UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
For the Fiscal year ended March 31, 1996
Commission File Number 0-15352NY
US SERVIS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2467332
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation)
414 Eagle Rock Avenue, West Orange, New Jersey 07052
(Address of principal executive offices) (Zip Code)
(201) 731-9252
(Registrant's telephone number, including area code)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
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 contained, to the
best of registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
At June 24, 1996, the aggregate market value of the voting stock of the
registrant held by non-affiliates was approximately $16,000,000.
At June 24, 1996, the registrant had 6,296,000 outstanding shares of Common
Stock, par value $0.01 per share, and 1,500,000 shares of Series A Convertible
Preferred Stock, par value $0.01 per share.
Documents Incorporated by Reference:
Specified portions of the US Servis, Inc. proxy statement to be distributed in
connection with the registrant's 1996 Annual Meeting are incorporated by
reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
ITEM 1: BUSINESS.............................................................................................. 1
Company Overview...................................................................................... 1
Company Mission and Primary Goal................................................................... 1
Changes in Company Focus and Management............................................................ 1
Company's Principal Markets........................................................................ 2
Industry Overview..................................................................................... 3
Hospital Billing and Accounts Receivable Management Services....................................... 4
Physician Practice Management Services............................................................. 5
Company's Business and Clients........................................................................ 6
Information Systems................................................................................ 7
Ambulatory Care Management System (ACMS(TM))....................................................... 8
1996 Financial Information.................................................................. 9
Company's Business Strategy........................................................................... 10
Competition........................................................................................... 12
Operations and Employees.............................................................................. 13
Board of Directors................................................................................... 15
Executive Officers of the Company..................................................................... 16
ITEM 2: PROPERTIES............................................................................................ 19
ITEM 3: LEGAL PROCEEDINGS..................................................................................... 19
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................... 19
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS............................. 20
ITEM 6: SELECTED FINANCIAL DATA............................................................................... 21
ITEM 7: MANAGEMENT'S DISCUSSION OF FINANCIAL RESULTS.......................................................... 22
General............................................................................................... 22
Liquidity and Capital Resources....................................................................... 23
Results of Operations................................................................................. 24
1996 Compared to 1995................................................................................. 25
1995 Compared to 1994................................................................................. 26
ITEM 8: FINANCIAL STATEMENTS AND SCHEDULES.................................................................... 27
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................. 27
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................................... 27
ITEM 11: EXECUTIVE COMPENSATION................................................................................ 27
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................................ 27
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................ 27
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....................................... 28
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ITEM 1: BUSINESS
COMPANY OVERVIEW US Servis, Inc. (formerly MICRO Healthsystems, Inc.), together
with its subsidiaries ("US Servis" or the "Company"), is a professional
management company that provides outsourced business management and information
management services to physician networks, hospital business offices, and
ambulatory centers. The Company's primary market area is integrated delivery
systems organized by hospitals and hospital systems. As healthcare providers
encounter more competition, higher managed care penetration and increased
pressure to provide more comprehensive services with fewer resources, the
Company's management believes that the managers of integrated delivery systems
will have sound business reasons to contract with a professional management
company such as US Servis.
COMPANY MISSION The Company's mission is to provide superior, cost-effective
business management and information management services that support its
customers' efforts to improve their strategic position and financial performance
and relieve them of their administrative burdens so they can focus on the
delivery of healthcare services.
COMPANY GOAL The Company's primary goal is to develop a leadership position in
the healthcare business management services industry. Management believes this
goal will be achieved through strong internal growth, strategic alliances and
selected acquisitions. The accomplishment of these tasks will allow the Company
to develop a national network of regional service centers capable of providing
high quality, cost effective business and information management services to the
Company's clients. The Company's development of a southern Florida processing
center is the first step in the implementation of the Company's goal to develop
a national network of regional service centers.
CHANGES IN COMPANY FOCUS AND MANAGEMENT During fiscal 1996, the Company achieved
the following key goals:
o Refocused on its expertise in business management services, proprietary
software, and the Company's proven ability to improve operating
efficiency and cash flow through its performance based management
agreements.
o Recapitalized the Company in order to provide resources for expansion;
raised $5.9 million through the placement of preferred stock and
warrants.
o Recruited new, experienced individuals to the Board of Directors and
the Senior Management Team.
o Expanded and upgraded the Company's sales and customer service
departments.
o Solidified the existing client base through contract renewals and
extensions.
o Contracted significant new revenue, representing approximately
$5.8 million of incremental 1997 revenue.
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Prior to the appointment of the current senior management team, the Company's
primary focus had become the development and marketing of clinical information
systems. Although the Company has provided business management services and
financial information systems to hospitals and physicians for the past 25 years,
prior to fiscal 1995, these activities were considered a secondary line of
business. During fiscal 1995 and 1996, the Company refocused its resources on
its core business -- providing business management services and information
management services to physicians and hospitals .
COMPANY'S PRINCIPAL MARKETS
PHYSICIAN PRACTICE MANAGEMENT Physician practice management services are
business management services that address the non-clinical, administrative
aspects of a medical practice. The company focuses on providing these services
primarily to physicians affiliated with or owned by hospital driven integrated
delivery systems. Activities typically provided under a physician practice
management agreement include the recruitment, training, supervision, and
evaluation of the non-clinical staff, billing and accounts receivable
management, financial management and reporting, practice development and
contract negotiations with payors, and the development and implementation of
management information systems. More recently, physician practice management
services have expanded to include the formation, development and operation of
physician networks in an effort to position the participating physicians and
their sponsoring organizations to better respond to the pressures of managed
care.
The Company provides billing, accounts receivable management, information
systems, and other business management services to approximately 2,000
physicians. These services are provided by Company personnel operating out of
three business service centers located in northern New Jersey, suburban Chicago,
Illinois and Fort Myers, Florida. Billing, accounts receivable management, and
information systems management are core competencies of the Company and
represent the majority of the Company's physician practice management revenues.
The Company's physician clients cover a broad range of medical specialists and
sub-specialties, including hospital based physicians (anesthesiologists,
radiologists, pathologists, emergency room physicians, etc.), office based
specialties (cardiologists, surgeons, etc.) and primary care physicians (general
practitioners and family physicians, internists, pediatricians and
obstetricians/gynecologists).
The Company's management believes physicians are becoming increasingly sensitive
to the business aspects of medical practice, and are looking for managerial
expertise and technology to help manage the complexities of their practices.
Management believes that the Company's size, commitment to superior client
service, expertise in critical areas such as billing, accounts receivable and
practice management, and proprietary software give the Company a competitive
advantage over "in-house" alternatives, small billing and collection companies
and large, highly centralized national companies that also offer these services
to physicians and physician networks.
HOSPITAL BUSINESS OFFICE MANAGEMENT The Company also provides information
systems and management services to hospital business offices and free standing
ambulatory care centers. These services, frequently referred to as business
management services, are provided under the "contract management model." Under a
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contract management model, a provider of inpatient or outpatient healthcare
services outsources all or a portion of the activities associated with its
business offices. Traditionally, healthcare providers have embraced contract
management for certain "hotel" services (dietary, housekeeping, maintenance)
associated with their operations. More recently, hospital boards and executives
have embraced the "outsourcing" of activities as diverse as information systems
management (facility management), billing and accounts receivable management,
clinical engineering, and certain clinical services including laboratory,
radiology, physical medicine and rehabilitation. In a business or contract
management engagement, the Company interfaces its proprietary software to the
client hospital's information system, thereby providing the client with a
powerful information systems tool, hires and manages the billing and accounts
receivable management staff and directs the client hospital's cash collection
activities.
OUTSOURCING SERVICES FOR MANAGED CARE ORGANIZATIONS ("MCOs") The Company also
provides member and claims processing services to Managed Care Organizations.
These MCOs may be independent free standing health maintenance organizations
("HMOs") or MCOs affiliated with hospital based integrated delivery systems.
Specific services provided to MCOs include claims adjudication, coordination of
benefits, third party liability management, providers/member services, premium
billing and collection, information systems, and information systems management
and decision support reporting.
The Company also provides clients access to its Ambulatory Care Management
Information Systems ("ACMS (TM)") software through perpetual or "on-site"
license arrangements and through remote computing system timesharing agreements
that utilize the resources of one of the Company's service centers.
The Company's management believes that acute and ambulatory care providers,
including physicians, physician networks and managed care organizations, will
increase utilization of the contract management model and/or the remote
computing system model as they address the increased cost, volume and complexity
of their billing and cash collection activities. Management further believes
that the Company's proprietary software, experience and management expertise
provide a cost effective alternative to the in-house approach historically
pursued by many providers of healthcare services.
INDUSTRY OVERVIEW
The United States Healthcare Financing Administration ("HCFA") estimated
healthcare expenditures in the United States for 1994 at $1 trillion,
representing more than 16% of the Gross National Product ("GNP"), an increase
from $666 billion, or 12% of GNP, in 1990. Of this amount, expenditures for
hospital services totaled $400 billion and expenditures for physician services
were $195 billion. As is obvious from the national attention focused on the U.S.
healthcare delivery system, government, employers, insurance companies, and
consumers are all pressuring providers to stabilize or reduce costs and to
improve access. In response to this pressure, providers have moved more and more
of the focus of healthcare out of the institutional, inpatient setting into less
costly alternative sites that include physician's offices, ambulatory/outpatient
centers and alternative care sites. Based on information released by HCFA,
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between 1981 and 1991, the number of hospital admissions declined by 15% while
the number of hospital outpatient visits increased from 92 million to 360
million. During the same period the percentage of the national healthcare
dollars spent on physician and professional services increased by 18%.
These trends, together with increased penetration of health maintenance
organizations and other pre-paid health plans, have made it increasingly
difficult for physicians, hospitals, hospital outpatient departments and free
standing ambulatory care centers to manage the administrative complexities
associated with delivering care and receiving payment for the services they
provide.
Healthcare providers receive payment for medical services from the patients they
serve and a variety of third party payors, including employers, private
insurance companies, the Medicare program and state Medicaid programs.
Healthcare providers are under increasing pressure to accept the assignment of
insurance benefits from their patients and assume the primary responsibility for
obtaining payment from third party payors. The task of collecting these third
party payments is frequently made more difficult by the need to submit payor
specific claims forms, secure pre-approval from the payor before care is
provided and reconcile payments to submitted claims.
The Company's management believes that shifts in the structure of the healthcare
delivery system, efforts to optimize revenue, convert accounts receivable to
cash more quickly, and more effectively manage the business of healthcare have
increased the demand for the types of services the Company offers. The Company's
management also believes that the changes currently underway in today's
healthcare environment, including healthcare reform initiatives, create an
opportunity for the Company to expand its scope of services and the number of
clients served. The Company's existing client base and performance based fee
structure provide the resources to support its migration from its current
strength, providing billing and accounts receivable management services, to a
provider of comprehensive contract management services to hospital and
non-hospital driven integrated delivery systems, and physician practice
management services to physicians and physician delivery systems.
HOSPITAL BILLING AND ACCOUNTS RECEIVABLE MANAGEMENT SERVICES Hospitals and free
standing ambulatory care centers have historically relied upon their own
personnel and in-house or turnkey software systems to manage their billing and
accounts receivable activities. Because the healthcare industry has had a
historical focus on care, the policies, procedures and information systems
developed to support patient management, scheduling, billing and accounts
receivable management activities have historically been designed to meet the
needs of inpatient billing and accounts receivable management. As the volume of
outpatient activity increases (in the outpatient setting the number of
transactions is very high and the dollar volume per transaction is low),
hospitals and free standing ambulatory care centers have found it increasingly
difficult to manage their workloads and efficiently convert their accounts
receivables to cash. Management believes that the trend towards more outpatient
activity and the lack of information systems to meet the needs of the outpatient
market presents the Company with a unique opportunity to build on its base of
expertise and increase the number of clients served. Management further believes
that the business of providing billing and accounts receivable management
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services to hospital business offices, and free standing ambulatory care centers
is relatively new, and that the demand for such services will increase and that
its core competency in the outpatient ambulatory area will provide opportunities
to expand its contract management activities into inpatient billing and accounts
receivable management.
Outpatient Contract Management services are typically provided to hospitals with
over 50,000 outpatient visits per year. According to HCFA, hospital revenues
exceeded $400 billion in 1993. Management believes that an estimated 5% or $20
billion of this total is spent on business office services. Management estimates
that 50% of the country's hospitals are candidates to outsource business office
activities to third parties. Recognizing that 20% to 40% of hospital revenues is
currently derived from outpatient/ambulatory activity, management estimates a $2
to $4 billion potential market. The Company's 1996 revenues attributed to
hospital outpatient and ambulatory billing and accounts receivable management
were $7.2 million.
The Company has recently been selected to provide inpatient billing and accounts
receivable management services to a prominent New York healthcare provider.
Management believes the Company can use its experience in providing business
management services to develop additional inpatient billing and accounts
receivable clients.
PHYSICIAN PRACTICE MANAGEMENT SERVICES The market for business and practice
management services to hospital based physicians and specialists is well
established. These physicians have historically been willing to utilize the
services of outside vendors to manage not only their billing and accounts
receivable management activities but in many cases all of the non-clinical,
administrative activities of their practices. Based on American Medical
Association data, management estimates that there are approximately 350,000
hospital based physicians and specialists practicing in the United States.
Due to the size and financial characteristics of their practices, primary care
physicians (i.e., family practitioners, general internists, pediatricians and
obstetrician/gynecologists) have historically not been significant users of
practice management services. Management believes, however, that as primary care
physicians aggregate into larger practice groups and more administrative
responsibilities are placed on them by managed care companies, they will
increasingly utilize comprehensive practice management billing and accounts
receivable management services to optimize their revenue and minimize the
non-clinical cost characteristics of their practices. Based on American Medical
Association data, management estimates that there are approximately 250,000
primary care physicians practicing in the United States.
According to HCFA, in 1993 physicians generated revenues of $195 billion and
spent 8% of revenues, or $15.6 billion, on non-clinical administrative
activities. Estimates provided by industry analysts indicate that the fifty
largest physician practice management companies accounted for less than 7% of
the total amount spent on non-clinical administrative activities. One of the
Company's goals is to become a leading provider of business management systems
and services to the nation's 600,000 physicians. The Company currently
provides billing, accounts receivable management services and information
systems and
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services to approximately 2,000 physicians. The Company's 1996 revenues
associated with these services were $6.4 million. Management believes that the
Company can grow internally by (a) encouraging more practices that insource
billing and accounts receivable management services to outsource this activity,
(b) winning business away from smaller, less technologically advanced
competitors, (c) winning business from customers dissatisfied with the services
provided by large firms, (d) selling add-on services to existing customers, and
(e) supplementing internal growth through selected strategic acquisitions.
Although, there are a number of active buyers of billing services and practice
management companies in the U.S., management believes that it will be able to
establish relationships with companies that identify with the Company's mission
and that some of these relationships will lead to acquisitions or other mutually
beneficial arrangements. Management believes that there may be as many as 1,200
local and regional companies in the U.S. providing business management, billing
and accounts receivable management services to physicians and physician delivery
systems. Management believes that these companies represent acquisition
opportunities because they are typically undercapitalized and frequently in need
of management, sales and marketing assistance and information systems.
COMPANY'S BUSINESS AND CLIENTS US Servis is a professional management company
that provides a portfolio of business management services to: hospital business
offices; free standing ambulatory care centers or those affiliated with
integrated delivery systems; hospital based physicians; multi-specialty and
sub-specialty group practices; independent solo practitioners; emerging
physician delivery systems and managed care organizations, including those
affiliated with or owned by hospitals or hospital driven integrated delivery
systems. The Company's portfolio of business management services includes
billing and accounts receivable management, claims management, and related
consulting services, practice evaluation, practice performance monitoring and
the formation and management of physician delivery systems. These management
services are provided on an outsourced basis by US Servis to its clients. With
regard to billing and accounts receivable management services, the Company
typically enters into contracts with its clients under contingent fee
arrangements that have historically been based upon a percentage of cash
collected. The Company typically bills clients on a monthly basis for services
provided during the immediately preceding month. The Company's fees for hospital
inpatient and outpatient contract management and physician billing and accounts
receivable management services range from 2% to 10% of collections depending
upon the size of the client and type of patients served. During fiscal 1996,
approximately 66% of the Company's revenues involved performance based fees.
Although receipt and timing of these payments is contingent upon payment of
payors, and certain payors (such as state Medicaid agencies) may accrue
substantial outstanding bills prior to payment, the Company's management does
not believe that governmental or other payment practices will have a material
effect on the Company's working capital needs or short term liquidity.
In performing billing and accounts receivable management services for its
clients, the Company obtains relevant demographic, financial and clinical
information from its clients on paper forms, magnetic tape and through direct
interfaces with client in-house information computer systems. The demographic
and medical records information is then entered (or transferred) into the
Company's proprietary billing and accounts receivable management system. The
system then generates claims, follow-up notices and other related correspondence
for patients and third party payors. In some situations the Company utilizes
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physician practice management and hospital inpatient billing and accounts
receivable management systems that have been developed by other companies and
subsequently leased or purchased by the Company's clients. The Company assigns
an account manager to each major hospital business management services client.
The account manager is an experienced accounts receivable professional who
manages the Company's business management activities, including initial billing,
monitoring third party payors' responses to claims, the collection of amounts
due under claims, the receipt of such payment amounts by the client and the
collection of co-payments or amounts due on account of uncovered services. The
Company, working through the account manager, provides clients with periodic
status reports and analyses of the Company's contract management performance and
uses these reports to conduct periodic meetings with client management. In
addition to billing and accounts receivable management, the Company also
provides consulting, accounting, financial reporting, network development and
contract/payor negotiation services.
In addition to business management services provided in the manner described
above, the Company also provides remote computing services. Under its remote
computing service agreements, the Company provides clients with access to its
proprietary Ambulatory Care Management System(TM) through a remote services
agreement that allows the client to utilize the capabilities of one of the
Company's three service centers. Remote computing service clients typically pay
the Company a fixed monthly fee that entitles the client's personnel access to
the Company's hardware and software as the information systems vehicle to assist
in the management of scheduling, registration, billing and accounts receivable
management activities. The Company provides remote computing services to
hospitals, free standing ambulatory care centers and physician groups. During
Fiscal 1996, approximately 11.1% of the Company's revenue was derived from
remote computing service operations.
In the delivery of services to managed care organizations, the Company provides
a comprehensive set of business solutions, information and administrative
services around its core managed care information systems product, the ACMS
Managed Care Module/MG 400. Contract business management services to managed
care organizations are typically provided in a remote computing system
environment with the MG/400 processor located in the Company's data center and
terminals connected via communication lines, located at the managed care
organization's site and the claims processing and adjudication center. The
system is tailored to the client's needs by Company personnel and used by the
client personnel and the Company's on-site staff as the information processing
tool to support claims processing, coordination of benefits, authorization and
referral processing, enrollment and membership services.
The Company has also historically made its software available under traditional
turnkey software licenses agreements. Under these arrangements, a client enters
into a license agreement that entitles it to use the Company's software on its
hardware, or hardware acquired through the Company and located at the client's
site. During Fiscal 1996, approximately 10.9% of the Company's revenue was
derived from turnkey licensing operations. The Company has de-emphasized its
turnkey software activities so that resources can be directed toward its
business and information management services.
INFORMATION SYSTEMS The information systems used to support the Company's
business management services operate on IBM AS/400 and RS/6000 computers,
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various processors manufactured by Digital Equipment Corporation ("DEC"), and
personal computers.
AMBULATORY CARE MANAGEMENT SYSTEM (ACMS(TM)). The Company's proprietary
application software, Ambulatory Care Management System (ACMS(TM)), is an
integrated information system designed to meet the requirements of hospital
outpatient departments, free standing ambulatory
care centers, hospital based physicians, multi-specialty and sub-specialty
group practices and physicians. ACMS is at the core of the Company's business
management and remote computing services strategy. Some of the software
modules that make up ACMS have been and will be developed by other firms and
reflect the Company's implementation
of a "best of breed" information systems product development strategy for
hospital ambulatory services. ACMS is comprised of modules developed by the
Company that are available for implementation and will include other
modules that are under development. Modules developed by other companies are
being integrated with the Company's existing, in-house developed modules in
order to create a comprehensive ambulatory care management system capable
of addressing the business and clinical aspects of care management.
As part of its "best of breed" strategy, the Company has established a number of
agreements under which the Company agrees to integrate certain high quality,
functionally robust software products into its core information systems and
market those systems through its sales and marketing organization. In early
1995, agreements were executed with UniHealth Ventures and MedicaLogic Inc. to
provide managed care and automated medical records software modules for
incorporation into ACMS.
ACMS consists of four modules: Infinity(TM), Alliant(TM), MG400(TM) and
Logician(TM).
The Infinity module has been specifically designed and is maintained by the
Company to meet the practice management requirements of medical groups and
physician delivery systems. The medical management module meets the needs of a
variety of modern medical practices, including hospital and community based
physician groups, multi-specialty group practices, and primary care networks.
Infinity's major applications include billing and accounts receivable
management, appointment/resource scheduling, clinical information management,
decision support, and interface support.
The Alliant module was developed by the Company to meet the complex ambulatory
billing, accounts receivable and collections requirements of hospital outpatient
departments, clinics, emergency rooms, and ambulatory care centers. Alliant is
designated to assist providers in managing the high volume, low per unit revenue
transactions associated with the delivery of ambulatory services. The module's
features include integrated and streamlined triage, on-line registration and
check-in, unlimited patient data retention, complete third-party/patient bills,
recurring patient processing, automatic calculation and posting of
third-party/patient bills, recurring patient processing, automatic calculation
and posting of third-party billing, complete bad-debt system, on-line
patient/financial history, automatic rebilling, payor follow-up and write-off
parameters, appointment scheduling, pre-registration, complete statistical data
capture, an integrated text writer, and an ad-hoc report generator.
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The Medical Care Processing module of ACMS is Logician, developed by MedicaLogic
of Beaverton, Oregon. Logician will be fully integrated with ACMS and marketed
by the Company under a joint venture agreement executed in 1995. Logician
automates the creation, access, updating, secured sharing and storage of patient
records.
The Managed Care module of ACMS is the MG400. The MG400 was developed by
UniHealth Ventures Systems of Burbank, California, and is widely used by medical
groups, HMOs, IPAs, PPOs and MSOs. The MG400 product is marketed by the Company
under a joint venture agreement that gives the Company exclusive use of the
MG400 product in contract practice management situations. The MG400 module
provides full integration of membership, claims and financial administration and
performs precise validation of carrier, plan and member records.
1996 FINANCIAL INFORMATION During 1996, the Company's business management
services provided to hospitals, physicians and managed care organizations
represented approximately 73.5% ($11.9 million) of total revenues. Approximately
50% ($5.9 million) of these business management services revenues were derived
from physicians; 45% ($5.4 million) were attributed to the Company's hospital
client base and 5% ($589,000) related to the Company's managed care clients.
Business management services provided to the Company's hospital clients are
typically provided under long-term service agreements of up to five years.
During 1996, the Company had four major outpatient hospital clients. The 1996
revenues associated with these clients were approximately 32.8% ($5.3 million)
of 1996 total revenues. The Company has negotiated contract extensions with two
of these clients, which represented 18.4% ($3.0 million) of 1996 revenues. Both
extensions involve an expanded scope of services. One of the Company's major
outpatient clients elected not to renew its contract management agreement with
the Company, and brought its billing and accounts receivable management back
"in-house". During 1996, this client represented 6.6% ($1.1 million) of the
Company's total revenues. Management does not believe that the loss of this
revenue will have a material adverse effect on the Company's performance.
Practice management services provided to physicians and physician groups
typically are provided under agreements having an initial term of three (3)
years automatically renewable on an annual basis following the end of the
initial term. These contracts typically provide for cancellation for cause upon
ninety (90) days written notice. The Company has historically experienced very
few cancellations of physician contract management agreements. As of March 31,
1996, the Company provided billing, accounts receivable, contract management and
information services to approximately 2,000 physicians.
Contract management services to managed care organizations are also provided
under long-term agreements ranging from three (3) to five (5) years. These
contracts are typically priced on the basis of a rate per member per month with
accelerators or bonus payments for processing accuracy, and productivity/systems
performance. During 1996, the Company had one managed care organization client
that accounted for all of the Company's revenue in this product line. Services
for this managed care organization represented 3.6% ($589,000) of total 1996
revenues.
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The Company's remote computing services are typically provided under three-year
agreements. During 1996, revenues associated with remote computing services
represented 11.1% ($1.8 million) of the Company's total revenues. The Company
has two major hospital remote computing service clients. Remote computing
services to these two clients represented substantially all of the Company's
1996 remote computing service revenues. During 1996, the Company was successful
in negotiating a contract extension of 18 months for one of these remote
computing service clients. The other major client's contract expires during
fiscal 1999.
Approximately 6.7% ($1.1 million) of the Company's 1996 revenues related to its
clinical information systems products and services. These products and services
were provided through the Company's Clinical Dimensions division and had been
marketed under the MedTake and CarePoint product labels. As part of its
restructuring, the Company is phasing out of this line of business.
The remaining 8.7% of revenues ($1.4 million) was derived from maintenance and
service fees on turnkey products, interest income and other miscellaneous
revenue items.
One of the Company's hospital clients, The University of Medicine and Dentistry
of New Jersey, represented 15.7% of the Company's 1996 revenue. A second client,
the Mount Sinai Medical Practice Group, Elmhurst, New York, represented 9.2% of
1996 revenue. No other single customer represented more than 8% of 1996 revenue.
The Company's contract with the Mount Sinai Medical Practice Group is scheduled
to expire on June 30, 1996. The Company intends to continue to provide services
to the Mount Sinai Medical Practice Group pending renewal of the contract.
COMPANY'S BUSINESS STRATEGY The Company's business strategy is to build on its
relationships with large integrated delivery systems and its core competencies
of billing and accounts receivable management and the development and management
of information systems management to become a leading provider of comprehensive
business and information management services. The Company's primary target
market is broadly defined as the physician delivery systems and hospital
business offices associated with hospital sponsored integrated delivery systems.
It includes the hospital inpatient and outpatient billing and accounts
receivable management departments, physician practices/groups, free standing
ambulatory care centers and physician delivery and managed care systems (MSOs,
IPAs, PHOs, HMOs, etc). The Company also offers its services to physician
sponsored groups, practices and networks. Management believes that these
segments of the market will continue to aggregate and integrate in response to
increased managed care penetration and intensified pressure to control costs and
improve quality. Management further believes that the growth and complexity
associated with these trends will create increased demand for its business and
information management services.
10
<PAGE>
Specific elements of this strategy are:
1. Emphasis on internal growth, augmented with selected acquisitions:
The Company's business strategy is to expand its business with physicians
by building a national network of regional client service centers from
which high quality, cost effective, practice management services can be
provided. Revenue growth in these regional service centers will be
driven by the Company's direct sales organization and/or acquisitions.
The Company's business strategy is to grow its hospital inpatient and
outpatient billing and accounts receivable contract management business is
to use its sales and marketing organization to increase business from new
and existing clients.
2. Provide superior customer service at an affordable cost:
An important element of the Company's strategy is its commitment to
continue to expand and augment the skills and expertise of its employees so
they can better understand, analyze and manage its client's business
activities. Investments in the Company's employees allows them to help
optimize client revenues, streamline operating procedures and increase cash
collections. The Company also recognizes the importance of establishing and
maintaining long-term "partnership" relationships with it clients. The
Company's service standard is reflected through its customer focused
culture, commitment to continuous quality improvement and its performance
based pricing philosophy that aligns the Company's and the client's
objectives.
Management believes it is important to have a local presence in order to
better serve its clients, keep abreast of regional issues and achieve the
cost advantages associated with efficient, regional service/processing
centers. Therefore, management is establishing regional service centers in
selected metropolitan markets throughout the United States. The Company
presently has service centers in northern New Jersey, suburban Chicago, and
southern Florida. The Company anticipates establishing additional regional
service centers as part of initial sales to large integrated health
delivery system, and through the acquisition of strategically located local
companies with specific, complementary skills.
3. Cross sell to existing clients:
One of the key reasons the Company's primary target market is hospital
sponsored integrated delivery systems is that the delivery systems provide
significant opportunity for cross selling the Company's business and
information management services. Within one of these large, complex,
delivery systems, the Company has the opportunity to sell a portfolio of
business and information management services to a number of constituencies:
MSOs created to manage acquired physician practices and provide services to
community based physicians; PHOs created to contract with payors for
hospital and physician services; faculty practice plans related to academic
medical center clients; and HMOs established to provide managed care
products. The Company believes that once it has established its presence in
a client's integrated delivery system, its sales and marketing organization
will leverage its performance to identify and obtain new business.
11
<PAGE>
4. Form Strategic Alliances:
The Company believes in the need to develop synergistic relationships with
other companies to acquire additional services, products, and additional
market share. The Company's "best of breed" product development strategy,
utilizing MedicaLogic's Logician product and the MG/400 product developed
by UniHealth Ventures is indicative of management's commitment and ability
to establish and expand synergistic business relationships.
5. Provide a comprehensive portfolio of Business and Information Management
Services:
In response to the growth and expansion of managed care, the Company's
strategy is, directly and through strategic alliances, to expand its
portfolio of business and information management services to assist clients
in the development, operation and management of the ambulatory components
of their integrated delivery systems. Key elements of this strategy are:
Management services and information systems to support managed
care organizations. Services and systems in this area of the
Company's strategy will support utilization management,
eligibility claims adjudication, coordination of benefits, and
medical management.
Management services and information systems to support
organizations formed to develop and provide services to physician
delivery systems. Building on its core competencies of billing and
accounts receivable management, the Company's strategy is to offer
a comprehensive portfolio of practice management services that
support its Client's needs to better manage their medical
practices. Services include support of front office patient flow
activities, marketing, financial and accounting management,
management of information systems, practice development and the
management of traditional "back office" activities.
Management Services Organizations (MSOs) are being formed by
integrated delivery systems with the mandate of providing services
to owned and affiliated physicians. In this market, the Company's
strategy is to offer management services and information systems
in support of its clients' efforts to develop and operate
physician delivery systems. Specifics include the augmented
services described above, as well as information systems designed
to help attract unaffiliated physicians to the network and managed
care contracting, claims adjudication, medical management,
utilization review, and referral management.
COMPETITION The hospital billing and accounts receivable contract management
industry is not mature. Management believes that the Company's major competition
in this area of focus is the "in-house mentality" -- hospital managers utilizing
their own or licensed information systems products, together with their own
hospital or clinic employees to manage their billing and accounts receivable
12
<PAGE>
management activities. The Company is aware of a few regional firms that provide
inpatient and outpatient billing and accounts receivable contract management
services, although some of the major healthcare information systems companies
may be considering entering this market. If major healthcare information systems
companies elect to enter this market segment, they could mobilize financial and
other resources in excess of those available to the Company.
In selling its contract management services to hospitals and integrated delivery
systems, the Company stresses the benefits of its proprietary software, which is
designed specifically to meet the needs of the outpatient, ambulatory care
market; its experience in managing billing and accounts receivable activities
and its willingness to enter into performance based fee arrangements. The
Company believes that many of its hospital contract management prospects will be
institutions that are having difficulty managing the volume and complexity of
their current billing and accounts receivable management activities.
The industry segment that provides billing and accounts receivable management
services to hospital affiliated physicians and office based practitioners is
becoming increasingly competitive. Medaphis, a public (Nasdaq) company,
headquartered in Atlanta, Georgia, is a national provider of physician business
management services and the dominant provider in this industry segment. There
are also a number of smaller companies providing these services. Most of these
companies are regional in nature and privately owned. Management believes that
there may be as many as 1,200 local and regional companies in the U.S. providing
business management, billing and accounts receivable management services to
physicians and physician delivery systems. Recent industry estimates indicate
that over 99% of these regional companies have revenues less than $20 million.
While these local companies are potential competitors, they also represent
acquisition opportunities as management believes they are typically
undercapitalized and in need of management, sales and marketing assistance and
technology/information systems resources. The Company also competes with the
"in-house mentality" in the physician practice management market just as it does
in the hospital market. In these situations, typically restricted to larger,
better established physician groups, the physicians hire practice managers who
utilize turnkey software and their own administrative/clerical personnel to
accomplish the billing and accounts receivable and other practice management
functions. To a lesser extent, the Company also competes with certain hospitals
that provide billing and accounts receivable management services to physicians
and physician groups that are part of their medical staffs or otherwise
affiliated with the hospitals.
Over the past several years a number of companies that acquire physician
practices and provide comprehensive practice management services to physicians
and multi-specialty group practices have begun to establish a presence in the
physician market. These companies include PhyCor, Inc., Med Partners, Coastal
Healthcare Group, Inc., and others. Although these companies may compete with
the Company in that they may acquire physician practices and may provide
comprehensive practice management services to the physicians whose practices
they acquire, they may also be prospective customers in that they may entertain
proposals to outsource billing and accounts receivable management activities.
The Company's remote computing services segment competes with a number of
healthcare information companies, including national companies such as IDX
Corporation, Medic, Medical Manager, Reynolds and Reynolds, HBOC and Shared
Medical Systems, Inc..
OPERATIONS AND EMPLOYEES The Company is currently headquartered in West Orange,
New Jersey in an office building at 414 Eagle Rock Avenue, 07052. A move to a
new location in central New Jersey is being contemplated. In addition to the
Company's corporate offices, the West Orange facility houses the northeastern
13
<PAGE>
region data center, the software development and support organization, most of
the activities associated with the hospital contract management business and
parts of the physician practice management business. Approximately 60% of the
Company's employees are located at the West Orange facility.
The Company's physician business management activities are conducted primarily
from its service centers in suburban Chicago, Illinois, and Fort Myers, Florida.
The Fort Meyers service center is the result of a business arrangement with
South Florida Regional Medical Center ("SFRMC"). During fiscal 1996, the Company
executed a three year agreement with SFRMC to provide business management
services to approximately 35 physicians who are employed by the SFRMC. During
the remainder of fiscal 1996, the Company expanded its base in Fort Meyers and
today serves in excess of 100 physicians. Under the terms of the Company's
business management services agreement with the SFRMC, the Company may use the
facilities and information systems associated with the SFRMC central billing
office as the Company's southeastern service center, reimbursing SFRMC on a
pro-rata basis for the resources utilized in servicing non-SFRMC physicians. The
suburban Chicago service center which is located in Elmhurst, Illinois, provides
business management services primarily to hospital based physicians. The
Elmhurst and Fort Meyers service centers combine to employ approximately 25% of
the Company's employees.
The remaining 15% of the Company's employees are physically located "on-site" at
client facilities providing billing and accounts receivable management services
under contract management agreements.
The Company currently has a direct sales and marketing organization with remote
sales offices in metropolitan New York, New Jersey, the Delaware Valley, the
Ohio Valley, the upper Midwest and Florida. The sales organization reports to
two area sales vice presidents who currently report directly to the Company's
CEO. Sales representatives identify new prospects, follow-up on client and
prospect referrals and negotiate contract terms under the supervision of their
area Vice Presidents and the CEO. To determine customer needs and pricing, an
on-site operational and financial assessment is performed by the sales
representatives and members of the Company's operations group. This on-site
review typically includes an assessment of the client's internal operations
including, but not limited to the billing and accounts receivable processing
cycle, registration coding and charging procedures, followup procedures,
interfaces to financial reporting systems and management/performance reporting.
Upon completion of the on-site review, the sales representative submits a
proposal to the client summarizing the findings, and recommends how the
Company's products and services can improve the client's internal performance
and patient satisfaction.
On June 20, 1996, the Company employed 224 persons, of whom 9 were engaged in
sales and marketing, and 215 were engaged in product development, customer
service/support, administration and executive management.
The Company's employees are not represented by any labor organization and
management believes that its relationships with its employees are generally
good.
14
<PAGE>
BOARD OF DIRECTORS
A Board of Directors consisting of eight individuals was elected at the Annual
Meeting to serve until the next annual meeting or until successors are elected
and qualified. The following individuals are currently members of the Board of
Directors.
<TABLE>
<S> <C>
- --------------------------------------- ----------------------------------------------
Name Position
- --------------------------------------- ----------------------------------------------
Graham O. King Chairman of the Board and Chief Executive
Officer
- --------------------------------------- ----------------------------------------------
S. M. Caravetta Vice Chairman of the Board
- --------------------------------------- ----------------------------------------------
Frederick R. Blume Director
- --------------------------------------- ----------------------------------------------
Robert C. Bowers Director
- --------------------------------------- ----------------------------------------------
James E. Cowie Director
- --------------------------------------- ----------------------------------------------
Stanford J. Goldblatt Director
- --------------------------------------- ----------------------------------------------
Robert E. King Director
- --------------------------------------- ----------------------------------------------
James A. Pesce Director
- --------------------------------------- ----------------------------------------------
</TABLE>
GRAHAM O. KING joined the Company on October 12, 1994 as the Company's
Chief Executive Officer. He was appointed Chairman of the Board of Directors
at a Board of Directors meeting held on October 28, 1994. He was formerly
with Shared Medical Systems, Inc., a healthcare information service company,
from October 1, 1986 until October 31, 1993, where he served as its President
from April 1987. From October 31, 1993 until joining the Company, he
was a partner with Salt Creek Ventures, a private investment company.
Mr. King currently serves as a director for ADAC Laboratories, Inc. and
Optica, Inc. Mr. King and Mr. Robert E. King, another director of the
Company, are brothers.
S. M. CARAVETTA was the Chairman of the Board of Directors, and Chief Executive
Officer from its organization in 1976 through October 28, 1994.
He became Vice Chairman of the Board of Directors on October 28, 1994. Mr.
Caravetta has been a director of the Company since 1976.
FREDERICK R. BLUME has been a director of the company since 1993. He has been a
Managing Partner of Capital Health Venture Partners, a healthcare venture
capital firm, since June 1986. Prior to founding Capital Health, Mr. Blume was a
Managing Director of a Paine Webber group specializing in corporate healthcare
financing. He is presently a director of Cytyc Corporation, Oculon Corporation
and Washington National Corporation.
ROBERT C. BOWERS has been a director of the Company since April 20, 1995.
Since May 7, 1996, Mr. Bowers has been Vice President and Chief Financial
Officer of COLLEGIS, Inc. From June 1995 through May 1996, Mr. Bowers was
Vice President and Chief Financial Officer of HTE, Inc., a software
service company. From June 1985 through October 1994, Mr. Bowers was
Senior Vice President and Chief Financial Officer of CA Newtrend, Inc., the
general partner of Newtrend, L.P. (and its partnership and corporate
predecessors).
15
<PAGE>
JAMES E. COWIE has been a director of the Company since July 18, 1995. Mr. Cowie
has been a general partner of Frontenac Company, a Delaware general partnership
that is the general partner of Frontenac VI and other venture capital
partnerships, since 1989. He also serves on the Boards of Directors of PLATINUM
technology, inc., U.S.
Robotics, Inc. and Open Environment Corporation.
STANFORD J. GOLDBLATT has been a director of the Company since April 20,1995.
He has been a partner in the law firm of Hopkins & Sutter, counsel to the
Company, since 1979.
ROBERT E. KING has been a director of the Company since April 20, 1995.
Mr. King is a partner in Salt Creek Ventures, a private investment company
and Chairman of the Board of COLLEGIS, Inc. an outsourcer of information
systems services to colleges and universities. For a twelve year period
prior to October 1994, Mr. King was a director and Chief Executive Officer
of CA Newtrend, Inc., the general partner of Newtrend, L.P. (and its
partnership and corporate predecessors), a software, service and
outsourcing provider in the financial institutions market. Mr. King and
Mr. Graham O. King are brothers.
JAMES A. PESCE has been the President and a director of the Company since 1982.
From 1979 to 1982 he was employed as the Northeast and Southeast Regional
Director of Client Services for McDonnell Douglas Automation Company which
provided healthcare data processing services.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the officers of the
Company. Executive Officers of the Company, for purposes of Section 16 of the
Securities Exchange Act of 1934, are designated with an asterisk.
<TABLE>
<S> <C> <C> <C>
Year of
Name Age Position Employment
Graham O. King* 56 Chairman and Chief Executive Officer 1994
James A. Pesce* 53 President 1982
Michael B. Loscalzo* 51 Secretary, Treasurer and Vice President, Finance,
Planning and Administration 1995
Stephen G. Sullivan* 46 Vice President, Marketing and Business Development
1991
Douglas W. Esbach 43 Vice President, Midwest Operations 1995
Derek A. Pickell 35 Vice President, Sales 1995
Robert E. Van Metre* 55 Vice President, Accounting and Finance 1995
Sophia V. Bilinsky 30 Vice President, Physician Delivery Systems 1995
</TABLE>
16
<PAGE>
Graham O. King: Chairman and Chief Executive Officer
Mr. King has been with the Company since October of 1994, when he was appointed
Chairman and CEO. Previously, Mr King was President of Shared Medical
Systems, the largest provider of software and outsourcing services to
hospitals, clinics and physician groups.
Mr. King has served as president of three companies. His accomplishments
at these firms included successful direction of one company post-IPO and the
implementation of a repositioning and restructuring program at a second
firm to facilitate future growth. Mr. King also served as Executive
Assistant to the President of IBM where he had broad exposure to the technology
industry.
James A. Pesce: President
Mr. Pesce has 30 years of experience in the healthcare information systems
industry. Since April 1982, Mr. Pesce has served as a Director of US Servis
and has held a variety of senior management positions. Currently, Mr. Pesce
is responsible for all of the Company's development and data center activities.
From 1979 to 1982, Mr. Pesce was employed as Northeast and Southeast Regional
Director of Client Services for McDonnell Douglas Automation Company which
provided healthcare data processing services.
Michael B. Loscalzo: Secretary, Treasurer and Vice President, Finance, Planning
and Administration Mr. Loscalzo has 27 years of experience in the healthcare
industry. From 1992 to 1995, Mr. Loscalzo served as Senior Vice President of
Cain Brothers & Company, a New York healthcare investment banking firm.
He has been a member of the US Servis Management Team since 1995.
Mr. Loscalzo was a co-founder of The Hunter Group, a healthcare workout firm. As
Managing Director from 1988 to 1992, he served as a member of the on-site
management team in a number of high profile healthcare turnarounds. Between 1988
and 1991, he served as CEO or CFO of hospital workout clients in Seattle,
Washington, St. Paul, Minnesota, Miami, Florida, and San Francisco, California.
Stephen G. Sullivan: Vice President, Marketing and Business Development
Mr. Sullivan has 27 years of experience in the healthcare information systems
area. Mr. Sullivan was founder and Chief Executive Officer of AIS Corporation
which was acquired by US Servis (then, MICRO Healthsystems) in 1993.
Mr. Sullivan assumed his present responsibilities in 1995.
Douglas W. Esbach: Vice President, Midwest Operations
Mr. Esbach has 17 years of experience in the healthcare and information
technology industries. He joined the US Servis management team in December 1995.
Prior to joining US Servis, Mr. Esbach served as Vice President of Sales and
Marketing for Compmed, Inc. Compmed provided comprehensive practice management
services to physicians across the country. From 1981 to 1986, Mr. Esbach held
17
<PAGE>
several positions with the Rolm Division of IBM ranging from Sales Manager to
Branch Manager of the National Sales Division.
Derek A. Pickell: Vice President, Sales
Mr. Pickell has 13 years of experience in the healthcare industry providing
management services and information
systems to healthcare providers.
Prior to joining US Servis, Mr. Pickell served as Senior Vice President of Sales
and Service for Wellmark Incorporated. He held this position from 1992 to 1995
and had national sales, implementation, and ongoing client support
responsibilities. Prior to 1992, Mr. Pickell served as the National Director of
Sales for the Health Care Systems Division of Ferranti International. Mr.
Pickell joined the US Servis Management team in March 1995.
Robert E. Van Metre: Vice President, Accounting and Finance
Mr. Van Metre has over 20 years of experience in financial management in the
financial services industry. He is presently Vice President, Accounting and
Finance for the Company.
From 1987-1994, Mr. Van Metre held several senior management positions with
Integrated Resources Life Companies, Inc. including:
Senior Vice President-Chief Financial Officer, Executive Vice President, and
President.
From 1982-1987, Mr. Van Metre was Executive Vice President-Chief Financial
Officer for the Dasake Group, Inc.
Mr. Van Metre held a variety of senior management positions with Household
International (HFC) from 1973-1982. Prior to joining HFC, he was Administrator
of Finance for the Illinois State Toll Highway Authority.
Sophia Bilinsky: Vice President , Physician Delivery Systems
Ms. Bilinsky joined the US Servis management team in June 1995. Prior to
joining US Servis, Ms. Bilinsky served as President and Chief Operating Officer
of Healthnet, Inc. (currently a subsidiary of Coastal Healthcare Group,
Inc.), a primary care group practice operating throughout Connecticut, New York
and New Jersey.
In 1991 and 1992, Ms. Bilinsky served as Director of the Direct Investment Group
at Whitehead/Sterling. She served as Assistant Vice President of the Medical
Markets Group at General Electric Corporation from 1989 to 1991. From 1986 to
1989, Ms. Bilinsky served as Relationship Associate and Corporate Finance
Associate, World Corporate Group for Citibank, N.A.
18
<PAGE>
ITEM 2: PROPERTIES
The Company leases one facility in West Orange, New Jersey and one facility in
suburban Chicago, Illinois.
The West Orange facility contains approximately 29,000 square feet.
Approximately 23,000 square feet are occupied under a lease agreement that
expires in October 1996. The remaining space is occupied under a month-to-month
lease. The Company is evaluating a move to a new facility.
The Elmhurst, Illinois facility serves as the primary location for the Company's
midwest hospital-based physician activities. It includes approximately 13,000
square feet and is occupied under a lease that expires in fiscal 1999.
The Company operates its southern Florida service center in space owned by the
Southwest Florida Regional Medical Center. This service center facility occupies
approximately 3,100 square feet in a 30,000 square foot building on the Medical
Center's campus. The Company has approximately twenty employees on-site in
Florida managing and operating the southern Florida service center.
<TABLE>
<S> <C>
- --------------------------------------------------------------- -----------------------------------------------------
YEAR ENDING
MARCH 31, LEASE RENTAL EXPENSES
- --------------------------------------------------------------- -----------------------------------------------------
1997 $ 463,000
- --------------------------------------------------------------- -----------------------------------------------------
1998 160,000
- --------------------------------------------------------------- -----------------------------------------------------
1999 89,000
- --------------------------------------------------------------- -----------------------------------------------------
Total Future Minimum Lease Payments 712,000
- --------------------------------------------------------------- -----------------------------------------------------
Net rental expenses for office space amounted to $671,000 in 1996.
</TABLE>
ITEM 3: LEGAL PROCEEDINGS
The Company has no material litigation pending.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
19
<PAGE>
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The Company is authorized to issue: (i) 30,000,000 shares of Common Stock, $0.01
par value per share, of which 6,312,000 shares were issued and 6,296,000 shares
were outstanding as of June 24, 1996; and (ii) 10,000,000 shares of Preferred
Stock, $0.01 par value per share, of which 1,500,000 shares of a class
designated as "Series A Convertible Preferred Stock" were issued and outstanding
as of June 24, 1996.
The Common Stock of the Company is listed on the NASDAQ National Market System
under the symbol USRV. There is no public market for the Company's Series A
Convertible Preferred Stock, which is convertible by holders thereof into Common
Stock on a share for share basis (subject to adjustment).
On June 24, 1996, the Company's Common Stock was held by approximately 400
holders of record, and the Company's Series A Convertible Preferred Stock was
held by three holders of record
The following table sets forth actual high and low sales prices for the
Company's Common Stock as reported on NASDAQ National Market System for the
periods indicated.
<TABLE>
<CAPTION>
Closing Sales Prices
High Low
<S> <C> <C>
Year Ended March 31, 1995
1st Quarter $6.000 $3.500
2nd Quarter 4.500 2.875
3rd Quarter 5.750 2.625
4th Quarter 4.750 2.750
Year Ended March 31, 1996
1st Quarter 4.375 3.000
2nd Quarter 4.500 3.250
3rd Quarter 5.750 3.125
4th Quarter 4.875 3.625
Year Ended March 31, 1997
1st Quarter(1) 5.500 3.875
</TABLE>
(1) Through June 24, 1996
20
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA (In thousands, except per share data)
The following selected financial data for the five years ending March 31, 1996
have been derived from financial statements of the Company, which have been
audited by Wiss & Company, LLP, independent auditors, except for the financial
statements for Applied Computer Technology for Patient Care (ACT/PC) acquired
August 31, 1993. The ACT/PC acquisition was accounted for using the pooling of
interest method. The financial statements for ACT/PC through March 31, 1993 were
audited by Ernst & Young, Madison, Wisconsin.
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
OPERATION STATEMENT DATA
- --------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31,
- ----------------------------------- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------- --------------- ---------------- ----------------- --------------- -------------
Revenue $16,245 $15,953 $21,389 $24,142 $19,503
- ----------------------------------- --------------- ---------------- ----------------- --------------- -------------
Net Income (Loss) (3,906) (8,052)(2) (1,065) 2,900 1,663
- ----------------------------------- --------------- ---------------- ----------------- --------------- -------------
Net Income (Loss) per share of
common stock ($.66) ($1.34) ($.18) $.56 $.33
- ----------------------------------- --------------- ---------------- ----------------- --------------- -------------
Adjusted Weighted Average Shares
Outstanding 6,282 6,023 5,813 5,193 5,055
- ----------------------------------- --------------- ---------------- ----------------- --------------- -------------
The Company has not paid dividends on its Common Stock during the past two
fiscal years or during the first quarter of fiscal 1997. Management presently
anticipates that all of the Company's earnings will be retained to finance the
development of the Company's business and accordingly that no cash dividends
will be declared on the Company's Common Stock in the foreseeable future. The
Company's payment of cash dividends in the future will be at the discretion of
the Company's Board of Directors and will depend, among other things, on the
Company's future earnings, operations, capital requirements and financial
condition.
- ---------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
- ---------------------------------------------------------------------------------------------------------------------
MARCH 31,
- ------------------------------- -------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------- ---------------- ---------------- ----------------- ---------------- ----------------
Total Assets $18,259 $16,112 $21,084 $21,857 $15,305
- ------------------------------- ---------------- ---------------- ----------------- ---------------- ----------------
Working Capital 8,324 6,357 10,564 10,250 8,684
- ------------------------------- ---------------- ---------------- ----------------- ---------------- ----------------
Long-Term Liabilities 1,172 1,770 976 62 548
- ------------------------------- ---------------- ---------------- ----------------- ---------------- ----------------
Redeemable Preferred Stock 6,110 0 0 0 0
- ------------------------------- ---------------- ---------------- ----------------- ---------------- ----------------
</TABLE>
(2) Includes $6.8 million of pre-tax expenses associated with the 1995
restructuring
21
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION OF FINANCIAL RESULTS
GENERAL During 1996, the Company focused on recapitalizating and restructuring
the business and redirecting resources toward its primary activities; providing
business and information management systems and services to physician and
physician networks, managed care organizations and hospitals and ambulatory care
providers. The October 1995 closing of the Series A Convertible Preferred Stock
offering provided the Company with approximately $5.9 million of cash to
facilitate the restructuring and reorganization and make necessary investments
in product development, sales, and marketing.
Investments made during the fourth quarter of fiscal 1995 and fiscal 1996,
played an important role in the Company's mostly successful efforts to stabilize
the client base, renew existing clients, and generate new business. In addition
to renewing the majority of the existing clients, the Company's sales and
marketing organization was able to generate new business which will manifest
itself in approximately $5.8 million of incremental revenue in fiscal 1997.
(Approximately $1.4 million was recorded as 1996 revenue).
For the year ended March 31, 1996 the Company reported revenues of $16.2 million
and a $3.9 million after tax loss compared to revenues of $16.0 million and an
$8.1 million after tax loss reported for the same period last year. The 1996
results include a $590,000 restructuring gain and the 1995 results include a
$6.8 million restructuring charge.
The Company's March 31, 1996 balance sheet improved when compared to March 31,
1995. At year-end, the Company reported a current ratio of 3.0, $6.5 million of
Cash and Cash Equivalents, and $6.7 million of Shareholder Equity (see Audited
Financial Statements, starting at page F-1).
22
<PAGE>
<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------------------------------------------------------------
MARCH 31,
--------------------------------------------------- ------------------------------------------------------
1996 1995
--------------------------------------------------- ------------------------- ----------------------------
Current Assets $12,586,000 $10,792,000
--------------------------------------------------- ------------------------- ----------------------------
Current Liabilities 4,262,000 4,435.000
--------------------------------------------------- ------------------------- ----------------------------
Working Capital $8,324,000 $6,357,000
--------------------------------------------------- ------------------------- ----------------------------
Working Capital Ratio to 1 3.0 2.4
--------------------------------------------------- ------------------------- ----------------------------
</TABLE>
For the year ended March 31, 1996, the Company's Working Capital increased
approximately $2.0 million and Cash and Cash Equivalents increased $2.4 million.
Increases in Cash and Cash Equivalents were primarily the result of the sale of
Series A Convertible Preferred Stock ($5.9 million in proceeds) and the receipt
of a $1.95 million income tax refund relating to the Company's Fiscal 1995
federal tax return. These cash inflows were reduced by payments made on the
Company's restructuring plan of $839,000, $504,000 of capital additions,
$300,000 invested in certificates of deposit, $253,000 of capitalized lease
payments, and $3.5 million of payments to finance ongoing operations and
continuing losses (net of tax refunds and restructuring payments).
Increases in Working Capital were the result of the increase in Cash and Cash
Equivalents discussed previously and a decrease in Accrued Restructuring Charges
of $701,000 offset by a decrease in Deferred Income Taxes of $952,000 and other
net changes of $206,000.
Management expects that available cash and cash flow from operations will be
sufficient to meet the Company's operating and capital cash requirements during
fiscal 1997. The Company does not expect to be profitable for the year ending
March 31, 1997.
23
<PAGE>
Results of Operations The following table sets forth the dollar amounts and
percentage of total revenues represented by various components of the Company's
statement of operations (in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year ended March 31,
Percent of Percent of Percent
Revenue Revenue of
1996 1995 1994 Revenue
Revenues:
Service fees $15,325 94.3% $14,565 91.3% $15,881 74.2%
Sales of equipment 306 1.9 358 2.2 1,478 6.9
Software license fees 409 2.5 420 2.6 1,274 6.0
Minimum guarantee and contract
termination revenue
- - 453 2.8 2,494 11.7
Interest and other 205 1.3 157 1.1 262 1.2
------------------ ------------- ------------- ------------ ------------ -------------
Total revenues 16,245 100.0 15,953 100.0 21,389 100.0
------------------ ------------- ------------- ------------ ------------ -------------
Expenses:
Cost of services 11,116 68.4 10,477 65.7 9,885 46.2
Cost of equipment sales 166 1.0 238 1.5 1,740 8.1
Research and development
2,466 15.2 3,180 20.0 3,148 14.7
Selling, general and
administrative 8,159 50.2 6,844 42.9 7,560 35.4
Restructuring charges (590) -3.6 6,800 42.6 - 0.0
Merger expenses - - - - 394 1.8
Interest 114 0.7 54 0.3 39 0.2
------------------ ------------- ------------- ------------ ------------ -------------
Total expenses 21,431 131.9 27,593 173.0 22,766 106.4
------------------ ------------- ------------- ------------ ------------ -------------
Loss before income taxes and
cumulative effect of change in
accounting principle (5,186) -31.9 (11,640) -73.0 (1,377) -6.4
Income tax benefit (1,280) -7.9 (3,588) -22.5 (160) -0.7
------------------ ------------- ------------- ------------ ------------ -------------
Loss before cumulative effect of
change in accounting principle
(3,906) -24.0 (8,052) -50.5 (1,217) -5.7
Cumulative effect of change in
accounting principle - - - - 152 0.7
------------------ ------------- ------------- ------------ ------------ -------------
Net loss (3,906) -24.0% (8,052) -50.5% (1,065) -5.0%
------------------ ------------- ------------- ------------ ------------ -------------
------------------ ------------- ------------- ------------ ------------ -------------
</TABLE>
24
<PAGE>
1996 Compared to 1995
REVENUE During 1996,total revenues increased approximately $300,000 or 1.8% over
1995 levels to $16.2 million. Service Fees, which represented approximately 94%
of the Company's 1996 revenues, increased 5.2% to $15.3 million. This increase
was primarily due to the 1996 revenue associated with the Company's October 1995
contract to provide Third Party Administrative ("TPA") services to a major
managed care organization in the metropolitan New York area, and increases in
revenues associated with physician business management contracts in Florida and
New Jersey. The company anticipates that the revenue associated with business
management services sold during 1996 will represent nearly $5.8 million of
incremental revenue during fiscal 1997.
Other revenues, including sales of equipment, software licenses, minimum
guarantee contracts and contract termination fees decreased 41.9% to $715,000.
Most of these decreases were anticipated and part of the Company's restructuring
efforts to move from a provider of clinical information systems and turnkey
software products to a provider of contract business management services. (See
the Company's 1994 Annual Report on Form 10K, Item 1-Business-Significant
Customers).
EXPENSES Fiscal 1996 total expenses decreased $6.2 million or 22.3%. Total
expenses, net of the 1995 restructuring charge and the 1996 gain on
restructuring, increased $1.2 million or 5.8%. Increases in Cost of Services
were primarily the result of startup costs associated with the Company's
southern Florida processing center. Cost of Equipment Sales decreased $72,000
or 30.3% and Research and Development Expenses decreased $714,000 or 22.5%. Both
of these decreases were primarily related to the phase-out of the clinical
information systems business. The Company continues to invest significant
resources in its proprietary business and physician practice and management
software systems.
Selling, General and Administrative Expenses increased $1.3 million or 19.2%.
Major components of this increase related to increases in sales and marketing
expenses of $687,000, $315,000 for the development of a physician business
management unit, a $434,000 increase in the amortization of a stock signing
bonus associated with the recruitment of the Chairman/CEO, an increase in the
provision for losses on accounts receivable of $168,000, and increased legal
fees of $85,000. These increases were offset by a decrease in the amortization
of software technology of $419,000 resulting from the write-off of certain
capitalized technology costs as part of the 1995 restructuring charge.
NET LOSS The Company's 1996 net loss of $3.9 million is approximately $4.2
million less than the net loss reported for 1995. This decline was primarily a
result of the $7.4 million difference between the 1996 restructuring credit and
the 1995 restructuring charge, net of the related tax benefits.
25
<PAGE>
1995 Compared to 1994
REVENUES Total revenues for 1995 declined 25.4% from 1994 levels to $16.0
million. Nearly all of this decline related to the restructuring of the business
and the decision to phase out the clinical information system business.
Service fees, which represented 91.3% of 1995 revenues, decreased 8.3% to $14.6
million from $15.9 million. All of this decline can be attributed to revenue
losses associated with hospital contracts that were not renewed during 1994.
Other revenues including sales of equipment, software licenses, and minimum
guarantee and contract termination revenue, declined $4.0 million or 76.5%
primarily as the result of the aforementioned decision to phase out of the
clinical information systems business and the termination of the Baxter
Agreement.
EXPENSES Total expenses increased $4.8 million or 21.2% to $27.6 million from
$22.8 million. This increase was affected by the $6.8 million restructuring
charge as described more fully in Note 2 to the audited financial statements,
partially offset by the following:
Cost of services increased $592,000 or 6.0%, while service fee revenues
declined 8.3%. Increases in costs were, primarily related to efforts to
improve the quality of the Company's services. Cost of equipment sales
declined $1.5 million or 86.3%, primarily as the result of inventory
write-offs.
Selling, general and administrative expenses decreased $716,000 or
9.5%. Major components of this decrease were decreases in the
amortization of software technology of $653,000 as the result of the
write-offs included in the restructuring charge, a decrease in the
provision for losses on accounts receivable of $314,000, the
elimination of $465,000 of administrative costs of the ACT/PC
subsidiary, and a reduction of $230,000 in salary and benefits at the
AISCorp subsidiary as part of the restructuring. These decreases were
partially offset by amortization of the stock signing bonus of the new
Chairman/CEO in the amount of $308,000 and $673,000 of increased
expenses in the sales and marketing departments to revitalize these
activities.
NET LOSSES The Company's net loss increased approximately $7 million. Losses
before income tax benefits and the cumulative effect of a change in accounting
principle increased approximately $10.3 million. This increase was primarily the
result of the $6.8 million restructuring charge in 1995 and $2 million of
contract termination revenue included in 1994.
26
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SCHEDULES
See INDEX TO FINANCIAL STATEMENTS and SCHEDULES on page F-1 of this report.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be included under the captions
"Election of Directors" and "Section 16 Filings" in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A for the 1996 Annual
Meeting of Shareholders, and is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item will be included in the section entitled
"Executive Compensation" in the Company's definitive Proxy Statement, to be
filed pursuant to Regulation 14A for the 1996 Annual Meeting Shareholders, and
is hereby incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information under the caption "Voting Securities and Principal Holders Thereof"
will be included in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A for the 1996 Annual Meeting of Shareholders, and is
hereby incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information under the caption "Certain Relationships and Related Transactions"
will be included in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A for the 1996 Annual Meeting of Shareholders, and is
hereby incorporated herein by reference.
27
<PAGE>
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements: Financial Statements filed as part of this
report are listed on page F-1.
(a)(2) Financial Statement Schedules: Financial statement schedules
filed as part of this report are listed in the index on page
F-1. All other schedules are omitted as inapplicable or
because the required information is included in the financial
statements or notes thereto.
(a)(3) Exhibits: The exhibits required by Item 601 of Regulation S-K
and filed herewith are listed in the Exhibit Index that
follows the Financial Statements and immediately precedes the
exhibits filed.
The Company, upon request of a registered
shareholder, will provide the exhibits that are
listed in this Item 14. Written requests for such
exhibits should be directed to Stockholder Relations,
US Servis, Inc., 414 Eagle Rock Avenue, West Orange,
New Jersey 07052.
(b) Reports on Form 8-K: No report on Form 8-K was filed during the
final quarter of the year ended March 31, 1996.
28
<PAGE>
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 behalf
of the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
Dated: June 28, 1996 US SERVIS, INC.
By: /s/ Graham O. King
Graham O. King, Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Graham O. King Chairman of the Board, Chief Executive June 28, 1996
Graham O. King Officer and Director
June 28, 1996
/s/ James A. Pesce President and Director
James A. Pesce
/s/ S.M. Caravetta Director June 28, 1996
S. M. Caravetta
/s/ Michael B. Loscalzo Principal Accounting Officer and Chief June 28, 1996
Michael B. Loscalzo Financial Officer
/s/ Stanford J. Goldblatt Director June 28, 1996
Stanford J. Goldblatt
/s/ Robert E. King Director June 28, 1996
Robert E. King
/s/ Robert C. Bowers Director June 28, 1996
Robert C. Bowers
/s/ Frederick R. Blume Director June 28, 1996
Frederick R. Blume
/s/ James E. Cowie Director June 28, 1996
James E. Cowie
================================================ ========================================= =========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Reports F-2
Financial Statements:
Consolidated Balance Sheets at March 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the Years Ended
March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended March 31, 1996,
1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1996, 1995 and 1994 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-20
Schedules:
VIII - Valuation accounts F-21
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of US Servis, Inc.
We have audited the consolidated balance sheets of US Servis, Inc. and
subsidiaries as of March 31, 1996 and 1995, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1996. 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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of US Servis, Inc. and
subsidiaries at March 31, 1996 and 1995, and the consolidated results of their
operations and cash flows for each of the three years in the period ended March
31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, effective April
1, 1993, the Company changed its method of accounting for income taxes.
/s/
WISS & COMPANY, LLP
Livingston, New Jersey
May 30, 1996, except as to Note 4
for which the date is June 26, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
ASSETS 1996 1995
--------------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 6,546,000 $ 4,121,000
Certificate of deposit 300,000 -
Accounts receivable, less allowance for doubtful accounts of
$458,000 and $206,000 2,558,000 2,867,000
Current maturities of notes receivable 190,000 324,000
Inventories 3,000 18,000
Prepaid and refundable income taxes 2,343,000 2,000,000
Deferred income taxes 62,000 1,014,000
Prepaid expenses and other current assets 584,000 448,000
----------- ------------
Total Current Assets 12,586,000 10,792,000
----------- ------------
PROPERTY AND EQUIPMENT 1,529,000 1,235,000
----------- ------------
OTHER ASSETS:
Long-term maturities of notes receivable - 143,000
Software technology:
Purchased, less accumulated amortization of $35,000 in 1996 173,000 50,000
Developed, less accumulated amortization of $257,000 and $163,000 146,000 239,000
Goodwill, less accumulated amortization of $323,000 and $193,000 3,621,000 3,552,000
Deferred income taxes - 72,000
Other 204,000 29,000
----------- ------------
Total Other Assets 4,144,000 4,085,000
----------- ------------
$18,259,000 $16,112,000
=========== ===========
LIABILITIES, REDEEMED PREFERRED STOCK AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 634,000 $ 530,000
Accrued payroll and benefits 724,000 567,000
Current portion of accrued restructuring charges 963,000 1,664,000
Accrued expenses for use of trade name 254,000 105,000
Other accrued expenses 805,000 747,000
Current portion of capital lease obligation 230,000 -
Deferred income 242,000 651,000
Customers' deposits 141,000 121,000
Other current liabilities 269,000 50,000
----------- -----------
Total Current Liabilities 4,262,000 4,435,000
----------- -----------
LONG-TERM LIABILITIES:
Accrued restructuring charges - net of current portion 905,000 1,770,000
Long-term capital lease obligation - net of current portion 267,000 -
----------- -----------
Total Long-Term Liabilities 1,172,000 1,770,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK
Convertible redeemable preferred stock $0.01 par value; 10,000,000 shares
authorized; 1,500,000 shares issued and outstanding (liquidation
preference
$6,228,000) 6,110,000 -
----------- ------------
SHAREHOLDERS' EQUITY:
Common stock $.01 par value; 30,000,000 shares authorized;
6,312,000 and 6,257,000 shares issued 63,000 63,000
Capital in excess of par value 14,864,000 14,664,000
Unearned compensation - (742,000)
Retained earnings (deficit) (6,788,000) (2,654,000)
Subscription receivable (140,000) (140,000)
Note receivable - related party (1,225,000) (1,225,000)
----------- ------------
6,774,000 9,966,000
Less: Treasury stock at cost, 15,700 shares 59,000 59,000
----------- -----------
Total Shareholders' Equity 6,715,000 9,907,000
----------- -----------
$18,259,000 $16,112,000
=========== ============
See Accompanying notes to consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
------------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------
<S> <C> <C> <C>
REVENUES:
Service fees $15,325,000 $14,565,000 $15,881,000
Sales of equipment 306,000 358,000 1,478,000
Software license fees 409,000 420,000 1,274,000
Minimum guarantee and contract
termination revenue - 453,000 2,494,000
Interest and other 205,000 157,000 262,000
----------- ----------- -----------
16,245,000 15,953,000 21,389,000
----------- ----------- -----------
EXPENSES:
Cost of services 11,116,000 10,477,000 9,885,000
Cost of equipment sales 166,000 238,000 1,740,000
Research and development 2,466,000 3,180,000 3,148,000
Selling, general and administrative 8,159,000 6,844,000 7,560,000
Restructuring charges (gains) (590,000) 6,800,000 -
Merger expenses - - 394,000
Interest 114,000 54,000 39,000
----------- ------------ ------------
21,431,000 27,593,000 22,766,000
----------- ------------ ------------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (5,186,000) (11,640,000) (1,377,000)
BENEFIT FOR FEDERAL AND STATE
INCOME TAXES (1,280,000) (3,588,000) (160,000)
----------- ------------ -----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (3,906,000) (8,052,000) (1,217,000)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
- - 152,000
------------ ------------- -----------
NET LOSS $ (3,906,000) $ (8,052,000) $(1,065,000)
============ ============ ===========
NET LOSS PER SHARE:
Loss before cumulative effect of change in accounting
principle $(.66) $(1.34) $(.21)
Cumulative effect of change in accounting principle
- - .03
--------- ---------- ---------
Net loss per share $(.66) $(1.34) $(.18)
========= ========== =========
WEIGHTED AVERAGE NUMBER OF SHARES
AND EQUIVALENTS OUTSTANDING 6,282,000 6,023,000 5,813,000
=========== =========== ============
See accompanying notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Capital in Retained Note
Common Stock Excess of Unearned Earnings Subscription Receivable- Treasury
----------------------
Shares Par Value Par Value Compensation (Deficit) Receivable Related Party Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 5,161,000 $ 52,000 $11,184,000 $6,463,000 $ -
YEAR ENDED MARCH 31, 1994:
Issuance of shares in exchange 148,000 2,000 998,000 - -
for debt
Exercise of options 158,000 1,000 610,000 - (168,000)
Issuance of shares in connection
with prior year acquisition 225,000 2,000 (2,000) -
Collection of subscriptions
receivable 28,000
Note receivable, repayable upon
sale of common stock held in
escrow - - - - - $(1,225,000)
Shares issued in accordance with
ammended plan of merger 190,000 2,000 828,000 - - -
Net loss - - - (1,065,000) - -
------------- ----------- ----------- ----------- --------- -----------
BALANCE, MARCH 31, 1994 5,882,000 59,000 13,618,000 5,398,000 (140,000) (1,225,000)
YEAR ENDED MARCH 31, 1995:
Purchase of 15,700 shares for
treasury
- - - - - - $ 59,000
Shares issued for officer
compensation
300,000 3,000 1,047,000 $(742,000) - - - -
Shares issued in accordance
with amended plan of merger 75,000 1,000 (1,000) - - - - -
Net loss - - - - (8,052,000) - - -
---------- ------- ---------- --------- ---------- --------- ----------- ------
BALANCE, MARCH 31, 1995 6,257,000 63,000 14,664,000 (742,000) (2,654,000) (140,000) (1,225,000) 59,000
YEAR ENDED MARCH 31, 1996:
Amortization of officer stock
compensation
- - - 742,000 - - - -
Shares issued in accordance
with amended plan of merger 55,000 - 200,000 - - - - -
Accretion equal to accrued
dividends on redeemable
preferred stock - - - - (228,000) - - -
Net loss - - - - (3,906,000) - - -
--------- --------- ----------- --------- ----------- ---------- ----------- -------
BALANCE, MARCH 31, 1996 6,312,000 $ 63,000 $14,864,000 $ - $(6,788,000) $(140,000) $(1,225,000) $59,000
========= ========= =========== ========== =========== ========== =========== =======
See accompanying notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
-----------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,906,000) $(8,052,000) $(1,065,000)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Write-off of assets in restructuring - 2,898,000 -
Cumulative effect of change in accounting principle
- - (152,000)
Depreciation and amortization of
property and equipment 521,000 462,000 410,000
Amortization of software technology 129,000 548,000 1,201,000
Amortization of goodwill 130,000 94,000 93,000
Amortization of costs of issuing preferred stock
12,000 - -
Other (11,000) (13,000) 11,000
Provision for losses on accounts receivable 320,000 152,000 466,000
Deferred income taxes 1,024,000 (1,755,000) (504,000)
Compensation earned under employment agreement
742,000 308,000 -
Changes in operating assets and liabilities:
Accounts receivable (11,000) 2,056,000 1,293,000
Notes receivable 277,000 1,451,000 (473,000)
Inventories 15,000 6,000 370,000
Prepaid and refundable income taxes (343,000) (1,247,000) (753,000)
Prepaid expenses and other current assets
(21,000) (253,000) (42,000)
Other assets - 6,000 12,000
Accounts payable 104,000 173,000 (83,000)
Accrued payroll 157,000 44,000 (161,000)
Accrued restructuring (1,566,000) 3,434,000 -
Other accrued expenses 207,000 179,000 (64,000)
Deferred income (409,000) (5,000) 121,000
Customers' deposits 20,000 4,000 6,000
Income taxes payable - - (224,000)
Other current liabilities 219,000 40,000 (43,000)
------------ ------------ ----------
Net cash flows from operating activities
(2,390,000) 530,000 419,000
------------ ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (346,000) (769,000) (178,000)
Proceeds from sale of equipment - 82,000 -
Purchase of certificate of deposit (300,000) - -
Increase in goodwill - (34,000) (34,000)
Increase in software technology (158,000) (50,000) (303,000)
------------- ------------ ----------
Net cash flows from investing activities
(804,000) (771,000) (515,000)
------------- ------------ ----------
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(concluded)
Year Ended March 31,
------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of preferred stock, less related
expenses $5,872,000 $ - $ -
Collection of subscription receivable - 28,000
Loan to stockholder - (1,225,000)
Payments of long-term debt (62,000) (263,000)
Proceeds from issuance of common stock
and warrants, less related expenses - 443,000
Purchase of common stock for treasury (59,000) -
Principal payment on capital lease obligation (253,000) - -
------------ -------------- -------------
Net cash flows from financing activities 5,619,000 (121,000) (1,017,000)
----------- ------------- -----------
NET CHANGE IN CASH AND EQUIVALENTS 2,425,000 (362,000) (1,113,000)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 4,121,000 4,483,000 5,596,000
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF YEAR $6,546,000 $4,121,000 $4,483,000
========== ========== ==========
SUPPLEMENTAL INFORMATION:
Interest paid $ 114,000 $ 4,000 $ 41,000
=========== ============= ============
Income taxes paid (refunded) $(1,952,000) $ (14,000) $1,299,000
=========== ============ ==========
Issuance of common stock in exchange for debt $ - $ - $1,000,000
========= ========= ==========
Issuance of common stock for subscription receivable
$ - $ - $ 168,000
========= ========= ===========
Issuance of common stock for compensation $ - $1,050,000 $ -
========= ============ ============
Increase in software technology and deferred income taxes
$ - $ - $1,276,000
========== ============ ===========
Value assigned to goodwill relating to shares of common
stock for prior year business acquisition
$ 200,000 $ - $ 830,000
============ ============ ===========
Transfer from inventories to property and equipment
- $ - $ 182,000
============= ============ ===========
Accretion of dividends on preferred stock $ 228,000 $ - $ -
============ ============ ============
See accompanying notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and Summary of Significant Accounting Policies:
Basis of Presentation - The consolidated financial
statements include all the accounts of US Servis, Inc.
(f/k/a MICRO Healthsystems, Inc.) and its
wholly-owned subsidiaries (collectively, the "Company").
All significant intercompany transactions have been eliminated.
Nature of the Business - The Company is a provider of business
management services and information management systems. The
Company's primary markets are physicians, physician delivery
systems, ambulatory departments and at risk networks associated
with hospital driven integrated delivery systems. As part of its
business management services, the Company has traditionally
provided on-site and off-site personnel, billing and accounts
receivable management services together with information systems
and systems integration services related to these business
activities. The Company is currently strengthening these areas
and expanding its services and information systems to include:
financial and administrative management, clinical information,
systems support and management and operational consulting
services in critical areas such as at risk contracting and
contract management, revenue enhancement and re-engineering of
the billing and accounts receivable management activities. The
Company, through strategic alliances, has expanded its
information systems offerings to include managed care and
electronic medical records systems. The Company has also
historically been a provider of clinical information systems
products and services for various hospital inpatient
departments. The Company is phasing out of this activity. (See
Note 2)
Revenue Recognition - Revenues are recognized under services and
equipment agreements as follows:
A majority of the Company's revenues are derived from
management fees which are based upon a percentage of net
collection of health care receivables, generated by
providers on a fee-for-service basis. In these cases, the
Company recognizes management fees as the provider's
health care receivables are collected.
Revenues from other service agreements and hardware and
software sales are recognized when the services are
rendered or the hardware and software are installed and
accepted. If the agreement provides for installment
payments on the hardware or software, the present value of
the amount to be received is recognized as revenue.
Estimates and Uncertainties - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets
F-8
<PAGE>
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results, as determined at a later date, could
differ from those estimates.
Financial Instruments - Financial instruments include cash and
equivalents, accounts receivable, other assets, accounts
payable, accrued expenses and capital lease obligations. The
amounts reported for financial instruments are considered to be
reasonable approximations of their fair values. The fair value
estimates presented herein were based on market information
available to management. The use of different market assumptions
and/or estimation methodologies could have a material effect on
the estimated fair value amounts.
Concentration of Credit Risks - The Company's accounts and
notes receivable are principally from hospitals located
throughout the U.S. See Note 12 as to the major customers.
The Company maintains its cash balances in several financial
institutions which in some instances exceed federally insured
limits. The Company believes these institutions to be of high
quality and believes no significant concentration of credit risk
exists with respect to the cash investments.
Cash Equivalents - The Company considers all highly liquid
debt instruments purchased with maturity of three months or
less, when purchased, to be cash equivalents.
Property and Equipment - Property and equipment are stated at
cost. Depreciation expense generally is provided by the
straight-line method over the estimated lives of the assets, 3
to 7 years for computer equipment, 5 to 8 years for furniture
and fixtures, and 7 to 10 years or the lease term, if shorter,
for leasehold improvements.
Software Technology - Costs associated with the development of
software are expensed as incurred. The expenses amounted to
$2,284,555, $2,873,000 and $3,808,000 for the years ended March
31, 1996, 1995 and 1994, respectively. The Company, according to
Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed", capitalizes a portion of the computer
software development costs if certain criteria are met.
Capitalized software development costs amounted to $303,000 for
the year ended March 31, 1994. No costs were capitalized for the
years ended March 31, 1996 and 1995.
Purchased software technology is stated at cost, and is
amortized over a 3 to 7 year period using the straight-line
method.
F-9
<PAGE>
Goodwill - Goodwill consists of the excess of cost over net
assets of acquired businesses and is being amortized over
40 years on the straight-line method.
Income Taxes - Deferred taxes have been provided for temporary
differences in reporting certain transactions for financial
accounting and tax reporting purposes.
Net Loss Per Share - Net loss per share is based on the weighted
average number of common shares and equivalents outstanding
during each year. The loss was adjusted by accretions equal to
accrued dividends on the Company's preferred stock in the amount
of $228,000 for the year ended March 31, 1996 and $-0- for the
years ended March 31, 1995 and 1994. Warrants and options are
included, using the treasury stock method, when exercise prices
are less than the average market prices. No effect is given to
common share equivalents when there is a net loss.
Defined Contribution Profit Sharing Plan - The Company has a
defined contribution 401(k) plan covering substantially all its
employees. Employees who have one year of service are eligible
to receive matching contributions from the Company. Company
contributions are based on a percentage of employees' annual
deferrals and are charged against income as incurred.
Contributions were approximately $71,000, $52,000 and $57,000 in
fiscal 1996, 1995 and 1994, respectively.
Dividends - Since preferred stock dividends are cumulative and
become part of the redemption price, to the extent not paid, it
is the Company's policy to record an increase in the carrying
amount of preferred stock and a corresponding reduction of
retained earnings as preferred stock dividends accrue.
Reclassification - Certain amounts in prior years have been
reclassified for comparability.
Note 2 - Restructuring Charges (Gains):
During 1995, the Company recorded a restructuring charge of
$6,800,000 for costs associated with termination of employment
of the former Chairman of the Board, downsizing of operations,
consolidating facilities, discontinuance of the Company's
in-patient point-of-care systems and refocusing on financial
management services.
During 1996, the Company substantially completed its
restructuring program and the final costs varied from the
original estimates for certain items. As a result the Company
recorded a net credit of $590,000 to reduce its restructuring
accrual.
F-10
<PAGE>
The individual components of the 1996 credit and the 1995
restructuring charge are summarized as follows:
<TABLE>
<S> <C> <C>
Year Ended March 31,
1996 1995
Writedown of capitalized software costs $ - $2,127,000
Writedown of inventory and equipment - 714,000
Provision for doubtful accounts receivable on discontinued products
- 200,000
Consolidations and close down of facilities (920,000) 1,189,000
Legal, consulting and related reserves (125,000) 300,000
Termination costs related to the former Chairman (223,000) 1,394,000
Severance payments to employees 678,000 876,000
---------- ------------
$(590,000) $6,800,000
========== ============
At March 31, 1996, the non-current portion of accrued
restructuring charges matures as follows:
Year Ending March 31,
1998 $578,000
1999 145,000
2000 56,000
2001 10,000
2002 and thereafter 116,000
---------
$905,000
=========
</TABLE>
Note 3 - Acquisition - Pooling of Interests:
On August 31, 1993 the Company acquired all the assets subject
to the liabilities of Applied Computer Technology for Patient
Care, Inc. (ACT/PC) in exchange for 658,000 shares of the
Company's common stock. In addition, the Company exchanged
148,000 shares of its common stock to retire ACT/PC debt. ACT/PC
was a privately held developer of bedside clinical information
systems.
The fiscal 1994 consolidated financial statements give
retroactive effect to the merger, which has been accounted for
using the pooling-of-interests method and, as a result, the
financial statements are presented as if the combining companies
had been consolidated for all periods presented.
F-11
<PAGE>
<TABLE>
<CAPTION>
Net sales and net income (loss) for the individual entities prior to the merger are as follows:
US Servis
Inc. ACT/PC Combined
(Dollars In Thousands)
<S> <C> <C> <C>
Five months ended August 31, 1993 (Unaudited):
Net sales $ 9,609 $132 $ 9,741
Net income (loss) 725 (345) 380
Merger expenses of $394,000 include legal and accounting fees
and other costs and were charged to expense during fiscal 1994.
</TABLE>
Note 4 - Acquisitions - Purchases:
Management-Data Services, Inc. ("MDS") - On March 9, 1993, the
Company acquired through merger Vanco Business Management, Inc.
("VBM") The purchase price consisted of 180,000 shares of the
Company's restricted common stock (valued at $2,059,000),
$1,000,000 in cash plus closing costs of approximately $115,000.
The acquisition was reported using the purchase method of
accounting and, accordingly, the purchase price has been
allocated to the assets acquired and the liabilities assumed
based on the estimated fair values at the date of acquisition.
The $2,847,000 excess of purchase price over the estimated fair
values of the net assets acquired was recorded as goodwill. In
addition, the Company guaranteed up to $661,000 of certain bank
debt of the President of MDS.
In April 1994, the Company amended the plan of merger. Under the
amendment, the Company issued an additional 25,000 shares of its
common stock to the former owner of VBM. The Company was also
required to issue 240,000 additional shares of its common stock
based upon its market value at March 31, 1995 and revenues of
MDS and 55,000 common shares based on revenues attained by MDS
in the fiscal year ended March 31, 1996.
In connection with the amended plan of merger, the Company
issued 190,000 shares of its common stock in 1994, 75,000 shares
in May 1995 and 55, 000 shares in 1996. The value of the shares
issued in May 1995 is reflected in shareholders' equity at
March 31, 1995.
AISCorp. - On June 14, 1991, the Company acquired through a
subsidiary substantially all of the assets subject to certain
liabilities of AISCorp. for 108,000 shares of the Company's
restricted common stock valued at $1,500,000. The acquisition
is reported using the purchase method of accounting and
F-12
<PAGE>
accordingly, the purchase price, closing costs and net
liabilities assumed, have been attributed to software technology.
As a result of the Company's guarantee of the price of its
common stock in the acquisition of AISCorp., the Company, in
December 1993, issued 221,000 shares of its common stock and
loaned $1,225,000 to the former owner. The loan bears interest
at 5.1%, and is collateralized by 328,000 shares of the
Company's common stock. Principal and interest are payable only
from the proceeds of the sale of the collateral. Accordingly,
the loan is reported as a reduction of the Company's
shareholders' equity. Any unsold common stock at the due date of
the loan will revert to the Company in exchange for cancellation
of the then remaining loan balance and accrued interest. On June
26, 1996, the Company entered into an agreement to change the
due date of the loan to the earlier of December 13, 2000 or
ninety days after the price of the Company's stock reaches a per
share price of $8.50 for five consecutive trading days. Also the
Company agreed to reduce the collateral for the loan by 75,000
shares and an additional 50,000 shares when the per share price
of the Company's Common Stock reaches certain price levels.
Note 5 - Point-of-Care Clinical Information Systems:
On November 14, 1991, Clinical Dimensions, Inc. (Clinical), a
subsidiary of the Company, modified an agreement (the Baxter
Agreement) with Baxter Healthcare Corporation ("Baxter"). Under
the Modified Baxter Agreement, Baxter had the exclusive right to
distribute Med-Take throughout the United States and Canada.
The Company was to receive minimum Med-Take revenues until March
31, 1995.
In December 1993, the Company ended the existing agreement with
Baxter and signed a termination agreement whereby Baxter will
continue to serve as the exclusive distributor of the Clinical
product only to hospitals serviced by HCA Information Services,
Inc. The termination agreement was effective through December of
1995. Baxter paid the Company $2,000,000 to satisfy its
obligation which is included in minimum guarantee and contract
termination revenue in the statement of operations for 1994.
Note 6 - Property and Equipment:
<TABLE>
<S> <C> <C>
Property and equipment consist of:
March 31,
-------------------------------
1996 1995
---- ----
Property and equipment $3,486,000 $3,023,000
Leasehold improvements 409,000 350,000
---------- ----------
3,895,000 3,373,000
Less: Accumulated depreciation and amortization 2,366,000 2,138,000
---------- ----------
$1,529,000 $1,235,000
========== ==========
</TABLE>
F-13
<PAGE>
Depreciation and amortization expense was $521,000,$462,000 and
$410,000 for the years ended March 31, 1996, 1995 and 1994,
respectively, and are included in selling, general and
administrative expenses.
Note 7 - Capital Lease Obligation:
During September 1995 the Company leased three IBM AS400
computers for three years with semi-annual principal and
interest payments of $150,000 at an interest rate of
approximately 15% per annum. Future principal payments are
$230,000 in fiscal 1997 and $267,000 in fiscal 1998.
Note 8 - Income Taxes:
A summary of current and deferred income taxes included in the
statements of operation is as follows:
<TABLE>
<S> <C> <C> <C>
Year Ended March 31,
---------------------------------------------------------
1996 1995 1994
------------- ------------ ------------
Current:
Federal $(2,349,000) $(1,704,000) $ 160,000
State and local 45,000 (129,000) 184,000
----------- ---------- ------------
(2,304,000) (1,833,000) 344,000
----------- ---------- ------------
Deferred:
Federal 1,024,000 (1,606,000) (433,000)
State and local - (149,000) (71,000)
----------- ----------- -------------
1,024,000 (1,755,000) (504,000)
----------- ----------- ------------
Provision for income taxes $(1,280,000) $(3,588,000) $ (160,000)
=========== =========== ===========
The total income taxes are different than the amounts computed
by applying the U.S. statutory federal income tax rate of 34%.
The differences are summarized as follows:
Year Ended March 31,
1996 1995 1994
Income taxes at statutory rate $(1,763,000) $(3,958,000) $ (468,000)
Effect of losses without a current year tax
benefit 237,000 592,000 -
Alternative minimum tax 156,000 115,000 -
Nondeductible merger expenses - - 140,000
Pre-acquisition losses of ACT/PC - - 73,000
State and local taxes, net of federal benefit
30,000 (189,000) 55,000
Write off and amortization of nondeductible
technology costs and goodwill, net of
realization of deferred tax liability
44,000 (114,000) 32,000
Nondeductible business expenses and other
16,000 (34,000) 8,000
----------- ----------- -----------
Provision for income taxes $(1,280,000) $(3,588,000) $ (160,000)
=========== =========== ===========
</TABLE>
F-14
<PAGE>
Effective April 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). FAS 109 requires a change from the deferred
method of accounting for income taxes of APB Opinion 11 to the
asset and liability method of accounting for income taxes. Under
FAS 109, deferred income taxes are determined based on the
differences between the financial statement and tax bases of
assets and liabilities, using enacted tax rates in effect in the
years in which the differences are expected to reverse. The
principal effects of adoption were the recognition of a
cumulative effect, as of April 1, 1993, of the change in
accounting for income taxes of $152,000 ($.03 per share), the
establishment of a deferred tax liability of $1,276,000 and a
contra increase in capitalized software technology representing
the tax effect of the difference between financial and tax
reporting bases of software technology purchased from AISCorp.
The adoption of FAS 109 caused a reduction in the loss for the
year ended March 31, 1994 of $307,000 ($.05 per share).
The significant components of the Company's deferred tax assets
are summarized below:
<TABLE>
<S> <C> <C> <C>
March 31,
-------------------------------------------------------
1996 1995 1994
----------- ----------- ----------
Accrued restructuring charges $ 747,000 $1,384,000 $ -
Inventories - 274,000 -
Allowance for doubtful accounts 190,000 76,000 191,000
Equity based compensation - 155,000 -
Accrued vacation and other 177,000 86,000 116,000
Alternative minimum tax credit 271,000 115,000 -
Net operating loss tax carryforwards
2,814,000 2,571,000 1,550,000
----------- ----------- -----------
4,199,000 4,661,000 1,857,000
Valuation allowance 4,137,000 3,575,000 1,550,000
----------- ----------- -----------
$ 62,000 $1,086,000 $ 307,000
============ ========== ===========
</TABLE>
A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be
realized. The Company has determined that a full valuation
allowance is appropriate at March 31, 1996, except to the extent
of refundable income taxes.
F-15
<PAGE>
At March 31, 1996, AISCorp. and US Servis, Inc. ("USS") had
Federal net operating loss carryforwards of approximately
$740,000 and $4,550,000, respectively which expire beginning in
fiscal 2003. These losses are limited by the provisions of
Section 382 of the Internal Revenue Code due to a more than 50%
change in ownership. Following such a change, the utilization of
tax loss carryforwards is limited to the value of the acquired
Company on the date of such change, multiplied by the Federal
long-term tax exempt rate (the "annual limitation"). To the
extent amounts available under the annual limitation are not
used, they may be carried forward for the remainder of 15 years
from the date the losses were originally incurred. As a result
of the change in ownership, use of net operating losses will be
limited to approximately $225,000 per year for AISCorp. and
$320,000 for USS, subject to certain additional limitations.
Note 9 - Commitments and Contingencies:
Leases - The annual minimum rental commitments under the terms
of the Company's operating leases that have initial or remaining
lease terms in excess of one year at March 31, 1996 are as
follows:
Year Ending March 31,
1997 $581,000
1998 236,000
1999 131,000
2000 16,000
----------
Total future minimum lease payments $964,000
==========
The Company occupies a leased facility under a non-cancelable
lease that expires in October 1996. The former Chairman of the
Board of Directors has an 8% equity interest in the company
which owns the leased facility. The Company is considering
relocating its headquarters to an undetermined location.
Net rental expenses for office space amounted to $671,000,
$776,000 and $811,000 for the years ended March 31, 1996,
1995 and 1994, respectively.
Employment Agreements - The Company and its subsidiaries have
employment agreements with certain officers through March 31,
1999. Under these agreements, minimum compensation per annum
aggregates $428,000 for each of the years ending March 31, 1997
and 1998, and $16,000 for the year ending March 31, 1999.
F-16
<PAGE>
In the event of the death of one officer during the term of his
employment, the Company will be required to pay $100,000 per
annum for a period of ten years.
Royalties and Other Fees - In February 1995 the Company entered
into a ten year agreement with a provider of managed care
services ("licensor") which grants the Company exclusive rights
to market, license, install and support managed care software to
certain end users. The Company is required to pay the licensor a
$5,000 per month fee to cover software maintenance and customer
support services over the life of the agreement and is required
to pay the licensor royalties for software licenses sold.
Beginning in 1998, in order to retain exclusivity the Company is
also obligated to make minimum payments totaling $195,000
annually.
Commitment and Contingent Liability - The Company is
contingently liable for approximately $967,000 payable over
six years for the continued use of certain trade names.
Note 10 - Convertible Redeemable Preferred Stock:
On October 12, 1995, the Company issued, through a private
placement, (i) 1,500,000 shares of Series A Convertible
Redeemable Preferred Stock, par value $0.01 per share, (ii)
warrants to purchase up to 390,000 shares of the Company's
common stock at an exercise price of $0.10 per share, and (iii)
warrants to purchase up to 198,000 shares of the Company's
common stock at an exercise price of $3.50 per share, for an
aggregate purchase price of $6,000,000. All of the $0.10
warrants are subject to cancellation by the Company under
certain circumstances.
As of March 31, 1996, the carrying value of the preferred stock
has been reduced by $118,000 of unamortized stock issue costs
and increased by $228,000 of accretion equal to accrued
dividends. Dividends on the preferred stock accrue at a rate
equal to 8% per annum, compounded quarterly. If not earlier
paid, preferred dividends are payable on i) redemption, ii)
conversion or iii) dissolution of the Company. If not previously
converted, the Company is obligated to redeem the preferred
stock at a redemption price of $4.00 per share plus accrued
dividends in six equal semi-annual installments commencing on
October 12, 2000.
After October 12, 1996, the preferred stock is convertible at
the option of the holders into an equal number of common shares
and under certain circumstances the Company may require
conversion. In the event of the Company's liquidation, the
holders of the preferred stock are entitled to $4.00 per share
plus all accumulated and unpaid dividends.
F-17
<PAGE>
Note 11 - Shareholders' Equity:
Options - The Company has an incentive stock option plan (the
"1986 Plan") pursuant to which 600,000 shares of common stock of
the Company have been reserved for issuance to key employees
upon exercise of options designated as incentive stock options
under Section 422-A of the Internal Revenue Code. The Plan is
administered by the Board of Directors. Options granted pursuant
to the Plan are nontransferable by the optionees during their
lifetimes, expire if not exercised within ten years from the
date of the grant, and, under certain circumstances set forth in
the Plan, may be exercised within three months following
termination of employment. Options are granted to key employees
as determined by the Board of Directors at not less than the
fair market value of the shares underlying the option on the
date the option is granted. The amount of aggregate fair market
value of common stock (determined at the time of grant of the
option) for which any employee may be granted options under the
Plan in any calendar year shall not exceed $100,000 plus certain
unused carryovers from previous years.
The Plan contains antidilution provisions authorizing
appropriate adjustments in certain circumstances. Shares of
common stock subject to options which expire without being
exercised or which are canceled as a result of the cessation of
employment are available for further grants. No shares of common
stock of the Company may be issued to an optionee until the full
option price is paid.
In 1993, the Board of Directors and the Company's shareholders
approved an incentive stock option plan ( the "1993 Plan") to
grant 500,000 shares of the Company's common stock. The terms
of the 1993 Plan are principally the same as those of the
1986 Plan.
In 1994, the Board of Directors and the Company's shareholders
approved an amendment to the Company's 1993 Plan increasing the
number of shares reserved for issuance from 500,000 shares to
1,400,000 shares.
In addition, the Board of Directors and the Company's
shareholders approved a stock option plan (the "1994 Plan") to
grant 350,000 shares of the Company's common stock to
non-employee directors. All new nonemployee directors will
automatically be granted options to purchase 50,000 shares of
common stock of the Company at the then fair market value of the
shares underlying the option on the day the option is granted.
All current directors received additional options to purchase
40,000 shares. The options granted are nonstatutory stock
options and are not intended to qualify under Section 422 of the
Internal Revenue Code. The options vest at 10,000 shares per
year commencing one year from the date of grant, are
nontransferable by the optionees during their lifetimes, expire
if not exercised within ten years from the date of grant and may
be exercised within one year following termination of service as
an eligible director.
F-18
<PAGE>
<TABLE>
<S> <C> <C> <C>
Outstanding options at March 31, 1996 are as follows:
Shares Exercise Price Expiration
Issuable Per Share Date
Non Qualified Options Issued to Chairman
of the Board of Directors in October
1994 (1) 1,000,000 $3.50 October 2004
Nonemployee directors in October 1994,
options for 17,000 shares vested and
options for 17,000 shares vesting
annually commencing in October 1996
85,000 $3.00-$5.00 October 1999
Former President and Chief Operating
Officer of AISCorp. in June 1991 (2)
75,000 4.00 June 2001
-----------
1,160,000
Incentive options 1,136,000 $3.38-$7.00 December 1997 -
----------- January 2005
2,296,000
===========
(1) 400,000 shares vested October 1995, the remaining 600,000 vest when the Company's stock has closed at $5.00
or more per share on at least 30 of the last
40 business days, or upon a change in control, or on October 12, 2002.
(2) All options are exercisable as of June 26, 1996.
Options under the Incentive Stock Option Plans are summarized as follows:
Year Ended March 31,
1996 1995 1994
-------------- -------------- ---------
Options outstanding at
beginning of year 989,000 321,000 255,000
Options granted 405,000 894,000 256,000
Options expired (243,000) (226,000) (170,000)
Options exercised - - (20,000)
Options transferred (15,000) - -
----------- ----------- ----------
Options outstanding at end of year 1,136,000 989,000 321,000
========= ========== =========
Option price per share $3.38-$7.00 $3.50-$7.00 $4.00 - $13.50
=========== =========== ==============
Options exercisable:
Number of shares 185,000 268,000 80,000
======== ========== ========
At March 31, 1996, options to purchase 761,000 shares are
available for grant.
</TABLE>
F-19
<PAGE>
Note 12 - Major Customers:
Revenues from customers in excess of 10% of total revenues were
as follows:
<TABLE>
<S> <C> <C> <C>
Customer Year Ended March 31,
------------------------ ----------------------------
1996 1995 1994
-------- -------- ------
Baxter Healthcare Corporation (see Note 5) - % - % 20.0%
University of Medicine & Dentistry, Newark, NJ 15.7 15.5 11.8
Mount Sinai Practice Group, Elmhurst, NY 9.2 11.7 7.6
</TABLE>
Note 13 - New Accounting Standard:
Impairment of Assets - Statement of Financial Accounting
Standards (SFAS No. 121) "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of"
was issued in March 1995, and is effective for fiscal years
beginning after December 15, 1995. SFAS 121 requires that
long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company expects
to adopt SFAS 121 for the year ending March 31, 1997. The
adoption is not expected to have a material effect on the
Company's financial statements.
F-20
<PAGE>
- -----------------------------------------------------------------------
Schedule VIII
- ----------------------------------------------------------------------
US SERVIS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
VALUATION ACCOUNTS
- -------------------------------------------------- ------------------ ------------------- ------------------ -------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------- ------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Additions
Balance at Charged Balance at
Beginning of to Costs End of
Description Period and Expenses Deductions Period
March 31, 1996 -
Allowance for doubtful accounts $206,000 $320,000 $ 68,000 $458,000
======== ======== ========= ========
March 31, 1995 -
Allowance for doubtful accounts $554,000 $152,000 $500,000 $206,000
======== ======== ======== ========
March 31, 1994 -
Allowance for doubtful accounts $ 88,000 $466,000 $ - $554,000
========= ======== ========= ========
F-21
</TABLE>
<PAGE>
EXHIBITS INDEX
<TABLE>
<C> <S> <C>
Exhibit No. Description Page
3(1) By-Laws. (I) *
3(2) Amended and Restated Certificate of Incorporation of the Registrant. (XVII) *
3(3) Certificate of Designation Relating to the Series A Convertible Preferred Stock *
of the Registrant. (XVII)
4(1) Form of warrant to purchase in the aggregate up to 390,000 shares of the *
Registrant's Common Stock at an exercise price of $0.10 per share, such warrants
issued October 12, 1995. (XV)
4(2) Form of warrant to purchase in the aggregate up to 198,000 shares of the *
Registrant's Common Stock at an exercise price of $3.50 per share, such warrants
issued October 12, 1995. (XV)
10(1) Lease date March 31, 1986, between Skyline Associates, Inc. And Digital Equipment *
Corporation relating to the premises located at 414 Eagle Rock Avenue, West
Orange, New Jersey. (I)
10(2) 1986 Stock Option Agreement. (I) *
10(3) Service Agreement between the Registrant and Digital Equipment Corporation. (I) *
10(4) Non-qualified Stock Option Agreement between the Registrant and S.M. Caravetta, *
dated February 10, 1990 and expiring February, 1995. (III)
10(5) License Agreement between the Registrant and North County Computer Services, Inc. *
(III)
10(6) Distribution/Sales Representation Agreement by and between Baxter Healthcare *
Corporation and MedTake Corp., dated as of October 1, 1990. (IV)
10(7) Letter Agreement by and among MedTake Corp., the Registrant, Salvatore M. *
Caravetta and Baxter Healthcare Corporation, dated as of October 1, 1990. (IV)
10(8) Guaranty of the Registrant in favor of Baxter Healthcare Corporation, dated as of *
October 1, 1990. (IV)
10(9) Complimentary Marketing Agreement between International Business Machines *
Corporation and the Registrant. (V)
10(10) Service Agreements between Digital Equipment Corporation and the Registrant. (V) *
10(11) Asset Purchase Agreement and Plan of Reorganization by and among Administrative *
Information Systems Corporation, the Registrant and Receivables Management Corp.,
dated as of June 14, 1991. (VI)
10(12) Registration Rights Agreement by and between the Registrant and Administrative *
Information Systems, Inc. (Misnamed in said document as "Administrative
Information Services Corporation"), dated June 14, 1991. (VI)
10(13) Employment Agreement among Receivables Management Corp. (Renamed AISCorp.), the *
Registrant and Stephen G. Sullivan, dated as of June 14, 1991. (VI)
10(14) Option Registration Rights Agreement by and Between the Registrant and Stephen G. *
Sullivan, dated June 14, 1991. (IV)
10(15) Employment Contract between the Registrant and S.M. Caravetta. (VII) *
10(16) Employment Contract between the Registrant and James A. Pesce. (VII) *
10(17) Agreement and Plan of Merger with Exhibits by and among the Registrant, Vanco *
Business Management, Inc. And David K. Vanco, dated as of December 31, 1992. (VIII)
10(18) Employment Agreement, dated as of January 1, 1993, between Management-Data Service, *
Inc., the Registrant and David K. Vanco. (VIII)
10(19) Registration Rights Agreement between David K. Vanco and the Registrant, dated as *
of December 31, 1992. (VIII)
10(20) Guaranty dated March 5, 1993, given by the Registrant to Harris Bank Roselle *
relating to loans to David K. Vanco. (VIII)
10(21) Letter agreement between David K. Vanco and the Registrant, dated March 5, 1993, *
relating to the guaranty of notes, from David K. Vanco to Harris Bank Roselle.
(VIII)
10(22) Agreement of Merger with ACT/PC, dated September 15, 1993, amended November 12, *
1993. (X)
10(23) Term Loan Agreement, dated as of December 13, 1993, between Stephen G. Sullivan and *
Registrant. (X)
10(24) Guarantee Modification Agreement, dated as of December 13, 1993, between Stephen G. *
Sullivan and the Registrant. (X)
10(25) Escrow Agreement, dated as of December 13, 1993, between Stephen G. Sullivan, *
Registrant and Crummy Del Deo Dolan Griffinger & Vecchione. (X)
10(26) Termination Agreement relating to the Baxter Distribution/Sales Representation *
Agreement, dated December 17, 1993. (X)
10(27) Amendment to Agreement and Plan of Merger between the Registrant and *
Management-Data Services, Inc., dated April 8, 1994. (XI)
10(28) Amendment to Employment Agreement between David K. Vanco and the Registrant, dated *
April 8, 1994. (XI)
10(29) Employment Agreement, dated as of October 12, 1994, between the Registrant and *
Graham O. King. (XII)
10(30) Option Agreement, dated as of October 12, 1994, between the Registrant and Graham *
O. King. (XII)
10(31) Registration Agreement, dated as of October 12, 1994, between the Registrant and *
Graham O. King. (XII)
10(32) Stockholder Agreement, dated as of October 12, 1994, between the Registrant and *
Graham O. King. (XII)
10(33) S.M. Caravetta Termination Agreement between S.M. Caravetta and the Registrant, *
dated as of October 12, 1994, as amended. (XII)
10(34) Letter of Intent, dated June 26, 1995, between the Registrant and Frontenac VI *
Limited Partnership. (XIV)
10(35) Registrant's Amended 1993 Stock Option Plan. (XIV) *
10(36) Registrant's Amended 1994 Stock Option Plan for Non-Employee Directors. (XIV) *
10(37) Series A Convertible Preferred Stock and Warrant Purchase Agreement, dated July 18, *
1995, by and among the Registrant, a trust established for the benefit of
descendants of Robert E. King, Frontenac VI Limited Partnership and Morgan Holland
Fund II, L.P. (XV)
10(38) Promissory Note of Graham O. King, dated June 14, 1995, payable to the Company. (XVI) *
10(39) First and Second Amendments to Series A Convertible Preferred Stock and Warrant *
Purchase Agreements dated July 31, 1995 and October 10,
1995, respectively. (XVII) 10(40) Registration Agreement, dated October
12, 1995, by and among the Registrant, a trust *
established for the benefit of the descendants of Robert E. King, Frontenac VI
Limited Partnership and Morgan Holland Fund II, L.P. (XV)
21 Subsidiaries of the Registrant 1
23 Consent of Wiss & Company, LLP 2
</TABLE>
<PAGE>
NOTES TO EXHIBIT INDEX
<TABLE>
<C> <S>
Note No. Description
(I) Incorporated by reference from the Form S-18 Registration
Statement of the Registrant, dated June 10, 1986.
(II) Incorporated by reference from Amendment No. 1, dated September 6, 1986, to the Form S-18 Registration
Statement of the Registration
(III) Incorporated by reference from the Registrant's Form 10-K, dated
June 18, 1990. (IV) Incorporated by reference from the Registrant's Form
8-K, dated October 1, 1990.
(V) Incorporated by reference from the Registrant's Form S-3, Registration No. 33-39062, dated April 11,
1991.
(VI) Incorporated by reference from the Registrant's form 8-K, dated
June 18, 1991. (VII) Incorporated by reference from the Registrant's
Form 10-K, dated June 28, 1991.
(VIII) Incorporated by reference from the Registrant's Form 8-K, dated
March 9, 1993. (IX) Incorporated by reference from the Registrant's Form
8-K, dated September 15, 1993.
(X) Incorporated by reference from the Registrant's Form 8-K, dated
December 28, 1993. (XI) Incorporated by reference from the Registrant's
Form 8-K, dated April 15, 1994. (XII) Incorporated by reference from the
Registrant's Form 8-K, dated November 1, 1994.
(XIII) Incorporated by reference from the Registrant's Form 10-Q, dated
November 11, 1994. (XIV) Incorporated by reference from the Registrant's
Form 10-K, dated June 26, 1995. (XV) Incorporated by reference from the
Registrant's Form 10-K/A, dated July 24, 1995. (XVI) Incorporated by
reference from the Registrant's Form 10-Q, dated August 10, 1995.
(XVII) Incorporated by reference from the Registrant's Form 10-Q, dated
November 10, 1995.
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
MCHS, Inc., a Delaware corporation
Administration Information Systems Corporation, a New Jersey corporation
Management Data Service, Inc., an Illinois corporation
1
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated May 30, 1996
included in the US Servis, Inc.'s 10-K for the year ended March 31, 1996, into
the Company's previously filed Registration Statement on Form S-8 (No.
33-01722), and to the incorporation by reference of such report into the
Company's previously filed Registration Statements on Form S-3 (Nos. 33-71874,
33-74380 and 33-63821).
/s/ WISS & COMPANY
WISS & COMPANY, LLP
Livingston, New Jersey
June 28, 1996
2
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000795965
<NAME> US Servis, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 6,546,000
<SECURITIES> 0
<RECEIVABLES> 3,016,000
<ALLOWANCES> 458,000
<INVENTORY> 3,000
<CURRENT-ASSETS> 12,586,000
<PP&E> 3,895,000
<DEPRECIATION> 2,366,000
<TOTAL-ASSETS> 18,259,000
<CURRENT-LIABILITIES> 4,262,000
<BONDS> 0
6,110,000
0
<COMMON> 63,000
<OTHER-SE> 6,652,000
<TOTAL-LIABILITY-AND-EQUITY> 18,259,000
<SALES> 0
<TOTAL-REVENUES> 16,245,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,997,000
<LOSS-PROVISION> 320,000
<INTEREST-EXPENSE> 114,000
<INCOME-PRETAX> (5,186,000)
<INCOME-TAX> (1,280,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,906,000)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
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