U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number: 1-15587
E-MEDSOFT.COM
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 84-1037630
---------------------------- -------------------------
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1300 Marsh Landing Parkway, Suite 106
Jacksonville, Florida 32250
-------------------------------------
(Address of principal executive offices including zip code)
(904) 543-1001
---------------------------
(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 14, 2000, 80,256,486 shares of common stock, $.001 par value
per share, were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
-- --
<PAGE>
INDEX
Page No.
PART I. FINANCIAL INFORMATION ......................... 3
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets at
September 30, 2000 (unaudited) and March 31, 2000.. 3
Consolidated Condensed Statements of Operations
for the Three Months ended September 30, 2000
and 1999 (unaudited)............................... 4
Consolidated Condensed Statements of Operations
for the Six Months ended September 30, 2000
and 1999 (unaudited)........................... 5
Consolidated Condensed Statements of Cash Flow
for the Six Months ended September 30, 2000
and 1999 (unaudited) .............................. 6
Notes to the Consolidated Condensed Financial
Statements at September 30, 2000 (unaudited) ...... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS .............................. 14
PART II. OTHER INFORMATION ............................ 19
ITEM 1. LEGAL PROCEEDINGS .......................... 19
ITEM 2. CHANGES IN SECURITIES ...................... 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............ 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ........................... 19
ITEM 5. OTHER INFORMATION .......................... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........... 19
SIGNATURES ............................................. 21
EXHIBIT 27 FINANCIAL DATA SCHEDULE..................... 22
<PAGE>
<TABLE>
<CAPTION>
e-MedSoft.com
Consolidated Condensed Balance Sheets
September 30, March 31,
2000 2000
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents $ 16,953,671 $ 59,860,827
Restricted cash 8,100,000 --
Accounts receivable, net 17,309,036 17,261,883
Accounts receivable from affiliates, net 8,913,908 555,499
Other receivables 2,211,887 2,111,310
Inventory 7,297,006 1,106,960
Tax benefit 702,922 --
Other current assets 1,749,604 1,559,956
------------- -------------
63,238,034 82,456,435
Long-Term Assets:
Property and equipment, net 7,733,628 2,603,302
Goodwill, net 94,088,201 37,867,333
Investments 29,761,069 26,285,000
Technology license fee 2,800,000 2,800,000
Deferred software costs 14,542,059 8,640,202
Distribution channel 35,472,070 36,100,000
Deferred contract 67,489,994 67,462,914
Other assets 2,060,561 881,467
------------- -------------
253,947,582 182,640,218
------------- -------------
TOTAL ASSETS $ 317,185,616 $ 265,096,653
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 680,750 $ 807,180
Accounts payable 21,185,920 21,269,973
Accrued liabilities 6,688,628 4,443,805
Related party payable 345,000 --
Other current liabilities -- 582,191
Current maturities of long-term debt and capital leases 5,764,356 942,981
------------- -------------
34,664,654 28,046,130
Long-Term Liabilities:
Capital leases 1,296,392 739,306
Bridge financing 3,936,519 67,528
Other long-term liabilities 10,861,000 3,063,700
Deferred revenue 1,179,333 --
------------- -------------
17,273,244 3,870,534
Commitments and Contingencies
Minority Interest 11,373,680 4,176,862
Stockholders' Equity:
Common shares 80,425 75,735
Paid in capital 288,431,604 244,495,796
Stock subscription (5,000,000) (5,000,000)
Accumulated deficit (28,277,940) (10,569,951)
Accumulated other comprehensive (loss) income (422,667) 1,547
Less treasury shares at cost (937,384) --
------------ -------------
253,874,038 229,003,127
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 317,185,616 $ 265,096,653
============= =============
The accompanying notes are an integral part of these consolidated condensed balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
e-MedSoft.com
Consolidated Condensed Statements of Operations
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
<S> <C> <C>
2000 1999
------------ ------------
NET SALES
Non affiliates $ 25,866,502 $ 8,868,529
Affiliates 2,335,293 --
------------ ------------
Total Net Sales 28,201,795 8,868,529
------------ ------------
COSTS AND EXPENSES:
Cost of sales 19,737,600 6,778,559
Research and development 1,129,484 638,602
Sales and marketing 3,324,397 1,035,564
General and administrative 14,142,096 1,736,773
Restructuring costs 1,510,012 --
Non-cash compensation 165,723 124,000
Depreciation and amortization 3,139,328 361,989
------------ ------------
Total Costs and Expenses 43,148,640 10,675,487
------------ ------------
OPERATING LOSS (14,946,845) (1,806,958)
OTHER INCOME (EXPENSE):
Interest expense (430,345) (167,089)
Interest income 362,641 --
Other (27,073) (679)
------------ ------------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY INCOME AND MINORITY INTEREST (15,041,622) (1,974,726)
EXTRAORDINARY INCOME -- --
------------ ------------
LOSS BEFORE INCOME TAXES AND MINORITY
INTEREST (15,041,622) 1,974,726)
TAX BENEFIT 928,068 62,187
MINORITY INTEREST, NET OF TAXES (87,529) --
------------ ------------
NET LOSS $(14,201,083) $ (1,912,539)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.18) $ (0.04)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 80,179,036 52,972,074
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
e-MedSoft.com
Consolidated Condensed Statements of Operations
For the Six Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
------------ ------------
<S> <C> <C>
NET SALES
Non affiliates $ 58,413,679 $ 13,311,780
Affiliates 8,843,244 --
------------ ------------
Total Net Sales 67,256,923 13,311,780
------------ ------------
COSTS AND EXPENSES:
Cost of sales 46,332,388 10,408,058
Research and development 2,106,702 886,561
Sales and marketing 6,103,905 1,647,339
General and administrative 24,405,680 3,013,751
Restructuring costs 1,510,012 --
Non-cash compensation 348,240 253,000
Depreciation and amortization 5,575,304 706,508
------------ ------------
Total Costs and Expenses 86,382,231 16,915,217
------------ ------------
OPERATING LOSS (19,125,308) (3,603,437)
OTHER INCOME (EXPENSE):
Interest expense (805,686) (1,502,366)
Interest income 1,058,952 --
Other (92,759) 2,897
------------ ------------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY INCOME AND MINORITY INTEREST (18,964,801) (5,102,906)
EXTRAORDINARY INCOME -- 357,152
------------ ------------
LOSS BEFORE INCOME TAXES AND MINORITY
INTEREST (18,964,801) (4,745,754)
TAX BENEFIT 1,112,832 304,798
MINORITY INTEREST, NET OF TAXES 143,980 --
------------ ------------
NET LOSS $(17,707,989) $ (4,440,956)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.22) $ (0.08)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 79,572,607 52,452,618
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
e-MedSoft.com
Consolidated Condensed Statements of Cash Flows
Six Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
------------ ------------
<S> <C> <C>
Net Cash Used in Operating Activities $(21,856,000) $ (2,837,772)
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired (3,071,542) (31,526)
Capital expenditures (3,778,838) (36,381)
Investment in software (5,344,335) (2,000,000)
Other Investments (3,980,874) --
------------ ------------
Cash Used in Investing Activities (16,175,589) (2,067,907)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on bridge loans (3,823,331) --
Proceeds from bridge loans 7,905,000 3,321,932
Net change to credit facility -- 1,036,433
Repayments of capital lease obligations (423,157) (193,641)
Funds from equity financing -- 848,000
Other (434,079) --
------------ ------------
Cash Provided by Financing Activities 3,224,433 5,012,724
------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (34,807,156) 107,045
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 59,860,827 51,712
------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 25,053,671 $ 158,757
------------ ------------
NON CASH TRANSACTIONS
Issuance of restricted stock and warrants for acquisitions $ 43,339,747 $ 4,468,162
Issuance of warrants for payment of debt -- 505,738
Property and equipment purchased through capitalized leases 417,473 736,299
------------ ------------
$ 43,757,220 $ 5,710,199
============ ============
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
<PAGE>
e-MedSoft.com
Notes to Consolidated Condensed Financial Statements
September 30, 2000
(Unaudited)
1) CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by e-MedSoft.com
(the Company or e-MedSoft) 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 believes
that the disclosures are adequate to make the information presented not
misleading. Operating results for the three and six months ended September
30, 2000 are not necessarily indicative of the results that may be expected
for the year ending March 31, 2001. 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 later in the year.
These financial statements should be read in conjunction with the March 31,
2000 audited financial statements and the accompanying notes thereto, the
Forms 8-K filed by the Company on April 5, 2000, May 5, 2000, June 16, 2000
and August 30, 2000 and the S-1 filed by the Company on July 21, 2000.
The management of e-MedSoft believes that the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(including normal recurring adjustments) necessary to present fairly the
financial position of e-MedSoft.com and subsidiaries at September 30, 2000 and
the results of their operations and their cash flows for the periods presented.
2) BUSINESS COMBINATIONS
Prior Year Acquisition
In February 2000, e-MedSoft acquired privately held VirTx, Inc. (VirTx), a
leading provider of secure collaborative medical networks that are able to
support the implementation of multimedia telemedicine, telehealth, and
telescience collaboration. In connection with the transaction, the Company
issued approximately 1.9 million shares of e-MedSoft's common stock to the VirTx
shareholders and may issue up to an additional $23 million in shares pursuant to
an earn-out arrangement. This transaction has been accounted for as a purchase
resulting in approximately $31 million of goodwill. The goodwill determination
is preliminary and subject to adjustment. The Company is amortizing the goodwill
over a seven-year period, which is managements' best estimate of the future
benefit of this acquisition. The following pro forma information for the six
months ended September 30, 1999, gives effect to the acquisition of VirTx as if
such transaction had occurred at April 1, 1999 (unaudited):
<TABLE>
<S> <C>
Net sales. . . . . . . . . . . . . . . . $13,725,340
Costs and expenses . . . . . . . . . . . 18,481,812
Amortization of goodwill . . . . . . . . 999,733
Net loss . . . . . . . . . . . . . . . . (7,359,274)
Net loss per share . . . . . . . . . . . (.14)
</TABLE>
Current Year Acquisitions
In May 2000, the Company acquired Illumea Corporation (Illumea) in exchange for
approximately 1.3 million shares of the Company's common stock, valued at
approximating $10 million. Illumea develops and markets Internet-based remote
inspection and image sharing solutions in the medical and life sciences
industries. FiberPix, Illumea's first application, enables multiple simultaneous
users to view interactively a microscope's high fidelity images in real time
over the Internet. For example, pathologists can view tissue samples without
traveling to a hospital. This acquisition has been accounted for as a purchase.
In June 2000, the Company acquired VidiMedix for assumption of approximately
$6.2 million in debt and liabilities. Of this amount, approximately $3.3 million
was repaid with approximately 380,000 shares of common stock and warrants to
purchase approximately 336,000 shares of common stock at an exercise price of
$8.63 per share. In addition, the Company committed to issue up to an additional
$6 million in shares of common stock to the VidiMedix shareholders as an earn
out payment based on VidiMedix achieving certain sales targets over the next
fiscal year. VidiMedix provides network medicine solutions that enable
physicians to deliver remote examination, diagnosis, and treatment to patients
via secure, private and collaborative interactions using advanced Internet and
Web technologies. This acquisition has been accounted for as a purchase.
Subsequent to September 30, 2000 the Company entered into an agreement with the
prior VidiMedix shareholders to issue $3,350,000 in shares of e-Med common stock
to satisfy the earn out provisions in the purchase agreement. This additional
issuance of shares will be accounted for in the third quarter as goodwill. The
following pro forma information for the six months ended September 30, 1999,
gives effect to the acquisition of VidiMedix as if such transaction had occurred
at April 1, 1999 (unaudited):
<TABLE>
<S> <C>
Net sales. . . . . . . . . . . . . . . . $13,961,714
Costs and expenses . . . . . . . . . . . 17,435,010
Amortization of goodwill . . . . . . . . 2,043,223
Net loss . . . . . . . . . . . . . . . . (6,360,962)
Net loss per share . .. . . . . . . . . (.12)
</TABLE>
Also in June 2000, the Company acquired Resource Healthcare (Resource) for
approximately $1.5 million in cash and $1 million in common stock. In addition
the Company has committed to issue additional common stock with a value of
$500,000 as an earn out payment based on Resource achieving certain earning
targets over the next fiscal year. Resource provides pharmaceutical and infusion
services to long-term care, assisted living and residential care facilities
throughout Nevada. Services offered by Resource include consulting, training,
billing, supplies management and facility systems development. This acquisition
has been accounted for as a purchase. The following table details the allocation
of the purchase price of these acquisitions (in thousands):
<TABLE>
<CAPTION>
Illumea VidiMedix Resource
------- --------- --------
<S> <C> <C> <C>
Purchase Price . . . . . . . . $10,284 $ 5,762 $ 2,517
Less: Net Equity of Entity . . . 363 (2,561) (151)
------- --------- --------
Goodwill . . . . . . . . . . . $ 9,921 $ 8,323 $ 2,668
======= ========= ========
</TABLE>
The goodwill determination is preliminary and subject to adjustment. Goodwill
resulting from the acquisitions of Illumea and VidiMedix is amortized over a
7-year period. Goodwill resulting from the acquisition of Resource is amortized
over a 15-year period. The amortization periods are based on management's best
estimate of the future benefit of these acquisitions. September 30, 1999
operating pro forma information for Illumea and Resource is not presented herein
as these acquisitions operations were not material to e-Med on an individual or
aggregate basis.
Other Business Agreements
PRIMERX.COM
In April 2000, the Company entered into a 30-year management agreement and a
preferred provider agreement with PrimeRx.com, Inc. (PrimeRx previously known as
PrimeMed Pharmacy Services, Inc.), a pharmacy management services company.
PrimeRx offers a variety of managed care pharmacy services that enable its
clients to more effectively manage their pharmacy benefits. PrimeRx's customers
include physician offices and clinics, independent physician associations,
physician practice management organizations, managed care health plans, nursing
homes, correctional facilities, and community health centers. PrimeRx also
operates more than 40 pharmacies across 9 states serving more than 1 million
managed care enrollees. The agreement provides for an option to exchange up to
33 percent of PrimeRx stock for 3 million e-MedSoft shares. On April 12, 2000,
the Company acquired 29 percent of PrimeRx for 2,640,000 shares of the Company's
common stock. The agreement gives full control over PrimeRx operations to the
Company. Accordingly, the Company has consolidated the operations of PrimeRx for
the six month period ended September 30, 2000 and has included 100 percent of
its losses as e-MedSoft is responsible for funding PrimeRx's operations. The
Company has reflected its 29 percent investment and the negative equity at
acquisition date as goodwill of approximately $35 million. The goodwill will be
amortized over the management contract term of 30 years. The following pro forma
information for the six months ended September 30, 1999, gives effect to the
consolidation of PrimeRx as if such transaction had occurred at April 1, 1999
(unaudited):
<TABLE>
<S> <C>
Net sales. . . . . . . . . . . . . $ 34,008,597
Costs and expenses . . . . . . . . 37,188,479
Amortization of goodwill . . . . . 1,080,971
Net loss . . . . . . . . . . . . . (5,262,679)
Net loss per share . . . . . . . . (.10)
</TABLE>
NCFE
In September 2000, the Company amended its Preferred Provider Agreement with
NCFE. The amendment included certain clarifications of the original agreement
and extended the term of the agreement from a seven-year term with a five-year
option to a 21-year term. The Company obtained access to NCFE customers on July
28, 2000. Accordingly, during the quarter ended September 30, 2000 the Company
recorded amortization on the distribution channel for the month of August 2000
using an estimated useful life of seven years and recorded amortization for the
month of September 2000 using an estimated useful life of 15 years. The Company
will begin to amortize the deferred contract costs when NCFE is able to accept
and process financing applications through its master portal. The Company is
currently in the process of performing a study to determine its estimated useful
life.
3) DEFERRED SOFTWARE DEVELOPMENT COSTS
During the six months ended September 30, 2000 and 1999, the Company incurred
approximately $7.7 million and $887 thousand in development costs, respectively.
In accordance with SOP 98-1 and FASB 86 the Company capitalized approximately
$5.3 million and $0 of these costs during the six months ended September 30,
2000 and 1999, respectively. Such deferred costs along with acquired software
costs will be amortized over a three to five year life once the related products
are in service or available for sale. For the six months ended September 30,
2000, the Company has amortized $42 thousand of these costs.
4) RESTRUCTURING COSTS
During the quarter ended September 30, 2000 the Company's Senior Management, who
had the appropriate level of authority, completed its defined restructuring plan
and began its implementation to integrate new acquisitions and eliminate
redundancies within the Company. In line with this restructuring plan certain
activities were identified to be discontinued and employees were identified to
be involuntarily terminated or relocated. The following is a summary of the
activities that were or plan to be exited or relocated.
PRIMERX.COM.
The Company identified 13 owned or managed pharmacies to be closed, one
management contract to be terminated and three division activities to be exited
or substantially reduced. In addition, the Company relocated PrimeRx's executive
operations and finance functions to its corporate headquarters. Most of these
activities and related costs were in existence prior to the consummation date of
the PrimeRx transaction. Restructuring costs to exit these activities of
approximately $2.3 million were accrued as a liability as of the transaction
date and included in goodwill from the transaction in accordance with EITF Issue
95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination" ("EITF 95-3"). This accrual includes employee termination and
relocation costs, facility lease termination and commitment costs as well as any
resulting impairment of asset writedowns. For the six month period ended
September 30, 2000, approximately $1.3 million has been incurred from the
transaction date and charged off against this liability. The exit costs of
activities that were not in existence prior to the consummation date have been
expensed or accrued for in accordance with EITF Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity" ("EITF 94-3") have been reflected under "Restructuring Costs". For the
six months ended September 30, 2000, approximately $861 thousand has been
expensed. The accrual for these costs at September 30, 2000 was approximately
$960 thousand for costs under EITF 95-3 and $112 thousand for costs under EITF
94-3 and are included in accrued liabilities in the accompanying consolidated
condensed balance sheets.
VIDIMEDIX
The Company determined that certain offices and functions of the VidiMedix
operations should be consolidated within its corporate headquarters. These
activities and related costs were in existence prior to the consummation date of
the VidiMedix acquisition. Restructuring costs to close these offices of
approximately $566 thousand were accrued as a liability as of the transaction
date and included in goodwill from the transaction in accordance with EITF 95-3.
This accrual includes employee termination costs, facility lease termination and
commitment costs as well as any resulting impairment of asset writedowns. For
the six month period ended September 30, 2000, approximately $186 thousand has
been incurred from the transaction date and charged off against this liability.
E-MEDSOFT.COM
During the quarter, the Company defined and began to implement a plan to reduce
staff and consolidate certain financial and operational functions. The
restructuring costs to implement these plans were determined and accrued. The
accrual of approximately $650 thousand is reflected under Restructuring Costs in
accordance with EITF 94-3 and includes employee termination costs, facility
lease termination and commitment costs as well as any resulting asset impairment
write downs. Under this plan approximately 45 employees have been involuntarily
terminated and one office has been identified for closure. For the three month
period ended September 30, 2000, approximately $206 thousand has been incurred
and charged off against this liability.
5) LINE OF CREDIT
During the quarter, the Company obtained a bank line of credit for $8 million
with a term of one year expiring on October 1, 2001. The Company has the choice
of selecting its rate of interest; such rate will be at the Bank's Prime Rate or
the optional rate at LIBOR plus 2 percent. The line of credit is secured by a
certificate of deposit in the amount of $8.1 million. At September 30, 2000, the
Company had drawn down the total amount of the line for working capital
purposes. Under the agreement, the Company must keep an unrestricted bank
balance of $5 million.
6) WARRANTS AND STOCK OPTIONS
During the six months ended September 30, 2000, the Company granted 1,630,750
options to its employees to shares of the Company's stock at prices ranging from
$3.88 to $9.31. These options were granted in accordance with the Company's
stock option plan with exercise prices based on the market price of the
Company's stock at time of grant. In addition, during the six months
approximately 82,000 options were exercised and 558,571 were terminated.
7) 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.
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:
<TABLE>
<CAPTION>
9/30/00 9/30/99
3 mo. 6 mo. 3 mo. 6 mo.
<S> <C> <C> <C> <C>
Weighted average common shares used to compute basic net loss per share... 80,179 79,573 52,972 52,453
Effect of dilutive securities.. -- -- -- --
------ ------ ------ ------
Weighted average common shares used to compute diluted net loss per share 80,179 79,573 52,972 52,453
====== ====== ====== ======
</TABLE>
As of September 30, 2000 and 1999, options and warrants to purchase 6,866,346
and 2,247,429 shares of common stock were outstanding, respectively. These
common stock equivalents were excluded from the computation of diluted loss per
share for the three and six months ended September 30, 2000 and 1999 as such
options and warrants were anti-dilutive.
8) STOCK BUY BACK PROGRAM
On August 12, 2000, the Company's Board of Directors approved the repurchase on
the open market of up to 2 million shares of its common stock over the next
eighteen months. During the quarter ended September 30, 2000, the Company
repurchased 186,500 shares of its common stock for an aggregate purchase price
of $937,383. These shares are recorded as treasury stock and result in a
reduction to stockholders' equity.
9) SEGMENT INFORMATION
e-MedSoft derives its net sales from three operating segments: (1) transaction
and information services, primarily healthcare, delivered over the Internet,
private intranets or other networks and consulting contracts related to these
service, (2) the sale and installation of hardware and software products and (3)
pharmacy services.
The accounting policies of the segments are the same as those for financial
reporting purposes and the Company evaluates performance based on operating
earnings of the respective business segments.
The Company's financial information by business segment are summarized as
follows (in thousands). The "Other" column includes corporate related items and
other expenses not allocated to reportable segments, including assets relating
to goodwill and certain other intangibles and the amortization of such assets.
<TABLE>
<CAPTION>
Internet Product Pharmacy Other Total
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Six Months September 30, 2000
Net Sales $10,801 $18,723 $37,733 $ -- $ 67,257
Operating (Loss) (2,424) (2,403) (3,110) (5,613) (13,550)
Depreciation and Amortization 428 335 641 4,170 5,575
Total Assets 52,622 10,447 21,600 232,796 317,465
Capital Expenditures 2,678 427 523 151 3,779
Six Months September 30, 1999
Net Sales $ 102 $13,210 $ -- $ -- $ 13,312
Operating Income (Loss) (25) 328 -- (3,200) (2,897)
Depreciation and Amortization 6 262 -- 439 707
Total Assets 6,900 9,530 -- 8,286 24,716
Capital Expenditures -- 11 -- 25 36
</TABLE>
The Company's net sales from external customers, operating loss and depreciation
and amortization for the six month periods ended September 30, 2000 and 1999 and
the long-lived assets at September 30, 2000 and 1999, classified by geographic
area, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
United United Aus-
States Kingdom tralia Total
------ ------- ------ -----
<S> <C> <C> <C> <C>
Six Months September 30, 2000
Net Sales $ 47,929 $18,828 $ 500 $ 67,257
Operating (Loss) (10,147) (3,284) (119) (13,550)
Depreciation and Amortization 5,189 381 5 5,575
Long-Lived Assets 251,045 2,034 869 253,948
Six Months September 30, 1999
Net Sales $ 33 $13,279 $ -- $ 13,312
Operating Loss (2,531) (366) -- (2,897)
Depreciation and Amortization 409 298 -- 707
Long-Lived Assets 14,173 1,773 -- 15,946
</TABLE>
The Company's U.K. subsidiary, e-Net, had three customers whose sales, on an
individual basis, represented over 5 percent of e-Net's net sales for an
aggregate of 32.9 percent for the six month period ended September 30, 2000.
e-MedSoft U.S. operations, excluding pharmacy services, had two customers who's
sales, on an individual basis, represented over 5 percent of e-MedSoft's net
sales for an aggregate of 85 percent for the six-month period ended September
30, 2000.
10) CONTINGENCIES AND LEGAL RESERVES
The Company has national and international operations, which, occasionally,
result in litigation that the Company does not view as material and arising in
the ordinary course of business. Because of the significant value of the
Company's technologies, it may occasionally be appropriate for the Company to
initiate litigation of its own to protect those technologies. Whether brought by
the Company or defended against by the Company, the litigation is often
immaterial and at this time the Company is unaware of any material litigation
involving any of its national or international operations.
SELA V. COLBY, SUTRO & CO., AND E-MEDSOFT.COM
This action was recently served on the company and was filed on or about July
31, 2000. The action was pending in Minesota state court. In this action
e-Medsoft.com is being sued for breach of contract by a potential investor that
complains that he was not included in a private placement transaction for the
purchase of 50,000 shares, with associated warrant rights. The matter has now
been dismissed, without prejudice, without any settlement, agreement, judgment,
or the payment of any money or shared by e-Medsoft.com. It is e-Medsoft.com's
understanding that the matter was settled as as result of compensation paid by
another defendant, i.e., Sutro & Co.
IN RE: EMED TECHNOLOGIES
A dispute exists between Emed Technologies, a company which sends radiographic
images over the internet, and e-Medsoft.com regarding the use of the prefix
e-Med as a descriptor of services. e-Medsoft.com filed a legal action in U.S.
District Court against Emed Technologies asserting that Emed Technologies is
infringing on the e-Medsoft.com trademark. This action was filed on June 8,
2000, and accordingly, no substantive actions have been taken and no legal
determinations regarding this action have been made. Emed Technologies,
however, did make a motion to transfer venue outside of the California District
Court. This motion has been rejected. Emed has filed a cross-claim against
e-Medsoft.com claiming it is the infringing party. e-Medsoft.com has already
curtailed its use of the Emed discriptor, and, accordingly, the lawsuit does
not appear to implicate import commercial concerns of e-Medsoft.com. Formal
discovery has only just commenced, and, importantly, no discovery has been
provided by either party regarding the scope of any alleged monetary damages.
Consequently, no information is available on this issue.
SUTRO NARD ARBITRATION
A dispute between Sutro & Co., and e-Medsoft.com is currently being arbitrated
before the National Association of Security Dealers. Emed takes the claim in
its counter-claim that Sutro committed fraud, breach of fiduciary duty,
negligent misrepresentation, professional negligence, and breach of contract
arising from Sutro's activities as an investment banker for e-Medsoft.com.
e-Medsoft.com seeks compensatory damages and injunctive relief. Sutro & Co.
initiated the dispute with a claim for compensatory and punitive damages and
declaratory and injunctive relief arising from e-Medsoft.com's alleged
unjustified refusal to (1) honor warrants it issued to Sutro to purchase shares
of e-Medsoft.com's; (2) register all of Sutro's e-Medsoft.com's stock and
warrants as allegedly required by the parties' Registration Rights Agreement;
(3) provide Sutro with its shareholder voting rights consistent with the shares
it acquired by exercise of the warrants, and (4) pay $150,000 plus expenses for
certain investment banking services allegedly rendered by Sutro to
e-Medsoft.com. This dispute is in the discovery stage. There have been no
hearings or determinations on the merits. No date has been set for the formal
adjudication.
ICON CAPITAL V. e-MEDSOFT.COM
Icon has sued e-Medsoft.com, and many others, in Los Angeles Superior Court,
for damages arising from alleged breaches of fiduciary duty allegedly owed to a
majority shareholder of Sanga Internationa, Inc., a corporation currently in
bankruptcy. The action has been answered. This matter has been vigorously
contested, and e-Medsoft.com has rejected an early settlement offer made by
plaintiff. e-Medsoft.com has strong substantive and procedural defenses. The
matter is in an early phase of litigation, i.e., except for one aborted
deposition, no discovery has taken place and no motions for summary judgment
have been made. Recently, this matter was removed to Bankruptcy Court on a
claim that the action is properly deemed a derivative action improperly made
on behalf of Sanga International, a bankruptcy debtor. The bankruptcy court
has deferred to the state court to decide, as a factual matter, if the claim is
derivative. Currently, there are a number of discovery disputes regarding the
parties respective disclosure obligations. In light of the extremely
speculative nature of the alleged damages, it is not possible at this juncture
to give a reasoned assessment of the potential worst-case judgment.
11) RELATED PARTY TRANSACTIONS
During the three months ended June 30, 2000, the Company recorded revenue of
$855 thousand from consulting and software services provided to a company
related to a director of the Company. During the same period the Company also
recorded approximately $5.5 million in revenue from another entity, also related
through a member of the board of directors, for project management,
infrastructure development, e-business implementation and planning and other
consulting services. Approximately 20 percent of these services were provided
prior to March 31, 2000 but not recognized into revenues until acceptance by the
customer in the first quarter of fiscal 2001. The Company recorded the related
party receivables based on its contracts and its best estimate of the amount
ultimately to be realized. Company management, in consultation with its legal
counsel, believes that the billings are collectible and expects to collect these
outstanding receivables during the third quarter of fiscal 2001.
During the three months ended September 30, 2000, the Company recorded revenue
of approximately $2.2 million from these companies for project management,
infrastructure development, e-business implementation and other consulting and
software services. As of September 30, 2000, the Company had an outstanding
balance of approximately $8.8 million due from the two related entities.
Subsequent to quarter end, the company collected approximately $1.4 million.
12) MINORITY INTEREST
The Company has reflected minority interest relating to its subsidiary in
Australia and its management contract with PrimeRx of approximately $4.1 million
and $7.2 million, respectively. The PrimeRx minority interest represents the
right of 735,144 Series A preferred shareholders in PrimeRx. This series A
preferred stock has a $10 per share liquidation preference on the net assets of
PrimeRx (as adjusted) upon a change in control and is otherwise redeemable at
the option of the preferred shareholders by 2005. The Australia subsidiary
minority interest represents the rights of shareholders of the Australia
subsidiary held through the Australian stock exchange.
13) TAXES
The Company's subsidiary in the U.K. has reflected a tax benefit of
approximately $900 thousand and $1.1 million for the three and six months ended
September 30, 2000. The operations in the U.K. experience seasonality.
Traditionally, the U.K. subsidiary experiences its highest revenues in the third
and fourth fiscal quarters. Based on the subsidiary's historical and projected
earnings, it is expected that the tax benefit will be realized in this fiscal
year.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements in this Report that relate to management's expectations, intentions
or beliefs concerning future plans, expectations, events and performance are
"forward-looking" within the meaning of the federal securities laws. These
forward-looking statements include assumptions, beliefs and opinions relating to
the Company's business and growth strategy based upon management's
interpretation and analysis of its own contractual and legal rights, of
management's ability to satisfy industry and consumer needs with its
technologies, of healthcare industry trends, and of management's ability to
successfully develop, implement, market and/or sell its network transaction
processing services, software programs, clinical and financial transaction
services, and e-commerce systems to its clientele. Management's forward-looking
statements further assume that the Company will be able to successfully develop
and execute on its strategic relationships. Actual results or events could
differ materially from those anticipated in the forward-looking statements due
to a variety of factors, in addition to those set out above, including, without
limitation, acceptance by customers of the Company's products, changing
technology, competition in the health-care market, government regulation of
health care, the Company's limited operating history, general economic
conditions, availability of capital and other factors.
OVERVIEW
We began operations with the acquisition of the Internet-based health care
management system on January 7, 1999 and the subsequent acquisition of e-Net on
March 19, 1999. During the fiscal year ended March 31, 2000 and the first two
quarters of 2001, we have continued the development, upgrading, testing, and
implementation of our health care management system. In addition, in accordance
with our strategy to develop or acquire additional technologies, during fiscal
2000 we acquired managed care computer technology to service a network of over
2,500 physicians and a multimedia company to provide various telemedicine
technologies. During the first quarter of 2001 we have expanded our multimedia
technology with two additional acquisitions. During fiscal 2000 we entered into
several contracts and strategic partnerships to implement and roll out various
Internet-based health care management systems and to provide other products
including "e-financing" distribution networks. In our first quarter of 2001 we
entered into a 30-year management agreement and preferred provider agreement
with a pharmacy management services company, further expanding our outreach to
the healthcare community.
RESULTS OF OPERATIONS
The results of operations presented herein reflect our and our subsidiaries'
consolidated net sales and expenses. The financial statements included herein
present the unaudited financial statements for the three and six months ended
September 30, 2000 and 1999. In addition, we have included in the comparisons
below the unaudited pro forma financial information for the three and six months
ended September 30, 1999 to include the acquisition of VirTx and VidiMedix and
the consolidation of PrimeRx as if these transactions occurred on April 1, 1999.
Other business acquired in the first quarter of 2001 are not included in the pro
forma financial information herein as their operating results for the three and
six month periods ended September 30, 1999 were not material.
Information presented in the table below is unaudited (in thousands):
<TABLE>
<CAPTION>
9/30/00 9/30/99 9/30/99
Pro forma
3 months 6 months 3 months 6 months 3 months 6 months
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 28,202 $ 67,257 $ 8,869 $ 13,312 $ 19,899 $ 35,072
Costs and expenses:
Cost of sales 19,738 46,332 6,779 10,408 14,938 26,699
Research and development 1,130 2,107 639 887 1,367 2,006
Sales and marketing 3,324 6,104 1,035 1,647 2,152 3,727
General and administrative 14,142 24,406 1,737 3,013 3,647 7,137
Restructuring costs 1,510 1,510 -- -- -- --
Non cash compensation 166 348 124 253 124 253
Depreciation and amortization 3,139 5,575 362 707 2,240 4,389
-------- -------- -------- -------- -------- --------
43,149 86,382 10,676 16,915 24,468 44,211
-------- -------- -------- -------- -------- --------
Operating loss (14,947) (19,125) (1,807) (3,603) (4,569) (9,139)
Net loss $(14,201) $(17,708) $ (1,913) $ (4,441) $ (4,742) $(10,101)
</TABLE>
NET SALES
Net sales for the three and six months ended September 30, 2000 increased 217%
and 405% as compared to September 30, 1999 reported sales and increased 42% and
92% compared to 1999 pro forma sales. The increase in reported net sales for
September 30, 2000 was approximately $19.3 million and $53.9 million for the
three and six month period compared to actual results for the like periods ended
September 30, 1999. The current period net sales increased $8.3 million and $32
million compared to pro forma results for the comparative periods ended
September 30,1999, respectively.
The increase in reported revenues for the six months resulted from the inclusion
of $37.7 million in sales from our pharmacy services, $5.5 million increased
revenues from our U.K. subsidiary and $10.7 million from U.S. internet services
and related consulting. The increase in reported net sales for the current
quarter compared to the same quarter in 1999 resulted from inclusion of $20.3
million in pharmacy sales, increased U.S. Internet sales of $4 million offset by
a decrease in the U.K. net sales of $4.9 million. Essentially all sales
generated by the U.K. were from the sale, service, and installation of computer
systems. The growth in these sales over the past six months is a direct result
of our penetration into the market through strategic alliances with Sun
Microsystems, Cisco, and Oracle and the focus on business-to-business e-business
solutions and the ability to leverage infrastructure alongside the e-commerce
software and services. During the quarter ended September 30, 2000, the U.K. net
sales decreased as a result of the division not being able to meet equipment and
delivery schedules. This was due to the normal summer seasonal downswing as well
as failure to obtain equipment from its vendors on a timely basis to close
transactions. It is anticipated that much of this slippage will be made up prior
to fiscal year end. Sales from the U.S. operations were mainly through services
provided to our strategic partners which we have entered into contracts or
agreements. These companies are considered related parties since certain
officers of these entities are members of the Company's Board of Directors.
COSTS AND EXPENSES
Cost of Sales
Cost of sales (excluding depreciation and amortization) for the three and six
month period ended September 30, 2000 consist of the cost of providing hardware
and software, the cost of pharmaceuticals sold through our pharmacy services and
the cost of providing our internet healthcare management system. During the
reported period ended September 30, 1999, cost of sales primarily consisted of
hardware and software. Cost of sales as a percentage of net sales for the three
and six months ended September 30, 2000 were 70 percent and 69 percent,
respectively, compared to the pro forma periods ended September 30, 1999 of 75
percent and 76 percent, respectively. The reduction in cost of sales is due to
the additional sales from internet and related consulting services provided in
the current periods, which carry a lower cost of sale component. In addition, a
portion of the U.S. sales relating to internet and business consulting services
in the first quarter of 2001 were provided by executive management whose
compensation is not reflected in the cost of sales.
Research and Development
Research and development costs mainly consist of salaries, consultant fees, and
equipment costs of the internal development of new software and Internet
products in the United Kingdom and in the United States. During the three and
six months ended September 30, 2000 the costs expensed increased by $491
thousand and $1.2 million, respectively, as compared to the prior year. In
addition, we have capitalized approximately $5.3 million of development costs
for the six months ended September 30, 2000. No development costs were
capitalized during the six month period ended September 30, 1999. These
development costs were incurred in the United Kingdom for the development of new
Internet products and software and in the United States for new Internet
products and additional solutions to be integrated with our existing
Internet-based health care management system. Pro forma research and development
costs for the prior year period include costs incurred for the development of
multimedia technology. The costs incurred and capitalized to deferred software
will be amortized into expense over the useful life of the resulting software
products once such software products are in service or available for sale. For
the six months ended September 30, 2000, $42 thousand of these deferred software
costs have been amortized.
Sales and Marketing
Sales and marketing costs consist primarily of costs for salaries, travel,
advertising, marketing literature, and seminars. These costs reflect our
business plan to increase markets and customers throughout the United States,
United Kingdom, Australia, and Europe. Sales and marketing costs for the three
and six month period ended September 30, 2000 increased over the pro forma
results for September 30, 1999 by approximately $1.2 million and $2.4 million,
respectively. Of the six month increase in sales and marketing costs
approximately $1.9 million was in the United Kingdom as the result of increasing
our sales force to implement e-Net's planned market penetration into the
Internet market as well as for the sale of hardware and software. The remaining
increase from U.S. operations was as a result of the marketing of our
Internet-based health care management system. In addition, under the preferred
provider agreement with NCFE, the Company obtained access to NCFE customers on
July 28, 2000. Accordingly, during the quarter ended September 30, 2000 the
Company recorded $628 thousand of amortization on the distribution channel for
the two months ending September 2000 and has reflected this cost in sales and
marketing. The Company will begin to amortize the deferred contract costs when
NCFE is able to accept and process financing applications through its master
portal. The sales and marketing costs as a percentage of net sales decreased
from 10.6 percent to 9.1 percent when comparing the six month pro forma 1999
costs to the September 30, 2000 costs. The decrease is due to a change in sales
mix resulting from increased sales in pharmacy services and internet related
consulting that do not require as much marketing efforts as product sales.
General and Administrative, including Non Cash Compensation
General and administrative costs mainly consist of salaries, facility costs, and
professional fees. Non-cash compensation costs represents compensation paid to
employees and consultants through the issuance of shares, warrants, and options.
These combined costs increased for the three and six months ended September 30,
2000 by $10.5 million and $17.4 million over the proforma amounts for September
30, 1999, respectively. The increase for the six months included $3.8 million
related to the pharmacy operations, $1.3 related to the U.K. operations and $1.4
million relating to increased operations of our acquired business. The remaining
increase of approximately $10.9 million related to costs incurred to 1) expand
our U.S. internet operations in accordance with our business plans and
infrastructure development 2) broaden our financial and investment market
visibility for future financing opportunities for our operations and planned
expansion and 3) establish good communication channels with our shareholders.
These costs include legal fees, accounting fees, and other professional and
consulting fees.
Restructuring Costs
During the quarter ended September 30, 2000 the Company's Senior Management, who
had the appropriate level of authority, completed its defined restructuring plan
and began its implementation to integrate new acquisitions and eliminate
redundancies within the Company. In line with this restructuring plan certain
activities were identified to be discontinued and employees were identified to
be involuntarily terminated or relocated. In accordance with generally accepted
accounting policies, certain of the restructuring costs related to our
acquisitions were accounted as an adjustment to the purchase price and reflected
as an increase in goodwill. Other restructuring costs not related to exiting
activities of acquisitions that did not exist prior to consummation date have
been reflected in expense as restructuring costs. These costs of approximately
$1.5 million include $650 thousand for corporate restructuring costs to
consolidate functions and eliminate operational redundancies and $861 thousand
to exit various activities that do not fit within the Company's business plan.
Depreciation and Amortization
Depreciation and amortization for the three and six month period ended September
30, 2000 includes depreciation of property and equipment of approximately $828
thousand and $1.5 million, respectively and amortization of goodwill of $2.3
million and $4.1 million, respectively. Compared to the reported results in
1999, the increase for the three and six months are approximately $669 thousand
and $1.2 million for depreciation of equipment, respectively, and $2.1 million
and $3.7 for the amortization of goodwill, respectively. During the last quarter
of fiscal 2000 and the first quarter of fiscal 2001 we acquired three multimedia
companies that resulted in approximately $49 million in goodwill. This goodwill
is being amortized over a seven-year period. We also entered into a 30-year
management contract with a pharmacy services company and acquired approximately
29 percent of its stock. We are consolidating this company and have, therefore,
recorded the investment and negative equity at the acquisition date of
approximately $35 million as goodwill. This goodwill is being amortized over a
30-year period consistent with our management contract term. In addition, we
acquired a pharmacy services company in the first quarter of this year that
resulted in approximately $2.7 million of goodwill. This goodwill is being
amortized over a 15-year period. The goodwill recorded in March 1999 for the
acquisition of e-Net is being amortized over a ten-year period. The amortization
periods are based on managements' best estimate of the useful lives of the
businesses acquired.
OTHER INCOME (EXPENSE)
Other income (expense) includes interest expense, interest income, and other
income. These costs and income on a combined basis have decreased in the current
period compared to prior year. Interest expense, of approximately $1.3 million
for the six months ended September 30, 1999, included approximately $1.2 million
of amortization of deferred financing costs incurred as a result of the bridge
financing obtained for the acquisition of e-Net. In addition, interest costs
include interest expense on our bridge debt and e-Net's credit facility. During
our third and fourth quarter of 2000, we raised approximately $63.6 million of
net proceeds through the sale of our common stock. As a result of the cash flow,
we have recorded interest income for the three and six months ended September
30, 2000 of approximately $363 thousand and $1.1 million, respectively.
EXTRAORDINARY GAIN
The extraordinary gain of approximately $357,000 in the period ended September
30, 1999 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.
LIQUIDITY
Since inception, the operating costs of the Company have been funded through
loans from private investors, sale of equity, its credit facility, and by its
operations. As of September 30, 2000, the Company had working capital of
approximately $30.4 million, including cash of $24.6 million. Cash includes
restricted cash of $8.1 million and cash held by foreign operations of $2.3
million. During the six month period ended September 30, 2000, we used cash in
operating activities of approximately $21.9 million, primarily due to the net
loss from the period of $17.7 million, and by the net change in operating assets
and liabilities of $12.6 million partially offset by depreciation and
amortization expense of $8.1 million. The Company used cash in investing
activities of approximately $16.2 million, primarily due to $5.3 million
investment in software development and $10.8 million in capital expenditures,
investments and business acquisitions. The $34.8 million use in cash was in
accordance with our business strategy and plans for acquisitions and their
required integration into our Company. This included approximately $12.4 million
to fund its pharmacy division's cash flow requirements resulting from the build
up in accounts receivable and inventory. Additional investments and capital
expenditures were also required to implement our contracts and rollout our
healthcare management system.
On August 12, 2000, the Company's Board of Directors approved the repurchase in
the open market of up to 2 million shares of our common stock over the next
eighteen months. During the quarter ended September 30, 2000, the Company
acquired 186,500 shares for approximately $937 thousand.
In September 2000, the Company obtained a bank line to fund working capital for
its domestic operations. The line is for $8 million and is secured by an $8.1
million certificate of deposit. At September 30, 2000 there were no available
funds under this line. In addition, as a requirement of this line, the Company
must maintain a bank balance of $5 million or the bank may call on the line. As
of November 16, 2000, we had approximately $7.3 million on deposit with the
lender's banking institutions.
We believe that our current working capital along with our current credit
facilities, funding commitments and operations will be sufficient to support our
capital needs and business plan over the next 12 months. This, however, is
dependent upon successfully bringing our pharmacy accounts receivable current
and receiving funds previously committed to us by our strategic partner. As of
September 30, 2000, we had approximately $8.9 million in accounts receivable
from affiliates and a commitment for $5 million in equity funding. Subsequent to
quarter end the Company has collected approximately $1.4 million of the
affiliated receivable.
If the Company decides to enter into any other business ventures presently
outside of its current business plan that would require additional cash, we may
need to raise additional funds by selling debt or equity securities, by entering
into strategic relationships, or through other arrangements. We are actively
pursuing our opportunities to obtain an asset based line of credit for our
pharmacy division as well as obtaining equity funding for our internet business.
We may be unable to raise any additional amounts on reasonable terms, or at all,
when they are needed. The inability of the Company to raise such additional
funding may have an adverse effect on the Company's financial position and
results of operation.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
SELA V. COLBY, SUTRO & CO., AND e-MEDSOFT.COM
This action was recently served on the Company and was filed on or about July
31, 2000. The action is pending in Minnesota state court. In this action
e-Medsoft.com is being sued for breach of contract by a potential investor that
complains that he was not included in a private placement transaction for the
purchase of 50,000 shares, with associated warrant rights. The matter has
been dismissed, without prejudice, without any settlement, agreement, judgment,
or the payment of any money or shared by e-Medsoft.com. It is e-Medsoft.com's
understanding that the matter was settled as a result of compensation paid by
another defendant, i.e., Sutro & Co.
IN RE: EMED TECHNOLOGIES:
A dispute exists between Emed Technologies, a company which sends radiographic
images over the internet, and e-Medsoft.com regarding the use of the prefix
e-Med as a descriptor of services. e-Medsoft.com filed a legal action in U.S.
District Court against Emed Technologies asserting that Emed Technologies is
infringing on the e-Medsoft.com trademark. This action was filed on June 8,
2000, and accordingly, no substantive actions have been taken and no legal
determinations regarding this action have been made. Emed Technologies, however,
did make a motion to transfer venue outside of the California District Court.
This motion has been rejected. Emed has filed a cross-claim against
e-Medsoft.com claiming it is the infringing party. e-Medsoft.com has
curtailed its use of the Emed descriptor, and, accordingly, the lawsuit does
not appear to implicate important commercial concerns of e-Medsoft.com. Formal
discovery has only just commenced, and, no discovery has been provided by either
party regarding the scope of any alleged monetary damages. Consequently, the
Company cannot assess the potential magnitude of any adverse judgment.
SUTRO NASD ARBITRATION
A dispute between Sutro & Co, and e-Medsoft.com is currently being arbitrated
before the National Association of Security Dealers. Emed takes the claim in its
counter-claim that Sutro committed fraud, breach of fiduciary duty, negligent
misrepresentation, professional negligence, and breach of contract arising from
Sutro's activities as an investment banker for e-Medsoft.com. e-Medsoft.com
seeks compensatory damages and injunctive relief. Sutro & Co. initiated the
dispute with a claim for compensatory and punitive damages and declaratory and
injunctive relief arising from e-Medsoft.com's alleged unjustified refusal to
(1) honor warrants it issued to Sutro to purchase shares of e-Medsoft.com; (2)
register all of Sutro's e-Medsoft.com's stock and warrants as allegedly required
by the parties' Registration Rights Agreement; (3) provide Sutro with
shareholder voting rights consistent with the shares it acquired upon exercise
of the warrants, and (4) pay $150,000 plus expenses for certain investment
banking services allegedly rendered by Sutro to e-Medsoft.com. This dispute is
in the discovery stage. There have been no hearings or determinations on the
merits. No date bas been set for the formal adjudication.
ICON CAPITAL V. e-MEDSOFT.COM
Icon has sued e-Medsoft.com, and many others, in Los Angeles Superior Court, for
damages arising from alleged breaches of fiduciary duty allegedly owed to a
majority shareholder of Sanga International, Inc., a corporation currently in
bankruptcy. The action has been answered. This matter has been vigorously
contested, and e-Medsoft.com has rejected an early settlement offer made by
plaintiff. E-Medsoft.com has strong substantive and procedural defenses. The
matter is in an early phase of litigation, i.e, except for one aborted
deposition, no discovery has taken place and no motions for summary judgment
have been made. Recently, this matter was removed to Bankruptcy Court on a claim
that the action is properly deemed a derivative action improperly made on behalf
of Sanga International, a bankruptcy debtor. The bankruptcy court has deferred
to the state court to decide, as a factual matter, if the claim is derivative
Currently there are a number of discovery disputes regarding the parties
respective disclosure obligations. In light of the extremely speculative nature
of the alleged damages, it is not possible at this juncture to provide a
reasoned assessment of any adverse judgment.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27 Financial Data Schedule Filed herewith electronically
(b) REPORTS ON FORM 8-K.
None.
<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, 2000 By: /s/ Margaret A. Harris
Margaret A. Harris, Chief
Financial Officer and
Authorized Officer
<PAGE>
EXHIBIT METHOD OF FILING
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
