended November 30, 1997.
MEDICAL CLAIMS PAYABLE
In accordance with the capitation contracts entered into with certain health
benefits payors, MEC is responsible for payment of providers' claims. Medical
claims payable represent provider claims reported to MEC and an estimate of
provider claims incurred but not reported (IBNR).
MEC 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 MEC.
Certain medical claims were paid to an officer of MEC. The expense related to
these transactions totaled approximately $285,000 for the eleven-month period
ended November 30, 1997.
9
<PAGE> 10
MEC Health Care, Inc. and LSI Acquisition, Inc.
Notes to Combined Financial Statements (continued)
REVENUE RECOGNITION
Managed Care
Managed care revenues are derived from monthly capitation payments from health
benefits payors which contract with MEC for the delivery of eye care services.
MEC records this revenue on the accrual basis at contractually agreed-upon
rates.
Practice Management Fees
Practice management fees are earned through management of NNJEI under the
Services Agreement. This revenue represents reimbursement of practice
management expenses incurred by LSIA, including depreciation and amortization
expense of approximately $244,000 for the eleven-month period ended
November 30, 1997. In addition, LSIA receives 5% of NNJEI's net practice
revenues and 40% of the net practice earnings before physician related
expenses, as determined under the Services Agreement.
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 notes. Actual results could differ from those
estimates.
10
<PAGE> 11
MEC Health Care, Inc. and LSI Acquisition, Inc.
Notes to Combined Financial Statements (continued)
CONCENTRATIONS OF CREDIT RISK
The Company places cash and cash equivalents with high-quality financial
institutions. At times, the Company maintains cash balances in excess of amounts
insured by the Federal Deposit Insurance Corporation (FDIC).
INCOME TAXES
The Company has applied the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109), which requires an
asset and liability approach for financial accounting and reporting. Deferred
income tax assets and liabilities are determined based upon 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.
2. AFFILIATION WITH NNJEI
Effective July 1, 1996, LSIA acquired substantially all of the assets and
assumed certain liabilities of NNJEI, an ophthalmology practice located in New
Jersey. The acquisition was accounted for by recording the assets and
liabilities at fair value and allocating the remaining cost to the related
Services Agreement. Under the Services Agreement, LSIA provides management,
marketing and administrative services to NNJEI in return for a management fee.
The Services Agreement has a 25-year life and is cancelable only for breach of
its provisions or insolvency. NNJEI employs ophthalmologists and provides all
eye care services to patients.
11
<PAGE> 12
MEC Health Care, Inc. and LSI Acquisition, Inc.
Notes to Combined Financial Statements (continued)
3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following at November 30,
1997:
<TABLE>
<CAPTION>
DESCRIPTION
-----------------------------------------------------------------------
<S> <C>
Equipment held under capital leases $979,170
Office furniture and equipment 250,971
Leasehold improvements 60,908
Vehicles 20,500
-------------
1,311,549
Less accumulated depreciation and amortization (481,822)
=============
$ 829,727
=============
Depreciation and amortization of property, equipment and improvements totaled
approximately $256,000 for the eleven-month period ended November 30, 1997.
Amortization expense related to capital leases is included in depreciation
and amortization in the combined statement of operations.
4. NOTE PAYABLE
Note payable consists of the following as of November 30, 1997:
Non-interest bearing note payable to an individual, due
October 15, 1998. The note is secured by certain equipment
of LSIA. $ 26,500
============
5. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under noncancelable capital leases (with an initial
or remaining term in excess of one year). Future minimum lease commitments are
as follows:
Month ending December 31, 1997 $25,507
Year ending December 31:
1998 306,083
1999 306,083
2000 181,163
2001 4,706
-------------
Total minimum lease payments 823,542
Less amount representing interest (128,013)
-------------
Present value of minimum lease payments
(including current portion of $232,095) $695,529
=============
</TABLE>
12
<PAGE> 13
MEC Health Care, Inc. and LSI Acquisition, Inc.
Notes to Combined Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases its facilities and certain office equipment under
noncancelable operating lease arrangements which expire at various dates, most
with options for renewal. Certain facilities are leased from stockholders of
NNJEI on a year-to-year basis and an officer of MEC through September 2002. As
of November 30, 1997, future minimum lease payments under noncancelable
operating leases with original terms of more than one year are as follows:
<TABLE>
<CAPTION>
<S> <C>
Month ending December 31, 1997 $10,347
Year ending December 31:
1998 222,964
1999 222,964
2000 214,562
2001 204,316
2002 79,137
-----------------
Total $954,290
=================
</TABLE>
Rent expense for the eleven-month period ended November 30,1997 was
approximately $332,000. Rent expense related to locations leased from
stockholders of NNJEI and an officer of MEC was approximately $241,000 during
the eleven-month period ended November 30, 1997.
CONTINGENCY
In October 1997, the Stockholder received a request for mediation/arbitration
from NNJEI which relates to the services agreement between LSIA and NNJEI.
This services agreement was entered into as part of LSIA's July 1996
acquisition of the assets of NNJEI. The request for mediation alleges breach
of contract and fraud which the Stockholder denies and intends to vigorously
defend. The mediation began in mid-November and is continuing. Under the
terms of the services agreement, it will be followed by binding arbitration if
a resolution cannot be reached. The physicians employed by NNJEI have
threatened to discontinue providing professional services effective March 31,
1998. In the opinion of management of LSIA, the resolution of this matter
will not have a material effect on the financial position or results of
operations of LSIA or the Company.
Malpractice
LSIA and NNJEI are insured with respect to medical malpractice risks primarily
on a claims-made basis. Management is not aware of any claims against LSIA or
NNJEI which might have a material impact on LSIA's financial position. Losses
resulting from unreported claims cannot be estimated by management and
therefore, an accrual has not been included in the accompanying combined
financial statements.
13
<PAGE> 14
MEC Health Care, Inc. and LSI Acquisition, Inc.
Notes to Combined Financial Statements (continued)
7. INCOME TAXES
The Company accounts for income taxes under FASB Statement No. 109, "Accounting
for Income Taxes (SFAS 109)". Deferred income tax assets and liabilities are
determined based upon differences between 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.
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
Eleven-Month
Period Ended
November 30, 1997
-----------------
<S> <C>
Current
Federal $ 253,000
State 60,000
Deferred
Federal $ (4,000)
State (1,000)
------------
Total $ 308,000
============
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's net deferred income taxes are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
ASSET (LIABILITY)
-----------------
NOVEMBER 30
-----------------
TEMPORARY DIFFERENCES/CARRYFORWARDS 1997
------------------------------------------------------------------------------------
<S> <C>
Difference between book and tax amortization $5,000
------
Total deferred tax assets 5,000
Other deferred tax liabilities -
Valuation allowance -
-----
Net deferred taxes $5,000
======
</TABLE>
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 a valuation allowance is not warranted at November 30, 1997.
14
<PAGE> 15
MEC Health Care, Inc. and LSI Acquisition, Inc.
Notes to Combined Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
Eleven month period
ended November 30, 1997
-----------------------
<S> <C>
Income tax expense at the
statutory rate $244,000
Permanent differences 25,000
State taxes, net of federal
benefit 39,000
-------------
Income taxes $308,000
=============
</TABLE>
8. SUBSEQUENT EVENT
Effective December 1, 1997, Vision Twenty-One, Inc. (Vision) acquired all of the
outstanding stock of MEC and LSIA for $13.0 million, comprised of cash and
common stock of Vision. The historical combined financial position, results of
operations and cash flows of the Company do not reflect any adjustments
relating to the acquisition.
15
<PAGE> 16
(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 January
14, 1998 is filed with this Amendment as follows:
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<S> <C>
Basis of Presentation........................................................ 16
Unaudited Pro Forma Consolidated Statements of Operations - Year Ended
December 31, 1996....................................................... 17
Unaudited Pro Forma Consolidated Statements of Operations - Nine-Month
Period Ended September 30, 1997........................................ 18
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1997...... 19
Notes to Unaudited Pro Forma Consolidated Combined Financial Information .... 20
</TABLE>
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
"Initial Public Offering"), 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 Company
completed a secondary public offering in November, 1997 (the "Offering") in
order to fund a portion of the cash consideration for the Block Acquisition.
Effective December 1, 1997, the Company acquired all of the issued and
outstanding stock of MEC Health Care, Inc. ("MEC") and LSI Acquisition, Inc.
("LSIA") both of which are collectively referred to herein as the "MEC
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, the Block
Acquisition and the MEC 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 MEC Acquisition, (v) the
Initial Public Offering and the application of the net proceeds therefrom and
(vi) 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 MEC 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 balance sheet of the Company as of September
30, 1997 gives effect to the October Acquisitions, the Block Acquisition, and
the MEC 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, MEC, LSIA
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 MEC 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 MEC 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 Amendment or as previously filed with the
Securities and Exchange Commission.
16
<PAGE> 17
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
COMPANY MEC BLOCK
FOR THE TWELVE-MONTH FOR THE TWELVE-MONTH MEC FOR THE TWELVE-MONTH BLOCK
PERIOD ENDED PERIOD ENDED ACQUISITION PERIOD ENDED ACQUISITION
DECEMBER 31, 1996 DECEMBER 31, 1996 ADJUSTMENT DECEMBER 31, 1996 ADJUSTMENTS
-------------------- --------------------- ------------ -------------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Practice management
fees................... $ 1,942,843 1,725,361
Managed care............. 7,315,196 6,095,008 $12,279,598
Buying group sales....... -- 54,832,374
Other revenue............ 305,654 35,978 26,244
----------- --------- ------------ ----------- -----------
9,563,693 7,856,347 67,138,216 --
Operating expenses:
Practice management
expenses............... 1,244,173 1,232,316
Medical claims........... 9,128,659 4,204,250 8,741,585
Cost of buying group
sales.................. -- 52,084,442
Salaries, wages and
benefits............... 1,889,395 832,855 2,530,611 (90,000)(4)
Business development..... 1,926,895
General and
administrative......... 1,208,678 351,575 2,274,141
Depreciation and
amortization........... 126,046 183,715 (34,000) (16) 556,000 (372,000)(5)
444,000 (16) 1,371,000(5)
----------- ---------- ---------- ----------- -----------
15,523,846 6,804,711 410,000 66,186,779 909,000
Income (loss) from
operations............... (5,960,153) 1,051,636 (410,000) 951,437 (909,000)
Interest expense.......... 159,484 20,734 715,000 (17) 333,074 988,000(11)
----------- ---------- ---------- ----------- -----------
Income (loss) before
income taxes............. (6,119,637) 1,030,902 (1,125,000) 618,363 (1,897,000)
Income tax expense
(benefit)................ -- 339,900 (272,000) (7) 391,194 (356,194)(7)
----------- ---------- ---------- ----------- -----------
Net income (loss)......... $(6,119,637) 691,002 (853,000) $ 227,169 $(1,540,806)
=========== ========== ========== =========== ===========
Net income (loss) per
common share............. $ (1.02)
===========
Weighted average number of
common shares
outstanding.............. 5,979,543
===========
<CAPTION>
1996 AND
1997
ACQUISITIONS PRO FORMA
ADJUSTMENTS CONSOLIDATED
------------ ------------
<S> <C> <C>
Revenues:
Practice management
fees................... $37,538,000(2) $ 41,206,204
Managed care............. 3,492,000(1) 29,181,802
Buying group sales....... 54,832,374
Other revenue............ 3,000(1) 370,876
----------- ------------
41,033,000 125,591,256
Operating expenses:
Practice management
expenses............... 30,504,000(2) 32,980,489
Medical claims........... 2,919,000(1) 24,993,494
Cost of buying group
sales.................. -- 52,084,442
Salaries, wages and
benefits............... 38,000(1) 7,638,861
2,438,000(12)
Business development..... -- 1,926,895
General and
administrative......... 322,000(1) 4,386,394
230,000(12) --
Depreciation and
amortization........... 2,338,000(3) 4,612,761
----------- ------------
38,789,000 128,623,336
Income (loss) from
operations............... 2,244,000 (3,032,080)
Interest expense.......... 204,000(6) 2,420,292
----------- ------------
Income (loss) before
income taxes............. 2,040,000 (5,452,372)
Income tax expense
(benefit)................ (1,536,000)(7) (1,433,100)
----------- ------------
Net income (loss)......... $ 3,576,000 $ (4,019,272)
=========== ============
Net income (loss) per
common share............. $ (0.47)
============
Weighted average number of
common shares
outstanding.............. 8,477,024
============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
17
<PAGE> 18
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
COMPANY MEC BLOCK
FOR THE NINE-MONTH FOR THE NINE-MONTH MEC FOR THE NINE-MONTH BLOCK
PERIOD ENDED PERIOD ENDED ACQUISITION PERIOD ENDED ACQUISITION
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 ADJUSTMENT JULY 31, 1997 ADJUSTMENTS
------------------- ------------------- ---------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Practice management fees..... $19,684,406 2,444,814
Managed care................. 9,307,430 6,227,064 $11,878,000
Buying group revenue......... 40,389,000
Other revenue................ 451,925 67,567 147,000
----------- ----------- ---------- ----------- -----------
29,443,761 8,739,445 52,414,000 --
----------- ----------- ----------- -----------
Operating expenses:
Practice management
expenses................... 15,977,619 1,772,286
Medical claims............... 8,052,709 4,401,191 8,103,000
Cost of buying group sales... 38,360,000
Salaries, wages and
benefits................... 3,405,067 832,667 2,228,000 (68,000)(4)
General and administrative... 1,339,555 264,299 1,770,000
Depreciation and
amortization............... 954,313 255,186 (50,000) (16) 530,000 (297,000)(5)
333,000 (16) 1,028,000 (5)
----------- ----------- --------- ----------- -----------
29,729,263 7,525,629 283,000 50,991,000 663,000
----------- ----------- --------- ----------- -----------
Income (loss) from
operations................... (285,502) 1,213,816 (283,000) 1,423,000 (663,000)
Interest expense.............. 740,777 25,623 552,000 (17) 181,000 847,000 (11)
----------- ----------- --------- ----------- -----------
Income (loss) before income
taxes........................ (1,026,279) 1,188,193 (835,000) 1,242,000 (1,510,000)
Income taxes.................. -- 265,000 (210,000) (7) 601,000 (315,000)(7)
----------- ----------- --------- ----------- -----------
Income (loss) before
extraordinary charge(13)..... $(1,026,279) 923,193 (625,000) $ 641,000 $(1,195,000)
=========== =========== ========= =========== ===========
Income (loss) before
extraordinary charge per
common share(13)............. $ (0.15)
===========
Weighted average number of
common shares outstanding.... 6,670,779
===========
<CAPTION>
1997
ACQUISITIONS PRO FORMA
ADJUSTMENTS CONSOLIDATED
------------ ------------
<S> <C> <C>
Revenues:
Practice management fees..... $11,388,000(2) $33,517,220
Managed care................. 1,461,000(1) 28,873,494
Buying group revenue......... -- 40,389,000
Other revenue................ -- 666,492
----------- -----------
12,849,000 103,446,206
----------- -----------
Operating expenses:
Practice management
expenses................... 9,190,000(2) 26,939,905
Medical claims............... 1,186,000(1) 21,742,900
Cost of buying group sales... -- 38,360,000
Salaries, wages and
benefits................... -- 6,397,734
General and administrative... 104,000(1) 3,477,854
Depreciation and
amortization............... 808,000(3) 3,561,499
--
----------- -----------
11,288,000 100,479,892
----------- -----------
Income (loss) from
operations................... 1,561,000 2,966,314
Interest expense.............. -- 2,346,400
----------- -----------
Income (loss) before income
taxes........................ 1,561,000 619,914
Income taxes.................. 201,000(7) 542,000
----------- -----------
Income (loss) before
extraordinary charge(13)..... $ 1,360,000 $ 77,914
=========== ===========
Income (loss) before
extraordinary charge per
common share(13)............. $ (0.01)
===========
Weighted average number of
common shares outstanding.... 8,477,024
===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
18
<PAGE> 19
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
COMPANY BLOCK
AS OF MEC MEC AS OF
SEPTEMBER 30, AS OF AQUISITION JULY 31,
1997 SEPTEMBER 30, 1997 ADJUSTMENTS 1997
------------- ------------------ ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 2,615,335 531,075 (6,500,000) (15) $ 338,845
(65,000) (17)
74,000 (17)
6,500,000 (17)
Accounts receivable............. 7,471,833 577,951 6,562,298
Other receivables............... 1,321,389 125,209
Prepaid expenses and other
current assets................ 889,941 21,522 56,858
----------- ------------- ------------- -----------
Total current assets...... 12,298,498 1,255,757 9,000 6,958,001
Fixed assets, net................. 3,263,943 848,154 977,787
Intangible assets................. 28,050,825 1,570,459 9,537,795 (15) 5,051,204
Other assets...................... 157,489 1,586,113 258,513
----------- ------------- ------------- -----------
Total assets.............. $43,770,755 $ 5,260,483 9,546,795 $13,245,505
=========== ============= ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 955,998 $ 743,072 $ 6,601,635
Accrued expenses................ 967,261 284,733 487,000 (17) 193,956
Accrued acquisition and offering
costs......................... -- --
Accrued compensation............ 1,317,385 57,388
Due to managed professional
associations.................. 1,814,691
Due to selling shareholders..... 3,800,228
Current portion of long-term
debt.......................... 112,889 3,136
Current portion of obligations
under capital leases.......... 289,742 27,511
Medical claims payable.......... 1,457,866
----------- ------------- ------------- -----------
Total current
liabilities............. 10,716,060 1,088,329 487,000 6,823,102
Deferred rent payable............. 262,376
Obligations under capital
leases.......................... 111,046 695,567 --
Long-term debt, less current
portion......................... 66,264 14,382 6,500,000 (17) 3,124,134
Other long-term liabilities....... 40,211
Deferred income taxes............. 1,716,000
Stockholders' equity:
Common stock.................... 8,591 6 813 (15) 13,638
<6>(14)
Additional paid-in capital...... 40,269,136 1,818,883 (1,818,883)(14) 3,828,365
6,499,187 (15)
74,000 (17)
Deferred compensation........... (435,810)
Accumulated deficit............. (8,942,908) 1,643,316 (1,643,316)(14) (583,945)
(552,000)(17)
----------- ------------- ------------- -----------
Total stockholders'
equity.................. 30,899,009 3,462,205 2,559,795 3,258,058
----------- ------------- ------------- -----------
Total liabilities and
stockholders' equity.... $43,770,755 $ 5,260,483 $ 9,546,795 $13,245,505
=========== ============= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
BLOCK OCTOBER OFFERING PRO FORMA
ACQUISITION ACQUISITION PRO FORMA AND OTHER CONSOLIDATED
ADJUSTMENTS ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AFTER OFFERING
----------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... (750,000) (9) $ (1,792,000)(8) $ 6,345,255 $ (5,615,000)(10) $ 730,255
(426,000)(11)
204,000 (11)
5,615,000 (11)
Accounts receivable............. -- 14,612,082 14,612,082
Other receivables............... -- 1,446,598 1,446,598
Prepaid expenses and other
current assets................ -- 968,321 968,321
----------- ------------ ------------ ------------ ------------
Total current assets...... 4,643,000 (1,792,000) 23,372,256 (5,615,000) 17,757,256
Fixed assets, net................. -- 5,089,884 5,089,884
Intangible assets................. 29,211,942 (9) 3,150,000 (8) 77,162,225 77,162,225
590,000 (8)
Other assets...................... -- 2,002,115 2,002,115
----------- ------------ ------------ ------------ ------------
Total assets.............. $33,854,942 $ 1,948,000 $107,626,480 $ (5,615,000) $102,011,480
=========== ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................
Accrued expenses................ -- $ 8,300,705 $ 8,300,705
Accrued acquisition and offering 421,000 (11) -- 2,353,950 2,353,950
costs......................... -- --
Accrued compensation............ -- 1,374,773 1,374,773
Due to managed professional --
associations.................. 1,814,691 1,814,691
Due to selling shareholders..... -- 29,400,228 --
25,600,000 (9) (25,600,000)(10)
Current portion of long-term
debt.......................... 5,615,000 (11) -- 5,731,025 9,531,253
Current portion of obligations
under capital leases.......... -- 317,253 317,253
Medical claims payable.......... -- 1,457,866 1,457,866
----------- ------------ ------------ ------------ ------------
Total current
liabilities............. 31,636,000 -- 50,750,491 (25,600,000) 25,150,491
Deferred rent payable............. -- 262,376 262,376
Obligations under capital 806,613 806,613
leases.......................... --
Long-term debt, less current 9,704,780 9,704,780
portion......................... --
Other long-term liabilities....... 40,211 40,211
Deferred income taxes............. 590,000(8) 2,306,000 2,306,000
Stockholders' equity:
Common stock.................... (13,638)(14) 101(8) 9,963 2,300 (10) 12,263
458 (9)
Additional paid-in capital...... (3,828,365)(14) 1,357,899(8) 54,523,764 19,982,700 (10) 74,506,464
6,049,542 (9)
70,000 (9)
204,000 (11)
Deferred compensation........... -- (435,810) (435,810)
Accumulated deficit............. 583,945 (14) -- (10,341,908) (10,341,908)
(370,000)(11)
(477,000)(11)
Total stockholders' ----------- ------------ ------------ ------------ ------------
equity.................. 2,218,942 1,358,000 43,756,009 19,985,000 63,741,009
----------- ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity.... $33,854,942 $ 1,948,000 $107,626,480 $ (5,615,000) $102,011,480
=========== ============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
19
<PAGE> 20
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.
20
<PAGE> 21
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
21
<PAGE> 22
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 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 and MEC Acquisition.
(8) 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 expected payment of $1,792,000 in cash and the
issuance of approximately 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
22
<PAGE> 23
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.
(9) 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.
(10) 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 $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.
(11) 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
will require the Company to pay an additional funding fee and will 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 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 interest 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%
(12) 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 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.
(13) Net income (loss) excludes the extraordinary charge for early
extinguishment of debt for $323,346.
(14) Eliminates the equity of Block and MEC.
23
<PAGE> 24
(15) The adjustments reflect the MEC Acquisition which was effective December
1, 1997. The Company delivered 812,500 shares of the Company's Common Stock
valued at $8.00 per share based on the average closing prices of the
Company's Common Stock in the five days before the closing date.
Additionally, the Company paid $6,500,000 in cash to the selling
shareholders. Goodwill was estimated as follows:
<TABLE>
<S> <C> <C>
Value of Company Common Stock $ 6,500,000
Cash paid to selling shareholders 6,500,000
-----------
13,000,000
Recorded net book value of MEC 3,462,205
Less previously recorded goodwill 1,570,459 1,891,746
--------- -----------
Resulting goodwill 11,108,254
Previously recorded goodwill 1,570,459
-----------
Net increase in goodwill $ 9,537,795
===========
</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 adjustment also records the amounts paid to the selling
shareholders of $6,500,000 and the issuance of $6,500,000 in the Company's
Common Stock. 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.
(16) The adjustment removes the goodwill amortization previously recorded by
MEC of $34,000 and $50,000 for the twelve-month period ended December 31, 1996
and nine-month period ended September 30, 1997, respectively, and records the
goodwill amortization of $444,000 and $333,000 for the twelve-month period
ended December 31, 1996 and nine-month period ended September 30, 1997,
respectively, related to the acquisition of MEC by the Company.
24
<PAGE> 25
(17) The adjustments reflect the company's borrowing of $6.5 million on the
bridge loan facility to pay-off the selling shareholders of MEC. To borrow on
the bridge loan, the Company must pay $65,000 in funding fees and issue 26,351
warrants for which the Company will receive $74,000 in cash. Because the 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 $650,000 and $487,000 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
$6.5 million on the bridge loan credit facility at an estimated interest rate
of 10% as if were outstanding for the entire period.
25
<PAGE> 26
(c) Exhibits.
The Exhibits to this Report are listed in the Exhibit Index
set forth elsewhere herein.
26
<PAGE> 27
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,
the Block Acquisition and the MEC 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 MEC Acquisition, (v) the
Initial Public Offering and the application of the net proceeds therefrom and
(vi) 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 MEC 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 balance sheet of the Company as
of September 30, 1997 gives effect to the October Acquisitions, the Block
Acquisition, and the MEC 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 MEC Acquisition
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 MEC 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 MEC 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.
27
<PAGE> 28
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: March 16, 1998
28
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
23 Consent of Ernst & Young LLP
</TABLE>
29
<PAGE> 1
EXHIBITS 23.1
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No.333-38285) pertaining to Vision Twenty-One, Inc. 1996 Stock Incentive
Plan of our report dated March 5, 1998, with respect to the combined financial
statements of MEC Health Care, Inc. and LSI Acquisition, Inc. at
November 30, 1997 and for the eleven-month period then ended, which is included
in the Vision Twenty-One, Inc. Form 8-K/A and filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
Tampa, Florida
March 16, 1998
