<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 27, 2000
LANDACORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 333-87435 94-3346710
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4151 ASHFORD DUNWOODY ROAD, SUITE 505, ATLANTA, GA 30319
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 531-9956
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
This Current Report on Form 8-K/A amends Items 2 and 7 of the Current Report on
Form 8-K filed with the Securities and Exchange Commission on November 17, 2000
and Item 7 of the Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 14, 2000.
ITEM 2. ACQUISITION OF ASSETS
Acquisition of ProMedex, Inc.
Effective as of October 27, 2000, the Company acquired the ProMedex
business from PMX Holdings, Inc., a leading provider of population and disease
management programs and services. The transaction was structured as an asset
purchase in which the Company acquired all the assets and liabilities of the
ProMedex business in exchange for cash in the amount of $584,375 and 250,000
shares of the Company's Common Stock at a price per share of $2.0625.
The merger consideration and other terms of the Merger Agreement were
determined pursuant to arms-length negotiations between the parties. The funds
used for payment of the cash consideration were part of the proceeds of the
Company's initial public offering, effective on February 8, 2000.
The foregoing description of the merger does not purport to be complete,
and is qualified in its entirety by the Asset Purchase Agreement which is
attached to the Form 8-K filed by the Company on November 13, 2000 as an
exhibit, and is incorporated by reference herein.
Acquisition of PatientCentrix, Inc.
Effective November 2, 2000, Landacorp, Inc. (the "Company") completed
its acquisition of PatientCentrix, Inc. ("PatientCentrix"), a leading provider
of population management targeting and intervention programs and services. The
acquisition was structured as a "reverse triangular merger", whereby
PatientCentrix merged with CDMS Acquisition Corporation, a wholly-owned
subsidiary of the Company. PatientCentrix continued as the surviving
corporation.
The Company acquired 100% of the outstanding capital stock of
PatientCentrix in exchange for $5,850,000 in cash paid to PatientCentrix
stockholders and option holders, and 1,157,000 shares of Company Common Stock
issued to the stockholders of PatientCentrix. The price of the shares issued was
$1.777 based on the average closing price of one share of Company Common Stock
as quoted on the Nasdaq Stock Market for the 20 trading days prior to the date
of the definitive agreement, which was October 31, 2000. The Company also
assumed all the incentive stock options issued by PatientCentrix prior to the
date of the definitive agreement. These incentive stock options now represent
options to purchase up to 1,582,532 of Company Common Stock with an average
exercise price of $1.525. Additionally, contingent upon total contract value of
sales for PatientCentrix software and services, capped at $50 million in orders
for the twelve months from the date of the definitive agreement; up to $6
million in additional cash will be paid to PatientCentrix shareholders and
option holders on a pro rata basis.
The shares of Company Common Stock that were issued to acquire
PatientCentrix are restricted. However, the Company has granted the holder of
such shares registration rights, including unlimited "piggy-back" registration
rights, subject to any applicable underwriter cut-back, and one demand
registration right pursuant to which the holders may demand that Landacorp file
a registration statement on Form S-3 to register up to all of their shares of
Company Common Stock; provided, however, that such demand right shall only be
exercisable on or after the first anniversary of Landacorp's initial public
offering, and then, only if the average closing price for one share of the
Company's Common Stock for the ten days prior to the date of such exercise, as
quoted on the Nasdaq Stock Market, exceeds $7.00.
Pursuant to the terms of the Merger Agreement, 30% of the shares of the
Company's Common Stock and options to purchase the Company's Common Stock issued
to employees of PatientCentrix pursuant to the merger are subject to forfeiture
in the event of such employee's termination under certain circumstances. The
Company has agreed to refund the exercise price paid by an employee with
respect to any forfeited shares purchased pursuant to the exercise of an
option.
The merger consideration and other terms of the Merger Agreement were
determined pursuant to arms-length negotiations between the parties.
As part of the transaction, Michael S. Miele, Chief Executive Officer of
PatientCentrix, joined the Company's Board of Directors. Immediately
after the transaction, Mr. Miele beneficially held 1,056,875 shares of Common
Stock of the Company.
The funds used for payment of the cash consideration were part of the
proceeds of the Company's initial public offering, effective on February 8,
2000.
The foregoing description of the merger does not purport to be complete,
and is qualified in its entirety by the Merger Agreement and Registration Rights
Agreement which are attached to the Form 8-K filed by the Company on November
17, 2000, as Exhibits 2.1 and 4.1, respectively, and are incorporated by
reference herein.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a)(1) ProMedex, Inc. Financial Statements (Audited)
Reports of Independent Accountants
Balance Sheets as of June 30, 1999 and 2000
Statements of Operations for the Year Ended June 30, 1999, the Period
from July 1, 1999 to April 14, 2000 and the Period from April 15, 2000
to June 30, 2000
Statements of Stockholder's Equity for the Year Ended June 30, 1999, the
Period from July 1, 1999 to April 14, 2000 and the Period from April 15,
2000 to June 30, 2000
Statements of Cash Flows for the Year Ended June 30, 1999, the Period
from July 1, 1999 to April 14, 2000 and the Period from April 15, 2000
to June 30, 2000
Notes to Financial Statements
(a)(2) ProMedex, Inc. Financial Statements (Unaudited)
Balance Sheet as of September 30, 2000
Statements of Operations for the Three Months Ended September 30, 1999
and 2000
Statements of Cash Flows for the Three Months Ended September 30, 1999
and 2000
Notes to Financial Statements
(a)(3) PatientCentrix, Inc. Financial Statements (Audited)
Report of Independent Accountants
Balance Sheets as of December 31, 1999 and 1998
Statements of Operations for the Years Ended December 31, 1999 and 1998
Statements of Stockholder's Equity as of December 31, 1999 and December
31, 1998
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998
Notes to Financial Statements
(a)(4) PatientCentrix, Inc. Financial Statements (Unaudited)
Balance Sheet as of September 30, 2000
Statements of Operations for the Nine Months Ended September 30, 1999
and 2000
Statements of Cash Flows for the Nine Months Ended September 30, 1999
and 2000
Notes to Financial Statements
(b) Pro Forma Condensed Combined Financial Information (Unaudited)
Overview
Pro Forma Condensed Combined Balance Sheet as of September 30, 2000
Pro Forma Condensed Combined Statements of Operations for the Year
Ended December 31, 1999 and for the Nine Months Ended September 30, 2000
Notes to Pro Forma Condensed Combined Financial Information
(c) Exhibits - None
<PAGE> 4
PROMEDEX INC.
FINANCIAL STATEMENTS
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors of
ProMedex Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of ProMedex Inc. at
June 30, 1999 and the results of its operations and its cash flows for the year
ended June 30, 1999 and the period from July 1, 1999 to April 14, 2000, in
conformity with accounting principles generally accepted in the United States of
America. 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 auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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.
As discussed in Note 1 to the financial statements, on April 14, 2000, PDI
Acquisition Corp. acquired the outstanding stock of the Company. The financial
statements for the periods subsequent to April 14, 2000 have been prepared on a
basis of accounting arising from this acquisition. The financial statements for
the year ended June 30, 1999 and for the period from June 30, 1999 to April 14,
2000 are presented on the Company's previous basis of accounting.
As discussed in Note 1 to the financial statements, on October 27, 2000,
Landacorp Acquisition Subsidiary, Inc. acquired the assets and assumed certain
liabilities of the Company.
/s/ PricewaterhouseCoopers LLP
January 9, 2001
Raleigh, North Carolina
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors of
ProMedex Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of ProMedex Inc. at
June 30, 2000 and the results of its operations and its cash flows for the
period from April 15, 2000 to June 30, 2000, in conformity with accounting
principles generally accepted in the United States of America. 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 audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, on April 14, 2000, PDI
Acquisition Corp. acquired the outstanding stock of the Company. The financial
statements for the periods subsequent to April 14, 2000 have been prepared on a
basis of accounting arising from this acquisition. The financial statements for
the year ended June 30, 1999 and for the period from June 30, 1999 to April 14,
2000 are presented on the Company's previous basis of accounting.
As discussed in Note 1 to the financial statements, on October 27, 2000,
Landacorp Acquisition Subsidiary, Inc. acquired the assets and assumed certain
liabilities of the Company.
/s/ PricewaterhouseCoopers LLP
January 9, 2001
Raleigh, North Carolina
<PAGE> 7
PROMEDEX INC.
BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
JUNE 30, JUNE 30,
ASSETS 1999 2000
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 243,731 $ 300,546
Accounts receivable, net 371,633 1,245,235
Inventory, net 87,691 253,955
Prepaid expenses 120,624 150,237
------------ ------------
Total current assets 823,679 1,949,973
Furniture and equipment, net 394,399 1,117,873
Deposits and other assets 50,992 116,398
------------ ------------
Total assets $ 1,269,070 $ 3,184,244
============ ============
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 712,835 $ 1,564,046
Accrued expenses 19,090 201,050
Intercompany payable to parent -- 1,869,917
Line of credit -- 700,000
Notes payable to stockholders 103,865 3,565
Deferred revenues 797,668 1,239,218
------------ ------------
Total current liabilities 1,633,458 5,577,796
Mandatorily redeemable Series A preferred stock (Liquidation
value of $6,332,895 at June 30, 1999) 4,589,320 --
Mandatorily redeemable preferred stock issued by PDI
(Liquidation value of $8,699,544 at June 30, 2000) -- 29,230,471
Commitments (Note 6)
Stockholders' deficit:
Common stock, $.001 par value; 9,000,000 shares authorized;
1,613,920 and 0 shares issued and outstanding
at June 30, 1999 and 2000, respectively 1,614 --
Investment from PDI -- 74,904,554
Additional paid-in capital 98,589 --
Accumulated deficit (5,053,911) (106,528,577)
------------ ------------
Total stockholders' deficit (4,953,708) (31,624,023)
------------ ------------
Total liabilities, mandatorily redeemable preferred
stock and stockholders' deficit $ 1,269,070 $ 3,184,244
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 8
PROMEDEX INC.
STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR | SUCCESSOR
---------------------------------- | -----------------
FOR THE PERIOD FROM | PERIOD FROM
YEAR ENDED JULY 1, 1999 TO | APRIL 15, 2000 TO
JUNE 30, 1999 APRIL 14, 2000 | JUNE 30, 2000
---------------- ---------------- | -----------------
<S> <C> <C> | <C>
Revenues $ 1,588,133 $ 1,606,805 | $ 989,403
|
Cost of revenues 520,583 1,384,987 | 943,972
------------ ------------ | -------------
|
Gross profit 1,067,550 221,818 | 45,431
------------ ------------ | -------------
|
Operating expenses: |
Sales and marketing 235,957 1,069,493 | 376,670
General and administrative 2,905,494 3,049,196 | 1,103,849
Research and development 1,008,451 1,101,035 | 542,511
Goodwill amortization -- -- | 4,356,230
Asset impairment -- -- | 100,193,292
------------ ------------ | -------------
Operating expenses 4,149,902 5,219,724 | 106,572,552
------------ ------------ | -------------
|
Operating loss (3,082,352) (4,997,906) | (106,527,121)
|
Interest income (expense): |
Interest income 20,323 22,937 | 3,032
Interest expense -- (33,977) | (4,488)
------------ ------------ | -------------
Interest income (expense), net 20,323 (11,040) | (1,456)
|
Net loss (3,062,029) (5,008,946) | (106,528,577)
|
Accretion of mandatorily redeemable |
preferred stock 608,553 357,144 | --
------------ ------------ | -------------
|
Net loss available to |
common stockholders $ (3,670,582) $ (5,366,090) | $(106,528,577)
============ ============ | =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 9
PROMEDEX INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------------ PAID-IN INVESTMENT
SHARES AMOUNT CAPITAL FROM PDI
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PREDECESSOR:
Balance at June 30, 1998 1,343,500 $ 1,344 $ 3,091 $ --
Accretion of Series A mandatorily
redeemable preferred stock -- -- (608,553) --
Exercise of common stock options 20,141 20 6,022 --
Exercise of common stock warrants 250,279 250 698,029 --
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance at June 30, 1999 1,613,920 1,614 98,589 --
Shares issued in connection with the sale of
Series B mandatorily redeemable preferred stock 13,743 13 24,724 --
Exercise of common stock options 1,750 2 1,748 --
Deferred compensation related to common stock
options granted -- -- 211,370 --
Amortization of deferred compensation -- -- -- --
Accretion of Series A and Series B mandatorily
redeemable preferred stock -- -- (336,431) --
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance at April 14, 2000 1,629,413 $ 1,629 $ -- $ --
------------ ------------ ------------ ------------
-----------------------------------------------------------------------------------------------------------------------------
SUCCESSOR:
Purchase of outstanding stock by PDI on
April 14, 2000 -- $ -- $ -- $ 74,904,554
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance at June 30, 2000 -- $ -- $ -- $ 74,904,554
============ ============ ============ ============
<CAPTION>
TOTAL
DEFERRED ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT DEFICIT
------------ ------------ ------------
<S> <C> <C> <C>
PREDECESSOR:
Balance at June 30, 1998 $ -- $ (1,991,882) $ (1,987,447)
Accretion of Series A mandatorily
redeemable preferred stock -- -- (608,553)
Exercise of common stock options -- -- 6,042
Exercise of common stock warrants -- -- 698,279
Net loss -- (3,062,029) (3,062,029)
------------ ------------- -------------
Balance at June 30, 1999 -- (5,053,911) (4,953,708)
Shares issued in connection with the sale of
Series B mandatorily redeemable preferred stock -- -- 24,737
Exercise of common stock options -- -- 1,750
Deferred compensation related to common stock
options granted (211,370) -- --
Amortization of deferred compensation 13,700 -- 13,700
Accretion of Series A and Series B mandatorily
redeemable preferred stock -- (20,713) (357,144)
Net loss -- (5,008,946) (5,008,946)
------------ ------------- -------------
Balance at April 14, 2000 $ (197,670) $ (10,083,570) $ (10,279,611)
------------ ------------- -------------
-------------------------------------------------------------------------------------------------------------
SUCCESSOR:
Purchase of outstanding stock by PDI on
April 14, 2000 $ -- $ -- $ 74,904,554
Net loss -- (106,528,577) (106,528,577)
------------ ------------- -------------
Balance at June 30, 2000 $ -- $(106,528,577) $ (31,624,023)
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 10
PROMEDEX INC.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR | SUCCESSOR
----------------------------------- | ------------------
PERIOD FROM | PERIOD FROM
YEAR ENDED JULY 1, 1999 TO | APRIL 15, 2000 TO
JUNE 30, 1999 APRIL 14, 2000 | JUNE 30, 2000
-------------- -------------- | -------------------
<S> <C> <C> | <C>
Cash flows from operating activities: |
Net loss $ (3,062,029) $ (5,008,946) | $ (106,528,577)
Adjustments to reconcile net loss to |
net cash used in operating |
activities |
Depreciation 95,612 163,365 | 96,737
Amortization of goodwill -- -- | 4,356,230
Asset impairment -- -- | 100,193,292
Amortization of deferred compensation -- 13,700 | --
Changes in assets and liabilities: |
Accounts receivable (177,073) (518,887) | (354,715)
Inventory (64,783) (217,483) | 51,219
Prepaid expenses (118,126) 119,389 | (149,002)
Deposits and other assets (26,379) (199,521) | 134,115
Accounts payable 32,035 644,808 | 206,403
Accrued expenses 72,616 189,409 | (7,449)
Deferred revenues 797,668 131,526 | 310,024
-------------- -------------- | --------------
Net cash used in operating |
activities (2,450,459) (4,682,640) | (1,691,723)
-------------- -------------- | --------------
|
Cash flows from investing activities: |
Purchases of furniture and equipment (332,478) (702,771) | (280,805)
-------------- -------------- | --------------
Net cash used in investing |
activities (332,478) (702,771) | (280,805)
-------------- -------------- | --------------
|
Cash flows from financing activities: |
Proceeds from convertible notes |
payable to stockholders 101,057 1,080,215 | --
Payments for stockholder loan -- 1,600 | 600
Proceeds from issuance of stock, net 1,954,806 3,760,672 | --
Proceeds from line of credit -- 500,000 | 200,000
Proceeds from intercompany payable to parent -- -- | 1,869,917
Proceeds from exercise of warrants 698,279 -- | --
Proceeds from exercise of stock |
options 6,042 1,750 | --
-------------- -------------- | --------------
Net cash provided by |
financing activities 2,760,184 5,344,237 | 2,070,517
-------------- -------------- | --------------
|
Net increase (decrease) in |
cash and cash equivalents (22,753) (41,174) | 97,989
|
Cash and cash equivalents: |
Beginning of period 266,484 243,731 | 202,557
-------------- -------------- | --------------
|
End of period $ 243,731 $ 202,557 | $ 300,546
============== ============== | ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 11
PROMEDEX INC.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR | SUCCESSOR
--------------------------------- | ------------------
PERIOD FROM | PERIOD FROM
YEAR ENDED JULY 1, 1999 TO | APRIL 15, 2000 TO
JUNE 30, 1999 April 14, 2000 | June 30, 2000
-------------- -------------- | -------------------
<S> <C> <C> | <C>
Supplemental disclosure of cash flow information: |
Cash paid during the year for interest $ -- $ 13,737 | $ 5,427
|
Supplemental non-cash financing information: |
Accretion of mandatorily redeemable |
preferred stock $ 608,553 $ 357,144 | $ --
Conversion of convertible notes into Series B $ -- $ 1,182,715 | $ --
mandatorily redeemable preferred stock |
Non-cash offering costs related to sale of Series B $ -- $ 24,737 | $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 12
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION
ProMedex Inc. (the "Company" or "ProMedex") is a North Carolina
corporation engaged in the development, commercialization and
implementation of health care services aiming at reducing health risks,
improving clinical outcomes, and reducing health care utilization. These
improved outcomes are achieved through self-evaluation, tailored education
and targeted enrollment in self-management training programs. These
services are marketed to managed care organizations and self-insured
employers. The Company incorporated and began operations in June 1996.
On April 14, 2000, all of the issued and outstanding shares of the Company
were acquired by PDI Acquisition Corp. ("PDI"), a wholly-owned subsidiary
of Physician Dynamics, Inc., in exchange for PDI stock and stock options
and warrants to purchase PDI stock. The acquisition by PDI has been
accounted for using the purchase method of accounting. Each share of
common stock in the Company and each common stock option and warrant were
converted into .872 shares of PDI common stock, while each share of Series
A or Series B preferred stock in the Company was converted into .291
shares of PDI Series B preferred stock. The estimated fair market value of
the PDI stock, options and warrants exchanged for existing stock, options
and warrants of the Company was $104,135,025; this amount was allocated
between mandatorily redeemable preferred stock and stockholders' equity
using the estimated fair market values of the securities. The net
liabilities assumed by PDI on April 14, 2000 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 1,399,487
Furniture and equipment 933,804
Other non-current assets 250,513
-----------
2,583,804
Total liabilities 2,998,301
-----------
Net liabilities assumed at April 14, 2000 $ (414,497)
===========
</TABLE>
The excess of the purchase price plus the estimated fair value of net
liabilities assumed totaled $104,549,522 and was recorded as goodwill and
was being amortized over five years. Amortization expense for the period
from April 15, 2000 to June 30, 2000 totaled $4,356,230. During June 2000,
the estimated fair value of PDI stock declined significantly, PDI
abandoned plans for an initial public offering, and PDI began efforts to
seek additional funding, which were ultimately unsuccessful. Accordingly,
PDI commenced liquidation proceedings in December 2000. These events
adversely impacted the current operations and prospects of ProMedex. As a
result, in accordance with the Company's policy regarding long-lived
assets, management evaluated the recoverability of the goodwill balance
and the Company recorded an impairment charge of $100,193,292 during June
2000. This impairment was subsequently confirmed by the sale of ProMedex
in October 2000 (see below).
The financial statements for the periods subsequent to April 14, 2000 have
been prepared on a basis of accounting arising from this acquisition. The
financial statements of the Company for the year ended June 30, 1999 and
period from July 1, 1999 to April 14, 2000 are presented on the Company's
previous basis of accounting.
On October 18, 2000, PMX Holdings, Inc. ("PMX"), an existing PDI preferred
stockholder and former ProMedex preferred stockholder, purchased all of
the assets and assumed certain liabilities of the Company. PMX paid
$325,000 in cash and issued 10% of its outstanding stock to PDI.
F-8
<PAGE> 13
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
On October 27, 2000, Landacorp Acquisition Subsidiary ("Landacorp"), a
wholly-owned subsidiary of Landacorp, Inc., purchased all of the assets
and assumed certain liabilities of the Company from PMX. The total
purchase price paid to PMX totaled $1,100,000, which consisted 250,000
shares of Landacorp Inc. common stock (valued at $515,625 on October 27,
2000) and $584,375 in cash.
At June 30, 2000, the Company had an accumulated deficit of $106,528,577
and a net working capital deficiency of $3,627,823. For the period from
July 1, 1999 to April 14, 2000 and for the period from April 15, 2000 to
June 30, 2000, the Company incurred net losses of $5,008,946 and
$106,528,577, respectively, and incurred negative cash flows from
operations of $4,682,640 and $1,691,723, respectively. Management expects
operating losses and negative cash flows from operations to continue for
the foreseeable future. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue
as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF 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 and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION The Company's revenues are derived from development,
implementation and management of continuing medical education programs.
The Company recognizes revenue related to fixed-fee contracts on a
percentage of completion basis as the services to be provided by the
Company, as defined by the customer contracts, are provided. When the
current estimates of total contract revenue and contract costs indicates a
loss, the Company records a provision for the estimated loss on the
contract. The Company did not record any contract losses for the year
ended June 30, 1999, the period from July 1, 1999 to April 14, 2000, or
the period from April 15, 2000 to June 30, 2000. Deferred revenues consist
of amounts billed in excess of revenue recognized. For contracts in which
fees are based upon the number of patients enrolled in the continuing
medical education program and the Company is unable to predict its future
pattern of performance, the revenue is recognized ratably over the term of
the contract. Revenues are recorded net of potential credits until the
time period in which credits can be issued elapses.
COST OF REVENUE
Cost of revenue consists of salaries and benefits of all personnel
involved in the implementation and management of the continuing medical
education programs, as well as the acquisition costs of the educational
and other materials provided during the program.
CONCENTRATION OF CREDIT RISK
Concentrations of credit risk that arise from financial instruments exist
for groups of counterparties when they have similar economic
characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other
conditions. An allowance for uncollectible accounts is provided in an
amount equal to the estimated collection losses of accounts receivable.
The allowance is based on historical collection experience and a review of
the current status of the existing receivables. Management recorded an
allowance for doubtful accounts totaling $0 and $25,738 as of June 30,
1999 and 2000, respectively.
F-9
<PAGE> 14
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
One customer accounted for 21% of the gross accounts receivable balance at
June 30, 1999 and 32% of total revenues for the year ended June 30, 1999.
At June 30, 2000, one customer accounted for 80% of the gross accounts
receivable balance. Two customers accounted for 43% and 24% of total
revenues for the period from July 1, 1999 to April 14, 2000, respectively,
and 20% and 24% of total revenues for the period from April 15, 2000 to
June 30, 2000, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents included all short-term, highly-liquid
investments with maturities of three months or less when purchased.
INVENTORY
The costs of educational and other materials provided to patients and for
packaging these materials for distribution are capitalized as inventory
using the weighted-average cost method and are charged to cost of revenues
upon shipment. Management periodically evaluates the realizability of the
inventory based on ongoing programs and records a reserve for obsolescence
when necessary.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost and depreciation is recorded
using the straight-line method over the estimated useful lives of the
assets. The estimated useful lives are as follows:
Furniture and fixtures 7 years
Computer equipment 3 years
Expenditures for repairs and maintenance are charged to expense as
incurred. The costs of major renewals and betterments are capitalized and
depreciated over their estimated useful lives.
GOODWILL
Goodwill represents the excess of the PDI purchase price plus the fair
value of net liabilities assumed by PDI and is amortized over five years.
The Company periodically reviews goodwill to assess recoverability of the
balance from expected future undiscounted cash flows. Goodwill
amortization expense for the period from April 15, 2000 to June 30, 2000
totaled $4,356,230.
IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates the recoverability
of its furniture and equipment and goodwill when circumstances indicate
that an event of impairment may have occurred in accordance with the
provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of" ("SFAS No. 121"). SFAS No. 121 requires recognition of
impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such
assets or the business to which such assets relate. Impairment is measured
based on the difference between the carrying value of the related assets
or businesses and the discounted future cash flows of such assets or
businesses. Impairment charges totaled $0, $0 and $100,193,292 during the
year ended June 30, 1999, the period from July 1, 1999 to April 14, 2000
and the period from April 15, 2000 to June 30, 2000, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs consist of costs, primarily comprised of
salaries for Company personnel, to develop the continuing medical
education programs and are expensed as incurred.
F-10
<PAGE> 15
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About
Fair Value of Financial Instruments," requires the Company to disclose
estimated fair values of its financial instruments. The Company's
financial instruments consist of cash and cash equivalents, accounts
receivable and accounts payable, whose carrying value approximates fair
value because of their short maturity, and notes payable, whose carrying
value approximates fair value because its interest rate approximates
current market rates. The Company's remaining assets and liabilities are
not considered financial instruments.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation based on the provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"), which states that no compensation
expense is recorded for stock options or other stock-based awards to
employees that are granted with an exercise price equal to or above the
estimated fair value per share of the Company's common stock on the grant
date. In the event that stock options are granted at a price lower than
the fair market value at that date, the difference between the fair market
value of the Company's common stock and the exercise price of the stock
option is recorded as deferred compensation. Deferred compensation is
amortized to compensation expense over the vesting period of the stock
option. The Company has adopted the disclosure requirements of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), as it relates to stock options granted to
employees, which requires pro forma net losses be disclosed based on the
fair value of the options granted at the date of the grant. Stock options
or warrants granted to non-employees are accounted for in accordance with
SFAS No. 123, which requires these options and warrants be valued using an
option valuation model and the resulting charge is recognized as services
are performed. The Company recorded deferred compensation of $0, $211,370
and $0 during the year ended June 30, 1999, the period from July 1, 1999
to April 14, 2000, and the period from April 15, 2000 to June 30, 2000,
respectively, relating to option grants to non-employees. The Company
recognized compensation expense related to amortization of deferred
compensation of $0, $13,700 and $0 during the year ended June 30, 1999,
the period from July 1, 1999 to April 14, 2000 and the period from April
15, 2000 to June 30, 2000, respectively.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred and totaled $8,174, $4,606 and
$3,214 for the year ended June 30, 1999, the period from July 1, 1999 to
April 14, 2000 and the period from April 15, 2000 to June 30, 2000,
respectively.
INCOME TAXES
The Company records income taxes using the liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Valuation allowances
are established where necessary to reduce deferred tax assets to the
amounts expected to be realized.
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting
and displaying comprehensive income and its components in the financial
statements. Comprehensive income, as defined, includes all changes in
F-11
<PAGE> 16
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
equity during a period from non-owner sources. The Company has no items of
other comprehensive income during the years ended June 30, 1999 or 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
"derivatives"), and for hedging activities. SFAS No. 133, as amended by
SFAS No. 137 and 138, is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000, with earlier application encouraged.
The Company does not currently, nor does it intend in the future, to use
derivative instruments and therefore does not expect that the adoption of
SFAS No. 133 will have any impact on its financial position or the results
of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. In June 2000, the SEC issued SAB 101B to defer
the effective date of implementation of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999
with earlier application encouraged. The Company will implement SAB
101 during fiscal 2001 and does not expect the implementation to have a
material impact on the Company's results of operations.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of APB 25." This Interpretation clarifies (a) the
definition of employee for purposes of applying Opinion 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequence of various modifications to the terms
of a previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000; the Company will adopt the provisions of FIN 44 in
fiscal 2001 and does not expect the implementation to have a material
impact on the Company's results of operations.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following at June 30:
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
Furniture and fixtures $ 102,197 $ 381,760
Computer equipment 416,741 1,120,754
----------- -----------
518,938 1,502,514
Less: accumulated depreciation (124,539) (384,641)
----------- -----------
$ 394,399 $ 1,117,873
=========== ===========
</TABLE>
F-12
<PAGE> 17
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4. INVENTORY
Inventory consists of the following at June 30:
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
Finished goods $ -- $ 17,548
Raw materials 87,691 266,407
--------- ---------
87,691 283,955
Less: inventory reserve -- (30,000)
--------- ---------
Total inventory, net $ 87,691 $ 253,955
========= =========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following at June 30:
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
Accrued compensation $ 7,090 $114,263
Other 12,000 86,787
-------- --------
Total accrued expenses $ 19,090 $201,050
======== ========
</TABLE>
6. LEASE OBLIGATIONS
The Company leases various office furniture and office space under
noncancelable operating leases expiring through 2003. Rent expense for
operating leases was $344,428, $234,772 and $43,376 for the year ended
June 30, 1999, the period from July 1, 2000 to April 14, 2000 and the
period from April 15, 2000 to June 30, 2000, respectively. Future lease
payments under operating leases as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2001 $374,358
2002 155,597
2003 137,471
--------
Total minimum lease payments $667,426
========
</TABLE>
F-13
<PAGE> 18
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
7. LINE OF CREDIT
During the period from July 1, 2000 to April 14, 2000, the Company
obtained a line of credit with a financial institution. Under the terms of
this line of credit, the Company could borrow up to $1,000,000, of which
$700,000 had been drawn as of June 30, 2000. The line of credit bears
interest at a rate per annum of prime rate plus 3% (12.5% at June 30,
2000). The Company incurred interest expense totaling $33,023 and $4,417
during the periods from July 1, 1999 to April 14, 2000 and April 15, 2000
to June 30, 2000, respectively.
8. INCOME TAXES
No provision for federal or state income taxes has been recorded as the
Company has incurred net operating losses since inception.
Significant components of the Company's deferred tax assets and
liabilities at June 1999 and 2000 consist of the following:
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
Deferred tax assets:
Domestic net operating loss carryforwards $ 1,923,834 $ 4,543,004
Deferred revenue -- 31,668
Research and development credit 70,980 70,980
Other 9,824 35,714
----------- -----------
Total deferred tax assets 2,004,638 4,681,366
Valuation allowance for deferred assets (2,004,638) (4,681,366)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
As of June 30, 1999 and 2000, the Company has provided a full valuation
allowance against its net deferred tax assets since realization of these
benefits could not be reasonably assured. As of June 30, 2000 the Company
has federal and state net operating loss carryforwards of approximately
$11,763,000. These net operating loss carryforwards begin to expire in
2011. The utilization of the federal net operating loss carryforward may
be subject to limitation under the rules regarding a change in stock
ownership as determined by the Internal Revenue Code.
F-14
<PAGE> 19
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Taxes computed at the statutory federal income tax rate of 34% are
reconciled to the provision for income taxes as follows:
<TABLE>
<CAPTION>
PREDECESSOR | SUCCESSOR
---------------------------------------------------- | -----------------------
PERIOD FROM | PERIOD FROM
YEAR ENDED JULY 1, 1999 TO | APRIL 15, 2000 TO
JUNE 30, 1999 APRIL 14, 2000 | JUNE 30, 2000
---------------------- ------------------------ | ------------------------
EFFECTIVE RATE 0% 0% | 0%
------------ ------------ | -------------
<S> <C> <C> <C> <C> | <C> <C>
United States Federal tax at statutory rate $(1,041,090) 34.0% $(1,703,042) 34.0% | $(33,955,585) 34.0%
|
State taxes (net of Federal benefit) (150,431) 4.9% (214,469) 4.3% | (91,317) 0.1%
Change in valuation reserves 1,219,538 1.2% 1,913,377 -38.2% | 763,351 -0.8%
Asset impairment -- 0.0% -- 0.0% | 31,801,589 -31.8%
Nonductible goodwill amortization -- 0.0% -- 0.0% | 1,481,118 -1.5%
Research and development credit (35,841) -39.8% -- 0.0% | -- 0.0%
Other 7,824 -0.3% 4,134 -0.1% | 844 0.0%
----------- ---- ----------- ---- | ------------ ----
|
Provision for income taxes $ -- 0.0% $ -- 0.0% | $ -- 0.0%
=========== ==== =========== ==== | ============ ====
</TABLE>
9. MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
During the period from July 1, 1999 to April 14, 2000, the Company's
Articles of Incorporation were amended to authorize 9,000,000 shares of
common stock with a par value of $.001 and 5,537,634 shares of preferred
stock. The authorized preferred stock includes 1,537,634 shares which have
been designated as Series A Mandatorily Redeemable Preferred Stock
("Series A") and 4,000,000 shares which have been designated Series B
Mandatorily Redeemable Preferred Stock ("Series B").
During the years ended June 30, 1998 and 1999, the Company sold 741,935
and 716,846 shares, respectively, of Series A at $2.79 per share.
Proceeds, net of issuance costs of $45,194 and $44,058, respectively,
totaled $2,025,961 and $1,954,806, respectively. Associated with the
fiscal year 1999 sale, the Company granted 21,505 shares of Series A to
the broker used by the Company and 57,348 shares of Series A to an
existing shareholder. The value of these shares were treated as a cost of
raising capital.
During the period from July 1, 1999 to April 14, 2000, the Company sold
1,362,005 shares of Series B at $2.79 per share. Proceeds, net of issuance
costs of $64,755, totaled $3,735,935. In conjunction with this sale, the
Company issued 13,743 shares of common stock and 3,595 shares of Series B
to existing shareholders. The value of these additional shares were
treated as a cost of raising capital. In addition, from June 1999 to
November 1999, the Company entered into Convertible Promissory Note
Agreements (the "Notes") with certain shareholders from which the Company
received $1,182,715. These notes converted into 423,912 shares of Series B
in November 1999.
The following is a summary of the rights, preferences and terms of the
Company's outstanding series of common and preferred stock:
F-15
<PAGE> 20
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Redemption
The Company could be required to redeem the Series A and Series B shares
from the holders of Series A and Series B (the "Holders") upon receipt of
written request from Holders of shares representing at least 40% of the
aggregate number of shares of common stock issuable upon conversion.
Redemption may first be made by the Holders on October 31, 2005.
Redemption is limited to 50% of the shares outstanding on October 31, 2005
with the remaining shares redeemable one year from that date. The
redemption price is equal to $2.79 per share, plus any accrued and unpaid
dividends. The carrying value of the Company's mandatorily redeemable
preferred stock is being accreted to its redemption price over the
redemption period using the effective interest rate method.
Liquidity
In the event of any liquidation, the holders of Series A and Series B
shall be entitled to receive a cash payment per share equal to the greater
of (i) the sum of the amount originally paid by the shareholder and all
accrued but unpaid dividends and (ii) such amount as would have been
payable had such shares been converted to common stock.
Carrying Value
The preferred shares were initially recorded at the total net proceeds
received by the Company upon issuance. The difference between the total
net proceeds at issuance and the total redemption price is charged to
stockholders' equity (deficit) over the period from issuance until
redemption first becomes available using the effective interest rate
method. For the year ended June 30, 1999 and the period from July 1, 1999
to April 14, 2000, accretion charges totaled $608,553 and $357,144,
respectively. Accretion ceased at April 14, 2000 as the preferred
shareholders redeemed the Series A or Series B shares for PDI stock.
Conversion
Each share of Series A and Series B can be converted to common stock at
the option of the holder at a one for one conversion rate, subject to
adjustment for stock. Each share of preferred stock will be automatically
converted into shares of common stock upon closing of an underwritten
public offering in which net proceeds to the Company exceed $15 million
and the per share price is not less than $13.95.
Dividends
Holders of Series A and Series B are entitled to receive, when and as
declared by the Board of Directors, cumulative dividends at the rate of
seven percent of the original purchase price per annum on each outstanding
share of preferred stock. No such dividends have been declared as of April
14, 2000.
Voting
Each holders of outstanding shares of preferred stock is entitled to the
number of votes equal to the number of whole shares of common stock into
which the shares are convertible.
Mandatorily Redeemable Preferred Stock Issued by PDI
On April 14, 2000, preferred stockholders of the Company received shares
of PDI Series B Mandatorily Redeemable Preferred Stock ("PDI Series B") in
exchange for their existing shares of Series A and B. PDI has authorized
1,500,000 shares of PDI Series B. Holders of PDI Series B have the right
to receive cumulative dividends when and if declared by the PDI board of
directors in an amount not to exceed $0.45 per share in any fiscal year.
In the event of liquidation, dissolution or winding up of PDI, holders of
PDI Series B have the right to receive an amount in cash equal to $9.00
per share, adjusted for stock splits, stock dividends and
recapitalizations, plus any accrued and unpaid dividends. Each PDI Series
B share will automatically convert to three shares of PDI common stock
based on provisions set forth in the acquisition agreement between the
Company and PDI. Holders of PDI Series B shall have one vote for each
share of common stock into which their PDI Series B shares are
convertible. If a liquidating event shall not have occurred prior to
January 30, 2004, the Corporation shall, at the request of the holders of
the PDI Series B, redeem the outstanding shares of the
F-16
<PAGE> 21
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
PDI Series B for a redemption price, payable in cash, equal to the greater
of (i) $9.00 per share plus any accrued and unpaid dividends or (ii) the
appraised fair market value of such shares.
10. COMMON STOCK OPTIONS
On February 15, 1997, the shareholders approved the ProMedex Inc. 1997
Stock Plan (the "Plan"). On March 14, 2000, the Plan was amended to
provide for the grant of up to 1,550,000 common stock options to
employees. The Plan generally provides for a four to five year vesting
requirement with a portion of the option vesting after the first six
months and on a pro-rata monthly basis thereafter.
A summary of incentive stock options awarded to employees during the year
ended June 30, 1999 and the period from July 1, 1999 to April 14, 2000
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
NUMBER OF EXERCISE PRICE
OPTIONS PRICE RANGE
-------------- -------------- --------------
<S> <C> <C> <C>
Outstanding at June 30, 1998 280,000 $ 0.30 $ 0.30
Granted at fair value 367,000 0.81 0.30 - 1.80
Exercised (20,141) 0.30 0.30
Forfeited (54,859) 0.50 0.30 - 1.75
-------------- -------------- --------------
Outstanding at June 30, 1999 572,000 0.61 0.30 - 1.80
Granted at fair value 842,500 6.05 1.80 - 9.75
Exercised (1,750) 1.00 1.00
Forfeited (150,709) 0.73 0.30 - 1.80
Conversion to stock options to
purchase shares of PDI stock (1,262,041) 4.22 0.30 - 9.75
-------------- -------------- --------------
Outstanding at April 14, 2000 -- $ -- $ --
============== ============== ==============
</TABLE>
The weighted average fair value of stock options at date of grant during
the year ended June 30, 1999 and the period from July 1, 1999 to April 14,
2000 was $0.17 and $0.22, respectively. The fair value of each option
grant was estimated on the date of grant using the minimum value method
based upon the following assumptions: dividend yield - 0%; risk free
interest rate - 6%; and weighted average expected option term - 5 years.
At June 30, 1999, 160,052 options were exercisable.
Had compensation expense for the Company's plan been recorded based upon
the fair value of the options at the grant date, as prescribed by SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net loss
available to common stockholders for the year ended June 30, 1999 and the
period from July 1, 1999 to April 14, 2000 would have been $3,686,795 and
$5,488,292, respectively.
F-17
<PAGE> 22
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Due to the conversion of the Company's stock options into options to
purchase common stock of PDI on April 14, 2000, the pro-forma impact on
1999 and 2000 is not representative of the pro-forma effects on reported
net income or loss in future years.
11. COMMON STOCK WARRANTS
During the year ended June 30, 1999, the Company granted a warrant to
purchase up to 250,279 shares of common stock at $2.79 per share. This
warrant had a ten year life, was exercisable immediately and was granted
in exchange for a release of funds associated with the second tranche of
the Series A sales in fiscal year 1998. The value of this warrant was
considered to be de minimus using an option valuation model. This warrant
was exercised during the year ended June 30, 1999 resulting in proceeds to
the Company of $698,279.
During the period from July 1, 2000 to April 14, 2000, the Company granted
warrants to purchase 100,000 shares of common stock to certain Series B
shareholders. The warrants have an exercise price of $2.79 and are
exercisable immediately. These warrants were valued at approximately
$110,000 using an option valuation model. These warrants converted into
warrants to purchase PDI Series B preferred stock on April 14, 2000.
12. RELATED PARTY TRANSACTIONS
At June 30, 1999 and 2000, the Company had a non-interest bearing note
payable to the founder and major stockholder for $1,365 and $3,565,
respectively. The note is due at the discretion of the Company.
At June 30, 1999 the Company had a note payable to a manditorily
redeemable Series A preferred stockholder for $102,500. From July 1999 to
November 1999, the Company raised an additional $1,080,215 from existing
shareholders. These notes converted into 423,912 of Series B manditorily
redeemable preferred stock in November 1999.
Subsequent to April 14, 2000, PDI provided funding for the Company's
operations. At June 30, 2000, the Company owed $1,869,917 to PDI in the
form of an intercompany payable.
13. SUBSEQUENT EVENTS
PMX, an existing PDI preferred stockholder and former ProMedex preferred
stockholder, purchased all of the assets and assumed certain liabilities,
excluding the intercompany payable to PDI, of the Company on October 18,
2000. PMX paid $325,000 in cash and issued 10% of its outstanding stock to
PDI.
On October 27, 2000, Landacorp purchased all of the assets and assumed
certain liabilities of the Company from PMX. The purchase price totaled
$1,100,000, payable in 250,000 shares of Landacorp Inc. common stock
(valued at $515,625 on October 27, 2000) and $584,375 in cash.
F-18
<PAGE> 23
PROMEDEX INC.
BALANCE SHEET
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------
ASSETS (unaudited)
<S> <C>
Current assets:
Cash and cash equivalents $ 45,524
Accounts receivable, net 860,799
Inventory, net 466,951
Prepaid expenses 150,316
-------------
Total current assets 1,523,590
Furniture and equipment, net 1,016,381
Deposits and other assets 116,398
-------------
Total assets $ 2,656,369
=============
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,381,413
Accrued expenses 193,675
Intercompany payable to parent 2,195,752
Line of credit 623,284
Notes payable to stockholders 6,965
Deferred revenues 2,040,669
-------------
Total current liabilities 6,441,758
Mandatorily redeemable preferred stock issued by PDI 29,230,471
Stockholders' deficit:
Common stock, $.001 par value; 9,000,000 shares authorized;
0 shares issued and outstanding --
Investment from PDI 74,904,554
Additional paid-in capital --
Accumulated deficit (107,920,414)
-------------
Total stockholders' deficit (33,015,860)
-------------
Total liabilities, mandatorily redeemable preferred stock
and stockholders' deficit $ 2,656,369
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 24
PROMEDEX INC.
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues $ 480,640 $ 995,992
Cost of revenues 305,859 339,917
------------ ------------
Gross profit 174,781 656,075
------------ ------------
Operating expenses:
Sales and marketing 347,819 389,322
General and administrative 794,605 1,047,206
Research and development 347,282 587,999
------------ ------------
Operating expenses 1,489,706 2,024,527
------------ ------------
Operating loss (1,314,925) (1,368,452)
Interest income (expense), net (12,998) (23,385)
------------ ------------
Net loss (1,327,923) (1,391,837)
Accretion of mandatorily redeemable preferred stock (77,752) --
------------ ------------
Net loss available to common stockholders $ (1,405,675) $ (1,391,837)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 25
PROMEDEX INC.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- -------------
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,327,923) $ (1,391,837)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 40,867 130,459
Provision for doubtful accounts 11,732 5,211
Changes in assets and liabilities:
Accounts receivable 34,875 379,225
Other assets 30,789 (213,075)
Accounts payable 32,300 (190,008)
Deferred revenues (17,668) 801,451
------------- -------------
Net cash used in operating activities (1,195,028) (478,574)
------------- -------------
Cash flows from financing activities:
Purchases of furniture and equipment (1,243) (28,967)
------------- -------------
Net cash used in investing activities (1,243) (28,967)
------------- -------------
Cash flows from financing activities:
Proceeds from notes payable to stockholders -- 3,400
Borrowings from PDI -- 325,835
Payments under line of credit -- (76,716)
Proceeds from convertible note 1,065,230 --
------------- -------------
Net cash provided by financing activities 1,065,230 252,519
------------- -------------
Net decrease in cash and cash equivalents (131,041) (255,022)
Cash and cash equivalents:
Beginning of period 243,731 300,546
------------- -------------
End of period $ 112,690 $ 45,524
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 26
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of ProMedex Inc. (the
"Company") have been prepared in accordance with generally accepted
accounting principles and applicable Securities and Exchange Commission
regulations for interim financial information. These financial statements
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. It is
presumed that users of this interim financial information have read or
have access to the audited financial statements for the preceding fiscal
year which is included elsewhere herein. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for fair presentation have been included. Operating results for
the interim periods presented are not necessarily indicative of the
results that may be expected for the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
"derivatives"), and for hedging activities. SFAS No. 133, as amended by
SFAS No. 137 and 138, is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000, with earlier application encouraged.
The Company does not currently, nor does it intend in the future, to use
derivative instruments and therefore does not expect that the adoption of
SFAS No. 133 will have any impact on its financial position or the results
of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. In June 2000, the SEC issued SAB 101B to defer
the effective date of implementation of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999
with earlier application encouraged. The Company will implement SAB
101 during fiscal 2001 and does not expect the implementation to have a
material impact on the Company's results of operations.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation -- an
Interpretation of APB 25." This Interpretation clarifies (a) the
definition of employee for purposes of applying Opinion 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequence of various modifications to the terms
of a previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000; the Company will adopt the provisions of FIN 44 in
fiscal 2001 and does not expect the implementation to have a material
impact on the Company's results of operations.
F-22
<PAGE> 27
PROMEDEX INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
3. INVENTORY
Inventory consists of the following at September 30, 2000:
<TABLE>
<CAPTION>
<S> <C>
Finished goods $ 13,343
Raw materials 483,608
---------
Less: inventory reserve (30,000)
---------
Total inventory, net $ 466,951
=========
</TABLE>
4. SUBSEQUENT EVENTS
On October 18, 2000, PMX Holdings, Inc. ("PMX"), an existing PDI preferred
stockholder and former ProMedex preferred stockholder, purchased all of
the assets and assumed certain liabilities, excluding the intercompany
payable to PDI, of the Company. PMX paid $325,000 in cash and issued 10%
of its outstanding stock to PDI.
On October 27, 2000, Landacorp Acquisition Subsidiary ("Landacorp"), a
wholly-owned subsidiary of Landacorp, Inc., purchased all of the assets
and assumed certain liabilities of the Company from PMX. The purchase
price paid to PMX totaled $1,100,000, which consisted of 250,000 shares of
Landacorp, Inc. common stock (valued at $515,625 on October 27, 2000) and
$584,375 in cash.
F-23
<PAGE> 28
PATIENTCENTRIX, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
F-24
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of PatientCentrix, Inc.
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 PatientCentrix, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash flows
of the years then ended in conformity with accounting principles generally
accepted in the United States of America. 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 auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
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 our opinion.
/s/ PricewaterhouseCoopers LLP
September 29, 2000
Florham Park, New Jersey
F-25
<PAGE> 30
PATIENTCENTRIX, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 228,697 $ 61,863
Accounts receivable 1,463,702 368,066
Loan to related party 40,000 --
---------- ----------
Total current assets 1,732,399 429,929
Property and equipment, net 216,030 81,881
Capitalized software, net 77,319 --
Other assets 3,894 3,894
---------- ----------
Total assets $2,029,642 $ 515,704
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 81,700 $ 29,667
Accrued expenses 71,910 92,892
Deferred revenue 129,867 --
Current portion of capital lease obligations 26,845 19,433
Deferred income taxes 26,786 --
Note payable to bank 100,000 --
---------- ----------
Total current liabilities 437,108 141,992
---------- ----------
Capital lease obligations, net of current portion 48,058 15,149
---------- ----------
Commitments (Note 9)
Stockholders' equity:
Common stock, $0.01 par value; 3,000,000 shares authorized;
1,000,000 shares issued and outstanding at
December 31, 1999 and 1998 1 1
Additional paid-in capital 999 999
Retained earnings 1,543,476 357,563
---------- ----------
Total stockholders' equity 1,544,476 358,563
---------- ----------
Total liabilities and stockholders' equity $2,029,642 $ 515,704
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 31
PATIENTCENTRIX, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenue:
Services and software licenses $ 3,097,922 $ 1,551,583
----------- -----------
Costs and expenses:
Cost of services and software licenses 1,170,054 732,608
Research and development 155,287 93,740
Selling and marketing 88,991 91,157
General and administrative 247,284 276,444
----------- -----------
1,661,616 1,193,949
----------- -----------
Income from operations 1,436,306 357,634
Other income (expense):
Interest expense (27,389) (19,396)
Interest income 5,609 2,964
----------- -----------
Income before income taxes 1,414,526 341,202
Provision for income taxes 35,363 8,951
----------- -----------
Net income $ 1,379,163 $ 332,251
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 32
PATIENTCENTRIX, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,000,000 $ 1 $ 999 $ 370,312 $ 371,312
Net income -- -- -- 332,251 332,251
Distributions -- -- -- (345,000) (345,000)
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 1,000,000 1 999 357,563 358,563
Net income -- -- -- 1,379,163 1,379,163
Distributions -- -- -- (193,250) (193,250)
--------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 1,000,000 $ 1 $ 999 $ 1,543,476 $ 1,544,476
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 33
PATIENTCENTRIX, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,379,163 $ 332,251
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 116,515 58,956
Deferred income tax provision 26,786 --
Changes in assets and liabilities:
(Increase) decrease accounts receivable (1,095,636) 31,634
Increase in accounts payable 52,033 23,952
(Decrease) increase in accrued expenses (20,982) 46,361
Increase (decrease) in deferred revenue 129,867 (50,000)
----------- -----------
Net cash provided by operating activities 587,746 443,154
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (136,070) (39,954)
Capitalized software expenditures (126,688) --
Loan to related party (40,000) --
----------- -----------
Net cash (used in) investing activities (302,758) (39,954)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 100,000 --
Principal payments on capital lease obligations (24,904) (18,736)
Distributions to owners (193,250) (345,000)
----------- -----------
Net cash (used in) financing activities (118,154) (363,736)
----------- -----------
Net increase in cash and cash equivalents 166,834 39,464
Cash and cash equivalents, beginning of period 61,863 22,399
----------- -----------
Cash and cash equivalents, end of period $ 228,697 $ 61,863
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest 8,541 6,325
Cash paid for income taxes 17,192 3,360
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of property and equipment under capital lease 65,225 19,176
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 34
PATIENTCENTRIX, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. NATURE OF THE BUSINESS
PatientCentrix, Inc., formerly Capitated Disease Management Services,
Inc., (the "Company") was incorporated as a Delaware corporation in 1994
for the purpose of providing services and systems to pharmaceutical and
managed healthcare organizations. The Company maintains its offices in
Montclair, New Jersey and derives all of its revenues from customers in
the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenue is derived from the implementation and licensing of
its healthcare management systems and data management, customer support
and consulting services.
Revenue from data management, customer support and consulting services is
recognized as services are delivered.
The Company accounts for multiple element contracts in accordance with the
provisions of the AICPA's Statement of Position ("SOP") 97-2. Revenues
associated with long-term contracts are recognized using the percentage of
completion method using labor hours incurred relative to total estimated
contract hours as the measure of progress towards completion.
Revenue from software licenses is recognized over the term of the license
agreement upon execution of a contract and completion of delivery
obligations, provided no uncertainties regarding customer acceptance exist
and collection of the related receivable is probable.
Revenue related to contingent fee arrangements are recognized when the
related milestone(s) are achieved and there is no chance of loss under the
contract.
COSTS AND EXPENSES
Certain of the Company's employees and consultants are responsible for and
are involved in multiple operational functions. As such, the employees'
salary and consultants' costs are allocated between its Cost of Services,
Reseach and Development, Sales and Marketing and General and
Administrative expense categories of "Costs and expenses" in the
accompanying Statement of Operations. The cost charged to such expense
categories is based on the relative time incurred by each employee or
consultant for their specific responsibilities.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of the Company's products
are expensed as incurred, except for certain software development costs.
Costs associated with the development of computer software are expensed
prior to establishment of technological feasibility and capitalized
thereafter until the product is available for general release to
customers. Capitalized costs are amortized on a product-by-product basis
based on the greater amount computed using (a) the ratio that current
gross revenues for a product bear to the total of current and anticipated
future gross revenues for that product, or (b) straight-line amortization
over the estimated product life. Software development costs capitalized
during the year ended December 31, 1999 amounted to $126,688. No software
development costs were capitalized during the year ended December 31,
1998. Capitalized software amortization expense amounted to $49,369 for
the year ended December 31, 1999.
F-30
<PAGE> 35
PATIENTCENTRIX, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
ACCOUNTING FOR STOCK-BASED COMPENSATION
Employee stock awards under the Company's compensation plans are accounted
for in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations. The Company provides the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") and related interpretations.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. To minimize risk, ongoing credit evaluations of customers'
financial condition are performed, although collateral generally is not
required. At December 31, 1999 and 1998, two customers accounted for 97%
and 92% of the Company's accounts receivable balance, respectively. For
the years ended December 31, 1999 and 1998, two customers accounted for
86% and 61% of the Company's total revenue, respectively.
RISK AND UNCERTAINTIES
The Company is subject to all of the risks inherent in a business in the
technology/software data management industries. These risks include, but
are not limited to, limited senior management resources, a rapidly
changing software and e-commerce business environment, the competitive
nature of the industry, dependence on skilled resources and the on-going
evolution, development and maintenance of data management technologies.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original or
remaining maturity of three months or less at the date of purchase to be
cash equivalents. Cash equivalents consist primarily of money market
instruments.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. Upon retirement or
sale, the cost of assets disposed of and the related accumulated
depreciation is removed from the accounts and any resulting gain or loss
is credited or charged to income. Repairs and maintenance costs are
expensed as incurred.
INCOME TAXES
The Company recognizes deferred taxes for differences between the
financial statement and the tax basis of assets and liabilities
("temporary differences") at enacted statutory tax rates in effect for the
year in which the differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company has elected for federal and state tax purposes to be treated
as an S Corporation. As a result, the stockholders of the Company are
liable for taxes on the related income. The Company remains liable for
taxes in a locality which does not recognize S Corporation status, certain
taxes imposed by states related to corporate tax rates in excess of
personal tax rates, and other minimum taxes.
F-31
<PAGE> 36
PATIENTCENTRIX, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
USE OF 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 and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. In June 2000, the SEC issued SAB 101B to defer
the effective date of implementation of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999
with earlier application encouraged. The Company is currently assessing
the impact, if any, of the adoption of SAB 101 on the Company's financial
position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of APB 25. This Interpretation clarifies (a) the definition
of employee for purposes of applying Opinion 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination.
FIN 44 is effective July 1, 2000, however certain conclusions in this
Interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent that this Interpretation covers
events occurring during the period after December 15, 1998, or January 12,
2000, but before the effective date of July 1, 2000, the effects of
applying this Interpretation are recognized on a prospective basis from
July 1, 2000. The Company is currently assessing the impact, if any, of
adopting this interpretation.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging
activities, and is effective for fiscal years beginning after June 15,
2000, as amended by SFAS No. 137. The Company is currently assessing the
impact, if any, of the adoption of SFAS 133 on the Company's financial
position or results of operations.
F-32
<PAGE> 37
PATIENTCENTRIX, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT
Property and equipment, net as of December 31, 1999 and 1998 consisted of
the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31,
(YEARS) 1999 1998
<S> <C> <C> <C>
Computer and office equipment 3 $ 385,746 $192,744
Furniture and fixtures 10 19,496 11,203
--------- --------
405,242 203,947
Less -accumulated depreciation and amortization (189,212) (122,066)
--------- --------
$ 216,030 $ 81,881
========= ========
</TABLE>
At December 31, 1999 and 1998, property and equipment recorded under
capital leases was $133,304 and $68,079, respectively. Amortization of
property and equipment under capital leases totaled $26,459 and $19,395
for the years ended December 31, 1999 and 1998, respectively.
Depreciation and amortization expense for the years end December 31, 1999
and 1998 was $67,146 and $58,956, respectively.
4. RELATED PARTY TRANSACTIONS
The Company leases office space from a shareholder. Total expense related
to this leased office space for the years ended December 31, 1999 and 1998
was $44,400 and $34,000, respectively. At October 8, 1999, the Company
entered into an agreement with 51 Park Street LLC, an entity owned by a
shareholder, whereby the Company guaranteed the mortgage loan in the
amount of $400,000 related to the Company's principal office.
The Company leases certain computer equipment from a shareholder and a key
employee under capital leases. Lease arrangements provide for full
financing of the cost of the equipment, interest rates ranging between 16%
and 18% per annum, and a term of three years. Total payments under capital
lease arrangements with related parties for the years ended December 31,
1999 and 1998 were $29,256 and $16,875, respectively.
During the years ended December 31, 1999 and 1998, the Company paid
graphic design and shipping expenses amounting to $49,225 and $66,308,
respectively, to a company operated by the spouse of a shareholder.
F-33
<PAGE> 38
PATIENTCENTRIX, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
During the years ended December 31, 1999 and 1998, the Company paid
consulting fees of $16,983 and $23,190, respectively, to PharmaMetrics, a
company affiliated through common ownership. For the years ended December
31, 1999 and 1998, the Company recognized service revenues of $89,297 and
$87,685, respectively, related to services provided to PharmaMetrics.
On December 24, 1999, the Company made an interest-free loan to
PharmaMetrics in the amount of $40,000. This loan was fully repaid on
February 14, 2000.
5. LINE OF CREDIT
On September 14, 1999, the Company entered into an agreement with a bank
which provides for a $200,000 revolving line of credit (the "Line") for
working capital purposes. Borrowings under the Line are collateralized by
substantially all of the assets of the Company. The Line bears interest at
the bank's prime rate (9.25% at December 31, 1999). At December 31, 1999,
$100,000 was outstanding under the Line. All borrowings under the
agreement were repaid as of April 8, 2000. The commitments made under the
Line are automatically extended annually for successive one-year periods
unless the Company terminates the Line.
6. COMMON STOCK
Each share of common stock is entitled to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors.
7. STOCK OPTION PLAN
In 1998, the Company adopted the Stock Compensation Plan (the "Plan")
under which 1,000,000 shares of the Company's common stock were reserved
for issuance to employees, directors and consultants. Options granted
under the Plan may be incentive stock options or non-qualified stock
options. Stock purchase rights may also be granted under the Plan.
Incentive stock options may only be granted to employees. Generally,
options shall vest at a rate of 10% per year over the first four years and
the remaining 60% five years from the date the options are granted. The
exercise prices of the options are based on the estimated fair market
value at the time of grant. The term of the options is 10 years. The Plan
originally included both a repurchase provision and a cash-out provision
(both as defined in the "Plan"). In August 2000, the Plan was amended and
restated and these provisions were eliminated.
The Company applies APB 25 and related interpretations in accounting for
employee and director options granted under the Plan. The stock option
granted under the Plan were subject to variable plan accounting under APB
No. 25. Subsequent to the amendment and restatement in August 2000, fixed
plan accounting will apply. No stock-based awards were granted prior to
1998. Had compensation cost been determined based on the fair value at the
grant dates for awards in 1999 and 1998 consistent with the provisions of
SFAS No. 123, the Company's net income would have been $1,347,537 and
$330,906, respectively. Because options vest over several years and
additional option grants are expected to be made in the future, the above
pro forma results are not representative of the pro forma results for
future years.
F-34
<PAGE> 39
PATIENTCENTRIX, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
For purposes of pro forma disclosure, the fair value of each option grant
was estimated on the date of grant using the minimum value method with the
following assumptions for grants in 1999 and 1998: no dividend yield;
risk-free interest rates of 6.1% for 1999 and 5.8% for 1998; expected
lives of 5 years and expected volatility of zero.
The following table summarizes the activity of the Company's stock option
plan:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
<S> <C> <C> <C> <C>
Outstanding - beginning of period -- -- 125,000 $ 1.71
Granted at fair value 125,000 $ 1.71 430,000 2.88
Exercised -- --
Cancelled -- --
------- ----------
Outstanding - end of period 125,000 $ 1.71 555,000 2.62
------- ----------
Exercisable at end of period -- 12,500
Weighted average grant date fair value $ 1.71
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------- -----------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$1.71 125,000 9.0 $ 1.71 12,500 $ 1.71
2.88 430,000 10.0 2.88 -- --
------------------ --------------- --------------
555,000 9.8 2.62 12,500 1.71
------------------ ---------------
</TABLE>
8. SAVINGS PLAN
During 1996, the Company established a defined contribution savings plan
under Section 401(k) of the Internal Revenue Code. This plan covers
substantially all employees who meet minimum age and service requirements.
Company contributions to the plan may be made at the discretion of the
Board of Directors. Company contributions to the plan were $126,287 and
$77,588 respectively, for the years ended December 31, 1999 and 1998.
9. COMMITMENTS
The Company leases its office space under operating leases and certain
office equipment under noncancelable leases. Total rent expense under
operating leases was approximately $42,000 and $40,000 for the years ended
December 31, 1999 and 1998, respectively.
F-35
<PAGE> 40
PATIENTCENTRIX, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Future minimum lease payments under capital leases and noncancelable
operating leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
xx OPERATING CAPITAL
Year ending December 31, LEASES LEASES
<S> <C> <C>
2000 $ 60,000 $ 38,131
2001 60,000 28,270
2002 60,000 15,383
2003 60,000 7,555
2004 45,000 6,164
--------- --------
$ 285,000 95,503
=========
Less: portion representing interest (20,600)
--------
$ 74,903
========
</TABLE>
The Company has employment contracts with certain employees which provide
for certain advanced payments in the event of a change in control.
10. SUBSEQUENT EVENTS
Effective January 21, 2000, the Company declared a 10:1 stock split (the
"10:1 Stock Split"). Effective August 3, 2000, the Company declared a
1000:1 stock split (the "1000:1 Stock Split"). All share and per share
amounts presented in these financial statements reflect these stock
splits.
Subsequent to December 31, 1999, the Company issued incentive stock
options to employees to purchase 500,000 shares of common stock and a
stock grant of 40,000 shares of common stock, after taking into account
the 10:1 Stock Split and 1000:1 Stock Split.
In May 2000, the Company's relationship with a significant pharmaceutical
customer ended. For the years ended, December 31, 1999 and 1998, this
customer accounted for approximately 51% and 61% of revenues,
respectively. At December 31, 1999 and 1998, this customer accounted for
approximately 40% and 92%, respectively, of the Company's accounts
receivable.
F-36
<PAGE> 41
PATIENTCENTRIX, INC.
BALANCE SHEET
SEPTEMBER 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 638,736
Accounts receivable 2,258,087
----------
Total current assets 2,896,823
----------
Property and equipment, net 226,039
Capitalized software, net 176,321
Other assets 3,894
----------
Total assets $3,303,077
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 303,654
Accrued expenses 694,637
Deferred Revenue 54,000
Current Portion of capital lease obligations 23,196
Deferred Income Taxes 41,000
----------
Total current liabilities 1,116,487
----------
Capital lease obligations, net of current portion 29,336
----------
Stockholders' equity:
Common stock, $0.01 par value; 3,000,000 shares authorized;
1,040,000 shares issued and outstanding 1
Additional paid in capital 479,921
Retained Earnings 1,677,332
----------
Total stockholders' equity 2,157,254
----------
Total liabilities and stockholders' equity $3,303,077
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 42
PATIENTCENTRIX, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
Revenue:
Services and software licenses $ 1,774,926 $ 4,599,701
----------- -----------
Costs and expenses:
Cost of services and software licenses 693,620 2,144,832
Research and development 119,899 470,385
Selling and marketing 45,942 424,408
General and administrative 261,088 644,568
----------- -----------
1,120,549 3,684,193
----------- -----------
Income from operations 654,377 915,508
----------- -----------
Other income (expense)
Interest expense (5,631) (8,309)
Interest income, net 3,083 23,724
----------- -----------
Income before income taxes 651,829 930,923
Provision for income taxes 35,253 33,067
----------- -----------
Net income $ 616,576 $ 897,856
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 43
PATIENTCENTRIX, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 616,576 $ 897,856
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 44,929 174,513
Deferred income tax provision 20,090 14,214
Stock issued for services rendered -- 200,000
Stock-based compensation expense -- 278,922
Changes in assets and liabilities:
Accounts receivable (391,359) (794,385)
Accounts payable 57,498 221,954
Accrued expenses 137,138 622,727
Deferred revenue 42,395 (75,867)
--------- -----------
Net cash provided by operating activities 527,267 1,539,934
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (52,036) (89,524)
Capitalized software expenditure -- (194,000)
Loan made to related party (7,000) 40,000
--------- -----------
Net cash used in investing activities (59,036) (243,524)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit -- (100,000)
Principal payments on capital lease obligations (18,347) (22,371)
Distributions to owners (193,250) (764,000)
--------- -----------
Net cash used in financing activities (211,597) (886,371)
--------- -----------
Net increase in cash and cash equivalents 256,634 410,039
Cash and cash equivalents, beginning of period 61,863 228,697
--------- -----------
Cash and cash equivalents, end of period $ 318,497 $ 638,736
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 5,631 $ 8,309
Cash paid for taxes $ 14,626 $ 5,914
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 44
PATIENTCENTRIX, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim unaudited financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
and in accordance with generally accepted accounting principles. Accordingly,
certain information and footnote disclosures normally included in annual
financial statements have been omitted or condensed. In the opinion of
management, all necessary adjustments have been made to provide a fair
presentation. The operating results for the nine months ended September 30, 1999
and 2000 are not necessarily indicative of the results that may be expected for
the years ending December 31, 1999 and 2000. For further information, refer to
the audited financial statements and footnotes included elsewhere herein.
2. STOCK GRANT AND STOCK OPTIONS
In February 2000, the Company issued a fully vested stock grant of 40,000 shares
of common stock to an employee. The Company recognized stock-based compensation
expense of $200,000 related to this grant based on the estimated fair market
value of the stock on the date of grant.
The Company applies APB 25 and related interpretations in accounting for
employee and director options granted under the Company's Compensation Plan
(Plan). Stock options granted under the Plan were subject to variable plan
accounting under APB No. 25. Subsequent to the Company's amendment and
restatement of the Plan in August 2000 fixed plan accounting will apply. During
the nine months ended September 30, 2000, the Company recorded stock based
compensation expense of approximately $279,000. See below for subsequent events
discussion.
3. ACCRUED EXPENSES
Accrued expenses at September 30, 2000 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Bonus $405,292
Retirement plan 89,193
Deferred compensation 175,152
Severance 25,000
--------
Total accrued expenses $694,637
========
</TABLE>
4. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC issued SAB 101B to defer the effective date of
implementation of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999 with earlier application
encouraged. The Company is currently assessing the impact, if any, of the
adoption of SAB 101 on the Company's financial position or results of
operations.
F-40
<PAGE> 45
PATIENTCENTRIX, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(UNAUDITED)
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities, and is effective for fiscal
years beginning after June 15, 2000, as amended by SFAS No. 137. The Company is
currently assessing the impact, if any, of the adoption of SFAS 133 on the
Company's financial position or results of operations.
5. SUBSEQUENT EVENTS
On November 2, 2000, Landacorp Acquisition Subsidiary ("Landacorp"), a
wholly-owned subsidiary of Landacorp Inc., purchased 100% of the outstanding
common stock of the Company in return for cash of $5,850,000 paid to the
Company's shareholders and option holders, and the issuance of 1,157,000 shares
of Landacorp's common stock. Landacorp also assumed all the outstanding stock
options issues by the Company prior to the acquisition. The purchase agreement
also provides for additional purchase price payments based on revenue during the
twelve months following the acquisition date. This additional purchase
consideration is capped at $6,000,000. Landacorp has the right to repurchase,
over a three-year period, 30% of the total shares and options issued to
employees of the Company in conjunction with the acquisition in the event of
an employee's termination.
On October 30, 2000, the Board of Directors of the Company increased the number
of shares reserved for the Company's 1998 Stock Compensation Plan to 1,500,000.
Prior to the acquisition described above, there were 930,000 options (the
Existing Options) to purchase common stock of the Company outstanding that had
been granted between October 1, 1998 to September 1, 2000. The exercise prices
for the Existing Options ranged from $1.71 to $5.00 per share, representing the
estimated fair market value as of the date of the grant. In connection with the
sale of the Company and in exchange for certain employees forgoing certain
advance payments based on provisions of existing employment contracts, the
Company reduced the exercise price of the Existing Options on October 30, 2000
to ranges of $0.01 to $3.55 per share. The other terms and provisions of the
stock grants remained the same, including the provision which provided for the
acceleration of the vesting provisions in the event of a change in control. As a
consequence of and concurrent with the sale of the Company as described above,
all outstanding Existing Options became fully vested and exercisable.
On October 30, 2000, the Company issued stock options to purchase a total of
492,500 shares of common stock at an exercise price of $1.67 per share (the New
Options). The New Options included the same provisions as provided for under the
Company's 1998 Stock Compensation Plan under which the Existing Options had been
issued, except the ability to exercise the options was contingent upon the
consummation of the acquisition by Landacorp described above.
As a result of the repricing of the Existing Options and the acceleration of the
vesting provisions of both the Existing Options and New Options, the Company
recorded stock based compensation expense of approximately $4,689,000 in October
2000. The expense was determined by the difference between the revised option
prices of the Existing Options and the exercise price of the New Options and the
estimated fair market value of the Company's stock multiplied by the number of
options. In addition, on October 30, 2000 the Company paid $1,200,000 in cash
bonuses to the holders of Existing Options based on the proportion of their
options to the total Existing Options. This amount was recorded as compensation
expense in October 2000.
F-41
<PAGE> 46
LANDACORP, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
OVERVIEW
On January 31, 2000, the Company acquired the net assets of Interactive
Healthcare Division ("IHD") of High Technology Solutions, Inc. ("HTS"). The
acquisition was accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired on the basis of their respective fair values on the
acquisition date. The fair value of intangible assets was determined based upon
management's estimates and other available information.
Of the total purchase price of $1,268,000, the Company assumed
liabilities of $18,000 and paid $250,000 at closing, with the remaining balance
paid in April 2000. Of the purchase price of $1,250,000 plus $18,000 of assumed
liabilities, approximately $63,000 has been allocated to property and equipment,
and the remainder has been allocated to intangible assets, including
intellectual property ($165,000), work force ($160,000), and goodwill
($880,000). The acquired intangible assets will be amortized over their
estimated useful lives of twenty-four to thirty-six months.
On October 27, 2000, the Company acquired the net assets of PMX
Holdings, Inc. ("ProMedex"), which is principally engaged in the development,
commercialization and implementation of health care services aiming at reducing
health risks, improving clinical outcomes, and reducing health care utilization.
The acquisition is being accounted for using the purchase method of accounting
and accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired on the basis of their respective fair values on the
acquisition date. The fair value of intangible assets was determined based upon
management's estimates, preliminary valuations and other available information.
The total purchase price of $1,276,000 consisted of $585,000 cash,
$516,000 of the Company's common stock (250,000 shares), and other acquisition
related expenses of approximately $175,000, consisting primarily of payment for
legal and financial advisory services. Of the total purchase price,
approximately $1,590,000 represents assumed net tangible liabilities, and the
remainder of the purchase price was allocated to intangible assets, including
intellectual property ($100,000), work force ($200,000), and goodwill
($2,566,000).
On November 2, 2000, the Company acquired 100% of the outstanding
capital stock of PatientCentrix, Inc. ("PatientCentrix"), which provides systems
and services to pharmaceutical and managed healthcare organizations. The
acquisition is being accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired on the basis of their respective fair values on the
acquisition date. The fair value of intangible assets was determined based upon
management's estimates, preliminary valuations and other available information.
The total purchase price of $10,956,000 consisted of $5,850,000 cash,
$2,056,000 of the Company's Common Stock (1,157,000 shares - "PatientCentrix
Purchase Shares"), assumed stock options with a fair value of $2,970,000, and
other acquisition related expenses of approximately $80,000, consisting
primarily of payment for legal and financial advisory services. Of the total
purchase price, approximately $2,157,000 was allocated to the net tangible
assets, approximately $961,000 was allocated to unearned compensation related to
the Company's right to repurchase 30% of the shares of the Company's Common
Stock and options to purchase the Company's Common Stock issued to employees of
PatientCentrix pursuant to the purchase agreement in the event of such
employee's termination under certain circumstances, and the remainder was
allocated to intangible assets, including intellectual property ($88,000), work
force ($200,000), and goodwill ($7,550,000).
F-42
<PAGE> 47
LANDACORP, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
OVERVIEW
The purchase agreement also provides for additional purchase price
payments in the amount equal to a percentage of the value of certain qualifying
contracts, as defined in the agreement, capped at $6,000,000.
The acquired intangible assets are being amortized using the
straight-line method over their estimated useful lives of two to fifteen years.
Factors considered by the Company in determining estimated useful lives of the
intangible assets include, service life expectancies of the workforce based on
anticipated option vesting schedules and other compensation factors, effects of
obsolescence on intellectual property, and effects of competition and other
economic factors on goodwill.
The unaudited pro forma condensed combined balance sheet gives effect to
these acquisitions as if they had occurred on September 30, 2000, by combining
the balance sheet of the Company with the balance sheets of ProMedex and
PatientCentrix at September 30, 2000. The acquisition of IHD was consummated
prior to September 30, 2000; accordingly, the Landacorp unaudited historical
condensed combined balance sheet at September 30, 2000 includes the allocated
purchase price for this acquisition. The unaudited pro forma condensed combined
statement of operations gives effect to these acquisitions as if they had
occurred on January 1, 1999, by combining the results of operations of: (i) IHD
for the twelve months ended November 26, 1999, and the period from January 1,
2000 to January 30, 2000, with the results of operations of the Company for the
year ended December 31, 1999, and nine months ended September 30, 2000,
respectively, (ii) ProMedex (Predecessor) for the year ended December 31, 1999,
with the results of operations of the Company for the year ended December 31,
1999; (iii) ProMedex (Predecessor) for the period from January 1, 2000 to April
14, 2000, and ProMedex (Successor) for the period from April 15, 2000 to
September 30, 2000, with the results of operations of the Company for the nine
months ended September 30, 2000, and (iv) PatientCentrix for the year ended
December 31, 1999 and the nine months ended September 30, 2000, with the results
of operations of the Company for the year ended December 31, 1999, and nine
months ended September 30, 2000, respectively.
On April 14, 2000, prior to the Company's acquisition of ProMedex,
ProMedex was acquired by PDI Acquisition Corp. in a stock-for-stock transaction
accounted for as a purchase. The financial information for the period subsequent
to April 14, 2000 for ProMedex has been prepared on a basis of accounting
arising from the aforementioned acquisition.
The unaudited pro forma condensed combined statement of operations is
not necessarily indicative of the operating results that would have been
achieved had the transactions been in effect as of the beginning of the periods
presented and should not be construed as being representative of future
operating results. The pro forma adjustments are described in the accompanying
notes and are based upon available information and certain assumptions that the
Company believes are reasonable.
The unaudited pro forma condensed combined financial information is
based on: (a) the historical financial statements, as adjusted to reflect the
periods discussed above, of (i) IHD, included in Landacorp's Form S-1 filed with
the SEC on February 8, 2000, and other financial information not included in
this Form 8-K, (ii) ProMedex and PatientCentrix included elsewhere in this Form
8-K, and other financial information not included in this Form 8-K, (iii)
Landacorp, included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 and included in the Company's Form 10-Q for the
quarterly period ended September 30, 2000; and (b) the estimates and assumptions
set forth in the notes to the unaudited pro forma condensed consolidated
financial statements.
F-43
<PAGE> 48
LANDACORP, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
OVERVIEW
A preliminary allocation of the purchase price has been made to major
categories of assets and liabilities in the accompanying Pro Forma Financial
Information based on available information. The actual allocation of purchase
price and the resulting effect on income from operations may differ
significantly from the pro forma amounts included herein. These pro forma
adjustments represent the Company's preliminary determination, pending
completion of an independent valuation, of purchase accounting adjustments and
are based upon available information and certain assumptions that the Company
believes to be reasonable.
F-44
<PAGE> 49
LANDACORP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
(AMOUNTS ROUNDED TO THE NEAREST $1,000)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
----------------------------------------------
Successor
Landacorp PatientCentrix ProMedex
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,071,000 $ 639,000 $ 46,000
Accounts receivable and costs and estimated
earnings in excess of billings on uncompleted
contracts, net 4,084,000 2,258,000 861,000
Inventory -- -- 467,000
Prepaid expenses and other current assets 341,000 -- 150,000
------------ ----------- -------------
Total current assets 36,496,000 2,897,000 1,524,000
Property and equipment, net 1,456,000 226,000 1,016,000
Intangible assets 919,000 -- --
Capitalized software, net 49,000 176,000 --
Deposits and other assets 16,000 4,000 116,000
------------ ----------- -------------
$ 38,936,000 $ 3,303,000 $ 2,656,000
============ =========== =============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 367,000 $ 304,000 $ 1,381,000
Accrued expenses 2,094,000 695,000 194,000
Line of credit -- -- 623,000
Deferred revenue and billings in excess of costs
and estimated earnings on uncompleted contracts 2,677,000 54,000 2,041,000
Current portion of notes payable 259,000 23,000 7,000
Deferred income taxes -- 41,000 --
Intercompany payable -- -- 2,195,000
------------ ----------- -------------
Total current liabilities 5,397,000 1,117,000 6,441,000
Long-term note payable, net of current portion 146,000 29,000 --
------------ ----------- -------------
5,543,000 1,146,000 6,441,000
------------ ----------- -------------
Mandatorily redeemable preferred stock -- -- 29,230,000
Stockholders' equity (deficit):
Common Stock 14,000 1 --
Additional paid-in capital 52,575,000 479,999 --
Notes receivable from officers (187,000) -- --
Investment from PDI -- -- 74,905,000
Unearned stock-based compensation (1,679,000) -- --
Accumulated deficit (17,330,000) 1,677,000 (107,920,000)
------------ ----------- -------------
Total stockholders' equity (deficit) 33,393,000 2,157,000 (33,015,000)
------------ ----------- -------------
Total liabilities, mandatorily redeemable
preferred stock and stockholder's equity (deficit) $ 38,936,000 $ 3,303,000 $ 2,656,000
============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-----------------------------------------------
Pro Forma
Pro Forma Adjustments Combined
----------------------------- -----------
(a) (b)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ -- $(6,435,000) $ 26,321,000
Accounts receivable and costs and estimated
earnings in excess of billings on uncompleted
contracts, net -- -- 7,203,000
Inventory -- -- 467,000
Prepaid expenses and other current assets -- -- 491,000
------------ ----------- -------------
Total current assets -- (6,435,000) 34,482,000
Property and equipment, net -- -- 2,698,000
Intangible assets -- 10,704,000 11,623,000
Capitalized software, net -- -- 225,000
Deposits and other assets -- -- 136,000
------------ ----------- -------------
$ -- $ 4,269,000 $ 49,164,000
============ =========== =============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ -- $ -- $ 2,052,000
Accrued expenses -- 255,000 3,238,000
Line of credit -- -- 623,000
Deferred revenue and billings in excess of costs
and estimated earnings on uncompleted contracts -- -- 4,772,000
Current portion of notes payable -- -- 289,000
Deferred income taxes -- -- 41,000
Intercompany payable (2,195,000) -- --
------------ ----------- -------------
Total current liabilities (2,195,000) 255,000 11,015,000
Long-term note payable, net of current portion -- -- 175,000
------------ ----------- -------------
(2,195,000) 255,000 11,190,000
------------ ----------- -------------
Mandatorily redeemable preferred stock (29,230,000) -- --
Stockholders' equity (deficit):
Common Stock (1) -- 14,000
Additional paid-in capital (479,999) 5,542,000 58,117,000
Notes receivable from officers -- -- (187,000)
Investment from PDI (74,905,000) -- --
Unearned stock-based compensation -- (961,000) (2,640,000)
Accumulated deficit 106,243,000 -- (17,330,000)
------------ ----------- -------------
Total stockholders' equity (deficit) 30,858,000 4,581,000 37,974,000
------------ ----------- -------------
Total liabilities, mandatorily redeemable
preferred stock and stockholder's equity (deficit) $ (567,000) $ 4,836,000 $ 49,164,000
============ =========== =============
</TABLE>
See accompanying notes to Pro Forma Financial Information
F-45
<PAGE> 50
LANDACORP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS ROUNDED TO THE NEAREST $1,000)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------------
IHD
TWELVE MONTHS
ENDED
NOVEMBER 26, PRO FORMA PRO FORMA
LANDACORP 1999 PROMEDEX PATIENTCENTRIX ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
System sales and program services $ 7,251,000 $ 478,000 $ 2,610,000 $ 3,098,000 $ -- $ 13,437,000
Support services 2,059,000 -- -- -- -- 2,059,000
------------ ------------ ----------- ------------ ------------ ------------
Total revenues 9,310,000 478,000 2,610,000 3,098,000 -- 15,496,000
------------ ------------ ----------- ------------ ------------ ------------
Cost of revenues:
System sales and program services 3,071,000 318,000 1,760,000 1,170,000 -- 6,319,000
Support services 594,000 -- -- -- -- 594,000
------------ ------------ ----------- ------------ ------------ ------------
Total cost of revenues 3,665,000 318,000 1,760,000 1,170,000 -- 6,913,000
------------ ------------ ----------- ------------ ------------ ------------
Gross profit (loss) 5,645,000 160,000 850,000 1,928,000 -- 8,583,000
------------ ------------ ----------- ------------ ------------ ------------
Operating expenses:
Research and development 1,733,000 23,000 1,408,000 155,000 -- 3,319,000
Selling, general and administrative 6,397,000 425,000 6,404,000 336,000 586,000(c) 14,148,000
Amortization of intangible assets -- -- -- -- 1,256,000(d) 1,256,000
------------ ------------ ----------- ------------ ------------ ------------
Total operating expenses 8,130,000 448,000 7,812,000 491,000 1,842,000 18,723,000
------------ ------------ ----------- ------------ ------------ ------------
Income (loss) from operations (2,485,000) (288,000) (6,962,000) 1,437,000 (1,842,000) (10,140,000)
Impairment of goodwill -- -- -- -- -- --
Interest and other income, net 103,000 -- 33,000 6,000 -- 142,000
Interest and other expense (17,000) (48,000) (25,000) (27,000) -- (117,000)
------------ ------------ ----------- ------------ ------------ ------------
Income (loss) before income taxes (2,399,000) (336,000) (6,954,000) 1,416,000 (1,842,000) (10,115,000)
Income tax benefit (provision) -- 8,000 -- (35,000) -- (27,000)
------------ ------------ ----------- ------------ ------------ ------------
Net income (loss) $ (2,399,000) $ (328,000) $(6,954,000) $ 1,381,000 $ (1,842,000) $(10,142,000)
============ ============ =========== ============ ============ ============
Pro forma net loss per share (e):
Basic and diluted $ (1.08)
============
Pro forma weighted average shares:
Basic and diluted 9,376,910
============
</TABLE>
See accompanying notes to Pro Forma Financial Information
F-46
<PAGE> 51
LANDACORP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS ROUNDED TO THE NEAREST $1,000)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------
PROMEDEX PROMEDEX
PREDECESSOR SUCCESSOR
----------- -------------
LANDACORP IHD
NINE MONTHS JANUARY 1, JANUARY 1, APRIL 15,
ENDED 2000 TO 1999 TO 2000 TO
SEPTEMBER 30, JANUARY 30, APRIL 14, SEPTEMBER 30,
2000 2000 2000 2000
<S> <C> <C> <C> <C>
Revenues:
System sales and program services $ 7,741,000 $ 26,000 $ 505,000 $ 1,985,000
Support services 1,902,000 -- -- --
------------ -------- ----------- -------------
Total revenues 9,643,000 26,000 505,000 1,985,000
------------ -------- ----------- -------------
Cost of revenues:
System sales and program services 3,194,000 21,000 780,000 1,284,000
Support services 546,000 -- -- --
------------ -------- ----------- -------------
Total cost of revenues 3,740,000 21,000 780,000 1,284,000
------------ -------- ----------- -------------
Gross profit (loss) 5,903,000 5,000 (275,000) 701,000
------------ -------- ----------- -------------
Operating expenses:
Research and development 2,505,000 -- 958,000 1,131,000
Selling, general and administrative 8,121,000 14,000 1,169,000 2,917,000
Amortization of intangible assets 286,000 -- -- 4,356,000
------------ -------- ----------- -------------
Total operating expenses 10,912,000 14,000 2,127,000 8,404,000
------------ -------- ----------- -------------
Income (loss) from operations (5,009,000) (9,000) (2,402,000) (7,703,000)
Impairment of goodwill -- -- -- (100,193,000)
Interest and other income, net 1,331,000 -- -- --
Interest and other expense (34,000) -- 10,000 (24,000)
------------ -------- ----------- -------------
Income (loss) before income taxes (3,712,000) (9,000) (2,392,000) (107,920,000)
Income tax benefit (provision) -- -- -- --
------------ -------- ----------- -------------
Net income (loss) $ (3,712,000) $ (9,000) $(2,392,000) $(107,920,000)
============ ======== =========== =============
Pro forma net loss per share (e):
Basic and diluted
Pro forma weighted average shares:
Basic and diluted
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------------------
PRO FORMA
PATIENTCENTRIX COMBINED
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
2000 ADJUSTMENTS 2000
----------- ------------- ------------
<S> <C> <C> <C>
Revenues:
System sales and program services $ 4,600,000 $ -- $ 14,857,000
Support services -- -- 1,902,000
----------- ------------- -------------
Total revenues 4,600,000 -- 16,759,000
----------- ------------- -------------
Cost of revenues:
System sales and program services 2,145,000 -- 7,424,000
Support services -- -- 546,000
----------- ------------- -------------
Total cost of revenues 2,145,000 -- 7,970,000
----------- ------------- -------------
Gross profit (loss) 2,455,000 -- 8,789,000
----------- ------------- -------------
Operating expenses:
Research and development 470,000 -- 5,064,000
Selling, general and administrative 1,069,000 195,000 (c) 13,485,000
Amortization of intangible assets -- (3,414,000)(d) 1,228,000
----------- ------------- -------------
Total operating expenses 1,539,000 (3,219,000) 19,777,000
----------- ------------- -------------
Income (loss) from operations 916,000 3,219,000 (10,988,000)
Impairment of goodwill -- -- (100,193,000)
Interest and other income, net 24,000 -- 1,355,000
Interest and other expense (8,000) -- (56,000)
----------- ------------- -------------
Income (loss) before income taxes 932,000 3,219,000 (109,882,000)
Income tax benefit (provision) (33,000) -- (33,000)
----------- ------------- -------------
Net income (loss) $ 899,000 $ 3,219,000 $(109,915,000)
=========== ============= =============
Pro forma net loss per share (e):
Basic and diluted $ (8.77)
============
Pro forma weighted average shares:
Basic and diluted 12,527,600
============
</TABLE>
See accompanying notes to Pro Forma Financial Information
F-47
<PAGE> 52
LANDACORP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The following adjustments were applied to the Company's historical
financial statements and those of IHD, ProMedex and PatientCentrix to arrive at
the pro forma condensed combined financial information. The pro forma
adjustments are preliminary, pending completion of an independent valuation,
and based upon Company management's estimates and a preliminary valuation of the
intangible assets acquired.
(a) Reflects adjustments to eliminate certain liabilities, mandatorily
redeemable preferred stock and equity that were not acquired by the
Company.
(b) The preliminary allocation of the purchase price, assuming the
acquisitions occurred on September 30, 2000, for pro forma purposes
is as follows:
<TABLE>
<CAPTION>
IHD PATIENTCENTRIX PROMEDEX
<S> <C> <C> <C>
Cash paid $ 1,250,000 $ 5,850,000 $ 585,000
Value of stock issued -- 2,056,000 516,000
Value of stock options assumed -- 2,970,000 --
Estimated acquisition costs -- 80,000 175,000
--------------- --------------- ---------------
Total purchase price $ 1,250,000 $ 10,956,000 $ 1,276,000
=============== =============== ===============
Net tangible assets/(liabilities) $ 45,000 $ 2,157,000 $ (1,590,000)
Intangible assets:
Intellectual property 165,000 88,000 100,000
Work force 160,000 200,000 200,000
Goodwill 880,000 7,550,000 2,566,000
--------------- --------------- ---------------
Total intangible assets 1,205,000 7,838,000 2,866,000
Unearned compensation -- 961,000 --
--------------- --------------- ---------------
Total purchase price allocation $ 1,250,000 $ 10,956,000 $ 1,276,000
=============== =============== ===============
</TABLE>
(c) To record stock-based compensation expense associated with the
acquisition of PatientCentrix. Approximately $961,000 of unearned
stock-based compensation related to the Company's right to
repurchase 30% of the shares of the Company's Common Stock and
options to purchase the Company's Common Stock issued to employees
of PatientCentrix pursuant to the purchase agreement in the event of
such employee's termination under certain circumstances was recorded
in the period in which the PatientCentrix acquisition was
consummated and is being amortized over the three years over which
the repurchase rights lapse using the multiple option approach
prescribed by FIN No. 28.
(d) To record amortization of intangible assets associated with the
acquisition of IHD, ProMedex and PatientCentrix as follows: acquired
intellectual property totaling $353,000 over the
F-48
<PAGE> 53
LANDACORP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
estimated period of benefit of twenty-four months, acquired work
force totaling $560,000 over the estimated period of benefit of
sixty months, goodwill related to the acquisition of IHD totaling
$880,000 over the estimated period of benefit of thirty-six months,
and goodwill related to the acquisitions of ProMedex and
PatientCentrix totaling $10,116,000 over the estimated period of
benefit of fifteen years. The pro forma amortization adjustment
related to the acquired intangible assets for the year ended
December 31, 1999 and the nine months ended September 30, 2000,
amounted to approximately $1,256,000 and $942,000, respectively. The
pro forma negative amortization of $3,414,000 for the nine months
ended September 30, 2000 is comprised of the $942,000, less the
reversal of the $4,356,000 of amortization recorded on the statement
of operations of ProMedex between April 15, 2000 and June 2000 at
which time such goodwill was impaired.
(e) Pro forma basic net loss per share for the year ended December 31,
1999 and the nine months ended September 30, 2000 is computed using
the weighted average number of common shares outstanding, including
the pro forma effects of the conversion of the Company's 6,800,000
shares of Series D preferred stock into shares of the Company's
Common Stock, and the cashless exercise of the outstanding warrants
to purchase 350,000 shares of the Company's common stock resulting
in a net issuance of 308,000 shares of common stock, effective upon
the closing of the initial public offering of the Company as if such
conversion occurred on January 1, 1999. Pro forma diluted net loss
per share is computed by dividing the net loss for the period by the
weighted average number of common and potential common shares
outstanding during the period if their effect is dilutive. Pro forma
potential shares of common stock consist of common stock subject to
repurchase and stock options. At December 31, 1999 and September 30,
2000, 3,526,000 and 3,087,000 potential common shares, respectively,
are excluded from the determination of diluted net loss per share as
the effect of such charges on a weighted average basis is
anti-dilutive. The adjustment to historical weighted average shares
outstanding result from inclusion of actual shares issued in
conjunction with the consummated acquisitions, as if such shares
were outstanding from January 1, 1999. In accordance with the
definitive purchase agreements, 10% of the stock consideration to
PatientCentrix (approximately 116,000 shares) will be held in a
time-lapsing escrow account and have been excluded from the
determination of the shares deemed outstanding for the purpose of
computing the pro forma basic and diluted net loss per share for the
year ended December 31, 1999 and have been included in the pro forma
basic and diluted net loss per share for the nine months ended
September 30, 2000. Additionally, approximately 30% of the
PatientCentrix Purchase Shares issued to employees of PatientCentrix
are subject to forfeiture in the event of such employee's
termination within three years of the acquisition date. Accordingly,
approximately 312,000 and 231,000 shares have been excluded from the
determination of the shares deemed outstanding for the purpose of
computing the pro forma basic and diluted net loss per share for the
year ended December 31, 1999 and for the nine months ended September
30, 2000, respectively.
F-49
<PAGE> 54
SIGNATURE
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.
LANDACORP, INC.
/s/ STEPHEN P. KAY
----------------------------------------
Stephen P. Kay, Chief Financial Officer
Date: January 10, 2001
<PAGE> 55
Exhibits to the Form 8-K
<TABLE>
<CAPTION>
Exhibit Number Description of Document
-------------- -----------------------
<S> <C>
None
</TABLE>
