-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BwvimGrfWJ66dEcuBCIK69hf2KC7zjrKi+dBbrjVPHR0Y6bhCImiYRE/Ifpt+cFa 9viswDa3k7jO0qCbjsgClw== 0000950144-96-002946.txt : 19960529 0000950144-96-002946.hdr.sgml : 19960529 ACCESSION NUMBER: 0000950144-96-002946 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960314 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960528 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHERIDAN HEALTHCARE INC CENTRAL INDEX KEY: 0000946489 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 043252967 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26260 FILM NUMBER: 96572930 BUSINESS ADDRESS: STREET 1: 4651 SHERIDAN ST STREET 2: STE 400 CITY: HOLLYWOOD STATE: FL ZIP: 33021 BUSINESS PHONE: 3059875822 MAIL ADDRESS: STREET 1: 4651 SHERIDAN STREET STREET 2: SUITE 400 CITY: HOLLYWOOD STATE: FL ZIP: 33021 8-K/A 1 SHERIDAN HEALTHCARE FORM 8-K/A 3/14/96 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. 2 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (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
2 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 4 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. COMBINING BALANCE SHEET DECEMBER 31, 1995
CHILDREN'S NEONATOLOGY HOSPITAL ASSETS CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED - -------------------------------------------------------------------------------------------------------------------------- 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 ======================================================================
See Notes to Combining Financial Statements. 4 5 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. COMBINING BALANCE SHEET DECEMBER 31, 1994
CHILDREN'S NEONATOLOGY HOSPITAL ASSETS CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED - ---------------------------------------------------------------------------------------------------------------------- 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 ==============================================================
See Notes to Combining Financial Statements. 5 6 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. COMBINING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 CHILDREN'S NEONATOLOGY HOSPITAL CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED - ------------------------------------------------------------------------------------------------------------------- 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) ===============================================================
See Notes to Combining Financial Statements. 6 7 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. COMBINING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1994
CHILDREN'S NEONATOLOGY HOSPITAL CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED - ------------------------------------------------------------------------------------------------------------ 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 ===============================================================
See Notes to Combining Financial Statements. 7 8 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. COMBINING STATEMENT OF STOCKHOLDERS' (DEFICIT) YEAR ENDED DECEMBER 31, 1995
RECEIVABLE FOR COMMON STOCK COMMON STOCK ----------------------------------------------------------------------------- CHILDREN'S CHILDREN'S NEONATOLOGY HOSPITAL NEONATOLOGY HOSPITAL CERTIFIED, INC. SERVICES, INC. CERTIFIED, INC. SERVICES, INC. - ------------------------------------------------------------------------------------------------------------------------- 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) - =====================================================================
See Notes to Combining Financial Statements. 8 9
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 - ------------------------------------------------------------------------------------------------------------------- $ 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) ===============================================================================================================
9 10 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. COMBINING STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1994
COMMON STOCK ADDITIONAL PAID-IN CAPITAL ------------------------------------------------------------------------------------ CHILDREN'S CHILDREN'S NEONATOLOGY HOSPITAL NEONATOLOGY HOSPITAL CERTIFIED, INC. SERVICES, INC. CERTIFIED, INC. SERVICES, INC. - ------------------------------------------------------------------------------------------------------------------------------- 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 ===============================================================================
See Notes to Combining Financial Statements. 10 11
ACCUMULATED EARNINGS (DEFICIT) - -------------------------------------- CHILDREN'S NEONATOLOGY HOSPITAL CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED - ----------------------------------------------------------------------------- $ (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 ============================================================================
11 12 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. COMBINING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995
CHILDREN'S NEONATOLOGY HOSPITAL CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED - ---------------------------------------------------------------------------------------------------------------- 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) ------------------------------------------------------------
(CONTINUED) 12 13 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. COMBINING STATEMENT OF CASH FLOWS (CONTINUED) YEAR ENDED DECEMBER 31, 1995
CHILDREN'S NEONATOLOGY HOSPITAL CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED - ------------------------------------------------------------------------------------------------------------------ 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 =====================================================================
SEE NOTES TO COMBINING FINANCIAL STATEMENTS. 13 14 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. COMBINING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1994
CHILDREN'S NEONATOLOGY HOSPITAL CERTIFIED, INC. SERVICES, INC. ELIMINATIONS COMBINED - -------------------------------------------------------------------------------------------------------------------- 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 ====================================================================
See Notes to Combining Financial Statements. 14 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:
Years ----- Machinery and equipment 5 - 7 Computers 5 Furniture and fixtures 7
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 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:
Years of Service Vesting - ----------------------------------------------------------- Less than 2 years 0% 2 20% 3 40% 4 60% 5 80% 6 and thereafter 100%
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 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 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:
1995 1994 ------------------------ Management fees $ 336,000 $ 336,000 Billing services 153,133 134,304 ------------------------ $ 489,133 $ 470,304 ========================
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:
1995 1994 ------------------------- Neonatology Certified, Inc. $ 303,649 $ 210,374 Children's Hospital Services, Inc. 63,130 54,493 ------------------------- $ 366,779 $ 264,867 =========================
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 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:
Year Ending December 31, Amount - ----------------------------------------------------------------------------- 1996 $ 126,422 1997 128,904 1998 128,007 1999 122,411 2000 59,688 --------- $ 565,432 =========
Total rent expense for all operating leases was $88,770 and $55,868 in 1995 and 1994, respectively. 19 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:
1995 1994 ---------------------------------------------------------- CARRYING FAIR Carrying Fair NEONATOLOGY CERTIFIED, INC. AMOUNT VALUE Amount Value - ------------------------------------------------------------------------------------------------ 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
1995 1994 ---------------------------------------------------------- CARRYING FAIR Carrying Fair CHILDREN'S HOSPITAL SERVICES, INC. AMOUNT VALUE Amount Value - ------------------------------------------------------------------------------------------------ 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
20 21 NEONATOLOGY CERTIFIED, INC. CHILDREN'S HOSPITAL SERVICES, INC. NOTES TO COMBINING FINANCIAL STATEMENTS NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
1995 1994 ---------------------------------------------------------- CARRYING FAIR Carrying Fair COMBINED AMOUNT VALUE Amount Value - ----------------------------------------------------------------------------------------------- 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
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 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 23 ROSENBAUM, WEITZ AND RITTER, M.D., P.A. BALANCE SHEETS
SEPTEMBER 30, ----------------- 1995 1994 ------- ------- ASSETS 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 ======== ========
See accompanying notes. 23 24 ROSENBAUM, WEITZ AND RITTER, M.D., P.A. STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, ---------------------- 1995 1994 ---------- ---------- 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) ========== ==========
See accompanying notes. 24 25 ROSENBAUM, WEITZ AND RITTER, M.D., P.A. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK -------------- SUBSCRIPTION RETAINED SHARES AMOUNT RECEIVABLE EARNINGS TOTAL ------ ------ ------------ -------- -------- 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 ====== ====== ============ ======== ========
See accompanying notes. 25 26 ROSENBAUM, WEITZ AND RITTER, M.D., P.A. STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, -------------------- 1995 1994 --------- --------- 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 ========= =========
See accompanying notes. 26 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 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:
SEPTEMBER 30, SEPTEMBER 30, 1995 1994 ------------- ------------- 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 ============= =============
(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 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:
SEPTEMBER 30, SEPTEMBER 30, 1995 1994 ------------- ------------ 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 ======== ========
Annual maturities of long-term debt as of September 30, 1995 are as follows: 1996 ................................................................................ $ 42,442 1997 ................................................................................ 40,971 1998 ................................................................................ 33,483 1999 ................................................................................ 2,529 -------- $119,425 ========
(5) ACCRUED EXPENSES Accrued expenses consists of the following:
SEPTEMBER 30, SEPTEMBER 30, 1995 1994 ------------- ------------- 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 ============= =============
29 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:
YEAR ENDED SEPTEMBER 30, ------------------------- 1995 1994 ------------ ---------- Current....................................... $ (90,281) $ --- Deferred...................................... 54,192 --- --------- -------- $ (36,089) $ --- ========= ======== Federal....................................... $ (30,943) $ --- State......................................... (5,146) --- --------- -------- $ (36,089) $ --- ========= ========
A reconciliation of the tax provision at the statutory rate of 35% to the effective tax rate is as follows:
YEAR ENDED SEPTEMBER 30, ---------------------- 1995 1994 ---------- --------- Tax benefit at the statutory rate ............. $ (43,215) $ --- State income taxes............................. (3,345) --- Nondeductible portion of meals and entertainment expenses ...................... 10,471 --- --------- -------- $ (36,089) $ --- ========= ========
At September 30, 1995, deferred income taxes consists of the following:
SEPTEMBER 30, ------------------------ 1995 1994 --------- ---------- 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) $ --- ========= ========
(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 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: 1996 .................................................... $ 997,750 1997 .................................................... 1,014,000 1998 .................................................... 994,003 ---------- $3,005,753 ==========
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: 1996 .................................................... $ 62,254 1997 .................................................... 57,740 1998 .................................................... 48,564 1999 .................................................... 48,564 2000 .................................................... 48,564 ---------- $ 265,686 ==========
(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 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 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 34 NORMAN B. GAYLIS M.D., P.A. BALANCE SHEETS
DECEMBER 31, ------------------ 1995 1994 -------- -------- ASSETS 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 ======== ========
See accompanying notes. 34 35 NORMAN B. GAYLIS M.D., P.A. STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------- 1995 1994 ---------- ---------- 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 ========== ==========
See accompanying notes. 35 36 NORMAN B. GAYLIS M.D., P.A. STATEMENTS OF STOCKHOLDER'S EQUITY
COMMON STOCK -------------- SUBSCRIPTION RETAINED SHARES AMOUNT RECEIVABLE EARNINGS TOTAL ------ ------ ------------ -------- -------- 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 ====== ====== ============ ======== ========
See accompanying notes. 36 37 NORMAN B. GAYLIS M.D., P.A. STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------- 1995 1994 --------- --------- 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 ========= =========
See accompanying notes. 37 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 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:
USEFUL DECEMBER 31, DECEMBER 31, LIVES 1995 1994 ------------ ------------ ------------ 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 ============ ============
At December 31, 1995, the net book value of property and equipment related to capital lease obligations was $29,226. 39 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:
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ 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 ============ ============
(4) CAPITAL LEASE OBLIGATIONS Capital lease obligations for purchases of medical equipment mature as follows: 1996 ...................................................... $19,298 Less amount representing interest ......................... (825) ------- $18,473 =======
(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:
YEAR ENDED DECEMBER 31, ------------------- 1995 1994 --------- -------- 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 ========= ========
40 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:
YEAR ENDED DECEMBER 31, ------------------------ 1995 1994 --------- -------- 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 ========= ========
At December 31, 1995, deferred income taxes consisted of the following: 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) ========
(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 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: 1996 ...................................................... $116,156 1997 ...................................................... 104,250 1998 ...................................................... 97,715 1999 ...................................................... 92,726 2000 ...................................................... 91,729 Thereafter ................................................ 191,102 -------- Total ................................................... $693,678 ========
(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 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 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 45 SHERIDAN HEALTHCARE, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 (IN THOUSANDS)
Acquisition Actual Gaylis Rosenbaum NCI/CHS Adjustments Pro Forma ------- ------ --------- ------- ----------- --------- ASSETS 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 ======= ==== ==== ====== ======= =======
See accompanying notes. 45 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): Purchase Net Assets Price Acquired Goodwill -------- ---------- -------- 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 ======= ====== =======
(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): Gaylis .......................... $2,536 Rosenbaum ....................... 3,184 NCI/CHS ......................... 4,200 ------ Total ........................... $9,920 ======
(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 47 SHERIDAN HEALTHCARE, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) Acquisition Actual Mitchel Toyos Gaylis Rosenbaum NCI/CHS Adjustments Pro Forma ------- ------- ------ ------ --------- ------- ----------- --------- 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
See accompanying notes. 47 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):
PER EMPLOYMENT ACTUAL PRO FORMA CONTRACTS EXPENSE ADJUSTMENT ---------- ------- ---------- Gaylis ................ $ 250 $ 619 $ (369) Rosenbaum ............. 600 912 (312) NCI/CHS ............... 2,410 3,751 (1,341) ------ ------ ------- Total................. $3,260 $5,282 $(2,022) ====== ====== =======
(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):
AMOR- AMOR- TIZATION TIZATION GOODWILL PERIOD EXPENSE -------- -------- -------- 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 ======= ====
48 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):
AMOUNT INTEREST INTEREST BORROWED RATE EXPENSE -------- ---------- -------- 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 ======= ====
(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 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 -----END PRIVACY-ENHANCED MESSAGE-----