<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 1-13778
PHYSICIANS RESOURCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0456864
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Lincoln Center, 5430 LBJ Freeway, Suite 1540, Dallas, TX 75240
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (214) 982-8200
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
------ -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at May 15, 1996
-------- ---------------------------
Common Stock, $.01 par value 17,877,896 shares
<PAGE> 2
PHYSICIANS RESOURCE GROUP, INC.
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1996
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1 Financial Statements and General Information . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets - December 31, 1995 and March 31, 1996 (unaudited) . . . . . . . 3
Consolidated Statements of Operations - Three Months Ended
March 31, 1995 and March 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1995 and March 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements - March 31, 1996 (unaudited) . . . . . . . . . 6-9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 10-12
PART II. OTHER INFORMATION
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3 Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4 Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 5 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-16
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
General Information
Physicians Resource Group, Inc. (PRG or the Company) was incorporated in
November 1993 for the purpose of providing physician practice management
services to ophthalmic and optometric practices and developing integrated eye
care systems. Simultaneously with the closing of its initial public offering
on June 28, 1995, the Company acquired in a reorganization, certain assets of
and liabilities associated with ten ophthalmic and optometric practices located
in seven states. Prior to the consummation of the offering and reorganization,
the Company's operations consisted primarily of seeking affiliations with these
practices and negotiating the service agreements and the reorganization
agreements. The consummation of the initial public offering, the
reorganization and the entry into its initial service agreements marked the
beginning of PRG's operations.
On March 18, 1996 the Company merged with EyeCorp Inc. (EyeCorp), a
privately held physician practice management company under a pooling of
interests transaction. EyeCorp provides practice management services to 50
ophthalmic and optometric practices. The financial statements for periods
prior to the consummation of the merger have been adjusted to reflect the
operations of the combined entities for those periods. The Company has also
completed the acquisition of certain assets and liabilities of 20 additional
ophthalmic and optometric practices during the first and early second quarter
of 1996. See Notes 1 and 6 in the accompanying Notes to Consolidated Financial
Statements for further information.
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PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1995 1996
---------- ---------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,451 $ 9,872
Accounts receivable, net 9,904 13,365
Receivables due from affiliated practices 6,265 11,801
Inventories 2,045 2,726
Prepaid expenses and other current assets 6,633 3,037
-------- --------
Total current assets 42,298 40,801
PROPERTY AND EQUIPMENT, net 27,519 33,462
INTANGIBLE ASSETS, net 52,257 80,967
OTHER NONCURRENT ASSETS, net 1,538 4,234
-------- --------
Total assets $123,612 $159,464
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Obligations to affiliated physicians and physician groups $ 1,086 $ --
Notes payable and current portion of long-term debt 1,531 4,982
Accounts payable and accrued expenses 10,397 16,553
Accrued taxes, payroll and executive resignation costs 3,075 4,082
Amounts due under the ASC Option 3,100 --
-------- --------
Total current liabilities 19,189 25,617
LONG-TERM DEBT, net of current portion 27,815 32,699
DEFERRED TAXES AND OTHER LONG-TERM LIABILITIES 14,285 23,228
-------- --------
Total liabilities 61,289 81,544
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 30,000,000 shares authorized,
15,647,750 and 17,114,187 outstanding 157 171
Preferred stock, $.01 par value, 10,000,000 shares authorized, none outstanding -- --
Additional paid-in capital 60,374 82,794
Retained earnings (deficit) 1,792 (5,045)
-------- --------
Total stockholders' equity 62,323 77,920
-------- --------
Total liabilities and stockholders' equity $123,612 $159,464
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1995 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Management services $ 5,281 $30,601
Surgery center 1,855 4,725
Other -- 894
-------- --------
Total revenues 7,136 36,220
-------- --------
COSTS AND EXPENSES:
Salaries, wages and benefits 1,403 14,744
Pharmaceuticals and supplies 877 4,899
General and administrative 3,791 10,806
Depreciation and amortization 332 1,804
Interest expense 374 391
EyeCorp merger transaction expenses -- 9,000
-------- --------
Total costs and expenses 6,777 41,644
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES 359 (5,424)
PROVISION FOR INCOME TAXES 132 1,413
-------- --------
NET INCOME (LOSS) $ 227 $ (6,837)
======== ========
NET INCOME (LOSS) PER SHARE $ .05 $ (.42)
======== ========
NUMBER OF SHARES USED IN NET
INCOME (LOSS) PER SHARE CALCULATION 4,634 16,420
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 6
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
1995 1996
------- -------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 227 $(6,837)
Adjustments to reconcile net income (loss) to net cash
provided from operating activities:
Depreciation and amortization 332 1,804
Change in deferred taxes - 1,066
Changes in assets and liabilities, net of acquisitions:
Increase (Decrease) in accounts payable, accrued expenses and accrued payroll (1,015) 3,002
Decrease (Increase) in accounts receivable, net and receivables due from affiliates 383 (3,246)
Decrease (Increase) in inventories - (108)
Decrease (Increase) in prepaid expenses and other assets (191) (705)
------- -------
Net cash used by operating activities (264) (5,024)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash consideration paid to acquire physician practices - (7,820)
Cash paid to former owners of Founding Affiliated Practices - (933)
Additions to property and equipment (168) (1,601)
------- -------
Net cash used by investing activities (168) (10,354)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid in connection with organization of the Company
and the initial public offering (1,006) -
Proceeds from credit facility - 11,000
Advances from related party 1,425 -
Proceeds from long term debt - 3,959
Payments on long-term debt (649) (7,190)
Other proceeds - 30
------- -------
Net cash (used) provided by financing activities (230) 7,799
NET DECREASE IN CASH AND CASH EQUIVALENTS (662) (7,579)
CASH AND CASH EQUIVALENTS, beginning of period 2,848 17,451
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 2,186 $ 9,872
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 7
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
Business and Organization
Physicians Resource Group, Inc. (PRG or the Company) was incorporated
in 1993 but did not conduct any significant operations prior to PRG's initial
public offering and concurrent acquisition of certain assets and liabilities
of ten ophthalmic and optometric practices in June 1995. As part of the
reorganization and subsequent acquisitions, PRG acquired tangible and intangible
assets and liabilities of, and entered into service agreements with, its
affiliated practices and earns fees (Service Fees) thereunder. The Service Fees
payable to PRG by these practices under the service agreements (Service
Agreements) vary based on the nature and amount of services provided. Such fees
are payable monthly and consist of various combinations of the following: (i)
percentages (ranging from 12% to 16%) of the revenues or percentages (ranging
from 10% to 40%) of the earnings of the affiliated practices, relating to
professional services and certain other non-medical services, depending on the
scope and breadth of the services provided, (ii) all revenues, or a substantial
portion of revenues, relating to facility and other non-physician fees with
respect to certain assets owned by PRG, (iii) operating and non-operating
expenses of the practices paid by PRG pursuant to the Service Agreements and
(iv) certain negotiated performance and other adjustments. In addition, with
respect to several of the practices, the Service Fees are based on flat rates
that are either subject to renegotiation on an annual basis or that transition
over time to a variable fee.
Acquisitions Subsequent to Reorganization
On March 18, 1996, PRG merged, in a transaction accounted for as a
pooling of interests, with EyeCorp, Inc. (EyeCorp), a privately held physician
practice management company devoted solely to eye care. In connection
therewith, PRG issued 6,089,506 shares of common stock to the shareholders
of EyeCorp. EyeCorp provides management services to approximately 50 eye care
practices and 5 ambulatory surgery centers (ASC's). The financial statements of
EyeCorp have been combined with those of the Company for all periods presented
(see Note 6).
During the first quarter of 1996, PRG acquired certain assets and
liabilities of, and entered into Service Agreements with, 11 eye care practices
and seven ASC's. These acquisitions were accounted for as purchases. The net
assets acquired in the transactions were approximately $31,504,000. As
consideration for these acquisitions, PRG paid approximately, $7,820,000 in
cash and issued 1,446,437 shares of its common stock (see Note 6). The PRG
common stock issued in connection with these acquisitions was valued from
$20.75 to $22.00 per share which represented the trading price at the time a
definitive agreement was reached. The accompanying financial statements
include the results of operations of the above acquisitions subsequent to the
date of acquisition.
Subsequent to March 31, 1996, PRG has acquired the assets of and
entered into Service Agreements with an additional nine practices and one ASC.
As consideration for these acquisitions, PRG paid approximately $1,674,000 in
cash and issued 763,709 shares of its common stock (see Note 6).
Basis of Presentation
In the opinion of Company management, the accompanying consolidated
financial statements include the accounts of the Company and all adjustments
necessary to present fairly the Company's financial position at December 31,
1995 and March 31, 1996, its results of operations and cash flows for the
three-month periods ended March 31, 1995 and 1996. Although the Company
believes that the disclosures are adequate to make the information presented
not misleading, certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These consolidated
financial statements should be read in conjunction with the Company's financial
statements and footnotes thereto included in
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the Company's Annual Report on Form 10-K/A filed with the Securities and
Exchange Commission on April 30, 1996. The results of operations for the
three-month periods ended March 31, 1995 and 1996 may not be indicative of the
results for the full year.
2. RECEIVABLES DUE FROM AFFILIATED PRACTICES:
The amounts due from the affiliated practices include management service
receivables, receivables from the practices for certain expenses being paid on
their behalf and certain other receivables. The receivables due from certain
of the affiliated practices are collateralized by a security interest in the
affiliated practices, receivables from third-party payors and patients.
Pursuant to the terms of certain of the EyeCorp service agreements, the
affiliated practices' accounts receivable are purchased without recourse. The
purchase price is the face amount of the accounts receivable less any reserve
recorded by the affiliated practices for uncollectible amounts. Accounts
receivable are purchased daily and paid at the end of each month.
3. LONG-TERM OBLIGATIONS:
In January 1996, PRG entered into a $35,000,000 credit facility (the PRG Credit
Facility) with a bank, to be used for acquisitions, capital expenditures and
working capital. Up to $10,000,000 may be borrowed under the PRG Credit
Facility for letters of credit. The PRG Credit Facility is secured by the stock
of the subsidiaries of PRG and guaranteed by the subsidiaries of PRG. PRG may
obtain advances under the PRG Credit Facility to the extent of the lesser of the
$35,000,000 or the borrowing base in effect from time to time (the Borrowing
Base). Interest rates on borrowings are prime plus .5% or LIBOR plus 1.25% to
2.0%. The Company had drawn $11,000,000 on this Credit Facility as of March 31,
1996. The outstanding balance of the Credit Facility will convert to a term
loan on January 8, 1998 and be due and payable by January 8, 2001.
In December 1995, EyeCorp entered into a $20,000,000 revolving credit facility
(the EyeCorp Credit Facility) with a bank which was used for the acquisitions
completed in 1995 and for the repayment of amounts outstanding under the prior
credit facility. The EyeCorp Credit Facility is secured by certain assets and
EyeCorp common stock. Interest rates on borrowings are prime plus .5% or LIBOR
plus 2.0% to 2.5%. EyeCorp had drawn approximately $19,600,000 on this Credit
Facility as of March 31, 1996. The outstanding balance of the EyeCorp Credit
Facility will convert to a term loan in December 1996 and be due and payable in
quarterly payments within one year.
4. STOCKHOLDERS' EQUITY:
The Company is authorized to issue up to 30,000,000 shares of common stock,
$.01 par value. An additional 7,535,943 shares were issued in the first
quarter of 1996, in connection with the EyeCorp merger and the acquisition of
certain assets and liabilities of 11 eye care practices (see Note 1).
Subsequent to March 31, 1996, the Company issued an additional 763,709 shares
of common stock in connection with acquisitions of certain assets and
liabilities of nine more eye care practices.
The Company has reserved (i) 3,451,655 shares of common stock for issuance upon
exercise of stock options under the Company's stock option plans and (ii)
40,000 shares of common stock for issuance upon exercise of warrants. The
Company also registered an additional 3,000,000 shares of common stock during
the second quarter of 1996 to be used in connection with additional future
acquisitions.
In May 1996 the Company commenced a public offering of 5,000,000 shares of
common stock (the Offering). The Company is issuing 3,500,000 shares of common
stock and stockholders of the Company are selling 1,500,000 shares of common
stock in the Offering (see Note 6).
5. STOCK OPTION PLANS:
In March 1995, the board of directors adopted, and the stockholders of the
Company approved, the 1995 Stock Option Plan, (the Plan). The Plan was amended
and restated in March of 1996. The purpose of the Plan is to provide
directors,
7
<PAGE> 9
key employees and certain advisors with additional incentives by increasing
their proprietary interest in the Company. The aggregate amount of common stock
with respect to which options may be granted may not exceed 2,000,000 shares.
The Plan provides for the grant of incentive stock options (ISO) and
non-qualified stock options. The options typically vest over a five-year period
and expire ten years from the date of grant.
In March 1995, the board of directors adopted, and the stockholders of the
Company approved, the 1995 Health Care Professionals Stock Option Plan (the
Health Care Professionals Plan). The Health Care Professionals Plan permits the
Company to grant stock options to employees, advisors and consultants of the
Company, which the Company expects will generally be ophthalmologists and
optometrists, who both (i) provide advisory or consulting services to the
Company and (ii) are employed by an affiliated practice. The aggregate amount
of common stock with respect to which options may be granted may not exceed
1,000,000 shares. Options granted under the Health Care Professionals Plan
typically vest over a period of five years and expire ten years from the date of
grant. Generally, such options will expire upon the termination of employment
or the advisory or consultant relationship with the Company or on the day prior
to the tenth anniversary of the date of grant, whichever occurs first.
Under the terms of the EyeCorp merger, stock options outstanding under the
EyeCorp, Inc. 1995 Incentive and Non- Qualified Stock Option Plan are
exercisable for shares of PRG common stock. The options are fully vested and
are exercisable over a period of five years.
Transactions of the plans are summarized as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS
------------------------------
ISO'S NON-QUALIFIED TOTAL
--------- ------------- ---------
<S> <C> <C> <C>
Outstanding at December 31, 1995 . . . . . . . . 1,095,654 539,992 1,635,646
Granted in 1996 . . . . . . . . . . . . . 78,672 108,619 187,291
Exercised in 1996 . . . . . . . . . . . . -- (20,000) (20,000)
Cancelled in 1996 . . . . . . . . . . . . -- -- --
--------- ------- ---------
Outstanding at March 31, 1996 . . . . . . . . . . 1,174,326 628,611 1,802,937
========= ======= =========
</TABLE>
Of the stock option grants outstanding, 496,654 were issued at prices between
$5.00 and $10.00 per share, 946,592 were issued at prices between $10.01 and
$15.00 per share, and 359,691 were issued at prices between $15.01 and $25.00
per share.
6. SUBSEQUENT EVENTS AND PRO FORMA INFORMATION:
Acquisitions
Subsequent to March 31, 1996, PRG completed the acquisition of and entered into
Service Agreements with nine eye care practices and one ASC. As total
consideration for these acquisitions, PRG paid approximately $1,674,000 in cash
and issued 763,709 shares of common stock. In addition to these acquisitions,
the Company is currently in various stages of negotiations with a number of
other ophthalmic and optometric practices regarding the acquisition of certain
assets and liabilities and the provision of management services. Management of
PRG believes certain of these negotiations, if finalized, will result in
additional closings in the future.
Pro Forma
The summarized unaudited pro forma consolidated statement of operations data
for the three months ended March 31, 1995 and 1996 presented below have been
prepared as if (a) the reorganization and initial public offering had been
completed; (b) the consummation of PRG's 20 closed transactions during 1996 and
entry into service agreements with these 20 eye care practices had occurred;
(c) the acquisitions made by EyeCorp during 1995 were completed; and (d) the
consummation of the EyeCorp and PRG Credit Facilities had occurred, all as if
such transactions or events had occurred January 1, 1995 and 1996, respectively
(in thousands, except shares).
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<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31
-----------------------------------
1995 1996
---------- ------------
<S> <C> <C>
Management service revenues . . . . . . . . . . . . . . $ 46,535 $ 46,474
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 3,931 $ (6,205)
Net income (loss) per share . . . . . . . . . . . . . . $ .21 $ (.35)
Number of shares used in net income (loss)
per share calculation . . . . . . . . . . . . . . . 18,655,848 17,877,896
</TABLE>
Had the EyeCorp merger expenses not been incurred, pro forma income and pro
forma income per share for the three months ended March 31, 1996, would have
been approximately $2,795,000 and $.15 per share, respectively, based on
18,655,848 shares outstanding.
The Offering
PRG has commenced an Offering of 5,000,000 shares of its common stock at $28.50
per share. Of these shares, 3,500,000 shares of common stock will be sold by
the Company and 1,500,000 will be sold by existing shareholders. Proceeds to
the Company, net of estimated offering expenses and underwriting discounts, are
estimated to be approximately $93,400,000. Of this amount, approximately
$38,700,000 will be used to pay down indebtedness, primarily debt outstanding
under its Credit Facilities, with the remainder to be available for
acquisitions, capital expenditures and general corporate purposes. The Offering
is anticipated to close on May 20, 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
As discussed in Item 1, PRG conducted no significant operations until the
reorganization. Through the Service Agreements, the Company began providing
management, operational and administrative services to its affiliated practices
in return for management service fees. The expenses incurred by the Company in
fulfilling its obligations under the Service Agreements are generally the same
as the operating costs and expenses that would have otherwise been incurred by
the practices. In addition to the operating costs and expenses discussed above,
the Company is incurring personnel and administrative expenses in connection
with establishing and maintaining a corporate and regional offices, which
provide additional management and administrative services to the practices.
As discussed in Note 1 of the Notes to Consolidated Financial Statements,
the Company has made a number of acquisitions subsequent to December 31, 1995.
On March 18, 1996, the Company merged, in a pooling of interests transaction,
with EyeCorp, Inc. (EyeCorp), a privately held, Memphis, Tennessee based
physician practice management company devoted solely to eyecare. EyeCorp
provides practice management services to 50 ophthalmic and optometric practices.
The Company issued 6,089,506 shares of its common stock in consideration
thereof. The Company also acquired the assets of an additional 11 practices at
various dates during the first quarter of 1996 for cash of approximately
$7,820,000 and 1,446,437 shares of common stock. In addition, PRG has acquired
certain assets and liabilities of another nine ophthalmic and optometric
practices subsequent to March 31, 1996 for cash of $1,674,000 and 763,709
shares of its common stock.
RESULTS OF OPERATIONS - UNAUDITED HISTORICAL
As indicated above, PRG did not commence any significant operations until
the third quarter of 1995. In addition, EyeCorp did not acquire the assets of
48 of its 50 practices until the end of the fourth quarter of 1996. As a
result, revenues, costs and expenses have all increased significantly during
the three months ended March 31, 1996 when compared to the corresponding three
months of the previous year and any comparisons between the two periods would
not be meaningful. Accordingly, the discussion below focuses on individual
revenue and expense categories for the period ended March 31, 1996.
Three Months Ended March 31, 1996
Revenues generated during the three month period ended March 31, 1996
of $36,220,000 represent management services and surgery center revenues earned
by PRG under its Service Agreements. The costs and expenses incurred during
this period include the salaries and benefits of personnel working at the
corporate office and at the practice locations ($14,744,000 or 41% of
revenues), pharmaceuticals and supplies incurred by PRG for the benefit of the
practices ($4,899,000 or 14% of revenues), general and administrative expenses
incurred both at the practice locations and at corporate offices ($10,806,000
or 30% of revenues) and depreciation and amortization on all property,
equipment and intangible assets ($1,804,000 or 5% of revenues). Interest
expense of $391,000 represents expense related to amounts outstanding under PRG
and EyeCorp Credit Facilities as well as debt associated with the acquired
practices, partially offset by investment income. The $9,000,000 of merger
expenses represent amounts paid or to be paid in connection with the
consummation of the EyeCorp merger. The provision for income taxes is higher
than the U.S. statutory federal rate of 34% as a result, primarily, of state
income taxes and the non-deductibility of the EyeCorp merger expenses.
Had the EyeCorp merger expenses not been incurred, income and income
per share for the three months ended March 31, 1996, would have been
approximately $2,163,000 and $.13 per share, respectively.
RESULTS OF OPERATIONS - UNAUDITED PRO FORMA COMBINED
As discussed in Note 6 in the Notes to Consolidated Financial
Statements, the summarized unaudited pro forma consolidated statement of
operations data for the three months ended March 31, 1995 and 1996 presented
below have been prepared as if (a) the reorganization and initial public
offering had been completed; (b) the consummation of PRG's 20 closed
transactions during 1996 and entry into Service Agreements with these 20 eye
care practices had occurred; (c)
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the acquisitions made by EyeCorp during 1995 were completed; and (d) the
consummation of the EyeCorp and PRG Credit Facilities had occurred, all as if
such transactions or events had occurred January 1, 1995 and 1996, respectively
(in thousands, except shares).
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31
-----------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Management service revenues . . . . . . . . . . . . . . $ 46,535 $ 46,474
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 3,931 $ (6,205)
Net income (loss) per share . . . . . . . . . . . . . . $ .21 $ (.35)
Number of shares used in net income (loss)
per share calculation . . . . . . . . . . . . . . . 18,655,848 17,877,896
</TABLE>
Management service revenues did not change significantly between the two
periods. However, net income decreased approximately $10,136,000 between the two
periods. This decline in income is largely attributable to the new corporate
office expenses at PRG and EyeCorp and the $9,000,000 of EyeCorp merger expenses
discussed above. The three months ended March 31, 1996, which includes a net
loss, requires a tax provision due to the non deductibility of the EyeCorp
merger expenses. Had the EyeCorp merger expenses not been incurred, pro forma
income and pro forma income per share for the three months ended March 31, 1996,
would have been approximately $2,795,000 and $.15 per share, respectively, based
on 18,655,848 shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
General
PRG generates cash through its collection of Service Fees. PRG has the
ability through certain of its Service Agreements to act as the agent of the
practices that are parties to such Service Agreements in managing collections
and handling payables and has the contractual right to withhold Service Fees
that are payable to it from the cash of such practices. Owners of practices
are generally contractually restricted from withdrawing cash flow from the
practices to the extent that insufficient funds would be available to pay
Service Fees. Additionally, PRG maintains a security interest in the
receivables of certain of such practices to secure payment of Service Fees.
Under the terms of certain other Service Agreements, (principally those
acquired or entered into as a result of the EyeCorp merger), PRG purchases the
receivables of the practices that are parties to such Service Agreements and
has the power to assign and factor the purchased receivables. The purchase
price for the receivables is the face amount of the accounts receivable less
any third-party contractual adjustments and net of any reserve for
uncollectible accounts receivable. Such Service Agreements contain a
representation that the purchased accounts receivable are payable in the amount
not less than their face value.
Cash, Working Capital and Debt
During the three months ended March 31, 1996, the Company made significant
cash expenditures and incurred significant obligations with respect to (1) the
EyeCorp merger (2) practice asset acquisitions (3) an ASC acquisition (4)
capital expenditures for establishment and relocation of the corporate and
regional offices and information systems (5) final pay-off of certain
obligations due to the physician owners of the Company's initial affiliated
practices and (6) other miscellaneous cash expenditures. To finance these
significant cash expenditures, PRG utilized its existing cash balances, cash
generated from operations and a portion of its Credit Facilities. Accordingly,
as of March 31, 1996, cash on hand was $9,872,000, working capital was
$15,184,000 and total long-term debt was $37,681,000.
The significant cash expenditures discussed above, particularly with
respect to the EyeCorp merger, the practice asset acquisitions and the capital
expenditures related to the information systems, are continuing subsequent to
March 31, 1996. PRG is continuing to finance these expenditures with its
existing cash, working capital and availability under its Credit Facilities.
Accordingly, as of April 30, 1996, PRG's cash balance was approximately
$5,000,000 and its overall bank indebtedness had risen to approximately
$45,000,000 of which approximately $38,000,000 had been drawn under PRG's and
EyeCorp's aggregate $55,000,000 Credit Facilities.
11
<PAGE> 13
Credit Facilities
During December 1995 and January 1996, EyeCorp and PRG respectively,
entered into separate Credit Facilities providing for an aggregate facility of
$55,000,000. These facilities, which are secured by certain assets of PRG and
EyeCorp, are available to provide funding for acquisitions, capital
expenditures and working capital. As of April 30, 1996 there was approximately
$38,000,000 outstanding under these Credit Facilities.
The Offering
PRG has commenced an Offering of 5,000,000 shares of its common stock at
$28.50 per share. Of these shares, 3,500,000 shares will be sold by the Company
and 1,500,000 will be sold by existing shareholders. Proceeds to the Company,
net of estimated offering expenses and underwriting discounts, are estimated to
be approximately $93,400,000. Of this amount, approximately $38,700,000 will be
used to pay down indebtedness, primarily debt outstanding under its Credit
Facilities, with the remainder to be available for acquisitions, capital
expenditures and general corporate purposes. The Offering is anticipated to
close on May 20, 1996.
Liquidity
PRG management believes that its existing cash resources, cash generated
from operations, the unused portion of the Credit Facilities, additional common
stock and the net proceeds from the May 1996 Offering will be sufficient to fund
PRG's ongoing operations, planned capital expenditures, remaining merger
expenses and planned acquisition program for the remainder of 1996 and into
early to mid 1997.
12
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 7, 1996, a Special Meeting of Shareholders of PRG was held in
Dallas, Texas for the following purposes:
1. to consider and vote upon a proposal to approve and adopt (i)
an Amended and Restated Agreement and Plan of Merger (the "Plan of Merger"),
dated as of December 22, 1995, among PRG and EyeCorp and (ii) the transactions
contemplated by the Plan of Merger, including the issuance of common stock, par
value $.01 per share, of PRG pursuant hereto; and
2. to consider and vote upon a proposal to adopt PRG's Amended
and Restated 1995 Stock Option Plan; and
The number of votes cast for each matter are summarized as follows:
<TABLE>
<CAPTION>
Description Votes
----------- -------------------------------------------------
For Against Abstained
----------- ---------- -----------
<S> <C> <C> <C> <C>
1. EyeCorp Merger Proposal . . . . . . . . 7,695,538 4,945 3,800
2. Amended and Restated 1995
Stock Option Plan . . . . . . . . 7,283,265 413,518 7,500
</TABLE>
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 -- Restated Certificate of Incorporation of Physicians Resource
Group, Inc.(1)
3.2 -- Certificate of Designations, Preferences, Rights and Limitations
of Class A Preferred Stock of Physicians Resource Group, Inc.(1)
3.3 -- Third Amended and Restated Bylaws of Physicians Resource Group,
Inc.(4)
3.4 -- Form of Warrant Certificate.(1)
13
<PAGE> 15
3.5 -- Rights Agreement dated as of April 19, 1996 between Physicians
Resource Group, Inc. and Chemical Mellon Shareholder Services(7)
4.1 -- Form of certificate evidencing ownership of Common Stock of
Physicians Resource Group, Inc.(1)
10.1 -- Physicians Resource Group, Inc. Amended and Restated 1995 Stock
Option Plan.(4)
10.2 -- Physicians Resource Group, Inc. 1995 Health Care Professionals
Stock Option Plan.(1)
10.3 -- Employment Agreement between Physicians Resource Group, Inc. and
Gregory L. Solomon.(1)
10.4 -- Employment Agreement between Physicians Resource Group, Inc. and
Emmett E. Moore.(1)
10.5 -- Employment Agreement between Physicians Resource Group, Inc. and
Richard M. Owen.(1)
10.6 -- Form of Indemnification Agreement for certain Directors.(1)
10.7 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., Physicians Resource Group Subsidiary, Inc. and
TPZ, Inc. d/b/a/ Eye Care of Medina, Inc.(1)
10.8 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and The Eye Clinic of
Texas.(1)
10.9 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and David M. Schneider,
M.D., Inc.(1)
10.10 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and Texas Eye Institute
Assoc.(1)
10.11 -- Form of Service Agreement by and between Physicians Resource
Group Subsidiary, Inc., its wholly-owned subsidiary and McDonald
Eye Associates, P.A.(1)
10.12 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and Michael A. Minadeo,
M.D., P.A.(1)
10.13 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and Southern Nevada Eye
Clinic, Inc., Kenneth C. Westfield, M.D., Ltd. and Nevada
Institute of Ambulatory Surgery, Inc.(1)
10.14 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and Eye Clinic, P.C.(1)
10.15 -- Form of Service Agreement by and between Superior Eye Care, Inc.
and Charles D. Fritch, M.D., Inc.(1)
10.16 -- Form of Service Agreement by and among Pacific Vision Services,
Inc. and Loma Linda Ophthalmology Medical Group, Inc., Inland
Eye Institute Medical Group, Inc. and T.E.S.C., Inc.(1)
10.17 -- First Amendment to Service Agreement by and among Physicians
Resource Group, Inc., as successor by merger to Pacific Vision
Services, Inc., Loma Linda Ophthalmology Medical Group, Inc.,
Inland Eye Institute Medical Group, Inc. and T.E.S.C., Inc. dated
August 9, 1995.(3)
10.18 -- Subscription Agreement, dated March 31, 1995 between Notre
Capital Ventures, Ltd. and Physicians Resource Group, Inc.(1)
10.19 -- Form of Registration Rights Agreement.(1)
14
<PAGE> 16
10.20 -- Form of Registration Rights Agreement.(1)
10.21 -- Form of Registration Rights and Stockholders Agreement.(1)
10.22 -- Form of Registration Rights Agreement dated as of March 7, 1996,
by and among Physicians Resource Group, Inc. and the former
stockholders of EyeCorp, Inc.(4)
10.23 -- Form of Option Agreement between Physicians Resource Group, James
A. Price, M.D., Ben F. House, M.D., Bruce E. Herron, M.D. and
Mark R. Bateman, M.D.(1)
10.24 -- Separation and Mutual Release Agreement between Gregory Solomon
and Physicians Resource Group.(5)
10.25 -- Loan Agreement dated as of January 8, 1996 between PRG and
NationsBank of Tennessee, N.A. ("NationsBank").(6)
10.26 -- Subordination Agreement dated as of December 28, 1995 by and
among NationsBank, EyeCorp, Eyecare Resource, Inc., the EyePA,
Inc. and PRG.(4)
10.27 -- Reimbursement Agreement dated as of December 28, 1995 between
EyeCorp and PRG.(6)
10.28 -- Service Agreement dated as of February 23, 1994, by and between
EyeCorp, Inc., the Vitreoretinal Foundation and David Meyer,
M.D., John E. Linn, M.D., John D. Armstrong, M.D., John L.
Elfervig, M.D. and Thomas A. Browning, M.D.(4)
10.29 -- Amendment to Service Agreement, dated March 8, 1996, by and
between the Vitreoretinal Foundation, David Meyer, M.D., John E.
Linn, M.D., John D. Armstrong, M.D., John L. Elfervig, M.D. and
Thomas A. Browning, M.D. and EyeCorp, Inc.(4)
10.30 -- Second Amendment to Service Agreement dated as of February 23,
1994, by and between EyeCorp, Inc., the Vitreoretinal Foundation
and David Meyer, M.D., John E. Linn, M.D., John D. Armstrong,
M.D., John L. Elfervig, M.D. and Thomas A. Browning, M.D.(4)
10.31 -- Loan and Security Agreement dated as of December 28, 1995 among
EyeCorp, Inc., EyeCare Resource, Inc. The EyePA, Inc. and
NationsBank of Tennessee, N.A.(4)
27.1 -- Financial Data Schedule.(2)
_________________
1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 33-91440) and incorporated herein by reference.
2) Filed herewith.
3) Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ending June 30, 1995, and incorporated herein by
reference.
4) Previously filed as an exhibit to the Company's annual report on Form 10-K
for the year ended December 31, 1995, and incorporated herein by reference.
5) Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ending September 30, 1995, and incorporated by
reference.
6) Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-00230) and incorporated herein by reference.
7) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated April 19, 1996 and incorporated by reference herein.
15
<PAGE> 17
(b) Reports on Form 8-K
On February 29, 1996, the Company filed with the Securities and
Exchange Commission a Current Report on Form 8-K dated February 14,
1996, which Form 8-K reported the consummation of certain acquisitions
under Item 2 (Acquisition of Assets) and Item 5 (Other Events). The
following financial statements were included in such Form 8-K by
amendment:
(i) The audited balance sheets of Barnet Dulany (as defined therein) as of
December 31, 1994 and 1995, and the related audited statements of
earnings, owners' equity and cash flows for the years then ended; and
(ii) related unaudited pro forma balance sheet of the Company as of
September 30, 1995 and unaudited pro forma condensed consolidated
statements of income of the Company for the year ended December 31,
1994 and the nine-months ended September 30, 1995.
16
<PAGE> 18
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, thereunto duly authorized.
PHYSICIANS RESOURCE GROUP, INC.
Dated: May 15, 1996 By: /s/ RICHARD M. OWEN
---------------------------------
Richard M. Owen
Senior Vice President and Chief
Financial Officer
Dated: May 15, 1996 By: /s/ JOHN N. BINGHAM
---------------------------------
John N. Bingham
Vice President, Controller and
Principal Accounting Officer
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1 -- Restated Certificate of Incorporation of Physicians Resource
Group, Inc.(1)
3.2 -- Certificate of Designations, Preferences, Rights and Limitations
of Class A Preferred Stock of Physicians Resource Group, Inc.(1)
3.3 -- Third Amended and Restated Bylaws of Physicians Resource Group,
Inc.(4)
3.4 -- Form of Warrant Certificate.(1)
3.5 -- Rights Agreement dated as of April 19, 1996 between Physicians
Resource Group, Inc. and Chemical Mellon Shareholder Services(7)
4.1 -- Form of certificate evidencing ownership of Common Stock of
Physicians Resource Group, Inc.(1)
10.1 -- Physicians Resource Group, Inc. Amended and Restated 1995 Stock
Option Plan.(4)
10.2 -- Physicians Resource Group, Inc. 1995 Health Care Professionals
Stock Option Plan.(1)
10.3 -- Employment Agreement between Physicians Resource Group, Inc. and
Gregory L. Solomon.(1)
10.4 -- Employment Agreement between Physicians Resource Group, Inc. and
Emmett E. Moore.(1)
10.5 -- Employment Agreement between Physicians Resource Group, Inc. and
Richard M. Owen.(1)
10.6 -- Form of Indemnification Agreement for certain Directors.(1)
10.7 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., Physicians Resource Group Subsidiary, Inc. and TPZ,
Inc. d/b/a/ Eye Care of Medina, Inc.(1)
10.8 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and The Eye Clinic of
Texas.(1)
10.9 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and David M. Schneider,
M.D., Inc.(1)
10.10 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and Texas Eye Institute
Assoc.(1)
10.11 -- Form of Service Agreement by and between Physicians Resource
Group Subsidiary, Inc., its wholly-owned subsidiary and McDonald
Eye Associates, P.A.(1)
10.12 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and Michael A. Minadeo,
M.D., P.A.(1)
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
10.13 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and Southern Nevada Eye
Clinic, Inc., Kenneth C. Westfield, M.D., Ltd. and Nevada
Institute of Ambulatory Surgery, Inc.(1)
10.14 -- Form of Service Agreement by and between Physicians Resource
Group, Inc., its wholly-owned subsidiary and Eye Clinic, P.C.(1)
10.15 -- Form of Service Agreement by and between Superior Eye Care, Inc.
and Charles D. Fritch, M.D., Inc.(1)
10.16 -- Form of Service Agreement by and among Pacific Vision Services,
Inc. and Loma Linda Ophthalmology Medical Group, Inc., Inland Eye
Institute Medical Group, Inc. and T.E.S.C., Inc.(1)
10.17 -- First Amendment to Service Agreement by and among Physicians
Resource Group, Inc., as successor by merger to Pacific Vision
Services, Inc., Loma Linda Ophthalmology Medical Group, Inc.,
Inland Eye Institute Medical Group, Inc. and T.E.S.C., Inc. dated
August 9, 1995.(3)
10.18 -- Subscription Agreement, dated March 31, 1995 between Notre
Capital Ventures, Ltd. and Physicians Resource Group, Inc.(1)
10.19 -- Form of Registration Rights Agreement.(1)
10.20 -- Form of Registration Rights Agreement.(1)
10.21 -- Form of Registration Rights and Stockholders Agreement.(1)
10.22 -- Form of Registration Rights Agreement dated as of March 7, 1996,
by and among Physicians Resource Group, Inc. and the former
stockholders of EyeCorp, Inc.(4)
10.23 -- Form of Option Agreement between Physicians Resource Group, James
A. Price, M.D., Ben F. House, M.D., Bruce E. Herron, M.D. and
Mark R. Bateman, M.D.(1)
10.24 -- Separation and Mutual Release Agreement between Gregory Solomon
and Physicians Resource Group.(5)
10.25 -- Loan Agreement dated as of January 8, 1996 between PRG and
NationsBank of Tennessee, N.A. ("NationsBank").(6)
10.26 -- Subordination Agreement dated as of December 28, 1995 by and
among NationsBank, EyeCorp, Eyecare Resource, Inc., the EyePA,
Inc. and PRG.(4)
10.27 -- Reimbursement Agreement dated as of December 28, 1995 between
EyeCorp and PRG.(6)
10.28 -- Service Agreement dated as of February 23, 1994, by and between
EyeCorp, Inc., the Vitreoretinal Foundation and David Meyer,
M.D., John E. Linn, M.D., John D. Armstrong, M.D., John L.
Elfervig, M.D. and Thomas A. Browning, M.D.(4)
10.29 -- Amendment to Service Agreement, dated March 8, 1996, by and
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
between the Vitreoretinal Foundation, David Meyer, M.D., John E.
Linn, M.D., John D. Armstrong, M.D., John L. Elfervig, M.D. and
Thomas A. Browning, M.D. and EyeCorp, Inc.(4)
10.30 -- Second Amendment to Service Agreement dated as of February 23,
1994, by and between EyeCorp, Inc., the Vitreoretinal Foundation
and David Meyer, M.D., John E. Linn, M.D., John D. Armstrong,
M.D., John L. Elfervig, M.D. and Thomas A. Browning, M.D.(4)
10.31 -- Loan and Security Agreement dated as of December 28, 1995 among
EyeCorp, Inc., EyeCare Resource, Inc. The EyePA, Inc. and
NationsBank of Tennessee, N.A.(4)
27.1 -- Financial Data Schedule.(2)
</TABLE>
_________________
1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 33-91440) and incorporated herein by reference.
2) Filed herewith.
3) Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ending June 30, 1995, and incorporated herein by
reference.
4) Previously filed as an exhibit to the Company's annual report on Form 10-K
for the year ended December 31, 1995, and incorporated herein by reference.
5) Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ending September 30, 1995, and incorporated by
reference.
6) Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-00230) and incorporated herein by reference.
7) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated April 19, 1996 and incorporated by reference herein.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF USA WASTE FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND IS QUALIFIED IN ITS ENTIREY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,872
<SECURITIES> 0
<RECEIVABLES> 13,365<F1>
<ALLOWANCES> 0
<INVENTORY> 2,726
<CURRENT-ASSETS> 40,801
<PP&E> 33,462<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 159,464
<CURRENT-LIABILITIES> 25,617
<BONDS> 32,699
<COMMON> 171
0
0
<OTHER-SE> 77,749
<TOTAL-LIABILITY-AND-EQUITY> 159,464
<SALES> 0
<TOTAL-REVENUES> 36,220
<CGS> 0
<TOTAL-COSTS> 32,253
<OTHER-EXPENSES> 9,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 391
<INCOME-PRETAX> (5,424)
<INCOME-TAX> 1,413
<INCOME-CONTINUING> (6,837)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,837)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
<FN>
<F1>This asset value represents a net amount.
</FN>
</TABLE>
