<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) September 27, 1995
------------------------------
(July 12, 1995)
ADAC Laboratories
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 0-9428 94-1725806
------------------------------------------------------------------------------
(State of incorporation) (Commission file number) (IRS Employer ID No.)
540 Alder Drive, Milpitas, California 95035
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 321-9100
---------------------------
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
The following financial statements and pro forma financial information
are filed as part of this report.
(a) Financial statements of the business acquired, prepared pursuant
to Rule 3.05 of Regulation S-X.
<TABLE>
<CAPTION>
Item
----
<S> <C>
(1) - Unaudited Interim Consolidated Financial Statements of Community
Health Computing Corp. (Debtor-in-Possession)
Consolidated Balance Sheet - May 31, 1995
Consolidated Statements of Operations - six months ended
May 31, 1995 and 1994
Consolidated Statements of Cash Flows - six months ended
May 31, 1995 and 1994
Notes to Consolidated Financial Statements
(2) - Audited Financial Statements of Community Health Computing Corp.
Report of Price Waterhouse LLP, Certified Public Accountants
Consolidated Balance Sheets - November 30, 1994 and 1993
Consolidated Statements of Operations - years ended November 30, 1994
1993 and 1992
Consolidated Statements of Changes in Stockholder's Equity
(Deficit) - years ended November 30, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - years ended November 30, 1994
1993 and 1992
Notes to Consolidated Financial Statements
</TABLE>
(b) Pro form financial information, prepared pursuant to Article 11 of
Regulation S-X
<TABLE>
<CAPTION>
Item
----
<S> <C>
(1) - Unaudited Pro Forma Combined Condensed Financial Statements of ADAC
Laboratories and Community Health Computing Corp.
Pro Forma Combined Condensed Balance Sheet - July 2, 1995
Pro Forma Combined Condensed Statement of Operations - year
ended October 2, 1994
Pro Forma Combined Condensed Statement of Operations - six months
ended July 2, 1995
Notes to Pro Forma Combined Condensed Financial Statements
</TABLE>
<PAGE> 3
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 27, 1995
ADAC Laboratories
----------------------------------
Andre Simone
Interim Chief Financial Officer
<PAGE> 4
COMMUNITY HEALTH COMPUTING CORPORATION
(DEBTOR-IN-POSSESSION)
------------
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 1995 AND FOR THE SIX
MONTHS ENDED MAY 31, 1995 AND 1994
(UNAUDITED)
<PAGE> 5
COMMUNITY HEALTH COMPUTING CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEET
(unaudited)
(in thousands, except share data)
--------
<TABLE>
<CAPTION>
May 31,
1995
--------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,408
Accounts receivable - trade 1,216
Inventories 339
Other current assets 769
--------
Total current assets 5,732
Furniture, fixtures and equipment, net 2,435
Software development costs, net 2,267
Prepaid software license fees 399
Other assets 1,511
--------
Total assets $ 12,344
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities not subject to compromise:
Accounts payable $ 327
Customer deposits and advance billings 3,012
Accrued expenses 3,565
Revolving loan and current maturities of long-term debt 6,630
Current portion of capital lease obligations 170
--------
Total current liabilities 13,704
Other long-term liabilities 484
Liabilities subject to compromise 9,360
--------
Total liabilities 23,548
--------
Commitments and contingencies
Stockholders' deficit:
Common stock, $.001 par value:
Authorized: 20,000,000 shares
Issued and outstanding: 8,536,797 shares 9
Preferred stock, $.001 par value
Authorized: 250,000 shares
Issued and outstanding: none
Additional paid in capital 33,065
Accumulated deficit (44,278)
--------
Total stockholders' deficit (11,204)
--------
Total liabilities and stockholders' deficit $ 12,344
========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 6
COMMUNITY HEALTH COMPUTING CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except loss per share and share data)
------
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
May 31, May 31,
1995 1994
---------- ----------
<S> <C> <C>
Revenues:
System sales and licensing $ 1,350 $ 8,912
Support and maintenance 8,082 10,180
--------- ---------
Total revenues 9,432 19,092
--------- ---------
Costs and expenses:
Cost of system sales and licensing 2,630 4,531
Client services and other operating costs 4,031 7,934
Research and development 2,086 1,950
Marketing and sales 1,110 4,754
General and administrative 1,093 2,014
--------- ---------
Total costs and expenses 10,950 21,183
--------- ---------
Loss from operations (1,518) (2,091)
Interest expense (349) (318)
Other income (loss), net (139) 161
--------- ---------
Loss before reorganization items and income taxes (2,006) (2,248)
Reorganization items:
Provision for reorganization expenses (1,534)
Gain on disposal of UK subsidiary 744
--------- ---------
Loss before income taxes (2,796)
Income tax provision
--------- ---------
Net loss $ (2,796) $ (2,248)
========= =========
Net loss per share $ (0.33) $ (0.30)
========= =========
Weighted average common shares outstanding 8,536,797 7,442,137
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 7
COMMUNITY HEALTH COMPUTING CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
--------
<TABLE>
<CAPTION>
Six Six
Months Months
Ended Ended
May 31, May 31,
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,796) $(2,248)
Add (deduct) noncash items:
Depreciation and amortization 945 2,284
Gain on disposal of CHC, UK (744)
Provision for reorganization expenses 1,601
Deferred rent and other 14 183
Changes in operating assets and liabilities:
Accounts receivable - trade 1,355 (1,400)
Inventories 47 225
Other current assets and liabilities (774) 100
Accounts payable (159) 618
Customer deposits and advanced billings (2,475) 1,081
Other assets 143 (33)
------- -------
Net cash provided by (used in) operating activities
before reorganization items (2,843) 810
Cash flows from reorganization items:
Proceeds from sale of Dallas assets 2,000
Interest on cash accumulated due to chapter 11 (67)
------- -------
Net cash provided by (used in) operating activities (910) 810
------- -------
Cash flows from investing activities:
Purchase of property and equipment, net (17) (484)
Capitalized development expenditures (3,254)
------- -------
Net cash used in investing activities (17) (3,738)
------- -------
Cash flows from financing activities:
Borrowings on short-term notes payable 6,610 341
Repayments of short-term notes payable (2,521) (1,553)
Proceeds from the exercise of options 27
Advances to CHC, UK prior to bankruptcy (342)
------- -------
Net cash provided by (used in) financing activities 3,747 (1,185)
------- -------
Effect of translation rate on cash and equivalents (79)
------- -------
Net increase (decrease) in cash 2,820 (4,192)
Cash and cash equivalents, beginning of period 588 5,375
------- -------
Cash and cash equivalents, end of period $ 3,408 $ 1,183
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 8
COMMUNITY HEALTH COMPUTING CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
--------
1. BASIS OF FINANCIAL STATEMENT PRESENTATION:
The financial statements as of May 31, 1995 and for the six months
ended May 31, 1995 and 1994 are unaudited and reflect adjustments which are
in the opinion of management necessary for a fair presentation of the
financial position of Community Health Computing Corporation (the Company)
as of May 31, 1995 and the results of operations and cash flows for the
periods presented. Such adjustments are of a normal and recurring nature
except for the adjustments resulting from the reorganization discussed in
Note 2 and 3. The results of operations for six month periods are not
necessarily indicative of the operating results for a full year or future
operations. These unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's consolidated financial statements for
fiscal year ended November 30, 1994.
2. CHAPTER 11 FILING:
On December 7, 1994 (the Petition date), the Company filed a petition
(the Filing) for reorganization under Chapter 11 of the Federal Bankruptcy
Code (Chapter 11) in the United States Bankruptcy Court for the Southern
District of Texas (the Bankruptcy Court). The Company is seeking to
reorganize and is currently doing business as a debtor-in-possession under
Chapter 11. The Company is authorized by the Bankruptcy Court to operate
its business but may not engage in transactions outside the ordinary course
of business without approval after notice and hearing of the Bankruptcy
Court.
The Company's Plan of Reorganization (the Plan) was submitted to its
creditors and the Bankruptcy Court and was confirmed on April 25, 1995.
Under the Plan, CHC, Inc. will remain the wholly-owned subsidiary of CHC
Corporation. CHC Corporation's existing common stock will be canceled and
new preferred stock will be issued to ADAC Laboratories (ADAC) which will
then become the sole stockholder of CHC Corporation. The Plan was approved
by the Bankruptcy Court on July 12, 1995. The Company's United Kingdom
subsidiary went into receivership on January 16, 1995 and is being
liquidated.
Continued
<PAGE> 9
COMMUNITY HEALTH COMPUTING CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
--------
3. RECLASSIFICATION AND ADJUSTMENTS:
Consistent with the Chapter 11 proceedings, the accompanying financial
statements have been prepared under the guidance of the AICPA's Statement
of Position (SOP 90-7) entitled Financial Reporting by Entities in
Reorganization under the Bankruptcy Code. In order to comply with the
above SOP, the Company has made certain adjustments to its financial
statements that management believe are necessary for a fair presentation of
its financial position as of May 31, 1995. Among these adjustments is a
reclassification of pre-petition liabilities to a balance sheet caption of
Liabilities Subject to Compromise. Additional pre-petition liabilities
could arise as a result of claims filed by parties affected by the
Company's rejection of executory contracts, including leases, depending on
further developments with respect to disputed claims. The ultimate
determination of such liabilities has not been completed.
Additional adjustments have been made to the Company's Consolidated
Statement of Operations and Consolidated Statement of Cash Flows for the
six month period ended May 31, 1995 in conjunction with SOP 90-7.
4. LIABILITIES SUBJECT TO COMPROMISE:
The liabilities that are expected to be settled as part of the
reorganization are classified in the accompanying consolidated balance
sheet as Liabilities Subject to Compromise. These amounts may be subject
to future adjustments depending on further developments with respect to
disputed claims. The amount of Liabilities Subject to Compromise is made
up of the following (in thousands):
<TABLE>
<S> <C>
Trade payables and other miscellaneous claims $6,304
Capital lease obligations and notes payable 1,415
Convertible subordinated debenture 1,000
Long-term consulting contract 641
------
Total $9,360
======
</TABLE>
5. LOSS PER SHARE:
The net loss per share is based upon the weighted average number of
common shares outstanding during the period. Outstanding common equivalent
shares were not included in loss periods since the effect of these were
anti-dilutive.
Continued
<PAGE> 10
COMMUNITY HEALTH COMPUTING CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
----------
6. POST PETITION FINANCING AGREEMENTS:
During the six month period ending May 31, 1995, the Company
entered into a series of loan agreements with ADAC Laboratories to
provide funds to meet the working capital needs of the Company. The
agreements provided for an aggregate maximum amount of $7,707,000. The
loans bear interest at the rate of 12% per annum on the unpaid
balances. Interest is payable monthly. On May 31, 1995, the amount
outstanding pursuant to these agreements was $6,585,000.
7. SUBSEQUENT EVENT:
Subsequent to May 31, 1995, the company's Plan of Reorganization
became effective and all documents were executed and all transfers
necessary to effectuate the ADAC Purchase Agreement, the Post
Confirmation Loan Agreement and the establishment of the CHC
Liquidating Trust. These agreements became effective July 12, 1995 at
which time Community Health Computing Corporation became a wholly owned
subsidiary of ADAC Laboratories.
In connection with the reorganization and ultimate execution of the
above agreements, certain contracts and-or agreements of the Company's
that existed at November 30, 1994 have been discontinued. The list of
discontinued agreements consists but is not limited to the Company's
1993 Amended and Restated Stock Option Plan.
On July 12, 1995, The Company entered into an agreement for the
formation of the CHC Liquidating Trust to manage the Trust assets and
pay all allowed claims pursuant to the confirmed Joint Plan of
Reorganization. The Trust consists of approximately $7,856,000 advanced
by ADAC Laboratories (which represents the total to be advanced by ADAC
under the agreement), the proceeds from the sale of the Dallas
operations of approximately $1,969,000, the LifeSpan Clinical
Information System and other related assets, all Liabilities Subject to
Compromise as described in Note 4 above, all potential and contingent
claims arising from the rejection of contracts which have not been
previously recorded due to their unestimatable nature at this time, all
administrative claims arising after May 31, 1995 and all claims arising
from the administration of the Trust.
<PAGE> 11
[LOGO Price Waterhouse LLP]
REPORT OF INDEPENDENT ACCOUNTANTS
June 30, 1995
To the Board of Directors and Stockholders of
Community Health Computing Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Community Health Computing Corp. and its subsidiaries at
November 30, 1993 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended November 30, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has suffered recurring operating
losses and, at November 30, 1994, has a net working capital deficit and a net
stockholders' deficit that raise substantial doubt about its ability to
continue as a going concern. As discussed in Note 1 to the financial
statements, on December 7, 1994, the Company filed a petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. The accompanying financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ PRICE WATERHOUSE LLP
<PAGE> 12
COMMUNITY HEALTH COMPUTING CORP.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------
1993 1994
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 5,375 $ 588
Accounts receivable -- trade, net ........................................ 11,537 6,057
Inventories .............................................................. 2,078 397
Other current assets .................................................... 1,331 789
------- --------
Total current assets ................................................ 20,321 7,831
Furniture, fixtures and equipment, net ..................................... 5,104 4,270
Software development costs, net ........................................... 12,834 3,016
Prepaid software license fees ............................................. 849 549
Other assets ............................................................... 1,199 2,394
------- --------
$40,307 $ 18,060
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .......................................................... $ 5,376 $ 5,850
Customer deposits and advance billings .................................... 1,835 7,709
Accrued expenses and other ................................................ 2,216 5,227
Revolving loan and current maturities of long-term debt .................. 4,003 4,347
Current portion of capital lease obligations .............................. 810 833
------- --------
Total current liabilities ............................................ 14,240 23,966
Long-term debt .............................................................. 23
Convertible subordinated debenture due a related party ...................... 1,000 1,000
Capital lease obligations, less current portion ............................ 574 386
Other liabilities .......................................................... 1,375 1,116
------- --------
17,212 26,468
------- --------
Stockholders' equity (deficit):
Series A Preferred stock, $.001 par value, 250,000 shares
authorized, no shares issued or outstanding in 1993 and
1994, respectively
Common stock, $.001 par value, 20,000,000 shares authorized,
7,419,435 and 8,536,797 shares issued and outstanding in
1993 and 1994, respectively ............................................ 7 9
Additional paid-in capital ................................................ 30,960 33,065
Accumulated deficit ........................................................ (7,672) (41,207)
Cumulative translation adjustment .......................................... (200) (275)
------- --------
Total stockholders' equity (deficit) ................................ 23,095 (8,408)
------- --------
Commitments and contingencies (Notes 1 and 14)..............................
------- --------
$40,307 $ 18,060
======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 13
COMMUNITY HEALTH COMPUTING CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
--------------------------------
1992 1993 1994
------- ------- --------
<S> <C> <C> <C>
Revenues:
System sales and licensing........................ $26,663 $18,829 $ 10,567
Support and maintenance........................... 16,777 18,004 20,378
------- ------- --------
Total revenues................................ 43,440 36,833 30,945
------- ------- --------
Cost and expenses:
Cost of system sales and licensing................ 10,588 9,189 11,452
Client services and other operating costs......... 13,842 15,711 18,004
Research and development.......................... 3,196 3,891 5,551
Selling, general and administrative............... 11,933 13,794 16,411
Write-off of capitalized software development
costs (Note 15)................................. 11,382
Provision for employee terminations (Note 15)..... 1,102
------- ------- --------
39,559 42,585 63,902
------- ------- --------
Income (loss) from operations....................... 3,881 (5,752) (32,957)
Interest expense.................................... (873) (657) (711)
Other income, net................................... 217 361 163
------- ------- --------
Income (loss) before income taxes................... 3,225 (6,048) (33,505)
Income tax provision (benefit)...................... 620 (605)
------- ------- --------
Net income (loss)............................. $ 2,605 $(5,443) $(33,505)
======= ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 14
COMMUNITY HEALTH COMPUTING CORP.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK ADDITIONAL ACCUMU- CUMULATIVE
------------------ ------------------ PAID-IN LATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
-------- ------ --------- ------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance November 30, 1991 ....... 1,706,234 $ 171 $ 1,085 $ (4,786) $ (18) $ (3,548)
Exercise of stock options ....... 4,688 1 4 5
Conversion of redeemable
preferred stock ............... 43,250 4 147 151
Accretion of redeemable
preferred stock ............... (48) (48)
Currency translation adjustment.. (23) (23)
Net income ...................... 2,605 2,605
-------- --- --------- ----- ------- -------- ----- --------
Balance November 30, 1992 ....... 1,754,172 176 1,236 (2,229) (41) (858)
Change in par value ............. (174) 174
Conversion of redeemable
preferred stock ............... 3,518,805 3 12,940 12,943
Exercise warrants ............... 246,172 266 266
Sales of common stock ........... 1,836,913 2 17,081 17,083
Equity issuance costs ........... (877) (877)
Exercise of stock options ....... 63,373 58 58
Compensation recorded due to
accelerated vesting of
stock options ................. 82 82
Currency translation adjustment.. (159) (159)
Net loss ........................ (5,443) (5,443)
-------- --- --------- ----- ------- -------- ----- --------
Balance November 30, 1993 ....... 7,419,435 7 30,960 (7,672) (200) 23,095
Issuance of Series A
Preferred stock ............... 200,000 $ 1 1,999 2,000
Series A Preferred stock
issuance costs ................ (29) (29)
Accrual of dividends on Series A
Preferred stock ............... (30) (30)
Conversion of Series A
Preferred stock ............... (200,000) (1) 1,025,641 1
Exercise of stock options ....... 91,721 1 135 136
Currency translation adjustment.. (75) (75)
Net loss ........................ (33,505) (33,505)
-------- --- --------- ----- ------- -------- ----- --------
Balance November 30, 1994 ....... $ 8,536,797 $ 9 $33,065 $(41,207) $(275) $ (8,408)
======== === ========= ===== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 15
COMMUNITY HEALTH COMPUTING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------
1992 1993 1994
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................... $ 2,605 $(5,443) $(33,505)
Add (deduct) noncash items:
Depreciation and amortization....................................... 2,912 3,918 6,661
Deferred income taxes............................................... 620 (605)
Write-off of capitalized software development costs................. 11,382
Loss (gain) on asset disposal....................................... (11)
Deferred rent and other............................................. (190) 563 121
Changes in operating assets and liabilities:
Accounts receivable--trade.......................................... (3,708) 1,956 5,480
Inventories......................................................... (379) (1,150) 1,681
Other current assets and liabilities................................ 625 (1,069) 3,523
Accounts payable.................................................... (16) (1,494) 474
Customer deposits and advance billings.............................. 52 396 5,302
Other assets........................................................ (326) (569) 977
------- ------- --------
Net cash provided (used) by operating activities.................. 2,184 (3,497) 2,096
------- ------- --------
Cash flows from investing activities:
Purchase of furniture, fixture and equipment.......................... (737) (2,286) (1,391)
Capitalized software development costs................................ (5,456) (5,875) (6,000)
Proceeds from the sale of furniture, fixtures and equipment........... 133
Business acquisition.................................................. (500)
------- ------- --------
Net cash used by investing activities............................. (6,060) (8,161) (7,891)
------- ------- --------
Cash flows from financing activities:
Borrowings on short-term notes payable................................ 1,475 2,025 2,639
Repayments of short-term notes payable................................ (1,483) (1,715) (3,583)
Proceeds from the sale of common shares............................... 5 16,206
Proceeds from issuance of redeemable preferred stock.................. 2,236
Proceeds from issuance of Series A Preferred stock.................... 1,971
Proceeds from the exercise of warrants................................ 266
Proceeds from the exercise of options................................. 58 56
Proceeds on accelerated vesting of stock options...................... 82
------- ------- --------
Net cash provided by financing activities......................... 2,233 16,922 1,083
------- ------- --------
Effect of translation rate on cash and equivalents...................... (23) (161) (75)
------- ------- --------
Net increase (decrease) in cash and equivalents......................... (1,666) 5,103 (4,787)
Beginning cash and cash equivalents..................................... 1,938 272 5,375
------- ------- --------
Ending cash and cash equivalents........................................ $ 272 $ 5,375 $ 588
======= ======= ========
Supplemental disclosure of cash flow information:
Interest paid......................................................... $ 753 $ 650 $ 668
Income taxes paid..................................................... 15
Supplemental disclosure of noncash investing and financing activities:
Furniture, fixtures and equipment obtained with debt.................. 867 132
Accretion to carrying value for redeemable preferred stock............ 48
Conversion of stockholder notes to redeemable preferred stock......... 750
Conversion of Series A Preferred stock to common stock................ 1
Acquisition financing................................................. 1,100
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 16
COMMUNITY HEALTH COMPUTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF FINANCIAL STATEMENT PRESENTATION AND CHAPTER 11 FILING:
Community Health Computing Corp. (CHC Corp. or the Company) develops,
provides and supports information systems for hospitals and other healthcare
facilities primarily in North America and the United Kingdom. CHC Corp. is a
Delaware corporation formed in 1989 and acts as a holding company for its
wholly-owned subsidiaries, Community Health Computing, Inc. (CHC, Inc.), CHC,
U.K. Ltd. and Software Care Ltd.
On December 7, 1994 (the Petition Date), the Company filed a petition
for reorganization under Chapter 11 (the Filing) of the Federal Bankruptcy Code
(the Code) in the United States Bankruptcy Court for the Southern District of
Texas (the Bankruptcy Court). The Company is seeking to reorganize and is
currently doing business as a debtor-in-possession under the Code. The Company
is authorized by the Bankruptcy Court to operate its business but may not
engage in transactions outside the ordinary course of business without
approval, after notice and hearing, of the Bankruptcy Court. Filing for
protection under the Code was necessary due to substantial weakening of the
Company's liquidity and capital resources resulting from continuing operating
losses. As a result of the Filing and associated events, the Company has been
in default under the terms of substantially all of its notes, debentures,
leases and other material agreements.
The Filing operates as an automatic stay against the commencement or
continuation of any pre-Petition Date judicial, administrative or other
proceedings against the Company, any act to obtain possession of property of or
from the Company or any act to create, perfect or enforce any lien against
property of the Company, with certain exceptions. Consequently, the Company's
creditors are prohibited from attempting to collect pre-Petition Date debts
without the consent of the Bankruptcy Court. Any creditor or counterparty to
pre-Petition Date litigation may seek relief from the automatic stay and, if
applicable, enforce a lien against any security, if authorized to do so by the
Bankruptcy Court. Pursuant to provisions of the Code, liabilities arising prior
to the Filing may not be paid without approval of the Bankruptcy Court. Certain
pre-Petition Date liabilities have subsequently been paid upon approval of the
Bankruptcy Court. These liabilities include certain payments to lenders,
vendors, governmental agencies and employees. As a result of the Filing, all
pre-Petition Date indebtedness of the Company, to the extent such debt is
uncollateralized, undercollateralized or not otherwise paid, may become subject
to compromise. The Company has also exercised its rights under the Code to
reject certain contracts with customers and vendors.
The Company's Plan of Reorganization (the Plan) was submitted to its
creditors and the Bankruptcy Court and was confirmed on April 25, 1995. Under
the Plan, CHC, Inc. will remain the wholly-owned subsidiary of CHC Corp. CHC
Corp.'s existing common stock will be canceled and new preferred stock will be
issued to ADAC Laboratories (ADAC) which will then become the sole stockholder
of CHC Corp. Pursuant to a Series A Preferred Stock Preferred Agreement
executed between ADAC and the Company, ADAC will receive new preferred stock
issued by CHC Corp. in exchange for forgiving $4,000,000 owed by the Company
for bridge and debtor-in-possession financing. The $4,000,000 forgiven will
first be applied to all amounts outstanding under the bridge financing loan and
the remainder will be applied to amounts outstanding under the
debtor-in-possession financing. Any remaining balance outstanding under the
debtor-in-possession financing will be evidenced by a replacement note. Under
the Plan and pursuant to a Post-Confirmation Loan Agreement, ADAC will loan
$9,524,000 to CHC, Inc. which will be transferred to a Creditors' Trust for
distribution to creditors. The Creditors' Trust will use the proceeds from the
disposal of noncore assets and
<PAGE> 17
-2-
the payment from ADAC to settle the claims of the Company's creditors. The Plan
contemplates settlement of unsecured creditor claims at a rate of $.69 to $.90
per dollar of approved claim. The Plan contemplates no residual distributions
to the current common stockholders of the Company.
The Company's United Kingdom subsidiary went into receivership on
January 16, 1995 and is being liquidated. The accompanying financial statements
include certain adjustments to reflect impairment of this subsidiary's assets.
In April 1995, the Creditors' Trust sold certain noncore assets of the Company
for approximately $2,500,000.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION POLICY
These consolidated financial statements include the accounts of CHC
Corp. and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated.
REVENUE RECOGNITION
The Company's revenues are derived from software licenses, computer
hardware sales, related installation, training and support services and
maintenance contracts. Revenues for software licenses are recognized either at
the shipment date or upon the renewal date if, in either case, payment is due
within twelve months after such date. Revenues for license fees that have
payments due beyond twelve months are generally recognized at the time fees are
paid or are billable. Revenues for computer hardware sales are recognized at
the time of shipment. Revenues that are related to installation, training and
support services are recognized as the services are provided. Revenues from
maintenance contracts are recognized ratably over the terms of the contracts.
COST OF SYSTEM SALES AND LICENSING
The Company's cost of system sales and licensing includes cost of
hardware, software development cost amortization and sublicensed software cost.
CLIENT SERVICES AND OTHER OPERATING COSTS
The Company's client services and other operating costs consist of
salaries and other related expenses associated with installation, training and
other client support services, and subcontracted maintenance contracts.
INVENTORIES
Inventories consist of computer hardware held for sale, stated at the
lower of cost (first-in, first-out method) or market, and costs incurred on
contracts for which the related revenue has not been recognized, stated at the
lower of cost or net realizable value.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets which range from three to ten years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the estimated useful
life or lease term.
<PAGE> 18
-3-
PREPAID SOFTWARE LICENSE FEES
Prepaid software license fees are related to agreements with certain
software vendors which allow the Company to license software to end users.
These prepaid fees are expensed at the time the Company recognizes revenues
associated with the license to end users or are amortized over the term of the
vendor agreements, whichever provides the greater amortization. Related
amortization expense for 1993 and 1994 was approximately $445,000 and $300,000.
SOFTWARE DEVELOPMENT EXPENDITURES
The Company's software development expenditures consist of salaries and
other expenses related to software development as well as purchased software.
Expenditures relating to developing software products are expensed as incurred
as research and development until technological feasibility has been
established. Thereafter, software development expenditures are capitalized
until the product is available for general release. Capitalized software is
recorded as an asset in software development costs and amortized over the
products' estimated useful lives ranging from three to five years or based on
the ratio of current to total current and estimated future revenues, whichever
provides the greater amortization (Note 6). The Company periodically evaluates
its capitalized software development costs for recoverability by comparing the
amounts capitalized by product line with the net present value of estimated
future cash flows for the product line which are developed by management based
upon review of historical sales activity, current backlog and analysis of the
Company's markets. Routine maintenance of software is expensed as incurred as
research and development.
INCOME TAXES
The Company utilizes the liability method of accounting for income
taxes, as set forth in the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109). Under this method, deferred tax
liabilities and assets are recognized for the expected future tax consequences
of events that have been recognized in the Company's financial statements or
tax returns. In estimating future tax consequences, FAS 109 generally considers
all expected events other than enactments of changes in the tax laws or rates.
STATEMENT OF CASH FLOWS
The Company considers its investments in all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents.
BUSINESS ACQUISITION
During 1994, the Company acquired certain assets of Du Pont's Radiology
Information Systems business for approximately $2,200,000, including a
$1,350,000 note payable, and assumed approximately $572,000 in liabilities. The
acquisition was accounted for as a purchase. Intangibles resulting from the
acquisition, primarily customer list and trade names, are being amortized over
five years.
<PAGE> 19
- 4 -
NOTE 3--ACCOUNTS RECEIVABLE--TRADE:
Billed receivables represent recorded revenues currently billable under
contract terms. Unbilled receivables represent recorded revenues that are
billable by the Company at future dates under the terms of the contract, all of
which are expected to be collected within twelve months. Accounts
receivable--trade is summarized as follows at November 30 (in thousands):
<TABLE>
<CAPTION>
1993 1994
------- ------
<S> <C> <C>
Billed receivables .................................... $ 4,977 $2,471
Unbilled receivables .................................. 6,960 4,254
------- ------
11,937 6,725
Less--allowance for doubtful accounts ................. (400) (668)
------- ------
Net accounts receivable ............................... $11,537 $6,057
======= ======
</TABLE>
Additionally, unbilled receivables for which collection is not expected
to occur within twelve months are included in other assets. At November 30, 1993
and 1994, these amounts approximated $1,054,000 and $638,000, respectively.
Substantially all receivables are derived from sales of the Company's
information systems to hospitals and other healthcare facilities in North
America or the United Kingdom. The Company performs ongoing credit evaluations
of its customers and provide an allowance for doubtful accounts upon historical
experience and management's judgment.
NOTE 4--INVENTORIES:
Inventories are summarized as follows at November 30 (in thousands):
<TABLE>
<CAPTION>
1993 1994
------- ------
<S> <C> <C>
Computer equipment .................................... $2,060 $397
Work-in-process ....................................... 18
------ ----
$2,078 $397
====== ====
</TABLE>
NOTE 5--FURNITURE, FIXTURES AND EQUIPMENT:
Furniture, fixtures and equipment is summarized as follows at November 30 (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE IN YEARS 1993 1994
---------------- ------- --------
<S> <C> <C> <C>
Computer equipment and software ......... 3-5 $ 8,459 $ 9,429
Leased equipment ........................ 5 3,185 3,236
Furniture and equipment ................. 5-7 2,366 2,688
Leasehold improvements .................. 3-10 572 620
------- --------
14,582 15,973
Less--accumulated depreciation and
amortization (including amortization
of $1,873 and $2,604 for leased
equipment, respectively) .............. (9,478) (11,703)
------- --------
$ 5,104 $ 4,270
======= ========
</TABLE>
<PAGE> 20
- 5 -
NOTE 6--SOFTWARE DEVELOPMENT EXPENDITURES:
The Company's software development expenditures are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
---------------------------
1992 1993 1994
------ ------ -------
<S> <C> <C> <C>
Capitalized software development expenditures................ $4,748 $5,307 $ 5,750
Acquisition of software products............................. 708 568 250
------ ------ -------
Total capitalized software costs............................. $5,456 $5,875 $ 6,000
====== ====== =======
Total software development expenditures, including amounts
expensed as research and development....................... $8,652 $9,766 $11,551
====== ====== =======
Amortization of software development costs, including
write-offs................................................. $1,129 $2,072 $15,818
====== ====== =======
</TABLE>
Accumulated software cost amortization at November 30, 1993 and 1994
was $7,861,000 and $23,679,000, respectively. Additionally, the Company wrote
off $11,382,000 of software determined to have no continuing value during 1994
(Note 15).
NOTE 7--ACCRUED EXPENSES AND OTHER:
The Company has accrued liabilities for payroll related costs of
approximately $978,000 and $1,821,000 at November 30, 1993 and 1994. Accrued
warranty costs approximated $115,000 and $1,339,000 at November 30, 1993 and
1994, respectively.
NOTE 8--DEBT:
The following comprises debt at November 30, (in thousands):
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Bridge financing loan provided by ADAC.......... $ 958
Credit agreement................................ $ 3,500 2,005
Acquisition note................................ 1,100
Sublicense financing note....................... 324
Other notes payable............................. 202 284
------- -------
4,026 4,347
Less--amounts due currently..................... (4,003) (4,347)
------- -------
$ 23 $
======= =======
</TABLE>
BRIDGE FINANCING LOAN PROVIDED BY ADAC
In November 1994, the Company entered into a loan agreement with ADAC to
finance specific working capital needs. Borrowings are limited to $3,498,000.
Use of loan proceeds is limited to disbursements specified by the agreement and
the borrowings are secured by all assets of the Company that are not transferred
to the Creditors' Trust pursuant to the Plan. The agreement limits the
Company's ability to issue stock and incur indebtedness.
CREDIT AGREEMENT
In October 1994, the Company entered into a receivable factoring
agreement with a bank to finance general working capital needs. The Company is
required to establish a reserve of 20% of the gross amount of all unpaid
factored receivables (Account Balance) and is fully liable for all uncollectible
receivables. A finance charge of 2% of the average daily Account Balance is
payable monthly in addition to an administrative fee of 0.5% of the face amount
of all receivables factored during the month.
<PAGE> 21
-6-
ACQUISITION NOTE
As described in Note 2, the Company issued a 12% note in connection
with a business acquisition.
SUBLICENSE FINANCING NOTE
In April 1990, the Company entered into a marketing, development and
service agreement with a computer software company. Under the terms of the
agreement, an initial noncancelable commitment fee of $2,000,000 was required
of which $1,500,000 is to be applied toward future sublicenses. A financing
arrangement has been made for the payment of the initial commitment fee in
monthly instalments of $55,940 including interest at 17% through May 1994.
OTHER NOTES PAYABLE
The notes bear interest at 9%-12% and are payable through 1995.
COVENANT COMPLIANCE
The Company is not in compliance with the financial and other covenants
of its debt agreements and has accordingly classified all debt as current.
NOTE 9--STOCKHOLDERS' EQUITY (DEFICIT)
Holders of the Company's existing common stock are unlikely to receive
any continuing value under the Company's Plan of Reorganization (Note 1).
COMMON STOCK
On March 9, 1993, the Company's initial public offering became
effective resulting in the sale of 1,836,913 shares of its common stock to the
public. Simultaneously, all of the redeemable preferred stock outstanding
converted into 3,518,805 shares of common stock and all of the outstanding
warrants were exercised resulting in the issuance of 246,172 shares of common
stock. The cash proceeds from the offering were approximately $16,472,000 net
of offering expenses incurred totaling $877,000. Upon closing of the offering,
the Company's Certificate of Incorporation was amended and restated to provide
for authorized capital stock of 25,000,000 shares, consisting of 20,000,000
shares of common stock, par value $.001 per share, and 5,000,000 shares
preferred stock, par value $.001 per share.
Under the terms of an agreement, holders of 574,907 shares of common
stock had the right to require the Company to repurchase the shares for an
aggregate maximum purchase price of $550,000. Upon consummation of the initial
public offering, the Company's obligations under the common stock repurchase
agreement were terminated.
SERIES A PREFERRED STOCK
On July 15, 1994, the Company issued 200,000 shares of its Series A
Preferred stock. The Series A Preferred stock carried a 6% cumulative dividend.
Net proceeds from the offering were $1,971,000. On October 14, 1994, the Series
A Preferred stock was converted into 1,025,641 shares of common stock. In
connection with the Series A Preferred stock offering, the Company issued
warrants to purchase 102,564 shares of common stock at $2.93 per share.
<PAGE> 22
-7-
REDEEMABLE PREFERRED STOCK
As a result of the initial public offering effective March 9, 1993,
2,917,127 shares of Series A redeemable preferred stock with a redemption value
of $3.50 per share and 601,678 shares of Series B redeemable preferred stock
with a redemption value of $5.00 per share were converted share for share to
common stock.
The redeemable preferred stock was recorded at its fair value, less
cost of issuance. The difference between the value recorded at issuance and the
redemption value was accreted using the interest method to the redeemable
preferred stocks' carrying value by charges to accumulated deficit. During
1992, the Company increased the carrying value of the redeemable preferred
stock by approximately $48,000.
The redeemable preferred stock had the same voting rights as the common
stock. At the election of 67% of the holders of the outstanding shares, the
redeemable preferred stock could have been redeemed at the greater of the
adjusted issuance price plus accrued dividends or its fair market value. The
redemption amount would have been payable in two equal instalments on September
30, 1997 and 1998. Additionally, the redeemable preferred stock had dividend
rights of 10% of the original issuance price beginning June 30, 1994. Prior to
that date, the dividend rights were noncumulative and did not accrue unless
declared. No dividends related to the redeemable preferred stock were declared.
STOCK WARRANTS
In 1991 and 1992, the Company issued warrants for the purchase of
160,715 shares of common stock with an exercise price of $3.50 per share to
certain noteholders in satisfaction of certain interest payments. The warrants
were exercisable for a period of five years.
Upon consummation of the initial public offering, the warrants were
exercised for 246,172 shares of common stock.
NOTE 10--STOCK OPTIONS AND EMPLOYEE BENEFIT PLAN:
Holders of the Company's existing common stock or related options are
unlikely to receive any continuing value under the Company's Plan of
Reorganization (Note 1).
In January 1993, the Company combined its 1989 Amended and Restated
Stock Option Plan and the 1990 Stock Option Plan into a single plan titled "The
1993 Amended and Restated Stock Option Plan". Additionally, in 1994, the total
number of shares reserved and available for grant was increased to 2,094,000.
Under the 1993 Plan, the Compensation Committee designated by the Board of
Directors may grant incentive stock options (ISOs) to employees of the
Company, including officers and directors, nonstatutory stock options to
either employees or consultants, shares of restricted stock and stock bonuses.
The 1993 Plan provides that the exercise price of any nonstatutory stock option
shall be such price as the Compensation Committee shall determine on the date
on which such option is granted. The exercise price for any ISO shall not be
less than 100% of the fair market value of a share of Common Stock on the date
of grant. For purposes of the 1993 Plan, the fair market value of a share of
Common Stock on any date shall be the reported price at which shares are
publicly traded. If the price of a share of Common Stock shall not be so
reported, the fair market
<PAGE> 23
-8-
value of a share of Common Stock shall be determined by the Compensation
Committee in its absolute discretion. A summary of stock option transactions
during the three years ended November 30, 1994 is as follows:
<TABLE>
<CAPTION> PRICE
SHARES PER SHARE
--------- -----------
<S> <C> <C>
Outstanding, November 30, 1991 .................... 807,244
Granted ........................................... 414,500 $2.00-$3.00
Exercised ......................................... (4,688) $.85
Canceled or expired ............................... (23,044) $.85
---------
Outstanding, November 30, 1992 .................... 1,194,012
Granted ........................................... 237,000 $6.25-$7.94
Exercised ......................................... (63,373) $.85-$2.00
Canceled or expired ............................... (112,984) $.85-$7.13
---------
Outstanding, November 30, 1993 .................... 1,254,655
Granted ........................................... 535,000 $2.25-$4.00
Exercised ......................................... (101,757) $.85
Canceled or expired ............................... (161,136) $.85-$7.94
---------
Outstanding, November 30, 1994 .................... 1,526,762
=========
</TABLE>
Options for 835,160 shares were exercisable and options for 421,965
shares were available for future grant at November 30, 1994.
The Company maintains a defined contribution plan covering
substantially all of the employees of the Company. Under the Plan, eligible
employees may elect to contribute not less than 1% and up to 20% of their annual
compensation to the Plan during each year. Company contributions to the Plan are
discretionary. For the three years ended November 30, 1994, the Company made no
contributions to the Plan.
NOTE 11--FOREIGN OPERATIONS:
Financial data related to the Company's foreign operations for the three
years ended November 30, 1994 is as follows (in thousands):
<TABLE>
<CAPTION> 1992 1993 1994
------ ------ -------
<S> <C> <C> <C>
Revenues ...................................... $6,999 $6,991 $ 6,756
Income (loss) from operations ................. 1,171 457 (6,173)
Assets ........................................ 5,532 6,974 3,776
</TABLE>
NOTE 12--INCOME TAXES:
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
---------------------
1992 1993 1994
---- ----- ----
<S> <C> <C> <C>
Current:
Federal ....................................
State ...................................... $ 15
Deferred:
Federal .................................... $548 (548)
State ...................................... 72 (72)
---- ----- ----
$620 $(605) $
==== ===== ====
</TABLE>
<PAGE> 24
- 9 -
A reconciliation between the provision (benefit) for income taxes and
federal income taxes computed by applying the statutory income tax rate follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-----------------------------------
1992 1993 1994
------ ------- --------
<S> <C> <C> <C>
Statutory rates ........................................ 34% 34% 34%
------ ------- --------
Provision (benefit) at statutory rates ................. $1,097 $(2,056) $(11,392)
Tax benefit not currently recognized ................... 1,504 9,252
Net operating loss benefits utilized ................... (205)
Nondeductible penalties and interest ................... 74
Nondeductible items .................................... 24 31
Foreign operations ..................................... (394) (84) 2,099
Other .................................................. 24 41
------ ------- --------
$ 620 $ (605) $
====== ======= ========
</TABLE>
A summary of the deferred tax liabilities (assets) follows at November 30 (in
thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------ ------- --------
<S> <C> <C> <C>
Software ............................................... $2,244 $ 3,029 $ 298
Depreciation methods ................................... (126) (118) (228)
Allowance for doubtful accounts ........................ (138) (125)
Revenue recognition .................................... 332 516
Postemployment agreement ............................... (334) (234) (234)
Rent expense ........................................... (247) (214) (187)
Accruals ............................................... (236) (167) (142)
Other .................................................. (17) (55) (17)
Loss carryforwards ..................................... (996) (4,123) (10,121)
Deferred tax valuation allowance ....................... 1,504 10,756
------ ------- --------
$ 620 $ $
====== ======= ========
</TABLE>
Net operating losses of approximately $29,000,000 may be used to offset
U.S. future taxable income and will expire beginning in 2005. Utilization of the
Company's domestic net operating losses for income tax purposes is subject to
the provisions of the Internal Revenue Code which would substantially limit the
amount of such loss which may be utilized in any given year as a result of the
ownership changes contemplated under the Company's Plan of Reorganization.
Foreign operating loss carryforwards at November 30, 1994 approximate
$7,000,000. These losses may also be subject to limitation as a result of the
contemplated ownership changes.
NOTE 13--RELATED PARTY TRANSACTIONS:
Accounts receivable from certain stockholders related to life insurance
premiums aggregated approximately $101,000 and $107,000 at November 30, 1993 and
1994, respectively.
A stockholder in a firm which owns an interest in the Company is a
former officer. In 1992, 1993 and 1994, the Company made payments to the firm of
approximately $322,000, $237,000 and $208,000, respectively, primarily for
management and consulting services rendered.
Effective July 15, 1989, the Company entered into a postemployment
agreement with a stockholder for a term ending June 30, 1999. The agreement
provides for annual payments of approximately $170,000 adjusted by the Consumer
Price Index. The net present value of the payments was accrued and expensed
during 1989. Also in July 1989, a subordinated convertible debenture in the
principal amount of approximately $1,000,000 was issued for the redemption of
210,480 shares of common stock to the same
<PAGE> 25
- 10 -
stockholder. The debenture bears interest at 12% with interest payments due
monthly and the principal due in five equal annual instalments commencing in
June 1997 through June 2001. The debenture is senior to indebtedness under
capital leases. The debenture may be converted to common stock at the option of
the holder at an initial price of $5.75 per share adjusted for dividends and
other distributions.
During 1994, an officer of the Company exercised 36,158 options in a
cashless transaction, which resulted in the net issuance of 26,122 shares of
stock. The stock was subsequently sold to a third party for approximately
$80,000 and the Company received the proceeds as partial settlement on a
receivable from the officer. As a result of this transaction, the Company
recorded compensation expense of approximately $80,000.
In connection with the bridge financing supplied by ADAC in November
1994, ADAC received an option to acquire up to 56% of the Company's outstanding
common stock from certain officers, directors and other significant
stockholders at a price of $.30 per share. This option has not been exercised
by ADAC.
NOTE 14--COMMITMENTS AND CONTINGENCIES:
The Company financed the purchase of certain assets through capital
leases and has entered into noncancelable operating leases primarily related to
office space. As of November 30, 1994, capital leases had implicit interest
rates ranging from 12% to 17%. Future minimum annual payments under the capital
and operating lease arrangements were as follows (in thousands):
<TABLE>
<CAPTION>
NON-
CANCELABLE
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ----------
<S> <C> <C>
1995.................................................... $672 $1,820
1996.................................................... 206 1,616
1997.................................................... 50 1,367
1998.................................................... 24 301
1999.................................................... 207
Thereafter................................................. 3,291
---- ------
952 $8,602
Less--imputed interest.................................... 44 ======
Present value of capital lease obligations................ $908
====
</TABLE>
The Company has rejected certain of the above lease obligations in
connection with its bankruptcy proceedings (Note 1).
Rent expense under operating leases was approximately $1,266,000,
$1,623,000 and $2,071,000 in the years ended November 30, 1992, 1993 and 1994,
respectively.
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. Neither
the Company nor any of its subsidiaries is a party to any legal proceedings, the
adverse outcome of which, in management's opinion, individually or in the
aggregate, would have a material adverse effect on the Company's financial
condition or results of operations.
<PAGE> 26
- 11 -
Under a royalty agreement, the Company is required to make royalty
payments aggregating at least $250,000 and $500,000 for the twelve months ending
July 1994 and 1995, respectively, in order to retain the exclusive right to
market one of its products in the United States. In the event the Company fails
to meet these minimum payment requirements, the exclusive rights automatically
convert to nonexclusive marketing rights. The Company has rejected this
agreement in connection with its bankruptcy proceedings (Note 1).
NOTE 15--SIGNIFICANT CHARGES:
In connection with management's evaluation of the Company's products,
its markets and its financial condition, the Company recorded a $11,382,000
write-down of capitalized software development costs in the accompanying
statement of operations for the year ended November 30, 1994 to reflect the net
realizable value of such costs. This write-down reflects the status of
development efforts, market acceptance of products under development and the
financial constraints the Company faces in exploiting the market for its
products. The Company also notified 177 employees of their severance from the
Company in October and November 1994 as a result of this evaluation and has
recorded a charge of $1,102,000 for employee terminations in the accompanying
statement of operations for the year ended November 30, 1994.
<PAGE> 27
ADAC LABORATORIES
AND
COMMUNITY HEALTH COMPUTING CORPORATION
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(unaudited)
---------
The following pro forma financial statements give effect to the acquisition of
substantially all of the assets and liabilities of Community Health Computing
Corporation (CHCC) by ADAC Laboratories (ADAC or the Company) as if it had
taken place at the beginning of the periods presented for purposes of the
statements of operations, and as of July 2, 1995 for the purpose of the balance
sheet. The pro forma combined information is not necessarily indicative of
future operations or the actual results that would have occurred had the
acquisition been consummated at the beginning of the periods presented. The
pro forma combined information and related adjustments are based upon available
information and upon certain assumptions which the Company believes are
reasonable. The pro forma combined condensed financial statements should be
read in conjunction with the Company's and CHCC's historical financial
statements and notes there to incorporated by reference or contained elsewhere
herein.
1
<PAGE> 28
ADAC LABORATORIES (ADAC)
AND
COMMUNITY HEALTH COMPUTING CORPORATION (CHCC)
PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of July 2, 1995
(in thousands)
(unaudited)
--------
<TABLE>
<CAPTION> Pro Forma Pro Forma
ADAC CHCC Adjustments Combined
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,529 $ 3,408 $ (4,813)(A,B) $ 4,124
Accounts receivable, net 50,645 1,216 51,861
Notes receivable 6,408 (6,408)(G)
Inventories 28,178 339 28,517
Current portion of deferred income tax 11,195 11,195
Prepaid expenses and other current assets 5,730 769 (1,157)(A,B) 5,342
-------- -------- -------- --------
Total current assets 107,685 5,732 (12,378) 101,039
Service parts, net 13,651 13,651
Fixed assets, net 5,882 2,435 (284)(B) 8,033
Other assets 10,750 4,177 4,042 (A) 18,969
Goodwill 14,691 (A) 14,691
-------- -------- -------- --------
Total assets $137,968 $ 12,344 $ 6,071 $156,383
======== ======== ======== ========
LIABILITIES
Current liabilities:
Notes payable $ 7,600 $ 6,630 8,563 (A,B) $ 16,385
(6,408)(G)
Accounts payable 21,394 327 21,721
Dividends payable 1,967 1,967
Deferred revenue 7,793 3,012 10,805
Other accrued liabilities 15,092 13,095 (7,288)(A) 20,899
-------- -------- -------- --------
Total current liabilities 53,846 23,064 (5,133) 71,777
Noncurrent liabilities and deferred credits 4,274 484 4,758
-------- -------- -------- --------
Total liabilities 58,120 23,548 (5,133) 76,535
-------- -------- -------- --------
SHAREHOLDER'S EQUITY (DEFICIT)
Common stock 98,641 33,074 (33,074)(A) 98,641
Additional paid-in capital
Accumulated deficit (19,796) (44,278) 44,278 (A,B) (19,796)
Translation adjustment 1,003 1,003
-------- -------- -------- --------
Total shareholder's equity (deficit) 79,848 (11,204) 11,204 79,848
-------- -------- -------- --------
Total liabilities and
shareholder's equity $137,968 $ 12,344 $ 6,071 $156,383
======== ======== ======== ========
</TABLE>
See the accompanying notes to Pro Forma Combined
Financial Statements (Unaudited)
2
<PAGE> 29
ADAC LABORATORIES (ADAC)
AND
COMMUNITY HEALTH COMPUTING CORPORATION (CHCC)
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the year ended October 2, 1994
(in thousands)
(unaudited)
--------
<TABLE>
<CAPTION>
Pro Forma Pro Forma
ADAC CHCC Adjustments Combined
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $137,992 $ 10,567 $ (5,381)(D) $143,178
Field service 38,288 20,378 (5,611)(D) 53,055
-------- -------- -------- --------
176,280 30,945 (10,992) 196,233
-------- -------- -------- --------
Cost of revenues:
Product sales 77,396 11,452 (4,775)(C,D) 84,073
Field service 27,171 18,004 (6,181)(D) 38,994
-------- -------- -------- --------
104,567 29,456 (10,956) 123,067
-------- -------- -------- --------
Gross profit 71,713 1,489 (36) 73,166
-------- -------- -------- --------
Operating expenses:
Marketing and sales 32,221 8,898 (1,605)(D) 39,514
Research and development 11,644 5,551 (2,668)(D) 14,527
General and administrative 7,758 7,513 (5,159)(C,D) 10,112
Amortization of goodwill 979 (C) 979
Nonrecurring charges 2,453 12,484 (3,579)(D,E) 11,358
-------- -------- -------- --------
54,076 34,446 (12,032) 76,490
-------- -------- -------- --------
Operating income (loss) 17,637 (32,957) 11,996 (3,324)
-------- -------- -------- --------
Other income (expense):
Litigation defense costs (6,240) (6,240)
Interest and other income (expense), net (212) (548) (1,401)(D,F) (2,161)
-------- -------- -------- --------
(6,452) (548) (1,401) (8,401)
-------- -------- -------- --------
Income (loss) before provision for income
taxes 11,185 (33,505) 10,595 (11,725)
Provision (credit) for income taxes (6,336) (6,336)
-------- -------- -------- --------
Net income (loss) $ 17,521 $(33,505) $ 10,595 $ (5,389)
======== ======== ======== ========
Net income (loss) per share $1.06 $(0.33)
===== ======
Shares used in per share calculation 16,508 16,508
====== ======
</TABLE>
See the accompanying notes to Pro Forma Combined
Financial Statements (Unaudited)
3
<PAGE> 30
ADAC LABORATORIES (ADAC)
AND
COMMUNITY HEALTH COMPUTING CORPORATION (CHCC)
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the nine month period ended July 2, 1995
(in thousands)
(unaudited)
--------
<TABLE>
<CAPTION> Pro Forma Pro Forma
ADAC CHCC Adjustments Combined
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $103,906 $ 1,350 $ (104)(D) $105,152
Field service 30,678 8,082 (981)(D) 37,779
-------- ------- ------- --------
134,584 9,432 (1,085) 142,931
-------- ------- ------- --------
Cost of revenues:
Product sales 62,682 2,630 339 (C,D) 65,651
Field service 21,194 4,031 (763)(D) 24,462
-------- ------- ------- --------
83,876 6,661 (424) 90,113
-------- ------- ------- --------
Gross profit 50,708 2,771 (661) 52,818
-------- ------- ------- --------
Operating expenses:
Marketing and sales 23,171 1,110 (271)(D) 24,010
Research and development 8,133 2,086 (212)(D) 10,007
General and administrative 6,230 1,093 45 (C) 7,368
Amortization of goodwill 490 (C) 490
Non-recurring charges 790 (790)(D,E)
-------- ------- ------- --------
37,534 5,079 (738) 41,875
-------- ------- ------- --------
Operating income (loss) 13,174 (2,308) 77 10,943
-------- ------- ------- --------
Other income (expense):
Interest and other income (expense), net (566) (488) (565)(F) (1,619)
-------- ------- ------- --------
(566) (488) (565) (1,619)
-------- ------- ------- --------
Income (loss) before provision for income
taxes 12,608 (2,796) (488) 9,324
Provision (credit) for income taxes 4,370 4,370
-------- ------- ------- --------
Net income (loss) $ 8,238 $(2,796) $ (488) $ 4,954
======== ======= ======= ========
Net income (loss) per share $0.49 $0.29
===== =====
Shares used in per share calculation 16,928 16,928
====== ======
</TABLE>
See the accompanying notes to Pro Forma Combined
Financial Statements (Unaudited)
4
<PAGE> 31
ADAC LABORATORIES (ADAC)
AND
COMMUNITY HEALTH COMPUTING CORPORATION (CHCC)
NOTES TO PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
----------
(A) Acquisition of the net assets of CHCC.
(B) Disposition of the net assets of CHCC for those portions of the CHCC
business not acquired by ADAC.
(C) Amortization of intangibles acquired upon the acquisition of CHCC.
(D) Elimination of operations related to those portions of the CHCC business
not acquired by ADAC.
(E) Elimination of CHCC's bankruptcy related costs.
(F) Interest on ADAC borrowings necessary to fund the acquisition of CHCC.
(G) Elimination of historic intercompany note receivable and payable balances
of $6,408.
5
