United States
Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
{ X } Annual Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended December 31, 1996
Or
{ } Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Transition Period From______to ________
Commission File Number 333-3618
PHYSICIANS INFORMATION EXCHANGE, INC.
TEXAS 72-1315594
(state or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1401 HUDSON LANE, SUITE 202 71201
MONROE, LOUISIANA (Zip Code)
(Address of Principal Offices)
(318) 323-5000
(Registrant's Telephone Number, including area code.)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Exchange on which Registered
NONE ____________
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class Name of Exchange on which Registered
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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of the Form 10-KSB or any amendment to this Form 10- KSB.
Yes No x
State issuer's revenues for its most recent fiscal year. $ 0 .
-------------------
As of March 31, 1997, there were 351,000 shares of Class A common stock, $.001
par value ("Class A Common Stock") and 75,902,528 shares of Class B common
stock, $.001 par value ("Class B Common Stock" collectively, the "Common
Stock"), of the registrant issued and outstanding. The aggregate market value of
the Common Stock held by non-affiliates of the registrant as of March 31, 1997
was $706,124. For purposes of this computation, all executive officers,
directors and 10% shareholders were deemed affiliates. Such a determination
should not be an admission that such executive officers, directors or 10%
shareholders are affiliates.
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INDEX
PHYSICIANS INFORMATION EXCHANGE, INC.
<TABLE>
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PART I PAGE
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Item 1. Description of Business..................................................................................1
Item 2. Description of Property.................................................................................16
Item 3. Legal Proceedings.......................................................................................16
Item 4. Submission of Matters to a Vote of Security Holders....................................................16
PART II
Item 5. Market for Common Equity and Related Stockholder Matters................................................16
Item 6. Management's Discussion and Analysis of Financial Condition and Results.................................16
of Operations or Plan of Operation.
Item 7. Financial Statements....................................................................................17
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure...............................................................................17
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16 (a) of the Exchange Act..............................................................17
Item 10. Executive Compensation..................................................................................19
Item 11. Security Ownership of Certain Beneficial Owners and Management..........................................20
Item 12. Certain Relationships and Related Transactions..........................................................21
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................22
Signatures.......................................................................................................24
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Physicians Information Exchange, Inc. ("PIE" or the "Company") is a
development stage company that is controlled exclusively by physicians and
directed and operated primarily by physicians. PIE was founded on the principle
that physicians desire to provide healthcare market leadership, strengthen the
physician-patient relationship, improve the quality of healthcare and reduce the
cost of healthcare. The Company intends to help physicians accomplish this by
leveraging physician training and experience with current information technology
to transform clinical data into medical knowledge and knowledge of the
healthcare system. The products and services described below are currently being
developed by the Company; however, such products and services have not been
completed and are not yet commercially available.
PIE's focus is on improving the quality and lowering the cost of
healthcare through point-of-care capture of clinical data. PIE is the first
company to develop the capability to successfully collect on a nationwide basis
(across provider entities), clinical outcomes and fully absorbed cost
information at the point-of-care. This information enables physicians to
understand the outcomes and fully absorbed cost of clinical procedures,
diagnoses and treatment protocols. Such information also enables physicians to
utilize predetermined guidelines for diagnosis and treatment. This capability
will permit implementation of a national evidence-based medicine solution to
produce higher quality, more affordable healthcare.
The Company believes that the information gathered through its
point-of-care clinical information system, the Physicians Information Exchange
Record System ("PIERS"), will enable widespread adoption of evidence-based
clinical practices. This information on patient care protocols and other
clinical policies derived from statistical analyses of patient outcomes and
fully absorbed cost data will significantly improve the quality of healthcare
and lower its cost of delivery. Evidence-based medicine relies on detailed
analyses of large data sets of patient medical records and clinical data. To
date, such analyses have not been practical on a large scale as medical records
are generally not under common control or in standardized formats. PIE's
products and services provide the tools necessary to generate and analyze
outcomes- based, quality and cost information while implementing evidence-based
medicine solutions.
The medical records and clinical data will be collected by PIE in an
anonymous and abstract format through a computerized physician network. This
clinical data will form the basis of the Knowledge Bank's (to be defined)
national clinical data repositories and facilitate the widespread adoption of
evidence-based medicine. Evidence-based medicine is regarded as a promising
development for improving the practice of medicine and the delivery of
healthcare at lower costs. This practice of medicine bases patient care
protocols and other clinical policies on vigorous scientific analyses of patient
outcomes.
To date, large scale analysis of clinical data has not been practical
as medical records are generally not centrally located, under common control or
in a standardized format. PIE intends to help solve such problems by addressing
the five integral components of evidence-based medicine listed below with the
corresponding PIE product, service or methodology:
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PIE PRODUCT, SERVICE
EVIDENCE-BASED MEDICINE COMPONENT OR METHODOLOGY
- --------------------------------- ------------------------------
o DATA. Clinical data must be recorded in a PIERS
standardized format using consistent collection
methods.
o DISCIPLINE. Physicians must submit clinical THE EXCHANGE'S automatic data
data, use the developed protocols (when collection
applicable) and contribute feedback to improv
the process.
o SOFTWARE AND SYSTEMS. The tools used to THE KNOWLEDGE BANK and PIERS
collect data must be efficient, user-friendly,
economical and reliable.
o PROCESS. The procedures used for data PIE's physician ADVISORY
management and analysis, protocol, treatment COUNCIL
patterns and guideline development, must be
coordinated to support agreed upon clinical
objectives.
o GOVERNANCE. To be effective, this entire Physicians acting through
process should be voluntary and under the their role as DIRECTORS and
direction of a unified management structure SHAREHOLDERS of PIE
that is organized and respected by physicians.
The Company has entered into a strategic alliance with the ATAC CPA
Healthcare Network (the "CPA Network") a network of affiliated medical
accountants, to market PIERS as part of the CPA Network's "Guaranteed Return"
Profit Improvement Program. This program, which generates increases in physician
practice profitability, is expected to accelerate PIE's penetration of the
physician market, as well as provide a significant source of revenue for the
Company. Development of a large installed base of physician users will provide
revenue through usage of the Company's secure nationwide telecommunications
network and, more importantly, will enable the Company to build a clinical data
repository in order to penetrate the $6 billion clinical data repository market.
The CPA Network had 168 offices in 20 states as of December 31, 1996. These CPAs
are trained to conduct physicians healthcare cost accounting analyses that have
historically generated significant increases in physician practice
profitability. Under the agreements between the CPA Network and the physicians,
the CPA Network receives one-half of the savings achieved over a two-year
period. PIE receives one-third of the CPA Networks one-half, or one-sixth of the
overall savings realized by the physician practice. Over the past three years,
the annual profit improvement physicians have realized after implementing the
profit improvement program has been in excess of $100,000 in all cases.
The Company is seeking strategic and financial partners to provide
capital necessary to finance development, sales, marketing and general corporate
activities.
PIERS. The PIERS software will be licensed at no charge to each
physician who purchased at least one share of Class B Common Stock in the June
24, 1996 offering of Common Stock (the "Offering") and who executes an agreement
with PIE to provide clinical abstract data to the Company. This allows PIE to
normalize the interface and data elements among users and thereby collect
statistically significant quantities of data in an economically and
technologically feasible manner. In return, the physicians participate in the
automated sharing of abstracted clinical information with PIE's information
repositories. This distribution method is designed to facilitate the creation of
clinical information repositories as quickly as the software is installed. Once
installed, the physician base provides a clinical information source that is
expected to be continually expanded and enhanced. The Company will market,
install and service PIERS. Additional charges at normal rates, for installation,
training or maintenance fees, would not necessarily be waived. In
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addition, the Company may choose to require the purchase of a minimum number of
services if the securities purchase requirement is waived.
PIERS will provide a user-friendly technical infrastructure to support
collegial communication among physicians regarding their findings and
experiences with respect to protocol outcomes, new treatments and process
improvements. Other PIERS attributes will include physician-specific clinical
outcomes and cost information from the clinic's own data repository. This
information when combined with regional and national benchmark information will
help physicians to market, negotiate and compete more effectively in the
provider marketplace. The PIERS physician interface will integrate the latest
pen-based, hand-held, data collection, character recognition, voice digitization
and wireless data transfer technologies with a knowledge database using
self-organizing data.
THE EXCHANGE. It is anticipated that, when completed, the Exchange will
be a confidential and secure, interactive patient record exchange network for
physicians. The Exchange's services will provide new, emergency or referral
physicians with real-time access to the patient's clinical history. With
authorization from both the patient and physician, other entities such as
pharmacies, labs and payors may electronically access patient non-confidential
clinical information or update the record with clinical results. However, PIE
does not presume to own an individual patient's medical records. Rather, the
Exchange will provide services that facilitate the collection, analysis and
secured distribution of this information.
THE KNOWLEDGE BANK. The Company is currently developing the
infrastructure of the Knowledge Bank. The Knowledge Bank services are
anticipated to provide the greatest profits of all the Company's products and
services. These services are derived from regional and national data
repositories and fed by the automated sharing of abstracted clinical data
through the Exchange. Some of the Knowledge Bank services will include clinical
outcome studies (both diagnostic and wellness), normative profiles, treatment
therapies, disease management programs, clinical protocols, epidemiological
research studies, capitation projections, benchmark analysis, market studies and
cost/benefit analyses. It is expected that the Company will derive a significant
percentage of its future revenues principally from the formatting, analysis and
transfer of this information to integrated delivery systems, payors, major
providers, provider groups, managed care organizations, bio/pharmaceutical
companies, research institutions, government agencies, as well as physicians and
organizations needing current, clinically derived, outcomes-based data and cost
information. The Company anticipates that the Knowledge Bank services will be
provided by employees of the Company; however, the Company may choose to
additionally employ independent contractors depending on market demand.
THE ATAC SYSTEM. On September 25, 1996, PIE entered into a strategic
alliance agreement with the CPA Network to make available the ATAC System to PIE
physicians. The ATAC System is the enabling technology that drives the CPA
Network's "Guaranteed Return" Profit Improvement Program by electronically
calculating each physician's fully absorbed costs for each procedure, diagnosis
and protocol and the profitability of each capitated contract. This proprietary
study uses hand-held computers to integrate utilization times, clinic activities
and clinic costs. This analysis by the physicians' CPAs enables the
implementation of re-engineering solutions that generate significant increases
in physician practice profitability.
INFORMATION SECURITY AND CONFIDENTIALITY. PIE has designed its security
system using private key encryption that allows healthcare information
identified with a specific patient to be retrieved only in the attending
physician's office. This system has been designed to exceed the "trustee" system
requirements currently being proposed before the United States Congress. Under
PIE's system, PIE employees and all other non-physician users of PIE information
are denied access to protected patient information. Unlike the trustee system,
PIE keeps the identity of both the patient and the physician anonymous and,
accordingly, does not have the capability to respond to court orders for
individual patient healthcare information. This information will continue to be
accessible only through the attending physician's office. Consistent with
current physician practice, PIE's security system will require emergency, new or
referral physicians to receive the patient's authorization before they are
granted access to the patient's healthcare information.
ADVISORY COUNCIL. To meet the needs of the physician on an on-going
basis, the Company's service and product offerings will be guided by an Advisory
Council consisting of nationally recognized physicians representing all major
specialties, including primary care. Advisory Council members will assist the
Company in developing specialty modules for PIERS and provide ongoing advice for
updating PIERS. Advisory Council members agree to represent PIE to their
specialty peers. In addition, Advisory Council members have committed to
installing the PIERS system at their respective
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practices, and to participate in the Exchange. The Advisory Council currently
consists solely of physicians. The Company expects to have the Advisory Council
fully established by the end of 1997.
INCREASES PHYSICIAN CONTROL. PIERS, the Exchange and the Knowledge Bank
are all caregiver tools designed to aid the most important component of the
healthcare delivery value chain: the physician. By empowering the physician with
point-of-care technology, PIE will further position the physician at the center
of the healthcare delivery system, making it less consequential as to whichever
delivery system prevails, whether that be HMOs, PPOs, Integrated Delivery,
Systems ("IDSs"), PHOs, Provider Sponsored Networks ("PSNs"), PPMs or single
payor systems (as in Canada).
LOW COST ACCESS FOR PHYSICIANS. PIE's business strategy is suited for
all physician clinics that have historically lacked the expertise or been unable
or unwilling to devote substantial capital to the purchase of information
systems that include decision support software programs, outcomes measurement
tools and resource utilization review tools. PIE's products are particularly
well suited for the overwhelming majority of physicians that still practice in
smaller clinics and who generally have fewer options for capital partners
necessary to fund information systems needs. For the cost of the hardware only,
physicians begin to benefit as they receive the clinical software free of
charge. Physicians also receive access to clinical data from which they can
receive clinical decision support, measure outcomes, measure resource
utilization and compare their performance against peer benchmarks.
CERTAIN AGREEMENTS
MATRIX PLUS. The Company has entered into an agreement to acquire the
rights to the MR1 Clinical Record System software that was originally developed
by Matrix Plus, Inc., a company controlled by Dr. Ernest Rutherford, CEO of the
Company. See "Certain Relationships and Related Transactions - Transactions with
Matrix Plus." This software product has been in continuous use since 1985 and is
currently operating in 19 clinical sites in the United States and Canada. The
MR1 software is designed to facilitate clinical communication and form the basis
for a computerized patient record. The Company consummated the purchase in June
1996.
THE ATAC SYSTEM. On September 25, 1996, PIE entered into a strategic
alliance agreement with the CPA Network to make available the ATAC System to PIE
physicians. ATAC, as used in the CPA Network's profit improvement program, is a
cost saving analysis combining an electronic time and motion study with a
customized practice cost modeling system. This analysis is performed by a
physician's CPA utilizing hand-held computers to integrate utilization times,
clinic activities and clinic costs. This enables a physician to understand the
costs and profitability of each procedure performed and to implement
reengineering recommendations that historically have generated significant
increases in physician practice profitability. A University of Pennsylvania,
Wharton study, funded by HCFA, concluded "ATAC answers the questions of how to
provide accurate, flexible, low cost and feasible measures of direct costs for
all the services an office practice performs." As part of the program, the CPA
Network will promote installation of the PIERS software to its physician
clients. The CPA Network believes that availability of the PIERS software
increases the attractiveness of their program to physicians. In addition,
installation of PIERS automates the CPA Network's profit improvement program and
decreases the amount of CPA time necessary to complete the program. Generally,
the time and motion study and practice cost modeling portion of the program is
completed in 30 days and cost-saving recommendations are implemented in the
following 60-day period. Payment of the CPA Network's share of physician
practice savings will be collected on a monthly basis over the two-year period
of the contract.
INDUSTRY BACKGROUND
Market-driven efforts to contain rising healthcare costs have resulted
in an increasing demand for access to patient-centered, outcomes-based clinical
and cost decision support information. Physicians and other healthcare providers
are under substantial pressure to contain healthcare costs and increasingly are
required to demonstrate the quality and cost- effectiveness of care delivered to
patients. In addition, managed care payors continue to expand their market
penetration and are increasingly transferring some or all of the economic risks
of healthcare delivery to providers through a variety of risk-sharing
arrangements, including capitation. This creates further need for information
systems that enable providers
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to demonstrate the quality and understand the costs of care delivered. Unlike
traditional fee-for-service reimbursement, such risk sharing arrangements put
physicians and other healthcare providers at risk for the costs of care and
encourage them to modify their emphasis from not only treating illness, but also
to maintaining wellness. These arrangements therefore, put a premium on
understanding the outcomes and costs of various healthcare delivery alternatives
in order to enter into contracts and other arrangements that can generate
profitability for the provider. These factors have increased the importance of
comprehensive outcomes-based, patient-centered healthcare information that can
be used by physicians and other healthcare providers to more accurately measure
the clinical value and costs of medical tests, procedures and clinical pathways.
[THIS IS A CHART THAT DEPICTS THE FACT THAT ECONOMIC RISK TO
HEALTHCARE PROVIDERS INCREASES THE VALUE
OF OUTCOMES-BASED PATIENT-CENTERED HEALTHCARE INFORMATION.]
According to the 1996 HIMSS/Hewlett-Packard Leadership Survey, 31% of
the healthcare executives surveyed indicated that the need for comparative
outcomes data was the top clinical force driving computerization in their
organization. Access to timely information is a critical tool to successfully
manage today's rapidly changing healthcare economy. Efforts to control the
clinical costs of healthcare historically have been hampered by the complexity
of healthcare delivery and the lack of "benchmark" data required to study the
appropriateness, efficiency and effectiveness of healthcare delivery. Currently,
the only healthcare data available in large volumes is mostly claims-based. Such
data has drawbacks, however, in that only limited insights can be drawn from
claims-based data in the absence of corresponding clinical outcomes and fully
absorbed cost data. Only clinically-based data can demonstrate the efficacy of
the care provided.
The Company estimates that the market potential for a national clinical
data repository like the Knowledge Bank is large and growing. Users of this
information comprise virtually every component of the healthcare industry,
including healthcare providers, physicians and physician practice management
organizations, third party payors and managed care organizations, contract
research organizations, public research agencies, pharmaceutical companies,
medical device companies, healthcare consulting firms, healthcare information
technology vendors, healthcare associations and accreditation bodies. Currently,
outcomes assessment is performed individually by physicians, payors,
pharmaceutical manufacturers and academic researchers combining forces after the
fact to measure and compare the clinical results and cost-effectiveness of
specific medical diagnostic and treatment processes of care. These processes
should lead to good results. However, it is hard to prove that the link between
process and outcome is valid. The cause and effect relationship between process
and outcome is difficult to relate unless the processes are clearly defined, the
outcomes consistently measured and the results reflect the continuum of care.
Claims-based data cannot address these issues. As a result, the demand for
outcomes-based analysis is almost completely unmet. The Knowledge Bank's
clinically-derived information permits such outcomes analysis and provides
physicians with the information and tools necessary to assist them in the
delivery of higher quality medicine at lower cost.
The Company has observed that, at present, many physicians practice in
relative isolation from their peers. This results in considerable practice
variability between existing providers. The variability frequently follows
consistent patterns, but unfortunately little information about care decisions
is returned to the physicians. The Company believes that aggregating patient
populations to examine variations in physician decision making will yield
valuable insights into improving patient care and cost savings for
practitioners. Information is a crucial enabler in this process, allowing
physicians to engage in constructive discussions about practice pattern
variation. PIE believes that physician groups are in the best position to create
value and benefits from clinically-based information because physicians are the
only licensed care providers and can therefore best put new insights into
practice. However, to date, this has not happened because clinically-based
information has not been available and physician groups have been too fragmented
to gain access to the necessary capital required to develop sophisticated
information systems. To create significant volumes of dispersed clinically
derived information outside of the PIE model requires not only raising
sufficient capital to build the significant infrastructure but building
cooperative consensus among a myriad of competing providers.
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STRATEGIC VISION
The Company's strategic vision is to facilitate the working together of
physicians to produce higher quality, lower cost healthcare while strengthening
the patient-physician relationship. The enabling aspect of this vision is
physicians, empowered by PIE, leveraging their training and experience with
information technology. This combination will allow physicians to exercise
healthcare leadership by transforming clinical and cost information into
cost-effective medical knowledge. PIERS, as well as the services of the Exchange
and the Knowledge Bank, are specifically designed by physicians to expand
physician clinical management and diagnostic decision capabilities and thereby
expedite the healthcare improvement process without requiring physicians to
raise substantial capital for information systems and infrastructure.
PROVED PHYSICIAN-DRIVEN SOLUTION TO CLINICAL INFORMATION NEEDS. PIE is
owned, directed and operated by physicians. The PIERS software is designed to
build clinical decision support networks and healthcare information repositories
that address the needs of the physician community to provide higher quality
healthcare at lower cost. PIERS has been designed with significant physician
input, capitalizing on the expertise of the Company's CEO and founder, Dr.
Ernest Rutherford, and many other physicians over the past 10 years. PIE's
efforts have been focused on ensuring that the PIERS software will address the
clinical needs of practicing physicians while simultaneously gathering the
clinical and cost information necessary to understand the true cost and outcomes
of healthcare delivery in an ambulatory setting.
PROMOTE RAPID IMPLEMENTATION OF PIERS SOFTWARE THROUGH THE CPA NETWORK.
The Company's marketing efforts are targeted toward rapidly building an
installed base of physician PIERS users through a "free software" distribution
plan and strategic marketing relationship with CPAs. This should achieve the
critical mass necessary for the Exchange and Knowledge Bank to be successful.
PIE's products and services will be marketed primarily through a strategic
alliance with the CPA Network. As part of the CPA Network's "Guaranteed Return"
Profit Improvement Program (using electronic time and motion studies) for
physicians, the CPAs will promote installation of PIERS at no charge to their
physician clients as a significant component of the program.
DEVELOP ADDITIONAL STRATEGIC ALLIANCES. The Company is also in various
stages of establishing additional relationships with state medical associations,
specialty societies and other healthcare organizations. In addition to providing
a significant source of revenue through the CPA Network relationship, the
Company expects these alliances to result in the establishment of a
significantly larger installed base of physician users and to accelerate
penetration of the physician market.
OUTSOURCING OF SELECTED SERVICES. In order to facilitate development of
the PIERS software and the infrastructure related to the Exchange and the
Knowledge Bank and to support the roll-out of PIERS, the Company has entered
into arrangements with The Americas Group Technology Consultants, Inc. ("TAG")
to provide software development services and with First Consulting Group ("FCG")
to receive management support. In addition, PIE has contracted with FCG to
provide implementation and training services for PIERS. The Company expects to
continue using outside parties to perform selected functions relating to its
business, including management support services related to the Exchange and the
Knowledge Bank clinical data repository. The Company believes that this strategy
best fits its growth model while providing it with quality service. This
strategy should allow PIE to focus on developing commercial products and
services derived from data collected in the Knowledge Bank, thereby enabling
physicians and other providers to improve the quality while lowering the cost of
healthcare delivery.
PRODUCTS AND SERVICES
PIE's product and service offerings will consist of PIERS, a
computer-based patient record product, the Exchange and the Knowledge Bank. PIE
will also derive revenue from its share of cost savings resulting from the CPA
Network's Profit Improvement Program. These products and services allow PIE
physicians to benefit from clinical decision support involving longitudinal
clinical patient data with analysis of alternative treatment costs and outcome
results at the point-of-care. The services also enable PIE to quickly accumulate
the national repository of clinical information that will drive and support a
myriad of national and regional evidence-based medicine initiatives.
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PIERS
General. PIERS is a patient record software product that provides a
patient-centered, physician-driven tool that enables the physician to save time
while providing real time clinical information at the point-of-care. This tool
has a degree of flexibility to allow each physician to build and access
computer-based patient records automatically without significantly changing his
or her preferred practice style. The patient records are built as a by-product
of a normal clinical practice. These services provide a user-friendly technical
infrastructure supporting collegial communication among physicians regarding
their findings and experiences with respect to protocol outcomes, new
treatments, process improvements and other clinical matters. This information
should allow physicians to improve the quality and efficiency of their care as
well as allow them to market, negotiate and compete more effectively. The PIERS
physician interface integrates pen-based, hand-held, data collection, character
recognition, voice digitization and wireless data transfer technologies with a
robust knowledge database using self-organizing data. PIERS is designed using
scalable client-server architecture and object-oriented, HTML technology.
PIERS is intended to offer a number of benefits, including:
o Providing rapid access to and storage of clinical patient records.
o Enabling real time access to historical outcomes and costs of a
proposed medical intervention.
o Enabling use of an information based continual quality improvement
approach to patient care rather than retrospective analysis of
the outliers.
o Reducing paperwork.
o Increasing the efficiency of physicians and office staff.
o Decreasing errors and omissions by utilizing alerts and protocols
at the point-of-care.
o Permitting physicians to differentiate themselves in the market
with medically meaningful and clinically credible outcomes
information.
o Protecting patient medical record confidentiality.
o Enabling physicians to analyze and improve the profitability of
managed care contracts (including capitation contracts).
o Improving ability to negotiate favorable managed care contracts
with payors by providing meaningful cost and outcomes information
to physicians.
o Enabling analysis of cost and historical outcomes of various
protocols and treatment patterns at the point-of-care.
o Providing cost information on procedures, diagnosis and protocols
that is broken down into manageable components.
o Providing individual physicians the ability to benchmark their
practice patterns and outcomes and compare them with a normal
specialty composite profile.
[The Company completed development of the PIERS software in February
1997.] Initial specialty modules will be available in the second quarter of
1997. Once development is completed, the PIERS software will be licensed at no
charge to each physician who elects to install PIERS in connection with the CPA
Network's Profit Improvement Program and agrees to provide anonymous clinical
abstract data to the Company. This allows PIE to normalize the interface and
data elements among users and thereby collect statistically significant
quantities of data in an economically and technologically feasible manner. While
the Company will use its software initially on an exclusive basis, PIE plans to
use the best clinical information collection software that becomes available.
All PIE software is designed to be compatible with a wide variety of clinical
and practice management software systems. The Company anticipates developing
integration interfaces with numerous practice management, accounts receivable
and acute care systems rather than developing these applications internally. The
PIE interface will eventually allow access by other computer-based patient
record systems to the Exchange and the Company's broad range of fee-based
services.
PIERS is being designed to run in the Microsoft Windows(R) environment
(95 or NT) and takes advantage of client server and HTML technology. Data will
be entered by physicians and other clinic staff directly through dictation, a
personal computer keyboard or hand-held computers, using a choice or combination
of pen-based, cursive and picklist technology. Although the PIERS software will
be provided at no charge, installation of PIERS at a clinic site may require
purchase of certain hardware, depending on the options chosen by the clinic and
the amount of computer hardware already owned. To ensure the largest possible
market penetration, the Company intends to offer clinics a PIERS low cost
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hardware option that will require only personal computer systems and a server
(approximate cost of an entry lever server, fully configured, is $6,500) and
will run with or without hand-held computers. The full PIERS option may include
hand-held computers for each healthcare professional, one or more wireless
transmitters (depending on the size of the clinic), and a server to run the full
functionality of the software options. Standard network infrastructure and
personal computer work stations will also be required for the full option. Both
the low cost and full PIERS options will allow collection of clinical data at
the point-of-care.
The following is a more detailed description of some of the intended
PIERS benefits:
CONFIDENTIALITY OF PHYSICIAN INFORMATION. All physician specific
correspondence, results, reports and services will be provided directly and
solely to that individual physician unless they instruct PIE otherwise.
INTEGRATED SOLUTIONS. PIE is committed to providing integrated
solutions and services that meet the clinical information requirements of
physicians. Using standard application interface protocols such as Health Level
Seven ("HL7"), American Society for Testing and Materials ("ASTM") and other
industry interface standards, PIERS's operating environment is designed to
provide inter-operability with leading software packages. This environment
encourages integrated interfaces with practice management, billing, scheduling,
computer-based patient records and hospital information systems that adhere to
PIE's published open architecture and system standards. The use of PIERS will
not be a requirement for gaining access to the Exchange or the Knowledge Bank.
As market demand dictates, PIERS may be augmented or superseded by other
software products.
FAMILIAR "LOOK AND FEEL." PIERS will present personalized patient
information and communication reminders to streamline physician work flow and
support flexible, personalized formats of clinical results. The system's
intuitive, icon-based interface should be comfortable for clinicians to learn
and use. "Chart tabs" that are graphical representations of the tabs found in a
patient's paper medical record, are intended to provide intuitive and simplified
navigation through the patient's electronic medical record. Physicians and other
clinicians can analyze flow sheets of either scheduled patient care activities
or global results in personalized formats.
PROTOCOLS AND GUIDELINES. PIE believes that quality improvements and
cost-reduction can most efficiently be driven by the physician (supported with
information) at the point-of-care. Physicians will have access to on-line, at
the point-of-care, specialty specific protocols (standardized plans for treating
specific conditions) and/or guidelines. They will also have the ability to add
customized or modified protocols that they commonly use. The clinic's cost of
each protocol or treatment pattern can be displayed or detailed by procedure
components. PIE's cost reporting modules require specific initial accounting
input from the clinic's accountant or CPA. Protocols and guidelines help to
reduce variance by standardizing the steps; however, the physician will always
have the option to deviate from the pathway at any point. The system will also
allow the addition of free form narrative entry through the transcription or
keyboard functions.
CONTRACT NEGOTIATION INFORMATION SUPPORT. The emergence of managed care
(capitation in particular) has increased the need for clinical and financial
patient information. PIERS will allow physicians to analyze the profitability of
their managed care contracts, including capitation. More importantly, it is
intended to provide information to the physician that will assist in negotiating
a rate with payors that more closely reflects the physician's activities and
regional epidemiological data.
RESULTS REPORTING. PIERS will provide on-line review of results,
including laboratory and radiology. The system also provides on-line review of
narrative results such as transcriptions, discharge summaries and medication
profiles. Results will be stored permanently as part of the patient's electronic
medical record.
COSTS/OUTCOMES/ANALYSIS/MANAGEMENT. PIERS's database of clinical and
financial information will enable physicians to measure and analyze the quality
and cost effectiveness of care provided. Specifically, PIERS is intended to give
physicians the ability to:
o Evaluate the historical quality and the cost of alternative
medical interventions at the point-of-care.
o Confidentially provide individual physicians the ability to
compare their quarterly practice outcomes with a national
specialty composite profile.
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o Access full absorption costing data for each procedure,
diagnosis or treatment pattern. Cost components are broken
down into manageable size with line item detail. PIE's cost
reporting modules require specific initial accounting input
from the clinic's accountant or CPA.
o Access on-line their clinic and research database to monitor,
manage and report detailed clinical information on their
medical procedures, diseases, protocols and patient outcomes.
o Reengineer medical interventions by using the above cost and
outcome information.
ALERTS. PIERS is designed to alert physicians when a potentially
unsuitable medication is ordered. This would include reminder alerts for drug
interactions and allergies. PIE will also be expanding PIERS to include protocol
reminders using decision support algorithms to aid clinical decisions. PIERS
will also be enhanced to allow physicians the ability to select ranges for
abnormal test result alerts.
MEDICATION MANAGEMENT. PIERS will enable clinicians to prescribe new
medications to a patient as well as renew medications existing in a patient's
history. This system will also provide patients with educational material as
part of the care delivery process and will allow the clinician to print, fax or
transmit a prescription.
LIFETIME PATIENT RECORD. PIERS will incorporate an on-line record of
patient specific prior services, diagnosis, therapies and outcomes. It is being
designed to (i) enable improved efficiency and reduced uncertainty during the
care giving process, (ii) reduce the potential for adverse medical decisions
(such as prescribing drugs to which the patient is known to be allergic) and
(iii) reduce administrative burden. PIE believes that these benefits should
result in reduced healthcare delivery costs, improved outcomes and a higher
quality of care, as well as provide complete and easily accessible information
for reimbursement documentation. The system will allow providers to track
patients' status over time, which is particularly beneficial for following
patients with chronic conditions such as diabetes, instage renal disease and
congestive heart failure.
PHYSICIANS' ON-LINE RESOURCE. PIERS is being designed to meet the
clinical and diagnostic information needs of physicians. In addition to patient
data, PIERS will provide access to the most current medical reference materials
and bibliographic databases available, including MEDLINE, medical specialty
practice knowledge banks and other information sources. Physicians will be able
to communicate with each other and with their affiliated institutions and
organizations through the PIERS E-mail system.
INTEGRATION CAPABILITY. The PIERS system can be accessed simultaneously
at different locations within the healthcare delivery system by doctors, nurses
and technicians using distributed deployment of LAN and WAN technology. PIERS's
distributed architecture should allow for communication and interaction with
other products from different vendors. The utilization of industry standard
software supports integration of voice, data, video and imaging. This creates
effective network solutions for ambulatory practitioners.
PATIENT ACCOUNTING. PIERS will collect and organize patient and
clinical information, which may be used in the physician's current billing
system.
HEALTHCARE INFORMATION EXCHANGE NETWORK (EXCHANGE) SERVICES
GENERAL. The Exchange is a confidential and secure national network for
interactive physician patient record exchange. The Exchange's services are
provided to new or emergency physicians needing real-time access to a patient's
clinical history for diagnostic purposes. In addition, with authorization from
both the patient and physician, other entities such as pharmacies, labs and
payors may electronically access non-confidential patient information or update
the record with clinical results. PIE does not presume to own an individual
patient's medical record. Rather, the Exchange provides services that facilitate
the collection, analysis and secure distribution of this information.
Access to the Exchange will be provided through PIERS or through the
physician's compatible ambulatory computer-based patient record software. The
Exchange will use intranet technology to enable providers to obtain real-time
delivery of critical clinical information. This will put vital information into
the hands of attending healthcare professionals at the time of the decision. It
will make medical diagnostic information available, even if the data resides in
another PIE physician's clinic. This network will help physicians to provide
higher quality healthcare at lower cost by providing the necessary information
at decision time, thereby eliminating unnecessary analysis and testing. The
Exchange is also
CORPDAL:63070.2 29375-00001
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expected to improve the efficiency of healthcare delivery by allowing the
physician and staff to electronically receive new patient records, lab reports,
and other results as well as patient charts. In addition, the Exchange
facilitates communication and information exchange between primary care and
specialist physicians in resolving complex diagnoses.
The Company will receive a per transaction charge for each transfer of
medical records or other patient information (e.g., lab reports) using the
Exchange. The transferring physician will receive a royalty payment for each
patient record transferred from his practice. The Exchange will also enable
delivery of a number of automatic electronic services to physicians, including
those derived from data residing in the Knowledge Bank.
The following describes the Exchange in more detail:
BENEFITS. The Exchange is intended to improve management of patient
service from physician to physician. The Exchange will also enable delivery of a
number of automatic electronic services to physicians (see description of PIERS
and the Knowledge Bank). The physician and staff will be able to decrease
telephone calls by using the Exchange to electronically receive lab reports as
well as other results reports and patients charts. In addition, the Exchange
will improve the ease of communications between physicians in resolving complex
diagnosis.
PHYSICIAN ROYALTY PAYMENT. The Company will incent physicians to
participate in the Exchange by paying royalties to physicians who transfer
clinical data automatically to requesting physicians through the Exchange's
electronic network. These royalties will be paid from the fees charged
requesting physicians or other authorized users of clinical data.
INTEGRATED HEALTHCARE INFORMATION AND RESEARCH (KNOWLEDGE BANK) SERVICES
GENERAL. The Knowledge Bank will be PIE's comprehensive clinical data
warehouse consisting of clinically rich, statistically representative and
geographically distributed clinical information. This information will reside in
the Company's integrated network of secure, regional data repositories. Each
regional data repository will be created by the automated collection, through
PIERS and the Exchange, of clinical information from physicians in that region.
The Knowledge Bank services are anticipated to provide the largest source of
revenue and profits for the Company.
The Knowledge Bank will contain clinical outcomes and cost information
gathered by PIE's physician users at the point-of-care. The data will be
encrypted to ensure patient confidentiality. The Knowledge Bank will enable
healthcare professionals to increase the quality of healthcare while managing
and reducing resource consumption through research, benchmarking and comparative
analysis. The Knowledge Bank will also allow the active integration of clinical
data with outcomes and cost information and does not rely upon retrospective
claims-based data. As the Knowledge Bank continually expands and is enhanced,
this healthcare information should serve as a resource for education, research,
prevention, epidemiology and clinical process improvement. It is anticipated
that the Knowledge Bank services will be commercially available by the fourth
quarter of 1997.
Some of the Knowledge Bank services will include clinical outcome
studies (both diagnostic and wellness), normative profiles, treatment therapies,
disease management programs, clinical protocols, epidemiological research
studies, capitation projections, benchmark analyses, market studies and
cost-benefit analyses. It is expected that the Company will derive a significant
percentage of its future revenues principally from the formatting, analysis and
transfer of this information to integrated delivery systems, payors, major
providers, provider groups, managed care organizations, bio/pharmaceutical
companies, contract research organizations, research institutions and government
agencies, as well as to physicians and organizations needing current, clinically
derived outcomes-based data and cost information. The Company anticipates that
the Knowledge Bank services will be provided by employees of the Company;
however, the Company may choose to additionally employ independent contractors
depending on the market demand. The Company expects to generate revenues based
on information contained in the Knowledge Bank in a number of ways, including:
subscription fees for standard research studies and reports generated by the
Company; charges for providing access to data in the Knowledge Bank for research
purposes; strategic relationships with organizations of providers, managed care
and integrated delivery networks; and customized research, reporting and
consulting services.
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SERVICES. The Knowledge Bank is intended to allow physicians to compare
their results against relevant regional and national specialty benchmarks. This
database will also be used as a foundation to perform many types of research and
retrospective analyses, some examples are:
o Cost and outcome specialty benchmarks by diagnosis, procedure
and treatment on a regional as well as national basis.
o Interactive data analysis to identify specific patient
groups for intensive care and/or disease management.
o Patient cohort classification with patterns of care.
o Identification of areas with high resource consumption.
o Patient-centered measures of outcomes and satisfaction,
including preventative screening and the ability to return
to work.
o Retrospective analysis on process of care delivery (protocols
and guidelines) organized by:
o Chronic disease groups
o Patient health-risk behaviors
o High volume procedures
o Resource intensive procedures
o Best demonstrated practice for outcomes
o Low cost protocols and treatment patterns
o Detailed cost and outcome variance analysis using
normative comparisons by principal procedure,
diagnosis, disease and treatment pattern
o Longitudinal analysis across the care continuum
o Measuring the relative effectiveness of treatment and
mode of intervention results (e.g., pill, shot or
patch; telemedicine, phone call or visit)
o Applied clinical research on outcomes and costs of
treatment for chronic diseases
o Statistical analysis, models and simulations
NO CHARGE SERVICES TO PIERS PHYSICIANS. The Knowledge Bank will
identify and update the list of specialty- specific, point-of-care protocols and
corresponding historical outcome measures. It will also be used to produce
confidential physician practice outcome profiles. These standard profile reports
will document a physician's outcomes relative to an appropriate national peer
group. A copy of this profile will be provided quarterly to each physician
without charge after a statistically significant amount of data has been
collected.
KNOWLEDGE ENGINEERING. Medical data, by its very nature, is extremely
complex and difficult to normalize. PIE will use the standardized data of the
PIERS system and other compatible systems along with advanced knowledge
engineering skills to build integrated clinical databases. These databases will
be designed to be unbiased, while preserving the quality and integrity of the
data. The data will be organized in rigorously structured formats to permit
multiple logical views of data including longitudinal, encounter, episodic and
context dependent. The latest scientific and clinical methodologies and models
will be used to normalize and link clinical outcomes and cost data with patient
care episodes across the continuum of care.
STANDARD RESEARCH STUDIES AND REPORTS. The Knowledge Bank will produce
general distribution publications and standardized reports that target all major
markets for clinically-based healthcare information. These products may often be
the initial product purchased by a non-physician customer. The products will be
developed from specific portions of the Company's data warehouse and feature
particular views or niches (e.g., national or regional views by a specialty for
outcomes, costs for procedure, disease/diagnosis group or protocol). "Best
Demonstrated Practice" studies will report outcome measures and intervention
costs for various diagnosis/disease groups per specialty. These studies consist
of evidence-based, rigorous scientific identification of best practices as
demonstrated from clinical results.
Most standardized reports will be sold as annual renewable
subscriptions or through a multi-year contract. Products intended for general
distribution will be available in a variety of standardized formats that should
appeal to broad audiences. These products will range from structured statistical
reports to more complex analyses.
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STRATEGIC RELATIONSHIPS. The Company intends to enter into strategic
relationships with organizations of providers, managed care and integrated
delivery networks, whereby the Company will build a database for such
organizations and provide services to the organizations and their members. These
organizations could include state medical societies, medical specialty
associations and various healthcare provider organizations.
SUPPLIER SERVICES. The distribution system for medical products is
rapidly realigning as a result of industry changes (such as the use of pharmacy
benefits managers and consolidation of hospital group purchasing organizations).
These entities select and purchase a medical product based not only on the
product's ability to resolve medical conditions, but also on its demonstrated
ability to minimize total treatment costs. As a result, PIE believes its
benefit/cost and outcomes analysis can be a vital tool for the successful
marketing of drugs, medical devices and supplies in the future.
Information used to provide supplier services will be derived from
PIE's database and will support pharmaceutical, medical supply companies, device
companies and biotechnology companies in market analysis, product positioning,
benefit/cost analyses and outcomes analyses.
CONSULTING SERVICES. Consulting clinicians, knowledge engineers and
technicians will provide the expertise to prepare the customized analysis and
perform research, data mining and customer reporting. These clinicians,
engineers and technicians will also support customers in their use of the
Company's decision support tools. PIE personnel will provide expertise and
knowledge in resolving issues such as stratification and granularity of data or
exploratory and confirmatory data analysis as well as how to account for
confounding and colinearity. It is anticipated that the bulk of the consultants'
time will be spent on original custom research for PIE's clients.
CONFIDENTIALITY OF CLINICAL INFORMATION
PIE understands the public's patient confidentiality concerns.
Additionally, PIE concurs with those who believe that the health professionals
they engage can be trusted to keep their records confidential and not misuse
them. Given the physician's practical experience regarding patient
confidentiality, PIE has taken the position that its security system will exceed
the "trustee" system requirements currently being proposed before the United
States Congress. This "trustee" system defines any one who comes into contact
with individually identifiable health information (i.e., "protected" health
information) as a health information "trustee." Proposed protection is afforded
against unauthorized disclosure via a deterrence structure of civil and criminal
penalties. While the Company supports this protection of patient privacy, it
does not believe that the "trustee" system is adequate.
The PIE confidentiality security system will function like a safety
deposit box in a bank. The contents (information) of the box can be retrieved
only with a combination of keys from the correct bank (PIE) and the customer
(physician/patient). Physicians and patients will be able to select the
information that will be inaccessible to others. The Company's security system
not only encourages authorized usage of clinical data, it mandates its
enforcement by designing the system to allow access to protected data only
through physicians who are at their office. PIE employees and all other
non-physician users of PIE information are denied access to protected patient
information unless a specific use authorization for such information is provided
by the patient. In addition, the PIE security system requires a PIE physician to
use his PIE-physician password and request the patient information through his
clinic's one-way encryption device. Patients may elect even further security by
requesting a patient password that would be required to obtain the patient's
medical records. This password would be required of physicians in addition to
PIE's other security measures.
PIE will also maintain audit trails of all requests for patient information.
SERVICES AND PRODUCT DEVELOPMENT
The Company is currently completing development of the PIERS software
product. The Company expects the initial PIERS version to be commercially
available in [May 1997]. The Company has identified 51 specialist modules that
will be available for use with the PIERS product. These modules are being
developed in conjunction with members of the Company's Advisory Council and are
expected to be commercially available starting in May 1997, with all specialties
available by the end of 1997. The Exchange and Knowledge Bank are currently
under development and are expected to be commercially available during the
fourth quarter of 1997.
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Certain clinics affiliated with the Company's CEO, Dr. Ernest
Rutherford, will serve as alpha and beta test sites for PIERS and its nephrology
module. In addition, the Monroe Gastroenterology Clinic/Endoscopy Center began
alpha testing the gastroenterology module of PIERS in February 1997. The alpha
test stage is expected to last four to six weeks and will be followed by a beta
testing period. This process will be repeated for each specialty module, with
numerous specialties being developed in parallel once the first few are
completed.
The Company has engaged TAG to perform software development services
for PIERS. As well, the Company has contracted with FCG to provide project
management support in the development of the PIERS software and related
specialty modules, network infrastructure for the Exchange and the Knowledge
Bank. PIE has also contracted with FCG to perform training services to support
the national roll-out of PIERS.
The Company's product development project has three phases. The Company
expects phase one (the initial PIERS version) will be commercially available by
the first quarter of 1997. The subsequent two phases are expected to produce
clinical information exchange software and regional and national clinical
repositories that should be commercially available during 1997. PIE's phased
approach is predicated upon the data volume dynamics depicted in the graph
below:
[THIS IS A CHART THAT DEPICTS THE FACT THAT ACCESSIBILITY TO
LARGER VOLUMES OF CLINICAL DATA FACILITATES HIGHER VALUE
INFORMATION REPORTING USAGES.]
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ASSET CREATION
PIE is creating a strategic relationship with physicians to resolve the
expensive proposition of collecting, enriching and distributing significant
quantities of clinically-derived information. PIE's solution is to provide PIERS
software to physicians without charge. This allows PIE to normalize the
interface and data elements among users and thereby collect statistically
significant quantities of data in an economically and technologically feasible
manner. In return, the physicians participate in the automated sharing of
abstracted clinical information with PIE's information repositories. This
distribution method is designed to facilitate a rapid service roll-out and begin
creation of clinical information repositories as quickly as the software is
installed.
MAINTENANCE FEES
It is anticipated that annual physician maintenance fees for PIERS
(without regard to hardware costs) initially will be $850 per year per
physician, collected on an advance basis. However, the Company has no interest
in retaining any maintenance fee net income from its physicians' customers.
Therefore, the Company has developed a formula to reallocate the "maintenance
fee net income," as defined below, to those physicians most responsible for
disseminating medical knowledge to their specialty. The Company anticipates that
there will be approximately 50 specialty categories. Maintenance fee net income
is equal to maintenance fee revenue less Company expenses related to maintenance
releases, help desk and software support, documentation, expenses incurred by
Advisory Council members in the normal course any business and related general
and administrative expenses. Maintenance fee net income will be allocated as
follows:
o 40% Current Advisory Council members (40% of each specialty's
maintenance fee net income will be divided among that
specialty's Advisory Council members)
o 30 Original Advisory Council members ("Founders") (30% of
each specialty's maintenance fee net income will be divided
among that specialty's Founders for the first five years of
the Advisory Council)
o 15% Current Advisory Council members (15% of the total
maintenance fee net income from all specialties will be
divided pro rata to the various Advisory Council members in
each specialty, based upon the number of physicians in a
specialty relative to the total physician base in that
specialty)
o 15% Non-Advisory Council Physicians (15% of each specialty's
maintenance fee net income will be divided pro rata among that
specialty's physicians who are not Advisory Council members
and who make a good faith effort, as determined by the Board
of Directors, to make a medical knowledge contribution during
the year to their fellow specialists through PIE's medical
knowledge base (e.g., new or modified clinical protocol))
Any maintenance fee net income not allocated above, such as to Founders
after five years, will be allocated on a yearly basis by the Board of Directors
to Advisory Council members, physicians or PIE shareholders. In addition, the
Board of Directors, in its discretion, may provide additional incentives to
attract and retain certain Advisory Council members, such as providing PIERS
software at no charge.
CUSTOMERS
PIE anticipates that its customers for PIERS will be physicians
located throughout the United States, practicing in both large and small groups.
Anticipated customers for the Exchange services will be physicians, integrated
delivery systems and payors located throughout the United States. The customers
for the Knowledge Bank services will include integrated delivery systems,
payors, major providers, provider groups, managed care organizations,
bio/pharmaceutical companies, contract research organizations, research
institutions and government agencies, as well as physicians and organizations
needing current, clinically derived, outcomes-based data and cost information.
Healthcare suppliers, which include pharmaceutical, biotechnology and medical
supply and device companies are a strong customer market.
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SALES AND MARKETING
The Company's marketing efforts are targeted toward building an
installed base of PIERS physician users in order to achieve the critical mass
necessary for the Exchange and Knowledge Bank to be successful. PIE's products
and services will be marketed primarily through its strategic alliance with the
CPA Network. These efforts will be supported by PIE's public relations and
targeted marketing efforts to medical associations, specialty societies and
other medical groups intended to introduce physicians to the CPA Network's
Profit Improvement Program and the benefits of the PIERS software, the Exchange
and the Knowledge Bank.
PIE's marketing efforts are organized into physician marketing, general
corporate marketing, customer communication programs and target marketing.
Physician marketing is designed to create market awareness and demand for the
PIERS system, either directly from the Company or through the CPA Network's
Profit Improvement Program. Medical associations, specialty societies and a
variety of medical groups will be used to introduce the PIE solution to the
physician community. Introduction methods include using direct mail, seminars,
telemarketing, presentations at industry events, trade shows and speaking
engagements. These efforts will target both physicians and CPAs.
COMPETITION
The market for healthcare information products and services is
intensely competitive. Competitors vary in size, scope and breadth of products
and services offered, and the Company competes with different companies in each
of its target markets. Many companies that currently provide claims-based data
are trying to enter the clinically-derived data market. The Company's
competitors have significantly greater financial, technical, product development
and marketing resources than the Company. Furthermore, other major information
companies not presently offering clinical healthcare information services may
enter the markets in which the Company competes. The Company's potential
competitors include specialty healthcare information companies, healthcare
information system and software vendors and large data processing and
information companies. Many of these competitors have substantial installed
customer bases in the healthcare industry and the ability to fund significant
product development and acquisition efforts.
The Company believes that the principal competitive factors in the
healthcare network and clinical information markets are the physician acceptance
of the point-of-care interface, access to point-of-care clinical data, price and
the effectiveness of marketing and sales efforts. In addition, the Company
believes that the speed with which information companies can anticipate and
respond to the evolving healthcare industry structure and identify unmet
information needs is an important competitive factor. The Company believes that
it compares well and will compete favorably with respect to each of these
factors.
INTELLECTUAL PROPERTY
The Company will seek to protect its information through nondisclosure
agreements with its employees, contractors and vendors. The Company's policy is
to have employees enter into a nondisclosure agreement containing provisions
prohibiting the disclosure of confidential information to anyone outside the
Company, requiring disclosure to the Company of any new ideas, developments,
discoveries or inventions conceived during employment, and requiring assignment
to the Company of proprietary rights to such matters that are related to the
Company's business and technology. The Company also relies on a combination of
trade secret, copyright and trademark laws, contractual provisions and technical
measures to protect its rights in its tools and software technology. The Company
believes that patent, trade secret and copyright protection are less significant
than the Company's ability to further develop, enhance and modify its current
services and products.
EMPLOYEES
As of March 31, 1997, the Company had no full-time employees. None of
the Company's employees are a party to a collective bargaining agreement, and
the Company believes that its relationship with its employees is good.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located at 1401 Hudson Lane,
Suite 202, Monroe, Louisiana 71201 and contain approximately 2,000 square feet
of office space. The Company believes that this space is adequate for its
current needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public market for the Common Stock of the Company. Such
securities are not listed on a stock exchange or quoted by the NASDAQ Stock
Market.
The Company has never paid, and has no present intention of paying,
cash dividends on its Common Stock. The Company currently intends to retain its
earnings to finance the growth and development of its business. Any
determination in the future to pay dividends will depend on the Company's
financial condition, capital requirements, results of operations, contractual
limitations and any other factors deemed relevant by the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with the Financial Statements of the Company and related notes thereto appearing
elsewhere in this filing.
RESULTS OF OPERATIONS
The Company has expended $1,988,106 in general and administrative
expenses since its inception in November 1995, including $1,618,681 in 1996. In
1996, approximately $1,405,000 of the expenses were paid to consultants for
development of its business plan and in research and development of its
potential products. Approximately $299,000 of this amount was paid by the
issuance of common stock. The company is continuing to develop its plan and
products and has received no revenues from its operations through March 31,
1997. The Company used approximately $1,183,000 in cash in its development
activities in 1996, offset by approximately $1,084,000 in cash provided by
financing activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company has provided $1,354,704 in cash from financing activities
since its inception, including approximately $590,000 in sale of common stock,
net of offering expenses, and approximately $765,000 from accounts payable to a
stockbroker. The Company's developmental activities have utilized virtually all
of this cash as of December 31, 1996, leaving a cash balance of $1,686. The
Company has subsequently obtained a $1,000,000 line of credit from a bank to
supplement its cash flow needs during 1997 and is presently attempting to raise
equity funds in the private market through strategic alliance partners. Although
there can be no assurance, management believes it will be successful in this
process.
FORWARD LOOKING STATEMENTS
Certain of the information contained in this Annual Report on Form
10-KSB constitutes forward looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of
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1934, as amended, that involves certain risks, uncertainties and additional
costs described herein. The actual results that are achieved may differ
materially from any forward looking projections, due to such risks,
uncertainties and additional costs. Although the Company believes that the
expectations reflected in such forward looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Subsequent written and oral forward looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by reference to such risks, uncertainties and additional costs.
ITEM 7. FINANCIAL STATEMENTS
See "Financial Statements" beginning on page F-1 and Index to
Consolidated Financial Statements and Financial Statement Schedules included in
Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Board of Directors currently consists of six (6) persons. The
following table sets forth certain information regarding the present directors
and the executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C>
Dr. W. Ernest Rutherford 57 Chairman, Chief Executive Officer and
President
Ileta Rutherford 54 Vice President--Operations, Secretary
and Director
Philip A. Ratcliff 67 Vice President-Marketing and Director
Dr. Joan Blondin 59 Director
Robert L. Boyle, Jr. 53 Director
Dr. David Raines, Jr. 55 Director
</TABLE>
All officers are appointed by and serve at the discretion of the Board
of Directors. Each Director serves for a one-year term or until his or her
successor is duly elected and qualified.
Dr. W. Ernest Rutherford - Dr. Rutherford has served as Chairman, Chief
Executive Officer and President of the Company since its inception in December
1995. From 1990 to 1995, Dr. Rutherford served on the North Louisiana Hospital
Board of Directors (Columbia/HCA) and is currently a Clinical Associate
Professor at Louisiana State Medical Center and an Adjunct Professor at
Louisiana Tech University. In 1991, Dr. Rutherford began introducing the
Continuous Quality Improvement ("CQI") principles in his dialysis facilities,
which resulted in lower cost and higher quality (decreased mortality). As an
authority in the application of CQI to healthcare, he is frequently asked to
speak and is often quoted in the media. In 1990, Dr. Rutherford co-founded the
Northern Louisiana Healthcare Alliance, bringing hospitals, doctors, businesses
and insurance companies together to study the quality and cost issues in
healthcare. In 1985, Dr. Rutherford founded Matrix Plus, a computer software
company, and has served as President and a director since its inception. Since
1979, Dr. Rutherford has been a partner in Nephrology Consultants, a medical
consulting firm and was the head of the Renal Division of the Wash. U. Service
at St. Louis City Hospital, from 1973-1978, where he
CORPDAL:63070.2 29375-00001
17
<PAGE>
conducted independent research funded with independent grants from the National
Institute of Health. During that time Dr. Rutherford authored 32 articles in
international, peer-reviewed scientific publications. In 1978, Dr. Rutherford
entered private practice in Monroe, Louisiana where he and his partners
established five chronic and two acute dialysis facilities serving all of
northeast Louisiana.
Ileta Rutherford - Ms. Rutherford, the spouse of Dr. Rutherford, has
served as Vice President--Operations, Secretary and Director of the Company
since December 1995. Since August 1993, Ms. Rutherford has held various
positions at Matrix Plus, including Chief Executive Officer, Secretary and
Treasurer. Ms. Rutherford is a licensed real estate agent with John Rea Reality
and served on the Board of Directors of the Louisiana Realtor Association from
December 1991 to December 1995.
Phillip A. Ratcliff - Mr. Ratcliff has served as Vice President -
Marketing of the Company since May 1996 and as a Director of the Company since
December 1995. Since March 1994, Mr. Ratcliff has been an instructor at Webster
Junior College in Florida. Prior to retiring in April 1991, Mr. Ratcliff served
as Chief Executive Officer of AFCA Communications, Inc., an agency specializing
in marketing and investor public relations.
Dr. Joan Blondin - Dr. Blondin has served as a Director of the Company
since December 1995. Since 1978, Dr. Blondin has been a Partner in Nephrology
Consultants, a medical consulting firm. Dr. Blondin has served as a medical
director of the North Louisiana Dialysis Center, a medical service provider,
since 1992. Dr. Blondin has been an active staff member at North Monroe
Community Hospital and St. Francis Medical Center, since 1984 and 1978,
respectively. From 1980 to 1992, Dr. Blondin was President of the Northern
Louisiana Dialysis Center, Inc., a medical service provider.
Robert L. Boyle, Jr. - Mr. Boyle has served as a Director of the
Company since April 1996. Since September 1995, Mr. Boyle has served as Chief
Executive Officer of Cardiovascular Provider Resources, Inc. Since 1994, Mr.
Boyle has served as Executive Vice President and Chief Operating Officer of
Camino Healthcare. Since 1989, Mr. Boyle has served as Vice
President-Administration of the Palo Alto Medical Foundation, a physician
multi-specialty group practice. In addition, Mr. Boyle is currently the
President-elect of the Medical Group Management Association ("MGMA").
Dr. David Raines, Jr. - Dr. Raines has served as a Director of the
Company since December 1995. Since 1978, Dr. Raines has been in private practice
at the Gastroenterology Clinic, Inc. In addition, Dr. Raines has served as an
Associate of Medicine at Louisiana State University since 1980.
Other than the relationship between Dr. and Mrs. Rutherford, the
Company is not aware of any "family relationships" (as defined in Item 401(c) of
Regulation S-B promulgated by the Securities and Exchange Commission) between
any of the directors, and/or any of the executive officers.
CORPDAL:63070.2 29375-00001
18
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth, for fiscal 1996, the compensation awarded
to Dr. Ernest Rutherford. No executive officer of the Company received any
salary or bonus for fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------------------
ANNUAL COMPENSATION Awards PAYOUTS
------------------------- ----------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION($) AWARD(S)($) SARS(#) PAYOUTS($) SATION ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. W. Ernest 1996 40,000(1) -- -- -- -- -- --
Rutherford
CEO/COB
<FN>
(1) Dr. Rutherford's salary is anticipated to increase to $273,500 in 1997.
</FN>
</TABLE>
CORPDAL:63070.2 29375-00001
19
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Class A and Class B Common Stock as of March 31, 1997, by each
person or group who owned, to the Company's knowledge, more than five percent of
the Common Stock, each of the Company's directors, the Company's Chief Executive
Officer, and all of the Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
TITLE OF CLASS ------------------------------ --------------------------------
OF COMMON PERCENT PERCENT
NAME STOCK NUMBER OF CLASS(2) NUMBER OF CLASS(3)
------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Dr. W. Ernest Rutherford(4) Class A 200,000(5) 87.0% 200,000(5) 1.3%
Class B 75,189,358 99.7 75,189,358 78.8
Ileta Rutherford -- -- -- -- --
Dr. Joan Blondin -- -- -- -- --
Robert L. Boyle, Jr. -- -- -- -- --
Dr. David Raines, Jr. Class B 200,000 * 200,000 *
All directors and executive 200,000 1.3
officers as a group Class A 200,000 87.0 75,389,358(2) 79.0
(5 persons) Class B 75,389,358(2) 99.9
- ----------------
*Represents less than one percent.
<FN>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally includes
voting or investment power with respect to the securities. Except as indicated
in the footnotes to this table and subject to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned.
(2) Based on 230,000 shares of Class A Common Stock outstanding and 75,902,528
shares of Class B Common Stock.
(3) Based on 15,230,000 shares of Class A Common Stock outstanding and
95,427,058 shares of Class B Common Stock.
(4) Includes 74,875,882 shares of Common Stock that Dr. Rutherford has agreed to
hold in escrow pursuant to certain state blue-sky requirements. The escrow
agreement provides that the shares will be held in escrow until the earliest of
(i) the Company achieving in each of two consecutive fiscal years fully diluted
net earnings per share of at least $.10, (ii) the Company achieving during any
five consecutive fiscal years accumulated fully diluted net earnings per share
of at least $.30, (iii) the Company's Common Stock trading in a reliable public
market at a price per share of at least $1.75 for a period of at least 90
consecutive days after at least one year from the effective date of this
offering, (iv) subject to certain restrictions, a tender offer or offer to merge
or otherwise acquire the Company's Common Stock (occurring after the 18th month
anniversary of the Company's initial offering) in which all stockholders of the
Company receive cash or publicly traded securities, or (v) the sixth anniversary
of the Company's initial offering (and on each anniversary thereafter) at which
time 20% of the escrowed shares will be released.
(5) Includes 200,000 shares issued upon the effectiveness of the Company's
initial offering to Matrix Plus, Inc. See "Item 12. Certain Relationships and
Related Transactions-Transactions with Matrix Plus."
</FN>
</TABLE>
CORPDAL:63070.2 29375-00001
20
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MATRIX PLUS
In November 1995, the Company entered into an agreement with Matrix
Plus, Inc., a company controlled by Dr. Rutherford, the principal shareholder of
PIE, to purchase from Matrix the MR1 Clinical Record System software developed
by Matrix, in consideration for the issuance of 200,000 shares of Class A Common
Stock of PIE. The purchase price was determined by negotiations between Matrix
and PIE, based, in large part, upon the software developer's estimation of the
value of the software (considering development costs and expenses). The
transaction was approved by a majority of the independent, disinterested members
of the Board of Directors of the Company on terms no less favorable to the
Company than could be obtained from unaffiliated parties.
In addition, effective January 1996, the Company began leasing office
space on a month-to-month basis from Matrix for $585 per month.
RELATIONSHIP WITH CPA NETWORK
In September 1996, PIE entered into a strategic alliance agreement with
the CPA Network under which the CPA Network agreed to promote installation of
the PIERS system by clinics and physicians for whom the CPA Network is
performing its profit improvement program. The CPA Network is rapidly expanding
through the addition of new CPA firms requesting admission to the network and
active recruitment of additional CPA firms to the network. As of December 31,
1996, CPA firms from five additional states were scheduled to complete training
for the ATAC System over the next few months.
ORGANIZATION OF THE COMPANY
The Company was formed in November 1995 by Dr. Rutherford, at which
time Dr. Rutherford was issued 75,000,000 shares of Class B Common Stock, in
consideration of his payment of approximately $75,000 in costs and expenses of
the Company.
TRANSACTIONS WITH DR. RUTHERFORD
In November 1995, the Company issued a promissory note in the aggregate
principal amount of $189,358 to Dr. Rutherford in consideration of certain
advances made by Dr. Rutherford to the Company, which was exchanged for 189,358
shares of Class B Common Stock in December 1996.
In addition, Dr. Rutherford has agreed to personally fund any of the
Company's additional offering expenses in exchange for a non-interest bearing
promissory note of the Company. Dr. Rutherford and the Company have agreed that
in the event the Company sold less than $1,000,000 of its securities through the
offering, the new note will be converted into Class B Common Stock at a
conversion price of $1.00 per share. In the event the Company sold in excess of
$1,000,000 of its securities through the offering, Dr. Rutherford had the option
to convert the new note into Class B Common Stock or accept a cash payment.
POLICY REGARDING FUTURE TRANSACTIONS BETWEEN THE COMPANY AND RELATED PERSONS
All future transactions between the Company and its officers, directors
and principal shareholders or affiliates of any such persons must be on terms no
less favorable to the Company than could be obtained from unaffiliated parties,
and such transactions must be approved by a majority of the independent and
disinterested directors of the Company.
CORPDAL:63070.2 29375-00001
21
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
*3.1 Articles of Incorporation of the Registrant and form of amendment thereto. (3.1)
*3.2 Bylaws of the Registrant. (3.2)
*10.1 Stock Option Plan of the Registrant. (10.1)
*10.2 Non-Employee Director Stock Option Plan of the Registrant. (10.2)
*10.3 Form of Stock Escrow Agreement between Dr. W. Ernest Rutherford and Agent. (10.3)
*10.4 Purchase Agreement between the Registrant and Matrix Plus, Inc. (10.4)
*10.5 Form of Advisory Council Member Sharing Agreement. (10.5)
*10.6 Form of Clinical Abstract Data Agreement between Physician-shareholders and Registrant. (10.6)
*10.7 Form of Escrow Agreement between the Registrant and the Escrow Agent. (10.7)
*10.8 Letter of Engagement, dated February 26, 1996, between the Registrant and First Consulting Group. (10.8)
*11 Computation of Net Loss Per Common Share.
+27 Financial Data Schedule
<FN>
* Incorporated by reference to the exhibit shown in parenthesis
contained in the Company's Registration Statement on Form SB-2 (Reg. No
333-3618).
+ Filed herewith.
</FN>
</TABLE>
(b) Financial Statements
--------------------
Independent Auditor's Report F-2
Balance Sheets as of December 31, 1996 and 1995 F-3
Statements of Operations F-4
For the Year Ended December 31, 1996
and For the Period from November 10, 1995
(Date of Inception ) to December 31, 1995
Statements of Changes in Stockholders' Equity F-5
(Deficit) For the Year Ended
December 31, 1996 and For the Period from
November 10, 1995 (Date of Inception to
December 31, 1995
CORPDAL:63070.2 29375-00001
22
<PAGE>
Statement of Cash Flows F-6
For the Year Ended December 31, 1996 and
For the Period from November 10, 1995
(Date of Inception) to December 31, 1995
Notes to Financial Statements F-7
(c) Form 8-K
The Company did not file any reports on Form 8-K during the Fiscal Year ended
December 31, 1996.
CORPDAL:63070.2 29375-00001
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned thereto duly authorized.
PHYSICIANS INFORMATION EXCHANGE, INC.
By:/s/W.Ernest Rutherford
----------------------------
W. Ernest Rutherford
President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
report was signed by the following persons in the capacities and on the dates
stated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/W. Ernest Rutherford
- -------------------------------------------------- President, Chief Executive Officer and April 15, 1997
W. Ernest Rutherford Chairman of the Board (Principal
/s/Ileta Rutherford Executive Officer)
- -------------------------------------------------- Vice President Operations/Secretary and April 15, 1997
Ileta Rutherford Director (Principal Financial and
/s/Philip Ratcliff Accounting Officer)
- -------------------------------------------------- Vice President-Marketing and Director April 15, 1997
Philip Ratcliff
/s/Joan Blondin
- -------------------------------------------------- Director April 15, 1997
Joan Blondin
- -------------------------------------------------- Director April 15, 1997
Robert L. Boyle, Jr.
/s/David Raines, Jr.
- -------------------------------------------------- Director April 15, 1997
David Raines, Jr.
/s/Roger H. Shannon
- -------------------------------------------------- Director April 15, 1997
Roger H. Shannon
/s/Clarke Williams
- -------------------------------------------------- Director April 15, 1997
Clarke Williams
</TABLE>
CORPDAL:63070.2 29375-00001
<PAGE>
INDEX TO EXHIBITS
Financial Data Schedule
CORPDAL:63070.2 29375-00001
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report...............................................................................F-2
Balance Sheets as of December 31, 1996 and 1995............................................................F-3
Statements of Operations
For the Year Ended December 31, 1996
and For the Period from November 10, 1995
(Date of Inception) to December 31, 1995..........................................................F-4
Statements of Changes in Stockholders' Equity (Deficit)
For the Year Ended December 31, 1996 and
For the Period from November 10, 1995
(Date of Inception) to December 31, 1995..........................................................F-5
Statement of Cash Flows
For the Year Ended December 31, 1996 and
For the Period from November 10, 1995
(Date of Inception) to December 31, 1995..........................................................F-6
Notes to Financial Statements..............................................................................F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Physicians Information Exchange, Inc.
We have audited the accompanying balance sheets of Physicians Information
Exchange, Inc. (a development stage company) as of December 31, 1996 and 1995
and the related statements of operations, changes in stockholders' equity
(deficit) and cash flows for the year ended December 31, 1996 and the period
from November 10, 1995 (date of inception) to December 31, 1995. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Physicians Information
Exchange, Inc. (a development stage company) as of December 31, 1996 and 1995,
and the results of its operations and its cash flows for the year ended December
31, 1996 and the period from November 10, 1995 (date of inception) to December
31, 1995 in conformity with generally accepted accounting principles.
Jackson & Rhodes P.C.
Dallas, Texas
March 13, 1997 (except as to Note 7, which
is as of April 14, 1997)
F-2
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------------------------------
Current assets:
<S> <C> <C>
Cash $ 1,686 $ 100,000
Deferred offering costs 50,000 18,933
Organization costs 750 1,000
----------------------------------
$ 52,436 $ 119,933
==================================
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable - trade $ 124,060 $ -
Accounts payable - stockholder 765,013 189,358
----------------------------------
Total current liabilities 889,073 189,358
----------------------------------
Commitments and contingencies (Note 5) - -
Stockholders' equity (deficit):
Preferred stock, $.001 par; 5,000,000 shares
authorized; none issued - -
Common stock:
Class A, $.001 par; 250,000,000 shares authorized;
351,000 and 10,000 shares issued and outstanding 351 10
Class B, $.001 par; 250,000,000 shares authorized;
75,902,528 and 75,240,000 shares issued and outstanding 75,903 75,240
Additional paid-in capital 1,075,215 249,750
Stock subscriptions receivable (25,000)
-
Deficit accumulated during the development stage (1,988,106) (369,425)
----------------------------------
Total stockholders' equity (deficit) (836,637) (69,425)
----------------------------------
$ 52,436 $ 119,933
==================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
November 10, 1995 November 10, 1995
Year Ended (Date of Inception)to (Date of Inception)to
December 31, 1996 December 31, 1995 December 31, 1996
---------------------------- ------------------------ -----------------------
<S> <C> <C> <C>
General and administrative expenses $ 1,618,681 $ 369,425 $ 1,988,106
---------------------------- ------------------------ -----------------------
Net loss $ (1,618,681) $ (369,425) $ (1,988,106)
============================ ======================== =======================
Net loss per common share $ (0.02) $ (0.00)
============================ ========================
Weighted average shares outstanding 75,568,761 75,250,000
============================ ========================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM NOVEMBER 10, 1995 (DATE OF INCEPTION)
TO DECEMBER 31, 1995 AND THE YEAR ENDED
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional Stock During the
-------------------------------------------
Class A Class B Paid-in Subscriptions Development
-------------------------------------------
Shares Amount Shares Amount Capital Receivable Stage Total
-------------------------------------------------------------------------------------------
Issuance of common stock:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For notes receivable and services 10,000 $ 10 40,000 $ 40 $ 49,950 $ (25,000) $ - $ 25,000
For payment of costs - - 75,000,000 75,000 - - - 75,000
For cash and services - - 200,000 200 199,800 - - 200,000
Net loss - - 0 0 - - (369,425) (369,425)
---------------------------------------------------------------------------------------
Balance, December 31, 1995 10,000 10 75,240,000 75,240 249,750 (25,000) (369,425) (69,425)
Collection of stock subscription - - - - - 25,000 - 25,000
-
Sale of stock 141,000 141 550,750 551 680,432 - - 681,124
Stock issue costs
- - - - (166,433) - - (166,433)
Common stock issued for
Payment of costs and services 200,000 200 111,778 112 311,466 - - 311,778
Net loss
- - - - - - (1,618,681) (1,618,681)
-------------------------------------------------------------------------------------------
Balance, December 31, 1996 351,000 $ 351 75,902,528 $ 75,903 $ 1,075,215 $ - $(1,988,106 $ (836,637)
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
November 10, November 10, 1995
1995
Year Ended (Date of (Date of
Inception) to Inception) to
December 31, 1996 December 31,1995 December 31, 1996
----------------------------------------------------------
Cash flows from developmental activities:
<S> <C> <C> <C>
Net loss $ (1,618,681) $ (369,425) $ (1,988,106)
Adjustments to reconcile net loss
to net cash used in developmental activities:
Amortization 250 250
-
Common stock issued for software 200,000 200,000
-
Common stock issued for payment of costs 13,169
75,000 88,169
Common stock issued for payment of services 98,609 125,000 223,609
Changes in assets and liabilities:
Organization costs
- (1,000) (1,000)
Accounts payable - trade 124,060 124,060
-
----------------------------------------------------------
Net cash used in developmental activities (1,182,593) (170,425) (1,353,018)
----------------------------------------------------------
Cash flows from financing activities:
Sale of common stock 706,124 100,000 806,124
Deferred offering costs (197,500) (18,933) (216,433)
Accounts payable - stockholder 575,655 189,358 765,013
----------------------------------------------------------
Net cash provided by financing activities 1,084,279 270,425 1,354,704
----------------------------------------------------------
Net change in cash and cash equivalents (98,314) 100,000 1,686
Cash and cash equivalents:
Beginning of period 100,000 - -
----------------------------------------------------------
End of period $ 1,686 $ 100,000 $ 1,686
==========================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. DESCRIPTION OF BUSINESS
Physicians Information Exchange, Inc. ("the Company" or "PIE") was formed
November 10, 1995. The Company was formed to introduce a new technology
service that saves the physician time while collecting clinical information
at the "point of care". This clinical information will provide structured
outcomes and clinical data necessary to improve quality care and lower
treatment cost. This technology service integrates the latest pen-based,
handheld, data collection and wireless data transfer technologies with a
robust knowledge database.
The Company is presently attempting to raise equity funds in the in private
market through strategic alliance partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
is in the development stage and is reporting a net loss of $1,988,106 since
inception through December 31, 1996, and has excess liabilities over assets
at that date.
As explained in Note 1, the Company is in the process of raising capital to
continue to develop its technology and the Company has recently obtained a
$1,000,000 line of credit with a bank (Note 7). Management believes the
line of credit will provide any needed liquidity until it is able to raise
the needed capital and, thus, will be able to continue as going concern.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and certificates of deposit with original maturities of less than
three months.
F-7
<PAGE>
PHYSICIANS INFORMATION EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Offering Costs
Costs incurred as of December 31, 1996 in connection with the Company's
prospective private offering are being deferred and will be offset against
the proceeds.
Organization Costs
Costs incident to the creation of the corporation, including various
accounting and legal fees, have been capitalized and are being amortized
over a five-year period.
Net Loss Per Common Share
Net loss per common share has been computed using the weighted average
number of shares outstanding during the period. Weighted average shares for
the period ended December 31, 1995 include all shares of common stock
issued for the entire period (cheap stock).
Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The
objective of this asset and liability method is to establish deferred tax
assets and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities
at enacted tax rates expected to be in effect when such amounts are
realized or settled.
3. INCOME TAXES
The Company has recorded no income tax benefit for the periods because it
has no ability to carry back its operating loss. For tax purposes, the
Company is required to defer its operating losses until it begins to
receive operating revenues. These operating losses for tax purposes
amounted to approximately $1,600,000 and $52,000 at December 31, 1996 and
1995, respectively. A valuation allowance has been recorded to offset the
related deferred tax asset for this temporary difference.
4. STOCKHOLDERS' EQUITY
Common Stock
With respect to all matters submitted to a vote of the shareholders, the
record holders of the Class A common stock are entitled to one vote per
share and the record holders of Class B common
F-8
<PAGE>
4. STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock (Continued)
stock are entitled to 10 votes per share. Except as may otherwise be
required by law or by the Articles of Incorporation, the holders of the
Class A and Class B common stock vote together as a single class. The Class
B common stock may be held only by licensed medical doctors.
Upon its formation on November 10, 1995, the Company issued 75,000,000
shares of Class B common stock to its founder, Dr. Ernie Rutherford, and
recorded $189,358 in accounts payable to Dr. Rutherford in exchange for Dr.
Rutherford's payment of $264,358 in costs and expenses for the Company. Dr.
Rutherford has continued to loan funds to the Company during 1996 to fund
its operations.
As of December 31, 1995, the Company issued 200,000 shares of Class B
common stock to a shareholder of Matrix Plus, Inc. ("Matrix"), a company
owned by Dr. Rutherford, for $100,000 in cash. The Company recorded
$100,000 in compensation for this transaction.
As of December 31, 1995, the Company issued 40,000 shares of Class B common
stock and 10,000 shares of Class A common stock to two shareholders of
Matrix for $25,000 in cash. The Company recorded $25,000 in compensation
for this transaction.
During 1996, the Company has issued an additional 311,778 shares of stock
for payment of costs and services valued at $311,778.
Stock Option Plans
In February 1996, the Board of Directors adopted the 1996 Employee Plan
(the "1996 Employee Plan". The purpose of the 1996 Employee Plan is to
advance the interests of the Company by providing additional incentives to
attract and retain qualified and competent employees and consultants of the
Company and directors of the Company's subsidiaries, upon whose efforts and
judgment the success of the Company is largely dependent. Nonemployee
directors of the Company are not eligible to participate in the 1996
Employee Plan. A total of 6,000,000 shares of Class B Common Stock have
been reserved for sale upon exercise of Employee Options granted under the
1996 Employee Plan. To date, no Employee Options have been granted.
In February 1996, the Board of Directors adopted the 1996 Director Plan.
The purpose of the 1996 Director Plan is to advance the interests of the
Company by providing an incentive to retain as independent directors
persons of training, experience and ability, to encourage a sense of
proprietorship of such persons, and to stimulate the active interest of
such persons in the development and financial success of the Company.
Options under the 1996 Director Plan ("Director Options") are granted only
to nonemployee directors of the Company. Director
F-9
<PAGE>
4. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
Options are automatically granted to each nonemployee director upon his
election as a director. Each of the four nonemployee directors of the
Company on the date of adoption of the 1996 Director Plan received a
Director Option under the 1996 Director Plan exercisable for 75,000 shares
of Class B Common Stock at an exercise price of $1 per share.Each Director
Option expires ten years after its date of grant. An aggregate of one-third
of the total number of shares subject to such Director Options vest on each
anniversary date of the date of grant. Shares subject to a Director Option
vest as to all shares then subject to the Director Option upon the
occurrence of a Major Corporate Event. A total of 2,000,000 shares of
Common Stock have been reserved for issuance upon exercise of Director
Options granted under the 1996 Director Plan. Director Options are granted
with an exercise price per share equal to the fair market value of such
shares on the date of grant.
5. COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
The Company invests its cash primarily in deposits with major banks.
Certain deposits have been in excess of federally insured limits. The
Company has not incurred losses related to its cash on deposit with banks.
6. RELATED PARTY TRANSACTIONS
In November 1995, the Company entered into an agreement with Matrix Plus,
Inc. ("Matrix"), a company controlled by Dr. Rutherford, to purchase from
Matrix the MRI Clinical Record System software developed by Matrix, in
consideration for the issuance of 200,000 shares of Class A common stock of
PIE. The agreement was contingent upon the success of the Company's
proposed public offering. The purchase price was determined by arm's-length
negotiations between Matrix and PIE, based, in large part, upon the
software developer's estimation of the value of the software (considering
development costs and expenses). The 200,000 shares were valued at $200,000
and the charge is included in general and administrative expense in 1996.
The Company also leases office space from Matrix under terms of a sublease
which expires in August 1997. Future minimum lease payments for the year
ending December 31, 1997 are $5,600. Rent expense amounted to $5,725 for
the year ended December 31, 1996.
F-10
<PAGE>
7. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the Company has obtained a $1,000,000 line
of credit with a bank. The line is guaranteed by two directors of the
Company, carries interest at the prime rate and matures in April 1998.
F-11
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