UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1 to Quarterly Report
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996 OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 0-15352
US SERVIS, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2467332
(State or other jurisdiction of (I.R.S. Employer or Identification Number)
incorporation of organization)
220 Davidson Avenue, Somerset, NJ 08873
(Address of Principal Executive Office) (Zip Code)
(908) 764-9898
(Registrant's telephone number, including area code)
414 Eagle Rock Avenue, West Orange, NJ 07052
(Registrant's former name, former address and former fiscal year, if
changed since last report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicated by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
At February 11, 1997, the registrant had outstanding 6,292,137 outstanding
shares of Common Stock, $0.01 par value.
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: the exhibits required by Item 601 of
Regulation S-K and filed herewith
are listed in the Exhibit Index that follows.
(b) Reports on Form 8-K; No report no Form 8-K was filed
during the quarter ended December 31, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
US SERVIS, INC.
Dated: June ___, 1997 By:/s/ Graham O. King
------------------
Graham O. King,
Chief Executive Officer
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission File Number: 0-15352
US SERVIS, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2467332
(State or other jurisdiction of (I.R.S. Employer or Identification Number)
incorporation of organization)
220 Davidson Avenue, Somerset, NJ 08873
(Address of Principal Executive Office) (Zip Code)
(908) 764-9898
(Registrant's telephone number, including area code)
Eagle Rock Avenue, West Orange, NJ 07052
Registrant's former name, former address and former fiscal year, if
changed since last report)
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 _______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _______ No _______
APPLICABLE ONLY TO CORPORATE ISSUERS
At February 11, 1997, the registrant had outstanding 6,296,137 outstanding
shares of Common Stock, $0.01 par value.
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
Page No.
PART I - FINANCIAL INFORMATION 1
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1996 AND
MARCH 31, 1996 2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE AND
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995 3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED DECEMBER 31, 1996 AND 1995 5,6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-13
PART II - OTHER INFORMATION 14
SIGNATURES 15
EXHIBIT INDEX 16-18
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
1. Consolidated Financial Statements as at December 31, 1996
The consolidated balance sheet as of March 31, 1996 has been derived
from the audited Consolidated Balance Sheet contained in the Company's
Form 10-K and is presented for comparative purposes. Certain items have
been reclassified to conform to the current presentation. The
accompanying consolidated financial statements presume that users have
read the audited consolidated financial statements of the preceding
fiscal year. Accordingly, footnotes which would have substantially
duplicated such disclosures have been omitted.
The interim consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement
of the results for interim periods presented. Such interim adjustments
consist solely of normal recurring adjustments. The results of
operations for interim periods are not necessarily indicative of the
results to be expected for a full year.
-1-
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $7,820,000 $6,546,000
Certificate of deposit 300,000 300,000
Accounts receivable, less allowance for doubtful
accounts of $478,000 and $458,000 4,847,000 2,558,000
Current maturities of notes receivable 0 190,000
Prepaid and refundable income taxes 57,000 2,343,000
Inventories, prepaid expenses and other current assets 478,000 649,000
---------- ----------
Total Current Assets 13,502,000 12,586,000
---------- ----------
PROPERTY AND EQUIPMENT 1,444,000 1,529,000
---------- ----------
OTHER ASSETS:
Software technology, less accumulated amortization
of $425,000 and $292,000 286,000 319,000
Goodwill, less accumulated amortization
of $396,000 and $323,000 3,548,000 3,621,000
Other 870,000 204,000
---------- ----------
Total Other Assets 4,704,000 4,144,000
---------- ----------
$19,650,000 $18,259,000
========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $700,000 $634,000
Accrued payroll & benefits 894,000 724,000
Accrued restructuring charges 900,000 963,000
Accrued expenses for use of trade name 41,000 254,000
Other accrued expenses 1,472,000 805,000
Current portion of capital lease obligation 300,000 230,000
Deferred income 200,000 242,000
Customers' deposits and other current liabilities 386,000 410,000
---------- ----------
Total Current Liabilities 4,893,000 4,262,000
---------- ----------
LONG-TERM LIABILITIES:
Accrued restructuring charges - net of current portion 319,000 905,000
Long-term capital lease obligation - net of current portion 99,000 267,000
---------- ----------
Total Long-term Liabilities 418,000 1,172,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Convertible redeemable preferred stock, par value
$.01 per share, 1,500,000 shares authorized,
issued and outstanding (liquidation preference
$6,228,000) at March 31, 1996 - 6,110,000
---------- ----------
SHAREHOLDERS' EQUITY:
Convertible preferred stock, par value $.01 per
share 10,0000,000 shares authorized,
2,500,000 issued and outstanding
(liquidation preference $10,611,000)
at December 31, 1996 9,868,000 -
Common stock $.01 par value; 30,000,000 shares authorized;
6,312,000 shares issued 63,000 63,000
Capital in excess of par value 14,864,000 14,864,000
Retained earnings (deficit) (9,673,000) (6,788,000)
Subscription receivable (140,000) (140,000)
Note receivable - related party (584,000) (1,225,000)
---------- ----------
14,398,000 6,774,000
Less Treasury Stock at cost: 15,700 shares 59,000 59,000
---------- ----------
Total Shareholders' Equity 14,339,000 6,715,000
---------- ----------
$19,650,000 $18,259,000
========== ==========
See accompanying notes to consolidated financial statements.
2
</TABLE>
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
REVENUES:
Service fees $15,062,000 $11,297,000
Sales of equipment 133,000 228,000
Software license fees 138,000 509,000
Interest and other 236,000 149,000
---------- ----------
15,569,000 12,183,000
---------- ----------
EXPENSES:
Cost of services 11,037,000 8,308,000
Cost of equipment sales 62,000 133,000
Research and development 1,442,000 1,919,000
Selling, general and administrative 5,415,000 5,800,000
Interest expense 85,000 52,000
Restructuring charges (gains) - (589,000)
Loan impairment charge 641,000 38,000
---------- ----------
18,682,000 15,661,000
---------- ----------
LOSS BEFORE INCOME TAXES (3,113,000) (3,478,000)
BENEFIT FOR FEDERAL AND STATE INCOME TAXES - (1,228,000
---------- ----------
NET LOSS $(3,113,000) $(2,250,000)
============ ===========
NET LOSS PER COMMON SHARE ($0.56) ($0.38)
======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,296,000 6,278,000
=========== ==========
THREE MONTHS ENDED
DECEMBER 31,
1996 1995
REVENUES:
Service fees $5,565,000 $3,858,000
Sales of equipment 23,000 52,000
Software license fees 43,000 265,000
Interest and other 91,000 92,000
---------- ----------
5,722,000 4,267,000
---------- ----------
EXPENSES:
Cost of services 3,955,000 2,999,000
Cost of equipment sales 6,000 85,000
Research and development 481,000 613,000
Selling, general and administrative 1,907,000 1,740,000
Interest expense 24,000 16,000
Loan impairment charge (income) 641,000 (81,000)
---------- ----------
7,014,000 5,372,000
---------- ----------
LOSS BEFORE INCOME TAXES (1,292,000) (1,105,000)
BENEFIT FOR FEDERAL AND STATE INCOME TAXES - (381,000)
----------- -----------
NET LOSS $(1,292,000) $ (724,000)
============ ===========
NET LOSS PER COMMON SHARE ($0.23) ($0.13)
======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,296,000 6,296,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK CAPITAL IN NOTE
CARRYING COMMON STOCK EXCESS OF RETAINED SUBSCRIPTION RECEIVABLE - TREASURY
SHARES VALUE SHARES PAR VALUE PAR VALUE EARNINGS RECEIVABLE RELATED PARTY STOCK
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996 6,312,000 63,000 14,864,000 (6,788,000) (140,000) (1,225,000) 59,000
NINE MONTHS ENDED
DECEMBER 31, 1996:
Reclassification of
Series A Convertible
Preferred Stock as a
result of the
elimination of the
redemption provision 1,500,000 5,888,000
Reversal of accretion
equal to accrued
dividends on
redeemable preferred
stock 1,000,000 3,980,000
Issuance of Series B
Convertible Preferred
Stock 228,000
Allowance for loan
collateral impairment 641,000
Net Loss (3,113,000)
--------- --------- --------- ------ ---------- ---------- -------- -------- ------
BALANCE,DECEMBER 31,1996 2,500,000 9,868,000 6,312,000 63,000 14,864,000 (9,673,000)(140,000) (584,000) 59,000
========= ========= ========= ====== ========== ========== ========= ========= ======
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS END
DECEMBER 31
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,113,000)$(2,250,000)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization of property and equipment 472,000 310,000
Amortization of software technology 134,000 86,000
Amortization of goodwill 74,000 73,000
Amortization of convertible preferred issue costs 21,000 5,000
Gain on sale of equipment (6,000) -
Provision for losses on accounts receivable 72,000 445,000
Amortization of officer stock compensation - 490,000
Allowance for impairment of related party note 641,000 38,000
Changes in operating assets and liabilities-
Accounts receivable (2,361,000) (620,000)
Note and installment receivables 190,000 282,000
Prepaid and refundable income taxes 2,286,000 721,000
Inventories, prepaid expenses and other current assets 171,000 57,000
Other assets (666,000) (251,000)
Accounts payable 66,000 (132,000)
Accrued payroll & benefits 170,000 (208,000)
Accrued expenses for use of trade name (213,000) 88,000
Other accrued expenses 667,000 299,000
Accrued restructuring (649,000) (1,386,000)
Deferred income (42,000) (408,000)
Customer deposits and other current liabilities (24,000) 215,000
---------- ----------
Net cash flows from operating activities: (2,110,000) (2,146,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in software technology (101,000) (125,000)
Purchase of property and equipment (408,000) (314,000)
Proceeds from sale of equipment 27,000 293,000
---------- ----------
Net cash flows from investing activities (482,000) (146,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on capital lease obligation (99,000) (14,000)
Loans to officers - (338,000)
Cost of listing additional shares - (17,000)
Issuance of preferred stock net of issuance costs 3,965,000 5,870,000
---------- ----------
Net cash flows from financing activities 3,866,000 5,501,000
---------- ----------
NET CHANGE IN CASH AND EQUIVALENTS 1,274,000 3,209,000
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 6,546,000 4,121,000
---------- ----------
CASH AND EQUIVALENTS, END OF PERIOD $ 7,820,000 $ 7,330,000
========== ==========
See accompanying notes to consolidated financial statements.
5
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(concluded)
NINE MONTHS ENDED
DECEMBER 31,
1996 1995
SUPPLEMENTAL INFORMATION:
Interest paid $ 38,000 $ 3,000
========== ==========
Income taxes paid (refunded) (2,382,000) (1,949,000)
========== ==========
Deferred gain on sale-leaseback - 41,000
========== ==========
Value assigned to goodwill relating to shares of common
stock issued for prior year business acquisition - 200,000
========== ==========
Transferred from deferred income taxes to prepaid and
refundable income taxes 62,000 750,000
========== ==========
Gross proceeds from issue of convertible preferred stock 4,000,000 6,000,000
========== ==========
Capitalized issue costs for convertible preferred stock 35,000 130,000
========== ==========
Acretion equal to accrued dividends on convertible preferred
stock 383,000 107,000
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(UNAUDITED)
Note A - 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.
Note B - Nature of Business:
The Company provides outsourcing services to physician delivery systems,
hospital business offices and managed care organizations. As part of its
outsourcing services, the Company has traditionally been an outsourcer of the
billing and accounts receivable management and related information systems
departments and performed related personnel management and systems integration
services for its customers. The Company is currently strengthening these areas
and expanding its services and information systems to include: financial and
administrative management, systems support and management and consulting
services in areas that directly complement its business management services
offerings, 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 hospital inpatient departments.
The Company is phasing out of these activities. (See Note C below)
Note C - Restructuring Charges:
During fiscal 1995, the Company implemented a significant restructuring of its
business operations in an effort to: refocus and redirect resources away from
inpatient clinical information systems and towards contract management,
physician practice management, ambulatory care and software integration business
services; consolidate operations; negotiate a termination of the employment
agreement of the former chairman; downsize, and sell underperforming assets.
These actions resulted in a fiscal 1995 $6.8 million, pre-tax, restructuring
charge.
The restructuring program was substantially completed during fiscal 1996,
although the payment of certain items principally, termination costs related to
the former chairman and selected severance costs, will continue for several
years.
7
<PAGE>
Note D - Net Loss Per Common Share:
The computation of fully diluted net loss per share was antidilutive in each of
the applicable periods presented; therefore, no separate calculation of fully
diluted loss per share is reported. Net loss per common share includes an
adjustment for the amount equal to accrued dividends on the Company's preferred
stock, in the amount of $383,000 or $.06 per share for the nine months ended
December 31, 1996 and $107,000 or $.02 per share for the nine months ended
December 31, 1995.
Note E - Convertible Preferred Stock:
On September 30, 1996, in consideration for the receipt of $4,000,000, the
Company issued, through a private placement, 1,000,000 shares of Series B
Convertible Preferred Stock, par value $0.01 per share (the "Series B Shares").
Dividends on the Series B Shares 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. After December
31, 1997, the Series B Shares are 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 Series B Shares are entitled to $4.00 per share plus all accumulated and
unpaid dividends. Details of this transaction are reflected in the Company's
Form 8-K, dated September 30, 1996.
On September 27, 1996, the Company filed an amendment to the Certificate of
Designation creating the rights and preferences of the Company's Series A
Convertible Preferred Stock (the "Series A Shares"). This amendment terminated
the optional redemption rights of holders of such Series A Shares.
In connection with the amendment to the Certificate of Designation, the Company
amended the warrants to purchase 118,500 shares of the Company's Common Stock at
an exercise price of $0.10 per share presently held by the holders of the Series
A Shares to delete certain forfeiture provisions. The deletion of the forfeiture
provisions vests these warrants in the holders thereof.
Note F - Additional Items:
1. In November of 1996, the Company and its largest customer, New York Health
and Hospitals Corporation ("MetroPlus") resolved certain issues that had
arisen between the Company and MetroPlus in connection with services
provided by the Company. As part of the resolution of these issues,
MetroPlus rescinded a purported July 17, 1996 notice of default to the
Company. Prior reserves incorporated by the Company in reported MetroPlus
revenues were adequate and therefore the resolution had no material impact
on the Company's third quarter financial statements, or on any previously
reported financial statements.
On January 21, 1997, the Company announced a contract to provide
outsourcing services and information systems to University Physician
Associates (UPA), the medical practice plan for the University of Medicine
and Dentistry of New Jersey (UMDNJ). Under the terms of this contract, US
Servis will assume management and operational responsibility for activities
associated with billing, receivables management, patient services and
information systems. The Company will not realize material financial
benefits from this contract until full implementation of systems and
services is completed. Full implementation is expected to take eight to
twelve (8-12) months. The Company anticipates that total revenues under the
8
<PAGE>
contract will exceed $25,000,000 over its initial five (5) year term.
The contract also provides for a strategic alliance to be formed between
UPA and US Servis. Certain of the Company's products and services will be
marketed through the strategic alliance to community based physicians
located in northern New Jersey. UPA and UMDNJ will market these services as
part of their on-going efforts to expand their physician delivery system.
2. On January 30, 1997, US Servis, Inc. and IDX Systems Corporation announced
the formation of a strategic alliance to provide a comprehensive solution -
including information systems and outsourcing - for the business offices of
hospitals and physician groups. Under the terms of the agreement, IDX will
market US Servis' outsourcing services to existing and prospective
customers. The alliance combines IDX's software, professional services,
implementation, and support services with US Servis' outsourcing for
billing, accounts receivable, and financial management.
9
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
For the nine months ended December 31, 1996 (first nine months of fiscal 1997)
the Company reported higher revenues primarily as a result of sales booked in
fiscal 1996. Revenues totaled approximately $15.6 million, an increase of $3.4
million or 27.8% over the same period last year. Excluding the $589,000
restructuring gain recorded last year and $603,000 of incremental expense
related to the loan impairment charge, the Company's expenses for the nine
months ended December 31, 1996 increased $1,829,000 over the same period last
year. The Company's pre-tax loss declined $365,000 or 10.9%. The Company's net
loss (after taxes) increased by $863,000, from $2,250,000 to $3,113,000 due to
the availability and use of carry forward tax benefits during fiscal 1996.
The Company's fiscal 1997 nine month net loss per share was $0.56 compared to
$0.38 reported for the same period last year. The table below presents the net
loss per share by component.
<TABLE>
<S> <C> <C>
Nine months Ended December 31,
1996 1995
Pre-Tax Operating Loss per Share $.50 $.55
Allowance for the Preferred
Stock Dividends .06 .02
Tax Benefit - (.19)
----- -----
Net Loss per Share $.56 $.38
===== =====
</TABLE>
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
<S> <C> <C>
December 31, 1996 March 31, 1996
Total Current Assets $13,502,000 $12,586,000
Total Current Liabilities 4,893,000 4,262,000
----------- ----------
Working Capital $8,609,000 $8,324,000
----------- ----------
Working Capital Ratio to 1 2.8 3.0
</TABLE>
During the nine months ended December 31, 1996, Working Capital increased
$285,000 from $8,324,000 to $8,609,000. The increase was the result of the
issuance of $4,000,000 of the Series B Shares that was substantially offset by
continued operating losses. Cash and equivalents increased $1,274,000, primarily
due to the issuance of $4,000,000 of the Series B Shares, the receipt of
$2,382,000 in tax refunds and an increase in current liabilities of $631,000,
partially offset by the net loss, a $2,289,000 increase in accounts receivable
and a $650,000 security deposit associated with new office space The increase in
accounts receivable includes an increase in amounts due from hospital clients of
approximately $2,000,000 and approximately $200,000 from physicians. The
increase in amounts due from hospital clients includes approximately $500,000
relating to new business and $300,000 relating to disputed charges due from a
former client. The remainder relates to seasonal increases in the payment cycles
of the Company's hospital clients.
10
<PAGE>
The Company expects that its cash position will decrease throughout the
remainder of fiscal 1997 as a result of operating losses but anticipates that
available cash and cash flow from operations will be sufficient to meet the
Company's operating and capital requirements through the end of the current
fiscal year and the fiscal year ending March 31, 1998.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
REVENUES
<S> <C> <C>
Nine months Ended December 31,
1996 1995
Service fees $15,062,000 $11,297,000
Sales of equipment 133,000 228,000
Software license fees 138,000 509,000
Interest and other 236,000 149,000
------------ -----------
$15,569,000 $12,183,000
============ ===========
</TABLE>
For the nine months ended December 31, 1996, the Company's revenues increased
$3,386,000 or 27.8% when compared to the same period in the prior fiscal year.
Contributing to this increase were increases in service fees of $3,765,000 and
interest and other items of $87,000. These increases were partially offset by
decreases in sales of equipment of $95,000 and software license fees of
$371,000.
Service fee increases occurred in physician services ($971,000), third party
administrative ("TPA") services ($2,974,000) and hospital business management
services ($251,000). These increases were partially offset by a $165,000
decrease in revenues from clinical services and a $292,000 decrease in revenues
from other hospital services, including remote computing and maintenance of
turnkey products.
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended December 31,
1996 1995
Service fees $5,565,000 $3,858,000
Sales of equipment 23,000 52,000
Software license fees 43,000 265,000
Interest and other 91,000 92,000
---------- ----------
$5,722,000 $4,267,000
========== ==========
</TABLE>
For the three months ended December 31, 1996, the Company's revenues increased
$1,455,000 or 34.1% when compared to the same period in the prior fiscal year.
Contributing to this increase were increases in service fees of $1,707,000
offset by decreases in sales of equipment of $29,000, software license fees of
$222,000, and interest and other items of $1,000.
Service fee increases occurred in physician services ($453,000), third party
administrative ("TPA") services ($1,066,000), and hospital business management
services ($298,000). These increases were partially offset by an $89,000
decrease in revenues from clinical services and a $21,000 decrease in revenues
from other hospital services, including remote computing and maintenance of
turnkey products.
11
<PAGE>
<TABLE>
<CAPTION>
EXPENSES
<S> <C> <C>
Nine months Ended December 31,
1996 1995
Cost of services $11.037,000 $8,308,000
Cost of equipment sales 62,000 133,000
Research and development 1,442,000 1,919,000
Selling, general and administrative 5,415,000 5,800,000
Interest expense 85,000 52,000
---------- ----------
Subtotal 18,041,000 16,212,000
Restructuring charges (gains) - (589,000)
Loan impairment charge 641,000 38,000
----------- -----------
$18,682,000 $15,661,000
=========== ===========
</TABLE>
Excluding the $589,000 restructuring gain recorded last year, and expenses
related to the loan impairment charge, expenses for the nine months ended
December 31, 1996, increased $1,829,000 when compared to the same period in the
prior fiscal year. Contributing to this increase were increases in the cost of
services of $2,729,000 and interest expense of $33,000. These increases were
partially offset by decreases in research and development expenses of $477,000,
cost of equipment sales of $71,000 and selling, general and administrative
expenses of $385,000.
Substantially all of the increase in cost of services related to expenses
associated with new clients for TPA and physician services. The reduction in
research and development expenses resulted primarily from the Company's decision
to de-emphasize its clinical information systems and other turnkey products. The
decrease in selling, general and administrative expenses resulted from the
inclusion of amortization of the CEO's signing bonus of $490,000 in the first
nine months of last year and lower provision for allowance for doubtful accounts
of $373,000 as compared to last year, partially offset by an increase in
incentive compensation of $240,000, an increase in administrative expenses
related to physician services of $150,000 and an increase in sales expense of
$72,000.
On December 31, 1996, the Company incurred a charge against income in the amount
of $641,000, such being the amount by which the value of the 252,557 shares of
the Company's common stock held as security for a loan made in connection with
an acquisition in 1991 was less than the outstanding principal balance on such
loan. This charge was based on the closing price of the Company's common stock
on December 31, 1996, which was $2.31 per share. If and to the extent that the
closing stock pricing at the end of any subsequent quarter is greater than
$2.31, there will be a reversal of this charge.
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended December 31,
1996 1995
Cost of services $3,955,000 $2,999,000
Cost of equipment sales 6,000 85,000
Research and development 481,000 613,000
Selling, general and administrative 1,907,000 1,740,000
Interest expense 24,000 16,000
---------- ----------
Subtotal 6,373,000 5,453,000
Loan impairment charge 641,000 (81,000)
---------- ----------
$7,014,000 $5,372,000
========== ==========
</TABLE>
12
<PAGE>
Excluding the $641,000 loan impairment charge for this year, as described above,
and the $81,000 of related income recorded last year, expenses for the three
months ended December 31, 1996 increased $920,000, when compared to the same
period in the prior fiscal year. Contributing to this increase were increases in
the cost of services of $956,000, selling, general and administrative expenses
of $167,000, and interest expense of $8,000, partially offset by decreases in
cost of equipment sales of $79,000 and research and development expenses of
$132,000.
Substantially all of the increase in cost of services related to expenses
associated with new clients for TPA and physician services. The increase in
selling, general and administrative expenses resulted from increases in
incentive based compensation ($86,000), recruiting costs ($72,000), legal and
consulting fees ($50,000), and various other items, partially offset by the
inclusion of amortization of the CEO's signing bonus of $163,000 in the third
quarter of last year. The reduction in research and development expenses result
primarily from the Company's decision to de-emphasize its clinical information
systems and other turnkey products.
NET LOSS
For the nine months ended December 31, 1996, the Company reported a net loss of
$3,113,000 or $0.56 per common share, compared to a net loss of $2,250,000 or
$0.38 per common share during the same period last year. The per share loss for
the nine months ended December 31, 1996 included an additional $.09 per share
related to loan impairment charges and an additional $.04 related to preferred
stock dividends and did not include a restructuring gain of $.09 per share or a
tax benefit of $.19 per share which were recorded in the first nine months of
fiscal 1996. Although the Company has not recorded a tax benefit associated with
losses incurred during the current fiscal year, these losses will be available
to offset future income in subsequent years.
For the three months ended December 31, 1996, the Company reported a net loss of
$1,292,000 or $0.23 per common share, compared to a net loss of $724,000 or
$0.13 per common share during the same period last year. The per share loss for
the quarter ended December 31, 1996 included an additional $0.10 related to loan
impairment charges and did not include a tax benefit of $.06 per share which was
recorded in the same quarter of last year.
13
<PAGE>
PART II --OTHER INFORMATION
Item 1 - Litigation
The Company has no material litigation pending.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: the exhibits required by Item 601 of
Regulation S-K and filed herewith are listed in the
Exhibit Index that follows the signature page.
(b) Reports on Form 8-K; No report on Form 8-K was filed
during the quarter ended December 31, 1996.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
US SERVIS, INC.
(Registrant)
Date: February 12, 1997 By: Graham O. King
(L.S.)
Graham O. King
Chairman of the Board and
Chief Executive Officer
Date: February 12, 1997 By: Michael B. Loscalzo
(L.S.)
Michael B. Loscalzo
Principal Accounting Officer
and Chief Financial Officer
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS INDEX
<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) *
3(4) Certificate of Designation Relating to the Series B Convertible Preferred Stock With a Par Value of
$.01 Per Share of US Servis, Inc. (XIX) *
3(5) Amendment to Certificate of Designation Relating to the Series A Convertible Preferred Stock With a
Par Value of $.01 Per Share of US Servis, Inc. (XIX) *
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) *
16
<PAGE>
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) *
10(41) Agreement for Administrative Services, dated December 21, 1995, between New York Health and
Hospitals Corporation and the Registrant. (XVIII) *
10(42) Series B Convertible Preferred Stock Purchase Agreement among US Servis, Inc., and the Purchasers
named on Schedule 1 thereto, dated as of September 30, 1996. (XIX) *
10(43) First Amendment to Registration Rights Agreement among US Servis, Inc. and the Purchasers signatory
thereto, dated September 30, 1996. (XIX) *
17
<PAGE>
10(44) Agreement for Services, dated December 31, 1996, between University Physician Associates and the
Registrant. 1
</TABLE>
<TABLE>
<CAPTION>
NOTES TO EXHIBIT INDEX
<S> <C>
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. (XVIII) Incorporated by reference from the
Registrant's Form 10-Q, dated August 13, 1996.
(XIX) Incorporated by reference from the Registrant's Form 8-K, dated
September 30, 1996.
</TABLE>
18
EXHIBIT 10(44)
Pursuant to a request for confidential treatment filed with Securities and
Exchange commission, certain information in this agreement has been omitted and
replaced with the word "[confidential]." The omitted information has been
separately filed with the Securities and Exchange Commission.
SERVICES AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into, by, and between
University Physician Associates with offices at 30 Bergen Street, Newark, New
Jersey 07107 ("Client" or "UPA") and US Servis, Inc., a Delaware corporation
with offices at 414 Eagle Rock Avenue, West Orange, New Jersey 07052 ("US
Servis") as of the Effective Date, defined below.
In consideration of the representations, covenants and agreements contained in
this Agreement and intending to be legally bound, Client and US Servis agree as
follows:
1. Definitions
The following capitalized terms, set forth in alphabetical order, shall
have the meanings set forth below for all purposes of this Agreement:
(A) "Capitated Contract" - This means contracts where eligibility
is electronically provided by the payor, encounters are
electronically processed, reimbursements are provided
electronically, no charge entry is done by US Servis staff, at
least 75% of the co-pays are collected and posted to the
system by Client personnel, and capitation payments are posted
to the system based upon a fixed, pre-agreed physician
distribution formula.
(B) "Client Processing" - This means charges for patient visits to
UPA Providers where Client personnel use the US Servis System
to do all of the data entry and all of the billing services
related to the specific charges including all follow-up
encounters and medical services bundled into the original case
rate reimbursement.
(C) "Collection Agency Collections" - This means the net amount
paid to UPA on accounts referred out to a collection agency
for collection.
(D) "Contractual Allowance" - This means the difference between
the fee schedule for UPA Providers and the payment actually
made for a UPA Provider's services by Third Party Payers as
set by agreement between UPA and the Third Party Payer.
1
<PAGE>
(E) "Departmental Representative" - This means a single person
designated by US Servis who shall be responsible for service
to one or more UPA Department(s) and who has at least five
years of experience in practice management and/or billing
operations, preferably in an academic environment. Each UPA
Department shall have the right to interview the proposed
Departmental Representative for its department and approve the
selection, which approval shall not be unreasonably withheld.
(F) "Implementation Date" - For each UPA Department, this means
the date that RM Services are implemented for that UPA
Department as agreed to pursuant to the Implementation Plan.
(See Exhibit E.)
(G) "Implementation Plan" - This means a plan for the phase in of
RM Services which will be developed in accordance with
Sections 2(D) and 2(E) below.
(H) "Implementation Subcommittee" - This means a subcommittee of
the Oversight Advisory Committee created in accordance with
Section 2(D).
(I) "Interval" - This means the greater of one hundred twenty
(120) days or the average amount of days in accounts
receivable for a UPA Department over the three month period
prior to the date that implementation occurs for that UPA
Department.
(J) "Net Billings" - This means the actual charges (including
capitation charges) by US Servis on behalf of UPA after
adjusting for the Contractual Allowance, bad debt write-offs
or reasonable bad debt reserves and patient refunds.
(K) "Net Collection Rate" - This means the last twelve months of
Net Collections divided by the last twelve months of Net
Billings.
(L) "Net Collections" - This means:
(i) the total sum of all moneys collected and/or posted
for services of UPA Providers for whom US Servis is
providing RM Services;
(a) including all capitation payments (prorated
if paid to UPA on an annual basis), but
excluding direct bonus payments to UPA for
risk pools associated with utilization
performance; and
(b) including all payments collected at the
point of service for UPA Providers for whom
US Servis is providing RM Services;
(ii) but excluding:
2
<PAGE>
(a) UPA Providers for whom US Servis is not
providing RM Services (because US Servis has
not yet started the UPA Department within
which the UPA Provider works or US Servis
has been terminated from providing RM
Services for such department as per the
procedures set forth in Section 9); and
(b) the portion of any capitation fees
applicable to UPA Departments or UPA
Providers for which US Servis does not
provide RM Services and Client is not
performing Client Processing;
(iii) less amounts refunded or credited to a patient, third
party, or intercompany transaction for services
provided by affiliates of UPA, or as a result of
overpayments, erroneous payments or bad checks; and
(iv) provided, however, that when unpaid billings are
referred to a collection agency, the amount of Net
Collections will include the net amount received by
UPA through the efforts of the collection agency
after deducting the collection agency fee and any
other expenses associated with the collection effort.
(M) "Prior Accounts Receivable" - This means the accounts
receivable of each UPA Department existing prior to the
Implementation Date for such UPA Department.
(N) "Oversight Advisory Committee" - This means a committee made
up of representatives of US Servis and Client. The
composition, purpose and operations of this Committee are
described in Exhibit A.
(O) "Performance Criteria (Financial)" - This means performance
criteria for the performance of US Servis for UPA overall as
defined in Exhibit C.
(P) "Performance Criteria (Departmental)" - This means performance
criteria for the performance of US Servis as measured by each
individual UPA Department's performance as defined in Exhibit
C.
(Q) "RM Services" - This means reimbursement management services
as more completely defined in Exhibit B.
(R) "Termination Date" - This means the date after which US Servis
shall no longer provide RM Services for new charges generated
by UPA Providers.
(S) "Third Party Payor" - This means an entity that makes payment
on behalf of an individual who has received services from a
UPA Provider,
3
<PAGE>
including but not limited to, insurance companies, Medicare,
Medicaid, HMOs, PPOs and other entities in the business of
reimbursing for part or all of the costs of medical services.
(T) "UPA Department" - This means a clinical practice area within
UPA which is organized into a department.
(U) "UPA Provider" - This means any individual whose work is
charged for by UPA.
2. Obligations and Rights of US Servis and UPA
(A) US Servis will provide Client with RM Services for charges for
clinical procedures performed by UPA Providers through the
billing of patients and third party payers. Client's use of RM
Services shall be undertaken in accordance with the
Implementation Plan.
(B) For patients who are seen after US Servis starts providing RM
Services, Client will provide US Servis with: (i) patient
demographics which completely and accurately reflect the
information provided to UPA by the patient; (ii) charge data
(iii) a clear copy of the medical record documentation when
required; (iv) a copy of the patients' insurance cards;
(v) necessary documentation of referral or other authorization
to provide treatment; and (vi) any other information required
to successfully provide the services referenced in
Section 2 (A) above. Client shall provide all coding required.
(C) An Implementation Plan will be developed for UPA overall under
the auspices of the Oversight Advisory Committee, which shall
create an Implementation Subcommittee which includes an equal
number of representatives from UPA and US Servis. This
Implementation Plan will include the order in which UPA
Departments will be converted to RM Services. Performance
Criteria (Financial) for US Servis shall be set by the
Implementation Subcommittee in accordance with Exhibit C.
(D) As part of the Implementation Plan, more specific
implementation plans will be developed for each of the UPA
Departments. Performance Criteria (Departmental) shall be set
for each UPA Department by the UPA Department's chairperson,
the UPA Department's administrator, and the
UPA Executive Director or a designee of the UPA Executive
Director, who collectively shall have one vote, and the
Departmental Representative and US Servis Executive Director
(who collectively shall have one vote). The
Performance Criteria (Departmental) shall include each of the
categories listed in Exhibit C, and, after preparation and
approval by the Implementation Subcommittee, shall be approved
by the Oversight Advisory Committee in accordance with the
procedures set forth in Exhibit C.
4
<PAGE>
(E) US Servis warrants the following with regard to the computer
system that it will use to provide RM Services:
(i) The central processing unit for the computer will be
available 98% of the time between the hours of
8:30 A.M. and 6:00 P.M. Eastern Time Monday through
Friday, averaged annually, and that the
central processing unit will be reasonably available
at all other times. Actual system availability may be
affected due to the flexibility and functionality of
the system and the numerous variables under the
control of the system users. This estimated
average system availability also assumes that Client
allows US Servis to schedule and conduct monthly data
base purging and reorganizing, and that the Client
utilizes the system in a professional manner.
(ii) Systems maintenance on the computer system will not
be performed between the hours of 8:30 A.M. and 6:00
P.M. Eastern Time Monday through Friday, unless
either (a) the performance of such systems
maintenance will not affect the use of the computer
system to perform RM Services or (b) an emergency has
occurred which requires such maintenance to be
performed immediately, recognizing the consequences
of not having the system available.
(iii) The average response time for interactive sessions
shall meet industry standards which are currently
three (3) seconds or less. If Client believes there
are response time problems, the Client will
notify US Servis in writing. This assumes that Client
allows US Servis to schedule and conduct monthly data
base purging and reorganizing, and that the Client
utilizes the system in a professional manner.
US Servis will have 45 days to meet industry
standards or to present a plan for meeting industry
standards which is acceptable to the Oversight
Advisory Committee.
(iv) US Servis has a disaster recovery plan which allows
it to initiate normal computer operations within
forty eight (48) hours of the destruction of the site
from which US Servis provides RM Services and resume
substantially normal operations within ten business
days.
(v) US Servis will back up and store UPA's data files on
a daily basis and will store the back up copy off
site at a secure data storage facility.
(vi) Allows for either a single bill to be sent for all
services provided by UPA Providers or for separate
bills to be sent so that, if requested by UPA, the
system may be initially configured to send a separate
bill for sensitive services such as psychiatric
services. The specific
5
<PAGE>
configuration of the system will be determined by the
Implementation Subcommittee and once configured, can
be changed only upon mutual agreement of the parties.
Decisions such as single source patient statements
shall be weighed in the context of security,
reporting and other issues.
(F) The Departmental Service Representative shall be the liaison
between each Department and the US Servis Central Business
Office and provide regular updates to Client. The Departmental
Service Representatives shall spend approximately 2-3 days
within the UPA Departments and 2-3 days on-site at the
US Servis Central Business Office. They shall formally meet
once a month with each UPA Department and Client to review the
standard monthly reporting package and any strategic issues
associated with US Servis payors, or the UPA Departments. In
addition, the Department Service Representative shall provide,
as needed, coding feedback and training to the UPA Providers.
(G) US Servis agrees to follow UPA's instructions to configure the
system initially with regard to the need for billing sensitive
services (e.g. psychiatric services) separately, which
instructions may come on a service wide basis (e.g. all
psychiatric services billed separately). The specific
configuration of the system will be determined by the
Implementation Subcommittee and once configured, can be
changed only upon mutual agreement of the parties. Decisions
such as single source bills and patient statements shall be
weighed in the context of security, reporting and other
issues.
(H) Notwithstanding that US Servis is providing RM Services, all
payments shall be made to a lockbox in UPA's name and shall be
deposited to UPA's account. US Servis shall have no right to
withdraw funds or write checks drawn on UPA's account.
(I) UPA shall be responsible for and conduct all negotiation of
fees for the medical services which UPA Providers perform.
(J) US Servis agrees to provide UPA with training in accordance
with Exhibit D.
(K) US Servis agrees to provide UPA with management reports and
management reporting as follows. US Servis agrees to develop
with UPA and each UPA Department during implementation a
management reporting package which shall include both standard
and a reasonable number and complexity of customized reports
at no additional charge to UPA. UPA agrees to be reasonable in
its requests for such departmental management reports. Any
additional customized reports requested during
the first year from contract signing, will need to be approved
through Client prior to being developed by US Servis and will
be credited against
6
<PAGE>
the 150 programming hours included in the base initial fee.
On-going for years two through five of the contract, US Servis
will provide 75 hours of programming time per year. All
requests for customized reports must be approved by the
Executive Director of UPA so that US Servis does not have to
determine the priority of requests from various UPA
Departments.
(L) US Servis will maintain a local office (i.e. an office in
New Jersey).
(M) US Servis agrees to provide personnel for the following
purposes:
(i) Subject to any restrictions imposed by University
Hospital, to provide the necessary personnel to cover
University Hospital Emergency Room, Operating Room,
Trauma and In-Patient areas, such personnel may also
be utilized in order to cover the Hospital Outpatient
Clinic areas, for the purpose of doing insurance
verification in these areas to facilitate the
collection of cash for services provided by UPA
Providers in such settings.
(ii) Subject to any restrictions imposed by University
Hospital, to provide the necessary personnel in the
Medical Records Department to expedite providing
copies of Medical Records when requested for billing
related purposes.
(iii) Subject to UPA centralizing its registration process,
to provide two FTE's from the Client's US Servis
Central Business Office to perform front end
insurance verification, precertification and related
front-end tasks to facilitate subsequent billing.
(N) US Servis will consider for employment all current employees
of Client who are involved in the insurance verification,
billing and collection process and who are identified by
Client as likely to be terminated by Client as a result of
hiring US Servis to provide RM Services. However, US Servis is
not bound to hire every such employee and US Servis shall be
solely responsible for determining whether each such employee
is qualified for a position with US Servis.
(O) US Servis agrees to conduct month end and year end closes on a
timely basis. This close of books will include the balancing
and reconciling of the period's activity. US Servis agrees to
fully cooperate with any reasonable request made by the
independent accounting firm engaged by Client for
the purpose of conducting the annual audit of Client's
finances. US Servis further agrees to cooperate with any audit
of Client's finances by any governmental agency upon a written
request by Client or as required by law.
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(P) US Servis agrees to allow Client to have the US Servis system
audited by an independent auditor, at Client's expense, after
a period of running in parallel for the purpose of verifying
system integrity and data integrity.
(Q) US Servis agrees to provide Client with reasonably available
reports containing information resident in the computer system
used by US Servis to support Client's compliance with the
requirements set forth in the Federal Register for Academic
Institutions. US Servis further agrees to provide quarterly
general provider coding/compliance training to include topics
such as those listed in Exhibit D. Specifically, the quarterly
training for providers shall include compliance issues, E&M
coding, and other coding related issues. Once a year US Servis
shall do a chart/coding audit of each UPA Department and shall
provide the chairperson and administrator of the UPA
Department and the UPA Executive Director with a written
summary of the findings as well as a UPA Department
specific training session to review UPA Department specific
issues. US Servis shall work with client to respond to any
compliance issues which are solely within the control and
jurisdiction of US Servis in the management of the Central
Business Office for Client.
(R) US Servis agrees to accept batch demographic data on a daily
basis via electronic tape in a single agreed upon format from
Bergen Pines and University Hospital.
(S) US Servis will also allow remote sites to have access to the
US Servis commuter system so long as such sites are using US
Servis for RM Services, provided however that UPA shall be
responsible for the cost of hardware and PC software to be
located at the remote site, communications equipment and
services, installation and any services (e.g. cabling) which
must be provided by a third party to connect the site to US
Servis.
(T) The computer system used by US Servis will permit Ad Hoc
reporting from UPA's remote terminals. In the event that the
generation of such Ad Hoc reports adversely impacts system
performance, US Servis may restrict the use of such Ad Hoc
reports to particular hours or to particular individuals at
UPA or in any other way that is mutually agreeable in order to
preserve system performance.
(U) US Servis will allow trained persons on UPA's staff to access
UPA data on the US Servis computer system and download or
electronically transfer such data to a UPA Computer for use
and analysis. In the event that such access adversely impacts
system performance, US Servis may restrict the use of such
access to particular hours or to particular individuals at UPA
or in any other way that is mutually agreeable in order to
preserve system performance.
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(V) In the event of a billing procedure dispute between US Servis
and UPA, UPA will be the final authority, provided however
that if the procedure specified by UPA would result in
operating inefficiencies or significant additional costs to
US Servis, the Oversight Advisory Committee shall
make the final determination as to such billing procedure.
The Oversight Advisory Committee agrees not to impose on
US Servis any material operating restrictions which create
added costs to US Servis without either appropriately
compensating US Servis for such costs or adopting other
changes that provide US Servis with offsetting cost
reductions. If the Oversight Advisory Committee determines
that US Servis should undertake a procedure which involves
significant additional cost and/or creates operating
inefficiencies it may require that UPA agree to cover part
or all of the cost as a condition for US Servis undertaking
the procedure. If US Servis determines that providing such
procedure is not technically or economically feasible, it may
propose alternatives which are technically
or economically feasible or terminate this Agreement pursuant
to Section 9(J). With regard to coding issues, US Servis shall
take direction solely from UPA and the UPA Provider unless by
taking such action US Servis believes that it would place
itself in a position of doing something illegal, fraudulent or
otherwise non-compliant with governmental regulations or laws.
(W) US Servis warrants that RM Services and the computer systems
used by US Servis will comply with and satisfy all applicable
State and Federal regulatory requirements in a timely fashion
during the term of this Agreement. US Servis further agrees
that UPA will be provided with any upgrades to RM Services
that US Servis provides to other customers at no charge and
that UPA will be offered any upgrades to RM Services that US
Servis offers for an additional charge on the same or better
terms than other customers.
(X) US Servis agrees to upgrade the computer system which it uses
to comply with and satisfy all applicable changes in State and
Federal regulatory requirements in a timely fashion. To the
extent that US Servis makes such upgrades generally available
to its customer base, US Servis agrees to upgrade the computer
system to comply with and satisfy applicable
insurance and managed care industry standards in a timely
fashion. Other than as stated above, US Servis will evaluate
whether particular upgrades particular to UPA to meet third
party payor requirements will be made by US Servis and whether
or not UPA will be charged for such upgrades.
Even if US Servis decides not to do an upgrade, US Servis
agrees that it will do such required upgrades on a time and
materials basis if UPA agrees to pay for the upgrade on that
basis.
(Y) US Servis and UPA agree to the strategic alliance as set forth
in Exhibit F. As part of this strategic alliance, the Chairman
of US Servis will serve on the Oversight Advisory Committee
and will arrange for periodic
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presentations of items of interest to UPA, including
information services strategy and new products and services.
If requested by the UPA members of the Oversight Advisory
Committee, the US Servis Chairman will schedule up to two
meetings per year with the US Servis Board of Directors. In
addition, either the Executive Director of UPA or some other
designee of UPA shall be a member of the US Servis' Customer
Advisory Committee that will meet with US Servis' senior
management on a regularly scheduled basis.
(Z) UPA's operational procedures, particular configuration of its
system and network environment are under its control.
US Servis cannot presume to dictate the hardware, software or
network requirements necessary to meet UPA's overall
operational needs. As for US Servis requirements particular
to the provision of its RM Services, during the development of
the Implementation Plan, US Servis will provide UPA with the
minimum requirements necessary to efficiently operate the
US Servis system in a standard configuration and
specifications for what US Servis will initially require for
UPA's system configuration as it relates to US Servis.
US Servis will also provide UPA with additional information as
the US Servis system is upgraded and enhanced from time to
time.
3. Exclusivity
During the term of the Agreement, US Servis will be the sole provider
of the RM Services to the Client, as described in Exhibit B, provided
however that this shall not preclude Client from using other services
or performing such services itself (i) for Prior Accounts Receivable,
(ii) for each UPA Department until implementation of RM Services has
occurred for such UPA Department as scheduled in the Implementation
Plan or until such time as implementation actually occurs for such UPA
department if implementation was not completed in accordance with the
Implementation Plan due to US Servis fault or due to such other reason
as is acceptable to the Implementation Subcommittee, (iii) for any UPA
Department for which RM Services have been terminated as provided in
Section 9(D), (iv) as provided herein for Capitated Contracts and
Client Processing, and (v) charges which are subject to new or changed
requirements of state or federal regulatory authorities or third party
payors, prior to US Servis being able to satisfy such new or changed
requirements, provided however that use of an alternate service shall
cease when US Servis is able to satisfy such new or changed
requirements.
4. Relationship of the Parties
Client acknowledges that US Servis is not a collection agency. All
employees of US Servis who provide the RM Services are employed by US
Servis, US Servis determines and pays their salaries and US Servis has
sole authority to hire, assign, promote, demote and terminate such
employees. US Servis is performing the services and duties required
hereunder as an independent contractor and not
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as an employee, agent, partner of or joint venture with Client.
Further, US Servis shall have no authority to bind Client to any
commitment, contract, agreement or other obligation unless the Board of
Directors of Client authorizes US Servis to do so in writing.
Notwithstanding the foregoing, Client has the right to object to (i)
specific personnel working at facilities controlled by Client or (ii)
personnel working on Client's account who have direct contact with
patients or third party payors on Client's behalf, so long as such
objection is based on the individual engaging in actions which are
detrimental to patients, the patient/provider relationship, or the
UPA/third party payor relationship and does not violate the law. If
Client does so object, Client agrees to work with US Servis in an
effort to resolve the objection without prohibiting the individual from
working at facilities controlled by Client or on Client's account. If
Client and US Servis are unable to resolve such objection to Client's
satisfaction, US Servis agrees that such individual will no longer work
at Client's facilities or on Client's account.
5. Term
The initial term of this Agreement will commence on December 31,1996
and shall be effective on February 1,1997 (the "Effective Date") and
continue for five (5) years after the Full Implementation (as defined
below) of RM Services for all UPA Departments (the "Term Date") unless
sooner terminated as provided in Section 9 below. This Agreement will
be renewed for additional one (1) year terms unless either party gives
the other written notice at least one hundred twenty (120) days prior
to the expiration of the then-current term. For the purpose of this
paragraph, "Full Implementation" shall mean the earlier occurring of
(i) the first day of a one month period during which US Servis is
providing RM Services for Client on Net Collections of at least
[confidential] or (ii) the first year anniversary of the Effective
Date.
6. Fees and Credits
Beginning as of the Effective Date, Client agrees to pay US Servis fees
(the "Fees") as Follows:
(A) Monthly, a rate of [confidential] of Net Collections made by
or through US Servis for Client the previous month, after
subtracting out Capitated Contracts, Client Processing, and
Collection Agency Collections.
(B) Monthly, a rate of [confidential] on Net Collections of
Capitated Contracts.
(C) Monthly, a rate of [confidential] on Net Collections of
Client Processing.
(D) Monthly, a rate of [confidential] on Collection Agency
Collections.
(E) Monthly, for sixty (60) months, a fee of [confidential]
Implementation/Interim Use Fees ("Implementation/Interim Use
Fees") beginning with the execution of this Agreement.
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(F) Any training of Client personnel which is in addition to that
specified in Exhibit D will be billed at the then current
fees, presently [confidential] per day, plus travel and living
expenses if such training is to occur at a location more than
one hundred miles from Newark, New Jersey.
(G) US Servis will provide system design work and custom
programming, if requested by UPA at US Servis's then current
rates. US Servis's current rates are [confidential] per hour
for systems design work and [confidential] per hour for custom
programming. US Servis agrees that for the term of this
Agreement, these rates shall not increase at an annual rate
greater than the increase in the Consumer Price Index.
(H) For a three month period following the Interval after the
implementation of RM Services for a UPA Department, UPA shall
be entitled to take a [confidential].
(I) US Servis' obligations and Client's rights under this
Agreement are conditioned upon Client's payment of fees and
other charges described in this Agreement. Each of the amounts
payable by Client to US Servis under this Agreement shall be
due and payable thirty days after Client receives an invoice
for such payment. Monthly fees shall be prorated for
any partial month. US Servis will assess Client a late
payment charge on any amount which remains unpaid more than
thirty (30) days after Client receives an invoice for such
payment, computed at the rate of one and one-half percent
(1.5%) per month on the unpaid amount for each month
(or fraction thereof) that such amount remains unpaid or at
the maximum rate permitted by law, whichever is less;
provided, however, Client will not be assessed the late
payment charge on amounts disputed in good faith if Client
provides US Servis with a detailed written description of any
disputed amounts within thirty (30) days of the receipt of the
invoice and pays undisputed amounts in a timely manner.
Receipt shall be deemed to have occurred on the earlier of
five (5) business days after mailing by first class mail or
actual receipt of the invoice.
7. Expenses
(A) US Servis is responsible for the following expenses it incurs
in conjunction with providing RM Services except as set forth
in Section 7(B):
(i) Salaries, payroll taxes, 401(k), health, disability
and life insurance with respect to all individuals
employed by US Servis.
(ii) Expenses associated with supplies and statements
ordered by US Servis.
(iii) Postage incurred by US Servis.
(B) Client is responsible for the following additional expenses:
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(i) Lockbox
(ii) Courier and delivery
(iii) Telephone and line charges for Client's use in all
practice locations
(iv) Communication equipment and software located at
Client's facilities
(v) Devices (workstation, printers, etc.), operating
system software, utility programs located at Client's
facilities
(vi) Selection and installation of the above
(vii) Expenses for additional remote locations in
accordance with Section 2(S).
(C) In the event that Client implements MedicaLogic software, the
MedicaLogic discount of [confidential] shall be credited to
Client as the MedicaLogic software is implemented, including
the automatic charge capture and transfer functionality, which
is part of a standard release of the MedicaLogic software, for
each UPA Department in accordance with the formula: (Office
Based Visits for UPA Department Implementing MedicaLogic/Total
Client Office Based Visits) [confidential]. In the event
that as a result of changes in the number of visits per
department, the full discount of [confidential] is not applied
through the use of this formula, any remainder shall be
applied once all of the UPA Departments have implemented the
MedicaLogic Software.
(D) If, during the term of this Agreement any federal, state or
local law or regulations shall be enacted, or any decree of
any court or any other administrative agency shall be entered,
or Client shall enter into, become bound by, terminate, or
alter any contractual arrangement, which would result in a
material change in the cost of providing RM Services,
US Servis and Client shall promptly enter into negotiations to
revise the Fees to provide US Servis with appropriate
compensation for the Services. In the event that UPA and
US Servis disagree as to whether there will be a
material change in the cost of providing RM Services, the
issue of whether there will be a material change shall be
submitted to dispute resolution and arbitration pursuant to
Section 11(B). If such negotiations fail to result
in agreement between US Servis and Client as to amended Fees
within sixty (60) days after US Servis advises Client of the
event giving rise to the duty to negotiate set forth above,
then US Servis shall have the right to terminate this
Agreement upon thirty (30) days' notice, which notice shall
be effective on the later occurring of (i) thirty (30) days
after such notice is given, (ii) the effective date on which
US Servis must start incurring the materially changed costs,
or (iii) thirty (30) days after an arbitrator
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concludes that there will be a material change in the cost of
providing RM Services.
8. Use of Informational/Confidentiality
(A) US Servis agrees to hold and maintain all information and
documentation supplied to it by UPA as confidential
information ("UPA Confidential Information"), to only use such
UPA Confidential Information to fulfill US Servis's
obligations under this Agreement, and not to disclose UPA
Confidential Information to anyone who is not an employee or
agent of either UPA or US Servis who has a need to have access
to such UPA Confidential Information without UPA's prior
written approval. US Servis shall advise all US Servis
Personnel who receive UPA Confidential Information of the need
to keep such information confidential and shall
take reasonable steps to protect UPA Confidential Information.
Patient information is hereby designated by UPA as UPA
Confidential Information.
(B) UPA agrees to hold and maintain all the US Servis software,
documentation and all other US Servis information supplied to
it by US Servis as confidential information ("US Servis
Confidential Information"), to only use such US Servis
Confidential Information to fulfill UPA's obligations under
this Agreement, and not to disclose US Servis Confidential
Information to anyone who is not an employee or agent of
either UPA or US Servis who has a need to have access to such
US Servis Confidential Information without US Servis's prior
written approval. UPA shall advise all UPA personnel who
receive US Servis Confidential Information of the need to keep
such information confidential and shall take reasonable steps
to protect US Servis Confidential Information.
(C) UPA agrees that the terms of this Agreement are confidential
information within the protections of Section 8(B). However,
either party may provide the terms of this Agreement including
a copy of this Agreement, if necessary, to any governmental
agency which requires that party to do so or in compliance
with any law or regulation.
(D) The parties agree to cooperate with each other in
investigating, preventing and stopping the misuse of US
Servis's Confidential Information by UPA personnel and former
UPA personnel and the misuse of UPA Confidential Information
by US Servis Personnel and former US Servis Personnel.
(E) Client shall not copy, or disclose to any person or entity any
of the software or documentation or information (whether
tangible or intangible in form) regarding any of the software
or documentation; remove or permit to be removed from any of
the software or documentation any identifying mark or indicia
of US Servis' or other suppliers' rights in such item; or use
any item of the software or documentation for any purpose
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other than the operation of the System, provided however that
this provision shall not prevent Client from disclosing only
such information as is necessary to allow the electronic
conversion of Client's data from systems used by US Servis to
other systems either during the course of this Agreement or as
part of a phase out of US Servis, provided that US Servis is
given written notice of such disclosure and the third party
receiving such information signs a confidentiality agreement
satisfactory to US Servis prior to receiving the information.
Client agrees it will not decompose, decompile, disassemble or
attempt in any way to reverse engineer the software or use any
US Servis' Confidential Information to develop functionally
similar software.
(F) Client acknowledges that US Servis retains all title,
copyright and other proprietary rights as it may have in
software or systems utilized under this Agreement including
all such rights in any and all copies, modifications,
translations and other derivative works that duplicate or are
based on any such software system.
(G) US Servis acknowledges that all of the data provided by Client
is the sole property of Client and may not be used by US
Servis for any purpose other than providing services under
this Agreement to Client. US Servis acknowledges that such
data may include patient information and that the patient may
have a protectible privacy interest in such data. US Servis
may access Client aggregate data for purposes of comparative
and aggregate reporting purposes among all US Servis clients
as long as US Servis abides by its confidentiality
requirements in this Agreement.
9. Termination
(A) Either party shall have the right to terminate this Agreement
upon ninety (90) days' written notice to the other if (i) a
court having appropriate jurisdiction enters a decree or order
for relief in respect to the other party in an involuntary
case under any Chapter 7 bankruptcy, insolvency or
other similar law now or hereafter in effect; or (ii) the
other party commences a voluntary case under Chapter 7 of the
U.S. Bankruptcy Code, insolvency or other similar law now or
hereafter in effect; provided however that in the event that
any of the above (9(A)(i) or (A)(ii)) occur and the Court
permits, such termination shall not be effective until the
earlier occurring of the following: (i) Client puts in place
an alternative service or staff to perform the services
provided by US Servis, which may be done on a phase in basis,
or (ii) one year after such notice of termination is
given.
(B) In the event that UPA and US Servis are unable to agree, which
agreement shall not be unreasonably withheld, on an
Implementation Plan within one hundred eighty (180) days of
the Effective Date of this Agreement, UPA may terminate this
Agreement on thirty (30) days
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written notice to US Servis for a one time payment of
[confidential]. In the event of such termination, the
provisions of Section 9(H) and 11(a) will not apply and
payments already made pursuant to Section 6(E) will be
credited against the [confidential].
(C) Notwithstanding anything to the contrary in this Agreement, US
Servis will have the right to terminate this Agreement if
Client defaults on its payment obligations under Section 6 and
such payment default is not cured within thirty (30) business
days after US Servis delivers written notice of such default
to Client.
(D) In the event that US Servis does not satisfy the Performance
Criteria (Departmental), which are set pursuant to Exhibit C,
for a UPA Department, UPA may notify US Servis in writing of
the specifics of the deficiency in performance. Within ten
(10) business days of receiving notification of such
deficiency(ies) in writing, US Servis will deliver a
written action plan detailing the steps to be taken to
eliminate the deficiencies. If US Servis is still not
satisfying the Performance Criteria (Departmental) for that
UPA Department one hundred (100) days after receiving written
notification of the deficiency(ies), UPA may present the
deficiency(ies) in writing to the Oversight Advisory Committee
which will allow US Servis an additional sixty (60) days to
satisfy the Performance Criteria (Departmental) from the date
that the issue is presented to the Oversight Advisory
Committee if US Servis is showing progress in accordance with
the action plan. If the Oversight Advisory Committee
deems that US Servis is still not satisfying the Performance
Criteria (Departmental) for the UPA Department at the end of
the additional period granted by the Oversight Advisory
Committee, then UPA may, at its option, withdraw that UPA
Department from this Agreement. If UPA does withdraw the
department and the withdrawal is reasonably likely to lead
to Net Collections of less than $34,000,000 or to Net
Collections which are more costly to collect, US Servis may,
at its option, seek a readjustment in the fees charged to UPA.
If UPA and US Servis are unable to agree to a revised fee
schedule, US Servis may terminate this Agreement upon
thirty (30) days written notice or seek arbitration pursuant
to Section 11(b).
(E) In the event that US Servis does not satisfy the Performance
Criteria (Financial), which are set pursuant to Exhibit C, for
a particular year, UPA may notify US Servis in writing of the
specifics of the deficiency in performance. Within ten (10)
business days of receiving notification of such
deficiency(ies) in writing, US Servis will deliver a written
action plan detailing the steps to be taken to eliminate the
deficiencies and shall have ninety (90) days after the
delivery of the action plan to fully implement them. After
such ninety day period, if US Servis does not satisfy the
Performance Criteria (Financial) for the next ninety (90) day
period and the shortage is greater than five and one half
percent (5.5%) of the
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Performance Criteria (Financial) for that period, then UPA may
either (i) extend the period for satisfying the Performance
Criteria (Financial) or (ii) submit the dispute to the
Oversight Advisory Committee or (iii) submit the dispute for
resolution pursuant to Section 11(b) or (iv) terminate this
Agreement on ninety (90) days notice to US Servis, which
termination shall be deemed a termination for cause.
(F) In the event that US Servis fails to satisfy governmental
regulatory requirements after specifications for such
requirements have been made available to the public and, as a
result of that failure, charges for UPA Providers in excess of
$10,000,000 cannot be submitted for reimbursement for a period
of ninety (90) or more days, UPA may send a notice of
termination to US Servis to terminate this Agreement upon at
least ninety (90) days written notice to US Servis, provided
however that such termination notice shall be rescinded if
US Servis satisfies such regulatory requirements for the
charges that could not be submitted within forty-five (45)
days after issuance of the termination notice.
(G) Client may terminate this Agreement at any time after the
third anniversary of the Term Date upon sixty (60) days
written notice upon paying to US Servis in a lump sum all
remaining monthly Implementation/Interim Use Fees and a
[confidential] early termination fee, provided however that
such termination is not for the purpose of having RM Services
provided by another third party or directly by Client to bring
such RM Services in house.
(H) In the event that this Agreement is terminated pursuant to
Sections 9(A) or 9(C), Client shall pay to US Servis in a lump
sum all remaining Implementation/Interim Use Fees, all
outstanding unpaid amounts due US Servis and the following
additional flat rate payment for early termination:
Timing Payment
[confidential]
(I) In the event of a termination of this Agreement for any reason
other than those provided in Sections 2(V), 7(D) or 9(B), UPA
shall pay in a lump sum all remaining Implementation/Interim
Use Fees. For terminations as provided in 2(V), 7(D) or 9(B),
UPA shall remain responsible for paying the remaining
Implementation/Interim Use Fees on a monthly basis until all
such payments have been made.
(J) US Servis has the right to terminate this Agreement upon the
occurrence of events described in Section 2(V) and 7(D).
10. Termination Procedures
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In the event this Agreement is terminated, for any reasons other than
non-payment of fees, US Servis will (a) continue to perform Services
for part or all of Client, at the then-current rates hereunder for such
period as is set forth in Section 9, if any, and for a period of one
hundred twenty (120) days after the Termination Date regarding accounts
receivable relating to charges generated by UPA Providers for clinical
procedures prior to the end of that period (b) thereafter discontinue
processing the Client's existing accounts receivable, and (c) deliver
to Client a final list of accounts receivable and a complete electronic
file in a standard record layout of Client's data (additional
programming shall be provided by US Servis, if requested by Client, at
the rates set forth in Section 6(G) and after payment of all fees owed,
and (d) have no further obligations to Client, except that auditing may
still occur as provided herein. Client may negotiate with US Servis for
additional transitional services to be provided by US Servis after the
Termination Date at Client's additional expense. Upon termination,
Client shall destroy or return to US Servis all copies of US Servis
manuals and confidential material, provided however that Client shall
be permitted to maintain any material that is necessary to assist
Client in meeting auditing and regulatory requirements with regard to
the work previously done by US Servis until such time as maintenance of
such material is no longer required.
11. Dispute Resolution
In the event that a dispute arises between US Servis and Client which
cannot be resolved in the normal course, the following dispute
resolution procedure shall be followed:
(A) US Servis' Executive Director and Client's Executive Director
shall meet and resolve the issues; if these individuals cannot
resolve the issue within thirty (30) business days of the
meeting then (i) the issue shall be submitted to the Executive
Director of Client and US Servis' Vice President of Physician
Services; if these parties cannot resolve the issue
within thirty (30) business days of submission to them, then
(ii) the issue shall be submitted to the CEO of US Servis and
the President of the Client. If they are unable to resolve the
issue within ten (10) days thereafter, either party may
present the issue to the Oversight Advisory Committee.
If the Oversight Advisory Committee cannot resolve the issue
within sixty (60) days, either party invoke the procedures set
forth in Section 11(B).
(B) Even if the procedures established in Section 11(a) above are
not effective in resolving the dispute, except as provided in
Section 11(C), the parties firmly desire to resolve all
disputes arising hereunder without resort to litigation in
order to protect their respective business reputations and the
confidential nature of certain aspects of their relationship.
Accordingly, any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be
settled by arbitration administered either by
the American Arbitration Association in accordance with its
Commercial
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Arbitration Rules, the CPR Institute for Dispute Resolution or
JAMS, and judgment on the award rendered by the arbitrator or
arbitrators shall be binding and conclusive on the parties,
and shall be kept confidential by the parties to the greatest
extent possible. Arbitration shall be by one arbitrator who is
knowledgeable with regard to the regulatory requirements
imposed on physician practice groups including Medicare and
Medicaid requirements, billing and collection by physician
practice groups, and computer systems used in support of such
billing and collection. In the event that the parties are
unable to agree on an arbitrator, the arbitration organization
to which the dispute has been submitted shall select the
arbitrator who meets the above requirements. In the event that
one of the parties submits any dispute for arbitration and
does not seek termination of the Agreement as a remedy, the
arbitrators shall make such equitable adjustment as the
arbitrator deems appropriate in lieu of finding that the
Agreement should be terminated. No disclosure of the award
shall be made by the parties except as required by law or as
necessary or appropriate to effectuate the terms thereof.
(C) This Section 11 shall not apply to any unauthorized disclosure
by of Confidential Information, as such disclosure could cause
the provider of such Confidential Information irreparable
harm, and thus the party may be entitled to seek injunctive
relief to prevent the release and dissemination of such
Confidential Information in addition to any other rights which
it may have pursuant to this Agreement, in law or in equity.
12. Liability for Damages
US Servis' liability caused or asserted to be caused directly by or as
a direct result of the performance of US Servis' duties hereunder shall
be limited to Client's actual damages up to the aggregate amount of
Fees paid by Client to UPA not to exceed $750,000 ("Limit") in the
aggregate, provided however that if Net Collections for the prior
twelve (12) months exceed $37,000,000, the Limit shall increase to
$875,000, that if Net Collections for the prior twelve (12) months
exceed $40,000,00, the Limit shall increase to $1,000,000, and
thereafter that for each additional $5,000,000 increase above
$40,000,000 in Net Collections for the prior twelve (12) months, the
Limit shall increase by an additional $100,000. US Servis shall not
have responsibility for consequential, incidental, punitive or special
damages of any kind whether or not US Servis could foresee economic
loss to Client. Client is solely responsible for the accuracy and
adequacy of the information and data furnished for processing, and US
Servis is solely responsible for the work done by US Servis personnel
in processing such data. This Section states US Servis' entire
liability to Client and Client's exclusive remedy regardless of the
form of action.
13. Indemnification and Insurance
19
<PAGE>
(A) US Servis agrees to maintain the following minimum insurance
coverage's in the aggregate during the term of this Agreement:
Comprehensive General Liability - $1,000,000; Errors and
Omissions - $2,000,000; Excel's Liability - $3,000,000;
Workers Compensation as per state requirements.
(B) Nothing in this Section shall relieve the Client from
liability proximately caused by employees of Client in the
normal course of their duties or caused by Client's
maintenance of its facility or equipment.
(C) US Servis warrants that all RM Services shall be performed in
a competent and workmanlike manner.
(D) OTHER THAN THOSE STATED IN THIS AGREEMENT, US SERVIS
DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES
EXPRESS, IMPLIED OR STATUTORY. INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
(E) Client acknowledges and agrees that US Servis (i) is not
responsible for, and has had no involvement or participation
in, the gathering, preparation or development of the back-up
documentation which substantiates or evidences the Prior
Accounts Receivable of Client; and (ii) is not
responsible for validating, verifying or determining the
accuracy of the Prior Accounts Receivable or detecting or
correcting prior errors with regard to the Prior Accounts
Receivable. Client will be responsible for all matters related
to Client prior to the Implementation Date(s), including,
but not limited to billings, collections, third party
reimbursement and accounts receivable. Any costs associated
with matters arising prior to the Implementation Date(s) will
be the sole responsibility of Client and is not included in
the fee to be paid to US Servis under this Agreement. Client
agrees to defend, indemnify and hold US Servis harmless from
and against any and all costs, liabilities, damages or
expenses (including reasonable attorneys' fees) relating to or
arising out of matters which occurred prior to the
Implementation Date(s).
(F) Client agrees to indemnify US Servis from any and all costs,
liability and damages arising out of claims based on Client's
termination of employees as a result of having US Servis
provide RM Services and any events which occurred while such
employees were employees of Client, provided however that this
indemnification shall not apply to decisions by US Servis with
regard to which employees of UPA, if any, to hire.
(G) Client agrees to defend, indemnify and hold US Servis harmless
from any and all costs, liability and expense (a) arising out
of claims by the practice or any patient of the practice which
claims are not based upon acts or omissions of US Servis
employees, RM Services or the performance of RM Services; and
(b) relating to coding or billing violations resulting from
20
<PAGE>
actions taken or omitted by US Servis or its employees in
accordance with the terms of this Agreement and with the
direct written instructions of Client).
14. Non-Employment
During the term of this Agreement and for a one (1) year period
commencing with the termination of this Agreement each party agrees not
to solicit or employ, directly or indirectly, or through any
third-party rendering services on behalf of such party, any employees
of the other or its parent, affiliates or subsidiaries without written
consent of the other party. Each party agrees that the other party does
not have an adequate remedy at law to protect its rights under this
Section and agrees that the non-defaulting party will have the right to
injunctive relief from any violation or threatened violation of this
Section. Notwithstanding the above, Client retains the right at the
termination of this Agreement to re-hire any employees of US Servis
that were employees of Client prior to the commencement of services
under this Agreement.
15. Force Majeure
Neither US Servis nor Client shall be responsible for any delay or
failure of performance resulting from causes beyond its control and
without its fault or negligence. Such causes shall include, but are not
limited to, acts of God or a public enemy, acts of any government or
authority (federal, state, or local), fires, floods, or other
disasters, epidemics, strikes, freight embargoes, degradation of
telephone or other means of communications service by any third party,
and unusually severe weather conditions that preclude performance under
this Agreement. US Servis and Client shall, however, use their
commercially reasonable efforts to perform their respective obligations
hereunder despite any interruption by any of the foregoing causes.
16. References and Site Visits
Client agrees that so long as, in Client's sole discretion, US Servis
is performing the Services in a manner satisfactory to Client, Client
will host site visits and provide references to prospective new US
Servis Clients to the extent such activities do not become unduly
burdensome. Client will allow US Servis to list and to refer to Client
as a US Servis customer in its materials.
17. Notice
Any notice, payment, demand or communication required or permitted to
be given by the provisions of this Agreement will be effective on the
date of receipt if sent or delivered via U.S. mail, postage prepaid,
facsimile or overnight courier to US Servis, Inc., 414 Eagle Rock
Avenue, West Orange, New Jersey 07052, Attention: Vice President
Physician Services, if to US Servis and University
21
<PAGE>
Physician Associates, 30 Bergen Street, Room 1202, Newark, New Jersey
07107, Attention: Executive Director/CEO, if to Client.
18. Jurisdiction
This Agreement shall be executed in the County of Essex, State of New
Jersey. It shall be governed by and construed under the laws of the
State of New Jersey. In the event any action is commenced to enforce
rights of the parties hereunder, the parties agree that the courts of
the State of New Jersey shall have exclusive jurisdiction.
19. Miscellaneous
(A) This Agreement contains the entire agreement of the parties
relative to the Services to be provided to Client and no
representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied in this Agreement
will be of any force or effect.
(B) US Servis shall not delegate or subcontract any substantial
portion of RM Services to any other party without the written
consent of UPA, which shall not be unreasonably withheld,
provided however that this provision shall not prohibit US
Servis from using third parties to provide computer support or
systems. In the event of any such delegation or
subcontracting, US Servis shall remain fully responsible for
the RM Services so delegated or subcontracted.
(C) This Agreement shall not be assigned by US Servis or UPA
without the prior written consent of the other except to a
parent or subsidiary or another subsidiary of its parent or to
a successor by purchase, merger or consolidation. In the event
of a purchase or merger of US Servis by or with a third party,
UPA may, upon thirty (30) days prior written notice to US
Servis (prior to the purchase or merger) or its successor
(after the purchase or merger), terminate this Agreement upon
demonstrating that it has suffered a decrease in the Net
Collection Rate or Net Collections or otherwise has suffered
actual damages resulting from such purchase or merger.
US Servis and its successors and UPA are bound by the terms of
this Agreement. If US Servis or a successor requires UPA to
convert to another computer system that would require changes
to the terminal devices utilized by the office based personnel
at UPA's site ("Office Based System"), UPA shall have the
right to refuse and insist on compliance with the terms of
this Agreement and the support of UPA's current Office
Based System unless US Servis provides UPA with the terminal
devices or applicable upgrades to existing devices, training
to use the new or upgraded terminal devices, to the extent
that the manner in which such devices are used has changed,
and training to use functionality in the new application
software which is equivalent to the functionality existing in
the prior software that UPA had been trained to use, and
US Servis
22
<PAGE>
application software comparable in functionality to the
software then being used by US Servis to support UPA required
for the Office Based System conversion at no cost to UPA.
(D) This Agreement specifically supersedes any prior written or
oral agreements between the parties relating to the provision
of Services. The invalidity of any provision of this Agreement
shall not affect the validity of the remaining provisions, and
this Agreement shall be construed as if such invalid provision
had been omitted.
(E) Any federal, state or local excise, sales, use or other tax
(except US Servis' income taxes, payroll taxes and corporate
taxes) imposed on US Servis or Client as a result of the
execution of this Agreement or the performance of any duty
hereunder shall be borne, by direct payment or reimbursement,
by Client.
(F) This Agreement shall be binding upon and shall inure to the
benefit of US Servis and Client and to each of their
respective assigns and successors. Nothing contained in this
Agreement shall be construed to permit the assignment by US
Servis or Client without prior written notice to the other
except to a parent or subsidiary or a subsidiary of its
parent, or to a successor by purchase, merger, or
consolidation. No assignment shall relieve the assignor of its
obligations under this Agreement.
(G) US Servis and Client acknowledge that they are duly authorized
by appropriate corporate action to enter into this Agreement
and that this Agreement is being signed by duly authorized
agents authorized to act on their respective behalf.
(H) Medicare Access: Upon the written request of the Secretary of
Health and Human Services, the Comptroller General of the
Government Accounting Office, or their authorized
representatives, US Servis shall make available all contracts,
books, documents and records relating to the nature and
extent of the costs hereunder for a period of four (4) years
after the furnishing of services hereunder. If contractor
carries out any of the duties of this Agreement through a
subcontract with a value of $10,000 or more over a twelve (12)
month period. US Servis agrees to include this requirement in
any such subcontract.
(I) US Servis will continue to offer its Reimbursement Management
and Information Management Services while utilizing the IDX
Practice Management System if Client acquired the IDX
solution. In addition, if at some point during the five (5)
year term of this Agreement, Client decides to acquire IDX, US
Servis will work with Client to begin implementation of the
IDX Practice Management System within one hundred eighty (180)
days following written notice from Client.
23
<PAGE>
IN WITNESS WHEREOF and intending to be legally bound, the parties have caused
this Agreement to be executed on the dates set forth below next to the
signatures.
CLIENT: US Servis, Inc.
By:/s/ Leonard Bielory, M.D. By:/s/ Graham O. King
Date: January 21, 1997 Date: January 21, 1997
24
<PAGE>
Exhibit A
(Oversight Advisory Committee Procedures)
Composition:
Equal number up to six members.
US Servis: Client:
CEO President
Vice President of Physician Services Executive Director
Executive Director 4 other members
Vice President, Northeast
2 Service Representatives of Department
Voting:
US Servis One Vote
Client One Vote
Purpose:
o To provide strategic direction to the activities of the two entities as
they relate to the support of one another in accomplishing mutual
goals.
o To act as a final review board and arbiter on any operational issues
that may not be resolved by first the Departmental Service
Representative and Department Administrator/Chair; second by the
Executive Director of US Servis and UPA; third by the Vice President of
Physician Services and the Executive Director and/or President of UPA.
o To act as a final decision making board when required on any
contractual issues between Client and US Servis that may be in
question, need resolution, or when the agreement or scope of work needs
to be amended in light of changing needs or requirements.
<PAGE>
o To form and oversee the Implementation Subcommittee
o To agree on revisions to the Agreement based on Material Changes in
accordance with Section 7(D) of the Agreement.
Process:
o The committee shall meet as needed but at least quarterly.
o Resolution of all issues presented to the committee must be achieved.
o The vote cast by each party shall be binding on that party.
o If after 60 days, resolution can not be achieved, the dispute shall be
referred to arbitration as set forth in Section 11(B) of the Agreement.
<PAGE>
Exhibit B
(RM Services)
Reimbursement Management Services as described in Section 2 a) of the Agreement
include the following;
1. Billing and collections; accounts receivable management.
2. Annual fee schedule review.
3. Annual chart and superbill review.
4. Routine/ongoing training of office staff on coding and data
entry errors.
5. Decision support and management reporting as described in
Section 2(K).
6. Masterfile maintenance/system administration for the US Servis
software system.
7. Software maintenance and upgrades to the US Servis software
system.
US Servis waives exclusivity as per Section 3 of the Agreement on two (2)
through five (5) above and on one (1) as long as for one (1) above, US Servis is
performing the services described in one (1) for Client on Net Collections of at
least [confidential] per year.
<PAGE>
Exhibit C
(Performance Criteria)
I. Performance Criteria (Financial)
Client and US Servis recognize the first year following the contract
signing will be spent on implementing, reorganizing, etc. and specific
performance will be impossible to measure. Therefore, year one will be
used to establish "real" Net Collection amounts and Net Collection
rates. Performance Criteria (Financial) for years two through five and
the following years shall be set by the Oversight Advisory Committee in
accordance with the procedures for Oversight Advisory Committee
decision making based on the Net Collections and Net Collection Rate
for the first year, with annual changes built in to account for changes
in charges by UPA, changes in the number of UPA Providers, changes in
methods of reimbursement, and changes in the reimbursement rate for new
and current Third Party Payors.
Termination of the entire Agreement based on performance in the first
year will be based on material deviation from the Implementation Plan
as a result of factors which are under US Servis' sole control.
Termination of the entire Agreement based on performance in subsequent
years (years two through five) will be based solely on US Servis not
meeting the established Net Collection levels and Net Collection Rates
established within 90 days of completion of implementation for all UPA
Departments.
II. Performance Criteria (Departmental)
US Servis agrees that it shall, within one hundred twenty (120) days of
the commencement of the implementation of services for each UPA
Department and at the beginning of each contract year thereafter,
jointly establish with Client and the UPA Department Chair and
Administrator, a set of business goals. These business goals shall
include areas such as those listed below and shall be mutually agreed
upon objectives for that subsequent year of performance.
The Business Goals are as follows:
Cash:
Net Collection Rate Goals for the UPA Department
<PAGE>
Administrative:
Days in A/R Goals for the UPA Department
Charge Entry Goals for the UPA Department
Payment Posting Goals for the UPA Department Accounts Receivable Follow
Up Goals
Procedure for feedback on performance of US Servis personnel
<PAGE>
Exhibit D
(Training)
(To be based on Contract Issues, Agreed Upon Solutions,
Headings Purpose and Process)
During the implementation period, or for one year following the Effective Date,
whichever is sooner, US Servis will provide the mutually agreed to training to
ensure a successful implementation. US Servis will provide group training, at no
cost to Client as long as the training is conducted at US Servis or at an
appropriate facility at the Client's Newark campus. If training is required at a
site other than the aforementioned it will be charged pursuant to Section 6(F).
On an ongoing basis, US Servis will provide group training once per month at no
cost to Client as long as the training is conducted at US Servis or at an
appropriate facility at the Client's Newark campus. If training is required at a
site other than the aforementioned it will be charged pursuant to Section 6(F).
US Servis shall provide formal training to providers quarterly in one group
session regarding compliance issues, E&M coding, and other general coding
related issues. Once a year, US Servis shall do a chart/coding audit of each
Department and shall provide the Department Chair/Administrator with a written
summary of the findings as well as a Department specific training session to
review Department specific issues.
<PAGE>
Exhibit E
(Implementation Plan)
The purpose of the implementation Plan is to map out the roles and
responsibilities of each party required to install and implement the RM
Services in the most efficient and cost-effective manner. US Servis
shall prepare a detailed Implementation Plan with a description of the
tasks to be performed, a proposed timetable for those tasks and
identification of the Party responsible for each task. US Servis shall
provide the Plan to UPA for its review and comment. Once the
Implementation Plan has been mutually agreed to, it will be signed by
US Servis and UPA and deemed a part of this Agreement. It is the intent
of both parties that the Implementation Plan will be agreed to within
one hundred eighty (180) days of the execution of this Agreement. Once
agreed to, the Implementation Plan may only be changed by the mutual
agreement of the parties.
<PAGE>
Exhibit F
(Strategic Alliance)
Purpose
1. In order to make UPA and its Affiliates more attractive to managed care
organizations (MCO) and community based physicians, provide superior
reimbursement management services, information systems (practice
management, managed care and electronic medical record) and the ongoing
information systems management services.
2. Provide UPA and its Affiliates with reimbursement management services
and "information systems" that will result in increased cash collection
and a reduction in expenses associated with providing these services
and systems.
3. Create a relationship that encourages mutual input to benefit both
organizations in the timely definition, development and testing of new
products and services.
4. Provide US Servis with a large, prestigious, local customer that will
serve as a "showplace" for the company's integrated suite of services
and information systems for the ambulatory care marketplace.
Structure
The purpose and operational guidelines of the Strategic Alliance are included in
this Exhibit to the body of the Agreement between UPA and its Affiliates and US
Servis.
Operating Guidelines
The following guidelines deal only with the proposed Strategic Alliance and
would be in addition to the negotiated contractual terms and conditions.
1. An Oversight Advisory Committee will be established in accordance with
Exhibit A of the Agreement which will be comprised of senior management
from both organizations would meet on a regularly scheduled basis to:
review current performance, mutually identify new/improved products and
services, and plan how to jointly promote the information systems and
management services that UPA and its Affiliates and US Servis can
provide New Jersey based managed care organizations and other
healthcare providers.
2. When US Servis is marketing its Reimbursement Management Services and
information systems directly to new physician owned and operated
primary care delivery system prospects in the Northern New Jersey
counties of Essex, Union,
<PAGE>
Hudson, Bergen, Morris, Sussex, Warren and Passaic, US Servis agrees to
do so exclusively through the Strategic Alliance.
Economic Incentives
In return for a 5 year contract for US Servis to provide the proposed management
services and information systems, UPA and its Affiliates will receive the
following economic incentives:
1. Once MedicaLogic's Logician Electronic Medical Record is implemented in
a UPA Department, including the automatic charge capture and transfer
functionality, which is part of a standard release of the MedicaLogic
software, [confidential].
2. [confidential]
3. UPA will receive $150,000 of US Servis stock upon contract signing. It
is expected that the appreciation of this stock will equate to a
$150,000 per year savings to UPA. Such stock is to be returned to US
Servis if the Agreement is terminated for any reason prior to the end
of the initial five year term.
4. [confidential]
<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,820,000
<SECURITIES> 0
<RECEIVABLES> 5,325,000
<ALLOWANCES> 478,000
<INVENTORY> 8,000
<CURRENT-ASSETS> 13,502,000
<PP&E> 3,833,000
<DEPRECIATION> 2,489,000
<TOTAL-ASSETS> 19,650,000
<CURRENT-LIABILITIES> 4,893,000
<BONDS> 0
0
9,868,000
<COMMON> 63,000
<OTHER-SE> (5,460,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,650,000
<SALES> 0
<TOTAL-REVENUES> 15,569,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,597,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,113,000)
<INCOME-TAX> 0
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<NET-INCOME> (3,113,000)
<EPS-PRIMARY> (0.56)
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