<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-2
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of l934
Date of report (date of earliest event reported): May 9, 2000
Allscripts, Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
000-26537 36-3444974
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(Commission File Number) (IRS Employer Identification No.)
2401 Commerce Drive, Libertyville, Illinois 60048
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(Address of Principal Executive Offices) (Zip Code)
(847) 680-3515
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(Registrant's Telephone Number, Including Area Code)
None
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K,
originally filed with the Securities and Exchange Commission on May 24, 2000 as
set forth in the pages attached hereto.
Item 7. Financial Statements and Exhibits.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(a)(i) Financial Statements of MasterChart, Inc. The following
condensed financial statements of MasterChart, Inc. are attached:
Report of Independent Accountants 3
Balance Sheets at March 31, 2000 (unaudited) and at December 31,
1999 and 1998 (audited) 4
Statements of Operations for the three months ended March 31,
2000 and 1999 (unaudited) and for the years ended December 31,
1999 and 1998 (audited) 5
Statements of Stockholders' Deficit for the three months ended
March 31, 2000 (unaudited) and for the years ended December 31,
1999 and 1998 (audited) 6
Statements of Cash Flows for the three months ended March 31,
2000 and 1999 (unaudited) and for the years ended December 31,
1999 and 1998 (audited) 7
Notes to Financial Statements 8
(a)(ii) Financial Statements of Medifor, Inc. The following condensed
financial statements of Medifor, Inc. are attached:
Report of Independent Public Accountants 16
Balance Sheets at March 31, 2000 (unaudited) and December 31,
1999 and 1998 (audited) 17
Statements of Operations for the three months ended March 31,
2000 and 1999 (unaudited) and for the years ended December 31,
1999 and 1998 (audited) 19
Statements of Cash Flows for the three months ended March 31,
2000 and 1999 (unaudited) and for the years ended December 31,
1999 and 1998 (audited) 20
Statements of Changes in Stockholders' Equity for the years
ended December 31, 1999 and 1998 22
Notes to Financial Statements 23
(b) Pro Forma Financial Information. The following unaudited pro
forma financial statements are attached:
Pro Forma Consolidated Financial Information Overview 30
Pro Forma Consolidated Statements of Operations for the three
months ended March 31, 2000 (unaudited) 31
Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1999 (unaudited) 32
Notes to Pro Forma Consolidated Statements of Operations 33
Pro Forma Consolidated Balance Sheet at March 31, 2000
(unaudited) 35
Notes to Pro Forma Consolidated Balance Sheet at March 31, 2000
(unaudited) 36
(c) Exhibits. The following exhibits are attached hereto:
(i) The consent of Arthur Andersen LLP; and 37
(ii) The consent of PricewaterhouseCoopers LLP 38
</TABLE>
2
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Masterchart, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Masterchart, Inc. at December 31,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States. 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, 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
July 14, 2000
3
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
MasterChart, Inc.
BALANCE SHEETS
March 31, 2000 and December 31, 1999
and 1998
<TABLE>
<CAPTION>
March 31, December 31,
------------ ---------------------------
2000 1999 1998
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,310 $ 347,610 $ 994,748
Accounts receivable, net of allowances of $0 in
2000, $0 in 1999 and $45 in 1998 572,077 1,018,891 238,450
Note receivable 43,743 9,062 -
Prepaid expenses and other current assets 77,512 63,321 57,544
------------ ------------ ------------
Total current assets 699,642 1,438,884 1,290,742
------------ ------------ ------------
Fixed assets, net 574,232 480,537 371,518
Long-term marketable securities 186,894 291,502 311,752
------------ ------------ ------------
Total assets $ 1,460,768 $ 2,210,923 $ 1,974,012
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 155,793 $ 86,360 $ -
Accrued expenses 156,139 83,518 4,350
Unearned revenue 699,925 872,586 -
Customer deposits 179,959 179,959 -
Loan obligations 15,353 11,451 -
------------ ------------ ------------
Total current liabilities 1,207,169 1,233,874 4,350
------------ ------------ ------------
Long-term liabilities:
Fixed principal note-Lanier 3,136,271 3,059,776 2,781,615
Line of credit-Lanier 1,410,762 1,376,353 1,073,416
Loan obligations 25,952 33,215 -
------------ ------------ ------------
Long-term liabilities 4,572,985 4,469,344 3,855,031
------------ ------------ ------------
Total liabilities 5,780,154 5,703,218 3,859,381
------------ ------------ ------------
Commitments and contingencies (see Notes 5 and 8) - - -
Stockholders' deficit:
Common stock, no par value, 100,000 shares authorized,
6,000 issued and outstanding 1,000 1,000 1,000
Additional paid-in capital 14,378,269 8,855,790 8,729,770
Unrealized gain (loss) on marketable securities (33,784) (24,926) 11,752
Accumulated deficit (18,664,871) (12,324,159) (10,627,891)
------------ ------------ ------------
Total stockholders' deficit (4,319,386) (3,492,295) (1,885,369)
------------ ------------ ------------
Total liabilities and stockholders' deficit $ 1,460,768 $ 2,210,923 $ 1,974,012
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
MasterChart, Inc.
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2000 and 1999 and
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
For the Three Months For the Year Ended
Ended March 31, December 31,
-----------------------------------------------------------------
2000 1999 1999 1998
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues
Professional services $ 485,335 $ 296,073 $ 1,557,723 $ 1,448,000
Maintenance 49,312 44,850 175,159 131,610
License 314,798 125,538 1,423,843 336,623
Equipment sales 15,901 - 156,667 2,600
------------ ------------ ------------ ------------
Total revenues 865,346 466,461 3,313,392 1,918,833
Cost of Revenues
Professional services 547,207 280,042 1,520,685 1,246,824
Maintenance 48,368 36,550 143,611 98,917
Equipment 22,611 - 135,836 -
------------ ------------ ------------ ------------
Total cost of revenues 618,186 316,592 1,800,132 1,345,741
Research and development 208,655 204,684 854,754 909,722
Selling, general and administrative expenses 6,276,629 458,342 2,007,407 1,247,877
------------ ------------ ------------ ------------
Loss from operations (6,238,124) (513,157) (1,348,901) (1,584,507)
Interest income 8,822 14,150 47,350 65,536
Interest expense (111,410) (100,792) (394,717) (318,707)
------------ ------------ ------------ ------------
Net loss (6,340,712) (599,799) (1,696,268) (1,837,678)
Accumulated deficit - beginning (12,324,159) (10,627,891) (10,627,891) (8,790,213)
------------ ------------ ------------ ------------
Accumulated deficit - ending $(18,664,871) $(11,227,690) $(12,324,159) $(10,627,891)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Item 7--FINANCIAL STATEMENTS AND EXHIBITS
MasterChart, Inc.
STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Three Months Ended March 31, 2000 and
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Unrealized
Gain/(Loss)
Additional on Total
Paid-In Marketable Accumulated Stockholders'
Common Stock Capital Securities Deficit Deficit
------------------- ------------ ---------- ------------ -----------
Shares Amount
------ ------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997 6,000 $1,000 $ 7,806,409 $ 9,248 $ (8,790,213) $ (973,556)
Net loss for the year ended
December 31, 1998 (1,837,678) (1,837,678)
Other comprehensive income - change
in unrealized gain/(loss) 2,504 2,504
-----------
Comprehensive loss (1,835,174)
Issuance of convertible debt at below
market interest rates 923,361 923,361
------ ------ ------------ -------- ------------ -----------
December 31, 1998 6,000 1,000 8,729,770 11,752 (10,627,891) (1,885,369)
Net loss for the year ended
December 31, 1998 (1,696,268) (1,696,268)
Other comprehensive income -
change in unrealized gain/(loss) (36,678) (36,678)
-----------
Comprehensive loss (1,732,946)
Issuance of convertible debt at below
market interest rates 126,020 126,020
------ ------ ------------ -------- ------------ -----------
December 31, 1999 6,000 1,000 8,855,790 (24,926) (12,324,159) (3,492,295)
(unaudited)
Net loss for the quarter ended
March 31, 2000 (6,340,712) (6,340,712)
Other comprehensive income -
change in unrealized gain/(loss) (8,858) (8,858)
-----------
Comprehensive loss (6,349,570)
Issuance of warrants to consultants 5,522,479 5,522,479
------ ------ ------------ -------- ------------ -----------
March 31, 2000 - unaudited 6,000 $1,000 $14,378,269 $(33,784) $(18,664,871) $(4,319,386)
====== ====== ============ ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
MasterChart, Inc.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999 and
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
For the Three Months For the Year Ended
Ended March 31, December 31,
2000 1999 1999 1998
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(6,340,712) $(599,799) $(1,696,268) $(1,837,678)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation expense 44,989 46,891 151,954 165,264
Amortization of debt discount 110,904 96,375 387,118 318,707
Warrants issued to consultants 5,522,479 - - -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net 446,814 (35,854) (780,441) 85,978
Increase in note receivable (34,681) - (9,062) -
(Increase) decrease in prepaid expenses and other
current assets (14,191) 14,630 (5,777) (27,849)
Increase in accounts payable 69,433 65,408 86,360 -
Increase in accrued expenses 72,621 17,614 79,168 4,350
(Decrease) increase in unearned revenue (172,661) 143,497 872,586 -
Increase in customer deposits - - 179,959 -
----------- --------- ----------- -----------
Net cash used in operating activities (295,005) (251,238) (734,403) (1,291,228)
----------- --------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (138,684) (17,044) (214,484) (110,127)
Purchase of investments - - (20,678) (100,000)
Sale of investments 95,750 - 4,250 -
----------- --------- ----------- -----------
Net cash used in investing activities (42,934) (17,044) (230,912) (210,127)
----------- --------- ----------- -----------
Cash flows from financing activities:
Principal payments on loan obligations (3,361) - (1,823) -
Borrowings under line of credit - - 320,000 1,930,795
----------- --------- ----------- -----------
Net cash provided (used) by financing activities (3,361) - 318,177 1,930,795
----------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (341,300) (268,282) (647,138) 429,440
Cash and cash equivalents at beginning of period 347,610 994,748 994,748 565,308
----------- --------- ----------- -----------
Cash and cash equivalents at end of period $ 6,310 $ 726,466 $ 347,610 $ 994,748
=========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
MasterChart, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business
Masterchart, Inc. ("Masterchart" or the "Company") develops clinical
software for the enterprise-wide healthcare institution market. Masterchart
operates in one industry segment. The Company was incorporated in Illinois
on July 23, 1992.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying interim financial statements as of March 31, 2000 and 1999
and for the three months ended March 31, 2000 and 1999 together with the
related notes are unaudited but include all adjustments, consisting of only
normal recurring adjustments, which management considers necessary to
present fairly, in all material respects, the financial position, and
results of operations and cash flows for the interim periods ended March
31, 2000 and 1999. Results for the three months ended March 31, 2000 are
not necessarily indicative of results for the entire year.
Use of Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at year
end and the reported amounts of revenue and expenses during the year.
Actual results could differ from these estimates.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalent balances consist of cash and highly liquid
corporate debt securities with maturities at the time of purchase of less
than 90 days. At December 31, 1999 and 1998, cash equivalents were
comprised of money market funds and commercial paper totaling $816 and
$727,529, respectively.
Marketable securities include corporate debt and equity instruments with
maturities of greater than 90 days at the time of purchase. Long-term
marketable securities have maturities of greater than one year at the
balance sheet date. The securities, that are available for sale, had an
average weighted time to maturity of 27 years at December 31, 1999. At
December 31, 1999, the gross unrealized loss totaled $30,603 and the gross
unrealized gain totaled $5,677. At December 31, 1998, the gross unrealized
gain totaled $11,752.
8
<PAGE>
Fixed Assets
Fixed assets are stated at cost. Expenditures for maintenance, repairs,
renewals and betterments that do not significantly prolong the useful lives
of the assets are charged to expense as incurred. Depreciation is computed
on the straight-line method over the estimated useful lives of the related
assets. Upon asset retirement or other disposition, the cost and related
allowance for depreciation are removed from the accounts, and any gains or
losses are included in the statements of operations.
Leases
Leases that substantially transfer all of the benefits and risks of
ownership of property to Masterchart or otherwise meet the criteria for
capitalizing a lease under generally accepted accounting principles are
accounted for as capital leases. An asset is recorded at the time a capital
lease is entered into together with its related obligation to reflect its
purchase and financing. Payments under operating leases are expensed as
incurred.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable and accounts payable approximate their
fair values due to the short-term nature of these financial instruments.
The fair value of the long-term debt is estimated based on current interest
rates available to Masterchart for debt instruments with similar terms,
degrees of risk and remaining maturities. The carrying value of the long-
term debt approximates its fair value.
Concentration of Credit Risk
Financial instruments that potentially subject Masterchart to a
concentration of credit risk consist of cash and cash equivalents,
marketable securities and trade receivables. Masterchart maintains its cash
balances with one major commercial bank and its cash equivalents and
marketable securities in interest bearing, investment-grade securities.
Masterchart sells its products and services to healthcare providers. Credit
risk with respect to trade receivables is generally diversified due to the
large number of customers and their dispersion across the United States. To
reduce credit risk, Masterchart performs ongoing credit evaluations of its
customers and their payment histories. In general, Masterchart does not
require collateral from its customers.
9
<PAGE>
Revenue Recognition
Masterchart's revenue is primarily derived from the sale of clinical
software and related consulting services. Software license fee revenues are
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the license fee is fixed and determinable and collection of the
fee is probable. Revenues related to arrangements that include multiple
elements for which the Company has no vendor specific objective evidence
(VSOE) of the value of the undelivered elements are recognized ratably over
the term of the arrangement. Revenues from consulting services are
recognized as services are performed. Maintenance revenues are recognized
ratably over the term of the contract on a straight-line basis.
Advertising Costs
Masterchart recognizes advertising costs as incurred. Advertising expense
totaled $127,645 in 1999. There were no advertising costs in 1998.
Comprehensive Income
The Company follows Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The only
component of other comprehensive income is the change in unrealized gains
(losses) on marketable securities. Comprehensive income is included as a
component of stockholders' deficit.
Software Development Costs
Masterchart applies Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed" ("SFAS No. 86") which requires the capitalization of
software development costs incurred from the time technological feasibility
of the software is established until the software is ready for use.
Development costs incurred subsequent to the establishment of technological
feasibility but prior to the release of the software were not significant
and as a result, the Company has not capitalized any software development
costs. Software maintenance costs related to software development are
expensed as incurred. Reimbursed development costs are reported as a
reduction of research and development expense.
10
<PAGE>
Income Taxes
The Company has elected to be treated as an S-Corporation for income tax
purposes. Accordingly, its taxable income is reportable on the individual
federal income tax return of the common stockholders.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and complies
with the disclosure provisions of Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), Accounting for Stock-Based
Compensation. Under APB 25, compensation expense is based on the difference
between the estimated fair value of the Company's stock and the redemption
value of the shares issued under the Company's performance share plans.
3. Related Party Transactions
The Company recognized revenue related to sales with Lanier, with whom the
Company has a loan outstanding (see Note 6), of $569,564 and $648,247
during the years ended December 31, 1999 and 1998, respectively. Lanier
sales totaled $177,741 and $153,739 for the three months ended March 31,
2000 and March 31, 1999, respectively. Accounts receivable from Lanier
totaled $53,323, $53,816 and $72,163 at March 31, 2000, December 31, 1999
and December 31, 1998, respectively.
4. Fixed Assets
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
Estimated December 31,
-------------------------------
Useful Lives 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Computer equipment 3 years $701,148 $582,349
Phone equipment 7 years 56,433 14,443
Furniture and fixtures 7 years 112,766 54,703
Automobiles 5 years 72,631 45,305
Assets under capital lease 5 years 14,795 -
-------------- --------------
957,773 696,800
Less accumulated depreciation 475,634 325,282
Less accumulated amortization of capitalized leases 1,602 -
-------------- --------------
$480,537 $371,518
============== ==============
</TABLE>
11
<PAGE>
5. Lease Commitments
Masterchart conducts its operations from leased premises. On September 23,
1999, Masterchart entered into a five-year cancelable lease for office
space. Payments began November 1, 1999 and escalate 3% each year. Rent
expense totaled $155,235 and $117,488 for the years ended December 31, 1999
and 1998, respectively.
Future minimum rental payments for the next five years are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
Year Ending
December 31,
2000 $168,290 $ 5,777
2001 173,235 5,777
2002 174,962 2,889
2003 178,473 -
2004 152,440 -
-------- -------
Total minimum lease payments $847,400 $14,443
======== =======
Amount representing interest $ - $ 2,881
Present value of minimum lease
payments $847,400 $11,562
</TABLE>
6. Debt
Outstanding debt as of December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Auto loan $ 33,104 $ -
Capital lease 11,562 -
Lanier line of credit 1,376,353 1,073,416
Lanier fixed note payable 3,059,776 2,781,615
---------- ----------
Total debt outstanding 4,480,795 3,855,031
---------- ----------
Less current maturities 11,451 -
---------- ----------
Long-term debt $4,469,344 $3,855,031
========== ==========
</TABLE>
12
<PAGE>
Auto Loan
During December of 1999, the Company entered into a loan to finance the
purchase of an automobile. The loan carries a four-year term at a rate of
6.99% a year. Monthly payments total $792.52. In the event of default,
the bank has a security interest in the automobile.
Loan with Harris and Lanier
On December 22, 1995, Masterchart entered into an agreement with Harris
Corporation, wherein Harris agreed to provide Masterchart a line of credit
funding arrangement totaling up to $10 million over the following four
years. The loan agreement carried no interest through June 30, 2000, at
which point the unpaid principal balance accrued interest at the annual
prime rate, adjusted monthly. Payments were due in annual installments
equal to 5% of the Company's gross revenues, beginning with the year ended
December 31, 2000. The final payment was due no later than June 30, 2015.
Upon drawing on the line of credit, the Company recorded the carrying value
of the debt based on the present value of the loan using an interest rate
of 10%. The debt discount is amortized over the life of the debt as
interest expense using the effective interest method.
In conjunction with the credit funding arrangement, Masterchart issued
Harris a non-detachable warrant to purchase 4,000 shares of common stock
for an aggregate purchase price of $10,000,000. The consideration for
exercising the warrant was cancellation of any amounts outstanding under
the line of credit arrangement and, to the extent that the outstanding
amount was less than $10,000,000, Harris was to pay an amount equal to
$10,000,000 less the canceled amount. The warrant was not exercised and
was canceled when the debt was renegotiated in March of 1998.
On March 16, 1998, Masterchart entered into a renegotiation of this
agreement. As a result of the renegotiation, the agreement was assigned to
Lanier Worldwide, a subsidiary of Harris. The $5,000,000 that was then
outstanding under the original agreement was converted to a fixed principal
note payable to Lanier carrying the same terms described above, with the
exception of the first payment due date. Under the renegotiated fixed
principal note, the first payment began with the year ended December 31,
2001. The final payment date remains June 30, 2015.
13
<PAGE>
In connection with the renegotiation, Masterchart also entered into an
amended line of credit agreement with Lanier wherein Masterchart may draw
up to an additional $5,000,000 on the line of credit. The maturity date
was the first to occur of June 30, 2015, change of control of Masterchart,
or event of default. Upon drawing on the line of credit, the Company
recorded the carrying value of the debt based on the present value of the
loan using an interest rate of 10%. The debt discount is amortized over
the life of the debt as interest expense using the effective interest
method. At December 31, 1999, the Company may draw an additional
$2,749,000 under the existing line of credit.
Also, in connection with the renegotiation, Masterchart issued Lanier a
non-detachable warrant to purchase 1,500 shares of common stock for an
aggregate purchase price of $5,000,000. The consideration for exercising
the warrant was cancellation of any amounts outstanding under the fixed
principal note and, to the extent that the outstanding note amount was less
than $5,000,000, Lanier was to pay an amount equal to $5,000,000, less the
canceled amount. The warrant was exercised in connection with the purchase
of Masterchart by Allscripts on May 9, 2000. See Note 11.
7. Stockholders' Equity
Warrants issued to Consultants
During the first quarter of 2000, in anticipation of a purchase
transaction, the Company issued warrants to two consultants. One consultant
was issued a warrant to purchase 357 shares of common stock at $2.80 per
share. The second consultant was issued a warrant to purchase 33 shares of
common stock at $5,000 per share. The warrants were exercised in connection
with the purchase of Masterchart by Allscripts on May 9, 2000 (see Note
11). Compensation expense of $5,522,479 was recorded during the three
months ended March 31, 2000 related to the warrants.
Performance Share Plans
The Company instituted a series of three performance share plans, under
which certain employees were granted performance shares at the discretion
of an established committee. After being granted, the shares vested based
upon criteria as set forth by the committee. From 1995 through 1999, a
total of 1478.8 shares were issued under the plans. The plan is a formula
based plan wherein the value of the shares is calculated as a function of
taxable income. Based on the operating results of the Company, there has
been no compensation expense recorded related to the shares. Had the
Company accounted for the plans pursuant to SFAS No. 123, no compensation
expense would have been recorded. All of the shares became fully vested on
May 9, 2000, the closing date of the acquisition of Masterchart by
Allscripts (see Note 11).
14
<PAGE>
8. Contingencies
The Company is from time to time subject to legal proceedings and claims
that arise in the normal course of its business. All such matters are
subject to uncertainties that are not predictable with assurance. However,
it is management's opinion that the disposition of such matters will not
have a significant adverse effect on Masterchart's financial position,
results of operations or cash flows.
9. Defined Contribution Plan
The Company sponsors a defined contribution 401(k) profit sharing plan
covering substantially all of its full time employees. Contributions by the
Company to the Plan are discretionary. As of December 31, 1999 and 1998 the
Company had elected to not make any contributions to the Plan.
10. Recently Issued Accounting Pronouncements
In December 1999, the U.S. Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), that provides the SEC's views in applying
generally accepted accounting principles to selected revenue recognition
issues. Adoption of SAB 101 is required in the fourth quarter of fiscal
year 2000. The Company is currently evaluating the impact of SAB 101 on the
Company's results of operations and financial position.
11. Subsequent Events
On May 9, 2000, all outstanding shares of Masterchart were acquired by
Allscripts, Inc. in exchange for 1,617,889 shares of Allscripts stock and
$5,000,000 of cash. The total Masterchart shares purchased by Allscripts
included the conversion of the Lanier warrants, the conversion of the
consultant warrants and the repurchase of the performance shares.
15
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Medifor, Inc.:
We have audited the accompanying balance sheets of Medifor, Inc. (a Washington
corporation) as of December 31, 1999 and 1998, and the related statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medifor, Inc. as of December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Seattle, Washington
February 10, 2000
16
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
Medifor, Inc.
BALANCE SHEETS
At March 31, 2000 and December 31, 1999 and 1998
<TABLE>
<CAPTION>
March 31, December 31,
----------- -------------------------------
2000 1999 1998
(unaudited)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 204,398 $ 278,556 $ 400,065
Certificates of deposit 63,176 259,365 1,156,017
Accounts receivable 94,256 168,056 17,955
Inventory 32,472 42,683 -
Other current assets 16,857 18,544 9,138
--------- ---------- ----------
Total current assets 411,159 767,204 1,583,175
--------- ---------- ----------
PROPERTY AND EQUIPMENT:
Furniture and equipment 229,694 223,717 173,813
Leasehold improvements 82,183 82,183 77,687
--------- ---------- ----------
311,877 305,900 251,500
Accumulated depreciation (194,247) (180,758) (122,076)
--------- ---------- ----------
Net property and equipment 117,630 125,142 129,424
OTHER ASSETS:
Goodwill, net 137,084 114,471 -
Other - 5,634 -
--------- ---------- ----------
Total assets $ 665,873 $1,012,451 $1,712,599
========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 281,347 $ 227,321 $ 112,931
Deferred revenue, current portion 146,021 123,952 42,766
Capital lease obligations, current portion - - 3,796
Notes payable to shareholders 1,576 3,897 12,665
--------- ---------- ----------
Total current liabilities 428,944 355,170 172,158
DEFERRED REVENUE, net of current portion 324,635 345,308 336,110
--------- ---------- ----------
Total liabilities 753,579 700,478 508,268
--------- ---------- ----------
COMMITMENTS (Note 7)
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares
authorized:
Series A - 3,000,000 shares authorized;
2,683,289 shares issued and outstanding;
liquidation preference of $2,683,289 2,315,333 2,315,333 2,315,333
Series B - 2,000,000 shares authorized;
166,667 shares issued and outstanding;
liquidation preference $500,000,
including warrant to purchase 333,000
additional shares 469,244 469,244 -
Common stock, no par value; 20,000,000
shares authorized; 4,779,080 and 4,679,080
shares issued and outstanding 2,054,773 2,054,773 1,950,623
Deferred stock compensation (26,318) (26,318) -
Accumulated deficit (4,900,738) (4,501,059) (3,061,625)
----------- ----------- -----------
Total stockholders' equity (87,706) 311,973 1,204,331
----------- ----------- -----------
Total liabilities and stockholders'
equity $ 665,873 $ 1,012,451 $ 1,712,599
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
Medifor, Inc.
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2000 and 1999 and
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
For the Three Months For the Year Ended
Ended March 31, December 31,
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
2000 1999 1999 1998
(unaudited) (unaudited)
REVENUE $ 240,727 $ 46,442 $ 893,364 $ 106,850
COST OF REVENUE 29,358 15,546 62,906 6,762
--------- --------- ----------- ----------
Gross margin 211,369 30,896 830,458 100,088
--------- --------- ----------- ----------
OPERATING EXPENSES:
Research and development 232,641 125,661 810,470 247,005
Sales and marketing 163,506 184,430 738,031 417,840
General and administrative 219,088 173,833 745,029 358,186
--------- --------- ----------- ----------
Total operating expenses 615,235 (483,924) 2,293,530 1,023,031
--------- --------- ----------- ----------
Loss from operations (403,866) (453,028) (1,463,072) (922,943)
--------- --------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest and other income 4,265 15,393 39,761 35,209
Interest and other expense (78) (400) (16,123) (21,745)
--------- --------- ----------- ----------
Total other income 4,187 14,993 23,638 13,464
--------- --------- ----------- ----------
LOSS BEFORE INCOME TAXES (399,679) (438,035) (1,439,434) (909,479)
PROVISION FOR INCOME TAXES - - - -
--------- --------- ----------- ----------
Net loss $(399,679) $(438,035) $(1,439,434) $ (909,479)
========= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
Medifor, Inc.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999 and
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
For the Three Months For the Year Ended
Ended March 31, December 31,
------------------------ ------------------------------
<S> <C> <C> <C> <C>
2000 1999 1999 1998
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(399,679) $(438,035) $(1,439,434) $ (909,479)
Adjustments to reconcile net loss to cash used
in operating activities-
Depreciation and amortization 21,587 12,942 78,882 46,738
Loss on disposal of property and equipment - - 15,619 -
Stock-based compensation - - 2,832 -
Changes in assets and liabilities, net of
amounts acquired:
Accounts receivable 73,800 (27,585) (150,101) 60,721
Other current assets 11,898 (4,225) (11,169) (8,851)
Other non-current assets 5,634 (5,138) - -
Accounts payable and accrued expenses 45,930 60,687 92,340 73,515
Deferred revenue 1,396 66,597 90,384 21,032
--------- --------- ---------- -----------
Net cash used in operating activities (239,434) (334,757) (1,320,647) (716,324)
--------- --------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of CMC research (22,053) - (114,407) -
Purchases of property and equipment (6,539) (19,810) (39,787) (114,315)
Purchases of certificates of deposit - - (175,348) (1,566,460)
Proceeds from maturing certificates of deposit 196,189 623,423 1,072,000 410,443
--------- --------- ----------- -----------
Net cash provided by (used in) investing
activities 167,597 603,613 742,458 (1,270,332)
--------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases - (2,247) (3,796) (21,146)
Payments on stockholder notes payable (2,321) (2,116) (8,768) (7,861)
Proceeds from notes payable - - - 500,000
Net proceeds from sales of common stock - - - 19,500
Net proceeds from sales of preferred stock - - 469,244 1,802,873
--------- --------- ----------- -----------
Net cash provided by financing activities (2,321) (4,363) 456,680 2,293,366
--------- --------- ----------- -----------
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH (74,158) 264,493 (121,509) 306,710
EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year 278,556 400,065 400,065 93,355
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $204,398 $664,558 $278,556 $400,065
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ - $ - $ 504 $ 5,485
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of notes payable and accrued
interest to preferred stock $ - $ - $ - $512,460
Compensation liability converted to common
stock options $ - $ - $ - $370,000
Issuance of common stock in connection with
acquisition $ - $ - $ 75,000 $ -
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
Medifor, Inc.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock Deferred Total
--------------------- ----------------- ----------------------- Stock-Based Accumulated Stockholders'
Shares Amount Shares Amount Shares Amount Compensation Deficit Equity
---------- ---------- ------- -------- ---------- ----------- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1997 - $ - - $ - 4,667,080 $1,561,123 $ - $(2,152,146) $ (591,023)
Sale of common stock - - - - 12,000 19,500 - - 19,500
Sale of Series A
Preferred Stock and
warrants 2,000,000 2,000,000 - - - - - - 2,000,000
Conversion of notes
payable and accrued
interest to Series A 683,289 512,460 - - - - - - 512,460
Preferred Stock
Offering costs - (197,127) - - - - - - (197,127)
Compensation liability
converted to
common stock options - - - - - 370,000 - - 370,000
Net loss - - - - - - - (909,479) (909,479)
---------- ---------- ------- -------- --------- ---------- -------- ----------- -----------
BALANCE, December 31,
1998 2,683,289 2,315,333 - - 4,679,080 1,950,623 - (3,061,625) 1,204,331
Issuance of common
stock in connection
with acquisition - - - - 100,000 75,000 - - 75,000
Sale of Series B
Preferred Stock and
warrants - - 166,667 500,000 - - - - 500,000
Offering costs - - - (30,756) - - - - (30,756)
Stock-based
compensation - - - - - 29,150 (26,318) - 2,832
Net loss - - - - - - - (1,439,434) (1,439,434)
---------- ---------- ------- -------- --------- ---------- -------- ----------- -----------
BALANCE, December 31,
1999 2,683,289 2,315,333 166,667 469,244 4,779,080 2,054,773 (26,318) (4,501,059) 311,973
(unaudited)
Net loss (399,679) (399,679)
BALANCE, March 31,
2000 2,683,289 $2,315,333 166,667 $469,244 4,779,080 $2,054,774 $(26,318) $(4,900,738) $ (87,706)
(unaudited)
========== ========== ======= ======== ========= ========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
Item 7--FINANCIAL STATEMENTS AND EXHIBITS
Medifor, Inc.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
-------------
Medifor, Inc. (the Company) was incorporated in Washington state and began
operations in November 1993. The Company develops and markets software products
for primary care physicians and major healthcare providers in the United States.
Since inception, the Company has spent significantly all of its time in
technology and product development. Management believes that, with its existing
cash and short term investments combined with revenue from the sales of its
products through existing distribution channels, it will be able to fund
operations through 2000. Management also believes that it will be able to
increase revenues by capitalizing on opportunities afforded by new strategic
alliances and marketing agreements. If necessary, management believes that it
has the ability to reduce operating costs and raise additional capital through
exercises of certain outstanding stock options or obtaining new third party
equity financing. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in the
early stage of development of products intended to address new and rapidly
evolving markets. To address these risks, the Company must, among other things,
respond to competitive developments, attract, retain and motivate qualified
persons, continue to develop its technologies, and market and sell products
incorporating such technology in volume and at profitable prices. There can be
no assurance that the Company will be successful in addressing any or all of
these risks or that the Company will achieve or sustain significant revenues or
profitability.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a purchased
maturity of three months or less at date of purchase to be cash equivalents.
Certificates of Deposit
-----------------------
The Company has certificates of deposit with maturities ranging from three
to 18 months. As of December 31, 1999, cost approximates market.
23
<PAGE>
Accounts Receivable
-------------------
Accounts receivable is presented net of allowance for doubtful accounts of
$0 and $30,597 at March 31, 2000 and 1999, respectively and $6,800 and $0 at
December 31, 1999 and 1998, respectively.
Inventory
---------
Inventory includes CDs, cases and related printed material used to package
the CD-ROM based reference product and is reported at the lower of cost or
market. Cost is determined using the average cost method, which approximates
the first-in, first-out method.
Property and Equipment
----------------------
Property and equipment are stated at historical cost and consist of
computer hardware and software, office furniture and equipment and leasehold
improvements. Depreciation is determined using the straight-line method over
the estimated useful lives of three to five years. Equipment held under capital
leases is stated at the lesser of the fair-market value of the equipment or the
present value of the minimum lease payments at the inception of the lease.
Amortization is recorded on a straight-line basis over the shorter of the useful
lives of the related assets or the term of the lease. Repair and maintenance
costs are expensed as incurred.
Software Development
--------------------
All development costs are expensed until technological feasibility has
been established, at which point development costs are capitalized until the
product is available for general release. The Company has expensed all software
development costs, as the development costs incurred after technological
feasibility had been established have been immaterial.
Research and Development
------------------------
Research and development costs are expensed as incurred.
Goodwill
--------
Goodwill is amortized over its estimated useful life of five years. The
Company periodically evaluates recoverability of goodwill.
Revenue Recognition
-------------------
The Company generally sells software licenses for one year which also
provides the users with rights to quarterly updates. The Company's policy is to
recognize revenue from software licenses ratably over the license period. The
24
<PAGE>
Company also sells a number of CD-ROM based reference tools. The Company's
policy is to recognize revenue for these products upon shipment.
Non-current deferred revenues consist primarily of nonrefundable advances
received for future deliveries of software to distributors. These amounts will
be recognized as revenues over the license period, beginning with the delivery
of the software.
Estimates Used in Financial Statement Preparation
-------------------------------------------------
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
3. ACQUISITIONS:
-------------
On April 1, 1999, the Company acquired substantially all of the assets of
CMC Research, Inc. (CMC), a Portland, Oregon based company which marketed a
number of CD-ROM based reference tools. In connection with the acquisition, the
Company issued 100,000 shares of common stock, paid $50,000 in cash and agreed
to pay certain contingent consideration in exchange for tangible assets and the
right to produce the CD-ROM products under CMC's electronic publishing licenses.
The estimated fair value of the common stock issued in the acquisition was
$75,000. The contingent consideration that the Company is obligated to pay is a
certain percentage of the net revenues from the sale of CMC products for three
years, with the maximum payment limited to $350,000. The contingent payments
are treated as an increase in the purchase price. At March 31, 2000 and
December 31, 1999, accounts payable and accrued expenses included approximately
$30,000 and $22,000 of contingent payment due to the seller, respectively.
The fair value of identifiable net assets acquired was as follows:
<TABLE>
<S> <C>
Inventory $28,150
Prepaid and other assets $18,357
Property and equipment $30,232
</TABLE>
The excess of the purchase price (including contingent payments to date)
over the fair value of the net assets acquired of $134,671 was allocated to
goodwill, which is being amortized on a straight-line basis over a useful life
of five years. Accumulated amortization was $28,295 and $20,200 at March 31,
2000 and December 31, 1999, respectively.
The results for 1999 include revenues and costs associated with the sale of CMC
products from the date of acquisition. The following table presents the
unaudited pro forma results assuming that the company had acquired CMC at the
25
<PAGE>
beginning of fiscal year 1998. This information may not necessarily be
indicative of the future combined results of operations of the Company.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998
----------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Total revenue $ 1,245,781 $1,120,578
Net loss (1,382,002) (969,247)
</TABLE>
4. STOCKHOLDERS' EQUITY:
---------------------
Preferred Stock and Warrants
----------------------------
The Company is authorized to issue 5,000,000 shares of preferred stock, of
which 3,000,000 and 2,000,000 have been designated as Series A Preferred Stock
and Series B Preferred Stock, respectively.
On September 1, 1998, the Company sold 2,000,000 shares of Series A
Preferred Stock for $2,000,000 and exchanged 683,289 shares of Series A
Preferred Stock for convertible notes payable and accrued interest of $512,460
and also granted warrants to purchase 211,200 shares of Series A Preferred Stock
at $1 per share. These warrants were all outstanding at December 31, 1999 and
are exercisable until September 2008. Issuance costs associated with the
preferred stock offerings of $197,127 were recorded as a reduction to preferred
stock. Series A Preferred Stock is convertible into common stock on a 1 for 1
basis subject to adjustment for certain antidilutive events. These shares have
a liquidation preference of $1 per share and the holders are entitled to the
number of votes equal to the number of common shares into which the Series A
Preferred Stock could be converted.
On November 1, 1999, the Company sold 166,667 shares of Series B Preferred
Stock for $500,000 and granted a warrant which entitles the holder to purchase
333,333 shares of Series B Preferred Stock at $3 per share. Issuance costs
associated with the preferred stock offerings of $30,756 were recorded as a
reduction to preferred stock. The Series B Preferred Stock is convertible into
common stock on a 1 for 1 basis subject to certain adjustments. These shares
have a liquidation preference of $3 per share and holders are entitled to the
number of votes equal to the number of common shares into which the Series B
Preferred Shares could be converted. The holder of the Series B Preferred Stock
is entitled to one seat on the Board of Directors. The warrant expires April
23, 2001.
Under a stock subscription agreement, the purchaser of the Series B
Preferred Stock has agreed to purchase 83,333 additional shares of Series B
Preferred Stock currently being held in escrow in exchange for completion of
26
<PAGE>
certain services with a total value of $250,000 to be provided by the purchaser
on behalf of the Company or by paying $250,000 cash directly to the Company
pursuant to a strategic alliance agreement between the purchaser and the
Company.
Stock Option Plan
-----------------
The Company has a Stock Option Plan (the Plan) to provide for the granting
of stock options to employees, directors and consultants of the Company to
acquire ownership in the Company and to provide them with incentives for their
service. The Plan provides for the issuance of options to purchase up to
2,200,000 shares of the Company's common stock. During 1997, the Board of
Directors of the Company approved an amendment to the Plan reducing the shares
of common stock reserved for issuance to Plan participants from 2,920,000 to
2,200,000. The Plan is administered by the Board, which determines the terms
and conditions of the options granted, including exercise price, number of
options granted and vesting period of such options. Compensation expense, if
any, is charged over the period of service, generally the vesting period.
Options granted under the Plan have generally been priced at or above the
estimated fair market value of the Company's common stock on the date of grant
and generally vest immediately at grant date or over a period of two years.
Generally options, if not previously exercised or forfeited, expire 10 years
from the date of grant, or the expiration date specified in the option, if
earlier.
Transactions under the Plan during fiscal 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ -----------------------
Wtd. Avg. Wtd. Avg.
Options Ex. Price Options Ex. Price
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period
1,431,269 $ .90 819,580 $ .59
Granted 395,007 1.35 611,689 1.32
Forfeited (106,269) 1.35 - -
--------- ---------
Outstanding at end of period 1,720,007 .94 1,431,269 .90
========= =========
Exercisable at end of period 1,075,147 .86 1,026,634 .74
========= =========
Weighted average fair value of options
granted $0.19 $ -
</TABLE>
Options outstanding have exercise prices ranging from $.11 to $1.63 per
share, with weighted average remaining contractual lives of 6.9 and 7.0 years at
December 31, 1999 and 1998, respectively.
27
<PAGE>
Under the Plan, 479,993 shares of common stock are reserved for future
grants as of December 31, 1999.
The Company accounts for stock-based compensation to employees using the
intrinsic value method, which recognizes as compensation expense the difference
between the fair value of common stock at the date of grant and the option
exercise price. During 1999, the Company issued 148,620 options to purchase
common stock priced below the estimated fair market value of the common stock,
resulting in total compensation of $25,265, which will be amortized over the
vesting period of the options. Had the Company recognized expense based on the
fair value of the stock options, which is based primarily on the time value of
money, additional compensation cost of $72,823 and $55,626 would have been
recorded for 1999 and 1998, respectively, resulting in a pro forma net loss of
$1,512,257 and $965,105 for the years ended December 31, 1999 and 1998,
respectively. These amounts are based on the following assumptions for grants
in 1999 and 1998: risk-free interest rates of 5.5% and 5.15%, respectively;
expected lives of five years; no dividends.
The Company accounts for stock issued to non-employees in accordance with
the provisions of SFAS 123 and The Emerging Issues Task Force consensus on Issue
No. 96-18, "Accounting for Equity Instruments That are Issued to Other-Than-
Employees for Acquiring, or in Conjunction with Selling, Goods or Services"
(EITF 96-18).
During the year, the Company issued 3,000 options to purchase common stock
to two individuals acting as consultants. The vesting terms vary and are
partially based on completion of certain agreed-upon services.
5. FEDERAL INCOME TAXES:
---------------------
Deferred taxes are determined using an asset and liability approach which
considers temporary differences of revenues and expenses for tax and financial
reporting purposes. At December 31, 1999 and 1998, deferred tax assets of
$1,414,500 and $922,000, respectively, consists of net operating losses and
temporary differences related primarily to compensation. The Company has
established a valuation allowance equal to the amount of the deferred asset
because the Company has not had taxable income since its inception and
significant uncertainty exists regarding the ultimate realization of the
deferred tax asset. This valuation allowance increased by $492,500 during 1999.
Accordingly, no tax benefits have been recorded in the accompanying financial
statements. The Company's net operating loss carryforwards of approximately
$3.6 million expire between 2011 and 2019. The Company may be limited on its
ability to use the carryforwards in the future in the event of a change in
control as defined in existing tax regulations.
28
<PAGE>
6. COMMITMENTS:
------------
The Company has entered into noncancelable operating lease agreements
involving equipment and office space. The following is a schedule of future
minimum lease payments as of December 31, 1999:
<TABLE>
<S> <C>
2000 $52,422
2001 11,151
-------
Total $63,573
=======
</TABLE>
Rental expense on operating leases amounted to $74,211 and $46,400 in
fiscal 1999 and 1998, respectively.
7. SUBSEQUENT EVENTS:
-----------------
On April 3, 2000, the Board of Directors ("the Board") approved the
acceleration of the vesting of 50,000 stock options previously granted to
certain outside directors ("the directors"). The Board also granted a ten-day
extension to two of the directors to exercise their options. All of the options
were exercised in April 2000.
On April 12, 2000, the Company entered into an agreement of merger with
Allscripts, Inc. ("Allscripts"), a Delaware corporation and Webdoc Acquisition
Corp., a Washington corporation and wholly-owned subsidiary of Allscripts. In
connection with the merger, Allscripts issued 935,903 shares of its common stock
in exchange for all of the outstanding common stock and options to purchase the
common stock of the Company. The merger became effective on May 17, 2000.
29
<PAGE>
Item 7--FINANCIAL STATEMENTS AND EXHIBITS
Allscripts, Inc.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
Effective May 9, 2000 and May 17, 2000, Allscripts, Inc. (the Company)
acquired MasterChart, Inc. and Medifor, Inc., respectively (the acquired
companies). These acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the tangible and identifiable intangible assets acquired and liabilities assumed
on the basis of their respective fair values on the acquisition dates, with the
excess of the purchase price recorded as goodwill.
The MasterChart, Inc. total purchase price of approximately $132.4
million consisted of 1,617,873 shares of the Company's common stock with a fair
value of approximately $127.4 million and cash of approximately $5 million.
The Medifor Inc. total purchase price of approximately $38.6 million consisted
of 935,858 shares of the Company's common stock with a fair value of
approximately $34.4 million and the issuance of 142,786 common stock options as
replacement of Medifor, Inc. common stock options with a fair value of
approximately $4.2 million.
The following unaudited pro forma consolidated statements of
operations reflects the Company's results of operations for the year ended
December 31, 1999, and three months ended March 31, 2000, as if the acquisitions
had occurred on January 1, 1999 after giving effect to purchase accounting
adjustments. The following unaudited pro forma consolidated balance sheet
reflects the Company's financial position as of March 31, 2000, as if the
acquisitions had occurred on March 31, 2000 after giving effect to purchase
accounting adjustments. These pro forma financial statements have been prepared
for comparative purposes only, do not purport to be indicative of what the
Company's operating results or financial position would have been had the
acquisitions actually taken place on January 1, 1999, or March 31, 2000,
respectively, and may not be indicative of future operating results or financial
position.
30
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
Allscripts, Inc.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per share amounts)
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Acquired Pro
Allscripts, Inc. Companies Adjustments Forma
---------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue $ 9,647 $ 1,106 $ - $ 10,753
Cost of revenue 7,597 648 575 (1) 8,820
-------- -------- -------- ---------
Gross profit 2,050 458 (575) 1,933
Selling, general and
administrative expenses 8,945 7,100 (5,522)(1) 10,523
Amortization of intangibles 574 - 7,564 (1) 8,138
Other operating expenses - - - -
-------- -------- -------- ---------
Loss from operations (7,469) (6,642) (2,617) (16,728)
Interest income (expense), net 1,183 (99) 111 (1) 1,195
-------- -------- -------- ---------
Accretion of mandatory
redemption value of
preferred shares and
accrued dividends on
preferred shares - - - -
-------- -------- -------- ---------
Loss from continuing
operations including
accretion and accrued
dividends on preferred
shares ($6,286) ($6,741) ($2,506) ($15,533)
======== ======== ======== =========
Per share data-basic and
diluted:
Continuing operations
(including accretion and
accrued dividends on
preferred shares) ($0.25) ($0.57)
Weighted average shares of
common stock outstanding
used in computing per
share data-basic and
diluted 24,933 2,554 (2) 27,487
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
31
<PAGE>
Item 7--FINANCIAL STATEMENTS AND EXHIBITS
Allscripts, Inc.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per share amounts)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Acquired Pro
Allscripts, Inc. Companies Adjustments Forma
---------------- --------- ----------- -----
<S> <C> <C> <C> <C>
Revenue $ 27,586 $ 4,206 $ - $ 31,792
Cost of revenue 21,909 1,863 2,299 (1) 26,071
-------- ------- -------- --------
Gross profit 5,677 2,343 (2,299) 5,721
Selling, general and
administrative expenses 20,656 5,155 - 25,811
Amortization of intangibles 1,351 - 30,259 (1) 31,610
Other Operating Expenses 319 - 319
-------- ------- -------- --------
Loss from Operations (16,649) (2,812) (32,558) (52,019)
Interest income (expense), net 1,216 (323) 387 (1) 1,280
Accretion of mandatory
redemption value of
preferred shares and
accrued dividends on
preferred shares (2,198) - - (2,198)
-------- ------- -------- --------
Loss from continuing
operations including
accretion and accrued
dividends on Preferred
Shares $(17,631) $(3,135) $(32,171) $(52,937)
======== ======= ========= ========
Per share data-basic and
diluted:
Continuing operations
(including accretion and
accrued dividends on
preferred shares) $(1.20) $(3.06)
Weighted average shares of
common stock outstanding
used in computing per
share data-basic and
diluted 14,718 2,554 (2) 17,272
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
32
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
Allscripts, Inc.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
1. Pro forma Adjustments (in thousands, unless otherwise noted)
The following adjustments were applied to the Company's historical statements
of operations and those of the acquired companies to arrive at the pro forma
consolidated financial information.
Statement of Operations for the three months ended March 31, 2000:
. To record amortization of acquired trade names totaling $8.7 million for
Medifor, Inc. and $17.4 million for MasterChart, Inc. on a straight-line
basis over 60 months.
To record amortization of goodwill of $21.1 million related to the
Medifor, Inc. acquisition and $104.1 million related to the MasterChart, Inc.
acquisition on a straight-line basis over 60 months.
A summary of the pro forma adjustments relating to the amortization of
acquired intangible assets is as follows:
Medifor MasterChart Total
------- ----------- ------
Trade names $ 435 $ 870 $1,305
Goodwill 1,053 5,206 6,259
------ ------ ------
Total $1,488 $6,076 $7,564
. To record amortization of $575 for acquired software valued at $4.6
million related to the MasterChart, Inc. acquisition amortized on a
straight-line basis over 24 months.
. To eliminate interest expense of $111 related to convertible debt of
MasterChart, Inc. that was converted to the Company's equity in connection
with the acquisition.
. To eliminate compensation expense of $5,522 related to warrants exercised
in connection with acquisition of MasterChart, Inc.
Statement of Operations for the year ended December 31, 1999:
. To record amortization of acquired trade names totaling $8.7 million for
Medifor, Inc. and $17.4 million for MasterChart, Inc. on a straight-line
basis over 60 months.
. To record amortization of goodwill of $21.1 million related to the
Medifor, Inc. acquisition and $104.1 million related to the MasterChart,
Inc. acquisition on a straight-line basis over 60 months.
33
<PAGE>
A summary of the pro forma adjustments relating to the amortization of
acquired intangible assets is as follows:
<TABLE>
<CAPTION>
Medifor MasterChart Total
------- ----------- -------
<S> <C> <C> <C>
Trade names $1,740 $ 3,480 $ 5,220
Goodwill 4,214 20,825 25,039
------ ------- -------
Total $5,954 $24,305 $30,259
</TABLE>
. To record amortization of $2,299 for acquired software valued at $4.6
million related to the MasterChart, Inc. acquisition amortized on a
straight-line basis over 24 months.
. To eliminate interest expense of $387 related to convertible debt of
MasterChart, Inc. that was converted to the Company's equity in
connection with the acquisition.
The attached unaudited pro forma statements of operations for the year ended
December 31, 1999 does not include the immediate expensing of the value of
acquired in-process research and development that had not yet reached
technological feasibility and had no probable alternative future uses of
$8,700 for Medifor, Inc. and $5,029 for MasterChart, Inc.
2. Net Loss per Share
Basic net loss per share for the year ended December 31, 1999 and the three
months ended March 31, 2000 is computed using the weighted average number of
common shares outstanding during the year. Diluted net loss per share is
computed excluding the weighted average number of common equivalent shares
outstanding because such common equivalents are anti-dilutive. Differences
between historical weighted average shares outstanding used to compute net
loss per share result from the inclusion of shares issued in conjunction
with the acquisitions as if such shares were outstanding from January 1,
1999.
34
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
Allscripts, Inc.
PRO FORMA CONSOLIDATED BALANCE SHEET
Unaudited
(In thousands, except share amounts)
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Acquired Pro
Allscripts, Inc. Companies Adjustments Forma
---------------- --------- ----------- -----
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents $110,478 $ 210 $ (5,000) (1) $105,688
Marketable securities 31,886 63 - 31,949
Accounts receivable 6,750 666 - 7,416
Interest receivable 780 - - 780
Other receivable 4,160 - - 4,160
Inventories 3,938 33 - 3,971
Prepaid expenses and
other current expenses 860 138 - 998
-------- -------- -------- --------
Total current assets 158,852 1,110 (5,000) 154,962
Long-term marketable
securities 14,219 187 - 14,406
Fixed assets, net 6,193 692 - 6,885
Intangible assets, net 3,007 137 151,322 (1) 159,063
4,597 (1)
Other assets 1,041 - - 1,041
-------- -------- -------- --------
Total assets $183,312 $ 2,126 $150,919 $336,357
======== ======== ======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 4,101 $ 454 $ - $ 4,555
Accrued expenses 1,789 336 - 2,125
Deferred revenue 774 846 (846) (2) 774
-------- -------- -------- --------
Total current liabilities
Long term debt 6,664 1,636 (846) 7,454
Deferred revenue-net - 4,573 (4,573) (3) -
of current portion - 325 (325) (2) -
-------- -------- -------- --------
Total liabilities 6,664 6,534 (5,744) 7,454
STOCKHOLDERS' EQUITY
Preferred shares:
Undesignated, $0.01
par value, 1,000,000
shares authorized, no
shares issued and
outstanding at March 31,
2000 2,784 (2,784) (1) -
Common shares:
$0.01 par value,
75,000,000 shares
authorized, 26,246,603
shares issued and
28,800,334 pro forma
shares issued at March 31,
2000 263 2,056 (2,056) (1) 288
25 (1)
Unearned compensation (1,491) (26) 26 (1) (1,491)
Other comprehensive
income - (34) 34 (1) -
Additional paid-in capital 241,995 14,378 (14,378) (1) 407,954
165,959 (1)
Treasury stock at cost;
34,465 common shares
at March 31, 2000 (68) - (68)
Accumulated deficit (64,051) (23,566) 23,566 (1) (77,780)
(13,729) (4)
-------- -------- -------- --------
Total stockholders'
equity 176,648 (4,408) 156,663 328,903
-------- -------- -------- --------
Total liabilities and
stockholders' equity $183,312 $ 2,126 $150,919 $336,357
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
35
<PAGE>
Item 7 - FINANCIAL STATEMENTS AND EXHIBITS
Allscripts, Inc.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
1. Pro forma Adjustments (in thousands, unless otherwise noted)
The following adjustments were applied to the Company's historical balance
sheet and those of the acquired companies to arrive at the pro forma
consolidated financial information.
. To record $5,000 cash included in the total consideration related to the
MasterChart, Inc.'s acquisition of approximately $132.4 million.
. To record the issuance of (a) 1,617,873 shares of common stock with a
fair value of approximately $127.4 million in the acquisition of
MasterChart, Inc. and (b) 935,858 shares of common stock with a fair
value of approximately $34.3 million and the issuance of 142,786 common
stock options with a value of approximately $4.2 million in replacement
of Medifor, Inc. common stock options in the acquisition of Medifor,
Inc.
. To record goodwill and other intangible assets related to the
acquisition of MasterChart, Inc. and Medifor, Inc. A summary of goodwill
and other intangibles acquired is as follows:
<TABLE>
<CAPTION>
Medifor Masterchart Total
------- ----------- --------
<S> <C> <C> <C>
Acquired goodwill $21,069 $104,149 $125,218
Trade names 8,704 17,400 26,104
------- -------- --------
Total $29,773 $121,549 $151,322
</TABLE>
. The Company also acquired $4,597 of identified software related to the
purchase of MasterChart, Inc..
. To eliminate the equity accounts of the acquired companies.
2. An adjustment was made to the pro forma balance sheet to adjust the
acquirees' deferred revenue to the estimated cost of completing the services to
which the deferred revenue related.
3. Pursuant to the acquisition of MasterChart, Inc., certain debt instruments
held by Lanier automatically converted into equity of MasterChart, Inc. Upon
execution of the acquisition, Lanier received consideration for their equity.
4. An adjustment was made to the pro forma balance sheet to reflect the
immediate expensing of acquired in-process research and development of $8,700
and $5,029 related to Medifor, Inc. and MasterChart, Inc. respectively.
36
<PAGE>
Item 7 - EXHIBITS
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-90129 and No. 333-37238) of Allscripts, Inc. of
our report dated February 10, 2000 relating to the financial statements of
Medifor, Inc., which appears in the Current Report on Form 8-K/A-2 of
Allscripts, Inc. dated May 9, 2000.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Seattle, Washington
July 24, 2000
37
<PAGE>
Item 7 - EXHIBITS
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-90129 and No. 333-37238) of Allscripts, Inc. of
our report dated July 14, 2000 relating to the financial statements of
MasterChart, Inc., which appears in the Current Report on Form 8-K/A-2 of
Allscripts, Inc. dated May 9, 2000.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
July 24, 2000
38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALLSCRIPTS, INC.
Date: July 25, 2000 By: /s/ David B. Mullen
-------------------------------------
David B. Mullen, President
39
