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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number: 0-26567
E-MEDSOFT.COM
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(Exact name of small business issuer as specified in its charter)
Nevada 84-1037630
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No___
As of November 8, 1999, 53,858,418 shares of common stock, $.001 par value per
share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes__ No X
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INDEX
Page No.
PART I. FINANCIAL STATEMENTS .............................. 3
Consolidated Balance Sheets at September 30, 1999
(unaudited) and March 31, 1999 ........................ 3
Consolidated Statements of Operations (unaudited)
for the Three Months and Six Months ended
September 30, 1999 .................................... 4
Consolidated Statements of Cash Flows (unaudited)
for the Six Months ended September 30, 1999 ........... 5
Notes to the Consolidated Financial Statements at
September 30, 1999 (unaudited) ........................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .... 10
PART II. OTHER INFORMATION ................................ 16
ITEM 1. LEGAL PROCEEDINGS ............................ 16
ITEM 2. CHANGES IN SECURITIES ........................ 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES .............. 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ............................. 16
ITEM 5. OTHER INFORMATION ............................ 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............. 16
SIGNATURES ................................................. 17
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e-MedSoft.com
Consolidated Balance Sheets
September 30, March 31,
1999 1999
(unaudited)
ASSETS
Current Assets:
Cash $ 158,757 $ 51,712
Restricted cash 141,205 138,435
Accounts receivable, net 3,965,844 4,181,285
Other receivables 328,877 1,062,133
Inventory 3,449,721 713,002
Related party receivables 233,112 193,263
Prepayments and other 484,416 381,591
Deferred taxes 241,143 14,555
----------- -----------
9,003,075 6,735,976
Long-Term Assets:
Property and Equipment, net 1,788,304 1,308,863
Goodwill, net of amortization 7,682,286 8,054,630
Software system investment 6,468,162 -
Deferred financing, net of amortization - 1,363,439
Other 7,153 -
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15,945,905 10,726,932
----------- -----------
TOTAL ASSETS $24,948,980 $17,462,908
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 2,022,912 $ 967,425
Accounts payable 7,478,485 6,017,183
Accrued liabilities 945,116 412,405
Taxes payable 132,618 165,280
Related party debt 333,000 -
Current maturities of bridge financing 3,638,932 650,623
Current maturities of capitalized leases 352,928 165,275
----------- -----------
14,903,991 8,378,191
Long-Term Liabilities:
Capital leases 782,873 416,409
Bridge financing 350,000 1,361,877
Other long-term liabilities 1,193,581 1,193,581
----------- -----------
2,326,454 2,971,867
Shareholders' Equity:
Common shares 53,853 51,816
Paid in capital 13,024,491 6,951,312
Accumulated deficit (5,345,573) (904,617)
Accumulated other comprehensive income
(loss) (14,236) 14,339
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7,718,535 6,112,850
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $24,948,980 $17,462,908
=========== ===========
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e-MedSoft.com
Consolidated Statements of Operations
(Unaudited)
Three Months Six Months
Ended 9/30/99 Ended 9/30/99
NET SALES $ 8,868,529 $13,311,780
COST OF SALES 6,778,559 10,408,058
----------- -----------
GROSS PROFIT 2,089,970 2,903,722
OPERATING EXPENSES:
Research and development 638,602 886,561
Sales and marketing 1,035,564 1,647,339
General and administrative 1,860,773 3,266,751
Depreciation and amortization 361,989 706,508
----------- -----------
Total Operating Expenses 3,896,928 6,507,159
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OPERATING LOSS (1,806,958) (3,603,437)
OTHER INCOME (EXPENSE):
Interest expense (167,089) (1,502,366)
Other income (expense) (679) 2,897
----------- -----------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY INCOME (1,974,726) (5,102,906)
EXTRAORDINARY INCOME - 357,152
----------- -----------
LOSS BEFORE INCOME TAXES (1,974,726) (4,745,754)
TAX BENEFIT 62,187 304,798
----------- -----------
NET LOSS $(1,912,539) $(4,440,956)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (.04) $ (.08)
=========== ===========
AVERAGE WEIGHTED SHARES OUTSTANDING 52,972,074 52,452,618
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e-MedSoft.com
Consolidated Statement of Cash Flows
Six Months Ended September 30, 1999
(Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(4,440,956)
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on exchange of debt for warrants (357,152)
Non-cash equity compensation 253,316
Deferred income taxes (226,302)
Depreciation 301,268
Amortization of goodwill 405,240
Amortization of deferred financing 1,243,440
(Increase)decrease in current assets:
Accounts receivable 207,690
Inventory (2,736,719)
Prepayments and other receivables 580,660
Increase (decrease)in current liabilities:
Accounts payable and accrued liabilities 1,964,405
Income taxes (32,662)
-----------
Cash Used in Operating Activities (2,837,772)
-----------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in software (2,000,000)
Additions to property and equipment (36,381)
Business acquisition (31,526)
-----------
Cash Used in Investing Activities (2,067,907)
-----------
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from interim bridge financing 3,321,932
Payments on financing leases (193,641)
Net change to credit facility 1,036,433
Funds from equity financing 848,000
-----------
Cash Provided by Financing Activities 5,012,724
-----------
INCREASE IN CASH 107,045
CASH AT THE BEGINNING OF THE PERIOD 51,712
-----------
CASH AT THE END OF THE PERIOD $ 158,757
===========
NON-CASH TRANSACTIONS
Issuance of warrants for payment of debt $ 505,738
Issuance of shares for acquisition of software 4,468,162
Property and equipment purchased through capital leases 736,299
-----------
$ 5,710,199
===========
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e-MedSoft.com
Notes to Consolidated Financial Statements
September 30, 1999
(Unaudited)
1) CONDENSED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by e-MedSoft.com
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted as allowed by
such rules and regulations, and e-MedSoft.com believes that the disclosures
are adequate to make the information presented not misleading. Operating
results for the three and six months ended September 30, 1999, are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000. While management believes the procedures followed in
preparing these financial statements are reasonable, the accuracy of the
amounts are in some respects dependent upon the facts that will exist, and
procedures that will be accomplished by e-MedSoft.com later in the year.
These financial statements should be read in conjunction with the March 31,
1999 audited financial statements and the accompanying notes thereto, and the
Forms 8-K filed by the Company on March 19, 1999 and September 1, 1999.
The management of e-MedSoft.com believes that the accompanying unaudited
condensed financial statements contain all adjustments (including normal
recurring adjustments) necessary to present fairly the operations and cash
flows for the periods presented.
2) BUSINESS COMBINATIONS
On March 19, 1999, the Company completed the acquisition of all issued and
outstanding stock of e-Net Technology Ltd. ("e-Net", formerly Palm Technology
Holdings Ltd), a UK based company. 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. The
following information presents pro forma information for the prior three and
six month periods ended September 30, 1998 of e-Net as if such transaction had
occurred at the beginning of the period (unaudited):
Three Months Six Months
Net Sales $ 5,295,664 $10,102,259
Cost of Sales 3,911,229 7,819,153
Gross Margin 1,384,435 2,283,106
Operating Expenses 1,223,185 2,277,320
Amortization of Goodwill 202,222 404,444
Interest Expense 50,369 147,681
Loss Before Income Taxes $ (91,342) $ (546,339)
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In May 1999, the Company's UK subsidiary acquired a small Internet financial
services business. This transaction was accounted for under the purchase
method. The goodwill realized in this acquisition was approximately $32,000
and is being amortized over a 5 year period.
3) COMPANY FUNDING
During the six months ended September 30, 1999 the Company received
approximately $1,181,000 from National Trust Properties, Inc. ("NTP"), a
related party as described below, as interim funding of its operations. On
August 1, 1999, in consideration for approximately $848,000 of the funding by
NTP and for other fiscal consideration provided or to be provided by NTP to
the Company in the form of advances from time to time, the Company agreed to
issue 1,500,000 shares of its common stock to NTP. Subsequently, NTP and the
Company amended the agreement to issue the shares based on the trading price
of the stock at the dates the funds were received. As of September 30, 1999,
the Company has an obligation to issue 272,475 shares to NTP. The remaining
balance of the funds received through September 30, 1999, of $333,000, has
been reflected in related party debt. This debt bears interest at prime plus
1% and is due within one year from the funding date.
During the second quarter, the Company entered into a financing arrangement
with a 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
had borrowed $3,000,000 through September 30, 1999.
4) SOFTWARE ACQUISITION
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.
5) WARRANTS AND STOCK OPTION
During the second quarter the Company agreed to issue 50,000 warrants and
295,000 options to purchase 345,000 shares of its common stock. The value of
these warrants and options were approximately $594,100 and will be amortized
over the vesting periods of twelve to eighteen months. The Company expensed
approximately $25,000 for the three months ended September 30, 1999.
6) BASIC AND FULLY 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.
7
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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:
Three Months Six Months Ended
Ended 9/30/99 9/30/00
Weighted average common shares
used to compute basic net loss
per share.............................. 52,972,074 52,452,618
Effect of dilutive securities........... -- --
---------- ----------
Weighted average common shares
used to compute diluted net
loss per share......................... 52,972,074 52,452,618
========== ==========
As of September 30, 1999, options and warrants to purchase 2,217,429 shares of
common stock were outstanding. These common stock equivalents were excluded
from the computation of diluted loss per share for the three and six months
ended September 30, 1999 as such options and warrants were anti-dilutive.
7) SEGMENT INFORMATION
e-MedSoft.com derives its net sales 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 three and six month periods ended September 30, 1999, the
Company derived primarily all of its net sales from its operations in the
United Kingdom, primarily from computer hardware and software sales.
The accounting policies of the segments are the same and the Company evaluates
performance based on operating earnings of the respective business segments.
The Company's net sales from external customers for the three and six month
periods ended September 30, 1999 and the long-lived assets at September 30,
1999, classified by geographic area, were as follows (in thousands):
United United
States Kingdom Total
------ ------- -----
Net Sales:
Three months ended 9/30/99...... $ 33 $ 8,836 $ 8,869
Six months ended 9/30/99........ 33 13,279 13,312
Long-lived assets at 9/30/99..... 14,173 1,773 15,946
The Company's U.K. subsidiary, e-Net, had two customers who's sales
represented 8% of net sales each for an aggregate of 16% for the six month
period ended September 30, 1999.
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8) RELATED PARTY TRANSACTIONS
During the six month period ended September 30, 1999, the Company received
funding from National Trust Properties, Inc. for the issuance of shares and
debt as described above. The Company's board member and a beneficial
shareholder, Mitchell J. Stein, is also an officer and director (but not
owner) of NTP.
9) SUBSEQUENT EVENT
Subsequent to quarter end, the Company entered into a stock subscription
agreement and received $600,000 for the issuance of 300,000 shares of its
common stock and agreed to issue another 750,000 shares of its common stock
upon the completion and acceptance of software being developed for the
Company.
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ITEM 2
e-MedSoft.com
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL HISTORY
e-MedSoft.com (the "Company") 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.
On January 7, 1999, the Company acquired from Sanga e-Health, LLC
("SEH"), the rights to a 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. 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.
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 UK based company. e-Net is a diversified Web Technology 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.
The results of operations presented herein reflect the net sales and
expenses of e-Net and the costs of development and marketing the Company's
Software product acquired on January 7, 1999 (see above). Prior to the
acquisition of the on-line health care management system on January 7, 1999,
and the acquisition of e-Net on March 19, 1999, the Company's operating
expenses, interest income and expense were minimal. Therefore, the financial
statements included herein only present the historical information for the
three months and six months ended September 30, 1999. The following analysis
compares the operating results for the three and six months ended September
30, 1999 to pro forma information for the three and six months ended September
30, 1998, which gives effect to the acquisition of e-Net as if such
transaction had occurred at the beginning of that period (in
thousands)(unaudited):
9/30/99 9/30/98
Pro forma
3 months 6 months 3 months 6 months
-------- -------- -------- --------
Net Sales $8,869 $13,312 $5,295 $10,102
Cost of Sales 6,779 10,408 3,911 7,819
Gross Margin 2,090 2,904 1,384 2,283
Operating Expenses 3,897 6,507 1,425 2,682
Operating loss (1,807) (3,603) (41) (399)
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NET SALES
Net sales for the three and six months ended September 30, 1999 were $8.9
million and $13.3 million, respectively, compared to pro forma revenues for
the three and six months ended September 30, 1998 of $5.3 million and $10.1
million. Orders in process (backlog) at September 30, 1999 and 1998 were
approximately $2.7 million and $1.1 million, respectively. The increase in
backlog for the six months ended September 30, 1999 was a direct result of
delayed product delivery from the Company's major hardware supplier, Sun
Microsystems ("Sun"). The increase in reported net sales was approximately
$3.6 million and $3.2 million for the three and six months ended September 30,
1999. This increase is mainly the result of the Company's U.K. subsidiary,
e-Net, obtaining a higher preferred vendor status with Sun during the
beginning of the year and thereby increasing its market share for the sale and
distribution of Sun hardware. In addition, during the quarter ended September
30, 1999, e-Net successfully launched its new enterprise java beans e-commerce
software product ("esparto"). e-Net has now implemented esparto in several
customer sites and has a strong prospect list with a significant number of
these expected to close in the current quarter. In addition, e-Net has
undertaken several other software product campaigns (including Healthcare)
with Oracle that is now beginning to reach a more diversified market.
COST OF SALES
Cost of sales for the three and six months ended September 30, 1999 were
$6.8 million and $10.4 million compared to pro forma cost of sales of $3.9 and
$7.8 million for the comparable prior year periods. The increase in cost of
sales was mainly due to the higher sales and distribution of SMS hardware.
Cost of sales as a percent of revenues increased slightly from 77.4% for the
pro forma six month period ended September 30, 1998 to 78.2% for the six
months ended September 30, 1999. This slight increase reflects the decrease
in hardware margins, as the Company has increased its market via its teaming
with SMS and Oracle to compete with other major hardware and software
distributors such as MicroSoft.
OPERATING COSTS
RESEARCH AND DEVELOPMENT
Research and development costs of approximately $639,000 and $887,000 for
the three and six months ended September 30, 1999 consist of salaries,
professional fees and equipment costs of the internal development of new
e-commerce software products in the UK and the continuing development of new
internet products in the U.S. During the three and six months ended September
30, 1999 e-Net incurred approximately $324,000 and $572,000, respectively, in
development costs. In addition, the Company's U.S. operations incurred
approximately $315,000 in the three months ended September 1999 for the
development of new Internet products to be integrated with its existing
Internet based health care management system.
SALES AND MARKETING
Sales and marketing costs of approximately $1,036,000 and $1,647,000 for
the three and six months ended September 30, 1999, mainly consist of costs for
salaries, travel, advertising, marketing literature and seminars. These costs
reflect the Company's business plan to increase markets and customers
throughout the United States and United Kingdom. Sales and marketing costs
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for the six months ended September 30, 1999 increased approximately $600,000
in the U.K. compared to September 30, 1998 pro forma amounts. This is the
result of increasing its sales force to implement e-Net's planned market
penetration for the sale of hardware and software. In addition, the U.S.
operations incurred approximately $140,000 in sales and marketing costs for
the six month period ended September 1999 as a result of the marketing of its
web based health care management system and related sales force.
GENERAL AND ADMINISTRATIVE
General and administrative costs of approximately $1,861,000 and
$3,267,000 for the three and six months ended September 30, 1999 mainly
consist of salaries, facility costs and professional fees. These expenses
include approximtely $253,000 of non cash compensation paid to employees and
consultants through the issuance of shares, warrants and options.
Approximately $2.1 million of these costs for the six months ended September
30, 1999 related to the Company's reorganization and infrastructure
development of its U.S. operations in accordance with its business plans.
These costs, which include legal fees, accountancy fees and other consulting
fees, also represent the efforts of the Company to broaden its financial and
investment market visibility and obtain funding for its operations and planned
expansion.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of approximately $362,000 and $707,000 for
the three and six months ended September 30, 1999 include amortization of
goodwill of $202,000 and $405,000 for the respective periods. The Company is
amortizing goodwill over a five- to ten-year period.
FINANCE COSTS
Finance costs of approximately $1,502,000 for the six months ended
September 30, 1999 include approximately $1,243,000 of amortization of
deferred financing costs incurred as a result of the bridge financing obtained
for the acquisition of e-Net. As of June 30, 1999 all deferred financing costs
had been amortized. In addition, finance costs include approximately $167,000
and $259,000 of interest expense on the Company's bridge debt and e-Net's
credit facility for the three and six-month periods ended September 1999,
respectively.
EXTRAORDINARY GAIN
The extraordinary gain of approximately $357,000 is due to the
recognition of the gain associated with the exchange of bridge debt and its
related origination fees and interest payable for the issuance of warrants.
INCOME TAXES
Income tax benefit of approximately $62,000 and $305,000 for the three
and six months ended September 30, 1999 reflect an estimated tax benefit for
the U.K. operations that the Company projects will be used by the end of the
year. The Company estimated the effective U.K. tax rate at 31%.
12
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LIQUIDITY
The operating costs of the Company have been funded by its operations,
sale of equity, its credit facility, and through loans from private investors.
As of September 30, 1999, the Company had negative working capital of
approximately $5.9 million, including cash of $159,000 and restricted cash of
$141,000. The negative working capital includes approximately $2.0 million
and $4.0 million for the Company's credit facility and bridge financing,
respectively. It is anticipated that the credit facility will continue to
renew and not be payable within a year.
During the quarter ended June 30, 1999, 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 had agreed to make a
principal payment of $300,000 in September 1999 to obtain this extension. As
of September 30, 1999, the Company had not made this principal payment, as the
lender agreed to extend this payment contingent upon the Company entering into
certain funding arrangements with NTP (discussed below).
During the six month period ended September 30, 1999 the Company received
approximately $1,181,000 from National Trust Properties, Inc. ("NTP"), a
related party as described below, as interim funding of its operations. On
August 1, 1999, in consideration for approximately $848,000 of the funding by
NTP and for other fiscal consideration provided or to be provided by NTP to
the Company in the form of advances from time to time, the Company agreed to
issue 1,500,000 shares of its common stock to NTP. Subsequently, NTP and the
Company amended the agreement to issue the shares based on the trading price
of the stock at the dates the funds were received. As of September 30, 1999,
the Company has an obligation to issue 272,475 shares to NTP. The remaining
balance of the funds received through September 30, 1999, of $333,000, has
been reflected in related party debt. This debt bears interest at prime plus
1% and is due within one year from the funding date.
During the quarter ended September 30, 1999, the Company entered into a
financing arrangement with a 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 $3,500,000 through November 8, 1999, of which $2,000,000 was used
to fund the purchase of managed care software technology.
Also during the quarter ended September 30, 1999, e-Net's management
advanced the subsidiary approximately 260,000 pounds to provide working
capital. The advance was repaid in September 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 limit on the
renewed line to 1,300,000 pounds.
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The Company entered into agreements with two investment banking firms to
provide numerous services to the Company including, among other things,
assistance on corporate developments and financing strategies, identifying
prospective investors and acquisition targets, performing due diligence and
valuation analyses of targets.
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.
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. In
addition, the Company has reviewed the software system acquired from
University Affiliates in September 1999. University Affiliates provided
documentation certifying the year 2000 compliance of the acquired systems.
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 cannot 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
14
<PAGE>
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
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 has completed an assessment of all third-
party hardware and software that it uses to provide service of any kind to its
customers, and management has concluded that all aspects are Year 2000
compliant. In addition, the Company has requested and received Year 2000
compliance documentation from vendors of third-party products on which it is
reliant, including Sun Microsystems and IBM. The Company has a formal
contingency plan that includes, but is not limited to, resetting the system
date on the service systems and rerouting all of its network traffic through
dedicated lease lines in the event of an outage at its telecommunications
provider.
Although the Company cannot guarantee that no 2000 problems will occur,
management believes that it has the appropriate resources to mitigate the risk
to the Company of any year 2000 problems.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
During the three months ended September 30, 1999, the Company issued
1,721,973 shares to an entity as partial consideration for the purchase of a
computer software technology. In this transaction, the entity which acquired
the shares was an "accredited investor." With respect to this transaction,
the Company relied on Section 4(2) of the Act. The entity was provided with
information on the Company and it represented that it was purchasing the
shares for investment only and not for the purpose of distribution. The
appropriate restrictive legend was placed on the certificate and stop transfer
orders were issued to the transfer agent.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27 Financial Data Schedule Filed herewith
electronically
(b) REPORTS ON FORM 8-K. The Company filed a Form 8-K dated
September 1, 1999, which reported under Item 2 the acquisition of a managed
care computer software technology from University Affiliates IPA ("UA"), an
affiliate of the University of Southern California School of Medicine. 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.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
e-MedSoft.com
Date: November 17, 1999 By: /s/ Margaret A. Harris
Margaret A. Harris, Chief
Financial Officer
17
<PAGE>
<PAGE>
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and statements of operations found on pages 3 and 4 of the
Company's Form 10-QSB for the year to date, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 158,757
<SECURITIES> 0
<RECEIVABLES> 4,294,721
<ALLOWANCES> 0
<INVENTORY> 3,449,721
<CURRENT-ASSETS> 9,003,075
<PP&E> 1,788,304
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,948,980
<CURRENT-LIABILITIES> 14,903,991
<BONDS> 0
0
0
<COMMON> 53,853
<OTHER-SE> 7,664,682
<TOTAL-LIABILITY-AND-EQUITY> 24,948,980
<SALES> 13,311,780
<TOTAL-REVENUES> 13,311,780
<CGS> 10,408,058
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,507,159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,502,366
<INCOME-PRETAX> (4,745,754)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,440,956)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
