SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 30, 1996
Physicians Resource Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-13778 76-0456864
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Three Lincoln Centre, Suite 1540, 5430 LBJ Freeway, Dallas, TX 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972)982-8200
<PAGE>
Item 5. Other Events.
The Company and various wholly-owned subsidiaries of the Company
(each an "Acquisition Sub"), entered into acquisition agreements (the
"Acquisition Agreements") with the following ophthalmological and
optometric practices (the "Practices") and physicians (the
"Physicians"):
(i) Frederick A. Hauber, M.D., P.A. and Frederick Hauber, M.D.
(closed August 30, 1996).
(ii) Stuart J. Kaufman, M.D., P.A. and Stuart J. Kaufman, M.D.
(closed August 30, 1996).
(iii) Ophthalmological Associates, Ltd., Morton R. Green,
M.D., Kenneth O. Green, M.D., and Stephen R. Waltman,
M.D. (closed October 9, 1996).
Pursuant to the Acquisition Agreements, the respective
Acquisition Subs acquired (the "Acquisitions"), with certain limited
exceptions, all of the assets and properties, real and personal,
tangible and intangible, and certain liabilities of the Practices.
As a result of the Acquisitions, the Company became the indirect
holder (through the respective Acquisition Subs) of, with certain
limited exceptions, all of the assets and properties, real and
personal, tangible and intangible, and certain liabilities of the
Practices. The respective Acquisition Subs intend to provide the use
of such assets to the respective ophthalmological practices from which
they were acquired pursuant to the terms of management services
agreements.
To the best knowledge of the Company, at the time of the
Acquisitions there was no material relationship between (i) the
Practices and the Physicians, on the one hand, and (ii) the Company,
or any of its affiliates, any director or officer of the Company, or
any associate of such director or officer on the other.
The aggregate consideration paid by the Company as a result of
the Additional Acquisitions was 513,135 shares of the common stock,
par value $.01 per share, of the Company and $560,250 cash. The
acquisition consideration for the Additional Acquisitions was
determined by arms -length negotiations between the parties to the
applicable acquisition agreements.
Item 7. Financial Statements and Exhibits.
(a) The combined balance sheets of Frederick A. Hauber, M.D.,
P.A. and Health Dynamics Specialties, Inc. as of December 31, 1995 and
June 30, 1996 (unaudited), and the related combined statements of
earnings, owner's equity and cash flows for the year ended December
31, 1995 and the six months ended June 30, 1995 (unaudited) and June
30, 1996 (unaudited), are attached as Annex A.
(b) The balance sheets of Stuart J. Kaufman, M.D., P.A. as of
December 31, 1995 and June 30, 1996 (unaudited), and the related
statements of earnings, owner's equity and cash flows for the year
ended December 31, 1995 and the six months ended June 30, 1995
(unaudited) and June 30, 1996 (unaudited), are attached as Annex B.
<PAGE>
(c) The balance sheets of Ophthalmological Associates, Ltd. as
of April 30, 1996 and June 30, 1996 (unaudited) and the related
statements of earnings, owner's equity and cash flows for the year
ended April 30, 1996 and for the two months ended June 30, 1995
(unaudited) and June 30, 1996 (unaudited), are attached as Annex C.
(c) Exhibits.
4.1 Restated Certificate of Incorporation of Physicians Resource
Group, Inc. (2)
4.2 Certificate of Designations, Preferences, Rights and Limitations
of Class A Preferred Stock of Physicians Resource Group, Inc. (2)
4.3 Third Amended and Restated Bylaws of Physicians Resource Group,
Inc. (3)
4.4 Form of Warrant Certificate (2)
4.5 Rights Agreement dated as of April 19, 1996 between Physicians
Resource Group, Inc. And Chemical Mellon Shareholder Services.
(4)
4.6 Form of certificate evidencing ownership of Common Stock of
Physicians Resource Group, Inc. (2)
23.1 Consent of Arthur Andersen, LLP. (1)
_________________________
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (No. 33-91440) and incorporated herein by
reference.
(3) 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.
(4) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (No. 333-3852) and incorporated herein by
reference.
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 hereunto duly authorized.
PHYSICIANS RESOURCE GROUP, INC.
Date: November 13, 1996 By:/s/ Richard J. D'Amico
_________________________
Richard J. D'Amico
Senior Vice President
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Physicians Resource Group, Inc.:
We have audited the accompanying balance sheet of Ophthalmological
Associates, Ltd. as of April 30, 1996, and the related statements of
earnings, owners' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Ophthalmological Associates, Ltd. as of April 30, 1996, and the
results of its operations and its cash flows for the year then ended
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 28, 1996
C-1
<PAGE>
<TABLE>
OPHTHALMOLOGICAL ASSOCIATES, LTD.
BALANCE SHEEETS
April 30, June 30,
ASSETS 1996 1996
_________ ________
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 248,811 $ 390,761
Accounts receivable, net of
allowance for doubtful
accounts of $92,025 and
$99,311, at April 30,
1996 and June 30, 1996
(unaudited), respectively 214,726 231,724
Prepaid expenses and other current
assets 15,854 22,933
_______ _______
Total current assets 479,391 645,418
PROPERTY AND EQUIPMENT, net 30,353 28,503
_______ _______
Total assets $ 509,744 $ 673,921
_______ _______
_______ _______
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ 164,942 $ 187,266
Accrued salaries and benefits 19,138 181,102
_______ _______
Total current liabilities 184,080 368,368
OWNERS' EQUITY 325,664 305,553
_______ _______
Total liabilities and
owners' equity $ 509,744 $ 673,921
_______ _______
_______ _______
</TABLE>
[FN]
The accompanying notes are an integral part of these financial
statements.
C-2
<PAGE>
<TABLE>
OPHTHALMOLOGICAL ASSOCIATES, LTD.
STATEMENTS OF EARNINGS
For the Two Months Ended
April 30, June 30,
________________________
1996 1995 1996
_________ ____ ____
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Medical service revenues, net $2,562,664 $493,628 $434,448
COSTS AND EXPENSES:
Compensation to physician owners 1,486,606 362,944 300,257
Salaries, wages, and benefits 649,527 96,580 93,188
Pharmaceuticals and supplies 94,777 21,122 13,772
General and administrative
expenses 302,612 33,901 45,492
Depreciation and amortization 12,523 2,000 1,850
_________ _______ _______
Total costs and expenses 2,546,045 516,547 454,559
_________ _______ _______
Net earnings (loss) $ 16,619 $(22,919) $(20,111)
_________ _______ _______
_________ _______ _______
SUPPLEMENTAL DISCLOSURE:
Combined compensation to and net
earnings of physician owners $1,503,225 $340,025 $280,146
_________ _______ _______
_________ _______ _______
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements
C-3
<PAGE>
<TABLE>
OPHTHALMOLOGICAL ASSOCIATES, LTD.
STATEMENT OF OWNERS' EQUITY
<S> <C>
BALANCE, April 30, 1995 $ 309,045
Net earnings 16,619
_______
BALANCE, April 30, 1996 325,664
Net loss (unaudited) (20,111)
_______
BALANCE, June 30, 1996 (unaudited) $ 305,553
_______
_______
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements
C-4
<PAGE>
<TABLE>
OPHTHALMOLOGICAL ASSOCIATES, LTD.
STATEMENTS OF CASH FLOWS
For the Two Months Ended
April 30, June 30,
________________________
1996 1995 1996
_________ ____ ____
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $16,619 $(22,919) $(20,111)
Adjustments to reconcile net earnings to net cash
provided by operating activities-
Depreciation and amortization 12,523 2,000 1,850
Changes in assets and liabilities-
(Increase) decrease in-
Accounts receivable, net 5,700 7,088 (16,998)
Prepaid expenses and other assets 1,581 (4,631) (7,079)
Increase (decrease) in-
Accounts payable and accrued expenses 2,733 17,961 22,324
Accrued salaries and benefits 5,214 218,332 161,964
______ _______ _______
Net cash provided by operating activities 44,370 217,831 141,950
______ _______ _______
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,805) - -
______ _______ _______
Net cash used in investing activities (16,805) - -
______ _______ _______
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,565 217,831 141,950
CASH AND CASH EQUIVALENTS, beginning of period 221,246 221,246 248,811
_______ _______ _______
CASH AND CASH EQUIVALENTS, end of period $248,811 $439,077 $390,761
_______ _______ _______
_______ _______ _______
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
C-5
<PAGE>
OPHTHALMOLOGICAL ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
1. Business, Organization and Basis of Presentation:
Ophthalmological Associates, Ltd. ("OAL"), is a professional service
corporation that is engaged in the practice of medicine, specializing in
ophthalmology in Belleville, Illinios.
The accompanying financial statements reflect the operations of the
practice and have been prepared on the accrual basis of accounting. The
supplemental caption on the statements of earnings, "Combined compensation to
and net earnings of physician owners," reflects the total earnings available to
the physician owners for each period.
2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
OAL considers all highly liquid instruments with original maturities of
three months or less, as cash and cash equivalents.
Accounts Receivable
Accounts receivable primarily consist of receivables from patients,
insurers, government programs, and other third-party payors for medical
services provided by physicians. Such amounts are reduced by an allowance
for contractual adjustments and other uncollectible amounts. Contractual
adjustments result from the differences between the rates charged by the
physicians for services performed and the amounts allowed by the Medicare
and Medicaid programs and other public and private insurers.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is calculated using accelerated methods over the estimated useful
lives of the assets. Routine maintenance and repairs are charged to expense
as incurred, while costs of betterments and renewals are capitalized.
Income Taxes
The accompanying financial statements reflect the operations of a C
corporation. The C corporation has historically not incurred significant tax
liabilities for federal or state income taxes. Compensation to physician owners
has traditionally reduced taxable income to nominal levels. This relationship
would be expected to continue in the absence of the acquisition referred to in
Note 8. Because of this practice, a provision for income taxes and deferred
tax assets and liabilities of OAL have not been reflected in these financial
statements.
Revenues
Medical service revenues are accounted for in the period in which the
services are provided. The revenues are reported at the estimated
realizable amounts from patients, third-party payors, and others. Provisions
for estimated third-party payor adjustments are estimated and recorded in the
period the related services are provided. Any adjustment to the amounts is
recorded in the period in which the revised amount is determined.
C-6
<PAGE>
OPHTHALMOLOGICAL ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS - (Continued)
A significant portion of OAL medical service revenues is related to
Medicare and other governmental programs. Medicare and other
governmental programs reimburse physicians based on fee schedules which
are determined by the related governmental agency. Additionally, OAL
participates in agreements with managed care organizations to provide
services at negotiated rates.
New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Adoption of
this standard is required for financial statements for fiscal years beginning
after December 15, 1995. Earlier application is encouraged. OAL does not
expect the new standard to have a material effect on OAL 's results of
operations.
Concentration of Credit Risk
OAL extends credit to patients covered by programs such as Medicare,
Medicaid, and private insurers. OAL manages credit risk with the various
public and private insurance providers, as appropriate. Allowances for
doubtful accounts have been made for potential losses, when appropriate.
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.
Unaudited Financial Information
The unaudited interim financial statements as of June 30, 1996, and for
the two months ended June 30, 1996 and 1995, have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. The
accompanying unaudited financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the unaudited
financial statements. All such adjustments are of a normal and recurring
nature.
C-7
<PAGE>
OPHTHALMOLOGICAL ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS - (Continued)
3. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
Estimated Useful April 30,
Lives (Years) 1996
________________ _________
<S> <C> <C>
Equipment 5-10 $526,461
Leasehold improvements 5-7 12,223
Furniture and fixtures 5-10 69,246
_______
Total 607,930
Less- Accumulated depreciation and amortization (577,577)
_______
Property and equipment, net $ 30,353
_______
_______
</TABLE>
4. Related Party Transactions:
Rent expense on a related party operating lease for AOL's office space was
approximately $66,000 for the year ended April 30, 1996. The related party
operating lease is on a month-to-month basis.
5. Employee Benefit Plan:
OAL has a 401(k) profit-sharing plan (the "Plan") which provides for OAL
to make discretionary contributions. OAL pays all general and
administrative expenses of the Plan. OAL made contributions related to the
Plan totaling approximately $83,000 for the year ended April 30, 1996. An
officer of OAL is the trustee of the Plan.
OAL has a pension plan (the "Pension Plan") which provides postretirement
and post employment benefits to employees. In accordance with the Pension Plan
agreement, OAL made contributions to the Pension Plan of approximately $68,000
for the year ended April 30, 1996.
6. Commitments and Contingencies
OAL is insured with respect to medical malpractice risks on a claims-made
basis. In the normal course of business, OAL has been named in a lawsuit,
primarily alleging medical malpractice. In the opinion of OAL's management,
final settlement, if any, due as a result of litigation, is not expected to be
material to the operating results or financial condition of OAL.
C-8
<PAGE>
OPHTHALMOLOGICAL ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS - (Continued)
7. Disclosures About The Fair Value Of Financial Instruments:
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments",
requires all entities to disclose the fair value of certain financial
instruments in their financial statements. Accordingly, the carrying amounts
of accounts receivable, accounts payable, and accrued expenses approximate fair
value due to the short maturity of these instruments.
8. Subsequent Event:
On October 9, 1996, OAL completed a merger transaction with Physicians
Resource Group, Inc. (PRG), in exchange for 96,848 shares of PRG common stock
and $560,250 of cash.
The financial statements of OAL have been prepared as supplemental
information about the entity which PRG acquired. OAL previously operated as
a separate independent entity. The historical financial position, results of
operations, and cash flows do not reflect any adjustments relating to the
acquisition.
C-9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Physicians Resource Group, Inc.:
We have audited the accompanying balance sheet of Stuart J.
Kaufman, M.D., P.A. as of December 31, 1995, and the related
statements of earnings, owner's equity, and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Stuart J.
Kaufman, M.D., P.A. as of December 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 28, 1996
B-1
<PAGE>
<TABLE>
STUART J. KAUFMAN, M.D., P.A.
BALANCE SHEETS
December 31, June 30,
ASSETS 1995 1996
____________ ________
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,592 $ 11,410
Accounts receivable, net of allowance for
doubtful accounts of $21,000 and $16,000, at
December 31, 1995 and June 30, 1996 (unaudited),
respectively 321,873 242,186
Inventories 86,308 81,244
Prepaid expenses and other current assets 14,883 14,334
_______ _______
Total current assets 429,656 349,174
PROPERTY AND EQUIPMENT, net 348,233 170,292
_______ _______
Total assets $777,889 $519,466
_______ _______
_______ _______
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES:
Notes payable to related parties $316,522 $ -
Accounts payable and accrued expenses 31,955 12,262
Accrued salaries and benefits 29,977 34,960
_______ _______
Total liabilities 378,454 47,222
OWNER'S EQUITY 399,435 472,244
_______ _______
Total liabilities and owner's equity $777,889 $519,466
_______ _______
_______ _______
</TABLE>
[FN]
The accompanying notes are an integral part of these financial
statements.
<TABLE>
B-2
<PAGE>
STUART J. KAUFMAN, M.D., P.A.
STATEMENTS OF EARNINGS
For the Six Months Ended
December 31, June 30,
________________________
1995 1995 1996
____________ ____ ____
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Medical service revenues, net $2,254,591 $1,157,952 $1,185,879
_________ _________ _________
COSTS AND EXPENSES:
Compensation to physician owner 1,045,465 368,992 595,269
Salaries, wages, and benefits 428,223 206,903 219,285
Pharmaceuticals and supplies 155,284 71,024 54,808
General and administrative expenses 470,453 223,256 214,534
Depreciation and amortization 59,581 25,184 16,025
Interest expense 23,940 20,780 11,454
Other expenses 1,671 - 1,695
_________ _________ _________
Total costs and expenses 2,184,617 916,139 1,113,070
_________ _________ _________
Net earnings $ 69,974 $ 241,813 $ 72,809
_________ _________ _________
_________ _________ _________
SUPPLEMENTAL DISCLOSURE:
Combined compensation to and net
earnings of physician owner $1,115,439 $ 610,805 $ 668,078
_________ _________ _________
_________ _________ _________
</TABLE>
[FN]
The accompanying notes are an integral part of these financial
statements.
<TABLE>
B-3
<PAGE>
STUART J. KAUFMAN, M.D., P.A.
STATEMENT OF OWNER'S EQUITY
<S> <C>
BALANCE, December 31, 1994 $329,461
Net earnings 69,974
_______
BALANCE, December 31, 1995 399,435
Net earnings (unaudited) 72,809
_______
BALANCE, June 30, 1996 (unaudited) $472,244
_______
_______
</TABLE>
[FN]
The accompanying notes are an integral part of these financial
statements.
<TABLE>
B-4
<PAGE>
STUART J. KAUFMAN, M.D., P.A.
STATEMENTS OF CASH FLOWS
For the Six Months Ended
December 31, June 30,
________________________
1995 1995 1996
____________ ____ ____
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $69,974 $241,813 $ 72,809
Adjustments to reconcile net earnings to net cash
provided by operating activities-
Depreciation and amortization 59,581 25,184 16,025
Loss on sale of property and equipment 1,671 - 1,695
Changes in assets and liabilities-
(Increase) decrease in-
Accounts receivable, net (42,468) 74,551 79,687
Inventories (38,031) (11,286) 5,064
Prepaid expenses and other assets (14,883) (6,735) 549
Increase (decrease) in-
Accounts payable and accrued expenses 8,679 (10,394) (19,693)
Accrued salaries and benefits (2,127) 51,809 4,983
______ _______ _______
Net cash provided by operating activities 42,396 364,942 161,119
______ _______ _______
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 9,882 5,456 174,581
Purchases of property and equipment (21,289) - (14,360)
______ _______ _______
Net cash provided (used) in investing activities (11,407) 5,456 160,221
______ _______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of related party debt (21,667) (207,060) (316,522)
______ _______ _______
Net cash used in financing activities (21,667) (207,060) (316,522)
______ _______ _______
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,322 163,338 4,818
CASH AND CASH EQUIVALENTS, beginning of period (2,730) (2,730) 6,592
______ _______ _______
CASH AND CASH EQUIVALENTS, end of period $ 6,592 $160,608 $ 11,410
______ _______ _______
______ _______ _______
SUPPLEMENTAL DISCLOSURE
Cash paid for interest $23,940 $20,780 $11,454
</TABLE>
[FN]
The accompanying notes are an integral part of these financial
statements.
B-5
<PAGE>
STUART J. KAUFMAN, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
1. Business, Organization and Basis of Presentation:
Stuart J. Kaufman, M.D., P.A. (the "Company"), is a professional
service corporation engaged in the practice of medicine specializing
in ophthalmology and optometry, with practices in Zephyrhills and Sun
City Center, Florida.
The accompanying financial statements have been prepared on the
accrual basis of accounting. The supplemental caption on the
statements of earnings, "Combined compensation to and net earnings of
physician owner", reflects the total earnings available to the
physician owner for each period.
2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original
maturities of three months or less, as cash and cash equivalents.
Accounts Receivable
Accounts receivable primarily consist of receivables from
patients, insurers, government programs, and other third-party payors
for medical services provided by physicians. Such amounts are reduced
by an allowance for contractual adjustments and other uncollectible
amounts. Contractual adjustments result from the differences between
the rates charged by the physicians for services performed and the
amounts allowed by the Medicare and Medicaid programs and other public
and private insurers.
Inventories
Inventories consist primarily of spectacle frames and lenses and
are valued at the lower of cost or market with cost determined using
the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost, net of accumulated
depreciation. Depreciation is calculated using accelerated methods
over the estimated useful lives of the assets. Routine maintenance
and repairs are charged to expense as incurred, while costs of
betterments and renewals are capitalized.
Income Taxes
The accompanying financial statements reflect the operations of a
C corporation. The C corporation has historically not incurred
significant tax liabilities for federal or state income taxes.
Compensation to the physician owner has traditionally reduced taxable
income to nominal levels. This relationship would be expected to
continue in the absence of the acquisition referred to in Note 7.
Because of this practice, a provision for income taxes and deferred
tax assets and liabilities of the Company have not been reflected in
these financial statements.
B-6
<PAGE>
STUART J. KAUFMAN, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Revenues
Medical service revenues are accounted for in the period in which
the services are provided. The revenues are reported at the estimated
realizable amounts from patients, third-party payors, and others.
Provisions for estimated third-party payor adjustments are estimated
and recorded in the period the related services are provided. Any
adjustment to the amounts is recorded in the period in which the revised
amount is determined. A significant portion of the Company's medical
service revenues is related to Medicare and other governmental programs.
Medicare and other governmental programs reimburse physicians based on fee
schedules which are determined by the related governmental agency.
Additionally, the Company participates in agreements with managed care
organizations to provide services at negotiated rates.
New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Adoption of this standard is required for financial
statements for fiscal years beginning after December 15, 1995. Earlier
application is encouraged. The Company does not expect the new
standard to have a material effect on the results of operations.
Concentration of Credit Risk
The Company extends credit to patients covered by programs such
as Medicare, Medicaid, and private insurers. The Company manages
credit risk with the various public and private insurance providers,
as appropriate. Allowances for doubtful accounts have been made for
potential losses, when appropriate.
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.
Unaudited Financial Information
The unaudited interim financial statements as of June 30, 1996,
and for the six months ended June 30, 1996 and 1995, have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying unaudited financial statements reflect,
in the opinion of management, all adjustments necessary for a fair
presentation of the unaudited financial statements. All such
adjustments are of a normal and recurring nature.
B-7
<PAGE>
STUART J. KAUFMAN, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS - (Continued)
3. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
Estimated Useful December 31,
Lives (Years) 1995
________________ ____________
<S> <C> <C>
Equipment 5-7 $272,768
Automobiles 5 47,370
Furniture and fixture 5-7 142,707
Leasehold improvements 15 364,828
_______
Total 827,673
Less - Accumulated depreciation and amortization (479,440)
_______
Property and equipment, net $348,233
_______
_______
</TABLE>
4. Related Party Transactions:
The Company has various notes payable to the physician owner and
his family. These notes call for monthly principal and interest
payments, with interest rates ranging from 1% to 10%. All notes were
fully paid off in 1996.
The Company leases primary office space from the physician owner
under two month-to-month oral leases. Rent expense under these oral
leases was $69,354 for the year ended December 31, 1995.
5. Commitments and Contingencies
The Company is insured with respect to medical malpractice risks
on a claims-made basis. As of December 31, 1995, no claims have been
asserted against the Company. In the opinion of the management,
settlement due as a result of any future litigation, is not expected
to be material to the operating results or financial condition of the
Company.
6. Disclosures About the Fair Value of Financial Instruments:
SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," requires all entities to disclose the fair value of
certain financial instruments in their financial statements.
Accordingly, the carrying amounts of accounts receivable, accounts
payable, accrued expenses, and notes payable approximate fair value
due to the short maturity of these instruments.
B-8
<PAGE>
STUART J. KAUFMAN, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS - (Continued)
7. Subsequent Event:
On August 30, 1996, the Company completed a stock-for-stock merger
transaction with Physicians Resource Group, Inc. (PRG), in exchange
for 216,368 shares of PRG common stock.
The financial statements of the Company have been prepared as
supplemental information about the entity which PRG acquired. The
Company previously operated as a separate independent entity. The
historical financial position, results of operations, and cash flows
do not reflect any adjustments relating to the acquisition.
B-9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Physicians Resource Group, Inc.:
We have audited the accompanying combined balance sheet of Frederick
A. Hauber, M.D., P.A. and Health Dynamics Specialties, Inc. as of
December 31, 1995, and the related combined statements of earnings,
owner's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Frederick
A. Hauber, M.D., P.A. and Health Dynamics Specialties, 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.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 29, 1996
A-1
<PAGE>
<TABLE>
FREDERICK A. HAUBER, M.D., P.A. AND HEALTH DYNAMICS SPECIALTIES, INC.
COMBINED BALANCE SHEETS
December 31, June 30,
ASSETS 1995 1996
____________ ________
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $127,069
Accounts receivable, net of allowance for
doubtful accounts of $30,869 and $47,527, at
December 31, 1995, and June 30, 1996 (unaudited),
respectively 336,598 426,891
Inventories 22,427 22,968
Prepaid expenses and other current assets 75,301 64,740
_______ _______
Total current assets 434,326 641,668
PROPERTY AND EQUIPMENT, net 268,768 269,258
OTHER NON CURRENT ASSETS 35,880 17,490
_______ _______
Total assets $738,974 $928,416
_______ _______
_______ _______
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES:
Lines of credit $106,690 $ 95,940
Current portion of long-term debt 38,620 40,643
Payable to related party 16,918 913
Accounts payable and accrued expenses 27,608 52,018
Accrued salaries and benefits 15,925 16,164
_______ _______
Total current liabilities 205,761 205,678
LONG-TERM DEBT, net of current portion 42,771 21,957
_______ _______
Total liabilities 248,532 227,635
OWNER'S EQUITY 490,442 700,781
_______ _______
Total liabilities and owner's equity $738,974 $928,416
_______ _______
_______ _______
</TABLE>
[FN]
The accompanying notes are an integral part of these combined
financial statements.
A-2
<PAGE>
<TABLE>
FREDERICK A. HAUBER, M.D., P.A. AND HEALTH DYNAMICS SPECIALTIES, INC.
COMBINED STATEMENTS OF EARNINGS
For the Six-Months Ended
December 31, June 30,
_________________________
1995 1995 1996
____________ ____ ____
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Medical service revenues, net $2,071,324 $1,020,952 $1,330,795
COSTS AND EXPENSES:
Compensation to physician owner 988,003 496,569 482,245
Salaries, wages, and benefits 562,406 272,986 308,028
Pharmaceuticals and supplies 96,787 33,470 113,004
General and administrative expenses 310,849 132,307 191,335
Depreciation and amortization 43,177 19,400 17,691
Interest expense 7,776 5,939 8,153
_________ _________ _________
Total costs and expenses 2,008,998 960,671 1,120,456
_________ _________ _________
Net earnings $ 62,326 $ 60,281 $ 210,339
_________ _________ _________
_________ _________ _________
SUPPLEMENTAL DISCLOSURE:
Combined compensation to and net
earnings of the physician owner $1,050,329 $ 556,850 $ 692,584
_________ _________ _________
_________ _________ _________
</TABLE>
[FN]
The accompanying notes are an integral part of these combined
financial statements.
<TABLE>
A-3
<PAGE>
FREDERICK A. HAUBER, M.D., P.A. AND HEALTH DYNAMICS SPECIALTIES, INC.
COMBINED STATEMENT OF OWNER'S EQUITY
<S> <C>
BALANCE, December 31, 1994 $441,116
Net earnings 62,326
Distributions to owner (13,000)
_______
BALANCE, December 31,1995 490,442
Net earnings (unaudited) 210,339
_______
BALANCE, June 30, 1996 (unaudited) $700,781
_______
_______
</TABLE>
[FN]
The accompanying notes are an integral part of these combined
financial statements.
A-4
<PAGE>
<TABLE>
FREDERICK A. HAUBER, M.D., P.A. AND HEALTH DYNAMICS SPECIALTIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Six-Months Ended
December 31, June 30,
________________________
1995 1995 1996
____________ ____ _____
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 62,326 $ 60,281 $210,339
Adjustments to reconcile net earnings to net cash
provided by operating activities-
Depreciation and amortization 43,177 19,400 17,691
Changes in assets and liabilities-
(Increase) decrease in-
Accounts receivable, net (25,356) 65,346 (90,293)
Inventories (898) (520) (541)
Prepaid expenses and other assets (21,320) 881 28,951
Increase (decrease) in-
Accounts payable and accrued expenses (2,933) (2,263) 24,410
Accrued salaries and benefits 478 239 239
_______ _______ _______
Net cash provided by operating activities 55,454 143,364 190,796
_______ _______ _______
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (119,050) (10,333) (18,181)
_______ _______ _______
Net cash used in investing activities (119,050) (10,333) (18,181)
_______ _______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayment) of debt 73,324 (22,741) (45,546)
Equity distributions to owner (13,000) - -
_______ _______ _______
Net cash provided by (used in) financing activities 60,324 (22,741) (45,546)
_______ _______ _______
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,252) 110,290 127,069
CASH AND CASH EQUIVALENTS, beginning of period 3,252 3,252 -
_______ _______ _______
CASH AND CASH EQUIVALENTS, end of period $ - $ 113,542 $127,069
_______ _______ _______
_______ _______ _______
SUPPLEMENTAL DISCLOSURE
Cash paid for interest $ 7,776 $ 5,939 $ 8,153
Cash paid for taxes $ 14,664 $ 4,448 $ 5,976
</TABLE>
[FN]
The accompanying notes are an integral part of these combined
financial statements.
A-5
<PAGE>
FREDERICK A. HAUBER, M.D., P.A. AND HEALTH DYNAMICS SPECIALTIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Business, Organization and Basis of Presentation:
Frederick A. Hauber, M.D., P.A. and Health Dynamics Specialties,
Inc. (collectively "PEI"), are affiliated through common ownership,
and are professional service corporations that are engaged in the
practice of medicine specializing in ophthalmology, with practices in
New Port Richey, Florida.
The accompanying financial statements reflect the combined
operations of the affiliated practices and have been prepared on the
accrual basis of accounting. The supplemental caption on the combined
statements of earnings, "Combined compensation to and net earnings of
the physician owner," reflects the total earnings available to the
physician owner for each period.
2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
PEI considers all highly-liquid instruments with original
maturities of three months or less, as cash and cash equivalents.
Accounts Receivable
Accounts receivable primarily consist of receivables from
patients, insurers, government programs, and other third-party payors
for medical services provided by physicians. Such amounts are reduced
by an allowance for contractual adjustments and other uncollectible
amounts. Contractual adjustments result from the differences between
the rates charged by the physicians for services performed and the
amounts allowed by the Medicare and Medicaid programs and other public
and private insurers.
Inventories
Inventories consist primarily of solutions and miscellaneous
pharmaceutical supplies, which are valued at the lower of cost or
market with cost determined using the first-in, first-out (FIFO)
method.
Property and Equipment
Property and equipment is stated at cost, net of accumulated
depreciation. Depreciation is calculated using accelerated methods
over the estimated useful lives of the assets. Routine maintenance
and repairs are charged to expense as incurred, while costs of
betterments and renewals are capitalized.
A-6
<PAGE>
FREDERICK A. HAUBER, M.D., P.A. AND HEALTH DYNAMICS SPECIALTIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
Income Taxes
The accompanying combined financial statements reflect the
operations of an S corporation and a C corporation. For the S
corporation, income tax liabilities are the responsibility of the
owner. The C corporation has historically not incurred significant tax
liabilities for federal or state income taxes. Compensation to
physician owner has traditionally reduced taxable income to nominal
levels. This relationship would be expected to continue in the
absence of the acquisition referred to in Note 9. Because of this
practice, a provision for income taxes and deferred tax assets and
liabilities of the taxable entities have not been reflected in these
combined financial statements. The consistent presentation of the
combined financial statements on a pretax basis also provides
comparability that would not otherwise be the case when presenting a
combination of various taxable and nontaxable entities.
Revenues
Medical service revenues are accounted for in the period in which
the services are provided. The revenues are reported at the estimated
realizable amounts from patients, third-party payors, and others.
Provisions for estimated third-party payor adjustments are estimated
and recorded in the period the related services are provided. Any
adjustment to the amounts is recorded in the period in which the
revised amount is determined. A significant portion of PEI medical
service revenues is related to Medicare and other governmental
programs. Medicare and other governmental programs reimburse
physicians based on fee schedules which are determined by the related
governmental agency. Additionally, PEI participates in agreements
with managed care organizations to provide services at negotiated
rates.
New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Adoption of this standard is required for financial
statements for fiscal years beginning after December 15, 1995.
Earlier application is encouraged. PEI does not expect the new
standard to have a material effect on PEI 's results of operations.
Concentration of Credit Risk
PEI extends credit to patients covered by programs such as
Medicare, Medicaid, and private insurers. PEI manages credit risk
with the various public and private insurance providers, as
appropriate. Allowances for doubtful accounts have been made for
potential losses, when appropriate.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
A-7
<PAGE>
FREDERICK A. HAUBER, M.D., P.A. AND HEALTH DYNAMICS SPECIALTIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continuted)
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the combined financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Unaudited Financial Information
The unaudited interim combined financial statements as of June
30, 1996, and for the six-months ended June 30, 1996 and 1995, have
been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. The accompanying unaudited combined
financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the unaudited
combined financial statements. All such adjustments are of a normal
and recurring nature.
3. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
Estimated Useful December 31,
Lives (Years) 1995
________________ ____________
<S> <C> <C>
Equipment 5-7 $ 681,203
Automobiles 5 80,442
Leasehold improvements 5-10 82,705
Furniture and fixtures 5-7 280,413
_________
Total 1,124,763
Less - Accumulated depreciation and amortization (855,995)
_________
Property and equipment, net $ 268,768
________
________
4. Lines of Credit and Long-Term Debt:
Lines of credit consist of the following as of December 31, 1995:
Line of credit payable to bank, bearing interest at the
prime rate plus 0.5% (9.0% at December 31, 1995). Unused
line of credit at December 31, 1995, was $63,158, and
guaranteed by the physician owner. $ 86,842
Line of credit payable to bank, bearing interest at the
prime rate plus 0.5% (9.0% at December 31, 1995). Unused
line of credit at December 31, 1995, was $5,153, and
guaranteed by the physician owner. 19,848
________
Total lines of credit $ 106,690
_______
_______
A-8
<PAGE>
FREDERICK A. HAUBER, M.D., P.A. AND HEALTH DYNAMICS SPECIALTIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
Long-term debt consists of the following as of December 31, 1995:
Note payable to physician owner, bearing interest at 10.25%.
Monthly payments of $3,765 including principal and interest. $ 81,391
Less - Current portion (38,620)
_______
Long-term debt excluding current portion $ 42,771
_______
_______
</TABLE>
As of December 31, 1995, the aggregate amounts of annual principal
maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996 $38,620
1997 42,771
1998 -
1999 -
2000 -
Thereafter -
______
Total $81,391
______
______
</TABLE>
5. Operating Leases:
The building where PEI conducts business is leased under a
noncancelable operating lease. The physician owner of PEI is also a
part owner of the building. At December 31, 1995, the minimum annual
lease commitment under the noncancelable operating lease is as
follows:
<TABLE>
<S> <C>
1996 $73,380
1997 73,380
1998 73,380
1999 73,380
2000 73,380
Thereafter 746,030
_________
Total $ 1,112,930
_________
_________
</TABLE>
Rent expense on the building was $73,380 for the year ended
December 31, 1995. Nonrelated party rent for medical and office
equipment amounted to approximately $4,700 for the year ended
December 31, 1995.
A-9
<PAGE>
FREDERICK A. HAUBER, M.D., P.A. AND HEALTH DYNAMICS SPECIALTIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
6. Related-Party Transactions:
Short-term notes payable are to related parties. Included in
prepaid expenses and other current assets and other non current assets
are related party receivables of $73,562. Included in payable to
related party, current portion of long-term debt, and long-term debt,
net of current portion is $98,309 of related-party payables. The
physician owner is part owner of the building where PEI conducts
business.
In various instances, relatives of the owner of PEI are employees
of the clinic.
7. Employee Benefit Plan:
PEI Management, Inc., a related party, has a 401(k) profit-
sharing plan (the "Plan") which provides for PEI to make discretionary
contributions. PEI pays all general and administrative expenses of
the Plan. PEI made contributions related to the Plan totaling
approximately $11,685 in 1995. An officer of PEI is the trustee of
the Plan.
PEI does not provide postretirement or postemployment benefits to
employees.
8. Disclosures About The Fair Value Of Financial Instruments:
SFAS No. 107, Disclosure About The Fair Value of Financial
Instruments, requires all entities to disclose the fair value of
certain financial instruments in their financial statements.
Accordingly, the carrying amounts of accounts receivable, accounts
payable, and accrued expenses approximate fair value due to the short
maturity of these instruments.
The carrying amount of PEI's long-term debt approximates fair
value due to PEI s ability to obtain such borrowings on comparable
terms.
9. Subsequent Event:
On August 30, 1996, PEI completed a stock-for-stock merger
transaction with Physicians Resource Group, Inc. (PRG), in exchange
for 193,927 shares of PRG common stock.
The combined financial statements of PEI have been prepared as
supplemental information about the entities which PRG acquired. PEI
previously operated as separate independent entities. The historical
financial position, results of operations, and cash flows do not
reflect any adjustments relating to the acquisition.
A-10
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated October 29, 1996, on our audit of
the combined financial statements of Frederick A. Hauber, M.D., P.A.
and Health Dynamics Specialties, Inc.; dated October 28, 1996, on our
audit of the financial statements of Opthalmological Associates, Ltd.;
dated October 28, 1996, on our audit of the financial statements of
Stuart J. Kaufman, M.D., P.A. included in this Form 8-K into the
Company's previously filed Form S-8 Registration Statement File No.
33-93712, Form S-8 Registration statement File No. 33-93746, Form S-8
Registration Statement File No. 333-03460, Form S-8 Registration
Statement File No. 333-03478, Form S-4 Registration Statement File No.
333-00230, Form S-4 Registration Statement File No. 333-4406, Form S-4
Registration Statement File No. 333-09905, Form S-3 Registration
Statement File No. 333-10531, Form S-3 Registration Statement File No.
333-11607, and Form S-8 Registration Statement File No. 333-15547.
ARTHUR ANDERSEN LLP
Dallas, Texas,
November 13, 1996
