10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period ended March 31, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File No. 1-13778 PHYSICIANS RESOURCE GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 76-0456864 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 901 Main Street, Suite 6000 Dallas, TX 75202 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (713) 629-5777 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding at November 7, 2001 ---------------------------- ------------------------------- Common Stock, $.01 par value 29,993,335 shares (1) (1) Solely represents the right to receive distributions, if any, under the Registrant's Plan of Reorganization after creditors' claims have been satisfied in full. PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 INDEX PART I. Financial Information --------------------- Page ---- Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000 (audited)...................... 1 Statements of Operations for the three months ended March 31, 2001 and March 31, 2000 (unaudited).. 2 Statements of Cash Flows for the three months ended March 31, 2001 and March 31, 2000 (unaudited).. 3 Condensed Notes to Financial Statements (unaudited).. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 5 PART II. Other Information ----------------- Item 1. Legal Proceedings.................................... 7 Item 6. Exhibits and Reports on Form 8-K..................... 7 SIGNATURES.................................................... 8 ---------- PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (000's, Except Share Data)

The accompanying notes are an integral part of these condensed consolidated financial statements. 1 PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (000's, Except Share Data)

The accompanying notes are an integral part of these condensed consolidated financial statements. 2 PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (000's)

The accompanying notes are an integral part of these condensed consolidated financial statements. 3 PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The interim consolidated condensed financial statements of Physicians Resource Group, Inc. and subsidiaries ("PRG" or the "Company") included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. It is suggested that these financial statements be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 which was filed on November 6, 2001. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly the Company's results of operations and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. 2. FINANCIAL CONDITION AND GOING CONCERN The accompanying consolidated financial statements have been prepared on the going concern basis of accounting. As the Plan contemplates the ultimate liquidation of the Company as such, the Company will not continue as a going concern and the recoverability of the carrying amounts of its assets is uncertain. As a result of the liquidation proceedings, the Company may sell or otherwise realize assets and liquidate or settle liabilities for amounts other than those reflected in the financial statements. Further, a change in the plan of reorganization/liquidation could materially change amounts currently recorded in the financial statements. The financial statements do not give effect to any adjustments to the carrying value of assets, or amounts and classification of liabilities that might be necessary as a consequence of these matters. The Company has continued to experience further losses and negative cash flow from operations (excluding cash generated from disposition of asset) in 2001 and no assurance can be given that the Company's existing cash, cash flow from operations, income tax refunds and cash generated from practice disassociations or other asset dispositions will be sufficient to allow the Company to meet its planned obligations as they become due. Management's plans are to execute The Plan provisions confirmed by court order on December 1, 2000 with an effective date of December 15, 2000. The Plan is a liquidating plan and does not contemplate the financial rehabilitation of the Company or the continuation of their businesses, except with respect to any physicians and Eyecare Practices who cure their contractual defaults and request that the Company recommence providing management services and ownership interest in any ambulatory surgery centers ("ASCs") that the Company continues to own and operate. Many of the Company's assets have been or are in the process of being liquidated, and the Plan contemplates that the remaining assets will be liquidated. Funds generated from the liquidation of assets will be paid to creditors as set forth in the Plan. Holders of equity interest will not receive or retain any property under the Plan with respect to their holdings unless and until all creditors have been paid in full. 3. COMMITMENTS AND CONTINGENCIES The Company and certain of its officers and directors have been named in six class action lawsuits, all pending in the U.S. District Court for the Northern District of Texas. These class action lawsuits make various allegations of 4 PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES violations of the federal securities laws (specifically Sections 10 and 20 of the Securities Exchange Act of 1934), including misrepresentations and omissions of material facts in connection with purchases and sales of the Company's securities. Damages are claimed but are unspecified as to the amount. The Company has filed a motion requesting consolidation of these six lawsuits into one action and intends to vigorously defend against the various claims alleged. In response to the bankruptcy filings, proofs of claim have been filed against the Company and EyeCorp. With respect to those claims that state a specific monetary amount, PRG has identified a number to which is has no objection and which will be allowed by the Bankruptcy Court. Among governmental entities, there is approximately $430,000 to which PRG did not object. Among the ranks of general unsecured creditors, the total amount of proofs of claim that state a specific monetary sum and to which the Company did not object is approximately $135 million. The approximate total of specific monetary amounts asserted by the Eyecare Practices exceeds $50 million. In addition, there are proofs of claim that contend additional sums are owed. The Company has objected to all of the claims filed by the Eyecare Practices and is pursuing counterclaims against such practices. In the event the Company and Eyecare Practices are unable to resolve their differences by settlement, the Bankruptcy Court has entered a Claims Resolution Methodology that will procedurally govern the disposition of the claims and counterclaims asserted among and between them. Although the Company intends to pursue these claims vigorously, due, in part to their relatively undeveloped state, it cannot be predicted with certainty what their outcome will be or whether the Company will suffer a net benefit of a net loss as a result of these claims and counterclaims. As indicated above with respect to the class action lawsuits and the proofs of claim, the Company intends to defend each of the claims vigorously. In the normal course of business, certain of the affiliated physician groups have been named in lawsuits alleging medical malpractice. In the opinion of the Company's management, the ultimate liability, if any, without considering possible insurance recoveries, will not have a material impact on the Company's financial position, results of operations or cash flows. Additionally, the Company's affiliated physician groups and the Company are insured with respect to medical malpractice risks on a claims-made basis. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview General The Plan filed by PRG and EyeCorp with and confirmed by the Bankruptcy Court is a liquidating plan and does not contemplate the financial rehabilitation of the Company and EyeCorp or the continuation of their businesses (except with respect to any physicians and practices who cure their contractual defaults and request that the Company recommence providing management services). Many of the Company's assets have been or are in the process of being liquidated, and the Plan contemplates that the remaining unliquidated assets will be liquidated. Funds generated from the liquidation of assets will be paid to creditors as set forth in the Plan. Holders of equity interests may not receive or retain any property under the Plan with respect to their holdings unless and until all creditors have been paid in full. On December 1, 2000, the Bankruptcy Court entered an order confirming the Plan. The effective date of the Plan was December 15, 2000. In accordance with the Plan, during the three months ended March 31, 2001, the Company made distributions to unsecured creditors totaling approximately $12 million. Currently the Company does not anticipate any distributions to holders of equity interests. As a result of confirmation of the Plan, comparison of amounts to prior periods may not be meaningful to the reader of the accompanying financial statements. 5 PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES Results of Operations COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000 Revenues Revenues were $3,826,000 for the quarter ended March 31, 2001 compared to $10,309,000 for the quarter ended March 31, 2000, a decrease of $6,483,000 or 62.9%. The primary reason for the decrease was the significant number of Eyecare practices and ASCs that consummated Buyouts during 2000 and 2001. No revenues have been recognized for the non-reporting Eyecare Practices. Costs and Expenses Costs and expenses were $2,103,000 for the quarter ended March 31, 2001 versus $12,748,000 for the comparable period in 2000. This significant decrease of $10,645,000 was primarily due to the number of consummated Buyouts in 2000 and 2001. Salaries, Wages and Benefits. Salaries, wages and benefits were $1,702,000 for the quarter ended March 31, 2001 compared to $3,578,000 for the quarter ended March 31, 2000, a decrease of $1,876,000 or 52.4%. The decrease is primarily attributable to the resignation of employees who returned to work for Eyecare Practices, which either consummated Buyouts during 2000 and 2001 or unilaterally purported to terminate their relationship with PRG. As a percentage of revenues, salaries, wages and benefits increased from 34.7% of revenues in 2000 to 44.5% of revenues in the quarters ended March 31, 2000 and 2001, respectively. Pharmaceutical and Supplies. Expenses for pharmaceuticals and supplies were $967,000 for the quarter ended March 31, 2001 compared to $2,138,000 for the quarter ended March 31, 2000, a decrease of $1,171,000 or 54.8%. Expenses continued to decrease in 2000 and 2001 as a result of Buyouts in 2000 and 2001. Pharmaceuticals and supplies as a percent of revenues did not change significantly between the quarters ended March 31, 2001 (25.3%) and 2000 (20.7%) because revenues decreased correspondingly with bought-out and non-paying practices. General and Administrative. General and administrative expenses were $2,341,000 for the quarter ended March 31, 2001 compared to $9,430,000 for the quarter ended March 31, 2000, a decrease of $7,089,000 or 75.2%. The decrease in general and administrative expenses as a percent of revenues between the quarters ended March 31, 2000 (91.5%) and 2001 (61.1%) was due to a reduction in revenues and related expenses for a significant number of Eyecare practices consummating buyouts. Legal expenses related to the bankruptcy filings and consummation of numerous sales transactions increased during 2001. Depreciation and Amortization. Depreciation and amortization expenses were $449,000 for the quarter ended March 31, 2001 compared to $1,523,000 for the quarter ended March 31, 2000, a decrease of $1,074,000 or 70.5%. The decrease is due to the ongoing liquidation of assets during 2000 and 2001. Interest Expense. Interest expense was $0 for the quarter ended March 31, 2001 compared $764,000 for the quarter ended March 31, 2000, a decrease of $764,000. In accordance with the provisions of the U.S. Bankruptcy Code, interest on pre-petition indebtedness stops accruing at the time a voluntary petition is filed. This abatement of interest precipitated a substantial decrease in interest expense from 2000 to 2001. Interest Income. Interest income was $344,000 for the quarter ended March 31, 2001 compared to $745,000 for the quarter ended March 31, 2000, a decrease of $401,000. The large decrease is due to reduced cash balances held by the Company pursuant to distributions to unsecured creditors in accordance with the Plan, which left smaller balances available for investing. Patent Litigation Defense Costs. Patent litigation defense costs were $0 for the quarter ended March 31, 2001 as compared to $166,000 for the quarter ended March 31, 2000. The decrease is attributable to the completion of the 6 PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES Company's defense of the patent litigation process in 2000. This litigation resulted in a favorable settlement for the Company in May of 2000. Gain on Sale of Assets. During the three months ended March 31, 2001, PRG consummated five Buyouts with Eyecare practices and sold certain interests in two surgery centers at a gain of $3,012,000. The gain occurred for those practices sold in 2001 that were previously identified as fully impaired at year end 1998. Liquidity and Capital Resources Cash, Working Capital and Debt As of December 31, 2000, cash was $23,330,000 and the working capital deficit was $33,723,000. The working capital deficit was caused primarily by the Debentures being classified as current liabilities. As of March 31, 2001, cash had decreased to $16,656,000 and working capital had increased to a deficit of $31,866,000. The decrease in cash was primarily attributable to the reduction of debt. Working capital as compared to December 31, 2000 improved due to the reduction of outstanding debt and accounts payable. Overall indebtedness both short and long term had decreased to $39,887,000 due to debt paid off or retired in connection with sale of practices in 2001 and 2000. For the quarter ended March 31, 2001, PRG made distributions to unsecured creditors with a combined total of approximately $12 million. Liquidity PRG and EyeCorp filed the Bankruptcy Plan on October 13, 2000. The Plan is a liquidating plan as it does not contemplate the financial rehabilitation of the Company or the continuation of their businesses (except with respect to any physicians and practices who cure their contractual defaults and request that the debtors recommence providing management services). Many of the Company's assets have been or are in the process of being liquidated, and the Plan contemplates that the remaining assets will be liquidated. PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Number Description ------ ----------- None. (b) Reports on Form 8-K (1) None. 7 PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Physicians Resource Group, Inc. Dated: November 14, 2001 By: /s/ Michael Yeary --------------------------------------------- Michael Yeary Director and Chief Restructuring Officer (Principal Executive Officer) Dated: November 14, 2001 By: /s/ Karen Nicolaou --------------------------------------------- Karen Nicolaou Controller and Director of Claims Resolution (Principal Accounting and Financial Officer) 8

PHYSICIANS RESOURCE GROUP INC 10-Q