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 September 30, 1997
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 Identification No.)
incorporation or organization)
Three Lincoln Centre, 5430 LBJ Freeway, Suite 1540, Dallas, TX 75240
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (972) 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 NOVEMBER 3, 1997
Common Stock, $.01 par value 29,927,313 shares
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1 CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of September 30, 1997 and December 31, 1996 ...........1
Statements of Operations for the nine months ended
September 30, 1997 and 1996 ..........................................2
Statements of Operations for the three months ended
September 30, 1997 and 1996 ..........................................3
Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 ..........................................4
Notes to Financial Statements ..........................................5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................9
PART II. OTHER INFORMATION
Item 1 Legal Proceedings....................................................14
Item 3 Defaults Upon Senior Securities......................................14
Item 6 Exhibits and Reports on Form 8-K.....................................14
SIGNATURES....................................................................21
Exhibit 11.1..................................................................22
Exhibit 27....................................................................23
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER DECEMBER
30, 31,
ASSETS 1997 1996
--------- --------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 13,724 $ 53,418
Accounts receivable, net ............................ 33,552 32,162
Due from affiliates, net ............................ 53,909 46,170
Pharmaceuticals and supplies ........................ 6,855 6,768
Prepaid expenses and other .......................... 8,091 6,125
--------- --------
Total current assets ....................... 116,131 144,643
PROPERTY AND EQUIPMENT, net ............................ 66,045 64,184
INTANGIBLE ASSETS, net ................................. 360,793 366,857
OTHER NONCURRENT ASSETS, net ........................... 8,827 5,850
--------- --------
Total assets ............................... $ 551,796 $581,534
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations to affiliates ........ $ 4,202 $ 8,447
Current portion of long-term debt ................... 2,100 2,833
Accounts payable and accrued expenses ............... 20,403 27,205
Deferred taxes ...................................... 2,599 2,599
--------- --------
Total current liabilities .................. 29,304 41,084
LONG-TERM DEBT, net of current portion ................. 128,074 129,339
OBLIGATIONS TO AFFILIATES, net of current
portion .............................................. 17,193 19,649
DEFERRED TAXES AND OTHER LONG-TERM LIABILITIES ......... 77,320 80,789
--------- --------
Total liabilities .......................... 251,891 270,861
--------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares
authorized, 29,927,000 and 29,782,000
outstanding in 1997 and 1996, respectively ....... 299 298
Preferred stock, $.01 par value, 10,000,000 shares
authorized, 200,000 outstanding in 1997 .......... 2 --
Treasury stock, at cost, 161,300 shares
in 1997 .......................................... (2,899) --
Note receivable from preferred stock sale ........... (2,225) --
Additional paid-in capital .......................... 299,144 296,454
Retained earnings ................................... 5,584 13,921
--------- --------
Total stockholders' equity ................. 299,905 310,673
--------- --------
Total liabilities and stockholders' equity.. $ 551,796 $581,534
========= ========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------
1997 1996
--------- ---------
(UNAUDITED)
REVENUES:
Management services ......................... $ 199,339 $ 110,317
Medical services and other .................. 107,898 53,074
--------- ---------
Total revenues ..................... 307,237 163,391
--------- ---------
COSTS AND EXPENSES:
Salaries, wages and benefits ................ 152,201 73,316
Pharmaceuticals and supplies ................ 38,197 21,888
General and administrative .................. 73,081 43,043
Depreciation and amortization ............... 17,520 7,470
Interest expense (income), net .............. 7,015 (830)
Patent litigation defense costs ............. 2,145 --
Asset valuation losses ...................... 31,750 --
Merger transaction expenses ................. -- 12,030
--------- ---------
Total costs and expenses ........... 321,909 156,917
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES .............. (14,672) 6,474
PROVISION (BENEFIT) FOR INCOME TAXES ........... (4,108) 6,148
========= =========
NET INCOME (LOSS) .............................. $ (10,564) $ 326
========= =========
NET INCOME (LOSS) PER SHARE .................... $ (0.36) $ 0.01
========= =========
NUMBER OF SHARES USED IN NET
INCOME (LOSS) PER SHARE CALCULATION ......... 29,746 24,177
========= =========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED SEPTEMBER 30,
------------------------
1997 1996
--------- --------
(UNAUDITED)
REVENUES:
Management services .......................... $ 67,246 $ 39,835
Medical services and other ................... 34,528 20,656
--------- --------
Total revenues ...................... 101,774 60,491
--------- --------
COSTS AND EXPENSES:
Salaries, wages and benefits ................. 49,686 21,548
Pharmaceuticals and supplies ................. 12,877 8,843
General and administrative ................... 25,687 19,138
Depreciation and amortization ................ 5,712 3,052
Interest expense (income), net ............... 2,360 (1,172)
Patent litigation defense costs .............. 914 --
Asset valuation losses ....................... 31,750 --
Merger transaction expenses ................. -- 3,030
--------- --------
Total costs and expenses ............. 128,986 54,439
--------- --------
INCOME (LOSS) BEFORE INCOME TAXES ............... (27,212) 6,052
PROVISION (BENEFIT) FOR INCOME TAXES ............ (8,776) 2,537
========= ========
NET INCOME (LOSS) .............................. $ (18,436) $ 3,515
========= ========
NET INCOME (LOSS) PER SHARE ..................... $ (0.62) $ 0.13
========= ========
NUMBER OF SHARES USED IN NET
INCOME (LOSS) PER SHARE CALCULATION .......... 29,764 27,305
========= ========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1997 1996
-------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $(10,564) $ 326
Adjustments to reconcile net income (loss) to net cash
used in operating activities--
Asset valuation losses ............................. 29,522 --
Depreciation and amortization .......................... 17,808 7,470
Change in deferred taxes ............................... -- (6,102)
Changes in assets and liabilities, net of effects of
acquisitions--
Accounts payable and accrued expenses ................. (7,330) (1,899)
Accounts receivable, net and due from affiliates ...... (16,529) (13,765)
Pharmaceuticals and supplies .......................... 257 (369)
Prepaid expenses and other ............................ (15,563) 395
-------- ---------
Net cash used by operating activities ............... (2,399) (13,944)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of clinic operating assets, net of cash acquired (12,532) (12,767)
Additions to property and equipment, net of effects of
acquisitions .......................................... (10,577) (7,687)
-------- ---------
Net cash used in investing activities ............... (23,109) (20,454)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock from
offerings, net of offering costs ....................... -- 114,267
Proceeds from credit facility ............................ -- 18,000
Proceeds from long-term and affiliate debt ............... 1,360 663
Payments on long-term and affiliate debt ................. (15,462) (47,851)
Proceeds from exercise of stock options .................. 315 1,396
Purchase of treasury stock ............................... (399) --
-------- ---------
Net cash provided by (used in) financing activities . (14,186) 86,475
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... (39,694) 52,077
CASH AND CASH EQUIVALENTS, beginning of period ............. 53,418 18,183
======== =========
CASH AND CASH EQUIVALENTS, end of period ................... $ 13,724 $ 70,260
======== =========
SUPPLEMENTAL INFORMATION:
NONCASH TRANSACTIONS:
Sale of practice and related ASC in exchange for PRG
common stock ....................................... $ 2,500 $ --
======== =========
Receivable from sale of preferred stock ............... $ 2,225 $ --
======== =========
Cash paid for income taxes ............................ $ 9,650 $ 4,122
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements of Physicians Resource
Group, Inc. and subsidiaries ("PRG" or the "Company") included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. In the opinion of management, the accompanying unaudited
interim financial statements contain all adjustments, consisting only of those
of a normal recurring nature, necessary to present fairly the Company's results
of operations and cash flows for the periods presented. Certain amounts in prior
periods financial statements have been reclassified to conform to the 1997
presentation. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
2. CURRENT OPERATING ENVIRONMENT
During 1997, the Company has experienced numerous events that have caused
it to reevaluate its strategic initiatives, including the 1) decline in price of
the Company's common stock, 2) its progress in integrating the affiliate
practices, 3) change in certain executive management positions, 4) on going
assessment of affiliated practice locations during the fourth quarter of 1996,
5) utilization of the Company's cash balances by certain affiliated practices,
6) declining cash balances, and 7) violation of certain debt covenants (see
further discussion in Note 3).
In response to these events management of the Company has undertaken
several steps, one of which is a review of its affiliated practices for market
penetration, profitability, and alignment with current strategic initiatives.
This review has identified fourteen practices, mainly in rural or suburban
markets in which the Company has no other affiliated practices, as of September
30, 1997 that will be sold or closed. The practices were acquired primarily from
EquiMed, Inc. ("EquiMed") and American Ophthalmic Incorporated. Charges of
$27,750,000 were recorded at September 30, 1997 for the future disposal of these
locations, which is reflected in "Asset Valuation Losses" in the accompanying
statement of operations. This amount includes estimated uncollectible amounts
due from the affiliated practices, unrealizable inventory, property and
equipment, and intangible assets.
Additionally, the Company is continuing its evaluation of affiliate
receivables and is implementing procedural changes relating to the collection of
its management fees and expense reimbursement. These procedural changes include
a new treasury management system which limits physician's access to cash
balances at the individual practice locations. In connection with the work
performed to date, the Company believes that the potential range of loss is
between $4,000,000 and $17,000,000. The Company has recorded a $4,000,000
reserve related to these receivables, which is reflected in the "Asset Valuation
Losses" at September 30, 1997. The Company expects to complete this initiative
prior to reporting year-end results.
3. SUBSEQUENT EVENTS
CREDIT FACILITY
In March 1997, PRG entered into a $90,000,000 credit facility (the "PRG
Credit Facility") with a group of lenders for acquisitions, capital
expenditures, working capital and repurchase of its common stock. The PRG Credit
Facility is secured by the stock of all subsidiaries of the Company and is
guaranteed by such subsidiaries. The Company may obtain advances under the PRG
Credit Facility to the extent of the lesser of the $90,000,000 or the borrowing
base in effect from time to time. Interest rates on borrowing are the lenders'
prime rate plus .375% to 1.125% or LIBOR plus 1% to 2.125%, at the option of the
borrower.
5
<PAGE>
On October 1, 1997, the Company borrowed $8,000,000 under the credit
facility to fund the acquisition of three practices. As a result of the third
quarter net loss of $18,436,000, the Company is in default of financial
covenants. On November 18, 1997 the company received a commitment letter for a
$20 million revolving credit facility from its lead bank that would replace the
previously described $90 million credit facility. Initial borrowings under the
new revolving credit facility will be limited to $8 million until final terms
and financial covenants are agreed to. The line will be secured by the stock of
all subsidiaries of the company, and up to $8 million of the facility will be
guaranteed by members of the Board of Directors.
It is anticipated that the termination of the $90,000,000 credit facility
will result in a fourth quarter charge of approximately $1,100,000 for
capitalized origination fees relating to the facility.
The Company's near term working capital needs are expected to be met
through, 1) its $20 million credit facility, 2) collections of affiliates
receivables, which is dependent upon the completion of the detail analysis
supporting the balances as discussed in Note 2, and 3) the timely collection of
future management fees.
The Company's ability to operate in its current form is dependent upon
generation of sufficient cash flow to meet its obligations as they come due, to
establish satisfactory terms and covenants in its new financing agreement, and
to obtain additional financing or refinancing as may be required.
CHANGE IN MANAGEMENT
The Company has terminated without cause the employment of Emmett E.
Moore, Chairman of the Board and Chief Executive Officer. It is estimated that
the termination will result in a fourth quarter charge to earnings of
approximately $750,000.
4. ACQUISITIONS
During the three months ended September 30, 1997, the Company acquired
certain assets, liabilities and stock of six eye care practices. These
acquisitions were accounted for as purchases. The net assets acquired in the
transactions were approximately $577,000. As consideration for these
acquisitions, the Company paid approximately $2,028,000 in cash, $629,000 in
promissory notes, $95,000 in convertible promissory notes and 300 shares of $.01
common stock. The notes bear interest at 7% with a two year term. The
convertible notes can be converted into PRG common stock after two years at the
option of the holder at $12.38 per share. Additionally, the Company restructured
the terms of a first quarter acquisition; cash of $2,389,000 and convertible
promissory notes of $2,389,000 were given in exchange for 287,000 shares of the
Company's common stock, which were canceled.
6
<PAGE>
The summarized unaudited pro forma consolidated statement of operations
data for the nine months ended September 30, 1997 and 1996 presented below have
been prepared as if (i) the public offering in 1996 had been completed; (ii) the
issuance of the $125,000,000 of 6% Convertible Subordinated Debentures had been
completed; (iii) the consummation of all 1997 and 1996 acquisitions and related
service agreements had occurred with the related PRG revenues being based on
historical clinic expenses; and (iv) the impact of amortization of intangibles
and interest expense generated by acquisitions had occurred. This statement is
presented as if such transactions or events had occurred on January 1, 1996.
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
--------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
--------- --------
Total revenues ................... $ 312,425 $298,522
Net income (loss) ................ (11,254) 16,198
Net income (loss) per share ...... $ (0.38) $ 0.54
Number of shares used in
net income (loss) per
share calculation ............. 29,748 29,667
5. REVENUE RECOGNITION AND RECEIVABLES
The Company manages its relationship with certain affiliated ophthalmic
and optometric practices ("the Practices") under various types of service and
management agreements. The management service revenues earned under these
agreements are based on several different types of arrangements, including
percentages of the medical service revenues or earnings, flat fees and
reimbursement of clinic expenses and are presented as management service
revenues on the accompanying consolidated statements of operations.
Certain states in which the Company operates allow the corporate practice
of medicine. In those states, the Company's revenues are derived from medical
services performed. In addition, the Company owns, operates and manages
Ambulatory Surgical Centers ("ASCs") through various arrangements. Revenues
derived from company-owned ASCs are based on facility fees charged to patients
and third-party payors for use of the ASC. Revenues from managed ASCs are
derived from a percentage of earnings as well as reimbursement of ASC expenses.
ASC revenues are also net of contractual adjustments. Revenues earned under
these arrangements from majority owned ASCs are presented as medical service
revenues on the accompanying consolidated statements of operations; minority
owned ASCs are presented as management service revenues, as discussed in the
preceding paragraph.
Due from affiliates on the accompanying consolidated balance sheets
include management service receivables, receivables from the Practices for
certain expenses paid on their behalf and certain other miscellaneous
receivables from the Practices. The receivables due from certain Practices are
collateralized by a security interest in the Practices' receivables from
third-party payors and patients.
6. COMMITMENTS AND CONTINGENCIES
During 1996, the Company acquired a Practice that is a party to litigation
regarding alleged infringement of three patents related to certain refractive
surgical procedures. The Practice believes that its procedure does not infringe
the patented procedures and has not made any royalty payments related to its
performed procedures. PRG is assisting in the defense of this litigation due to
the potential impact on certain other Practices. The Company has incurred
7
<PAGE>
$507,000, $724,000 and $914,000 of legal expense related to this litigation
during the first, second, and third quarters of 1997, respectively. The Company
expects to incur additional costs associated with this litigation throughout
1997 (see Part II, Item I, "Legal Proceedings"). Management of the Company
believes that while the ultimate outcome of this litigation will not have a
material impact on its financial condition or results of operations, the
$2,145,000 of legal costs associated with this litigation discussed above has
had a material impact on the Company's results of operations during 1997 to
date, and will continue to have a material impact at least through the end of
the year.
On May 15, 1997, EquiMed initiated arbitration proceedings against the
Company and a wholly-owned subsidiary of the Company before the American
Arbitration Association, Philadelphia, Pennsylvania. EquiMed alleged breach of
contract, fraud, trespass, and conversion based principally on the alleged
failure of the Company to cooperate with EquiMed in completing follow on
acquisitions that could have resulted in the payment of additional consideration
to EquiMed, the alleged failure by the Company to provide EquiMed with access to
EquiMed's accounting records and the Company's assertion against EquiMed of an
offset claim. EquiMed has asserted entitlement to damages in excess of
$30,000,000 plus punitive damages, costs and attorneys' fees. PRG intends to
vigorously defend such claims and has asserted a counterclaim against EquiMed
for damages in excess of $45,000,000.
In the normal course of business, certain of the affiliated physician
groups have been named in lawsuits alleging medical malpractice. In the opinion
of the Company's management, the ultimate liability, if any, without considering
possible insurance recoveries, will not have a material impact on the Company's
financial position, results of operations or cash flows. Additionally, the
Company's affiliated physician groups and the Company are insured with respect
to medical malpractice risks on a claims-made basis.
The Company is also involved in certain other lawsuits in the normal
course of business. In the opinion of the Company's management, the ultimate
liability, if any, will not have a material impact on the Company's financial
position or results of operations.
7. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board released
Standard No. 128, "Earnings per Share", which must be adopted for both interim
and annual periods ending after December 15, 1997, with earlier application not
permitted. Based on preliminary estimates, basic earnings per share defined by
the standard is consistent with current reporting of net income per common
share. The difference between basic and diluted earnings per share is expected
to be insignificant.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
PRG conducted no significant operations until September 1995. Through the
execution of service agreements with its initial ten Practices and five ASCs,
the Company began providing management, operational and administrative services
in return for 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
maintaining corporate and regional offices, which provide additional management
and administrative services to the Practices.
During 1996 and the first three quarters of 1997, the Company engaged in
an number of mergers, practice acquisitions, and practice management company
acquisitions. A summary of each group of transactions is presented below.
PRACTICE AND PRACTICE MANAGEMENT COMPANY MERGERS
On March 18, 1996, the Company merged, in a transaction accounted for as a
pooling of interests, with EyeCorp, a physician practice management company,
which currently provides management services to forty-nine eye care practices
and four ASCs. In connection therewith, the Company issued 6,089,506 shares of
common stock in exchange for all outstanding shares of EyeCorp common stock.
Additionally, during the second and third quarters of 1996, the Company
merged in two separate transactions, accounted for as poolings of interests,
with seven eye care practices and one ASC. As consideration in connection with
these transactions, the Company issued 3,636,999 shares of common stock to
owners of the practices.
The accompanying financial statements of the Company include the financial
statements of EyeCorp and the pooled eye care practices for all periods
presented.
PRACTICE ACQUISITIONS
During 1996 and the first three quarters of 1997, the Company acquired
certain assets and liabilities of, and entered into service agreements with
various eye care practices and ASCs. A summary of these acquisitions, accounted
for as purchase transactions, is presented by quarter below.
CONSIDERATION
ENTITIES ACQUIRED EXCHANGED
----------------- --------------
CONVERTIBLE
EYE CARE PROMISSORY COMMON
PRACTICES ASCS CASH NOTES SHARES
----- ----- ----------- --------- ----------
1996
First Quarter 11 7 $ 7,883,000 $ -- 1,446,437
Second Quarter 11 2 1,835,000 -- 801,639
Third Quarter 11 2 767,000 -- 1,374,799
Fourth Quarter 12 -- 1,335,000 -- 1,080,925
1997
First Quarter 9 1 6,351,000 1,885,000 329,498
Second Quarter 4 1 1,764,000 1,847,000 --
Third Quarter 6 -- 4,417,000 3,113,000 (1) 300
Fourth Quarter (2) 3 -- 7,688,000 7,824,000 --
(1) Includes convertible and non-convertible promissory notes totaling
$2,484,000 and $629,000, respectively.
(2) Through November 18, 1997.
9
<PAGE>
PRACTICE MANAGEMENT COMPANY ACQUISITIONS
In the fourth quarter of 1996, the Company completed the acquisition of
American Ophthalmic Incorporated, a privately held physician management company
providing management services to sixteen eye care practices and nine ASCs. In
connection with the acquisition, the Company paid approximately $31,000,000 in
cash and issued 1,314,045 shares of its common stock.
Additionally, in the fourth quarter of 1996 the Company acquired
substantially all of the assets and liabilities of the eye care division of
EquiMed, Inc., a publicly held physician management company providing management
services to twenty-two eye care practices and ten ASCs. Approximately
$55,077,000 in cash was paid and $9,900,000 in liabilities were assumed by the
Company in connection with the acquisition. EquiMed is currently in litigation
with the Company (see Part II, Item I, "Legal Proceedings").
CHANGE IN MANAGEMENT
The Company has terminated without cause the employment of Emmett E.
Moore, Chairman of the Board and Chief Executive Officer. It is estimated that
the termination will result in a fourth quarter charge to earnings of
approximately $750,000.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES
Total revenue for the nine months ended September 30, 1997 increased
$143,846,000, or 88% as compared to the same period in 1996. The increase in
total revenues was largely attributable to the significant increase in the
number of acquisitions made during the fourth quarter of 1996 and during 1997.
COSTS AND EXPENSES
Salaries, wages and benefits for the nine month period ended September 30,
1997 increased $78,885,000, or 108% over the same period in 1996. The increase
in dollar amounts is largely attributable to the significant increase in the
number of acquisitions during the fourth quarter of 1996 and during 1997.
Additionally, personnel costs increased with the addition of regional operating
directors and accounting personnel at both the corporate office and regional
accounting centers in the current year and fourth quarter of 1996. This was
offset by lower compensation to physicians in the third period of 1996 related
to certain practices the Company acquired in pooling of interests transactions.
General and administrative expenses for the nine month period ended
September 30, 1997 increased $30,038,000, or 70% over the same period in 1996.
This cost increase was largely attributable to the significant increase in the
number of acquisitions made during the fourth quarter of 1996 and during 1997.
Additionally, telephone, marketing and meeting costs increased during the nine
months ended September 30, 1997 due to the addition of regional operating
directors as well as an increased effort to increase patient flow into the
Practices.
Depreciation and amortization expense for the comparable 1996 period
increased $10,050,000, or 135%, during the nine months ended September 30, 1997.
Depreciation and amortization as a percent of total revenue increased from 5%
for the nine months ended September 30, 1996 to 6% for the comparable period in
1997. The percentage increase is primarily due to increased amortization
associated with the significant number of acquisitions during the fourth quarter
of 1996 and during 1997 that were accounted for under the purchase method of
accounting, as compared to certain previous acquisitions accounted for under the
pooling of interests method of accounting.
10
<PAGE>
Interest expense, net for the nine month period ended September 30, 1997
increased $7,845,000 over the comparable period in 1996. This change is
attributable to the overall increase in outstanding debt during the nine months
ended September 30, 1997, as compared to the same period in 1996.
Patent litigation defense costs for the nine months ended September 30,
1997 increased $2,145,000 primarily as a result of the Pillar Point litigation
(see Part II, Item I, "Legal Proceedings"). The Company expects to incur
additional costs associated with this litigation throughout 1997. Management of
the Company believes that while the ultimate outcome of this litigation will not
have a material impact on its financial condition or results of operations, the
costs associated with this litigation have had a material impact on the
Company's results of operations during 1997 to date, and will continue to have a
material impact at least through the end of the year.
During 1997, the Company has experienced numerous events that have caused
it to reevaluate its strategic initiatives, including the 1) decline in price of
the Company's common stock, 2) its progress in integrating the affiliate
practices, 3) change in certain executive management positions, 4) on going
assessment of practice locations affiliated during the fourth quarter of 1996,
5) utilization of the Company's cash balances by certain affiliated practices,
6) declining cash balances and 7) violation of certain debt covenants (see
further discussion in Part I, Item I, Note 3).
In response to these events management of the Company has undertaken
several steps, one of which is a review of its affiliated practices for market
penetration, profitability, and alignment with current strategic initiatives.
This review has identified fourteen practices mainly in rural or suburban
markets in which the Company has no other affiliated practices, as of September
30, 1997 that will be sold or closed. The practices were acquired primarily from
EquiMed and American Ophthalmic Incorporated. Charges of $27,750,000 were
recorded at September 30, 1997 for the future disposal of these locations, which
is reflected in "Asset Valuation Losses" in the accompanying statement of
operations. This amount includes estimate uncollectible amounts due from the
affiliated practices, unrealizable inventory, property and equipment, and
intangible assets.
Additionally, the Company is continuing its evaluation of affiliate
receivables and is implementing procedural changes relating to the collection of
its management fees and expense reimbursement. These procedural changes include
a new treasury management system which limits physicians access to cash balances
at the individual practice locations. In connection with the worked performed to
date, the Company believes that a potential range of loss is between $4,000,000
and $17,000,000. The Company has recorded a $4,000,000 reserve related to these
receivables, which is reflected in the "Asset Valuation Losses" at September 30,
1997. The Company expects to complete this initiative prior to reporting
year-end results.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES
Total revenue for the three months ended September 30, 1997, increased
$41,283,000, or 68% as compared to the same period in 1996. The increase in
total revenues was largely attributable to the significant increase in the
number of acquisitions made during the fourth quarter of 1996 and during 1997.
COSTS AND EXPENSES
Salaries, wages and benefits for the three month period ended September
30, 1997 increased $28,138,000, or 131% over the three month period in 1996.
This increase is primarily attributable to the significant increase in the
number of acquisitions during the fourth quarter of 1996 and during 1997.
Additionally, personnel costs increased with the addition of regional operating
directors and accounting personnel at both the corporate office and regional
accounting centers in the current year and fourth quarter of 1996. This was
offset by lower compensation to physicians in the third period of 1996 related
to certain practices the Company acquired in pooling of interests transactions.
11
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General and administrative expenses for the three month period ended
September 30, 1997, increased $6,549,000, or 34% over the same period in 1996.
This increase is primarily attributable to the significant increase in the
number of acquisitions during the fourth quarter of 1996 and during 1997.
Depreciation and amortization expense for the comparable 1996 period
increased $2,660,000, or 87% during the three month period ended September 30,
1997. Depreciation and amortization as a percent of total revenue increased from
5% for the three months ended September 30, 1996, to 6% for the comparable
period in 1997. The percentage increase is primarily due to increased
amortization associated with the significant number of acquisitions during the
second half of 1996 and during 1997 that were accounted for under the purchase
method of accounting, as compared to previous acquisitions primarily accounted
for as poolings of interest.
Interest expense, net for the three month period ended September 30, 1997,
increased $3,532,000 over the comparable period in 1996. This change is
attributable to the overall increase in outstanding debt during the three months
ended September 30, 1997, as compared to the same period in 1996.
Patent litigation defense costs for the three months ended September 30,
1997, increased $914,000 and were primarily incurred in association with the
Pillar Point litigation (see Part II, Item I, "Legal Proceedings"). Management
of the Company believes that while the ultimate outcome of this litigation will
not have a material impact on its financial condition or results of operations,
the costs associated with this litigation had a material impact on the Company's
results of operations during 1997 to date, and will continue to have a material
impact at least through the fourth quarter.
During 1997, the Company has experienced numerous events that have caused
it to reevaluate its strategic initiatives, including the 1) decline in price of
the Company's common stock, 2) its progress in integrating the affiliate
practices, 3) change in certain executive management positions, 4) on going
assessment of affiliated practice locations during the fourth quarter of 1996,
5) utilization of the Company's cash balances by certain affiliated practices,
6) declining cash balances and 7) violation of certain debt covenants (see
further discussion in Part I, Item I, Note 3).
In response to these events management of the Company has undertaken
several steps, one of which is a review of its affiliated practices for market
penetration, profitability, and alignment with current strategic initiatives.
This review has identified fourteen practices mainly in rural or suburban
markets in which the Company has no other affiliated practices, as of September
30, 1997 that will be sold or closed. The practices were acquired primarily from
EquiMed and American Ophthalmic Incorporated. Charges of $27,750,000 were
recorded at September 30, 1997 for the future disposal of these locations, which
is reflected in "Asset Valuation Losses" in the accompanying statement of
operations. This amount includes estimate uncollectible amounts due from the
affiliated practices, unrealizable inventory, property and equipment, and
intangible assets.
Additionally, the Company is continuing its evaluation of affiliate
receivables and is implementing procedural changes relating to the collection of
its management fees and expense reimbursement. These procedural changes include
a new treasury management system which limits physicians access to cash balances
at the individual practice locations. In connection with the worked performed to
date, the Company believes that a potential range of loss is between $4,000,000
and $17,000,000. The Company has recorded a $4,000,000 reserve related to these
receivables, which is reflected in the "Asset Valuation Losses" at September 30,
1997. The Company expects to complete this initiative prior to reporting
year-end results.
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LIQUIDITY AND CAPITAL RESOURCES
CASH, WORKING CAPITAL AND DEBT
During the nine months ended September 30, 1997, the Company made various
significant cash expenditures with respect to (i) debt retirement, (ii) various
practice asset acquisitions, (iii) working capital advanced to affiliated
practices, (iv) capital expenditures related to medical equipment and
information systems, (v) payment of taxes, and (vi) the credit facility and
Debenture offering expenses. To finance these expenditures, PRG utilized
existing cash balances and cash generated from operations. Accordingly, as of
September 30, 1997, cash on hand was $13,724,000, and total long-term debt was
$128,074,000 (excluding current portion). The Company has continued to use cash
in the operations of the business in the fourth quarter of 1997.
The Company's near term working capital needs are expected to be met
through, 1) its $20 million credit facility, 2) collections of affiliates
receivables, which is dependent upon the completion of the detail analysis
supporting the balances as discussed in Part I, Item I, Note 2, and 3) the
timely collection of future management fees.
On October 1, 1997 a the Company borrowed $8,000,000 under the credit
facility to fund the acquisition of three practices. On November 18, 1997 the
company received a commitment letter for a $20 million revolving credit facility
from its lead bank that would replace the previously described $90 million
credit facility. Initial borrowings under the new revolving credit facility will
be limited to $8 million until final terms and financial covenants are agreed
to. The line will be secured by the stock of all subsidiaries of the company and
up to $8 million of the facility will be guaranteed by members of the
Board of Directors.
The Company's near term working capital needs are expected to be met
through, 1) its $20 million credit facility, 2) collections of affiliates
receivables, which is dependent upon the completion of the detail analysis
supporting the balances as discussed in Part I, Item I, Note 2, and 3) the
timely collection of future management fees.
The Company's ability to operate in its current form is dependent upon
generation of sufficient cash flow to meet its obligations as they come due, to
establish satisfactory terms and covenants in its new financing agreement, and
to obtain additional financing or refinancing as may be required.
Certain statements in this Form 10-Q consist of forward-looking statements
that involve risks and uncertainties, including the Company's ability to
successfully acquire the assets of, service and integrate eye care providers,
regulatory developments, the ability to adapt to the managed care environment
and other risks detailed from time to time in the reports filed by the Company
with the Securities and Exchange Commission, including Form 10-K dated December
31, 1996.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
EQUIMED, INC. V. PHYSICIANS RESOURCE GROUP, INC. AND PRG GEORGIA, INC. On
May 15, 1997, EquiMed, Inc. initiated arbitration proceedings against the
Company and a wholly-owned subsidiary of the Company before the American
Arbitration Association, Philadelphia, Pennsylvania, alleging breach of
contract, fraud, trespass, and conversion based principally on the alleged
failure of the Company to cooperate with EquiMed in completing follow on
acquisitions that could have resulted in the payment of additional consideration
to EquiMed, the alleged failure by the Company to provide EquiMed with access to
EquiMed's accounting records and the Company's assertion against EquiMed of an
offset claim. EquiMed has asserted entitlement to damages in excess of $30
million plus punitive damages, costs and attorneys' fees. PRG intends to
vigorously defend such claims and has asserted a counterclaim against EquiMed
for damages in excess of $45 million.
PILLAR POINT PARTNERS, SUMMIT PARTNERS, INC. AND VISX PARTNERS, INC. V.
DAVID DULANEY AND ANNE MARIE DULANEY, RONALD BARNET AND TERI LYNN BARNET, BARNET
DULANEY EYE CENTER, P.L.L.C. AND SUN VALLEY ACQUISITION CORP. Pillar Point
Partners, Summit Partners, Inc. and VISX Partners, Inc. initiated this patent
infringement suit against a PRG affiliated practice and claim that the
refractive procedure performed by the physicians associated with this practice
infringes certain patents owned by the plaintiffs. The defendants have asserted
defenses of non-infringement and invalidity of the patents. The action was
recently amended to include a wholly-owned subsidiary of the Company. PRG has
agreed to be responsible for the payment of the practice's attorneys' fees and
costs associated with this action, but has not agreed to be responsible for any
damage awards that may be awarded against the practices. To the extent that PRG
is involved in the action, it intends to vigorously defend such claims.
PRG is involved in certain other lawsuits in the normal course of
business. In the opinion of the Company's management, the ultimate liability, if
any, will not have a material adverse impact on the Company's business or
operations.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
The Company is in default of senior financial covenants of the PRG Credit
Facility (see Part I, Item I, Note 3 to financial statement for further
discussion of default on senior debt securities).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
NUMBER DESCRIPTION
2.1 -- Amended and Restated Agreement and Plan of Merger by and among
Physicians Resource Group, Inc., PRG Acquisition Corporation
and EyeCorp, Inc., dated December 22, 1995.(2) (8)
2.2 -- Asset Purchase Agreement by and among EquiMed, Inc., PRG
Georgia, and Physicians Resource Group, Inc. dated October 7,
1996.(12) (8)
2.3 -- Agreement and Plan of Merger by and among American Ophthalmic
Incorporated, PRG Acquisition Corporation and Physician
Resource Group, Inc. dated October 7, 1996.(12) (8)
2.4 -- Asset Purchase Agreement by and among Sun Valley Acquisition
Corporation, Barnet- Dulaney Eye Center, P.L.L.C., Ronald W.
Barnet, M.D., David D. Dulaney, M.D., Robert B. Pinkert O.D.
and Scott A. Perkins, M.D. dated November 29, 1995.(2) (8)
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2.5 -- First Amendment to Asset Purchase Agreement by and among Sun
Valley Acquisition Corporation, Barnet-Dulaney Eye Center,
P.L.L.C., Ronald W. Barnet, M.D., David D. Dulaney, M.D.,
Robert B. Pinkert, O.D. and Scott A. Perkins, M.D. dated
February 14, 1996.(3) (8)
2.6 -- Agreement and Plan of Merger by and among Physicians Resource
Group, Inc., Sun Valley Acquisition Corporation, SVAC
Acquisition Corporation, Daniel D. Chambers, Michael R. Beck,
John R. Hedrick and Michael Yeary dated December 6, 1995.(2)
(8)
2.7 -- Agreement and Plan of Reorganization by and among PRG Nevada
Acquisition Corporation II, Inc., Physician Resource Group,
Inc., Shepard Eye Surgicenter, Ltd., John R. Shepherd, M.D.
and Steven Hansen, M.D. dated December 6, 1995.(2) (8)
2.8 -- Agreement and Plan of Reorganization by and among PRG Nevada
Acquisition Corporation III, Inc., Physicians Resource Group,
Inc., John R. Shepherd, M.D., Ltd., d/b/a Shepherd Eye Center,
John R. Shepherd, M.D. and Steven Hansen, M.D. dated December
6, 1995.(2) (8)
2.9 -- Asset Purchase Agreement by and among Sun Valley Acquisition
Corporation, Mann Berkeley Eye Center, P.A., Paul Michael
Mann, M.D. and Ralph G. Berkeley, M.D. dated November 11,
1995.(2) (8)
2.10 -- First Amendment to Asset Purchase Agreement by and among Sun
Valley Acquisition Corporation, Mann Berkeley Eye Center,
P.A., Paul Michael Mann, M.D. and Ralph G. Berkeley, M.D.
dated February 14, 1996.(3) (8)
2.11 -- Agreement and Plan of Merger by and among Central Florida Eye
Associates, P.A., Ronald Case, M.D., Brian Renz, M.D., Teo
Kulyk, M.D., Jay Mulaney, M.D., PRG FL Acquisition
Corporation, and Physicians Resource Group, Inc.(13) (8)
2.12 -- Agreement and Plan of Merger by and among G.C.R. Investors,
Ronald Case, M.D., Brian Renz, M.D., Jay Mulaney, M.D., PRG FL
Partnership I, and Physicians Resource Group, Inc. (13) (8)
2.13 -- Agreement and Plan of Merger by and among Central Florida Eye
Associates, Partners, Ronald Case, M.D., Brian Renz, M.D., Teo
Kulyk, M.D., Jay Mulaney, M.D., PRG FL Partnership II, and
Physicians Resource Group, Inc.(13) (8)
2.14 -- Agreement and Plan of Merger by and among South Texas Retina
Affiliates, Inc., South Texas Retina Consultants, L.L.P.,
Charles H. Campbell, M.D., P.A., Charles H. Campbell, M.D.,
PRG TX Acquisition Corp. I and Physicians Resource Group,
Inc.(13) (8)
2.15 -- Agreement and Plan of Merger, dated August 13, 1996, between
PRG Ohio III, Inc., Physicians Resource Group, Inc.,
Cincinnati Eye Institute, Inc., John S. Cohen, M.D., James D.
Faulkner, M.D., William J. Faulkner, M.D., Robert C. Kersten,
M.D., Richard S. Kerstine, M.D., Robert H. Osher, M.D., Robert
W. Nash, M.D., Michael R. Petersen, M.D., Gary A. Varley,
M.D., Linda J. Greff, M.D., Robert J. Cionni, M.D., Kevin T.
Corcoran, O.D. and Corwin M. Smith, M.D.(14) (8)
2.16 -- Agreement and Plan of Reorganization, dated August 13, 1996,
between PRG HEA Acq. Corp., Physicians Resource Group, Inc.,
Houston Eye Associates, P.A., Malcom L. Mazow, MD., Robert H.
Stewart, M.D., Robert B. Wilkins, M.D., Jeffrey D. Lanier,
M.D., Michael A. Bloome, M.D., Paul C. Salmonsen, M.D.,
Richard L. Kimbrough, M.D., Jack T.
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Holladay, M.D., Jeffrey B. Arnoult, M.D. , William H. Quayle,
M.D., John D. Goosey, M.D., John M. Lim, M.D., Kathryn H.
Musgrove, M.D., Marsha F. Soechting, M.D. and Marc N. Longo,
M.D.(14) (8)
2.17 -- Asset Purchase Agreement, dated August 13, 1996, between PRG
Ohio III, Inc., Physicians Resource Group, Inc. and CEI Realty
Associates, Ltd.(14) (8)
2.18 -- Agreement and Plan of Merger, dated August 13, 1996, between
PRG IV Acq. Corp., Physicians Resource Group, Inc., Gregory L.
Henderson, M.D., P.A. and Gregory L. Henderson, M.D.(14) (8)
2.19 -- Agreement and Plan of Merger, dated August 13, 1996, between
PRG IX Acq. Corp., Physicians Resource Group, Inc., William
Reynolds, M.D., P.A. and William Reynolds, M.D.(14) (8)
2.20 -- Agreement and Plan of Merger, dated August 12, 1996, between
PRG II Acq. Corp., Physician Resource Group, Inc., Tampa Eye
Clinic, P.A., J. Burns Creighton, M.D., Ronald Seeley, M.D.,
Lewis Lauring, M.D., William Reynolds, M.D., David Leach,
M.D., P.A. and Timothy Lorenzen, M.D., P.A.(14) (8)
2.21 -- Agreement and Plan of Merger, dated August 13, 1996, between
PRG XI Acq. Corp., Physician Resource Group, Inc., Timothy
Lorenzen, M.D., P.A. and Timothy Lorenzen, M.D.(14) (8)
2.22 -- Agreement and Plan of Merger, dated August 13, 1996, between
PRG VII Acq. Corp., Physician Resource Group, Inc., Ronald
Seeley, M.D., P.A. and Ronald Seeley, M.D. (14) (8)
2.23 -- Agreement and Plan of Merger, dated August 13, 1996, between
PRG VI Acq. Corp., Physicians Resource Group, Inc., J. Burns
Creighton, M.D., P.A. and J. Burns Creighton, M.D.(14) (8)
2.24 -- Agreement and Plan of Merger, dated August 13, 1996, between
PRG X Acq. Corp., Physicians Resource Group, Inc., David
Leach, M.D., P.A. and David Leach, M.D.(14) (8)
2.25 -- Agreement and Plan of Merger, dated August 13, 1996, between
PRG VIII Acq. Corp., Physicians Resource Group, Inc., Lewis
Lauring, M.D., P.A. and Lewis Lauring, M.D. (14) (8)
2.26 -- Asset Purchase Agreement, dated August 13, 1996, between PRG
Ohio, L.P., CEI Realty Associates, Ltd. and Physicians
Resource Group, Inc.(14) (8)
2.27 -- Share Exchange Agreement by and among PRG Florida XII, Inc.,
Melbourne Eye Associates of Brevard, Inc., Melbourne Eye
Associates, P.A., William Broussard, Trustee U.T.D. March 24,
1980, Michael F. Corcoran, M.D., Trustee U.T.D. September 26,
1988, Andrew Zorbis, M.D., Ralph Paylor, M.D., L. Neal
Freeman, M.D., and Kaukwok Frederick Ho, M.D., Trustee U.T.D.
November 24, 1989 and Physicians Resource Group, Inc.(15) (8)
3.1 -- Second Restated Certificate of Incorporation of Physicians
Resource Group, Inc.(10)
3.2 -- Certificate of Designations, Preferences, Rights and
Limitations of Class A Preferred Stock of Physicians Resource
Group, Inc.(1)
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3.3 -- Third Amended and Restated Bylaws of Physicians Resource
Group, Inc.(5)
4.1 -- Form of Warrant Certificate.(1)
4.2 -- Form of certificate evidencing ownership of common stock of
Physicians Resource Group, Inc.(1)
4.3 -- Rights Agreement dated as of April 19, 1996 between Physicians
Resource Group, Inc. and Chemical Mellon Shareholder
Services.(9)
10.1 -- Physicians Resource Group, Inc. Amended and Restated 1995
Stock Option Plan.(5) (7)
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) (7)
10.4 -- Employment Agreement between Physicians Resource Group, Inc.
and Emmett E. Moore.(19) (7)
10.5 -- Employment Agreement between Physicians Resource Group, Inc.
and Richard M. Owen.(19) (7)
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)
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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.(4)
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.(5)
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.(6) (7)
10.25 -- Loan Agreement dated as of January 8, 1996, between PRG and
NationsBank of Tennessee, N.A.(2)
10.26 -- Subordination Agreement dated as of December 28, 1995, by and
among NationsBank, EyeCorp, Eyecare Resource, Inc., the EyePA,
Inc. and PRG.(2)
10.27 -- Reimbursement Agreement dated as of December 28, 1995, between
EyeCorp and PRG.(2)
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.(5) (8)
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.(5)
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.(5)
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.(5)
10.32 -- Form of Indenture dated as of December 11, 1996, between
Physicians Resource Group, Inc. and U.S. Trust Company of New
York, N.A. (10)
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10.33 -- Form of Registration Rights Agreement, dated as of December
6, 1996, between Physicians Resource Group, Inc., and Smith
Barney, Inc., Alex Brown & Sons Incorporated, Soloman
Brothers, Dillon Reed & Co., Inc. and Volpe Welty &
Company.(10)
10.34 -- Form of Purchase Agreement dated as of December 6, 1996.(10)
10.35 -- Loan Agreement for $90,000,000 Revolving Credit Loan, dated
March 14, 1997, between Physicians Resource Group, Inc. and
NationsBank of Tennessee, N.A., Agent for the Banks Signatory
hereto.(16)
10.36 -- Physicians Resource Group, Inc. Employee Stock Purchase
Plan.(11)
10.37 -- Employment Agreement between Physicians Resource Group, Inc.
and Mark Kingston.(7) (16)
10.38 -- Employment Agreement between Physicians Resource Group, Inc.
and Richard D'Amico.(7) (16)
10.39 -- Employment Agreement between Physicians Resource Group, Inc.
and Jonathan Bond.(7) (16)
10.40 -- Employment Agreement between Physicians Resource Group, Inc.
and Daniel Chambers.(7) (16)
10.41 -- First Amendment to Loan Agreement, dated June 27, 1997,
between Physicians Resource Group, Inc. and NationsBank of
Tennessee, N.A., Agent for the Bank's signatory thereto.(21)
10.42 -- Physicians Resource Group, Inc. 401(k) Plan.(18)
10.43 -- Amendment to the Physicians Resource Group, Inc. Employee
Stock Purchase Plan .(20)
11.1 -- Computation of Earnings per Share.(17)
24.1 -- Power of Attorney (contained on the signature page of this
report).
27.0 -- Financial Data Schedule.(17)
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(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) Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-00230) and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-K,
dated February 14, 1996, and incorporated herein by reference.
(4) 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.
(5) Previously filed as an exhibit to the Company's annual report on Form 10-K
for the year ending December 31, 1995, and incorporated herein by reference.
(6) 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.
(7) Management contract or compensatory plan or arrangement, which is being
identified as such pursuant to Item 14(a)3 of Form 10-K.
(8) Schedules and similar attachments to this Exhibit have not been filed
herewith, but the nature of their contents is described in the body of this
Exhibit. The Company agrees to furnish a copy of any such omitted schedules
and attachments to the Securities & Exchange Commission upon request.
(9) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-3852) and incorporated herein by reference.
(10)Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-19185) and incorporated herein by reference.
(11)Previously filed as an exhibit to the Company's Registration Statement on
Form S-8 (No. 333-15547) and incorporated herein by reference.
(12)Previously filed as an exhibit to the Company's Current Report on Form 8-K,
dated October 7, 1996 and incorporated herein by reference.
(13)Previously filed as an exhibit to the Company's Current Report on Form 8-K,
dated June 30, 1996, and incorporated herein by reference.
(14)Previously filed as an amendment to the Company's Current Report on Form
8-K, dated August 30, 1996, and incorporated herein by reference.
(15)Previously filed as an amendment to the Company's Current Report on Form
8-K, dated October 19, 1996, and incorporated herein by reference.
(16)Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ending December 31, 1996, and incorporated herein by reference.
(17)Filed herewith
(18)Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated May 15, 1997, and incorporated herein by reference.
(19)Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ending March 31, 1997, and incorporated herein by
reference.
(20)Previously filed as an exhibit to the company's current report on Form 8-K
dated November 5, 1996 and filed September 3, 1997, and incorporated herein
by reference.
(21)Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ending June 30, 1997, and incorporated herein by
reference.
(b) Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHYSICIANS RESOURCE GROUP, INC.
Dated: November 19, 1997 By:/S/DAVID D. REAL
David D. Real
Senior Vice President and Chief
Financial Officer
By:/S/RANDALL S. SIMPSON
Randall S. Simpson
Vice President and Chief Accounting
Officer
21
EXHIBIT 11.1
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, 1997
------------------------
THREE NINE
MONTHS MONTHS
ENDED ENDED
---------- --------
PRIMARY LOSS PER SHARE
Net loss ...................................... $ (18,436) $(10,564)
========== ========
Weighted average number of common shares
outstanding ................................ 29,764 29,746
Net effect of dilutive stock options,
warrants and convertible preferred
stock based on the treasury stock
method using average market price .......... -- --
========== ========
Weighted average number of common and
common equivalent shares outstanding ....... 29,764 29,746
========== ========
PRIMARY LOSS PER COMMON AND COMMON
EQUIVALENT SHARE ................................. $ (0.62) $ (0.36)
========== ========
FULLY DILUTED LOSS PER SHARE
Net loss ...................................... $ (18,436) $(10,564)
========== ========
Weighted average number of common shares
outstanding ................................ 29,764 29,746
Net effect of dilutive stock options based
on the treasury stock method using
the greater of the average or
ending market price ........................ -- --
========== ========
Weighted average number of common and
common equivalent shares outstanding ....... 29,764 29,746
========== ========
LOSS PER COMMON AND COMMON EQUIVALENT SHARE
ASSUMING FULL DILUTION ........................... $ (0.62) $ (0.36)
========== ========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND ON PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,724
<SECURITIES> 0
<RECEIVABLES> 87,462<F1>
<ALLOWANCES> 0
<INVENTORY> 6,855
<CURRENT-ASSETS> 116,132
<PP&E> 97,966<F2>
<DEPRECIATION> 31,922
<TOTAL-ASSETS> 551,796
<CURRENT-LIABILITIES> 29,304
<BONDS> 125,000
0
1
<COMMON> 299
<OTHER-SE> 299,605
<TOTAL-LIABILITY-AND-EQUITY> 551,796
<SALES> 0
<TOTAL-REVENUES> 307,237
<CGS> 0
<TOTAL-COSTS> 321,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,014
<INCOME-PRETAX> (14,672)
<INCOME-TAX> (4,108)
<INCOME-CONTINUING> (10,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,564)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
<FN>
<F1>NET OF CONTRACTUAL AND OTHER ALLOWANCES
<F2>NET OF ACCUMULATED DEPRECIATION
</FN>
</TABLE>
