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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ended: March 31, 1999
Commission file number: 0-26567
e-MedSoft.com
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(Name of small business issuer in its Charter)
Nevada 84-1037630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 Marsh Landing Parkway, Suite 106, Jacksonville, Florida 32250
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(Address of principal executive offices, including zip code)
(904) 543-1001
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(Issuer's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues for its transition period ended March 31, 1999 were
$2,649,563.
As of September 1, 1999, 55,038,443 shares of the Registrant's common stock
were outstanding, and the aggregate market value of the shares held by non-
affiliates was approximately $55,900,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND
e-MedSoft.com ("e-MedSoft" or the "Company") was initially organized in
Nevada on August 25, 1986, under the name of High Hopes, Inc., in order to
evaluate, structure and complete a merger with, or acquisition of, prospects
consisting of private companies, partnerships or sole proprietorships.
On January 7, 1999, the Company acquired from Sanga e-Health LLC ("SEH")
the rights to a 100% JAVA-based, on-line health care management system in
exchange for 41,417,176 restricted shares (post-split) of the Company's common
stock. In connection with this transaction, the Company completed a 5 for 1
forward stock split having a record date of January 4, 1999. As a result of
this transaction, SEH owned approximately 80% of the outstanding shares. The
transaction is considered a reverse acquisition that results in a capital
reorganization. The assets and equity of SEH have been recorded on the
Company's financial statements at their carryover basis. Accordingly, the
Company recognized no goodwill or intangible assets in connection with this
acquisition.
On March 19, 1999, the Company acquired all of the issued and outstanding
stock of e-Net Technology Ltd. ("e-Net", formerly Palm Technology Holdings
Ltd.), a U.K. based company. e-Net is a diversified computer services company
providing consulting services, training, technical support, computer software
and computer hardware to a broad range of customers. This acquisition was
accounted for under the purchase method. Accordingly, the operations of e-Net
have been consolidated in the financial statements presented herein only for
the 13-day period ended March 31, 1999.
On May 28, 1999, the Company changed its year-end from May 31 to March 31
to better align its reporting with e-Net's year-end of March 31.
DESCRIPTION OF BUSINESS
GENERAL
e-MedSoft.com has developed an Internet-based information and transaction
platform application and software designed to facilitate and streamline
interactions among physicians, payers, suppliers, providers and patients.
This software is designed to provide a comprehensive set of connectivity,
content and commerce solutions to simplify workflows, decrease administrative
costs and improve the quality of patient care throughout the health care
industry. It allows the user to operate a web browser to access relevant
clinical, administrative and patient data, in real-time, to facilitate more
informed decision-making at the point-of-care.
As part of its service offerings, e-MedSoft implements these applications
in its data center and enables its clients to access and utilize the
applications over the Internet. The Company takes full responsibility for
providing these services to its clients, freeing them from the need to own and
manage related computer systems, networks and software.
The Company has entered into agreements with Advanced Reproductive Care,
Fred Hutchinson Cancer Research Center, Chrishard Medical Group, University
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Affiliates IPA Medical Group (an affiliate of the University of Southern
California School of Medicine), American Healthguard, Home Health of America
and other health care providers. The Company's web-enabled systems have been
tested through beta site phases, are running and are currently in operation at
limited facilities. Under the above contracts, the Company intends to
implement and expand the proliferation of its systems beyond the current
operational reach.
The Company's hosted solution system requires minimal capital
expenditures and is intended to complement the administrative and clinical
work flows and existing computer systems in the physician's office. The
Company's connectivity services, transaction management and patient encounter
solutions are designed to assist physicians in providing appropriate patient
care consistent with payer guidelines. The connectivity and content services
are designed to work together to alert and advise the physician's office on
patient treatment compliance, ordering and renewing prescriptions, and
scheduling and receiving laboratory tests and results. Content services are
integrated throughout the transaction management, patient encounter and
administrative solutions process through directories and databases that
provide physicians with convenient access to patient and payer specific
information and general medical reference material. Together, these solutions
provide the context for informed decision making.
The Company has formed strategic relationships with Sun Microsystems
("Sun") and National Century Financial Enterprises ("NCFE") which Management
believes will enhance the Company's application portfolio, provide industry
expertise, increase market penetration, provide working and investment capital
and generate revenues. e-MedSoft was chosen and endorsed by Sun as its web
based health care solution, as Sun announced on February 22, 1999. The
Company has also been endorsed by Sun as a Premier Partner and as a
"JavaStar," allowing e-MedSoft direct access to Sun's installed base of
customers, sales force, and confidential research and development. The
Company also has a strategic relationship with NCFE, a major financier in the
health care industry, which represents access to over 2000 health care
organizations. NCFE and e-MedSoft are currently developing a plan under which
e-MedSoft would be NCFE's exclusive vehicle for providing health care
information services throughout its network of physicians, clinics, hospitals
and managed care organizations. There is no assurance that this plan will be
fully implemented.
e-MedSoft recently acquired e-Net Technologies Ltd. ("e-Net"), formally
known as Palm Technology Holding, Ltd., a U.K.-based web technology solutions
and computer software and hardware distributor. e-Net's management team along
with its customers, products and services compliment the Company's base in the
U.S. e-Net intends to market e-MedSoft's software into its installed base of
customers which should enhance the Company's overall internal growth.
The Company's products and services are designed to ensure security,
scalability, reliability, availability and flexibility. The platform includes
a Java-based application that allows for reliable and simultaneous access by a
large number of users. The Company has ensured security by combining advanced
technologies, including digital encryption, digital certificates and audit
trail tracking. The platform is deployed on redundant, fault tolerant servers
with associated software to create 24-hour availability.
e-Net markets, sells, installs and supports Sun Microsystems hardware and
software, Oracle Web technology solutions, as well as related professional
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services and Internet hosting. e-Net also develops and markets web based
software solutions for use in Internet commerce. e-MedSoft and e-Net are in
the process of integrating their product and service offerings and selected
business functions such as development and implementation. e-Net's customer
base of over 900 companies, including many large health care institutions,
provides an international channel for e-MedSoft to deliver its Internet based
products and services.
TECHNOLOGY
e-MedSoft's solutions are based on its 4-Tier Distributed Computing
Architecture (DCA), which is an open, distributed object computing framework,
written entirely in the Java programming language. Java is an object oriented
programming language, similar to C++ and Smalltalk, but with features not
found in other object-oriented languages. Object-oriented software development
is based on the design and construction of independent, reusable building
blocks, or "objects", that directly represent real-world entities. Sun
Microsystems is the designer of Java.
e-MedSoft's operating platform includes an Enterprise Java Beans[TM]
(EJB) compliant application server platform that provides traditional
transaction processing services to ensure the integrity of the transaction
processing, load balancing, systems management and monitoring features for
manageability, and security services.
Security is a crucial component of any e-business solution, but
especially of one containing the sensitive information of a health care
application. e-MedSoft's solutions employ effective security and encryption
solutions. As a part of these solutions, all of the transmissions are fully
encrypted and authenticated, all of the data stored is encrypted and
authenticated, and the site is housed in a secure facility.
e-MedSoft's systems are interactive with existing systems and may co-
exist in the consumer's environment. The Company's JavaDOC Integrator
technology, using the multi-platform support of the Java language together
with a collection of system integration tools and the highly flexible 4-tier
DCA, enables e-MedSoft to integrate with an almost infinite variation of
legacy systems and platforms. Combined with the Company's proprietary
Business Rules Engine and Workflow Agents, the e-MedSoft system is tailored to
the unique needs of the individual business and integrated with their existing
systems and data stores.
e-MedSoft has selected MCI/WorldCom to provide a global network to
support its healthcare solutions. The MCI network is designed to provide fast
response time, a high level of security and a high level of availability to
its clients. The Company's network is linked to the Internet through C3
connections to MCI's fully redundant OC-12 backbone and its sites are
registered as primary addresses with most major Internet Service Providers.
e-MedSoft has a strong commitment to Sun Microsystem products, services,
and open computing strategy. The Company embraces Sun's Java direction,
enterprise computing, and reliance on network computing. The Company will
continue to work closely with Sun to take advantage of emerging capabilities.
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MARKETS AND CUSTOMERS
The Company's target customers include providers, payers, suppliers and
consumers. Because the Company believes that the value and benefit of its
services are directly related to the number of participants using its
software, the volume of transactions and the breadth of functionality
supported, the Company intends to penetrate the market by initially focusing
on selected regions and its network of existing relationships. The Company is
actively pursuing relationships with physicians, hospitals, clinics,
government agencies and others. The Company sells its solutions as services,
not as a technology. Accordingly, its clients sign long-term contracts,
ranging from one to ten years, with fixed or variable payments made as the
service is delivered. The Company believes that selling its solutions as a
service reduces their clients' initial capital expenditures and makes it
easier for the non-technical health professional to purchase its products.
PROVIDERS. The Company's target provider customers include aggregators
of individual physicians such as large medical groups, independent practice
associations, physician practice management companies and other large,
organized physician entities. In particular, e-MedSoft seeks to form strategic
relationships with providers with a high degree of involvement in managed
care, especially providers that are involved in activities such as capitation,
which requires them to bear some level of insurance risk for each enrolled
member. The rules are often complex requiring administrative personnel to
spend significant time navigating the cumbersome administrative procedures of
a large number of health plans often after the medical care has been given or
referrals have been written. This complexity has created demand for real-time
information exchange across all patients and all payers to streamline
cumbersome and time-consuming clinical and administrative processes such as
benefit eligibility determinations, referrals and authorizations, claims
processing, ordering of clinical tests and delivery of results and maintenance
of patient histories. The Company also targets the large integrated delivery
networks and multi-care health systems, such as acute care hospitals,
outpatient facilities, home-based services, labs and diagnostic centers, that
have identified in their strategic plan to "push" technology out to physicians
and /or affiliate with physicians and physician groups to coordinate care,
contract managed care lives and manage health care resource utilization.
PAYERS. The Company's target payer customers include managed care
organizations, indemnity insurers, third-party administrators and federal and
state governmental agencies. As managed care penetration increases and risk-
based medicine becomes more prevalent, payers are finding less incremental
value in the historical levels of managed care. In order to stem the growth
in health care costs, payers must do more than automate the administrative and
financial processes that govern the provision of services and the payment of
claims. The cost of care itself, approximately 85% of annual health care
expenditures, is the primary driver in the overall growth in health care
expenditures. Compliance with benefit guidelines at the point-of-care will
promote more efficient use of resources and adherence to best practices, which
will ultimately result in significant cost reductions and improvements in the
quality of care. As such, payers are seeking an efficient channel to
communicate their benefit plan rules and care guidelines that are provided at
the point-of-care. e-MedSoft services for these customers include eligibility
determination, member customer service functions, referral and authorization
management, coordination of provider files and directories, and submission and
tracking of claims and patient encounter reports.
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SUPPLIERS. The Company's target supplier customers include large
national laboratory companies, pharmaceutical companies and pharmacy benefit
managers. These customers are being forced to become more efficient in
managing their business as managed care organizations have negotiated
significant reductions in price and demanded measurable improvements in
quality. Pharmacies continue to incur substantial inefficiencies in the
process of managing orders with physicians and patients. Physicians have been
slow to adopt electronic systems processing because they tend to be
proprietary and limited to results reporting. Consequently, clinical
laboratories incur unnecessary administrative costs associated with processing
and reporting on orders and incur significant losses related to tests for
which reimbursement is not authorized. e-MedSoft's services for laboratory
companies include eligibility verification, ordering clinical tests and
reporting test results.
CONSUMERS. The Company's target consumers include employers, health
plans and health plan brokers. e-MedSoft's services in this area include a
consumer web portal, health plan enrollment, benefits administration and
membership coordination. The Company's target employer group includes mid-
sized and large employers and, particularly, self-funded employers that have
complex benefits management needs.
COMPETITION AND REGULATION
The market for health care information systems and services is highly
competitive, rapidly evolving and subject to rapid technological change. Many
of the Company's actual and potential competitors have announced or plan to
introduce Internet strategies. The Company's competitors can be divided into
the following groups:
- health care information software vendors, including Healtheon
Corporation, CareInsite, Inc., Abaton.com, McKesson HBOC, Inc.
and Shared Medical Systems Corporation;
- health care electronic data interchange companies, including
ENVOY Corporation and National Data Corporation;
- large information technology consulting service providers,
including Andersen Consulting, International Business Machines
Corporation and Electronic Data Systems Corporation; and
- smaller regional organizations.
Each of these companies can be expected to compete with the Company.
Furthermore, major software vendors and others, including those specializing
in the health care industry that are not presently offering applications that
compete with those offered by the Company, may enter its market. In some
cases, large customers may have the ability to compete directly with the
Company as well. Many of the Company's competitors and potential competitors
have significantly greater financial, technical, development, marketing and
other resource capacity as well as greater market recognition than the
Company. Many of the Company's competitors also have, or can develop or
acquire, a substantial established and installed customer base in the health
care industry. As a result of these factors, e-MedSoft's competitors may be
able to respond much faster to new or emerging technologies and to devote
greater resources to the development, promotion, sales and delivery of their
applications or services than the Company.
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SOFTWARE DEVELOPMENT
The Company is continually investigating the feasibility of enhancing its
existing system and developing new systems to meet the information processing
needs of health care providers and organizations. The Company expenses all
software development costs, which generally consist of costs incurred to
establish the technological feasibility of internally produced computer
systems software. These expenses, which are primarily for salaries of
personnel and computer costs, were approximately $38,600 in 1999.
EMPLOYEES
The Company currently employs approximately 80 employees, including
approximately 70 in the U.K. and 10 in the U.S. These employees often work in
tandem to provide significant services in development and engineering,
delivery and support, sales and marketing, and corporate finance and
administration. The Company also leverages an established network of
consultants and contractors to augment their employee base so they can better
manage the resource demand requirements. This enables the Company to provide
a constant high level of service and productivity at the lowest cost.
None of the Company's employees is represented by a labor union, and e-
MedSoft has never experienced a work stoppage. e-MedSoft believes its
relationship with its employees to be good. The Company's ability to achieve
its financial and operational objectives depends in large part upon its
continuing ability to attract, integrate, retain and motivate highly qualified
sales, technical and managerial personnel, and upon the continued service of
its senior management and key sales and technical personnel, most of whom are
not bound by an employment agreement.
RISK FACTORS
Shareholders and investors in shares of the Company's Common Stock should
consider the following Risk Factors, in addition to other information in this
Report.
1. LIMITED OPERATING HISTORY. Because the Company has recently begun
its Internet operations, it is difficult to evaluate its Internet business and
its prospects. The Company's revenue and income potential from its Internet
solutions business is unproven and its business model is still emerging.
Although the Company has acquired e-Net, a company based in the United
Kingdom, the Company's historical financial information reflects its computer
hardware and software operations and is of limited value in projecting its
future operating results because of its limited operating history as a
combined organization and the emerging nature of its markets.
2. NEED FOR ADDITIONAL CAPITAL. While the Company believes that it has
sufficient funding to meet the working capital needs of its U.S. and U.K.
operations through at least fiscal 2000, the Company will need to raise
additional capital to carry out its long-term (post fiscal year 2000) domestic
and foreign business plans and to service its current and prospective
customers at a rate acceptable to management. Financing will also be needed
to support expansion, develop new or enhanced applications and services,
respond to competitive pressures, and acquire complementary businesses or
technologies. The Company may attempt to raise additional funds through debt
or equity securities, by entering into strategic relationships or through
other arrangements. The Company may be unable to raise any additional amounts
on reasonable terms.
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3. FOREIGN OPERATIONS. The Company currently derives all its revenues
from its recently acquired U.K. subsidiary, and it intends to seek other
significant acquisitions outside the United States. The element of risk in
this growth strategy is that if problems develop in a foreign subsidiary,
which local management is unable to handle, it will be difficult for the
Company's management to react in a timely manner due to the geographical
separation and time differences.
4. RELIANCE ON STRATEGIC RELATIONSHIPS. To be successful, the Company
believes that it must establish and maintain strategic relationships with
leaders in a number of health care industry segments. This is critical because
the Company is counting on these relationships to:
- extend the reach of its applications and services to the various
participants in the health care industry;
- obtain specialized health care expertise;
- develop and deploy new applications;
- further enhance the e-MedSoft brand; and
- generate revenue.
Entering into strategic relationships is complex because some of the
Company's current and future partners may compete with it. In addition, the
Company may not be able to establish relationships with key participants in
the health care industry if it has established relationships with their
competitors. Consequently, it is important that the Company is independent of
any particular customer or partner. Once the Company has established
strategic relationships, it will depend on its partners' ability to generate
increased acceptance and use of its platform, applications and services. For
example, the Company is depending upon NCFE, to recommend to its clients that
they use the Company's software system. If NCFE fails to encourage its
clients to use the Company's software or if NCFE backs out of its relationship
with the Company, the Company will not be able to grow according to its plans.
5. ACCEPTANCE OF THE COMPANY'S SOLUTION BY THE HEALTH CARE INDUSTRY. To
be successful, the Company must attract a significant number of customers
throughout the health care industry. The Company believes that complexities in
the nature of the health care transactions that must be processed have
hindered the development and acceptance of information technology solutions by
the industry. Conversion from traditional methods to electronic information
exchange may not occur as rapidly as the Company expects. Even then, health
care industry participants may use applications and services offered by
others.
6. ACCEPTANCE OF ELECTRONIC INFORMATION EXCHANGE BY THE HEALTH CARE
INDUSTRY. The Company's business could suffer dramatically if Internet
solutions are not accepted or not perceived to be effective. Growth in demand
for the Company's applications and services depends on the adoption of
Internet solutions by health care participants, which requires the acceptance
of a new way of conducting business and exchanging information. To maximize
the benefits of the Company's platform, health care participants must be
willing to allow sensitive information to be stored in the Company's
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proprietary databases in order to process transactions for them. The benefits
of the Company's connectivity and information management solution are,
however, limited under these circumstances. Customers using legacy and
client-server systems may nonetheless refuse to adopt new systems when they
have made extensive investment in hardware, software and training for older
systems.
7. RISKS ASSOCIATED WITH ACQUISITIONS. The Company plans to expand its
business by making acquisitions of other companies in the health care
information services industry. There are a number of risks associated with
financing these acquisitions and integrating them into the Company's business,
including the following:
- The Company's profitability could be affected by servicing the
additional debt and amortizing the expenses related to goodwill
and intangible assets;
- The issuance of additional equity would dilute the interests of
current shareholders;
- It could be difficult to assimilate the acquired company's employees,
equipment and operations;
- The acquisition could divert management's attention from other
business concerns;
- The acquired company could operate in markets with which the Company
has little or no familiarity;
- There could be undisclosed or unforeseen liabilities associated with
the acquired company; and
- The Company could lose key employees or customers of the acquired
company.
8. MANAGEMENT OF GROWTH. The Company has expanded its operations
through the acquisition of e-Net and expects to expand its domestic and
international operations. This growth has placed, and is expected to continue
to place, a significant strain on the Company's managerial, operational,
financial and other resources.
9. PERFORMANCE OR SECURITY PROBLEMS. Customer satisfaction and the
Company's business could be harmed if the Company's customers experience any
system delays, failures or loss of data. The occurrence of a major
catastrophic event or other system failure at the Company's facilities could
interrupt data processing or result in the loss of stored data. In addition,
the Company depends on the efficient operation of Internet connections from
customers to the Company's systems. These connections, in turn, depend on the
efficient operation of Web browsers, Internet service providers and Internet
backbone service providers, all of which could have periodic operational
problems or outages.
A material security breach could damage the Company's reputation or
result in liability to the Company. The Company retains confidential customer
and patient information in its processing centers. Therefore, it is critical
that its facilities and infrastructure remain secure and that they are
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perceived by the marketplace to be secure. Despite the implementation of
security measures, the Company's infrastructure may be vulnerable to physical
break-ins, computer viruses, programming errors, attacks by third parties or
similar disruptions.
10. TECHNOLOGY CHANGE. Health care information exchange and transaction
processing is a relatively new and evolving market. The pace of change in the
Company's markets is rapid and there are frequent new product introductions
and evolving industry standards. The Company may be unsuccessful in
responding to technological developments and changing customer needs. In
addition, its applications and services offerings may become obsolete due to
the adoption of new technologies or standards.
11. COMPETITION. The market for health care information services is
intensely competitive, rapidly evolving and subject to rapid technological
change. Many of the Company's competitors have greater financial, technical,
product development, marketing and other resources than the Company. These
organizations may be better known and have more customers than the Company.
The Company may be unable to compete successfully against these organizations.
Certain competitors have announced or introduced Internet strategies that will
compete with the Company's applications and services, including:
- health care information software vendors, including Healtheon
Corporation, CareInsite, Inc., Abaton.com, McKesson HBOC, Inc.
and Shared Medical Systems Corporation;
- health care electronic data interchange companies, including ENVOY
Corporation and National Data Corporation;
- large information technology consulting service providers, including
Andersen Consulting, International Business Machines Corporation and
Electronic Data Systems Corporation; and
- smaller regional organizations.
In addition, the Company expects that major software information systems
companies and others specializing in the health care industry will offer
competitive applications or services.
12. CHANGES IN THE HEALTH CARE INDUSTRY. The health care industry is
subject to changing political, economic and regulatory influences. These
factors affect the purchasing practices and operations of health care
organizations. Changes in current health care financing and reimbursement
systems could necessitate that the Company make unplanned enhancements of
applications or services, or result in delays or cancellations of orders or in
the revocation of endorsement of its applications and services by health care
participants. Federal and state legislatures have periodically considered
programs to reform or amend the U.S. health care system at both the federal
and state level. Future such programs may increase governmental involvement
in health care, lower reimbursement rates or otherwise change the environment
in which health care industry participants operate. Health care industry
participants may respond by reducing their investments or postponing
investment decisions, including investments in the Company's applications and
services.
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13. GOVERNMENT REGULATION. The Company's business is subject to U.S. and
international government regulation. Existing as well as new laws and
regulations could adversely affect the Company's business. Laws and
regulations may be adopted with respect to the Internet or other on-line
services covering issues such as user privacy, pricing, content, copyrights,
distribution, and characteristics and quality of products and services.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Demand for the Company's applications and services may be affected by
additional regulation of the Internet.
The Company is subject to extensive regulation relating to the
confidentiality and release of patient records. Additional legislation
governing the distribution of medical records has been proposed at both the
state and federal level. It may be expensive to implement security or other
measures designed to comply with new legislation. Moreover, the Company may
be restricted or prevented from delivering patient records electronically.
For example, until recently, Health Care Financing Administration guidelines
prohibited transmission of Medicare eligibility information over the Internet.
Legislation currently being considered at the federal level could affect
the Company's business. For example, the Health Insurance Portability and
Accountability Act of 1996 mandates the use of standard transactions, standard
identifiers, security and other provisions by the year 2000. The Company is
designing its platform and applications to comply with these proposed
regulations; however, until these regulations become final, they could change,
which could cause the Company to use additional resources and lead to delays
as the Company revises its platform and applications. In addition, the
Company's success depends on other health care participants complying with
these regulations.
14. PRODUCT-RELATED LIABILITIES. Although the Company and its customers
test its applications, they may contain defects or result in system failures.
In addition, the Company's platform may experience problems in security,
availability, scalability or other critical features. These defects or
problems could result in the loss of or delay in generating revenue, loss of
market share, failure to achieve market acceptance, diversion of development
resources, injury to the Company's reputation or increased insurance costs.
The Company's services agreements involve providing critical information
technology services to clients' businesses. If the Company fails to meet its
clients' expectations, the Company's reputation could suffer and it could be
liable for damages. In addition, patient care could suffer and the Company
could be liable if systems fail to deliver correct information in a timely
manner. The Company's insurance may not protect it from this risk. Finally,
the Company could become liable if confidential information is disclosed
inappropriately.
The Company currently has general liability insurance for an aggregate
coverage of $2,000,000, $1,000,000 each occurrence, and is in the process of
obtaining Directors and Officers coverage, including coverage for errors and
omissions. Assuming that the Company is able to obtain such insurance, the
Company may not be able to maintain it on reasonable terms in the future. In
addition, the Company's insurance may not be sufficient to cover large claims,
or the insurer could disclaim coverage on claims.
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15. INFRINGEMENT. The Company's intellectual property is important to
its business. The Company expects that it could be subject to intellectual
property infringement claims as the number of competitors grows and the
functionality of its applications overlaps with competitive offerings. These
claims, even if not meritorious, could be expensive to resolve and divert
management's attention from operating the Company. If the Company becomes
liable to a third party for infringing its intellectual property rights, the
Company would be required to pay a substantial damage award and to develop
noninfringing technology, obtain a license or cease selling the applications
that contain the infringing intellectual property. The Company may be unable
to develop noninfringing technology or obtain a license on commercially
reasonable terms, or at all. In addition, the Company may not be able to
protect against misappropriation of its intellectual property. Third parties
may infringe upon the Company's intellectual property rights and the Company
may not detect this unauthorized use or it may be unable to enforce its
rights.
16. DEPENDENCE ON KEY PERSONNEL. The Company's operations are dependent
on the continued efforts of the executive officers and management, in
particular, John F. Andrews, CEO, and Marshall Gibbs, Executive Vice
President. If either of these persons becomes unable or unwilling to continue
in his role with the Company, or if the Company is unable to attract and
retain other qualified employees, the Company's business or prospects could be
adversely affected. The success of the Company is also dependent to a
significant degree on its ability to attract, motivate and retain highly
skilled sales, marketing and technical personnel, including software
programmers and systems architects skilled in the computer language with which
the Company's products operate. Competition for such personnel in the
software and information services industries is intense. The loss of key
personnel or the inability to hire or retain qualified personnel could have a
material adverse effect on the Company's results of operations, financial
condition or business.
17. RISKS RELATED TO THE YEAR 2000. Issues with respect to the Year 2000
could affect the performance of the Company's customers' computer systems.
The Company believes that its systems are Year 2000 compliant, and in certain
of the Company agreements, the Company warrants that its applications and
services are Year 2000 compliant. If they are not compliant, the Company's
customers could terminate the agreements and the Company could be liable for
damages. If customers' computer systems are not Year 2000 compliant, their
ability to use the Company's systems could be adversely affected which would
lead to reduced revenues to the Company. In addition, the Company has not
determined what effect this would have on its systems.
18. NO ASSURANCE OF TRADING MARKET FOR COMMON STOCK. The Company's
Common Stock is not listed on NASDAQ or any exchange. Trading is conducted in
the over-the-counter market on the OTC Bulletin Board, which was established
for securities that do not meet the NASDAQ or exchange listing requirements.
Only 21 market makers are currently making quotations on the OTC Bulletin
Board of the National Association of Securities Dealers, Inc. Consequently,
selling the Company's Common Stock is more difficult because smaller
quantities of shares are bought and sold and security analysts' and the news
media's coverage of the Company is limited. These factors could result in
lower prices and larger spreads in the bid and ask prices for the Company's
shares.
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19. NO DIVIDENDS. The Company has paid no dividends on its Common Stock
since incorporation. The Company does not anticipate paying dividends on its
Common Stock in the foreseeable future and intends to devote any earnings to
the development of the Company's business.
20. FOREIGN CURRENCY. The Company currently has significant operations
in the U.K. and intends to seek other operations outside of the United States.
The Company's investment in foreign subsidiaries could be affected by
fluctuations in the foreign operations' functional currency.
ITEM 2. DESCRIPTION OF PROPERTY.
GENERAL
The Company has principal offices in Jacksonville, Florida, Los Angeles,
California and Bath, England. The Company currently has five additional
facilities in England. These offices and facilities are leased. In addition,
the Company owns or leases computer and communication equipment necessary to
operate its businesses.
OFFICE LEASES
1300 Marsh Landing Parkway, Suite 106
Jacksonville, Florida
20750 Ventura Boulevard, Suite 320
Woodland Hills, California
Sir William Lyons Road
Coventry, England
6 Kings Parade
Cambridge, England
Unit 29
Barclays Venture Centre
27 New Street
Charfield, England
3 Riverside Court
Riverside Road
Bath, England
57 Great Eastern Street
London, England
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings in which the Company is a party,
and the Company is not aware of any threatened legal proceedings involving the
Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During December 1998, Shareholders owning more than a majority of the
shares outstanding signed consent minutes which approved a change of the
Company's name from High Hopes, Inc. to Medtech, Inc., and during February
1999, shareholders owning more than a majority of the shares outstanding
signed consent minutes which approved a change of the Company's name from
Medtech, Inc., to e-MedSoft.com.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. The Company's Common Stock trades in the over-
the-counter market, under the symbol "MDTK". The following table sets forth
the high and low bid prices for the Company's Common Stock for the periods
indicated as reported by the OTC Bulletin Board. These prices are believed to
be inter-dealer quotations and do not include retail mark-ups, mark-downs, or
other fees or commissions, and may not necessarily represent actual
transactions. On January 4, 1999, the Company completed a 5-for-1 stock
split. Accordingly, all bid prices listed below are restated to reflect this
split. On May 28, 1999, the Company changed its year end from May 31 to March
31. As a result, the quarter ending March 31, 1999 represents only one month
of trading.
QUARTER ENDED HIGH BID LOW BID
------------- -------- -------
August 31, 1998 $0.600 $0.206
November 30, 1998 $0.650 $0.200
February 28, 1999 $7.000 $0.206
March 31, 1999 $4.437 $2.312
June 30, 1999 $4.875 $2.625
(b) HOLDERS. As of August 27, 1999, the Company had 496 shareholders of
record. This does not include shareholders who hold stock in their accounts
at broker/dealers.
(c) DIVIDENDS. The Company has never paid a cash dividend on its common
stock and does not expect to pay a cash dividend in the foreseeable future.
(d) RECENT SALES OF UNREGISTERED SECURITIES. During March 1999, the
Company issued 45,000 restricted shares to Howard Bronson as consideration for
a consulting agreement. These shares were issued in reliance on the exemption
provided by Section 4(2). The appropriate restrictive legend was placed on
the certificate and stop transfer orders were issued to the transfer agent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL HISTORY
e-MedSoft was initially organized in Nevada on August 25, 1986 in order
to evaluate, structure and complete a merger with, or acquisition of,
prospects consisting of private companies, partnerships or sole
proprietorships.
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On January 7, 1999, the Company acquired the rights to a JAVA-based, on-
line health care management system from SEH in exchange for 41,417,176
restricted shares (post-split) of the Company's common stock. In addition, as
consideration for finder's fees and services, the Company issued 2,553,144
restricted shares of the Company's common stock and 1,035,429 warrants to
purchase restricted shares of the Company's common stock exercisable at $.25
per share over five years. As a result of these transactions, SEH owned
approximately 80% of the outstanding shares. The transaction is considered a
reverse acquisition that results in a capital reorganization. The assets and
equity of SEH have been recorded on the Company's financial statements at
their carryover basis. Accordingly, the Company recognized no goodwill or
intangible assets in connection with this acquisition.
On March 19, 1999, the Company acquired all of the issued and outstanding
stock of e-Net Technology Ltd. ("e-Net"), formerly Palm Technology Holdings
Ltd., a U.K. based company. e-Net is a diversified computer services company,
providing consulting services, training, technical support, computer software
and computer hardware to a broad range of customers. This acquisition was
accounted for under the purchase method. Accordingly, the operations of e-Net
have been consolidated in the financial statements presented herein only for
the 13-day period ended March 31, 1999.
OVERVIEW AND OPERATING RESULTS
The Company began operations with the acquisition of the internet-based
health care management system on January 7, 1999. The statement of operations
reflects the operations of SEH since inception (December 1, 1998) to the date
of the reverse acquisition and of e-MedSoft from the date of the reverse
acquisition to March 31, 1999. During the period ended March 31, 1999, the
Company continued the development and testing of the system and acquired e-
Net. Accordingly, there is no historical prior period information included in
the financial statements and the results discussed herein include only
thirteen days of operations consolidated from e-Net.
NET SALES
Although the Company has entered into several contracts and strategic
partnerships to implement and roll out the Internet based health care
management system, no revenues for the period ended March 31, 1999 were
generated from the sale of these services. Depending on the terms of the
contracts, revenues from these contracts will begin to be recognized upon the
customer's acceptance, installation and operation of the system. In addition,
the Company will recognize subscription revenues on a monthly basis for sales
made over the Internet. The revenues of $2,650,000 for the period ended March
31, 1999 reflect approximately thirteen days of operations consolidated from
the U.K. subsidiary that was acquired on March 19, 1999.
COST OF SALES
The cost of sales represents the U.K. subsidiary's cost of hardware and
software products plus the cost of installation and delivery. Cost of sales
for e-Net were approximately $1,999,000 or 75% of revenues. For the period,
there are no cost of sales related to the sale of the Company's U.S. Internet
based healthcare management system. However, it is anticipated that cost of
sales for this product will include the cost of product delivery, customer
service and systems maintenance. While the cost of providing Internet
services should generally be minimal, installations of large operations such
15
<PAGE>
as managed care organizations and third party claims processors will require
hands-on training and systems maintenance. Also, there may be additional
costs associated with product development that are capitalizable and amortized
into cost of sales in the future.
OPERATING EXPENSES
Operating expenses include $240,000 from the U.K. operations and $800,000
from the U.S. operations. These amounts include software development costs,
sales and marketing costs, general and administrative costs and depreciation
and amortization.
SOFTWARE DEVELOPMENT
Development costs of approximately $39,000 represent development of
software in the U.K. and enhancement of the Company's internet based health
care management system.
SALES AND MARKETING
Sales and marketing costs of approximately $188,000 include $139,000 for
the U.K. operations that consisted primarily of salaries and travel costs of
the U.K.'s sales force, marketing literature and advertising. In addition,
approximately $49,000 of these costs reflect the U.S. operation's outside
marketing costs related to the Company's Internet health care management
system.
GENERAL AND ADMINISTRATIVE
General and administrative costs of approximately $767,000 include
general office costs, executive and administrative salaries and professional
fees. These costs were approximately $701,000 and $66,000 for the operations
in the U.S. and U.K., respectively. General and administrative costs in the
U.S. include $380,000 of non-cash compensation expense.
DEPRECIATION AND AMORTIZATION
Depreciation of approximately $17,000 related solely to the depreciation
of equipment and vehicles in the United Kingdom. Amortization of
approximately $29,000 represents the Company's amortization of goodwill as a
result of the acquisition of e-Net. The Company is amortizing the goodwill
over a ten-year period.
FINANCE COSTS
Finance costs of approximately $377,000, include $6,000 of interest from
the debt and capital leases in the United Kingdom. The remaining expense of
$371,000 is mainly a result of the amortization of deferred financing incurred
in connection with the financing of the e-Net acquisition. Subsequent to
March 31, 1999, the Company entered into agreements with the lenders to
exchange a portion of the debt for warrants and extend the remaining portion
over two years.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the period ended March 31, 1999, the operating costs and
acquisition costs of the Company's U.S. Operations were funded (a) by members
or affiliates of members of the Company's majority shareholder, SEH, (b)
through receipt of funds from a financing company, and (c) through loans from
third parties. A finance company has provided approximately $1,500,000 of
financing under an agreement to fund the Company based on future receivables
of the Company for certain signed Health Care Master Agreements or Memorandums
of Understanding. The e-Net acquisition for approximately $7,600,000
consisted of $2,200,000 in cash and stock valued at $5,400,000. The Company
financed the acquisition through the issuance of debt. The operating costs of
the Company's U.K. Operations have been funded by a 900,000 pound credit
facility with the Bank of Wales and through working capital generated by
operations.
At March 31, 1999, the Company had approximately $52,000 in cash and
approximately $138,000 of cash for restricted purposes and working capital
deficit of approximately $1,642,000.
Subsequent to year-end, the Company renegotiated the financing terms on
the debt obtained in connection with the e-Net acquisition. As a result,
$750,000 of the debt was exchanged for warrants to acquire 150,000 shares of
the Company's common stock at $.01, and the remaining debt was extended 24
months to May 19, 2001. The Company agreed to make a principal payment of
$300,000 in September 1999 to obtain this extension. Also, the Company
entered into a financing arrangement with its strategic partner to fund the
Company's operations and acquisition of managed care computer software
technology in an amount not to exceed $5,500,000. The obligation bears
interest at prime plus 1%, is secured by the Company's assets and is due one
year from the draw date or if the Company successfully obtains refinancing for
the amounts loaned under the financing arrangement, whichever is the earlier
date. The Company has borrowed $2,500,000 through September 10, 1999, of
which $2,000,000 was used to fund the purchase of managed care software
technology.
Subsequent to year-end, e-Net's management advanced the subsidiary
approximately 260,000 pounds to provide working capital. The advance is
scheduled for repayment on September 30, 1999. The credit facility for
900,000 pounds expired on July 31, 1999, and was extended to September 30,
1999 and increased to 1,300,000 pounds. The Company has reached an interim
agreement with the bank to renew the line for 900,000 pounds through July 31,
2000. The Company is currently in negotiations to increase the funding on the
renewed line to 1,300,000 pounds.
Subsequent to year-end, the Company issued 1,500,000 restricted shares of
its common stock for $745,000 in cash to fund the Company's operating
expenses.
The Company believes that the funds available on the $5,500,000 financing
agreement are sufficient to meet the working capital needs of its U.S. and
U.K. operations through at least fiscal 2000. It is management's belief that
the long range operations (post fiscal year 2000) of the Company are dependent
upon the ability of the Company to obtain additional debt or equity funding to
support the 1) implementation and roll-out of its newly acquired healthcare
management system to customers under contract, 2) to expand its customer base
and 3) develop, acquire or enhance new applications and services. The Company
is actively pursuing additional financing and equity arrangements to
accomplish these goals, however, there can be no assurance that funding will
be available on terms acceptable to the Company, or at all.
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<PAGE>
In May 1999, the Company entered into a one year exclusive agreement with
an investment banking firm to provide numerous services to the Company
including, but not limited to, assistance on corporate developments and
financing strategies, identifying prospective investors and acquisition
targets, performing due diligence and valuation analyses of targets. In
connection with this agreement, the Company issued three separate warrants of
1,725,715 each to purchase an aggregate of 5,177,145 shares of common stock
representing approximately 3.33% of the Company's outstanding common stock and
common stock equivalents. The warrants were immediately exercisable at prices
of $3.50, $5.00 and $7.00 per share. The warrants issued by the Company in
favor of the investment banking firm are cancelable by the Company in certain
events arising out of circumstances where the investment banking firm fails to
abide by the terms of its investment banking agreements with the company.
As of March 31, 1999 the Company had approximately $52,000 in cash and
$486,000 available through its bank credit facility.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The Company has
reviewed its proprietary health care management software systems that were
acquired in January 1999 and which the Company has started marketing to
customers. The Company believes that these systems and applications, which the
Company has continued to develop, are designed to be Year 2000 compliant.
Accordingly, the Company did not incur any costs or reflect any expenses
during the period for implementation of Year 2000 programming code corrections
and does not anticipate any such costs in the future.
e-Net has implemented programs to identify and correct year 2000
problems. This program was initiated in the early part of 1997 and a company-
wide program was carried out and steps were taken to re-write software and
take other actions necessary to ensure that the Company's software and
hardware is year 2000 compliant. The risk analysis also considered the impact
on the business of year 2000 related failures by the Company's significant
suppliers and customers. The predominant supplier, Sun Microsystems provided
the Company with a formal confirmation that they are fully year 2000
compliant. The Company has been in communication with its other significant
suppliers and customers to ensure that any potential problems are rectified.
However, given the complexity of the issue, it is the Company's belief that
they can not guarantee that no year 2000 problems will remain. e-Net's
management believes that it has achieved an acceptable state of readiness and
it also has the appropriate resources available to deal promptly with
significant subsequent failures or issues that might arise.
The Company is just starting to work with some of its customers of the
health care management system and one of the items which will be addressed is
whether the customers' existing computer systems are year 2000 compliant.
Management expects that many of the companies it will be selling to in the
health care industry are not year 2000 compliant. Until the Company learns
more about the specific facts of its customers, it is not able to determine
what the impact will be on the Company if these customers are not year 2000
compliant. However, the Company shall have no liability for any failure of
customers' or third party's software, hardware, applications, databases or
other systems to be year 2000 compliant or any year 2000 issues not solely
caused by the Company's system.
The Company may be vulnerable to the failure of various third party
vendors and suppliers to be year 2000 compliant. Its business will be
dependent on the operation of numerous systems that could potentially be
18
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impacted by year 2000 related problems. Those systems include hardware and
software systems used by the Company to deliver services to its customers;
communications networks such as the internet and private intranets, which the
Company will depend on to provide electronic transactions to its customers;
the internal systems of the customers; and non-information technology systems
and services used by the Company in its business, such as telephone systems
and building systems. The Company will be conducting an assessment of third
party hardware and systems used in providing services to its customers and in
otherwise conducting its business during the second and third calendar
quarters of 1999.
The Company has not yet initiated formal contingency planning processes
to mitigate the risk to the Company of any year 2000 problems, but the Company
intends to complete this process by September 30, 1999.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-25 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No response required.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors and executive officers of the Company and its wholly-owned
subsidiary, their ages and positions held in the Company are as follows:
NAME AGE POSITIONS HELD AND TENURE
---- --- -------------------------
John F. Andrews 45 Chairman, President and Chief Executive
Officer, e-MedSoft.com
Margaret A. Harris 51 Chief Financial Officer, e-MedSoft.com
Ian McPherson 51 Managing Director, e-Net Technology Limited
Marshall Gibbs 33 Chief Technology Officer and Executive Vice
President, e-MedSoft.com
Gayle M. Consiglio 46 Vice President of Sales, e-MedSoft.com
Ronald A. Wing 50 Vice President of Marketing, e-MedSoft.com
Sam J.W. Romeo 59 Director, e-MedSoft.com
Mitchell J. Stein 41 Director, e-MedSoft.com
There is no family relationship between any Director or Executive Officer
of the Company.
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Set forth below are the names of all Directors and Executive Officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he has served as such, and the principal
occupations and employment of such persons during at least the last five
years:
JOHN F. ANDREWS, has served as President, Chief Executive Officer and as
Chairman of e-MedSoft since January 7, 1999. He served as CEO of Sanga
International from April 1998 until July 30, 1999. Mr. Andrews continues to
serve on the Board of Sanga International, along with Masood Jabbar, the
President of the Computer Division of Sun Microsystems. Prior to joining
Sanga, Mr. Andrews was Chief Information Officer of CSX Corporation and Chief
Executive Officer of CSX Technology. Under John Andrews' leadership, CIO
magazine named CSX Corporation as one of its top Information Technology (IT)
achievers in 1996, 1997 and 1998. During the same period, CSX Corporation was
also named as one of the Top 100 IT Organizations by Computerworld. In 1997,
Computerworld also selected CSX Corporation as the number one information
technology company and the best place of employment. In 1997, Mr. Andrews was
nominated CIO of The Year by Information Week and received the Visionary Award
from Internet Week. Before his association with CSX, Mr. Andrews was Vice
President and General Manager of GTE Health Systems for over two years.
During his tenure at GTE Health Systems Mr. Andrews led the company's
international business units which developed, sold and deployed Hospital
Information systems, Managed Care Systems and Health care electronic
transaction processing. Mr. Andrews also served as Vice President and General
Manager at several other business units at GTE and held positions in
information technology, finance, marketing and field operations. Mr. Andrews
earned a Bachelor's Degree in Business Administration from Whitworth College
and a Master of Business Administration degree from the University of Puget
Sound.
MARGARET A. HARRIS has served as the Company's Chief Financial Officer
since March 1999. She was employed by American Medical International, Inc.
("AMI") for 18 years from June 1973 until July 1991 where she served as Vice
President-Assistant Corporate Controller from 1984 until 1988 and as Vice
President-Finance from 1988 until 1991. While she was with AMI their revenues
grew to over $3 billion before a leveraged buy-out. She then had the
financial responsibility for the $1.2 billion divestiture program following
the buy-out. From 1993 until March 1999, Ms. Harris worked as an independent
contractor/consultant providing financial services to various companies
including the following: HemaCare Corporation - July 1993 until July 1994;
American Outpatient Services Corp. - from July 1994 until October 1995, she
was the acting chief financial officer; GCI Renal Care, Inc. - from December
1995 until December 1996 she served as the Chief Financial Officer;
MediManager, Inc. - from December 1996 until March 1999 she was the acting
Chief Financial Officer. She received a Bachelor of Science Degree from
California State University at Northridge in June 1970 and she is a Certified
Public Accountant.
IAN MCPHERSON, Managing Director of e-Net - Prior to Mr. McPherson's
current position as Managing Director of e-Net, he acquired Relay Systems (now
called e-Net) in 1997 and merged it into Network Wales Limited, where Mr.
McPherson was Chairman and Managing Director. Mr. McPherson formed Network
Wales Limited, an internet services business operating in Wales, in 1996 as a
joint venture with the government of the U.K. From 1992-1997, he was Chairman
and Managing Director of Syntech Computer Systems, Ltd. where he led a
leveraged buy-out of the Syntech software business of Ryan International.
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From 1989-1992, Mr. McPherson was the Chief Information Officer for Ryan
International PLC, a publicly traded quoted company in the U.K. Mr.
McPherson received a B.S. degree from Sunderland University.
MARSHALL GIBBS has served as the Company's Chief Operating Officer since
June 1999. Mr. Gibbs is known for his expertise in Distributing Computing
Architectures and server-side Java systems implementation. From June 1998
until May 1999, Mr. Gibbs was employed by Sanga International, Inc. From
March 1993 until May 1998, Mr. Gibbs was employed by CSX Technology where he
served the last six months as Vice President of Enterprise Technology
Services. During his tenure, CSX Technology application development
transformed from almost 100% mainframe-centric maintenance work with no
appreciable return on investment to 80% new application development in
leading-edge technology with an audited 10:1 benefit-to-cost ratio. Prior to
CSX Technology, Mr. Gibbs was with Price Waterhouse, where he was in the
Management Consulting Services organization. He holds a B.A. degree in
Business Administration/Computer Information Systems and a Masters in Business
Administration from the University of Florida.
GAYLE M. CONSIGLIO has served as the Company's Vice President of Sales
since June 1999. Ms. Consiglio is responsible for the Company's domestic and
international health care sales and business development. From July 1998
until May 1999, Ms. Consiglio was employed by Sanga International. From June
1997 until July 1998, Ms. Consiglio was Executive Vice President of
Professional Services Group, a subsidiary of Stonehouse Technologies. From
June 1992 until May 1997, she served as the Vice President of sales and
marketing for DAOU Systems, and was responsible for Business Development
during their IPO process. Prior to DAOU, Ms. Consiglio was the National
Accounts Manager for GTE Health Systems responsible for managing the large
integrated health systems throughout the U.S. Ms. Consiglio received a B.S.
degree from Wayne State University in Detroit, Michigan.
RONALD A. WING has served as the Company's Vice President of Marketing
since June 1999. Mr. Wing is responsible for public relations and
advertising, corporate communications, trade shows, conferences, product and
channel development. From June 1998 until May 1999, Mr. Wing was employed by
Sanga International. From September 1993 until June 1998, Mr. Wing served as
the Vice President of Program Management for CSX Technology in charge of the
company's technology programs and plans. While at CSX, Mr. Wing's key
responsibilities included commercial marketing of information technology
products and services to Fortune 100 companies. Mr. Wing was also responsible
for the development and introduction of best practices and procedures for
managing complex IT programs and projects for the Company's Worldwide
Technology organization. Prior to CSX, Mr. Wing served for 2 years as the
Vice President of Marketing for GTE Health Systems where he was responsible
for designing and implementing new marketing strategies. During his 12 year
tenure at GTE Health Systems, Mr. Wing led all product management, planning
and marketing for the division hospital, managed care and EDI product lines.
Mr. Wing holds a B.S. in Mathematics and BA in Finance and Accounting from the
University of Washington.
DR. SAM J. W. ROMEO has served as a Director of the Company since
September 1, 1999. Dr. Romeo, who has more than 30 years of experience in the
health care field, currently serves as the President and Chief Executive
Officer of University Affiliates IPA, Inc., an affiliate of the University of
Southern California. In addition to having held senior faculty positions at
the USC School of Medicine, the Medical College of Wisconsin, and the St.
Louis University School of Medicine, Dr. Romeo has also served as the Medical
Director of several HMOs in California, Florida and New York, and is licensed
21
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to practice medicine in the States of California, Florida, Idaho, Missouri and
Wisconsin. Dr. Romeo received the prestigious Physician Executive of the Year
Award given by the American College of Medical Practice Executives in October
of 1998.
Dr. Romeo received his medical degree from the St. Louis University
School of Medicine and then received his MBA with Magna Cum Laude honors from
National University. Dr. Romeo, who was a Commander in the United States
Navy, is a former Associates Dean of Clinical Affairs of both the Medical
College of Wisconsin as well as the University of Southern California School
of Medicine.
MITCHELL J. STEIN has served as a Director of the Company since September
1, 1999, when he was added to the Board as an ex officio member representing
Sanga e-Health, LLC, a principal shareholder. Mr. Stein is the Chairman of
Sanga e-Health, LLC. Mr. Stein was the managing partner of the law firm of
Stein, Perlman & Hawk from 1991 to 1998. Mr. Stein served as the President
and Chairman of MediManager, Inc. from 1994 to 1998. Mr. Stein served as a
director of Net Plus, Inc. from 1994 to 1995.
Mr. Stein was admitted to the California bar in 1985 and the U.S.
District Court, Central and Southern District of California, in 1986. Mr.
Stein received his Bachelor of Arts from the University of Pittsburgh summa
cum laude in 1982 and his Juris Doctorate from the University of Pittsburgh in
1985. Mr. Stein has maintained a very active philanthropic schedule and was
the inaugural recipient of the Mitchell J. Stein philanthropic award issued by
the National Organization of Victims Assistance for its 25th anniversary.
BOARD COMPOSITION
The board currently has three members. The Company intends to add
further directors, including other independent board members within 90 days
and to appoint such independent directors to serve on the audit committee.
COMMITTEES OF THE BOARD
The Company presently has no committees. The board will establish an
audit committee and a compensation committee within 90 days.
Audit Committee. The audit committee's primary responsibilities are to
meet with and consider the suggestions from members of management and the
Company's independent public accountants concerning the financial operations
of the Company. The audit committee also reviews the audited financial
statements of the Company and considers and recommends the employment of, and
approves the fee arrangement with, independent public accountants for audit
functions and advisory and other consulting services. The audit committee
will be comprised of two independent directors to be appointed within 90 days.
Compensation Committee. The compensation committee's responsibilities
are to make determinations with respect to salaries and bonuses payable to
executive officers and to administer stock option plans. The compensation
committee will be comprised of two independent directors to be appointed
within 90 days.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company was not subject to the requirements of Section 16 during the
ten months ended March 31, 1999.
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ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President and each other executive officer
whose total annual salary and bonus exceeded $100,000 for the ten months ended
March 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------- ----------------- --------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
- ------------------ ---- ------- ----- ------ -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. Andrews, 1999 125,000 0 -- -- -- -- --
Chairman & CEO <FN1>
________________
<FN>
<FN1> During the ten months ended March 31, 1999, Mr. Andrews was also advanced $30,000
toward the next years' salary.
</FN>
</TABLE>
The Company currently has six executive officers which are paid annual
salaries in excess of $100,000: John Andrews -- $500,000; Marshall Gibbs --
$250,000; Margaret Harris -- $220,000; Gayle Consiglio -- $160,000; and Ronald
Wing -- $140,000.
EMPLOYMENT AGREEMENT WITH JOHN ANDREWS
On August 31, 1999, the Company entered into an Executive Employment
Agreement with John F. Andrews, the Company's Chairman of the Board, President
and Chief Executive Officer. The initial term of the Agreement is from
January 15, 1999 through January 15, 2002. The Agreement will be
automatically renewed for additional one year periods unless terminated. In
the event of a termination by the Company without cause, or by Mr. Andrews for
"good reason," Mr. Andrews will receive full compensation for the remainder of
the initial term or eighteen months from the date of termination, whichever is
longer. In the event of a termination by the Company with cause, he will
receive full compensation for the remainder of the initial term or twelve
months from the date of termination, whichever is longer. In the event of a
termination by Mr. Andrews without a "good reason," he will receive no further
compensation.
The base salary under the Agreement is $500,000 per year, which is to be
increased by at least 10% at the end of each year. Mr. Andrews is also to
receive a whole life insurance policy with a face amount of $2,000,000 for his
benefit; the use of a fully insured automobile; club dues for one country club
23
<PAGE>
and one luncheon club; disability and medical insurance; an allowance of up to
$12,500 per year for professional counseling and services; and four to five
weeks of vacation per year.
Mr. Andrews also has the right to immediately receive shares of the
Company's Common Stock without any required payment upon the occurrence of the
following events:
a. 5,000 shares for each month he is employed by the Company.
b. 50,000 shares for each quarter in which the Company has gross
revenues in excess of $7,000,000.
c. An additional 175,000 shares for each quarter in which the Company
has gross revenues in excess of $20,000,000.
d. An additional 350,000 shares for each quarter in which the Company
has gross revenues in excess of $50,000,000.
In addition to the above, Mr. Andrews is entitled to receive a percentage
of the Company's net profit before taxes as follows:
a. One percent (1%) of net profit before taxes for each quarter such
profit exceeds $1,000,000, plus
b. Two percent (2%) of net profit before taxes for each quarter such
profit exceeds $3,000,000, plus
c. Three percent (3%) of net profit before taxes for each quarter such
profit exceeds $10,000,000, plus
d. Four percent (4%) of net profit before taxes for each quarter such
profit exceeds $20,000,000.
In the event of a "change in control" of the Company, as defined in the
Agreement, Mr. Andrews has the right to terminate the Agreement and receive a
$2,500,000 payment. The Company believes it critical and vital to compensate
Mr. Andrews in this manner as Mr. Andrews has chosen to be critical to the
Company's success and is likely to be so as the Company continues its attempts
to achieve its business objectives and maximize its growth.
STOCK OPTION PLAN
In February 1999, the Company's Board of Directors approved the
establishment of the 1999 Stock Compensation Plan (the "1999 Plan"). This
plan has not yet been submitted to the Company's shareholders for their
approval. The Board of Directors believes that the 1999 Plan advances the
interests of the Company by encouraging and providing for the acquisition of
an equity interest in the Company by employees, officers, directors and
consultants, and by providing additional incentives and motivation toward
superior Company performance. The Board believes it will also enable the
Company to attract and retain the services of key employees, officers,
directors and consultants upon whose judgment, interest and special effort the
successful conduct of its operations is largely dependent.
The 1999 Plan allows the Board, or a committee established by the Board,
to grant stock options from time to time to employees, officers and directors
of the Company and consultants to the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
24
<PAGE>
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. However, Incentive Stock Options may only be granted to persons who
are employees of the Company. Vesting provisions are determined by the Board
at the time options are granted.
The total number of shares of Common Stock subject to options under the
1999 Plan may not exceed 5,000,000, subject to adjustment in the event of
certain recapitalizations, reorganizations and similar transactions. Options
may be exercisable by the payment of cash or by other means as authorized by
the Board of Directors.
The 1999 Plan also provides that the Board, or a committee, may issue
restricted stock pursuant to restricted stock right agreements which will
contain such terms and conditions as the Board determines.
The Board of Directors may amend the 1999 Plan at any time, provided that
the Board may not amend the 1999 Plan to materially increase the number of
shares available under the 1999 Plan, materially increase the benefits
accruing to Participants under the 1999 Plan, or materially change the
eligible class of employees without shareholder approval.
During March 1999, the Board granted a total of 209,000 options to
persons who, at the time, were consultants for the Company. The options had
an exercise price of $2.5625 and the options are subject to the approval of
the 1999 Plan by the Company's shareholders by February 2000. As of March 31,
1999, 72,000 of these options were forfeited and 137,000 remained outstanding.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of September 1, 1999, the stock
ownership of each person known by the Company to be the beneficial owner of
five percent or more of the Company's Common Stock, each director
individually, and all officers and directors as a group. Each person has sole
voting and investment power over the shares except as noted.
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
- ------------------------- ---------------- --------
Sanga e-Health LLC 26,581,460 (1) 48.3%
Suite 320
20750 Ventura Boulevard
Woodland Hills, CA 91364
Mitchell J. Stein 26,581,460 (2) 48.3%
4332 St. Clair Avenue
Studio City, CA 91604
John F. Andrews 26,621,460 (3) 48.3%
197 Admirals Way South
Ponte Vedra Beach, FL 32082
HealthMed Inc. 26,581,460 (2) 48.3%
Suite 320
20750 Ventura Boulevard
Woodland Hills, CA 91364
Trayton Securities LLC 3,506,700 6.4%
Suite 7056
8306 Wilshire Boulevard
Beverly Hills, CA 90211
25
<PAGE>
Sanga International 9,000,000 16.4%
John McLennan
c/o Watson C. Gale
GOWLING, STRATHY & HENDERSON
Barristers & Solicitors
Patent & Trade Mark Agents
Suite 2600
160 Elgin Street
Ottawa, ON K1P 1C3
Sam J. W. Romeo 0 0
1000 S. Fremont Avenue, A-11
Allambra, CA 91807
All Directors and Officers 26,621,460 48.3%
as a Group (4 persons)
__________________
(1) These shares are deemed to be beneficially owned by Messrs. Stein
and Andrews by virtue of their positions as Managers of Sanga
e-Health LLC. HealthMed Inc. holds the controlling interest in the
shares held by Sanga e-Health LLC.
(2) Represents shares held of record by Sanga e-Health LLC
(3) Includes 26,581,460 shares held of record by Sanga e-Health and 40,000
Shares which Mr. Andrews has the right to have issued to him pursuant
to the terms of his employment agreement.
The Company knows of no arrangement or understanding, the operation of
which may at a subsequent date result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ACQUISITION OF TECHNOLOGY FROM SANGA E-HEALTH LLC
On January 7, 1999, the Company acquired certain rights to a JAVA-based,
on-line, healthcare management system from Sanga e-Health LLC ("SEH") in
exchange for 41,417,176 shares of the Company's common stock. SEH is a joint
venture which was formed during December 1998 between Sanga International,
Inc. ("Sanga") and HealthMed, Inc. ("HealthMed").
The rights acquired by the Company from SEH were subject to a Software
License Agreement between SEH and Sanga dated December 2, 1998. On January
23, 1999, the Company approved and ratified the termination of the Software
License Agreement which was entered into on December 2, 1998, between SEH and
Sanga for the sublicensing of the healthcare management system's software
("Software") to end-users thereof. The effect of this termination was the
assignment and transfer from Sanga to the Company of all right, title and
interest under or with respect to all of Sanga's contractual rights and
privileges arising from their agreements with various healthcare providers for
the sub-leasing of the Software. In connection therewith, previous funding
received by Sanga from such healthcare agreements was transferred to the
Company. The previous funding received by Sanga was based on certain
financing rights owned by HealthMed, Inc., a member of SEH's LLC, which
resulted in agreements (from third parties related to HealthMed, Inc.) to
provide an initial funding of $1.5 million for accounts receivable to be
derived from signed Master Agreements and Memorandum of Understanding.
26
<PAGE>
RELATED PARTY DISCLOSURE
The Company's President, Chief Executive Officer and Chairman of the
Board also served as President and Chief Executive Officer of Sanga
International through July 30, 1999 and is a Co-Manager of Sanga e-Health, the
controlling shareholder of e-MedSoft.
In December, 1998, NCFE, one of the Company's strategic partners,
transferred $750,000 to Sanga International in accordance with its agreement
to provide an initial funding of $1.5 million for accounts receivable to be
derived from signed Master Agreements and Memorandum of Understanding. On
January 23,1999, Sanga International assigned and transferred to the Company
all right, title and interest under or with respect to all of Sanga
International's contractual rights and privileges arising from its agreements
with various healthcare providers. Additionally, the rights held by Sanga
International in and to its funding agreement with NCFE was assigned to the
Company. In connection with these activities, the previous funding received
by Sanga International from such healthcare agreements was legally transferred
to the Company and has been reflected as other long-term liabilities.
Subsequent to and arising out of this assignment, Sanga International
transferred $604,970 of the NCFE funding to e-MedSoft.com. The remaining
balance of $145,030 is reflected as a related party receivable from Sanga
International to the Company.
During the period ended March 31, 1999 HealthMed, Inc., a controlling
member of Sanga e-Health, LLC, paid certain expenses on behalf of the Company
and Sanga e-Health. In addition, the Company has reimbursed HealthMed for
certain of these expenses and has paid certain expenses associated with its
operation jointly as that operation has related to its parent, Sanga e-Health,
LLC. As of March 31, 1999 the Company reflected approximately $15,800 as
being due to the Company from HealthMed, Inc. and Sanga e-Health, LLC with
respect to these transactions.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
3.1 Articles of Incorporation, Incorporated by reference to
as Amended the Registrant's Form S-18
Registration Statement
(No. 33-8420-D)
3.2 Bylaws Incorporated by reference to
Registrant's Form S-18
Registration Statement
(No. 33-8420-D)
3.3 Restated Articles of Filed herewith electronically
Incorporation
10.0 Stock Acquisition and Incorporated by reference to
Technology Transfer Agree- Exhibit 10 to the Registrant's
ment dated December 22, Form 8-K dated January 7, 1999
1998, between MedTech,
Inc. (formerly "High
Hopes, Inc.") and Sanga
e-Health LLC
27
<PAGE>
10.1 Loan and Security Agreement Incorporated by reference to
dated March 19, 1999, among Exhibit 10.1 to the Registrant's
the Company, Trammel In- Form 8-K dated March 19, 1999
vestors LLC and Donald H.
Ayers
10.2 Registration Rights Agree- Incorporated by reference to
ment among the Company, Exhibit 10.2 to the Registrant's
Trammel Investors LLC Form 8-K dated March 19, 1999
and Donald H. Ayers
10.3 Waiver, Rescission and Incorporated by reference to
Termination of Software Exhibit 10.1 to Amendment No. 1
License Agreement between to the Registrant's Form 8-K
Sanga e-Health LLC and dated January 7, 1999
Sanga Corporation dated
December 2, 1998
10.4 Assignment of Rights Under Filed herewith electronically
Financing Agreements
10.5 Agreement with Donald H. Filed herewith electronically
Ayers dated June 14, 1999
10.6 Agreement with Trammel Filed herewith electronically
Investors LLC dated
May 15, 1999
21 Subsidiaries of the Filed herewith electronically
Registrant
27 Financial Data Schedule Filed herewith electronically
(b) REPORTS ON FORM 8-K. The Company filed a Form 8-K dated March 19,
1999, reporting under Item 2 the acquisition of Palm Technology Holdings, Ltd.
The financial statements required under Item 7 were filed by amendment on June
2, 1999.
28
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants..................... F-2
Financial Statements for e-MedSoft.com as an acquired
entity of Sanga e-Health, LLC on January 7, 1999. The
following consolidated financial statements reflect the
operations of Sanga e-Health from its inception,
December 1, 1998 through the acquisition date and the
operations of the Company from the acquisition date through
March 31, 1999 -
Consolidated Balance Sheet, March 31, 1999 ............. F-3
Consolidated Statement of Operations for the four
months ended March 31, 1999............................. F-4
Consolidated Statement of Stockholders' Equity
and Comprehensive Income (Loss) for the four months
ended March 31, 1999.................................... F-5
Consolidated Statement of Cash Flows for the four
months ended March 31, 1999............................. F-6
Notes to Consolidated Financial Statements ............. F-7
Closing Financial Statements of e-MedSoft.com for the
period from June 1, 1998 through the acquisition date of
January 7, 1999 -
Report of Independent Public Accountants................ F-20
Statement of Operations for the period June 1,
1998 to January 7, 1999................................. F-21
Statement of Stockholders' Equity for the period
June 1, 1998 to January 7, 1999.......................... F-22
Statement of Cash Flows for the period June 1,
1998 to January 7, 1999................................. F-23
Notes to Closing Financial Statements................... F-24
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of e-MedSoft.com:
We have audited the accompanying consolidated balance sheet of
e-MedSoft.com (a Nevada corporation) and subsidiaries as of March 31, 1999,
and the related consolidated statements of operations, stockholders' equity
and comprehensive income (loss) and cash flows for the four months ended March
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of e-MedSoft.com and
subsidiaries as of March 31, 1999, and the results of their operations and
their cash flows for the four months ended March 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
September 10, 1999
F-2
<PAGE>
e-MedSoft.com
Consolidated Balance Sheet
March 31, 1999
ASSETS
Current Assets:
Cash $ 51,712
Restricted cash 138,435
Accounts receivable, net of allowance
for doubtful accounts of $89,271 4,181,285
Other receivables 1,062,133
Inventory 713,002
Related party receivables 193,263
Prepayments and other 381,591
Deferred taxes 14,555
-----------
6,735,976
-----------
Long-Term Assets:
Property and equipment, net 1,308,863
Goodwill, net of amortization of $28,810 8,054,630
Deferred financing, net of amortization of
$361,754 1,363,439
-----------
10,726,932
-----------
$17,462,908
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 967,425
Accounts payable 6,017,183
Accrued liabilities 412,405
Income taxes payable 165,280
Current maturities of bridge financing 650,623
Current maturities of capitalized leases 165,275
-----------
8,378,191
Long-Term Liabilities:
Capital leases 416,409
Bridge financing 1,361,877
Other long-term liabilities 1,193,581
-----------
2,971,867
Stockholders' Equity:
Common shares, $.001 par value,
100,000,000 shares authorized,
51,816,470 issued and outstanding 51,816
Paid in capital 6,951,312
Accumulated deficit (904,617)
Accumulated other comprehensive income 14,339
-----------
6,112,850
-----------
$17,462,908
===========
The accompanying notes are an integral part of this consolidated balance
sheet.
F-3
<PAGE>
e-MedSoft.com
Consolidated Statement of Operations
For The Four Months Ended March 31, 1999
NET SALES $ 2,649,563
COST OF SALES 1,998,505
-----------
GROSS PROFIT 651,058
OPERATING EXPENSES:
Software development costs 38,619
Sales and marketing expense 188,340
General and administrative 767,017
Depreciation and amortization 46,303
-----------
Total Operating Expenses 1,040,279
OPERATING LOSS (389,221)
OTHER INCOME (EXPENSE):
Interest expense (376,889)
Other 421
-----------
LOSS BEFORE INCOME TAXES (765,689)
TAX PROVISION 138,928
-----------
NET LOSS $ (904,617)
===========
BASIC AND DILUTED LOSS PER SHARE $ (0.02)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 38,061,371
===========
The accompanying notes are an integral part of this consolidated financial
statement.
F-4
<PAGE>
e-MedSoft.com
Consolidated Statement of Stockholders'
Equity and Comprehensive Income (Loss)
For The Four Months Ended March 31, 1999
<TABLE>
<CAPTION>
Common Shares Accumulated
Amount Other
(.001 Paid-In Accumulated Comprehensive Total
Number par value) Capital (Deficit) Income (Loss) Equity
--------- ---------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Opening Balance,
Sanga e-Health
December 1, 1998 - $ - $ - $ - $ - $ -
Recapitalization of
e-MedSoft 7,801,150 7,801 2,476 - - 10,277
Common stock
issued for
acquisition
of SEH assets 43,970,320 43,970 (43,970) - - -
Shares issued
for services 45,000 45 155,113 - - 155,158
Issue of warrants
for services - - 225,000 - - 225,000
Common stock
contributed by
Sanga e-Health
for acquisition
of e-Net - - 5,400,000 - - 5,400,000
Common stock
contributed by
Sanga e-Health
for loan induce-
ment - - 1,212,693 - - 1,212,693
Comprehensive income
(loss):
Operating losses of
Sanga e-Health
through acquisi-
tion, January 7,
1999 - - - (33,533) - (33,533)
Operating losses of
e-MedSoft for the
period January 8,
1999 to March 31, 1999 - - - (871,084) - (871,084)
Translation
adjustment - - - - 14,339 14,339
----------
Comprehensive Income
(Loss) - - - - - (890,278)
---------- ------- ---------- --------- ------- ----------
Balance,
March 31, 1999 51,816,470 $51,816 $6,951,312 $(904,617) $14,339 $6,112,850
========== ======= ========== ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
<PAGE>
e-MedSoft.com
Consolidated Statement of Cash Flow
For The Four Months Ended March 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (904,617)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 17,493
Amortization of goodwill 28,810
Amortization of deferred financing costs 361,754
Issuance of shares and warrants for services
provided 380,158
(Increase)decrease in current assets:
Accounts receivable (1,304,693)
Inventory 6,713
Prepayments and other 78,665
Related party receivables (185,567)
Increase in current liabilities:
Accounts payable and accrued liabilities 1,043,300
Income taxes payable 93,356
----------
Cash Used In Operating Activities (384,628)
----------
CASH FLOWS FROM INVESTING ACTIVITIES--
Net cash paid for acquisition of e-Net (2,254,658)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge financing for acquisition
of e-Net $1,500,000
Proceeds from other long-term liabilities 1,500,000
Payments on other long-term liabilities (306,419)
Net decrease in capital leases (2,583)
----------
Cash Provided by Financing Activities 2,690,998
----------
INCREASE IN CASH 51,712
CASH AT THE BEGINNING OF THE PERIOD -
----------
CASH AT THE END OF THE PERIOD $ 51,712
==========
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
Interest $ 3,150
Income taxes -
NON-CASH TRANSACTIONS
Transfer of restricted stock for acquisition
of e-Net 5,400,000
Transfer of restricted stock for inducement
to lend 1,212,693
----------
$6,612,693
==========
The accompanying notes are an integral part of this consolidated financial
statement.
F-6
<PAGE>
e-MedSoft.com
Notes to Consolidated Financial Statements
As of March 31, 1999 and For The Four Months Then Ended
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Risk
e-MedSoft.com ("e-MedSoft" or the "Company") was initially organized in Nevada
on August 25, 1986, under the name of High Hopes, Inc., in order to evaluate,
structure and complete a merger with, or acquisition of, prospects consisting
of private companies, partnerships or sole proprietorships.
On January 7, 1999, e-MedSoft.com acquired the assets of Sanga e-Health, LLC
for 41,417,176 restricted shares of the Company's common stock which
represented 80% of the then outstanding shares. This transaction was
accounted for as a reverse acquisition. Therefore, the statements included
herein combine the operations of Sanga e-Health from its inception, December
1, 1998, through the acquisition date and its assets at the acquisition date
at carry over basis. In addition, the statements include the operations of
e-MedSoft after the acquisition through March 31, 1999.
On March 19, 1999 the Company acquired all of the outstanding shares of e-Net
Technology LTD ("e-Net", formerly Palm Technology LTD). This acquisition has
been accounted for under the purchase method. On May 28, 1999, e-MedSoft.com
changed its year-end from May 31 to March 31. Accordingly, the results of
operations presented herein for the four month period ended March 31, 1999
reflect approximately 13 days of e-Net's operations.
e-MedSoft.com acquired and has continued to develop an Internet-based
information and transaction platform application and software designed to
facilitate and streamline interactions among physicians, payers, suppliers and
patients. However, the Company's revenue and income potential from its
Internet solutions business is unproven. For the period ended March 31, 1999,
the Company generated all its revenue from e-Net's computer hardware and
software sales. In addition to being subject to all the risks of an early
stage enterprise, the Company is subject to numerous other risks, including
rapidly changing and evolving standards, an unproven business model, lack of
capital and other risks.
Principals of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, e-Net. All significant intercompany transactions
and accounts have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities, and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable consists primarily of trade receivables from the sale of
hardware and software to the Company's customers. The Company continually
reviews its trade receivables for collectibility and provides reserves as
needed. Concentration of credit risk with respect to accounts receivable are
limited due to the diversity of the Company's client base.
F-7
<PAGE>
Inventory
Inventory, which consists of purchased computer and software products, is
stated at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method for the Company's foreign inventory. The Company did
not have any domestic inventory at March 31, 1999.
Other Receivables
Other receivables primarily consist of amounts due to e-Net from a major
supplier for reimbursement of certain promotional and marketing costs.
Fair Value of Financial Instruments and Concentration of Credit Risk
The carrying amount reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued liabilities approximates fair value
because of the immediate or short-term maturity of these financial
instruments.
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization and
depreciation. Depreciation is computed using the straight-line method over
the estimated useful life of the related asset, generally three to six years.
Leasehold improvements and equipment acquired under capital leases are
amortized over the shorter of the remaining lease term or the estimated useful
life of the related asset.
Goodwill
Goodwill related to the acquisition of e-Net is amortized over a ten year
life. The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the related facility's
undiscounted cash flow over the remaining life of the goodwill in measuring
whether the goodwill is recoverable.
Software Development Costs
The Company is internally developing software that it plans to market to
providers, payers, suppliers and consumers. All costs incurred related to the
development of the software have been expensed. Once the Company concludes
that technological feasibility is obtained, all subsequent development costs
will be capitalized and reported at the lower of unamortized cost or net
realizable value. Software development costs are included in operating
expenses in the accompanying consolidated statement of operations.
Recognition of Revenues
The Company's products and services are provided based upon purchase orders
and contractual agreements. Revenues from the sale of hardware and software
are recorded upon delivery and installation of the equipment at the customer
site. Revenues from services are recorded upon performance. To date, the
Company has derived no revenues from the sale of its web-based services.
F-8
<PAGE>
Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS") 109, "Accounting for Income Taxes," which uses
the liability method to calculate defined income taxes.
Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries are translated at the current
exchange rates, and the effects of these translation adjustments are reported
as a separate component of stockholders' equity. Revenues and expenses of
foreign subsidiaries are translated at the average exchange rates that
prevailed over the applicable period.
Basic and Diluted Loss Per Share
In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed by dividing the net earnings available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
by dividing the net earnings for the period by the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares, consisting of incremental common shares issuable
upon the exercise of stock options and warrants are excluded from the diluted
earnings per share calculation if their effect is anti-dilutive.
A summary of the shares used to compute net loss per share is as follows:
Four Months Ended
March 31, 1999
-----------------
Weighted average common shares
used to compute basic net loss
per share.............................. 38,061,371
Effect of dilutive securities........... --
----------
Weighted average common shares
used to compute diluted net
loss per share......................... 38,061,371
==========
For the four months ended March 31, 1999, options and warrants to purchase
1,222,429 shares of common stock were excluded from the computation of diluted
loss per share as such options and warrants were anti-dilutive.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company is required to adopt SFAS
No. 133 for its year ending March 31, 2000. SFAS No. 133 establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. Because the
Company currently holds no derivative financial instruments and does not
currently engage in hedging activities, adoption of SFAS No. 133 is expected
to have no material impact on the Company's financial condition or results of
operations.
F-9
<PAGE>
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on Costs of Start-up Activities" ("SOP
98-5"), which is effective for fiscal years beginning after December 15, 1998.
SOP 98-5 requires that costs of start-up activities and organization costs be
expensed as incurred. The adoption of SOP 98-5 had no material effect on the
Company's financial position or results of operations.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income." For year-
end financial statements, SFAS No. 130 requires that comprehensive income,
which is the total of net income and all other non-owner changes in equity, be
displayed in a financial statement with the same prominence as other
consolidated financial statements. The Company displays the components of
other comprehensive income in the accompanying consolidated statements of
stockholders' equity and comprehensive income (loss).
2. BUSINESS COMBINATIONS
Acquisition of Health Care Management System
On January 7, 1999, the Company acquired from Sanga e-Health, LLC ("SEH"), the
rights to a JAVA-based, on-line healthcare management system in exchange for
41,417,176 restricted shares (post-split) of the Company's common stock. In
addition, in exchange for finder's fees and services, the Company issued
2,553,144 restricted shares of the Company's common stock and 1,035,429
warrants to purchase restricted shares of the Company's common stock
exercisable at $.25 per share over five years. As a result of these
transactions, SEH owned approximately 80% of the then outstanding shares and
is considered the acquiring company. This transaction is considered a reverse
acquisition that resulted in a capital reorganization. Accordingly, the
Company's assets have been reflected at book value and the acquiring company's
assets at acquisition date have been reflected at their carryover basis.
There has been no goodwill or intangible assets recognized for this
acquisition in the financial statements. No significant costs were incurred
in preparing the software for commercial use prior to December 1, 1998. In
connection with this transaction, the Company completed a 5 for 1 forward
stock split having a record date of January 4, 1999, which has been reflected
for all data presented.
Acquisition of e-Net Technology LTD
On March 19, 1999, the Company completed the acquisition of all of the issued
and outstanding stock of e-Net Technology Ltd. ("e-Net")(formerly Palm
Technology Holdings LTD), a U.K. based company, for approximately $7,600,000
consisting of $2,200,000 in cash and $5,400,000 in stock. e-Net is a
diversified computer services company, providing training, technical support,
computer software and computer hardware to a broad range of customers. This
acquisition has been accounted for under the purchase method and therefore,
the financial statements presented herein include the operations of e-Net from
the acquisition date.
F-10
<PAGE>
The Company purchased the shares of e-Net pursuant to a Share Acquisition
Agreement, which was originally entered into on July 22, 1998 between the
shareholders and Sanga International ("Sanga"). (Sanga was during the period a
member of e-MedSoft's principal shareholder, Sanga e-Health LLC., and it
ceased being a member on July 30, 1999.) At the close, the Company paid
$2,200,000 in cash. Of this amount $1,500,000 was borrowed and the balance
was paid out of working capital (see Note 5). In addition, SEH contributed
and transferred 3 million of its restricted shares to Sanga International for
consideration of Sanga's assignment of all rights and obligations under its
agreement. These shares have been valued by an independent appraiser at
$5,400,000. The following table details the allocation of the e-Net purchase
price:
Purchase price $7,590,102
Acquisition costs 65,336
----------
Adjusted purchase price 7,655,438
Less: e-Net's historical net book value (428,002)
----------
Goodwill $8,083,440
==========
The Company considered other potential intangible assets for which it may be
appropriate to assign value such as franchise agreements, leases and customer
lists. The goodwill is preliminary and subject to adjustment and the 10-year
amortization represents management's best estimate of the future benefit of
this acquisition.
The 10-year amortization represents management's best estimate of the future
benefit of this acquisition.
The following pro forma information, for the four months ended March 31, 1999,
gives effect to the acquisition of e-Net as if such transaction had occurred
at the beginning of the Company's operations on December 1, 1998 (unaudited):
Net sales $8,596,644
Cost of sales 6,523,159
Gross margin 2,073,485
Operating expenses 2,410,393
Amortization of goodwill 269,629
Net loss $ (851,148)
Net loss per share $(.02)
The pro forma information does not include amortization of financing costs of
$361,754 incurred in connection with the transaction since these costs are
considered to be one time only costs.
3. SOFTWARE LICENSE/ASSIGNMENT OF RIGHTS UNDER FINANCING AGREEMENTS
On January 23, 1999, the Company approved and ratified the termination of the
Software License Agreement which was entered into on December 2, 1998 between
SEH and Sanga for the sub-licensing of the healthcare management system's
software ("Software") to end-users thereof. The effect of this termination
was the assignment and transfer from Sanga to the Company of all right, title
and interest under or with respect to all of Sanga's contractual rights and
privileges arising from their agreements with various healthcare providers for
the sub-leasing of the Software. In connection therewith, previous funding
received by Sanga from such healthcare agreements was transferred to the
F-11
<PAGE>
Company. The funding received by Sanga was based on an agreement between a
finance company and a member of SEH, to provide an initial funding of $1.5
million for accounts receivable to be derived from signed Master Agreements
and Memorandums of Understanding. The Company has reflected these funds as
other long-term liabilities.
4. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1999 consisted of the following:
Computer equipment $ 552,238
Office equipment, furniture and fixtures 236,195
Automobiles 537,923
----------
1,326,356
Less accumulated depreciation (17,493)
----------
Property and equipment, net $1,308,863
==========
Property and equipment included assets acquired under capital lease
obligations with a cost of approximately $915,496.
5. DEBT AND CAPITAL LEASES
During the year the Company borrowed $750,000 from Trammel Investors, LLC
("Trammel") and $750,000 from Donald H. Ayers for the acquisition of e-Net.
These loans were evidenced by secured promissory notes totaling $1,750,000
("bridge financing"). Trammel's note was $250,000 more than the amount of its
loan as payment of a finders fee and certain other costs. The Company also
agreed to pay an origination fee to each lender in the amount of fifteen
percent of the amount of the promissory notes with such fees to be payable in
fifteen equal monthly payments commencing April 19, 1999. In connection with
this financing the Company issued to each lender five year warrants to
purchase 250,000 shares of the Company's common stock at $3.85 (average
closing bid of the Company's stock during the five trading days before March
19, 1999). In addition, Sanga e-Health LLC, the Company's majority
shareholder, guaranteed the loans and transferred to each lender one million
restricted shares of the Company's common stock as an inducement to make the
loans. The Company also entered into a registration rights agreement that
provides certain registration rights to the lenders with respect to the two
million shares and the shares underlying the warrants. The Company has
obtained an independent valuation of these shares. The warrants have been
valued by the Black Scholes option-pricing model. In line with these
valuations the $1,500,000 received from the lenders has been allocated between
debt and paid in capital. This allocation is based on the total estimated
value of notes, shares and warrants received by the lenders. As a result,
$1,212,693 has been allocated to paid in capital for the shares transferred
and warrants issued and $287,307 has been allocated to bridge financing debt.
The difference between the amount allocated to debt and the actual notes and
fees payable resulting from this transaction is $1,725,193. This amount has
been reflected as deferred financing costs that accrete to the bridge
financing debt of $1,750,000 and finance costs payable of $262,500. In
addition debt was assumed in the acquisition of e-Net.
F-12
<PAGE>
During the four months ended March 31, 1999, the Company received $1,500,000
from one of the Company's strategic partners. These advances were provided in
accordance with its agreement to provide an initial funding for accounts
receivable to be derived from signed Master Agreements and Memorandum of
Understanding. The Company has repaid approximately $306,000 of this
liability at March 31, 1999. Repayment of the remaining balance will be based
on the collection of revenue from those certain contracts that secure this
liability. The Company anticipates repayment of such obligation to occur in
the year ended March 31, 2001.
Debt at March 31, 1999 is as follows:
Bridge financing secured by the Company's
assets, 12% interest, due May 19, 1999 and related
origination fees $2,012,500
Line of credit, interest at 2.5% above bank base rate
(5.5% at March 31, 1999 and average rate), with
a minimum interest of 6%, expiring July 31, 1999 967,425
Capital leases, interest at various rates ranging
from 9.75% to 11%, expiring from 2000 through 2003 581,684
Other long-term liability 1,193,581
----------
Total debt $4,755,190
Less current portion $1,783,323
----------
Long-term portion $2,971,867
==========
Subsequent to year-end, the Company renegotiated the terms of the bridge
financing. As a result, the $750,000 note payable to Don Ayers was exchanged
for 150,000 warrants to acquire 150,000 shares of the Company's common stock
at $.01. This transaction will be reflected as a reduction of debt and an
increase to paid in capital. The payout terms on the remaining note to
Trammel for $1,000,000 were extended 24 months to May 19, 2001. The Company
agreed to make a $300,000 principal payment to Trammel to obtain this
extension. The remaining unpaid origination fees of $210,000, in connection
with the original transaction were waived by the debt holders.
The five year debt maturity schedule, adjusted for the above subsequent
events, is as follows:
Year ending March 31:
2000 $1,783,323
2001 $1,725,870
2002 $ 285,997
----------
$3,795,190
==========
F-13
<PAGE>
Also, subsequent to year-end, the Company entered into a financing arrangement
with its strategic partner to fund the Company's operations in an amount not
to exceed $5,500,000. The obligation, which is secured by the Company's
assets, bears interest at prime plus 1% and is due one year from the draw date
or on the date the Company successfully obtains refinancing for the amounts
loaned under the financing arrangement, whichever is the earlier date. The
Company borrowed $2,500,000 through September 10, 1999.
6. OPERATING LEASE COMMITMENTS
At March 31, 1999, the Company had operating lease obligations for office
space, primarily branch offices, in England expiring at various dates through
2005. The minimum aggregate annual rentals were $250,000, of which $11,500 is
reflected in the Company's statement of operations since the e-Net acquisition
date.
Subsequent to year-end, the Company entered into a lease agreement for office
space in California which expires in 2004. Also, the Company is negotiating
an agreement for additional lease space it currently occupies under an interim
agreement for $19,000 per month. The minimum annual rental for the California
office space is approximately $86,000.
Future minimum lease payments on noncancelable operating leases, adjusted for
the above subsequent events, is as follows:
Year ending March 31:
2000 $ 306,116
2001 265,356
2002 236,134
2003 206,912
2004 206,912
Thereafter 136,347
----------
$1,357,777
==========
7. DEFERRED FINANCING
Deferred financing costs resulting from the acquisition bridge financing (see
Note 5) will be amortized over the life of the bridge financing. During the
year ended March 31, 1999, $361,754 was reflected in financing costs.
8. RELATED PARTY TRANSACTIONS
The Company has transactions with related parties, primarily as a result of
the realignment of its operations in connection with the acquisition and
development of the healthcare management system. At March 31, 1999, the
Company had related party receivables of $193,263.
F-14
<PAGE>
In December, 1998, a finance company, transferred $750,000 to Sanga in
accordance with an agreement to provide an initial funding of $1.5 million for
accounts receivable to be derived from signed Master Agreements and Memorandum
of Understanding. On January 23,1999, Sanga assigned and transferred to the
Company all rights, title and interest under or with respect to all of Sanga's
contractual rights and privileges arising from their agreements with various
healthcare providers for the sub-leasing of the Software. Additionally, the
rights held by Sanga International, Inc. in and to its funding agreement with
the finance company was assigned to the Company. In connection with these
activities, the previous funding received by Sanga from such healthcare
agreements was legally transferred to the Company and has been reflected as
other long-term liabilities. Subsequent to and arising out of this
assignment, Sanga International, Inc. transferred $604,970 of that funding to
e-MedSoft.com. The remaining balance of $145,030 is reflected as a related
party receivable from Sanga International, Inc. to the Company at March 31,
1999.
The Company's President, Chief Executive Officer and Chairman of the Board
also served as President and Chief Executive Officer of Sanga International
through July 30, 1999 and is a Co-Manager of Sanga e-Health, the majority
shareholder of e-MedSoft.
During the period, HealthMed, a member to Sanga e-Health, LLC, has paid
certain expenses on behalf of the Company and Sanga e-Health. In addition,
the Company has reimbursed HealthMed for certain of these expenses and has
paid certain expenses on behalf of Sanga e-Health. As of March 31, 1999 the
Company had a total receivable due from HealthMed and Sanga e-Health of
approximately $15,800.
In addition, prior to the Company's acquisition of e-Net, e-Net paid certain
expenses on the behalf of Sanga's U.K. operations. As of March 31, 1999, the
Company had a receivable of $32,433 in this regard.
9. STOCKHOLDERS' EQUITY
On January 7, 1999, the Company issued 43,970,320 restricted shares (post-
split) of the Company's common stock and 1,035,429 warrants to purchase
restricted shares of the Company's common stock for the acquisition of a
healthcare management system. This transaction resulted in a reverse
acquisition with SEH as the acquiring company (see Note 2). In connection
with this transaction, the Company completed a 5 for 1 forward stock split
having a record date of January 4, 1999 increasing the shares outstanding by
6,240,920. The 5 for 1 forward stock split is reflected in the Company's
closing financial statements presented herein.
In March 1999, the Company issued 45,000 shares of restricted stock as payment
for consulting services. The fair market value of these restricted common
shares has been expensed as general and administrative expense.
Subsequent to year-end, the Company amended its Articles of Incorporation to
provide that the Company has the authority to issue 100,000,000 shares of
$.001 par value common stock and 5,000,000 shares of $.001 par value preferred
stock. The preferred stock has all rights and privileges as determined by the
Company's Board of Directors.
F-15
<PAGE>
10. WARRANTS AND STOCK OPTIONS
Warrants
In January 1999, the Company issued warrants to purchase 50,000 shares of the
Company's common stock at $.25 to a consultant in exchange for professional
services. The Company recorded an expense of $225,000 which represents the
Company's estimate of the fair market value of services rendered. Had the
Company valued the warrants using the Black Scholes option-pricing model, the
value of the warrants would have been comparable.
At March 31, 1999, the Company had issued 1,585,429 warrants to purchase
1,585,429 restricted shares of the Company's common stock. The purchase price
of the warrants ranged from $.25 to $3.85 over a five year period with an
aggregate purchase price of $2,196,357. Of these warrants, 1,035,429 were
issued in connection with the acquisition of the Internet based health care
management software and 500,000 were issued in connection with the funding of
the e-Net acquisition.
In May 1999, the Company entered into a one year exclusive agreement with an
investment banking firm to provide numerous services to the Company including,
but not limited to, assistance to the Company on corporate developments and
financing strategies, identifying prospective investors and acquisition
targets, performing due diligence and valuation analyses of such targets. In
connection with this agreement, the Company issued three separate warrants of
1,725,715 each to purchase an aggregate of 5,177,145 shares of the Company's
common stock. The warrants were immediately exercisable at prices of $3.50,
$5.00 and $7.00 per share. The warrants issued by the Company in favor of the
investment banking firm are cancelable by the Company in certain events
arising out of circumstances where the investment banking firm fails to abide
by the terms of its investment banking agreements with the company.
In June 1999, the Company issued warrants to purchase 150,000 shares of common
stock at $.01 each in satisfaction of a $750,000 note payable (see Note 5).
Stock Options
In February 1999, the Company's Board of Directors approved the establishment
of the 1999 Stock Compensation Plan (the "1999 Plan"). The 1999 plan has not
yet been submitted to the Company's stockholders for their approval. The
total number of shares of common stock subject to options under the 1999 Plan
is 5,000,000 plus an annual increase on the first day of the fiscal year
beginning April 1, 1999, the lesser of 1,000,000 common shares or 4% of the
outstanding common shares on such date, subject to adjustment in the event of
certain recapitalizations, reorganizations and similar transactions. Options
may be exercisable by the payment of cash or by other means as authorized by
the Board of Directors.
The 1999 Plan also provides that the Board may issue restricted stock pursuant
to restricted stock right agreements which will contain such terms and
conditions as the Board determines.
The Company has granted stock options to officers and employees subject to the
approval of the 1999 Plan by the Company's stockholders. The options expire
in 10 years on March 4, 2009, and vest over a three year period. The Company
has elected to follow APB No. 25 in accounting for its employee stock options.
Accordingly, no compensation cost has been recognized for option plans. Had
the determination of compensation costs been based on the fair market value at
the grant dates for awards under these plans, consistent with the method of
SFAS No. 123, the Company's net loss would have been $(910,560) and basic and
diluted loss per share would have been $(0.02) for the four months ended March
F-16
<PAGE>
31, 1999. At March 31, 1999, the Company's officers and employees held
137,000 of the Company's outstanding stock options of which none were
exercisable. Information relating to stock options during 1999 is as follows:
Option Price
Number of Per Share
Shares Average
--------- ------------
Shares under option at
December 1, 1998 - -
Granted 209,000 $ 2.56
Exercised - -
Forfeited (72,000) $ 2.56
------- ------
Shares under option at
March 31, 1999 137,000 $ 2.56
======= ======
The fair value of each option grant is estimated on the date of grant by using
the Black Scholes option-pricing model. The following weighted average
assumptions were used:
Expected dividend yield ......... 0%
Expected volatility ............. 110%
Risk-free interest rates ........ 5.55%
Expected option lives (years).... 3
Weighted average fair value
of options granted during
the period ..................... $1.76
Subsequent to year-end, the Company entered into an employment agreement with
its Chairman and Chief Executive Officer for an initial term of three years
beginning January 15, 1999. The agreement provides for a base salary, bonus
and other benefits. The agreement also provides that the Chairman and Chief
Executive Officer earns 5,000 shares of the Company's common stock for each
month of employment and additional shares if the Company meets certain net
sales targets.
On September 9, 1999, the Company committed to issue 195,000 common shares at
$1.00 per share to certain members of management of e-Net in connection with
short-term financing obtained from such executives.
The Company's subsidiary, e-Net, contributed approximately $1,500 to a defined
contribution pension plan from the date of the acquisition through March 31,
1999.
11. INCOME TAXES
The provision for income taxes consists of the following:
Current:
Domestic ...................... $ -
Foreign ....................... 138,228
Deferred ........................ 700
--------
Provision for income taxes ...... $138,928
========
F-17
<PAGE>
Loss before income taxes is net of approximately $448,153 of income related to
the Company's U.K. operations.
The components of the Company's net deferred tax asset are as follows:
Net operating loss $ 709,462
Depreciation 14,555
---------
724,017
Valuation reserve (709,462)
---------
Net deferred tax asset $ 14,555
=========
A reconcilation of the provision for income taxes to the amount computed at
the federal statutory rate is as follows:
Federal income tax at statutory rate $(307,570)
State income tax, net of federal benefit (52,958)
Foreign taxes at rates less than domestic
rates 13,444
Change in valuation reserve 485,462
Permanent differences 550
---------
$ 138,928
=========
The net operating losses expire in 2012. Because of a change in ownership of
the Company, future utilization of these loss carryovers has been limited, and
consequently, the deferred tax asset has been fully reserved.
12. SEGMENT INFORMATION
In June 1997, SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information" was issued effective for fiscal years beginning after
December 15, 1997.
e-MedSoft.com derives its revenue from two operating segments: (1) transaction
and information services, primarily healthcare, delivered over the Internet,
private intranets or other networks and consulting contracts related to these
services and (2) the sale and installation of hardware and software products.
During the current fiscal period, the Company derived all of its revenues from
its operations in the United Kingdom, primarily from computer hardware and
software sales.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on operating earnings of the respective business segments.
F-18
<PAGE>
The Company's revenues from external customers and the long-lived assets at
March 31, 1999, classified by geographic area, were as follows (in thousands):
United United
States Kingdom Total
------ ------- -----
Revenues ........................ $ - $2,650 $ 2,650
Long-lived assets ............... 9,654 7,794 17,448
The Company's U.K. subsidiary, e-Net, has three customers who sales represent
a significant portion of e-Net's net sales for the 13 days in the period ended
March 31, 1999. Sales to these customers were 24%, 15% and 11% of net sales
for the thirteen days in the period ended March 31, 1999. e-Net also had two
significant suppliers that amounted to 71% and 14% of purchases for the 13
days ended March 31, 1999.
13. SUBSEQUENT EVENTS
On September 1, 1999, the Company acquired from University Affiliates IPA
("UA," an affiliate of University of Southern California School of Medicine) a
managed care computer software technology for approximately $6,500,000,
including a cash payment of $2,000,000 and the issuance of 1,721,973 shares of
the Company's common stock with an approximate value of $4,500,000. In
addition, the Company entered into a ten-year contract with UA for exclusive
access to UA's network of more than 2,500 physicians. The agreement includes
revenue sharing of UA's network and exclusive use of the technology in
connection with UA's expansion of its physician network. In addition, the
Company has agreed to finance certain costs to further develop the software.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of e-MedSoft.com:
We have audited the accompanying statements of operations, stockholders'
equity and cash flows for the period June 1, 1998 to January 7, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements of e-MedSoft.com referred to
above present fairly, in all material respects, the results of its operations
and its cash flows for the period June 1, 1998 to January 7, 1999 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
September 10, 1999
F-20
<PAGE>
e-MedSoft.com
Statement of Operations
For The Period June 1, 1998 to January 7, 1999
NET SALES $ -
COST OF SALES -
-----------
GROSS PROFIT -
OPERATING EXPENSES
Sales and marketing expense 812
General and administrative 4,607
-----------
Total Operating Expenses 5,419
OPERATING LOSS (5,419)
OTHER INCOME (EXPENSE)
Interest expense (937)
-----------
LOSS BEFORE INCOME TAXES (6,356)
TAX PROVISION -
-----------
NET LOSS $ (6,356)
===========
BASIC AND DILUTED LOSS PER SHARE $ (0.00)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 7,052,059
===========
The accompanying notes are an integral part of this financial statement.
F-21
<PAGE>
e-MedSoft.com
Statement of Shareholders' Equity
For the period June 1, 1998 to January 7, 1999
<TABLE>
<CAPTION>
Common Shares
Amount
(.001 Paid-In Accumulated Total
Number par value) Capital (Deficit) Equity
--------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance,
May 31, 1998 7,001,150 $7,001 $529,146 $(561,110) $ (24,963)
Common stock
issued for
retirement of
debt 800,000 800 40,796 - 41,596
Net loss - - - (6,356) (6,356)
--------- ------ -------- --------- ---------
Balance,
January 7, 1999 7,801,150 $7,801 $569,942 $(567,466) $ 10,277
========= ====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-22
<PAGE>
e-MedSoft.com
Statement of Cash Flows
For The Period June 1, 1998 to January 7, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,356)
Adjustments to reconcile net loss to net
cash used in operating activities:
(Increase) in prepayments and other
receivables (5,420)
Increase in accounts payable and
accrued liabilities 7,350
----------
Cash Used in Operating Activities (4,426)
----------
CASH FLOWS FROM FINANCING ACTIVITIES--
Proceeds from notes payable 4,000
----------
DECREASE IN CASH (426)
CASH AT THE BEGINNING OF THE PERIOD 617
----------
CASH AT THE END OF THE PERIOD $ 191
==========
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
Interest $ -
Income taxes -
NON-CASH TRANSACTIONS
Issuance of restricted stock for payment
of debt $ 41,596
The accompanying notes are an integral part of this financial statement.
F-23
<PAGE>
e-MedSoft.com
Notes to Closing Financial Statements For the
Period from June 1, 1998 to January 7, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
e-MedSoft.com ("e-MedSoft" or the "Company") was initially organized in Nevada
on August 25, 1986, under the name of High Hopes, Inc., in order to evaluate,
structure and complete a merger with, or acquisition of, prospects consisting
of private companies, partnerships or sole proprietorships.
On January 7, 1999, e-MedSoft.com acquired the assets of Sanga e-Health, LLC
for 41,417,176 restricted shares of the Company's common stock which
represented 80% of the then outstanding shares. This transaction was
accounted for as a reverse acquisition. Therefore, the closing financial
statements included herein present the operations of the Company from June 1,
1998 to January 7, 1999. The Company had minimal activity for this period.
Per Share Information
In accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
"Computation of Earnings Per Share," basic earnings per share is computed by
dividing the net earnings available to common stockholders for the period by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing the net earnings for the
period by the weighted average number of common and common equivalent shares
outstanding during the period.
Common equivalent shares, consisting of incremental common shares issuable
upon the exercise of stock options and warrants are excluded from the diluted
earnings per share calculation if their effect is anti-dilutive.
A summary of the shares used to compute earnings per share is as follows:
Period from
June 1, 1998 to
January 7, 1999
---------------
Weighted average common shares
used to compute basic net loss
per share.............................. 7,052,059
Effect of dilutive securities........... --
---------
Weighted average common shares
used to compute dilutive net
loss per share......................... 7,052,059
=========
F-24
<PAGE>
Income Taxes
As of January 7, 1999, e-MedSoft had net operating losses available for carry-
over to future years of approximately $560,000, expiring in 2012. Because of
changes in ownership of the Company, future utilization of these loss
carryovers has been limited, consequently the deferred tax asset of
approximately $224,000 has been fully reserved.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported period. Actual results could differ from those estimates.
2. SHAREHOLDERS' EQUITY
In December 1998, in conjunction with the anticipated acquisition of SEH's
Internet based health care management system, the Company's Board of Directors
approved a 5 for 1 forward stock split for shareholders of record on January
4, 1999. All prior share information has been restated to reflect the stock
split.
On December 24, 1998, e-MedSoft.com issued 800,000 shares (post-split) of the
Company's stock, for the retirement of debt and other liabilities, which, in
aggregate, amounted to $41,596.
3. REVERSE ACQUISITION OF E-MEDSOFT.COM
On January 7, 1999, the Company acquired the assets of Sanga e-Health, LLC
("SEH") for 41,417,176 restricted shares of the Company's common stock. In
addition, as consideration for finder's fees and services, the Company issued
2,553,144 restricted shares of the Company's common stock and 1,035,429
warrants to purchase restricted shares of the Company's common stock. As a
result of this transaction, SEH owned approximately 80% of the then
outstanding shares. This transaction was accounted for as a reverse
acquisition that resulted in a capital reorganization.
F-25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: September 14, 1999 e-MedSoft.com
By:/s/ John F. Andrews
John F. Andrews, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ John F. Andrews Chairman, President and September 14, 1999
John F. Andrews Chief Executive Officer
/s/ Margaret A. Harris Chief Financial Officer September 14, 1999
Margaret A. Harris
__________________________ Director
Sam J. W. Romeo
/s/ Mitchell J. Stein Director September 14, 1999
Mitchell J. Stein
RESTATED ARTICLES OF INCORPORATION
WITH AMENDMENTS OF
e-MedSoft.com
KNOW ALL MEN BY THESE PRESENTS: That the undersigned corporation,
e-MedSoft.com, pursuant to the provisions of the General Corporation Law of
Nevada, does hereby adopt these Restated Articles of Incorporation with
Amendments.
On June 30, 1999, the Board of Directors and Shareholders holding a
majority of the voting power of the Corporation approved and adopted the
following resolution:
RESOLVED: That the Corporation's Articles of Incorporation, as amended,
be amended in their entirety, and that such amended Articles of Incorporation
be restated and filed with the Nevada Secretary of State in the manner
prescribed by the General Corporation Law of Nevada.
These Restated Articles of Incorporation with Amendments shall not effect
any exchange, reclassification, or cancellation of issued shares, nor shall
they effect a change in the amount of stated capital.
The Corporation's Articles of Incorporation are hereby amended and
restated to read as follows:
ARTICLE I
NAME
The name of the Corporation is: e-MedSoft.com.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation is One East First
Street, Reno, Nevada 89501, and the name of the registered agent at such
address is Corporation Trust Co. of Nevada. Either the registered office or
the registered agent may be changed in the manner permitted by law.
ARTICLE III
PURPOSE
The Corporation may engage in any lawful activity.
ARTICLE IV
CAPITAL STOCK
The aggregate number of shares which this Corporation shall have
authority to issue is 100,000,000 shares of $.001 par value each, which shares
shall be designated "Common Stock"; and 5,000,000 shares of $.001 par value
each, which shares shall be designated "Preferred Stock" and which may be
issued in one or more series at the discretion of the Board of Directors. In
establishing a series the Board of Directors shall give to it a distinctive
designation so as to distinguish it from the shares of all other series and
classes, shall fix the number of shares in such series, and the preferences,
<PAGE>
rights and restrictions thereof. All shares of any one series shall be alike
in every particular except as otherwise provided by these Articles of
Incorporation or the General Corporation Law of Nevada.
1. Dividends. Dividends in cash, property or shares shall be paid upon
the Preferred Stock for any year on a cumulative or noncumulative basis as
determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock, to the extent earned surplus for each such year is
available, in an amount as determined by a resolution of the Board of
Directors. Such Preferred Stock dividends shall be paid pro rata to holders
of Preferred Stock in any amount not less than nor more than the rate as
determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock. No other dividend shall be paid on the Preferred Stock.
Dividends in cash, property or shares of the Corporation may be paid upon
the Common Stock, as and when declared by the Board of Directors, out of funds
of the Corporation to the extent and in the manner permitted by law, except
that no Common Stock dividend shall be paid for any year unless the holders of
Preferred Stock, if any, shall receive the maximum allowable Preferred Stock
dividend for such year.
2. Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, and after paying or adequately providing for
the payment of all its obligations, the remainder of the assets of the
Corporation shall be distributed, either in cash or in kind, first pro rata to
the holders of the Preferred Stock until an amount to be determined by a
resolution of the Board of Directors prior to issuance of such Preferred
Stock, has been distributed per share, and, then, the remainder pro rata to
the holders of the Common Stock.
3. Redemption. The Preferred Stock may be redeemed in whole or in part
as determined by a resolution of the Board of Directors prior to the issuance
of such Preferred Stock, upon prior notice to the holders of record of the
Preferred Stock, published, mailed and given in such manner and form and on
such other terms and conditions as may be prescribed by the Bylaws or by
resolution of the Board of Directors, by payment in cash or Common Stock for
each share of the Preferred Stock to be redeemed, as determined by a
resolution of the Board of Directors prior to the issuance of such Preferred
Stock. Common Stock used to redeem Preferred Stock shall be valued as
determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock. Any rights to or arising from fractional shares shall
be treated as rights to or arising from one share. No such purchase or
retirement shall be made if the capital of the Corporation would be impaired
thereby.
If less than all the outstanding shares are to be redeemed, such
redemption may be made by lot or pro rata as may be prescribed by resolution
of the Board of Directors; provided, however, that the Board of Directors may
alternatively invite from shareholders offers to the Corporation of Preferred
Stock at less than an amount to be determined by a resolution of the Board of
Directors prior to issuance of such Preferred Stock, and when such offers are
invited, the Board of Directors shall then be required to buy at the lowest
price or prices offered, up to the amount to be purchased.
2
<PAGE>
From and after the date fixed in any such notice as the date of
redemption (unless default shall be made by the Corporation in the payment of
the redemption price), all dividends on the Preferred Stock thereby called for
redemption shall cease to accrue and all rights of the holders thereof as
stockholders of the Corporation, except the right to receive the redemption
price, shall cease and terminate.
4. Voting Rights; Cumulative Voting. Each outstanding share of Common
Stock shall be entitled to one vote and each fractional share of Common Stock
shall be entitled to a corresponding fractional vote on each matter submitted
to a vote of shareholders. A majority of the shares of Common Stock entitled
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders. Except as otherwise provided by these Articles of
Incorporation or the General Corporation Law of Nevada, if a quorum is
present, the affirmative vote of a majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
shareholders. Cumulative voting shall not be allowed in the election of
directors of this Corporation.
Shares of Preferred Stock shall only be entitled to such vote as is
determined by the Board of Directors prior to the issuance of such stock,
except as required by law, in which case each share of Preferred Stock shall
be entitled to one vote.
5. Denial of Preemptive Rights. No holder of any shares of the
Corporation, whether now or hereafter authorized, shall have any preemptive or
preferential right to acquire any shares or securities of the Corporation,
including shares or securities held in the treasury of the Corporation.
6. Conversion Rights. Holders of shares of Preferred Stock may be
granted the right to convert such Preferred Stock to Common Stock of the
Corporation on such terms as may be determined by the Board of Directors prior
to issuance of such Preferred Stock.
ARTICLE V
BOARD OF DIRECTORS
The members of the governing board of the Corporation shall be styled as
directors. The Board of Directors shall consist of at least one (1) member,
which number may be increased or decreased, to not less than one (1), by
resolution of the Board of Directors. The name and address of the Director of
the Corporation as of the date of these Restated Articles of Incorporation
with Amendments is as follows:
John Andrews
1300 Marsh Landing Parkway, Suite 106
Jacksonville, Florida 32250
ARTICLE VI
TERM
The Corporation shall have perpetual existence.
3
<PAGE>
ARTICLE VII
INDEMNIFICATION
Every person who was or is a party to, or is threatened to be made a
party to, or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he, or a
person of whom he is the legal representative, is or was a director or officer
of the corporation, or is or was serving at the request of the corporation as
a director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise, shall be indemnified
and held harmless to the fullest extent legally permissible under the laws of
the State of Nevada from time to time against all expenses, liability and loss
(including attorneys' fees, judgments, fines and amounts paid or to be paid in
settlement) reasonably incurred or suffered by him in connection therewith.
Such right of indemnification shall be a contract right which may be enforced
in any manner desired by such person. The expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the Corporation. Such right of indemnification
shall not be exclusive of any other right which such directors, officers or
representatives may have or hereafter acquire, and, without limiting the
generality of such statement, they shall be entitled to their respective
rights of indemnification under any bylaw, agreement, vote of stockholders,
provision of law, or otherwise, as well as their rights under this Article.
Without limiting the application of the foregoing, the Board of Directors
may adopt bylaws from time to time with respect to indemnification, to provide
at all times the fullest indemnification permitted by the laws of the State of
Nevada, and may cause the Corporation to purchase and maintain insurance on
behalf of any person who is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as director or officer
of another corporation, or as its representative in a partnership, joint
venture, trust or other enterprises against any liability asserted against
such person and incurred in any such capacity or arising out of such status,
whether or not the Corporation would have the power to indemnify such person.
The indemnification provided in this Article shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
inure to the benefit of the heirs, executors and administrators of such
person.
ARTICLE VIII
DIRECTORS' AND OFFICERS' LIABILITY
A director or officer of the Corporation shall not be personally liable
to this Corporation or its stockholders for damages for breach of fiduciary
duty as a director or officer, but this article shall not eliminate or limit
the liability of a director or officer for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or (ii) the
payment of distributions in violation of NRS 78.300. Any repeal or
modification of this Article by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation for acts or
omissions prior to such repeal or modification.
4
<PAGE>
ARTICLE IX
AMENDMENTS
The Corporation reserves the right to amend its Articles of Incorporation
from time to time in accordance with the General Corporation Law of Nevada.
ARTICLE X
ADOPTION AND AMENDMENT OF BYLAWS
The initial Bylaws of the Corporation shall be adopted by its board of
directors. Subject to repeal or change by action of the shareholders, the
power to alter, amend or repeal the Bylaws or adopt new Bylaws shall be vested
in the board of directors. The Bylaws may contain any provisions for the
regulation and management of the affairs of the Corporation not inconsistent
with law or these Articles of Incorporation.
IN WITNESS WHEREOF, the undersigned officers, for and on behalf of the
Corporation have signed these Restated Articles of Incorporation with
Amendments this 30th day of June 1999.
e-MedSoft.com
ATTEST:
By:/s/ Margaret Harris By:/s/ John Andrews
Margaret Harris, Secretary John Andrews, President
ACKNOWLEDGMENT
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
On this 30th day of June 1999, personally appeared before me, a Notary
Public, John Andrews and Margaret Harris, President and Secretary,
respectively, of e-MedSoft.com, to acknowledged to me that he executed the
foregoing instrument.
/s/ Virginia M. Anglada 4/21/2002
Notary Public in and for said
County and State
5
ASSIGNMENT OF RIGHTS UNDER FINANCING AGREEMENTS
This confirms that, in consideration of various agreements entered into
concurrently herewith, Sanga International, Inc. and Sanga USA, Inc. ("Sanga
Group") hereby sell, assign, transfer and give up in favor of MedTech, Inc.
all right, title and interest under or with respect to all of Sanga Group's
contractual rights and privileges arising from Sanga Group's agreements with
Advanced Reproductive Care, Fred Hutchinson Cancer Research Center, Meridian
Group, National Century Financial Enterprises, Inc., any affiliates or
subsidiaries of National Century Financial Enterprises, Inc. and any other
existing client of the Sanga Group doing business in the health care industry
(collectively "HealthCareClients"). In order to carry this assignment into
effect, MedTech, Inc. -- within its sole and absolute discretion -- is
entitled to negotiate and execute any amendments to the existing agreements
with the HealthCareClients and/or MedTech, Inc. is entitled to execute new
agreements with the HealthCareClients.
This Agreement is executed this 23rd day of January 1999.
SANGA INTERNATIONAL, INC.
By:/s/ John F. Andrews
John F. Andrews
President and CEO
SANGA USA, INC.
By:/s/ John F. Andrews
John F. Andrews
President and CEO
This Agreement is accepted this 23rd day of January 1999.
MEDTECH, INC.
By:/s/ John F. Andrews
John F. Andrews
President
AGREEMENT
THIS AGREEMENT is made this 14th day of June 1999, by and between Donald
H. Ayers ("Ayers") and e-MedSoft.com, a Nevada corporation ("e-Med").
WHEREAS, Ayers loaned a total of $750,000 to e-Med during March 1999
pursuant to a promissory note and the parties have agreed that Ayers will
accept warrants to purchase e-Med's common stock as full payment for the
promissory note and accrued interest.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein;
THE PARTIES HERETO AGREE AS FOLLOWS:
1. e-Med agrees to issue to Ayers a five year warrant to purchase
150,000 shares of e-Med's common stock at a price of $.01 per share, and the
warrant will be substantially in the form of the warrant attached hereto as
Exhibit A, which is incorporated by reference herein.
2. Ayers agrees to accept the warrant referred to in Paragraph 1 above
as full payment of all of e-Med's obligations pursuant to the promissory note
executed by e-Med during March 1999 payable to Ayers in the principal amount
of $750,000. Ayers will continue to own the 1,000,000 shares of e-Med common
stock and the 250,000 warrants he was issued in connection with the above
transaction and he will waive the remaining balance of his acquisition fee.
3. This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4. This Agreement shall inure to and be binding upon the heirs,
executors, personal representatives, successors and assigns of each of the
parties to this agreement.
AGREED TO AND ACCEPTED on the 14th day of June 1999.
e-MedSoft.com
/s/ Donald H. Ayers By:/s/ John F. Andrews
Donald H. Ayers John F. Andrews, President
AGREEMENT
THIS AGREEMENT is made this 15th day of May 1999, by and between Trammel
Investors LLC ("Trammel") and e-MedSoft.com, a Nevada corporation ("e-Med").
WHEREAS, Trammel loaned a total of $750,000 to e-Med during March 1999
pursuant to a 60-day promissory note in the amount of $1,000,000 and the
parties have agreed that Trammel will extend its promissory note for two
years; and
WHEREAS, Trammel is a shareholder of e-Med and desires to assist e-Med
meet its cash flow requirements.
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged,
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Trammel agrees to a two-year extension of its $1,000,000 Promissory
Note such that the due date is now May 19, 2001. Interest at 12% will
continue to be payable monthly and, except as set forth herein, all other
terms and conditions of the Promissory Note will remain in effect.
2. e-Med agrees to make a $300,000 principal payment on the Promissory
Note on or before September 30, 1999.
3. Trammel agrees to waive all remaining unpaid origination fees.
4. This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5. This Agreement shall inure to and be binding upon the heirs,
executors, personal representatives, successors and assigns of each of the
parties to this agreement.
AGREED TO AND ACCEPTED on the 15th day of May 1999.
Trammel Investors LLC e-MedSoft.com
By:/s/ Emanuel Barling By:/s/ John F. Andrews
Emanuel Barling John F. Andrews, President
SUBSIDIARIES OF THE REGISTRANT
NAME OF SUBSIDIARY STATE OF INCORPORATION
------------------ ----------------------
e-Net Technology Limited England and Wales, United Kingdom
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of earnings found on pages F-3 and F-4 of the
Company's Form 10-KSB for the ten months ended March 31, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 51,712
<SECURITIES> 0
<RECEIVABLES> 5,243,418
<ALLOWANCES> 0
<INVENTORY> 713,002
<CURRENT-ASSETS> 6,735,976
<PP&E> 1,308,863
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,462,908
<CURRENT-LIABILITIES> 8,378,191
<BONDS> 0
0
0
<COMMON> 51,816
<OTHER-SE> 6,061,034
<TOTAL-LIABILITY-AND-EQUITY> 17,462,908
<SALES> 2,649,563
<TOTAL-REVENUES> 2,649,563
<CGS> 1,998,505
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,040,279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 376,889
<INCOME-PRETAX> (765,689)
<INCOME-TAX> 138,928
<INCOME-CONTINUING> (904,617)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (904,617)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
