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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999
Or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 333-76427
Panoramic Care Systems, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 84-1165714
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(State or other jurisdiction of I.R.S. Employer I. D. Number
incorporation or organization)
5181 Ward Road, Wheat Ridge, Colorado 80033
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (303) 422-3886
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Securities registered pursuant to Section 12(b) of the Act: None.
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be included
herein, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB: X .
State issuer's revenues for its most recent fiscal year: $ 12,894
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Shares of common stock, $.001 par value, outstanding as of March 27,
2000: 4,875,000 shares. Aggregate market value of voting stock held by
non-affiliates of the registrant on March 27, 2000, $16,123,250.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): Yes No X
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Panoramic Care Systems, Inc.
FORM 10-KSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I Page
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<S> <C> <C>
Item 1. Description of Business 3
Item 2. Description of Property 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Part II
Item 5. Market for Common Equity and Related Stockholder Matters 12
Item 6. Management's Discussion and Analysis or Plan of Operation 14
Item 7. Financial Statements 18
Item 8. Changes in and Disagreements with Accountants on Accounting 17
and Financial Disclosure
Part III
Item 9. Directors and Executive Officers; 19
Item 10. Executive Compensation 21
Item 11. Security Ownership of Certain Beneficial Owners and Management 24
Item 12. Certain Relationships and Related Transactions 25
Part IV
Item 13. Exhibits and Reports on Form 8-K 26
</TABLE>
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Panoramic Care Systems, Inc.
FORM 10-KSB
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-KSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 ("The ACT") and Section
21E of the Securities Exchange Act of 1934. These statement often can be
identified by the use of terms such as "may," "will," "expect," "believes,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
The Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the control of
the Company that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. These factors include adverse economic conditions, entry of new and
stronger competitors, inadequate capital, unexpected costs and failure to
capitalize upon access to new markets. You should understand that various
factors, in addition to those discussed elsewhere in this document and in the
documents referred to in this document, could affect the future results of the
Company and could cause results to differ materially from those expressed in
such forward-looking statements. The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statement or to reflect the occurrence of
anticipated or unanticipated events.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
CORPORATE HISTORY
The Company was incorporated under the laws of the State of Colorado on
September 4, 1990 under the name "FreeStyle Publications, Inc." The Company
changed its name from "FreeStyle Publications, Inc." to "Panoramic Care Manager,
Inc.," effective as of December 8, 1998. On April 27, 1999, the Company was
reincorporated under the laws of the State of Delaware and the name was changed
to Panoramic Care Systems, Inc.. The Company's principal office is located at
5181 Ward Road, Wheat Ridge, Colorado 80033. The Company's registered agent is
located at 11350 West 72nd Place, Arvada, Colorado 80005. The Company has no
subsidiaries.
Initially, the Company's focus was on the provision of educational
materials for a variety of facilities and institutions within the health care
industry. More specifically, the Company developed and marketed educational
materials for critical care health providers. In 1991, the Company began the
development of a set of paper-based patient management tools under the name
STATpath. STATpath is currently comprised of 32 binder-size printed volumes that
cover 364 medical diagnoses and are based on 220 standards of practice. The
Company's STATpath procedures take standard diagnoses and applies a critical
path analysis to assure the right treatment is given at the right time to the
right patient. STATpath "pathways" outline the specific treatments and
procedures that should be followed given a particular diagnosis for each
patient. Unlike traditional approaches, where a medical diagnosis is the basis
of the pathway to be followed, the Company has developed a methodology and
process--through computerization of STATpath components--where individual
patient signs and symptoms trigger a treatment plan (often referred to as
"interventions")--are the primary basis of determining the pathway to follow.
This patient-driven clinical path approach was unique to STATpath. The STATpath
data has now been converted to a set of database libraries called the Clinical
Information Infrastructure ("CII") to form a foundation for the Company's
software products.
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NARRATIVE DESCRIPTION OF BUSINESS
HISTORY OF PANORAMIC AND INTEGRITY SOFTWARE DEVELOPMENT
Development of a PC-based software application, Integrity - Patient
Care Manager ("PCM") software, initially began in 1997. In August of 1998, the
Company began beta testing the screening modules of its PCM Software at Alpine
Living Center in Thornton, Colorado. In November of 1998, the Company also began
beta testing its post-acute module for skilled nursing facilities at one such
facility - Crestmount North in Lakewood, Ohio.
PCM FOR DISEASE MANAGEMENT
A beta prototype of the Integrity - PCM product has been developed by
the Company. The core functions of Integrity - PCM are described below:
1. Integrity - PCM provides assessment tools and staging criteria allowing
for customized care. The application software product contains
assessment tools to flag a patient's expected key problems and gauges
the severity of each problem according to certain defined criteria.
2. The Integrity - PCM software assists in automating patient follow-up by
creating and managing a schedule of patients due for follow-up. During
interviews, the Integrity - PCM software provides a list of questions
to ask the patient, based upon the patient's key problems and stages,
and collects the information the patient provides. Based upon the
answers received, the Integrity - PCM software is able to produce a
list of interventions or an additional set of questions to help the
interviewer assess severity. The Integrity - PCM software's questions
and responses are built from medical and procedural tools frequently
used in emergency departments. Three levels of referrals are built from
each of the four algorithms for each disease process.
3. Once collected, the patient assessment data, including diagnosis and
conditions, is utilized by the Integrity - PCM software to produce a
least cost, clinically sound care plan and supporting clinical pathway.
This core functionality provides the opportunity for development of
application products for multiple health care market segments including
but not limited to Long Term Care, Long Term Acute Care, Home Health
Care, Hospitals, Integrated Delivery Systems, Managed Care and other
risk bearing health care organizations.
4. The Integrity - PCM software contains more than 200 patient education
topics that can be provided directly to the patient.
All Integrity - PCM products are developed using Microsoft Solutions
Framework ("MSF") methodology for managing the product life cycle. MSF defines
four phases in the cycle: Product Vision; Product Specification; Development;
and Stabilization/Roll-out.
As the Integrity - PCM and other application products complete the
Development Phase and enter the Stabilization/Roll-out Phase they face the risk
of lower than anticipated market acceptance, risk of changes in market
requirements or government regulations and the risk associated with the
potential emergence of competitive products offering superior price or
performance combinations.
STATUS OF PCM SOFTWARE DEVELOPMENT
The Company released a product to the long term care market in the
second quarter of 1999 and plans to release its second product, "Integrity -
Long Term Acute Care", in the fourth quarter of 2000.
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The PCM Software has been developed from approximately 50 software
libraries (libraries are a collection of tables or clinical data files such as a
list of lab tests, medical diagnoses, billing codes, nursing care interventions,
patient education, etc.). The Company's definition of its database elements and
objects is referred to by management as the Integrity - PCM Software's CII.
During 1999, the Company began deploying its first product via the new
ultra-thin client technologies based on Microsoft WindowsTM 2000 Terminal Server
and Citrix MetaFrameTM. These technologies allow the Company to deliver its
offerings via the Internet from one central location, providing significant cost
savings for the Company and its customers. This paradigm allows the Company to
oversee all of a customer's information management needs, including hosting
software applications, bandwidth provisioning, delivering integrated software
solutions, processing transactions, and supplying support services. To provide a
complete set of software solutions to its customers, the Company is partnering
with other "best-of-breed" software providers and is integrating such solutions
at a central server site. Over the medium to long-term, the Company wants to
create additional software applications in the patient management area (referred
to as disease management) as well as in the home health marketplace.
PRODUCTS AND SERVICES
In information-intensive industries such as health care, information
technology ("IT") is typically deployed via dozens to thousands of personal
computers ("PCs") linked via local area networks ("LANs"), which may or may not
be aggregated into an enterprise-wide network. In hospitals, LANs are likely at
the department level, supported by a centralized Management of Information
Services ("MIS") staff. In non-hospital venues such as skilled nursing
facilities, rehabilitations centers, home health agencies, and physician
offices, each facility runs its own LAN. If the facility is part of a chain of
facilities, it may receive support from a distant, centralized MIS staff.
Software applications are generally run on each individual PC, and shared
applications are run on a server at each facility. Information aggregation at
the enterprise level is typically primitive or non-existent.
In recent years organizations have come to realize that the total cost
of ownership ("TCO") of a distributed processing environment is very high.
According to the Gartner Group the average cost of ownership for a networked PC
is $10,000 per year when including hardware and software upgrades, training and
troubleshooting. PCs remote from support staff, such as those in non-hospital
facilities, are even more expensive.
The Internet, together with new thin-client technologies, such as
Microsoft Terminal Server and Citrix MetaFrame, are making it feasible to
centralize applications in large, efficient data centers, while at the same time
giving distributed users the same data access and capabilities they have always
enjoyed while running their applications locally.
Rather than sending actual data back and forth between client and
server, the new thin-client technologies send only video screen changes from
server to client and only key strokes and mouse clicks from client back to
server. Therefore, bandwidth requirements are far less than in traditional
client/server arrangements, and even less than in traditional HTML-based web
surfing. Since the local client machine is not performing any data processing,
it can be a relatively simple device, such as an older 386 or 486-class PC or
one of the new-generation inexpensive network computer ("NCs"). Bandwidth
provided to a single facility can be as little as an inexpensive ISDN or DSL
line.
Cost savings accrue from many angles. Hardware costs are lower, since
an organization can begin using a new application without upgrading its PCs.
Support costs are lower, since most application upgrades and other support can
be performed once at the central server site rather than at each distributed
facility. Organizations also benefit from increased reliability of backups,
increased security, twenty four hours per day, seven days per week support
(which may not have been feasible before), tighter integration of
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applications, and access to data from locations outside of the organization.
Combining all these factors, early studies indicate deployment of such
technology can result in TCO savings of as much as 60 percent.
The adoption of these technologies represents a significant shift in
IT. Large MIS shops are beginning to deploy terminal servers internally to their
organizations while smaller organizations are beginning to contract with a new
kind of company called an application service provider ("ASP") to host their
applications on a subscription basis. Bank of America Securities analyst Paul J.
Dravis forecasts that worldwide ASP revenues will grow from US$3.5 billion in
2000 to US$23 billion in 2003.
Because of several factors which apply in the health care industry, the
Company has identified a business model that offers even more value-added
opportunities than that of an ASP. This model is that of an E-Solutions Provider
("ESP").
In this role, the Company functions as the "general contractor" in
transitioning all the necessary elements in an organization to the new
cost-saving IT model and managing it thereafter. Centralized application hosting
as described above is performed by the ASP role, which may be internal to the
Company or sub-contracted to an arm's length third party. Internet connectivity
will be provided by established carriers with installation coordinated by the
Company.
The Company believes that the key to long-term success in this business
model is the quality and breadth of the industry-specific content/software
applications, knowledge base, and the ability to provide transaction processing.
This content consists of products developed by the Company and products from
other sources that the Company seamlessly integrates with its own to provide a
total solution for customers.
The management of transactions with other organizations is another
important part of the total picture. These involve electronic inputs to the
organization, such as prescriptions and other orders from doctors, and outputs
from the organization, such as electronic submission of government required
forms and insurance claims.
Under this model, the Company would also provide support services,
which range from user training and help desk functions to highly value-added
services such as information management consulting and bench marking among
multiple facilities.
FUTURE DEVELOPMENTS
The Company has identified other sectors of the health care industry
that are impacted by the Balanced Budget Act, causing a need for increased
productivity and further reduce costs. In the near term the Company will
continue development of integrated e-solutions for Long Term Acute Care and Home
Care market segments. Based on feedback from prospects and its' beta sites the
Company is planning to expand the Long Term Care product - Integrity offering to
include Accounts Receivable / Billing, General Financials, human resources, cost
accounting and a health record.
Given the adoption of ultra-thin terminal server technology, the
Company is considering whether to provide ASP services directly, hosting its own
software applications as well as complimentary applications from other health
care information system vendors. Additionally, the lower bandwidth requirement
opens up practical applications of wireless and hand-held input and output
devices. These and other developments will be considered and pursued once
clearly defined needs are identified.
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THE MARKET FOR THE PRODUCT
MARKET
The total market for health care information systems in the United
States is forecast to be $21 billion in 2000. $8 billion of this total is
forecast for the non-hospital portion of the market, where the Company is
initially focusing.
In broad terms, the Company's products and services provide customers a
one-stop information management utility which includes software solutions unique
to the client's health care setting, as well as applications applicable across
settings. The Company's solutions are particularly well-suited to distributed
information environments, such as multi-facility organizations (e.g., a chain of
skilled nursing facilities), remote care givers (e.g., home health nurses) and
integrated health networks where information must be collected from and shared
with numerous locations.
The Company's initial focus is on the skilled nursing care market,
which has recently been driven to adopt drastic cost-cutting measures by the
Medicare-mandated Prospective Payment System ("PPS"). This has accelerated the
industry trend toward consolidation into chains, where centralized information
management is imperative. It has also made it even more critical for health care
providers to cut overhead costs and improve efficiency by adopting new
technologies.
In home health care, another of the Company's markets, it is necessary
not only to manage information at a number of different office locations, but
also from a number of different mobile home-visit nurses. The Company's
solutions in this arena will include hand held, wireless Internet terminals, as
well as the complete suite of software applications and management services
necessary to provide a complete outsourcing package.
The Company plans to serve integrated health care networks and
physicians with a disease management system which provides proactive management
of chronic diseases. This suite of products will use the extensive knowledge of
symptomology embedded in the Company's proprietary libraries, and the
capabilities of the Internet to collect and distribute information from widely
dispersed sources. Service include follow-up management and patient/family
education.
MARKETING PLAN AND STRATEGIES
MARKETING
In April, 1999 the Company began selling the Integrity - Long Term Care
application utilizing a three part market and sales strategy that included:
o a direct sale force focused on national and regional chains
that operate multiple Long Term Care facilities;
o formation of strategic alliances with larger companies that
currently sell software or management tools into the Long Term
Care market; and
o establishment of pricing and service agreements with Group
Purchasing Organizations (GPO).
Following this strategy, the Company entered into a non-exclusive
distribution agreement with Solomon Health Care. The Company was successful in
its discussions with Amerinet, a 12,000 member health care group purchasing
organization. In addition, the Company is confident that discussions with
several Long Term Care software companies regarding the cross marketing and/or
private labeling of their respective application products will be finalized in
mid 2000.
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In general, the Integrity-Long Term Care product received high marks in
terms of functionality and level of integration from its beta sites. Lower than
expected sales of the Integrity - Long Term Care product during 1999 is
attributed to the following market and competitive conditions.
o PPS Impact - During 1999 the Long Term Care industry was
negatively impacted by implementation of the Prospective
Payment System (PPS) whereby the payment for services was
fixed based on diagnosis and RUGs category. The negative
financial impact on Long Term Care providers caused a dramatic
slow down in spending for capital items such as computer
systems.
o Single System Solution - While sales prospects rating of the
Integrity product was high, in most instances considering it
the best clinical application available, they indicated a
strong preference for a single solution offering that included
integrated clinical, AR/billing and financial applications.
o Total Cost of Sale - Although Integrity - Long Term Care is
competitively priced the decision to purchase generally
include a need for either new hardware or an upgrade to
existing hardware. In many instances the related hardware
component placed the total cost of sale above the customer's
budget.
Based on these factors the Company will be adjusting its marketing and
sales strategy to expand its product offering through acquisition and private
labeling and deliver them via an Internet-based, ultra-thin client server
platform. Distribution channels will be tightened to include arrangements with
highly visible group purchasing organizations, Application Service Providers,
consulting companies and providers themselves.
PRICING
The Company's pricing strategy will continue to reflect market research
and the pricing of competitive products within the respective health care market
segments. The Company plans to take advantage of the Internet-based terminal
server platform by moving towards a subscription pricing model that
substantially reduces the customers purchase, support and maintenance and
operating costs.
U.S. sales efforts will be enhanced by selling directly to national and
regional chains that operate a number of health care facilities. The Company's
sales and marketing staff will be comprised of a number of individuals with
clinical, technical, and financial backgrounds in order to assess aspects of a
potential client's decision-making process.
The Company will focus its Integrity - PCM software marketing efforts
on managed care organizations, independent physician associations and physician
practice management companies. The Company's strategy involves the formation of
strategic alliances with larger companies that are currently selling software
product or management tools into the post-acute health care market. Because of
its limited resources, the Company proposes to take advantage of the existing
infrastructure of these larger companies.
The Company will enter into distribution agreements that will require
the distributor to provide adequate resources to properly market and sell the
PCM Software. Based on current negotiations, the Company expects to have between
three and five non-exclusive distribution agreements in place before the end of
1999.
Initially the Company currently markets its products through indirect
channels (including large pharmaceutical organizations) and direct contact by
sales representatives with management, consulting and
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professional organizations. The Company will support its direct sales
professionals with marketing support employees specializing in the clinical,
technical, and financial aspects of Integrity - PCM software application.
The Company will also attempt to generate brand awareness through
attendance at key health industry trade shows and through offering educational
seminars on various topics related to using clinical, financial and
administrative information in the post-acute health care industry.
The Company has developed an end user pricing structure based on market
research and the pricing of competitive products. The Company will continue to
monitor competitors' pricing and the market's acceptance of Integrity - PCM
software products and will make adjustments as required. Pricing to the
Company's distributors and strategic partners is negotiated on an individual
basis and is largely dependent on the sales that are anticipated from each
distributor.
OPERATIONS
The Company's quarterly operating results did not meet expectations and
has caused the Company to refocus its direction. There are a number of reasons
including the demand for an integrated clinical and financial product; a long
sales cycle and the state of the industry, which is in a state of flux.
Outsourcing non-core activities is a growing trend in today's health care
marketplace. Growing regulatory pressures for cost containment are forcing the
industry to re-focus itself on its core business of delivering care while
outsourcing non-core activities such as IT.
Instead of selling software, the Company is changing its direction to
an e-services company to provide software and services to the health care
industry over the Internet, using new ultra-thin client technologies. Ultra-thin
client technology represents a paradigm shift in information technology (IT). It
allows organizations to out source most or all IT functions and reduce their TCO
by as much as 60 percent.
The Company owns a large quantity of proprietary content in its
Clinical Information Infrastructure libraries which, as part of its Internet
software offerings, helps care givers streamline and standardize the delivery of
care to cut costs and increase quality. We also believe it presents a
significant barrier to entry for would-be competitors.
The Company's business model builds recurring revenue streams through
long-term service agreements, which gives the Company a high degree of
predictability in its revenues. Because of the Company's central role in
providing IT services to clients, it is in prime position to offer additional
applications and services through the already-established "pipeline" of
bandwidth to the customer.
The Company's quarterly operating results may continue to vary through
mid-2000 while the Company expands their services.
INTELLECTUAL PROPERTY
Copyrights, Service Marks, Trademarks, and Patents
The Company holds copyrights on various STATpath clinical path volumes
filed with the United States Copyright Office on January 31, 1994, March 7,
1994, June 17, 1994 and July 22, 1994. The Company also holds registered
copyrights on 26 audio cassette courses. Health Design Consultants became a
service mark of the Company on August 12, 1997. The service number is 75-036,975
and the registration number is 2,088,282. STATpath is a non-registered trademark
of the Company and has been in use since 1991. On March 2, 1998, Panoramic Care
Manager was filed as a registered trademark of the Company, serial number
75/323044. The Company holds no patents, nor are any patents pending. The
Company's
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management has obtained a preliminary opinion of legal counsel that its PCM
Software may be able to be patented.
COMPETITION
The software market outside of hospitals is highly fragmented. Many
companies offer only a single product for a single task which forces
organizations to purchase a variety of software solutions for financial,
clinical, quality and administrative requirements. The Company's Integrity - PCM
software integrates these requirements.
At the beginning of 1998, most post-acute software was still available
only for DOS or UNIX based computer operating systems, although some were
converting to Microsoft Windows during 1998. Many small DOS-based companies are
finding it prohibitively expensive to upgrade their customer base to a
Windows-based product.
Skilled Nursing Facilities
There are three major competitors in the skilled nursing industry:
QuickCare, Care Computer Systems and OmniCare.
QuickCare - is a Windows-based integrated clinical and financial
software package and is privately owned with headquarters in Dallas. It was
founded in 1992 and its first product was a DOS-based clinical system released
in October, 1995. In 1996 QuickCare rewrote its package to become
Window/NT-based and merged with a financial software company to provide services
to long-term care facilities and assisted living centers. They have grown the
business in four major locations - Dallas, TX; Cleveland, OH; Los Angeles, CA;
and Tampa, FL. Their installed base is about 600 facilities.
QuickCare provides the minimum requirements for the Prospective Payment
System and builds the plan of care based on the patient's medical diagnosis.
There is also a pre-screening tool for determining reimbursement, but it does
not connect to the calculator system (used by the Prospective Payment System) so
the amounts need to be manually coordinated. The plan of care includes a
long-term goal for each problem identified but there is no progression of
outcomes so variances for quality assurance are not easily tracked. There is no
clinical path component to lay out day-to-day or week-by-week care and there is
no quality component.
Care Computer Systems - is a privately held company headquartered in
Bellevue, WA. The Care Computer Systems product is designed for subacute,
long-term and home health care. The product includes Prospective Payment System
requirements, care plans for 33 disease categories, cost analysis with payroll,
general ledger, accounts receivable, accounts payable and dietary management.
Home health does not yet include the required OASIS, which is an assessment tool
used by the Health Care Financing Administration to determine the functionality
of Medicare patients that require home health care. Care Computer is in the
process of converting the system from DOS to Windows NT. Care Computer has the
largest market penetration with just over 3000 facilities using their product.
(a 6.3% market penetration.)
OmniCare - is the only publicly held company in the post-acute market.
OmniCare is a leading provider of professional pharmacy and related consulting
services for nursing homes, retirement centers and other institutions. Of the
four products acquired by OmniCare, two are written in DOS, one in FoxPro and
one in Visual Basic.
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PRODUCT DEVELOPMENT EXPENDITURES
In 1999 the Company expended $488,340 for the development of its
Integrity - PCM software. With these efforts the Company developed the first in
a series of applications. The Company plans on continuing these development
efforts with the PCM for disease management module scheduled to be rolled out in
fourth quarter 2000.
CONCENTRATION OF SALES
One customer accounted for more than 10% of the Company's total revenue
or accounts receivables during the year ended December 31, 1999. In 1998 no one
customer accounted for more than 10% of the Company's total revenue in 1998.
EMPLOYEES
As of December 31, 1999, the Company had seven full-time employees.
That number includes four engineers/technical support, one sales persons; and
two administrative personnel. No employee is represented by a labor union and
the Company believes its employees' relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains leased facilities in the locations listed below.
<TABLE>
<CAPTION>
Current
Square Term of Annual
Function Location Feet Lease Lease Costs
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<S> <C> <C> <C> <C>
Corporate Headquarters 5181 Ward Road, Wheat Ridge, Colorado 2,856 09/15/2000 $ 34,272
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company
(or any of its officers or directors in their capacities as such) is a party, or
to which the property of the Company is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On June 29, 1999 the Company completed a public offering of it common
stock in Canada on the facilities of the Vancouver Stock Exchange ("VSE"). The
price to the public in the initial public offering was $1.00 per share.
The range of high and low bid quotations for the Company's Common Stock
as quoted (without retail markup or markdown and without commissions) on the
Vancouver Stock Exchange now known as the Canadian Venture Exchange ("CDNX") for
the past fiscal year is provided below. The figures shown below do not
necessarily represent actual transactions:
<TABLE>
<CAPTION>
1999 Fiscal Year High Bid Low Bid
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<S> <C> <C>
Fourth Quarter $ 1.20 $ 0.45
Third Quarter $ 1.60 $ 0.45
Second Quarter $ 1.35 $ 1.00
</TABLE>
There are approximately 450 holders of Common Stock of the Company as
of March 30, 2000.
The Company has never declared a dividend on its common stock and it
intends, for the foreseeable future to retain all earnings, if any, for the
development of its business opportunities. The payment of future dividends will
be at the discretion of the Company's board of directors and will depend upon,
among other things, future earnings, capital requirements, financial conditions
and general business conditions.
The transfer agent for the Company's common stock is Pacific Corporate
Trust Co. 625 Howe Street, Suite 830 Vancouver, BC V6C3B8
RECENT SALES OF UNREGISTERED SECURITIES
During the period the Company's incorporation through to the date of
this annual report, the Company has issued the following shares, after giving
effect to the December 4, 1998 stock split of 2,000 to 1:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER TOTAL
DATE ISSUED SHARES SHARE CONSIDERATION
----------------- --------------- --------- -------------
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Prior sales: September 4, 1990 2,000,000(1)(3) $0.0005 $ 1,000
February 10, 1999 1,200,000(2)(3) $ 0.50 $600,000
</TABLE>
(1) The Company issued 490 shares to Byron Flateland and 510 shares to Jill
Flateland on incorporation for total aggregate cash consideration of $1,000.
These shares were subject to a 2,000:1 share split effective December 4,
1998.
(2) The Company issued 1,200,000 shares to a total of 45 individuals at a price
of $0.50 per share to raise seed capital of $600,000.
(3) The Company issued all presently outstanding shares in exempt transactions
under Section 4(a) of the Securities Act of 1933 and Rule 504 of Regulation
D, as no public offering was involved.
o Pursuant to Rule 701 of the Securities Act of 1933, the
Company has granted 380,000 options to purchase shares of
common stock to its employees and to its non-employee director
under the terms of the Company's Stock Option Plan.
o Effective May 12, 1999 the Company issued convertible notes in
the aggregate principal amount of $100,000. In consideration
for making the loans, the Company granted to the holders a
warrant to acquire one-quarter of a share of the Company
common stock for each $1.00 loaned. Each warrant is
exercisable at $1.00 per share during the first year of the
-12-
<PAGE> 13
warrant and $1.15 per share during the second year. These
securities were issued under Regulation S.
o Pursuant to Rule 504 of Regulation D, the Company issued
100,000 shares to M1 Software pursuant to the terms of a
Letter of Engagement entered into between the Company and M1
on December 7, 1998, which was later amended by resolution of
the board of directors. As part of the compensation to be paid
M1 for its services under this agreement, the Company agreed
to grant M1 60 shares of common stock for each hour of
services provided.
o In December 1999 pursuant to Section 4(2) of the Securities
Act of 1933, the Company commenced a private placement of up
to 625,000 special warrants at $.56 to officers and friends of
the company. Each special warrant can be converted into one
share of common stock with one-half warrant attached. The
Company accepted a subscription and issued 187,500 special
warrants to an officer of the Company in December 1999. The
Company closed on 437,500 special warrant of the private
placement in February 2000. The special warrant allows the
warrant holder to have issued, at no additional costs, one
share of the Company's common stock for each special warrant
purchased.
-13-
<PAGE> 14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion should be read together with Panoramic's
financial statements and accompanying notes included elsewhere.
INTRODUCTION
For the fiscal years ended December 31, 1996 to 1998 the Company's
revenues have been received from sale of the STATpath product and from related
consulting services. Royalty revenues in 1998 represent royalties received from
the sale of STATpath by Citation, a software company in Saint Louis, Missouri
and the Center for Health Education, a non-profit organization. The Center for
Health Education's Board of Directors consists of Jill Flateland and Byron
Flateland. Royalties have represented 53.6% of total revenues for the fiscal
years ended December 31, 1998. For the year ended December 31, 1999 product
royalties declined to $894 with the Company focusing its efforts on the sale and
further development of Integrity - PCM product.
Over the three years ended December 31, 1999 the Company's revenues
have decreased 63.5%. Revenues have decreased as the Company has focused
primarily on Integrity - PCM product development as the STATpath product has
reached the peak of its commercial life cycle. Accordingly, consulting revenue
has decreased from $92,305 in the year ended December 31, 1996 to zero in the
year ended December 31, 1999. Consulting revenues were principally derived from
the services of Jill Flateland and Byron Flateland. Consulting revenues are
almost entirely associated with implementing the STATpath method of care in an
organization.
Subsequent to the establishment of the technological feasibility of the
Integrity - PCM software product in mid-1998, the Company capitalized software
development costs of $75,000 and in 1999 capitalized $488,340 for software
development costs. All development costs incurred prior to this point were
charged to operations as incurred, as required by both U.S. and Canadian
generally accepted accounting principles.
FISCAL YEAR ENDED DECEMBER 31, 1999
COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1998
REVENUES - In 1999 revenues declined from $51,507 in 1998 to $12,894
for the fiscal year end 1999. The decease in sales is due to the Company
focusing its efforts on the sale of the Company's new product Integrity - PCM
software to the long term and post acute health care industry. Royalty Income
declined $26,719 or 97% from $27,613 in 1998 to $894 for fiscal 1999. This
decrease is due to decreased sales of STATpath and audio tape products by CHE as
the Company continued to focus efforts on product sales and enhancements to it
Integrity - PCM software in 1999. Consulting fees for 1999 decreased $23,180 to
$0 in 1999 from $23,180 for 1998. This decrease is primarily due to the Company
not pursuing consulting contracts with outside companies. Total revenues for
1999 decreased $38,613 or 75%, to $12,894 from $51,507 for 1998.
GROSS MARGINS - The Company's gross profit margins in 1999 was $3,660
or 30% based on sales.
SELLING, GENERAL AND ADMINISTRATIVE, PRODUCT DEVELOPMENT EXPENSES
(SG&A) - The SG& A expenditures increased from $235,603 in 1998 to $1,324,394 in
1999 or a 462% increase. The increase is due to the attempt to expand the
Company's product sales and support of its Integrity - PCM software. The Company
in 1999 hired six employees by May to support sale and enhance the Integrity -
PCM software. In the third quarter 1999 the Company made changes in management
which resulted in the reduction of salary expenditures. In 1999 the Company
completed the product development and pilot testing for its Integrity - PCM
software product The Company at the end of 1999 refocused its efforts to that of
an Application
-14-
<PAGE> 15
Service Provider (ASP) model to deliver its product to the end customer over the
Internet utilizing thin client server technology. Management fees increased from
$61,650 in 1998 to $108,621 in 1999 which is associated with the Company
utilizing outside services instead of bringing on full-time employees to support
its operations. Other general and administrative expenses increased from $24,995
in 1998 to $695,151 or $670,156 increase in 1999. Travel expenses increased
$111,683, printing increase $93,684, recruiting increased $78,960, software
costs amortization increased $106,360, Internet marketing $31,760, insurance
$34,641 and rent $26,507.
PRODUCT AND DEVELOPMENT EXPENDITURES - increased from $3,221 in 1998 to
$17,358 in 1999. These costs were associated with upgrades to the software based
on various users inputs.
OTHER INCOME (EXPENSES) - increase to $7,860 due to interest income
from the funding the Company received in 1999
NET LOSS - The Company incurred a net loss of $1,320,998. The increased
loss was attributed to the Company's efforts to market and sell and expand the
use of the Company's Integrity - PCM software in the market place. The loss
increased $1,133,681 over 1998 due to the increased expansion.
INCOME TAXES AND NET OPERATING LOSSES - As discussed in Note 4 to the
accompanying financial statements, the Company in 1999 recognized a 100%
valuation allowance on its net deferred tax asset since it could not be
determined if it was more likely than not it would be realized. The Company has
$1,300,000 in net operating loss carry forwards with expirations through 2019.
The utilization of certain of the loss carryforwards are limited under Section
382 of the Internal Revenue Code.
Management believes that higher levels of operating expenditures will
continue through 2000 in order to continue the expansion of the Company's
product in an ASP environment into an emerging market. The Company anticipates
to continue to generate operating losses to attain market penetration. The
Company anticipates that an aggressive marketing strategy and its acquisition
activities See "Operations" will help establish the Company as a leader in the
market segment.
LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 1999
CAPITAL AND DEBT FINANCING
During the first quarter of 1999 the Company completed a $92,000
private placement of 184,000 shares of the Company's common stock, all at a
price of $.50 per share to officers, directors, key employees, consultants and
friends of the Company. The Company received $71,975 from the offering net of
offering costs of $20,025.
During the second quarter of 1999 consultants of the Company exercised
a warrant to purchase 200,000 shares of the Company's Common stock all at a
price of $ .25 per share. The Company received $ 50,000 from the exercise of
these warrants.
During the second quarter of 1999 the Company issued to the software
developers 100,000 shares of the Company's common stock all at a price of $1.00
in exchange for services provided in development of the Company's software
product. The $100,000 in costs were capitalized as software development costs.
In June 1999, the Company completed its initial public offering of
1,100,000 shares of the Company's common stock at an offering price of $1.00 per
share. As part of the initial public offering the holders of the $100,000 8%
convertible notes, at their option, converted the notes into 100,000 shares of
common stock at $1.00 per share. Additionally, the Agent was issued 110,000
shares of the Company's common stock in the Canadian Offering along with
warrants to purchase 190,000 shares of the Company's
-15-
<PAGE> 16
common stock at a price of $1.00 for the first 12 months and at a price of $1.15
for the next 12 months. In July 1999, the Company completed the green shoe for
the IPO selling an additional 165,000 shares at a price of $1.00. The net cash
proceeds to the Company from the initial public offering and the green shoe were
approximately $961,140 after payment of expenses of approximately $303,856.
In the December 1999, the Company commenced a private placement of
625,000 special warrants at $.56 to officers and friends of the company. Each
special warrant can be converted into one share of common stock with one-half
warrant attached. The Company accepted a subscription and issued 187,500 special
warrants to an officer of the Company resulting in the receipt of $104,887 net
of issuance costs of $113. The Company closed on $245,000 or 437,500 special
warrant of the private placement in February 2000. The special warrant allows
the warrant holder to have issued, at no additional costs, one share of the
Company's common stock for each special warrant purchased.
In March 2000 the Company commenced an additional private placement of
1,000,000 special warrants at $1.20. Each special warrant can be converted into
one share of common stock with one-half warrant attached. The Company closed on
530,000 special warrants at the end of March 2000 with the remaining portion
scheduled to closed in April 2000. The special warrant allows the warrant holder
to have issued, at no additional costs, one share of the Company's common stock
for each special warrant purchased.
The equity financing that occurred in 1999 was utilized to expand the
Company's operations and support the losses that incurred from developing the
products in the emerging market place.
Working capital at December 31, 1999, had decreased to approximately
$(64,031) from $417,265 at December 31, 1998. The decrease in working capital is
associated the continued support of the Company's operating losses associated
with the Company's support of the expansion of the efforts to expand its
products into emerging market of the long term and subacute markets in 1999.
CASH FLOW
During the year ended December 31, 1999, the Company used cash from
operations in the amount of $1,034,093 compared to $7,649 in the prior year.
This is a result of working capital which was utilized to fund the operating
losses of the company.
Cash used in investing activities, totaled $483,746 during the year
ended December 31, 1999 compared to $4,641 in the prior year. The increase is
attributed to the capitalized software costs totaling $388,340 and purchase of
equipment of $95,406 for new personnel.
Cash provided by financing activities was $1,287,402 for the year ended
December 31, 1999 compared to $362,076 in the previous year. The Company
received net proceeds in the amounts of $1,287,402 from the sale of equity
securities, the exercise of stock options and stock subscriptions and issuance
of stock in exchange for consulting fees during the year.
The Company's negative cash flow from operations has primarily resulted
from an increase in the net losses, capitalized software costs and purchase of
equipment from increased business activity and the Company attempting to expand
its product penetration in the market place. Management believes this negative
cash flow will continue during 2000, due to the Company's refocus of the Company
to expand and sell its product to the market place in an ASP environment versus
the traditional focus of selling a shrink raped product to individual customers
and installing the product on single servers. These actions are anticipated to
result in significantly increased selling, general and administrative expenses
and capital expenditures to meet this expansion.
-16-
<PAGE> 17
CAPITAL RESOURCES
The Company's working capital has diminished over the last 12 months,
primarily from support of the Company's losses and selling and support
activities resulting in the Company's requirement to raise additional funding
through external equity financing activities. The Company at the end of 1999
began a private placement offering to sell special warrants convertible into
625,000 shares of the Company's common stock at $.56 to provide additional funds
in support of its losses. Management anticipates the Company will continue to
invest significant resources in refocusing the Company in 2000 and may require
additional funds to support the expansion into the ASP delivery marketing.
Management believes that the Company will continue to incur losses in
fiscal 2000, and it is not anticipated that recurring revenues from the ASP
focus will reach a level to offset the sales growth strategy until 2001.
Further, management believes that it has access to capital in the form of
additional equity financing. Management anticipates it will continue to have
access to additional capital through these sources in amounts necessary to
support its growth plans. In the event that cash flow from operations, if any,
together with the proceeds of any future financings, are insufficient to meet
these expenses, the Company will be required to re-evaluate its planned
expenditures and allocate its total resources in such manner as the board of
directors and management deems to be in the Company's best interest.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued Statements
of Financial Accounting Standards that may affect the Company's financial
statements as follows:
In June 1998 FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair market value. Gains
or losses resulting from changes in the values of those derivatives are
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. Management believes that the adoption of SFAS No. 133 will have
no material effect on its financial statements.
In June 1999, FASB issued SFAS No. 136, "Transfers of Assets to a
Not-For-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others". This establishes standards for recording the
transfers of assets or contributions between donors, recipients organizations
and beneficiaries. Management believes that the adoption of SFAS No. 136 will
not have a material effect on its financial statements.
Also in June 1999, FASB issued SFAS No. 137, which essentially defers
the effective date of SFAS No. 133 (see above) to all quarters and fiscal years
beginning after June 15, 2000.
-17-
<PAGE> 18
ITEM 7. FINANCIAL STATEMENTS.
Report of Independent Certified Public Accountants F-1
Balance Sheet - December 31, 1999 F-2
Statements of Operations - For the Years
Ended December 31, 1999 and 1998 F-3
Statements of Stockholders' Equity - For the Years Ended
December 31, 1999 and 1998 F-4
Statements of Cash Flows - For the Years
Ended December 31, 1999 and 1998 F-5
Notes to Financial Statements F-6
-18-
<PAGE> 19
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Panoramic Care Systems, Inc.
Wheat Ridge, Colorado
We have audited the accompanying balance sheets of Panoramic Care Systems, Inc.
as of December 31, 1999 and 1998, and the related statements of operations,
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 Panoramic Care Systems, 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.
HEIN + ASSOCIATES LLP
Denver, Colorado
March 1, 2000, except for Note 2,
as to which the date is March 31, 2000
F-1
<PAGE> 20
PANORAMIC CARE SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 119,684 $ 350,122
Trade accounts receivable with no allowance deemed necessary 9,000 --
Stock subscriptions receivable -- 99,400
Other 17,856 --
----------- -----------
Total current assets 146,540 449,522
SOFTWARE DEVELOPMENT COSTS, net of accumulated amortization of 456,981 75,000
$106,360 and $-0-, respectively
PROPERTY AND EQUIPMENT, net of accumulated depreciation 76,590 10,271
----------- -----------
of $64,098 and $35,011, respectively
TOTAL ASSETS $ 680,111 $ 534,793
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
Accounts payable and accrued liabilities $ 210,571 $ 32,257
COMMITMENTS AND CONTINGENCIES (Notes 2, 5, and 7)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized,
4,875,000 and 3,016,000 shares issued and outstanding,
respectively 4,875 3,016
Additional paid-in capital 2,488,908 1,202,765
Accumulated deficit (2,024,243) (703,245)
----------- -----------
Total stockholders' equity 469,540 502,536
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 680,111 $ 534,793
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-2
<PAGE> 21
PANORAMIC CARE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Software sales $ 12,000 $ --
Royalties 894 27,613
Consulting fees -- 23,180
License fees -- 714
----------- -----------
Total revenues 12,894 51,507
OPERATING EXPENSES:
Salaries 520,622 125,778
Management fee -- 23,180
Product development costs 17,358 3,221
Consulting fees 108,621 61,650
Other general and administrative 695,151 24,995
----------- -----------
Total operating expenses 1,341,752 238,824
----------- -----------
OPERATING LOSS (1,328,858) (187,317)
----------- -----------
Interest income (expense), net 7,860 --
----------- -----------
NET LOSS $(1,320,998) $ (187,317)
=========== ===========
NET LOSS PER COMMON SHARE $ (.32) $ (.09)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 4,089,000 2,043,000
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-3
<PAGE> 22
PANORAMIC CARE SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1998 2,000,000 $ 2,000 $ 539,112 $ (515,928) $ 25,184
Contributed services -- -- 152,193 -- 152,193
Issuance of common stock in private
placement, net of offering costs
of $46,524 1,016,000 1,016 460,460 -- 461,476
Warrants issued for consulting fees -- -- 51,000 -- 51,000
Net loss -- -- -- (187,317) (187,317)
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1998 3,016,000 3,016 1,202,765 (703,245) 502,536
Stock issued for services 100,000 100 99,900 -- 100,000
Exercise of warrants 200,000 200 49,800 -- 50,000
Issuance of common stock in private
placements, net of offering costs
of $20,025 184,000 184 71,791 -- 71,975
Issuance of common stock in public
offerings, net of offering costs
of $303,856 1,375,000 1,375 959,765 -- 961,140
Issuance of special warrants, net of
costs of $113 -- -- 104,887 -- 104,887
Net loss -- -- -- (1,320,998) (1,320,998)
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1999 4,875,000 $ 4,875 $ 2,488,908 $(2,024,243) $ 469,540
=========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
<PAGE> 23
PANORAMIC CARE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,320,998) $ (187,317)
Adjustments to reconcile net loss to net cash from
operating activities:
Contributed services -- 77,193
Warrants issued for services -- 51,000
Depreciation and amortization 135,447 9,578
(Increase) decrease in accounts receivable (9,000) 9,640
(Increase) decrease in prepaids (17,856) --
Increase in accounts payable and accruals 178,314 32,257
----------- -----------
Net cash used in operating activities (1,034,093) (7,649)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (95,406) (4,641)
Capitalized software (388,340) --
----------- -----------
Net cash (used in) investing activities (483,746) (4,641)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,559,000 508,000
Offering costs (525,885) (46,524)
Stock subscriptions receivable 99,400 (99,400)
Exercise of warrants 50,000 --
Issuance of special warrants 104,887 --
----------- -----------
Net cash provided by financing activities 1,287,402 362,076
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (230,437) 349,786
CASH AND EQUIVALENTS, beginning of year 350,122 336
----------- -----------
CASH AND EQUIVALENTS, end of year $ 119,685 $ 350,122
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contributed services included in software development costs $ -- $ 75,000
=========== ===========
Cash paid for interest $ 167 $ --
=========== ===========
Stock issued for software development costs $ 100,000 $ --
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE> 24
PANORAMIC CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations - Panoramic Care Systems, Inc.
(the "Company") was originally incorporated in 1990 as Free Style
Publications, Inc. The name of the Company was changed to Panoramic
Care Manager, Inc. in December 1998 and to Panoramic Care Systems, Inc.
in April 1999. The Company is engaged in providing patient management
systems to the post-acute health care industry. The products were
initially provided in a printed format. This information has been
converted into a set of database libraries which are the foundation for
the Company's PCM software.
Use of Estimates - The preparation of the Company's financial
statements in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions
that affect the amounts reported in these financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company's financial statements are based on a number of estimates,
including the value assigned to contributed services and the carrying
value of software development costs. It is reasonably possible that
these estimates could change in the forthcoming year and such revisions
could be material.
Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less
to be cash equivalents.
Property and Equipment - Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives (generally 3
years) of the respective assets. The cost of normal maintenance and
repairs is charged to operating expenses as incurred. Material
expenditures which increase the life of an asset are capitalized and
depreciated over the estimated remaining useful life of the asset. The
cost of properties sold, or otherwise disposed of, and the related
accumulated depreciation or amortization are removed from the accounts,
and any gains or losses are reflected in current operations.
Software Development Costs - The Company capitalizes costs of producing
software to be sold, leased, or otherwise marketed, incurred subsequent
to establishing technological feasibility in accordance with Statement
of Financial Accounting Standards No. 86.
Amortization of capitalized software development costs is computed on a
product-by-product basis. The annual amortization is the greater of the
amount computed using the ratio of current gross revenue for a product
to the total of current and anticipated future gross revenue for that
product or the straight-line method, not to exceed 3 years.
Amortization commenced in 1999 at the time the product was initially
available for market release. The Company amortized $106,300 of these
capitalized costs during the year ended December 31, 1999. In addition,
management periodically compares the unamortized capitalized costs for
each product to the net realizable value of that product. If the
unamortized capitalized costs exceed the net realizable value, the
excess will be charged to operations.
Costs incurred in researching, designing and planning for the
development of new software are charged to operations as incurred.
Impairment of Long-Lived Assets - Management of the Company assesses
impairment whenever events or changes in circumstances indicate that
the carrying amount of a long-lived asset may not be recoverable. If
the net carrying value exceeds the net cash flows, then impairment will
be recognized to reduce the carrying value to the estimated fair value.
If future sales related to the Company's software do not materialize as
currently anticipated by management, the Company would be required to
impair its capitalized software costs. Management will continue to
review these costs on a quarterly basis for possible impairment.
F-6
<PAGE> 25
PANORAMIC CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Earnings Per Share - Net loss per common share is presented in
accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share . Under SFAS No. 128,
basic EPS excludes dilution for potential common shares and is computed
by dividing the net loss by the weighted average number of common
shares outstanding for the year. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock and resulted
in the issuance of common stock. As a result of losses, diluted EPS is
not presented as the effect of all potential common stock is
anti-dilutive.
Options to purchase 380,000 shares of common stock, and warrants to
purchase 650,250 shares of common stock were outstanding at December
31, 1999. See Note 5 for a detailed discussion of the options and
warrants issued by the Company.
Income Taxes - The Company accounts for income taxes under the
liability method, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates.
Revenue Recognition - Revenue from the sale of the Company's
proprietary software is recognized when the software is delivered and
the Company has substantially performed all material obligations
relating to the sale agreement and collectibility is deemed probable by
management. The Company recognizes royalty income when sales are made
by the licensee. Consulting fees are recognized when the services are
performed.
Comprehensive Loss - SFAS No. 130, Reporting Comprehensive Income,
defines comprehensive income as all changes in stockholders' equity
exclusive of transactions with owners, such as capital investments.
Comprehensive income includes net income or loss, changes in certain
assets and liabilities that are reported directly in equity such as
translation adjustments on investments in foreign subsidiaries, and
certain changes in minimum pension liabilities. The Company's
comprehensive loss was equal to its net loss for the years ended
December 31, 1999 and 1998.
2. LIQUIDITY AND CONTINUED OPERATIONS:
The Company incurred a net loss of approximately $1,300,000 in 1999 and
has not yet generated significant sales of its primary software
product. The Company expects to continue to incur operating loses
throughout 2000 as it shifts its strategy from licensing software to
providing software and services over the Internet. The Company raised
additional equity from the sale of special warrants (see Note 5) of
$245,000 in February 2000 and $598,000 in March 2000. Management
believes the Company has sufficient working capital to fund operations
for the year 2000.
Should significant losses continue and/or insufficient additional
capital is raised to fund normal operations, the Company may be
required to curtail operations, liquidate assets and/or enter into
financing arrangements on less than favorable terms. These factors
could have an adverse effect on future operations.
3. RELATED PARTY TRANSACTIONS:
The Company had a marketing agreement with Center for Health Education
(CHE), a non-profit organization. Under this agreement, the Company
granted to CHE a non-exclusive license to market the Company's STAT
paths and audio courses. CHE pays a royalty to the Company of 15% of
gross income from sales of these products. The Company's president is
also the president of CHE. Total royalties received from CHE for 1999
and 1998 were $894 and $27,613,
F-7
<PAGE> 26
PANORAMIC CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
respectively. This agreement expired as of December 31, 1998, and the
Company does not expect future revenues for the sale of their products.
The Company paid a management fee under an informal agreement for cost
sharing to an entity which is owned by the two major stockholders of
the Company. This fee represents reimbursement for expenses such as
rent, utilities, and accounting costs. This agreement expired as of
December 31, 1998. Management fees paid for 1999 and 1998 were $-0- and
$23,180, respectively.
4. INCOME TAXES:
The Company accounts for its tax liabilities in accordance with SFAS
No. 109, Accounting for Income Taxes. SFAS No. 109 requires recognition
of deferred tax assets and liabilities for the expected future income
tax consequences of transactions. Under this method, deferred tax
assets and liabilities are determined based on the difference between
the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. Net deferred tax assets are then reduced by a
valuation allowance for amounts which do not satisfy the realization
criteria of SFAS No. 109.
The significant components of the net deferred tax asset consist of the
following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net operating loss carryforwards $ 480,000 $ --
Less - valuation allowance (480,000) --
--------- ---------
$ -- $ --
========= =========
</TABLE>
The benefits of the Company's net operating loss carryforwards as of
December 31, 1999, do not satisfy the realization criteria set forth in
SFAS No. 109 and accordingly, the Company has recorded a valuation
allowance for the entire net deferred tax asset. The Company has a net
operating loss carryforward of approximately $1,300,000 as of December
31, 1999, which will expire in 2019. The utilization of certain of the
loss carryforwards are limited under Section 382 of the Internal
Revenue Code.
5. STOCKHOLDERS' EQUITY:
In December 1998, the Board of Directors approved an increase in the
authorized shares to 50,000,000, a reduction in the par value of each
share to $.001, and a 2,000 for 1 stock split. All share and per share
amounts in the financial statements have been restated to reflect the
stock split.
In December 1998, the Company completed the first tranche of a private
placement of 1,016,000 shares of common stock for a total of $508,000,
less offering costs of $46,524. Of this amount, $99,400 was received
after year-end. In February 1999, the Company completed the second
tranche consisting of 184,000 shares of common stock for a total of
$92,000, less offering costs of $20,025.
F-8
<PAGE> 27
PANORAMIC CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
During 1999, the Company completed two public offerings. In June,
1,100,000 shares of common stock were issued for a total of $807,305,
less offering costs of $291,595. In July, 165,000 shares of common
stock were issued for $152,625, less offering costs of $12,375.
In February 1999, the Company issued 100,000 shares of common stock in
exchange for fees incurred during development of new software. These
shares were valued at their estimated fair value of $1.00 per share.
The Company also issued 200,000 shares of common stock in conjunction
with the exercise of warrants at $0.25 per share.
In December 1999, the Company issued 187,500 special warrants for a
total of $105,000. Each special warrant allows the holder to receive
one share of common stock for no additional consideration, and a
warrant to purchase one-half share of common stock for $.56 per share
in year one and $.64 per share in year two. The warrants expire after
two years. No special warrants have been exercised as of December 31,
1999.
In February 2000, the Company issued 437,500 special warrants with the
same terms as those issued in December 1999, for a total of $245,000.
The Company is continuing to sell special warrants in March 2000.
In 1998, the Company recorded as a capital contribution the difference
between the estimated value of services provided by its officers who
are major shareholders and the actual amounts paid to the officers. The
estimates are based upon the salaries paid commencing in 1999. In 1998,
$75,000 of the contributed services was recorded as software
development costs, based on the number of hours worked by the chief
technical officer subsequent to the establishment of technological
feasibility of the product.
Stock and Warrant Compensation - The Company applies APB Opinion No. 25
and related interpretations in accounting for options and warrants
issued to employees. Accordingly, no compensation cost has been
recognized for issuances of options and warrants to employees at
exercise prices not less than the market value of the Company's common
stock on the grant dates. Had compensation cost for the Company's plans
been determined consistent with SFAS No. 123, the Company's net loss
and loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
NET LOSS
As reported $ (1,320,998) $ (187,317)
Pro forma (2,133,610) (187,317)
PRIMARY EARNINGS PER SHARE
As reported (.32) (.09)
Pro forma (.52) (.09)
</TABLE>
The fair value of each grant was determined using the Black-Scholes
option pricing model with the following assumptions used for grants for
1999 (1) risk-free interest rate of 6.00%; (2) no expected dividend
yield; (3) expected lives of 2 to 5 years, and (4) assumed volatility
of approximately 99.9% to 256.5%.
Stock Option Plans - The Company approved a stock option plan (the
"Plan") to provide directors, officers and other key employees options
to purchase shares of the Company's stock. The Plan was approved by the
Board of Directors on April 6, 1999. Under the terms of the Plan, the
Plan committee may grant officers and employees, "non-qualified"
options, as defined by the Internal Revenue Service Code and the Board
may award non-qualified options to non-
F-9
<PAGE> 28
PANORAMIC CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
employee directors. The purchase price of the shares subject to an
option will be the market value of the Company's common stock on the
date the option is granted. If the grantee owns more than 10% of the
total combined voting power or value of all classes of stock on the
date of the grant, the purchase price shall be at least 110% of the
fair market value at the date of the grant and the exercise term shall
be no longer than five years from the date of the grant. Option vesting
is determined upon each issuance.
A summary of the status of the Company's stock option plan as of
December 31, 1999 and 1998 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1999 1998
-------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FIXED OPTIONS
Outstanding at beginning of year -- $ -- -- $ --
Granted 630,000 0.92 -- --
Exercised -- -- -- --
Canceled (250,000) 1.04 -- --
-------- --------
Outstanding at end of year 380,000 $ 0.87 -- --
======== ========
Options exercisable at year-end 126,665 $ 0.79
Weighted-average fair value of options $ 0.69 $ --
granted during the year
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------- -------------------------------
Weighted
Number Average Weighted Weighted
Range of Outstanding at Remaining Average Number Average
Exercise December 31, Contractual Exercise Exercisable Exercise
Prices 1999 Life Price 1999 Price
- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.56 to $0.95 135,000 4.0 $ 0.63 44,999 $ 0.63
$1.00 245,000 4.0 1.00 81,666 1.00
-------------- --------------
$0.56 to $1.00 380,000 4.0 $ 0.87 126,665 $ 0.87
============== ==============
</TABLE>
Subsequent to year-end, the Company granted options to two officers and
directors for 50,000 options exercisable at $1.97 per share and 150,000
options exercisable at $4.47 per share.
F-10
<PAGE> 29
PANORAMIC CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Stock Warrants - A summary of the status of the Company's warrants as
of December 31, 1999 and 1998 and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
1999 1998
-------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- -------- -------- --------
<S> <C> <C> <C> <C>
WARRANTS
Outstanding at beginning of year 200,000 $ 0.25 -- $ --
Granted 650,250 0.95 200,000 0.25
Exercised (200,000) 0.25 -- --
Forfeited -- -- -- --
-------- --------
Outstanding at end of year 650,250 $ 0.95 200,000 $ 0.25
======== ========
Warrants exercisable at year-end 650,250
Weighted-average fair value of warrants $ 0.84
granted during the year
</TABLE>
The following table summarizes information about warrants outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Number Average Weighted
Range of Outstanding at Remaining Average
Exercise December 31, Contractual Exercise
Prices 1999 Life Price
--------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$ 0.60 93,750 2.00 $ 0.60
1.00 531,500 4.07 1.00
1.08 25,000 2.00 1.08
---------------
$ 0.60 to 1.08 650,250 3.69 $ 0.63
===============
</TABLE>
In addition, special warrants exercisable for 187,500 shares for no
additional consideration were outstanding at December 31, 1999.
6. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND
CONCENTRATIONS OF CREDIT RISKS:
Fair Value of Financial Instruments - The carrying amounts of cash and
equivalents, accounts receivable, and accounts payable approximate fair
value due to the short maturity of these items.
F-11
<PAGE> 30
PANORAMIC CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
These fair value estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore, cannot
be determined with precision. Changes in assumptions could
significantly affect these estimates.
Concentrations of Credit Risk - Credit risk represents the accounting
loss that would be recognized at the reporting date if counterparties
failed completely to perform as contracted. Concentrations of credit
risk (whether on or off balance sheet) that arise from financial
instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to
meet contractual obligations to be similarly effected by changes in
economic or other conditions. The Company operates primarily in the
health care industry.
The Company had an investment in a single money market mutual fund of
$102,883 and $300,000 as of December 31, 1999 and 1998, respectively,
which is not covered by Federal insurance.
7. COMMITMENTS:
In December 1998, the Company entered into a consulting agreement with
an entity (the "Consultant") to provide consulting services regarding
capital raisings corporate development and other financial matters,
including the private placement which was completed in 1998 and public
offerings (see Note 4). The Consultant received a fee of $6,000 per
month through May 1999. The Consultant also received warrants to
purchase 200,000 shares of stock at $.25 per share, expiring
immediately prior to the Company's proposed public offering. The
Company recorded the fair value of these warrants of $51,000 as an
expense in 1998. These were exercised in 1999 (see Note 4). At the
completion of the private placement, the Consultant received an
advisory fee of $45,000 and warrants to purchase 240,000 shares of
stock at $1.00 per share, exercisable for five years. Upon completion
of the public offering, the Consultant received warrants to purchase an
additional 126,500 shares at an exercise price of $1.00, expiring five
years from issuance.
The Company leases office space and equipment under noncancelable
leases. The following schedule summarizes these commitments.
<TABLE>
<S> <C>
2000 $ 28,560
2001 3,600
2002 3,600
2003 3,600
2004 900
--------
Total $ 40,260
========
</TABLE>
Rent expense was $36,475 and $-0- for the years December 31, 1999 and
1998, respectively.
8. CANADIAN ACCOUNTING PRINCIPLES:
The financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) in the United States
(US) which differ in certain respects with those principles that the
Company would have followed had its financial statements been prepared
in accordance with Canadian GAAP. The significant differences relate to
the following items and the adjustments necessary to restate net loss
in accordance with Canadian GAAP are shown in the tables set out below:
F-12
<PAGE> 31
Contributed Services - Under US GAAP, the difference between the
estimated value of services provided by officers who are also majority
shareholders and the actual amounts paid to the officers is recorded as
an expense and a capital contribution. Under Canadian GAAP, only the
amount paid would be recorded.
The following table summarizes the effect on net loss of the
differences between US GAAP and Canadian GAAP.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net loss as reported under US GAAP $(1,320,998) $ (187,317)
Contributed services recorded as salary expense -- 77,193
----------- -----------
Net income (loss) in accordance with $(1,320,998) $ (110,124)
=========== ===========
Canadian GAAP
Earnings (loss) per share under Canadian GAAP $ (0.32) $ (.05)
=========== ===========
The following table summarizes the effect on stockholders' equity of
the differences between US GAAP and Canadian GAAP
Stockholders' equity as reported under US GAAP $ 469,540 $ 502,536
Unamortized portion of contributed services recorded (58,333) (75,000)
----------- -----------
as capitalized software development costs
Stockholders' equity under Canadian GAAP $ 411,207 $ 427,536
=========== ===========
</TABLE>
F-13
<PAGE> 32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS;
The directors and executive officers of the Company are listed below.
Directors are elected to hold office until the next annual meeting of
shareholders and until their respective successors have been elected and
qualified. Executive officers are elected by the Board of Directors and hold
office until their successors are elected and qualified. There are no committees
of the Board of Directors.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Positions
---- --- ---------
Ahmad Akrami 40 Interim Chief Executive Officer, and Director
Jill Flateland 49 Executive Vice-President, Chief Operating Officer and Director
Byron Flateland 49 Chief Technical Officer, Secretary and Director
Kent Nuzum 33 Chief Financial Officer
Frank L. Poggio 53 Director
</TABLE>
BIOGRAPHICAL INFORMATION
Ahmad Akrami - Mr. Akrami has been the Interim Chief Executive Officer
and a director of the Company since October 1, 1999. Prior to joining the
Company he was Vice President of Worldwide Sales, Marketing and Customer
Services at Zygo Corporation from June 1998 through September 1999, Corporate
Vice President from August 1997 through June 1998. Prior to Zygo he was
President and Chief Executive Officer at NexStar Automation, Inc. From December
1992 through September 1996. From August 1987 through October 1992, Mr. Akrami
was the Chairman, President and Chief Executive Officer of TechniStar
Corporation of Longmont, Colorado. Additionally, Mr. Akrami is a partner in
Bolder Venture Partners since September 1999. Mr. Akrami holds a Bachelor of
Arts (Applied Sciences) degree from Western Illinois University.
Jill Flateland - Ms. Flateland, is the Executive Vice-President, Chief
Operating Officer and a director of the Company and is employed by the Company
on a full time basis. Ms. Flateland has served the Company in this capacity
since March 1, 1999. From September 4, 1990 until March 1, 1999 Ms. Flateland
was President and CEO. Prior to and co-incident with working with the Company,
Ms. Flateland was with Columbia North Suburban Medical Centre, a health care
facility in Thornton, Colorado, where she served as Director of Integrated
Management for 3 years. Ms. Flateland also served as Supervisor of the Intensive
Care Unit/ Critical Care Unit of Columbia North Suburban Medical Centre for two
years from April 1990 to June 1992. Ms. Flateland holds a Bachelor of Science
(Nursing) degree from the University of North Dakota granted in 1972 and an MBA
degree from Regis University granted in 1986.
Byron Flateland - Mr. Flateland, is the Secretary, Chief Technical
Officer and a director of the Company and is employed by the Company on a full
time basis. Mr. Flateland has served in this capacity since June, 1995. Prior to
joining the Company, Mr. Flateland was with InfoNow Corp., a computer software
-19-
<PAGE> 33
marketing company located in Denver, Colorado, where he served as
Vice-President, Marketing for one year. Mr. Flateland has also been employed by
Destron-Fearing Corp. an electronic identification company located in St. Paul,
Minnesota, where he served as Director, Business Development for 5 years from
May 1989 to November 1994. Mr. Flateland holds a BSEE (Bachelor of Science,
Electrical Engineering) degree and an MSEE (Master of Science, Electrical
Engineering) degree from the University of North Dakota in 1972 and 1973
respectively, an MBA degree from the University of North Colorado granted in
1978 and an MCIS degree from the University of Denver granted in 1994.
Kent Nuzum - Mr. Nuzum, is the Chief Financial Officer of the Company
and contracts his services to The Company on a part time basis. Mr. Nuzum
devotes approximately 50% of his time to the Company, and has served in this
capacity since October 6, 1998. Mr. Nuzum has been a partner of Bolder Venture
Partners LLC since November 1, 1998. Bolder Venture Partners is a venture
capital company and a consultant to the Company under a consulting agreement
made December 7, 1998 and amended March 1, 1999. Mr. Nuzum was formerly employed
by Daryl Yurek since January 1997. Mr. Nuzum was previously employed with Bank
One as Assistant Vice-President, Commercial Loans, from August 1990 to January
1997. Mr. Nuzum holds a B.S. in Economics from Arizona State University granted
in 1989.
Frank L. Poggio - Mr. Poggio has been a director of the Company since
March 1, 1999. Mr Poggio is principal of Kelzon Health care Consulting Group, a
company providing strategic and operational consulting services to the health
care industry, since July, 1996. Prior to that Mr. Poggio was President and
Chief Operating Officer (January 1995 to July 1996) and Executive Vice-President
(December 1992 to January 1995) of CITATION Computer Systems Inc., a company
specializing in the delivery of client server based systems for health care;
prior to that he was President of Health Micro Data Systems, Inc., a firm
specializing in microcomputer software systems and consulting services to the
health care industry since 1980. Health Micro Data Systems, Inc. merged with
CITATION Computer Systems, Inc. in December 1992.
Other Associations
During the past five years, the principals of the Company have served
as principals of the following reporting issuers during the periods and in the
capacities noted below:
<TABLE>
<CAPTION>
PRINCIPAL REPORTING ISSUER CAPACITY PERIOD
- --------- ---------------- -------- ------
<S> <C> <C> <C>
Kent Nuzum eSoft, Inc. Director 9/97-3/98
Frank L. Poggio CITATION Computer Systems Director 12/92-Present
Ahmad Akrami Nexstar Director 4/93 - 9/96
</TABLE>
-20-
<PAGE> 34
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation paid
during the past three fiscal years to the Company's Chief Executive Officer and
to any of the Company's four most highly compensated executive officers who
received total salary and bonus in excess of $100,000 per annum during the
fiscal year ended December 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Awards Compensation Payouts
-------------------------------- ------------------------------------ -------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Restricted Underlying
Name and Principal Annual Stock Option/SAR's LTIP All Other
Position Year Salary ($) Bonus ($) Comp ($) Awards($) (#) Payouts Compensation
- -------- ---- ---------- --------- -------- --------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ahmad Akrami(1) 1999 $10,417 $0 $0 $0 $0 $0 $0
Interim President 1998 $0 $0 $0 $0 $0 $0 $0
and CEO 1997 $0 $0 $0 $0 $0 $0 $0
William Hunter(2) 1999 $80,866 $0 $0 $0 $0 $0 $0
Former President and 1998 $0 $0 $0 $0 $0 $0 $0
CEO 1997 $0 $0 $0 $0 $0 $0 $0
</TABLE>
- -------
(1) Mr. Akrami joined the Company in October 1999 as the interim President
and CEO.
(2) Mr. Hunter served as the Company's President and Chief Operating
Officer from March 1 1999 to September 10, 1999. Mr. Hunter received a
salary of $10,000 per month while serving as President and Chief
Operating Officer. Pursuant to the severance arrangement described
under the heading "Certain Relationships and Related Transactions of
the Company -- Severance Arrangement," the Company was required to pay
Mr. Hunter's salary through November 8, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Prior to the adoption of the Stock Option Plan described below, no stock
options were granted to or exercised by executive officers of the Company.
In April 1999, the Board of Directors adopted an Incentive Stock Option
Plan (the "Plan"), which provides for incentive stock options and non-statutory
options to be granted to officers, employees, directors and consultants to the
Company. Options to purchase up to 900,000 shares of the Company's common stock
may be granted under the Plan. Terms of exercise and expiration of options
granted under the Plan may be established at the discretion of an administrative
committee appointed to administer the Plan or by the Board of Directors if no
committee is appointed, but no option may be exercisable for more than five
years. As of December 31, 1999, options to purchase 380,000 shares of the
Company's common stock had been granted and are outstanding under the Plan.
-21-
<PAGE> 35
In the fiscal year ending December 31, 1999, stock options were granted
as follows:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
% OF TOTAL
NUMBER OF OPTIONS GRANTED
SHARES UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR PRICE DATE
---- ----------------- --------------- -------- ----------
<S> <C> <C> <C> <C>
Ahmad Akrami 100000 16% $.56/share 10/1/03
William Hunter 150,000(1) 24% $1.00/share 05/27/03
</TABLE>
- --------------------
(1) Pursuant to the option agreement Mr. Hunter's options terminated.
AGGREGATED OPTION/SAR EXERCISES FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of Unexercised
Shares Number of Securities Underlying In-the Money Options/
Acquired on Value Unexercised Options/SARs at SARs at FY-End (#)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ahmad Akrami
Interim President & CEO -0- -0-
Unexercisable
Exercisable 25,000(1) $ 16,000
75,000 $ 48,000
William Hunter
Former President & CEO
Unexercisable
Exercisable 150,000(1) $ 30,000
</TABLE>
- ------------
(1) The year-end value represents the difference between the option
exercise prices (ranging from $.56 to $1.00 per share) and the $1.20
market value of the Company's common stock on December 29, 1999,
multiplied by the number of shares under option. Market value
represents the closing price reported by the Canadian Venture Exchange
on December 31, 1999.
Compensation of Directors - The directors of the Company are not
currently compensated for serving as directors. One director has been
granted an option to purchase 30,000 shares of common stock at $1.00
per share vesting over three years.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
Ahmad Akrami - On October 1, 1999, the Company and Mr. Akrami entered
into an employment agreement for a term of 6 months, beginning October 1, 1999
and extending through April 1, 2000. Under the terms of the agreement, the
Company is obligated to pay Mr. Akrami the sum of $8,333 per month and granted
to Mr. Akrami an option to purchase 100,000 shares of common stock at a price of
$.56 per share expiring on October 1, 2003. 100% of the shares will vest on
April 1, 2000. Subsequent to this agreement, the Company and Mr. Akrami agreed
to reduce the base pay to 50% of the agreed upon amount until the completion of
a successful fund raising.
Jill Flateland -On January 1, 1999, the Company and Ms. Flateland
entered into an employment agreement that extends for a term of 12 months. Under
the terms of the agreement, the Company is obligated to pay Ms. Flateland the
sum of $8,133 per month. The agreement includes a non-competition provision that
extends for 12 months following the termination of Ms. Flateland's employment
with the Company. The agreement also includes non-disclosure provisions which
extend indefinitely following the termination of Ms. Flateland's employment with
the Company.
-22-
<PAGE> 36
Byron Flateland - On January 1, 1999, the Company and Mr. Flateland
entered into an employment agreement that extends for a term of 12 months. Under
the terms of the agreement, the Company is obligated to pay Mr. Flateland the
sum of $8,133 per month. The agreement includes a non-competition provision that
extends for 12 months following the termination of Mr. Flateland's employment
with the Company. The agreement also includes non-disclosure provisions which
extend indefinitely following the termination of Mr. Flateland's employment with
the Company.
SEVERANCE AGREEMENT
On September 10, 1999 William Hunter, the Company's then President
and Chief Operating Officer, entered into a severance agreement and mutual
release. Mr. Hunter and the Company agreed to mutually terminate the employment
relationship effective September 10, 1999, and the Company agreed to pay to Mr.
Hunter eight weeks severance at his normal pay rate of $4,615 per pay period,
and to provide Mr. Hunter with medical benefits through severance period.
-23-
<PAGE> 37
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 27, 2000 the number of
shares of the Company's common stock beneficially owned by (a) owners of more
than five percent of the Company's outstanding common stock who are known to the
Company and (b) the directors of the Company, individually, and the executive
officers and directors of the Company as a group, and (c) the percentage of
ownership of the outstanding common stock represented by such shares. The
security holders listed below are deemed to be the beneficial owners of shares
of common stock underlying options and warrants which are exercisable within 60
days from the above date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------------------- ------------------------- ---------------
<S> <C> <C>
Ahmad Akrami, Chief Executive Officer, and a Director .... 80,380(1) 1.62%
5181 Ward Road, Wheat Ridge, Co 80033
Jill Flateland, Executive Vice President, COO, and a ..... 1,353,333(2) 26.8%
Director
Byron Flateland, Secretary, Chief Technical Officer, and a 934,083(3) 18.0%
Director
Frank L. Poggio Director ................................. 10,000(4) 0.21%
Kent Nuzum
1327 Spruce Street, Suite 300
Boulder, CO 80302 ........................................ 394,749(5) 7.51%
Daryl Yurek
1327 Spruce Street, Suite 300
Boulder, CO 80302 ........................................ 471,860(6) 9.34%
All Directors and Executive Officers as a group .......... 2,772,546(7) 48.68%
</TABLE>
- ------------------------
(1) Includes 75,000 options exercisable presently or within 60 days.
Includes 5,380 shares held by Bolder Venture Partners, LLC of which Mr.
Akrami is a 10% partner.
(2) Includes 33,333 options exercisable presently or within 60 days.
Includes 150,000 shares Byron Flateland and Jill Flateland hold
jointly.
(3) Includes 33,333 options, 187,500 special warrants and 93,750 warrants
exercisable presently or within 60 days. Excludes 150,000 shares Byron
Flateland and Jill Flateland hold jointly.
(4) Includes 10,000 options exercisable presently or within 60 days.
(5) Includes 5,380 shares and 375 warrants held by Bolder Venture Partners,
LLC of which Mr. Nuzum is a 10% and 242,388 warrants and 142,857
special warrants that are exercisable presently or within 60 days.
(6) Includes 32,280 shares held by Bolder Venture Partners, LLC of which
Mr. Yurek is a 60% and 174,480 warrants that are exercisable presently
or within 60 days.
(7) Includes 823,542 options, warrants and special warrants exercisable
presently or within 60 days.
-24-
<PAGE> 38
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into transactions with its officers and
directors, and with principal shareholders listed in Item 11 or affiliated
entities as described below.
RELATED PARTIES
CONSULTING AGREEMENT
The Company is party to a consulting agreement with Bolder Venture
Partners L.L.C. made December 7, 1998 and amended March 1, 1999. Bolder Venture
Partners is a limited liability company incorporated under the laws of the State
of Colorado and is 10% owned by Ahmad Akrami interim President and Chief
Executive Officer and 10% by Kent Nuzum, Chief Financial Officer of the Company.
Under the terms of the consulting agreement, Bolder Venture Partners
agrees to provide consulting services to the officers of the Company relating to
matters of corporate development, strategic planning, raising of capital and
other financial matters.
In consideration of these services, The Company agrees to pay Bolder
Venture Partners a monthly retainer of $6,000 per month, an advisory fee in an
amount equal to 7.5% of the gross proceeds raised in any private placements and
share purchase warrants to acquire 550,000 shares of the Company. On May 1,
1999, Bolder Venture Partners exercised warrants to purchase 200,000 shares of
the Company's stock at a price of $0.25 per share. The remaining 350,000
warrants are exercisable at a price of $1.00 for a period of 5 years from the
date the warrants are issued.
The term of the consulting agreement was extended on June 1, 1999 for
an additional six-month term. The consulting agreement requires Bolder Venture
Partners not to disclose any confidential information relating to the Company
for a period of 5 years following the termination of the consulting agreement.
-25-
<PAGE> 39
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following Exhibits are filed herewith or have been
previously filed with the Securities and Exchange Commission and are
incorporated by reference herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------- ---------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of FreeStyle Publications, Inc.*
3.2 Bylaws*
10.1 Amended Consulting Agreement dated as of March 1, 1999 between Panoramic Care
Manager, Inc. and Bolder Venture Partners, L.L.C.*
10.2 Letter of Engagement dated February 7, 1999 between Panoramic Care Manager, Inc.
and M1 Software*
10.3 Form of Non-disclosure Agreement between FreeStyle Publications, Inc. (n/k/a
Panoramic Care Systems, Inc.) and various entities*
10.4 Sponsorship Agreement dated February 16, 1999 between Panoramic Care Manager, Inc.
and Canaccord Capital Corporation*
10.5 Lease effective as of March 15, 1999 between Panoramic Care Manager, Inc. and
Jefferson Park West (landlord) for property located at Jefferson Park West, Bldg. 4, 5181
Ward Road, Arvada, Colorado, USA 80005.*
10.6 Software Distribution Agreement dated January 28, 1999 between Panoramic Care
Manager, Inc. and InterCare Network.*
10.7 Stock Option Plan*
10.8 Senior Management Bonus Plan*
10.9 Form of Employment Agreement*
10.10 Form of Convertible Note**
10.11 Form of Warrant Agreement**
</TABLE>
- -------------------
* Filed with Registration Statement on Form SB-2 on April 16, 1999.
** Filed with Amendment No. 1 on Form SB-2 on June 7, 1999.
*** Filed with Amendment No. 2 on Form SB-2 on June 24, 1999.
(b) REPORTS. During the last quarter of the period covered by this report,
the Company filed reports on Form 8-K as listed below.
None.
-26-
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Panoramic Care Systems, Inc.
Date: April 5, 2000 By: /s/ Don Muir
----------------- -----------------------
Don Muir
President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Jill Flateland Executive Vice President and April 5, 2000
- ----------------------------------------- Director
Jill Flateland
/s/ Kent Nuzum Chief Financial Officer April 5, 2000
- -----------------------------------------
Kent Nuzum
/s/ Byron Flateland Secretary, Chief Technical Officer April 5, 2000
- ----------------------------------------- and Director
Byron Flateland
/s/ Ahmad Akrami Director April 5, 2000
- -----------------------------------------
Ahmad Akrami
Director April 5, 2000
- -----------------------------------------
Frank L. Poggio
</TABLE>
-27-
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------- ---------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of FreeStyle Publications, Inc.*
3.2 Bylaws*
10.1 Amended Consulting Agreement dated as of March 1, 1999 between Panoramic Care
Manager, Inc. and Bolder Venture Partners, L.L.C.*
10.2 Letter of Engagement dated February 7, 1999 between Panoramic Care Manager, Inc.
and M1 Software*
10.3 Form of Non-disclosure Agreement between FreeStyle Publications, Inc. (n/k/a
Panoramic Care Systems, Inc.) and various entities*
10.4 Sponsorship Agreement dated February 16, 1999 between Panoramic Care Manager, Inc.
and Canaccord Capital Corporation*
10.5 Lease effective as of March 15, 1999 between Panoramic Care Manager, Inc. and
Jefferson Park West (landlord) for property located at Jefferson Park West, Bldg. 4, 5181
Ward Road, Arvada, Colorado, USA 80005.*
10.6 Software Distribution Agreement dated January 28, 1999 between Panoramic Care
Manager, Inc. and InterCare Network.*
10.7 Stock Option Plan*
10.8 Senior Management Bonus Plan*
10.9 Form of Employment Agreement*
10.10 Form of Convertible Note**
10.11 Form of Warrant Agreement**
</TABLE>
- -------------------
* Filed with Registration Statement on Form SB-2 on April 16, 1999.
** Filed with Amendment No. 1 on Form SB-2 on June 7, 1999.
*** Filed with Amendment No. 2 on Form SB-2 on June 24, 1999.
(b) REPORTS. During the last quarter of the period covered by this report,
the Company filed reports on Form 8-K as listed below.
None.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 119,684
<SECURITIES> 0
<RECEIVABLES> 9,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 146,540
<PP&E> 140,688
<DEPRECIATION> (64,098)
<TOTAL-ASSETS> 680,111
<CURRENT-LIABILITIES> 210,571
<BONDS> 0
0
0
<COMMON> 4,875
<OTHER-SE> 464,665
<TOTAL-LIABILITY-AND-EQUITY> 680,111
<SALES> 12,894
<TOTAL-REVENUES> 12,894
<CGS> 0
<TOTAL-COSTS> 1,341,752
<OTHER-EXPENSES> (7,860)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,320,998)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,320,998)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,320,998)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
