<PAGE>

--------------------------------------------------------------------------------

                                   FORM 10-K

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549



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


      For the Fiscal Years Ended December 31, 1998 and December 31, 1999


                          Commission File No. 1-13778


                        PHYSICIANS RESOURCE GROUP, INC.
            (Exact name of Registrant as specified in its charter)

              Delaware                                   76-0456864
   (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                    Identification No.)



         901 Main Street, Suite 6000
               Dallas, Texas                                75202
   (Address of principal executive office)                (Zip Code)




      Registrant's telephone number, including area code:  (713) 629-5777


     Title of each class              Name of each exchange on which registered
     --------------------             -----------------------------------------

   Common Stock, $.01 par value                         None


               Securities pursuant to Section 12(g) of the Act:
                                     None

     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 the Registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

     The number of shares outstanding of the Registrant's common stock as of
December 31, 2000 was 29,768,234 shares.

--------------------------------------------------------------------------------
<PAGE>

                                    PART I

ITEM 1.  BUSINESS
         --------

Overview

          General

          Physicians Resource Group, Inc. (with its subsidiaries as the context
requires, "PRG" or the "Company") was formed as a physician practice management
("PPM") company specializing in providing practice management services to
ophthalmic and optometric practices ("Eyecare Practices") and ambulatory surgery
centers ("ASCs").

          On February 1, 2000 (the "PRG Petition Date"), PRG filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code").  On May 25, 2000, EyeCorp, Inc., a Tennessee corporation and
a wholly-owned subsidiary of the Company ("EyeCorp"), filed a voluntary petition
for relief under Chapter 11 of the Bankruptcy Code. The cases are being jointly
administered under Case No. 00-30748-RCM-11 (Jointly Administered) in the United
States Bankruptcy Court for the Northern District of Texas, Dallas Division (the
"Bankruptcy Court").  From the time the respective petitions were filed and
through December 1, 2000, PRG and EyeCorp operated their respective businesses
and managed their respective properties as debtors in possession.  Subsequent to
December 1, 2000, PRG and EyeCorp have been operating as reorganized debtors.

          On October 13, 2000, PRG and EyeCorp filed their First Amended Joint
Liquidating Plan Under Chapter 11 (as modified prior to its confirmation on
December 1, 2000, the "Plan"). The Plan contemplates the ultimate liquidation of
the Company. Many of the Company's assets have been or are in the process of
being 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 or until all creditors have been paid in full.  On December 1, 2000, the
Bankruptcy Court entered an order confirming the Plan. (See The Plan).


     In accordance with the Plan, in December of 2000 and February of 2001, PRG
made distributions to unsecured creditors of a combined total of approximately
$80 million.

          Company History

          PRG was incorporated in 1993 but did not conduct any significant
operations until its initial public offering (the "IPO") and reorganization in
June 1995, at which time the Company began operations as a provider of PPM
services to its ten (10) founding Eyecare Practices (the "Founding Practices").
PRG acquired the assets of and entered into a management service agreement
("MSA") with each Founding Practice concurrently with the consummation of PRG's
IPO of its common stock ("Common Stock").

          Acquisitions and Transactions in 1995 and 1996

          PRG made no acquisitions during 1995 other than the acquisitions of
the assets of the Founding Practices. During 1996, however, the Company acquired
the assets of 45 Eyecare Practices and 11 ASCs. Additionally, during 1996, PRG
acquired three PPM companies, which were competitors in the ophthalmic PPM
industry: EyeCorp, American Ophthalmic, Inc. and EquiMed, Inc. ("EquiMed").
Through the acquisition of these three competitors, PRG acquired the assets of
88 Eyecare Practices and 24 ASCs. These acquisitions and other capital
expenditures in 1996 were funded from: (i) the net proceeds of the Company's
IPO; (ii) net proceeds of a public offering of PRG Common Stock completed in May
1996; (iii) net proceeds of an offering of 6% Convertible Subordinated
Debentures ("Debentures") consummated by PRG in December 1996; (iv) borrowings
under bank credit facilities; and (v) cash generated by operations.

          During late 1995 and early 1996, the Company established an aggregate
of $55,000,000 in credit facilities with NationsBank of Tennessee, NA
("NationsBank"). Funds available under these credit facilities as well as the
proceeds of a $30 million bridge loan were used to fund acquisitions, capital
expenditures and working capital throughout 1996.

          In May 1996, PRG completed a secondary offering of 5,750,000 shares of
PRG Common Stock at $28.50 per share (the "1996 Public Offering"). In connection
with the 1996 Public Offering, the Company sold 4,250,000

                                      -2-
<PAGE>

shares of PRG Common Stock and 1,500,000 shares of PRG Common Stock were sold by
existing stockholders. Proceeds to the Company, net of underwriting commissions
and offering costs, were approximately $113,640,000. These proceeds were used to
retire existing indebtedness and fund acquisitions.

          As stated above, in December 1996, PRG consummated an offering of
$125,000,000 in principal amount of Debentures. The Debentures, due in 2001,
bore interest at the rate of 6% per annum payable June 1 and December 1 of each
year, were convertible into Common Stock of the Company at $25 per share at the
option of the holder, and were redeemable by the Company on or after December 6,
1999. The net proceeds to PRG of the Debenture offering were approximately
$121,679,000. Of this amount, approximately $80,000,000 was used to retire
indebtedness to NationsBank.

          Acquisitions and Transactions in 1997 and 1998

          In March 1997, PRG arranged for a new $90,000,000 credit facility (the
"NationsBank Credit Facility") with a syndicate of banks led by NationsBank, to
be used for acquisitions, capital expenditures, working capital and common stock
repurchases.  The NationsBank Credit Facility was secured by the stock of and
guaranteed by the subsidiaries of PRG.

          In 1997, PRG continued to acquire the assets of additional Eyecare
Practices, but began to concentrate on in-market acquisitions (i.e.,
acquisitions that were combined with Eyecare Practices already affiliated with
PRG). In addition, PRG restructured the terms of its agreements with certain
Eyecare Practices, (primarily a number of smaller optometry practices). The
restructured agreements resulted in either (i) the complete termination of any
affiliation with these practices or (ii) the elimination of any significant
relationship, or otherwise modified the terms of the management services
relationship with the Company. Additionally, during late 1997 and early 1998,
PRG made a decision to terminate its affiliations with a number of other
affiliated Eyecare Practices and to sell and/or dispose of the assets and
liabilities associated therewith. This decision and the effects resulting
therefrom are discussed in more detail below.

          As referred to above, at various times during 1997, PRG acquired the
assets of 27 Eyecare Practices and interests in three (3) ASCs. The aggregate
consideration for these acquisitions was $37,790,000 in cash, promissory notes,
convertible promissory notes and PRG Common Stock (valued at the market price on
date of issuance). In addition to these Eyecare Practice and ASC acquisitions,
PRG developed two (2) ASCs in 1997. Seventeen of these 27 Eyecare Practice
acquisitions were combined into existing Eyecare Practices already affiliated
with PRG. As a consequence of these acquisition and growth activities, as of
April 1, 1998, PRG or its subsidiaries owned interests in and/or provided
management services to 130 Eyecare Practices and 48 ASCs.

          Strategic Downsizing

          During the latter half of 1997, PRG initiated a strategic review of
its assets, operations and available resources, which resulted in the Company
deciding, during the third quarter of 1997, to begin the process of terminating
its affiliations with approximately 13 Eyecare Practices and to sell and/or
dispose of certain of the assets and liabilities associated therewith. In
connection with these terminations and dispositions, PRG recorded pre-tax
charges of approximately $27,750,000 as of September 30, 1997. During the fourth
quarter of 1997 and early 1998, in conjunction with a change of executive
management, PRG identified an additional 24 Eyecare Practice affiliations to be
terminated. PRG recorded additional pre-tax charges of approximately $37,634,000
with respect to (1) the then anticipated dispositions of these Eyecare Practice
assets and liabilities, and (2) the anticipated losses on the disposition of
seven (7) small optometry practice affiliations. PRG thus recorded total pre-tax
charges during 1997 of approximately $65,384,000 in connection with the sale of
assets to, or disposition or dissociation from, all 44 Eyecare Practices.

          Disputes with Providers

          As indicated above, most of the transactions between PRG and its
affiliated physicians were funded, in whole or in part, with PRG Common Stock.
PRG's stock price declined substantially during the last quarter of 1996 and
throughout 1997 and 1998, going from a peak price of $34.375 in the second
quarter of 1996, to highs of $11.56 in the third quarter of 1997, and $4.75 in
the first quarter of 1998. As the value of PRG Common Stock began to fall,
affiliated physicians began to voice dissatisfaction and began withholding
payment of PRG's management fees and ASC profits. In ever-increasing numbers,
the Eyecare Practices excluded PRG from any involvement in the business
management aspect of those Eyecare Practices and ASCs. Eyecare Practices also
began

                                      -3-
<PAGE>

bringing lawsuits or commencing arbitration proceedings against PRG and/or its
subsidiaries. Although PRG and its subsidiaries denied the allegations of the
Eyecare Practices and generally asserted counterclaims to recover the amounts
owed to PRG and its subsidiaries by those Eyecare Practices and related ASCs,
PRG's revenues were substantially negatively impacted.

          Over time, the number of Eyecare Practices intentionally breaching
their MSAs by refusing to pay management fees and PRG's portion of ASC profits
increased, as did the number of lawsuits filed by Eyecare Practices against PRG
and/or its subsidiaries. PRG and/or its subsidiaries also continued filing
counterclaims against Eyecare Practices that had defaulted on their obligations
to PRG. In other instances, PRG and/or its subsidiaries filed lawsuits as
plaintiffs against the defaulting parties. These lawsuits and other
controversies related to the Eyecare Practices consumed a substantial amount of
PRG's funds through legal fees and related expenses. It is expected that such
claims that still exist against PRG and/or its subsidiaries will be resolved
through the Claims Resolution Methodology approved by the Bankruptcy Court. (See
Item 3. Legal Proceedings. Proofs of Claim).

          March 1998 Restructuring Plan

          In March of 1998, PRG's management and Board of Directors adopted a
restructuring plan that required widespread physician acceptance and stockholder
approval to be successful.  This March 1998 plan involved a sale by PRG of
assets used in the operation of Eyecare Practices to the Eyecare Practices
electing to participate in the plan and the assumption by the participating
Eyecare Practices of all liabilities of PRG related thereto.  This restructuring
plan also contemplated a modification of the MSAs between the Company and
participating Eyecare Practices by shortening the term of the MSA and narrowing
the focus of the management services to be provided by the Company to the
Eyecare Practices.  A proposal approving this restructuring plan was included in
the proxy statement related to the Company's 1998 Annual Stockholders Meeting
(the "Proxy Statement").  However, this proposal ultimately was not submitted to
the Company's stockholders for their approval because at the time of the
stockholders' meeting, the Company's management was negotiating with David
Meyer, M.D. with respect to an alternative restructuring proposal.

          In July 1998, the Company entered into a letter of intent with Dr.
David Meyer, which required a standstill with respect to the restructuring plan
proposed in the Proxy Statement. The letter of intent set forth a restructuring
proposal (the "July 1998 Restructuring Proposal") which contemplated the
following:

          .  A tender offer for a portion of PRG's outstanding shares of Common
             Stock at a price of $5.00 per share;
          .  Settlement of disputes between PRG and its affiliated Eyecare
             Practices related to certain accounts receivable and accounts
             payable issues;
          .  Restructuring of MSAs between the Company and affiliated Eyecare
             Practices to shorten the term and limit the services to be provided
             by the Company; and
          .  The sale of PRG's interests in surgery centers previously wholly-
             owned by PRG.

          The July 1998 Restructuring Plan was conditioned, among other things,
upon: (i) settlement of the Company's stockholder class action litigation (See
Item 3. Legal Proceedings. The Shareholder Action); (ii) settlement of
litigation between the Company and its affiliated Eyecare Practices; (iii)
receipt of financing for the tender offer; and (iv) receipt of a fairness
opinion indicating that the July 1998 Restructuring Plan was fair to PRG's
stockholders from a financial point of view.  The July 1998 Restructuring Plan
ultimately was not consummated.

          October 1998 Restructuring Plan

          In late October 1998, the Company's Board of Directors was comprised
of David Meyer, M.D., John Shepherd, M.D., David Dulaney, M.D. and Lucius E.
Burch, III (the "Restructuring Board") (See Executive Officers. Management
Turnover). At that time, the Restructuring Board was confronted with a situation
in which (i) PRG faced substantial litigation, (ii) PRG's relationships with its
affiliated Eyecare Practices had deteriorated and (iii) PRG owed approximately
$9.5 million and was in technical default under the NationsBank Credit Facility.
The Restructuring Board, together with PRG's management and independent
consultants, engaged in efforts to restructure PRG's business.

          To this end, a plan consisting of two essential components was
formulated to maximize the value of PRG's business and assets. The first
component of the Restructuring Board's plan was development of a program
pursuant to which PRG would, in a buyout transaction ("Buyout") with Eyecare
Practices: (i) sell to the Eyecare Practice the

                                      -4-
<PAGE>

assets owned by PRG or one of its subsidiaries that were used in the operation
of the Eyecare Practice, (ii) transfer the liabilities of PRG related to the
operations of the Eyecare Practice back to the Eyecare Practice, (iii) collect
amounts owed by the Eyecare Practice and its affiliates to PRG, (iv) release the
Eyecare Practice and affiliated physicians from further obligations under the
MSAs and related employment agreements, (v) cancel notes and other indebtedness
owed by PRG to the Eyecare Practice and affiliated physicians and (vi) enter
into mutual releases. In establishing and arriving at the Buyout formulas and
underlying methodologies and assumptions, PRG was assisted and advised by the
financial advisory firm of Houlihan, Lokey, Howard & Zukin ("Houlihan"). (See
Significant Liquidation Events 1999 and 2000).

          The second component of the Restructuring Board's plan involved a
search for a strategic partner to purchase certain of PRG's interests in ASCs.
On January 31, 2000, the Company entered into a definitive Acquisition Agreement
(the "Acquisition Agreement") dated January 31, 2000 between PRG and AmSurg
Corp. ("AmSurg") related to the sale by the Company of its interests in 11 ASCs,
with estimated sale proceeds of up to approximately $40 million in cash.
Additionally, as part of this agreement, AmSurg and PRG entered into a
Management Agreement (the "Management Agreement") under which, effective January
1, 2000, AmSurg began managing the operations of 15 surgery centers affiliated
with PRG, 11 of which were to be purchased pursuant to the terms of the
Acquisition Agreement. As of December 31, 2000, the Company's interests in three
(3) ASCs have been sold to AmSurg yielding sale cash proceeds of approximately
$22 million. AmSurg continues to manage the operations of six (6) ASCs pursuant
to the terms of the Management Agreement.

          The RAM Agreement

          On March 19, 1999, PRG entered into a Debenture Restructuring
Agreement (the "RAM Agreement") with Resurgence Asset Management, LLC ("RAM")
which, at the date of the RAM Agreement, owned $91.896 million principal amount
of the Debentures. Pursuant to the RAM Agreement, RAM loaned PRG $3.75 million
(the "RAM Loan") to pay interest on the Debentures that was due December 1,
1998. The RAM Loan was secured by a pledge of the stock of PRG's subsidiaries,
had a one percent (1%) origination fee and accrued interest at 20% per annum.
Also pursuant to the RAM Agreement, the parties agreed to complete a
restructuring which would allow PRG to, inter alia, retire the indebtedness
evidenced by the Debentures for $80 million in cash or notes generated from the
Buyout transactions, $20 million in cash from the sale of ASCs and 50% of PRG's
net proceeds from certain litigation. The restructuring contemplated by the RAM
Agreement was not consummated.

          Significant Liquidation Events in 1999 and 2000

          As of the PRG Petition Date, the Company had been successful in
completing Buyouts related to over 45 Eyecare Practices and certain interests in
over 20 ASCs related to those Eyecare Practices.  In connection with these
Buyouts: (i) all litigation and other disputes with the Eyecare Practices and
ASCs were resolved; (ii) approximately $17 million in principal amount of notes
payable by the Company to the Eyecare Practices or affiliated physicians were
canceled; and (iii) the MSAs between the Company and the Eyecare Practices were
terminated.  Through the consummation of these Buyouts and other sales, the
Company generated approximately $60 million in cash prior to the Petition Date,
allowing the Company to retire its entire indebtedness under the NationsBank
Credit Facility (approximately $9.5 million), as well as indebtedness under the
RAM Loan. (See The RAM Agreement).  As of December 31, 2000 and subsequent to
the PRG Petition Date, the Company had been successful in completing Buyouts
with 26 additional Eyecare Practices and certain interests in 3 ASCs related to
those Eyecare Practices.  In addition, the Company has sold its interests in
three (3) ASCs to AmSurg.  These additional transactions have generated
approximately $28 million in cash.

          The Plan

          On December 1, 2000, the Bankruptcy Court entered an order confirming
the Plan. The effective date of the Plan was December 15, 2000. The Plan is a
liquidating plan and does not contemplate the financial rehabilitation of PRG
and EyeCorp or the continuation of their businesses. Many assets have been or
are in the process of being liquidated, and the Plan contemplates that the
remaining unliquidated assets (primarily subsidiaries of PRG and EyeCorp and
causes of action of the bankruptcy estates) will be liquidated either by PRG or
EyeCorp, as applicable, or, after the effective date of the Plan, by the
Liquidation Agent appointed pursuant to the Plan.

          Under the Plan, allowed administrative claims and allowed priority
claims will be paid in full, and allowed unsecured claims against each of PRG
and EyeCorp will be paid their pro rata share from the remaining cash and the

                                      -5-
<PAGE>

liquidation proceeds of the assets of the respective debtor. 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 the effective date of the Plan, PRG and EyeCorp (through the
Liquidation Agent) placed all cash on hand into the accounts established for
each debtor.  All additional net proceeds from the liquidation of retained
assets after the effective date shall likewise be placed into the accounts.  The
cash on deposit in the accounts shall be used to satisfy allowed claims against
PRG and EyeCorp, as applicable.  The Liquidation Agent, Michael W. Yeary, will
manage these funds. An Oversight Committee has also been formed and is
responsible for supervising the Liquidation Agent with respect to the
performance of certain of his responsibilities, reviewing the prosecution of
debtors' causes of action, if any, including proposed settlements, reviewing
objections to and proposed settlements of disputed claims and appointing
successor Liquidation Agent(s), if necessary.  Additionally, the Oversight
Committee is vested with the sole discretion to pursue any claims or causes of
action against the debtors' former officers, directors and professionals.

          In accordance with the Plan, in December of 2000 and February of 2001,
PRG made distributions to unsecured creditors with a combined total of
approximately $80 million.

Government Regulation and Supervision

          PRG filed its voluntary petition under Chapter 11 of Title 11 of the
Bankruptcy Code, 11 U.S.C. Section 101 et seq., as in effect on February 1,
2000. PRG's operations are governed by the Federal Rules of Bankruptcy Procedure
as promulgated by the United States Supreme Court under Section 2075 of Title 28
of the Bankruptcy Code and the Local Rules of the Bankruptcy Court. EyeCorp
filed its voluntary petition under Chapter 11 of Title 11 of the Bankruptcy
Code, 11 U.S.C. Section 101 et seq., as in effect on May 25, 2000.  EyeCorp's
operations are governed by the rules referenced above. As required by these
rules, through December 2000, PRG and EyeCorp submitted monthly operating
reports which were also included as Exhibits to Current Reports on Form 8-K
filed with the Securities and Exchange Commission ("SEC").

          The health care industry is highly regulated and that regulatory
environment may change significantly in the future. Changes in governmental and
private reimbursement policies, enactment of legislation regarding healthcare
reform at the federal or state level that significantly alters patient-provider
relationships could materially impact the results of the liquidation process. No
predictions can be made as to whether future health care reform legislation,
similar legislation or rule making will be enacted or, if enacted its effect on
PRG.

Corporate Liability and Insurance

          The provision of medical services entails an inherent risk of
professional malpractice and other similar claims. PRG does not influence or
control the practice of medicine by physicians or have responsibility for
compliance with certain regulatory and other requirements directly applicable to
physicians and physician groups. However, as a result of the relationship
between PRG and the Eyecare Practices, PRG may become subject to medical
malpractice actions under various theories, including agency and successor
liability. There can be no assurance that claims, suits or complaints relating
to services and products provided by the Eyecare Practices will not be asserted
against PRG in the future. PRG maintains insurance coverage that it believes is
adequate both as to risks and amounts.

          Insurance for Claims Against Directors and Officers

          PRG has purchased several insurance policies relating, in part, to
claims made against directors and officers. One such policy, covering claims
made during the period April 20, 1997 through April 20, 1998, has a $20 million
policy limit, of which the insurer contends approximately $1.43 million has been
consumed. Additional claims have been submitted to the insurer which, if paid,
will reduce the remaining coverage by the amount of the payment. Another policy
covering claims made during the period April 20, 1998 through April 20, 1999 has
a $10 million policy limit. A third policy covering claims made during the
period April 20, 1999 through December 15, 2000 also has a $10 million policy
limit.

          In general, these policies pay covered losses of the directors and
officers for claims made against them during the policy periods, when and to the
extent that PRG or its subsidiaries have indemnified the directors and officers.
The policies pay covered losses of PRG and its subsidiaries for claims arising
from either (i) securities claims first made against PRG or its subsidiaries or
(ii) claims first made against directors and officers, but only

                                      -6-
<PAGE>

when and to the extent that PRG or its subsidiaries have indemnified the
directors and officers for such loss pursuant to law, common or statutory, or
contract, or the charter or bylaws of the Company. PRG's bylaws and certificate
of incorporation provide an indemnity for officers and directors for certain
types of claims. After PRG and EyeCorp filed for bankruptcy protection, certain
former officers and directors and certain members of current management filed
proofs of claim, asserting alleged rights for such indemnification. No ruling
has yet been made on those claims.

          As a result of the Company's bankruptcy filing, the insurer under the
policies declined to make any further payments under the policies without an
order of the Bankruptcy Court authorizing such payments.  On December 1, 2000,
the Bankruptcy Court issued an order authorizing the insurer to distribute up to
an additional $1 million in policy proceeds.  If and when that amount is
distributed, the Bankruptcy Court may need to issue further orders.

          The Company has purchased additional directors and officers and
miscellaneous professional liability insurance effective December 1, 2000. The
policy limit is $10,000,000 and the coverages are effective for two years.

Employees

          As of December 31, 2000, PRG had approximately 24 full-time and part-
time employees, who were employed at PRG's corporate and regional offices. PRG
believes that its relationship with its employees is satisfactory.

Executive Officers


          The following table sets forth certain information concerning the
executive officers of PRG as of December 31, 2000.

          Name                   Age      Position
          ----                   ---      --------

          Michael Yeary          47       Chief Restructuring Officer, Director
                                          and Liquidation Agent
          Karen Nicolaou         42       Controller and Director of Claims
                                          Resolution
          Lane Edenburn          37       General Counsel

          Michael Yeary served as Chief Operating Officer and President of PRG
from October, 1998 until February 2000. Since February 1, 2000, he has served as
PRG's President and Chief Restructuring Officer, and currently serves as the
Liquidation Agent. Additionally, since March 16, 2000, Mr. Yeary has served as
PRG's sole director. From February 1996 until February 1998, Mr. Yeary served as
Regional Vice President of PRG for South Texas and Louisiana. From January 1,
1998 until March 30, 1998, Mr. Yeary served as the Interim Accounting Manager of
PRG in addition to his other duties. From 1989 to February 1996, he was the
Chief Financial Officer for Mann Berkeley Eye Center in Houston, Texas. From
1981 to 1989, Mr. Yeary served as the Executive Vice President, Chief Financial
Officer for the Tomasco Group, a real estate development and investment company
with operations in industries related to commercial real estate, manufacturing
and oil and gas. Previously, Mr. Yeary served in a variety of capacities in
retail and public accounting with Deloitte and Touche, LLP. Mr. Yeary is a
Certified Public Accountant and received his B.B.A. in Accounting from Lamar
University. He is also a Director of Humble National Bank.

          Karen Nicolaou has served as the Corporate Controller of PRG since
September 1998, and also currently serves as Director of Claims Resolution. From
July 1998 until September 1998, Ms. Nicolaou served as PRG's Corporate Budget
and Special Projects Manager. Ms. Nicolaou served as the Controller of Mission
Critical Software, Inc., a start-up software development company, from November
1996 until July 1998. From May 1993 until November 1996, Ms. Nicolaou worked as
an Independent CPA. Ms. Nicolaou was employed by Energy Insurance International,
Inc., an insurance brokerage firm, from June 1988 until February 1993, serving
in such positions as Controller and Vice President-Technical Applications. Ms.
Nicolaou is a Certified Public Accountant and received her B.B.A. in Accounting
from The University of Texas.

          Lane Edenburn served as Vice President and General Counsel of PRG from
December 1999 until January 2001.  From February 1997 until December 1999, Mr.
Edenburn served as Associate General Counsel of the Company.  In addition, Mr.
Edenburn has served as legal counsel to a managed care subsidiary of the
Company.  From February 1995 until January 1997, he owned Edenburn Law Offices
in Omaha, Nebraska.  Mr. Edenburn was an associate with the law firm of Erickson
& Sederstrom, P.C., Omaha, Nebraska from September 1991 until February 1995.
Mr. Edenburn received his J.D. from Creighton University School of Law, Omaha,
Nebraska.  He is a member of the State Bar of Nebraska. Mr. Edenburn's
employment with the Company terminated effective January 2001.

                                      -7-
<PAGE>

          Management Turnover

          During 1997 and 1998, PRG experienced turnover in its executive ranks.
For example: Richard Owen, the Company's President, resigned effective October
31, 1997. Emmett E. Moore, the Company's Chairman of the Board and Chief
Executive Officer, resigned from the Company on November 19, 1997. Richard
Gilleland, who succeeded Mr. Moore as the Company's Chairman of the Board and
Chief Executive Officer, resigned from his position in October 1998. Peter
Dorflinger, Mr. Owen's successor, left the Company in November 1998. Mark
Kingston, the Company's Chief Development Officer, left the Company in March
1998 and Richard D'Amico, the Company's General Counsel, left the Company in
June 1998. David Real, the Company's Chief Financial Officer (who was hired in
March 1997), resigned effective December 31, 1997. Pamela Westbrook, Mr. Real's
successor as Chief Financial Officer who was hired in March 1998, resigned
effective October 2, 1998, and Ann Chaney, who succeeded Ms. Westbrook as Chief
Financial Officer resigned in November 1998.

          In January 1998, the number of members of the Board of Directors of
the Company was reduced from fourteen to five. Additionally, in late October
1998, the membership of PRG's Board of Directors again changed substantially. On
October 30, 1998, PRG's then-current Board of Directors appointed a number of
new directors, including David Meyer, M.D., David Dulaney, M.D. and John
Shepherd, M.D., and then resigned. Drs. Meyer, Dulaney and Shepherd resigned
from the Board of Directors on March 16, 2000. Currently, Michael W. Yeary
serves as the sole director of the Company.

Factors That Could Affect Future Performance

          This report contains certain forward-looking statements about the
business and financial condition of the Company, including various statements
contained in "Management's Discussion and Analysis of Financial Condition and
Result of Operations" and "Business." The actual results of the Company's
operations could differ materially from any forward-looking statements contained
in this report. Factors that would materially affect future performance include
the willingness of affiliated practices to participate in the settlement process
provided for in the Plan, and the progress of the litigation described under
"Legal Proceedings."

          PRG and EyeCorp filed the Plan on October 13, 2000. The Plan was
confirmed by the Bankruptcy Court on December 1, 2000. The Plan is a liquidating
plan and does not contemplate the financial rehabilitation of the Company or the
continuation of their businesses. 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 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. In accordance with the Plan, in
December of 2000 and February of 2001, PRG made distributions to unsecured
creditors with a combined total of approximately $80 million.

          Year 2000 Compliance

          Prior to and during 1999, PRG undertook various comprehensive
initiatives designed to identify, assess, and remedy potential malfunctions and
failures that may result from, and ensure that the Company was prepared for, the
Y2K issue for periods subsequent to December 31, 1999. To date, the Company has
not encountered any significant Y2K failures, and is not aware of any Y2K issues
that have been encountered by any affiliate or third party with whom it does
business. The amounts charged to expense in 1999 related to the Y2K compliance
issue were not material to the Company's financial position, results of
operations or cash flows.

ITEM 2.        PROPERTIES
               ----------

          In addition to its various practice facilities, as of December 31,
2000, PRG operated and leased corporate offices in Dallas, Texas and Houston,
Texas.

                                      -8-
<PAGE>

ITEM 3.        LEGAL PROCEEDINGS
               -----------------

          Litigation Against Former Officers and Directors

          As of December 31, 2000, several lawsuits were pending against PRG and
former officers and directors of PRG brought by some of PRG's shareholders.
These litigations include a putative class action brought under the federal
securities laws (the "Shareholder Action") and a derivative action brought
against two of the Company's directors.

          The Shareholder Action

          The Shareholder Action is comprised of the following six (6) putative
class actions that were originally filed against PRG and four of its former
officers and directors in late 1997 and 1998 in the Bankruptcy Court:

          Jeffrey Schiller and Diversified Investment Holdings LP, On Behalf of
Themselves and All Others Similarly Situated v. Physicians Resource Group, Inc.,
et al.; Civil Action No. 3-97CV3158-R (filed on December 23, 1997)("Schiller");

          City of Philadelphia, By and Through its Board of Pensions and
Retirement, On Behalf of Itself and all Others Similarly Situated v. Physicians
Resource Group, Inc., et al.; Civil Action No. 3-98CV0459-P (filed on February
20, 1998)("City of Philadelphia");

          William J. Rutherford, On Behalf of Himself and All Others Similarly
Situated v. Physicians Resource Group, Inc., et al.; Civil Action No. 3-
98CV0395-G (filed on February 3, 1998)("Rutherford");

          Howard Longman, On Behalf of Himself and All Others Similarly Situated
v. Physicians Resource Group, Inc.; Civil Action No. 3-97CV3102-P (filed on
December 18, 1997)("Longman");

          Regina Peltz, On Behalf of Herself and All Others Similarly Situated
v. Physicians Resource Group, Inc., et al.; Civil Action No. 3-97CV3176-D (filed
on December 29, 1997)("Peltz"); and

          Bob E. Hall, On Behalf of Himself and All Others Similarly Situated v.
Physicians Resource Group, Inc., et al.; Civil Action No. 3-98CV0264-R(filed on
February 3, 1998) ("Hall").

          These cases all raise claims under Section 10(b) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and Rule 10b-5 promulgated
thereunder. The plaintiffs seek compensatory damages, legal interest and
attorneys' fees. The procedural history of these cases is complex because of the
number of cases at issue, the theories of liability raised, the number of
plaintiffs' counsel involved, and the unique requirements of the Private
Securities Litigation Reform Act of 1995.

          The six (6) class actions were originally filed in two groups. The
first group comprised the Schiller, City of Philadelphia, and Rutherford actions
(collectively the "Schiller Action"), and the second included the Longman,
Peltz, and Hall actions (collectively the "Longman Action"). In essence,
plaintiffs in the Schiller Action allege claims of corporate mismanagement and a
failure to disclose the same under the federal securities laws. These claims
fall into four categories: (i) statements/omissions concerning PRG's ability to
do business (including the competency of its accounting department, the ability
to integrate acquired Eyecare Practices, management expertise, the viability of
PRG's business plan, etc.); (ii) predictions of PRG's earnings and growth; (iii)
statements/omissions concerning PRG's accounting policies (improper revenue
recognition, etc.); and (iv) statements/omissions concerning the value of PRG's
acquisition of EyeCorp and EquiMed in 1996. The alleged class period in the
Schiller Action runs from September 15, 1995, when PRG announced the acquisition
of EyeCorp, until March 27, 1997, the date on which PRG announced that due to a
decline in its stock price the Company would not be able to maintain its
acquisition pace.

          The plaintiffs in the Longman Action claim that when PRG filed a
counterclaim for fraud against EquiMed in an arbitration proceeding in June
1997, PRG knew that the Eyecare Practices it had previously acquired from
EquiMed in late 1996 were overvalued and would have to be written-down but that
PRG delayed doing so in order to continue to appear to be a fast growing company
and an attractive acquisition candidate.  The Longman Action class period
extended from June 1997 to November 19, 1997, when PRG announced a loss for the
third quarter that included a pre-tax charge of $27.8 million for future Eyecare
Practice closings and $4 million to establish a reserve for accounts receivable.

                                      -9-
<PAGE>

          In July 1998, after a motion to consolidate the Schiller Action and
the Longman Action was denied, the Schiller Action plaintiffs filed their first
amended complaint to include the allegations and the alleged class contained in
the Longman Action. The factual allegations in the amended Schiller Action now
cover an alleged 26 month class period from September 15, 1995 to November 19,
1997.

          The six (6) putative class actions are assigned to Judge Sam Lindsay.
In April 1999, Judge Lindsay granted lead plaintiff status to Robert Alpert
("Alpert"), a major shareholder of PRG and a member of the Equity Committee, who
selected Milberg Weiss Bershad Hynes & Lerach as class counsel. On behalf of all
of the defendants, PRG moved to dismiss the operative amended complaint.

          In November 1998, the Schiller Action plaintiffs filed a separate
lawsuit under the 1934 Act against Arthur Andersen LLP ("Andersen") in the
United States District Court for the Northern District of Texas, Dallas
Division, styled Jeffrey Schiller and Diversified Investment Holdings LP, On
Behalf of Themselves and All Others Similarly Situated v. Arthur Andersen & Co.
LLP; Civil Action No. 3-98CV2753-R (the "Andersen Action"). The Schiller Action
plaintiffs then moved to consolidate the Andersen Action with the Shareholder
Action, while also requesting leave of court in the Shareholder Action to file a
second amended complaint. The Bankruptcy Court granted the Schiller Action
plaintiffs' request for leave to file a second amended complaint on September
22, 2000. At the same time, the Bankruptcy Court denied PRG's motion to dismiss
the first amended complaint, without prejudice to PRG refiling its motion to
dismiss directed to the second amended complaint.

          After confirmation of the Plan, the Bankruptcy Court issued an order
lifting the automatic stay and allowed the resumed prosecution of the Schiller
Action against the Company, except that the stay remains in effect with respect
to any effort to collect any judgment, if any, rendered as a result.  The
Schiller Action plaintiffs have filed their third amended complaint, and the
Company is working on its motion to dismiss.

          Derivative Action

          In 1999, Robert Alpert (who was also appointed lead plaintiff in the
Shareholder Action) brought a derivative suit in Texas State Court styled Robert
Alpert, on behalf of Physicians Resource Group, Inc., v. Physicians Resource
Group, Inc., Dr. David Meyer and Lucius E. Burch, III, Cause No. 1999-20229, in
the 152nd Judicial District Court of Harris County, Texas (the "Derivative
Suit").  In the Derivative Suit, Alpert sought to prosecute, on behalf of PRG,
certain claims Alpert asserted PRG had against Dr. Meyer and Mr. Burch.  At the
time the suit was brought, Dr. Meyer and Mr. Burch were members of the Board of
Directors of PRG.

          In general, the Derivative Suit asserted that Dr. Meyer and Mr. Burch
received excessive fees from PRG and were appointed to the Board of Directors in
violation of PRG's governing corporate documents.  Other allegations in the
Derivative Suit include that (i) Buyouts unfairly favored PRG physicians, (ii)
Dr. Meyer's Eyecare Practice breached its obligations to PRG under its MSA and
(iii) Dr. Meyer was liable for damages for the un-consummated tender offer
contemplated by the July 1998 Restructuring Proposal.

          In response, on May 19, 1999, PRG's Board of Directors appointed a
subcommittee of the Board of Directors composed of the remaining directors who
were not the targets of the Derivative Suit to act as a Special Litigation
Committee ("SLC") and to commence an independent, disinterested and impartial
review of Alpert's claims in order to determine whether it was in PRG's best
interest to pursue the same.  The Board of Directors gave the SLC full power and
authority to make that decision.

          The members of the SLC were PRG directors Dr. John Shepherd and Dr.
David Dulaney. The SLC retained the Dallas law firm of Munsch, Hardt, Kopf, Harr
and Dinan, P.C. ("Munsch Hardt") to serve as special independent counsel and to
help conduct a thorough, independent and impartial review and investigation of
Alpert's claims. In so doing, Munsch Hardt, among other things, requested and
reviewed documents it felt were pertinent to the issues in question, gathered
affidavits from third parties, and interviewed Alpert, the individual
defendants, PRG's senior management, and approximately 16 individuals who either
appeared to have relevant information or who were identified by Alpert. In
addition, the SLC also independently investigated and gathered information on
its own.

          Under Texas law, the disposition of a derivative lawsuit is governed
by Article 5.14 of the Texas Business Corporation Act (Vernon Supp. 1999).
Because PRG is a Delaware corporation, certain aspects of the application of
Article 5.14 require reference to Delaware law as well. After reviewing the
relevant statutory provisions, PRG concluded that if the SLC, acting
independently and with due care in conducting a reasonable, good faith

                                     -10-
<PAGE>

investigation, concluded that pursuit of the Derivative Suit was not in the best
interest of PRG, then the court was required to dismiss the Derivative Suit.

          On November 1, 1999, after considering the facts gathered in the
investigation, the allegations advanced in the Derivative Suit, the legal claims
asserted in the Derivative Suit, the various defenses available to the
defendants, and the costs and benefits to PRG of continuing the litigation, the
SLC unanimously determined that pursuit of the Derivative Suit would not be in
the best interests of PRG.  Accordingly, on December 21, 1999, PRG filed a
motion to dismiss the Derivative Suit pursuant to Article 5.14 of the Texas
Business Corporation Act.  If granted, said motion to dismiss would result in
the dismissal of the Derivative Suit with prejudice as to Mr. Burch and without
prejudice as to Dr. Meyer.  Alpert did not respond to or oppose the motion to
dismiss, which was set for hearing on February 4, 2000.

          On February 1, 2000, PRG filed its voluntary bankruptcy petition,
which triggered the Bankruptcy Code's automatic stay. No further action has been
taken in the Derivative Suit, and the motion to dismiss has not been heard.
However, after PRG filed its motion to dismiss, but before PRG filed for
bankruptcy, the Eyecare Practice with which Dr. Meyer was affiliated consummated
a Buyout with PRG. As one consequence of the consummation of that Buyout, the
parties, including PRG and Dr. Meyer, exchanged mutual releases which, if
effective, would constitute a release of the claims the Derivative Suit sought
to assert on behalf of PRG against Dr. Meyer.

          On June 27, 1997, the Company and John Taboada ("Taboada") entered
into an Exclusive License Agreement (the "License Agreement") pursuant to which
Taboada granted the Company an exclusive license to make, use, sell, offer to
sell, and sublicense a certain patent related to refractive procedures. At the
time the License Agreement was entered into, the patent was held of record by
VISX, Inc. and was the subject of litigation among Taboada, VISX, Inc., Pillar
Point Partners and Summit Technology, Inc. The grant of the rights under the
License Agreement was conditioned upon Taboada's success in the litigation. The
Company and Taboada contemporaneously entered into a Reimbursement Agreement
(the "Reimbursement Agreement") with Wolin, Ridley & Miller, LLP pursuant to
which PRG agreed to reimburse the attorney fees incurred by Taboada in the
litigation in exchange for which PRG would be entitled to a portion of the
proceeds, if any, obtained by Taboada in the litigation. On May 3, 2000, Taboada
settled the litigation by renouncing his claims of ownership of the patent in
exchange for a cash settlement payment. Following the approval of a release
pursuant to which the Company, Taboada, and Wolin, Ridley & Miller LLP released
each other from any and all claims relating to the License Agreement and the
Reimbursement Agreement, PRG received $5,481,023 of the settlement proceeds.

          Malpractice Claims

          In the normal course of business, certain of the affiliated Eyecare
Practices and, in some instances, PRG or its subsidiaries, have been named in
lawsuits alleging medical malpractice.  The Eyecare Practices and the Company
are insured with respect to medical malpractice risks on a claims-made basis.

          Proofs of Claim

          In response to the bankruptcy filings of PRG and EyeCorp, proofs of
claim have been filed against each respective debtor. Analyzing the potential
exposure posed by these proofs of claim is difficult for a number of reasons, in
part because some of the claims do not state a specific monetary amount but
instead are either contingent or unliquidated.

          With respect to those claims that do state a specific monetary amount,
PRG has identified a number to which it has no objection and which will be
allowed by the Bankruptcy Court. Among governmental entities, there is
approximately $430,000 to which the debtors do not object. These claims received
administrative priority status, meaning that they were to be paid in full before
any distribution to general unsecured creditors could be made. Among the ranks
of general unsecured creditors, the total amount of proofs of claim that state a
specific monetary sum as to which the debtors will not object is approximately
$135 million.

          Many proofs of claim have been filed against PRG and EyeCorp by
Eyecare Practices having MSAs with the debtors. The approximate total of all of
the discrete monetary amounts asserted by the Eyecare Practices in their proofs
of claim is in excess of $60 million. However, several of the Eyecare Practices
have filed proofs of claim that contend additional sums are owed, above and
beyond the specifically pleaded monetary amount. The debtors have objected to
all of the claims filed by the Eyecare Practices and are pursuing counterclaims
against the Eyecare Practices. In the event the debtors and the Eyecare
Practices are unable to resolve their differences by settlement, the

                                     -11-
<PAGE>

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 debtors intend 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 debtors will
suffer a net benefit or a net loss as a result of these claims and
counterclaims.

          On January 30, 2001, Dr. David Meyer filed an Application for
Allowance of Administrative Expense in the Bankruptcy Court (the "Application").
In the Application, Dr. Meyer sought recovery of $6,952,281.50 from PRG. Dr.
Meyer characterized his claim as an administrative claim. The Oversight
Committee objected to the Application and filed a motion asking the Bankruptcy
Court to set a reserve for the disputed claim pending its ultimate disposition.
On February 28, 2001, the Bankruptcy Court set a reserve of $200,000 for Dr.
Meyer's claim in the Application. The Bankruptcy Court ordered that, unless on
or before May 1, 2001, the claim is finally resolved or another court order is
issued, the reserve will automatically decline to $50,000 on May 1, 2001. The
Oversight Committee has indicated that it intends to prosecute its objection to
the Application vigorously.

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
               ---------------------------------------------------

          None.

                                     -12-
<PAGE>

                                   PART II

ITEM 5.     MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS
            ---------------------------------------------------------------

Market Information.

     The Common Stock was initially offered to the public on June 23, 1995 at a
price of $13.00 per share and was listed on the New York Stock Exchange ("NYSE")
under the symbol "PRG." The Common Stock traded on the NYSE until November 16,
1998, when the NYSE informed the Company that is had suspended trading in the
Company's Common Stock. Thereafter, the Common Stock traded in the over-the-
counter market. The following table sets forth the high and low sales prices by
quarter for the Company's most recent four fiscal years and as reported by the
NYSE (at and prior to November 16, 1998) and, subsequently, as quoted in the
over-the-counter market.

<TABLE>
<CAPTION>

                                                                   High                         Low
                                                          ----------------------      ------------------------
<S>                                                       <C>                        <C>
Fiscal Year Ended December 31, 1997

1/st/ Quarter                                                $    18 1/8                   $     10 3/8
2/nd/ Quarter                                                     13 3/4                          8 1/4
3/rd/ Quarter                                                     11 9/16                         7 3/4
4/th/ Quarter                                                     11 11/16                        2 9/16
Fiscal Year ended December 31, 1998

1/st/ Quarter                                                $     4 3/4                   $      3 1/16
2/nd/ Quarter                                                      5 7/8                          3 9/16
3/rd/ Quarter                                                      4 13/16                          7/8
4/th/ Quarter                                                      1 3/4                            1/32

Fiscal Year ended December 31, 1999

1/st/ Quarter                                                      2                               19/64
2/nd/ Quarter                                                      1 7/8                            1/8
3/rd/ Quarter                                                      1 1/4                            1/2
4/th/ Quarter                                                        3/8                            5/16

Fiscal Year ended December 31, 2000

1/st/ Quarter                                                       13/32                           3/32
2/nd/ Quarter                                                       17/64                           1/64
3/rd/ Quarter                                                        1/16                           1/64
4/th/ Quarter (through December 29, 2000)                           21/32                           1/64
</TABLE>


  On December 31, 2000, there were 316 record holders of Common Stock.

Dividend Policy

     PRG has not paid any cash dividends since its inception and will not pay
cash dividends in the future. At this time, PRG does not anticipate a
distribution to holders of equity interests in the Company. Only holders of
record of the Company's equity interests on October 13, 2000 are entitled to
distributions, if any, under the Plan. Thirty days after December 1, 2000, all
equity interests in the Company were canceled. From and after that day, equity
interests in the Company represent only a right to receive payment, if any,
under the Plan.

                                      -13-
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------

     PRG was incorporated in 1993, but did not conduct any significant
operations prior to the IPO in June of 1995. The PRG historical financial data
for each of the years in the four-year period ended December 31, 1999 presented
below reflects actual results of operations and financial position of PRG
(including the acquisitions accounted for as pooling of interests) and has been
derived from and should be read in connection with the PRG consolidated
financial statements and notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
                                                                              PRG Historical
                                                                          Year Ended December 31,
                                                   -----------------------------------------------------------------------------
Statement of Operations Data:                         1996                1997                  1998                     1999
                                                   ----------          ----------            ----------               ----------
<S>                                                <C>                 <C>                   <C>                     <C>
Revenues.....................................      $  248,293          $  411,640            $  354,108               $   83,940
                                                   ----------          ----------            ----------               ----------
Costs and expenses:
 Salaries, wages and benefits................         115,200             207,254               176,808                   33,181
 Pharmaceuticals and supplies................          30,919              52,392                46,158                   15,195
 General and administrative..................          62,353             103,055               105,253                   44,000
 Depreciation and amortization...............          11,192              24,841                26,000                    7,885
 Interest expense, net.......................           1,304              11,547                11,478                    7,932
 Executive severance expenses................              --                 750                   912                       --
 Patent litigation defense costs.............             353               2,730                   798                      989
 Asset valuation losses (recovery)...........              --              76,706               347,857                   (6,040)
 Loss (Gain) on sale of assets...............              --                  --                25,276                   (7,447)
 Merger transaction expenses.................          12,030                  --                    --                       --
                                                   ----------          ----------            ----------               ----------
  Total costs and expenses...................         233,351             479,275               740,540                   95,695
                                                   ----------          ----------            ----------               ----------
Income (loss) before income taxes............          14,942             (67,635)             (386,432)                 (11,755)
Provision (benefit) for income taxes.........           7,770             (26,312)              (66,867)                      --
                                                   ----------          ----------            ----------               ----------
Net income (loss)............................      $    7,172          $  (41,323)           $ (319,565)              $  (11,755)
                                                   ==========          ==========            ==========               ==========
Net Income (loss) per basic share:
      Net income (loss)......................      $     0.29          $    (1.39)           $   (10.73)              $    (0.39)
                                                   ==========          ==========            ==========               ==========
Number of shares used in net income (loss)
 Per basic share calculation.................          24,596              29,751                29,773                   29,805
                                                   ==========          ==========            ==========               ==========
Net Income (loss) per diluted share:
 Net income (loss)...........................      $     0.28          $    (1.39)           $   (10.73)              $    (0.39)
                                                   ==========          ==========            ==========               ==========
Number of shares used in net income(loss)
 per diluted share calculation...............          25,365              29,751                29,773                   29,805
                                                   ==========          ==========            ==========               ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                                As of December 31,
                                                   -----------------------------------------------------------------------------
Balance Sheet Data:                                   1996                1997                  1998                     1999
                                                   ----------          ----------            ----------               ----------
<S>                                               <C>                 <C>                   <C>                      <C>
Working capital (deficit)...................       $  103,559          $   72,260            $  (72,700)              $  (71,789)
Total assets................................          581,534             533,986               150,497                   99,596
Long-term debt, net of current portion......          148,988             147,902                 1,662                       --
Stockholders' equity (deficit)..............          310,673             267,465               (49,535)                 (67,912)
</TABLE>


<TABLE>
<CAPTION>

Consolidated Quarterly Data (unaudited):                                                Year Ended December 31, 1998
                                                                            -------------------------------------------------------
                                                                                Fourth         Third          Second        First
Description                                                                     Quarter        Quarter        Quarter       Quarter
-----------                                                                 -------------  --------------  ------------  ----------
                                                                                       (in 000's except per share amounts)
<S>                                                                         <C>            <C>             <C>           <C>
Total revenues..........................................................        $  80,447      $76,253      $ 96,127      $101,281

Net income (loss) before taxes..........................................         (328,662)     $(7,843)     $(50,819)     $    892
Net income (loss).......................................................         (277,253)     $(7,844)     $(34,847)     $    379
Net income (loss) per share
   (basic and diluted)..................................................        $   (9.31)     $ (0.26)     $  (1.17)     $   0.01
</TABLE>

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31, 1999
                                                                              ---------------------------------------------------
                                                                                  Fourth      Third        Second        First
Description                                                                       Quarter     Quarter      Quarter       Quarter
-----------                                                                   ------------  -----------  -----------  ------------
                                                                                        (in 000's except per share amounts)
<S>                                                                           <C>           <C>         <C>           <C>
Total revenues..........................................................           $8,743     $20,055     $ 24,886      $30,256

Net income (loss) before taxes..........................................           $3,414     $15,519     $(26,529)     $(4,159)
Net income (loss).......................................................           $3,414     $15,519     $(26,529)     $(4,159)
Net income (loss) per share
  (basic and diluted)...................................................           $ 0.11     $  0.52     $  (0.89)     $ (0.14)
</TABLE>

                                      -14-
<PAGE>

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            ---------------------------------------------------------------
            RESULTS OF OPERATIONS
            ---------------------

     The following discussion and analysis should be read in conjunction with
the financial statements and related notes contained elsewhere herein.

Overview

     PRG was incorporated in 1993, but conducted no significant operations until
the IPO and reorganization in June of 1995.  PRG is a PPM company and was formed
to provide various administrative services to Eyecare Practices and ASCs.  In
fulfilling its obligations under the MSAs, the Company pays the operating costs
and expenses on behalf of the Eyecare Practices.  As a result, the operating
costs and expenses previously incurred by the Eyecare Practices are reflected in
the operating expenses of PRG. The revenues recorded by the Company reflect a
combination of (i) management fees earned under its MSAs and (ii) medical
services related to patient charges, in the case of its controlled Eyecare
Practices, ASCs and optical dispensaries.  In addition to the operating costs
and expenses discussed above, the Company is incurring personnel and
administrative expenses in connection with maintaining corporate and regional
offices.

Company Developments

     The Company, during the latter half of 1997 and early 1998, re-evaluated
its strategic position and initiated (1) a review of its affiliated Eyecare
Practice relationships in light of available resources, market penetration,
geographic coverage and current Company strategy and (2) a comprehensive review
of its due from affiliates balances.  These reviews resulted in a decision by
the Company to begin the process of termination of its affiliations with
approximately 44 Eyecare Practices (18 of which had actually been terminated as
of December 31, 1997 through sale, disposition or disassociation) and a
conclusion that certain portions of its due from affiliates balance might not be
realized.  This decision and conclusion resulted in the Company incurring
combined pre-tax charges of  $76,706,000 through December 31, 1997.

     In 1998, the Company continued the process of terminating its affiliations
with the 44 Eyecare Practices identified during the strategic review undertaken
in 1997.   In addition, certain negative factors, including market position and
demographics, deteriorating physician relations, disappointing operating
results, and declining stock prices, further contributed to the destabilization
of the Company's relationship with other affiliated Eyecare Practices. These
factors were caused by or may have been exacerbated by weak economic conditions
in some market areas, declining government and managed care payments, and other
factors, many of which were outside the control of the Company.  In 1998,
additional affiliated Eyecare Practices attempted to unilaterally terminate
their MSAs. In ever-increasing numbers, the Eyecare Practices excluded PRG from
any involvement in the business management aspect of those Eyecare Practices and
ASCs. The Eyecare Practices also began bringing lawsuits or commencing
arbitration proceedings against PRG and/or its subsidiaries.  Although PRG and
its subsidiaries denied the allegations of the Eyecare Practices and generally
asserted counterclaims to recover the amounts owed to PRG and its subsidiaries
by those Eyecare Practices, PRG's revenues were substantially negatively
impacted.  As a result, the Company incurred additional pre-tax charges of
$347,857,000 during 1998. This had a material adverse effect on the Company's
financial condition and results of operations and raised substantial doubt about
the Company's ability to continue as a going concern.

     Other events that occurred during 1998 that severely impacted the Company's
operating environment include:

 .  During a single ten month period, two Chief Financial Officers were appointed
   and resigned.
 .  The President appointed in late 1997 resigned in November 1998.
 .  Its principal bank lender informed the Company that PRG was in technical
   default of its bank loan agreement.
 .  On November 16, 1998, the NYSE halted trading in the Common Stock of PRG and
   subsequently made application to the SEC to delist the issue.
 .  Subsequent to and partially as a result of employee resignations, lack of
   adequate financial information from certain affiliated Eyecare Practices, and
   the Company's inability to timely engage another audit firm (see Item 9), the
   Company did not timely file all reports required to be filed by Section 13 or
   15(d) of the 1934 Act for the years ending 1998 or 1999.

                                      -15-
<PAGE>

     In late October 1998, the Restructuring Board was confronted with a
situation in which (i) PRG faced substantial litigation, (ii) PRG's
relationships with its affiliated Eyecare Practices had deteriorated and (iii)
PRG owed approximately $9.5 million and was in technical default under the
NationsBank Credit Facility.  The Restructuring Board, together with PRG's
management and independent consultants, engaged in efforts to restructure PRG's
business.

     To this end, a plan consisting of two essential components was formulated
to maximize the value of PRG's business and assets.  The first component of the
Restructuring Board's plan was development of a program pursuant to which PRG
would, in a Buyout with Eyecare Practices (i) sell to the Eyecare Practice the
assets owned by PRG or one of its subsidiaries that were used in the operation
of the Eyecare Practice, (ii) transfer the liabilities of PRG related to the
operations of the Eyecare Practice back to the Eyecare Practice, (iii) collect
amounts owed by the Eyecare Practice and its affiliates to PRG, (iv) release the
Eyecare Practice and affiliated physicians from further obligations under the
MSAs and related employment agreements, (v) cancel notes and other indebtedness
owed by PRG to the Eyecare Practice and affiliated physicians and (vi) enter
into mutual releases.  In establishing and arriving at the Buyout formulas and
underlying methodologies and assumptions, PRG was assisted and advised by the
financial advisory firm of Houlihan.

     The second component of the Restructuring Board's plan involved a search
for a strategic partner to purchase certain of PRG's interests in ASCs.  On
January 31, 2000 the Company entered into a definitive Acquisition Agreement
with AmSurg related to the sale by the Company of its interests in 11 ASCs, with
estimated sale proceeds of up to approximately $40,000,000 in cash.
Additionally, as part of this agreement, AmSurg and PRG entered into a
Management Agreement under which, effective January 1, 2000, AmSurg began
managing the operations of 15 surgery centers affiliated with PRG, 11 of which
were to be purchased pursuant to the terms of the Acquisition Agreement.  As of
December 31, 2000, the Company's interests in three (3) ASCs have been sold to
AmSurg yielding sale cash proceeds of $22,082,617.  AmSurg continues to manage
the operations of six (6) ASCs pursuant to the terms of the Management
Agreement.

     On January 29, 1999, the Company repaid $2,600,000 of the amounts
outstanding under the amended credit facility. The remaining balance was
acquired by another bank. The outstanding balance of $6,900,000 was paid off in
full in March 1999 with the proceeds from the sale of various Eyecare Practice
assets.

     On March 19, 1999, PRG entered into the RAM Agreement with RAM on behalf of
itself and the funds that it manages which, at the date of the RAM Agreement,
owned $91.896 million principal amount of the Debentures.  Pursuant to the RAM
Agreement, RAM loaned PRG $3.75 million to pay interest on the Debentures that
was due December 1, 1998. On July 29, 1999, the Company repaid the RAM loan.

     In April of 1999 PRG and AmSurg executed a letter of intent for the
purchase by AmSurg of a portion of PRG's ownership interests in its practice-
based ophthalmology ASCs.  The Company continued to experience losses and
negative cash flow from operations during fiscal 1999.

     On July 1, 1999, American Surgery Centers of Las Vegas, Ltd., operator of
the Sahara Lindell Surgical Center ("SLSC"),  and American Surgery Centers of
Las Vegas, Inc., a wholly owned subsidiary of American Ophthalmic, Inc. and
general partner of SLSC, filed voluntary bankruptcy petitions. On December 24,
1999, the assets of SLSC were sold and SLSC settled approximately $3.3 million
in debt outstanding to the center's major creditor. During September and October
of 2000, the ASC of Las Vegas, Inc. distributed the remaining assets and the
dismissal of the case is pending.

     On February 1, 2000, PRG filed a voluntary bankruptcy petition.

     On May 25, 2000, EyeCorp filed a voluntary bankruptcy petition.

     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

                                      -16-
<PAGE>

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, in December 2000 and February 2001, the Company made distributions to
unsecured creditors totaling approximately $80 million. Currently the Company
does not anticipate any distributions to holders of equity interests.

Results of Operations - Historical

     For the year ended December 31, 1999, the historical statement of
operations data includes the operations of the practices and interests in
surgery centers through the date of disposition, if applicable.  Revenues have
not been recognized by the Company for those practices alleging either breaches
of MSAs or notices attempting to unilaterally terminate their MSAs throughout
1998 and 1999.

     The Company incurred a number of significant statement of operations
charges during the latter half of 1998.  During the third and fourth quarters of
1998, PRG recorded estimated charges for the dispositions or effective
terminations of practice affiliations of $347,857,000 which included $41,509,565
for the estimated uncollectability of certain accounts receivable.  These
charges have been included in "Asset valuation losses" in the accompanying
statement of operations data for the year ended December 31, 1998.
Additionally, the Company incurred, during the fourth  quarter of 1998, a
charge-off of $912,000 for future payments to its former Chairman of the Board
and Chief Operating Officer in connection with termination agreements. The
charge-off of the future payments to the former Chairman of the Board and Chief
Operating Officer is included in a separate line item on the accompanying
statement of operations for the year ended December 31, 1998.

     The Company continued to experience losses and negative cash flow from
operations during fiscal 1999.  The Company recorded a loss of $11,755,000 at
December 31, 1999.  Throughout 1999, the Company aggressively pursued the
Buyouts.  Accordingly, the Company closed Buyouts with 48 practices during 1999
and sold interests in 22 surgery centers.  The Company recognized a gain on the
sale of these assets of $7,447,000. The gain can be attributed to those
practices that were fully reserved in 1998 and which subsequently closed Buyouts
in 1999.  The Company also recognized an asset valuation recovery of $6,040,000
for practice relationships that were deemed fully impaired in 1998 based upon
management's analysis of future cash flows and the related operating environment
in 1998 and 1999.  The operating environment of the Company had substantially
disintegrated by the end of 1999, and on February 1, 2000, PRG filed a petition
for voluntary bankruptcy.  For additional discussion regarding the bankruptcy
filing and filing of the Plan under Chapter 11 (see Item 1. "Business.  The
Plan").

     Mann Frankfort Stein and Lipp CPAS LLP, ("MFSL"), independent public
accountants have audited the Company's consolidated financial statements.
Management has made available to MFSL all of the Company's financial records and
related data. MFSL was appointed as the principal independent public accountants
by the Board of Directors on March 12, 1999 following the resignation of its
predecessor independent public accountants, Andersen on November 13, 1998.  For
discussion regarding the change in independent public accountants (see Item 9.
"Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures").

 Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

     Revenues.   Revenues were $83,940,000 for the year ended December 31, 1999
     compared to $354,108,000 for the year ended December 31, 1998, a decrease
     of $270,168,000 or 76.3%. The primary reason for the decrease was the
     significant number of practices that either consummated Buyouts during 1999
     or that unilaterally ceased paying management service fees during 1998.

     Costs and Expenses.  Costs and expenses were $95,695,000 for the year ended
     December 31, 1999 versus $740,540,000 for the comparable period in 1998.
     This decrease of $644,845,000 was attributable primarily to the recognition
     of the associated expense for impairment of assets in 1998. Many related
     expense categories in 1999 were significantly decreased in comparison to
     1998 primarily due to the number of consummated Buyouts in 1999. Costs and
     expenses decreased as a percentage of revenues (from 209.1% in 1998 to
     114.0% in 1999).

     Salaries, Wages and Benefits. Salaries, wages and benefits were $33,181,000
     during 1999 compared to $176,808,000 for the year ended December 31, 1998,
     a decrease of $143,627,000 or 81.2%. The decrease

                                      -17-
<PAGE>

     is primarily attributable to the resignation of employees who returned to
     work for Eyecare Practices which either consummated Buyouts during 1999 or
     practices that unilaterally purported to terminate their relationship with
     PRG. As a percentage of revenues, salaries, wages and benefits decreased
     from 49.9% of revenues in 1998 to 39.5% of revenues in 1999.

     Pharmaceutical and Supplies. Expenses for pharmaceuticals and supplies were
     $15,195,000 in 1999 compared to $46,158,000 for the year ended December 31,
     1998, a decrease of $30,963,000 or 67.1%. This decrease was primarily the
     result of the number of affiliated practices that purported to unilaterally
     terminate their relationship with PRG during the second half of 1998.
     Expenses continued to decrease in 1999 for practices sold in 1999.
     Pharmaceuticals and supplies as a percent of revenues did not change
     significantly between 1998 (13.0%) and 1999 (18.1%) because 1999 revenues
     decreased correspondingly with bought-out and non-paying practices.

     General and Administrative.  General and administrative expenses were
     $44,000,000 for the year ended December 31, 1999 compared to $105,253,000
     for the year ended December 31, 1998, a decrease of $61,253,000 or 58.2%.
     General and administrative expenses increased significantly as a percent of
     revenues at 29.7% and 52.4% for 1998 and 1999, respectively.  The increase
     was due to the number of practices consummating Buyouts in 1999.

     Depreciation and Amortization.   Depreciation and amortization expenses
     were $7,885,000 for the year ended December 31, 1999 compared to
     $26,000,000 for the year ended December 31, 1998, a decrease of $18,115,000
     or 69.7%.  This substantial decrease is attributable to related Buyouts by
     practices during 1999.  As a percentage of revenues, depreciation and
     amortization increased minimally during 1999 (7.3% of revenues in 1998 vs.
     9.4% of revenues in 1999) as certain adjustments were made to both
     depreciable lives and amortization periods during the year.

     Interest Expense, net.   Interest expense, net was $7,932,000 for the year
     ended December 31, 1999 compared to $11,478,000 for the year ended December
     31, 1998, a decrease of $3,546,000. Interest expense decreased because the
     revolving credit facility was paid off in March 1999. (See Note 9 "Long-
     Term Obligations"). Another factor for the decrease was the number of
     practices consummating Buyouts during 1999 with associated debt either paid
     off as the result of the Buyout or acquired by the practice, thus reducing
     the outstanding debt and the associated interest expense.

     Asset Valuation Recovery. The Company recognized an asset valuation
     recovery of $6,040,000 in 1999. This recovery resulted from the sale of
     assets in 1999 in excess of 1998 estimated values. The increase occurred
     because Eyecare Practices that had previously been identified in 1998 as
     fully impaired consummated Buyouts during 1999. For further discussion of
     the 1998 asset valuation loss (see "Year Ended December 31, 1998 Compared
     to Year Ended December 31, 1997 - Asset Valuation Losses").

     Executive Severance Expenses. There were no expenses related to executive
     severance in 1999 as compared to 1998 expense of $912,000. Expense in 1998
     was associated with future payments to be made to PRG's former Chairman of
     the Board and former Chief Operating Officer in connection with terms of
     their termination agreements in the fourth quarter of 1998.

     Patent Litigation Defense Costs. The modest increase from 1998 in the
     patent litigation defense costs (from $798,000 in 1998 to $989,000 in 1999)
     is attributable to an increase in legal fees connected with the Company's
     defense of the patent litigation process as compared from 1998 to 1999.
     This litigation resulted in a favorable settlement for the Company in May
     of 2000.

     Loss (Gain) on Sale of Assets. During 1999, PRG consummated Buyouts with 48
     practices and sold certain interests in 22 surgery centers at a gain of
     $7,447,000. The gain occurred for those practices sold in 1999 that were
     previously identified as fully impaired at year end 1998. The Company
     recognized a loss of $25,276,000 on the sale of assets for 9 practices
     consummating Buyouts in 1998.

     Provision (Benefit) for Income Taxes.  The 1999 tax provision resulted from
     additional deferred tax assets that were again fully reserved for in
     accordance with Financial Accounting Standards No. 109 ("FAS 109"). This
     compares to an  income tax benefit in 1998 of $66,867,000 or 17.3% of loss
     before income tax that is less than the 35% statutory rate primarily due to
     the effect of nondeductible asset valuation losses.  The 1998 benefit arose
     from the write-off of the deferred tax liability recorded in connection
     with intangible

                                      -18-
<PAGE>

     assets related to acquisitions of certain practice relationships and
     interests in surgery centers. The remaining net deferred asset was fully
     reserved (valuation allowance) as per the requirements of FAS 109.

 Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

     Revenues.  Revenues were $354,108,000 for the year ended December 31, 1998
     compared to $411,640,000 for the year ended December 31, 1997, a decrease
     of $57,532,000 or 14.0%. The primary reason for the decrease was the
     significant number of practices that unilaterally purported to terminate
     their relationship with PRG during 1998.  For further discussion, see
     "Asset Valuation Losses."

     Costs and Expenses.  Costs and expenses were $740,540,000 for the year
     ended December 31, 1998 versus $479,275,000 for the comparable period in
     1997.  This increase of $261,265,000 was attributable primarily to the
     asset valuation losses and the loss on sale of assets.  Costs and expenses
     also increased as a percentage of revenues (from 97.1% in 1997 to 110.7% in
     1998) even if charge-offs and patent litigation expenses are not
     considered.  This overall increase in costs and expenses as a percentage of
     revenues indicates that the Company's operating margins were declining
     correspondingly.  These cost and expense increases/margin declines were the
     result of various factors including: reimbursement rate declines at the
     Eyecare Practices; poor financial performance by certain of the Eyecare
     Practices; the adverse effect of the additional practices that unilaterally
     purported to attempt to terminate their respective MSA with PRG throughout
     1998; increased legal and professional fees caused by substantial new
     litigation; management turnover; increased depreciation and amortization
     due to acquisitions and life adjustments; significant interest expense
     related to debt obligations; and adjustments relative to certain MSAs.  The
     individual components of the annual costs and expenses are discussed below.

     Salaries, Wages and Benefits. Salaries, wages and benefits were
     $176,808,000 compared to $207,254,000 for the year ended December 31, 1997,
     a decrease of $30,446,000 or 14.7%. This decrease was primarily
     attributable to the number of employees who resigned from PRG to return to
     work for Eyecare Practices that unilaterally purported to terminate with
     the Company during the second half of 1998. As a percentage of revenues,
     salaries, wages and benefits decreased slightly from 50.3% of revenues in
     1997 to 49.9% of revenues in 1998.

     Pharmaceutical and Supplies.  Pharmaceuticals and supplies expenses were
     $46,158,000 in 1998 compared to $52,392,000 for the year ended December 31,
     1997, a decrease of $6,234,000 or 11.9%.  This decrease was primarily the
     result of the number of affiliated practices that purported to unilaterally
     terminate their relationship with PRG during the second half of 1998.
     Pharmaceuticals and supplies as a percent of revenues did not change
     significantly between 1997 (12.7%) and 1998 (13.0%) because 1998 revenues
     decreased correspondingly with non-paying practices.

     General and Administrative.  General and administrative expenses were
     $105,253,000 for the year ended December 31, 1998 compared to $103,055,000
     for the year ended December 31, 1997, an increase of $2,198,000 or 2.1%.
     General and administrative expenses increased somewhat as a percent of
     revenues at 25.0% and 29.7% for 1997 and 1998, respectively.  The moderate
     increase was due to the increased professional and consulting expenses
     generated by significant  management and staff turnover, increased claims
     expense, and increased litigation expense.

     Depreciation and Amortization.  Depreciation and amortization expenses were
     $26,000,000 for the year ended December 31, 1998 compared to $24,841,000
     for the year ended December 31, 1997, an increase of $1,159,000 or 4.7%.
     This modest increase is attributable to certain adjustments that were made
     to both depreciable lives and amortization periods during the second half
     of 1998.  As a percentage of revenues, depreciation and amortization
     increased minimally during 1998 (6.0% of revenues in 1997 vs. 7.3% of
     revenues in 1998) as certain adjustments were made to both depreciable
     lives and amortization periods during the year.

     Interest Expense, net.  Interest expense, net was $11,478,000 for the year
     ended December 31, 1998 compared to $11,547,000 for the year ended December
     31, 1997 a decrease of $69,000.

     Executive Severance Expenses. The $912,000 of 1998 executive severance
     expenses were the result of recording the expenses associated with future
     payments to be made to PRG's former Chairman of the Board

                                      -19-
<PAGE>

     and former Chief Operating Officer in connection with terms of their
     termination agreements in the fourth quarter of 1998.

     Patent Litigation Defense Costs. The decrease during 1998 in the patent
     litigation defense costs (from $2,730,000 in 1997 to $798,000 in 1998) is
     attributable to the decrease in legal fees connected with the Company's
     defense of the patent litigation process as compared from 1997 to 1998.

     Asset Valuation Losses. As discussed above, the Company developed an asset
     sale methodology pursuant to which Buyouts were effected with various
     Eyecare Practices.  For further discussion see Exhibit 2.1

     Total Consideration was calculated for Eyecare Practice, and asset
     valuation losses were determined by subtracting the Company's carrying
     value of assets from Total Consideration. The Company recognized asset
     valuation losses in 1998 of $347,857,000.

     Loss on Sale of Assets.  During 1998, PRG consummated Buyouts or otherwise
     severed relations with 9 practices at a loss of $25,276,000. See "Company
     Developments" above for more details.

     Provision (Benefit) for Income Taxes. The income tax benefit in 1998 of
     $66,867,000 or 17.3% of loss before income tax is less than the 35%
     statutory rate primarily due to the nondeductibility in the current period
     of certain asset valuation losses.  The 1998 tax benefit arose from the
     write-off of the deferred tax liability set-up at acquisition associated
     with the intangible assets that were written off in the asset valuation
     loss. The remaining net deferred asset was fully reserved (valuation
     allowance) as per the requirements of FAS 109 where it is not likely that
     the net operating loss will be utilized.  This compares to an income tax
     benefit of $26,312,000 or 38.9% of loss before income tax for 1997.

     Liquidity and Capital Resources

     Cash, Working Capital and Debt

          As of December 31, 1999, cash had increased to $43,315,000 and working
     capital had decreased to a deficit of $71,789,000. The increase in cash was
     primarily attributable to the Buyouts consummated with 48 practices and
     sale of interests in 22 surgery centers during 1999. Working capital as
     compared to 1998 continued to be adversely impacted by the Debentures and
     outstanding bank debt being classified as current liabilities (See "Credit
     Facilities" below). Overall indebtedness both short and long term had
     decreased to $131,883,000 due to debt paid off or retired in connection
     with sale of practices in 1999.

          As of December 31, 1998, cash was $9,654,000 and the working capital
     deficit was $72,700,000. The working capital deficit was caused primarily
     by the Debentures being classified as current liabilities (See "Credit
     Facilities" below). PRG also recorded charges during 1998 amounting to
     $41,509,565 reflecting the uncertainty of the realization of certain
     accounts receivable, which correspondingly decreased working capital.
     Overall indebtedness both short and long term was $153,208,000.

     Credit Facilities

          In March 1997, PRG arranged a new $90,000,000 credit facility with a
     syndicate of banks led by its prior bank lender, to be used for
     acquisitions, capital expenditures, working capital and Common Stock
     repurchases. The new credit facility was secured by the stock of the
     subsidiaries of PRG and guaranteed by such subsidiaries. PRG borrowed
     approximately $8,000,000 under the facility in early October of 1997 to
     finance certain acquisitions but went into technical default subsequent
     thereto. The $90,000,000 facility was subsequently terminated and a new
     $14,000,000 facility was established with the lead bank from its
     $90,000,000 facility. PRG had borrowed $12,248,000 from its new facility as
     of December 31, 1997. The amended facility required that the balance
     outstanding be paid down to $9,500,000 by September 30, 1998, with the
     remainder to be repaid on December 31, 1998. The facility was guaranteed by
     Lucius Burch, Dr. David Meyer and Robert Alpert. The consideration paid to
     these individuals in return for their guarantees was approximately
     $1,676,0000.

          The facility was paid down to $9,500,000 by September 30, 1998. On
     December 31, 1998, PRG was in technical default on the $9,500,000 facility
     with its lead bank and the debt was subsequently

                                      -20-
<PAGE>

     purchased by another bank in late January 1999. The debt was then retired
     in full in March 1999 with proceeds from the sale of various practice
     assets.

          On March 19, 1999, PRG entered into the RAM Agreement with RAM, which
     then owned or managed approximately $92 million principal amount of the
     Debentures.  PRG's overall restructuring would involve (i) the sale of
     practice assets and interests in surgery centers to its affiliated
     practices and a concurrent termination of MSAs and execution of mutual
     releases between PRG and such practices and (ii) the sale of certain
     interests in surgery centers to a strategic partner.

          Under the terms of the RAM Agreement with RAM, the holders of the $125
     million principal amount of PRG's Debentures would receive (i) $100 million
     principal amount in cash and/or notes from the restructuring of PRG's
     relationships with its affiliated practices and the sale to a strategic
     partner of certain interests in surgery centers and (ii) an interest in the
     net proceeds of certain patent litigation. PRG had agreed to pay $3.75
     million in interest that was due on the Debentures on December 1, 1998. In
     connection with the RAM Agreement, RAM loaned to PRG $3.75 million. The
     loan was evidenced by a secured promissory note, which bore interest at the
     rate of 20% per annum and was due and payable in its entirety on September
     30, 1999. Interest on the note was payable monthly beginning May 1, 1999.
     There was no prepayment penalty for early retirement of the note. The note
     was secured by a pledge of an interest in various of its subsidiaries. The
     $3.75 million note was paid off July 1999.

          In July 1999, RAM notified PRG that RAM believed that there had been a
     material breach by PRG regarding a representation related to certain
     litigation discussed in the RAM Agreement, which RAM believed provided it
     the right to terminate the RAM Agreement. RAM also questioned whether PRG
     used reasonable efforts to complete the restructuring by September 30,
     1999.  PRG believes that it had used its reasonable efforts to complete the
     restructuring.  The restructuring was not completed by September 30, 1999.

     In fiscal 1999, PRG completed sales of assets used in connection with the
     operation of 48 medical practices and certain interests in 22 ASCs. In
     connection with those sales, all litigation and other disputes with these
     affiliated medical practices and surgery centers were resolved,
     approximately $17 million in principal amount of notes payable by PRG to
     the affiliated medical practices were cancelled and the management services
     agreements between PRG and the affiliated medical practices were
     terminated.

     Liquidity

          As discussed previously, the Company had a working capital deficit of
     approximately $71,789,000 million at December 31, 1999. The Company was
     able to generate adequate cash flow to meet its needs in fiscal 1998 and
     1999 through the sale of various assets.  Throughout 1999, PRG continued to
     experience further losses and negative cash flows from operations, and on
     February 1, 2000, the Company filed a voluntary petition under Chapter 11
     of the Bankruptcy Code.

          PRG and EyeCorp filed the 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 unliquidated
     assets  will be liquidated.

     Inflation

          To date, inflation has not had a material effect on the combined
     results of operations of the Eyecare Practices.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
          -------------------------------------------

     Financial Statements and Supplementary Data are included herein on pages
F-1 through F-24.

                                      -21-
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         ---------------------------------------------------------------
         FINANCIAL DISCLOSURES
         ---------------------

     On November 13, 1998, Andersen resigned as the Company's principal
independent public accountant.  Neither the Company's Board of Directors nor any
committee of the Board of Directors recommended that Andersen resign.
Andersen's report on the Company's financial statements for each of the years
ended December 31, 1996 and December 31, 1997, respectively, did not contain an
adverse opinion or disclaimer of opinion.  Neither were such opinions qualified
or modified as to uncertainty, audit scope or accounting principles.  Since
January 1, 1996, there have not been any disagreements between the Company and
Andersen on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which if not resolved to
the satisfaction of Andersen would have caused it to make reference to the
subject matter of the disagreement(s) in connection with its reports on the
Company's financial statements.  In connection with the increasing number of
Eyecare Practices that notified the Company of their disputes regarding
compliance with their respective MSAs with the Company during the third quarter
of 1998, Andersen expressed concerns to the Company about realizability of
recorded receivables and intangible assets, as well as recognition of revenues.

     The principal reasons for its resignation which Andersen expressed to the
Company were (i) its belief that there do not exist internal financial controls
and adequate financial reporting from affiliated practices necessary for the
Company to develop reliable financial statements and (ii) its belief that prior
management of the Company had not taken steps to remedy problems disclosed to
the Company by Andersen in a "material weakness" letter (the "Material Weakness
Letter") delivered in connection with Andersen's issuance of its opinion with
respect to the Company's financial statements for the year ended December 31,
1997, as disclosed in the Company's Annual Report on Form 10-K for that period.
Andersen stated in the Material Weakness Letter that during 1997 (i) the Company
did not maintain adequate control over the recording of transactions between
individual physician practices and the Company's corporate accounting department
and (ii) the reconciliation of many key general ledger accounts, including
certain cash, receivable and accrued liability accounts, was not performed by
the Company on a timely basis.  These matters constituted a material weakness as
defined by standards established by the American Institute of Certified Public
Accountants in the internal control structure of the Company for the period
examined.

     Best efforts were maintained by the Board of Directors to appoint new
principal independent public accountants following the resignation of Andersen.
After numerous inquiries and contacts, on March 12, 1999, the Board of Directors
appointed MFSL as the principal independent public accountants for PRG.

     The Company did not directly or indirectly during the two fiscal years
preceding the appointment of MFSL, or during the subsequent interim period prior
to the appointment of MFSL, consult MFSL regarding (a) either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's' financial
statements, or  (b) any matter that was either the subject of a disagreement
with Andersen or a reportable event.

                                      -22-
<PAGE>

                                   PART  III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF PRG
          ---------------------------------------

     The name, age, position and term of the executive officer of the Company is
set forth under the heading "Executive Officers" on page 8 under Item 1 of this
report.  The following chart sets forth the name, age, position and term of each
director of the Company.

<TABLE>
<CAPTION>
                    Name                           Age                              Position
                   -----                          -----                             --------
<S>                                            <C>          <C>
     Michael W. Yeary                                47        Director, President and Chief Restructuring Officer
</TABLE>

     Michael Yeary served as Chief Operating Officer and President of PRG from
October, 1998 until February 2000. Since February 1, 2000, he has served as
PRG's President and Chief Restructuring Officer. Additionally, since March 16,
2000, Mr. Yeary has served as PRG's sole director. Finally, from December 15,
2000, he has served as the Liquidation Agent for the Company. From February 1996
until February 1998, Mr. Yeary served as Regional Vice President of PRG for
South Texas and Louisiana. From January 1, 1998 until March 30, 1998, Mr. Yeary
served as the Interim Accounting Manager of PRG in addition to his other duties.
From 1989 to February 1996, he was the Chief Financial Officer for Mann Berkeley
Eye Center in Houston, Texas. From 1981 to 1989, Mr. Yeary served as the
Executive Vice President, Chief Financial Officer for the Tomasco Group, a real
estate development and investment company with operations in industries related
to commercial real estate, manufacturing and oil and gas. Previously, Mr. Yeary
served in a variety of capacities in retail and public accounting with Deloitte
and Touche, LLP. Mr. Yeary is a Certified Public Accountant and received his
B.B.A. in Accounting from Lamar University. He is also a Director of Humble
National Bank.

                                      -23-
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION
          ----------------------

          The following table sets forth a summary of the compensation paid by
PRG for services rendered in all capacities to PRG during 1997, 1998 and 1999 to
the Named Executive Officers.

<TABLE>
<CAPTION>
                                                                                        Long-term Compensation
                                                                              --------------------------------------------
                                            Annual Compensation                     Awards                    Payouts

       Name and Principal        Year   Salary($)   Bonus($)     Other      Restricted    Securities      LTIP         All Other
            Position                                            Annual         Stock      Underlying    Payouts     Compensation
                                                             Compensation    Awards($)      Options        ($)            ($)
                                                                  ($)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>   <C>        <C>       <C>             <C>         <C>              <C>       <C>
Richard A. Gilleland,            1997    19,153    54,000            -             -      1,505,000  (3)        -          -  -
Chairman of the Board and Chief  1998         -         -            -             -              -             -    235,000  (2)
Executive Officer (3)(4)         1999         -         -            -             -              -             -          -  -
------------------------------------------------------------------------------------------------------------------------------------
Emmett E. Moore                  1997         -         -            -             -              -             -    346,903  (1)(2)
Chairman of the Board and Chief  1998         -         -            -             -              -             -    345,000  (2)
Executive Officer (3)(5)         1999         -         -            -             -              -             -          -  -
------------------------------------------------------------------------------------------------------------------------------------
Jonathan R. Bond                 1997   175,000         -            -             -        100,000  (3)        -          -
Executive Vice President -       1998   175,000         -            -             -              -             -          -
Operations (3)                   1999    55,192         -            -             -              -             -          -
------------------------------------------------------------------------------------------------------------------------------------
                                 1997         -         -            -             -        450,000  (3)        -          -
Peter Dorflinger,                1998   248,894   187,500            -             -              -             -          -
President (3)                    1999         -         -            -             -              -             -    425,000  (6)
------------------------------------------------------------------------------------------------------------------------------------
Michael W. Yeary., President,    1997   151,308         -            -             -        202,500  (7)        -          -
Chief Restructuring Officer,     1998   174,985    60,000            -             -              -             -      2,048  (1)
and Liquidation Agent            1999   226,250   202,581            -             -              -             -      2,251  (1)
------------------------------------------------------------------------------------------------------------------------------------
Karen Nicolaou, Controller and   1997         -         -            -             -          7,500  (7)        -          -
Director of Claims               1998    40,122         -            -                            -             -      2,622  (1)
Resolution                       1999   110,000    93,331            -             -              -             -      2,251  (1)
------------------------------------------------------------------------------------------------------------------------------------
                                 1997    89,564         -            -             -         20,000  (3)        -          -
Lane Edenburn, Vice President    1998    94,062         -            -             -              -             -      2,070  (1)
 (3)                             1999   142,019   127,060            -             -              -             -      2,251  (1)
------------------------------------------------------------------------------------------------------------------------------------
                                 1997   161,060         -            -             -        172,500  (7)        -          -
Daniel Chambers                  1998   175,000         -            -             -              -             -          -
                                 1999   157,179   102,519            -             -              -             -          -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Represents amounts paid by PRG for health insurance premiums.

(2)  Includes $125,000 paid by PRG in connection with a severance package.

(3)  Individuals are no longer employed by the Company; therefore, all stock
     options granted to such individuals have or will expire in accordance with
     the terms of the stock option plan.

(4)  Mr. Gilleland was elected Chairman of the Board of Directors and Chief
     Executive Officer effective December 15, 1997. Mr. Gilleland resigned from
     the Board of Directors and as an officer of PRG on December 29, 1998.

(5)  Mr. Moore's position as Chairman of the Board and employment as Chief
     Executive Officer were terminated on November 17, 1997.

(6)  Represents $425,000 paid by PRG in connection with a severance agreement.

(7)  Outstanding options have been reduced to a potential claim in bankruptcy.
     Option holders may not receive or retain any property under the Plan with
     respect to their holdings unless or until all creditors have been paid in
     full.

                                      -24-
<PAGE>

Option Grants During 1998 and 1999

The following table presents information regarding 1998 and 1999 grants of
options to purchase shares of Common Stock for each of the Named Executive
Officers:


<TABLE>
<CAPTION>
                                                                                                     Alternative to (f) and (g):
                                       Individual Grants                                                  Grant date value
------------------------------------------------------------------------------------------------
                                 Number of       % of Total
                                Securities         Options         Exercise or
       Name                     Underlying       Granted to         Base Price      Expiration
                                  Options       Employees in        ($/Sh)/(2)/        Date            Grant date Present Value
                                Granted(#)       Fiscal Year
-----------------------      --------------   ---------------   ----------------   ---------------   -------------------------
<S>                      <C>                    <C>               <C>                <C>               <C>
Jonathan R. Bond           (1)       25,000              1.58            $  4.00          06/23/03                       $0.00
                                     52,500              3.32            $  2.75          08/27/03                       $0.00

Daniel Chambers                      20,000              1.26            $  4.00          06/23/03                       $0.00  (2)
                                     52,500              3.32            $  2.75          08/27/03                       $0.00  (2)

Peter Dorflinger           (1)       10,000               .63            $  4.50          01/23/03                       $0.00
                                    150,000              9.48            $  4.00          06/23/03                       $0.00
                                     90,000              5.69            $  2.75          08/27/03                       $0.00
                                    200,000             12.64            $ 3.625          01/23/03                       $0.00

Pamela Westbrook           (1)       70,000              4.42            $  4.00          06/23/03                       $0.00
                                    100,000              6.32            $  3.75          02/23/03                       $0.00
                                     52,500              3.32            $  2.75          08/24/03                       $0.00

Michael Yeary                        50,000              3.16            $  4.00          06/23/03                       $0.00  (2)
                                     52,500              3.32            $  2.75          08/27/03                       $0.00  (2)
                                     60,000              3.79            $  4.50          01/08/03                       $0.00  (2)
                                     40,000              2.53            $  4.93          06/04/03                       $0.00  (2)

Ann Chaney                 (1)       25,000              1.58            $4.0625          04/01/03                       $0.00
                                     10,000               .63               2.75          08/24/03                       $0.00

Lane Edenburn              (1)        7,500               .47            $ 4.938          06/06/03                       $0.00
                                      5,000               .32            $  2.75          08/24/03                       $0.00

Karen G. Nicolaou                     7,500               .47            $  2.75          08/27/03                       $0.00  (2)
</TABLE>

(1)  Individuals are no longer employed by the Company; therefore, all stock
     options granted to such individuals have or will expire in accordance with
     the terms of the stock option plan.

(2)  Outstanding options have been reduced to a potential claim in bankruptcy.
     Option holders may not receive or retain any property under the Plan with
     respect to their holdings unless or until all creditors have been paid in
     full.

                                      -25-
<PAGE>

Aggregated Option Exercises During 1998 and 1999 and Year End 1999 Option Values

The following table presents information regarding options exercised in 1998 and
1999, and the value of options outstanding at December 31, 1999 for each of the
Named Executive Officers:

<TABLE>
<CAPTION>
                                                                 Number of Securities             Value of Unexercised
                                                                Underlying Unexercised            In-the-Money Options
                                                                 Options at FY-End(#)                at FY-End($)/(1)/
                                                        --------------------------------------------------------------------
                              Shares
                             Acquired          Value
        Name                on Exercise     Realized($)      Exercisable    Unexercisable    Exercisable       Unexercisable
                                (#)
---------------------    --------------    -------------    -------------   -------------    -----------       -------------
<S>                    <C>                 <C>               <C>            <C>              <C>               <C>
Jonathan R. Bond       (1)           0       $      0.00               0                0             $0                  $0
Daniel Chambers                      0       $      0.00          72,500                0             $0  (2)             $0
Peter Dorflinger       (1)           0       $      0.00               0                0             $0                  $0
Pamela Westbrook       (1)           0       $      0.00               0                0             $0                  $0
Michael W. Yeary                     0       $      0.00         202,500                0             $0  (2)             $0
Ann Chaney             (1)           0       $      0.00               0                0             $0                  $0
Lane Edenburn          (1)           0       $      0.00          20,000                0             $0  (2)             $0
Karen G. Nicolaou                    0       $      0.00           7,500                0             $0  (2)             $0
Richard J. D'Amico     (1)           0       $333,330.00               0                0             $0                  $0
</TABLE>

(1)  Individuals are no longer employed by the Company; therefore, all stock
     options granted to such individuals have or will expire in accordance with
     the terms of the stock option plan.

(2)  Outstanding options have been reduced to a potential claim in bankruptcy.
     Option holders may not receive or retain any property under the Plan with
     respect to their holdings unless or until all creditors have been paid in
     full.

Compensation Committee Interlocks and Insider Participation

     Richard A. Gilleland was a member of the Compensation Committee during 1997
and was elected the Chief Executive Officer of PRG effective December 15, 1997.
Mr. Gilleland resigned as a member of the Compensation Committee prior to his
election as Chief Executive Officer and did not participate, in any way, in the
deliberations of the Committee with regard to his compensation.  No other member
of the Compensation Committee was, during 1997, an officer or employee of PRG or
any of its subsidiaries, or was formerly an officer of PRG or any of its
subsidiaries or had any relationships requiring disclosure by PRG.

     During 1997, no executive officer of PRG served as (i) a member of the
Compensation Committee (or other board committee performing equivalent
functions) of another entity, one of whose executive officers served on the
Compensation Committee, (ii) a director of another entity, one of whose
executive officers served on the Compensation Committee, or (iii) a member of
the Compensation Committee (or other board committee performing similar
functions) of another entity, one of whose executive officers served as a
director of PRG.

Compensation of Directors

     Subsequent to October 1998, no members of PRG's Board of Directors received
compensation for their service as directors of PRG.  Prior to October 1998,
members of PRG's Board of Directors who were employees of PRG or of an Eyecare
Practice that was party to an MSA with PRG did not receive additional
compensation for serving as directors.  Prior to October 1998, each PRG director
who was neither an employee of PRG nor of an Eyecare Practice that was party to
an MSA with PRG received a fee of $2,000 for attendance at each Board of
Directors meeting (whether the meeting was in person or telephonic) and $1,500
(if in person; $500 if telephonic) for

                                      -26-
<PAGE>

each committee meeting (unless held on the same day as a Board of Directors
meeting) and an initial grant of nonqualified options to purchase 10,000 shares
of PRG Common Stock. Nonemployee directors (whether or not employed by an
Affiliated Practice) received annual grants of nonqualified options to purchase
5,000 shares of PRG Common Stock. All directors of PRG have been reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or committees thereof, and for other expenses incurred in their capacity as
directors of PRG.

Employment Agreements

     As of December 31, 2000, PRG was a party to employment agreements with
three key employees:  Michael W. Yeary, President and Chief Restructuring
Officer; Karen Nicolaou, Controller; and Lane Edenburn, General Counsel.

     The Employment Agreement between Mr. Yeary and the Company (the "Yeary
Employment Agreement") is dated January 31, 2000 and provides for a term of 18
months, a base salary of $450,000 per year and incentive bonuses payable as
follows:  (i) $125,000 on January 31, 2000; (ii) $150,000 on July 31, 2000;
(iii) $150,000 on January 31, 2001; and (iv) $150,000 on July 31, 2001.  The
Yeary Employment Agreement provides that if it is terminated by the Company
without "Cause" (as defined in the Yeary Employment Agreement) prior to the
expiration of its term, Mr. Yeary shall be entitled to receive salary and
bonuses payable under the Yeary Employment Agreement for the remainder of the
term of the Yeary Employment Agreement.

     Mr. Yeary has also been named the Company's Liquidation Agent.  In his
capacity as Liquidation Agent, Mr. Yeary receives salary and bonuses payable
under the Yeary Employment Agreement through the remainder of its term.  From
August 2, 2001 until February 1, 2002, Mr. Yeary receives compensation at an
annualized rate that is equal to his annual compensation (including bonuses and
benefits) payable under the Yeary Employment Agreement.  Beginning February 1,
2002, the Oversight Committee may elect to pay Mr. Yeary in his capacity as
Liquidation Agent either the annualized compensation provided for in the Yeary
Employment Agreement or an hourly rate of $400 plus benefits.

     Mr. Yeary, in his capacity as Liquidation Agent, will receive an incentive
bonus, which he may, in his discretion, share with other employees assisting him
in the Company's liquidation.  This bonus will be 10% of each distribution
payable to the holders of the Indenture Trustee's Claim in excess of the sum of
(i) $105,481,023.29 and (ii) the amount of all interest actually earned by PRG
from February 1, 2000 through the December 21, 2000 or any subsequent
Distribution Date under the Plan.  Additionally, Mr. Yeary will be entitled to a
bonus on cash distributions to the holder of the Indenture Trustee's Claim as
follows:


                    Distribution Made By         Bonus as Percentage of
                    --------------------           Amount Distributed
                                                 ----------------------
                    December 22, 2000               1.00%
                    February 15, 2001               0.50%
                    April 1, 2001                   0.25%


     The Employment Agreement between Ms. Nicolaou and the Company (the
"Nicolaou Employment Agreement") is dated January 31, 2000 and provides for a
term of 18 months, a base salary of $140,000 per year and incentive bonuses
payable as follows:  (i) $70,000 on January 31, 2000; (ii) $70,000 on July 31,
2000; (iii) $70,000 on January 31, 2001; and (iv) $100,000 on July 31, 2001.
The Nicolaou Employment Agreement provides that if it is terminated by the
Company without "Cause" (as defined in the Nicolaou Employment Agreement) prior
to the expiration of its term, Ms. Nicolaou shall be entitled to receive salary
and bonuses payable under the Nicolaou Employment Agreement for the remainder of
the term of the Nicolaou Employment Agreement.

     The Employment Agreement between Mr. Edenburn and the Company (the
"Edenburn Employment Agreement") was dated January 31, 2000 and provides for a
term of 12 months, a base salary of $175,000 per year and incentive bonuses
payable as follows:  (i) $87,500 on January 31, 2000; (ii) $87,500 on July 31,
2000; and (iii) $100,000 on January 31, 2001, unless the Company elects to
extend the term of the Edenburn Employment Agreement for an additional six month
period beyond January 31, 2001, in which case Mr. Edenburn shall receive $87,500
on January 31, 2001 and $100,000 on July 31, 2001. The Edenburn Employment
Agreement was not extended beyond January 31, 2001. Mr. Edenburn is no longer
employed by the Company.

                                      -27-
<PAGE>

     PRG has been party to employment agreements with members of prior
management.  The paragraphs that follow discuss the employment agreements to
which PRG was a party in 1998 and 1999 under which severance payments were made
to former employees of PRG.

     In December 1997, Mr. Gilleland entered into an employment agreement with
PRG providing for a base salary of $360,000 per annum.  The employment agreement
provided that in the event of a termination of employment without cause by PRG
or for Good Reason (defined below) by Mr. Gilleland, Mr. Gilleland would be
entitled to receive from PRG, during the Severance Period (defined below), an
annual payment equal to 175% of the amount of Mr. Gilleland's then current
annual salary, to be paid in bi-weekly installments, plus a payment for accrued
but unpaid wages, expense reimbursements and a prorated annual bonus equal to
145% of the amount calculated by dividing Mr. Gilleland's annual base salary at
the date of termination by twelve and multiplying the result by the number of
months in the year of such termination that began or ended prior to the date of
such termination.  Under Mr. Gilleland's employment agreement, the term
Severance Period meant (i) if Mr. Gilleland's employment was terminated at or
prior to the end of the initial three year term, (including by failure of the
Company to renew the agreement at the end of the initial term), a period equal
to the greater of (x) two full years beginning on the date of termination and
(y) the then remaining portion of the initial term and (ii) if Mr. Gilleland's
employment was terminated after the end of the initial term and prior to the end
of the then-current renewal term (including by failure of the Company to renew
the agreement at the end of the renewal term), a period equal to one full year
beginning on the date of termination.  Good Reason was defined in the employment
agreement as a material diminution of Mr. Gilleland's responsibilities or
duties, a reduction in Mr. Gilleland's base salary or minimum annual bonus of at
least 75% of base salary, or annual bonus or long-term incentive compensation
opportunity, a change of control, failure of the PRG Board of Directors to adopt
an Executive Bonus Program by March 31, 1998, failure of PRG to execute and
deliver to Mr. Gilleland on or prior to December 21, 1997 an Option Agreement
and Registration Rights Agreement, requiring Mr. Gilleland to move his principal
place of business from the current location in Westlake Village, California or
such other location as Mr. Gilleland should agree to in writing, or a material
breach by PRG of the employment agreement which was not cured promptly after
written notice to PRG from Mr. Gilleland.  In addition, if PRG achieved target
performance objectives for the entire year in which such termination occurred
that would have entitled Mr. Gilleland to receive an annual bonus for such year
calculated at a percent greater than 145% of base salary, Mr. Gilleland would
have been entitled to an additional amount equal to (a) such larger bonus amount
divided by twelve and multiplied by the number of months in the year of such
termination that began or ended prior to the date of such termination minus (b)
the amount previously paid upon termination.  The employment agreement contained
a covenant-not-to-compete with PRG during the term of the employment agreement.

     In addition to base salary, Mr. Gilleland through his employment agreement
was eligible for a fixed bonus of $54,000 for 1997 and a bonus in an amount
equal to at least $630,000 minus his base salary for all years thereafter.  Mr.
Gilleland had the opportunity to receive a bonus based on the financial
performance objectives of the Company.  This bonus was to range between 145% and
215% of Mr. Gilleland's base salary.  Mr. Gilleland was granted an option to
purchase 1,500,000 shares of PRG Common Stock with the per share exercise price
being the closing sale price for PRG stock on the NYSE on the date of the
commencement of the employment agreement.  The options were fully vested and
exercisable upon grant.

     Mr. Gilleland resigned from his position as the Company's Chairman and
Chief Executive Officer in October 1998.  In connection with his resignation,
Mr. Gilleland and the Company entered into a settlement arrangement pursuant to
which Mr. Gilleland received severance compensation aggregating $235,000.

     In January 1998, Mr. Dorflinger entered into an employment agreement with
PRG providing for a base salary of $300,000 per annum.  The employment agreement
provided that in the event of a termination of employment without cause by PRG
or for Good Reason (defined below) by Mr. Dorflinger, Mr. Dorflinger would be
entitled to receive from PRG, during the Severance Period (defined below), an
annual payment equal to 100% of the amount of Mr. Dorflinger's then current
annual salary, to be paid in bi-weekly installments, plus a payment for accrued
but unpaid wages, expense reimbursements and a prorated annual bonus equal to
75% of the amount calculated by dividing Mr. Dorflinger's annual base salary at
the date of termination by twelve and multiplying the result by the number of
months in the year of such termination that began or ended prior to the date of
such termination.  Under Mr. Dorflinger's employment agreement, the term
Severance Period meant (i) if Mr. Dorflinger's employment was terminated at or
prior to the end of the initial three year term, (including by failure of the
Company to renew the agreement at the end of the initial term), a period equal
to the greater of (x) two full years beginning on the date of termination and
(y) the then remaining portion of the initial term and (ii) if Mr. Dorflinger's

                                      -28-
<PAGE>

employment was terminated after the end of the initial term and prior to the end
of the then-current renewal term (including by failure of the Company to renew
the agreement at the end of the renewal term), a period equal to one full year
beginning on the date of termination.  Good Reason was defined in the employment
agreement as a material diminution of Mr. Dorflinger's responsibilities or
duties, a reduction in Mr. Dorflinger's base salary, or annual bonus or long-
term incentive compensation opportunity, a change of control, failure of the PRG
Board of Directors to adopt an Executive Bonus Program by March 31, 1998,
failure of PRG to execute and deliver to Mr. Dorflinger on or prior to January
24, 1998 an Option Agreement and Registration Rights Agreement or a material
breach by PRG of the employment agreement which was not cured promptly after
written notice to PRG from Mr. Dorflinger.  In addition, if PRG achieved target
performance objectives for the entire year in which such termination occurred
that would have entitled Mr. Dorflinger to receive an annual bonus for such year
calculated at a percent greater than 75% of base salary, Mr. Dorflinger would
have been entitled to an additional amount equal to (a) such larger bonus amount
divided by twelve and multiplied by the number of months in the year of such
termination that began or ended prior to the date of such termination minus (b)
the amount previously paid upon termination.  The employment agreement contained
a covenant-not-to-compete with PRG during the term of the employment agreement.

     Mr. Dorflinger was granted an option to purchase 200,000 shares of PRG
Common Stock at an exercise price of $3.625 per share, and were fully vested and
exercisable upon grant. In addition Mr. Dorflinger was granted options to
purchase shares of common stock as follows: 10,000 at an exercise price of
$4.50, 150,000 at an exercise price of $4.00 and 90,000 at an exercise price of
$2.75. These grants vested over a three-year period. Mr. Dorflinger's employment
with the Company terminated in November 1998. In connection with the termination
of Mr. Dorflinger's employment, the Company and Mr. Dorflinger entered into a
settlement agreement pursuant to which Mr. Dorflinger received severance
payments aggregating $425,000 prior to February 1, 2000.

     Mr. Moore entered into an employment agreement with PRG providing for a
base salary of $215,000 per annum.  Such employment agreement provided that in
the event of a termination of employment by PRG other than (i) for cause, (ii)
upon death or disability or (iii) upon notice 30 days prior to an automatic
renewal date occurring after five years from the date of first employment, Mr.
Moore would be entitled to receive from PRG a payment equal to the amount of Mr.
Moore's then current annual salary, to be paid in twelve monthly installments,
plus a payment for accrued but unpaid wages and expense reimbursements.  Mr.
Moore's employment agreement provided that in the event Mr. Moore's employment
terminated within twelve months following a change in control (as defined in
such employment agreement) of PRG, PRG would pay Mr. Moore 2.99 times Mr.
Moore's (i) base salary, (ii) maximum potential bonus and (iii) certain other
compensation, with certain adjustments.  The employment agreement provided that
PRG would pay an amount necessary to reimburse Mr. Moore, on an after tax basis,
for any excise tax due under Section 4999 of the Internal Revenue Code (the
"Code"), as a result of such payment being treated as a "parachute payment"
under Section 280G of the Code.  The employment agreement contained a covenant-
not-to-compete with PRG for a period of two years following termination of
employment.  The agreement provided that Mr. Moore could devote up to ten
percent (10%) of his professional time or two (2) days per month to a consulting
business independent from PRG.

     In addition to base salary, Mr. Moore through his employment agreement was
eligible for an annual bonus based on earnings per share growth.  Bonuses were
capped at 50% of base salary.  His agreement began in April 1995 and was for a
term of five years.

     Mr. Moore entered into a new employment agreement with the Company
effective February 21, 1997, which contained the same terms and conditions as
the employment agreement described above except that it was for a term of three
(3) years from the commencement date of the agreement, annual base salary was
$315,000, there was no provision for reimbursement of excise tax, the bonus
calculation was subject to a new formula and 100,000 options vesting 20% over a
five (5) year period at an exercise price of $15.25 were granted to Mr. Moore as
consideration for entering into the agreement.

     Mr. Moore's employment with the Company was terminated December 17, 1997.
The Company fulfilled its obligations to continue to pay Mr. Moore his salary
for the remainder of the contract term.

     Mr. Owen entered into an employment agreement with PRG providing for a base
salary of $180,000 per annum.  Such employment agreement provided that in the
event of a termination of employment by PRG other than (i) for cause, (ii) upon
death or disability or (iii) upon notice 30 days prior to an automatic renewal
date occurring after five years from the date of first employment, Mr. Owen
would be entitled to receive from PRG a payment equal to the amount of Mr.
Owen's then current annual salary, to be paid in twelve monthly installments,
plus a payment for accrued but unpaid wages and expense reimbursements.  Mr.
Owen's employment agreement provided that in the

                                      -29-
<PAGE>

event Mr. Owen's employment terminated within twelve months following a change
in control (as defined in such employment agreement) of PRG, PRG would pay Mr.
Owen 2.99 times Mr. Owen's (i) base salary, (ii) maximum potential bonus and
(iii) certain other compensation, with certain adjustments. The employment
agreement provided that PRG would pay an amount necessary to reimburse Mr. Owen,
on an after tax basis, for any excise tax due under Section 4999 of the Code, as
a result of such payment being treated as a "parachute payment" under Section
280G of the Code. The employment agreement contained a covenant-not-to-compete
with PRG for a period of two years following termination of employment. However,
the agreement did provide that Mr. Owen could devote up to ten percent (10%) of
his professional time or two (2) days per month to a consulting business
independent from PRG.

     In addition to base salary, Mr. Owen through his employment agreement was
eligible for an annual bonus based on earnings per share growth.  Bonuses were
capped at 50% of base salary.  Under the employment agreement, an option to
purchase 75,000 shares of PRG Common Stock at a purchase price of $13.00 per
share was granted to Mr. Owen.  Such options were to vest over a five (5) year
period; however, the options were immediately exercisable upon a change in
control.  Mr. Owen's initial agreement began in April 1995, was for a term of
five years and automatically renewed thereafter for successive one year terms
unless either party gave 30 days notice of termination.

     Mr. Owen entered into a new employment agreement with the Company effective
February 21, 1997, which contained the same terms and conditions as the
employment agreement described above except that it was for a term of two (2)
years from the commencement date of the agreement, annual base salary was
$250,000, there was no provision for reimbursement of excise tax, the bonus
calculation was subject to a new formula and 66,940 options vesting 20% over a
five (5) year period at an exercise price of $15.25 were granted to Mr. Owen as
consideration for entering into the agreement.

     On October 31, 1997, Mr. Owen resigned from his position with the Company.
Mr. Owen received approximately $125,000 in severance pay from the Company.

     In May 1998, Ms. Chaney entered into an employment agreement with PRG
providing for a base salary of $100,000 per year.  Ms. Chaney's base salary was
increased to $175,000 per year when her position with the Company changed from
Controller to Chief Financial Officer.  Such employment agreement provided that
in the event of termination of employment (i) by PRG other than for cause or
upon death or disability or (ii) by Ms. Chaney in the event that either (x) the
employment by the Company of Mr. Dorflinger as President and Ms. Westbrook as
Chief Financial Officer terminated for any reason or (y) the relocation of the
Company's corporate accounting office, to a location other than Houston, Texas,
Ms. Chaney would be entitled to a severance payment in the amount of her base
salary then in effect.  In addition to base salary, Ms. Chaney, through her
employment agreement, was eligible for an annual bonus based on a percentage of
her salary in the event that the Company achieved specified performance
objectives.  Under the terms of her employment agreement, Ms. Chaney received
options to purchase 25,000 shares of Common Stock at a price of $4.0625 per
share.  The employment agreement contained a covenant-not-compete with PRG for a
period of one year following termination of employment.

     Ms. Chaney resigned in November 1998 following the termination of Mr.
Dorflinger's and Ms. Westbrook's employment with the Company.  In connection
with such resignation, the Company paid $175,000 to Ms. Chaney as severance
compensation pursuant to the terms of her employment agreement.

                                      -30-
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          --------------------------------------------------------------

     The following table sets forth information with respect to beneficial
ownership of Common Stock as of December 31, 2000 by (i) all persons known to
PRG to be the beneficial owner of 5% or more of the Common Stock, (ii) the sole
director of PRG, (iii) each of the President and the two executive officers
other than the President (the "Named Executive Officers"); and (iv) all PRG
directors and executive officers as a group.  Holdings of persons other than the
Named Executive Officers are based on information contained in Schedule 13D's
filed with the Company and the SEC.  All persons listed have sole voting and
investment power with respect to their shares unless otherwise indicated.

<TABLE>
<CAPTION>
                                                                       Amount and Nature
                                                                         Of Beneficial              Percent
      Name of Beneficial Owner or Number of Persons in Group               Ownership               Of Class
      ------------------------------------------------------         ------------------------     ------------
     <S>                                                             <C>                           <C>
     David Meyer, M.D.............................................          2,497,249      (1)          8.27%
     Alpert Companies.............................................          1,648,600      (2)         5.443%
     Michael W. Yeary.............................................              3,366      (3)             *
     Karen Nicolaou...............................................                  0      (4)             *
     Lane Edenburn................................................                  0      (5)             *
     All directors and executive officers as a group (3 persons)..              3,366   (3)(4)(5)          *
</TABLE>
_______________

* Less than 1%.

(1)  Includes 770,000 shares held by a general partnership in which Dr. Meyer is
     a partner.

(2)  The Amendment to Schedule 13D dated December 23, 1998 filed these by
     entities with the SEC indicates that these shares are beneficially owned by
     Robert Alpert and certain entities affiliated with Robert Alpert.  The
     address listed in the Amendment to Schedule 13D dated December 23, 1998
     lists the address of Robert Alpert and these entities as Three Allen
     Center, 333 Clay, Suite 4515, Houston, Texas 77002.

(3)  Does not include options held by Mr. Yeary to purchase a total of 202,500
     shares of Common Stock at prices ranging from $4.00 to $4.938 per share

(4)  Does not include options held by Ms. Nicolaou to purchase 7,500 shares of
     Common Stock at a price of $2.75 per share.

(5)  Does not include options held by Mr. Edenburn to purchase a total of 20,000
     shares of Common Stock at prices ranging from $2.75 to $4.938 per share.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

Real Estate Transactions

     On June 28, 1995, PRG or its subsidiaries became the lessee under a variety
of leases.  PRG assumed an office lease for which a partnership, in which Bruce
E. Herron, M.D. is a partner, is the lessor; the annual expenditures under the
lease were approximately $171,000.  PRG assumed one office lease for which James
E. McDonald, II, M.D. is the lessor; the aggregate annual expenditures under the
lease were approximately $170,500.  PRG assumed five office leases for which
various partnerships, in which P. Harold Wallar, M.D. is a partner, are the
lessors; the aggregate annual expenditures under these leases were approximately
$591,800.  PRG assumed four office leases for which a partnership, in which
Kenneth C. Westfield, M.D. is a partner, is the lessor; the aggregate annual
expenditures under these leases were approximately $24,900.  Drs. Herron,
McDonald, Wallar and Westfield served as members of the Board of Directors in
1997 and resigned as members on January 24, 1998.

                                      -31-
<PAGE>

Buyout Transactions

     On January 28, 2000, EyeCorp and PRG completed the sale to the
Vitreoretinal Foundation, P.L.L.C. ("VRF"), RME Associates and certain
associated physicians, of the practice assets of VRF, certain real estate
associated with VRF and a 35% equity interest in Ridge Lake ASC General
Partnership, a partnership formed to own and operate Ridge Lake ASC.  The
consideration for the transactions consisted of cash in the amount of $1,248,349
and a promissory note in the original principal amount of $1,282,183.  The
promissory note extends for a three-year term commencing January 28, 2000 and
accrues interest at 10% per annum.  The first payment on the note was due on
February 1, 2000.  The note is secured by a lien on all VRF practice assets and
a negative pledge of the 35% interest in Ridge Lake ASC General Partnership
purchased in this transaction.  In addition, the note is guaranteed by the
individual VRF practice physicians, including Dr. Meyer. The note is currently
in default for nonpayment and notice of default and acceleration has been
provided to both VRF and the guarantors.  In connection with the transaction,
the liabilities of the VRF were assumed by the VRF, the MSA was terminated, the
VRF granted to EyeCorp a right of first refusal to develop an ASC and all
parties entered into mutual releases.  The purchase price was determined in
accordance with the methodology developed by Houlihan, and Houlihan opined that
the consideration received by PRG in connection with assets purchase price, the
real estate purchase price and the Ridge Lake ASC equity interest purchase price
was fair to the Company and its shareholders from a financial point of view. In
connection with this transaction, EyeCorp also issued to VRF an option,
exercisable on or before February 28, 2000, to purchase the remaining 65% equity
interest in the Ridge Lake ASC and the Van Dyck ASC General Partnership.  VRF
did not exercise either option.  Additionally, VRF had options, exercisable on
or before December 31, 2000, to purchase 14% of EyeCorp's Ridge Lake ASC
ownership interest and 14 % of EyeCorp's Van Dyck ASC ownership interest
exercisable for an all cash purchase price of $1,010,240 and $208,476,
respectively.  The VRF did not exercise either of these options.  Dr. David
Meyer is a shareholder of VRF  and RME Associates.  Dr. Meyer served as Chairman
of the Board of Directors in 1998 and 1999 and resigned as a member of the Board
of Directors on March 16, 2000.

     Effective April 30, 1999, PRG completed the sale to John R. Shepherd, M.D.,
LTD. ("Shepherd Practice"), and certain physicians, of the practice assets
associated with the Shepherd Practice and a 35% equity interest in PRG Nevada
Surgicenter, L.L.C. ("Shepherd ASC") for cash consideration of $1,951,820.  In
connection with the transaction, the liabilities of the Shepherd Practice were
assumed by the Shepherd Practice, the MSA was terminated, the Shepherd Practice
and the associated physicians granted to PRG a right of first refusal to develop
an ASC and a general release was entered into by all parties.  The purchase
price for the Shepherd Practice Assets and the equity interest in the Shepherd
ASC was determined in accordance with the methodology developed by Houlihan, and
Houlihan opined that the consideration received by the Company was fair from a
financial point of view.  Dr. Shepherd served on the Board of Directors of the
Company in 1998 and 1999 and resigned as a member of the Board of Directors on
March 16, 2000.

     Effective April 30, 1999, PRG completed the sale to Barnet Dulaney,
P.L.L.C. ("Barnet Dulaney") and certain physicians of the practice assets and
ASC profits interest associated with the Barnet Dulaney practice for cash
consideration of $2,712,000.  In connection with the transaction, the
liabilities of Barnet Dulaney were assumed by Barnet Dulaney, the MSA was
terminated, Barnet Dulaney and its associated physicians granted to PRG a right
of first refusal to develop an ASC and all parties entered into a general
release.  The purchase price for the Barnet Dulaney practice assets and the
termination of the MSA was determined in accordance with the methodology
developed by Houlihan, and Houlihan opined that the consideration received by
the Company was fair from a financial point of view.  Mr. Dulaney served on the
Board of Directors of the Company in 1998 and 1999 and resigned as a member of
the Board of Directors on March 16, 2000.

Certain Indebtedness

     In July, 1997, the Company loaned $500,000 at an interest rate of 8% to Dr.
Kenneth Westfield to provide funds to Dr. Westfield to purchase the practice of
a retiring physician practicing in his market (also a PRG affiliate).  The loan
was repayable in two equal installments of $250,000 in January and July of 1998.
The loan was repaid as part of the Buyout transaction effected by Dr. Westfield
with the Company. Dr. Westfield served as a member of the Board of Directors in
1997 and resigned as a member on January 24, 1998.

     In November, 1997, the Company replaced its $90,000,000 revolving credit
facility with a $14,000,000 revolving credit facility.  As of December 31, 1997,
outstanding borrowings under the facility were $12,248,000.  The amended
facility required the balance outstanding to be paid down to $9,500,000 by
September 30, 1998, with the remainder to be paid on December 31, 1998.  The
facility bore interest at LIBOR plus 2.5% (8.5% at December

                                      -32-
<PAGE>

31, 1997), with such interest being repayable, in its entirety, on December 31,
1998. Mr. Burch, David Meyer, M.D, and Robert Alpert guaranteed the amended
facility. Dr. Meyer served as a member of the Board of Directors in 1997 and
resigned as a member on January 24, 1998. Dr. Meyer again served as a member of
the Board of Directors from October 30, 1998 to March 16, 2000. Total
compensation to Mr. Burch, Dr. Meyer, and Robert Alpert for these guaranties was
$752,258, $785,941, and $137,546, respectively.

Management Service Agreements

     PRG was a party to certain MSAs with affiliated practices in which certain
former directors have or had an ownership interest.  Service fees accrued to PRG
in 1997 by such affiliated practices in which certain directors had an ownership
interest were as follows:  Alan C. Baum, M.D. (TEI & Assoc.) $1,652,110; Charles
D. Fritch, M.D. (Fritch Eye Care Center) $227,609; Bruce E. Herron, M.D. (Eye
Clinic, P.C.) $809,300; James E. McDonald, M.D. (McDonald Eye Associates, P.A.)
$136,345; Joseph C. Noreika, M.D. (TPZ, Inc.) $129,393; David M. Schneider, M.D.
(David M. Schneider, M.D., Inc.) $568,184; P. Harold Wallar, M.D. (Inland Eye
Institute Medical Group, Inc.) $98,395; Kenneth C. Westfield, M.D. (Westfield
Eye Center) $43,595; David Meyer, M.D. (Vitreoretinal Foundation) $1,609,048;
James W. Rayner, M.D. (Rayner Eye Clinic) $921,531; and Joe E. Ellis, O.D.
(Primary Eye Care, P.S.C.) $9,675.  Drs. Fritch, Herron, McDonald, Noreika,
Schneider, Wallar, Westfield, Meyer, Rayner and Ellis served as members of the
Board of Directors in 1997 and resigned as members on January 24, 1998.

     During the course of the Company's 1997 review of its due from affiliates
balance, approximately $1,584,000, $468,000 and $242,000 of receivables due in
connection with the payment of service fees from the practices of Drs. Meyer,
Schneider and Noreika, respectively, were re-evaluated and subsequently reserved
or written off.  Drs. Meyer, Schneider and Noreika served as members of the
Board of Directors in 1997 and resigned as members on January 24, 1998.

Sale of Preferred Stock

     During 1997, the Board of Directors approved a transaction pursuant to
which (i) PRG sold to Emmett E. Moore 200,000 shares of Series B Convertible
Preferred Stock (the "Preferred Shares") for an aggregate purchase price of
$2,225,000, and (ii) the purchase of the Preferred Shares was funded by a loan
from the Company to Mr. Moore. The intent of the sale of Preferred Shares to Mr.
Moore was to align his interests with those of the Company's stockholders by
providing Mr. Moore a significant equity interest in the Company.  The principal
of the loan is nonrecourse and the interest payable with respect to the loan is
recourse.  This loan transaction was contingent on stockholder approval, which
was obtained in May of 1997.  During 1997, Mr. Moore was Chairman of the Board
of Directors and Chief Executive Officer of the Company.  However, his
employment with the Company was terminated on November 17, 1997.

                                      -33-
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          ----------------------------------------------------------------

<TABLE>
<S>                                                                                             <C>
(a)  1.   Index to Financial Statements

          The following Financial Statements are included herein:

          Independent Auditors' Report........................................................       F-2
          Reports of Independent Public Accountants...........................................       F-3

          Consolidated Balance Sheets as of December 31, 1998 and 1999........................       F-4

          Consolidated Statements of Operations for the three years ended December 31, 1999...       F-5

          Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the three
            years ended December 31, 1999.....................................................       F-6

          Consolidated Statements of Cash Flows for the three years ended December 31, 1999...       F-7

          Notes to Consolidated Financial Statements..........................................       F-8
</TABLE>

     2.   Index to Financial Schedules.

          No schedules are included because of the absence of conditions under
          which they are required or because information is disclosed in the
          financial statements or notes thereto.

     3.   Exhibits

          The exhibits filed as a part of this report are listed under
          "Exhibits" at subsection (c) of this Item.

(b)  REPORTS ON FORM 8-K:

     The following reports on Form 8-K were filed on behalf of the Company
     during the last quarter of the period covered by this report.

          None.


(c)  EXHIBITS


     Exhibit
     Number                            Description
     -------                           -----------

     2.1   --  Modified First Amended Joint Liquidating Plan. (13)

     2.2   --  Order of Court Confirming Modified First Amended Joint
               Liquidating Plan. (13)

     2.3   --  Acquisition Agreement by and among PRG and each of the entities
               listed on the signature pages as Sellers and AmSurg as Buyer
               dated January 31, 2000. (15)(5)

     3.1   --  Second Restated Certificate of Incorporation of PRG. (7)

     3.2   --  Certificate of Designations, Preferences, Rights and Limitations
               of Class A Preferred Stock of PRG. (1)

     3.3   --  Third Amended and Restated Bylaws of PRG. (3)

     4.1   --  Form of Warrant Certificate. (1)


                                      -34-
<PAGE>

     4.2   --  Form of certificate evidencing ownership of Common Stock of PRG.
               (1)

     4.3   --  Rights Agreement dated as of April 19, 1996 between PRG and
               Chemical Mellon Shareholder Services. (6)

     10.1  --  PRG Amended and Restated 1995 Stock Option Plan. (3)(4)

     10.2  --  PRG 1995 Health Care Professionals Stock Option Plan. (1)

     10.3  --  Employment Agreement between PRG and Emmett E. Moore. (12)(4)

     10.4  --  Employment Agreement between PRG and Richard M. Owen. (12)(4)

     10.6  --  Form of Registration Rights Agreement. (1)

     10.7  --  Form of Registration Rights Agreement. (1)

     10.8  --  Form of Registration Rights and Stockholders Agreement. (1)

     10.9  --  Form of Registration Rights Agreement dated as of March 7, 1996,
               by and among PRG and the former stockholders of EyeCorp. (3)

     10.10 --  Employment Agreement between PRG and Michael W. Yeary. (14)(4)

     10.11 --  Employment Agreement between PRG and Karen G. Nicolaou. (14)(4)

     10.12 --  Employment Agreement between PRG and Lane Edenburn. (14)(4)

     10.13 --  Form of Indenture, dated as of December 11, 1996, between PRG and
               U.S. Trust Company of New York, NA. (7)

     10.14 --  Form of Registration Rights Agreement, dated as of December 6,
               1996, between PRG, and Smith Barney, Inc., Alex Brown & Sons
               Incorporated, Salomon Brothers, Dillon Reed & Co., Inc. and Volpe
               Welty & Company. (7)

     10.15 --  Loan Agreement for $90,000,000 Revolving Credit Loan dated March
               14, 1997, between PRG and NationsBank, Agent the Banks Signatory
               Hereto. (9)

     10.16 --  PRG Employee Stock Purchase Plan. (8)

     10.17 --  Employment Agreement between PRG and Richard Gilleland. (4)(11)

     10.18 --  Employment Agreement between PRG and Peter Dorflinger. (4)(11)

     10.19 --  Employment Agreement between PRG and Pamela Westbrook. (4)(11)

     10.20 --  Employment Agreement between PRG and Ann Chaney. (4)(14)

     10.21 --  First Amended and Restated Loan Agreement for $20,000,000
               Revolving Credit Loan dated November 1997, between PRG and
               NationsBank. (11)

     10.22 --  PRG 401(K) Plan. (10)

     10.23 --  Management Services Agreement between PRG and AmSurg, dated
               January 1, 2000. (14)

     10.24 --  First Amendment to First Amended and Restated Loan Agreement
               dated April 30, 1998 between PRG and NationsBank. (14)

                                      -35-
<PAGE>

     10.25 --  Termination Agreement with Peter Dorflinger. (14)

     10.26 --  Termination Agreement with Richard Gilleland. (14)

     21.1  --  Subsidiaries. (3)

     24.1  --  Power of Attorney (contained on the signature page of this
               report).

     27.0  --  Financial Data Schedule. (9)

(1)  Previously filed as an exhibit to the Company's Registration Statement on
     Form S-1 (No. 33-91440) and incorporated herein by reference.
(2)  Previously filed as an exhibit to the Company's Registration Statement on
     Form S-4 (No. 333-00230) and incorporated herein by reference.
(3)  Previously filed as an exhibit to the Company's annual report on Form 10-K
     for the year ending December 31, 1995, and incorporated herein by
     reference.
(4)  Management contract or compensatory plan or arrangement, which is being
     identified as such pursuant to Item 14(a)3 of Form 10-K.
(5)  Schedules and similar attachments to this Exhibit have not been filed
     herewith, but the nature of their contents is described in the body of this
     Exhibit.  The Company agrees to furnish a copy of any such omitted
     schedules and attachments to the Commission upon request.
(6)  Previously filed as an exhibit to the Company's Registration Statement on
     Form S-1 (no.333-3852) and incorporated herein by reference.
(7)  Previously filed as an exhibit to the Company's Registration Statement on
     Form S-4 (333-19185) and incorporated herein by reference.
(8)  Previously filed as an exhibit to the Company's Registration Statement on
     Form S-8 (No. 333-15547) and incorporated herein by reference.
(9)  Previously filed as an exhibit to the Company's Annual Report on Form 10-K
     for the year ending December 31, 1996 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Current Report on Form 8-K
     dated May 15, 1997 and incorporated herein by reference.
(11) Previously flied as an exhibit to the Company's Annual Report for the year
     ending December 31, 1997 and incorporated herein by reference.
(12) Previously filed as an exhibit to the Company's Quarterly report on Form
     10-Q for the quarter ending March 31, 1997, and incorporated herein by
     reference.
(13) Previously filed as an exhibit to the Company's Current Report on Form 8-K
     dated December 14, 2000 and incorporated herein by reference.
(14) Filed herewith.
(15) Previously filed as an exhibit to the Company's Current Report on Form 8-K
     dated February 15, 2000 and incorporated herein by reference.

                                      -36-
<PAGE>

                                   SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the 1934 Act,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                    PHYSICIANS RESOURCE GROUP, INC.


June 5, 2001                  By:   /s/ Michael Yeary
                                    ------------------------------------
                                    Michael Yeary
                                    Director, President and Chief Restructuring
                                    Officer (Principal Executive Officer)

June 5, 2001                  By:   /s/ Karen Nicolaou
                                    ------------------------------------
                                    Karen Nicolaou
                                    Controller and Director of Claims Resolution
                                    (Principal Accounting and Financial Officer)

                                      -37-
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
PHYSICIANS RESOURCE GROUP, INC.:

  Independent Auditors' Report..............................................................................    F-2

  Report of Independent Public Accountants..................................................................    F-3

  Consolidated Balance Sheets as of December 31, 1998 and 1999..............................................    F-4

  Consolidated Statements of Operations for the three years ended December 31, 1999.........................    F-5

  Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the three years ended
     December 31, 1999......................................................................................    F-6

  Consolidated Statements of Cash Flows for the three years ended December 31, 1999.........................    F-7

  Notes to Consolidated Financial Statements................................................................    F-8
</TABLE>

                                      F-1
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Physicians Resource Group, Inc.:


We have audited the accompanying consolidated balance sheets of Physicians
Resource Group, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for each of the years
in the two-year period ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Physicians Resource Group, Inc. and subsidiaries at December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the years in the two-year period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 of the
Notes to Consolidated Financial Statements, on February 1, 2000, the Company
filed a voluntary petition for relief under Chapter 11 of Title 11 of the United
States Bankruptcy Code. Additionally, on May 25, 2000, EyeCorp, Inc., a wholly
owned subsidiary of the Company, filed a voluntary petition for relief under
Chapter 11 of Title 11 of the United States Bankruptcy Code. These matters raise
substantial doubt about the Company's ability to continue as a going concern and
recover the carrying amounts of its assets. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


/s/ Mann Frankfort Stein & Lipp CPAs, L.L.P.



Houston, Texas
October 31, 2000

                                      F-2
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
Physicians Resource Group, Inc.:



     We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of Physicians Resource Group,
Inc. (a Delaware corporation) and subsidiaries for the year ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion of these financial
statements based on our audit.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the statements of
operations, changes in stockholders' equity and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements of operations, changes in
stockholders' equity and cash flows. 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 statement of operations, changes in stockholders'
equity and cash flows referred to above present fairly, in all material
respects, the results of operations and cash flows of Physicians Resource Group,
Inc. and subsidiaries for the year ended December 31, 1997, in conformity with
accounting principles generally accepted in the United States.



                                              Arthur Andersen LLP

Dallas, Texas
April 14, 1998

                                      F-3
<PAGE>

               PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                          (000's, Except Share Data)

<TABLE>
<CAPTION>
                                                                                                          December 31,
                                                                                              ------------------------------------
ASSETS                                                                                             1998                 1999
                                                                                              --------------        --------------
<S>                                                                                           <C>                   <C>
CURRENT ASSETS:
  Cash and cash equivalents.................................................................  $        9,654        $       43,315
  Accounts receivable, net of contractual and other allowances of $10,008 in 1998...........           6,452                     -
  Income tax receivable.....................................................................           4,534                     8
  Pharmaceuticals and supplies..............................................................             654                     -
  Prepaid expenses and other................................................................             752                 2,667
    Assets held for disposition, net of an allowance of $240,104 in 1998 and
    $226,486 in 1999........................................................................         100,906                48,525
                                                                                              --------------        --------------
      Total current assets..................................................................         122,952                94,515

PROPERTY AND EQUIPMENT, net.................................................................          13,737                 1,342
INTANGIBLE ASSETS, net......................................................................          13,629                 3,603
OTHER NONCURRENT ASSETS, net................................................................             179                   136
                                                                                              --------------        --------------
      TOTAL ASSETS..........................................................................  $      150,497        $       99,596
                                                                                              ==============        ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
  Current portion of long-term debt (includes obligations to affiliates)....................  $      151,546        $      131,883
  Due to affiliates.........................................................................          29,738                22,797
  Accounts payable and accrued expenses.....................................................          14,368                11,623
                                                                                              --------------        --------------
      Total current liabilities.............................................................         195,652               166,303

LONG-TERM DEBT, net of current portion......................................................           1,662                     -

OTHER LONG-TERM LIABILITIES.................................................................           2,718                 1,205
                                                                                              --------------        --------------
      Total Liabilities.....................................................................         200,032               167,508
                                                                                              --------------    ------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
  Common Stock, $.01 par value, 100,000,000 shares authorized, 29,993,435 and 29,993,335
     shares outstanding for 1998 and 1999, respectively.....................................             300                   309
  Convertible preferred stock, $.01 par value 10,000,000 shares authorized, 200,000 shares
     outstanding............................................................................               2                     2
  Additional paid-in capital................................................................         301,178               294,529
  Accumulated deficit.......................................................................        (346,967)             (358,722)
  Treasury stock, at cost, 328,795 and 327,301 shares in 1998 and 1999, respectively........          (4,048)               (4,030)
                                                                                              --------------        --------------
     Total stockholders' deficit............................................................         (49,535)              (67,912)
                                                                                              --------------        --------------
     TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT............................................  $      150,497        $       99,596
                                                                                              ==============        ==============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-4
<PAGE>

               PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                       (000's, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                                      For the Year Ended December 31,
                                                                             ------------------------------------------------
                                                                                 1997              1998              1999
                                                                             ------------      ------------      ------------
<S>                                                                          <C>               <C>               <C>
REVENUES:

  Management services.................................................       $    266,481      $    226,932      $     14,936
  Medical services....................................................            136,956           114,793            60,792
  Other...............................................................              8,203            12,383             8,212
                                                                             ------------      ------------      ------------

     Total revenues...................................................            411,640           354,108            83,940
                                                                             ------------      ------------      ------------

COSTS AND EXPENSES:

  Salaries, wages and benefits........................................            207,254           176,808            33,181
  Pharmaceuticals and supplies........................................             52,392            46,158            15,195
  General and administrative..........................................            103,055           105,253            44,000
  Depreciation and amortization.......................................             24,841            26,000             7,885
  Interest expense, net...............................................             11,547            11,478             7,932
  Asset valuation losses (recovery)...................................             76,706           347,857            (6,040)
  Executive severance expenses........................................                750               912                 -
  Patent litigation defense costs.....................................              2,730               798               989
  Loss (Gain) on sale of assets.......................................                  -            25,276            (7,447)
                                                                             ------------      ------------      ------------

     Total costs and expenses.........................................            479,275           740,540            95,695
                                                                             ------------      ------------      ------------

(LOSS) BEFORE INCOME TAXES............................................            (67,635)         (386,432)          (11,755)

PROVISION (BENEFIT) FOR INCOME TAXES..................................            (26,312)          (66,867)                -
                                                                             ------------      ------------      ------------

NET (LOSS)............................................................       $    (41,323)     $   (319,565)     $    (11,755)
                                                                             ------------      ------------      ------------

NET (LOSS) PER BASIC AND DILUTED SHARE................................       $      (1.39)     $     (10.73)     $      (0.39)
                                                                             ============      ============      ============


  WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING.......................             29,751            29,773            29,805
                                                                             ============      ============      ============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-5
<PAGE>

                PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                  For the Three Years Ended December 31, 1999
                           (000's, Except Share Data)

<TABLE>
<CAPTION>
                                                                                                                      Additional
                                                         Common Stock                      Preferred Stock             Paid-In
                                                  ----------------------------        ---------------------------
                                                    Shares            Amount            Shares          Amount         Capital
                                                  -----------       ----------        ----------     ------------     ----------
<S>                                               <C>               <C>               <C>            <C>              <C>
BALANCES December 31, 1996............             29,782,000       $      298                --     $          -     $  296,454
 Issuance of common stock in
    conjunction with acquisitions.....                 43,000               --                --               --            610
 Issuance of common stock for
    Obligation to affiliate
    cancellation......................                 48,000               --                --               --            470
 Receipt of common stock in
    conjunction with dispositions
    and transaction restructuring                          --               --                --               --             --
 Sale of preferred stock..............                     --               --           200,000                2          2,223
 Common stock repurchases.............                     --               --                --               --             --
 Exercise of stock options............                 54,000                1                --               --            217
 Net loss.............................                     --               --                --               --             --
                                                  -----------       ----------        ----------     ------------     ----------
BALANCES, December 31, 1997...........             29,927,000              299           200,000                2        299,974
                                                  -----------       ----------        ----------     ------------     ----------

 Receipt of common stock in
    conjunction with dispositions
    and transaction restructuring                          --               --                --               --             --
 Sale of preferred stock..............                     --               --                --               --             --
 Exercise of stock options............                 66,435                1                --               --            469
 Sale of entities.....................                     --               --                --               --            735
 Net loss.............................                     --               --                --               --             --
                                                  -----------       ----------        ----------     ------------     ----------
BALANCES, December 31, 1998...........             29,993,435              300           200,000                2        301,178
 Receipt of common stock in
 conjunction with dispositions and
 transaction restructuring............                   (100)               9                --               --             --
 Restructure of Investments in
 subsidiaries.........................                     --               --                --               --         (6,649)
 Net loss.............................                     --               --                --               --             --
                                                  -----------       ----------        ----------     ------------     ----------
BALANCES, December 31, 1999...........             29,993,335       $      309           200,000     $          2     $  294,529
                                                  ===========       ==========        ==========     ============     ==========

<CAPTION>
                                                                                                         Note
                                                                                                      Receivable
                                                                                                        from            Total
                                                    Retained               Treasury Stock             Preferred     Stockholders'
                                                                    ----------------------------
                                                    Earnings          Shares            Amount        Stock Sale       Equity
                                                  -----------       ----------        ----------     ------------   -------------
<S>                                               <C>               <C>               <C>            <C>            <C>
BALANCES December 31, 1996............            $    13,921               --        $       --     $         --   $     310,673
 Issuance of common stock in
    conjunction with acquisitions.....                     --               --                --               --             610
 Issuance of common stock for
    Obligation to affiliate
    cancellation......................                     --               --                --               --             470
 Receipt of common stock in
    conjunction with dispositions
    and transaction restructuring                          --          191,000            (2,784)              --          (2,784)
 Sale of preferred stock..............                     --               --                --           (2,225)             --
 Common stock repurchases.............                     --           36,000              (399)              --            (399)
 Exercise of stock options............                     --               --                --               --             218
 Net loss.............................                (41,323)              --                --               --         (41,323)
                                                  -----------       ----------        ----------     ------------   -------------
BALANCES, December 31, 1997...........                (27,402)         227,000            (3,183)          (2,225)        267,465
                                                  -----------       ----------        ----------     ------------   -------------

 Receipt of common stock in
    conjunction with dispositions
    and transaction restructuring                          --          101,795              (865)              --            (865)
 Sale of preferred stock..............                     --               --                --            2,225           2,225
 Exercise of stock options............                     --               --                --               --             470
 Sale of entities.....................                     --               --                --               --             735
 Net loss.............................               (319,565)              --                --               --        (319,565)
                                                  -----------       ----------        ----------     ------------   -------------
BALANCES, December 31, 1998...........               (346,967)         328,795            (4,048)              --         (49,535)
 Receipt of common stock in
 conjunction with dispositions and
 transaction restructuring............                     --           (1,494)               18               --              27
 Restructure of Investments in
 subsidiaries.........................                     --               --                --               --          (6,649)
 Net loss.............................                (11,755)              --                --               --         (11,755)
                                                  -----------       ----------        ----------     ------------   -------------
BALANCES, December 31, 1999...........            $  (358,722)         327,301            (4,030)    $         --   $     (67,912)
                                                  ===========       ===========       ==========     ============   =============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-6
<PAGE>

               PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (000's)

<TABLE>
<CAPTION>
                                                                                      For the Year Ended December 31,
                                                                               ----------------------------------------------
                                                                                 1997                1998              1999
                                                                               --------            ---------         --------
<S>                                                                            <C>                 <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                      $(41,323)           $(319,565)        $(11,755)
 Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities--
   Depreciation and amortization..........................................       24,841               26,000            7,885
   Asset valuation losses.................................................       76,706                   --               --
   Change in Assets Held for Disposition, net                                        --              (90,435)          52,381
   Change in deferred taxes...............................................      (25,190)             (66,411)              --
   Changes in assets and liabilities, net of effects of acquisitions
     And disassociations--
       Accounts payable and accrued expenses..............................       (9,073)              (9,411)          (2,744)
       Other liabilities, due to affiliates, long-term debt                          --               19,033           (3,671)
       Property and Equipment, net                                                   --               33,989            9,546
       Intangible assets, net                                                        --              323,904            5,992
       Accounts receivable, net and due from affiliates...................      (23,301)              66,400           10,978
       Pharmaceuticals and supplies.......................................          273                5,065              654
       Prepaid expenses and other.........................................       (2,090)              11,093           (1,872)
                                                                               --------            ---------         --------
          Net cash provided by (used in) operating activities.............          843                 (338)          67,394
                                                                               --------            ---------         --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of clinic operating assets, net of cash acquired...............      (23,026)                  --               --
 Additions to property and equipment, net of effects of acquisitions......      (17,271)              (2,732)          (1,002)
 Proceeds from sale of assets.............................................        4,427                   --               --
                                                                               --------            ---------         --------
          Net cash provided by (used in) investing activities.............      (35,870)              (2,732)          (1,002)
                                                                               --------            ---------         --------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from the issuance of common stock from offerings, net of
  Offering costs..........................................................           --                    1                9
 Proceeds from long-term debt.............................................       13,471                2,442            4,002
 Payments and settlements on long-term debt...............................       (4,347)              (5,977)         (14,985)
 Net proceeds (repayments & settlements) on obligations to affiliates.....      (12,278)                (159)         (21,774)
 Proceeds from exercise of stock options..................................          218                   --               --
 Purchase of treasury stock...............................................         (399)                (864)              17
 Write-off of note receivable from 1997 sale of preferred stock...........           --                2,225               --
                                                                               --------            ---------         --------
          Net cash provided by (used in) financing activities.............       (3,335)              (2,332)         (32,731)
                                                                               --------            ---------         --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................      (38,362)              (5,402)          33,661
CASH AND CASH EQUIVALENTS, beginning of year..............................       53,418               15,056            9,654
                                                                               --------            ---------         --------
CASH AND CASH EQUIVALENTS, end of year....................................     $ 15,056            $   9,654         $ 43,315
                                                                               ========            =========         ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.


<PAGE>

                PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUBSEQUENT EVENTS

        On February 1, 2000 (the "Petition Date") Physicians Resource Group,
Inc. ("PRG" or "the Company") filed a voluntary petition of relief ( the
"Filing") under Chapter 11 ("Chapter 11") of Title 11 of the United Stated
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the Northern District of Texas, Dallas Division (the "Bankruptcy Court"),
and, on May 25 2000, EyeCorp, Inc. ("EyeCorp"), a wholly-owned subsidiary of the
Company, filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the Northern District of Texas. The cases are being jointly
administered under Case No. 00-30748-RCM-11 in the United States Bankruptcy
Court for the Northern District of Texas, Dallas Division. In Chapter 11, the
Company continued to manage its affairs and operate its business as a debtor in
possession until it developed a liquidation plan. As a debtor in Chapter 11, the
Company did not engage in transactions outside of the ordinary course of
business without approval, after notice and hearing, of the Bankruptcy Court.

        As a result of the Filing, the Company was in technical default under of
its funded debt agreements that were in effect prior to the Petition Date.  As a
result, all unpaid principal of, and accrued pre-petition interest on, such debt
became immediately due and payable.  The payment of such debt and accrued but
unpaid interest was prohibited during the pendency of the Company's Chapter 11
case.

        In accordance with the Bankruptcy Code, the Company was able to seek
court approval for the rejection of executory contracts, including real property
leases. Any such rejection may give rise to pre-petition unsecured claim for
breach of contract.

        On October 13, 2000, PRG and EyeCorp filed their First Amended Joint
Liquidating Plan under Chapter 11 (as modified prior to confirmation on December
1, 2000, the "Plan").  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
(hereafter defined) who cure their contractual defaults and a 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 interests 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.

        On December 1, 2000, the Bankruptcy Court issued an order confirming the
Plan.  The effective date of the Plan was December 15, 2000.

        As discussed in Note 11, the Company is defendant in numerous lawsuits
that have been stayed by virtue of the Filing or refiled as an adversary
proceeding in the Bankruptcy Court. As of the Petition Date, payment of
liabilities to unsecured creditors, including trade creditors and noteholders,
and pending litigation against the Company at the date of the filing were stayed
while the Company continued its business as a debtor in possession.

        The accompanying consolidated financial statements have been prepared on
the going concern basis of accounting and do not reflect any adjustments that
might result should the Company be unable to continue as a going concern.  The
Company's recent operating losses and the related Chapter 11 filing raise
substantial doubt about its ability to continue as a going concern.

        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.

                                      F-8
<PAGE>

2.   BASIS OF PRESENTATION, BUSINESS AND ORGANIZATION:

   PRG Formation

        PRG, a Delaware corporation, and subsidiaries were formed to provide
physician practice management services to ophthalmic and optometric practices
(the "Eyecare Practices").  The Company was formed in November of 1993, but had
no substantive operations prior to June of 1995. PRG earned revenues by
providing management, marketing, financial resources and other services to the
Eyecare Practices, ASCs and optical dispensaries.  The Company also earned
revenue by owning certain interests in optical dispensaries and ASCs. The
Company conducted the practice of medicine through its subsidiaries located in
states that allow the corporate practice of medicine (comprising seven Eyecare
Practices), and the Company's financial statements are prepared on a
consolidated basis to include all of the Company's wholly-owned subsidiaries
including these seven Eyecare Practices.

   1997 Practice Acquisitions

        During 1997, PRG acquired certain assets and liabilities of 27 Eyecare
Practices and three related ASCs, all of which were accounted for as purchases.
As consideration for these acquisitions, PRG paid $23,026,000 in cash, issued
promissory notes of $756,000, issued convertible promissory notes of $13,398,000
and issued 43,000 shares of Common Stock ("Common Stock").  The convertible
promissory notes were convertible at the option of the holder to PRG Common
Stock at the end of two years at varying prices ranging from $12.38 to $18.73
per share.  The PRG Common Stock issued in connection with these acquisitions
had a market value at the respective closing dates of between $12.38 and $17.40
per share. Also during 1997, the Company developed two ASCs at a development
cost of approximately $720,000.

   1997 Practice Disassociations

        PRG initiated, during the latter half of 1997, a review of its
affiliated Eyecare Practice relationships. As a result of such review, the
Company decided during the third quarter of 1997 to begin the process of
terminating its affiliations with 44 practices and to sell and/or dispose of
certain assets and liabilities associated therewith. In connection with this
process, the Company recorded pre-tax charges of approximately $76,706,000 in
1997 in anticipation of losses to be incurred in such sales and dispositions.
The charges are associated with (1) the anticipated future disposition of these
practice assets and liabilities and (2) the effective termination of its
affiliation with the 7 smaller optometry practices which resulted in either the
complete termination of any affiliation with the practice or the virtual
elimination of any significant relationship. These 44 Eyecare Practices
contributed revenues of $35,544,000 and income before taxes of $3,330,517 during
1997.

        In addition to the 44 practices discussed above, the assets of one
Eyecare Practice and related ASC were returned to the original owner for 125,000
shares of Common Stock.

   1998 Practice Acquisitions and Dispositions

        No additional Eyecare Practices were acquired during 1998. Following on
the review initiated during 1997, eighteen Eyecare Practices were sold.

3.   CURRENT OPERATING ENVIRONMENT:

        In 1998, the Company continued the process of terminating its
affiliations with the 44 Eyecare Practices identified during the strategic
review undertaken in 1997. In addition, certain negative factors, including
market position and demographics, deteriorating physician relations, decline in
stock price and disappointing operating results, contributed to the
destabilization of the Company's relationship with other affiliated Eyecare
Practices. These factors have been caused by or may have been exacerbated by
weak economic conditions in some market areas, declining government and managed
care payments, poor financial performance and other factors, many of which are
outside the control of the Company. In 1998, certain additional affiliated
Eyecare Practices purported to unilaterally terminate their Management Service
Agreements ( "MSAs"). In ever-increasing numbers, the Eyecare Practices excluded
PRG from any involvement in the business management aspect of those Eyecare
Practices and ASCs. The Eyecare Practices also began bringing lawsuits or
commencing arbitration proceedings against PRG and/or its subsidiaries. Although
PRG and its subsidiaries denied the allegations of the Eyecare Practices and
generally asserted counterclaims to recover the amounts owed to PRG and its
subsidiaries by those Eyecare

                                      F-9
<PAGE>

Practices, PRG's revenues were substantially negatively impacted. As a result,
the Company incurred pre-tax charges of $347,857,000 during 1998. This has had a
material adverse effect on the Company's financial condition and results of
operations and raises substantial doubt about the Company's ability to continue
as a going concern. See Note 1 above for details.

        Concurrent with the destabilization of the Company's relationship with
certain affiliated Eyecare Practices, numerous other events occurred to
contribute to the operating decline experienced by the Company.  As of December
31, 1998, the following events had also occurred:

        .  Key executive officers resigned, including the President, two Chief
           Financial Officers, and the Controller.
        .  The Board of Directors resigned with subsequent appointment of a new
           Board of Directors comprised of doctors who are with affiliated
           Eyecare Practices.
        .  A Letter of Intent ("LOI") was entered into between the Company and
           the Chairman of the Board of Directors in July of 1998. During the
           pendency of the LOI, the Company's options were extremely limited
           with respect to any proposed restructuring, responses to legal
           proceedings, and threatened terminations. The LOI was cancelled in
           late October.
        .  The New York Stock Exchange ("NYSE") halted trading in the Common
           Stock of the Company and moved to delist the stock (see Note 12).
        .  The Company did not make the interest payment due December 1, 1998
           related to the Company's outstanding 6% Convertible Subordinated
           Debentures (see Note 10).
        .  The Company had an outstanding balance of $9,500,000 under an amended
           credit facility that should have been repaid as of December 31, 1998
           (see Note 10).

        During January 1999, the Company repaid $2,600,000 of the amended credit
facility, with the remaining balance purchased by another bank. In March of
1999, the Company repaid the outstanding balance of $6,900,000, with the
proceeds of certain asset sales. On March 19, 1999, PRG entered into a
restructuring agreement (the "RAM Agreement") with Resurgence Asset Management,
LLC ("RAM"), owner of approximately $91,896,000 in principal amount of the 6%
convertible subordinated debentures. RAM's advance to PRG, evidenced by a
promissory note dated March 19,1999  in the amount original principal amount of
$3,750,000, was issued by PRG to RAM to pay the December 1, 1998 interest.  As
of July 29, 1999, the Company repaid the promissory note with RAM.

        In April of 1999 PRG and AmSurg Corp. ("AmSurg") executed a letter of
intent for the purchase by AmSurg of a portion of PRG's ownership interests in
its practice-based ophthalmology ASCs. As of December 31, 2000, four ASCs had
been sold to AmSurg yielding an aggregate of approximately $26 million.

        The Company has continued to experience further losses and negative cash
flow from operations in 1999 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.  There is
no assurance that the Company will be able to consummate its Plan or obtain
necessary approvals or consents.

        Management's plans are to continue (1) to sell practice assets and
interests in ASCs to its affiliated practices, (2) to terminate MSAs and execute
mutual releases between PRG and sold practices and (3) to sell certain interests
in ASCs in accordance with the Plan.

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

   Principles of Consolidation

        The consolidated financial statements include the financial position and
results of operations of PRG and all of its subsidiaries.   For seven Eyecare
Practices in states that allow the corporate practice of medicine, the Company's
subsidiaries conduct the practice of medicine.  The financial statements of
these subsidiaries are consolidated with the Company's due to their 100%
ownership by the Company.  The results of operations of the practice
acquisitions and company acquisitions are included in PRG's consolidated
financial statements from the date of purchase.  All significant inter-company
transactions have been eliminated. Certain reclassifications of prior year
amounts have been made to conform to the current year presentation.

                                      F-10
<PAGE>

   Cash and Cash Equivalents

        PRG considers all highly liquid investments purchased with an original
maturity or re-pricing within three months or less to be cash equivalents. The
Company primarily invests in overnight repurchase agreements, tax-free municipal
bonds and money market accounts. The interest rates varied from 4.51 percent to
5.38 percent and 4.75 percent and 5.00 percent in the years ended December 31,
1999 and 1998, respectively. These investments are carried at fair value.

   Fair Values of Financial Instruments

        The carrying amounts of accounts receivable, accounts payable, accrued
expenses and the current portion of both long-term debt and long-term
obligations to affiliates approximate their market value due to short maturity
of these instruments.

   Prepaid Expenses and Other Current Assets

        Prepaid expenses and other current assets primarily consist of
prepayments for insurance and rent, and retainers paid to attorneys and other
independent consultants.

   Pharmaceuticals and Supplies

        Pharmaceuticals and supplies consist primarily of spectacle frames,
lenses and medical and pharmaceutical supplies and are valued at the lower of
cost or market with cost determined using the first-in, first-out (FIFO) method.

   Long Lived Assets

        Property and Equipment

        Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using a straight-line method over the estimated useful
lives of the assets. Routine maintenance and repairs are charged to expense as
incurred, while costs of betterments and renewals are capitalized.

        Intangible Assets

        Intangible assets consist of the value of the non-physician employee
workforce, MSAs and goodwill associated with ASC acquisitions. The estimated
fair value of the non-physician employee workforce is based on the estimated
cost to replace the workforce. The estimated fair value of the MSA for
affiliated practices is the excess of the purchase price over the estimated fair
value of the tangible assets and workforce acquired and liabilities assumed.
Workforce intangibles are amortized on a straight-line basis over seven years.
Intangible assets associated with MSAs are generally amortized on a straight-
line basis over 15 years. Amounts paid for ASC acquisitions in excess of the net
assets acquired are treated as goodwill and amortized on a straight-line basis
over 25 years.

        The Company reviewed the carrying value of the long-lived assets and
goodwill at least quarterly on a entity by entity basis to determine if facts
and circumstances existed which would suggested that assets may be impaired or
that the amortization period needed to be modified. In addition to the normal
quarterly reviews conducted as described above, during the latter half of 1997
and early 1998, the Company engaged in a strategic review of its assets,
operations and available resources, as more fully discussed in Notes 2 and 3
above.  As a result, the Company made a decision to terminate its affiliation
with a number of Eyecare Practices through either sale, disposition or
significant restructuring of their MSAs. As a result of this review as well as
continued deteriorating relationships with its affiliated Eyecare Practices
during late 1998 and continuing through 1999, the Company determined that
significant amount of existing intangibles related to those Eyecare Practices
had been impaired.

   Income Taxes

        Deferred income tax liabilities and assets are recorded for the
differences between the tax and financial reporting basis of the assets and
liabilities and are based on the enacted income tax rates which are expected to
be in effect in the period in which the difference is expected to be settled or
realized. A change in tax laws results in adjustments to the deferred tax
liabilities and assets.

                                      F-11
<PAGE>

 Use of Estimates

     The preparation of these financial statements, in accordance with generally
accepted accounting principles, requires the use of certain estimates by
management in determining the entities' assets and related valuation allowances,
liabilities, revenues and expenses. Actual results could differ from those
estimates.

 Concentration of Credit Risk

     The Company's accounts receivable consist primarily of management service
revenues due from affiliated physician groups and from medical services due from
patients funded through Medicare, Medicaid, commercial insurance and private
payment. The Company and its Eyecare Practices perform ongoing credit
evaluations of their patients and generally do not require collateral. The
Company and its Eyecare Practices maintain allowances for potential credit
losses, and such losses have been within management's expectation.

 Net Loss Per Share

     Basic net loss per share is computed by the weighted average number of
common shares outstanding for the period.  Diluted net loss per share does not
differ from basic net loss per share since potential common shares from
conversion of stock options and warrants are anti-dilutive for all periods
presented.

5.   ASSETS HELD FOR DISPOSITION:

     As discussed in Notes 2 and 3, in 1998 and 1999, the Company continued its
dissociation of many of its affiliated Eyecare Practices through either sale or
other disposition. In connection therewith, pre-tax allowances totaling
approximately $226,486,000 were provided in 1999 for losses expected to be
incurred in this process. The Company anticipated the sale and disposition
process to be completed during 2000 and reclassified the net assets of these
practices, including the related intangible assets, into "Assets held for
disposition" on the accompanying consolidated balance sheet as of December 31,
1999, net of such allowances.  Likewise, for 1998, the Company reclassified the
net assets of approximately 64 Eyecare Practices that were held for sale or
disposition at December 31, 1998. In connection therewith, pre-tax allowances
totaled approximately $240,104,000 at December 31, 1998. The Company classified
the net assets of these practices, which includes the related intangible assets,
in "Assets held for disposition" on the accompanying consolidated balance sheet
as of December 31, 1998, net of allowances.

     As discussed in Note 3 above, the Company received notification from many
of its affiliated Eyecare Practices during 1998 and 1999 purporting to
unilaterally terminate the MSAs and/or initiating legal proceedings against the
Company.  These Eyecare Practices have alleged that PRG has breached the
provisions of their respective MSAs, and have withheld financial information and
refused to pay management fees due under their respective MSAs.  The Company
denied these parties' allegations and denies that the MSAs were properly
terminated by the providers.

     The Company has commenced dissociation with approximately 102 practices
through sale, disposition or significant restructuring of their MSA's. As a
result and pursuant to SFAS No. 121, the Company determined that an impairment
had occurred and wrote down the associated clinic assets and MSA intangibles to
fair value determined by discounting future operating cash flows of the related
physician groups.  The future operations of the Company have been impaired, and
the Company is attempting to recover its investment in many of these practices.
However, there can be no assurance of any recovery.



                                      F-12
<PAGE>

     The following is a table which reflects the carrying value of the assets
and liabilities reclassified into "Assets held for disposition" as of December
31, 1998 and 1999:

<TABLE>
<CAPTION>
                                    Description                                     1998                1999
                                    -----------                             ---------------------------------------
                                                                                   (000's)             (000's)
       <S>                                                                  <C>                        <C>
       Current assets...................................................           $  99,421           $  92,001
       Property and equipment...........................................              30,609              26,040
       Intangible and other non-current assets..........................             229,509             171,387
       Liabilities assumed..............................................             (18,529)            (14,417)
                                                                            ---------------------------------------
           Net assets held for disposition..............................             341,010             275,011
       Less: Asset valuation allowances.................................            (240,104)           (226,486)
                                                                            ---------------------------------------
       Assets held for disposition......................................           $ 100,906           $  48,525
                                                                            =======================================
</TABLE>


6. REVENUE RECOGNITION AND RECEIVABLES:

 Revenues

     A significant portion of the Eyecare Practices' medical service and ASCs'
revenues are received from Medicare and other governmental programs. Medicare
and other governmental programs reimburse providers based on fee schedules that
are determined by the related governmental agency. In the ordinary course of
business, providers receiving reimbursement from Medicare and other governmental
programs are potentially subject to a review by regulatory agencies concerning
the accuracy of billings and sufficiency of supporting documentation.

     The Eyecare Practices' and ASCs' gross medical service revenues are based
on established rates reduced by contractual adjustments.  Contractual
adjustments represent the difference between charges at established rates and
estimated recoverable amounts and are recognized in the period the services are
rendered. Any differences between estimated contractual adjustments and actual
final settlements are reported as contractual adjustments in the period final
settlements are made.

     Revenues have not been recognized by the Company for those Eyecare
Practices alleging either breaches of their MSA's or for those attempting to
unilaterally terminate their MSA's throughout 1998 and 1999.

 Revenues-Management Services

     The Company manages the Eyecare Practices under various types of service
and management agreements. The management services revenues are based on several
different types of arrangements, including percentages of the medical services
revenues or  flat fees and reimbursement of clinic expenses. The following table
presents the amount of medical service revenues included in the determination of
the Company's management service revenues for the years ended December 31, 1997,
1998 and 1999:

<TABLE>
<CAPTION>
                                Description                                      1997              1998              1999
                                -----------                               ---------------    --------------    --------------
                                                                                                (000's)

      <S>                                                                 <C>                <C>               <C>
      Gross medical services revenues...............................      $       545,896    $      464,528    $       88,572
          Less--Contractual adjustments.............................             (216,700)         (200,575)          (29,998)
                                                                          ---------------    --------------    --------------
      Net medical services revenues.................................              329,196           263,953            58,574
          Less--Amounts retained by the Eyecare Practices owner                   (62,715)          (37,021)          (43,638)
            physicians
                                                                          ---------------    --------------    --------------
              Management services revenues..........................      $       266,481    $      226,932    $       14,936
                                                                          ===============    ==============    ==============
</TABLE>

                                      F-13
<PAGE>

 Revenues - Medical Services

     Certain states in which the Company operates allow for the corporate
practice of medicine. In those states, the Company's revenues are derived from
medical services performed. In addition, the Company owns and operates ASCs
through various arrangements. Revenues derived from ASCs are based on facility
fees charged to patients, third-party payers or other physician practices for
use of the ASCs as well as reimbursement of ASC expenses. ASC revenues are also
net of contractual adjustments. The following table presents amounts included in
determining the Company's medical service revenues for the years ended December
31, 1997, 1998 and 1999:

<TABLE>
<CAPTION>
                                  Description                                    1997               1998               1999
                                  -----------                               ---------------    ---------------    ---------------
                                                                                                  (000's)
        <S>                                                                 <C>                <C>                <C>
        Gross medical services revenues.................................    $     147,727      $    123,933       $     30,483
        Gross ASCs revenues.............................................          102,190           100,181             91,672
                                                                            ---------------    ---------------    ---------------
                Total...................................................          249,917           224,114            122,155
             Less--Contractual adjustments..............................         (112,961)         (109,321)           (61,363)
                                                                            ---------------    ---------------    ---------------
                Net medical services revenues...........................    $     136,956      $    114,793       $     60,792
                                                                            ===============    ===============    ===============
</TABLE>


 Receivables

     1999 Receivable Allowance

     As discussed in Note 2 above, the Company recorded certain allowances
during 1998 and 1999 relative to anticipated losses on dispositions of the
assets of certain Eyecare Practices with which the Company was in the process of
terminating its affiliation. The receivables or due from affiliates balances
relating to the Eyecare Practices targeted for disposition or dissociation of
$55,663,316 and $19,585,521 have been reclassified to "Assets held for
disposition" in the accompanying consolidated balance sheets as of December 31,
1998 and December 31, 1999.  Accounts receivable for 1999 have been reclassified
to "Assets held for disposition" as of December 31, 1999 as all remaining
Eyecare Practices were being held for sale or disposition pursuant to the Plan
as discussed in Note 1.

7. PROPERTY AND EQUIPMENT:

   Property and equipment consists of the following as of December 31, 1998
   and 1999:

<TABLE>
<CAPTION>
                                                                   Estimated
                                                                     Useful
                                                                     Lives
                         Description                                (Years)                   1998                   1999
                         -----------                          ---------------------     -----------------     --------------------
                                                                                                        (000's)
     <S>                                                      <C>                       <C>                   <C>
     Land..................................................             --              $           1,535      $                -
     Buildings and improvements............................           5-40                          6,976                       -
     Equipment, software and other.........................           3-10                          9,368                   3,635
     Leasehold improvements................................           3-10                            943                     183
     Furniture and fixtures................................           7-10                          2,354                     668
                                                                                      -------------------    --------------------
                                                                                                   21,176                   4,486
     Less--Accumulated depreciation and amortization.......                                        (7,439)                 (3,144)
                                                                                      -------------------    --------------------
         Property and equipment, net.......................                             $          13,737      $            1,342
                                                                                      ===================    ====================
</TABLE>

     As indicated in Note 2 above, the Company recorded certain allowances
during 1998 and 1999 relative to anticipated losses on dispositions of the
assets of certain Eyecare Practices targeted for sale or disassociation. The
net asset value of property and equipment relating to these Eyecare Practices of
$30,609,000 and $26,040,000 was reclassified to "Assets held for disposition" on
the accompanying consolidated balance sheets as of December 31, 1998 and 1999,
respectively.  See Note 5 for details.

                                      F-14
<PAGE>

8. INTANGIBLE ASSETS:

     Intangible assets consists of the following as of December 31, 1998 and
     1999:

<TABLE>
<CAPTION>
                                                                          Estimated
                                                                            Useful
                                                                            Lives
                           Description                                     (Years)        1998       1999
                           ------------                                  -----------   ---------- ----------
                                                                                                (000's)

  <S>                                                                    <C>           <C>        <C>
  Non-compete agreements.......................................               3 - 5     $   603    $   577
  Work force in place..........................................                 7           698          0
  Management service agreements................................             15 - 25         555          0
  Goodwill.....................................................                25        13,542      4,141
                                                                                       ---------- ----------
                                                                                         15,398      4,718
  Less - Accumulated amortization..............................                          (1,769)    (1,115)
                                                                                       ---------- ----------
     Intangible assets, net....................................                         $13,629    $ 3,603
                                                                                       ========== ==========
</TABLE>

     As indicated in Notes 2 and 3 above, the Company has recorded certain
allowances during 1997 and 1998 relative to anticipated losses on dispositions
of the assets of certain Eyecare Practices targeted for disassociation.   The
net intangible assets relating to these Eyecare Practices of $88,954,700 and
$23,694,677 as of December 31, 1998 and 1999, respectively, have been
reclassified to "Assets held for disposition" on the accompanying consolidated
balance sheets.  See Note 5 for details.

     During 1997, the Securities and Exchange Commission ("SEC") informed the
Company that it had concerns, on a prospective basis, regarding the use by
physician practice management companies, generally, and the Company,
specifically, of amortization periods for intangible assets in excess of 25
years. Effective January 1, 1998, the Company reduced its maximum period of
amortization from 40 years to 25 remaining years as the useful life for
amortization of its MSAs.  This change in accounting estimate was made to
reflect a more conservative amortization period for MSA intangible assets
regarding the use of amortization periods in excess of 25 years on a prospective
basis. Additional amortization of approximately $3,463,000 was recognized for
1998.

9. LONG-TERM OBLIGATIONS:

 Long-Term Debt

      Long-term debt consisted of the following as of December 31, 1998 and 1999

<TABLE>
<CAPTION>
                                       Description                                                  1998                 1999
                                       -----------                                           -----------------    ------------------
                                                                                                              (000's)
      <S>                                                                                    <C>                  <C>
      6% convertible subordinated debentures due December 2001, interest payable
       on June 1 and December 1............................................................   $        125,000     $        125,000
      Bank credit facilities (see below)...................................................              9,500                    -
      Term loans payable to insurance company, due December 1999 and April 2000,
           bearing interest at LIBOR plus 1.5% at December 31, 1998, collateralized
           by certain assets of the Company, note was repaid prior to maturity.............                499                    -
      Other obligations....................................................................             24,506                8,566
                                                                                             -----------------    ------------------
             Total long-term debt..........................................................            159,505              133,566
             Less - Reserves recorded on long-term debt for subsequent sales of practices               (5,612)                   -
             Less - Reclassification of long-term debt to 'Assets Held for Disposition.'                  (685)              (1,683)
                                                                                             -----------------    ------------------
       Total long-term debt (net of reserves)..............................................            153,208              131,883

       Less - Current portion of long-term debt............................................           (154,691)            (133,197)
             Add - Reserves recorded on current debt for subsequent sales of practices                   2,607                    -
             Add - Reclassification of current debt to 'Assets Held for Disposition.'                      538                1,314
                                                                                             -----------------    ------------------
             Total current portion of long term debt                                                  (151,546)            (131,883)
                                                                                             =================    ==================
                Total long term debt.......................................................   $          1,662     $              -
                                                                                             =================    ==================
</TABLE>

                                      F-15
<PAGE>

     In December of 1996, PRG completed an offering of 6% convertible
subordinated debentures (the "Debentures") due in December 2001. The Debentures
were convertible at any time after the 60/th/ day following issuance at a
conversion price of $25 per share. Interest was payable on June 1 and December
1. The Debentures were not redeemable by the Company until December 1999. The
Company incurred approximately $3,321,000 in costs related to the offering, with
such amount being amortized over the life of the Debentures and included in
other non-current assets at December 31, 1997. However, during 1998, the
unamortized balance of these costs was written off.

     On March 19, 1999, PRG entered into the RAM Agreement with RAM, the owner
of $91,896,000 in principal amount of the Debentures. Interest due December 1,
1998 on the Debentures was not paid at December 31, 1998. RAM advanced to PRG
$3,750,000 which enabled PRG to pay the past due interest on March 19, 1999.
RAM's advance to PRG was evidenced by the issuance of a promissory note by PRG
to RAM in the original principal amount of $3,750,000. The note's maturity was
September 30, 1999 and the interest rate was 20%. The note was secured by PRG's
equity interests held in various PRG subsidiaries. The $3,750,000 note was
repaid to RAM in July 1999.

     In March of 1997, PRG entered into a credit facility with a group of
lenders that allowed the Company to borrow up to $90,000,000 for acquisitions,
capital expenditures, working capital and stock repurchases. Advances under this
facility were to bear interest at LIBOR plus 1% to 2.125%, or the bank's prime
rate plus 1.125% and were secured by the stock of the subsidiaries of PRG and
guaranteed by the subsidiaries of PRG. On October 1, 1997, the Company borrowed
$8,000,000 under this facility to fund the acquisition of certain Eyecare
Practice assets and related rights.

     Primarily as a result of a 1997 third quarter net loss, the Company went
into technical default on various financial covenants under the $90,000,000
credit facility. On November 28, 1997, the Company received a commitment letter
for a $14,000,000 revolving credit facility from its lead bank that would
replace the existing $90,000,000 facility. This facility had the same security
arrangements as the March 1997 $90,000,000 facility and, additionally, allowed
for a security interest in all MSAs, accounts receivables and general
intangibles of PRG. In addition, the facility was guaranteed by one current
member of the Company's Board of Directors, as well as by one former member.

     In addition to the $8,000,000 that was outstanding under its original
credit facility, the Company borrowed an additional $4,248,000, bringing total
outstanding borrowings under the $14,000,000 facility to $12,248,000 as of
December 31, 1997. This $14,000,000 facility expired and was amended again in
March of 1998. The amended facility required that the balance outstanding be
paid down to $9,500,000 by September 30, 1998, with the remainder to be repaid
on December 31, 1998. The Company borrowed an additional $1,751,658 in May 1998
to bring the balance back to $14,000,000. The facility was paid down to
$9,500,000 by September 30, 1998. As of December 31, 1998, the Company was
engaged in restructuring negotiations with the lender pursuant to which the
maturity of the note was ultimately extended to February 28, 1999. The note was
retired in full in the first quarter of 1999 with proceeds from the sale of
various practice assets.

     During 1998, a reserve was established against 1998 long-term debt for
subsequent sales of ophthalmology practices and ASCs occurring in 1999. The
total amount of these reserves equaled $5,612,000 at December 31, 1998. Reserves
for the current portion of long-term debt equaled $2,607,000, while reserves for
the long-term portion of long-term debt equaled $3,005,000. There have been no
reserves established as of the date of this report for long-term debt at
December 31, 1999. However, as previously discussed in Note 2 and Note 5
regarding the reclassification of net assets to "Assets held for disposition,"
the long-term debt reclassification at December 31, 1998 was $685,115 and at
December 31, 1999 was $1,683,107.

                                      F-16
<PAGE>

 Obligations to Affiliates

     Obligations to affiliates consist of the following as of December 31, 1998
and 1999. These amounts do not include the effect of any reserve amounts.

<TABLE>
<CAPTION>
                                       Description                                                   1998             1999
                                       -----------                                             ----------------  ----------------
                                                                                                            (000's)
<S>                                                                                            <C>                     <C>
Installment notes payable to affiliates, bearing interest ranging from 7.5% to 10%,
  Payable in monthly installments........................................................          $    111            $     21
Convertible promissory notes payable for affiliate acquisitions, bearing interest at
  7%, due 1999, principal due at maturity and interest payable semi-annually.............            13,400               5,792
Promissory notes payable for affiliate acquisitions, bearing interest at 7%
  Due primarily in 1999, principal due at maturity and interest payable
   semi-annually.........................................................................               478                   -
Other obligations to affiliates..........................................................             8,776               1,827
                                                                                               ----------------  ----------------
   Total obligations to affiliates.......................................................            22,765               7,640
Less-current portion of obligations to affiliates........................................           (18,325)             (7,609)
                                                                                               ----------------  ----------------
   Total.................................................................................          $  4,440            $     31
                                                                                               ================  ================
</TABLE>

     Installment notes payable to affiliates are primarily notes payable to
affiliated physicians. EquiMed, Inc and American Ophthalmic, Inc. used these
notes to finance a portion of the purchase price of their respective
acquisitions prior to being acquired by PRG. Certain of these notes were paid
off during 1997 and 1998 or were cancelled in connection with Eyecare Practice
sales.

     Over the course of 1997, the Company issued various promissory notes and
convertible promissory notes in partial payment for acquisitions. These notes
bearing an interest rate of 7% totaled $13,400,000 at December 31, 1998, and
$5,792,000 at of December 31, 1999. The convertible promissory notes originally
were convertible into PRG Common Stock at maturity at the option of the holder
at prices ranging from $12.38 to $18.73 per share, however PRG's Common Stock
has since been delisted from the NYSE, and there is no readily available market
for these shares.

 Maturities

     The Company paid approximately $9,576,000, $6,585,000 and $4,162,000 in
interest for the years ended December 31, 1997, 1998 and 1999. As of December
31, 1999, the aggregate amounts of annual principal maturities of long-term debt
and obligations to affiliates are as follows:


                                                       Obligations
         Year                           Long-Term          To
         ----                             Debt          Affiliates
                                      --------------- --------------
                                                 (000's)
         2000......................          124,243          7,640
         2001......................                -              -
         2002......................                -              -
         2003......................                -              -
         2004......................                -              -
         Thereafter................                -              -
                                      --------------- --------------
              Total................         $124,243         $7,640
                                      =============== ==============


10.    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 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

                                      F-17
<PAGE>

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.

 Long-Term Lease Obligations

     PRG leases medical equipment and office space under non-cancelable
operating lease agreements that expire at various dates. At December 31, 1999,
minimum annual rental commitments under non-cancelable operating leases with
terms in excess of one year are as follows:


          Year                                    Amount
          ----                                  ----------
                                                 (000's)
          2000................................   $  6,720
          2001................................      4,612
          2002................................      3,883
          2003................................      3,693
          2004................................      3,187
          Thereafter..........................     12,251
                                                ----------
               Total..........................   $ 34,346
                                                ==========


     Rent expense related to operating leases amounted to approximately
$21,012,000, $29,539,000 and $8,396,000 for the years ended December 31, 1997,
1998 and 1999, respectively.

11. STOCKHOLDERS' EQUITY:

 Common Stock

     In May of 1996, the Company followed its original June 1995 initial public
offering with the offering of 5,750,000 additional shares of Common Stock. In
connection therewith, the Company issued 4,250,000 new shares of Common Stock
and the then existing stockholders of the Company sold 1,500,000 shares of
Common Stock. Proceeds to the Company, net of offering costs and underwriting
commissions, were approximately $113,640,000. The Company also registered an
additional 11,000,000 and 10,000,000 shares of Common Stock during 1996 and
1997, respectively, 11,111,500 of which were issued in connection with
additional acquisitions.

     In March 1997, the Board of Directors approved the purchase by the Company
of up to 4,000,000 shares of its outstanding Common Stock. Ultimately, 36,000
shares of PRG Common Stock were purchased under this program for $399,000 before
such program was terminated in December of 1997.

                                      F-18
<PAGE>

     In addition to the stock issued in acquisitions during 1997 as discussed
above 125,000 shares were received from the sale of assets of one Eyecare
Practice and related ASC back to the original owner. The shares received from
the sale of the assets have been treated as treasury stock. During 1998, the
Company restructured the terms of its agreements with 5 of its smaller optometry
practices in which the relationships were eliminated. From these transactions,
101,795 shares were received by the Company and treated as treasury stock.

     On November 12, 1998, the NYSE halted the trading of the Company's Common
Stock, with no plans to resume trading in the Company's securities. The NYSE's
actions were taken in view of the fact that the Company had fallen below the
NYSE's continued listing criteria relating to net tangible assets available to
Common Stock (less than $12 million) together with average net income after
taxes for the past three years (less than $600,000). Following suspension,
application was made by the NYSE to the SEC to delist the Common Stock. The
Company's stock was subsequently delisted by the NYSE in 1999 and is now traded
in the over-the-counter market.

 Preferred Stock

     The Company has authorized the issuance of up to 10,000,000 shares of
preferred stock, $.01 par value.  In 1997, the Board of Directors created a
series of preferred stock, par value $.01 per share, of the Company and
authorized 200,000 shares of convertible preferred stock designated as Series B
Convertible Preferred Stock ("Series B"). The holders of such Series B shares
are not entitled to dividends nor have voting rights, except as provided by law.
Each share of Series B is convertible, at any time, into one share of the Common
Stock of PRG, subject to certain adjustments. The shares are non-redeemable and
are non-cumulative. Upon liquidation or dissolution of PRG, the holders of the
shares shall be entitled to receive the liquidation value of shares ($.01 per
share) in preference to and in priority over distributions upon the Common
Stock.

     Effective February 21, 1997, the Board of Directors approved the grant of
the right to purchase up to 200,000 of the Series B shares to the former
Chairman of the Board of Directors and Chief Executive Officer during the two
year period beginning February 21, 1997 and ending on February 21, 1999.  The
agreement provided that the former Chairman of the Board should pay to PRG an
amount equal to the closing sale price of PRG's Common Stock on the New York
Stock Exchange on the date of delivery of notice to PRG of the intention to
purchase the shares times the number of shares purchased.  The former Chairman
of the Board exercised his right to purchase 200,000 Series B shares for an
aggregate price of $2,225,000 on March 25, 1997.  The purchase of the shares was
funded by a loan from PRG, the principal of which is not subject to recourse and
the interest of which is subject to recourse.  The note evidencing the loan is
secured by the Series B shares that were purchased.  The note bears interest at
the rate of 6.42% per annum.  As of December 31, 1998, the outstanding principal
and interest of $2,477,272 was reserved as a component of the total 1998 asset
valuation loss of $347,857,000.  The determination was made by the Company that
a provision should be established for all outstanding amounts associated with
this loan based on the potential under collateralization of the note as
evidenced by the current market value of the Series B shares.  As of December
31, 2000, the loan was in default.

12. INCOME TAX EXPENSE:

     Income tax expense (benefit) for the years ended December 31, 1997, 1998
and 1999 consists of the following:

<TABLE>
<CAPTION>
                             Description                                              1997             1998           1999
                             -----------                                       ------------------- ---------------------------
                                                                                                      (000's)
      <S>                                                                      <C>              <C>            <C>
      Current--
          Federal.....................................................           $  (1,230)       $  (4,997)            --
          State.......................................................                (265)            (714)            --
                                                                               -----------------------------------------------
               Total current..........................................              (1,495)          (5,711)            --
      Deferred
          Federal.....................................................             (21,795)         (53,186)       (23,006)
          State.......................................................              (3,022)          (7,970)        (3,287)
                                                                               -----------------------------------------------
               Total Deferred                                                      (24,817)         (61,156)       (26,293)
               Valuation Allowance....................................                  --               --         26,293
                                                                               -----------------------------------------------
               Total income tax expense (benefit).....................           $ (26,312)       $ (66,867)    $       --
                                                                               ===============================================
</TABLE>

                                      F-19
<PAGE>

     Total income tax expense differed from the amount computed by applying the
statutory federal income tax rate to income before income taxes as a result of
the following:

<TABLE>
<CAPTION>
                              Description                                                1997         1998          1999
                              -----------                                             ----------  ---------------------------
  <S>                                                                                 <C>         <C>            <C>
  Computed statutory tax expense (benefit).........................................     (35.0)%     (35.0)%       (35.0)%
  Increase (decrease) in income taxes resulting from--
     State income taxes, net of federal income tax benefit.........................      (3.3)%      (2.5)%       (27.8)%
     Other nondeductible expenses/ Asset Valuation Losses..........................       0.7%       20.6%       (160.2)%
     Tax-exempt interest income....................................................      (0.3)%        --            --
      Valuation Allowance..........................................................         --         --         223.0%
     Other.........................................................................      (1.0)%       0.1%           --
                                                                                      ----------  ---------------------------
          Total income tax expense benefit.........................................     (38.9)%     (16.8)%          --
                                                                                      ==========  ===========================
</TABLE>

     Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting and such amounts as
measured by tax laws and regulations. Deferred taxes related to intangible
assets result from acquisitions for which there is no basis in the intangibles
for tax purposes.  The deferred taxes related to intangible assets will not
result in future cash payments.  The components of the net deferred tax
liability are as follows:

<TABLE>
<CAPTION>
                              Description                                                          1998             1999
                              -----------                                             ---------------------------------------
                                                                                                   (000's)
  <S>                                                                                 <C>                          <C>
  Current deferred tax assets (liabilities):
       Temporary differences relating to cash-to-accrual
         conversions of the Eyecare Practices.............................                        $  (1,786)       $     (32)
       Allowance for doubtful accounts....................................                              187              187
       Accrued expenses...................................................                              298               17
       Other book/tax differences.........................................                               --               --
       Assets held for disposition........................................                           45,804           25,024
                                                                                      ---------------------------------------
          Net current deferred tax assets (liabilities)...................                        $  44,503        $  25,196
                                                                                      =======================================


  Non-current deferred tax liabilities:
       Net Operating Loss                                                                         $   1,339        $  34,724
       Assets held for disposition..........................................                         38,872           19,794
       Property and equipment...............................................                         (3,275)            (495)
       Intangibles..........................................................                         (4,312)          24,200
                                                                                      ---------------------------------------
         Net non-current deferred tax assets................................                      $  32,624        $  78,223
                                                                                      ---------------------------------------
         Total Deferred Tax Assets (Liabilities)                                                     77,127          103,419
         Valuation Allowance                                                                        (77,127)        (103,419)
                                                                                      ---------------------------------------
         Net Deferred Tax Assets (Liabilities)                                                           --               --
                                                                                      =======================================
</TABLE>

     The Company has net operating loss carry forwards of $89,500,000 as of
December 31, 1999, respectively, which will begin to expire in year 2018.

13. EMPLOYEE BENEFIT PLANS:

 Savings Plans

     The Company maintained various defined contribution plans, which permitted
participants to make voluntary contributions. The Company paid all general and
administrative expenses of the plans, and, in some cases, made matching
contributions on behalf of the employees. The Company also maintained a stock
option plan the purpose of which was to provided directors, key employees and
certain advisors with additional incentives by increasing their proprietary
interest in the Company.  The stock option plan provided for the grant of
incentive stock options and nonqualified stock options.

     The Company is in the process of terminating all of these plans. Plan
participants, all of whom have been identified, are being reimbursed for vested
proceeds and contributions for stock purchases that were not made. The

                                      F-20
<PAGE>

Company incurred expense of $817,000 for the year ended December 31, 1997 as
related to the savings plan. The Company recorded no expense associated with
these plans for the years ended December 31, 1998 and 1999.

14. RELATED-PARTY TRANSACTIONS:

     The Company leases facility space from various partnerships, which include
affiliated physicians as partners and trusts in which relatives of the
affiliated physicians are named beneficiaries. Rent expense on related-party
operating leases amounted to $7,116,000, $7,055,000 and $4,407,000 for the years
ended December 31, 1997, 1998 and 1999, respectively. In addition, the Company
leases facilities to affiliated physicians. Rent income on related-party
operating leases amounted to $1,162,000 for the years ended December 31, 1997
and 1998 and $1,034,000 for the year ended December 31, 1999.

     All of the Company's management service revenue in 1998 and 1999 was
received from physician groups, which have affiliated with the Company during
the past four years. The directors elected to the Board of Directors on October
30, 1998, were all affiliate physicians.

     In July of 1997, the Company loaned $500,000 to an affiliated physician and
former board member. The purpose of the loan was to provide funds to the former
board member to purchase the practice of a retiring physician practicing in his
market (also a PRG affiliate). This retiring physician had contractual rights to
terminate his practice affiliation with PRG. The new arrangement also provided
for the retiring physician to work on a contract basis for the new practice. The
loan was repayable in two equal installments of $250,000 in January and July of
1998. The January payment was received in October 1998, but the July payment has
not yet been made. The loan bore interest at 8% and is secured by the accounts
receivable of the practice. The loan was repaid as part of the buyout
transaction effected by the Company with the physician.

     On March 25, 1997, the Company loaned Emmett Moore, the former Chairman of
the Board of Directors and Chief Executive Officer, $2,225,000 to purchase
200,000 Series B shares. The principal balance is not subject to recourse, but
the interest is subject to recourse. The note evidencing the loan is secured by
the Series B shares that were purchased. The note bears interest at the rate of
6.42% per annum. As of December 31, 1998, the outstanding principal and interest
of $2,477,272 was reserved as a component of the total 1998 asset valuation loss
of $47,857,000. See Note 11 for additional information.

     During the course of the Company's 1998 review of its due from affiliates
balance (see Note 5), allowances were provided with respect receivables from
Eyecare Practices where three of the Company's former board members are
practitioners.

     From January of 1998 and continuing through February 1999, the Company paid
guaranty fees to Lucius Burch, a member of the Board of Directors, in the
aggregate amount of $752,258 (see Note 10).

     From January 1998 and continuing through February 1999, the Company paid
Dr. David Meyer, a member of the Board of Directors and an owner of an Eyecare
Practice that was party to an MSA with PRG, guaranty fees in the amount of
$785,774 (see Note 10).

     During 1999, Dr. David Meyer, the Chairman of the Board of Directors,
borrowed $982,000 from the Company, which at December 31, 1999 was recorded as a
current receivable and was unsecured.  There was no loan agreement to evidence
the receivable balance.  Interest was not accrued on the receivable balance. The
amount was paid back in January of 2000.

                                      F-21