SEC Info - Physician Partners Corvallis PC - ‘10-K405’ for 12/31/96

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Physician Partners Corvallis PC – ‘10-K405’ for 12/31/96

As of: Monday, 4/7/97 · For: 12/31/96 · Accession #: 891020-97-534 · File #: 333-15595-02

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/07/97  Physician Partners Corvallis PC   10-K405    12/31/96    1:53K                                    Bowne - Seattle/FA

Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- [x] Reg. S-K Item 405                28    102K 

10-K405 1st Page of 28 TOC ↑Top Previous Next ↓Bottom Just 1st
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-K

 FOR ANNUAL AND TRANSITION REPORTS
 PURSUANT TO SECTIONS 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]                                              

For the fiscal year ended December 31, 1996                                     
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]                                           

For the transition period from __________ to _________                          

 Commission file number 333-15595-02

THE CORVALLIS CLINIC, P.C.
 formerly PHYSICIAN PARTNERS CORVALLIS, P.C.
(Exact Name of Registrant as Specified in Its Charter)

Oregon                                                                93-1221257
State or other jurisdiction of                                  (I.R.S. Employer
incorporation or organization                                Identification No.)

Address of Principal Executive Offices                                          
Registrant's telephone number, including area code                              

 444 N.W. Elks Drive
 Corvallis, Oregon 97330
(541) 754-1374

Securities registered pursuant to Section 12(b) of the Act:                     
      Title of Each Class            Name of Each Exchange on Which Registered

Securities registered pursuant to Section 12(g) of the Act:                     

(Title of Class)

10-K405 2nd Page of 28 TOC 1st Previous Next ↓Bottom Just 2nd

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 [ ] No [X]                        

       Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,  
to the best of registrant's knowledge, in definitive proxy or information       
statements incorporated by reference in Part III of this Form 10 K or any       
amendment to this Form 10 K. [x]                                                

State the aggregate market value of the voting stock held by  
non-affiliates of the registrant. The aggregate market value shall be computed  
by reference to the price at which the stock was sold, or the average bid and   
asked prices of such stock, as of a specified date within 60 days prior to the  
date of filing. (See definition of affiliate in Rule 405.)                      

The Registrant's shares have no market value. 

               Note. If a determination as to whether a particular person or
      entity is an affiliate cannot be made without involving unreasonable
         effort and expense, the aggregate market value of the common stock held
 by non-affiliates may be calculated on the basis of assumptions
       reasonable under the circumstances, provided that the assumptions are
set forth in this form.                                       

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY 
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and       
reports required to be filed by Section 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  [ ]   No [ ]                                                               

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.                                

70 shares of Common Stock were outstanding as of April 3, 1997

DOCUMENTS INCORPORATED BY REFERENCE.

List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is       
incorporated: (1) any annual report to security holders; (2) any proxy or       
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or  
(c) under the Securities Act of 1933. The listed documents should be clearly    
described for identification purposes (e.g., annual report to security holders  
for fiscal year ended December 24, 1980).                                       

 This report contains only financial statements for fiscal 1996,
pursuant to Rule 15d-2 under the Securities Exchange Act of 1934, as amended.   

10-K405 3rd Page of 28 TOC 1st Previous Next ↓Bottom Just 3rd
CORVALLIS CLINIC, P.C.
(FORMERLY PHYSICIAN PARTNERS CORVALLIS, P.C.)   
 INDEX TO FINANCIAL STATEMENTS

1.  THE CORVALLIS CLINIC, P.C.                                                  
(FORMERLY PHYSICIAN PARTNERS CORVALLIS, P.C.)                                   

Report of Independent Accountants                                               

Balance Sheet as of December 31, 1996                                           

Notes to Financial Statements                                                   

2. THE CORVALLIS CLINIC, P.C.                                                   

Report of Independent Public Accountants                                        

Balance Sheets as of December 31, 1996 and November 30, 1995                    

Statements of Operations for the thirteen months ended December 31, 1996 and the
years ended November 30, 1995 and 1994                                          

Statements of Cash Flows for the thirteen months ended December 31, 1996 and the
years ended November 30, 1995 and 1994                                          

Statements of Accumulated Deficit for the thirteen months ended December 31,    
1996 and the years ended November 30, 1995 and 1994                             

Notes to Financial Statements                                                   

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THE CORVALLIS CLINIC, PC            
       (FORMERLY PHYSICIAN PARTNERS CORVALLIS, PC)

FINANCIAL STATEMENTS                
AS OF DECEMBER 31, 1996             
TOGETHER WITH AUDITORS' REPORT      

10-K405 5th Page of 28 TOC 1st Previous Next ↓Bottom Just 5th

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of                                                    
The Corvallis Clinic, PC:                                                       

We have audited the accompanying balance sheet of The Corvallis Clinic, PC,     
formerly Physician Partners Corvallis, PC (an Oregon corporation) as of December
31, 1996. This financial statement is the responsibility of the Company's       
management. Our responsibility is to express an opinion on this financial       
statement based on our audit.                                                   

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable 
assurance about whether the financial statements are free of material           
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audit provides a reasonable basis for our opinion.          

In our opinion, the financial statement referred to above presents fairly, in   
all material respects, the financial position of The Corvallis Clinic, PC as of 
December 31, 1996 in conformity with generally accepted accounting principles.  

                       ARTHUR ANDERSEN LLP

Portland, Oregon,                                                               
April 3, 1997                                                               

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THE CORVALLIS CLINIC, PC
(FORMERLY PHYSICIAN PARTNERS CORVALLIS, PC) 

 BALANCE SHEET AS OF DECEMBER 31, 1996

ASSETS

CASH                                                                      $  1  
                                                                        ----
        Total assets                                                    $  1
                                                                        ====

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES                                                               $ -   

STOCKHOLDERS' EQUITY:                                                           

Common stock voting; no par value; 500 shares authorized; 64 shares issued  
and outstanding                                                         
                                                                           1
                                                                        ----
        Total liabilities and stockholders' equity                      $  1
                                                                        ====

    The accompanying notes are an integral part of this statement.

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THE CORVALLIS CLINIC, PC
(FORMERLY PHYSICIAN PARTNERS CORVALLIS, PC) 

NOTES TO FINANCIAL STATEMENT

1.  BUSINESS AND ORGANIZATION:                                                  

The Corvallis Clinic, PC (Corvallis), an Oregon professional corporation, was   
incorporated on September 18, 1996 under the name Physician Partners Corvallis, 
PC for the purpose of effecting a reorganization transaction between Physician  
Partners, Inc. (PPI) and three Oregon professional corporations (the Founding   
Clinics).                                                                       

This transaction, which was consummated on February 1, 1997, resulted in a      
separation of operations of the three Founding Clinics between medical          
professional services activities (i.e., providers of medical services) and the  
physician practice management activities of the business. The professional      
services activities were spun off into newly formed professional corporations   
(New PCs). Corvallis is one of the New PCs. The physician practice management   
business, along with substantially all of the assets and liabilities of the     
three Founding Clinics, i.e., cash, receivables, inventories, prepaids,         
property, plant and equipment, other assets, payables, accruals, debt, and      
certain contractual commitments were transferred to PPI. The New PCs are        
responsible for providing medical services and the related costs for provider   
compensation and benefits. The assets transferred to the New PCs, which had zero
carrying value, include the employment agreements between each Company and its  
providers, certain provider contracts under which the New PCs will be receiving 
fee-for-service compensation and patient medical records.                       

An integral part of the reorganization is a 40-year management agreement whereby
PPI provides physician practice management services to the New PCs. Services to 
be provided include management and administrative services, capital resources,  
facilities, equipment and supplies. As consideration, PPI is entitled to (a)    
reimbursement of all managerial costs and expenses (Manager's Expenses) incurred
by PPI and (b) a management fee equal to 16% of (i) net revenues relating to    
services provided by the New PCs less (ii) Manager's Expenses.                  

Essentially all of the cash remaining in the New PC after the payments to PPI   
under the management agreement will fund the compensation and benefits of       
providers employed by the New PCs.                                              

2.  STATEMENTS OF OPERATIONS AND CASH FLOWS:                                    

No statements of operations and cash flows have been presented as PPC did not   
commence operations until February 1, 1997 and, accordingly, there has been no  
operating or cash activities.                                                   

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      THE CORVALLIS CLINIC, P.C.

FINANCIAL STATEMENTS
                         AS OF DECEMBER 31, 1996 AND NOVEMBER 30, 1995
          TOGETHER WITH AUDITORS' REPORT

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of                                                    
The Corvallis Clinic, P.C.:                                                     

We have audited the accompanying balance sheets of The Corvallis Clinic, P.C.   
(an Oregon professional corporation) as of December 31, 1996 and November 30,   
1995, and the related statements of operations, accumulated deficit and cash    
flows for the thirteen-month period ended December 31, 1996, and each of the    
years in the two-year period ended November 30, 1995. These financial statements
are the responsibility of Corvallis' 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 The Corvallis Clinic, P.C. as  
of December 31, 1996 and November 30, 1995, and the results of its operations   
and its cash flows for the thirteen-month period ended December 31, 1996, and   
each of the years in the two-year period ended November 30, 1995 in conformity  
with generally accepted accounting principles.                                  

                                 ARTHUR ANDERSEN LLP

Portland, Oregon,                                                               
March 5, 1997                                                               

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THE CORVALLIS CLINIC, P.C.

BALANCE SHEETS - AS OF DECEMBER 31, 1996 AND NOVEMBER 30, 1995

ASSETS

                                                        [Enlarge/Download Table]

                                                                                              1996           1995    
                                                                                           -----------   ----------- 
CURRENT ASSETS:                                                                                                      
                                                                                                                     
  Cash and cash equivalents                                                                $   186,572   $   176,812 
  Patient accounts receivable, net of allowances for                                                                 
    contractual discounts and uncollectible accounts of                                                              
    $2,544,000 and $1,992,000 at December 31, 1996 and                                                               
    November 30, 1995, respectively                                                          4,232,274     4,303,960 
  Healthcare and other receivables                                                           2,089,043     1,179,380 
  Inventories of drugs and supplies                                                            219,245       224,065 
  Prepaid expenses and deposits                                                                196,134       479,264 
                                                                                           -----------   ----------- 
          Total current assets                                                               6,923,268     6,363,481 
                                                                                           -----------   ----------- 
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization                                      
  of $9,220,560 and $7,533,789 at December 31, 1996 and November 30, 1995,                                           
  respectively                                                                              18,913,428    19,533,621 
                                                                                           -----------   ----------- 
OTHER ASSETS:                                                                                                        
  Investments in affiliates                                                                    654,225       561,668 
  Other                                                                                              -        89,882 
                                                                                           -----------   ----------- 
                                                                                               654,225       651,550 
                                                                                           -----------   ----------- 
          Total assets                                                                     $26,490,921   $26,548,652 
                                                                                           ===========   =========== 

                                    LIABILITIES, REDEEMABLE STOCK AND ACCUMULATED DEFICIT                            

CURRENT LIABILITIES:                                                                                                 
  Current portion of long-term debt and capital and direct                                                           
    financing lease obligations                                                            $   898,941   $   531,934 
  Line of credit                                                                             3,330,000     1,409,000 
  Accounts payable and accrued expenses                                                      1,747,593     2,055,262 
  Income taxes payable                                                                               -        32,215 
  Accrued healthcare costs                                                                   3,057,806     1,280,367 
  Accrued compensation and related expenses                                                  1,114,538     1,909,124 
  Deferred revenue                                                                             338,800       396,747 
                                                                                           -----------   ----------- 
          Total current liabilities                                                         10,487,678     7,614,649 
                                                                                           -----------   ----------- 
LONG-TERM DEBT, net of current portion                                                       1,387,713       729,453 

CAPITAL AND DIRECT FINANCING LEASE OBLIGATIONS, net of                                                               
  current portion                                                                           13,958,827    14,258,343 
DEFERRED COMPENSATION AND OTHER                                                              1,755,025     1,629,848 
COMMITMENTS AND CONTINGENCIES                                                                                        
REDEEMABLE STOCKS                                                                            6,959,412     5,659,948 
ACCUMULATED DEFICIT                                                                         (8,057,734)   (3,343,589)
                                                                                           -----------   ----------- 
          Total liabilities, redeemable stock and                                                                    
            accumulated deficit                                                            $26,490,921   $26,548,652 
                                                                                           ===========   =========== 

The accompanying notes are an integral part of these balance sheets.

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THE CORVALLIS CLINIC, P.C.

STATEMENTS OF OPERATIONS

 FOR THE THIRTEEN MONTHS ENDED DECEMBER 31, 1996 AND

THE YEARS ENDED NOVEMBER 30, 1995 AND 1994

                                                                [Download Table]

                                               1996          1995          1994     
                                            -----------   -----------   ----------- 
REVENUES:                                                                           
                                                                                    
  Fee-for-service, net                      $22,451,664   $20,704,589   $19,545,575 
  Prepaid healthcare, net                    21,257,480    18,469,738    15,798,726 
                                            -----------   -----------   ----------- 
          Net revenues                       43,709,144    39,174,327    35,344,301 

  Less- Provider compensation and benefits   11,419,464    13,209,215    13,729,125 
                                            -----------   -----------   ----------- 
          Net revenues less provider                                                
            compensation and benefits        32,289,680    25,965,112    21,615,176 
                                            -----------   -----------   ----------- 

EXPENSES:                                                                           
  Clinic salaries, wages and benefits        15,620,339    12,579,457    10,403,834 
  Purchased medical services                  6,182,411     4,716,727     3,081,120 
  Medical and office supplies                 4,623,283     3,842,572     3,327,093 
  General and administrative expenses         3,315,234     3,560,219     3,157,030 
  Lease and rent expense                        289,825       197,603       177,594 
  Provision for uncollectible accounts        1,270,141     1,767,545     1,181,471 
  Depreciation and amortization               1,689,791     1,114,947     1,005,715 
                                            -----------   -----------   ----------- 
          Total operating expenses           32,991,024    27,779,070    22,333,857 
                                            -----------   -----------   ----------- 

          Operating loss                       (701,344)   (1,813,958)     (718,681)

OTHER INCOME (EXPENSE):                                                             
  Interest income                                46,037        65,776        55,468 
  Interest expense                           (1,916,251)   (1,223,370)     (780,123)
  Equity in income of affiliates                301,630       232,428       107,332 
  Other                                         465,812       631,945        58,852 
                                            -----------   -----------   ----------- 
          Net loss before provision for                                             
            income taxes                     (1,804,116)   (2,107,179)   (1,277,152)
                                            -----------   -----------   ----------- 
PROVISION FOR INCOME TAXES                            -             -             - 
                                            -----------   -----------   ----------- 
NET LOSS                                    $(1,804,116)  $(2,107,179)  $(1,277,152)
                                            ===========   ===========   =========== 

The accompanying notes are an integral part of these statements.

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THE CORVALLIS CLINIC, P.C.

STATEMENTS OF CASH FLOWS

 FOR THE THIRTEEN MONTHS ENDED DECEMBER 31, 1996 AND

THE YEARS ENDED NOVEMBER 30, 1995 AND 1994

                                                        [Enlarge/Download Table]

                                                 1996           1995           1994    
                                              -----------    -----------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:                                                  
                                                                                       
  Net loss                                     $(1,804,116)  $(2,107,179)  $(1,277,152)
  Adjustment to reconcile net loss to net                                              
    cash provided by (used in) operating                                               
    activities-                                                                        
      Depreciation and amortization              1,689,791     1,114,947     1,005,715 
      Equity in income of affiliates              (301,630)     (232,428)     (107,332)
      Equity in income of affiliate offset                                             
        against operating expenses                  69,498             -             - 
      Equity in income of affiliate offset                                             
        against interest expense                  (546,716)     (288,927)            - 
      Loss on sale of property, plant and                                              
        equipment                                      310             -       164,366 
      Loss on sale of equity interest in                                               
        affiliate                                   18,036             -             - 
      Changes in operating assets and                                                  
        liabilities:                                                                   
          Patient accounts receivable, net          71,686       363,674      (327,642)
          Healthcare and other receivables        (909,663)      425,736       110,955 
          Inventories of drugs and supplies          4,820        32,778       (13,138)
          Prepaid expenses and deposits            283,130       (71,939)      (66,424)
          Other assets                              89,882       (65,998)      (23,884)
          Accounts payable and accrued                                                 
            expenses                              (439,726)      423,420       417,478 
          Income taxes payable                     (32,215)       32,215             - 
          Accrued healthcare costs               1,777,439       798,932       371,470 
          Accrued compensation and related                                             
            expenses                              (794,586)   (3,002,229)    1,319,217 
          Deferred revenue                         (57,947)       50,132       (28,163)
          Deferred compensation and other          125,177       140,531       127,668 
                                               -----------   -----------   ----------- 
          Net cash provided by (used in)                                               
             operating activities                 (756,830)   (2,386,335)    1,673,134 
                                               -----------   -----------   ----------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                  
  Purchases of property, plant and equipment    (1,070,187)   (3,203,644)   (3,105,891)
  Purchases of investments                               -      (123,673)            - 
  Cash distributions received from                                                     
    investments                                    615,000       400,000        19,408 
  Cash distributions received from sale of                                             
    property, plant and equipment                      279             -             - 
  Cash distributions received from sale of                                             
    equity interest in affiliate                    53,255             -             - 
                                               -----------   -----------   ----------- 
          Net cash used in investing                                                   
            activities                            (401,653)   (2,927,317)   (3,086,483)
                                               -----------   -----------   ----------- 

                                                                            (continued)

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THE CORVALLIS CLINIC, P.C.

STATEMENTS OF CASH FLOWS (CONTINUED)

 FOR THE THIRTEEN MONTHS ENDED DECEMBER 31, 1996 AND

THE YEARS ENDED NOVEMBER 30, 1995 AND 1994

                                                        [Enlarge/Download Table]


                                                                             1996          1995             1994   
                                                                          -----------   -----------      ----------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                              
                                                                                                                   
  Net proceeds from borrowings under line of                                                                       
    credit agreement                                                      $ 1,921,000   $ 1,409,000      $      -  
  Proceeds from issuance of long-term debt                                  1,400,000     1,200,000             -  
  Principal payments on long-term debt and                                                                         
    direct financing lease obligation                                        (674,249)     (239,408)     (140,712) 
  Proceeds from issuance of common stock                                       10,000             -        18,000  
  Proceeds from issuance of preferred stock                                         -             -       310,000  
  Payments for redemption of common stock                                    (122,768)      (23,000)      (69,000) 
  Payments for redemption of preferred stock                                  (57,000)      (19,000)      (48,000) 
  Proceeds from repayments of notes receivable from stockholders                                                   
                                                                               81,081       136,925       143,549  
  Cash received in formation of HealthCare                                                                         
    Partners, LLC                                                                   -     2,734,386             -  
  Costs incurred related to Physician                                                                              
    Partners, Inc. transaction                                             (1,389,821)            -             -  
                                                                          -----------   -----------   -----------  
          Net cash provided by financing                                                                           
            activities                                                      1,168,243     5,198,903       213,837  
                                                                          -----------   -----------   -----------  
NET INCREASE (DECREASE) IN CASH AND CASH                                                                           
  EQUIVALENTS                                                                   9,760      (114,749)   (1,199,512) 

CASH AND CASH EQUIVALENTS, beginning of period                                176,812       291,561     1,491,073  
                                                                          -----------   -----------   -----------  
CASH AND CASH EQUIVALENTS, end of period                                  $   186,572   $   176,812   $   291,561  
                                                                          ===========   ===========   ===========  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW                                                                               
  INFORMATION:                                                                                                     
    Cash paid for interest                                                $ 2,326,795   $   891,190   $   780,123  
    Cash paid (received) for income taxes                                      53,717       (41,558)       74,420  

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:                                             
  During 1995, Corvallis formed a limited liability company by contributing                                        
    certain real property and associated debt in exchange for a 50% ownership                                      
    interest in the new entity (Note 13).                                                                          
  Notes receivable from shareholders for purchase of stock during 1996, 1995                                       
    and 1994 were $13,000, $23,000 and $399,150, respectively.                                                     
  Corvallis received a noncash distribution from an affiliate during 1996 of                                       
    $69,498.                                                                                                       
  Redemption of common stock in exchange for a payable of $132,057 during 1996.                                    

The accompanying notes are an integral part of these statements.

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THE CORVALLIS CLINIC, P.C.

 STATEMENTS OF ACCUMULATED DEFICIT

 FOR THE THIRTEEN MONTHS ENDED DECEMBER 31, 1996 AND

THE YEARS ENDED NOVEMBER 30, 1995 AND 1994

                                                                [Download Table]

                                                                              
BALANCE, November 30, 1993                                        $ 1,373,766 

  Redemption of common stock                                          (44,000)

  Accretion of common stock                                          (511,560)

  Net loss                                                         (1,277,152)
                                                                  ----------- 
BALANCE, November 30, 1994                                           (458,946)

  Accretion of common stock                                          (777,464)

  Net loss                                                         (2,107,179)
                                                                  ----------- 
BALANCE, November 30, 1995                                         (3,343,589)

  Accretion of common stock                                        (1,520,208)

  Costs incurred related to Physician Partners, Inc. transaction   (1,389,821)

  Net loss                                                         (1,804,116)
                                                                  ----------- 
BALANCE, December 31, 1996                                        $(8,057,734)
                                                                  =========== 

The accompanying notes are an integral part of these statements.

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THE CORVALLIS CLINIC, P.C.

 NOTES TO FINANCIAL STATEMENTS

1.  BUSINESS AND ORGANIZATION:                                                  

The Corvallis Clinic, P.C. (Corvallis), an Oregon professional corporation, is a
multi-specialty medical clinic. Corvallis was founded in 1947 with the belief   
that group practice offers the best means of promoting and maintaining the      
highest standards of medical care.                                              

Corvallis consists of approximately 509 employees and 96 professional providers 
who offer a wide range of primary and specialty care. In addition, Corvallis    
offers ancillary services such as physical therapy, optical, pharmacy,          
laboratory and imaging.                                                         

The majority of Corvallis operations are located in two facilities in Corvallis,
Oregon. In addition, Corvallis operates four satellite offices: Albany Family   
Medicine, Corvallis Family Medicine, Philomath Family Medicine and Research     
Park. A significant change in the demographics of this area may have an adverse 
impact on the business.                                                         

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION:           

Selected accounting policies are discussed below.  Other significant accounting 
policies regarding revenues, income taxes, professional liability, deferred     
compensation and investments in affiliates are discussed in specific notes that 
follow.                                                                         

Change in Fiscal Year End                                                       

Effective December 1, 1995, Corvallis changed its fiscal year end from          
November 30 to December 31. Accordingly, the 1996 fiscal year ended December 31,
includes the results of operations for thirteen months, whereas the previous two
fiscal years ended on November 30.                                              

Cash Equivalents                                                                

Cash equivalents consist of all highly liquid investments with original         
maturities of three months or less.                                             

Concentration of Credit Risk                                                    

Corvallis extends credit to patients covered by commercial insurance, Medicare  
and Medicaid. Corvallis manages credit risk with the various public and private 
insurance providers, as deemed appropriate by management. Allowances for        
contractual discounts and uncollectible accounts have been made for potential   
losses, where appropriate.                                                      

Inventories of Drugs and Supplies                                               

Inventories are stated at the lower of cost or market, determined by the        
first-in, first-out (FIFO) method.                                              

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Property, Plant and Equipment                                                   

Property, plant and equipment are stated at cost.  Maintenance, repairs and     
minor replacements are expensed as incurred. When properties are retired or     
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts and any gain or loss on disposition is recorded as 
other income or expense.                                                        

Depreciation is computed using both accelerated and straight-line methods over  
the estimated useful lives of the respective assets. Equipment under capital    
lease is amortized using the straight-line method over the shorter of the period
of the lease term or the estimated useful life of the equipment. Estimated lives
are as follows:                                                                 

                                                                [Download Table]
                                                                 
Building and building improvements                     7-40 years
Furniture and equipment                                5-15 years

Accrued Healthcare Costs                                                        

Accrued healthcare costs are calculated based on reported claims and an estimate
based on historical data of incurred but not reported claims.  These accrued    
healthcare cost estimates will vary from actual results and the differences may 
be significant.                                                                 

Fair Value of Financial Instruments                                             

The carrying amounts of cash and cash equivalents, patient accounts receivable, 
accounts payable and accrued expenses are a reasonable estimate of their fair   
value based on the short maturities of these instruments.                       

Interest rates that are currently available to Corvallis for issuance of debt   
with similar terms and remaining maturities were used to estimate fair value for
debt issues. The current carrying value of debt approximates fair value.        

Corvallis does not hold or issue financial instruments or derivative financial  
instruments for trading purposes.                                               

Notes Receivable from Stockholders                                              

Corvallis maintains various agreements with stockholders for their purchase of  
common stock. The notes bear interest at 6.52% and mature at various stages     
through the year 2006.                                                          

Provider Compensation and Benefits                                              

Provider compensation and benefits consists of the direct costs of patient care 
providers such as physicians and other allied health professionals. A           
substantial portion of these costs are paid to providers who are stockholders.  

Use of Estimates                                                                

The preparation of financial statements in conformity with generally accepted   
accounting principles requires management to make estimates and assumptions.    
These estimates and assumptions 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.  

Reclassifications                                                               

Certain prior year amounts have been reclassified to conform with the current   
year presentation.                                                              

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3.  REVENUES:                                                                   

Corvallis reports its revenues according to two principal types of payment      
methodologies as discussed below:                                               

Prepaid Healthcare                                                              

Corvallis contracts with various Health Maintenance Organizations (HMOs) to     
provide care to plan enrollees. These programs provide for a prepaid monthly    
fixed capitation payment on a per member basis to Corvallis by the HMO for plan 
enrollees.                                                                      

The majority of the HMO contracts are full-risk or modified full-risk contracts.
Under a full-risk contract, Corvallis assumes the obligation of providing all   
healthcare services to enrollees and is obligated to reimburse outside providers
for services rendered to enrollees. Generally, such payments to outside         
providers are limited to out-of-area services, emergency services and services  
not currently offered by Corvallis. Modified full-risk contracts are similar to 
full-risk contracts except that the HMO is obligated to pay for out-of-area     
services.                                                                       

Corvallis has entered into subcapitation agreements with certain of these       
outside providers. Under these agreements, Corvallis prepays the outside        
provider based upon enrollee/participant formulas in which the subprovider      
assumes the risk of providing patient care. Additional limitations on losses are
provided by the payment of stop loss reinsurance premiums and through a         
percentage limitation on overall savings or losses of the programs.             

Corvallis has accrued the claims associated with services provided by outside   
providers for which Corvallis is responsible, and an estimate of incurred but   
not reported claims is included in accrued healthcare cost in the accompanying  
financial statements.                                                           

Corvallis follows the policy of netting prepaid healthcare revenues and         
purchased medical services expenses for the institutional portion of capitated  
agreements. Liabilities associated with these contracts are included in accrued 
healthcare costs in the accompanying financial statements. Corvallis' revenue   
associated with these contracts was approximately $16,699,000 and $11,945,000   
for the thirteen months ended December 31, 1996 and the year ended November 30, 
1995, respectively.                                                             

Fee-For-Service                                                                 

Patient service revenues are recorded in the period in which services are       
provided at established rates. Corvallis has agreements with third-party payors 
that provide payments to Corvallis at amounts different from its established    
rates. The difference between the established rates and the related payment     
amounts are reflected as contractual discounts, as shown below:                 

                                                                [Download Table]


                                               Year Ended November 30,   
                         13 Months Ended   ------------------------------
                        December 31, 1996     1995                1994   
                        -----------------  -----------        -----------

                                                                         
Fee-for-service, gross        $28,801,033  $25,778,976        $25,129,788
Contractual discounts           6,349,369    5,074,387          5,584,213
                              -----------  -----------        -----------
Fee for service, net          $22,451,664  $20,704,589        $19,545,575
                              ===========  ===========        ===========

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A summary of the most significant fee-for-service arrangements is as follows:   

Medicare                                                      

       A significant portion of Corvallis' services are provided to Medicare
   patients. Payments for Medicare outpatient services which are not
 covered under capitated contracts are based on a prevailing fee
  schedule. Approximately 16%, 15%, and 18% of net patient service
 revenues were derived from services provided to fee-for-service
Medicare patients in 1996, 1995 and 1994, respectively.       

Medicaid                                                      

       Payments for Medicaid outpatient services which are not covered under
capitated contracts are based on a prevailing fee schedule.   
  Approximately 2%, 3% and 5% of net patient service revenues were
        derived from services provided to fee-for-service Medicaid patients in
1996, 1995 and 1994, respectively.                            

Other Payors                                                  

 Corvallis has also entered into payment agreements with certain
         commercial insurance carriers and preferred provider organizations. The
basis for payment to Corvallis under these agreements includes
discounts from established charges.                           

Major Customers                                                                 

Two customers in 1996, four customers in 1995 and two customers in 1994         
represented individually more than 10% of Corvallis' net revenue as follows:    

                                                                [Download Table]


                                13 Months     Year Ended  
                                  Ended      November 30, 
                              December 31,   ------------ 
                                  1996      1995      1994
                              -----------   --------------
                                                          
Pacificare - Commercial            21%       23%       19%
Pacificare - Secure Horizons       10        16        13 
SelectCare                          -        10         - 
Oregon Health Plan                  -        11         - 

4.  PROPERTY, PLANT AND EQUIPMENT:                                              

Property, plant and equipment consists of the following:                        

                                                                [Download Table]


                                      December 31,  November 30,
                                          1996          1995    
                                      -----------   ------------

                                                                
Land and land improvements            $   666,565   $   666,565 
Buildings and leasehold improvements   19,448,346    14,109,506 
Furniture and equipment                 8,019,077     7,016,184 
Construction in progress                        -     5,275,155 
                                      -----------   ----------- 
                                       28,133,988    27,067,410 
Less- Accumulated depreciation         (9,220,560)   (7,533,789)
                                      -----------   ----------- 
                                      $18,913,428   $19,533,621 
                                      ===========   =========== 

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5.  INCOME TAXES:                                                               

Income taxes are accounted for in accordance with Statement of Financial        
Accounting Standards No. 109 (SFAS 109). SFAS 109 requires that Corvallis follow
the liability method of accounting for deferred income taxes. Differences       
between financial reporting and income tax net operating losses are due         
primarily to the use of the cash method of accounting for income tax purposes.  
Corvallis has adopted a December 31 year-end for income tax purposes.           

Deferred income taxes reflect the net tax effects of temporary differences      
between the amount of assets and liabilities for financial reporting purposes   
and the amounts used for income tax purposes. Significant components of         
Corvallis' deferred tax assets and liabilities are as follows:                  

                                                                [Download Table]

                                              December 31,   November 30,
                                                  1996           1995    
                                              -----------   -----------  

Deferred tax assets:                                                     
                                                                         
  Cash to accrual adjustments                 $ 4,261,000   $ 4,254,000  
  Net operating loss                              832,000     1,135,000  
  Other                                           306,000         4,000  
                                              -----------   -----------  
          Gross deferred tax assets             5,399,000     5,393,000  

Less- Valuation allowance                      (1,778,000)   (2,161,000) 
                                              -----------   -----------  
          Net deferred tax asset                3,621,000     3,232,000  

Deferred tax liabilities:                                                
  Cash to accrual adjustments                  (3,621,000)   (3,232,000) 
                                              -----------   -----------  
          Net deferred tax (liability) asset     $      -      $      -  
                                              ===========   ===========  

Due to the differing fiscal periods, the federal and state net operating loss   
carryforwards reported on the respective tax returns will differ from the       
amounts reported above.                                                         

The differences between the provision (benefit) for income taxes and the amount 
computed by applying the statutory federal income tax rate to income before     
taxes were as follows:                                                          

                                                                [Download Table]


                                        13 Months           Year Ended           
                                          Ended            November 30,          
                                      December 31,   --------------------------- 
                                           1996        1995              1994    
                                      -------------  -----------    ------------ 
                                                                                 
Federal tax at statutory rate           $(604,000)   $(716,000)        $(434,000)
Add (deduct):                                                                    
  State income tax, net of federal                                               
    benefit                              (107,000)    (126,000)          (77,000)
  Future tax benefits not recognized      699,000      849,000           510,000 
  Other                                    12,000       (7,000)            1,000 
                                        ---------    ---------         --------- 
Provision for income taxes                 $    -       $    -            $    - 
                                        =========    =========         ========= 


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Nonrealized future tax benefits referred to above represent tax benefits related
to net operating loss (NOL) carryforwards. These benefits have not been         
recognized in the accompanying financial statements because there is no         
assurance these NOLs can be utilized in the future.                             

6.  LONG-TERM DEBT:                                                             

Long-term debt consists of the following:                                       

                                                        [Enlarge/Download Table]


                                                                                  December 31,   November 30,
                                                                                       1996          1995    
                                                                                  -------------  ----------- 

                                                                                                             
Note payable interest at 10%, payable in monthly installments of $30,551 through                             
    February 1999, secured by equipment                                             $  706,641    $1,007,818 

Notepayable, interest at 9%, payable in monthly installments of $35,097 through                              
    August 2000, secured by real equipment                                           1,303,972             - 
                                                                                    ----------    ---------- 
          Total long-term debt                                                       2,010,613     1,007,818 

Less- Current portion                                                                 (622,900)     (278,365)
                                                                                    ----------    ---------- 
          Long-term debt, net of current portion                                    $1,387,713    $  729,453 
                                                                                    ==========    ========== 

Scheduled maturities of long-term debt, including current maturity, are as      
follows:                                                                        

                                                                [Download Table]
                                  
1997                    $  622,900
1998                       685,795
1999                       430,654
2000                       271,264
                        ----------
                        $2,010,613
                        ==========

Lines of Credit                                                                 

Corvallis maintains a revolving line-of-credit agreement with a bank providing  
up to $2,500,000, secured by accounts receivable and inventory. Corvallis       
maintains a second revolving line-of-credit agreement with a bank providing up  
to $1,400,000 secured by business equipment. At December 31, 1996, borrowings   
outstanding were $3,330,000. These lines of credit bear interest at the lender's
prime rate (8.25% at December 31, 1996) and are due on demand. At February 1,   
1997, the $2,500,000 revolving line of credit was consolidated into a $7,500,000
line-of-credit as a result of the reorganization transaction (Note 14).         

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7.  LEASE COMMITMENTS:                                                          

Capital Lease                                                                   

Corvallis leases certain equipment under an agreement which is classified as a  
capital lease. The lease has an original term of five years and includes a      
bargain purchase option. Lease equipment included in property, plant and        
equipment is as follows:                                                        

                                                                [Download Table]

                                December 31,  November 30,
                                   1996          1995     
                                 --------       --------  

                                                          
Equipment                        $ 260,255     $ 260,255  
Less- Accumulated amortization    (177,841)     (121,452) 
                                 ---------     ---------  
                                 $  82,414     $ 138,803  
                                 =========     =========  

Operating Leases                                                                

Leases that do not meet the criteria for capitalization are classified as       
operating leases. Such lease commitments are primarily for facilities and       
equipment and the related rentals are charged to operations as incurred.        

Future Minimum Lease Payments                                                   

Future minimum lease payments, by year and in the aggregate, under              
noncancellable capital and operating leases with initial or remaining terms of  
one year or more consist of the following at December 31, 1996:                 

                                                                [Download Table]

                                                  Capital        Operating
                                                   Lease           Leases 
                                                  --------        --------
                                                                          
   1997                                           $ 67,864        $180,620
   1998                                             34,880         180,390
   1999                                                  -         183,640
   2000                                                  -          22,680
   2001                                                  -          22,680
Thereafter                                               -          13,230
                                                  --------        --------
Total minimum lease payments                       102,744        $603,240
Amounts representing interest                       (9,541)       ========
                                                  --------                
Present value of minimum payments                   93,203                
Current portion                                    (55,071)               
                                                  --------                
Long-term capitalized lease obligations           $ 38,132                
                                                  ========                

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Direct Financing Lease Obligation                                               

In June of 1995, Corvallis contributed land, buildings, construction in process 
and related notes payable to HealthCare Partners, LLC (Note 13). At the date of 
transfer, Corvallis entered into 30-year lease agreements for the Asbury,       
Aumann, CFM and PFM buildings and a 5-year lease agreement for the Albany       
building. Monthly rental payments under these leases are $183,576. The assets   
were sold under a sale/leaseback arrangement and, therefore, this is being      
accounted for as a financing transaction wherein the assets remain on the books 
and continue to be depreciated. Corvallis recorded a direct financing lease     
obligation for cash received by Corvallis and obligations assumed by the LLC as 
part of the transaction.                                                        

The liability for this lease obligation was $14,141,665 at December 31, 1996 and
$14,356,463 at November 30, 1995. Scheduled principal payments at December 31,  
1996 are as follows:                                                            

                                                                [Download Table]
                                       
   1997                     $   220,970
   1998                         242,667
   1999                         266,496
   2000                         286,655
   2001                         244,027
Thereafter                   12,880,850
                            -----------
                            $14,141,665
                            ===========

8.  RETIREMENT PLANS:                                                           

401(k) Profit Sharing Plan                                                      

Corvallis has a 401(k) Profit-Sharing Plan (the 401(k) Plan) in which all       
employees are eligible to participate subject to certain eligibility criteria.  
The 401(k) Plan permits employees to contribute up to 10% of their annual       
compensation (not to exceed certain annual limits imposed by the Internal       
Revenue Code). Corvallis is required to make matching contributions equal to 50%
of employee contributions up to 8% of the employee's compensation. Corvallis may
also make discretionary contributions. Clinic contributions are 100% vested.    

Money-Purchase Pension Plan                                                     

Corvallis also has a Money-Purchase Pension Plan in which all employees are     
eligible to participate subject to certain eligibility criteria. Corvallis      
contributes 5.4% of the employee's eligible earnings up to $48,481 and 10.8% of 
eligible earnings in excess of $48,481. These contributions are 100% vested upon
eligibility.                                                                    

Corvallis' contributions for these plans for the 13-month period ended December 
31, 1996 and the years ended November 30, 1995 and 1994 were approximately      
$1,494,000, $2,010,000 and $1,813,000, respectively.                            

9.  PROFESSIONAL LIABILITY:                                                     

Corvallis maintains a claims-made professional liability insurance policy. The  
policy coverage is $5,000,000 per claim, with no aggregate maximum limit for    
claims made against Corvallis and its employees. Accruals for outstanding claims
and the associated deductibles are made in the period in which the event becomes
known. Corvallis also accrues an actuarial estimate of the future liability for 
claims incurred but not reported prior to the end of the accounting period.     

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At February 1, 1997, Corvallis' professional liability insurance policy was     
consolidated into a Physician Partners, Inc. policy as a result of the          
reorganization transaction (Note 14). The consolidated claims-made policy has no
deductible. The policy coverage is $2,000,000 per claim, with an aggregate limit
of $4,000,000 and includes full prior acts coverage.                            

10.  REDEEMABLE STOCK:                                                          

Corvallis has three classes of stock which are redeemable at the option of the  
shareholders upon retirement, termination of employment and certain other       
events. A summary of the activity in these stock accounts for the period        
November 30, 1993 through December 31, 1996, together with other information, is
presented below:                                                                

                                                        [Enlarge/Download Table]

                                         Class A             Class B               Class C                                  
                                    Voting Preferred      Voting Common      Nonvoting Preferred     Notes                  
                                    ------------------   -----------------   -------------------   Receivable               
                                    Shares   Carrying     Shares  Carrying     Shares   Carrying      From                  
                                    Issued    Value       Issued    Value      Issued     Value    Stockholders    Total    
                                    ------    -----       ------    -----      ------     -----    ------------    -----    

                                                                                                                            
BALANCE, November 30, 1993            62    $1,117,636    11,335  $2,631,745     6,140  $614,000   $(485,931)    $3,877,450 

  Stock issued                         9       207,000       700     210,150     3,100   310,000    (399,150)       328,000 
  Stock redeemed                      (3)      (25,000)        -           -      (480)  (48,000)          -        (73,000)
  Accretion                            -        58,817         -     452,743         -         -           -        511,560 
  Payments of notes receivable         -             -         -           -         -         -     143,549        143,549 
                                     ---    ----------    ------  ----------   -------  --------   ---------     ---------- 
BALANCE, November 30, 1994            68     1,358,453    12,035   3,294,638     8,760   876,000    (741,532)     4,787,559 

  Stock issued                         1        23,000         -           -         -         -     (23,000)             - 
  Stock redeemed                      (1)      (23,000)        -           -      (190)  (19,000)          -        (42,000)
  Accretion                            -         5,661         -     771,803         -         -           -        777,464 
  Payments of notes receivable         -             -         -          -         -         -      136,925        136,925 
                                     ---    ----------    ------  ----------   -------  --------   ---------     ---------- 
BALANCE, November 30, 1995            68     1,364,114    12,035   4,066,441     8,570   857,000    (627,607)     5,659,948 

  Stock issued                         1        23,000         -          -         -         -      (13,000)        10,000 
  Stock redeemed                      (5)     (115,000)     (235)   (139,825)     (570)  (57,000)          -       (311,825)
  Accretion                            -        78,566         -   1,441,642         -         -           -      1,520,208 
  Payments of notes receivable         -             -         -          -         -         -       81,081         81,081 
                                     ---    ----------    ------  ----------   -------  --------   ---------     ---------- 
BALANCE, December 31, 1996            64    $1,350,680    11,800  $5,368,258     8,000  $800,000   $(559,526)    $6,959,412 
                                     ===    ==========    ======  ==========   =======  ========   ==========    ========== 

Current redemption value per share          $   23,000            $      595            $    100                            
                                            ==========            ==========            ========                            

Redemption value for shares issued          $1,472,000            $7,021,000            $800,000                            
                                            ==========            ==========            ========                            

Total authorized shares              200                  25,000               100,000                                      
                                     ===                  ======               =======                                      

The carrying value of the Class A and Class B shares are being increased        
(accreted) to the redemption price using the effective interest rate through the
earliest estimated redemption date. Currently, none of the shares are redeemable
at a certain date. Accordingly, no determination can be made of redemption      
requirements for specific years in the future.                                  

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11.  DEFERRED COMPENSATION:                                                     

Corvallis provides compensation to eligible shareholders who retire based upon  
average shareholder income, as defined in the Employment Agreement, for the     
first three years following retirement. Provider/shareholder retirees who have  
20-1/2 years of service and attain age 65 while in service with Corvallis are   
eligible to receive such deferred retirement compensation. The deferred         
compensation recorded in the accompanying financial statements is the net       
present value of the future obligations recognized for the years of service.    

12.  COMMITMENTS AND CONTINGENCIES:                                             

Legal Proceedings                                                               

Corvallis is subject to various legal proceedings and claims which arise in the 
ordinary course of business. In the opinion of management, although the ultimate
dispositions of these proceedings are not determinable, adverse determinations  
in any or all of such proceedings would not have a material adverse effect upon 
the financial position or results of operations of Corvallis.                   

Employment Obligations                                                          

Effective December 18, 1996, the chief executive officer's employment with      
Corvallis was terminated. The severance agreement costs have been expensed in   
1996.                                                                           

Other Commitments                                                               

References of other commitments are made in the discussion of various lease     
commitments and related debt guarantees in Notes 7 and 13.                      

13.  INVESTMENTS IN AFFILIATES:                                                 

The Company's investments in affiliates consist of investments in various       
entities which are accounted for on the equity method. The names of these       
entities, carrying values and the percent of ownership held by Corvallis are    
summarized below:                                                               

                                                                [Download Table]

                                                      Carrying Value at         
                                                     ------------------         
                                     Percent  December 31,          November 30,
                 Investee             Owned        1996                  1995   
       ----------------------------  -------  ------------         -------------
                                                                                
Corvallis MRI                            33%       $217,688             $231,058
HealthCare Partners, LLC                 50         436,537              259,319
Healthquest                               -               -               71,291
                                                   --------             --------
                                                   $654,225             $561,668
                                                   ========             ========

Additional information regarding these investments is discussed below.          

Corvallis MRI:                                                                  

Corvallis holds a one-third interest in Corvallis MRI, a partnership organized  
in 1988 which owns and operates a magnetic resonance imaging (MRI) scanner. The 
MRI unit is housed in facilities leased from Good Samaritan Hospital, another   
partner, and operated by Corvallis Radiology, P.C., the third partner.          
Summarized financial information of Corvallis MRI for its December 31 fiscal    
year is presented below:                                                        

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Balance sheet data-                                                             

                                                                [Download Table]


                                                As of December 31,      
                                             ---------------------------
                                                1996              1995  
                                             ----------       ----------

                                                                        
Current assets                               $  461,072       $  618,677
Fixed assets                                  1,034,361        1,288,043
Other assets                                     40,000                -
                                             ----------       ----------
     Total assets                            $1,535,433       $1,906,720
                                             ==========       ==========

Current liabilities                          $  399,787       $  346,383
Long-term debt                                  437,584          796,735
Other long-term liabilities                      45,000                -
Partners' equity                                653,062          763,602
                                             ----------       ----------
     Total liabilities and Partners' equity  $1,535,433       $1,906,720
                                             ==========       ==========

Operations data-                                                                

                                                                [Download Table]


                                    Year Ended December 31,            
                           ------------------------------------------- 
                           1996              1995              1994    
                        ----------        ----------        ---------- 
                                                                       
Revenues                $1,827,753        $1,657,619        $1,303,800 
Operating expenses        (936,558)         (834,435)         (746,580)
Other income (expense)     (56,734)          (83,351)          (83,592)
                        ----------        ----------        ---------- 
                        $  834,461        $  739,833        $  473,628 
                        ==========        ==========        ========== 

During 1996, 1995 and 1994, payments to Corvallis MRI for services provided to  
Corvallis were $143,072, $61,785 and $65,504, respectively, and are included in 
purchased services.                                                             

HealthCare Partners, LLC                                                        

During the year ended November 30, 1995, Corvallis entered into a joint venture 
agreement with Good Samaritan Hospital, Corvallis to form a limited liability   
company to own and manage Corvallis' buildings and real properties and to serve 
as a vehicle for financing future property expansion for Corvallis. Corvallis   
contributed assets and liabilities in exchange for a 50% membership interest in 
the limited liability company.                                                  

The net book value of assets and liabilities contributed by Corvallis was       
$13,804,704 for buildings, land and construction in progress and $8,363,298 for 
related debt. In addition, Corvallis received $2,734,386 in cash reimbursements 
for the market value of the above contributed net assets in excess of the       
Hospital's contributed equity, as measured at the date of formation of the      
limited liability company.                                                      

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This transaction has been accounted for as a financing due to the continuing    
involvement of Corvallis in the assets through its ownership interest in the    
limited liability company. Accordingly, the contributed property remains as an  
asset of Corvallis. The debt at the transaction date, together with the cash    
received for the excess value of the contributed net assets, has been included  
in the related financing obligations (Note 7).                                  

Summarized financial information of HealthCare Partners, LLC for its fiscal year
is presented below:                                                             

Balance sheet data-                                                             

                                                                [Download Table]


                                                           December 31,          
                                                 --------------------------------
                                                    1996                  1995   
                                                 -----------          -----------

                                                                                 
Current assets                                   $   271,240          $   276,548
Financing lease receivable                        17,993,030           18,095,340
Property and improvements                          6,267,652            5,357,704
Other assets                                         145,494              175,414
                                                 -----------          -----------
          Total assets                           $24,677,416          $23,905,006
                                                 ===========          ===========

Current liabilities                              $ 2,053,542          $ 1,211,560
Long-term debt                                     7,842,940            8,014,916
Members' equity                                   14,780,934           14,678,530
                                                 -----------          -----------
          Total liabilities and Members' equity  $24,677,416          $23,905,006
                                                 ===========          ===========

Operations data-                                                                

                                                                [Download Table]

                                       Inception      
                      December 31,  (June 1) through  
                          1996      December 31, 1995 
                      ------------   -----------------
                                                      
Revenues               $2,506,116       $1,257,835    
Expenses                1,664,715          679,981    
                       ----------       ----------    
          Net income   $  841,401       $  577,854    
                       ==========       ==========    

Revenues include interest income of $1,962,385 for the year ended               
December 31, 1996 and $1,149,055 for the 1995 period relating to the financing  
lease with Corvallis. As a substantial portion of the joint venture's income is 
derived from payments made by Corvallis for this interest income, Corvallis'    
share of earnings from the joint venture is offset against interest expense in  
the accompanying statements of income.                                          

Concurrent with the formation of the limited liability company, Corvallis has   
entered into a lease agreement relating to buildings and properties which were  
contributed to the limited liability company and are occupied by Corvallis.     
Future minimum rental commitments under the agreement are approximately         
$2,159,000 per year for the first 5 years and approximately $2,054,000 per year 
for the next 25 years, subject to fair market value adjustments after the first 
five years.                                                                     

Corvallis has guaranteed approximately $6,100,000 of long-term debt associated  
with the above joint venture.                                                   

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-13-

Healthquest                                                                     

During 1996, Corvallis' sold their interest in Healthquest to one of the other  
partners. Corvallis recognized a loss on the sale of their investment of $18,036
included in the accompanying financial statements.                              

14.  SUBSEQUENT EVENTS:                                                         

The shareholders and Board of Directors of Corvallis approved a Reorganization  
and Merger Agreement (the Agreement) dated February 1, 1997 together with the   
shareholders and Board of Directors of HealthFirst Medical Group P.C.; the      
Medford Clinic P.C.; and Physician Partners, Inc. (PPI), a newly formed company.

The transaction resulted in a separation of operations of the three founding    
medical groups between medical professional services activities (i.e., providers
of medical services) and the physician practice management activities of the    
business. The professional services activities were spun off into newly formed  
professional corporations (New PCs). The physician practice management business,
along with substantially all of the assets and liabilities of the three founding
medical groups: cash, receivables, inventory, prepaids, property, plant and     
equipment, other assets, payables, accruals, debt and contractual commitments,  
was transferred to PPI. The shareholders of the three founding clinics became   
the original shareholders of PPI.                                               

An integral part of the reorganization is a 40-year management agreement whereby
PPI provides physician practice management services to the New PCs. Services    
provided include management and administrative services, capital resources,     
facilities, equipment and supplies.                                             

As consideration, PPI is entitled to (a) reimbursement of all managerial costs  
and expenses (Manager's Expenses) incurred by PPI and (b) a management fee equal
to 16% of (i) net revenues relating to services provided by the New PCs less    
(ii) Manager's Expenses.                                                        

The New PCs are responsible for providing medical services and the related costs
for provider compensation and benefits.                                         

The parties to the reorganization transaction have received an opinion from tax 
counsel that for federal income tax purposes, it is more likely than not that   
the reorganization will be a tax-free transaction. No ruling will be requested  
from the Internal Revenue Service regarding the tax consequences of the         
transaction. If the IRS or tax court were to determine that the transactions    
were not tax free, there would be significant adverse tax consequence to the    
parties to the transaction and their respective shareholders.                   

In connection with the reorganization transaction, the three founding medical   
groups have entered into an Expense Sharing Agreement which establishes the     
basis upon which certain costs incurred in connection with the transactions are 
to be allocated between the three groups. Corvallis' share of such costs are    
reflected as a charge to equity in the accompanying statement of accumulated    
deficit. At December 31, 1996, Corvallis owed $328,626 related to this          
agreement, which was included in accounts payable in the accompanying financial 
statements.                                                                     

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SIGNATURES
 See General Instruction D

Pursuant to the requirements of Section 13 or 15(d) 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.                           

                              THE CORVALLIS CLINIC, P.C.
                        (Registrant)

                                  By  /s/ John R. Ladd, M.D.

                                  John R. Ladd, M.D.
                                      President and Director

                                                4/2/97

      Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the     
registrant and in the capacities and on the dates indicated.                    

                                   By      /s/ Christopher P. Swan, M.D.
                                       Christopher P. Swan, M.D.
                                               Secretary, Treasurer and Director

                                              4/3/97

                                By      /s/ Darrel D. Bibler, M.D.
                                    Darrel D. Bibler, M.D.
                      Director

                                            4/3/97

                              By      /s/ Nick C. Benton, M.D.
                                  Nick C. Benton, M.D.
                      Director

                                              4/2/97

                                  By      /s/ Surinder M. Vasdev, M.D.
                                      Surinder M. Vasdev, M.D.
                      Director

                                              4/2/97

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-K405’ Filing	Date	First	Last	Other Filings

Filed on:	4/7/97			None on these Dates
	4/3/97	2	5
	3/5/97	9
	2/1/97	7	27
For Period End:	12/31/96	1	27
	12/18/96	24
	9/18/96	7
	12/31/95	26
	12/1/95	15
	11/30/95	3	25
	11/30/94	3	22
	11/30/93	14	23
				List all Filings

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Filing Submission 0000891020-97-000534 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Physician Partners Corvallis PC – ‘10-K405’ for 12/31/96

As of: Monday, 4/7/97 · For: 12/31/96 · Accession #: 891020-97-534 · File #: 333-15595-02

Previous ‘10-K405’: None · Next & Latest: ‘10-K405’ on 3/31/98 for 12/31/97

Annual Report — [x] Reg. S-K Item 405 — Form 10-KFiling Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents