UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 12, 1996
OMEGA HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-19283
(Commission File Number)
63-0858713
(I.R.S. Employer Identification No.)
5100 Poplar Avenue, Suite 2100, Memphis, Tennessee 38137
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 901-683-7868
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
1
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 1. Acquisition or Disposition of Assets.
On March 12, 1996, Omega Health Systems of Florida, Inc., a wholly-owned
subsidiary of the Registrant, purchased the assets of Paul E. Garland, M.D.,
P.A. (the "Garland P.A."), a Tallahassee, Florida professional corporation which
practices ophthalmology. In addition to the assets of Dr. Garland's practice,
the wholly-owned subsidiary of the Registrant purchased from Dr. Garland 100% of
the stock of Capital Eye Surgery Center, Inc., an ambulatory surgery center (the
"ASC") which Dr. Garland operates in conjunction with his practice. In exchange
for the sale of his practice assets and the stock of the ASC, Dr. Garland
received $2,000,000 in cash and a five year, 7% subordinated note for $1,400,000
which is convertible, under certain conditions into shares of the Registrant's
common stock for a total purchase price of $3,400,000. Omega Health Systems of
Florida, Inc. will manage the Garland P.A. pursuant to a management agreement.
Dr. Garland's clinical practice was not acquired by Omega, and Dr. Garland will
continue to practice as a clinician the Garland P.C. in substantially the same
manner as before the transactions described above.
Registrant financed the purchase, in part, from the proceeds of a 90-day, 12%
Subordinated Promissory Note issued to HealthMark Partners, LLC. HealthMark
Partners, LLC is an affiliate of Andrew W. Miller who owns approximately 7% of
the outstanding common stock of Registrant and who serves as Chairman of the
Board of Directors of Registrant. This note is secured by a pledge of the stock
of Omega Health Systems of Florida, Inc., the wholly-owned subsidiary of the
Registrant which acquired the assets of the Garland P.C. and the stock of the
ASC. In addition, Registrant issued HealthMark Partners, LLC, warrants,
exercisable for 90 days to purchase 5,000 shares of the registrant's common
stock at $.05 per share.
Item 2. Financial Statements and Exhibits.
(a) Financial Statements of the Business Acquired
(Omega purchased certain assets and stock in this transaction
and has executed a management agreement with the seller; thus, this
transaction is characterized in a fashion not substantially the same as
a traditional business acquisition. However, Omega is providing the
following information because of its relevance to the on-going and
post-transaction activities of the Registrant and believes that it
complies substantially with the relevant requirements of Regulation
S-X.)
Paul E. Garland, M.D., P.A. and Capital Eye Surgery Center, Inc.
Independent Auditors' Report
Combined Balance Sheet, December 31, 1995
Combined Statement of Income, Year ended December 31, 1995
Combined Statement of Stockholder's Equity, Year ended
December 31, 1995
Combined Statement of Cash Flows, Year ended December 31,
1995
Notes to Combined Financial Statements, December 31, 1995
Condensed Combined Statements of Income, Three months
ended March 31, 1996 and 1995 (unaudited)
Condensed Combined Statements of Cash Flows, Three
months ended March 31, 1996 and 1995 (unaudited)
Notes to Condensed Combined Financial Statements, March
31, 1996 and 1995
2
<PAGE>
Pro Forma Financial Statements
Pro Forma Condensed Combined Statements of Income,
Year ended December 31, 1995 (unaudited)
Pro Forma Condensed Combined Statements of Income,
Three months ended March 31, 1996 (unaudited)
Notes to Pro Forma Financial Statements
(b) Exhibits
2.1 Press Release dated March 13, 1996 *
2.2 Asset Purchase Agreement dated March 12, 1996 *
2.3 Stock Purchase Agreement dated March 12, 1996 *
2.4 Management Agreement dated March 12, 1996 *
2.5 7% Convertible Subordinated Note dated March 12, 1996 between
Registrant and Garland *
2.6 12% Subordinated Promissory Note dated March 12, 1996 between
Registrant and HealthMark Partners, LLC *
2.7 Class C Warrants to purchase shares of Common Stock issued
to HealthMark Partners, LLC *
2.8 Pledge and Security Agreement between Registrant and
HealthMark Partners, LLC *
* Previously filed.
3
<PAGE>
SIGNATURES
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 thereunto duly authorized.
OMEGA HEALTH SYSTEMS, INC.
Date: May 25, 1996 By: /s/ Ronald L. Edmonds
-------------------------
Ronald L. Edmonds
Senior Vice President and Chief Financial Officer
4
<PAGE>
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Combined Financial Statements
December 31, 1995
(With Independent Auditors' Report Thereon)
5
<PAGE>
Independent Auditors' Report
The Sole Shareholder
Paul E. Garland, M.D., P.A. and Capital Eye Surgery Center, Inc.:
We have audited the accompanying combined balance sheet of Paul E. Garland,
M.D., P.A. and Capital Eye Surgery Center, Inc. as of December 31, 1995, and the
related combined statements of income, stockholder's equity and cash flows for
the year then ended. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Paul E. Garland,
M.D., P.A. and Capital Eye Surgery Center, Inc. as of December 31, 1995, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
May 17, 1996
6
<PAGE>
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Combined Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash $ 13,588
Accounts receivable, less allowances for contractual adjustments
and uncollectible accounts of $384,000 (note 3) 491,862
Supplies 44,000
Prepaid expenses and other current assets 33,999
----------
Total current assets 583,449
Furniture, fixtures and equipment, net (note 4) 423,818
Other assets 86,055
----------
$1,093,322
==========
Liabilities and Stockholder's Equity
------------------------------------
Current liabilities:
Accounts payable $ 23,766
Accrued payroll and payroll taxes 11,851
Deferred income taxes (note 8) 143,663
Current portion of long-term debt (note 5) 61,570
Current portion of capital lease obligations (note 6) 44,113
----------
Total current liabilities 284,963
Long-term debt, less current portion (note 5) 232,675
Capital lease obligations, less current portion (note 6) 15,182
Deferred income taxes (note 8) 16,147
----------
Total liabilities 548,967
Stockholder's equity: ----------
Common stock, Paul E. Garland, M.D., P.A.,
$1 par value, 1,000 shares authorized,
100 shares issued and outstanding 100
Common stock, Capital Eye Surgery Center, Inc.,
$.01 par value, 500 shares authorized,
500 shares issued and outstanding 5
Retained earnings 544,250
----------
Total stockholder's equity 544,355
----------
Commitments and contingencies (notes 6 and 9)
$1,093,322
==========
See accompanying notes to combined financial statements.
</TABLE>
7
<PAGE>
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Combined Statement of Income
Year ended December 31, 1995
Net patient service revenue (note 7) $3,291,674
----------
Expenses:
Professional services 2,249,002
Rentals 210,653
General and administrative 435,971
Depreciation 151,385
Interest 42,932
----------
Total expenses 3,089,943
----------
Income from operations 201,731
Nonoperating losses, net 48,695
Income before income taxes 153,036
Income taxes (note 8) 7,386
----------
Net income $ 145,650
==========
Pro forma (unaudited):
Historical combined income before income taxes $ 153,036
Pro forma income taxes on a combined basis 57,000
----------
Pro forma combined net income $ 96,036
==========
See accompanying notes to combined financial statements.
8
<PAGE>
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Combined Statement of Stockholder's Equity
Year ended December 31, 1995
<TABLE>
<CAPTION>
Common Common Total
stock stock Retained stockholder's
(Garland) (Capital Eye) earnings equity
--------- ------------- -------- ------
<S> <C> <C> <C> <C>
Balances at January 1, 1995 $ 100 5 618,600 618,705
Distributions to stockholder -- -- (220,000) (220,000)
Net income -- -- 145,650 145,650
-------- -------- -------- --------
Balances at December 31, 1995 $ 100 5 544,250 544,355
======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
9
<PAGE>
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Combined Statement of Cash Flows
Year ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 145,650
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 151,385
Deferred income taxes (382)
Changes in operating assets and liabilities:
Accounts receivable 95,275
Prepaid expenses and other current assets (25,909)
Accounts payable 23,766
Accrued payroll and payroll taxes 1,032
---------
Net cash provided by operating activities 390,817
---------
Cash flows from investing activities:
Capital expenditures (13,856)
Other assets, net (86,055)
---------
Net cash used in investing activities (99,911)
---------
Cash flows from financing activities:
Repayment of long-term debt (31,152)
Principal payments on capital lease obligations (40,174)
Distributions to stockholder (220,000)
---------
Net cash used in financing activities (291,326)
---------
Net decrease in cash (420)
Cash at January 1, 1995 14,008
---------
Cash at December 31, 1995 $ 13,588
=========
Supplemental disclosure:
Interest paid $ 42,932
=========
</TABLE>
See accompanying notes to combined financial statements.
10
<PAGE>
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Combined Financial Statements
December 31, 1995
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Description of Business
-----------------------
Paul E. Garland, M.D., P.A. (the P.A.) is a medical practice
specializing in ophthalmological services. Dr. Garland is also
the sole shareholder in Capital Eye Surgery Center, Inc.
(Capital), a corporation which operates an ambulatory surgical
center adjacent to Dr. Garland's ophthalmology practice. In
combination, these two entities are collectively referred to
herein as "the Company."
On March 12, 1996, Omega Health Systems, Inc. (Omega) agreed to
acquire certain assets of the P.A. and the outstanding stock of
Capital. Additionally, Dr. Garland and Omega have entered into
an agreement whereby Omega will provide management services for
Dr. Garland's professional activities.
The accompanying combined financial statements have been prepared
principally to accompany Omega's filing on Form 8-K with respect
to the transaction described above. The combination of the P.A.
and Capital is believed to provide the most useful information
with respect to the Form 8-K filing requirements.
(b) Statement of Revenue and Expenses
---------------------------------
For purposes of presentation, transactions deemed by management to
be ongoing, major or central to the provision of health care
services are reported as revenue and expenses. Peripheral or
incidental transactions are reported as gains and losses.
(c) 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, if any, under reimbursement agreements with
third-party payors.
Retroactively calculated contractual adjustments arising under
reimbursement agreements with third-party payors, if any, are
accrued on an estimated basis in the period the related services
are rendered and adjusted as final settlements are determined.
(Continued)
11
<PAGE>
2
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Combined Financial Statements
(d) Charity Care
------------
The Company provides care to patients who meet certain criteria
under its charity care policy without charge or at amounts less
than its established rates. Because the Company does not pursue
collection of amounts determined to qualify as charity care,
such amounts are not reported as revenue. Charity care provided
by the Company in 1995 was not significant.
(e) Supplies
--------
Medical supplies are recorded at the lower of cost (first-in,
first-out method) or replacement market.
(f) Furniture, Fixtures and Equipment
---------------------------------
Owned furniture, fixtures and equipment are stated at cost.
Furniture, fixtures and equipment under capital leases are
stated at the lower of the present value of minimum lease
payments at the beginning of the lease term or fair value at the
inception of the lease.
Depreciation for owned furniture, fixtures and equipment is
calculated using the straight-line method over the estimated
useful lives of the assets, as follows:
Estimated useful lives
----------------------
Furniture and fixtures 7 years
Office equipment 5 years
Medical equipment 5 years
Automobiles 5 years
Furniture, fixtures and equipment held under capital leases are
amortized using the straight-line method over the shorter of the
respective lease term or estimated useful life of the asset.
(Continued)
12
<PAGE>
3
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Combined Financial Statements
(g) Income Taxes
------------
Capital has elected for its earnings to be taxed directly to its
stockholder under the S Corporation provisions of the Internal
Revenue Code and similar provisions of Florida laws and
regulations. Accordingly, the accompanying historical combined
financial statements contain no provision for income taxes
related to Capital's earnings.
The P.A., which is a taxable corporation, has adopted the
provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. Under the asset and liability
method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(h) 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.
(2) Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of all asset and liability financial instruments
approximate their estimated fair values at December 31, 1995. Fair
value of a financial instrument is defined as the amount at which
the instrument could be exchanged in a current transaction between
willing parties.
(Continued)
13
<PAGE>
4
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Combined Financial Statements
(3) Business and Credit Concentrations
----------------------------------
The Company grants credit to patients, substantially all of whom reside
in the Company's service area of Tallahassee, Florida. The Company
generally does not require collateral or other security in
extending credit to patients; however, it routinely obtains
assignment of (or is otherwise entitled to receive) patients'
benefits payable under their health insurance programs, plans or
policies (e.g., Medicare, Medicaid, Blue Cross, preferred provider
arrangements and commercial insurance policies).
The mix of receivables from patients and third-party payors at December
31, 1995 follows:
Medicare 39%
Patient 32
Commercial insurance 14
Other third-party payors 7
Medicaid 5
Blue Cross 3
-----
100%
=====
(4) Furniture, Fixtures and Equipment
---------------------------------
A summary of furniture, fixtures and equipment at December 31, 1995
follows:
Furniture and fixtures $ 116,272
Office equipment 147,992
Medical equipment 563,777
Automobiles 85,958
----------
913,999
Less accumulated depreciation 490,181
----------
$ 423,818
=============
(Continued)
14
<PAGE>
5
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Combined Financial Statements
<TABLE>
<CAPTION>
<S> <C>
(5) Long-term Debt
--------------
Long-term debt consists of the following:
Note payable to a bank, with interest at 9-3/4%,
payable in monthly installments of $1,088,
including interest, secured by automobile,
final payment due January 2001 $ 49,151
Unsecured note payable to Dr. Garland, interest
at 12%, payable in monthly installments of
$6,673, including interest, final payment due
November 1999 245,094
----------
Total long-term debt 294,245
Less current portion 61,570
----------
Long-term debt, less current portion $ 232,675
==========
Maturities of long-term debt as of December 31, 1995 follow:
1996 $ 61,570
1997 69,179
1998 77,733
1999 73,936
2000 11,827
----------
$ 294,245
==========
</TABLE>
(6) Leases
------
The Company is obligated under various capital leases for equipment.
The gross amount of assets under capital lease included in
furniture, fixtures and equipment at December 31, 1995 was
$187,100, with related accumulated depreciation of $116,917.
(Continued)
15
<PAGE>
6
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Combined Financial Statements
The Company also is obligated under certain noncancelable operating
leases. Total lease expense on operating leases was approximately
$211,000 for the year ended December 31, 1995. The Company's most
significant operating lease is for clinic and surgery center
facilities owned by Dr. Garland. Expense under this lease totaled
approximately $148,000 in 1995. Under the agreements described in
note 1, Omega effectively assumed the Company's lease obligation
related to these facilities.
Future minimum lease payments under noncancelable operating leases and
the present value of minimum capital lease payments as of December
31, 1995 follow:
<TABLE>
<CAPTION>
Capital Operating
Year ending: leases leases
------------ -------------
<S> <C> <C>
1996 $ 47,837 170,052
1997 15,652 170,052
1998 - 170,052
1999 - 170,052
2000 - 170,052
Thereafter - 850,260
--------- ----------
63,489 $ 1,700,520
=========
Less amount representing interest
(at rates from 8.5% to 12%) 4,194
---------
59,295
Less current portion 44,113
---------
Capital lease obligations, less current portion $ 15,182
=========
</TABLE>
(7) Net Patient Service Revenue
---------------------------
The Company has agreements with governmental and other third-party
payors that provide for reimbursement to the Company at amounts
different from its established rates. Contractual adjustments under
third-party reimbursement programs represent the difference between
the Company's billings at established rates for services and
amounts reimbursed by third-party payors. Third-party payor
activity for the company principally involves the Medicare and
Medicaid programs. Services rendered to beneficiaries under these
programs are generally paid at prospectively determined procedural
rates.
(Continued)
16
<PAGE>
7
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Combined Financial Statements
Presented below is a summary of net patient service revenue for the year
ended December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Gross patient service revenue $ 3,675,228
Less provision for contractual and other adjustments 383,554
------------
Net patient service revenue $ 3,291,674
============
</TABLE>
The Company has historically not maintained records to segregate
write-offs of uncollectible accounts from contractual and other
adjustments, and therefore the separate provision for uncollectible
accounts is not determinable.
(8) Income Taxes
------------
As described in note 1, the P.A. is a taxable corporation. Income tax
expense (benefit), which relates solely to the P.A., consists of
the following for the year ended December 31, 1995:
Current Deferred Total
----------- -------- --------
U. S. Federal $ 5,519 (271) 5,248
State and local 2,249 (111) 2,138
------- ------ --------
$ 7,768 (382) 7,386
======= ====== ========
Income tax expense for the year ended December 31, 1995 differs from the
amount computed by applying the U. S. Federal income tax rate of 34
percent to the P. A.'s pretax loss as a result of the following:
<TABLE>
<CAPTION>
<S> <C>
Computed "expected" tax benefit $ (3,037)
State and local income taxes, net of Federal income tax benefit 1,411
Meals, entertainment and other non-deductible items 9,012
--------
$ 7,386
========
</TABLE>
(Continued)
17
<PAGE>
8
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Combined Financial Statements
(8), Continued
Tax effects of temporary differences that gave rise to deferred tax
assets and liabilities at December 31, 1995 are presented below.
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Capital lease obligation, due to lease treated as
operating lease for income tax purposes $ 8,503
----------
Total deferred tax assets 8,503
----------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation 24,650
Use of modified cash method for income tax purposes 143,663
----------
Total deferred tax liabilities 168,313
Net deferred tax liability $ 159,810
==========
</TABLE>
In assessing the recoverability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of temporary differences in making this
assessment. Based upon projections for future taxable income over
the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will
realize the benefits of these deductible differences.
(9) Employee Benefit Plan
---------------------
The Company maintains a Profit Sharing Plan and Trust (the "Plan"),
which covers substantially all employees. Employees who complete
one year of service and attain age 21 may participate in the plan.
The Company's contributions to the Plan are discretionary. Eligible
employees ratably vest in the Company's contributions over six
years. The Company made no discretionary contribution to the Plan
during the year ended December 31, 1995.
(Continued)
18
<PAGE>
9
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Combined Financial Statements
(10) Professional and General Liability Insurance
--------------------------------------------
The Company maintains professional and general liability coverage under
the provisions of certain claims-made policies. To the extent that
any claims-made coverage is not renewed or replaced with equivalent
insurance, claims based on occurrences during the term of such
coverage, but reported subsequently, would be uninsured. Management
believes, based on incidents identified through the Company's
incident reporting system, that any such claims would not have a
material effect on the Company's operations or financial position.
In any event, management anticipates that the claims-made coverage
currently in place will be renewed or replaced with equivalent
insurance as the term of such coverage expires.
(11) Related Party Transactions
--------------------------
The Company has a note payable to its sole stockholder as described in
note 5. Additionally, the Company leases certain facilities from
its sole stockholder as described in note 6. Management believes
that these transactions reflect appropriate market rates and terms
for similar transactions between unaffiliated parties.
19
<PAGE>
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Condensed Combined Statements of Income
Three Months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
Net patient service revenue $754,402 888,245
-------- --------
Expenses:
Professional services 404,144 415,503
Rentals 35,358 63,155
General and administrative 145,449 167,371
Depreciation 8,426 23,474
Interest 6,552 9,237
-------- --------
Total expenses 599,929 678,740
-------- --------
Income from operations 154,473 209,505
Nonoperating losses (gains), net 9,223 (1,749)
-------- --------
Income before income taxes 145,250 211,254
Income taxes -- --
-------- --------
Net income $145,250 211,254
======== ========
See accompanying notes to condensed combined financial statements.
20
<PAGE>
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Condensed Combined Statement of Cash Flows
Three Months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 145,250 211,254
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 8,426 23,474
Changes in operating assets and liabilities:
Accounts receivable (90,684) (52,389)
Prepaid expenses and other current assets (4,504) 123
Accounts payable 1,745 5,694
Accrued payroll and payroll taxes (10,951) (10,445)
--------- ---------
Net cash provided by operating activities 49,282 177,711
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,796) (9,621)
Other assets, net 9,407 --
--------- ---------
Net cash provided by (used in) investing activities 7,611 (9,621)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (12,803) (13,538)
--------- ---------
Net cash used in financing activities (12,803) (13.538)
--------- ---------
Net increase in cash 44,090 154,552
Cash at beginning of period 13,588 14,008
--------- ---------
Cash at end of period $ 57,678 168,560
========= =========
Supplemental disclosure:
Interest paid $ 6,552 9,237
========= =========
</TABLE>
See accompanying notes to condensed combined financial statements.
21
<PAGE>
PAUL E. GARLAND, M.D., P.A. AND
CAPITAL EYE SURGERY CENTER, INC.
Notes to Condensed Combined Financial Statements
Three Months ended March 31, 1996 and 1995
(Unaudited)
(1) The condensed combined financial statements include the accounts of Paul E.
Garland, M.D., P.A. (the "P.A.") and Capital Eye Surgery Center, Inc.
("Capital"). The accompanying unaudited condensed combined financial
statements have been prepared in accordance with the accounting policies in
effect as of December 31, 1995, as set forth in the combined financial
statements for the year ended December 31, 1995 included elsewhere herein.
In the opinion of management, all adjustments necessary for a fair
presentation of the combined financial statements have been included. The
results of operations for the three month periods ended March 31, 1996 and
1995 are not necessarily indicative of the results to be expected for the
full year.
(2) On March 12, 1996, Omega Health Systems, Inc. acquired certain assets of
the P.A. and the outstanding capital stock of Capital. In addition, the
P.A. entered into a management agreement with Omega. Since the acquisition
is reflected in the condensed consolidated balance sheet of Omega as of
March 31, 1996, as included in its Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, no balance sheet is required.
22
<PAGE>
OMEGA HEALTH SYSTEMS, INC.
Pro Forma Condensed Combined Statements of Income
Year ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Omega Garland Pro Forma Pro Forma
Historical Historical Adjustments Combined
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Center net revenues $19,752,926 3,291,674 23,044,600
Managed care revenues 10,546,467 10,546,467
Supply and equipment sales 1,845,744 1,845,744
Management and other revenues 790,334 790,334
-----------------------------------------------------------
Total revenues 32,935,471 3,291,674 0 36,227,145
Center operating expenses 18,259,770 3,047,011 (1) 112,000 21,160,895
(4) (257,886)
Eye Care claims 7,589,390 7,589,390
Cost of sales 1,487,879 1,487,879
General and administrative expenses 4,835,891 4,835,891
-----------------------------------------------------------
Earnings from operations 762,541 244,663 145,886 1,153,090
Interest expense (290,978) (42,932)(2) 40,000 (551,910)
(3) (258,000)
Other income (expense), net 9,311 (48,695)(2) 25,000 (14,384)
-----------------------------------------------------------
Earnings before income taxes 480,874 153,036 (47,114) 586,796
Income tax expense 7,386 (5) (7,386) 0
-----------------------------------------------------------
Net earnings $ 480,874 145,650 (39,728) 586,796
===========================================================
Net earnings per common share $ 0.10 0.13
=============== ==============
Weighted average shares outstanding 4,694,352 4,694,352
=============== ==============
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
23
<PAGE>
OMEGA HEALTH SYSTEMS, INC.
Pro Forma Condensed Combined Statements of Income
Three Months ended March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Omega Garland Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Center net revenues $4,915,330 754,402 5,669,732
Managed care revenues 3,333,863 3,333,863
Supply and equipment sales 491,778 491,778
Management and other revenues 156,756 156,756
--------------------------------------------------------
Total revenues 8,897,727 754,402 0 9,652,129
Center operating expenses 4,545,244 593,376 (1) 28,000 5,193,620
(4) 27,000
Eye Care claims 2,500,967 2,500,967
Cost of sales 353,818 353,818
General and administrative expenses 1,316,742 1,316,742
--------------------------------------------------------
Earnings from operations 180,956 161,026 (55,000) 286,982
Interest expense (115,671) (6,552)(2) 4,000 (182,223)
(3) (64,000)
Other income (expense), net 56,844 (9,223) 47,621
--------------------------------------------------------
Earnings before income taxes 122,129 145,251 (115,000) 152,380
Income tax expense 0 0 0 0
--------------------------------------------------------
Net earnings $ 122,129 145,251 (115,000) 152,380
========================================================
Net earnings per common share $ 0.03 0.03
============= =============
Weighted average shares outstanding 4,716,096 4,716,096
============= =============
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
24
<PAGE>
OMEGA HEALTH SYSTEMS, INC.
Notes to Pro Forma Financial Information
(Unaudited)
The accompanying pro forma combined financial information is intended to give
effect to the acquisition by Omega Health Systems, Inc. (Omega) of certain
assets of Paul E. Garland, M.D., P.A. (the "P.A.") and the outstanding stock of
Capital Eye Surgery Center, Inc. and to give effect to the related management
agreement between Omega and the P.A.
The pro forma financial statements should be read in conjunction with the
historical financial statements of Omega Health Systems, Inc. included in its
Annual Report on Form 10-KSB for the year ended December 31, 1995 and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and the
historical combined financial statements of the P.A. and Capital included
elsewhere herein.
The pro forma condensed combined statements of income for the year ended
December 31, 1995 and the three months ended March 31, 1996 have been prepared
assuming the transactions underlying the Asset Purchase Agreement, the Stock
Purchase Agreement and the Management Agreement had been consummated as of the
first day of each period presented. The pro forma condensed combined statements
of income include the pro forma adjustments which, in the opinion of management,
are required to adequately present the pro forma financial information. The pro
forma condensed combined statements of income are not necessarily indicative of
the results which would have been achieved had the transactions been consummated
as of the dates indicated.
A pro forma balance sheet is not required because this transaction has been
accounted for using the purchase accounting method and the transaction is
reflected in Omega's condensed consolidated balance sheet as of March 31, 1996
included in its Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.
The following sets forth a description of the pro forma adjustments included in
the pro forma condensed combined statements of income:
(1) This adjustment reflects the application of purchase accounting
as follows:
Aggregate purchase price $3,400,000
Estimated fair value of net tangible assets acquired 600,000
----------
Estimated intangible assets $2,800,000
==========
Annual amortization over 25 years $ 112,000
=======
Quarterly amortization over 25 years $ 28,000
======
The intangible assets arising from this transaction are being
amortized over a period of 25 years, the term of the related
management agreement.
(2) This adjustment removes from the pro forma condensed combined
statements of income the effect of the following items which are not
related to the assets and liabilities assumed or acquired in the
transactions:
1995 1996
---- ----
Interest expense 40,000 4,000
Other expense, net 25,000 -
25
<PAGE>
(3) This adjustment provides for the effect of the financing of this
transaction as follows:
1995 1996
---- ----
Interest expense on 7% note payable to Garland $98,000 24,500
Interest expense on the remainder of the
purchase price at 8% 160,000 40,000
------- ------
Total $258,000 64,500
======= ======
(4) This adjustment reflects the effect of the terms of the management
agreement on the cost of professional services.
(5) This adjustment reflects the elimination of income tax expense as
Omega is in a net operating loss carryforward position.
26
