<PAGE>
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: April 30, 1996
VIVRA INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-10261 94-3096645
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Id. No.)
incorporation)
400 Primrose, Suite 200, Burlingame, California 94010
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 348-8200
Page 1
<PAGE>
Item 5. Other Events.
------------
The Registrant has completed a number of unrelated acquisitions from
December 1, 1995 through April 30, 1996 and intends to acquire, on or about
May 1, 1996, Brennan, Martell and Mirmelli, M.D.'s, P.A. and Allergy &
Asthma Institute of South Florida, P.A., Kidney Centers of Charleston,
Inc., and Lancaster Kidney Center, Inc., Monroe Dialysis Center, Inc.,
Mecklenburg Dialysis Center, Inc. and Charlotte Artificial Kidney Clinic,
Inc. (collectively the To Be Acquired Businesses ). The Registrant
includes herewith pro forma financial information giving effect to the
Registrant's unrelated acquisitions through April 30, 1996 and the To Be
Acquired Businesses for the fiscal year ended November 30, 1995 and the six
months ended February 29, 1996.
The Registrant also includes herewith audited financial statements of
a substantial majority of the businesses acquired and to be acquired by the
Registrant through April 30, 1996 since November 30, 1995 (including the To
Be Acquired Businesses).
Item 7. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements of Businesses Acquired or To Be Acquired.
99.1 Audited Financial Statements of Greater Miami Dialysis Centers,
Inc. for the year ended December 31, 1995.
99.2 Audited Financial Statements of Greater Miami Dialysis Centers,
Inc. for the year ended December 31, 1995.
99.3 Audited Financial Statements of Brennan, Martell and
Mirmelli, M.D.'s, P.A. and Allergy & Asthma Institute of South
Florida, P.A. for the year ended February 29, 1996.
99.4 Audited Financial Statements of Charlotte Artificial Kidney
Clinic, Inc. for the year ended December 31, 1995.
99.5 Audited Financial Statements of Mecklenburg Dialysis Center,
Inc. for the year ended December 31, 1995.
99.6 Audited Financial Statements of Monroe Dialysis Center, Inc.
for the year ended December 31, 1995.
99.7 Audited Financial Statements of Lancaster Kidney Center, Inc. for
the year ended December 31, 1995.
Page 2
<PAGE>
(b) Pro forma financial information of the Registrant.
For the Year Ended November 30, 1995
- ------------------------------------
(in thousands, except per share amounts)
Actual As Adjusted(1)
-------- -----------
Revenues, net $355,647 $401,571
Costs and Expenses 293,483 334,462
-------- -----------
Pre-Tax Income 62,164 67,109
Income Taxes(2) 24,224 26,151
-------- -----------
Net Income $ 37,940 $ 40,958
======== ===========
Earnings per Share $1.08 $1.11
For the Quarter Ended February 29, 1996
- ---------------------------------------
(in thousands, except per share amounts)
Actual As Adjusted(1)
-------- -----------
Revenues, net $104,469 $114,931
Costs and Expenses 86,669 95,962
-------- -----------
Pre-Tax Income 17,800 18,969
Income Taxes(3) 6,726 7,168
-------- -----------
Net Income $ 11,074 $ 11,801
======== ===========
Earnings per Share $0.30 $0.31
(1) Adjusted to give effect to a number of unrelated acquisitions by the
Registrant and its subsidiaries, none of which individually was material.
(2) Assumes a tax rate of 39.0%.
(3) Assumes a tax rate of 37.8%.
(c) Exhibits.
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Pratt-Thomas, Gumb & Co., P.A.
23.3 Consent of Arthur Andersen LLP
23.4 Consent of T. Scott Brumley, CPA
Page 3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: April 30, 1996
VIVRA INCORPORATED
By /s/ LEANNE M. ZUMWALT
------------------------------------------
Leanne M. Zumwalt
Executive Vice President
Page 4
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement No.
33-85736 on Form S-4 dated April 25, 1996; No. 33-60513 on Form S-8 dated July
23, 1995; No. 33-98246 on Form S-8 dated August 17, 1994; and No. 33-80030 on
Form S-3 dated June 20, 1994 of our report dated April 22, 1996 with respect to
the financial statements of Greater Miami Dialysis Centers, Inc. for the year
ended December 31, 1995, included in the Current Report on Form 8-K of Vivra,
Incorporated, dated April 30, 1996, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Los Angeles, California
April 29, 1996
<PAGE>
[Pratt-Thomas, Gumb & Co., P.A. Letterhead]
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements of
Vivra Incorporated on Post-Effective Amendment No. 2 to Form S-4 (File No.
33-85736) dated April 25, 1996, Form S-8 (File No. 33-60513) dated June 23,
1995, Form S-8 (File No. 33-98246) dated August 17, 1994, and Amendment No. 1 to
Form S-3 (File No. 33-80030) dated June 20, 1994, of our report dated April 17,
1996, on our audit of the financial statements of Kidney Centers of Charleston,
Inc. as of and for the year ended December 31, 1995 included in the Form 8-K of
Vivra Incorporated filed with the Securities and Exchange Commission.
Pratt-Thomas, Gumb & Co., P.A.
Charleston, SC
April 24, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in the Registration Statement of Vivra Incorporated
on Post-Effective Amendment No. 2 to Form S-4 (File No. 33-85736) dated April
25, 1996, Form S-8 (File No. 33-60513) dated June 23, 1995, Form S-8 (File No.
33-98246) dated August 17, 1994, and Amendment No. 1 to Form S-3 (File No.
33-80030) dated June 20, 1994, of our report dated April 26, 1996, covering our
audit of the combined financial statements of Brennan, Martell and Mirmelli,
M.D.'s, P.A. and Allergy & Asthma Institute of South Florida, P.A. as of and for
the year ended February 29, 1996 included in the Form 8-K of Vivra Incorporated
filed with the Securities and Exchange Commission.
Arthur Andersen LLP
Miami, Florida,
April 26, 1996
<PAGE>
[T. Scott Brumley, CPA Letterhead]
April 22, 1996
Vivra Incorporated
1440 Chapin St., Ste. 300
Burligame Ca 94010
We consent to the incorporation by reference in the Registration Statements
of Vivra Incorporated on Post-Effective Amendment No. 2 to form S-4 (File No.
33-85736) dated April 25, 1996, Form S-8 (File No. 33-60513) dated June
23,1995, Form S-8 (File No.33-98246) dated August 17,1994, and Amendment No. 1
to Form S-3 (File No. 33-80030) dated June 20, 1994 of our report dated April
22, 1996, on our audit of the financial statements of Mecklenburg Dialysis
Center, Inc., Charlotte Artificial Kidney Clinic, Inc., Monroe Dialysis Center,
Inc., and Lancaster Kidney Center, Inc. as of and for the year ended December
31, 1995 included in the form 8-K of Vivra Incorporated Filed with the Securites
Exchange Commission.
Sincerely,
T. Scott Brumley, CPA
Charlotte, North Carolina
April 24, 1996
<PAGE>
EXHIBIT 99.1
Financial Statements
Greater Miami Dialysis Centers, Inc.
YEAR ENDED DECEMBER 31, 1995
WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
Greater Miami Dialysis Centers, Inc.
Financial Statements
Year ended December 31, 1995
CONTENTS
Report of Independent Certified Public Accountants . . . 1
Financial Statements
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Income . . . . . . . . . . . . . . . . . . . 3
Statement of Stockholder's Equity . . . . . . . . . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . 6
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Greater Miami Dialysis Centers, Inc.
We have audited the accompanying balance sheet of Greater Miami Dialysis
Centers, Inc. as of December 31, 1995, and the related statements of income,
stockholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Greater Miami Dialysis Centers,
Inc. at December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
April 22, 1996
Miami, Florida
<PAGE>
Greater Miami Dialysis Centers, Inc.
Balance Sheet
December 31, 1995
<TABLE>
<S> <C>
ASSETS $ 357,507
Current assets:
Cash
Accounts receivable, net of allowance for doubtful accounts of $435,000 929,699
Inventories 80,273
Prepaid expenses 2,468
-----------
Total current assets 1,369,947
Property and equipment, net 669,818
-----------
$2,039,765
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 514,959
Accrued compensation and other liabilities 408,175
Current maturities of long-term debt to related parties 83,868
-----------
Total current liabilities 1,007,002
Long-term debt due to related parties -- exclusive of current maturities 379,305
Stockholder's equity:
Common stock, par value $1 per share; 100 shares authorized, issued and
outstanding 100
Additional paid-in capital 293,900
Retained earnings 359,458
-----------
Total stockholder's equity 653,458
-----------
$2,039,765
===========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Greater Miami Dialysis Centers, Inc.
Statement of Income
Year ended December 31, 1995
Revenues:
Net patient service revenue $5,371,173
Other 79,791
-----------
Total revenues 5,450,964
Costs and expenses:
Professional care of patients 3,037,820
General and administrative 1,085,666
Management fee to sole stockholder 300,000
Provision for uncollectible amounts 238,030
Depreciation 109,134
Interest to related parties 23,668
-----------
Total costs and expenses 4,793,718
-----------
Net income $ 657,246
===========
SEE ACCOMPANYING NOTES.
<PAGE>
Greater Miami Dialysis Centers, Inc.
Statement of Stockholder's Equity
Year ended December 31, 1995
<TABLE>
<CAPTION>
Additional
Par Paid-In Retained
Shares Value Capital Earnings Total
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 100 $100 $293,900 $ 222,212 $ 516,212
Distributions to stockholder -- -- -- (520,000) (520,000)
Net income -- -- -- 657,246 657,246
----------------------------------------------------
Balance at December 31, 1995 100 $100 $293,900 $ 359,458 $ 653,458
====================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Greater Miami Dialysis Centers, Inc.
Statement of Cash Flows
Year ended December 31, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income $ 657,246
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 109,134
Provision for uncollectible amounts 238,030
Changes in assets and liabilities:
Accounts receivable (622,031)
Inventories 28,815
Prepaid expenses (1,031)
Accounts payable 286,026
Accrued compensation and other liabilities 93,274
-----------
Net cash provided by operating activities 789,463
INVESTING ACTIVITIES
Purchases of property and equipment (552,540)
-----------
Net cash used in investing activities (522,540)
FINANCING ACTIVITIES
Borrowings from related parties 483,000
Repayment of borrowings from related parties (19,827)
Distributions to stockholder (520,000)
-----------
Net cash used in financing activities (56,827)
-----------
Increase in cash 180,096
Cash at beginning of year 177,411
-----------
Cash at end of year $ 357,507
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 16,720
===========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Greater Miami Dialysis Centers, Inc.
Notes to Financial Statements
Year ended December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Greater Miami Dialysis Centers, Inc., a Florida corporation (the "Company"), was
incorporated on August 27, 1987. The Company operates two outpatient dialysis
centers in South Florida, providing hemodialysis and ambulatory peritoneal
dialysis for patients with kidney disease.
On March 22, 1996 the sole stockholder sold all of the outstanding stock of the
Company to Vivra Incorporated, the second largest provider of dialysis treatment
in the United States.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories consist of medical drugs and supplies, and are stated at the lower
of cost or market, with cost determined on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Depreciation of property and equipment is computed on the straight-line method
based on the assets' estimated useful lives of 5 to 10 years.
Property and equipment as of December 31, 1995 consisted of the following:
Furniture and fixtures $ 158,929
Equipment 648,823
Leasehold improvements 306,879
------------
1,114,631
Less accumulated depreciation (444,813)
------------
$ 669,818
============
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET PATIENT SERVICE REVENUE
Net patient service revenue includes amounts for services reimbursable by
Medicare, Medicaid, and other third party payers under reimbursement formulas in
effect. Net patient service revenue is recorded net of any related contractual
allowances. Medicare and Medicaid provided approximately 68% of the Company's
net patient service revenue in fiscal 1995. The balance of revenues,
approximately 32%, was from insurance, private and other third-party payers.
INCOME TAXES
The Company has elected to have its income taxed as an S corporation under the
Internal Revenue Code. As a result, in lieu of corporate income tax, the
Company's taxable income is passed through to the stockholder of the Company and
taxed at the individual level. Accordingly, no provision or liability for
federal 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.
2. LONG-TERM DEBT TO RELATED PARTIES
Long-term debt to related parties consists of $463,173 due to the sole
stockholder and related corporations and individuals. The notes are unsecured,
bear interest at 9% per annum and are due in quarterly payments of $30,691
through August 2000.
Maturity of the notes as of December 31, 1995 is as follows: 1996 - $83,868;
1997 - $91,674; 1998 - $100,212; 1999 - $107,633 and 2000 - $79,786.
<PAGE>
3. RELATED PARTY TRANSACTIONS
In addition to the long-term debt to related parties, the Company had the
following transactions with related parties during the year ended December 31,
1995:
- A management fee of $300,000 was paid to a limited partnership in which
the sole stockholder is the general partner.
- Included in general and administrative expense is a license fee of $7,000
paid to a corporation controlled by the sole stockholder.
- Included in professional care of patients are medical director fees of
$126,676. The medical directors are partners in a professional medical
practice in which the sole stockholder is also a partner. The medical
directors' have contracts with the Company which provide for monthly
payments of $14,700 through October 2002.
4. COMMITMENTS
The Company leases office space under operating leases through the year 2000.
Total rent expense was $113,354 for the year ended December 31, 1995.
Future minimum lease payments under operating leases are $155,000 for each of
the five years subsequent to December 31, 1995.
5. MALPRACTICE INSURANCE
The Company carries occurrence based malpractice insurance which provides
coverage for all malpractice claims. This insurance provides coverage of
$1,000,000 per incident, with a $3,000,000 aggregate annual limit.
6. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
It is not practicable to estimate the fair value of the Company's long-term debt
to related parties.
<PAGE>
7. RETIREMENT PLAN
The Company maintains an employee savings and profit sharing plan under Section
401(k) of the Federal Internal Revenue Code. The plan covers substantially all
employees. Under the plan, employees may elect to exclude up to 15% of their
compensation from amounts subject to income tax as a salary deferral
contribution.
The Company has made discretionary matching contribution equal to 3% of employee
contributions. The Company's expense for matching contributions to the plan was
approximately $17,000 for the year ended December 31, 1995. The Company did not
make any discretionary profit-sharing contributions to the plan during the year
ended December 31, 1995.
<PAGE>
KIDNEY CENTERS OF CHARLESTON, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
WITH INDEPENDENT AUDITORS' REPORT
<PAGE>
[Pratt-Thomas, Gumb & Co., P.A. Letterhead]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Kidney Centers of Charleston, Inc.
Charleston, South Carolina
We have audited the accompanying balance sheet of Kidney Centers of Charleston,
Inc. (a South Carolina S Corporation) as of December 31, 1995, and the related
statements of income and retained earnings 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kidney Centers of Charleston,
Inc. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Pratt-Thomas, Gumb & Co., P.A.
April 17, 1996
<PAGE>
KIDNEY CENTERS OF CHARLESTON, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
ASSETS
------
<S> <C>
CURRENT ASSETS
- --------------
Cash $ 429,856
Accounts receivable, net of allowance
for uncollectible accounts of
$396,965 1,380,090
Inventory 166,269
Other current assets 375
----------
Total Current Assets 1,976,590
PROPERTY AND EQUIPMENT, NET 716,815
- --------------------------- ----------
Total Assets $ 2,693,405
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable $ 114,635
Accrued payroll 39,319
Accrued vacation 168,165
Accrued sales taxes 1,722
Other current liabilities 8,498
Notes payable, current portion 300,012
----------
Total Current Liabilities 632,351
NOTES PAYABLE, LONG-TERM PORTION 350,841
- -------------------------------- ----------
Total Liabilities 983,192
----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, $100 par value
1,000 shares authorized,
3 shares issued and
outstanding 300
Retained earnings 1,709,913
----------
Total Stockholders' Equity 1,710,213
----------
Total Liabilities and
Stockholders' Equity $ 2,693,405
==========
</TABLE>
SEE INDEPENDENT AUDITORS' REPORT AND
ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
<PAGE>
KIDNEY CENTERS OF CHARLESTON, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUE
- -------
Net patient service revenue $ 7,198,944
----------
EXPENSES
- --------
Operating expenses $ 5,080,041
Bad debt expense 455,615
Depreciation 128,757
Rent 223,636
Interest 40,659
----------
Total Expenses 5,928,708
----------
Net Income from Operations 1,270,236
OTHER INCOME 19,546
- ------------ ----------
Net Income 1,289,782
Retained earnings, beginning of year 1,250,859
Distribution to shareholders (830,728)
----------
Retained earnings, end of year $ 1,709,913
==========
</TABLE>
SEE INDEPENDENT AUDITORS' REPORT AND
ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
<PAGE>
KIDNEYS CENTERS OF CHARLESTON, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income $ 1,289,782
Adjustments to reconcile to net
cash provided by operating activities:
Depreciation 128,757
Decrease (Increase) in:
Accounts receivable (288,513)
Inventory (27,656)
Other current assets 175
Increase (Decrease) in:
Accounts payable (47,534)
Accrued payroll 13,192
Accrued vacation 35,788
Accrued sales taxes (3,163)
Other current liabilities 6,277
----------
Net Cash Provided by Operating Activities 1,107,105
----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchases of property and equipment (350,487)
----------
Net Cash Used by Investing Activities (350,487)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Principal reduction on notes payable (109,593)
Repayment of loans from stockholders (519,272)
Distribution to stockholders (830,728)
Proceeds from borrowings 613,350
----------
Net Cash Used by Financing Activities (846,243)
----------
Net decrease in cash (89,625)
Cash, beginning of year 519,481
----------
Cash, end of year $ 429,856
==========
SUPPLEMENTAL DISCLOSURES OF CASH
- ---------------------------------
FLOW INFORMATION:
-----------------
Interest paid $ 40,659
Income taxes paid -
==========
</TABLE>
SEE INDEPENDENT AUDITORS' REPORT AND
ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
<PAGE>
KIDNEY CENTERS OF CHARLESTON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CORPORATE ORGANIZATION
----------------------
Kidney Centers of Charleston, Inc. (the Company) was incorporated under the
laws of South Carolina on December 29, 1993. The Company provides dialysis
and other medical services to individuals with kidney disease.
ACCOUNTING METHOD
-----------------
The company maintains its books on the accrual basis of accounting.
Revenues are recognized when services are rendered and expenses realized
when the obligation is incurred.
NET PATIENT SERVICE REVENUE
---------------------------
Net patient service revenue represents the estimated net realizable amounts
from patients, third-party payers, and others for services rendered.
INCOME TAXES
------------
The shareholders of the Company have elected "S" corporation status under
the Internal Revenue Code. Instead of corporation income taxes, the
shareholders of an S Corporation are taxed on their proportionate share of
the Company's taxable income. Therefore, no provision for or benefits from
income taxes have been included in these financial statements.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets as
determined by Medicare guidelines.
ACCRUED VACATION
----------------
It is the Company's policy to allow employees to accumulate unused vacation
and sick time. The Company has accrued for this liability and included it
in the financial statements based on the employee's hourly wage rate.
CASH AND CASH EQUIVALENTS
-------------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
INVENTORY
---------
Inventory is comprised of dialysis supplies and medications and is stated at
the lower of actual cost or market value.
<PAGE>
KIDNEY CENTERS OF CHARLESTON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- Continued
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
------------------------------------
During the year, the Company writes off uncollectible accounts directly
against the outstanding accounts receivable balance. At year end,
management specifically reviews accounts receivable for uncollectible
amounts and provides an allowance. Bad debt expense of $455,615 represents
both specific write offs and allowances for uncollectible accounts
receivable balances.
ESTIMATES
---------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from these estimates.
2. REVENUE FROM CONTRACTING AGENCIES
The Company has agreements with third-party payors that provide for payments
at amounts which generally differ from its established rates. A summary of
the payment arrangements with major third-party payors follows:
a.) MEDICARE - Inpatient services rendered to Medicaid program beneficiaries
are paid at prospectively determined rates per discharge. These rates
vary according to a patient classification system that is based on
clinical, diagnostic, and other factors. Inpatient nonacute services
and certain outpatient services are paid based upon a cost reimbursement
methodology. The Company is reimbursed for cost reimbursable items at a
tentative rate with final settlement determined after submission of
annual cost reports by the Company and audits thereof by the Medicare
fiscal intermediary.
B.) MEDICAID - Inpatient services rendered to Medicaid program beneficiaries
are paid at prospectively determined rates per discharge. These rates
vary according to a patient classification system that is based on
clinical, diagnostic, and other factors. Inpatient nonacute
services, certain outpatient services, and defined capital costs related
to Medicaid beneficiaries are paid based on cost or customary charges
subject to maximums established by the Medicaid program. The Company is
reimbursed at a tentative rate with final settlement determined by the
program based on the Company's final Medicaid cost report.
2
<PAGE>
KIDNEY CENTERS OF CHARLESTON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
2. REVENUE FROM CONTRACTING AGENCIES - Continued
C.) OTHER PAYORS - The Company also entered into payment agreements
with certain commercial insurance carriers and health maintenance
organizations. The basis for payment to the Company under these
agreements is established charges.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 consists of the following:
Leasehold improvements $ 132,779
Furniture and non-medical equipment 259,683
Medical dialysis equipment 1,192,666
----------
Total 1,585,128
Less accumulated depreciation (868,313)
----------
Net property and equipment 716,815
==========
Depreciation expense for the year ended December 31, 1995 totaled $128,757.
4. NOTES PAYABLE
Notes payable consists of the following at December 31, 1995:
Unsecured Line of Credit due May 1,
1996 or on demand. Interest at
prime + 1/2%. $ 150,000
Note payable secured by medical equipment,
due July 1, 1997. Interest at prime + 1/2%.
Payments of $4,584 plus interest due monthly. 80,438
Note payable secured by medical
equipment, due May 1, 2000.
Interest at prime + 1/2%. Payments
of $5,000 plus interest due monthly. 260,000
3
<PAGE>
KIDNEY CENTERS OF CHARLESTON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
4. DEBT - Continued
Note payable secured by equipment,
due August 1, 2000. Interest at
prime + 1/2%. Payments of $2,917
plus interest due monthly. 160,415
---------
Subtotal 650,853
Less, current portion 300,012
---------
$ 350,841
---------
Scheduled repayments on notes payable are as follows:
1996 $ 300,012
1997 120,434
1998 95,004
1999 95,004
2000 40,399
Thereafter -
---------
$ 650,853
=========
5. RELATED PARTY TRANSACTIONS
The following entities are related parties of the Kidney Centers of
Charleston, Inc:
Charleston Nephrology - The owners of the Kidney Centers of Charleston, Inc.
own 75% of Charleston Nephrology, a medical practice.
Westpark Associates - Westpark Associates owns real property in the
Charleston area including three of the Kidney Centers of Charleston, Inc's
offices and other property. The owned dialysis centers include the
Charleston site, Trident site and Moncks Corner site. Kidney Centers of
Charleston, Inc. rents these building from Westpark. Westpark Associates is
owned by the same three doctors who own the Kidney Centers of Charleston,
Inc. The lease for the Charleston site is a ten year operating lease which
expires May 31, 2000. The annual rent expense is $82,500. The leases are
renewed annually for the Trident and Moncks Corner locations as no formal
lease agreements exist.
The following related party transactions occurred during the year:
The Company paid Westpark Associates a total of $155,303 in rent payments
for the lease of the three office locations.
4
<PAGE>
KIDNEY CENTERS OF CHARLESTON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
5. RELATED PARTY TRANSACTIONS - Continued
The Company periodically transfers dialysis supplies inventory to Charleston
Dialysis Association which is owned by the stockholders of the Company and
which operates an acute dialysis hospital based facility. The supplies are
sold to the Charleston Dialysis Association at cost. During 1995, the
Company received $44,792 from Charleston Dialysis Association for such
transfers.
6. LEASES
In addition to the related party leases mentioned in Note 5, the Company
leases its other office location from an unrelated party. The lease term is
for five years and provides for rental payments based on rentable square
footage. Total rental payments amounted to $73,563 for the year ended
December 31, 1995.
Minimum future lease payments as of December 31, 1995 are summarized as
follows:
1996 $ 162,751
1997 162,751
1998 162,751
1999 89,188
2000 34,375
Thereafter -
--------
$ 611,816
========
7. MALPRACTICE INSURANCE
The Company's practicing physicians/board members carry occurrence basis
malpractice insurance which provides coverage for all malpractice claims
arising in Kidney Centers of Charleston, Inc. The primary coverage is
limited to $100,000 per incident and $300,000 in the aggregate. In
addition, the Company carries liability insurance for any excess of
scheduled primary insurance coverages. This coverage is limited to
$1,000,000 per incident and $1,000,000 in the aggregate.
5
<PAGE>
KIDNEY CENTERS OF CHARLESTON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
8. CASH BALANCE IN EXCESS OF FDIC LIMIT
The Company maintains cash balances primarily with one financial
institution. The amount on deposit with this bank at December 31, 1995
exceeded the federally insured limit of $100,000.
9. SUBSEQUENT EVENT
On February 20, 1995, the stockholders of the Company agreed to the
principal terms and conditions of a proposed exchange of all of the
outstanding stock of Kidney Centers of Charleston, Inc. for common stock of
VIVRA, Incorporated, a Delaware corporation. The stockholders of the
Company will be issued shares of VIVRA, Incorporated common stock
representing a value of $18,000,000. The anticipated transaction closing
date is May 1, 1996 and the average per share pricing of the VIVRA,
Incorporated common stock is based on such date. The stockholders of the
Kidney Centers of Charleston, Inc. will each enter into a medical director
agreement for a term of not less than 10 years. The terms of the agreement
call for the physician stockholders to be compensated an annual fee totaling
$85,000 each for the first year. In addition, the director agreement
includes as additional compensation options to purchase a total of 15,000
shares each of VIVRA common stock at the transaction closing date share
price. These options are vested equally over a three year period. The
medical director agreement will be renegotiated after the initial year but
will not be less than a total of $85,000 each annually. In
addition, VIVRA will enter into a new real estate lease with the stockholders
of the Company for the real estate described in Note 5.
6
<PAGE>
EXHIBIT 99.3
BRENNAN, MARTELL AND MIRMELLI, M.D.'S, P.A.
-------------------------------------------
AND
---
ALLERGY & ASTHMA INSTITUTE OF SOUTH FLORIDA, P.A.
-------------------------------------------------
COMBINED FINANCIAL STATEMENTS AS OF FEBRUARY 29, 1996
-----------------------------------------------------
TOGETHER WITH
-------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Stockholders of Brennan, Martell and Mirmelli, M.D.'s, P.A.
and Allergy & Asthma Institute of South Florida, P.A.:
We have audited the accompanying combined balance sheet of Brennan, Martell and
Mirmelli, M.D.'s, P.A. (a Florida Corporation) and Allergy & Asthma Institute of
South Florida, P.A. (a Florida Corporation) (collectively the "Companies") as of
February 29, 1996 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 Companies' 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 of Brennan, Martell and
Mirmelli, M.D.'s, P.A. and Allergy & Asthma Institute of South Florida, P.A. as
of February 29, 1996, and the combined results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 26, 1996.
<PAGE>
BRENNAN, MARTELL AND MIRMELLI, M.D.'S, P.A.
-------------------------------------------
AND
---
ALLERGY & ASTHMA INSTITUTE OF SOUTH FLORIDA, P.A.
-------------------------------------------------
COMBINED BALANCE SHEET
----------------------
FEBRUARY 29, 1996
-----------------
<TABLE>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $96,135
Accounts receivable, net of allowance of $16,865 1,273,743
Inventories 42,000
Prepaid expenses 10,258
---------
Total current assets 1,422,136
---------
PROPERTY AND EQUIPMENT, net 362,267
---------
OTHER ASSETS:
Deposits 18,297
Intangibles, net of accumulated amortization of $542,467 122,504
Other 5,404
---------
146,205
---------
Total assets $1,930,608
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $277,554
Current portion of long-term debt 219,115
Deferred income taxes 259,000
----------
Total current liabilities 755,669
----------
LONG-TERM DEBT, net of current portion 149,504
----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock-
Brennan, Martell and Mirmelli, M.D.'s, P.A., $.10 par value,
6,000 shares authorized, 600 issued and outstanding
Allergy & Asthma Institute of South Florida, P.A., $1.00 par
value, 10,000 shares authorized, 1,200 issued and 600
outstanding 1,260
Additional paid-in capital 8,991
Treasury stock, 600 shares of Allergy & Asthma Institute of
South Florida, P.A., common stock, at cost (35,000)
Retained earnings 1,050,184
---------
Total stockholders' equity 1,025,435
---------
Total liabilities and stockholders' equity $1,930,608
==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this statement.
<PAGE>
BRENNAN, MARTELL AND MIRMELLI, M.D.'S, P.A.
-------------------------------------------
AND
---
ALLERGY & ASTHMA INSTITUTE OF SOUTH FLORIDA, P.A.
-------------------------------------------------
COMBINED STATEMENT OF OPERATIONS
--------------------------------
FOR THE YEAR ENDED FEBRUARY 29, 1996
------------------------------------
NET PATIENT REVENUE $8,155,598
----------
OPERATING COSTS AND EXPENSES:
Salaries and benefits 5,384,427
General and administrative 1,942,766
Depreciation and amortization 316,379
---------
Total operating costs and
expenses 7,643,572
---------
Operating income 512,026
OTHER EXPENSE (24,220)
---------
Income before income taxes 487,806
BENEFIT FOR INCOME TAXES 24,000
---------
Net income $511,806
=========
The accompanying notes to combined financial statements are an integral part of
this statement.
<PAGE>
BRENNAN, MARTELL AND MIRMELLI, M.D.'S, P.A.
-------------------------------------------
AND
---
ALLERGY & ASTHMA INSTITUTE OF SOUTH FLORIDA, P.A.
-------------------------------------------------
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------
FOR THE YEAR ENDED FEBRUARY 29, 1996
------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Treasury Retained Stockholders'
Stock Capital Stock Earnings Equity
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1995 $ 1,260 $ 8,991 $ (35,000) $ 828,378 $ 803,629
Distribution to stockholders - - - (290,000) (290,000)
Net income - - - 511,806 511,806
-------- ------- --------- ---------- ---------
Balance at February 29, 1996 $ 1,260 $ 8,991 $ (35,000) $1,050,184 $1,025,435
======== ======= ========= ========== ==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this statement.
<PAGE>
BRENNAN, MARTELL AND MIRMELLI, M.D.'S, P.A.
-------------------------------------------
AND
---
ALLERGY & ASTHMA INSTITUTE OF SOUTH FLORIDA, P.A.
-------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
--------------------------------
FOR THE YEAR ENDED FEBRUARY 29, 1996
------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 511,806
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 316,379
Deferred tax benefit (24,000)
Changes in assets and liabilities:
Accounts receivable (68,484)
Prepaid expenses (1,139)
Other assets (5,445)
Accounts payable and accrued expenses 62,533
----------
Total adjustments 279,844
----------
Net cash provided by operating
activities 791,650
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (143,871)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (357,738)
Distributions to stockholders (290,000)
----------
Net cash used in financing activities (647,738)
----------
Net increase in cash and cash equivalents 41
CASH AND CASH EQUIVALENTS, beginning of year 96,094
----------
CASH AND CASH EQUIVALENTS, end of year $ 96,135
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 42,907
==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this statement.
<PAGE>
BRENNAN, MARTELL AND MIRMELLI, M.D.'S, P.A.
-------------------------------------------
AND
---
ALLERGY & ASTHMA INSTITUTE OF SOUTH FLORIDA, P.A.
-------------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
FEBRUARY 29, 1996
-----------------
(1) OPERATIONS:
- ---------------
The combined financial statements include the accounts of Brennan, Martell and
Mirmelli, M.D.'s, P.A. ("BMM") and Allergy & Asthma Institute of South Florida,
P.A. ("A&A"), collectively referred to as the "Companies". All significant
intercompany accounts and transactions have been eliminated in combination.
The Companies are engaged in the business of providing allergy and asthma
treatment. The Companies have nine offices throughout Dade and Broward
Counties.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- -----------------------------------------------
(a) Cash and Cash Equivalents-
------------------------------
The Companies consider highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. At February 29,
1996, cash and cash equivalents include interest-bearing accounts of $27,276.
(b) Inventories-
----------------
Inventories consist primarily of serum and diluents used in operations and are
carried at the lower of cost on a first-
in, first-out (FIFO) basis, or market.
(c) Property and Equipment-
---------------------------
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets.
(d) Intangibles-
----------------
Intangibles primarily represent covenants not-to-compete entered into with
various physicians. Such amounts are amortized over the life of the covenants
which range from 24 to 45 months. Amortization expense amounted to $222,500 for
the year ended February 29, 1996.
(e) Income Taxes-
-----------------
A&A is a S Corporation under provisions of the Internal Revenue Code. Under
these provisions, taxable income or loss of A&A is reflected by the stockholders
on their individual tax returns.
<PAGE>
2
BMM is a C Corporation and accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires that deferred income taxes be recognized for the tax consequences in
future years of differences between the tax basis of assets and liabilities and
their financial reporting basis at rates based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected to
affect taxable income.
(f) Charity Care-
-----------------
The Companies have a policy of providing charity care to patients who are unable
to pay. Such patients are identified and related charges are estimated, based
on financial information obtained from the patient and subsequent analysis.
Since management does not expect payment for charity care, the estimated charges
are excluded from net patient revenue.
(g) Use of Estimates -
---------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(h) Fair Value of Financial Instruments-
----------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments, requires disclosure of the fair value of certain
financial instruments. The carrying amounts of cash and cash equivalents,
accounts receivable, other assets, accounts payable and accrued expenses, and
debt, are reflected in the accompanying combined financial statements at cost
which approximates fair value.
(3) PROPERTY AND EQUIPMENT:
- --------------------------
Property and equipment consists of the following at February 29, 1996:
<TABLE>
<CAPTION>
Useful Lives Amount
------------- ---------
<S> <C> <C>
Furniture, fixtures and equipment 5 - 7 years $ 685,387
Leasehold improvements Life of lease 187,909
---------
873,296
Less- accumulated depreciation (511,029)
---------
$ 362,267
=========
</TABLE>
At February 29, 1996, the net book value of property and equipment under capital
lease obligations was approximately $45,000.
<PAGE>
3
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
- ------------------------------------------
Accounts payable and accrued expenses consist of the following at February 29,
1996:
Accounts payable $ 49,721
Salaries and benefits 142,357
Insurance reserves (see Note 7) 76,000
Other 9,476
---------
$ 277,554
=========
(5) LONG-TERM DEBT:
- -------------------
Long-term debt consists of the following at February 29, 1996:
Note payable, bearing interest at 6% of
remaining balance, payable in quarterly
installments of $25,000 through December
1996 $ 100,000
Note payable to bank, bearing interest at
9.5%, payable in monthly installments of
$4,493 through September 1997 78,153
Note payable, bearing no interest, payable
in monthly installments of $6,000 through
May 1998 140,829
Obligations under capital leases for
purchases of office equipment, discounted
at 9.2%, payable in monthly installments of
$1,127 through August 2000 49,637
---------
368,619
Less- current portion (219,115)
---------
$ 149,504
=========
Following is a summary of maturities of long-term debt:
1997 $ 219,115
1998 107,197
1999 23,498
2000 12,309
2001 6,500
---------
$ 368,619
=========
The Companies have a $200,000 line of credit which bears interest at prime plus
1.5%. At February 29, 1996, no amounts were outstanding under the line.
<PAGE>
4
(6) INCOME TAXES:
- ----------------
The benefit for income taxes consists of the following at February 29, 1996:
Current provision $ -
Deferred benefit (24,000)
---------
$ (24,000)
=========
Federal $ (21,000)
State (3,000)
---------
$ (24,000)
=========
At February 29, 1996, deferred income taxes primarily relate to differences
arising from BMM utilizing cash basis accounting for income tax reporting
purposes and accrual basis for financial statement purposes as follows:
Asset (Liability)
----------------
Book/tax differences in recording accounts receivable $ (422,000)
Book/tax differences in recording prepaid expenses (4,000)
Book/tax differences in recording accounts payable
and accrued expenses 98,000
Net operating loss carryforward 69,000
-----------
Deferred income taxes $ (259,000)
===========
Had A&A been a C Corporation during the year ended February 29, 1996, the pro
forma tax provision would have been approximately $177,000.
(7) COMMITMENTS AND CONTINGENCIES:
- ---------------------------------
(a) Employment Agreement-
------------------------
The Companies have employment agreements with nonstockholder physicians which
automatically renew each year. The maximum annual obligation under these
agreements is approximately $470,400.
(b) Insurance-
-------------
The Companies maintain insurance coverage for its professional malpractice
claims. Such insurance provides for coverage to the extent individual claims do
not exceed $500,000 per incident and $1,000,000 in the aggregate per year.
Due to the nature of their business, the Companies from time to time become
involved as defendants in medical malpractice lawsuits and are subject to the
attendant risk of substantial damage awards. The Companies maintain
professional and general liability insurance on a claims-made basis in amounts
deemed appropriate by management, based upon historical claims and the nature
and risks of their business. There can be no assurance, however, that an
existing or future claim or claims will not exceed the limits of available
insurance coverage, that any insurer will remain solvent and able to meet its
obligations to provide coverage for any such claim or claims or that such
coverage will continue to be available or available with sufficient limits and
at a reasonable cost to adequately and economically insure
<PAGE>
5
the Companies' operations in the future. A judgment against the Companies in
excess of such coverage could have a material adverse effect on the Companies.
(c) Lease Commitments-
---------------------
The Companies lease medical office facilities under various operating leases.
Rental expense under operating leases was approximately $358,000 for the year
ended February 29, 1996.
Future annual minimum payments under operating leases are as follows:
Year Amount
---- ------
1997 $ 342,675
1998 267,372
1999 233,455
2000 208,451
2001 160,021
Thereafter 379,095
----------
Total $1,591,069
(d) Healthcare Legislation-
---------------------------
National healthcare-related legislation has and is expected to continue to be
introduced in the U.S. Congress and the State of Florida Legislature. Such
legislation may address, among other things, benefits provided, insurance
coverage and provider reimbursement. It is possible that such legislation could
result in the largest reductions in Medicare and Medicaid spending over the next
several years that have ever been experienced.
At this time, it is not possible to determine the impact on the Companies of any
national or state health care-related legislation that might be enacted.
However, any spending reductions in healthcare coverage or services would likely
have an adverse impact on operating results and cash flows. Should such
spending reductions be imposed, management believes it can make changes to the
Companies' cost structure to reduce the adverse impact. However, there is no
assurance that such changes will be sufficient.
(8) SUBSEQUENT EVENT:
- ---------------------
Subsequent to year-end, the Companies signed a letter of intent to exchange all
outstanding stock of the Companies for common stock of Vivra, Incorporated (a
Delaware Corporation) with a value of $14,000,000. It is anticipated that the
exchange will qualify for pooling of interest accounting. The closing date is
scheduled for May 1, 1996.
<PAGE>
CHARLOTTE ARTIFICIAL KIDNEY CLINIC, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
CHARLOTTE ARTIFICIAL KIDNEY CLINIC, INC.
AUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
-----------------
PAGE #
1 Accountant's Report
2-3 Balance Sheet
4 Statement of Loss and Retained Earnings
5 Statement of Cash Flows
6-8 Notes to Financial Statements
<PAGE>
[T. Scott Brumley, CPA Letterhead]
April 22, 1996
Board of Directors
Charlotte Artificial Kidney Center, Inc.
Charlotte N.C. 28208
We have audited the accompanying balance sheet of Charlotte Artificial Kidney
Center, Inc. (a North Carolina Corporation) as of December 31, 1995, and the
related statements of income, retained earnings, 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
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 in the first paragraph
present fairly, in all material respects, the financial position of Charlotte
Artificial Kidney Center, Inc., as of December 31, 1995, and the results of its
operations and cash flows for the period then ended in conformity with generally
accepted accounting principles.
Sincerely,
T. Scott Brumley, CPA
<PAGE>
CHARLOTTE ARTIFICIAL KIDNEY CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Petty cash $ 100
Cash CMA (572)
Patient accounts receivable - net of
allowance for doubtful accounts of
$22,495 46,621
Advances to related clinic 50,000
Inventory 20,839
----------
TOTAL CURRENT ASSETS $ 116,988
FIXED ASSETS
Dialysis machines 198,294
Other medical equipment 68,764
Office equipment 14,189
Furniture 7,800
Leasehold improvements 45,291
----------
334,338
Less accumulated depreciation (245,028)
----------
NET FIXED ASSETS 89,310
---------
TOTAL ASSETS $ 206,298
=========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PAGE 2
<PAGE>
CHARLOTTE ARTIFICIAL KIDNEY CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 62,598
Wages payable 6,088
Employee retirement withheld and accrued 768
Loan - Shareholders 2,529
-----
TOTAL CURRENT LIABILITIES $ 71,983
---------
TOTAL LIABILITIES 71,983
STOCKHOLDERS' EQUITY
Common Stock $1 par value 100,000
shares authorized, 1,000 shares issued
and outstanding 1,000
Additional paid in capital 59,436
Retained earnings 73,879
------
TOTAL STOCKHOLDERS' EQUITY 134,315
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 206,298
=========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 3
<PAGE>
CHARLOTTE ARTIFICIAL KIDNEY CENTER, INC.
STATEMENT OF LOSS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUE:
Service Income $ 485,107
TOTAL REVENUE 485,107
--------
EXPENSES:
Medical supplies and services 258,760
Payroll expenses 136,116
Facility rent 32,935
Facility expense 26,348
General and administrative 26,892
Property taxes 2,203
Insurance general 5,906
Depreciation expense 9,740
Loss on disposal of assets 105
Repairs and maintenance 10,508
----------
TOTAL EXPENSE 509,513
----------
NET LOSS (24,406)
Retained Deficit, Beginning of Year 101,898
Distributions to Stockholders (3,613)
---------
RETAINED DEFICIT, END OF YEAR $ 73,879
=========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 4
<PAGE>
CHARLOTTE ARTIFICIAL KIDNEY CENTER, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
NET LOSS $ (24,406)
----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,740
Loss on disposal of property 105
(Insrease) decrease in current assets:
Patient receivables 4,087
Inventory (10,476)
Increase (decrease) in current liabilities:
Accounts payable 37,337
Accrued wages payable 2,104
Employee retirement withheld and accrued (4,476)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 14,015
---------
Cash flows from investing activities:
Acquisition of property and equipment (8,642)
-------
NET CASH USED IN INVESTING ACTIVITIES (8,642)
-------
Cash flows from financing activities:
Distributions to stockholders (3,613)
Loan payments - shareholders (13,301)
Payments to related clincs (50,000)
Payments from related clinics 33,010
NET CASH USED IN FINANCING ACTIVITIES (33,904)
----------
NET (DECREASE) IN CASH (28,531)
Cash, Beginning of Year 28,059
----------
CASH, END OF YEAR $ (472)
==========
</TABLE>
Taxes Paid $ -
Interest Paid $ -
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 5
<PAGE>
CHARLOTTE ARTIFICIAL KIDNEY CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PLOICIES
------------------------------------------
Charlotte Artificial Kidney Center, Inc. accounting policies confirm to
generally accepted accounting principles applicable to health care
providers of health care service. The accompanying financial statements
have been prepared on the accrual basis of accounting; revenues are
recognized when earned; and, expenses are recorded when the liability is
incurred.
NATURE OF ORGANIZATION
Charlotte Artificial Kidney Center, Inc. is a for profit organization,
operated to provide kidney dialysis for patients located in and near by
Charlotte, NC. The clinics patient base is maintained from referrals
from area hospitals and doctors.
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third party payors, and others for services
rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Retroactive
adjustments are accrued on an estimated basis in the period the related
services are rendered and adjusted in the future periods as final
settlements are determined.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by using the first-in, first-out method. Inventories at
December 31, 1995 were predominately made up of medical supplies.
PROPERTY AND EQUIPMENT
Property and equipment acquisitions are recorded at cost. Depreciation
is provided over the estimated useful life of each class of depreciable
asset and is computed on the straight-line method. The principal
estimated useful lives are: leasehold improvements, 10 to 25 years;
dialysis machines, 5 years; medical equipment 5 to 10 years; office
equipment, 5 to 10 years; furniture, 5 to 15 years. For tax purposes
assets are being depreciated using an accelerated method over there
estimated useful lives.
INCOME TAXES
The company has elected by the consent of its shareholders to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under
such election, the Company's federal and state taxable income or loss
are passed through to the individual shareholders. Therefore, no
provision or liability for income tax has been included in these
financial statements.
(continued)
See accountants' audit report
Page 6
<PAGE>
CHARLOTTE ARTIFICIAL KIDNEY CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
SUMMARY OF SIGNIFICANT ACCOUNTING PLOICIES (continued)
------------------------------------------------------
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. There were no cash equivalents as of
December 31, 1995.
NOTE 2- NET PATIENT SERVICE REVENUE
---------------------------
Medicare - a majority of the dialysis patients receive Medicare benefits
under a special End Stage Renal Disease (ESRD) program or by meeting age
requirements. Medicare reimburses all dialysis providers on a composite
rate plan that varies by geographical region. The composite rate allowed
by Medicare for treatments provided the Company for 1995 was $119.26 of
which Medicare paid 80%. The remaining 20% was usually covered by
secondary insurance or Medicaid for those patients with Medicaid
coverage.
Medicaid - For patients with no other insurance coverage including
Medicare and with limited incomes, Medicaid becomes the primary source
of reimbursement for dialysis treatments. When primary, Medicaid pays
100% of the approved Medicare composite rate ($119.26). As noted above,
Medicaid pays the remaining 20% for those patients with both Medicare
and Medicaid.
Commercial Insurance - Commercial insurance companies are primary source
of payment for approximately 14% of the company's patients. Commercial
insurance is currently billed at $425 per treatment with companies
paying varying percentages of the charge, depending upon negotiated
terms or the patients individual policy.
Patient Responsibility - In most circumstances, the patient is
responsible for the balance due after all the above sources have paid,
and are usually billed on a monthly basis. Many patients are indigent
and unable to pay. A large portion of the patient responsibility is
uncollectable.
NOTE 3- CONTINGENCIES
-------------
A sales tax audit was done on the Company in the fall of 1995. The audit
covered the period form January 1, 1990 through September 31, 1995. A
dispute arose as to the taxability of certain prescription drugs. The
outcome of this audit is still pending, and legal council advises that
the maximum liability will be $11,722.
(continued)
See accountants' audit report
Page 7
<PAGE>
CHARLOTTE ARTIFICIAL KIDNEY CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
NOTE 4- EMPLOYEE BENEFIT PLANS
----------------------
The Company sponsors a 401(k) Profit Sharing Plan (the "401(k) Plan")
under section 401(k) of the Internal Revenue Code. This plan covers all
employees who have been with the Company six months and work a minimum
1,000 hours. For year ended December 31, 1995 the Company matched 50
cents for each dollar of employee deferral, with the Company
contributions not to exceed 6% of the employees salary, subject to the
limitations imposed by the Internal Revenue Service. The Company's
contribution to the 401(k) Plan totaled $2,130 for the year ended
December 13, 1995.
NOTE 5- RELATED PARTY TRANSACTIONS
--------------------------
The Company is affiliated with the following companies through varying
degrees of common ownership: Mecklenburg Dialysis Clinic, Inc., Monroe
Dialysis Center, Inc., Lancaster Kidney Center, Inc., Savannah Dialysis
Center, Inc., Southeast Renal Association P.A., and Sierra Laboratory
Corporation. All health and dental insurance premiums, for the above
companies were paid by Mecklenburg Dialysis Center, Inc., with the above
companies lised as affiliates. By doing so, the companies could pool
their employees to obtain more favorable insurance rates. All affiliate
companies reimbursed Mecklenburg Dialysis Center, Inc. on a monthly
basis. For the year ended December 31, 1995, the Company reimbursed
Mecklenburg Dialysis Center, Inc. $8,889, for health and dental
insurance.
The Company paid Sierra Laboratory Corporation $1022, during 1995 for
routine lab services.
The Company paid Monroe Dialysis Center, Inc. $7,827 during 1995 for
social worker services.
A cash management account (CMA) is maintained by the Company that
combines the cash balances of Mecklenburg Dialysis Center, Inc., Monroe
Dialysis Center, Inc., Charlotte Artificial Kidney, and Lacaster Kidney
Clinc, Inc.. The account was established to keep bank fees to a minimum
and earn a higher return on money retained in the account. The Federal
Deposit Insurance Agency (FDIC) insures bank balances up to $100,000,
the CMA bank balance on December 31, 1995 was $107,068.
See accountants' audit report
Page 8
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
AUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
-----------------
PAGE #
1 Accountant's Report
2-3 Balance Sheet
4 Statement of Income and Retained Earnings
5 Statement of Cash Flows
6-10 Notes to Financial Statements
<PAGE>
[T. Scott Brumley, CPA Letterhead]
April 22, 1996
Board of Directors
Mecklenburg Dialysis Center, Inc.
Charlotte N.C. 28208
We have audited the accompanying balance sheet of Mecklenburg Dialysis Center,
Inc. (a North Carolina Corporation) as of December 31, 1995, and the related
statements of income, retained earnings, 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
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 in the first paragraph
present fairly, in all material respects, the financial position of Mecklenburg
Dialysis Center, Inc., as of December 31, 1995, and the results of its
operations and cash flows for the period then ended in conformity with generally
accepted accounting principles.
Sincerely,
T. Scott Brumley, CPA
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash CMA $ 22,945
Cash dividend 2,732
Patient accounts receivable - net of
allowance for doubtful accounts of
$143,645 368,644
Receivable - employees 3,570
Receivable - Savannah Dialysis 5,373
Receivable - Monroe Dialysis 70,000
Receivable - Sierra Lab 6,900
Note receivable - shareholder 40,000
Inventory 28,112
-------
TOTAL CURRENT ASSETS $ 548,276
FIXED ASSETS
Dialysis machines 329,768
Other medical equipment 134,170
Office equipment 100,906
Furniture 98,173
Leasehold improvements 268,028
--------
931,045
Less accumulated depreciation (321,570)
--------
NET FIXED ASSETS 609,475
-----------
TOTAL ASSETS $ 1,157,751
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PAGE 2
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 281,350
Wages payable 51,804
Employee retirement withheld and accrued 3,652
Current portion of long term debt 97,000
-----------
TOTAL CURRENT LIABILITIES $ 433,806
LONG TERM LIABILITIES
Note payable to a bank 109,168
Note payable to a bank 25,000
Contra portion of long term debt (97,000)
-----------
TOTAL NONCURRENT LIABILITIES 37,168.00
-----------
TOTAL LIABILITIES 470,974.00
-----------
STOCKHOLDERS' EQUITY
Common Stock $1 par value 100,000
shares authorized, 1,000 shares issued
and outstanding 1,000
Additional paid in capital 84,750
Retained earnings 601,027
------------
TOTAL STOCKHOLDERS' EQUITY 686,777
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,157,751
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 3
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUE:
Service Income $ 3,150,585
Interest 347
------------
TOTAL REVENUE 3,150,932
------------
EXPENSES:
Medical supplies and services 1,328,040
Payroll expenses 966,714
Facility rent 241,000
Facility expense 87,278
General and administrative 155,572
Patient and professional expense 5,601
Interest expense 26,091
Property taxes 8,265
Insurance general 12,312
Depreciation expense 119,228
Repairs and maintenance 35,637
Loss on disposal of asset 9,165
-------------
TOTAL EXPENSE 2,994,903
-------------
NET INCOME 156,029
Retained Earnings, Beginning of Year 585,498
Distributions to Stockholders (140,500)
-------------
RETAINED EARNINGS, END OF YEAR $ 601,027
=============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 4
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
NET INCOME $ 156,029
----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 119,228
Loss on disposal of property 9,165
(Increase) decrease in current assets:
Patient receivables 65,744
Other receivables (16,737)
Inventory 16,771
Increase (decrease) in current liabilities:
Accounts payable 14,660
Accrued wages payable 26,421
Employee retirement withheld and accrued (9,960)
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 381,321
--------
Cash flows from investing activities:
Acquisition of property and equipment (57,355)
--------
NET CASH USED IN INVESTING ACTIVITIES (57,355)
--------
Cash flows from financing activities:
Distributions to stockholders (140,500)
Principal payment of bank debt (67,591)
Shareholder receivables (16,550)
Principal payment related clinic debt (40,884)
--------
NET CASH USED IN FINANCING ACTIVITIES (265,525)
---------
NET INCREASE IN CASH 58,441
Cash, Beginning of Year (32,764)
----------
CASH, END OF YEAR $ 25,677
==========
</TABLE>
Taxes Paid $ -
Interest Paid $ 26,091
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 5
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING PLOICIES
------------------------------------------
Mecklenburg Dialysis Center, Inc. accounting policies confirm to
generally accepted accounting principles applicable to health care
providers of health care service. The accompanying financial statements
have been prepared on the accrual basis of accounting; revenues are
recognized when earned; and, expenses are recorded when the liability is
incurred.
NATURE OF ORGANIZATION
Mecklenburg Dialysis Center, Inc. is a for profit organization, operated
to provide kidney dialysis for patients located in and near by
Charlotte, NC. The clinics patient base is maintained from referrals
from area hospitals and doctors.
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third party payors, and others for services
rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Retroactive
adjustments are accrued on an estimated basis in the period the related
services are rendered and adjusted in the future periods as final
settlements are determined.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by using the first-in, first-out method. Inventories at
December 31, 1995 were predominately made up of medical supplies.
PROPERTY AND EQUIPMENT
Property and equipment acquisitions are recorded at cost. Depreciation
is provided over the estimated useful life of each class of depreciable
asset and is computed on the straight-line method. The principal
estimated useful lives are: leasehold improvements, 10 to 25 years;
dialysis machines, 5 years; medical equipment 5 to 10 years; office
equipment, 5 to 10 years; furniture, 5 to 15 years. For tax purposes
assets are being depreciated using an accelerated method over there
estimated useful lives.
INCOME TAXES
The company has elected by the consent of its shareholders to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under
such election, the Company's federal and state taxable income or loss
are passed through to the individual shareholders. Therefore, no
provision or liability for income tax has been included in these
financial statements.
(continued)
See accountants' audit report
Page 6
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
SUMMARY OF SIGNIFICANT ACCOUNTING PLOICIES (continued)
------------------------------------------------------
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. There were no cash equivalents as of
December 31, 1995.
NOTE 2- NET PATIENT SERVICE REVENUE
---------------------------
Medicare - a majority of the dialysis patients receive Medicare benefits
under a special End Stage Renal Disease (ESRD) program or by meeting age
requirements. Medicare reimburses all dialysis providers on a composite
rate plan that varies by geographical region. The composite rate allowed
by Medicare for treatments provided the Company for 1995 was $119.26 of
which Medicare paid 80%. The remaining 20% was usually covered by
secondary insurance or Medicaid for those patients with Medicaid
coverage.
Medicaid - For patients with no other insurance coverage including
Medicare and with limited incomes, Medicaid becomes the primary source
of reimbursement for dialysis treatments. When primary, Medicaid pays
100% of the approved Medicare composite rate ($119.26). As noted above,
Medicaid pays the remaining 20% for those patients with both Medicare
and Medicaid.
Commercial Insurance - Commercial insurance companies are primary source
of payment for approximately 14% of the company's patients. Commercial
insurance is currently billed at $425 per treatment with companies
paying varying percentages of the charge, depending upon negotiated
terms or the patients individual policy.
Patient Responsibility - In most circumstances, the patient is
responsible for the balance due after all the above sources have paid,
and are usually billed on a monthly basis. Many patients are indigent
and unable to pay. A large portion of the patient responsibility is
uncollectable.
NOTE 3- CONTINGENCIES
-------------
A sales tax audit was done on the Company in the fall of 1995. The audit
covered the period form January 1, 1990 through September 31, 1995. A
dispute arose as to the taxability of certain prescription drugs. The
outcome of this audit is still pending, and legal council advises that
the maximum liability will be $37,174. A former employee of the Company
has filed a complaint with the Equal Employment Oppurtunity Commission
for wrongful discharge. The Company's legal council believes there is
only a remote possibility that this claim may result in a loss exceeding
$10,000.
(continued)
See accountants' audit report
Page 7
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
NOTE 4- NOTE PAYABLE AND LONG-TERM DEBT
-------------------------------
Notes payable consist of the following at December 31, 1995:
<TABLE>
<S> <C>
Note payable to SouthTrust Bank, Charlotte, North Carolina,
payable in monthly installments of $6,291.including interest
at prime plus .75%, maturity date June 29, 1997, secured by
a general security agreement covering all assets of the
Company. $ 109,168
Note payable to SouthTrust Bank, Charlotte, North Carolina,
payable in monthly installments of $25,000, not including
interest at prime plus .75%, maturity date January 29, 1996,
secured by a general security agreement covering all assets
of the Company. 25,000
-----------
Total Long - Term Debt 134,168
Less Current Maturities of Long-term debt 97,000
-----------
Net Long - Term Debt $ 37,168
===========
Maturities of long-term debt are as follows:
1996 $ 97,000
1997 37,168
1998 -
1999 -
2000 -
Thereafter -
-----------
Total $ 134,168
===========
(continued)
See accountants' audit report
Page 8
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
NOTE 5- EMPLOYEE BENEFIT PLANS
----------------------
The Company sponsors a 401(k) Profit Sharing Plan (the "401(k) Plan")
under section 401(k) of the Internal Revenue Code. This plan covers all
employees who have been with the Company six months and work a minimum
1,000 hours. For year ended December 31, 1995 the Company matched 50
cents for each dollar of employee deferral, with the Company
contributions not to exceed 6% of the employees salary, subject to the
limitations imposed by the Internal Revenue Service. The Company's
contribution to the 401(k) Plan totaled $10,181 for the year ended
December 13, 1995.
NOTE 6- RELATED PARTY TRANSACTIONS
--------------------------
The Company is affiliated with the following companies through varying
degrees of common ownership: Charlotte Artificial Kidney Clinic, Inc.,
Monroe Dialysis Center, Inc., Lancaster Kidney Center, Inc., Savannah
Dialysis Center, Inc., Southeast Renal Association P.A., and Sierra
Laboratory Corporation. All health and dental insurance premiums, for
the above companies were paid by Mecklenburg Dialysis Center, Inc., with
the above companies lised as affiliates. By doing so, the companies
could pool their employees to obtain more favorable insurance rates. All
affiliate companies reimbursed the Company on a monthly basis. For the
year ended December 31, 1995, the Company was reimbursed the following
for health and dental insurance:
Savannah Dialysis Center, Inc. $ 21,494
Lancaster Kidney Center, Inc. 26,619
Monroe Dilysis Center, Inc. 26,511
Charlotte Artificial Kidney 8,889
Southeast Renal Association 31,678
Sierra Lab Corporation 10,649
The Company was owed the following insurance reimbursements at December
31, 1995.
Due from Savannah Dialysis $ 5,373
Due from Sierra Laboratory Corporation 6,900
The Company paid Sierra Laboratory Corporation $3,888 during 1995 for
routine lab services.
The Company advanced Monroe Dialysis, Inc. $70,000 during 1995 to cover
current obilgations.
(continued)
See accountants' audit report
Page 9
<PAGE>
MECKLENBURG DIALYSIS CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
--------------------------------------
The Company leases its facilites from Delta Medical Properties. Delta
Medical Properties is related to the Company through common ownership.
The Company paid Delta Medical Properties (DMP) $220,000 in rent during
1995 and owed (DMP) an additional $20,000 in back rent.
A cash management account (CMA) is maintained by the Company that
combines the cash balances of Mecklenburg Dialysis Center, Inc., Monroe
Dialysis Center, Inc., Charlotte Artificial Kidney, and Lacaster Kidney
Clinc, Inc.. The account was established to keep bank fees to a minimum
and earn a higher return on money retained in the account. The Federal
Deposit Insurance Agency (FDIC) insures bank balances up to $100,000,
the CMA bank balance on December 31, 1995 was $107,068.
The Company has a note receivable from a shareholder for $40,000. The
note is unsecured and earns interest at 6% percent per anum, the note is
callable on Decmber 31, 1996.
</TABLE>
<PAGE>
MONROE DIALYSIS CENTER, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
MONROE DIALYSIS CENTER, INC.
AUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
-----------------
PAGE #
1 Accountant's Report
2-3 Balance Sheet
4 Statement of Income and Retained Earnings
5 Statement of Cash Flows
6-9 Notes to Financial Statements
<PAGE>
[T. Scott Brumley, CPA Letterhead]
April 22, 1996
Board of Directors
Monroe Dialysis Center, Inc.
Charlotte N.C. 28208
We have audited the accompanying balance sheet of Monroe Dialysis Center, Inc.
(a North Carolina Corporation) as of December 31, 1995, and the related
statements of income, retained earnings, 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
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 in the first paragraph
present fairly, in all material respects, the financial position of Monroe
Dialysis Center, Inc., as of December 31, 1995, and the results of its
operations and cash flows for the period then ended in conformity with generally
accepted accounting principles.
Sincerely,
T. Scott Brumley, CPA
<PAGE>
MONROE DIALYSIS CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash CMA $ 22,768
Patient accounts receivable - net of
allowance for doubtful accounts of
$56,844 74,835
Inventory 30,399
---------
TOTAL CURRENT ASSETS $ 128,020
FIXED ASSETS
Dialysis machines 183,159
Other medical equipment 85,366
Office equipment 13,813
Furniture 12,939
Leasehold improvements 60,592
---------
355,869
Less accumulated depreciation (248,264)
---------
NET FIXED ASSETS 107,605
---------
TOTAL ASSETS $ 235,625
=========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PAGE 2
<PAGE>
MONROE DIALYSIS CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 104,219
Wages payable 6,719
Employee retirement withheld and accrued 1,271
Loan - Mecklenburg Dialysis 70,000
Loan - Charlotte Artificial 50,000
-------
TOTAL CURRENT LIABILITIES $ 232,209
---------
TOTAL LIABILITIES 232,209
STOCKHOLDERS' EQUITY
Common Stock $1 par value 100,000
shares authorized, 1,000 shares issued
and outstanding 1,000
Additional paid in capital 60,950
Retained earnings (58,534)
--------
TOTAL STOCKHOLDERS' EQUITY 3,416
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 235,625
=========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 3
<PAGE>
MONROE DIALYSIS CENTER, INC.
STATEMENT OF LOSS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUE:
Service Income $ 921,884
TOTAL REVENUE 921,884
--------
EXPENSES:
Medical supplies and services 407,879
Payroll expenses 328,290
Facility rent 81,510
Facility expense 27,975
General and administrative 27,048
Patient and professional expense 789
Property taxes 910
Insurance general 8,162
Depreciation expense 29,489
Repairs and maintenance 13,103
TOTAL EXPENSE 925,155
--------
NET LOSS (3,270)
Retained Deficit, Beginning of Year (43,195)
Distributions to Stockholders (12,069)
RETAINED DEFICIT, END OF YEAR $ (58,534)
==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 4
<PAGE>
MONROE DIALYSIS CENTER, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
NET LOSS $ (3,270)
---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 29,489
Decrease in current assets:
Patient receivables 14,370
Other receivables 14,677
Inventory 1,019
Increase (decrease) in current liabilities:
Accounts payable 24,179
Accrued wages payable (4,433)
Employee retirement withheld and accrued (11,575)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 64,456
---------
Cash flows from investing activities:
Acquisition of property and equipment (46,208)
---------
NET CASH USED IN INVESTING ACTIVITIES (46,208)
---------
Cash flows from financing activities:
Distributions to stockholders (12,069)
Advances to Shareholders (3,853)
Payments to related clincs (74,937)
Advances from related clinics 120,000
---------
NET CASH USED IN FINANCING ACTIVITIES 29,141
---------
NET INCREASE IN CASH 47,141
Cash, Beginning of Year (24,603)
---------
CASH, END OF YEAR $ 22,786
=========
</TABLE>
Taxes Paid $ -
Interest Paid $ -
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 5
<PAGE>
MONROE DIALYSIS CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING PLOICIES
------------------------------------------
Monroe Dialysis Center, Inc. accounting policies confirm to generally
accepted accounting principles applicable to health care providers of
health care service. The accompanying financial statements have been
prepared on the accrual basis of accounting; revenues are recognized
when earned; and, expenses are recorded when the liability is incurred.
NATURE OF ORGANIZATION
Monroe Dialysis Center, Inc. is a for profit organization, operated to
provide kidney dialysis for patients located in and near by Monroe, NC.
The clinics patient base is maintained from referrals from area
hospitals and doctors.
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third party payors, and others for services
rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Retroactive
adjustments are accrued on an estimated basis in the period the related
services are rendered and adjusted in the future periods as final
settlements are determined.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by using the first-in, first-out method. Inventories at
December 31, 1995 were predominately made up of medical supplies.
PROPERTY AND EQUIPMENT
Property and equipment acquisitions are recorded at cost. Depreciation
is provided over the estimated useful life of each class of depreciable
asset and is computed on the straight-line method. The principal
estimated useful lives are: leasehold improvements, 10 to 25 years;
dialysis machines, 5 years; medical equipment 5 to 10 years; office
equipment, 5 to 10 years; furniture, 5 to 15 years. For tax purposes
assets are being depreciated using an accelerated method over there
estimated useful lives.
INCOME TAXES
The company has elected by the consent of its shareholders to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under
such election, the Company's federal and state taxable income or loss
are passed through to the individual shareholders. Therefore, no
provision or liability for income tax has been included in these
financial statements.
(continued)
See accountants' audit report
Page 6
<PAGE>
MONROE DIALYSIS CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
SUMMARY OF SIGNIFICANT ACCOUNTING PLOICIES (continued)
------------------------------------------------------
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. There were no cash equivalents as of
December 31, 1995.
NOTE 2- NET PATIENT SERVICE REVENUE
---------------------------
Medicare - a majority of the dialysis patients receive Medicare benefits
under a special End Stage Renal Disease (ESRD) program or by meeting age
requirements. Medicare reimburses all dialysis providers on a composite
rate plan that varies by geographical region. The composite rate allowed
by Medicare for treatments provided the Company for 1995 was $119.26 of
which Medicare paid 80%. The remaining 20% was usually covered by
secondary insurance or Medicaid for those patients with Medicaid
coverage.
Medicaid - For patients with no other insurance coverage including
Medicare and with limited incomes, Medicaid becomes the primary source
of reimbursement for dialysis treatments. When primary, Medicaid pays
100% of the approved Medicare composite rate ($119.26). As noted above,
Medicaid pays the remaining 20% for those patients with both Medicare
and Medicaid.
Commercial Insurance - Commercial insurance companies are primary source
of payment for approximately 14% of the company's patients. Commercial
insurance is currently billed at $425 per treatment with companies
paying varying percentages of the charge, depending upon negotiated
terms or the patients individual policy.
Patient Responsibility - In most circumstances, the patient is
responsible for the balance due after all the above sources have paid,
and are usually billed on a monthly basis. Many patients are indigent
and unable to pay. A large portion of the patient responsibility is
uncollectable.
NOTE 3- CONTINGENCIES
-------------
A sales tax audit was done on the Company in the fall of 1995. The audit
covered the period form January 1, 1990 through September 31, 1995. A
dispute arose as to the taxability of certain prescription drugs. The
outcome of this audit is still pending, and legal council advises that
the maximum liability will be $18,744.
(continued)
See accountants' audit report
Page 7
<PAGE>
MONROE DIALYSIS CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
NOTE 4- EMPLOYEE BENEFIT PLANS
----------------------
The Company sponsors a 401(k) Profit Sharing Plan (the "401(k) Plan")
under section 401(k) of the Internal Revenue Code. This plan covers all
employees who have been with the Company six months and work a minimum
1,000 hours. For year ended December 31, 1995 the Company matched 50
cents for each dollar of employee deferral, with the Company
contributions not to exceed 6% of the employees salary, subject to the
limitations imposed by the Internal Revenue Service. The Company's
contribution to the 401(k) Plan totaled $5,049 for the year ended
December 13, 1995.
NOTE 5- RELATED PARTY TRANSACTIONS
--------------------------
The Company is affiliated with the following companies through varying
degrees of common ownership: Charlotte Artificial Kidney Clinic, Inc.,
Mecklenburg Dialysis Center, Inc., Lancaster Kidney Center, Inc.,
Savannah Dialysis Center, Inc., Southeast Renal Association P.A., and
Sierra Laboratory Corporation. All health and dental insurance
premiums, for the above companies were paid by Mecklenburg Dialysis
Center, Inc., with the above companies lised as affiliates. By doing so,
the companies could pool their employees to obtain more favorable
insurance rates. All affiliate companies reimbursed Mecklenburg Dialysis
Center, Inc. on a monthly basis. For the year ended December 31, 1995,
the Company reimbursed Mecklenburg Dialysis Center, Inc. $26,511, for
health and dental insurance.
The Company paid Sierra Laboratory Corporation $1,982, during 1995 for
routine lab services.
The Company received the following amounts, during 1995, as
reimbursement for social worker services from the following:
Received from Lancaster Kidney Clinic, Inc. $ 7,827
Received from Charlotte Artificial Kidney Clinic, Inc. $ 6,900
The Company was advanced $70,000 and $5,000 from Mecklenburg Dialysis
Center, Inc. and Charlotte Artificial Kidney Clinic, Inc. respectively
during 1995 to cover current obligations.
The Company is also related to Union Medical Properties by common
ownership. The Company leases its facilities from Union Medical
Properties. For year ended December 31, 1995 total lease payments were
$81,510.
(continued)
See accountants' audit report
Page 8
<PAGE>
MONROE DIALYSIS CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
NOTE 5- RELATED PARTY TRANSACTIONS (continued)
--------------------------------------
A cash management account (CMA) is maintained by the Company that
combines the cash balances of Mecklenburg Dialysis Center, Inc., Monroe
Dialysis Center, Inc., Charlotte Artificial Kidney, and Lacaster Kidney
Clinc, Inc.. The account was established to keep bank fees to a minimum
and earn a higher return on money retained in the account. The Federal
Deposit Insurance Agency (FDIC) insures bank balances up to $100,000,
the CMA bank balance on December 31, 1995 was $107,068.
See accountants' audit report
Page 9
<PAGE>
LANCASTER KIDNEY CENTER, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
LANCASTER KIDNEY CENTER, INC.
AUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
-----------------
PAGE #
1 Accountant's Report
2-3 Balance Sheet
4 Statement of Income and Retained Earnings
5 Statement of Cash Flows
6-10 Notes to Financial Statements
<PAGE>
[T. Scott Brumley, CPA Letterhead]
April 22, 1996
Board of Directors
Lancaster Kidney Center, Inc.
Charlotte N.C. 28208
We have audited the accompanying balance sheet of Lancaster Kidney Center, Inc.
(a North Carolina Corporation) as of December 31, 1995, and the related
statements of income, retained earnings, 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
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 in the first paragraph
present fairly, in all material respects, the financial position of Lancaster
Kidney Center, Inc., as of December 31, 1995, and the results of its operations
and cash flows for the period then ended in conformity with generally accepted
accounting principles.
Sincerely,
T. Scott Brumley, CPA
<PAGE>
LANCASTER KIDNEY CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Petty cash $ 200
Cash CMA 61,909
Patient accounts receivable - net of
allowance for doubtful accounts of
$56,844 89,850
Receivable - employee 316
Inventory 16,332
----------
TOTAL CURRENT ASSETS $ 168,607
FIXED ASSETS
Dialysis machines 228,715
Other medical equipment 108,622
Office equipment 64,699
Furniture 31,933
Leasehold improvements 57,668
----------
491,637
Less accumulated depreciation (170,856)
----------
NET FIXED ASSETS 320,781
OTHER ASSETS
Start up cost 132,865
Organization cost 13,460
----------
146,325
Less accumulated amortization (80,479)
----------
TOTAL OTHER ASSETS 65,846
---------
TOTAL ASSETS $ 555,234
=========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PAGE 2
<PAGE>
LANCASTER KIDNEY CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 165,929
Wages payable 16,089
Other Liabilities 1,000
Current portion of long term debt 317,061
-----------
TOTAL CURRENT LIABILITIES $ 500,079
NONCURRENT LIABILITIES
Capital lease 62,748
Note payable to a bank 300,535
Contra portion of long term debt (317,061)
-----------
TOTAL NONCURRENT LIABILITIES 46,222
---------
TOTAL LIABILITIES 546,301
---------
STOCKHOLDERS' EQUITY
Common Stock $1 par value 100,000
shares authorized, 10,000 shares issued
and outstanding 10,000
Retained deficit (1,067)
------------
TOTAL STOCKHOLDERS' EQUITY 8,933
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 555,234
=========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 3
<PAGE>
LANCASTER KIDNEY CENTER, INC.
STATEMENT OF INCOME AND RETAINED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUE:
Service Income $ 1,654,010
TOTAL REVENUE 1,654,010
------------
EXPENSES:
Medical supplies and services 646,426
Payroll expenses 434,882
Facility rent 120,000
Facility expense 49,552
General and administrative 25,992
Patient and staff goodwill 3,371
Property taxes 17,118
Insurance general 10,169
Depreciation expense 67,045
Amortization expense 29,265
Interest expense 39,189
Repairs and maintenance 10,795
TOTAL EXPENSE 1,453,804
-----------
NET INCOME 200,206
Retained Deficit, Beginning of Year (201,273)
-----------
RETAINED DEFICIT, END OF YEAR $ (1,067)
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 4
<PAGE>
LANCASTER KIDNEY CENTER, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
NET INCOME $ 200,206
----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 96,310
(Increase) decrease in current assets:
Patient receivables (59,713)
Other receivables 1,429
Inventory 3,180
Increase (decrease) in current liabilities:
Accounts payable 94,886
Accrued wages payable 6,134
Employee retirement withheld (13,399)
----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 329,033
----------
Cash flows from investing activities:
Acquisition of property and equipment (73,534)
----------
NET CASH USED IN INVESTING ACTIVITIES (73,534)
----------
Cash flows from financing activities:
Payment on bank note (240,000)
Proceeds from capital lease 67,500
Payments on capital lease (4,751)
Payments from Shareholders 3,166
Payments to related clincs (20,115)
----------
NET CASH USED IN FINANCING ACTIVITIES (194,200)
----------
NET INCREASE IN CASH 61,299
Cash, Beginning of Year 810
----------
CASH, END OF YEAR $ 62,109
==========
</TABLE>
Taxes Paid $ -
Interest Paid $ 39,188
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 5
<PAGE>
LANCASTER KIDNEY CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING PLOICIES
------------------------------------------
Lancaster Kidney Center, Inc. accounting policies confirm to generally
accepted accounting principles applicable to health care providers of
health care service. The accompanying financial statements have been
prepared on the accrual basis of accounting; revenues are recognized
when earned; and, expenses are recorded when the liability is incurred.
NATURE OF ORGANIZATION
Lancaster Kidney Center, Inc. is a for profit organization, operated to
provide kidney dialysis for patients located in and near by Lancaster,
NC. The clinics patient base is maintained from referrals from area
hospitals and doctors.
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third party payors, and others for services
rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Retroactive
adjustments are accrued on an estimated basis in the period the related
services are rendered and adjusted in the future periods as final
settlements are determined.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by using the first-in, first-out method. Inventories at
December 31, 1995 were predominately made up of medical supplies.
PROPERTY AND EQUIPMENT
Property and equipment acquisitions are recorded at cost. Depreciation
is provided over the estimated useful life of each class of depreciable
asset and is computed on the straight-line method. The principal
estimated useful lives are: leasehold improvements, 10 to 25 years;
dialysis machines, 5 years; medical equipment 5 to 10 years; office
equipment, 5 to 10 years; furniture, 5 to 15 years. For tax purposes
assets are being depreciated using an accelerated method over there
estimated useful lives. Start up and organizational cost are being
amortized over 60 months.
INCOME TAXES
The company has elected by the consent of its shareholders to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under
such election, the Company's federal and state taxable income or loss
are passed through to the individual shareholders. Therefore, no
provision or liability for income tax has been included in these
financial statements.
(continued)
See accountants' audit report
Page 6
<PAGE>
LANCASTER KIDNEY CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
SUMMARY OF SIGNIFICANT ACCOUNTING PLOICIES (continued)
------------------------------------------------------
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. There were no cash equivalents as of
December 31, 1995.
NOTE 2- NET PATIENT SERVICE REVENUE
---------------------------
Medicare - a majority of the dialysis patients receive Medicare benefits
under a special End Stage Renal Disease (ESRD) program or by meeting age
requirements. Medicare reimburses all dialysis providers on a composite
rate plan that varies by geographical region. The composite rate allowed
by Medicare for treatments provided the Company for 1995 was $119.26 of
which Medicare paid 80%. The remaining 20% was usually covered by
secondary insurance or Medicaid for those patients with Medicaid
coverage.
Medicaid - For patients with no other insurance coverage including
Medicare and with limited incomes, Medicaid becomes the primary source
of reimbursement for dialysis treatments. When primary, Medicaid pays
100% of the approved Medicare composite rate ($119.26). As noted above,
Medicaid pays the remaining 20% for those patients with both Medicare
and Medicaid.
Commercial Insurance - Commercial insurance companies are primary source
of payment for approximately 14% of the company's patients. Commercial
insurance is currently billed at $425 per treatment with companies
paying varying percentages of the charge, depending upon negotiated
terms or the patients individual policy.
Patient Responsibility - In most circumstances, the patient is
responsible for the balance due after all the above sources have paid,
and are usually billed on a monthly basis. Many patients are indigent
and unable to pay. A large portion of the patient responsibility is
uncollectable.
(continued)
See accompanying notes to financial statements.
Page 7
<PAGE>
LANCASTER KIDNEY CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
NOTE 3- NOTE PAYABLE AND LONG-TERM DEBT
-------------------------------
Notes payable consist of the following at December 31, 1995:
<TABLE>
<S> <C>
Note payable to SouthTrust Bank, Charlotte, North Carolina,
payable in monthly installments of $25,000 not including
interest at prime plus .5%, maturity date June 29, 1997,
secured by a general security agreement covering all assets
of the Company. $ 300,534
Note payable to Cobe Renal Care, Inc. Lakewood, Colorado,
payable in monthly installments of $1,711.95 including
interest at 10%, maturity date July 7, 1999, secured by five
dialysis machines. 62,749
-----------
Total Long - Term Debt 363,283
Less Current Maturities of Long-term debt 317,061
-----------
Net Long - Term Debt $ 46,222
===========
Maturities of long-term debt are as follows:
1996 $ 317,061
1997 16,847
1998 18,531
1999 10,844
2000 -
Thereafter -
-----------
Total $ 363,283
===========
(continued)
See accompanying notes to financial statements.
Page 8
<PAGE>
LANCASTER KIDNEY CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
NOTE 4- EMPLOYEE BENEFIT PLANS
----------------------
The Company sponsors a 401(k) Profit Sharing Plan (the "401(k) Plan")
under section 401(k) of the Internal Revenue Code. This plan covers all
employees who have been with the Company six months and work a minimum
1,000 hours. For year ended December 31, 1995 the Company matched 50
cents for each dollar of employee deferral, with the Company
contributions not to exceed 6% of the employees salary, subject to the
limitations imposed by the Internal Revenue Service. The Company's
contribution to the 401(k) Plan totaled $7,156 for the year ended
December 13, 1995.
NOTE 5- RELATED PARTY TRANSACTIONS
--------------------------
The Company is affiliated with the following companies through varying
degrees of common ownership: Charlotte Artificial Kidney Clinic, Inc.,
Monroe Dialysis Center, Inc., Mecklenburg Dialysis Center, Inc.,
Savannah Dialysis Center, Inc., Southeast Renal Association P.A., and
Sierra Laboratory Corporation. All health and dental insurance
premiums, for the above companies were paid by Mecklenburg Dialysis
Center, Inc., with the above companies lised as affiliates. By doing so,
the companies could pool their employees to obtain more favorable
insurance rates. All affiliate companies reimbursed the Company on a
monthly basis. For the year ended December 31, 1995, the Company
reimbursed Mecklenburg Dialysis Center, Inc. $26,619, for health and
dental insurance.
The Company paid Sierra Laboratory Corporation $2,733, during 1995 for
routine lab services.
The Company advanced Monroe Dialysis, Inc. $7,827 for social worker
services during 1995.
The Company leases its facilites from Delta Medical Properties. Delta
Medical Properties is related to the Company through common ownership.
The Company paid Delta Medical Properties $120,000 in rent during 1995.
(continued)
See accompanying notes to financial statements.
Page 9
<PAGE>
LANCASTER KIDNEY CENTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1995
(continued)
NOTE 5- RELATED PARTY TRANSACTIONS (continued)
--------------------------------------
A cash management account (CMA) is maintained by the Company that
combines the cash balances of Mecklenburg Dialysis Center, Inc., Monroe
Dialysis Center, Inc., Charlotte Artificial Kidney, and Lacaster Kidney
Clinc, Inc.. The account was established to keep bank fees to a minimum
and earn a higher return on money retained in the account. The Federal
Deposit Insurance Agency (FDIC) insures bank balances up to $100,000,
the CMA bank balance on December 31, 1995 was $107,068.
See accompanying notes to financial statements.
Page 10
</TABLE>
