<PAGE> 1
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 9, 1997
QUADRAMED CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
DELAWARE 0-21031 52-1992861
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission) (IRS Employer
of incorporation File Number) Identification No.)
80 E. SIR FRANCIS DRAKE BLVD., SUITE 2A, LARKSPUR, CA 94939
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 461-7725
NONE
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
AMENDMENT NO. 1
The undersigned Registrant hereby:
1. amends Item 2 of its Current Report on Form 8-K dated November 9, 1997
(the "Form 8-K") and files such amended Item 2 herewith; and
2. amends Item 7 of the Form 8-K and files such amended Item 7
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 9, 1997, QuadraMed Corporation, a Delaware
corporation (the "Company") acquired (the "Acquisition") 56.7% of the
outstanding capital stock of Medicus Systems Corporation, a Delaware
corporation ("Medicus"). The Acquisition was completed by means of Stock
Purchase Agreements, dated as of November 9, 1997, with certain stockholders of
Medicus (the "Selling Stockholders"). Pursuant to the terms of the Stock
Purchase Agreements, the Selling Stockholders agreed to sell an aggregate of
3,111,105 shares of Medicus Common Stock to the Company. In consideration for
the transfer of these shares to the Company, the Company paid to the Selling
Stockholders $7.50 per share, in cash, without interest, or approximately $23.3
million, together with warrants (the "Warrants") entitling the Selling
Stockholders to acquire 0.3125 shares of Company Common Stock for each share of
the Medicus Common Stock sold (subject to adjustment in accordance with the
Warrants). The Warrant entitles the Selling Stockholders to purchase Company
Common Stock at a price of $24.00 per share, on the terms set forth in the
Warrant.
Simultaneously with the execution of the Stock Purchase
Agreements, the Company and Medicus entered into an Agreement and Plan of
Reorganization dated as of November 9, 1997 (the "Agreement") pursuant to which
a wholly owned subsidiary of the Company will be merged, subject to the approval
of the stockholders of Medicus, with and into Medicus (the "Merger). At the
effective time of the Merger, the stockholders of Medicus participating in the
Merger will exchange all outstanding shares of Medicus Common Stock for any of
(i) a cash payment of $7.50 per share of Medicus Common Stock, (ii) 0.3125
shares of Company Common Stock per share of Medicus Common Stock sold (subject
to adjustment in accordance with the Agreement), or (iii) a combination of
Company Common Stock and cash. In addition, all stock options previously issued
by Medicus and outstanding at the time of the Merger will be assumed by the
Company at an exchange ratio of 0.3565 shares of Company Common Stock for each
share of Medicus Common Stock subject to such options. The Acquisition is
intended to qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986 and will be accounted for as a purchase
transaction.
The amount of consideration paid by the Company was determined by
arms length negotiations between the parties. The Company used a portion of its
working capital obtained from its public offering in October 1997 for the
Acquisition and will use a portion of its working capital for the consummation
of the Merger.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
1. Balance Sheet as of May 31, 1997 and 1996 and the related
Statements of Operations, Changes in Stockholders' Equity
and Cash Flows for each of the three years ended May 31,
1997.
2. Balance Sheet as of August 31, 1997 and the related
Statements of Operations and Cash Flows for the three
months ended August 31, 1997 and 1996, respectively.
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Medicus Systems Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Medicus Systems Corporation
at May 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended May 31, 1997, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Chicago, Illinois
July 23, 1997
<PAGE> 4
MEDICUS SYSTEMS CORPORATION
BALANCE SHEETS
MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
A S S E T S 1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,205,135 $ 765,312
Short-term investments -- 7,705,380
Accounts receivable and unbilled services, net of allowance for doubtful
accounts of $1,713,008 and $1,222,463, respectively 10,500,676 8,451,675
Inventories 214,264 235,398
Prepaid expenses and other 258,725 638,669
Prepaid and deferred income taxes 2,147,416 2,650,076
Due from Managed Care Solutions, Inc. -- 647,408
Net assets of discontinued operation 111,381 1,020,764
------------ ------------
14,437,597 22,114,682
------------ ------------
Property and equipment, at cost less accumulated depreciation 2,335,175 2,794,932
Internally developed software, at cost less accumulated amortization of $2,110,378
and $1,729,141, respectively 3,087,849 2,152,419
Installment accounts receivable, due after one year, less unearned
interest of $154,647 and $147,963, respectively 533,488 398,897
Deferred income taxes 2,454,563 227,635
------------ ------------
$ 22,848,672 $ 27,688,565
============ ============
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
Current liabilities:
Accounts payable $ 597,787 $ 188,777
Accrued compensation 453,035 1,487,551
Accrued restructuring charges 2,247,416 1,527,461
Other accrued liabilities 1,138,226 970,140
Deferred revenue 6,910,599 5,313,399
Notes payable 1,000,000 --
------------ ------------
12,347,063 9,487,328
------------ ------------
Notes payable 1,000,000 --
------------ ------------
Stockholders' equity:
Preferred stock $1,000 par, 500 shares authorized and issued 500,000 --
Common stock $.01 par:
Authorized - 10,000,000 shares
Issued - 6,487,159 shares and 6,456,447 shares, respectively 64,872 64,564
Capital in excess of par value 22,063,715 21,880,994
Capital in excess of par value - warrant 944,000 --
Less treasury stock:
Preferred stock, at cost - 500 shares (500,000) --
Common stock, at cost - 1,007,002 and 7,002 shares, respectively (5,687,418) (62,418)
Unrealized loss on short-term investments -- (18,361)
Accumulated deficit (7,883,560) (3,663,542)
------------ ------------
9,501,609 18,201,237
============ ============
$ 22,848,672 $ 27,688,565
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
MEDICUS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Software products and services $ 8,148,858 $ 10,374,977 $ 13,495,033
Maintenance and support services 10,120,842 9,419,202 9,012,234
------------ ------------ ------------
18,269,700 19,794,179 22,507,267
------------ ------------ ------------
Costs and expenses:
Software products and services 2,936,115 3,889,458 4,117,822
Maintenance and support services 5,098,992 5,563,821 4,374,432
------------ ------------ ------------
8,035,107 9,453,279 8,492,254
Marketing, general and
administrative 10,034,473 11,287,826 8,325,563
Research and development 3,065,552 1,835,575 2,149,188
Restructuring charges 2,800,391 4,662,203 --
Stock repurchase 1,690,042 -- --
------------ ------------ ------------
25,625,565 27,238,883 18,967,005
------------ ------------ ------------
Operating income (loss) (7,355,865) (7,444,704) 3,540,262
Interest and other income 367,430 555,742 679,547
------------ ------------ ------------
Income (loss) from continuing operations
before income taxes (6,988,435) (6,888,962) 4,219,809
Provision for (benefit from) income taxes (2,569,365) (2,816,313) 1,519,131
------------ ------------ ------------
Income (loss) from continuing operations (4,419,070) (4,072,649) 2,700,678
Discontinued operation, net of taxes 199,052 346,658 323,815
------------ ------------ ------------
Net income (loss) $ (4,220,018) $ (3,725,991) $ 3,024,493
============ ============ ============
Earnings (loss) per common and common equivalent share, pro
forma for 1996 and 1995
Continuing operations $ (0.73) $ (0.62) $ 0.40
Discontinued operation 0.03 0.05 0.05
============ ============ ============
$ (0.70) $ (0.57) $ 0.45
============ ============ ============
Weighted average common and common equivalent
shares outstanding 6,007,023 6,539,988 6,704,251
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
MEDICUS SYSTEMS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended May 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
CAPITAL IN
PREFERRED COMMON CAPITAL IN EXCESS OF TREASURY
STOCK PAR STOCK EXCESS OF PAR VALUE - STOCK
VALUE PAR VALUE PAR VALUE WARRANT (PREFERRED)
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1994
------------- ------------- -------------- ------------- -------------
Net income
Payments to Predecessor
Corporation, net
Market value adjustment of
short-term investments,
net of income taxes
------------- ------------- -------------- ------------- -------------
Balance, May 31, 1995
------------- ------------- -------------- ------------- -------------
Net loss prior to February
29, 1996 distribution
Payments to Predecessor
Corporation, net
Market value adjustment of
short-term investments,
net of income taxes
February 29, 1996
distribution of common
stock $ 64,320 $ 21,702,593
Net loss subsequent to
February 29, 1996
distribution
Sale of stock under employee
stock purchase
plan 79 42,574
Sale of stock under
employee stock
option plan,
including tax
benefits 165 112,835
Vested portion of
stock options
applicable to
compensation 22,992
expense
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
TREASURY LOSS ON
STOCK SHORT-TERM ACCUMULATED
(COMMON) INVESTMENTS DEFICIT GROUP EQUITY TOTAL
--------------- ------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1994 $ 25,574,678 $ 25,574,678
--------------- ------------- ---------------- ----------------- ----------------
Net income 3,024,493 3,024,493
Payments to Predecessor
Corporation, net (6,236,370) (6,236,370)
Market value adjustment of
short-term investments,
net of income taxes $ (58,430) (58,430)
--------------- ------------- ---------------- ----------------- ----------------
Balance, May 31, 1995 (58,430) 22,362,801 22,304,371
--------------- ------------- ---------------- ----------------- ----------------
Net loss prior to February
29, 1996 distribution (253,772) (253,772)
Payments to Predecessor
Corporation, net (404,534) (404,534)
Market value adjustment of
short-term investments,
net of income taxes 57,379 57,379
February 29, 1996
distribution of common
stock $ (62,418) (21,704,495) -
Net loss subsequent to
February 29, 1996
distribution $ (3,472,219) (3,472,219)
Sale of stock under employee
stock purchase
plan 42,653
Sale of stock under
employee stock
option plan,
including tax
benefits 113,000
Vested portion of
stock options
applicable to
compensation 22,992
expense
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C> <C>
Declaration of dividends
Market value adjustment of
short-term investments,
net of income taxes
------------- ------------- -------------- ------------- -------------
Balance, May 31, 1996 64,564 21,880,994
------------- ------------- ------------- ------------- -------------
Net loss
Stock repurchase $ 500,000 $ 944,000 $ (500,000)
Sale of stock under employee
stock purchase
plan 308 171,759
Vested portion of
stock options
applicable to
compensation 10,962
expense
Market value adjustment of
short-term investments,
net of income taxes
============= ============= ============= ============== =============
Balance, May 31, 1997 $ 500,000 $64,872 $ 22,063,715 $ 944,000 $ (500,000)
============= ============= ============= ============== =============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Declaration of dividends (191,323) (191,323)
Market value adjustment of
short-term investments,
net of income taxes (17,310) (17,310)
-------------- ------------- --------------- ----------------- ---------------
Balance, May 31, 1996 (62,418) (18,361) (3,663,542) 18,201,237
-------------- ------------- --------------- ----------------- ---------------
Net loss (4,220,018) (4,220,018)
Stock repurchase (5,625,000) (4,681,000)
Sale of stock under employee
stock purchase
plan 172,067
Vested portion of
stock options
applicable to
compensation 10,962
expense
Market value adjustment of
short-term investments,
net of income taxes 18,361 18,361
============= ============= ============ ==== ================ ===============
Balance, May 31, 1997 $ (5,687,418) $ - $ (7,883,56 0) $ - 9,501,609
============== ============= ================= ================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
MEDICUS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,220,018) $ (3,725,991) $ 3,024,493
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of
property and equipment 1,097,274 683,281 592,411
Amortization of software 381,238 1,229,408 538,933
Deferred income taxes (62,612) (2,410,259) 383,374
Restructuring charges 1,446,781 4,208,496 --
Stock repurchase 1,319,000 -- --
Provision for doubtful accounts 368,361 1,483,173 --
Changes in current assets and current liabilities:
Accounts receivable and unbilled services (1,917,262) (1,740,049) (495,179)
Due from Managed Care Solutions, Inc. 647,408 (647,408) --
Inventories 21,134 (25,451) 67,641
Prepaid expenses and other current assets (1,371,036) (351,855) (290,798)
Installment accounts receivable (134,591) 162,557 (290,685)
Accounts payable 409,268 (433,420) 187,697
Accrued compensation (1,034,516) 768,542 (320,241)
Other accrued liabilities 212,033 195,687 (141,065)
Deferred revenue 1,597,200 299,375 300,080
------------ ------------ ------------
Net cash provided by (used in) operating activities (1,240,338) (303,914) 3,556,661
------------ ------------ ------------
Cash flows from investing activities:
Additions to property and equipment (619,932) (806,997) (871,222)
Additions to internally developed software (1,593,494) (2,301,701) (1,956,169)
Purchase of short-term investments (86,846,102) (42,565,224) (78,747,517)
Proceeds from sale of short-term investments 89,798,110 39,903,650 61,760,000
Proceeds from maturity of short-term investments 4,784,360 5,033,377 23,683,611
------------ ------------ ------------
Net cash provided by (used in) investing activities 5,522,942 (736,895) 3,868,703
------------ ------------ ------------
Cash flows from financing activities:
Sale of preferred stock 500,000 -- --
Sale of common stock 157,219 38,830 --
Stock repurchase (4,500,000) -- --
Payments from Predecessor Corporation -- 761,984 1,295,470
Payments to Predecessor Corporation -- (1,359,386) (7,338,969)
Dividends paid -- (191,323) --
------------ ------------ ------------
Net cash used in financing activities (3,842,781) (749,895) (6,043,499)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 439,823 (1,790,704) 1,381,865
Cash and cash equivalents:
Beginning of period 765,312 2,556,016 1,174,151
------------ ------------ ------------
End of period $ 1,205,135 $ 765,312 $ 2,556,016
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 9
MEDICUS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL INFORMATION AND BASIS OF PRESENTATION
Prior to March 1, 1996, the Company's predecessor (the "Predecessor
Corporation") operated a software and related services business and a small
managed care business. In connection with a series of transactions which
occurred on March 1, 1996, the Predecessor Corporation formed a new Delaware
subsidiary, Medicus Systems Software, Inc., to which it transferred all of its
assets and liabilities excluding only the defined assets and liabilities of its
managed care business. In turn, the stock of this newly-formed subsidiary was
distributed on a share-for-share basis to the stockholders of the Predecessor
Corporation (the "Distribution"), the name of the subsidiary was changed to
Medicus Systems Corporation (the "Company"), and the name of the Predecessor
Corporation was changed to Managed Care Solutions, Inc. ("MCS"). The Company is
liable for all obligations of the Predecessor Corporation except those
specifically related to the Predecessor Corporation's managed care business.
Although the Company is, in substance, the Predecessor Corporation's
successor, the financial statements of the Company have been prepared as if the
Company had operated as a free-standing entity for all the periods presented
(excluding certain incremental corporate expenses that would have been incurred
had it operated on a stand-alone basis). Accordingly, the financial statements
include those assets, liabilities, revenues and expenses directly attributable
to the Company's operations and exclude those specifically related to the
managed care business. The Company believes this presentation most fairly
represents its financial condition, results of operations and changes in
stockholders' equity and cash flows. The financial statements included herein
for periods prior to the Distribution do not necessarily reflect what the
financial position and results of operations of the Company would have been had
it operated as a stand-alone entity during the periods covered, and may not be
indicative of future operations or financial position.
The Company and MCS signed a services agreement, pursuant to which the
Company (i) made available to MCS certain services, including tax, accounting,
data processing, cash management, employee benefits, monitoring, operational,
supervisory, insurance purchasing and claims administration consulting services,
and (ii) provided certain financial services to MCS, including analysis and
advice regarding potential financial transactions (including but not limited to
proposed issuance of debt or equity securities, proposed merger or asset
acquisition or sale transactions and dividend, stock split or similar
transactions), assistance in budget and forecast preparation, relations with
financial analysts, financial press, and investors, and crisis management and
control. Such services commenced on March 1, 1996, and continued for one year.
MCS paid the Company $700,000 for such services. In order to compensate the
Company for fixed costs incurred in making such services available, MCS paid
such fees whether or not it elected to utilize the services. MCS also reimbursed
the Company for its out-of-pocket expenses in connection therewith. The services
agreement also provided that the Company would not be liable for any losses or
damages suffered in respect of services to be performed thereunder, other than
by reason of its willful misconduct or gross negligence in performing such
services. Marketing, general and administrative expenses were reduced by
$525,000 and $175,000 in the years ended May 31, 1997 and 1996, respectively, as
a result of this agreement.
<PAGE> 10
NOTE 2 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Medicus develops, markets, and supports a family of specialized integrated
software products utilized by healthcare financial administrators, physicians
and nursing executives, health information and other administrative departments
in the United States and Canada. The Company's software products and services
enable clients to capture, structure and analyze clinical, operational and
financial information thereby allowing these professionals to measure, monitor
and manage organizational performance and optimize outcomes. Medicus also
provides product-related maintenance and support services.
Revenue recognition
Revenue from software license agreements is recognized upon contract
execution, product delivery and client acceptance in instances where no
remaining obligations under the agreement exist. In instances where minor
obligations remain under a license agreement after the delivery of the product,
a pro rata portion of the revenue is deferred until the minor obligations have
been fulfilled. When the software product has been delivered but significant
obligations are present under a license agreement, the full amount of revenue
under the agreement is deferred and recognized as the related services are
performed. Revenue from maintenance and support agreements is recognized ratably
over the term of the contract.
Inventories
Inventories, which consist primarily of data processing equipment and
forms, are stated at the lower of cost or market value, cost being determined
using specific identification.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon an estimated useful life of five years.
Gains or losses resulting from sales or retirements are recorded as incurred, at
which time related costs and accumulated depreciation are removed from the
accounts. Renewals and betterments are capitalized and depreciated. Maintenance
and repairs are charged to expense as incurred.
Purchased software used in operations is stated at cost. Amortization is
computed using the straight-line method based upon an estimated useful life of
three to five years. The amortization charged to expense in 1997, 1996 and 1995
totaled $305,415, $371,095 and $315,313, respectively.
Internally developed software
Costs of internally developed software (net of accumulated amortization)
aggregating $3,087,849 and $2,152,419 as of May 31, 1997 and 1996, respectively,
consist of certain production costs of computer software to be sold, leased or
otherwise marketed which have been capitalized in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 86. Capitalized
software costs are amortized on a product-by-product basis. Amortization is
computed based upon the ratio of current revenues to total anticipated revenues
or the straight-line method over the estimated life of the product (typically
three years), whichever provides the greater amortization. Amortization expense
for capitalized software costs totaled $381,237, $784,209 and $222,595 during
1997, 1996 and 1995, respectively.
<PAGE> 11
Research and development
Research and development costs, principally the design and development of
proprietary software prior to the establishment of technological feasibility,
are expensed as incurred. Routine maintenance expenses incurred in connection
with specific software applications related to individual contracts are charged
to costs of software products and services as incurred.
Income taxes
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The statement requires an
asset and liability approach for financial accounting and reporting for income
taxes.
Earnings per share
Since the capital structure of the Company is comparable to that existing
prior to the Distribution, earnings (loss) per common share is based upon the
actual capital structure of the Company for the period from March 1, 1996
through May 31, 1997, and the capital structure of the Predecessor Corporation
for the period from June 1, 1995 through February 29, 1996. Pro forma earnings
(loss) per common share is based upon the capital structure of the Predecessor
Corporation, and does not necessarily reflect the results of operations of the
Company had it operated as a stand-alone entity during the periods presented,
and may not be indicative of future operations. Weighted average shares used in
the calculation of earnings (loss) per share represent common stock and common
stock equivalents. Common stock equivalents include shares issuable on the
exercise of stock options and the warrant (when dilutive), using the treasury
stock method from the date of grant.
Management estimates
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 at the
date of the financial statements and the reported amounts of revenues and
expenses recognized during the periods presented. Actual results could differ
from those estimates.
Fair value of financial instruments
The carrying amounts reported in the balance sheets for cash, short-term
investments, accounts receivable, prepaid expenses and other current assets,
accounts payable, accrued expenses and notes payable approximate fair value
because of the immediate or short-term maturity of these financial instruments.
Statements of cash flows
For purposes of the Statements of Cash Flows, the Company considers cash
and cash equivalents to be cash and overnight investments. Actual cash paid for
income taxes for the years ended May 31, 1997, 1996 and 1995 was $90,561,
$539,559 and $1,427,700, respectively.
Reclassifications
Certain reclassifications have been made in the prior period financial
statements to conform to the current period presentation. These
reclassifications had no effect on previously reported total assets, total
liabilities, stockholders' equity or results of operations.
<PAGE> 12
NOTE 3 - DISCONTINUED OPERATION
Effective May 31, 1997 the Company adopted a plan to discontinue its
contract services line of business. This separate line of business consisted of
information systems management contracts with two customers (one customer during
the year ended May 31, 1997). As a result of this decision, the net assets of
the contract services line of business have been reclassified in the Balance
Sheet at May 31, 1997 and 1996. Also, the results of operations of the contract
services business have been reclassified in the Statements of Operations for the
three years ended May 31, 1997.
The assets and liabilities of the discontinued operation consist mainly of
the following:
<TABLE>
<CAPTION>
MAY 31, 1997 MAY 31, 1996
------------ ------------
<S> <C> <C>
Accounts receivable and unbilled services 288,457 1,212,747
Prepaid expenses and other 45,702 70,725
Property and equipment 37,032 54,617
Accounts payable and other accrued liabilities (212,771) (276,960)
Accrued compensation (47,039) (40,365)
============ ============
$ 111,381 $ 1,020,764
============ ============
</TABLE>
The following table summarizes selected financial data of the contract
services business for the years ended May 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $10,043,000 $11,271,000 $11,322,000
Operating income 324,000 573,000 506,000
Income tax expense 124,610 226,331 182,146
</TABLE>
The contract services line of business is expected to continue operating
until the expiration of its remaining contract on May 31, 1998. This line of
business is not expected to incur losses or generate significant income prior to
its termination.
NOTE 4 - RESTRUCTURING CHARGES
During the third quarter of fiscal 1996, the Company commenced a process
to evaluate its strategic position, including the markets it will pursue and
product offerings in those chosen markets. As a result of decisions made in the
quarter ended February 29, 1996, the Company began a plan resulting in the
recording of approximately $1.6 million in charges to exit certain product lines
and abandon certain development efforts.
Specifically, the Company decided to exit the Executive Information
Systems product line, recording charges to write down related customer accounts
and accrue future costs to provide maintenance associated with existing
contractual obligations. In addition, product development efforts for the
Optimizer project and portions of the MACH 1 project, which will no longer be
utilized in the Medicus product line, were abandoned and their associated
development costs, which had been previously capitalized, were expensed.
During the fourth quarter of fiscal year 1996, the Company continued the
process resulting in additional charges of $3.1 million. The Company decided to
exit the Clinical Case Management Systems product line and abandon development
efforts for the Clinical Data Systems Wincoder V2 project. Severance costs
associated with an officer and several employees, in addition to the write-off
of a portion of the Contract Management System, were also included in the
restructuring charge.
<PAGE> 13
As part of an ongoing evaluation, the Company refined its strategic
planning process during fiscal 1997, and assessed continuing obligations
associated with the implementation of the plan. The Company continued the
process of implementing its plans during 1997 and, following the stock
repurchase from its founder in the quarter ended February 28, 1997, recorded
$2.8 million in charges to complete its plan, including accruing certain costs
to reorganize the Company's business units, to abandon certain development
efforts, and to increase the allowance for doubtful accounts. Specifically, the
Company decided to relocate operations for its Clinical Data Systems ("CDS")
division, based in Alameda, CA, to the Company's Evanston, IL corporate offices.
Costs accrued associated with the relocation, which is expected to be completed
during the next twelve months, included costs to cancel existing lease
agreements, to terminate employees and to write down abandoned assets. In
addition, the Company increased its reserves for product line exit costs and
severance costs that relate to the remaining customer of the previously
discontinued Clinical Case Management Systems ("CCM") product line. Also,
certain product development efforts for the Company's Patient Focused Systems
("PFS") products were abandoned, and the associated development costs, which had
been previously capitalized, along with other related product line exit costs
were expensed. The Company has increased its allowance for doubtful accounts due
to the potential for certain additional billed and unbilled accounts to become
uncollectible as a result of the decisions discussed above.
The restructuring charges included in the Statements of Operations for the
years ended May 31, 1997 and May 31, 1996, respectively, were comprised of the
following items:
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1997 1996
---------- ----------
<S> <C> <C>
Product line exit costs $ 798,000 $ 856,633
Business unit reorganization costs 705,697 --
Employee termination and severance costs 569,868 1,117,086
Accounts receivable and reserves 450,000 787,206
Capitalized software write-downs 276,826 1,901,278
---------- ----------
$2,800,391 $4,662,203
========== ==========
</TABLE>
The Company's revised strategic plan included the termination of three
officers and thirty-nine employees in 1997 and one officer and three employees
in 1996.
At May 31, 1996, restructuring liabilities in the Balance Sheet aggregated
$1,527,461. During the year ended May 31, 1997, the Company increased its
reserve for employee termination and severance costs and product line exits
costs by $569,868 and $798,000, respectively, primarily due to the Company's
decision to relocate its CDS division and increase its CCM product line reserve.
The Company also recorded a $705,697 charge for business unit reorganization
costs associated with the relocation. The Company did not accrue estimated
incremental costs of approximately $1.3 million associated with the relocation.
Such costs relate to the orderly transition of the division, will be incurred
during fiscal 1998 and are not accruable as part of the restructuring charge
under generally accepted accounting principles. During the year ended May 31,
1997 the Company paid $763,844, $233,950 and $31,100 in severance benefits,
product line exit costs, and business unit reorganization costs, respectively.
The Company also reduced its reserve for severance obligations and continuing
obligations on product line exit costs by $124,716 and $200,000, respectively,
as a result of favorable settlements with two of its employees and negotiations
with its customers.
The components of the restructuring reserve at May 31, 1997, which the
Company expects will be paid during the next twelve months, and at May 31, 1996
are as follows:
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1997 1996
---------- ----------
<S> <C> <C>
Product line exit costs $ 774,425 $ 410,375
Business unit reorganization costs 674,597 --
Employee termination and severance costs 798,394 1,117,086
---------- ----------
$2,247,416 $1,527,461
========== ==========
</TABLE>
<PAGE> 14
NOTE 5 - STOCK REPURCHASE
On December 5, 1996, the Company reached an agreement in principle (the
"Agreement") with its founder, Richard C. Jelinek, to purchase from Mr. Jelinek,
and a trust of which he is a beneficiary (the "Trust"), one million shares of
Common Stock and 500 shares of Voting Preferred Stock. Also, Mr. Jelinek agreed
to resign as Chairman and agreed, among other things, not to attempt to seek
voting control of the Company for a period of five years. (Mr. Jelinek continues
to serve as a Director.) In exchange, the Company agreed to pay Mr. Jelinek and
the Trust $4.5 million in cash and $2.0 million in 8% two-year promissory notes,
and to issue to Mr. Jelinek and the Trust 400,000 five-year warrants to purchase
Common Stock at $8.00 per share. The Company's Board of Directors approved the
Agreement on January 2, 1997, and the Company's stockholders approved the
Agreement at the Annual Meeting of Stockholders on March 19, 1997.
The Company's results of operations for the year ended May 31, 1997
included $1,690,042 in related costs and expenses, as a result of the Agreement.
The fair value of consideration exchanged in excess of the market price of the
Common Stock and the exercise price of the Voting Preferred Stock, aggregating
$1,319,000, has been expensed. Also included are $371,042 in investment banking
and other professional fees incurred to consummate the Agreement. The Company
recorded the charge in the quarter ended February 28, 1997.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment as of May 31, 1997 and 1996 were comprised of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Equipment $4,358,224 $3,797,976
Furniture and fixtures 674,796 645,260
Leasehold improvements 276,355 294,052
Purchased software used in operations 2,105,910 2,058,068
---------- ----------
7,415,285 6,795,356
Less - accumulated depreciation 5,080,110 4,000,424
========== ==========
$2,335,175 $2,794,932
========== ==========
</TABLE>
NOTE 7 - INCOME TAXES
The provision for (benefit from) income taxes from continuing operations
consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
Federal $(2,183,016) $ (344,770) $ 838,701
State (323,737) (61,284) 297,056
----------- ----------- -----------
(2,506,753) (406,054) 1,135,757
Deferred (62,612) (2,410,259) 383,374
=========== =========== ===========
$(2,569,365) $(2,816,313) $ 1,519,131
=========== =========== ===========
</TABLE>
A reconciliation of total taxes based on the federal statutory rate and
the Company's actual total provision (benefit) was as follows:
<PAGE> 15
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income tax at the federal statutory
rate of 34% $(2,266,022) $(2,147,430) $ 1,606,762
State taxes, net of federal benefit (197,944) (281,377) 202,736
Research and development tax credit (111,439) - (179,659)
Effect of stock repurchase 191,760 - -
Other, net (61,110) (161,175) 71,438
=========== =========== ===========
$(2,444,755) $(2,589,982) $ 1,701,277
=========== =========== ===========
</TABLE>
The components of the deferred income tax provision (benefit) from
continuing operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Provision for doubtful accounts $ (161,354) $ (255,654) $ -
Net operating loss carried forward (244,148) (937,554) -
Capitalization of software costs
for financial reporting purposes 505,930 (350,483) 481,153
Depreciation (14,751) (53,416) (58,122)
Financial reporting reserve recognized
in advance of tax deduction (148,289) (813,152) (39,657)
=========== =========== ===========
$ (62,612) $(2,410,259) $ 383,374
=========== =========== ===========
</TABLE>
The deferred income tax assets and liabilities were comprised of the
following:
<TABLE>
<CAPTION>
AS OF MAY 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Provision for doubtful accounts $ (659,508) $ (498,154) $ (242,500)
Financial reporting reserve recognized in
advance of tax deduction (1,066,896) (918,609) (105,457)
Net operating loss carried forward (3,544,223) (937,554) -
Research and development credit carryforward (111,439) - -
Market value adjustment on
short-term investments - (12,628) (40,184)
----------- ----------- -----------
Total deferred tax assets (5,382,066) (2,366,945) (388,141)
----------- ----------- -----------
Capitalization of software costs for
financial reporting purposes 1,188,822 682,892 1,033,375
Depreciation 12,277 27,028 80,444
----------- ----------- -----------
Total deferred tax liabilities 1,201,099 709,920 1,113,819
----------- ----------- -----------
Total net deferred taxes $(4,180,968) $(1,657,025) $ 725,678
=========== =========== ===========
</TABLE>
In connection with the Distribution, the Company and MCS agreed to share
the tax burdens of the Predecessor Corporation, based upon the taxable income of
the separate businesses prior to the Distribution. The Company and MCS are also
prohibited from taking any actions which are inconsistent with the tax-free
nature of the Distribution.
The Company will be able to utilize tax net operating losses incurred
subsequent to the Distribution to the extent the Company has taxable income
subsequent to the Distribution.
<PAGE> 16
Management has determined that the net deferred tax asset more likely than not
will be realized in the future and, therefore, has not provided any valuation
allowances against these assets. The Company's net operating loss carryforwards
of $3,544,223 expire in 2011 and 2012, while research and development tax
credits expire in 2012.
NOTE 8 - NOTES PAYABLE AND LINE OF CREDIT
On December 5, 1996, the Company reached an agreement in principle with
its founder, Richard C. Jelinek, to purchase from Mr. Jelinek, and a trust of
which he is a beneficiary (the "Trust"), one million shares of Common Stock and
500 shares of Voting Preferred Stock. In exchange, the Company agreed to pay Mr.
Jelinek and the Trust $4.5 million in cash and $2.0 million in 8% two-year
promissory notes, and issued to Mr. Jelinek and the Trust 400,000 five-year
warrants to purchase Common Stock at $8.00 per share. The scheduled maturities
are $1 million March 19, 1998 and $1 million March 19, 1999. Interest costs
incurred and paid on the promissory notes totaled $32,258 for the year ended May
31, 1997.
In April 1997, the Company entered into an agreement with a bank that
provides for a secured, revolving line of credit up to a maximum of $2.5
million. The credit facility, which has an initial maturity date of October
1998, bears interest at the bank's prime rate and provides the bank with a first
security interest in all assets of the Company. Certain financial covenants and
reporting requirements are also included in the agreement. As of May 31, 1997,
the Company had not utilized the line of credit.
NOTE 9 - STOCKHOLDERS' EQUITY
The following table summarizes information regarding stockholders' equity
as of May 31, 1997:
<TABLE>
<CAPTION>
DIVIDEND
TOTAL PAR VOTES RIGHT PER
SHARES SHARES PAR VALUE VALUE PER SHARE
AUTHORIZED ISSUED PER SHARE ISSUED SHARE PER ANNUM
---------- ------ --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Voting preferred stock (1) 500 - $ 1,000.00 - 44,000 (1)
Preferred stock (2) 1,000,000 - .01 - (2) (2)
Common stock 10,000,000 6,487,159 .01 $ 64,872 1 -
</TABLE>
(1) The previous chairman of the board and chief executive officer exercised
an option to purchase all of the authorized and unissued shares of voting
preferred stock at $1,000 per share on March 19, 1997. The Company, as
part of the stock repurchase agreement, immediately repurchased these
shares. The voting preferred stock is currently held in treasury.
(2) The Board of Directors has the authority to determine the rights and
preferences of this preferred stock upon its issuance.
NOTE 10 - STOCK OPTIONS AND WARRANTS
Upon the Distribution, the Company adopted various stock option plans of
the Predecessor Corporation. Options to purchase Predecessor Corporation common
stock have been converted into options to purchase Medicus common stock based
upon the fair market value following the Distribution. The Company applies APB
Opinion 25 and related Interpretations to account for its plans. Accordingly, no
compensation cost is generally recognized for its stock option plans and its
employee stock purchase plan. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method prescribed
by SFAS 123, "Accounting for Stock-Based Compensation", the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<PAGE> 17
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Net income (loss) As reported $ (4,220,018) $ (3,725,991)
Pro forma (5,187,253) (4,262,364)
Earnings (loss) per share As reported (0.70) (0.57)
Pro forma (0.86) (0.65)
</TABLE>
For purposes of SFAS 123, the fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997 and 1996
respectively: no expected dividends, expected volatility of and 76.36% and
72.17%, risk-free interest rates of 6.56% and 6.09% for the stock options; and
lives of 7 years. The weighted-average fair value of options granted in 1997 and
1996 was $4.18 and $5.30 respectively.
The stock exercise price of each option is determined by a committee (the
"Committee") of no fewer than two Directors designated by the Board of
Directors, and shall not be less than the fair market value of the stock subject
to the option at the time the option is granted. Each option shall be for such
term of not more than ten years as shall be determined by the Committee at the
date of grant. The Committee shall have full and final authority, in its
absolute discretion, to determine the time or times when each option becomes
exercisable and the duration of the exercise period. The Committee may at its
discretion accelerate the exercisability of any option at any time before
expiration or termination of an option previously granted, extend the terms of
such option, except that an aggregate option period may never exceed ten years.
As of May 31, 1997, the Company had 358,879 options available for grant
under all plans. A summary of the status of the Company's option plans as of May
31, 1997 and 1996, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------------------------
1996 1997
--------------------------------- -------------------------------
WEIGHTED AVG. WEIGHTED AVG.
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year - - 1,387,350 $ 7.53
Conversion at Distribution of
options previously held
1,035,850 $ 7.85 - -
Granted 368,000 6.28 615,100 5.49
Exercised (16,500) 0.48 - -
Canceled/Forfeited - - (320,100) 6.10
---------- ----------
Outstanding at year-end 1,387,350 7.53 1,682,350 6.79
---------- ----------
Exercisable at year-end 332,950 7.78 414,950 7.70
========== ==========
</TABLE>
<PAGE> 18
The following table summarizes information about the stock options
outstanding at May 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ---------------------------------
WEIGHTED
AVERAGE
NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 5/31/97 LIFE (YRS.) EXERCISE PRICE AT 5/31/97 EXERCISE PRICE
--------------- ---------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.19 to 2.00 19,650 7.8 $ 1.87 19,650 $ 1.87
5.00 to 5.82 529,000 9.5 5.38 7,500 5.25
6.25 to 6.82 644,200 7.9 6.56 169,550 6.69
7.02 to 7.60 182,000 8.6 7.44 47,750 7.29
8.97 to 9.62 273,500 6.9 9.34 153,500 9.34
11.89 to 16.50 34,000 7.4 11.90 17,000 11.90
</TABLE>
The Company realizes an income tax benefit from the exercise of certain
stock options. These income tax benefits result in a decrease in current income
taxes payable and an increase in capital in excess of par value.
A healthcare services organization with which the Company maintains a
joint development agreement holds a warrant to purchase 100,000 shares of the
Company's common stock at a price of $7.80 per share, exercisable any time
before March, 1999. The value of the warrant is being amortized on a
straight-line basis over its six-year life.
The Company's founder, Richard C. Jelinek, holds 400,000 warrants to
purchase common stock at $8.00 per share. The value of the warrant was recorded
as part of the stock repurchase agreement recorded in the quarter ended February
28, 1997.
NOTE 11 - EMPLOYEE BENEFITS
In connection with the Distribution, the Company adopted an employee stock
purchase plan under which the sale of common stock to employees was authorized.
Employees may designate up to the lesser of $10,000 or 10% of their compensation
for the purchase of stock. The purchase price is the lesser of 85% of the fair
market value of the stock on either the date of grant of a one-year purchase
option or the date the purchase option is exercised. During the year ended May
31, 1997 and the period from March 1, 1996 through May 31, 1996, 29,162 and
7,132 shares, respectively, of common stock were issued under the plan for an
aggregate purchase price of $128,423 and $38,352, respectively. Compensation
cost related to the employee stock purchase plan, as determined based on the
fair value method of SFAS 123, would have aggregated $139,000 and $75,000,
respectively, for the years ended May 31, 1997 and 1996 had the Company adopted
this statement. For purposes of SFAS 123, these amounts were estimated using the
Black-Scholes model with the following assumptions for the years ended May 31,
1997 and 1996, respectively: no expected dividends, an expected life of one
year, expected volatility of 130.17% and 158.17% and risk-free interest rates of
5.40% and 5.45%.
The Company has a contributory retirement savings plan ("401(k) Plan") which
covers eligible employees who qualify as to age and length of service.
Participants may contribute 1% - 15% of their salaries, subject to maximum
contribution limitations imposed by the IRS. The expense of the 401(k) Plan,
consisting of discretionary Company contributions, was $134,795, $121,602 and
$101,512 for the years ended May 31, 1997, 1996 and 1995, respectively.
<PAGE> 19
NOTE 12 - COMMITMENTS
The Company has various lease agreements for real and personal property.
These obligations extend through 2006 and in some cases contain renewal options.
As of May 31, 1997, future minimum lease payments for non-cancelable operating
leases in excess of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,
- -------------------
<S> <C>
1998 $ 977,404
1999 1,017,264
2000 847,322
2001 716,538
2002 677,786
Thereafter 2,890,522
==========
$7,126,836
==========
</TABLE>
Rental expense on all operating leases totaled $828,221, $682,400, and
$664,844, during fiscal 1997, 1996 and 1995, respectively.
NOTE 13 - RELATED PARTY TRANSACTIONS
As discussed in Note 1, the Company and MCS signed a services agreement.
For the year ended May 31, 1997 and during the fourth quarter of fiscal 1996,
the Company charged MCS $525,000 and $175,000, respectively, for services under
this agreement, reducing general and administrative expense by these amounts.
Due from Managed Care Solutions, Inc. on the Balance Sheet includes this charge
plus amounts owing related to the Distribution. During fiscal 1996 and 1995, the
Company provided MCS cash infusions for operating purposes of $250,000 and
$5,000,000, respectively.
The Company has purchased Common Stock and Voting Preferred Stock from its
founder, Richard C. Jelinek, and a trust of which he is a beneficiary, pursuant
to a transaction described in Note 5 and Note 8. Mr. Jelinek continues to serve
a Director.
NOTE 14 - CONCENTRATIONS OF CREDIT RISK
The Company's revenues are generated from clients operating in the
healthcare industry, and accordingly, as of May 31, 1997 and 1996, all of the
Company's trade receivables and installment receivables were from entities in
this industry. The Company has no policy requiring collateral for the extension
of trade credit in the ordinary course of business.
NOTE 15 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 128, "Earnings per Share," issued in February 1997, changes the
method of calculating earnings per share and will be effective for the Company's
financial statements for the year ending May 31, 1998. Earlier application is
not permitted. However, the Company is permitted to disclose pro forma earnings
per share amounts computed using this Statement in periods prior to adoption.
Upon adoption, all prior period earnings per share data presented shall be
restated to conform to this Statement. The calculation of earnings per share
under this Statement is simpler than prior methods and more consistent with
international accounting standards. Given the Company's historical losses,
common stock equivalents were excluded from prior pro forma earnings per share
calculations because they were anti-dilutive. Therefore, adoption of this
Statement is not expected to have a material impact on amounts previously
reported as pro forma net loss per common share.
<PAGE> 20
SFAS No. 130, "Reporting Comprehensive Income," issued in June 1997, will
require the Company to disclose, in financial statement format, all non-owner
changes in equity. Such changes include, for example, cumulative foreign
currency translation adjustments, certain minimum pension liabilities and
unrealized gains and losses on available-for-sale securities. This Statement is
effective for fiscal years beginning after December 15, 1997 and requires
presentation of prior period financial statements for comparability purposes.
The Company expects to adopt this Statement beginning with its financial
statements for the year ending May 31, 1998.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, establishes standards for reporting
information about operating segments in annual financial statements and interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Operating segments
are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company expects to adopt this Statement in its
financial statements for the year ending May 31, 1998.
NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Unaudited quarterly financial information for the years ended May 31, 1997
and 1996 is supplementary and is provided in the following summary:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MAY 31, FEBRUARY 28, NOVEMBER 30, AUGUST 31,
1997 1997 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 4,845,868 $ 4,064,276 $ 5,162,777 $ 4,196,779
Total operating expenses 2,075,024 5,259,597 2,121,897 1,378,980
Operating income (loss) (1,399,027) (6,347,410) 109,905 280,667
Net income (loss) (793,571) (3,930,237) 211,574 292,216
Earnings (loss) per common share (0.14) (0.60) 0.03 0.05
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
MAY 31, FEBRUARY 29, NOVEMBER 30, AUGUST 31,
1996 1996 1995 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 4,871,723 $ 4,203,719 $ 5,318,504 $ 5,400,233
Total operating expenses 5,664,899 3,278,847 2,612,565 2,559,171
Operating income (loss) (5,946,480) (1,596,314) (104,481) 202,571
Net income (loss) (3,472,218) (781,890) 188,090 340,027
Earnings (loss) per common share (0.54) - - -
Pro forma earnings (loss) per common share - (0.12) 0.03 0.05
</TABLE>
Results of operations for the quarters ended February 28, 1997, May 31,
1996, and February 29, 1996 include restructuring charges discussed in Note 4
and the stock repurchase discussed in Note 5. Total revenues, total operating
expenses, and operating income for all periods have been restated for the
discontinued operation discussed in Note 3.
<PAGE> 21
PART I - FINANCIAL INFORMATION
ITEM 7(a)(2). FINANCIAL STATEMENTS.
MEDICUS SYSTEMS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, May 31,
ASSETS 1997 1997
------------ ------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 371,761 $ 1,205,135
Accounts receivable and unbilled services, net of allowance for
doubtful accounts of $1,742,195 and 1,713,008 8,615,200 10,500,676
Inventories 303,424 214,264
Prepaid expenses and other 251,971 258,725
Prepaid and deferred income taxes 2,025,238 2,147,416
Net assets of discontinued operation 52,178 111,381
------------ ------------
11,619,772 14,437,597
------------ ------------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
OF $5,331,012 AND $5,080,110 2,142,357 2,335,175
INTERNALLY DEVELOPED SOFTWARE, NET OF ACCUMULATED
AMORTIZATION OF $2,329,887 AND $2,110,378 2,937,905 3,087,849
INSTALLMENT ACCOUNTS RECEIVABLE DUE AFTER ONE YEAR, NET
OF UNEARNED INTEREST OF $145,583 AND $154,647 536,261 533,488
DEFERRED INCOME TAXES 2,763,950 2,454,563
------------ ------------
$ 20,000,245 $ 22,848,672
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 486,037 $ 597,787
Accrued compensation 272,464 453,035
Accrued restructuring charge 1,875,909 2,247,416
Other accrued liabilities 1,482,016 1,138,226
Deferred revenue 4,857,186 6,910,599
Notes payable 1,000,000 1,000,000
------------ ------------
9,973,612 12,347,063
------------ ------------
NOTES PAYABLE 1,000,000 1,000,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock $1,000 par, 500 shares authorized and issued 500,000 500,000
Common stock $.01 par:
Authorized - 10,000,000 shares
Issued - 6,492,926 and 6,487,159 shares, respectively 64,929 64,872
Capital in excess of par value 22,095,491 22,063,715
Capital in excess of par value - warrant 944,000 944,000
Less treasury stock:
Preferred stock, at cost - 500 shares (500,000) (500,000)
Common stock, at cost - 1,007,002 shares (5,687,418) (5,687,418)
Accumulated deficit (8,390,369) (7,883,560)
------------ ------------
9,026,633 9,501,609
------------ ------------
$ 20,000,245 $ 22,848,672
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 22
MEDICUS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
AUGUST 31, August 31,
1997 1996
----------- -----------
<S> <C> <C>
REVENUES
Software products and services $ 2,243,860 $ 1,815,736
Maintenance and support services 2,376,050 2,381,043
----------- -----------
4,619,910 4,196,779
COSTS AND EXPENSES
Software products and services 718,268 454,102
Maintenance and support services 1,127,150 816,611
----------- -----------
1,845,418 1,270,713
Marketing, general and administrative 2,723,663 2,139,479
Research and development 981,059 505,920
----------- -----------
5,550,140 3,916,112
----------- -----------
OPERATING INCOME (LOSS) (930,230) 280,667
Interest and other income 42,514 120,094
Interest expense (39,665) --
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES (927,381) 400,761
Provision for (benefit from) income taxes (357,041) 159,543
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (570,340) 241,218
DISCONTINUED OPERATION, NET OF TAXES 63,531 50,998
----------- -----------
NET INCOME (LOSS) $ (506,809) $ 292,216
=========== ===========
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Continuing operations $ (0.10) $ 0.04
Discontinued operation 0.01 0.01
----------- -----------
$ (0.09) $ 0.05
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 5,489,329 6,473,252
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 23
MEDICUS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
AUGUST 31, August 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income (Loss) from continuing operations $ (570,340) $ 241,218
Adjustments to reconcile to net cash from operating activities:
Depreciation of property and equipment 250,902 284,609
Amortization of internally developed software 219,511 78,914
Deferred income taxes (43,938) 69,836
Accrued restructuring charge (291,860) (386,798)
Allowance for doubtful accounts 150,000 --
Changes in certain current assets and current liabilities:
Accounts receivable and unbilled services 1,660,193 307,267
Due from Managed Care Solutions, Inc. -- 189,789
Inventories (89,160) 35,332
Prepaid expenses and other current assets (136,517) 59,479
Accounts payable (111,750) (2,348)
Accrued compensation (180,571) (721,699)
Deferred revenue (2,053,413) (1,078,628)
Other, net 341,017 (402,062)
------------ ------------
(855,926) (1,325,091)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (58,085) (40,480)
Additions to internally developed software (69,567) (500,887)
Proceeds from maturity of short-term investments -- 1,597,157
Proceeds from sale of short-term investments -- 10,888,023
Purchases of short-term investments -- (11,440,114)
------------ ------------
(127,652) 503,699
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 27,470 49,240
------------ ------------
27,470 49,240
------------ ------------
Net decrease in cash and cash equivalents (956,108) (772,152)
Cash and cash equivalents, beginning of period 1,205,135 765,312
Net cash activity from discontinued operation 122,734 976,653
------------ ------------
Cash and cash equivalents, end of period $ 371,761 $ 969,813
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 24
MEDICUS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
In management's opinion, the financial statements of Medicus Systems
Corporation (the "Company") reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of the
operating results for the quarters ended August 31, 1997 and 1996. Certain
reclassifications have been made in the prior period financial statements to
conform to the current period presentation. These reclassifications had no
effect on previously reported total assets, total liabilities, equity or results
of operations.
Operating results for the interim periods are not necessarily
indicative of the results to be expected for the full year. The financial
information included herein should be read in conjunction with the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended May 31, 1997.
During the quarter ended August 31, 1996, the Company performed certain
administrative services for Managed Care Solutions, Inc. ("MCS") under a
services agreement resulting from the spin off of the Company from MCS on March
1, 1996. During the quarter ended August 31, 1996, the Company received $175,000
in consideration for these services, and reduced marketing, general and
administrative expenses by this amount.
NOTE 2 - DISCONTINUED OPERATION
Effective May 31, 1997 the Company adopted a plan to discontinue its
contract services line of business. This separate line of business consisted of
information systems management contracts with one customer. As a result of this
decision, the net assets of the contract services line of business, principally
accounts receivable and unbilled services, property and equipment, and accounts
payable and other accrued liabilities have been reclassified in the Balance
Sheets at August 31, 1997 and May 31, 1997. In addition, the results of
operations of the contract services business have been reclassified in the
Statements of Operations and Statements of Cash Flows for the quarters ended
August 31, 1997 and 1996.
The following table summarizes unaudited selected financial data of the
contract services business for the quarters ended August 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
AUGUST 31, August 31,
1997 1996
---------- ----------
<S> <C> <C>
REVENUES $2,501,000 $2,497,000
OPERATING INCOME 103,000 83,000
</TABLE>
NOTE 3 - EARNINGS PER SHARE
Earnings (Loss) per common share have been computed by dividing net
income (loss) by the weighted average of common stock and common stock
equivalents outstanding during the period. Common stock equivalents include
shares issuable on the exercise of stock options and the warrant (when
dilutive), using the treasury method from the date of grant.
4
<PAGE> 25
MEDICUS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
NOTE 4 - ACCRUED RESTRUCTURING CHARGE
During February, 1996, the Company commenced a process to evaluate its
current strategic position, including the markets it expects to pursue and its
product offerings in those chosen markets. As a result of decisions made as part
of this evaluation process, the Company recorded $4.7 million in restructuring
charges, representing costs and expenses to exit certain product lines, to
abandon certain product development efforts and to provide for liabilities
resulting from the strategic redirection of the Company, including severance
costs. Specifically, the Company decided to exit the Clinical Case Management
Systems ("CCM") and the Executive Information Systems product lines.
Additionally, product development efforts for the Clinical Data Systems Wincoder
V2 project and portions of the MACH 1 project, which will no longer be utilized
in the Medicus product line, were abandoned and their associated development
costs, which had been previously capitalized, were expensed. Severance costs
associated with an officer and several employees, in addition to the write-off
of a portion of the Contract Management System, were also included in the
restructuring charge.
As part of an ongoing evaluation, the Company refined its strategic
planning process during fiscal 1997, and assessed continuing obligations
associated with the implementation of the plan. The Company continued the
process of implementing its plans during 1997 and, following the stock
repurchase from its founder in the quarter ended February 28, 1997, recorded
$2.8 million in charges to complete its plan, including accruing certain costs
to reorganize the Company's business units, to abandon certain development
efforts, and to increase the allowance for doubtful accounts. Specifically, the
Company decided to relocate operations for its Clinical Data Systems ("CDS")
division, based in Alameda, CA, to the Company's Evanston, IL corporate offices.
Costs accrued associated with the relocation included costs to cancel existing
lease agreements, to terminate employees and to write down abandoned assets. In
addition, the Company increased its reserves for product line exit costs and
severance costs that relate to the remaining customer of the previously
discontinued CCM product line. Also, certain product development efforts for the
Company's Patient Focused Systems ("PFS") products were abandoned, and the
associated development costs, which had been previously capitalized, along with
other related product line exit costs were expensed. The Company also increased
its allowance for doubtful accounts due to the potential for certain additional
billed and unbilled accounts to become uncollectible as a result of the
decisions discussed above.
The components of the restructuring reserve, which the Company expects
will be utilized during the next nine months, are as follows:
<TABLE>
<CAPTION>
AUGUST 31, May 31,
1997 1997
---------- ----------
<S> <C> <C>
PRODUCT LINE EXIT COSTS $ 671,978 $ 774,425
BUSINESS UNIT REORGANIZATION COSTS 579,986 674,597
EMPLOYEE TERMINATION AND SEVERANCE COSTS 623,945 798,394
---------- ----------
$1,875,909 $2,247,416
========== ==========
</TABLE>
During the quarter ended August 31, 1997, the Company incurred $79,647
in write-downs of accounts receivable and $22,800 in product line exit costs
related to the remaining customer of the previously discontinued CCM product
line. The Company also paid $94,611 in business unit reorganization costs
related to the relocation of the CDS division and $174,449 in severance benefits
and employee termination costs.
5
<PAGE> 26
MEDICUS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
NOTE 5 - NOTE PAYABLE AND LINE OF CREDIT
On December 5, 1996, the Company reached an agreement in principle with
its founder, Richard C. Jelinek, to purchase from Mr. Jelinek, and a trust of
which he is a beneficiary (the "Trust"), one million shares of Common Stock and
500 shares of Voting Preferred Stock. In exchange, the Company agreed to pay Mr.
Jelinek and the Trust $4.5 million in cash and $2.0 million in 8% two-year
promissory notes, and issued to Mr. Jelinek and the Trust 400,000 five-year
warrants to purchase Common Stock at $8.00 per share. The scheduled maturities
of the notes are $1 million on March 19, 1998 and $1 million on March 19, 1999.
Interest costs incurred and paid on the promissory notes totaled $39,665 for the
quarter ending August 31, 1997.
In April 1997, the Company entered into an agreement with a bank that
provides for a secured, revolving line of credit up to a maximum of $2.5
million. The credit facility, which has an initial maturity date of October
1998, bears interest at the bank's prime rate and provides the bank with a first
security interest in all assets of the Company. Certain financial covenants and
reporting requirements are also included in the agreement. As of August 31,
1997, the Company had not utilized the line of credit.
6
<PAGE> 27
(b) Pro Forma Financial Information
1. Consolidated Balance Sheet as of September 30, 1997, and
Statements of Operations for the nine months ended
September 30, 1997 and the year ended December 31, 1996.
QUADRAMED CORPORATION
AND MEDICUS SYSTEMS CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, AUGUST 31,
1997 1997
----------- ---------------
HISTORICAL
HISTORICAL MEDICUS SYSTEMS PRO FORMA PRO FORMA
QUADRAMED CORPORATION(a) ADJUSTMENTS COMBINED
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................... $ 6,928 $ 372 8,000(f) $ 15,300
Restricted cash ............................. 33 -- 33
Accounts receivable, net .................... 11,418 8,615 20,033
Prepaid and deferred income taxes ........... -- 2,025 2,025
Prepaid and other ........................... 690 607 1,297
--------- --------- --------- ---------
Total current assets .................... 19,069 11,619 8,000 38,688
EQUIPMENT, at cost:
Equipment ................................... 5,589 7,473 13,062
Accumulated depreciation .................... (2,346) (5,331) -- (7,677)
--------- --------- --------- ---------
Equipment, net .......................... 3,243 2,142 -- 5,385
Long-term investment .......................... 3,700 -- 3,700
CAPITALIZED SOFTWARE
DEVELOPMENT COSTS, net ...................... 1,253 2,938 4,191
ACQUIRED SOFTWARE, net ........................ 1,374 -- 1,374
GOODWILL, net ................................. 10,234 -- 15,000(g) 25,234
INSTALLMENT ACCOUNTS RECEIVABLE ............... -- 537 537
DEFERRED INCOME TAXES ......................... -- 2,764 2,764
OTHER ......................................... 232 -- 232
--------- --------- --------- ---------
$ 39,105 $ 20,000 $ 23,000 $ 82,105
========= ========= ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable ............................... $ 300 $ 1,000 $ 1,300
Current maturities of
capital lease obligations ............... 175 -- 175
Accounts payable ............................ 1,029 485 1,514
Accrued liabilities ......................... 2,584 1,755 4,339
Accrued restructuring charge ................ -- 1,876 1,876
Deferred revenue ............................ 1,341 4,857 6,198
--------- --------- --------- ---------
Total current liabilities ............... 5,429 9,973 15,402
CAPITAL LEASE OBLIGATIONS,
less current portion ........................ 320 -- 320
Notes payable, less current portion ........... 1,156 1,000 2,156
--------- --------- --------- ---------
Total Liabilities ....................... 6,905 10,973 17,878
STOCKHOLDERS' EQUITY
Preferred stock ............................. -- 500 (500)(h) --
Common stock ................................ 61 65 (30)(h) 96
Deferred compensation ....................... (54) -- -- (54)
Additional paid-in capital .................. 44,485 23,039 43,953(h) 111,477
Less treasury stock ......................... -- (6,187) 6,187(h) --
Accumulated deficit ......................... (12,292) (8,390) (26,610)(h) (47,292)
--------- --------- --------- ---------
Total Stockholders'Equity (Deficit) ..... 32,200 9,027 23,000 64,227
--------- --------- --------- ---------
$ 39,105 $ 20,000 $ 23,000 $ 82,105
========= ========= ========= =========
</TABLE>
<PAGE> 28
QUADRAMED CORPORATION
AND MEDICUS SYSTEMS COPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 AUGUST 31, 1997
------------------ ---------------
HISTORICAL
HISTORICAL PRIOR MEDICUS SYSTEMS PRO FORMA PRO FORMA
QUADRAMED ACQUISITIONS(b)(j) ORPORATION(c) ADJUSTMENTS COMBINED
--------- -------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Licenses ......................... $ 14,849 (4) $ 13,530 28,375
Services ......................... 7,300 4,332 -- 11,632
-------- -------- -------- -------- --------
Total revenues ............... 22,149 4,328 13,530 40,007
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Cost of licenses ................. 5,618 -- 6,379 11,997
Cost of services ................. 4,220 4,269 -- 8,489
General and administration ....... 2,947 699 3,970 7,616
Sales and marketing .............. 2,887 281 4,524 7,692
Research and development ......... 2,227 -- 2,843 5,070
Amortization of intangible assets 659 235 -- 2,250(i) 3,144
Stock repurchase ................. -- -- 1,690 1,690
Non-recurring start-up charges/
restructuring charges .......... 1,040 -- 2,800 3,840
-------- -------- -------- -------- --------
Total operating expenses ..... 19,598 5,484 22,206 2,250 49,538
-------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS ...... 2,551 (1,156) (8,676) (2,250) (9,531)
-------- -------- -------- -------- --------
Interest expense/(income) .......... (505) 48 (95) (552)
Other expense/(income), net ........ 11 -- (167) (156)
Provision for income taxes(benefit) 265 -- (3,184) (2,919)
-------- -------- -------- -------- --------
NET INCOME/(LOSS) .................. $ 2,780 $ (1,204) $ (5,230) $ (2,250) $ (5,904)
======== ======== ======== ======== ========
NET INCOME (LOSS) PER SHARE ........ $ 0.37 $ (0.15) $ (0.52)
======== ======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES ......... 7,532 7,827 11,294
======== ======== ========
</TABLE>
2
<PAGE> 29
QUADRAMED CORPORATION
AND MEDICUS SYSTEMS CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
----------------------------- -------------------
DECEMBER 31, 1996 NOVEMBER 30, 1996
----------------------------- -------------------
HISTORICAL
HISTORICAL PRIOR MEDICUS SYSTEMS PRO FORMA PRO FORMA
QUADRAMED ACQUISITIONS(d)(j) CORPORATION(e) ADJUSTMENTS COMBINED
---------- ------------------ --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Licenses ................................ 16,223 (16) 18,435 34,642
Services ................................ 2,865 12,447 -- 15,312
-------- -------- -------- --------
Total revenues ...................... 19,088 12,431 18,435 49,954
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of licenses ........................ 7,294 -- 7,782 15,076
Cost of services ........................ 2,683 9,706 -- 12,389
General andadministration ............... 3,221 2,343 5,390 10,954
Sales and marketing ..................... 2,434 1,414 5,625 9,473
Research and development ................ 2,499 -- 2,127 4,626
Amortization of intangible assets ....... 460 807 -- 3,000(i) 4,267
Non-recurring expenses/restructuring
charges ............................... -- 103 4,662 4,765
-------- -------- -------- -------- --------
Total operating expenses ............ 18,591 14,373 25,586 3,000 61,550
-------- -------- -------- -------- --------
INCOME/(LOSS) FROM OPERATIONS ............. 497 (1,942) (7,151) (3,000) (11,596)
-------- -------- -------- -------- --------
Interest expense/(income) ................. 329 -- (703) (374)
Other expense/(income), net ............... 15 317 -- 332
Provision for income taxes (benefit) ...... -- (41) (2,698) (2,739)
-------- -------- -------- -------- --------
NET INCOME/(LOSS) ......................... $ 153 $ (2,218) $ (3,750) $ (3,000) $ (8,815)
======== ======== ======== ======== ========
NET INCOME (LOSS) PER SHARE ............... $ 0.03 $ (0.41) $ (1.00)
======== ======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES ................ 5,089 5,384 8,851
======== ======== ========
</TABLE>
3
<PAGE> 30
QUADRAMED CORPORATION AND MEDICUS SYSTEMS CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED
BALANCE SHEET AND STATEMENT OF OPERATIONS
(UNAUDITED)
NOTE 1. PRO FORMA ADJUSTMENTS
Certain pro forma adjustments have been made to the accompanying pro forma
condensed combined balance sheet and statement of operations as described below:
(a) Represents the historical combined balance sheet of Medicus
Systems Corporation("Medicus") as of August 31, 1997, as Medicus is a May
31 yearend.
(b) Includes results of operations of Healthcare Revenue
Management, Inc.("HRM") for the eight months ended August 31, 1997, and
the Synergy Companies("Synergy") for the three months ended March 31,
1997, and related pro forma adjustments. Subsequent to August 31, 1997 and
March 31, 1997, HRM and Synergy, respectively, the results of operations
are included in the "Historical QuadraMed" column.
(c) Represents historical results of operations for the nine
months ended August 31, 1997.
(d) Includes HRM and Synergy results of operations for the twelve
months ended December 31, 1996 and the related pro forma adjustments.
(e) Represents historical results of operations for the twelve
months ended November 30, 1996.
(f) Reflects the expected cash to be paid of approximately
$50,000,000 for the acquisition of Medicus, net of the proceeds of
$58,000,000 from the Company's public offering to sell common stock which
closed on October 10, 1997. Purchase accounting adjustments reflect 100
percent ownership of Medicus.
(g) Reflects the recording of goodwill acquired from the
acquisition of Medicus for approximately $15,000,000.
(h) Reflects the elimination of Medicus' stockholders' equity and
the issuance of common stock from the Company's public offering which
closed on October 10, 1997 and an adjustment to retained earnings related
to the write-off of in-process technology of approximately $35,000,000
from the acquisition of Medicus.
(i) Reflects the amortization of goodwill acquired of $15,000,000
for Medicus which will be amortized on a straight line basis over the
estimated life of five years.
(j) The weighted average shares have been adjusted for (1)
3,467,000 shares of common stock issued as part of the public offering
which closed in October 1997, (2) approximately 182,000 shares of common
stock issued in conjunction with the Synergy acquisition and (3)
approximately 113,000 shares issued in conjunction with the HRM
acquisition.
4
<PAGE> 31
(c) Exhibits
2.10 Agreement and Plan of Reorganization dated as of
November 9, 1997, by and among QuadraMed Corporation
and Medicus Systems Corporation.(1)
10.40 Form of Stock Purchase Agreement dated as of November
9, 1997 by and among QuadraMed Corporation and certain
stockholders of Medicus Systems Corporation.(1)
10.41 Form of Stock Purchase Warrant dated as of November 9,
1997, issued to certain stockholders of Medicus
(included as Appendix A to Exhibit 10.40).(1)
10.42 Letter dated November 1, 1997 from the Company to
James D. Durham, regarding terms of employment.(1)
10.43 Letter dated November 13, 1997 from the Company to
John V. Cracchiolo, regarding terms of employment.(1)
10.44 Amendment, dated as of November 13, 1997, to the
Employment Agreement dated as of December 19, 1996
by and between the Company and Frederick Stodolak.(1)
(1) Previously filed
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 23, 1997 By: /s/ KEITH M. ROBERTS
---------------------------
Name: Keith M. Roberts
Title: Vice President and
General Counsel
