<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 18, 1997
DAOU SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-22073 330284454
(Commission File Number) (IRS Employer Identification No.)
5120 Shoreham Place, San Diego, California 92122
(Address of principal executive offices, including zip code)
(619) 452-2221
(Registrant's telephone number, including area code)
<PAGE>
This Form 8-K/A amends and completes registrant's Form 8-K filed on July 18,
1997.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired.
Audited Financial Statements of Integrex Systems Corporation
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets - December 31, 1996 and 1995
Statements of Income - Years ended December 31, 1996 and 1995
Statements of Stockholders' Equity - Years ended December 31, 1996
and 1995
Statements of Cash Flows - Years ended December 31, 1996 and 1995
Notes to Financial Statements - December 31, 1996
(b) Pro Forma Financial Information:
The unaudited pro forma combined condensed balance sheets at
December 31, 1996 and at June 30, 1997 and the pro forma combined
condensed statements of operations for the six months ended June
30, 1996 and 1997 and for the years ended December 31, 1995 and 1996
give effect to the acquisition of Integrex as of December 31, 1996
for the combined condensed pro forma balance sheet and January 1, 1995
for the combined condensed pro forma statements of operations. The
pro forma information is based on the historical financial
statements of Integrex and DAOU giving effect to the transaction
under the pooling-of-interests method of accounting and
assumptions and adjustments described in the accompanying notes to
the unaudited pro forma combined condensed financial statements.
-2-
<PAGE>
(c) Exhibits.
The following exhibits are filed herewith or incorporated by reference
as part of this report:
Exhibit
No. Document Description
-------- ----------------------------------------------------
2.1* Agreement and Plan of Merger, dated as of July 8, 1997,
by and among DAOU Systems, Inc., a Delaware
corporation, DAOU-Integrex, Inc., a Delaware
corporation and wholly owned subsidiary of DAOU
Systems, Inc., Integrex Systems Corporation, a Delaware
corporation, and the Stockholders of Integrex Systems
Corporation.
99.1** Press release entitled "DAOU Systems Merges with
INTEGREX Systems Corp."
* Filed as an exhibit to the Company's Current Report on Form 8-K
which was filed with the Securities and Exchange Commission on July 18, 1997
and incorporated herein by reference.
** Filed as an exhibit to the Company's Current Report on Form 8-K
which was filed with the Securities and Exchange Commission on July 9, 1997 and
incorporated herein by reference.
-3-
<PAGE>
Financial Statements
Integrex Systems Corporation
YEARS ENDED DECEMBER 31, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
-4-
<PAGE>
Integrex Systems Corporation
Financial Statements
Years ended December 31, 1996 and 1995
CONTENTS
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . 6
Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . 8
Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . 9
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 10
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 11
-5-
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Integrex Systems Corporation
We have audited the accompanying balance sheets of Integrex Systems Corporation
as of December 31, 1996 and 1995 and the related statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Integrex Systems Corporation at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
July 9, 1997
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<PAGE>
Integrex Systems Corporation
Balance Sheets
DECEMBER 31,
1996 1995
ASSETS --------------------
Current assets:
Cash and cash equivalents $ 162,921 $ 101,571
Accounts receivable, net of allowance for
doubtful accounts of $0 in 1995 and $7,000 in 1996 1,201,913 812,450
Other current assets 29,566 6,738
--------------------------
Total current assets 1,394,400 920,759
Equipment, furniture and fixtures, net 205,877 112,704
Other assets 12,956 8,825
--------------------------
$1,613,233 $1,042,288
--------------------------
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 24,886 $ 155,126
Accrued salaries and wages 292,766 184,622
Deferred revenue 166,899 50,470
Line of credit 150,000 180,000
--------------------------
Total current liabilities 634,551 570,218
Commitments
Stockholders' equity:
Common stock, $1 par value:
Authorized shares - 25,000
Issued and outstanding shares - 11,525 in 1996
and 10,950 in 1995, respectively 11,525 10,950
Additional paid-in capital 89,737 61,326
Retained earnings 877,420 399,794
--------------------------
Total stockholders' equity 978,682 472,070
--------------------------
$1,613,233 $1,042,288
--------------------------
--------------------------
SEE ACCOMPANYING NOTES.
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<PAGE>
Integrex Systems Corporation
Statements of Income
YEARS ENDED DECEMBER 31,
1996 1995
-------------------------
Revenues $4,455,432 $2,547,691
Cost of revenues 3,318,819 1,995,641
-------------------------
Gross profit 1,136,613 552,050
Operating expenses:
Sales and marketing 292,938 117,160
General and administrative 375,076 261,973
-------------------------
668,014 379,133
-------------------------
Income from operations 468,599 172,917
Interest income, net 11,169 5,847
-------------------------
Income before income taxes 479,768 178,764
Provision for state income taxes 2,142 -
-------------------------
Net income $ 477,626 $ 178,764
-------------------------
-------------------------
SEE ACCOMPANYING NOTES.
-8-
<PAGE>
Integrex Systems Corporation
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 9,800 $ 9,800 $39,200 $221,030 $270,030
Issuance of common stock at $20.24
per share in exchange for services 1,150 1,150 22,126 - 23,276
Net income - - - 178,764 178,764
---------------------------------------------------------------------
Balance at December 31, 1995 10,950 10,950 61,326 399,794 472,070
Issuance of common stock at $50.41
per share in exchange for services 575 575 28,411 - 28,986
Net income - - - 477,626 477,626
---------------------------------------------------------------------
Balance at December 31, 1996 11,525 $11,525 $89,737 $877,420 $978,682
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
-9-
<PAGE>
Integrex Systems Corporation
Statements of Cash Flows
YEARS ENDED DECEMBER 31,
1996 1995
-----------------------
OPERATING ACTIVITIES
Net income $477,626 $ 178,764
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 36,942 15,635
Provision for uncollectible accounts 7,000 -
Common stock issued in exchange for services 28,986 23,276
Changes in operating assets and liabilities:
Accounts receivable (396,463) (554,617)
Other assets (26,960) (9,353)
Trade accounts payable (130,240) 128,235
Accrued salaries and wages 108,145 101,084
Deferred revenue 116,429 125,648
-----------------------
Net cash provided by operating activities 221,465 8,672
INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures (130,115) (100,894)
-----------------------
Net cash used in investing activities (130,115) (100,894)
FINANCING ACTIVITIES
Proceeds from (payments on) line of credit (30,000) 165,000
-----------------------
Net cash (used in) provided by financing activities (30,000) 165,000
Net increase in cash and cash equivalents 61,350 72,778
Cash and cash equivalents at beginning of year 101,571 28,793
-----------------------
Cash and cash equivalents at end of year $162,921 $ 101,571
-----------------------
-----------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 4,993 $ 2,183
-----------------------
-----------------------
SEE ACCOMPANYING NOTES.
-10-
<PAGE>
Integrex Systems Corporation
Notes to Financial Statements
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Integrex Systems Corporation (the "Company") was incorporated in the State of
Delaware and began conducting business on September 7, 1993. The Company was
formed to provide advanced network design, integration and advanced consulting
support services to its customers which are primarily healthcare organizations
and include educational and governmental institutions. The Company specializes
in voice and video networks and also designs integrated cable plants capable of
supporting voice, video and high-speed data transmission.
REVENUE RECOGNITION
Contract revenue for the development and installation of network solutions is
recognized on the percentage-of-completion method with progress to completion
measured based upon labor hours incurred. Revenue from technical support and
network management services is recognized over the periods the services are
performed.
CASH, CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
maturities of three months or less when purchased.
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are stated at cost, less allowances for
depreciation computed using the straight-line method over the estimated useful
lives of the assets, generally five to seven years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
about the future that affect the amounts reported in the financial statements
and disclosures made in the accompanying notes of the financial statements. The
actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF ("SFAS 121") in 1996. SFAS 121 established accounting standards
-11-
<PAGE>
Integrex Systems Corporation
Notes to Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for recording the impairment of long-lived assets, certain identifiable
intangibles and goodwill. The adoption of SFAS 121 did not have an impact on
the Company's financial statements.
2. EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consist of the following at:
DECEMBER 31,
1996 1995
---------------------
Computer and software $176,187 $ 92,570
Telecommunications equipment 22,924 18,512
Furniture and office equipment 63,700 21,614
---------------------
Total cost 262,811 132,696
Less accumulated depreciation and amortization (56,934) (19,992)
---------------------
$205,877 $112,704
---------------------
---------------------
3. LINE OF CREDIT
On July 31, 1996, the Company obtained a $300,000 bank line of credit for the
purpose of financing its receivables. The line of credit is due on demand
but if not demanded is due in full on July 31, 1997. Interest is payable
monthly at prime plus 1% (9.25% at December 31, 1996). The line of credit is
personally guaranteed by the Company's stockholders. At December 31, 1996,
the outstanding balance was $150,000.
4. LEASE COMMITMENTS
The Company has a three-year lease for its office space that commenced April 1,
1995. The lease is subject to annual escalations of 3%. Minimum annual lease
payments for the years ended December 31 are as follows:
1997 $133,818
1998 45,043
--------
$178,861
--------
--------
Rent expense for the years ended December 31, 1996 and 1995 was $101,000 and
$54,000, respectively.
-12-
<PAGE>
Integrex Systems Corporation
Notes to Financial Statements (Continued)
5. STOCKHOLDERS' EQUITY
On October 20, 1994, the Board of Directors approved a stock grant to an
employee contingent on that employee meeting certain performance goals for
years ended December 31, 1995, 1996, and 1997. During 1995 and 1996, the
employee met the performance goals and was issued 1,150 shares of common
stock at a deemed fair value of $23,276 and 575 shares at a deemed value of
$28,986, respectively. The Company recorded compensation expense at the
deemed fair value for financial reporting purposes.
6. INCOME TAXES
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of federal corporate
income taxes, the shareholders of an S Corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements.
Several states in which the Company conducts business impose income taxes on the
corporation. All income taxes reflected in these financial statements are for
obligations payable to those states.
7. BENEFIT PLAN
On October 20, 1994, the Board of Directors of the Company approved the adoption
of a retirement benefit plan effective January 1, 1995. The plan is intended to
qualify under Internal Revenue Code Section 401(a) and provides for employee
salary deferrals under Internal Revenue Code Section 401(k), company matching
payments, and company profit sharing payments. The Board of Directors approved
no matching payments for 1996. On October 24, 1996, the Board of Directors
approved a company profit sharing payment for 1996 of $97,605.
-13-
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Merger of DAOU and Integrex accounted for using the
pooling-of-interests method of accounting. These pro forma financial
statements are presented for illustrative purposes only and therefore are not
necessarily indicative of the operating results or financial position that
might have been achieved had the Merger occurred as of an earlier date, nor
are they necessarily indicative of operating results or financial position
which may occur in the future.
Pro forma combined condensed balance sheets are provided as of December 31,
1996 and June 30, 1997, giving effect to the Merger as though it had been
consummated on that date. Pro forma combined condensed statements of
operations are provided for the six-month periods ended June 30, 1996 and
1997 and the years ended December 31, 1995 and 1996, giving effect to the
Merger as though it had occurred at the beginning of the earliest period
presented.
The pro forma combined condensed statements of operations for the years ended
December 31, 1995 and 1996 are derived from the audited historical financial
statements of DAOU and audited historical financial statements of Integrex.
The pro forma combined condensed financial statements as of and for the
six-month periods ended June 30, 1996 and 1997 have been prepared on the same
basis as the historical information derived from the audited financial
statements. In the opinion of DAOU's and Integrex's management, the
unaudited financial statements of DAOU and Integrex referred to above include
all adjustments, consisting only of normal recurring accruals, necessary for
a fair presentation of the financial position and results of operations for
such periods.
-14-
<PAGE>
DAOU Systems, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEETS
June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DAOU INTEGREX FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTION COMBINED
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,071 $ 606 $ - $ 5,677
Short-term investments 9,513 - - 9,513
Accounts receivable 5,593 1,314 - 6,907
Contract work-in-progress 5,297 - - 5,297
Deferred income taxes 176 - - 176
Other current assets 604 20 - 624
-------------------------------------------------------
Total current assets 26,254 1,940 - 28,194
Due from officers/stockholders 253 - - 253
Equipment, furniture and fixtures, net 1,885 304 - 2,189
Deferred income taxes 23 - - 23
Other assets 73 13 - 86
-------------------------------------------------------
$28,488 $2,257 $ - $30,745
-------------------------------------------------------
-------------------------------------------------------
LIABILTIIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 1,883 $ 516 $ - $ 2,399
Accrued salaries and wages 752 333 - 1,085
Deferred revenue 744 98 - 842
Other accrued liabilities 472 - 400(2) 872
Income taxes payable 23 - - 23
-------------------------------------------------------
Total current liabilities 3,874 947 400 5,221
Deferred rent 55 - - 55
Stockholders' equity:
Preferred stock - - - -
Common stock 11 12 (11)(1) 12
Additional paid-in capital 24,563 90 11 (1) 24,664
Deferred compensation (1,037) - - (1,037)
Retained earnings 1,022 1,208 (400)(2) 1,830
-------------------------------------------------------
Total stockholders' equity 24,559 1,310 (400) 25,469
-------------------------------------------------------
$28,488 $2,257 $ - $30,745
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-15-
<PAGE>
DAOU Systems, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEETS
December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DAOU INTEGREX FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTION COMBINED
---------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,284 $ 163 $ - $ 2,447
Accounts receivable 4,085 1,202 - 5,287
Contract work-in-progress 3,600 - - 3,600
Deferred income taxes 176 - - 176
Other current assets 572 30 - 602
---------------------------------------------------------
Total current assets 10,717 1,395 - 12,112
Due from officers/stockholders 228 - - 228
Equipment, furniture and fixtures, net 827 206 - 1,033
Deferred income taxes 23 - - 23
Other assets 115 13 - 128
---------------------------------------------------------
$11,910 $1,614 $ - $13,524
---------------------------------------------------------
---------------------------------------------------------
LIABILTIIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 530 $ 25 $ - $ 555
Accrued salaries and wages 583 292 - 875
Deferred revenue 844 167 - 1,011
Other accrued liabilities 745 - 400(2) 1,145
Income taxes payable 99 - - 99
Line of credit - 150 - 150
---------------------------------------------------------
Total current liabilities 2,801 634 400 3,835
Deferred rent 62 - - 62
Redeemable preferred stock 8,190 - - 8,190
Stockholders' equity:
Preferred stock - - - -
Common stock 7 12 (11)(1) 8
Additional paid-in capital 1,246 90 11 (1) 1,347
Deferred compensation (1,166) - - (1,166)
Accretion of preferred stock (572) - - (572)
Retained earnings 1,342 878 (400)(2) 1,820
---------------------------------------------------------
Total stockholders' equity 857 980 (400) 1,437
---------------------------------------------------------
$11,910 $1,614 $ - $13,524
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-16-
<PAGE>
DAOU Systems, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATMENTS OF OPERATIONS
Six months ended June 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DAOU INTEGREX FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTION COMBINED
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $11,208 $2,969 $14,177
Cost of revenues 7,604 2,083 9,687
---------------------------- ------------
Gross profit 3,604 886 4,490
Operating expenses:
Sales and marketing 2,096 248 2,344
General and administrative 2,120 264 2,384
---------------------------- ------------
4,216 512 4,728
---------------------------- ------------
Income (loss) from operations (612) 374 (238)
Interest, net 323 6 329
---------------------------- ------------
Income (loss) before income taxes (289) 380 91
Provision for income taxes 31 - 156 (1) 187
--------------------------------------------------------
Net income (loss) (320) 380 (156) (96)
Accretion of redeemable
preferred stock - - -
--------------------------------------------------------
Net income (loss) attributable to
common stock $ (320) $ 380 $(156) $ (96)
--------------------------------------------------------
--------------------------------------------------------
Loss per share data:
Net loss per common share $ (.01)
------------
------------
Weighted average number of
common shares outstanding 11,029
------------
------------
</TABLE>
(1) Adjust the income tax provision for income taxes based on an incremental
tax rate of 41%. Prior to Merger transaction, Integrex was an S
corporation, therefore income taxes were the responsibility of the
individual stockholders.
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-17-
<PAGE>
DAOU Systems, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATMENTS OF OPERATIONS
Year ended December 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DAOU INTEGREX FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTION COMBINED
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $19,311 $4,456 $23,767
Cost of revenues 13,556 3,319 16,875
---------------------------- ------------
Gross profit 5,755 1,137 6,892
Operating expenses:
Sales and marketing 1,865 293 2,158
General and administrative 3,885 375 4,260
---------------------------- ------------
5,750 668 6,418
---------------------------- ------------
Income from operations 5 469 474
Interest, net 197 11 208
---------------------------- ------------
Income before income taxes 202 480 682
Provision for income taxes 119 2 195 (1) 316
--------------------------------------------------------
Net income 83 478 (195) 366
Accretion of redeemable
preferred stock 485 - - 485
--------------------------------------------------------
Net income (loss) attributable to
common stock $ (402) $ 478 $(195) $ (119)
--------------------------------------------------------
--------------------------------------------------------
Loss per share data:
Net loss per common share $ ( .01)
------------
------------
Weighted average number of
common shares outstanding 9,553
------------
------------
</TABLE>
(1) Adjust the income tax provision for income taxes based on an incremental
tax rate of 41%. Prior to Merger transaction, Integrex was an S
corporation, therefore income taxes were the responsibility of the
individual stockholders.
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-18-
<PAGE>
DAOU Systems, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATMENTS OF OPERATIONS
Six months ended June 30, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DAOU INTEGREX FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTION COMBINED
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $7,530 $2,110 $9,640
Cost of revenues 5,343 1,567 6,910
---------------------------- ------------
Gross profit 2,187 543 2,730
Operating expenses:
Sales and marketing 706 125 831
General and administrative 1,735 163 1,898
---------------------------- ------------
2,441 288 2,729
---------------------------- ------------
Income (loss) from operations (254) 255 1
Interest, net 120 3 123
---------------------------- ------------
Income (loss) before income taxes (134) 258 124
Provision for income taxes 22 - 106 (1) 128
--------------------------------------------------------
Net income (loss) (156) 258 (106) (4)
Accretion of redeemable
preferred stock 39 - 39
--------------------------------------------------------
Net income (loss) attributable to
common stock $(195) $ 258 $(106) $ (43)
--------------------------------------------------------
--------------------------------------------------------
Loss per share data:
Net loss per common share $ -
-----------
-----------
Weighted average number of
common shares outstanding 9,465
------------
------------
</TABLE>
(1) Adjust the income tax provision for income taxes based on an incremental
tax rate of 41%. Prior to Merger transaction, Integrex was an S
corporation, therefore income taxes were the responsibility of the
individual stockholders.
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-19-
<PAGE>
DAOU Systems, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATMENTS OF OPERATIONS
Year ended December 31, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DAOU INTEGREX FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTION COMBINED
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $14,330 $2,548 $16,878
Cost of revenues 8,475 1,996 10,471
---------------------------- ------------
Gross profit 5,855 552 6,407
Operating expenses:
Sales and marketing 938 117 1,055
General and administrative 2,893 262 3,155
---------------------------- ------------
3,831 379 4,210
---------------------------- ------------
Income from operations 2,024 173 2,197
Interest, net 67 6 73
---------------------------- ------------
Income before income taxes 2,091 179 2,270
Provision for income taxes 851 - 73 (1) 924
--------------------------------------------------------
Net income 1,240 179 (73) 1,346
Accretion of redeemable
preferred stock 87 - 87
--------------------------------------------------------
Net income attributable to common stock $ 1,153 $ 179 $(73) $1,259
--------------------------------------------------------
--------------------------------------------------------
Earnings per share data:
Net income per common share
and common share equivalents $ .16
------------
------------
Weighted average number of
common shares and common
share equivalents outstanding 8,116
------------
------------
</TABLE>
(1) Adjust the income tax provision for income taxes based on an incremental
tax rate of 41%. Prior to Merger transaction, Integrex was an S
corporation, therefore income taxes were the responsibility of the
individual stockholders.
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-20-
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
1. The unaudited pro forma combined condensed financial
statements of DAOU Systems, Inc. ("DAOU") and Integrex Systems
Corporation ("Integrex") give retroactive effect to the Merger
using the pooling-of-interests method of accounting, and, as a
result, the unaudited pro forma combined condensed balance
sheets and statements of operations are presented as if the
condensed financial statements will become the historical
financial statements of DAOU upon issuance of financial
statements for a period that includes the Merger date. The
unaudited pro forma combined condensed financial statements
reflect the issuance of 700,000 fully paid and nonassessable
shares of DAOU's common stock for 11,525 shares of Integrex
common stock to effect the Merger.
2. The unaudited pro forma combined condensed balance sheets combine
DAOU's December 31, 1996 historical balance sheet with Integrex's
December 31, 1996 historical balance sheet and DAOU's June 30, 1997
unaudited balance sheet with Integrex's June 30, 1997 unaudited
balance sheet. The adjustments relate to the estimated costs of
the merger transaction and integration of the businesses and are
estimated to be approximately $400,000, net of estimated tax
benefits of approximately $100,000.
3. The unaudited pro forma combined condensed statements of
operations combine DAOU's historical results for the years
ended December 31, 1996 and 1995 and the unaudited six months
ended June 30, 1997 and 1996 with the Integrex historical
results for the years ended December 31, 1996 and 1995 and the
unaudited six months ended June 30, 1997 and 1996,
respectively.
4. The unaudited pro forma data are presented for informational
purposes only and do not give effect to any synergies that may
occur due to the combining of DAOU's and Integrex's existing
operations. DAOU expects to incur charges currently estimated
to approximate $400,000, net of taxes, in the quarter ending
September 30, 1997, the quarter in which the Merger was
consummated, to reflect costs associated with combining the
operations of the two companies and transaction fees and costs
incident to the Merger. This charge is reflected in the
unaudited pro forma combined condensed balance sheet but is
not included in the unaudited pro forma combined condensed
statement of operations.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 13, 1997 DAOU SYSTEMS, INC.
By: /s/ Fred. C. McGee
------------------------------------------
Fred C. McGee, Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit
No. Document Description
-------- ----------------------------------------------------
2.1* Agreement and Plan of Merger, dated as of
July 8, 1997, by and among DAOU Systems, Inc., a
Delaware corporation, DAOU-Integrex, Inc., a Delaware
corporation and wholly owned subsidiary of DAOU
Systems, Inc., Integrex Systems Corporation, a Delaware
corporation, and the Stockholders of Integrex Systems
Corporation.
99.1** Press release entitled "DAOU Systems
Merges with INTEGREX Systems Corp."
* Filed as an exhibit to the Company's Current Report on Form 8-K
which was filed with the Securities and Exchange Commission on July 18, 1997
and incorporated herein by reference.
** Filed as an exhibit to the Company's Current Report on Form 8-K
which was filed with the Securities and Exchange Commission on July 9, 1997
and incorporated herein by reference.
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