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): September 10, 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)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 1. Acquisition or Disposition of Assets.
On September 10, 1996, Omega Health Systems of North Texas, Inc., a wholly-owned
subsidiary of the Registrant, completed the acquisition of substantially all of
the net assets of EyeCare and SurgeryCenter of North Texas, P.A. and ECSC
Retina, P.A., two Dallas, Texas, professional associations which practice
ophthalmology in exchange for 771,429 shares of the Registrant's common stock.
Omega Health Systems of North Texas, Inc. will manage the practices pursuant to
long-term management agreements.
Also on September 10, 1996, Omega Surgical Associates of North Texas, Inc.
(OSANTI), a wholly-owned subsidiary of the Registrant, and SurgEyeCare, Inc.
entered into a partnership agreement to form SurgEyeCare General Partnership
(the "Partnership"). Under the terms of the partnership agreement, OASNTI
contributed $4,550,000 cash to the Partnership and SurgEyeCare, Inc. contributed
assets with an agreed value of $6,100,000. After the initial capital
contributions, the Partnership distributed $4,476,438 in cash to SurgEyeCare,
Inc. After these transactions, OSANTI owns a 75% interest in the Partnership and
SurgEyeCare, Inc. owns a 25% interest. Under the terms of the partnership
agreement, OSANTI is designated as managing partner.
The Registrant financed the contribution to the Partnership, in part, with the
proceeds of a $3,280,000 acquisition term loan from a commercial bank.
Item 2. Financial Statements and Exhibits.
(a) Financial Statements of the Business Acquired
EyeCare and SurgeryCenter of North Texas, P.A. and SurgEyeCare, Inc.
Independent Auditors' Report
Combined Balance Sheets, December 31, 1995 and 1994
Combined Statements of Operations, Years ended December 31,
1995 and 1994
Combined Statements of Stockholders' Equity, Years ended
December 31, 1995 and 1994
Combined Statements of Cash Flows, Years ended December 31,
1995 and 1994
Notes to Combined Financial Statements, December 31, 1995
Condensed Combined Statements of Operations, Eight months
ended August 31, 1996 and 1995 (unaudited)
Condensed Combined Statements of Cash Flows, Eight months
ended August 31, 1996 and 1995 (unaudited)
Notes to Condensed Combined Financial Statements, August 31,
1996 and 1995
Pro Forma Financial Information
Pro Forma Combined Statements of Income, Years ended December
31, 1995 (unaudited)
Pro Forma Combined Statements of Income, Nine months ended
September 30, 1996 (unaudited)
Notes to Pro Forma Financial Statements
(b) Exhibits
2.1 Press Release dated September 11, 1996 *
2.2 Asset Exchange Agreement dated as of August 31, 1996 by and
between EyeCare and Surgery Center of North Texas, P.A. and Omega
Health Systems of North Texas, Inc. *
2.3 Asset Exchange Agreement dated as of August 31, 1996 by and between
ECSC Retina, P.A. and Omega Health Systems of North Texas, Inc. *
2.4 Management Agreement dated as of August 31, 1996 *
2.5 Partnership Agreement of SurgEyeCare General Partnership
* Previously filed.
(Continued)
<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: November 25, 1996 By: /s/ Ronald L. Edmonds
-------------------------------------------------
Ronald L. Edmonds
Senior Vice President and Chief Financial Officer
(Continued)
<PAGE>
EYECARE AND SURGERYCENTER
OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Combined Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
(Continued)
<PAGE>
Independent Auditors' Report
----------------------------
The Boards of Directors
EyeCare and SurgeryCenter of North Texas, P.A. and SurgEyeCare, Inc.:
We have audited the accompanying combined balance sheets of EyeCare and
SurgeryCenter of North Texas, P.A. and SurgEyeCare, Inc. as of December 31, 1995
and 1994, and the related combined statements of operations, stockholders'
equity and cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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 EyeCare and
SurgeryCenter of North Texas, P.A. and SurgEyeCare, Inc. as of December 31, 1995
and 1994, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
November 8, 1996
(Continued)
<PAGE>
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Combined Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Accounts receivable, less allowances for contractual
adjustments and uncollectible accounts of $612,000
and $599,000 in 1995 and 1994, respectively (note 3) $ 612,581 901,332
Prepaid expenses and other current assets 56,460 55,842
---------- ----------
Total current assets 669,041 957,174
Furniture, fixtures and equipment, net (note 4) 223,919 263,953
Other assets 75,013 --
Due from related party 29,471 --
---------- ----------
$ 997,444 1,221,127
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Book overdraft in bank account $ 21,134 23,942
Accounts payable and accrued expenses 72,011 212,754
Accrued payroll, payroll taxes and benefits 110,025 247,240
Notes payable 303,884 261,938
Current portion of capital lease obligations (note 6) 59,098 43,586
---------- ----------
Total current liabilities 566,152 789,460
Capital lease obligations, less current portion (note 6) 94,459 112,908
Deferred income taxes (note 8) 56,750 59,942
---------- ----------
Total liabilities 717,361 962,310
---------- ----------
Stockholders' equity:
Common stock, EyeCare and SurgeryCenter of
North Texas, P.A., $.10 par value, 100,000
shares authorized, 10,000 shares issued and outstanding 1,000 1,000
Common stock, SurgEyeCare, Inc., $.10 par value, 100,000
shares authorized, 25,000 shares issued and outstanding 2,500 2,500
Retained earnings 276,583 255,317
---------- ----------
Total stockholders' equity 280,083 258,817
---------- ----------
Commitments and contingencies (notes 6, 7 and 9)
$ 997,444 1,221,127
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
(Continued)
<PAGE>
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Combined Statements of Operations
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net patient service revenue (note 7) $ 5,340,884 5,048,737
Expenses:
Compensation to owners 1,602,598 1,585,555
Salaries, wages and benefits 1,352,016 1,659,719
Pharmaceuticals and supplies 417,087 537,165
General and administrative 1,565,534 1,232,465
Depreciation and amortization 131,612 140,788
Interest 40,740 38,774
Other, net 92,254 6,809
----------- -----------
Total expenses 5,201,841 5,201,275
----------- -----------
Income (loss) before income taxes 139,043 (152,538)
Income tax benefit (note 8) (5,652) (58,109)
----------- -----------
Net income (loss) $ 144,695 (94,429)
=========== ===========
Pro forma (unaudited):
Historical combined income (loss) before income taxes $ 139,043 (152,538)
Pro forma income taxes on a combined basis 52,781 (57,903)
----------- -----------
Pro forma combined net income (loss) $ 86,262 (94,635)
=========== ===========
Supplemental disclosure:
Combined compensation to owners and net income or
loss before income taxes $ 1,741,641 1,433,017
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
(Continued)
<PAGE>
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Combined Statements of Stockholders' Equity
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Common stock Total
------------------------- Retained stockholders'
EyeCare SurgEyeCare earnings equity
------- ----------- -------- ------
<S> <C> <C> <C> <C>
Balances at January 1, 1994 $ 1,000 2,500 693,167 696,667
Distributions to stockholders -- -- (343,421) (343,421)
Net loss -- -- (94,429) (94,429)
-------- -------- -------- --------
Balances at December 31, 1994 1,000 2,500 255,317 258,817
Distributions to stockholders -- -- (123,429) (123,429)
Net income -- -- 144,695 144,695
-------- -------- -------- --------
Balances at December 31, 1995 $ 1,000 2,500 276,583 280,083
======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
(Continued)
<PAGE>
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Combined Statements of Cash Flows
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 144,695 (94,429)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 131,612 140,788
Deferred income taxes (3,192) (113,740)
Changes in operating assets and liabilities:
Accounts receivable 288,751 551,494
Prepaid expenses and other current assets (618) 5,835
Due from affiliate (29,471) --
Accounts payable and accrued expenses (140,743) (12,909)
Accrued payroll, payroll taxes and benefits (137,215) 39,508
--------- ---------
Net cash provided by operating activities 253,819 516,547
--------- ---------
Cash flows from investing activities:
Capital expenditures (38,803) (56,501)
Purchase of investment (75,013) --
Net cash used in investing activities (113,816) (56,501)
--------- ---------
Cash flows from financing activities:
Book overdraft in bank account (2,808) 23,942
Proceeds from notes payable 259,631 349,280
Principal payments on notes payable (217,685) (493,339)
Principal payments on capital lease obligations (55,712) (36,232)
Distributions to stockholders (123,429) (343,421)
--------- ---------
Net cash used in financing activities (140,003) (499,770)
--------- ---------
Net change in cash -- (39,724)
Cash at beginning of year -- 39,724
--------- ---------
Cash at end of year $ -- --
========= =========
Supplemental disclosure:
Interest paid $ 43,736 38,654
========= =========
</TABLE>
Noncash transactions:
During the years ended December 31, 1995 and 1994, the Company entered into
capital lease obligations to acquire equipment for $52,775 and $20,325,
respectively.
See accompanying notes to combined financial statements.
(Continued)
<PAGE>
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Notes to Combined Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Description of Business
-----------------------
EyeCare and SurgeryCenter of North Texas, P.A. ("EyeCare"), the
ophthalmology practice of Wesley K. Herman, M.D. and Bradford
Pazandak, M.D., is a medical practice specializing in
ophthalmological services. Dr. Herman and Dr. Pazandak are also the
sole shareholders of SurgEyeCare, Inc., ("SurgEyeCare") an
affiliated ambulatory surgery center located adjacent to EyeCare. In
combination, these two entities are collectively referred to herein
as "the Company."
On September 11, 1996, Omega Health Systems, Inc. ("Omega") acquired
certain assets and assume certain liabilities of EyeCare and
acquired a 75% interest in SurgEyeCare. Simultaneously with the
acquisitions, Omega has entered into long-term management agreements
with EyeCare and SurgEyeCare.
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 EyeCare and
SurgEyeCare is believed to provide the most useful information with
respect to the Form 8-K filing requirements.
(b) Statement of Operations
-----------------------
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.
(Continued)
<PAGE>
2
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Notes to Combined Financial Statements
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.
(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 and 1994 was not significant.
(e) 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
----------------------
Automobile 5 years
Equipment 5 years
Leasehold improvements 5-10 years
Furniture and fixtures 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, which
is generally three to five years.
(Continued)
<PAGE>
3
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Notes to Combined Financial Statements
(f) Income Taxes
------------
EyeCare, 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.
SurgEyeCare has elected for its earnings to be taxed directly to its
stockholders under the S Corporation provisions of the Internal
Revenue Code and similar provisions of Texas laws and regulations.
Accordingly, the accompanying historical combined financial
statements contain no provision for income taxes related to
SurgEyeCare's earnings.
(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.
(2) Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of all asset and liability financial instruments
approximate their estimated fair values in all material respects at
December 31, 1995 and 1994. 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)
<PAGE>
4
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, 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 Dallas, Texas. 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 and 1994 follows:
1995 1994
---- ----
Commercial insurance 44% 34%
Medicare 35 38
Patient 10 11
Medicaid 7 7
Other third-party payors 4 10
---- ----
100% 100%
(4) Furniture, Fixtures and Equipment
---------------------------------
A summary of furniture, fixtures and equipment at December 31, 1995 and
1994 follows:
1995 1994
---- ----
Automobiles $ 64,626 64,626
Equipment 1,294,383 1,271,778
Leasehold improvements 490,865 479,681
Furniture and fixtures 126,483 117,481
Equipment under capital leases 260,711 207,936
----------- ----------
2,237,068 2,141,502
Less accumulated depreciation
and amortization (2,013,149) (1,877,549)
----------- ----------
$ 223,919 263,953
=========== ==========
(Continued)
<PAGE>
5
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Notes to Combined Financial Statements
(5) Notes Payable
-------------
Notes payable consist of demand promissory notes with interest at prime
plus 1% and are collateralized by all equipment of the Company.
(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 and 1994 was $260,711 and $207,936,
with related accumulated depreciation of $135,102 and $81,446,
respectively.
The Company also is obligated under certain noncancelable operating
leases. Total lease expense for all operating leases was approximately
$557,000 and $568,000 for the years ended December 31, 1995 and 1994,
respectively. The Company's most significant operating lease is for clinic
and surgery center facilities owned by the Company's stockholders (also
see note 11). Expense under this lease totaled approximately $210,000 and
$156,000 in 1995 and 1994, respectively.
Future minimum lease payments under noncancelable operating leases and the
present value of minimum capital lease payments at December 31, 1995
follow:
Capital Operating
leases leases
------ ------
1996 $ 71,535 452,084
1997 62,838 412,501
1998 28,687 214,584
1999 11,762 214,584
2000 2,358 168,096
--------- ----------
177,180 $1,461,849
Less amount representing interest ==========
(at rates from 8.0% to 12.5%) 23,623
---------
153,557
Less current portion 59,098
---------
Capital lease obligations, less current
portion $ 94,459
=========
(Continued)
<PAGE>
6
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Notes to Combined Financial Statements
(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.
The Medicare fiscal intermediary has asserted claims against the Company
for retroactive billing adjustments totaling approximately $300,000. The
Company believes that most, if not all, of these claims will be resolved
in favor of the Company; however, the ultimate resolution of this matter
cannot presently be determined.
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, EyeCare is a taxable corporation. Income tax
expense (benefit), which relates solely to EyeCare, consists of the
following for the years ended December 31, 1995 and 1994:
1995 Current Deferred Total
---- ------- -------- -----
U. S. Federal $(2,460) (3,192) (5,652)
State and local - - -
------- ------ ------
$(2,460) (3,192) (5,652)
======= ====== ======
1994
----
U. S. Federal 55,631 (113,740) (58,109)
State and local - - -
------- ------ ------
$55,631 (113,740) (58,109)
======= ====== ======
(Continued)
<PAGE>
7
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Notes to Combined Financial Statements
Income tax benefit for the year ended December 31, 1995 and 1994 differs
from the amount computed by applying the U. S. Federal income tax rate of
34 percent to EyeCare's pretax losses as a result of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Computed "expected" tax benefit $(142,229) (171,561)
Adjustments related to graduated rate structure 79,481 95,872
Provision in excess of that required 52,885 13,827
Meals, entertainment and other non-deductible items 4,211 3,753
--------- ---------
$ (5,652) (58,109)
========= ========
Tax effects of EyeCare's temporary differences that gave rise to deferred
tax assets and liabilities at December 31, 1995 and 1994 are presented
below.
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Plant and equipment, principally due to differences
in depreciation $10,441 10,206
Deferred tax liabilities:
Use of modified cash method for income tax purposes 67,191 70,148
------ ------
Net deferred tax liability $56,750 59,942
====== ======
</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 EyeCare will
realize the benefits of these deductible differences.
Included on the combined income statements is the pro forma historical
combined income (loss) for the Company as well as pro forma income taxes
on a combined basis. Amounts represent the income taxes had both acquired
entities been taxable. Pro forma income taxes are computed utilizing the
effective tax rate of Omega.
(Continued)
<PAGE>
8
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Notes to Combined Financial Statements
(9) Employee Benefit Plan
---------------------
The Company maintains a 401(k) profit sharing plan (the "Plan"), which
covers substantially all employees. Employees who complete six months of
service and attain age 21 may participate in the Plan. The Company makes
matching contributions to the Plan which equal 25% of each employee's
contribution, not to exceed 4% of employee's compensation. Eligible
employees ratably vest in the Company's contributions over six years. The
Company made matching contributions to the Plan during the years ended
December 31, 1995 and 1994 totaling $14,068 and $17,938, respectively.
(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 leases certain facilities and equipment from various entities
owned or otherwise controlled by the Company's stockholders. Rentals paid
to related parties were approximately $491,000 and $444,000 for the years
ended December 31, 1995 and 1994, respectively. Management believes that
these transactions reflect appropriate market rates and terms for similar
transactions between unaffiliated parties.
<PAGE>
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Condensed Combined Statements of Operations
Eight months ended August 31, 1996 and 1995
(unaudited)
1996 1995
---- ----
Net patient service revenue $ 3,286,845 3,408,817
Expenses:
Compensation to owners 791,740 810,826
Salaries, wages and benefits 869,444 865,829
Pharmaceuticals and supplies 231,254 251,334
General and administrative 1,052,723 838,720
Depreciation and amortization 86,250 87,741
Interest 24,097 31,345
Other, net (14,812) 92,272
----------- -----------
Total expenses 3,040,696 2,978,067
----------- -----------
Income before income taxes 246,149 430,750
Income tax benefit -- 5,652
----------- -----------
Net income $ 246,149 436,402
=========== ===========
See accompanying notes to condensed combined financial statements.
<PAGE>
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Condensed Combined Statements of Cash Flows
8 months ended August 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 246,149 436,402
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 86,250 87,741
Deferred income taxes -- (3,192)
Changes in operating assets and liabilities:
Accounts receivable (21,900) 149,714
Prepaid expenses and other current assets 1,467 (777)
Due from affiliate -- (27,499)
Accounts payable and accrued expenses 5,117 (87,062)
Accrued payroll, payroll taxes and benefits (1,433) (137,098)
--------- ---------
Net cash provided by operating activities 315,650 418,229
--------- ---------
Cash flows from investing activities:
Capital expenditures (103,666) (89,873)
Purchase of investment -- (75,000)
--------- ---------
Net cash used in investing activities (103,666) (164,873)
--------- ---------
Cash flows from financing activities:
Book overdraft in bank account (21,134) (23,942)
Repayment of long-term debt 33,144 86,548
Distributions to stockholders (96,000) (8)
--------- ---------
Net cash used in financing activities (83,990) 62,598
--------- ---------
Net change in cash 127,994 315,954
Cash at beginning of period -- --
--------- ---------
Cash at end of period $ 127,994 $ 315,954
========= =========
Supplemental disclosure:
Interest paid $ 18,432 22,874
--------- ---------
</TABLE>
See accompanying notes to condensed combined financial statements.
<PAGE>
EYECARE AND SURGERYCENTER OF NORTH TEXAS, P.A.
AND SURGEYECARE, INC.
Notes to Condensed Combined Financial Statements
(unaudited)
(1) The condensed combined financial statements include the accounts of
EyeCare and SurgeryCenter of North Texas, P.A. ("EyeCare") and of
SurgEyeCare, Inc., ("SurgEyeCare") an affiliated ambulatory surgery center
located adjacent to EyeCare. 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 eight month periods ended
August 31, 1996 and 1995 are not necessarily indicative of the results to
be expected for the full year.
(2) On September 11, 1996, Omega Health Systems, Inc. ("Omega") acquired
certain assets and assume certain liabilities of EyeCare and acquired a
75% interest in SurgEyeCare. Simultaneously with the acquisitions, Omega
has entered into long-term management agreements with EyeCare and
SurgEyeCare. Since the acquisition is reflected in the condensed
consolidated balance sheet of Omega, as included in its Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, no balance sheet is
required.
<PAGE>
OMEGA HEALTH SYSTEMS, INC.
Pro Forma Combined Statements of Income
Year ended December 31, 1995
<TABLE>
<CAPTION>
Omega EyeCare Garland Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Center net revenues $19,752,926 $ 5,340,884 $ 3,291,674 $ 28,385,484
Managed care revenues 10,546,467 10,546,467
Supply and equipment sales 1,845,744 1,845,744
Managment and other revenues 790,334 790,334
----------- ----------- ----------- ------------ ------------
Total revenues 32,935,471 5,340,884 3,291,674 0 41,568,029
Center operating expenses 18,259,770 5,161,101 3,047,011 (1a) 267,984 25,596,029
(1b) 112,000
(2a) (993,951)
(2b) (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 762,541 179,783 244,663 871,853 2,058,840
Interest expense (290,978) (40,740) (42,932)(3a) (258,734) (851,384)
(4) 40,000
(3b) (258,000)
Other income (expense), net 9,311 (48,695)(4) 25,000 (14,384)
----------- ----------- ----------- ------------ ------------
Earnings before income taxes 480,874 139,043 153,036 420,119 1,193,072
Income tax expense (benefit) (5,652) 7,386 (5a) 5,652 0
(5b) (7,386)
----------- ----------- ----------- ------------ ------------
Earnings before minority
interest in partnership 480,874 144,695 145,650 421,853 1,193,072
Minority interest in earnings of
partnership (6) (109,318) (109,318)
----------- ----------- ----------- ------------ ------------
Net earnings $ 480,874 $ 144,695 $ 145,650 $ 312,535 $ 1,083,754
=========== =========== =========== ============ ============
Net earnings per common share $ 0.10 $ 0.20
=========== ============
Weighted average shares outstanding 4,694,352 5,465,781
=========== ============
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
<PAGE>
OMEGA HEALTH SYSTEMS, INC.
Pro Forma Combined Statements of Income
Nine months ended September 30, 1996
<TABLE>
<CAPTION>
Omega EyeCare Garland Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
----------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Center net revenues $17,786,930 $ 3,287,148 $ 754,402 $21,828,480
Managed care revenues 10,711,575 10,711,575
Supply and equipment sales 1,611,457 1,611,457
Management and other revenues 356,184 356,184
----------- ----------- --------- ------------ ------------
Total revenues 30,466,146 3,287,148 754,402 0 34,507,696
Center operating expenses 15,634,780 3,031,411 593,376 (1a) 178,658 18,828,664
(1b) 28,000
(2a) (664,561)
(2b) 27,000
Eye care claims 8,370,930 8,370,930
Cost of sales 1,130,475 1,130,475
General and administrative expenses 4,250,094 4,250,094
----------- ----------- --------- ------------ ------------
Earnings from operations 1,079,867 255,737 161,026 430,903 1,927,533
Interest expense (420,479) (24,097) (6,552)(3a) (179,459) (690,587)
(3b) (64,000)
(4) 4,000
Other income (expense), net 185,034 (9,223) 175,811
----------- ----------- --------- ------------ ------------
Earnings before income taxes 844,422 231,640 145,251 191,444 1,412,757
Income tax expense 0
----------- ----------- --------- ------------ ------------
Earnings before minority
interest in partnership 844,422 231,640 145,251 191,444 1,412,757
Minority interest in earnings of
partnership (14,594) (6) (94,791) (109,385)
----------- ----------- --------- ------------ ------------
Net earnings $ 829,828 $ 231,640 $ 145,251 $ 96,653 $ 1,303,372
=========== =========== ========= ============ ============
Net earnings per common share $ 0.13 $ 0.19
=========== ===========
Weighted average shares outstanding 5,114,445 5,800,160
=========== ===========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
<PAGE>
OMEGA HEALTH SYSTEMS, INC.
Notes to Pro Forma Financial Information
(unaudited)
The accompanying pro forma combined financial information is intended o give
effect to Inc. the acquisition by Omega Health Systems, Inc. ("Omega") of(a)
substantially all of the net assets of EyeCare and SurgeryCenter of North Texas,
P.A. and ECSC Retina, P.A. and a 75% interest in SurgEyeCare, an affiliated
ambulatory surgery center (collectively, "EyeCare") and (b) certain assets of
Paul E. Garland, M.D., P.A. and the outstanding capital stock of Capital Eye
Surgery Center, Inc. (collectively, "Garland") and to give effect to the related
management agreements between Omega and the EyeCare and Garland practices.
The pro forma financial statements should be read in conjunction with the
historical financial of Omega Health Systems, Inc. and subsidiaries 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 September 30, 1996, the
combined historical financial statements of Garland included in Form 8-K/A dated
as of March 12, 1996 and the combined financial statements of EyeCare included
elsewhere herein.
The pro forma condensed combined statements of income for the year ended
December 31, 1995 and the nine months ended September 30, 1996 have been
prepared assuming the transactions underlying the acquisitions described above
and the related management agreements 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 these transactions have been
accounted for using the purchase method of accounting and the transactions are
reflected in Omega's condensed consolidated balance sheet as of September 30,
1996 included in its Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
The following sets forth a description of the pro forma adjustments included in
the pro forma statements of income:
(1a) This adjustment reflects the application of purchase accounting in
connection with the acquisition of EyeCare and the resulting increase in
depreciation and amortization.
(1b) This adjustment reflects the application of purchase accounting in
connection with the acquisition of Garland and the resulting increase in
depreciation and amortization.
(2a) This adjustment reflects the effect of the terms of the management
agreements with the EyeCare practices on the cost of professional
services.
(2b) This adjustment reflects the effect of the terms of the management
agreement with the Garland practice on the cost of professional services.
<PAGE>
OMEGA HEALTH SYSTEMS, INC.
Notes to Pro Forma Financial Information
(continued)
(3a) This adjustment reflects the effect of financing costs of the SurgEyeCare
component of the EyeCare transaction.
(3b) This adjustment reflects the effect of financing costs of the Garland
acquisition.
(4) This adjustments removes from the pro forma condensed combined
statements of income the effect of items which are not related to the
assets and liabilities acquired or assumed in the Garland transaction.
(5) This adjustment reflects the elimination of income tax expense as Omega is
in a net operating loss carryforward position.
(6) This adjustment reflects the minority interest in the net earnings of
SurgEyeCare General Partnership, in which Omega acquired a 75% interest in
connection with the EyeCare transactions.
