<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1 to Current Report on Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
March 14, 1996
(Date of Earliest Event reported)
SHERIDAN HEALTHCARE, INC.
(Exact name of registrant as specified in charter)
DELAWARE 0-26806 04-3252967
(State or other jurisdiction (Commission File Number) (IRS Employer ID Number)
of incorporation)
4651 SHERIDAN STREET
SUITE 400
HOLLYWOOD, FLORIDA 33021
(Address of principal executive offices, including zip code)
954/987-5822
(Registrant's telephone number, including area code)
There are 50 pages in this Report. There are no exhibits to this Report.
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
<TABLE>
<S> <C>
(a) Financial Statements of Businesses Acquired:
Page No.
Neonatology Certified, Inc. and Children's Hospital Services, Inc.:
Independent Auditor's Report................................................. 3
Combining Balance Sheets as of December 31, 1995 and 1994.................... 4
Combining Statements of Operations for the Years Ended
December 31, 1995 and 1994.................................................. 6
Combining Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1995 and 1994.............................. 8
Combining Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994.................................................. 12
Notes to Combining Financial Statements...................................... 15
Rosenbaum, Weitz and Ritter, M.D., P.A.:
Report of Independent Certified Public Accountants........................... 22
Balance Sheets as of September 30, 1995 and 1994............................. 23
Statements of Operations for the Years Ended September 30, 1995 and 1994..... 24
Statements of Stockholders' Equity for the Years Ended
September 30, 1995 and 1994................................................. 25
Statements of Cash Flows for the Years Ended September 30, 1995 and 1994..... 26
Notes to Financial Statements................................................ 27
Norman B. Gaylis M.D., P.A.:
Report of Independent Certified Public Accountants........................... 33
Balance Sheets as of December 31, 1995 and 1994.............................. 34
Statements of Operations for the Years Ended December 31, 1995 and 1994...... 35
Statements of Stockholder's Equity for the Years Ended
December 31, 1995 and 1994.................................................. 36
Statements of Cash Flows for the Years Ended December 31, 1995 and 1994...... 37
Notes to Financial Statements................................................ 38
(b) Pro Forma Financial Information:
Introduction to Unaudited Pro Forma Consolidated Financial Statements......... 43
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1995........ 45
Notes to Unaudited Pro Forma Consolidated Balance Sheet....................... 46
Unaudited Pro Forma Consolidated Statement of Operations for the
Year Ended December 31, 1995................................................. 47
Notes to Unaudited Pro Forma Consolidated Statement of Operations............. 48
</TABLE>
2
<PAGE> 3
MCGLADREY & PULLEN, LLP
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
Independent Auditor's Report
To the Boards of Directors
Neonatology Certified, Inc.
Children's Hospital Services, Inc.
Plantation, Florida
We have audited the accompanying combining balance sheets of Neonatology
Certified, Inc. and Children's Hospital Services, Inc. as of December 31, 1995
and 1994, and the related combining statements of operations, stockholders'
equity (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combining financial statements referred to above present
fairly, in all material respects, the financial position of Neonatology
Certified, Inc. and Children's Hospital Services, Inc. as of December 31, 1995
and 1994, and the results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Fort Lauderdale, Florida
February 19, 1996
3
<PAGE> 4
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
COMBINING BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
CHILDREN'S
NEONATOLOGY HOSPITAL
ASSETS CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets
Cash $ 232,579 $ 6,373 $ - $ 238,952
Accounts receivable, less allowances
of $1,572,886 and $299,806;
respectively (Note 2) 1,458,078 508,183 - 1,966,261
Other receivables 43,054 2,195 - 45,249
Due from affiliates 454,375 - 454,375 -
Other assets 37,838 34,982 - 72,820
----------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,225,924 551,733 454,375 2,323,282
----------------------------------------------------------------------
Furniture and equipment
Machinery and equipment 81,288 - - 81,288
Computers 20,744 2,500 - 23,244
Furniture and fixtures 143,237 - - 143,237
Leasehold improvements 3,599 - - 3,599
----------------------------------------------------------------------
248,868 2,500 - 251,368
Less accumulated depreciation (167,385) (500) (167,885)
----------------------------------------------------------------------
81,483 2,000 - 83,483
----------------------------------------------------------------------
$ 2,307,407 $ 553,733 $ (454,375) $ 2,406,765
======================================================================
LIABILITIES AND
STOCKHOLDERS' (DEFICIT)
Current Liabilities
Note payable to bank (Note 2) $ 332,000 $ - $ - $ 332,000
Accounts payable 40,281 3,075 - 43,356
Due to affiliates - 454,375 (454,375) -
Accrued expenses 433,123 285,194 - 718,317
Other liabilities 396,299 94,512 - 490,811
----------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,201,703 837,156 (454,375) 1,584,484
----------------------------------------------------------------------
Termination benefits (Note 6) 1,485,000 - - 1,485,000
----------------------------------------------------------------------
Commitments and contingencies
(Notes 6, 7, 8 and 9)
Stockholders' (deficit)
Common stock 1,072 775 - 1,847
Receivable for common stock (108,584) - - (108,584)
Additional paid-in capital 114,393 18,000 - 132,393
Accumulated (deficit) (Note 6) (386,177) (302,198) - (688,375)
----------------------------------------------------------------------
(379,296) (283,423) - (662,719)
----------------------------------------------------------------------
$ 2,307,407 $ 553,733 $ (454,375) $ 2,406,765
======================================================================
</TABLE>
See Notes to Combining Financial Statements.
4
<PAGE> 5
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
COMBINING BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
CHILDREN'S
NEONATOLOGY HOSPITAL
ASSETS CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets
Cash $ - $ 82,341 $ - $ 82,341
Accounts receivable, less allowances
of $1,435,908 and $229,679; respectively 1,254,828 469,604 - 1,724,432
Other receivables 55,091 35,303 - 90,394
Due from affiliates 481,864 101 (481,864) 101
Other assets 32,042 9,292 - 41,334
--------------------------------------------------------------
TOTAL CURRENT ASSETS 1,823,825 596,641 (481,864) 1,938,602
--------------------------------------------------------------
Furniture and Equipment
Machinery and equipment 93,608 - - 93,608
Computers 154,207 - - 154,207
Furniture and fixtures 21,368 - - 21,368
--------------------------------------------------------------
269,183 - - 269,183
Less accumulated depreciation (185,547) - - (185,547)
--------------------------------------------------------------
83,636 - - 83,636
--------------------------------------------------------------
$ 1,907,461 $ 596,641 $ (481,864) $ 2,022,238
==============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Excess of outstanding checks over bank balances $ 185,063 $ - $ - 185,063
Accounts payable 50,001 5,713 - 55,714
Due to affiliates - 481,864 (481,864) -
Accrued expenses 45,633 23,830 - 69,463
Other liabilities 230,167 32,685 - 262,852
--------------------------------------------------------------
TOTAL CURRENT LIABILITIES 510,864 544,092 (481,864) 573,092
--------------------------------------------------------------
Termination Benefits (Note 6) 1,320,000 - - 1,320,000
--------------------------------------------------------------
Commitments and Contingencies
(Notes 6, 7, 8 and 9)
Stockholders' Equity
Common stock 1,103 950 - 2,053
Additional paid-in capital 5,962 18,000 - 23,962
Accumulated earnings (Note 6) 69,532 33,599 - 103,131
--------------------------------------------------------------
76,597 52,549 - 129,146
--------------------------------------------------------------
$ 1,907,461 $ 596,641 $ (481,864) $ 2,022,238
==============================================================
</TABLE>
See Notes to Combining Financial Statements.
5
<PAGE> 6
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
CHILDREN'S
NEONATOLOGY HOSPITAL
CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Fee revenue, net $ 7,017,905 $ 2,017,470 $ - $ 9,035,375
Directorship fees 156,583 50,000 - 206,583
Income from hospitals 39,225 532,792 - 572,017
Management fees 336,000 - (336,000) -
Billing services income 153,132 - (153,132) -
Other income 6,071 9,486 - 15,557
---------------------------------------------------------------
7,708,916 2,609,748 (489,132) 9,829,532
---------------------------------------------------------------
Operating expenses:
Base physician compensation 2,855,080 1,989,041 - 4,844,121
Termination benefit expense 365,000 - - 365,000
Physician benefits 191,880 216,645 - 408,525
Compensation, other 1,905,482 2,232 - 1,907,714
Benefits, other 412,952 8,668 - 421,620
Insurance 390,891 112,906 - 503,797
Travel, seminars and meetings 18,604 5,759 - 24,363
Rent 78,196 - - 78,196
Utilities 66,672 2,485 - 69,157
Office supplies and postage 78,873 1,417 - 80,290
Dues and subscriptions 25,728 10,101 - 35,829
Management services cost - 336,000 (336,000) -
Billing services cost - 153,132 (153,132) -
Legal and accounting 200,327 17,792 - 218,119
Depreciation and amortization 42,445 622 - 43,067
Other operating expenses 164,033 46,374 - 210,407
---------------------------------------------------------------
6,796,163 2,903,174 (489,132) 9,210,205
---------------------------------------------------------------
OPERATING INCOME (LOSS) 912,753 (293,426) - 619,327
---------------------------------------------------------------
Other income (expense):
Compensation to physicians over base (1,232,160) - (1,232,160)
Interest income 5,948 983 - 6,931
Interest expense (11,846) - (11,846)
---------------------------------------------------------------
(1,238,058) 983 - (1,237,075)
---------------------------------------------------------------
NET (LOSS) $ (325,305) $ (292,443) $ - $ (617,748)
===============================================================
</TABLE>
See Notes to Combining Financial Statements.
6
<PAGE> 7
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
CHILDREN'S
NEONATOLOGY HOSPITAL
CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Fee revenue, net $ 6,431,655 $ 1,716,092 $ - $ 8,147,747
Directorship fees 136,000 50,000 - 186,000
Income from hospitals 52,220 623,860 - 676,080
Management fees 336,000 - (336,000) -
Billing services income 181,707 - (134,304) 47,403
Other income 11,355 (1,045) - 10,310
---------------------------------------------------------------
7,148,937 2,388,907 (470,304) 9,067,540
---------------------------------------------------------------
Operating expenses:
Base physician compensation 2,150,476 1,636,090 - 3,786,566
Termination benefit expense 105,000 - - 105,000
Physician benefits 213,920 144,024 - 357,944
Compensation, other 1,220,410 20,710 - 1,241,120
Benefits, other 288,901 6,085 - 294,986
Insurance 404,464 57,306 - 461,770
Travel, seminars and meetings 17,882 25,205 - 43,087
Rent 47,200 - - 47,200
Utilities 54,751 729 - 55,480
Office supplies and postage 64,600 16,942 - 81,542
Dues and subscriptions 19,057 1,829 - 20,886
Management services cost - 336,000 (336,000) -
Billing services cost - 134,304 (134,304) -
Legal and accounting 65,124 6,719 - 71,843
Depreciation and amortization 39,291 122 - 39,413
Other operating expenses 101,793 8,804 - 110,597
---------------------------------------------------------------
4,792,869 2,394,869 (470,304) 6,717,434
---------------------------------------------------------------
OPERATING INCOME (LOSS) 2,356,068 (5,962) - 2,350,106
---------------------------------------------------------------
Other income (expense):
Compensation to physicians over base (2,219,487) - - (2,219,487)
Interest income 5,497 3,404 - 8,901
Interest expense (29) (879) - (908)
---------------------------------------------------------------
(2,214,019) 2,525 - (2,211,494)
---------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 142,049 (3,437) - 138,612
Provision for income taxes (Note 5) 1,222 1,871 - 3,093
---------------------------------------------------------------
NET INCOME (LOSS) $ 140,827 $ (5,308) $ - $ 135,519
===============================================================
</TABLE>
See Notes to Combining Financial Statements.
7
<PAGE> 8
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
COMBINING STATEMENT OF STOCKHOLDERS' (DEFICIT)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
RECEIVABLE FOR
COMMON STOCK COMMON STOCK
-----------------------------------------------------------------------------
CHILDREN'S CHILDREN'S
NEONATOLOGY HOSPITAL NEONATOLOGY HOSPITAL
CERTIFIED, INC. SERVICES, INC. CERTIFIED, INC. SERVICES, INC.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Par value $.10 per share, 11,029 shares
authorized, 11,028 shares issued $ 1,103 $ - $ - $ -
Par value $1 per share, 5,000 shares
authorized, 950 issued - 950 - -
---------------------------------------------------------------------
Balance, December 31, 1994 1,103 950 - -
Reacquisition of 1,840 shares of
common stock, par value $.10 per share (184) - - -
Reacquisition of 175 shares of
common stock, par value $1 per share - (175) - -
Issuance of 1,530 shares of common
stock, par value $.10 per share 153 - (108,584) -
Net (loss) - - - -
---------------------------------------------------------------------
Balance, December 31, 1995 $ 1,072 $ 775 $ (108,584) -
=====================================================================
</TABLE>
See Notes to Combining Financial Statements.
8
<PAGE> 9
<TABLE>
<CAPTION>
ADDITIONAL PAID-IN CAPITAL ACCUMULATED EARNINGS (DEFICIT)
- -------------------------------------------------------------------------------
CHILDREN'S CHILDREN'S
NEONATOLOGY HOSPITAL NEONATOLOGY HOSPITAL
CERTIFIED, INC. SERVICES, INC. CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5,962 $ - $ 69,532 $ - $ - $ 76,597
- 18,000 - 33,599 - 52,549
---------------------------------------------------------------------------------------------------------------
5,962 18,000 69,532 33,599 - 129,146
- - (130,404) - - (130,588)
- - - (43,354) - (43,529)
108,431 - - - - -
- - (325,305) (292,443) - (617,748)
---------------------------------------------------------------------------------------------------------------
$ 114,393 $ 18,000 $ (386,177) $ (302,198) $ - $ (662,719)
===============================================================================================================
</TABLE>
9
<PAGE> 10
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
COMBINING STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL PAID-IN CAPITAL
------------------------------------------------------------------------------------
CHILDREN'S CHILDREN'S
NEONATOLOGY HOSPITAL NEONATOLOGY HOSPITAL
CERTIFIED, INC. SERVICES, INC. CERTIFIED, INC. SERVICES, INC.
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Par value $.10 per share, 11,029 shares
authorized, 11,028 shares issued $ 1,103 $ - $ 5,962 $ -
Par value $1 per share, 5,000 shares
authorized, 950 shares issued - 950 - 18,000
-------------------------------------------------------------------------------
Balance, December 31, 1993 1,103 950 5,962 18,000
Net income (loss) - - - -
-------------------------------------------------------------------------------
Balance, December 31, 1994 $ 1,103 $ 950 $ 5,962 $ 18,000
===============================================================================
</TABLE>
See Notes to Combining Financial Statements.
10
<PAGE> 11
<TABLE>
<CAPTION>
ACCUMULATED EARNINGS (DEFICIT)
- --------------------------------------
CHILDREN'S
NEONATOLOGY HOSPITAL
CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
$ (71,295) $ - $ - $ (64,230)
- 38,907 - 57,857
- ----------------------------------------------------------------------------
(71,295) 38,907 - (6,373)
140,827 (5,308) - 135,519
- ----------------------------------------------------------------------------
$ 69,532 $ 33,599 $ - $ 129,146
============================================================================
</TABLE>
11
<PAGE> 12
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CHILDREN'S
NEONATOLOGY HOSPITAL
CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net (loss) $ (325,305) $ (292,443) $ - $ (617,748)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Depreciation 42,445 500 - 42,945
Amortization - 122 - 122
Loss on disposition of furniture
and equipment 1,426 - - 1,426
Increase (decrease) in:
Accounts receivable (203,250) (38,579) - (241,829)
Due from affiliates and other receivables 39,526 33,209 (27,489) 45,246
Increase (decrease) in:
Accounts payable and other liabilities 156,412 59,189 - 215,601
Accrued expenses 387,490 261,364 - 648,854
Due to affiliates - (27,489) (27,489)
Termination benefits 165,000 - - 165,000
------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 263,744 (4,127) - 259,617
------------------------------------------------------------
Cash flows from investing activities
Purchase of furniture and equipment (41,718) (2,500) - (44,218)
(Increase) in other assets (5,796) (25,812) - (31,608)
------------------------------------------------------------
NET CASH (USED IN)
INVESTING ACTIVITIES (47,514) (28,312) - (75,826)
------------------------------------------------------------
Cash Flows From Financing Activities
(Decrease) in excess of outstanding
checks over bank balance (185,063) - - (185,063)
Proceeds from short-term borrowings 636,000 - - 636,000
Repayments on short-term borrowings (304,000) - - (304,000)
Reacquisition of common stock (130,588) (43,529) - (174,117)
------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 16,349 (43,529) - (27,180)
------------------------------------------------------------
</TABLE>
(CONTINUED)
12
<PAGE> 13
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
COMBINING STATEMENT OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CHILDREN'S
NEONATOLOGY HOSPITAL
CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH $ 232,579 $ (75,968) $ - $ 156,611
Cash:
Beginning - 82,341 - 82,341
---------------------------------------------------------------------
Ending $ 232,579 $ 6,373 $ - $ 238,952
=====================================================================
Supplemental Disclosures of Cash
Flow Information
Cash Payments for Interest $ 11,846 $ - $ - $ 11,846
=====================================================================
Supplemental Schedule of Noncash
Investing and Financing Activities
Receivable for common stock $ 108,584 $ - $ - $ 108,584
=====================================================================
</TABLE>
SEE NOTES TO COMBINING FINANCIAL STATEMENTS.
13
<PAGE> 14
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
CHILDREN'S
NEONATOLOGY HOSPITAL
CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 140,827 $ (5,308) $ - $ 135,519
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 39,291 - - 39,291
Amortization - 122 - 122
Equity in earnings of investee - (34) - (34)
Loss on disposition of furniture
and equipment 315 - - 315
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 38,819 (283,408) - (244,589)
Due from affiliates and other
receivables (454,669) (6,188) 429,093 (31,764)
Increase (decrease) in:
Accounts payable and other
liabilities 201,200 32,063 - 233,263
Accrued expenses (31,464) (70,879) - (102,343)
Due to affiliates 429,093 (429,093) -
Termination benefits 105,000 - - 105,000
--------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 39,319 95,461 - 134,780
--------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of furniture and equipment (45,864) - - (45,864)
(Increase) decrease in other assets (21,920) 1,404 - (20,516)
--------------------------------------------------------------------
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES (67,784) 1,404 - (66,380)
--------------------------------------------------------------------
Cash Flows Provided By (Used In)
Financing Activities
Increase (decrease) in excess of
outstanding checks over bank balance 28,465 (14,524) - 13,941
--------------------------------------------------------------------
NET INCREASE IN CASH - 82,341 - 82,341
Cash:
Beginning - - - -
--------------------------------------------------------------------
Ending $ - $ 82,341 $ - $ 82,341
====================================================================
Supplemental Disclosures of Cash Flow
Information
Cash payments for interest $ 29 $ 724 $ - $ 753
====================================================================
</TABLE>
See Notes to Combining Financial Statements.
14
<PAGE> 15
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Neonatology Certified, Inc. and Children's Hospital
Services, Inc. provide neonatology and pediatric services as hospital-based
physicians in Florida and Virginia.
A summary of the Companies' significant accounting policies follows:
Principles of combination: All material balances and transactions between
Companies enterprises have been eliminated in combination.
Accounting 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.
Cash: The Companies maintain their cash in bank deposit accounts, which, at
times, may exceed federally-insured limits. The Companies have not experienced
any losses in such accounts. The Companies believe they are not exposed to any
significant credit risk on cash.
Furniture and equipment: Furniture and equipment is stated at cost.
Depreciation is primarily computed based on an accelerated method over the
following estimated useful lives of the assets:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Machinery and equipment 5 - 7
Computers 5
Furniture and fixtures 7
</TABLE>
Amortization of leasehold improvements is provided for based on an accelerated
method over the shorter of the useful lives or the terms of the leases.
Patient service revenue: Patient service revenue is recorded at the Companies
established rates with contractual adjustments, bad debt allowances and
discounts deducted to arrive at net fee revenue.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforward. Deferred tax liabilities are
recognized for taxable temporary difference. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment. As of December 31, 1995 and 1994, there were no material
temporary differences for Neonatology Certified, Inc. and Children's Hospital
Services, Inc.
Reclassifications: Certain reclassifications have been made to the 1994
financial statements to conform with the 1995 presentation.
15
<PAGE> 16
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
NOTE 2. NOTE PAYABLE TO BANK
Neonatology Certified, Inc. has a short-term nonrevolving credit agreement
which expires April 26, 1996. The agreement permits maximum borrowings of
$500,000. Borrowings under the agreement bear interest at 0.75% over the
financial institution's prime rate (8.5% as of December 31, 1995) and are
collateralized by accounts receivable.
NOTE 3. RELATED PARTY TRANSACTIONS
Advances between the Companies were made during 1995 and 1994 in order to meet
cash flow requirements. Such advances are noninterest-bearing.
NOTE 4. PROFIT-SHARING PLAN
Effective January 1, 1995, the Companies adopted a 401(k) profit-sharing plan.
The plan covers employees over 21 years of age who have completed one year of
service. Eligible participants are able to contribute up to 15% of their
compensation with the companies matching 50% of the first 7% of the
participant's contribution. No match is made by the Companies for
nonstockholder physicians. Profit-sharing contributions are made to the plan
at the discretion of the Boards of Directors, subject to certain limitations
established by plan documents. Profit-sharing and matching contributions vest
based on years of service as follows:
<TABLE>
<CAPTION>
Years of Service Vesting
- -----------------------------------------------------------
<S> <C>
Less than 2 years 0%
2 20%
3 40%
4 60%
5 80%
6 and thereafter 100%
</TABLE>
Amounts contributed to the plan by Neonatology Certified, Inc. and Children's
Hospital Services, Inc. were $171,833 and $30,015, respectively, for the year
ended December 31, 1995.
During 1994, the Companies participated in a profit-sharing plan which covered
employees over 21 years of age who had completed two years of service.
Contributions were made to the plan at the discretion of the Boards of
Directors, subject to certain limitations established by plan documents.
Amounts contributed to the plan by Neonatology Certified, Inc. were $397,253
for the year ended December 31, 1994. No amounts were contributed by
Children's Hospital Services, Inc. during 1994 since their employees were not
eligible.
16
<PAGE> 17
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
NOTE 5. INCOME TAX MATTERS
Temporary differences arise because the financial statements are prepared on an
accrual basis that recognizes income when services are performed; whereas for
income tax reporting, income is recognized when collections are made.
Neonatology Certified, Inc. has not provided deferred taxes for these temporary
differences because all differences giving rise to future net taxable amounts
will be offset by the Company's contractual obligation to pay out taxable net
income to the applicable physician employees when collected.
No income tax provision was recognized in 1995 by Neonatology Certified, Inc.
and Children's Hospital Services, Inc. due to reported losses.
The income tax provision in 1994 vary from the statutory rate due to
differences between the cash basis and accrual basis of accounting (as
described above), nondeductible meals and entertainment, and charitable
contributions.
NOTE 6. COMMITMENTS
Hospital service contracts: Neonatology Certified, Inc. and Children's
Hospital Services, Inc. provide all medical services under service contracts
with eight and six hospitals, respectively. Under the contracts' provisions,
the affiliated companies provide exclusive physician and directorship services
for neonatal and pediatric hospital units. Fees for professional services
rendered to hospital patients are billed and collected by the companies.
The contracts, which provide for renewal, have been established for terms
expiring through March 31, 1997 for Neonatology Certified, Inc. and terms
expiring through November 1, 1997 for Children's Hospital Services, Inc.
Hospital contracts may be terminated with cause or by mutual agreement upon
adequate notice.
Employment contracts and termination benefits: Neonatology Certified, Inc.
employs neonatologists under employment contracts which for certain physicians
(stockholder physicians) provide for distribution of the Company's taxable
income on a monthly basis. The applicable physician's share varies based on
experience and level of responsibility. The contracts automatically renew
annually and may be terminated immediately with cause or with 120-days notice
without cause. Stockholder physicians with over five years of service are
entitled to termination benefits between $75,000 and $150,000 based on length
of employment. Termination benefits are payable over a 36-month period
commencing one month after death, disability or termination without cause.
Physicians' termination benefits were accrued to the extent benefits had vested
through October 31, 1995, at which time the termination benefits were frozen.
Children's Hospital Services, Inc. employs pediatricians under one-year
employment contracts. These contracts automatically renew annually and may be
terminated immediately with cause or with 120-days notice without cause.
17
<PAGE> 18
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
NOTE 6. COMMITMENTS (CONTINUED)
As discussed in Note 1, the financial statements are prepared on an accrual
basis which recognizes income when services are performed; whereas, for income
tax reporting, income is recognized when collections are made. In accordance
with the employment contracts, net income will be paid out to its applicable
physician employees when collected. No accrual has been made for this
commitment; however, accumulated earnings and future case collections (as
defined) are restricted for this purpose.
Management services: Neonatology Certified, Inc. provides management and
billing services for Children's Hospital Services, Inc. The following amounts
have been recorded as income and expense by the respective companies for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------------------
<S> <C> <C>
Management fees $ 336,000 $ 336,000
Billing services 153,133 134,304
------------------------
$ 489,133 $ 470,304
========================
</TABLE>
Management fees are based on a monthly fee of $28,000. Billing services are
charged based on a percentage of net fee collections. No formal arrangement or
commitment exists for such management fees or billing services.
NOTE 7. CONTINGENCIES
Employee health insurance: The Companies are self insured for employee health
benefits. The plan has a stop-loss insurance contract which limits the
Companies liability on paid claims to $20,000 for each covered participant.
Aggregate stop-loss coverage which varies based on the number of participants,
limits aggregate losses to approximately $300,000 and $252,000 as of December
31, 1995 and 1994, respectively. Each entity pays for its employees' share of
monthly premiums as well as actual claims incurred. Amounts charged to expense
for health claims incurred are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------
<S> <C> <C>
Neonatology Certified, Inc. $ 303,649 $ 210,374
Children's Hospital Services, Inc. 63,130 54,493
-------------------------
$ 366,779 $ 264,867
=========================
</TABLE>
Malpractice litigation: In the ordinary course of providing physician
services, the Company and its physician employees have been subjected to
various lawsuits, the outcome of which cannot currently be determined. The
Company carries malpractice insurance to provide for such matters, but there
can be no assurances that judgments or settlements, if any, will be less than
existing insurance limits. Based on an assessment of the individual cases and
the Company's past successful history in previous litigation, management
believes that the outcome of these matters will not have a material adverse
effect on the financial statements, and intends to vigorously contest these
matters.
18
<PAGE> 19
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
NOTE 7. CONTINGENCIES (CONTINUED)
Lawsuit: The Companies are currently being sued by a former officer on various
compensation and benefits issues in connection with his termination effective
January 10, 1996. Management believes that the outcome of this case will not
have a material adverse effect on the financial statements, and intends to
vigorously contest this matter.
NOTE 8. MEDICAL MALPRACTICE INSURANCE
The Companies and each of their employee physicians are covered by professional
liability insurance primarily on a claims-made basis. During the years ended
December 31, 1995 and 1994, each physician's per claim coverage amounted to
$1,000,000 with an aggregate maximum annual coverage of $3,000,000. The
Companies' coverage is $500,000 per claim with an aggregate maximum annual
coverage of $1,500,000. As discussed in note 7, it is the opinion of
management and legal counsel that such coverage is sufficient to cover all
claims.
NOTE 9. OPERATING LEASE
The Companies lease their corporate and administrative offices under a
noncancelable lease which expires in March 2000. The lease contains an option
to renew for five years. The Companies also lease various equipment under
operating leases expiring at various dates through June 1999.
As of December 31, 1995, the Companies' minimum annual lease commitments under
all noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
- -----------------------------------------------------------------------------
<S> <C>
1996 $ 126,422
1997 128,904
1998 128,007
1999 122,411
2000 59,688
---------
$ 565,432
=========
</TABLE>
Total rent expense for all operating leases was $88,770 and $55,868 in 1995 and
1994, respectively.
19
<PAGE> 20
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash, accounts and other receivables, excess of outstanding checks over bank
balances, due from affiliates, accounts payable, due to affiliates: The
carrying amounts approximate fair value because of the short maturity of those
instruments.
Note payable to bank: The carrying amount approximates fair value because the
instrument bears interest at a floating market rate.
The estimated fair values of the Companies' financial instruments as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------
CARRYING FAIR Carrying Fair
NEONATOLOGY CERTIFIED, INC. AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 232,579 $ 232,579 $ - $ -
Accounts and other receivables 1,501,132 1,501,132 1,309,919 1,309,919
Due from affiliates 454,375 454,375 481,864 481,864
Note payable to bank 332,000 332,000 - -
Accounts payable 40,281 40,281 50,001 50,001
</TABLE>
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------
CARRYING FAIR Carrying Fair
CHILDREN'S HOSPITAL SERVICES, INC. AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 6,373 $ 6,373 $ 82,341 $ 82,341
Accounts and other receivables 510,378 510,378 504,907 504,907
Excess of outstanding checks over
bank balances - - 185,063 185,063
Accounts payable 3,075 3,075 5,713 5,713
Due to affiliates 454,375 454,375 481,864 481,864
</TABLE>
20
<PAGE> 21
NEONATOLOGY CERTIFIED, INC.
CHILDREN'S HOSPITAL SERVICES, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------
CARRYING FAIR Carrying Fair
COMBINED AMOUNT VALUE Amount Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 238,952 $ 238,952 $ 82,341 $ 82,341
Accounts and other receivables 2,011,510 2,011,510 1,814,826 1,814,826
Excess of outstanding checks over
bank balances - - 185,063 185,063
Note payable to bank 332,000 332,000 - -
Accounts payable 43,356 43,356 55,714 55,714
</TABLE>
It was not practical to estimate the fair value of termination benefits, which
have a carrying value of $1,485,000 and $1,320,000 as of December 31, 1995 and
1994, respectively, because Neonatology Certified, Inc. is not able to estimate
when such benefits will be paid.
21
<PAGE> 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of Rosenbaum, Weitz
and Ritter, M.D., P.A.:
We have audited the accompanying balance sheets of Rosenbaum, Weitz and Ritter,
M.D., P.A. (a Florida corporation) as of September 30, 1995 and 1994, and the
related statements of operations, stockholders' equity and cash flows for the
years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rosenbaum, Weitz and Ritter,
M.D., P.A. as of September 30, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
May 6, 1996.
22
<PAGE> 23
ROSENBAUM, WEITZ AND RITTER, M.D., P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1994
------- -------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ 92,518 $ 63,821
Accounts receivable, net of allowances of $79,328 and $73,410 .. 290,772 251,712
Prepaid expenses and other current assets ...................... 126,954 99,753
-------- --------
Total current assets ......................................... 510,244 415,286
Property and equipment, net ..................................... 252,678 144,963
Other assets .................................................... 4,028 426
-------- --------
Total assets ................................................. $766,950 $560,675
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses ............................................. $210,368 $114,323
Deferred tax liability ....................................... 7,192 ---
Current portion of long-term debt. ........................... 42,442 38,400
Line of credit ............................................... 218,460 ---
-------- --------
Total current liabilities .................................. 478,462 152,723
Long-term debt, net of current portion ........................ 76,983 109,062
Commitments and contingencies (Notes 7 and 9) ................. --- ---
Stockholders' equity:
Common stock, $1.00 par value; 1,000 shares authorized,
issued and outstanding ..................................... 1,000 1,000
Subscription receivable ...................................... (400) (400)
Retained earnings ............................................ 210,905 298,290
-------- --------
Total stockholders' equity ................................. 211,505 298,890
-------- --------
Total liabilities and stockholders' equity ................. $766,950 $560,675
======== ========
</TABLE>
See accompanying notes.
23
<PAGE> 24
ROSENBAUM, WEITZ AND RITTER, M.D., P.A.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Net patient revenue ........................................ $2,554,508 $2,765,870
Operating expenses:
Salaries and benefits ..................................... 1,497,089 1,391,726
Direct facility expenses .................................. 1,161,685 1,004,591
Physician stockholders' payroll in excess of base salary .. --- 306,624
Provision for bad debts ................................... 5,918 73,410
---------- ----------
Operating expenses ...................................... 2,664,692 2,776,351
---------- ----------
Operating loss .......................................... (110,184) (10,481)
Interest expense ........................................... 13,290 10,175
---------- ----------
Loss before income taxes .................................. (123,474) (20,656)
Income tax benefit ......................................... (36,089) ---
---------- ----------
Net loss .................................................. $ (87,385) $ (20,656)
========== ==========
</TABLE>
See accompanying notes.
24
<PAGE> 25
ROSENBAUM, WEITZ AND RITTER, M.D., P.A.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------- SUBSCRIPTION RETAINED
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
------ ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 .. 1,000 $1,000 $ (400) $318,946 $319,546
Net loss ....................... --- --- --- (20,656) (20,656)
------ ------ ------------ -------- --------
Balance at September 30, 1994 .. 1,000 1,000 (400) 298,290 298,890
Net loss ....................... --- --- --- (87,385) (87,385)
------ ------ ------------ -------- --------
Balance at September 30, 1995 .. 1,000 $1,000 $ (400) $210,905 $211,505
====== ====== ============ ======== ========
</TABLE>
See accompanying notes.
25
<PAGE> 26
ROSENBAUM, WEITZ AND RITTER, M.D., P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................................. $ (87,385) $ (20,656)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ....................................... 64,725 75,703
Provision for bad debts ............................................. 5,918 73,410
Deferred tax benefit ................................................ 54,192 ---
Changes in assets and liabilities:
Decrease (increase) in accounts receivable .......................... (44,978) (97,675)
Decrease (increase) in prepaid expenses and other current assets .... (74,201) (24,687)
Decrease (increase) in other assets ................................. (3,602) 32,126
Increase in accrued expenses ........................................ 96,045 15,848
--------- ---------
Net cash provided by operating activities ........................... 10,714 54,069
Cash flows from investing activities:
Capital expenditures .................................................. (172,440) (24,340)
Cash flows from financing activities:
Debt repayments ....................................................... (43,140) (33,754)
Proceeds from line of credit .......................................... 218,460 ---
Borrowings on debt .................................................... 15,103 11,413
Payments on officer loans ............................................. --- (67,934)
--------- ---------
Net cash provided by (used in) financing activities ................. 190,423 (90,275)
--------- ---------
Net increase (decrease) in cash and cash equivalents ................ 28,697 (60,546)
Cash and cash equivalents, beginning of year ............................ 63,821 124,367
--------- ---------
Cash and cash equivalents, end of year .................................. $ 92,518 $ 63,821
========= =========
Cash paid for interest, including $7,576 and $9,513 to related parties .. $ 13,290 $ 12,059
========= =========
</TABLE>
See accompanying notes.
26
<PAGE> 27
ROSENBAUM, WEITZ AND RITTER, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business
Rosenbaum, Weitz and Ritter, M.D., P.A. (the "Company") is a professional
services corporation, which was originally incorporated in 1981 as Rosenbaum
and Weitz, M.D., P.A. In January 1994, the Company changed its name to
Rosenbaum, Weitz and Ritter, M.D., P.A. and is owned equally by three
individuals. The Company is an arthritis and rheumatology medical center in
Miami, Florida.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of less than three months from the date of purchase to be cash
equivalents.
(c) Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. Property and equipment is depreciated using accelerated methods
over the estimated useful lives of the assets ranging from five to ten years.
(d) Accounts Receivable and Revenues
Accounts receivable are primarily amounts due under fee-for-service
contracts with third-party payors such as insurance companies and
government-sponsored health care programs. These receivables are presented net
of an estimated allowance for contractual adjustments and uncollectible
receivables. Contractual adjustments result from the difference between the
rates billed by the Company and reimbursement amounts received from third-party
payors.
(e) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
that deferred income taxes be recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and their
financial reporting basis at statutory tax rates applicable to the years in
which the differences are expected to affect taxable income.
(f) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of the
fair value of certain financial instruments. Cash and cash equivalents,
prepaid expenses and other current assets, and accrued expenses are reflected
in the accompanying financial statements at cost which approximates fair value.
(g) Charity Care
The Company has a policy of providing charity care to patients who are
unable to pay. Such patients are identified based on financial information
obtained from the patient and subsequent analysis. Since management does not
expect payment for charity care, the estimated charges related to such patients
are excluded from net patient revenue.
27
<PAGE> 28
ROSENBAUM, WEITZ AND RITTER, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(h) Accounting 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.
(i) Healthcare Legislation
National healthcare-related legislation has been, and is expected to
continue to be, introduced in the U.S. Congress and the State of Florida
Legislature. Such legislation may address, among other things, benefits
provided, insurance coverage and provider reimbursement. It is possible that
such legislation could result in the largest reductions in Medicare and
Medicaid spending over the next several years that have ever been experienced.
At this time, it is not possible to determine the impact on the Company of
any national or state healthcare-related legislation that might be enacted.
However, any spending reductions in healthcare coverage or services would
likely have an adverse impact on the Company's operating results and cash
flows. Should such spending reductions be imposed, management believes it can
make changes to the Company's cost structure to reduce the adverse impact.
However, there is no assurance that such changes will be sufficient.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
Furniture, fixtures and equipment ................. $ 299,462 $ 265,481
Medical equipment ................................. 438,895 391,521
Automobile ........................................ 59,717 59,717
Leasehold improvements ............................ 176,317 110,292
Computer equipment ................................ 79,754 54,694
------------- -------------
1,054,145 881,705
Less - Accumulated depreciation and amortization .. (801,467) (736,742)
------------- -------------
Property and equipment, net ...................... $ 252,678 $ 144,963
============= =============
</TABLE>
(3) LINE OF CREDIT
The Company has a $400,000 line of credit with a bank which bears interest
at prime plus 1.0% (9.75% at September 30, 1995) and is renewable annually.
28
<PAGE> 29
ROSENBAUM, WEITZ AND RITTER M.D., P.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- ------------
<S> <C> <C>
Note payable to bank, bearing interest at 7.5%, payable in
monthly installments of $356 through December 1996...................... $ 4,731 $ 8,488
Note payable to a related party, bearing interest at 8%,
payable in monthly installments of $2,737 through July 1998............. 80,845 106,116
Note payable to bank, bearing interest at 7.7%, payable in
monthly installments of $784 through December 1998...................... 24,362 31,858
Note payable to bank, bearing interest at 8.5%, payable
in monthly installments of $687 through October 1996 ................... 8,487 ---
Other..................................................................... 1,000 1,000
-------- --------
119,425 147,462
Less - Current portion (42,442) (38,400)
-------- --------
$ 76,983 $109,062
======== ========
</TABLE>
Annual maturities of long-term debt as of September 30, 1995 are as follows:
<TABLE>
<S> <C>
1996 ................................................................................ $ 42,442
1997 ................................................................................ 40,971
1998 ................................................................................ 33,483
1999 ................................................................................ 2,529
--------
$119,425
========
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
Insurance ......................... $ --- $ 4,633
Computer supplies ................. --- 5,256
Lab and medical supplies .......... 6,282 24,434
Licenses and taxes ................ 26,058 ---
Meetings and seminars. ............ 12,888 ---
Self-insurance accruals (Note 7) .. 80,000 80,000
Accrued sales tax ................. 85,140 ---
------------- -------------
$ 210,368 $ 114,323
============= =============
</TABLE>
29
<PAGE> 30
ROSENBAUM, WEITZ AND RITTER, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------------
1995 1994
------------ ----------
<S> <C> <C>
Current....................................... $ (90,281) $ ---
Deferred...................................... 54,192 ---
--------- --------
$ (36,089) $ ---
========= ========
Federal....................................... $ (30,943) $ ---
State......................................... (5,146) ---
--------- --------
$ (36,089) $ ---
========= ========
</TABLE>
A reconciliation of the tax provision at the statutory rate of 35% to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------------
1995 1994
---------- ---------
<S> <C> <C>
Tax benefit at the statutory rate ............. $ (43,215) $ ---
State income taxes............................. (3,345) ---
Nondeductible portion of meals and
entertainment expenses ...................... 10,471 ---
--------- --------
$ (36,089) $ ---
========= ========
</TABLE>
At September 30, 1995, deferred income taxes consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1995 1994
--------- ----------
<S> <C> <C>
Book/tax differences in recording accounts
receivable .................................. $ (89,452) $ ---
Book/tax differences in recording accrued
expenses .................................... 73,629 ---
Net operating loss carryforward ............... 8,631 ---
--------- --------
$ (7,192) $ ---
========= ========
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
(a) Insurance
The Company maintains insurance coverage for its professional malpractice
claims. Such insurance provides for coverage to the extent individual claims
do not exceed $1,000,000 per incident and $3,000,000 in the aggregate per year.
30
<PAGE> 31
ROSENBAUM, WEITZ AND RITTER, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Due to the nature of its business, the Company from time to time becomes
involved as a defendant in medical malpractice lawsuits and is subject to the
attendant risk of substantial damage awards. The Company maintains
professional and general liability insurance on a claims made basis in amounts
deemed appropriate by management, based upon historical claims and the nature
and risks of its business. There can be no assurance, however, that an
existing or future claim or claims will not exceed the limits of available
insurance coverage, that any insurer will remain solvent and able to meet its
obligations to provide coverage for any such claim or claims or that such
coverage will continue to be available or available with sufficient limits and
at a reasonable cost to adequately and economically insure the Company's
operations in the future. A judgment against the Company in excess of such
coverage could have a material adverse effect on the Company.
The liability for estimated malpractice claims (see Note 5) includes
estimates of the ultimate costs for both reported claims and claims incurred
but not reported.
(b) Employment Agreements
The Company has employment contracts with certain physicians. Future
annual minimum payments under employment agreements are as follows:
<TABLE>
<S> <C>
1996 .................................................... $ 997,750
1997 .................................................... 1,014,000
1998 .................................................... 994,003
----------
$3,005,753
==========
</TABLE>
Subsequent to yearend, the Company entered into an employment agreement
with an associate physician, the term of which is three years beginning
December 1995. The agreement provides for minimum salary levels, adjusted
annually, and incentive bonuses which are payable if specified goals are
attained. The aggregate salary commitment, excluding bonuses, at September 30,
1995 was approximately $405,000.
(c) Lease Commitments
The Company leases medical office facilities under a noncancelable
operating lease from a related party. Rental expense was $163,800 and $175,585
during the years ended September 30, 1995 and 1994.
Future annual minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
1996 .................................................... $ 62,254
1997 .................................................... 57,740
1998 .................................................... 48,564
1999 .................................................... 48,564
2000 .................................................... 48,564
----------
$ 265,686
==========
</TABLE>
(8) PROFIT SHARING PLAN
The Company has a Profit Sharing Plan (the "Plan"). The Plan is a defined
contribution plan covering substantially all employees who meet certain age and
service requirements. Under the Plan, the Company makes profit sharing
contributions at its discretion. The Company made contributions of $24,000 and
$27,100 for the years ended September 30, 1995 and 1994. Plan expenses were
$3,936 and $4,166 for the years ended September 30, 1995 and 1994.
31
<PAGE> 32
ROSENBAUM, WEITZ AND RITTER, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(9) SUBSEQUENT EVENTS
In February 1996, the stockholders of the Company exchanged all
outstanding stock of the Company for approximately $3.2 million in cash
pursuant to a stock purchase agreement with Sheridan Healthcorp, Inc.
("Sheridan"). In addition, the stockholders of the Company entered into
employment agreements with Sheridan and one of its affiliates, with initial
terms of five years beginning February 9, 1996, and certain renewal terms. The
agreements provide for minimum salary levels and incentive compensation which
is payable if specified goals are attained.
32
<PAGE> 33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Norman B. Gaylis M.D., P.A.:
We have audited the accompanying balance sheets of Norman B. Gaylis M.D., P.A.
(a Florida corporation) as of December 31, 1995 and 1994, and the related
statements of operations, stockholder's equity and cash flows for the years
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Norman B. Gaylis M.D., P.A. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
May 2, 1996.
33
<PAGE> 34
NORMAN B. GAYLIS M.D., P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 3,322 $ ---
Accounts receivable, net of allowances of $207,697
and $97,188 ........................................... 139,305 151,857
Other current assets .................................... --- 10,000
-------- --------
Total current assets .................................. 142,627 161,857
Property and equipment, net .............................. 115,861 147,747
Other assets ............................................. 11,281 12,792
-------- --------
Total assets .......................................... $269,769 $322,396
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses ................... $189,499 $135,078
Deferred income taxes ................................... 11,938 44,126
Line of credit .......................................... 40,000 35,000
Current portion of capital lease obligations ............ 18,473 28,894
-------- --------
Total current liabilities ............................. 259,910 243,098
Capital lease obligations ................................ --- 16,403
Commitments and contingencies (Notes 7 and 9)
Stockholder's equity:
Common stock, $1.00 par value, 1,000 shares authorized,
issued and outstanding ................................ 1,000 1,000
Subscription receivable ................................. (500) (500)
Retained earnings ....................................... 9,359 62,395
-------- --------
Total stockholder's equity ............................ 9,859 62,895
-------- --------
Total liabilities and stockholder's equity ............ $269,769 $322,396
======== ========
</TABLE>
See accompanying notes.
34
<PAGE> 35
NORMAN B. GAYLIS M.D., P.A.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Net patient revenue ................ $1,864,717 $1,666,154
Operating expenses:
Salaries and benefits ............ 1,094,860 1,001,777
Direct facility expenses ......... 828,487 624,567
---------- ----------
Operating expenses .............. 1,923,347 1,626,344
---------- ----------
Operating income (loss) ......... (58,630) 39,810
Interest expense ................... 10,584 10,679
---------- ----------
Income (loss) before income taxes. (69,214) 29,131
Income tax expense (benefit) ....... (16,178) 14,700
---------- ----------
Net income (loss) ................ $ (53,036) $ 14,431
========== ==========
</TABLE>
See accompanying notes.
35
<PAGE> 36
NORMAN B. GAYLIS M.D., P.A.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------- SUBSCRIPTION RETAINED
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
------ ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 .. 1,000 $1,000 $ (500) $ 47,964 $ 48,464
Net income .................... --- --- --- 14,431 14,431
------ ------ ------------ -------- --------
Balance at December 31, 1994 .. 1,000 1,000 (500) 62,395 62,895
Net loss ...................... --- --- --- (53,036) (53,036)
------ ------ ------------ -------- --------
Balance at December 31, 1995 .. 1,000 $1,000 $ (500) $ 9,359 $ 9,859
====== ====== ============ ======== ========
</TABLE>
See accompanying notes.
36
<PAGE> 37
NORMAN B. GAYLIS M.D., P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................... $ (53,036) $ 14,431
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ......................... 37,703 39,419
Provision for bad debts ............................... 110,509 97,188
Deferred income tax benefit ........................... (32,188) (10,000)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable ............ (97,957) (146,857)
Decrease (increase) in other current assets ........... 10,000 (10,000)
Decrease (increase) in other assets ................... 1,511 (6,421)
Increase in accounts payable and accrued expenses ..... 54,421 61,279
--------- ---------
Net cash provided by operating activities ............. 30,963 39,039
Cash flows from investing activities:
Capital expenditures .................................... (5,817) (35,498)
Cash flows from financing activities:
Net borrowings under line of credit ..................... 5,000 10,000
Payments on capital lease obligations ................... (26,824) (26,717)
--------- ---------
Net cash used in financing activities ................. (21,824) (16,717)
--------- ---------
Net increase (decrease) in cash and cash equivalents .. 3,322 (13,176)
Cash and cash equivalents, beginning of period ........... --- 13,176
--------- ---------
Cash and cash equivalents, end of period ................. $ 3,322 $ ---
========= =========
Cash paid for interest ................................... $ 10,584 $ 10,679
========= =========
</TABLE>
See accompanying notes.
37
<PAGE> 38
NORMAN B. GAYLIS M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business
Norman B. Gaylis M.D., P.A. (the "Company") is a professional services
corporation incorporated in 1991 in Florida. The Company provides specialty
services for arthritis and rheumatic diseases.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of less than three months from the date of purchase to be cash
equivalents.
(c) Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. Property and equipment is depreciated using accelerated methods
over the estimated useful lives of the assets ranging from five to ten years.
(d) Accounts Receivable and Revenues
Accounts receivable are primarily amounts due under fee-for-service
contracts with third-party payors such as insurance companies and
government-sponsored health care programs. These receivables are presented net
of an estimated allowance for contractual adjustments and uncollectible
receivables. Contractual adjustments result from the difference between the
rates billed by the Company and reimbursement amounts received from third-party
payors.
(e) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
that deferred income taxes be recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and their
financial reporting basis at statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income.
(f) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of the
fair value of certain financial instruments. Cash and cash equivalents, other
current assets, and accounts payable and accrued expenses are reflected in the
accompanying financial statements at cost which approximates fair value.
(g) Charity Care
The Company has a policy of providing charity care to patients who are
unable to pay. Such patients are identified based on financial information
obtained from the patient and subsequent analysis. Since management does not
expect payment for charity care, the estimated charges related to such patients
are excluded from net patient revenue.
38
<PAGE> 39
NORMAN B. GAYLIS M.D., P.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(h) Accounting 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.
(i) Healthcare Legislation
National healthcare-related legislation has been, and is expected to
continue to be, introduced in the U.S. Congress and the State of Florida
Legislature. Such legislation may address, among other things, benefits
provided, insurance coverage and provider reimbursement. It is possible that
such legislation could result in the largest reductions in Medicare and
Medicaid spending over the next several years that have ever been experienced.
At this time, it is not possible to determine the impact on the Company of
any national or state healthcare-related legislation that might be enacted.
However, any spending reductions in healthcare coverage or services would
likely have an adverse impact on the Company's operating results and cash
flows. Should such spending reductions be imposed, management believes it can
make changes to the Company's cost structure to reduce the adverse impact.
However, there is no assurance that such changes will be sufficient.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
USEFUL DECEMBER 31, DECEMBER 31,
LIVES 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Furniture, fixtures and equipment .. 5 - 10 years $ 205,584 $ 201,299
Leasehold improvements ............. 5 years 10,369 8,837
------------ ------------
215,953 210,136
Less - Accumulated depreciation
and amortization ................. (100,092) (62,389)
------------ ------------
Property and equipment, net $ 115,861 $ 147,747
============ ============
</TABLE>
At December 31, 1995, the net book value of property and equipment related
to capital lease obligations was $29,226.
39
<PAGE> 40
NORMAN B. GAYLIS M.D., P.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Accounts payable ..................... $ 92,483 $ 33,837
Income taxes payable ................. 15,628 9,572
Accrued payroll and payroll taxes .... 29,806 8,228
Accrued profit sharing ............... --- 39,001
Accrued insurance premiums (Note 7) .. 26,322 16,660
Deferred rent ........................ 25,260 27,780
------------ ------------
Total ............................... $ 189,499 $ 135,078
============ ============
</TABLE>
(4) CAPITAL LEASE OBLIGATIONS
Capital lease obligations for purchases of medical equipment mature as
follows:
<TABLE>
<S> <C>
1996 ...................................................... $19,298
Less amount representing interest ......................... (825)
-------
$18,473
=======
</TABLE>
(5) LINE OF CREDIT
The Company has a $400,000 line of credit with a bank which bears interest
at prime plus 1.0% (9.5% at December 31, 1995) and is renewable annually. On
January 2, 1996, the Company borrowed $80,000 under the line of credit to
finance current operations.
(6) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1994
--------- --------
<S> <C> <C>
Current ........................... $ 16,010 $ 24,700
Deferred .......................... (32,188) (10,000)
--------- --------
$ (16,178) $ 14,700
========= ========
Federal ........................... $ (13,870) $ 14,200
State ............................. (2,308) 500
--------- --------
$ (16,178) $ 14,700
========= ========
</TABLE>
40
<PAGE> 41
NORMAN B. GAYLIS M.D., P.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the tax provision (benefit) at the statutory rate of
35% to the effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1995 1994
--------- --------
<S> <C> <C>
Tax (benefit) provision at the statutory rate $ (24,225) $ 9,900
State income taxes (1,500) 300
Nondeductible portion of entertainment expenditures 8,933 1,900
Officer's life insurance premiums 614 2,600
--------- --------
$ (16,178) $ 14,700
========= ========
</TABLE>
At December 31, 1995, deferred income taxes consisted of the following:
<TABLE>
<S> <C>
Book/tax differences in recording accounts receivable ...................... $(48,757)
Book/tax differences in recording property and equipment ................... (18,294)
Book/tax differences in recording accounts payable and accrued expenses .... 55,113
--------
$(11,938)
========
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
(a) Insurance
The Company maintains insurance coverage for its professional malpractice
claims. Such insurance provides for coverage to the extent individual claims
do not exceed $500,000 per incident and $1,500,000 in the aggregate per year.
Due to the nature of its business, the Company from time to time becomes
involved as a defendant in medical malpractice lawsuits and is subject to the
attendant risk of substantial damage awards. The Company maintains
professional and general liability insurance on a claims made basis in amounts
deemed appropriate by management, based upon historical claims and the nature
and risks of its business. There can be no assurance, however, that an
existing or future claim or claims will not exceed the limits of available
insurance coverage, that any insurer will remain solvent and able to meet its
obligations to provide coverage for any such claim or claims or that such
coverage will continue to be available or available with sufficient limits and
at a reasonable cost to adequately and economically insure the Company's
operations in the future. A judgment against the Company in excess of such
coverage could have a material adverse effect on the Company.
41
<PAGE> 42
NORMAN B. GAYLIS M.D., P.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(b) Lease Commitments
The Company leases medical office facilities and medical equipment under
various noncancelable operating leases. Rental expense under all operating
leases was $120,333 and $77,865 during the years ended December 31, 1995 and
1994. Future annual minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
1996 ...................................................... $116,156
1997 ...................................................... 104,250
1998 ...................................................... 97,715
1999 ...................................................... 92,726
2000 ...................................................... 91,729
Thereafter ................................................ 191,102
--------
Total ................................................... $693,678
========
</TABLE>
(c) Employment Contract
The Company has an employment agreement with an associate physician, the
term of which is three years beginning August 1, 1995. The agreement provides
for a minimum salary level, adjusted annually, and incentive bonuses which are
payable if specified goals are attained. The aggregate salary commitment,
excluding bonuses, at December 31, 1995, was approximately $459,000.
(8) PROFIT SHARING PLAN
The Company has a defined contribution plan covering substantially all
employees who meet certain age and service requirements. Under the plan, the
Company makes discretionary profit sharing contributions. The Company did not
make a profit sharing contribution in 1995. The Company made a contribution of
$38,515 during the year ended December 31, 1994.
(9) SUBSEQUENT EVENTS
In January 1996, the sole stockholder of the Company exchanged all
outstanding stock of the Company for approximately $2.5 million pursuant to a
stock purchase agreement with Sheridan Healthcorp, Inc. In addition, Sheridan
Healthcorp, Inc. entered into an employment agreement with the sole stockholder
of the Company, with an initial term of five years beginning January 5, 1996,
and certain renewal terms. The agreement provides for a minimum salary level
and incentive compensation which is payable if specified goals are attained.
42
<PAGE> 43
INTRODUCTION TO
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
The following unaudited pro forma consolidated balance sheet as of
December 31, 1995 and the unaudited pro forma consolidated statement of
operations for the year ended December 31, 1995 reflect adjustments to the
Company's historical financial position and results of operations to give
effect to the transactions discussed below as if such transactions had been
consummated at December 31, 1995, in the case of the balance sheet, and at
January 1, 1995, in the case of the statement of operations. The accompanying
unaudited pro forma consolidated financial statements should be read in
connection with the consolidated financial statements of the Company included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
The unaudited pro forma consolidated financial statements have been
prepared by the Company based, in part, on the audited financial statements of
certain of the businesses acquired as required under the Securities Exchange
Act of 1934, which financial statements are included in this Form 8-K, and the
unaudited financial statements of other businesses acquired, which financial
statements are not included herein, adjusted where necessary, with respect to
pre-acquisition periods, to the basis of accounting used in the Company's
consolidated financial statements. These unaudited pro forma consolidated
financial statements are not intended to be indicative of the results that
would have occurred if the transactions had occurred on the dates indicated or
which may be realized in the future.
ACQUISITIONS COMPLETED IN 1995
On January 31, 1995, the general practice of Stanley D. Mitchel, M.D.
("Mitchel") was purchased by the Company for approximately $795,000 in cash and
deferred payments plus a $600,000 note payable to the seller. As a result of
the acquisition, goodwill of approximately $1.3 million was recorded which is
being amortized over 20 years. The unaudited pro forma consolidated statement
of operations for the year ended December 31, 1995 includes the operating
results of the practice from January 1, 1995 to January 31, 1995, the period
prior to the acquisition of the practice by the Company.
On June 5, 1995, the Company acquired substantially all of the assets of
certain primary care practices ("Toyos") from CAC-United Health Care Plans of
Florida, Inc. ("CAC") for $3.0 million in cash. In a related transaction, Dr.
Valerio Toyos, one of the principal physicians operating such practices,
assigned to the Company all of his rights under a panel services agreement with
CAC in exchange for $400,000 in cash plus deferred payments of approximately
$935,000 in cash and approximately 35,000 shares of the Company's common stock.
As a result of the acquisition and the assignment of the panel services
agreement, goodwill of approximately $4.4 million was recorded which is being
amortized over 20 years. The unaudited pro forma consolidated statement of
operations for the year ended December 31, 1995 includes the operating results
of the practices and the panel services agreement from January 1, 1995 to June
4, 1995, the period prior to the acquisition of the practices by the Company.
In addition to the two acquisitions described above, the Company acquired
two obstetrical practices and one additional primary care practice during 1995
for aggregate consideration of approximately $1.7 million in cash and deferred
payments. These acquisitions, which all occurred early in 1995, are not
reflected in the unaudited pro forma consolidated statement of operations as
they would not have a material impact on the Company's pro forma consolidated
results of operations.
43
<PAGE> 44
ACQUISITIONS COMPLETED IN 1996
On January 5, 1996, the Company acquired all of the outstanding stock of
Norman B. Gaylis M.D., P.A. ("Gaylis"), which owns and operates a rheumatology
practice, for approximately $2.5 million in cash. As a result of the
acquisition, goodwill of approximately $2.4 million was recorded, which is
being amortized over 20 years. The unaudited pro forma consolidated statement
of operations for the year ended December 31, 1995 includes the operating
results of Gaylis for the year ended December 31, 1995. See the audited
financial statements of Gaylis as of December 31, 1995, and for the year then
ended, included elsewhere in this Form 8-K.
On February 8, 1996, the Company acquired all of the outstanding stock of
Rosenbaum, Weitz and Ritter, M.D., P.A. ("Rosenbaum"), which owns and operates
a rheumatology practice, for approximately $3.2 million in cash. As a result
of the acquisition, goodwill of approximately $2.7 million was recorded, which
is being amortized over 20 years. The unaudited pro forma consolidated balance
sheet as of December 31, 1995 includes the balance sheet of Rosenbaum as of
September 30, 1995, and the unaudited pro forma consolidated statement of
operations for the year ended December 31, 1995 includes the operating results
of Rosenbaum for the year ended September 30, 1995, because the fiscal year of
Rosenbaum ended on September 30 prior to its acquisition by the Company. See
the audited financial statements of Rosenbaum as of September 30, 1995, and for
the year then ended, included elsewhere in this Form 8-K.
On March 14, 1996, the Company acquired all of the outstanding stock of
Neonatology, Certified, Inc., and an affiliate, Children's Hospital Services,
Inc. (together, "NCI/CHS") for an aggregate of approximately $4.2 million in
cash and approximately 658,000 shares of the Company's common stock. As a
result of these acquisitions, goodwill of approximately $9.7 million was
recorded, which is being amortized over 33 years. The unaudited pro forma
consolidated statement of operations for the year ended December 31, 1995
includes the operating results of NCI/CHS for the year ended December 31, 1995.
See the audited combined financial statements of NCI/CHS as of December 31,
1995, and for the year then ended, included elsewhere in this Form 8-K.
In addition to the three acquisitions described above, the Company
acquired a primary care practice with one physician in February 1996. This
acquisition is not reflected in the unaudited pro forma consolidated financial
statements, as it would not have a material impact on the Company's pro forma
financial position or results of operations.
44
<PAGE> 45
SHERIDAN HEALTHCARE, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Acquisition
Actual Gaylis Rosenbaum NCI/CHS Adjustments Pro Forma
------- ------ --------- ------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ..... $ --- $ 4 $ 92 $ 239 $ --- $ 335
Accounts receivable, net ...... 11,040 139 291 1,966 --- 13,436
Income tax refund receivable .. 760 --- --- --- --- 760
Other current assets .......... 1,029 --- 127 118 --- 1,274
------- ---- ---- ------ ------- -------
Total current assets ........ 12,829 143 510 2,323 --- 15,805
Property and equipment, net .... 3,767 116 253 84 --- 4,220
Goodwill, net .................. 45,417 --- --- --- 15,401(1) 60,818
Intangible assets, net ......... 2,360 11 4 --- --- 2,375
------- ---- ---- ------ ------- -------
Total assets ................ $64,373 $270 $767 $2,407 $15,401 $83,218
======= ==== ==== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................... $ 357 $119 $ 45 $ 44 $ --- $ 565
Amounts due for acquisitions ....... 559 --- --- --- --- 559
Accrued salaries and benefits ...... 2,236 30 --- 591 --- 2,857
Self-insurance accruals ............ 1,615 --- 80 52 --- 1,747
Income taxes payable ............... --- 28 7 --- --- 35
Refunds payable .................... 910 --- --- 471 --- 1,381
Other accrued expenses ............. 1,883 25 85 95 --- 2,088
Current portion of long-term debt .. 970 58 261 332 --- 1,621
------- ---- --- ------ ------- -------
Total current liabilities ........ 8,530 260 478 1,585 --- 10,853
Long-term debt ...................... 11,365 --- 77 --- 9,920 (2) 21,362
Amounts due for acquisitions ........ 1,809 --- --- 1,485 (385)(3) 2,909
Stockholders' equity:
Convertible preferred stock ........ --- --- --- --- --- ---
Common stock:
Voting ........................... 58 1 1 2 7 (4) 65
(4)(5)
Class A non-voting ............. 3 --- --- --- --- 3
Additional paid-in capital ...... 55,720 --- --- 132 5,418 (4) 61,138
(132)(5)
Subscriptions receivable --- --- --- (109) 109 (5) ---
Excess purchase price distributed
to management stockholders ......... (7,541) --- --- --- --- (7,541)
Retained earnings (deficit) ......... (5,571) 9 211 (688) 468 (5) (5,571)
------- ---- ---- ------ ------- -------
Total stockholders' equity ......... 42,669 10 212 (663) 5,866 48,094
------- ---- ---- ------ ------- -------
Total liabilities and
stockholders' equity ............. $64,373 $270 $767 $2,407 $15,401 $83,218
======= ==== ==== ====== ======= =======
</TABLE>
See accompanying notes.
45
<PAGE> 46
SHERIDAN HEALTHCARE, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
The acquisition adjustments reflected on the unaudited pro forma consolidated
balance sheet are as follows:
(1) Represents the goodwill that would have been recorded if the acquisitions
completed in 1996 had occurred on December 31, 1995, as follows (in thousands):
<TABLE> Purchase Net Assets
Price Acquired Goodwill
-------- ---------- --------
<S> <C> <C> <C>
Gaylis .......................... $ 2,536 $ 10 $ 2,526
Rosenbaum ....................... 3,184 212 2,972
NCI/CHS ......................... 9,625 (278) 9,903
------- ------ -------
Total .......................... $15,345 $ (56) $15,401
======= ====== =======
</TABLE>
(2) Represents long-term debt incurred to finance the cash portion of the
purchase price of the acquisitions completed in 1996 as follows (in thousands):
<TABLE>
<S> <C>
Gaylis .......................... $2,536
Rosenbaum ....................... 3,184
NCI/CHS ......................... 4,200
------
Total ........................... $9,920
======
</TABLE>
(3) Represents a reduction in accrued termination benefits of NCI/CHS from
$1,485,000 to $1,100,000, which was a condition to consummation of the
transaction.
(4) Represents the market value, as of March 14, 1996, of approximately 658,000
shares of the Company's common stock issued in connection with the acquisition
of NCI/CHS.
(5) Represents the elimination of the equity accounts of the acquired entities.
46
<PAGE> 47
SHERIDAN HEALTHCARE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
Acquisition
Actual Mitchel Toyos Gaylis Rosenbaum NCI/CHS Adjustments Pro Forma
------- ------- ------ ------ --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue ................ $64,665 $163 $1,944 $1,865 $2,555 $ 9,829 $ 300 (1) $81,321
Operating expenses:
Direct facility expenses .. 47,477 132 1,662 1,885 2,600 10,399 200 (2) 61,969
(2,022)(3)
(365)(4)
Provision for bad debts ..... 2,324 --- --- --- --- --- --- 2,324
Salaries and benefits ....... 5,398 --- --- --- --- --- --- 5,398
General and administrative .. 3,976 --- --- --- --- --- --- 3,976
Amortization ................ 2,630 --- --- --- --- --- 672 (5) 3,302
Depreciation ................ 559 --- --- 38 65 43 --- 705
------- ---- ------ ------ ------ ------- ------ -------
Total operating expenses .. 62,364 132 1,662 1,923 2,665 10,442 (1,515) 77,673
------- ---- ------ ------ ------ ------- ------ -------
Operating income (loss) ....... 2,301 31 282 (58) (110) (613) 1,815 3,648
Interest expense, net ......... 4,254 --- --- 11 13 5 997 (6) 5,280
------- ---- ------ ------ ------ ------- ------ -------
Income (loss) before income
taxes and extraordinary item (1,953) 31 282 (69) (123) (618) 818 (1,632)
Income tax expense (benefit) .. (456) --- 110 (16) (36) --- (58)(7) (456)
------- ---- ------ ------ ------ ------- ------ -------
Income (loss) before
extraordinary item .......... (1,497) 31 172 (53) (87) (618) 876 (1,176)
Extraordinary item ............ (2,184) --- --- --- --- --- --- (2,184)
------- ---- ------ ------ ------ ------- ------ -------
Net income (loss) ............. (3,681) 31 172 (53) (87) (618) 876 (3,360)
Dividends on convertible
preferred stock ............. 1,363 --- --- --- --- --- --- 1,363
------- ---- ------ ------ ------ ------- ------ -------
Net income (loss) attributable
to common stockholders ...... $(5,044) $ 31 $ 172 $ (53) $ (87) $ (618) $ 876 $(4,723)
======= ==== ====== ====== ====== ======= ====== =======
Loss before extraordinary
item per share .............. $ (1.05) $ (.75)
Net loss per share ............ (1.86) (1.40)
Weighted average shares of
common stock outstanding .... 2,713 --- --- --- --- --- 658 (8) 3,371
</TABLE>
See accompanying notes.
47
<PAGE> 48
SHERIDAN HEALTHCARE, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
The acquisition adjustments reflected on the unaudited pro forma consolidated
statement of operations are as follows:
(1) Represents an increase in revenue from the panel services agreement related
to Toyos. This increase in revenue was effective at the date of acquisition
and was a condition to consummation of the transaction.
(2) Represents the estimated cost of delivering the additional services related
to the increase in revenue from the panel services agreement related to Toyos,
as described in Note (1).
(3) Represents the difference between physician compensation rates that are
effective post-acquisition, pursuant to employment contracts entered into in
connection with each acquisition, and actual physician compensation expense
recorded by the acquired entities, as follows (in thousands):
<TABLE>
<CAPTION>
PER
EMPLOYMENT ACTUAL PRO FORMA
CONTRACTS EXPENSE ADJUSTMENT
---------- ------- ----------
<S> <C> <C> <C>
Gaylis ................ $ 250 $ 619 $ (369)
Rosenbaum ............. 600 912 (312)
NCI/CHS ............... 2,410 3,751 (1,341)
------ ------ -------
Total................. $3,260 $5,282 $(2,022)
====== ====== =======
</TABLE>
(4) Represents the elimination of termination benefits expense for the former
stockholder physicians of NCI/CHS, due to the discontinuation of this benefit
after the acquisition of NCI/CHS by the Company.
(5) Represents amortization of the goodwill resulting from each acquisition, as
follows (in thousands):
<TABLE>
<CAPTION>
AMOR- AMOR-
TIZATION TIZATION
GOODWILL PERIOD EXPENSE
-------- -------- --------
<S> <C> <C> <C>
Mitchel .................. $ 1,395 20 years $ 6
Toyos .................... 4,408 20 years 92
Gaylis ................... 2,505 20 years 125
Rosenbaum ................ 2,972 20 years 149
NCI/CHS .................. 9,903 33 years 300
------- ----
Total ................... $21,183 $672
======= ====
</TABLE>
48
<PAGE> 49
SHERIDAN HEALTHCARE, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(6) Represents interest expense on the funds borrowed for the acquisitions as
follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT INTEREST INTEREST
BORROWED RATE EXPENSE
-------- ---------- --------
<S> <C> <C> <C>
Mitchel ................... $1,395 8.75 - 10% $ 11
Toyos ..................... 3,996 5 - 9% 93
Gaylis .................... 2,536 9% 228
Rosenbaum ................. 3,184 9% 287
NCI/CHS ................... 4,200 9% 378
------- ----
Total .................... $15,311 $997
======= ====
</TABLE>
(7) Represents the elimination of the income tax expense (benefit) of the
acquired entities, due to the loss carryforward of the Company from 1995 for
tax purposes.
(8) Represents shares of the Company's common stock issued in connection with
the acquisition of NCI/CHS.
49
<PAGE> 50
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.
SHERIDAN HEALTHCARE, INC.
(Registrant)
Date: May 24, 1996 By: /s/ Mitchell Eisenberg
----------------------- -------------------------------------
Mitchell Eisenberg, M.D.
President and Chief Executive Officer
50
