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 19, 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
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) Herman D. Sloane, M.D. and Allen M. Pielet, M.D.
(ii) Scott L. Rosen, M.D. and Davis Springer, M.D.
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.
<PAGE>
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 Acquisitions was 194,648 shares of the common stock, par value
$.01 per share, of the Company and $420,000 cash. The acquisition
consideration for the Acquisitions was determined by arms-length
negotiations between the parties to the applicable acquisition
agreements.
Item 7. Financial Statements and Exhibits.
(a) The Audited Combined Balance Sheet of Eye Associates, S. C. And
Excimer Laser Associates, LTD. as of December 31, 1995 and the
Unaudited Combined Balance Sheet of Eye Associates, S.C. and Excimer
Laser Associates, LTD. as of June 30, 1996 and the related combined
statements of earnings, owners s equity and cash flows for the year
ended December 31, 1995 and the six months ended June 30, 1995 and
June 30, 1996. (1)
(b) The Audited Balance Sheet of West Suburban Eye Associates, LTD.
as of December 31, 1996 and the related statements of earnings,
owners equity and cash flows for December 31, 1996. (1)
(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.
<PAGE>
(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: March 24, 1997 By:/s/ Richard J. D Amico
Richard J. D Amico
Executive Vice President
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated January 23, 1997, on our audit of
the combined financial statements of Eye Associates, S.C. and Excimer
Laser Associates, Ltd., and our report dated February 26, 1997, on our
audit of the financial statements of West Suburban Eye Associates,
Ltd. 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,
March 24, 1997
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 Eye
Associates, S.C. and Excimer Laser Associates, Ltd. as of December 31,
1995, and the related combined 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 Eye
Associates, S.C. and Excimer Laser Associates, Ltd. 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,
January 23, 1997
<PAGE>
<TABLE>
EYE ASSOCIATES, S.C. AND EXCIMER LASER ASSOCIATES, LTD.
COMBINED BALANCE SHEETS
December 31, June 30,
ASSETS 1995 1996
------ ----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 69,390 $133,454
Accounts receivable, net of allowance for
doubtful accounts of $5,851 and $3,595, at
December 31, 1995, and June 30, 1996 (unaudited),
respectively 220,396 135,428
Prepaid expenses and other current assets 56,682 22,652
-------- -------
Total current assets 346,468 291,534
PROPERTY AND EQUIPMENT, net 283,013 266,594
------- -------
Total assets $629,481 $558,128
======= =======
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 34,180 $ 29,180
Accounts payable and accrued expenses 10,261 9,606
Accrued salaries and benefits 16,108 18,103
------ ------
Total current liabilities 60,549 56,889
LONG-TERM LIABILITIES:
Payable to related parties 32,000 32,000
Other liabilities 31,058 30,210
Long-term debt, net of current portion 236,004 227,176
------- -------
Total liabilities 359,611 346,275
OWNERS' EQUITY 269,870 211,853
------- -------
Total liabilities and owners' equity $629,481 $558,128
======= =======
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
<TABLE>
EYE ASSOCIATES, S.C. AND EXCIMER LASER ASSOCIATES, LTD.
COMBINED STATEMENTS OF EARNINGS
For the Six-Months Ended
June 30,
December 31, --------
1995 1995 1996
------------ --------- --------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Medical service revenues, net $1,961,174 $956,326 $750,136
COSTS AND EXPENSES:
Compensation to physician owners 721,599 287,154 353,934
Salaries, wages, and benefits 479,169 235,202 218,920
Pharmaceuticals and supplies 23,396 10,513 9,560
General and administrative expenses 552,365 218,659 195,981
Depreciation and amortization 235,205 117,709 19,755
Interest expense 67,405 33,408 10,003
Gain on sale of equipment (191,298) - -
--------- ------- -------
Total costs and expenses 1,887,841 902,645 808,153
--------- ------- -------
Net earnings (loss) $ 73,333 $ 53,681 $(58,017)
========= ======= =======
SUPPLEMENTAL DISCLOSURE:
Combined compensation to and net
earnings of the physician owners $ 794,932 $340,835 $295,917
========= ======= =======
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
<TABLE>
EYE ASSOCIATES, S.C. AND EXCIMER LASER ASSOCIATES, LTD.
COMBINED STATEMENT OF OWNERS' EQUITY
<S> <C>
BALANCE, December 31, 1994 $ 224,536
Net earnings 73,333
Distributions to owners (27,999)
-------
BALANCE, December 31, 1995 269,870
Net loss (unaudited) (58,017)
-------
BALANCE, June 30, 1996 (unaudited) $ 211,853
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
<TABLE>
EYE ASSOCIATES, S.C. AND EXCIMER LASER ASSOCIATES, LTD.
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 (loss) $ 73,333 $ 53,681 $(58,017)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities-
Depreciation and amortization 235,205 117,709 19,755
Gain on sale of equipment (191,298) - -
Changes in assets and liabilities-
(Increase) decrease in-
Accounts receivable, net (197) 33,279 84,968
Prepaid expenses and other assets 87,470 67,597 34,030
Increase (decrease) in-
Accounts payable and accrued expenses (47,956) (37,949) (1,503)
Accrued salaries and benefits (1,612) 42,007 1,995
----- ------ -----
Net cash provided by operating activities 154,945 276,324 81,228
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (47,717) (23,292) (3,336)
Proceeds from sale of equipment 500,125 - -
------- ------ -----
Net cash provided by (used in) investing activities 452,408 (23,292) (3,336)
------- ------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (558,357) (91,002) (13,828)
Equity distributions to owners (27,999) - -
------ ------ ------
Net cash used in financing activities (586,356) (91,002) (13,828)
------- ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20,997 162,030 64,064
CASH AND CASH EQUIVALENTS, beginning of year 48,393 48,393 69,390
------ ------- ------
CASH AND CASH EQUIVALENTS, end of year $ 69,390 $210,423 $133,454
====== ======= =======
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 69,221 $ 31,347 $ 10,875
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
EYE ASSOCIATES, S.C. AND EXCIMER LASER ASSOCIATES, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Business, Organization and Basis of Presentation:
Eye Associates, S.C. and Excimer Laser Associates, Ltd. (collectively
"EA"), are affiliated through common ownership, and are professional
service corporations that are engaged in the practice of medicine
specializing in ophthalmology, with practices in Olympia Fields,
Illinois.
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 owners," reflects the total earnings available to the
physician owners for each period.
2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
EA 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.
<PAGE>
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 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 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.<PAGE>
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 EA 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, EA 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. EA does not expect the new standard to have a material
effect on EA's results of operations.
Concentration of Credit Risk
EA extends credit to patients covered by programs such as Medicare,
Medicaid, and private insurers. EA 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 combined financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
<PAGE>
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>
Furniture and equipment 5-7 $677,158
Leasehold improvements 5-10 276,042
-------
Total 953,200
-------
Less- Accumulated depreciation and amortization (670,187)
-------
Property and equipment, net $283,013
=======
</TABLE>
In November 1995, EA recorded a gain of $191,298 from the disposition of
EA's excimer laser.
<PAGE>
4. Long-Term Debt:
Long-term debt consists of the following as of December 31, 1995:
Note payable to bank, bearing interest at 9.5%. Payments of
principal ($765) and interest due monthly with balance due
September 1997.
$220,184
Note payable to related party, unsecured, bearing interest at
prime plus 1% (9.5% at December 31, 1995), due November 1,
1999.
25,000
Note payable to related party, unsecured, bearing interest at
8.75%, due on demand.
25,000
------
Total
270,184
Less - Current portion
(34,180)
------
Long-term debt excluding current portion
$236,004
=======
As of December 31, 1995, the aggregate amounts of annual principal maturities
of long-term debt are as follows:
<TABLE>
<S> <C>
1996 $ 34,180
1997 211,004
1998 -
1999 25,000
2000 -
Thereafter -
--------
Total $220,184
=======
</TABLE>
<PAGE>
5. Operating Leases:
The building where EA conducts business is leased under a noncancelable
operating lease. At December 31, 1995, the minimum annual lease commitment
under the noncancelable operating lease is as follows:
<TABLE>
<S> <C>
1996 $ 98,156
1997 100,700
1998 103,244
1999 105,788
2000 44,520
Thereafter -
-------
Total $452,408
=======
</TABLE>
Rent expense on the building was $95,612 for the year ended December 31,
1995. Rent for medical and office equipment amounted to approximately $65,246
for the year ended December 31, 1995.
6. Related-Party Transactions:
Included in prepaid expenses and other current assets are related party
receivables of $11,297. The payable to related parties included in long-term
liabilities is a non-interest bearing advance from the Company's shareholders
which is due on demand. The Company's shareholders do not intend to demand
repayment of the advance within one year.
7. Employee Benefit Plan:
EA has a 408(k) simplified employee benefit plan (the "Plan"), which
provides for EA to make discretionary contributions. EA pays all general and
administrative expenses of the Plan. EA made no contributions to the Plan in
1995. An officer of EA is the trustee of the plan.
EA 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 EA's long-term debt approximates fair value due to
EA's ability to obtain such borrowings on comparable terms.
<PAGE>
9. Subsequent Event:
On August 20, 1996, EA completed a stock-for-stock merger transaction with
Physicians Resource Group, Inc. (PRG), in exchange for 100,000 shares of PRG
common stock.
The combined financial statements of EA have been prepared as supplemental
information about the entities which PRG acquired. EA 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.
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 West Suburban
Eye Associates, Ltd. as of December 31, 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
West Suburban Eye Associates, Ltd. as of December 31, 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,
February 26, 1997
<PAGE>
<TABLE>
WEST SUBURBAN EYE ASSOCIATES, LTD.
BALANCE SHEET
December 31,
ASSETS 1996
-----------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,616
Accounts receivable, net of allowance for
doubtful accounts of $32,016 171,025
Inventories 6,614
----------
Total current assets 179,255
PROPERTY AND EQUIPMENT, net 56,280
OTHER NONCURRENT ASSETS 14,667
----------
Total assets $ 250,202
==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 41,526
Accounts payable and accrued expenses 16,550
Accrued salaries and benefits 39,563
---------
Total current liabilities 97,639
LONG-TERM DEBT, net of current portion 64,619
---------
Total liabilities 162,258
OWNERS' EQUITY 87,944
---------
Total liabilities and owners' equity $ 250,202
=========
The accompanying notes are an integral part of this financial
statement.
</TABLE>
<PAGE>
<TABLE>
WEST SUBURBAN EYE ASSOCIATES, LTD.
STATEMENT OF EARNINGS
Year Ended
December 31,
1996
-----------
<S> <C>
REVENUES:
Medical service revenues, net $1,693,066
Other revenue 10,246
-----------
Total revenue 1,703,312
COSTS AND EXPENSES:
Compensation to physician owners 958,974
Salaries, wages, and benefits 327,501
Pharmaceuticals and supplies 81,469
General and administrative expenses 347,801
Depreciation and amortization 24,490
Interest expense 10,930
Other expense 6,612
---------
Total costs and expenses 1,757,777
---------
Net loss $ (54,465)
=========
SUPPLEMENTAL DISCLOSURE:
Combined compensation to and net
earnings of the physician owners $ 904,509
=========
The accompanying notes are an integral part of this financial
statement.
</TABLE>
<PAGE>
<TABLE>
WEST SUBURBAN EYE ASSOCIATES, LTD.
STATEMENT OF OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
BALANCE, December 31, 1995 $142,409
Net loss (54,465)
--------
BALANCE, December 31, 1996 $ 87,944
========
The accompanying notes are an integral part of this financial
statement.
</TABLE>
<PAGE>
<TABLE>
WEST SUBURBAN EYE ASSOCIATES, LTD.
STATEMENT OF CASH FLOWS
Year Ended
December 31,
1996
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(54,465)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Depreciation and amortization 24,490
Changes in assets and liabilities-
(Increase) decrease in-
Accounts receivable, net 28,990
Inventories 2,097
Increase (decrease) in-
Accounts payable and accrued expenses (1,171)
Accrued salaries and benefits 1,708
-------
Net cash provided by operating activities 1,649
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (11,602)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (34,855)
-------
NET DECREASE IN CASH AND CASH EQUIVALENTS (44,808)
CASH AND CASH EQUIVALENTS, beginning of year 46,424
-------
CASH AND CASH EQUIVALENTS, end of year $ 1,616
=======
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 10,930
The accompanying notes are an integral part of this financial
statement.
</TABLE>
<PAGE>
WEST SUBURBAN EYE ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. Business, Organization and Basis of Presentation:
West Suburban Eye Associates, Ltd. (WSEA) is a professional
service corporation that is engaged in the practice of medicine
specializing in ophthalmology, with locations in Oak Park and River
Forest, Illinois.
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 statement of earnings,
"Combined compensation to and net earnings of the physician owners',"
reflects the total earnings available to the physician owners.
2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
WSEA 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 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.
<PAGE>
Income Taxes
The accompanying financial statements reflect the operations of a
C corporation. The 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 10.
Because of this practice, a provision for income taxes and deferred
tax assets and liabilities for WSEA have not been reflected in these
financial statements. The consistent presentation of the 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 WSEA 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, WSEA 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. The
new standard did not have an impact on WSEA's results of operations.
Concentration of Credit Risk
WSEA extends credit to patients covered by programs such as
Medicare, Medicaid, and private insurers. WSEA manages credit risk
with the various public and private insurance providers, as
appropriate. Allowances for doubtful accounts are recorded for
potential losses, when appropriate.
<PAGE>
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.
3. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
Estimated Useful December 31,
Lives (Years) 1996
---------------- ------------
<S> <C> <C>
Equipment 5-7 $244,895
Furniture and fixtures 5-7 27,210
--------
Total 272,105
Less- Accumulated depreciation (215,825)
--------
Property and equipment, net $ 56,280
========
</TABLE>
4. Long-Term Debt:
Long-term debt consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Note payable to a bank, bearing interest at 8.5%. $106,145
Monthly payments of $4,068 including principal
and interest, matures May, 1999. Secured by
substantially all of the assets of the practice.
Less- Current portion (41,526)
--------
Long-term debt excluding current portion $ 64,619
=======
As of December 31, 1996, the aggregate amounts of annual
principal maturities of long-term debt are as follows:
1997 $ 41,526
1998 45,197
1999 19,422
2000 -
2001 -
Thereafter - -------
Total $106,145
=======
</TABLE>
<PAGE>
5. Litigation:
WSEA is currently subject to a lawsuit alleging negligence. WSEA
maintains insurance coverage of $1,000,000 for each individual case.
WSEA believes the outcome of any litigation, after considering the
insurance coverage, would not have a material impact on the practice,
financial condition or results of operations.
6. Operating Leases:
The buildings where WSEA conducts business are leased under
noncancelable operating leases. At December 31, 1996, the minimum
annual lease commitment under the noncancelable operating leases is as
follows:
<TABLE>
<S> <C>
1997 $ 87,074
1998 79,027
1999 70,307
2000 33,851
2001 -
Thereafter -
--------
Total $ 270,259
========
</TABLE>
Rent expense on the buildings was $85,856 for the year ended
December 31, 1996. Rent for medical and office equipment amounted to
approximately $4,476 for the year ended December 31, 1996.
7. Related-Party Transactions:
Certain employees of the clinic are relatives of an owner of
WSEA.
8. Employee Benefit Plan:
WSEA has a 401(k) profit-sharing plan (the "Plan") which provides
for WSEA to make contributions for all employees who meet certain
eligibility requirements and discretionary contributions. WSEA pays
all general and administrative expenses of the Plan. WSEA made
contributions related to the Plan totaling approximately $39,563 in
1996. An officer of WSEA is the trustee of the Plan.
WSEA does not provide postretirement or postemployment benefits
to employees.
9. 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 long-term debt
also approximates fair value.
<PAGE>
10. Subsequent Event:
On December 31, 1996, WSEA completed a merger transaction with
Physicians Resource Group, Inc. ("PRG"), in exchange for 94,648 shares
of PRG common stock and $420,000 cash.
The financial statements of WSEA have been prepared as
supplemental information about the entity which PRG acquired. WSEA
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.
