<PAGE> 1
As filed with the Securities and Exchange Commission on July 21, 2000
SEC Registration No. 333-37070
U.S. SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1 TO
FORM S-1 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
E-MEDSOFT.COM
(Exact Name of Registrant as Specified in its Charter)
Nevada 7374 84-1037630
(State or Other Juris- (Primary Standard Industrial (IRS Employer Iden-
diction of Incorpora- Classification Code Number) tification Number)
tion)
1300 Marsh Landing Parkway, Suite 106
Jacksonville, Florida 32250
(904) 543-1001
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(Address, including zip code, and telephone number, including area
code, of registrant's principal executive office)
JOHN F. ANDREWS
e-MedSoft.com
Chief Executive Officer
1300 Marsh Landing Parkway, Suite 106
Jacksonville, Florida 32250
(904) 543-1001
----------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Bruce E. Macdonough
Michael L. Kaplan
Greenberg Traurig, LLP
One East Camelback Road, Suite 1100
Phoenix, Arizona 85012
Phone: (602) 263-2300
Fax: (602) 263-2350
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CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Each Class Offering Aggregate Amount of
of Securities to be Amount to be Price Per Offering Registration
Registered Registered(1) Share Price Fee
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(4) 19,818,000 shares $7.90625(2) $156,686,062.50(2) $41,365.12
Common Stock(5) 500,000 shares $7.90625(2) $ 3,953,125.00(2) $ 1,043.63
Common Stock(6) 3,568,000 shares $7.90625(2) $ 28,209,500.00(2) $ 7,447.31
Common Stock(7) 2,305,111 shares $7.78125(3) $ 17,936,641.08(3) $ 4,735.27
Common Stock(8) 50,000 shares $7.78125(3) $ 389,062.50(3) $ 102.71
---------- -------- --------------- ----------
Total 26,241,111 shares $207,174,391.1 $54,694.04
</TABLE>
================================================================================
(1) Pursuant to Rule 416, this Registration Statement shall also cover any
additional shares of Common Stock that become issuable in connection with
anti-dilution provisions of the various warrants to which this Registration
Statement applies.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933 and based on the
average of the high and low sales prices for the Registrant's common stock on
May 9, 2000 as reported by the American Stock Exchange.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933 and based on the
average of the high and low sale prices for the Registrant's common stock on
July 17, 2000 as reported by the American Stock Exchange.
(4) Such shares are being registered for resale from time to time by certain
selling stockholders and include 750,000 shares issuable upon exercise of
certain options to acquire shares of the registrant's common stock granted in
April 2000.
(5) Such shares are being registered for resale from time to time by certain
selling stockholders upon exercise of the warrants issued in March 1999 in
connection with a financing.
(6) Such shares are being registered for resale from time to time by certain
selling stockholders upon exercise of the warrants issued in December 1999 in
connection with the issuance of Common Stock.
(7) Such shares are being registered for resale from time to time by certain
selling stockholders.
(8) Such shares are being registered for resale from time to time by certain
selling stockholders upon exercise of the warrants issued in January 1999.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE> 3
The information in this prospectus is not complete and may be changed
without notice. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and we are not soliciting
offers to buy these securities, in any jurisdiction where the offer or sale of
these securities is not permitted.
SUBJECT TO COMPLETION, DATED July 21, 2000
--------------------------------------------------------------------------------
P R O S P E C T U S
26,241,111 Shares
E-MEDSOFT.COM
Common Stock
This prospectus relates to the sale of up to 21,373,111 outstanding shares
of e-MedSoft.com common stock, 4,118,000 shares of common stock issuable upon
the exercise of warrants, and 750,000 shares of common stock issuable upon the
exercise of options held by certain selling stockholders from time to time.
We expect that sales made pursuant to this prospectus will be made
- in broker's transactions,
- in transactions directly with market makers, or
- in negotiated sales or otherwise.
The shares may be sold at current market prices or at negotiated prices at
the time of the sale. We will pay the expenses incurred to register the shares
for resale, but the selling stockholders will pay any underwriting discounts,
concessions, and brokerage commissions associated with the sale of their shares.
The selling stockholders and the brokers and dealers that they utilize may
be deemed to be "underwriters" within the meaning of the securities laws, and
any commissions received and any profits realized by them on the sale of shares
may be considered to be underwriting compensation.
We will not receive any of the proceeds from sales by the selling
stockholders. Securities laws and regulations may require the delivery of this
prospectus to purchasers when they resell their shares of common stock.
Our common stock is traded on the American Stock Exchange under the symbol
"MED." On July 20, 2000, the last reported sale price of our common stock as
reported on the American Stock Exchange was $7.125 per share.
-------------------------
Prospective investors should carefully consider the matters discussed under
"Risk Factors," beginning on page 4 of this prospectus.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read this entire prospectus carefully before deciding to acquire
shares of our common stock. This prospectus contains forward-looking statements,
which involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this prospectus. All references to "we," "our," "us," "our
company," or "e-MedSoft" in this prospectus refer to e-MedSoft.com and its
predecessors, subsidiaries, and operating divisions.
e-MedSoft.com
We offer comprehensive portal solutions for the health care industry that
clients access through the Internet in order to interact securely with a range
of connectivity, content, and commerce application services. We continue to
build and develop our services in six key areas to provide the most
comprehensive and relevant services possible. These areas are pharmacy services,
financial services, medical business services, commerce services, collaborative
multi-media services, and professional services. Our suite of services
facilitate and streamline interactions among physicians, payors, suppliers,
providers, and patients. These services are delivered through an innovative
application service provision (or ASP) model over an Internet-based information
and transaction platform.
Our services simplify workflows, decrease administrative costs, and improve
the overall quality of patient care. Through a simple web browser, users access
our services to interact in real time with relevant clinical, administrative,
and patient data, which facilitates more informed decision-making at the
point-of-care. Our ASP model frees our clients from the need to own and manage
related computer systems, networks, and software and addresses the fundamental
concerns of cost and infrastructure investment. The ASP model also allows us to
easily add services, functionality, and technical upgrades to our clients on an
ongoing basis.
We have formed strategic relationships with a number of influential groups,
including Sun Microsystems and National Century Financial Enterprises (NCFE) to
enhance our application portfolio, provide industry expertise, increase market
penetration, and generate revenues. NCFE is one of the largest financiers in the
health care industry, representing access to over 2,000 providers. NCFE is
implementing an e-MedSoft portal service pursuant to a seven-year exclusive
preferred provider agreement with us. We are providing a combination of NCFE
financial services across NCFE's network of physicians, clinics, hospitals, and
managed care organizations. NCFE's multi-billion dollar health care
securitization financing program represents a broad cross section of health care
organizations in the United States. We believe these relationships and others we
are pursuing will allow us to accelerate our market penetration.
The health care industry, because of its size, fragmentation, and extreme
dependence on information exchange, is particularly well-suited to benefit from
greater use of the Internet. Many of the inefficiencies in the health care
system result from poor information exchange among participants, which include
providers, patients, payors, and other trading partners. Today's health care
system is mired in manual processes that rely too heavily on paper, mail, phone,
and fax. We believe the health care system in the future will be one in which
information flows more quickly, accurately, and
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cost-effectively through electronic networks. We believe that we are in a
unique position to capitalize on this trend.
RECENT DEVELOPMENTS
We entered into a seven-year preferred provider agreement with National
Century Financial Enterprises, or NCFE, in February 2000. The agreement will
establish one of the nation's first interactive health care "e-finance"
distribution networks on the Web. The unique site, which we developed and
customized, will serve as a comprehensive health care management and financing
tool for hospitals, group medical practices, home health organizations, and
other health care providers.
The portal will offer a variety of sophisticated management solutions. We
intend to provide a suite of products and services to support the site, while
NCFE will provide health care financing options by offering its financial
products. Other features on the Web-based platform to be integrated over time
will include innovative technology that will allow NCFE to streamline back
office operations and handle existing and increasing client transactions online.
We have issued NCFE 9.5 million shares of our common stock in exchange for
NCFE canceling approximately $4.8 million of our debt and committing to provide
us additional funding of $5 million, in addition to their other commitments
under the agreement, which includes access to NCFE's distribution channel,
provision of all NCFE electronic processing needs, and joint projects.
In February 2000, we acquired privately held VirTx, Inc., 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, we issued approximately 1.9
million shares of our common stock to the VirTx shareholders and may issue up to
an additional $23 million in shares of our common stock pursuant to an earn-out
arrangement. Included in the suite of services are Web-enabled multimedia
clinical applications and live interactive video conferencing. As a result of
the acquisition of VirTx, we can now leverage our technology to accelerate ASP
hosting of clinical-multimedia applications nationally and internationally. For
example, VirTx was recently awarded a three-year contract to build and support a
worldwide collaborative medical network[TM] for St. Jude Children's Research
Hospital. As part of the first phase of the project, our portal will host
multimedia, distance-enabled clinical applications providing distribution of the
medical expertise at St. Jude for remote consultations, distance education, and
training and research throughout the world. The portal will take advantage of
our state-of-the-art security and privacy templates through our developing
cryptography technologies.
We concluded a $60 million private equity offering in March 2000. We sold 4
million shares of our common stock at $15 per share. We believe this financing
will assist us in continuing our growth and executing our business strategy.
In March 2000, we entered into an agreement with Quantum Digital Solutions
Corporation (previously known as CypherComm, Inc.) for the exclusive license for
application of that company's innovative security encryption and data scrambling
technology. We intend to embed the security technology into all of our
application services and develop a separate wholly owned entity that will focus
on selling security solutions to the health care industry. Pursuant to the
license agreement, we will pay to Quantum Digital a royalty fee equal to 25
percent of the net profits of such entity. In addition to the license agreement
we entered into an acquisition and joint venture agreement to combine the
synergies of our technology and expertise with Quantum Digital's patented
security technology and proficiency. Pursuant to this agreement, we issued to
Quantum Digital approximately 1.4 million shares of our common stock for the
right to purchase up to 15 percent of the
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outstanding common stock of Quantum Digital for an aggregate cash purchase
price of $15 million, either in a single transaction or in tranches over a
period of up to five years. In addition, we will issue Quantum Digital a 10-
year warrant to purchase an additional 1 million shares of our common stock at
an exercise price of $20 per share following the introduction of a commercially
distributable product using Quantum Digital's technology. We will also receive a
seat on Quantum Digital's board of directors. In addition, we have established a
jointly owned technical lab with Quantum Digital for further development of the
encryption technology to fit various vertical markets. We will fund the lab
jointly with Quantum Digital.
In August 1999 we acquired a 60 percent interest in an Australian company
to distribute certain of our products in various territories including
Australia and Asia. We paid one Australian dollar for the shares and entered
into a software and marketing license agreement with the subsidiary. We
received a $250,000 license fee, and will receive royalty payments in return
for an exclusive non-transferable right to use, reproduce and exploit certain
of our software. In March 2000, the subsidiary merged with Capricorn, an
inactive Australian company listed on the Australian stock exchange. The merger
was considered a reverse acquisition with Capricorn as the surviving company.
Capricorn changed its name to B2B Net Technologies, Ltd. Concurrent with this
transaction B2B completed an Australian public offering and raised
approximately $3.4 million for working capital. As a result of these
transactions, we own 45 percent of B2B and have an irrevocable two-year proxy
to vote an additional 15 percent of B2B's shares that are owned by another
stockholder.
In April 2000, we entered into a 30-year management agreement and a
preferred provider agreement with PrimeRX.com, Inc. (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 provided for an option to exchange up to
33 percent of PrimeRx stock for 3 million e-MedSoft shares. On April 12, 2000
the majority of the shareholders of PrimeRx exercised their option to purchase
approximately 2.6 million shares of our stock in exchange for approximately 29
percent of PrimeRx's outstanding shares. Based on the management contract and
the equity ownership in PrimeRx, we will consolidate their operations beginning
in fiscal 2001.
In May 2000, we acquired Illumea Corporation in exchange for approximately
1.3 million shares of our common stock. 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.
In June 2000, we acquired VidiMedix in exchange for assuming approximately
$6.2 million in debt, payable in approximately 380,000 shares of common stock,
warrants to acquire approximately 336,000 shares of our common stock at an
exercise price of $8.63 and approximately $2.9 million in cash. In addition, we
committed to issue up to $6 million in shares of additional common stock 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.
Also in June 2000, we acquired Resource Healthcare for approximately $1.5
million in cash and approximately 113,400 shares of our common stock with a
value of $1,000,000. In addition we committed to issue additional common stock
with a value of $500,000 as an earn out payment based on Resource achieving
certain earnings 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.
Also in June 2000, we entered a five year Strategic Marketing Agreement and
Preferred Vendor relationship with Allscripts, Inc. The partnership designates
e-MedSoft as the preferred pharmacy services vendor of Allscripts and also
allows for the exploration of integrating Allscripts technology into e-MedSoft's
core medical business solutions. In return, e-MedSoft has designated Allscripts
as the preferred point of service, prescribing in-office dispensing and routing
solutions.
These recent developments have brought us a very strong pipeline of
potential business to complement the growing list of existing e-MedSoft clients.
We are actively pursuing cross-selling opportunities across these channels.
OUR LOCATION
We are a Nevada corporation with executive offices located at 1300 Marsh
Landing Parkway, Suite 106, Jacksonville, Florida 32250 and our telephone number
is (904) 543-1001. Our Web site is located at www.e-MedSoft.com. Information
contained on that Web site and any of the Web sites in our network
does not constitute a part of this prospectus.
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RISK FACTORS
Before you invest in our common stock, you should be aware that there are
risks, including those set forth below. You should carefully consider these risk
factors, together with all the other information included in this prospectus,
before you decide to purchase shares of our common stock.
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO BASE AN INVESTMENT DECISION.
We began operations in January 1999 with the acquisition of an
Internet-based health care management system and the subsequent acquisition of
e-Net, a company based in the United Kingdom, in March 1999. Because we have
recently begun operations, it is difficult to evaluate our business and our
prospects. Our revenue and income potential from our Internet solutions business
is unproven and our business model is still emerging. Since January 2000, we
have completed the following significant transactions:
- entered into a seven-year preferred provider agreement with NCFE to
develop and host an interactive health care "e-finance" distribution
network on the Web;
- acquired VirTx, a leading provider of secure collaborative medical
networks;
- entered into a 10-year exclusive license agreement with Quantum
Digital for its patented security encryption and data scrambling
technology;
- entered into an agreement with PrimeRX to provide pharmacy
management services;
- acquired Illumea, which develops and markets Internet-based remote
inspection and image sharing solutions.
- acquired VidiMedix, which provides network medicine solutions for
physicians to deliver remote examination, diagnosis, and treatment to
patients, and
- acquired Resource HealthCare, which provides pharmaceutical and
infusion services to long-term care and assisted living facilities
throughout Nevada.
Our historical financial information is of limited value in projecting our
future operating results because of our limited operating history as a combined
organization and the emerging nature of our markets.
WE HAVE INCURRED AND WILL CONTINUE TO INCUR LOSSES.
We began operations in January 1999 and have incurred net losses from
operations in each fiscal period since then. As of March 31, 2000, we had
accumulated losses of approximately $10.6 million. In addition, we currently
intend to invest heavily in acquisitions, infrastructure development,
applications development, and sales and marketing in order to expand our
services to a growing number of potential customers and partners.
For the foreseeable future, we expect to incur significant expenses,
including for the following:
- funding operating expenses;
- developing additional infrastructure; and
- bringing to market additional products and services.
As a result, we expect to incur operating losses for the foreseeable
future. We cannot be certain that we can achieve sufficient revenues in relation
to our expenses to become profitable. We expect our revenue to be generated from
our pharmacy services, financial services, medical business
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services, commerce services, collaborative multi-media networking services, and
professional services. However, our business model is still evolving, and we are
unable to predict the amount and timing of revenues. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future.
WE FACE RISKS ASSOCIATED WITH OUR OFFSHORE OPERATIONS.
We currently derive a significant portion of our revenues from e-Net, our
U.K. subsidiary. We now have operations in Australia and intend to seek other
significant acquisitions outside the United States. If problems develop in an
offshore subsidiary, which local management is unable to handle, it will be
difficult for our management to react in a timely manner due to the geographical
separation and time differences. This inability to react quickly and
sufficiently could have material adverse consequences on our operations and
financial results.
WE RELY ON OUR STRATEGIC RELATIONSHIPS.
To be successful, we believe that we must establish and maintain strategic
relationships with leaders in a number of health care industry segments. This is
critical because we are relying on these relationships to
- extend the reach of our applications and services to the various
participants in the health care industry;
- obtain specialized health care expertise;
- bring to market new products and services;
- further enhance the e-MedSoft brand; and
- generate revenue.
Entering into strategic relationships is complex because some of our
current and future partners may compete with us. In addition, we may not be able
to establish relationships with key participants in the health care industry if
we have established relationships with their competitors. Consequently, it is
important that we are perceived as independent of any particular customer or
partner. Once we have established strategic relationships, we will depend on our
partners' ability to generate increased acceptance and use of our platform,
applications, and services. For example, we are depending upon NCFE to recommend
to its clients that they use our software system. If fewer NCFE clients sign up
to transact their accounts receivable financing over our Web portal than we
anticipated, we will not be able to grow according to our plans.
As with most service businesses, the loss of one or more material
contracts could have a material adverse effect on our business. We cannot
assure you that we will not lose any of our short or long-term contracts.
THE HEALTH CARE INDUSTRY MAY NOT ACCEPT ELECTRONIC INFORMATION EXCHANGE.
Our business could suffer dramatically if Internet solutions are not
accepted or not perceived to be effective. Growth in demand for our applications
and services depends on the adoption of Internet solutions by health care
participants, which requires the acceptance of a new way of conducting business
and exchanging information. To maximize the benefits of our platform, health
care participants must be willing to allow sensitive information to be stored in
our proprietary databases in order to process transactions for them. The
benefits of our connectivity and information management solutions are, however,
limited under these circumstances.
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Customers using legacy and client-server systems may nonetheless refuse to adopt
new systems when they have made extensive investments in hardware, software, and
training for older systems.
THE HEALTH CARE INDUSTRY MAY NOT ACCEPT OUR SOLUTION.
To be successful, we must attract a significant number of customers
throughout the health care industry. We believe that complexities in the nature
of the transactions that must be processed have hindered the development and
acceptance of information technology solutions by the health care industry.
Conversion from traditional methods to electronic information exchange may not
occur as rapidly as we expect that it will. Even then, health care industry
participants may use applications and services offered by others.
We believe that we must gain significant market share before our
competitors introduce alternative products, applications, or services with
features similar to our current or proposed offerings. Our business model is
based on our belief that the value and market appeal of our solution will grow
as the number of participants and the scope of the services available on our
platform increase. We may not achieve the critical mass of users we believe is
necessary to become successful. In addition, we expect to generate a significant
portion of our revenue from service offerings. Consequently, any significant
shortfall in the number of users would adversely affect our financial results.
WE FACE RISKS ASSOCIATED WITH ACQUISITIONS.
We plan to expand our business by making acquisitions of other companies in
the health care information services industry. There are a number of risks
associated with financing these acquisitions and integrating them into the our
business, including the following:
- our profitability could be affected by servicing the additional debt
and amortizing the expenses related to goodwill and intangible assets;
- the issuance of additional equity would dilute the interests of our
current stockholders;
- it could be difficult to assimilate the acquired companies' employees,
equipment, and operations;
- the acquisition could divert management's attention from other
business concerns;
- the acquired companies could operate in markets with which we have
little or no familiarity;
- there could be undisclosed or unforeseen liabilities associated with
the acquired companies; and
- we could lose key employees or customers of the acquired companies.
WE HAVE EXPERIENCED RAPID GROWTH, WHICH HAS PLACED A STRAIN ON OUR RESOURCES,
AND ANY FAILURE TO MANAGE OUR GROWTH EFFECTIVELY MAY CAUSE OUR BUSINESS TO
SUFFER.
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We have expanded our operations through acquisitions and other Ventures. We
acquired e-Net in March 1999 and have recently acquired three multimedia
companies (VirTx, VidiMedix and Illumea), entered into three major agreements to
be the exclusive provider of electronic data flow (NCFE, University Affiliates
and PrimeRX), entered into a major management agreement with PrimeRX, and
entered into a joint licensing arrangement with Quantum Digital. We also expect
to rapidly expand our domestic and international operations. This growth has
placed, and is expected to continue to place, a significant strain on our
managerial, operational, financial, and other resources. On June 22, 2000, we
had over 500 full-time employees compared to 75 on March 31, 1999. We expect to
continue to hire new employees at a rapid pace, our business will suffer if this
growth continues and we fail to manage this growth. Any additional growth will
further strain our managerial, operational, financial, and other resources. To
manage any future growth effectively, we must improve our financial and
accounting systems, controls, reporting systems and procedures, integrate new
personnel, and manage expanded operations. Any failure to do so could negatively
affect the quality of our products and services, our ability to respond to our
clients, retain key personnel, and our business in general.
WE RELY ON THE PERFORMANCE AND SECURITY OF OUR SYSTEMS.
Our customer satisfaction and our business could be harmed if our customers
experience any system delays, failures, or loss of data. The occurrence of a
major catastrophic event or other system failure at our facilities could
interrupt data processing or result in the loss of stored data. In addition, we
depend on the efficient operation of Internet connections from customers to our
systems. These connections, in turn, depend on the efficient operation of Web
browsers, Internet service providers, and Internet backbone service providers,
all of which could have periodic operational problems or outages. Any disruption
to Internet access provided by third parties could have a material adverse
effect on our business, financial condition, and results of operations.
Furthermore, we are dependent on hardware suppliers for prompt delivery,
installation, and services equipment used to deliver our services.
A material security breach could damage our reputation or result in
liability to our company. We retain confidential customer and patient
information in our processing centers. Therefore, it is critical that our
facilities and infrastructure remain secure and that they are perceived by the
marketplace to be secure. Despite the implementation of security measures, our
infrastructure may be vulnerable to physical break-ins, computer viruses,
programming errors, attacks by third parties, or similar disruptions.
WE FACE INTENSE COMPETITION, WHICH COULD HARM OUR BUSINESS.
The market for health care information services is intensely competitive,
rapidly evolving, and subject to rapid technological change. Many of our
competitors have greater financial, technical, product development, marketing,
and other resources than we do. These organizations may be better known and have
more customers than we do. Certain competitors have announced or introduced
Internet strategies that will compete with our applications and services,
including
- application services providers, such as USinternetworking, Inc.,
Exodus Communications, Inc., and Trizetto;
- health care e-commerce and portal companies, such as Healtheon/WebMD
and CareInsite, Inc.;
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- health care electronic data interchange companies, including ENVOY
Corporation and National Data Corporation;
- large information technology consulting service providers, including
Andersen Consulting, International Business Machines Corporation, and
Electronic Data Systems Corporation; and
- smaller regional organizations.
In addition, we expect that major software information systems companies
and others specializing in the health care industry will offer competitive
applications or services. Some of our large customers may also compete with it.
We may be unable to compete successfully against current and future competitors,
and competitive pressures may seriously harm our business.
CHANGES IN THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS.
The health care industry is subject to changing political, economic, and
regulatory influences. These factors affect the purchasing practices and
operations of health care organizations. Changes in current health care
financing and reimbursement systems could cause us to make unplanned
enhancements of applications or services, or result in delays or cancellations
of orders, or in the revocation of endorsement of our applications and services
by health care participants. Federal and state legislatures have periodically
considered programs to reform or amend the U.S. health care system at both the
federal and state level. Such programs may increase governmental involvement in
health care, lower reimbursement rates, or otherwise change the environment in
which health care industry participants operate. Health care industry
participants may respond by reducing their investments or postponing investment
decisions, including investments in our applications and services.
Many health care industry participants are consolidating to create
integrated health care delivery systems with greater market power. As the health
care industry consolidates, competition to provide products and services to
industry participants will become even more intense, as will the importance of
establishing a relationship with each industry participant These industry
participants may try to use their market power to negotiate price reductions for
our products and services. If we were forced to reduce our prices, our operating
results could suffer as a result if we cannot achieve corresponding reductions
in our expenses.
GOVERNMENT REGULATION OF THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR
BUSINESS.
Our business is subject to U.S. and international government regulation.
Existing as well as new laws and regulations could adversely affect our
business. Laws and regulations may be adopted with respect to the Internet or
other online services covering issues such as user privacy, pricing, content,
copyrights, distribution, and characteristics and quality of products and
services. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Demand for our applications and services may be affected by additional
regulation of the Internet.
9
<PAGE> 12
We are subject to extensive regulation relating to the confidentiality and
release of patient records. Additional legislation governing the distribution of
medical records has been proposed at both the state and federal level. It may be
expensive to implement security or other measures designed to comply with new
legislation. Moreover, we may be restricted or prevented from delivering patient
records electronically. For example, until recently, the Health Care Financing
Administration guidelines prohibited transmission of Medicare eligibility
information over the Internet.
Legislation currently being considered at the federal level could affect
our business. For example, the Health Insurance Portability and Accountability
Act of 1996 mandates the use of standard transactions, standard identifiers,
security, and other provisions. Regulations setting these standards are expected
by the end of 2000. We are designing our platform and applications to comply
with these proposed regulations; however, until these regulations become final,
they could change, which could cause us to use additional resources and lead to
delays as we revise our platform and applications. In addition, our success
depends on other health care participants complying with these regulations.
OUR GROWTH MIGHT BE LIMITED IF WE BECOME SUBJECT TO SALES OR OTHER TAXES.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state, and local level and by
certain foreign governments that could impose taxes on the sales of goods and
services and certain other Internet activity. A recently enacted law places a
temporary moratorium on certain types of taxation on Internet commerce. We
cannot predict the effect of current attempts at taxing or regulating commerce
on the Internet. Any legislation that substantially impairs the growth of
e-commerce could have a material adverse effect on our business, financial
condition, and results of operations.
WE MAY BE ADVERSELY AFFECTED BY PRODUCT-RELATED LIABILITIES.
Although we and our customers test our applications, they may contain
defects or result in system failures. In addition, our platform may experience
problems in security, availability, scalability, or other critical features.
These defects or problems could result in the loss of or delay in generating
revenue, loss of market share, failure to achieve market acceptance, diversion
of development resources, injury to our reputation, or increased insurance
costs.
Our services agreements involve providing critical information technology
services to clients' businesses. If we fail to meet our clients' expectations,
our reputation could suffer and we could be liable for damages. In addition,
patient care could suffer, and we could be liable if systems fail to deliver
correct information in a timely manner. Finally, we could become liable if
confidential information is disclosed inappropriately. Our insurance may not
protect us from these risks.
In addition, our insurance may not be sufficient to cover large claims, or
the insurer could disclaim coverage on claims.
WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS FROM THIRD PARTIES.
We expect that we could be subject to intellectual property infringement
claims as the number of competitors grows and the functionality of our
applications overlaps with competitive offerings. These claims, even if not
meritorious, could be expensive to resolve and divert management's attention
10
<PAGE> 13
from operating the business. If we become liable to a third party for infringing
its intellectual property rights, we could be required to pay a substantial
damage award. Such a judgment would have a material adverse effect on our
business, financial condition, and results of operations. In addition, we may be
unable to develop noninfringing technology or obtain a license on commercially
reasonable terms.
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS.
Our future success and ability to compete in the health care information
services business may be dependent in part upon our proprietary rights to
products and services that we develop. We expect to rely on a combination of
patent, copyrights, trademark, and trade secret laws and contractual
restrictions to protect our proprietary technology and to rely on similar
proprietary rights of any of our content and technology providers. We intend to
file patent applications to protect certain of our proprietary technology. We
cannot assure you that such applications will be approved or, if approved, will
be effective in protecting our proprietary technology. We enter into
confidentiality agreements with our employees, as well as with our clients and
potential clients seeking proprietary information, and limit access to and
distribution of our software, documentation, and other proprietary information.
We cannot assure you that the steps we take or the steps such providers take
would be adequate to prevent misappropriation of our proprietary rights.
THE LOSS OF KEY PERSONNEL OR THE INABILITY TO HIRE OR RETAIN QUALIFIED PERSONNEL
COULD ADVERSELY AFFECT OUR BUSINESS.
Our operations are dependent on the continued efforts of the executive
officers and management, in particular, John F. Andrews, our Chief Executive
Officer, and Marshall A. Gibbs, our Chief Technology Officer. If any one of
these persons becomes unable or unwilling to continue in his or her role with
us, or if we are unable to attract and retain other qualified employees, our
business and prospects could be adversely affected. Our success is also
dependent to a significant degree on our ability to attract, motivate, and
retain highly skilled sales, marketing, and technical personnel, including
software programmers and systems architects skilled in the computer language
with which our products operate. Competition for such personnel in the software
and information services industries is intense. The loss of key personnel or the
inability to hire or retain qualified personnel could have a material adverse
effect on our business.
WE WILL NEED TO OBTAIN ADDITIONAL CAPITAL IN THE FUTURE.
We believe that we currently have sufficient funds to meet our requirements
for at least the next 12 months. However, we may need to raise additional
financing to support expansion, develop new or enhanced applications and
services, respond to competitive pressures, acquire complementary businesses or
technologies, or take advantage of unanticipated opportunities. We may need to
raise additional funds by selling debt or equity securities, by entering into
strategic relationships, or through other arrangements. We may be unable to
raise any additional amounts on reasonable terms, or at all, when they are
needed.
HOLDERS OF OPTIONS AND WARRANTS HAVE THE RIGHT TO ACQUIRE A LARGE NUMBER OF
SHARES OF OUR COMMON STOCK.
11
<PAGE> 14
We have reserved a total of 8,802,500 shares of our common stock for
issuance upon exercise of options granted or which may be granted under our
existing stock option plans. As of July 10, 2000, stock options to acquire
2,414,587 shares at a weighted average exercise price of $6.23 are outstanding.
In addition, as of July 10, 2000, warrants to acquire 5,304,000 shares of our
common stock at a weighted average exercise price of $5.04 are outstanding. The
holders of these options and warrants will have the opportunity to profit from
an increase in the market price of our common stock. These options and warrants
may make it more difficult for us to obtain additional equity financing in the
future. The holders of these options and warrants can be expected to exercise
the options and warrants at a time when we, in all likelihood, would be able to
sell equity securities on terms more favorable to us than those provided in the
options and warrants.
FUTURE SALES OF A LARGE NUMBER OF SHARES OF OUR COMMON STOCK COULD DEPRESS OUR
STOCK PRICE.
The market price of our common stock could decline as a result of sales of
a large number of shares of common stock in the market, or the perception that
such sales could occur. We have a large number of shares of common stock
outstanding and available for resale beginning at various points in time in the
future. These sales also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate. As
of July 10, 2000, we have outstanding 77,555,986 shares of common stock. Of
these shares, 70,514,836 shares are restricted securities and will become
eligible for sale without registration pursuant to Rule 144 under the Securities
Act, subject to certain conditions of Rule 144. Certain holders of our common
stock, warrants, and options have demand and piggyback registration rights
enabling them to register up to 26,241,111 of their shares for sale under the
Securities Act pursuant to this prospectus. If holders sell a large number of
shares in the public market, our stock price could fall materially.
NO DIVIDENDS
We currently intend to retain earnings to provide funds for the
operation and expansion of our business. We have not paid cash dividends on our
common stock and do not anticipate that we will do so in the foreseeable future.
Any declaration and payment of dividends would be subject to the discretion of
our board of directors. Any future determination to pay dividends will depend
upon our results of operations, financial condition, capital requirements,
contractual restrictions, and other factors deemed relevant at the time by the
board of directors.
FOREIGN CURRENCY
We currently have significant operations in the United Kingdom and have
begun operations in Australia. In addition we intend to seek other operations
outside of the United States. Our investments in foreign subsidiaries could be
affected by fluctuations in the foreign operations' functional currency.
12
<PAGE> 15
PRICE RANGE OF OUR COMMON STOCK
Our common stock has been listed on the American Stock Exchange under the
symbol "MED" since January 11, 2000. Prior to January 11, 2000, our
common stock traded in the over-the-counter market under the symbol "MDTK." The
following table sets forth the high and low closing prices of our common stock
as reported on the American Stock Exchange for the period beginning on January
11, 2000. The following table also sets forth the high and low bid prices for
our common stock for the periods (prior to January 11, 2000) indicated, as
reported by the OTC Bulletin Board. These bid prices are believed to be
inter-dealer quotations and do not include retail markup, markdowns, or other
fees or commissions and may not necessarily represent actual transactions. On
January 4, 1999, we completed a five-for-one stock split. Accordingly, all bid
prices listed below (for the period prior to January 4, 1999) are restated to
reflect this split. On May 28, 1999, we changed our fiscal year end from May 31
to March 31. As a result, the quarter ending March 31, 1999 represents only one
month of trading.
<TABLE>
<CAPTION>
Quarter ended: High Low
------- ------
<S> <C> <C>
August 31, 1998 .......................... $ 0.600 $0.206
November 30, 1998 ........................ 0.650 0.200
February 28, 1999 ........................ 7.000 0.206
March 31, 1999 ........................... 4.437 2.312
June 30, 1999 ............................ 4.875 2.625
September 30, 1999 ....................... 3.875 1.656
December 31, 1999 ........................ 8.125 1.875
March 31, 2000 ........................... 24.250 6.625
June 30, 2000 ............................ 17.813 6.000
</TABLE>
On July 20, 2000, the closing price of the Common Stock on the American
Stock Exchange was $7.125. As of July 17, 2000 there were a total of 776
shareholders of record. This does not include shareholders who hold stock in
their accounts at broker/dealers.
DIVIDEND POLICY
We currently intend to retain earnings to provide funds for the operation
expansion of our business. We have not paid cash dividends on our common stock
and do not anticipate that we will do so in the foreseeable future. Any
declaration and payment of dividends would be subject to the discretion of our
board of directors. Any future determination to pay dividends will depend upon
our results of operations, financial condition, capital requirements,
contractual restrictions, and other factors deemed relevant at the time by the
board of directors.
13
<PAGE> 16
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" along with the consolidated financial statements and notes thereto,
included elsewhere in this prospectus. The consolidated financial data for
e-MedSoft.com for the year ended March 31, 2000 and four months ended March 31,
1999, have been derived from our financial statements, which have been audited
by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this prospectus. Historical operating results are not necessarily
indicative of results in the future.
<TABLE>
<CAPTION>
Four Months
Ended
---------- Year Ended
March 31, March 31,
1999 (1) 2000
---------- -------------
(in thousands, except per share data)
<S> <C> <C>
Consolidated Statements of
Operations Data:
Net sales ........................ $ 2,650 $ 45,982
Operating costs and expenses:
Cost of sales .................. 1,999 35,890
Research and
development ................. 39 1,515
Sales and marketing ............ 188 5,256
General and administrative ..... 387 8,744
Non-cash compensation .......... 380 832
Depreciation and amortization... 46 1,916
-------- --------
3,039 54,153
-------- --------
Operating loss.................... (389) (8,171)
Interest expense ................. (377) (1,889)
Interest income .................. - 281
Other ............................ -- 38
-------- --------
Loss before income taxes,
extraordinary income and
minority interest ............... (766) (9,741)
Extraordinary income ............. -- 357
-------- --------
Loss before income taxes and
minority interest ............... (766) (9,384)
Tax provision .................... (139) (360)
Minority interest, net of tax .... -- 79
-------- --------
Net loss ......................... $ (905) $ (9,665)
======== ========
Basic and diluted loss per share.. $ (0.02) $ (0.17)
======== ========
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C>
Average weighed shares
outstanding ..................... 38,061 56,345
======== =========
Consolidated Balance Sheet Data:
Cash and cash equivalents ........ $ 190 $ 59,866
Working capital (deficit) ........ (1,642) 54,410
Total assets ..................... 17,463 265,097
Long-term obligations, net of
current portion ................. 2,972 3,871
Stockholders' equity ............. 6,113 229,003
</TABLE>
-------------
(1) On January 7, 1999, e-MedSoft acquired the assets of TSI in a reverse
acquisition transaction. Therefore, the operating financial information
included herein combine the operations of TSI from its inception, December
1, 1998 through the acquisition date and e-MedSoft's operations after the
acquisition date through March 31, 1999.
15
<PAGE> 18
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations is
derived from the historical financial statements of e-MedSoft.com and VirTx,
Inc. and give effect to the acquisition of VirTx, Inc. by the registrant on
February 29, 2000. The unaudited pro forma combined statement of operations for
the year ended March 31, 2000 reflect the acquisition of VirTx as if the
transactions had occurred at April 1, 1999. The unaudited pro forma combined
statement of operations does not purport to be indicative of the results that
would actually have been obtained if the combination had been in effect on the
dates indicated, or that may be obtained in the future. The unaudited pro forma
combined statement of operations should be read in conjunction with the
historical consolidated financial statements of e-MedSoft.com and the financial
statements of VirTx together with the related notes thereto.
16
<PAGE> 19
Unaudited Proforma Combined Statement of Operations
For the Year ended March 31, 2000
<TABLE>
<CAPTION>
Proforma Proforma
Virtx, Inc. Adjustments(1) Combined
e-MedSoft (unaudited)(2) Dr(Cr) (unaudited)
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 45,982,416 $ 782,623 $ -- $ 46,765,039
------------ ------------ ------------ ------------
Costs and Expenses
Cost of sales 35,890,430 777,413 -- 36,667,843
Research and development 1,515,054 -- -- 1,515,054
Sales and marketing 5,255,502 -- -- 5,255,502
General and administrative 8,743,921 1,477,076 165,000(3) 10,385,997
Non cash compensation 832,240 -- -- 832,240
Depreciation and amortization 1,916,012 -- 4,058,156(4) 5,974,168
------------ ------------ ------------ ------------
54,153,159 2,254,489 4,223,156 60,630,804
------------ ------------ ------------ ------------
Operating loss (8,170,743) (1,471,866) (4,223,156) (13,865,765)
Interest & Other expense 1,570,329 88,355 (158,992)(5) 1,499,692
------------ ------------ ------------ ------------
Loss before income taxes,
extraordinary item and
minority interest (9,741,072) (1,560,221) (4,064,164) (15,365,457)
Extraordinary income 357,152 -- -- 357,152
------------ ------------ ------------ ------------
Loss before income taxes
and minority interest (9,383,920) (1,560,221) (4,064,164) (15,008,305)
Tax provisions (360,798) (800) -- (361,598)
Minority Interest, net of taxes 79,384 -- -- 79,384
------------ ------------ ------------ ------------
Net loss $ (9,665,334) $ (1,561,021) $ (4,064,164) $(15,290,519)
============ ============ ============ ============
Net loss per share $ (0.17) -- -- $ (0.26)
Weighted Average Shares
Outstanding 56,345,463 -- 1,696,789(6) 58,042,252
</TABLE>
The accompanying notes are an integral part of these unaudited proforma combined
statement of operations
17
<PAGE> 20
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
GENERAL
1. The adjustments included in the unaudited pro forma combined financial
statement of operations are based upon currently available information and upon
certain assumptions that our management believes are reasonable. We accounted
for the VirTx acquisition as a purchase of VirTx. VirTx's assets and liabilities
were recorded at their initial estimated fair market value, less certain
adjustments, as of the date of the VirTx acquisition. There can be no assurance
that the actual adjustments will not differ significantly from the pro forma
adjustments reflected herein.
2. The unaudited combined pro forma statement of operations includes our
operations for the year ended March 31, 2000 that were derived from our audited
March 31, 2000 consolidated financial statements. The statement of operations
for VirTx included in the pro forma is for the eleven months ended February 29,
2000.
3. Represents the increase in executive compensation as a result of the
acquisition.
4. Represents the amortization of goodwill using the straight-line method
over a period of seven years.
5. Represents the savings in amortization of deferred financing costs and
interest on notes payable.
6. Represents the weighted average number of e-Med shares issued in
exchange for VirTx common shares. It does not include e-Med shares which may
be issued pursuant to an earn-out arrangement.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
discussed in the forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
You should read the following discussion with the Consolidated Financial
Statements of e-MedSoft.com and related Notes appearing elsewhere in this
prospectus.
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 following fiscal year ended March 31, 2000, 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 the last year we acquired a managed
care computer technology to service a network of over 2,500 physicians and a
multimedia company to provide various telemedicine technologies. We have 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. Subsequent to our fiscal
year ended March 31, 2000 we have acquired two more multimedia companies and
entered into a 30-year management agreement with a pharmacy management services
company.
RESULTS OF OPERATIONS
The results of operations presented herein reflect our and our subsidiaries'
consolidated net sales and expenses. Prior to the acquisition of the online
health care management system on January 7, 1999 and the acquisition of e-Net on
March 19, 1999, our net sales and operating expenses, interest income, and
expense were minimal. The financial statements included herein present the
audited financial statements for the year ended March 31, 2000 and for the four
months ended March 31, 1999.
FISCAL YEAR ENDED MARCH 31, 2000, FOUR MONTHS ENDED MARCH 31, 1999, AND PRO
FORMA FISCAL YEAR ENDED MARCH 31, 1999
The following analysis compares the operating results for the year ended
March 31, 2000 to the four months ended March 31, 1999 and the pro forma
information for the year ended March 31, 1999. Since the audited four month
period ended March 31, 1999 is not comparative to the current fiscal year end,
the following discussion focuses on the comparison to prior year pro forma
results. The pro forma information gives effect to the acquisition of e-Net as
if such transaction had occurred on April 1, 1998 (in thousands) (unaudited):
<TABLE>
<CAPTION>
Fiscal March 31, 1999
March 31, Four Months Fiscal
2000 Actual Pro Forma
<S> <C> <C> <C>
Net sales $ 45,982 $ 2,650 $ 21,325
Costs and expenses:
Cost of sales 35,890 1,999 16,400
Research & development 1,515 39 39
Sales and marketing 5,256 188 1,753
General and administrative 8,744 387 2,952
Non-cash compensation 832 380 380
Depreciation and amortization 1,916 46 1,372
-------- -------- --------
54,153 3,039 22,896
-------- -------- --------
Operating loss (8,171) (389) (1,571)
Net loss $ (9,665) $ (905) $ (2,336)
</TABLE>
19
<PAGE> 22
NET SALES
Net sales for the year ended March 31, 2000 increased 116 percent compared
to pro forma net sales for the same period ended March 31, 1999. This increase
resulted primarily from our U.K. subsidiary's increased revenues. Essentially
all sales generated by the U.K. subsidiary were from the sale, service, and
installation of computer systems. The growth in these sales 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. At the beginning of the year, e-Net obtained a higher
preferred vendor status with Sun Microsystems and was subsequently awarded Sun
Microsystem's Reseller of the Year Award in January 2000, reflecting our
increased market share for the sale and distribution of Sun Microsystems'
hardware. During the year, e-Net successfully launched, sold, and implemented
the e-commerce software product esparto in 25 sites that are hosted by us under
our ASP banner or by our customers. During the fourth quarter of 2000, we began
to recognize sales from services and software products provided under contracts
in our U.S. operations. We expect these revenues to increase substantially as
contracts are implemented and product is rolled out.
COSTS AND EXPENSES
Cost of sales
Cost of sales primarily consist of the cost of providing hardware and
software infrastructure. Cost of sales for the year ended March 31, 2000
increased slightly as a percentage of net sales from 77 percent for the pro
forma period ended March 31, 1998 to 78 percent. This slight increase reflects
the decrease in hardware margins, as we have increased our market by teaming
with Sun Microsystems and Oracle to compete with other major hardware and
software distributors such as MicroSoft.
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 year ended
March 31, 2000 we expensed approximately $1.5 million in development costs and
capitalized approximately $2.2 million. 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. 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.
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 year
ended March 31, 2000 increased over the pro forma fiscal year ended March 31,
1999 by approximately $2.7 million in the United Kingdom to $4.5 million. This
is 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. In addition, the U.S. operations incurred approximately $772,000 in
sales and marketing costs for the year ended March 31, 2000 as a result of the
marketing of our Internet-based health care management system. The increase in
these costs as a percentage of net sales of approximately 3.2 percent from 1999
to 2000 is reflective of the natural lag that occurs in a rapidly growing
business.
20
<PAGE> 23
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. Approximately $7.3 million of these combined costs for the year ended
March 31, 2000 were related to our reorganization and infrastructure
development, as well as the expansion of our U.S. operations in accordance with
our business plans. These costs, which include legal fees, accounting fees, and
other consulting fees, also represent our efforts to broaden our financial and
investment market visibility and obtain funding for our operations and planned
expansion.
Depreciation and amortization
Depreciation and amortization for the year ended March 31, 2000 includes
depreciation of equipment of approximately $739,000 and the amortization of
goodwill of $1.2 million. Compared to pro forma fiscal 1999, these amounts
reflect an increase of approximately $234,000 for depreciation of equipment and
$310,000 for the amortization of goodwill. On February 29, 2000 we acquired
VirTx, which resulted in approximately $31 million in goodwill. This goodwill is
being amortized over a seven-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. Interest expense, of approximately $1.9 million for the year ended March
31, 2000, includes 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. As of March 31, 2000, all deferred financing costs have
been amortized. In addition, interest costs include interest expense on our
bridge debt and e-Net's credit facility. During the 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
of approximately $281,300, which somewhat offsets the interest costs.
EXTRAORDINARY INCOME
Extraordinary income represents the gain we recognized resulting from the
issuance of warrants in satisfaction of debt.
FOUR MONTHS ENDED MARCH 31, 1999
The Company began operations with the acquisition of the Internet-based
health care management system on January 7, 1999. The statement of operations
reflects the operations of TSI since inception (December 1, 1998) to the date of
the reverse acquisition and of e-MedSoft from the date of the reverse
acquisition to March 31, 1999. During the period ended March 31, 1999, the
Company continued the development and testing of the system and acquired e-Net.
Accordingly, there is no historical prior period information included in the
financial statements and the results discussed herein include only thirteen days
of operations consolidated from e-Net.
NET SALES
Although the Company had entered into several contracts and strategic
partnerships to implement and roll out the Internet based health care management
system, no revenues for the period ended March 31, 1999 were generated from the
sale of these services. Depending
21
<PAGE> 24
on the terms of the contracts, revenues from these contracts will begin to be
recognized upon the customer's acceptance, installation and operation of the
system. In addition, the Company will recognize subscription revenues on a
monthly basis for sales made over the Internet. The revenues of $2,650,000 for
the period ended March 31, 1999 reflect approximately thirteen days of
operations consolidated from the U.K. subsidiary that was acquired on March 19,
1999.
COSTS AND EXPENSES
Cost of sales
The cost of sales represents the U.K. subsidiary's cost of hardware and
software products plus the cost of installation and delivery. Cost of sales for
e-Net were approximately $1,999,000 or 75 percent of revenues. For the period,
there are no cost of sales related to the sale of the Company's U.S. Internet
based healthcare management system. However, it is anticipated that cost of
sales for this product will include the cost of product delivery, customer
service and systems maintenance. While the cost of providing Internet services
should generally be minimal, installations of large operations such as managed
care organizations and third party claims processors will require hands-on
training and systems maintenance. Also, there may be additional costs associated
with product development that are capitalizable and amortized into cost of sales
in the future.
Research and development
Development costs of approximately $39,000 represent development of software
in the U.K. and enhancement of the Company's internet based health care
management system.
Sales and marketing
Sales and marketing costs of approximately $188,000 include $139,000 for the
U.K. operations that consisted primarily of salaries and travel costs of the
U.K.'s sales force, marketing literature and advertising. In addition,
approximately $49,000 of these costs reflect the U.S. operation's outside
marketing costs related to the Company's Internet health care management system.
General and administrative, including non-cash compensation
General and administrative costs of approximately $767,000 include general
office costs, executive and administrative salaries and professional fees. These
costs were approximately $701,000 and $66,000 for the operations in the U.S. and
U.K., respectively. General and administrative costs in the U.S. include
$380,000 of non-cash compensation expense that represents options and warrants
issued for services performed.
Depreciation and amortization
Depreciation of approximately $17,000 related solely to the depreciation of
equipment and vehicles in the United Kingdom. Amortization of approximately
$29,000 represents the Company's amortization of goodwill as a result of the
acquisition of e-Net. The Company is amortizing the goodwill over a ten-year
period. The amortization period is based on management's best estimate of the
useful lives of the business acquired.
OTHER INCOME (EXPENSE)
Other income (expense) includes interest expense of approximately $377,000,
which includes $6,000 of interest from the debt and capital leases in the United
Kingdom. The remaining expense of $371,000 is mainly a result of the
amortization of deferred financing incurred in connection with the financing of
the e-Net acquisition. Subsequent to March 31, 1999, the Company entered into
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agreements with the lenders to exchange a portion of the debt for warrants and
extend the remaining portion over two years.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had approximately $59.9 million in cash and $54.4
million in working capital. During the year ended March 31, 2000, we used cash
in operating activities of approximately $3.8 million, primarily due to the net
loss from the period of $9.7 million, partially offset by the net change in
operating assets and liabilities of $2.1 million and depreciation and
amortization expense of $3.2 million. We used cash in investing activities of
approximately $7.3 million, primarily due to a $4.2 million investment in
software acquisition and development and $2.2 million in investments and
business acquisitions. We have funded our operating costs and acquisition costs
through our operations, credit facility, loans from third parties, and the sale
of common stock. During the year ended March 31, 2000 we raised approximately
$63.6 million in net proceeds from the sale of our common stock. B2B.Net, our
Australian subsidiary recently completed a reverse acquisition of an Australian
Stock Exchange company and completed an underwritten offering for approximately
$3.4 million for working capital purposes. The working capital will be used to
implement a staffing and business infrastructure in the region and to establish
early reference clients.
NCFE, a strategic partner that has provided us approximately $1.5 million
under a commitment to fund us based on our future accounts receivables and $3.5
million under a $5.5 million commitment to fund our operations until other
financing was obtained has, during the quarter ended March 31, 2000, converted
its debt into equity and revised their commitment to us for an additional $5.0
million in financing in lieu of the remaining $2.0 million on their old
commitment. In addition, we received approximately $1.5 million from third party
lenders for the acquisition of e-Net and approximately $1.2 million from an
affiliate for the purchase of shares and issuance of debt.
We believe that the proceeds from our previous sale of common stock,
current credit facilities, and operations will be sufficient to support our
capital needs over the next 12 months for the implementation and rollout of our
Internet-based health care management system, the expansion of our customer base
and the integration of newly acquired entities. Since year end, in accordance
with our plans, we have used approximately $29 million in cash for subsequent
acquisitions and their required integration into our Company, investments and
capital expenditures as well as working capital required to implement our
contracts and rollout our healthcare management system to expand our customer
base. However, we may need to raise additional financing to support further
expansion, develop new or enhanced applications and services, respond to
competitive pressures, acquire complementary businesses or technologies, or take
advantage of unanticipated opportunities. We may need to raise additional funds
by selling debt or equity securities, by entering into strategic relationships,
or through other arrangements. 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 or results of operation.
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BUSINESS
BUSINESS OVERVIEW
We offer comprehensive portal solutions for the health care industry
that clients access through the Internet in order to interact securely with a
range of connectivity, content, and commerce application services. We focus on
delivering these services in six key areas, which we are continuing to build
upon and develop in order to provide the most comprehensive and relevant
services possible. These six areas are pharmacy services, financial services,
medical business services, commerce services, collaborative multi-media
services, and professional services.
We are augmenting our foundation in the connectivity area with other
core services to provide a "complete" solution for providers and healthcare
organizations. Our services are delivered through an application service
provision (or ASP) model over an Internet-based information and transaction
platform. Our ASP model frees clients from the need to own and manage related
computer systems, networks, and software, and addresses the fundamental concerns
of cost and infrastructure and allows us to add services, functionality, and
technical upgrades to our clients on an ongoing basis.
Our services facilitate and streamline interactions among physicians,
payors, suppliers, providers, and patients. Our services simplify workflows,
decrease administrative costs, and improve the overall quality of patient care.
Through a simple web browser, users access the services to interact in real
time, which facilitates more informed decision-making at the point-of-care.
We have developed a number of strategic alliances with several
well-known companies in the health care and information technology (IT)
industries, such as Sun Microsystems, Oracle Corporation, NCFE, and University
Affiliates IPA and Allscripts. These relationships are designed to accelerate
our market penetration. In addition, we are acquiring a well-developed client
base, additional products and services, and intellectual capital through our
acquisitions.
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INDUSTRY OVERVIEW
Increases in health care expenditures have been driven principally by
technological advances in the health care industry and by the aging of the
population, as older Americans utilize more health care resources on a per
capita basis. With the increase in costs, health care systems have migrated
toward more managed care reimbursement, including discounted fee-for-service and
capitation. Aggregate health care costs are expected to continue to rise.
The Internet's open architecture, universal accessibility, and growing
acceptance make it an increasingly important environment for
business-to-business and business-to-consumer interaction. Use of the Internet
is rapidly expanding from simple information publishing, messaging, and data
gathering to critical business transactions and confidential communications.
We believe the health care industry's core constituents - physicians,
payors, suppliers, and patients - will benefit from timely access to
patient-specific information and payor content, such as benefit rules and care
guidelines, in order to reduce the complexity of administration, increase
compliance with benefit plan guidelines, secure appropriate use of health care
resources, and improve the quality of patient care.
PHYSICIANS
Physicians are confronted with a proliferation of health plans, each of
which has complex clinical, administrative, and financial rules and guidelines
relating to matters such as eligibility for prescriptions, lab tests, referrals
and follow-up visits, scope of coverage, and co-payments. These complex rules
and guidelines require administrative personnel to spend significant time
navigating the cumbersome administrative procedures of a large number of health
plans often after the medical care has been given or prescriptions or referrals
have been written. This complexity has created demand for real-time information
exchange across all patients and all payors to streamline cumbersome and
time-consuming clinical and administrative processes.
PAYORS
Payors, such as health maintenance organizations (commonly referred to
as HMOs) and pharmacy benefit managers, are finding less incremental value in
the historical levels of managed care. In order to stem the unabated growth in
health care costs, managed care plans must do more than automate the
administrative and financial processes that govern the provision of services and
the payment of claims. While administrative costs account for approximately 15
percent of annual health care expenditures, it is the cost of care itself,
approximately 85 percent of annual health care expenditures, that primarily
drives the growth in health care expenditures. We believe that compliance with
benefit plan guidelines that promote more efficient use of health care resources
and adherence to best practices will result in cost reductions and improvements
in the quality of care. Payors are seeking an efficient channel to communicate
their benefit plan rules and care guidelines to physicians at the point-of-care
in order to realize savings.
SUPPLIERS
Pharmacies, clinical laboratories, and other suppliers are being forced
to become increasingly efficient in managing their business as managed care
organizations have negotiated significant reductions in price and demanded
measurable improvements in quality. Pharmacies continue to incur substantial
inefficiencies in the process of managing orders with physicians and patients.
Physicians have been slow to adopt these systems because they are proprietary in
nature and are usually limited to results reporting. Consequently, clinical
laboratories incur unnecessary administrative costs
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associated with processing and reporting orders and also incur significant
losses related to tests for which reimbursement is not authorized.
PATIENTS
As the payor exerts increasing influence over plan design, service
coverage, and provider access, patients are demanding ever more objective
measures of quality and cost. This is evidenced by the unprecedented demand for
health care information on the Internet, confirming both the absence of
information from traditional sources and the desire for additional sources of
objective, credible, and trustworthy information.
The Internet is accelerating the empowerment of provider and patient.
Physicians are utilizing the Internet to gather more and better information,
enhance communication with other health care participants, streamline processes,
and improve cash flows. Patients are turning to the Web to educate themselves on
clinical conditions and treatment, learn about and change health plan benefits,
seek the support of physicians and other patients, and conduct e-commerce
transactions. Web technology is making it easier for consolidated or affiliated
entities to operate within increasingly large and complex organizations. Along
this line, Web technology can be used to further integrate disparate systems and
improve information access and communications for remote parties.
OUR BUSINESS STRATEGY
Our business strategy is focused on providing client-driven solutions
that leverage our Internet platform and our comprehensive suite of products and
services for the health care industry. We provide solutions that are relevant,
personalized, and cost-effective for our clients, while maintaining an ASP
delivery model. Our strategy includes the following key elements:
CAPITALIZE ON THE EXPANDING HEALTH.NET MARKET. The Internet, as a low
cost and flexible communications platform is the fastest growing technology
medium in history. Health care, the largest sector of the U.S. economy, is
inefficient, fragmented, and suffers from poor information flow. We believe the
Internet will dramatically change how information flows and is exchanged and how
people and organizations interact in the health care sector. The "Health.net"
industry refers to the application of Internet technologies in the health care
sector and consists generally of three key segments: connectivity, content, and
commerce. Unlike solutions that encompass and integrate all three of these
segments, traditional information technology vendors in the health care sector
struggle to provide a comprehensive Health.net solution as there is no clear
legacy solution for these markets. We believe our technology platform has
positioned us at the forefront of this emerging market where few market leaders
have been defined.
LEVERAGE OUR INTERNET TECHNOLOGY. We leverage our Internet technology
to create health care networks that provide secure transactions and
communications among a broad range of health care participants, regardless of
their legacy computing platforms. Unlike traditional proprietary solutions that
focus on point-to-point communications, narrowly defined transactions, and
single platform utilization, our Internet technology allows us to link and
integrate all categories of health care participants, including payors,
providers, suppliers, and consumers. The result is reduced paper-based
transactions, reduction of redundant data entry, shortened cycle times, better
informed decisions, and a significant decrease in the overall communication
inefficiencies created by traditional proprietary systems.
CONTINUE TO EXPAND PRODUCT FUNCTIONALITY AND SERVICE CAPABILITY. On an
ongoing basis, we are identifying key functionality and supporting data that is
critical to particular industry participants or can add significant value to our
solutions. We plan to offer continually a competitive suite of products and
services by building native, Internet-based applications and data encompassing
the identified functionality, by acquiring businesses or technologies, and by
enabling third-party applications to operate,
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integrate, and exchange data on our platform. In addition, our solutions are
designed to support our customers as their businesses grow and evolve. Our
platform is designed to scale to accommodate high volumes of transactions
simultaneously and provide flexibility so that customers can add or modify
applications and service capabilities to react to changes in the health care
marketplace.
FORM STRATEGIC RELATIONSHIPS WITH LEADING HEALTH CARE PARTICIPANTS. We
are aggressively pursuing and forming strategic relationships with leaders in
key health care industry segments to enhance our portfolio of applications and
services, increase the number of connected users, and provide specialized
industry expertise for new applications. In addition, we plan to acquire
companies with strategic relationships with leading health care industry
participants. We believe this strategy also provides accelerated market
awareness and demand for our services through the influence of these partners
both directly, through their use and sales efforts, and indirectly, through
their relationships with other potential customers. To date, we have been very
successful in forming key strategic partnerships as demonstrated by our
relationships with leading organizations such as Sun Microsystems, NCFE,
University Affiliates IPA, PrimeRX, Quantum Digital, and Allscripts.
PURSUE USAGE-BASED BUSINESS MODEL. We are offering network-based
transaction and information services on a fee for service basis. This pricing
model reduces the initial investment required to obtain the benefits of high-end
information technology systems, enabling physicians, small organizations, and
individuals to gain access to these systems for the first time. By enabling the
shift from fixed information technology costs to variable costs and outsourcing
much of the information technology requirements, we believe that we will be able
to achieve a critical mass of users and also significantly differentiate
ourselves from competitors.
PROVIDE A "FULL SERVICE" SOLUTION. We are aggressively pursuing a
strategy to provide our clients with the most comprehensive portal solutions by
combining relevant connectivity, content, and commerce elements for the health
care sector. Additionally, we offer consulting, application development, systems
integration, and network management services to provide complete
customer-specific solutions. By offering a continuum of products and services,
we can provide customers with an end-to-end migration path from the customers'
legacy systems and processes to our Internet-based model.
CAPITALIZE ON CORPORATE STRUCTURE. Our acquisitions of e-Net, Illumea,
VirTx, VidiMedix and Resource Healthcare and our agreements with NCFE, PrimeRX,
Quantum Digital, and Allscripts have created a vertically integrated entity that
has greater financial strength, stability, and technology than each individual
company. This structure provides the basis for international expansion,
technology sharing, cross-marketing, and potential cost-saving benefits.
CONTINUE PRODUCT DEVELOPMENT. We believe that a key to our growth is an
ongoing focus on research and development to ensure our product offerings and
technical capabilities will continue to strive to meet the evolving needs of our
existing and potential customer base. Our research efforts focus on enhancements
to existing product offerings, new product development and the integration of
third party products. In developing products, our goal is to ensure our
information systems are highly flexible and quickly adaptable and can serve the
information access needs of an increasingly broad range of users.
SUMMARY OF COMPETITIVE ADVANTAGES
We believe that we are uniquely qualified to compete with both Internet
and traditional health care information system providers that are either
planning to or just emerging with Internet-based solutions. Our solutions not
only enable our customers to utilize the existing data repository and to
maintain the management capabilities of
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existing systems, but also to re-direct their focus on making information
available to all authorized individual users in the value chain.
We believe that our primary competitive advantages will be the
following:
- the ability to provide a comprehensive set of services that is
cost-effective to initiate;
- the ability to provide a personalized portal for our clients that
incorporates a comprehensive range of applications and services for
health care providers and organizations;
- the ability to provide end-to-end service;
- delivery of our services through an Internet-based ASP model, which
provides a single access point to our suite of services and reduces the
need to purchase and manage hardware, software, and network capacity;
- providing our clients with ongoing upgrades of technology and
functionality without significant investments;
- the pay-as-you-use pricing model ensures client costs are directly
related to the benefits delivered by the service; and
- client access to their solution anywhere and anytime as only a browser
is needed to interact with our applications.
PRODUCTS AND SERVICES
We offer comprehensive portal solutions for the health care industry
that clients access through the Internet in order to interact securely with a
range of connectivity, content, and commerce application services. We are
augmenting our connectivity foundation with other core services to provide a
"complete" solution for providers and Healthcare organizations. We focus on
delivering these services in six key areas, which we are continuing to build
upon and develop in order to provide the most comprehensive and relevant
services possible. Recent acquisitions and other agreements have supported this
development. We group our products and services as follows:
- e-MedSoft Pharmacy Services
- e-MedSoft Medical Business Services
- e-MedSoft Financial Services
- e-MedSoft Multi-Media Services
- e-MedSoft Commerce Services
- e-MedSoft Professional Services
E-MEDSOFT PHARMACY SERVICES
We offer full-service, standard and Internet-enabled pharmacy services
to physician offices, clinics, IPAs, physician practice management
organizations, managed care health plans, nursing homes, correctional
facilities and community health centers. Our solutions encompass management of
ambulatory pharmacies, claims verification auditing services, drug utilization
evaluation services, physician office dispensing, and home delivery of
prescriptions and other healthcare products through the Internet.
We currently offer pharmacy managed care services to over one million
managed care enrollees and operate fifty ambulatory pharmacies in twelve states,
in addition to servicing over two hundred million claims through our unique and
unparalleled line item auditing technology, RXAudit.com.
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In addition, we will soon be providing a comprehensive solution for the
health care industry that includes on-line clinical information on diagnosis,
drug information, and patient education. We will provide on-line resources that
help reduce adverse drug events and improve the quality of patients care by
providing the most accurate, up-to-date, and clinically relevant drug,
laboratory, and diagnostic information.
E-MEDSOFT MEDICAL BUSINESS SERVICES
We provide personalized portal solutions for physician-based payor
organizations, clinics, and physicians offices through our Medical Business
Services. e-MedSoft's Managed Care services are designed to combine unique
application requirements for patient and practice management systems with
integrated managed care services. This service can be privately branded for each
corporate customer and provides complete Internet-enabled applications and
services for the payor organization. We will target our managed care services to
HMO's, third-party administrators, independent physician associations, and
self-funding organizations.
e-MedSoft's Practice Services are designed to increase the efficiency,
productivity, and management of physician-based clinics and offices and provide
access to practice information. We reduce the need for physicians and their
staff to maintain computer servers and upgrade applications, which allows them
to concentrate on providing high quality care to their patients. e-MedSoft's
Practice Services are designed to bring total automation to the entire
cycle of the patient visit from scheduling and registration, through the entire
examination and treatment, and ending with the management of claims processing
and accounting.
e-MedSoft Credentialing centralizes the credentialing process for
providers and managed care organizations, and is designed to achieve regulatory
compliance while minimizing risk. e-MedSoft credentialing provides Practitioner
access to update files anytime, anywhere and a broad range of functionality
such as tracking and reporting.
E-MEDSOFT FINANCIAL SERVICES
Our financial services solutions are provided through e-MedSoft's
strategic relationship with NCFE. Through the relationship, we will provide our
clients with a full line of web-based financial services tailored to the health
care industry. The services will include accounts receivable financing, lease
acquisition, loan acquisition, self-pay financing, and merger and acquisition
assistance. The services will also provide a significant level of reporting
capability at the client and patient levels. This unique portal will serve as a
comprehensive health care management and financing tool for hospitals, group
medical practices, home health organizations, and other health care providers to
maximize their resources.
NCFE, known as the innovator in the securitization of health care
receivables, is one of the largest providers of this service in the United
States with relationships with over 2,000 health care providers. NCFE created
the first multi-seller healthcare receivables program to receive AAA credit
ratings.
E-MEDSOFT MULTI-MEDIA SERVICES
We are a leading provider of secure multimedia medical network
solutions. We design original networks that are built on advanced technologies
and deployed using computing,
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video-conferencing, and medical peripheral instruments to support a wide array
of applications.
We leverage a combination of in-house developed and best-of-breed
communications, collaborative software, robust image capture and manipulation
capabilities, and the latest video technology to create a scalable, supportable,
and upgradeable network infrastructure. By constantly evaluating and assessing
new technology, we maintain a suite of solution components that can be
configured to meet the specific, unique requirements of our clients.
Within Multi-Media Services, our Illumea solution provides
Internet-based remote inspection and image sharing solutions based upon
proprietary compression and streaming technology. Our core, patented protocol
utilizes our technology to deliver diagnostic-grade real-time, high-fidelity
video images. The solution enables remote collaboration and sharing of data
images in the life sciences, material sciences, and clinical/medical markets.
Similarly, our VidiMedix solution allows physicians to create virtual
examination rooms and multimedia patient information centers from their
workstations through simple, intuitive user interfaces. The recently developed
Series 2000 software allows integration of real-time information from health
information systems providing patients' medical and billing records, physicians'
schedules, decision support systems, and outcomes measurements.
E-MEDSOFT COMMERCE SERVICES
e-MedSoft's Commerce Services enable buyers and sellers in the
health care industry to eliminate the inefficiencies of the traditional supply
chain and provide substantial benefits by reducing order processing and tracking
costs and improving the utilization of data relating to products, services,
transactions and market trends.
Our e-MedConnect Solution is a unique application commerce architecture
developed by e-MedSoft for business-to-business applications in the health care
market.
e-MedConnect enables application services that can be tailored
according to each individual user, breaking down traditional technical barriers
inherent in transacting over the Internet. This service offers numerous
advantages, including multilingual presentation, easy back office integration
and comprehensive personalization.
e-MedConnect allows health care organizations to extend existing
applications out to the Internet or to add new e-commerce or e-business
applications such as
- inventory management,
- order fulfillment services,
- Web-catalogue capabilities, and
- supply chain and procurement management.
Our Medoris solution is focused on becoming the Internet superstore for
health care professionals. The Medoris marketplace enables buyers and sellers to
reduce many of the inefficiencies of the traditional health care supply chain
and provides substantial benefits to participating buyers and sellers by
reducing order processing and tracking costs and improving the utilization of
data relating to products, services, transactions, and market trends.
Also within e-MedSoft's Commerce Services are e-commerce services for
the healthcare industry through our HomeMedical-All.com and Beauty-All.com
web-sites. Further, our Clinic Medications purchasing service affords physicians
the ability to purchase in-clinic use prescription medications at significant
savings.
E-MEDSOFT PROFESSIONAL SERVICES
e-MedSoft.com is committed to providing the highest-quality, end-to-end
service to our customers and offers a range of professional services to
compliment our clients internal IT sources. Our Professional Services include
PROJECT MANAGEMENT: Our Project Mangers are available to help plan
specific e-health projects and assist every step of the way to a successful
solution. Our Project Management team has considerable experience in
implementing phased projects to minimize the impact on day-to-day operations.
CONSULTING: We offer a wide array of outsourcing and consulting
services. These services extend beyond managing data processing operations to
encompass strategic management services in information technology planning,
major system conversions and network-infrastructure management. Strategic
consulting services also include "e-Health Readiness Assessment" and "HIPPA
Compliance"
INTEGRATION: Increasingly customers are looking to integrate their
e-healthcare applications with legacy systems. Our integration team can provide
system integration solutions which include hardware, software and consulting
services.
IMPLEMENTATION: Where needed, we can provide experienced implementation
personnel for analysis, design, development and testing assistance.
TRAINING: Our Training services provide clients with the necessary
skills needed to run e-MedSoft.com systems. Our training programs encompass
business process personalization and usage, application usage and interface
deployment with existing systems.
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SALES AND MARKETING
TARGET MARKETS
Providers. Our target provider customers include aggregators of
individual physicians such as large medical groups, independent practice
associations, physician practice management companies, and other large,
organized physician entities. In particular, we seek to form strategic
relationships with providers with a high degree of involvement in managed care,
especially providers that are involved in activities such as capitation, which
requires them to bear some level of insurance risk for each enrolled patient.
Payors. Our target payor customers include managed care organizations,
indemnity insurers, third-party administrators, and federal and state
governmental agencies. As managed care penetration increases and risk-based
medicine becomes more prevalent, payors are finding less incremental value in
the historical levels of managed care. In order to stem the unabated growth in
health care costs, payors must do more than automate the administrative and
financial processes that govern the provision of services and the payment of
claims.
Suppliers. Our target supplier customers include large national
laboratory companies, pharmaceutical companies, and pharmacy benefit managers.
These customers are being forced to become more efficient in managing their
business as managed care organizations have negotiated significant reductions in
price and demanded measurable improvements in quality.
SALES AND MARKETING APPROACH
Our sales and marketing efforts are organized according to our three
main customer segments: providers, payors, and suppliers. We have 20 direct
sales staff across our business units targeting potential customers in each
market segment by region. In addition, senior management plays an active role in
the sales process by cultivating industry contacts. We market our applications
and health care portal services through direct sales contacts, strategic
relationships, the sales and marketing organizations of our strategic partners,
participation in industry tradeshows, articles in industry publications, and by
leveraging our existing client base and strong network of relationships. We
support our sales force with technical personnel who perform demonstrations of
our applications and assist clients in determining the proper solution
configurations.
We are executing a comprehensive marketing strategy that is focused on
entering and sustaining profitable growth in all three Internet health care
sectors: content, connectivity, and commerce.
To support our sales forces and our distribution channels, we have an
experienced marketing staff that is focused on designing, creating, and
executing sophisticated marketing plans to attain our objectives. We create "go
to market" plans and often conduct campaigns with our key partners. We continue
to focus on building awareness and acceptance of our products through our own
resources, our distribution channels, and the Internet.
STRATEGIC RELATIONSHIPS
We have entered into several strategic relationships that we believe
will enhance our application portfolio, provide important specialized industry
expertise, increase our market penetration, and generate revenue. Some of these
key relationships are described below:
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Sun Microsystems is the leading global provider of high-quality
hardware, software, and services for expanding the power of networks, including
the Internet. With more than $10.0 billion in annual revenues, Sun Microsystems
is in more than 150 countries with 26,000 employees worldwide.
On February 22, 1999, Sun Microsystems presented our Web-based health
care solution to the general public at the HIMS conference, where
representatives demonstrated our technology in Sun Microsystems' booth. This
introduction was followed up in a press release by Sun Microsystems on the same
day. We have a premier independent software vendor status (only 60 ISV's out of
several thousand achieve Premier status), enabling us direct access to Sun
Microsystems' installed base and sales force. In addition, we are jointly
developing marketing programs with Sun Microsystems that create exposure in the
health care market. Furthermore, we are part of a showcase program that focuses
on Java technology and, as a result, we are able to access Sun Microsystems'
Java confidential research, development, and technical support on Java. We have
recently been selected to participate in the SunTone program. The President of
Sun Microsystems' Computer Division, Masood Jabbar, currently serves on our
board of directors.
We were recently named as a founding member of Sun Microsystems' Sun
Tone Architectural Council, an industry wide initiative to establish service
level guarantees on the quality and reliability of network based services
through the Internet. Through the SunTone initiative, ASP's such as us,
implement and proactively monitor the quality of online services.
e-Net, our UK-based subsidiary, is one of Sun Microsystems' premier
resellers in the United Kingdom and is designated as a preferred partner. On
January 27, 2000, e-Net was awarded "Reseller of the Year" honors from Sun
Microsystems for its commitment to Java technologies, ASP business model, and
Internet services. e-Net and Sun Microsystems have a long history in the United
Kingdom, together opening the first Java Center in Europe in 1997 and launching
one of the first corporate internet service provider, or ISP, businesses in the
United Kingdom. Based on a suite of high performance Sun Microsystems servers,
this ISP business continues today and now hosts over 200 corporate clients and
many ASP implementations and continues to be operated on a pure Sun Microsystems
environment.
Oracle Corporation is the world's second largest software company and
the leading supplier of software for enterprise information management. We have
chosen Oracle as a database platform of choice for our ASP solutions and are
working with Oracle as one of their first dedicated ASP partners. The marketing
partnership will include co-marketing on the Oracle Web-site, in Oracle
collateral communications, press releases, and on road-shows.
In the United Kingdom, e-Net is a Premier Partner of Oracle solutions
and was one of the first partners chosen by Oracle when they established their
own primary reseller channels in the United Kingdom. e-Net remains a Premier
Partner in the top tier with tools, middleware and groupware, and specialist
expertise in database administration and consultancy. e-Net has recently been
elevated by Oracle as one of their select "visionary" partners for Europe and
will be working closely with Oracle on emerging European strategic developments.
NCFE is among the three largest financiers in the health care industry with
more than $2.0 billion of assets and an extensive list of clients and
relationships across the health care industry. In February 2000, we entered into
a seven-year contract pursuant to which we will provide Internet portal
solutions for NCFE, including a full suite of health care information services
that connect NCFE to its related physicians, clinics, hospitals, and managed
care organizations. NCFE's multi-billion dollar base of health care clients
represents one of the largest U.S. concentrations of health care providers (over
2,000), producing over 1.5 million transactions per month.
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University Affiliates is a non-profit organization working in
conjunction with physicians and 14 affiliated hospitals. University Affiliates
offers a full range of management services to its physicians as well as other
groups and services more than 2,600 physicians and 80,000 patients. University
Affiliates is the largest accredited IPA in the nation and enjoys preferred
relationships with Blue Cross, CIGNA, Health Net, Maxicare, and many other
well-known health plans. Through our agreement with University Affiliates, we
are developing, organizing, and administering a comprehensive health care portal
that will provide our products and services exclusively to University
Affiliates's client base. The relationship is for a term of 10 years, and
University Affiliates will utilize our technologies on an exclusive basis during
that period. An integral component of the relationship between University
Affiliates and us will be collaboration with our customers to relieve individual
care providers of excessive financial risk while improving their administrative
capacity and accountability. We are currently in the process of implementing our
systems into the University Affiliates network.
Allscripts is a leading provider of point-of-care medication management
and productivity solutions. Allscripts provides services to over 10,000
physicians at 3,000 sites across the US. We have entered a five year Strategic
Marketing Agreement and Preferred Vendor relationship with Allscripts, Inc. The
partnership designates e-MedSoft as the preferred pharmacy services vendor of
Allscripts and also allows for the exploration of integrating Allscripts
technology into e-MedSoft's core medical business solutions. In return,
e-MedSoft has designated Allscripts as the preferred point of service for
prescribing, in-office dispensing and routing solution.
OUR TECHNICAL PLATFORM
The underlying technologies of our portal services include a
sophisticated Web architecture and systems foundation together with a
comprehensive online transaction processing environment focused on every aspect
of health care management. The system is designed to request, receive,
rationalize, and present relevant information to the clinician. Underlying these
processes are the capabilities to acquire, validate, and maintain patient and
plan-specific directories, house and execute payor and provider-specific rules,
as well as analyze and report results. Our ASP system incorporates the following
features:
- Compatibility: Our technology solution is designed to work with
virtually any computer system, including systems at the desktop. The
industry-wide challenge of building interfaces to integrate with
providers' and payors' existing systems is significantly simplified with
our platform. Our platform includes a proprietary interface engine that
has a comprehensive library of interface protocols and provides tools
that simplify interface creation and data integration. Moreover, our
platform includes a data/process model that uses new standards to
seamlessly integrate functions into the workflow of client applications.
- Security: A security database defines the relationship among all
elements in the system and maintains the required information to support
all functions, including login, availability of data, user-privileges,
user activity and inactivity monitoring, access control, transaction
routing, billing, and error messages. The security database has been
designed to address unauthorized disclosure of information, unauthorized
modification of information, loss of data integrity, and denial of
service. In addition, Quantum Digital's technology provides full
authentication and encryption, as well as firewall technology among all
sub-networks throughout the system to immediately identify break-in
attempts and automate lock out if breaches are suspected.
- Scalability: The system architecture is designed to support redundant
network infrastructure and to be distributed across multiple physical
servers to enhance scalability. Each ASP point-of-presence will have
four servers per node, two application servers, and two data servers,
all linked on fiber channels. Additional computers and network links can
be added and self-discovered without a system outage for growth.
- High Availability: We will maintain a fully redundant systems
architecture operating in our data centers. These centers are designed
to be in operation seven days a week, 24 hours a day, 365 days a year.
High availability for these operations will be assured through the use
of:
- uninterrupted power supply equipment;
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- building-independent cooling and environmental systems;
- duplicated network, application, and database servers;
- duplicated primary rate interface dial-up facilities;
- redundant array of independent disks systems;
- duplicate fiber optic telecommunications connections to enable
access to the Internet;
- automatic fail-over of critical network services; and
- 24 hour-a-day monitoring of network connectivity, traffic,
hardware, and software status.
- Disaster Recovery: Our facilities and operations will include
redundant backup and security to ensure minimal exposure to
systems failure or unauthorized access, as well as a
comprehensive and prudent disaster recovery plan. Incremental
backups of both software and databases are performed on a daily
basis and a full system backup is scheduled monthly. Backup tapes
are stored at an offsite location along with copies of
schedules/production control procedures, procedures for recovery
using an off-site data center, all off-site documentation, run
books, call lists, critical forms, and supplies. We also maintain
power backup throughout the enterprise should a power outage
occur within the data center.
CUSTOMER SUPPORT
We believe that a high level of customer support is necessary to
achieve wide acceptance of our solutions. We provide a wide range of customer
support services through a staff of customer service personnel, multiple call
centers, and an e-mail help desk. We also intend to offer web-based support
services that are available 24 hours a day, seven days a week, which will be
frequently updated to improve existing information and to support new services.
We will also employ technical support personnel who will work directly with our
direct sales force, distributors, and customers of our applications and
services. In some cases, we provide our customers with the ability to purchase
maintenance for our applications and services, which includes technical support
and upgrades.
PATENTS, TRADEMARKS, AND INTELLECTUAL PROPERTY
We rely upon a combination of trade secrets, copyright and trademark
laws, license agreements, confidentiality procedures, employee nondisclosure
agreements, and technical measures to maintain the secrecy of our intellectual
property. We believe that patent, trade secret, and copyright protection are
less significant to our success than our ability to further develop
applications. We have several trademarks in the United States and
internationally.
COMPETITION
The market for health care information systems and services is highly
competitive, rapidly evolving, and subject to rapid technological change. Many
of our actual and potential competitors have announced or plan to introduce
Internet strategies. Our competitors can be divided into the three key segments:
connectivity, content, and commerce.
CONNECTIVITY SEGMENT
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Physicians and other providers have begun to organize themselves into
large networks in response to managed care contracting by employers. These very
large enterprises include multi-specialty medical groups (such as Cleveland
Clinic and Scripps Clinic), integrated delivery systems of doctors, hospitals,
and home care (such as Henry Ford Health Care, and Healthsystem Minnesota),
Independent Physicians/Practice Associations (IPAs such as the North American
Medical Management division of PhyCor and Hill Physicians), and a variety of
similar entities. Traditional suppliers of information systems to this market
include IDX, Medic, HBO-CyCare, SMS, EPIC, and Medical Manage. Each has begun an
effort to Web-enable their applications.
Connecting these provider organizations to payors for claims
reimbursement through EDI is routine, compared to less routine services such as
obtaining online eligibility data, claims status, and credentialing. For IPA's,
the lack of connectivity is a real problem and companies like Healtheon have
entered this market with Internet products. Many of these Internet-based
products are in various alpha and beta states, and we believe the solution we
offer will be superior.
A third segment of the connectivity market involves linking the patient
to the physician's office, hospital, or managed care organization, using a
consumer web page, health risk assessment, lab result reporting, and other
features. A number of smaller regional players have entered this market (such as
Central Station, LifeMaster, and LifeStar) with consumer-oriented wellness and
disease management products. We propose to either duplicate these product
features or acquire a competitor.
CONTENT SEGMENT
The Internet is an ideal platform on which to build content-based
service offerings. While thousands of health care-related Web sites have been
created during the last few years, a limited number of for-profit companies are
emerging as the leading candidates to become health care portals. These
companies typically target either consumers or physicians and, in some cases,
both groups. While individual strategies vary, content companies generally focus
on creating and aggregating content, building communities, offering value-added
services, and facilitating commerce. Accordingly, successful business models in
this segment will likely rely on multiple revenue streams, including
advertising, sponsorship, service, commerce, and other service-related fees.
Like most Internet companies, content providers strive to get big fast.
The leading content companies are typically one of the first movers in their
space. Through internal development, partnerships, and acquisitions these
companies focus on rapidly creating high quality content and service offerings,
acquiring customers, and building powerful brand names. Competitors in this
segment include such companies as America's Doctor Online, Intelihealth, Dr.
Koop.com, and Physician's Online. Our focus in this area is to provide primarily
physician-based professional content that acts as another value-added service to
our overall solution.
COMMERCE SEGMENT
E-commerce is dramatically changing the way businesses interact with
customers and is re-designing fundamental business processes, such as sales,
customer service, and inventory management. In the health care market the range
of products that can be offered online is broad and not encumbered by space
constraints. While many of the consumer-oriented health care e-commerce sites
serve as shopping destinations for the direct purchase of goods and services
many of the business-to-business e-commerce companies are focused on creating
online business communities that facilitate the purchase of health care
products. These companies are creating Web-based markets that aggregate vendors'
products at one site, streamline workflow for purchases, and enhance
communications between buyers and sellers.
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The business-to-business e-commerce companies allow purchasers to
benefit from time and cost savings, while sellers are provided with an online
distribution channel that typically expands well beyond their traditional reach.
In addition to aggregating products and providing value-added content, many of
the business-to-business e-commerce companies provide customized applications
designed to be integrated into a customer's daily business process, further
tightening the vendor-customer relationship. These companies are paid fees based
on a percentage of the transaction, usually by the seller. While companies plan
to process and fulfill orders, they generally do not warehouse products and,
therefore, do not face inventory risks. Successful commerce companies will need
to provide high quality and secure service to overcome any psychological
barriers to purchasing health care products online. Additionally, the Internet
allows consumers to make price comparisons instantly, resulting in a highly
competitive environment and in potential margin pressure. Providing products and
services in all three segments and forming a strong brand around all of them
will be the best defense against pricing pressure and provide for profitable
growth. The most notable competitors in the e-commerce segment include
ChannelPoint, Chemdex, Neoforma, and PlanetRx.
TRADITIONAL HEALTH CARE INFORMATION TECHNOLOGY (HIT) COMPANIES
In addition to the Internet health care companies, the leading
companies from the traditional HIT industry compete against us. These companies
are pursuing Web strategies that generally focus on two goals: Web-enabling
existing product lines and creating Web-based offerings with entirely new
functionality, such as disease management applications and connectivity
solutions.
These companies have several advantages over the Internet health care
companies, including a large customer base and strong customer relationships,
deep domain expertise, and a thorough knowledge of the legacy IT infrastructure.
They, however, are disadvantaged in other ways. HIT companies typically possess
different core competencies and managerial strengths, focusing more on mainframe
and client/server technologies. This presents a difficult situation for them in
extending those solutions to leverage the internet and also can have a
detrimental effect on the sales of existing legacy product lines.
We face intense competition within all three Internet market segments.
Furthermore, major software vendors and others, including those specializing in
the health care industry that are not presently offering applications that
compete with those offered by us, may enter our market. In some cases, large
customers may have the ability to compete directly with us as well. Many of our
competitors and potential competitors have significantly greater financial,
technical, development, marketing, and other resource capacity as well as
greater market recognition than we have. Many of our competitors also have or
may develop or acquire a substantial established and installed customer base in
the health care industry. As a result of these factors, our competitors may be
able to respond much faster to new or emerging technologies and to devote
greater resources to the development, promotion, sales, and delivery of their
applications or services than we can.
EMPLOYEES
As of March 31, 2000, we employed over 145 employees and 65 contractors
providing services in development and engineering, delivery and support, sales
and marketing, and corporate finance and administration. We intend to increase
our employee base in conjunction with our planned expansion.
None of our employees is represented by a labor union, and we have
never experienced a work stoppage. We believe we have a good relationship with
our employees. Our ability to achieve our financial and operational objectives
depends in large part upon our continuing ability to attract, integrate, retain,
and motivate highly qualified sales, technical, and
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managerial personnel, and upon the continued service of our senior management
and key sales and technical personnel, most of whom are not bound by employment
agreements.
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FACILITIES AND OFFICES
GENERAL
Our principal offices are in Jacksonville, Florida, Los Angeles,
California and Bath, England. We also have an office in Perth, Australia, and
additional facilities in England (4) and California (2). These offices and
facilities are leased. In addition, we own or lease computer and communication
equipment necessary to operate our businesses.
OFFICE LEASES
1300 Marsh Landing Parkway, Suite 106
Jacksonville, Florida
20750 Ventura Boulevard, Suite 320
Woodland Hills, California
130 Camino Ruiz
Camarillo, California
151 Shipyard Way
Newport Beach, California
Sir William Lyons Road
Coventry, England
8A Kings Parade
Cambridge, England
3 Riverside Court
Riverside Road
Bath, England
57 Great Eastern Street
London, England
Level 18, Central Park
152-158 St George's Terrace
Perth, Western Australia
OUR HISTORY
In December 1998, Sanga International, Inc., a worldwide provider of
enterprise package platforms and solutions and HealthMed, Inc., the owner of a
leading proprietary medical software, formed a joint venture limited liability
company named Sanga e-Health, which changed its name to TSI Technologies
Holdings, LLC. The joint venture had leading medical software including a
comprehensive registration-to-release system with extensive management reporting
and fraud elimination capabilities contributed to TSI Technologies by HealthMed
and sophisticated enterprise package platforms and solutions contributed to TSI
Technologies by Sanga International for its exclusive use.
TSI Technologies had an Internet-based technology with all the
functionality of the HealthMed system but with the commercial viability and ease
of use of the Sanga International technology. Once TSI Technologies was formed,
TSI Technologies formalized its relationship with its key partner, Sun
Microsystems. By combining the strengths of Sanga International, HealthMed, and
Sun Microsystems, the parties believed they could create a Web-based solution
that would provide the health care market with a superior technological edge
through the advantages of the Internet. Version 1.0 of the product was released
in January 1999 for testing with its first customer, MediManager, a related
party. Immediately after demonstrating the viability of the product, TSI
Technologies entered into a transaction with MedTech, Inc. pursuant to which TSI
Technologies acquired 80% of the issued and outstanding capital stock of MedTech
in exchange for transferring the rights in and to the product. MedTech later
changed its name to e-MedSoft, signaling the change in corporate strategy to a
web-based health care application provider.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES, AND DIRECTORS
The following table sets forth certain information regarding our executive
officers, key employees, and directors.
<TABLE>
<CAPTION>
Name Age Position Held
<S> <C> <C>
John F. Andrews 46 Chairman of the Board, Chief Executive
Officer, and President
Marshall A. Gibbs 34 Executive Vice President and Chief
Technology Officer
Margaret A. Harris 52 Chief Financial Officer
Ian McPherson 52 Managing Director of e-Net
Donald H. Ayers 64 Director
Masood Jabbar 49 Director
W. Cedric Johnson 48 Director
Sam J.W. Romeo, M.D. 59 Director
Mitchell J. Stein 41 Director
</TABLE>
JOHN F. ANDREWS has served as our Chairman of the Board, President, and
Chief Executive Officer since January 1999. Mr. Andrews served as Chief
Executive Officer of Sanga International, one of our significant stockholders,
from April 1998 until July 1999. Mr. Andrews continues to serve on the board of
directors of Sanga International. During November 1999, Sanga International
filed for protection pursuant to Chapter 11 of the Uniform Bankruptcy Code in
Los Angeles, California. Prior to joining Sanga International, Mr. Andrews was
Chief Information Officer of CSX Corporation and Chief Executive Officer of CSX
Technology from April 1993 to April 1998. Mr. Andrews was Vice President and
General Manager of GTE Health Systems from 1991 to 1993. Mr. Andrews also
served as Vice President and General Manager at several other business units at
GTE and held positions in information technology, finance, marketing, and field
operations. Mr. Andrews has served on the board of directors of PrimeRX.com
since April 2000.
MARSHALL A. GIBBS has served as our Chief Technology Officer and Executive
Vice President since January 10, 1999. From June 1998 until May 1999, Mr. Gibbs
was employed by Sanga International as Chief Technology Officer. From March
1994 until May 1998, Mr. Gibbs was employed by CSX Technology, serving the last
six months as Vice President of Enterprise Technology Services at CSX
Technology. Prior to CSX Technology, Mr. Gibbs was with Price Waterhouse, where
he was in the Management Consulting Services group.
MARGARET A. HARRIS has served as our Chief Financial Officer and Senior
Vice President since March 1, 1999. From June 1993 until March 1999, Ms. Harris
worked as an independent contractor/consultant providing financial services to
various companies including the following: HemaCare Corporation -- July 1993
until July 1994; American Outpatient Services, Corp. -- July 1994 until October
1995, serving as the Acting Chief Financial Officer; GCI RenalCare, Inc. --
December 1995 until December 1996, serving as the Chief Financial Officer;
MediaManager, Inc. -- December 1996 to March 1999, serving as the Acting Chief
Financial Officer.
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Ms. Harris served as Vice President of Finance for American Medical
International, Inc., one of the largest hospital management companies in the
world and a predecessor to Tenet Health Care Holding Corp., from June 1973 until
July 1991. Prior to joining American Medical International, Ms. Harris began her
career with Arthur Andersen LLP in the audit group.
IAN MCPHERSON has served as the Managing Director of e-Net since 1995.
Prior to Mr. McPherson's current position, he acquired Relay Systems (now called
e-Net) in 1997 and merged it into Network Wales Limited, where Mr. McPhearson
was Chairman and Managing Director. In 1996 Mr. McPherson formed Network Wales
Limited, an Internet services business operating in Wales, which was a joint
venture with the U.K. government. From 1992 until 1997, he was Chairman and
Managing Director of Syntech Computer Systems, Ltd. From 1989 until 1992, Mr.
McPherson was the Chief Information Officer for Ryan International PLC.
DONALD H. AYERS has served as a member of our Board of Directors since July
2000. Mr. Ayers currently serves as Vice Chairman, Chief Operating Officer, and
a director of National Century Financial Enterprises, Inc., a significant
stockholder in our company (NCFE). Mr. Ayers has 32 years of experience in the
health care industry. In 1990, Mr. Ayers founded Falcon Receivable Systems,
Inc., a company which was merged into a subsidiary of NCFE in December 1996.
Previously, Mr. Ayers was president of two private healthcare management
companies for 10 years and president of Grant Hospital in Columbus, Ohio for 13
years. Mr. Ayers holds a B.S. in Education and Psychology from Muskingum College
in New Concord, Ohio and an M.B.A. in Health Care Management from George
Washington University.
MASOOD JABBAR has served as a member of our board of directors since
December 1999. Mr. Jabbar currently serves as President of Sun Microsystems,
Inc.'s Computer Division. Since joining Sun Microsystems in 1986, Mr. Jabbar
has held a number of senior positions, including Vice President of Finance and
Planning for Sun Microsystems' field organization, Director of Marketing for
the U.S. organization, and General Manager for the Interactive Products Group.
W. CEDRIC JOHNSON has served as a member of our board of directors since
May 2000. Mr. Johnson has served as Chief Executive Officer of Quantum Digital
Solutions Corporation, which he founded in June 1995 under the name of
CypherComm, since January 1997. Prior to founding Quantum Digital, Mr. Johnson
served as President and Chief Executive Officer of ETA Technologies Corporation,
an applied sciences firm. Prior to his term at ETA Technologies, Mr. Johnson
served as a systems engineer at Rockwell International and was a technology
consultant to Fortune 100 companies.
SAM J. W. ROMEO, M.D. has served as a member of our board of directors
since September 1999. Dr. Romeo, who has more than 30 years of experience in
the health care field, currently serves as the President and CEO of University
Affiliates IPA, the nation's first fully accredited IPA. In addition to having
held senior faculty positions at the USC School of Medicine, Medical College of
Wisconsin, and the St. Louis University School of Medicine, Dr. Romeo has also
served as the Medical Director of several health maintenance organizations in
California, Florida, and New York, and is licensed to practice medicine in the
States of California, Florida, Idaho, Missouri, and Wisconsin. Dr. Romeo
received the prestigious Physician Executive of the Year Award given by the
American College of Medical Practice Executives in October 1998.
MITCHELL J. STEIN has served as a member of our board of directors since
September 1999, when he was added to the board as an ex-officio member
representing TSI a principal stockholder. Mr. Stein is the Chairman of the
Board of TSI. Mr. Stein previously served as Managing Partner of the law firm
of Stein, Perlman & Hawk from December 1990 to September 1998. Mr. Stein served
as the President and Chairman of the Board of MediManager, Inc. from June 1994
to August 1998.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Our bylaws authorize the board of directors to appoint among its members
one or more committees consisting of one or more directors. Our board of
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directors has established an audit committee and a compensation committee. The
audit committee is comprised of Masood Jabbar and Dr. Sam J.W. Romeo. The audit
committee will review the quarterly and annual financial statements, any
significant accounting issues, the scope of the audit with our independent
auditors and will discuss with the auditors any other audit-related matters that
may arise. The compensation committee is comprised of Mitchell J. Stein, W.
Cedric Johnson, and Donald H. Ayers. The compensation committee will determine
salaries and bonuses payable to executive officer and administer the stock
option plans.
DIRECTOR COMPENSATION AND OTHER INFORMATION
Directors who are employees of our company do not receive any additional
compensation for serving as members of our board of directors. Directors are
eligible to participate in our 1999 Stock Compensation Plan and our 2000
Nonqualified Stock Option and Stock Bonus Plan. Upon initial acceptance to the
board, our non-employee directors will be granted stock options to purchase
20,000 shares of our common stock. The directors will receive an additional
10,000 options each year they are re-elected to the board. The options will be
priced at market based on the grant date and will vest over for a four year
period. On July 10, 2000, Messrs. Ayers, Jabbar, Johnson, Romeo, and Stein were
each granted options to purchase 20,000 shares of our stock at $8.25 per share.
In addition, each non-employee director will receive a $2,000 stipend per
meeting to cover travel expenses.
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EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth certain information concerning the
compensation for the fiscal year ended March 31, 2000, and the four month period
ended March 31 1999, earned by our Chief Executive Officer and our two
other most highly compensated executive officers, who were our only executive
officers whose cash salary and bonus exceeded $100,000 during fiscal 2000.
<TABLE>
<CAPTION>
Summary Compensation Table
Awards
------
Restricted Securities
Fiscal Stock Underlying
Name and Principal Position Year Salary($) Bonus($) Awards($) Options
--------------------------- ---- --------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
John F. Andrews, Chief 2000 $500,000 $540,104 -- --
Executive Officer .......... 1999 125,000 -- -- --
Marshall A. Gibbs,
Executive Vice President
and Chief Technological 2000 215,166 100,000 -- 40,000
Officer .................... 1999 -- -- $302,250 --
Margaret A. Harris,
Senior Vice President 2000 220,000 -- -- 60,000
and Chief Financial Officer. 1999 18,333 -- -- --
</TABLE>
OPTION GRANTS
The following table provides information on stock options granted to our
Chief Executive Officer and our two other most highly-compensated executives
during the fiscal year ended March 31, 2000.
<TABLE>
<CAPTION>
Option Grants In Last Fiscal Year
Potential Realizable
Individual Grants Value at Assumed
--------------------------------------------------------------- Annual Rates
Number of % of Total of Stock Price
Securities Options Market Appreciation for
Underlying Granted to Price on Option Term
Options Employees in Exercise the Date Expiration --------------------
Name Granted(#) Fiscal Year Price ($/Sh) of Grant Date 5% 10%
---- ----------- ------------- ------------ --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. Andrews ..... -- -- -- -- -- -- --
</TABLE>
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<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Marshall A. Gibbs ... -- -- -- -- -- -- --
Margaret A. Harris .. 180,000 20.8% $2.50 $2.50 10/31/2004 $124,327 $274,730
--------------------
</TABLE>
Potential gains are net of the exercise price, but before taxes associated with
the exercise. The amounts represent hypothetical gains that could be achieved
for the respective options if exercised at the end of the option term. The
assumed 5 percent and 10 percent rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission and do
not represent our estimate or projection of the future price of our common
stock. Actual gains, if any, on stock option exercises will depend upon the
future market prices of our common stock.
YEAR-END OPTION VALUES
The following table provides information respecting the options held by our
Chief Executive Officer and our two other most highly compensated executive
officers as of March 31, 2000. The executive officers did not exercise options
during fiscal 2000.
Aggregated Option Exercises in Last Fiscal Year
and Option Values As Of March 31, 2000
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End(#) at Fiscal Year-End($)
----------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John F. Andrews -- -- -- --
Marshall A. Gibbs 40,000 -- $595,100 --
Margaret A. Harris 60,000 120,000 $896,400 $1,792,800
</TABLE>
Calculated based upon the closing price of our common stock as quoted on the
American Stock Exchange on March 31, 2000 of $17.44 per share.
EMPLOYMENT ARRANGEMENTS
On August 31, 1999, we have entered into an employment agreement with John
F. Andrews, our chairman of the board, president, and chief executive officer.
The initial term of the agreement expires in January 2002 and will automatically
renew for additional one year periods unless terminated by Mr. Andrews or us. If
Mr. Andrews' employment is terminated by us without cause or by Mr. Andrews for
"good reason," Mr. Andrews will receive full compensation for the greater of the
remainder of the initial term or 18 months from the date of termination. If his
employment is terminated by the company with cause, Mr. Andrews will receive
compensation for the remainder of the initial term or 12 months from the date of
termination, whichever is longer. If Mr. Andrews terminates his employment
without "good reason," he will receive no further compensation. Under the
agreement, Mr. Andrews' base salary is $500,000 per year, which is
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to be increased by at least 10% at the end of each year. Mr. Andrews will also
receive a whole life insurance policy with a face amount of $2 million for his
benefit; the use of a fully insured automobile; club dues for one country club
and one luncheon club; disability and medical insurance; an allowance of up to
$12,500 per year for professional counseling and services; and four to five
weeks of vacation per year.
Mr. Andrews also had the right to immediately receive shares of the
Company's Common Stock without any required payment upon the occurrence of
certain events.
During fiscal 2000, Mr. Andrews amended his employment agreement and
waived his rights to the shares earned from inception of his contract through
January 15, 2000. In connection therewith, we have agreed to pay Mr. Andrews a
bonus for our fiscal year ended March 31, 2000 in the amount of $500,000. In
addition, the terms of the contract concerning stock and options were clarified
and amended.
Mr. Andrews now has the right to receive options to purchase shares of our
common stock upon the occurrence of the following events:
a. 5,000 shares for each month he is employed commencing January 15,
2000.
b. 50,000 shares for each quarter in which we have gross revenues in
excess of $7 million commencing with the quarter ending March 31,
2000.
c. 175,000 shares for each quarter in which we have gross revenues in
excess of $20 million commencing with the quarter ending March 31,
2000.
d. 350,000 shares for each quarter in which we have gross revenues in
excess of $50 million commencing with the quarter ending March 31,
2000.
The option price for the options earned under subparagraph a. above will
be zero. The option price for the options earned under b., c., and d., above
will be determined by Mr. Andrews at the grant date.
In addition to the above, Mr. Andrews is entitled to receive a percentage
of the Company's net profit before taxes as follows:
a. One percent (1%) of net profit before taxes for each quarter such
profit exceeds $1,000,000, plus
b. Two percent (2%) of net profit before taxes for each quarter such
profit exceeds $3,000,000, plus
c. Three percent (3%) of net profit before taxes for each quarter such
profit exceeds $10,000,000, plus
d. Four percent (4%) of net profit before taxes for each quarter such
profit exceeds $20,000,000.
In the event of a "change in control" of the Company, as defined in the
Agreement, Mr. Andrews has the right to terminate the Agreement and receive a
$2,500,000 payment. The Company believes it critical and vital to compensate Mr.
Andrews in this manner as Mr. Andrews has chosen to be critical to the Company's
success and is likely to be so as the Company continues its attempts to achieve
its business objectives and maximize its growth.
We have entered into an employment agreement with Marshall A. Gibbs, our
Executive Vice President and Chief Technical Officer. The initial term of the
agreement expires in January 2002 and will automatically renew for additional
one year periods unless terminated by Mr. Gibbs or us. If we terminate Mr.
Gibbs' employment without cause or if Mr. Gibbs terminates his employment as a
result of our material breach of the agreement, Mr. Gibbs will receive full
compensation for the remainder of the initial term plus a severance payment
equal to 12 months pay. If we terminate his employment with cause, Mr. Gibbs
will receive compensation for the remainder of the initial term. Under the
agreement, Mr. Gibbs' base salary is $250,000 per year. Mr. Gibbs will also
receive a $100,000 signing bonus; a car allowance; reimbursement for automobile
insurance; club dues for one country club; an allowance of up to $2,000 per year
for professional counseling and services; and 15 days of vacation per year.
Mr. Gibbs also has the right to receive 150,000 common shares of our stock
without any required payment and 40,000 stock options to purchase our stock. The
stock vests equally over a three-year period and the stock options vest over a
one-year period.
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LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our articles of incorporation provide that our company may indemnify, to
the fullest extent permitted by the Nevada General Corporation Law, any
directors and officers of our company against any and all of the expenses,
liabilities, or other matters that such director or officer may incur for
conduct as a director or officer.
Section 78.751 of the Nevada General Corporation Law provides that the
articles of incorporation, the bylaws, or an agreement made by the company may
provide that the expenses of officers and directors incurred in defending a
civil or criminal action, suit, or proceeding must be paid by the company as
they are incurred and in advance of the final disposition of the action, suit,
or proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that the officer or director is not entitled to be
indemnified by the company. This indemnity and advancement of expenses may not
be made to or on behalf of any director if a final adjudication establishes that
the director's or officer's acts or omissions involved intentional misconduct,
fraud, or a knowing violation of the law and was material to the cause of
action.
In addition, we have adopted provisions in our bylaws that require us to
indemnify our directors, officers, and certain other representatives of our
company against expenses and certain other liabilities arising out of their
conduct on behalf of our company.
STOCK OPTION PLANS
1999 STOCK COMPENSATION PLAN
In February 1999, our board of directors approved the establishment of the
1999 Stock Compensation Plan. Our board of directors believes that the 1999 Plan
advances our interests by encouraging our employees, officers, directors, and
consultants to acquire an equity interest in our company and by providing
additional incentives and motivation toward superior performance. Our board of
directors also believes it will also enable us to attract and retain the
services of key employees, officers, directors, and consultants upon whose
judgment, interest, and special effort we depend.
The 1999 Plan allows the board of directors, or a committee established by
the board of directors, to grant stock options from time to time to our
employees, officers, directors, and consultants. The board of directors has the
power to determine at the time the option is granted whether the option will be
an incentive stock option, which is an option that qualifies under Section 422
of the Internal Revenue Code of 1986, or an option that is not an incentive
stock option. However, incentive stock options may only be granted to our
employees. Vesting provisions are determined by the Board at the time options
are granted.
The total number of shares of common stock subject to options under the
1999 Plan may not exceed five million shares, subject to adjustment in the event
of certain recapitalizations, reorganizations, and similar transactions. Options
may be exercisable by the payment of cash or by other means as authorized by the
board of directors.
The 1999 Plan also provides that the board of directors may issue restricted
stock pursuant to restricted stock right agreements that will contain such terms
and conditions as the board of directors determines.
Our board of directors may amend the 1999 Plan at any time, provided that
the board of directors may not amend the 1999 Plan to materially increase the
number of shares available under the 1999 Plan, materially increase the benefits
accruing to participants under the 1999 Plan, or materially change the eligible
class of employees without stockholder approval.
2000 NONQUALIFIED STOCK OPTION AND STOCK BONUS PLAN
In March 2000, our board of directors approved the establishment of the
2000 Nonqualified Stock Option and Stock Bonus Plan. Our board of directors
believes that the 2000 Plan encouraging employees, officers, directors, and
consultants to acquire an equity interest in our company and by providing
additional incentives and awards and recognitions of their contribution to our
company's success and to encourage these persons to continue to promote the best
interest of our company.
The 2000 Plan allows our board of directors to grant stock options or issue
stock bonuses from time to time to our employees, officers, directors, and
consultants. Options granted under the 2000 Plan will not qualify under Section
422 of the Internal Revenue Code of 1986 as an incentive stock option.
The 2000 Plan also provides that our board of directors, or a committee,
may issue restricted stock pursuant to restricted stock right agreement
containing such terms and conditions as our board of directors deems
appropriate.
The total number of shares of common stock subject to our options and
grants of restricted stock under the 2000 Plan may not exceed 3.5 million
shares, subject to adjustment in the event of certain capitalizations,
reorganizations, and similar transactions. Options may be exercisable by the
payment of cash or by other means as authorized by the board of directors.
Our board of directors may amend the 2000 Plan at any time, provided that
the board of directors may not amend the 2000 Plan to adversely effect the
rights of participants under the 2000 Plan, without stockholder approval.
OTHER STOCK OPTIONS
We have issued options to acquire 302,500 shares of our common stock to
various employees of e-Net, our U.K. subsidiary. Our board of directors believes
that encouraging these U.K. employees to acquire an equity interest in our
company is in our best interests and provides additional incentives and
motivation toward superior performance for these employees.
45
<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the shares of
our common stock beneficially owned as of July 10, 2000 by each of our
directors and executive officers, all directors and executive officers as a
group, and each person who is known by us to be the beneficial owner of more
than 5% of our common stock, and each of the selling stockholders. Except as
noted, each person has sole voting and investment power with respect to the
shares shown. The selling stockholders have provided us with their information,
which we have not independently verified. The term "selling stockholders"
include the persons listed below as selling stockholders and their transferees,
pledgees, donees, and other successors.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Shares Being Owned After
Name and Address of Offering Offered for Offering
Beneficial Owner(1) Number(2) Percent(3) Sale Number Percent(4)
-------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Directors and Executive Officers:
John F. Andrews(5) 27,071,460 34.7% -- 27,071,460 33.0%
Marshall A. Gibbs(6) 90,000 * -- 90,000 *
Margaret A. Harris(7) 90,000 * -- 90,000 *
Donald H. Ayers(8) 4,237,000 5.5% 1,750,000 2,987,000 3.7%
Masood Jabbar 500,000 * -- 500,000 *
W. Cedric Johnson(9) 1,405,363 1.8% -- 1,405,363 1.7%
Sam J. W. Romeo, M.D. -- * -- -- *
Mitchell J. Stein(10) 26,581,460 34.3% -- 26,581,460 32.6%
All directors and executive
officers as a group (8
persons)(11) 33,393,823 42.7% -- 32,143,823 39.0%
5% Stockholders:
TSI Technologies, LLC(12) 26,581,460 34.3% -- 26,581,460 32.6%
HealthMed Inc.(13) 26,581,460 34.3% -- 26,581,460 32.6%
Sanga International(14) 9,000,000 11.6% -- 9,000,000 11.0%
National Century Financial
Enterprises, Inc.(15) 4,750,000 6.1% 4,750,000 -- *
Other Selling Stockholders:
Healthcare Capital, LLC(15) 2,750,000 3.3% 2,750,000 -- *
Janus 2,000,000 2.6% 2,000,000 -- *
University Affiliates, IPA 1,721,973 2.2% 1,721,973 -- *
Trammel Investors(16) 1,250,000 1.6% 1,250,000 -- *
</TABLE>
46
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C> <C>
Prem Reddy 663,750 * 663,750 -- *
Prime A Investments, LLC 86,250 * 86,250 -- *
Rebecca S. Parrett 500,000 * 500,000 -- *
Lance K. Poulsen 500,000 * 500,000 -- *
Barbara L. Poulsen 500,000 * 500,000 -- *
Ayers LLC 557,000 * 500,000 57,000 *
CalPERS 500,000 * 500,000 -- *
Paramount 500,000 * 500,000 -- *
Aries Master Fund(17) 697,454 * 697,454 -- *
Medical Technology Trust(18) 400,000 * 400,000 -- *
Deltec 175,000 * 175,000 -- *
Jacob Wizman(19) 300,000 * 300,000 -- *
DCF 150,000 * 150,000 -- *
Aries Domestic Fund, L.P.(20) 280,666 * 280,666 -- *
JMG Capital Partners LP(21) 250,000 * 250,000 -- *
JMG Triton Offshore Fund Ltd.(22) 250,000 * 250,000 -- *
Yitzhak and Sela(23) 200,000 * 200,000 -- *
Murray Firestone 125,000 * 125,000 -- *
Calvin M. Carrera 125,000 * 125,000 -- *
Ziff Asset Management 100,000 * 100,000 -- *
JMG Capital 100,000 * 100,000 -- *
Larry Hopfenspriger(24) 175,000 * 175,000 -- *
Generation Capital Associates(25) 150,000 * 150,000 -- *
Moldow Family Trust(26) 150,000 * 150,000 -- *
Dresdner 65,200 * 65,200 -- *
James Tindall(27) 120,000 * 120,000 -- *
Roger Shanafelt and Carolyn
Shanafelt(28) 200,000 * 200,000 -- *
Glaser Family Trust(29) 100,000 * 100,000 -- *
Roger Richter(30) 100,000 * 100,000 -- *
Arthur Golding Trust UA DTD
6/26/73(31) 100,000 * 100,000 -- *
Sutro Venture Fund 34 LLC(32) 100,000 * 100,000 -- *
Michael Gorsky(33) 100,000 * 100,000 -- *
Salovich Irrevocable Trust(34) 100,000 * 100,000 -- *
Steve Mizel(35) 100,000 * 100,000 -- *
Generation Capital Associates(36) 100,000 * 100,000 -- *
Sorochak 1995 Trust(37) 100,000 * 100,000 -- *
Moldow Family Trust(38) 100,000 * 100,000 -- *
Steve Thomsen(39) 100,000 * 100,000 -- *
Paul Gonyea(40) 75,000 * 75,000 -- *
Russell Reiner(41) 75,000 * 75,000 -- *
Larry Hopfenspinger 35,000 * 35,000 -- *
Dr. David Goldenberg 33,333 * 33,333 -- *
Larry Hopfenspriger(42) 65,000 * 65,000 -- *
Paul Guezand 30,000 * 30,000 -- *
Michael Mora(43) 56,000 * 56,000 -- *
Ivan Rafowitz(44) 52,000 * 52,000 -- *
Magnum Financial Group LLC 50,000 * 50,000 -- *
HFIC, Inc.(45) 50,000 * 50,000 -- *
Scott A. Sorochak 1995
Trust Agreement UA DTD
5/3/95(46) 50,000 * 50,000 -- *
Anders Hainer(47) 50,000 * 50,000 -- *
Dan Rooke(48) 50,000 * 50,000 -- *
Michael C.S. Thompson Living
Trust(49) 50,000 * 50,000 -- *
Brian Jamison(50) 50,000 * 50,000 -- *
G&K Venture Technologies Partners(51) 50,000 * 50,000 -- *
Robert Falls Intraviovos Trust
DTD 4/20/93(52) 50,000 * 50,000 -- *
Arnold S. Nelson Living Trust
UA DTD 9/23/82(53) 50,000 * 50,000 -- *
Peter Scocimara(54) 50,000 * 50,000 -- *
Pemaxrina Investors LLC-Peter
Scocimara(55) 50,000 * 50,000 -- *
Jeremy Verba(56) 50,000 * 50,000 -- *
</TABLE>
47
<PAGE> 50
<TABLE>
<S> <C> <C> <C> <C> <C>
Patzakis Family Partnership(57) 50,000 * 50,000 -- *
Adrian Johnson(58) 50,000 * 50,000 -- *
Jacob Wizman(59) 50,000 * 50,000 -- *
John Paisley(60) 50,000 * 50,000 -- *
Sorochack 1995 Trust(61) 50,000 * 50,000 -- *
Marshall A. Gibbs(62) 50,000 * 50,000 -- *
Jeffrey Childers(63) 50,000 * 50,000 -- *
Thomas Hardy(64) 50,000 * 50,000 -- *
IS Investments, Inc.(65) 50,000 * 50,000 -- *
Natalie Wizman(66) 50,000 * 50,000 -- *
Larry Hopfenspriger(67) 50,000 * 50,000 -- *
Tim Wysaske(68) 50,000 * 50,000 -- *
David & Kathleen Peterson 25,000 * 25,000 -- *
Roger Shanafelt 25,000 * 25,000 -- *
Joshua S. Goodman(69) 45,000 * 45,000 -- *
Trevor Colby(70) 40,000 * 40,000 -- *
Rigney/Friedman Property
Management, Inc.(71) 40,000 * 40,000 -- *
Carrey Family Trust(72) 40,000 * 40,000 -- *
Charles Moldow 20,000 * 20,000 -- *
HFIC, Inc 20,000 * 20,000 -- *
John Gregory Dommel(73) 33,000 * 33,000 -- *
Amit Sela 16,500 * 16,500 -- *
Michael Gorsky 16,500 * 16,500 -- *
Israel Gotay(74) 30,000 * 30,000 -- *
Shukartsi Living Trust(75) 30,000 * 30,000 -- *
Garson Soe(76) 30,000 * 30,000 -- *
Trevor Colby(77) 30,000 * 30,000 -- *
SV@34 15,000 * 15,000 -- *
Witherbee Foundation 15,000 * 15,000 -- *
Jose I. Moralejo, Jr.(78) 27,000 * 27,000 -- *
Michael Gorsky(79) 27,000 * 27,000 -- *
Viana Partners L.P. 13,466 * 13,466 -- *
Dickey Family Trust UA DTD
10/1/78(80) 25,000 * 25,000 -- *
Howard Leiter(81) 25,000 * 25,000 -- *
Bong Suh(82) 25,000 * 25,000 -- *
David Peterson(83) 25,000 * 25,000 -- *
Kathleen Peterson(84) 25,000 * 25,000 -- *
The Mandel Company(85) 25,000 * 25,000 -- *
Doug Baron(86) 25,000 * 25,000 -- *
Mel Markman(87) 25,000 * 25,000 -- *
Michael Jacobs(88) 25,000 * 25,000 -- *
Elias Family Trust(89) 25,000 * 25,000 -- *
Richard Caruso(90) 25,000 * 25,000 -- *
James E. Vasser Jr.(91) 25,000 * 25,000 -- *
Seminary Investments(92) 25,000 * 25,000 -- *
Paul Gonyea(93) 25,000 * 25,000 -- *
Barbara Linson(94) 25,000 * 25,000 -- *
Sandra Myers(95) 25,000 * 25,000 -- *
Michael Siebert(96) 25,000 * 25,000 -- *
Ethel Danto(97) 25,000 * 25,000 -- *
Chris & Debra McClelland(98) 25,000 * 25,000 -- *
Levin and Katz(99) 25,000 * 25,000 -- *
Hammers and Prochello(100) 25,000 * 25,000 -- *
Patricia McNamara(101) 25,000 * 25,000 -- *
Douglas Burke(102) 25,000 * 25,000 -- *
Dr. Paul Marut(103) 25,000 * 25,000 -- *
Craig Golding(104) 25,000 * 25,000 -- *
Robert Falls 12,500 * 12,500 -- *
Aries Domestic Fund II, L.P.(105) 21,880 * 21,880 -- *
Rafael Diaz-Yoserev(106) 20,000 * 20,000 -- *
Juan M. Lombillo(107) 20,000 * 20,000 -- *
Dagoberto J. Garces(108) 20,000 * 20,000 -- *
</TABLE>
48
<PAGE> 51
<TABLE>
<S> <C> <C> <C> <C> <C>
Gema Rosello(109) 20,000 * 20,000 -- *
Lynn Rossom(110) 20,000 * 20,000 -- *
John Paisley(111) 20,000 * 20,000 -- *
Trevor Colby(112) 20,000 * 20,000 -- *
William Tuttle(113) 20,000 * 20,000 -- *
Ren Xu(114) 20,000 * 20,000 -- *
Goodfriend and Conrad(115) 20,000 * 20,000 -- *
Aaron Goddard(116) 20,000 * 20,000 -- *
Anders Hainer 10,000 * 10,000 -- *
Arnie Nelson 10,000 * 10,000 -- *
Brian Jamison 10,000 * 10,000 -- *
Jacob Wizman 10,000 * 10,000 -- *
Miller, Johnson & Kuehn
(James Tindall) 10,000 * 10,000 -- *
Russell Reiner 8,333 * 8,333 -- *
Mark & Alison Tunney 8,000 * 8,000 -- *
Carolina Calderin(117) 15,000 * 15,000 -- *
Peter Scocimara 6,667 * 6,667 -- *
Maida Santander(118) 10,000 * 10,000 -- *
Armando Chapelli(119) 10,000 * 10,000 -- *
Carrie Kwok(120) 10,000 * 10,000 -- *
Brenda Jarvar(121) 10,000 * 10,000 -- *
Dianne Sattler(122) 10,000 * 10,000 -- *
Mark and Alison Tunney(123) 10,000 * 10,000 -- *
Howard Leiter 5,000 * 5,000 -- *
Josh Goodman 5,000 * 5,000 -- *
Michael Elias 5,000 * 5,000 -- *
Robert Mandel 5,000 * 5,000 -- *
Timothy McInerney 5,000 * 5,000 -- *
Roberto Bayardo(124) 8,000 * 8,000 -- *
Arthur Golding 4,000 * 4,000 -- *
Christopher Condy 4,000 * 4,000 -- *
Alan Glazer(125) 7,000 * 7,000 -- *
Michael Thompson 3,500 * 3,500 -- *
Richard Weiss(126) 6,000 * 6,000 -- *
Alan Goldman (G&K Venture) 3,000 * 3,000 -- *
James Vasser, Jr. 3,000 * 3,000 -- *
Roman Coppola 3,000 * 3,000 -- *
Mauricio Sirvent(127) 5,000 * 5,000 -- *
Dickey Living Trust 2,500 * 2,500 -- *
Josh Goodman 2,500 * 2,500 -- *
Melvin Markman 2,500 * 2,500 -- *
Barbara Linson 1,500 * 1,500 -- *
Patricia McNamara 1,500 * 1,500 -- *
Alan Glazer 1,000 * 1,000 -- *
Doug Burke 1,000 * 1,000 -- *
Ren Xu 1,000 * 1,000 -- *
Roberto Bayardo 500 * 500 -- *
The Colby's 1 * 1 -- *
Windamere LLC 8,762 * 8,762 -- *
Prime VII,LP 21,856 * 21,856 -- *
Hill Partners Investments 1, Ltd. 12,594 * 12,594 -- *
International Medical and
Educational Link 24,159 * 24,159 -- *
Aquila Capital Ventures I, LP 9,915 * 9,915 -- *
Mid South Telecommuncations
Company, Inc 16,429 * 16,429 -- *
Natasha Tichavsky King 1,488 * 1,488 -- *
Robert Langer 1,491 * 1,491 -- *
John A. McMullen 1,197 * 1,197 -- *
Jack W. Moncrief, M.D. 21,483 * 21,483 -- *
Michael Andrew Mountain 1,192 * 1,192 -- *
Michael Beaver 5,962 * 5,962 -- *
Kim Halvorson 1,488 * 1,488 -- *
John Mayes 5,188 * 5,188 -- *
Patricia W. Farris 599 * 599 -- *
Philip W. Faris, Jr. 148 * 148 -- *
Tom J. Fatjo III 1,540 * 1,540 -- *
Andrew and Mary Anne Heller JTTEN 4,938 * 4,938 -- *
William H. Cravens 4,357 * 4,357 -- *
Billy H. Hayden Trust 13,388 * 13,388 -- *
Cliff P. Mountain 1,789 * 1,789 -- *
Tom M. Davis Jr. 2,673 * 2,673 -- *
Peter Wells 376 * 376 -- *
Jana Davis Wells 7,610 * 7,610 -- *
Tom M. Davis III 12,522 * 12,522 -- *
Empire Ventures 25,749 * 25,749 -- *
Michael Seedman Trust 25,749 * 25,749 -- *
Seaview Holdings, LLC 25,749 * 25,749 -- *
Roger Muller 7,673 * 7,673 -- *
Avtar S. Dhillon 6,437 * 6,437 -- *
Dr. Connie Lee 6,437 * 6,437 -- *
Joel N. Harrison 6,437 * 6,437 -- *
Richard Budinich 4,455 * 4,455 -- *
Rich Nagle 4,455 * 4,455 -- *
Timken Trust 4,234 * 4,234 -- *
Jeff Gudman 3,382 * 3,382 -- *
Diane Brandt 3,219 * 3,219 -- *
lee Family L.P. 3,219 * 3,219 -- *
R Holdings Capital 3,219 * 3,219 -- *
Ray Sebastian 3,219 * 3,219 -- *
Tyler glenn 3,219 * 3,219 -- *
Vincericci 3,219 * 3,219 -- *
Edith Timken 977 * 977 -- *
Elizabeth Timken 977 * 977 -- *
Peter Toot 977 * 977 -- *
Gendell Family Trust 651 * 651 -- *
Henry Applebaum 651 * 651 -- *
Yee Mau Chen 651 * 651 -- *
Eltrinic Enterprise Ltd. 651 * 651 -- *
Norman Yuen Tsing Tao 586 * 586 -- *
David Ching-Shing Wu 521 * 521 -- *
Boris Lutcherhand 326 * 326 -- *
Carolina Andretta 326 * 326 -- *
George K.K. Tong 326 * 326 -- *
Kin Hon Yu 326 * 326 -- *
Vane Clayton 261 * 261 -- *
Mathew Stasior 247 * 247 -- *
Bradley Gendell 163 * 163 -- *
John Budinich 163 * 163 -- *
Michael Gudman 163 * 163 -- *
Charles P. Garrison, MD 160 * 160 -- *
Hunter Vest, Ltd. 130 * 130 -- *
James Auld 130 * 130 -- *
True Will Investments, Ltd. 130 * 130 -- *
Edna Liu 130 * 130 -- *
Microscopy Marketing & Education 65 * 65 -- *
Kathryn Ma 54 * 54 -- *
Alan K. Munro 54 * 54 -- *
Yonanda j.v.d. Doornamien 54 * 54 -- *
Gary Hogan 26 * 26 -- *
Gregory Kunin 26 * 26 -- *
Richard A. Kunin 26 * 26 -- *
----------------------
</TABLE>
* Less than one percent of the outstanding shares of common stock.
(1) Each director and officer of the Company may be reached through our
principal executive offices, which are at 1300 Marsh Landing Parkway, Suite 106,
Jacksonville, Florida 32250.
(2) The numbers and percentages shown include the shares of common stock
actually owned as of July 10, 2000 and that the person will have the right to
acquire within 60 days of July 10, 2000. In calculating the percentage of
ownership, all shares of common stock that the identified person will have the
right to acquire within 60 days of July 10, 2000 upon the exercise of options
and warrants are deemed to be outstanding for the purposes of computing the
percentage of shares of common stock owned by such person, but are not deemed to
be outstanding for the purpose of computing the percentage of the shares of
common stock owned by any other person.
49
<PAGE> 52
(3) Each of the selling stockholders is assumed to be selling all of the shares
of common stock registered for resale. We have no assurance that the selling
shareholders will sell any of the securities being registered hereby.
(4) The calculation of percentages of shares of common stock beneficially owned
after the offering assumes the exercise of all of the warrants held by the
selling stockholders.
(5) Includes 26,581,460 shares of common stock held of record by TSI
Technologies and Holdings LLC (TSI). HealthMed, Inc. holds a controlling
interest in the shares of our common stock held by TSI. Also includes 490,000
shares underlying stock options held by Mr. Andrews exercisable within 60 days
of July 10, 2000 pursuant to the terms of his employment agreement.
(6) Includes 40,000 shares underlying stock options held by Mr. Gibbs
exercisable within 60 days of July 10, 2000 and 50,000 shares issuable to Mr.
Gibbs pursuant to the terms of his employment agreement within 60 days of July
10, 2000.
(7) Represents shares underlying stock options held by Ms. Harris exercisable
within 60 days of July 10, 2000.
(8) Includes 5,000 shares held of record by Mr. Ayers. Also includes 557,000
shares held by Ayers, LLC, of which Mr. Ayers is the sole member and 250,000
shares underlying currently exercisable warrants held by Mr. Ayers. Also
includes 25% of the 2,750,000 shares held of record by Healthcare Capital LLC,
25% of the 4,750,000 shares held of record by National Century Financial
Enterprises, Inc., and 25% of the 1,900,000 shares held of record by I.I.A.,
LLC, which represents his percentage interest in these entities. Mr. Ayers
disclaims beneficial ownership of the shares held by the trust and the three
entities of which he is a 25% owner.
(9) Includes 1,405,363 shares held by CypherCom, Inc. for which Mr. Johnson
serves as President.
(10) Includes 26,581,460 shares of common stock held of record by TSI
Technologies and Holdings LLC (TSI).
(11) Includes 490,000 shares underlying stock options held by Mr. Andrews
exercisable within 60 days pursuant to the terms of his employment agreement and
180,000 shares of our common stock that Mr. Gibbs and Ms. Harris have the right
to acquire pursuant to stock options exercisable within 60 days.
(12) The address for TSI is 20750 Ventura Boulevard, Suite 320, Woodland Hills,
California 91364.
(13) Includes 26,581,460 shares of common stock held by TSI, in which HealthMed
holds a controlling interest. HealthMed is located at 20750 Ventura Boulevard,
Suite 320, Woodland Hills, California 91364.
(14) The address for Sanga International is Mark Bielenson, c/o Pachulski,
Stang, Ziehl & Young, 10100 Santa Monica Blvd., Suite 110, Century City,
California 90067.
(15) The address for National Century Financial Enterprises, Inc. and HealthCare
Capital, LLC is 6125 Memorial Drive, Dublin, Ohio 43017.
(16) Includes 250,000 shares of common stock underlying warrants held by Trammel
Investor exercisable within 60 days of July 10, 2000.
(17) Includes 348,727 shares of common stock underlying warrants held by Aries
Master Fund exercisable within 60 days of July 10, 2000.
(18) Includes 200,000 shares of common stock underlying warrants held by Medical
Technology Trust exercisable within 60 days of July 10, 2000.
(19) Includes 150,000 shares of common stock underlying warrants held by Mr.
Wizman exercisable within 60 days of July 10, 2000.
(20) Includes 140,333 shares of common stock underlying warrants held by Aries
Domestic Fund, L.P. exercisable within 60 days of July 10, 2000.
50
<PAGE> 53
(21) Includes 125,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(22) Includes 125,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(23) Includes 100,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(24) Includes 87,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(25) Includes 75,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(26) Includes 75,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(27) Includes 60,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(28) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(29) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(30) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(31) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(32) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(33) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(34) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(35) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(36) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(37) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(38) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(39) Includes 50,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(40) Includes 37,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(41) Includes 37,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(42) Includes 32,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
<PAGE> 54
(43) Includes 28,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(44) Includes 26,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(45) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(46) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(47) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(48) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(49) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(50) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(51) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(52) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(53) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(54) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(55) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(56) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(57) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(58) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(59) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(60) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(61) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(62) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(63) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(64) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(65) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(66) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(67) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(68) Includes 25,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(69) Includes 22,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(70) Includes 20,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(71) Includes 20,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(72) Includes 20,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
<PAGE> 55
(73) Includes 16,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(74) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(75) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(76) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(77) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(78) Includes 13,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(79) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(80) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(81) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(82) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(83) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(84) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(85) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(86) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(87) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(88) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(89) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(90) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(91) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(92) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(93) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(94) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(95) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(96) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(97) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(98) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(99) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(100) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(101) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(102) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(103) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(104) Includes 15,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(105) Includes 10,940 shares of common stock underlying warrants exercisable
written 60 days of July 10, 2000.
(106) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(107) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(108) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(109) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(110) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(111) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(112) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(113) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(114) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(115) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(116) Includes 10,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(117) Includes 7,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(118) Includes 5,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(119) Includes 5,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(120) Includes 5,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(121) Includes 5,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(122) Includes 5,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(123) Includes 5,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(124) Includes 4,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(125) Includes 3,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(126) Includes 3,000 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
(127) Includes 2,500 shares of common stock underlying warrants exercisable
within 60 days of July 10, 2000.
<PAGE> 56
CERTAIN TRANSACTIONS
ACQUISITION OF TECHNOLOGY FROM TSI
On January 7, 1999, we acquired certain rights to a Java-based, online
health care management system from TSI, which was formerly known as Sanga
e-Health LLC, in exchange for 41,417,176 shares (post-split) of our common
stock. TSI is a joint venture formed in December 1998 between Sanga
International, Inc. and HealthMed, Inc.
The rights we acquired from TSI were subject to a software license
agreement between TSI and Sanga International for the subleasing of the
healthcare management system's software to end-users. On January 23, 1999, we
approved and ratified the termination of the software license agreement. The
effect of this termination was the assignment and transfer from Sanga
International to us of all right, title, and interest with respect to Sanga
International's contractual rights and privileges from their agreement with
various healthcare providers for the subleasing of the software. In connection
with the termination, previous funding received by Sanga International from such
healthcare agreements were transferred to us. The previous funding received from
Sanga International was based on certain financing rights owned by HealthMed,
Inc., which resulted in agreements to provide an initial funding of $1.5 million
for accounts receivable.
ACQUISITIONS AND JOINT VENTURES
In March 1999, we acquired all the issued and outstanding stock of e-Net,
formerly known as Palm Technology Holdings Limited, a UK-based company, which
owns all the issued and outstanding stock of U.K. based Relay Business Systems
Ltd. We purchased the stock pursuant to a share acquisition agreement, which was
originally entered into on July 22, 1998 between the shareholders of Palm
Technology and Sanga International, Inc. and subsequently assigned to us.
We paid approximately $2.2 million in cash. We borrowed $1.5 million of
this amount from two private investors and the balance was paid from our working
capital. Sanga International transferred its rights to buy Palm Technology to us
on January 23, 1999, in exchange for three million shares of our common stock.
These shares were contributed by TSI our majority shareholder, and thus this
payment did not dilute us or our stockholders. Prior to assigning its rights to
us, Sanga International, Inc. had paid approximately $2.4 million to the
shareholders of Palm as the initial installment on the purchase price. John
Andrews, our chairman of the board, president, and chief executive officer,
served as president and chief executive officer of Sanga International through
July 30, 1999 and is a co-manager of TSI, our largest stockholder.
In February 2000, we entered into a preferred provider agreement with
NCFE, one of our significant stockholders, to provide a full suite of healthcare
information services throughout its network of physicians, clinics, hospitals,
and managed care organizations. As part of the terms of the agreement, NCFE
agreed to cancel more than $4.5 million of debt, committed to fund an additional
$5 million, provide us access to their distribution channel and be the provider
of all of their electronic processing needs in exchange for 9.5 million shares
of our common stock.
RELATED PARTY DISCLOSURE
Our President, Chief Executive Officer, and Chairman of the Board also
served as President and Chief Executive Officer of Sanga International through
July 30, 1999 and is a Co-Manager of TSI, a significant stockholder of
e-MedSoft.
In December, 1998, NCFE, one of our strategic partners, transferred
$750,000 to Sanga International in accordance with its agreement to provide an
initial funding of $1.5 million for accounts receivable to be derived from
signed Master Agreements and Memorandum of Understanding. On January 23, 1999,
Sanga International assigned and transferred to us all right, title and interest
under or with respect to all of Sanga International's contractual rights and
privileges arising from its agreements with various healthcare providers.
Additionally, the rights held by Sanga International in and to its funding
agreement with NCFE was assigned to us. In connection with these activities, the
previous funding received by Sanga International from such healthcare agreements
was legally transferred to the us and was included in other long-term
liabilities at March 31, 1999. Subsequent to and arising out of this assignment,
Sanga International transferred $604,970 of the NCFE funding to us. The
remaining balance of $145,030 was reflected as a related party receivable from
Sanga International at March 31, 1999. During the fiscal year ended March
31,2000, Sanga International filed for bankruptcy and we wrote-off this
receivable. In February 2000, NCFE entered into a Preferred Provider Agreement
with us and as part of the terms of such agreement, the debt payable to them was
converted to equity.
During the period ended March 31, 1999 and 2000 HealthMed, Inc., a member
of TSI paid certain expenses on behalf of us and TSI. In addition, we reimbursed
HealthMed for certain of these expenses and paid certain expenses on behalf of
TSI. As of March 31, 1999 we had total receivable due from HealthMed and TSI of
approximately $15,800. There was no balance due at March 31, 2000.
In addition, prior to the Company's acquisition of e-Net, e-Net paid
certain expenses on the behalf of Sanga's U.K. operations. As of March 31,
1999, the Company had a receivable of $32,433 in this regard. These amounts
were reimbursed to e-Net from the Company during the fiscal year ended
March 31, 2000.
During the year ended March 31, 2000, the Company received approximately
$1,277,000 in funding from National Trust Properties, Inc. for the issuance of
shares and debt. The Company's board member and a beneficial shareholder,
Mitchell J. Stein, is also an officer and director (but not owner) of NTP.
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<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock includes 100 million shares of common stock
and five million shares of preferred stock. As of July 10, 2000, there were
77,555,986 shares of common stock outstanding. No shares of preferred stock are
outstanding as of the date of this prospectus.
The following descriptions of our capital stock set forth all material
provisions of our Amended and Restated Articles of Incorporation and Bylaws.
However, such descriptions are not necessarily complete and, in each instance,
reference is made to the copies of our Amended and Restated Articles of
Incorporation and Bylaws that are included or incorporated by reference as
exhibits to the registration statement of which this prospectus is a part.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, the holders of a majority of the stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Subject to the preferences that may be applicable to any then
outstanding preferred stock, the holders of our common stock will be entitled to
receive such dividends, if any, as may be declared by our board of directors
from time to time out of legally available funds. Upon the liquidation,
dissolution, or winding up of our company, the holders of common stock will be
entitled to share ratably in all our assets that are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of holders of any preferred stock then outstanding. The holders
of our common stock have no preemptive, subscription, redemption, or conversion
rights.
Transfer Agent and Registrar. The transfer agent and registrar for our
common stock is American Securities Transfer & Trust, Inc.
PREFERRED STOCK
Our board of directors is authorized subject to any limitations prescribed
by the laws of the State of Nevada, but without further stockholder action, to
issue shares of the authorized preferred stock in one or more series, and to fix
and determine the designations, preferences, and relative rights and
qualifications, limitations, or restrictions thereon of any series, including
voting powers, dividend rights, liquidation preferences, redemption rights, and
conversion privileges. As of the date of this prospectus, the board of directors
has not authorized any series of preferred stock, and there are no plans,
agreements, or understandings for the authorization or issuance of any shares of
preferred stock. The issuance of preferred stock with voting rights or
conversion rights may adversely affect the voting power of the common stock,
including the loss of voting control to others.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF NEVADA LAW AND OTHER PROVISIONS
OF OUR ARTICLES OF INCORPORATION
The provisions of our Amended and Restated Articles of Incorporation and
bylaws and the Nevada General Corporation Law summarized below may have the
effect of discouraging, delaying, or preventing hostile takeovers, including
those that might result in a premium over the market price, and discouraging,
delaying, or preventing changes in control or management of our company.
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<PAGE> 58
Combinations with Interested Stockholders under the Nevada GCL. We are
subject to the provisions of Sections 78.411 through 78.445 of the Nevada GCL.
In general, these statutes prohibit a publicly held Nevada corporation from
engaging, under certain circumstances, in a "combination" with an "interested
stockholder" for a period of three years after the interested stockholder's date
of acquiring shares, unless the combination or the purchase of shares made by
the interested stockholder on the interested stockholder's date of acquiring
shares is approved by the board of directors of the corporation before that
date. In addition, these statutes generally prohibit a publicly held corporation
from engaging in a combination with an interested stockholder after the
expiration of three years after the interested stockholder's date of acquiring
shares, other than a combination meeting one of the following requirements: (i)
a combination approved by the board of directors of the corporation before the
interested stockholder's date of acquiring shares, or as to which the purchase
of shares made by the interested stockholder on that date has been approved by
the board of directors of the corporation before that date; (ii) a combination
approved by the affirmative vote of the holders of stock representing a majority
of the outstanding voting power not beneficially owned by the interested
stockholder proposing the combination, or any affiliate or associate of the
interested stockholder proposing the combination; (iii) a combination in which
the aggregate amount of the cash and the market value, as of the date of
consummation, of consideration other than cash to be received per share by the
holders of outstanding common stock of the corporation not beneficially owned by
the interested stockholder immediately before that date is at least equal to the
higher of the following: (a) subject to certain adjustments, the highest price
per share paid by the interested stockholder, at a time when such stockholder
was the beneficial owner, directly or indirectly, of five percent or more of the
outstanding voting stock of the corporation, for any common stock of the same
class or series acquired by such stockholder within three years immediately
before the date of announcement with respect to the combination or within three
years immediately before, or in, the transaction in which such stockholder
became an interested stockholder, whichever is higher; and (b) subject to
certain adjustments, the market value per common share on the date of
announcement with respect to the combination or on the interested stockholder's
date of acquiring shares, whichever is higher; or (iv) a combination in which
the aggregate amount of the cash and the market value, as of the date of
consummation, of consideration other than cash to be received per share by the
holders of outstanding shares of any class or series of stock, other than common
stock, not beneficially owned by the interested stockholder immediately before
that date is at least equal to the highest of the following, whether or not the
interested stockholder has previously acquired any shares of the class or series
of stock: (x) subject to certain adjustments, the highest price per share paid
by the interested stockholder, at a time when such stockholder was the
beneficial owner, directly or indirectly, of five percent or more of the
outstanding voting stock of the corporation, for any shares of that class or
series of stock acquired by such stockholder within three years immediately
before the date of announcement with respect to the combination or within three
years immediately before, or in, the transaction in which such stockholder
became an interested stockholder, whichever is higher; (y) subject to certain
adjustments, the highest preferential amount per share to which the holders of
shares of the class or series of stock are entitled in the event of any
voluntary liquidation, dissolution or winding up of the corporation, plus the
aggregate amount of any dividends declared or due to which the holders are
entitled before payment of the dividends on some other class or series of stock;
and (z) the market value per share of the class or series of stock on the date
of announcement with respect to the combination or on the interested
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<PAGE> 59
stockholder's date of acquiring shares, whichever is higher. An "interested
stockholder" is generally defined in the statutes as a person who is (i) the
beneficial owner, directly or indirectly, of 10 percent or more of the voting
power of the outstanding voting shares of the corporation; or (ii) an affiliate
or associate of the corporation and at any time within three years immediately
before the date in question was the beneficial owner, directly or indirectly, of
10 percent or more of the voting power of the then outstanding shares of the
corporation. The statutes define a "combination" to include mergers,
consolidations, stock sales and asset based transactions, and other transactions
resulting in a financial benefit to the interested stockholder.
Acquisition of a Controlling Interest under Nevada GCL. We are also subject
to the provisions of Sections 78.378 through 78.3793 of the Nevada GCL. These
sections generally provide that any "control shares" acquired by a person in the
direct or indirect acquisition of a "controlling interest" in a Nevada
corporation, greater than a level of "controlling interest" previously
authorized by the corporation's stockholders, (i) shall be divested of all
voting rights, except to the extent that the retention of voting rights is
authorized by the stockholders of the corporation other than the acquiring
person and associated persons, and (ii) may be redeemed, in whole but not in
part, by the corporation at the average price paid for the control shares. These
sections define "control shares" as those voting shares which an acquiring
person and associated persons acquire in the acquisition of a "controlling
interest," greater than a level of controlling interest previously authorized by
the corporation's stockholders, or within 90 days immediately preceding the date
the acquiring person acquired such greater controlling interest. A "controlling
interest" is defined in the statutes as the ownership of voting shares
sufficient, but for the provisions of Sections 78.378 through 78.3793, to enable
a person, directly or indirectly and individually or in association with others,
to exercise (i) one-fifth or more but less than one-third, (ii) one-third or
more but less than a majority, or (iii) a majority or more, of all of the voting
power of the corporation in the election of directors.
Certain Charter Provisions. Our Amended and Restated Articles of
Incorporation and Bylaws contain a number of other provisions relating to
corporate governance and to the rights of stockholders. These provisions include
(i) the authority of the board of directors to fill vacancies on the board, and
(ii) the authority of the board of directors to issue preferred stock in series
with such voting rights and other powers as the board of directors may
determine. Among other things, these provisions could have the result of
delaying or preventing an acquiror from being able to elect a majority of the
board of directors, or otherwise obtain control of our company.
SHARES ELIGIBLE FOR FUTURE SALE
As of July 10, 2000, we had 77,555,986 outstanding shares of common stock.
Of these shares, 70,514,836 million shares are restricted, which means they were
originally sold in certain types of offerings that were not subject to a
registration statement file with the Securities and Exchange Commission. These
restricted shares may be resold only through registration under the Securities
Act of 1933 or under an available exemption from registration, such as provided
through Rule 144. Holders of 21,373,111 outstanding shares of common stock,
warrants to purchase up to 5,768,000 additional shares, and options to purchase
750,000 additional shares have certain rights with respect to registration of
their shares and the shares underlying their warrants. We are registering for
resale in the registration statement of which this prospectus forms a part
21,373,111 outstanding shares,
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<PAGE> 60
4,118,000 shares underlying outstanding warrants, and 750,000 issuable upon
exercise of options.
Persons who are deemed our affiliates are generally entitled under Rule 144
as currently in effect to sell within any three-month period a number of shares
that does not exceed 1% of the number of shares of the applicable class of
common stock then outstanding or the average weekly trading volume of such class
of common stock during the four calendar weeks preceding the making of a filing
with the Securities and Exchange Commission with respect to such sale. Such
sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us.
We cannot predict the effect, if any, that sales of shares of our common
stock, or the availability of such shares for sale, will have on our stock
price. Nevertheless, sales of substantial amounts of common stock in the public
market could adversely affect our stock price.
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<PAGE> 61
PLAN OF DISTRIBUTION
This prospectus, as appropriately amended or supplemented, may be used from
time to time principally by persons who own shares of our common stock and are
issued shares of our common stock pursuant to the exercise of warrants, or their
transferees, pledgees, donees, legatees, heirs, or legal representatives who
wish to offer and sell such shares (such persons are herein referred to as the
"selling stockholder" or "selling stockholders") in transactions in which they
and any person acting on their behalf through whom such shares are sold may be
deemed to be underwriters within the meaning of the Securities Act. We have
granted registration rights to the selling stockholders. The registration
statement of which this prospectus forms a part is intended to satisfy these
registration rights. We will receive none of the proceeds from any such sales.
We will pay substantially all of the expenses incident to this offering of the
shares by the selling stockholders to the public other than commissions and
discounts of underwriters, brokers, dealers, or agents.
There presently are no arrangements or understandings, formal or informal,
pertaining to the distribution of the shares described in this prospectus. Upon
our company being notified by a selling stockholder that any material
arrangements have been entered into for the sale of shares, to the extent
required, we will file, during any period in which offers or sales are being
made, one or more supplements to this prospectus to set forth the names of
selling stockholders and any other material information with respect to the plan
of distribution not previously disclosed. In addition, any shares that qualify
for sale pursuant to Section 4 of, or Rules 144 or 144A under, the Securities
Act may be sold under such provisions rather than pursuant to this prospectus.
Selling stockholders may sell the shares being offered by this prospectus
from time to time in transactions (which may involve crosses and block
transactions) on the American Stock Exchange at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices, at fixed prices, or in transactions directly to one or more purchasers,
including pledgees in privately negotiated transactions (including sales
pursuant to pledges). Selling stockholders may sell some or all of the shares in
transactions involving broker-dealers, who may act either as agent or as
principal. Broker-dealers participating in such transactions as agent may
receive commissions from selling stockholders (and, if they act as agent for the
purchaser of such shares, from such purchaser), such commissions computed in
appropriate cases in accordance with the applicable rules of the American Stock
Exchange, which commissions may be at negotiated rates where permissible under
such rules.
Participating broker-dealers may agree with selling stockholders to sell a
specified number of shares at a stipulated price per share and, to the extent
such broker-dealer is unable to do so acting as an agent for selling
stockholders, to purchase as principal any unsold shares at the price required
to fulfill the broker-dealer's commitment to selling stockholders. In addition
or alternatively, shares may be sold by selling stockholders and/or by or
through other broker-dealers in special offerings or secondary distributions
pursuant to and in compliance with the governing rules of the American Stock
Exchange, and in connection therewith commissions in excess of the customary
commissions prescribed by the rules of the American Stock Exchange may be paid
to participating broker-dealers, or, in the case of certain secondary
distributions, a discount or concession from the offering price may be allowed
to participating broker-dealers in excess of the
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<PAGE> 62
customary commission. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to or through
other broker-dealers, including transactions of the nature described in the
preceding two sentences) on the American Stock Exchange, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
commissions from the purchaser of such shares.
Selling stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation Regulation M, which provisions may limit the timing of purchases and
sales of any of the shares by the selling stockholders. All of the foregoing may
affect the marketability of the shares.
If the shares are sold in an underwritten offering, the underwriting and
selling group members (if any) may engage in passive market making transactions
in our common stock on the American Stock Exchange immediately prior to the
commencement of the offering in accordance with Regulation M. Passive market
making presently consists of displaying bids on American Stock Exchange limited
by the bid prices of market makers not connected with such offering and
purchases limited by such prices and effected in response to order flow. Net
purchases by a passive market maker on each day are limited in amount to 30% of
the passive market maker's average daily trading volume in the common stock
during the period of the two full consecutive calendar months prior to the
determination of the offering price in connection with a sale pursuant to this
prospectus and must be discontinued when such limit is reached. Passive market
making may stabilize the market price of our common stock at a level above that
which might otherwise prevail and, if commenced, may be discontinued at any
time.
We may agree to indemnify each selling stockholder as an underwriter under
the Securities Act against certain liabilities, including liabilities arising
under the Securities Act. Each selling stockholder may indemnify any
broker-dealer that participates in transactions involving sales of the shares
against certain liabilities, including liabilities arising under the Securities
Act.
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LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will
be passed upon for us by Greenberg Traurig, LLP, Phoenix, Arizona.
EXPERTS
The audited financial statements of e-MedSoft.com included in this
prospectus and elsewhere in the registration statement to the extent and for the
periods indicated in their reports have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The audited financial statements of VirTx as of December 31, 1999 included
in this registration statement on Form S-1 have been audited by Carpenter Kuhen
& Sprayberry, certified public accountants, as indicated in their reports with
respect thereto, and are included in this registration statement on Form S-1 in
reliance upon the authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission relating to the common stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules for the registration
statement. Statements contained in this prospectus as to the content of any
contract or other document referred to are not necessarily complete and in each
instance we refer you to the copy of the contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference.
For further information with respect to e-MedSoft.com and the common stock
offered by this prospectus, we refer you to the registration statement,
exhibits, and schedules. A copy of the registration statement may be inspected
by anyone without charge at the public reference facilities maintained by the
Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; the Chicago Regional Office, Suite 1400, 500 West
Madison Street, Citicorp Center, Chicago, Illinois 60661; and the New York
Regional Office, Suite 1300, 7 World Trade Center, New York, New York 10048.
Copies of all or any part of the registration statement may be obtained from the
Public Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the prescribed fees. The
public may obtain information on the operation of the Public Reference Room by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The
registration statement is also available through the Securities and Exchange
Commission's Web site at the following address: http:\\www.sec.gov. Our common
stock is quoted on the American Stock Exchange under the symbol "MED."
58
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
e-MedSoft.com Financial Statements Page No.
<S> <C>
Report of Independent Public Accountants......................... F-3
Consolidated Balance Sheets as of March 31, 2000 and 1999 ....... F-4
Consolidated Statements of Operations for the year ended
March 31, 2000 and the four months ended March 31, 1999 ......... F-5
Consolidated Statements of Stockholders' Equity
and Comprehensive Income (Loss) for the year ended
March 31, 2000 and the four months ended March 31, 1999.......... F-6
Consolidated Statements of Cash Flows for the year
ended March 31, 2000 and the four months ended March 31, 1999 ... F-8
Notes to Consolidated Financial Statements ...................... F-9
</TABLE>
F-1
<PAGE> 65
VIRTX, INC. FINANCIAL STATEMENTS
Financial Statements For the Period from January 27, 1999 (Date of Inception)
to December 31, 1999, Together With Independent Auditors' Report:
<TABLE>
<S> <C>
Independent Auditors' Report .............................. F-30
Assets - December 31, 1999 ................................ F-31
Liabilities and Stockholders' Deficit - December 31, 1999.. F-32
Statement of Operations for the Period from
January 27, 1999 (Date of Inception) to December 31,
1999 ...................................................... F-33
Statement of Stockholders' Deficit for the Period
from January 27, 1999 (Date of Inception) to
December 31, 1999 ......................................... F-34
Statement of Cash Flows for the Period from January 27,
1999 (Date of Inception) to December 31, 1999 ............. F-35
Notes to Financial Statements for the Period from
January 27, 1999 (Date of Inception) to December 31,
1999 ...................................................... F-36
</TABLE>
F-2
<PAGE> 66
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of e-MedSoft.com:
We have audited the accompanying consolidated balance sheets of e-MedSoft.com
(a Nevada corporation) and subsidiaries as of March 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and cash flows for the year ended March 31, 2000 and
the four months ended March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of e-MedSoft.com and subsidiaries
as of March 31, 2000 and 1999, and the results of their operations and their
cash flows for the year ended March 31, 2000 and the four months ended March 31,
1999 in conformity with accounting principles generally accepted in the United
States.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
June 28, 2000
F-3
<PAGE> 67
e-MedSoft.com
Consolidated Balance Sheets
As of March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 59,860,827 $ 51,712
Restricted cash 5,386 138,435
Accounts receivable, net of allowance
for doubtful accounts of $155,012 in 2000
and $89,271 in 1999 17,817,382 4,181,285
Other receivables 2,111,310 1,062,133
Inventory 1,106,960 713,002
Related party receivables -- 193,263
Prepayments and other 1,540,183 381,591
Deferred taxes 14,387 14,555
------------- ------------
82,456,435 6,735,976
------------- ------------
Long-Term Assets:
Property and equipment, net 2,603,302 1,308,863
Goodwill, net of amortization
of $1,205,661 in 2000 and $28,810
in 1999 37,867,333 8,054,630
Investments 26,285,000 --
Technology license fee 2,800,000 --
Deferred software costs 8,640,202 --
Deferred financing, net of amortization of
$361,754 at March 31, 1999 -- 1,363,439
Distribution channel 36,100,000 --
Deferred contract 67,462,914 --
Other assets 881,467 --
------------- ------------
182,640,218 10,726,932
------------- ------------
$ 265,096,653 $ 17,462,908
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 807,180 $ 967,425
Accounts payable 21,269,973 6,017,183
Accrued liabilities 4,443,805 412,405
Income taxes payable 443,409 165,280
Related party debt 138,782 --
Current maturities of long-term debt and
capital leases 942,981 815,898
------------- ------------
28,046,130 8,378,191
Long-Term Liabilities:
Capital leases 739,306 416,409
Bridge financing 67,528 1,361,877
Other long-term liabilities -- 1,193,581
Lease commitments 3,063,700 --
------------- ------------
3,870,534 2,971,867
Commitments and Contingencies
Minority Interest 4,176,862 --
Stockholders' Equity:
Common shares, $.001 par value,
100,000,000 shares authorized,
75,735,365 and 51,816,470, issued and
outstanding at March 31, 2000 and 1999,
respectively 75,735 51,816
Paid in capital 244,495,796 6,951,312
Stock subscription (5,000,000) --
Accumulated deficit (10,569,951) (904,617)
Accumulated other comprehensive income 1,547 14,339
------------- ------------
229,003,127 6,112,850
------------- ------------
$ 265,096,653 $ 17,462,908
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 68
e-MedSoft.com
Consolidated Statements of Operations
For The Year Ended March 31, 2000 and
The Four Months Ended March 31, 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
NET SALES $ 45,982,416 $ 2,649,563
COSTS AND EXPENSES:
Cost of sales 35,890,430 1,998,505
Research and development 1,515,054 38,619
Sales and marketing 5,255,502 188,340
General and administrative 8,743,921 386,859
Non-cash compensation 832,240 380,158
Depreciation and amortization 1,916,012 46,303
------------ ------------
Total Costs and Expenses 54,153,159 3,038,784
OPERATING LOSS (8,170,743) (389,221)
OTHER INCOME (EXPENSE):
Interest expense (1,889,761) (376,889)
Interest income 281,282 --
Other 38,150 421
------------ ------------
LOSS BEFORE INCOME TAXES,
EXTRAORDINARY INCOME AND
MINORITY INTEREST (9,741,072) (765,689)
EXTRAORDINARY INCOME 357,152 --
------------ ------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (9,383,920) (765,689)
TAX PROVISION (360,798) (138,928)
MINORITY INTEREST, NET OF TAXES 79,384 --
------------ ------------
NET LOSS $ (9,665,334) $ (904,617)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.17) $ (0.02)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 56,345,463 38,061,371
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 69
e-MedSoft.com
Consolidated Statements of Stockholders'
Equity and Comprehensive Income (Loss)
For The Year Ended March 31, 2000 and
The Four Months Ended March 31, 1999
<TABLE>
<CAPTION>
Common Shares Accumulated
Stock Other
Paid-In Subscription Accumulated Comprehensive Total
Number Amount Capital Deficit Income (Loss) Equity
----------- ---------- ---------- ------------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Opening Balance,
TSI
December 1, 1998 -- $ -- $ -- $ -- $ -- $ -- $ --
Recapitalization of
e-MedSoft 7,801,150 7,801 2,476 -- -- -- 10,277
Restricted
common stock
issued for
acquisition
of TSI assets 43,970,320 43,970 (43,970) -- -- -- --
Restricted common
shares issued
for services 45,000 45 155,113 -- -- -- 155,158
Issue of warrants
for services -- -- 225,000 -- -- -- 225,000
Restricted
common stock
contributed by
TSI for acquisition
of e-Net -- -- 5,400,000 -- -- -- 5,400,000
Restricted
common stock
contributed by
TSI for loan
inducement -- -- 1,212,693 -- -- -- 1,212,693
Comprehensive income
(loss):
Operating losses of
TSI through acquisi-
tion, January 7, 1999 -- -- -- -- (33,533) -- (33,533)
Operating losses of
e-MedSoft for the
period January 8,
1999 to March 31, 1999 -- -- -- -- (871,084) -- (871,084)
Translation
adjustment -- -- -- -- -- 14,339 14,339
-----------
Comprehensive loss -- -- -- -- -- -- (890,278)
---------- ------- ----------- ---------- --------- ------- -----------
Balance,
March 31, 1999 51,816,470 $51,816 $ 6,951,312 $ -- $(904,617) $14,339 $ 6,112,850
</TABLE>
F-6
<PAGE> 70
<TABLE>
<CAPTION>
Common Shares Accumulated
Other
Paid-In Stock Accumulated Comprehensive Total
Number Amount Capital Subscription Deficit Income (Loss) Equity
---------- ------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Restricted common
stock issued in
acquisitions 1,854,276 $ 1,854 $ 30,179,667 $ -- $ -- $ -- $ 30,181,521
Restricted common
stock issued for
cash 8,155,021 8,155 63,625,324 -- -- -- 63,633,479
Restricted
common stock
issued for
assets 12,627,336 12,627 142,268,035 (5,000,000) -- -- 137,280,662
Warrants issued
for payment of
debt -- -- 505,738 -- -- -- 505,738
Common stock
issued on exercise
of warrants 1,216,429 1,217 100,284 -- -- -- 101,501
Common stock
issued on exercise
of stock options 33,333 33 33,300 -- -- -- 33,333
Common stock
issued for
services 32,500 33 615,092 -- -- -- 615,125
Stock options
and warrants
issued for
services -- -- 217,044 -- -- -- 217,044
Comprehensive loss:
Net loss -- -- -- -- (9,665,334) -- (9,665,334)
Translation
adjustment -- -- -- -- -- (12,792) (12,792)
-------------
Comprehensive loss -- -- -- -- -- -- (9,678,126)
---------- ------- ------------ ----------- ------------ ----------- -------------
Balance,
March 31, 2000 75,735,365 $75,735 $244,495,796 $(5,000,000) $(10,569,951) $ 1,547 $ 229,003,127
========== ======= ============ =========== ============ =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 71
e-MedSoft.com
Consolidated Statements of Cash Flows
For The Year Ended March 31, 2000 and
The Four Months Ended March 31, 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,665,334) $ (904,617)
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on exchange of debt for warrants (357,152) --
Provision for doubtful accounts 192,854 --
Depreciation 739,161 17,493
Amortization of goodwill 1,176,851 28,810
Amortization of deferred financing costs 1,243,439 361,754
Issuance of shares and warrants for services
provided 832,169 380,158
Net change in assets and liabilities affecting
operations, net of acquisitions:
Accounts receivable (13,572,622) (1,304,693)
Inventory (363,570) 6,713
Prepayments and other (2,021,919) 78,665
Related party receivables -- (185,567)
Accounts payable and accrued liabilities 17,767,261 1,043,300
Income taxes payable 278,129 93,356
------------- -----------
Cash Used In Operating Activities (3,750,733) (384,628)
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition, net of cash acquired (808,034) (2,254,658)
Capital expenditures (844,490) --
Investment in software (4,172,040) --
Payment for deferred contract (511,304) --
Purchase of long-term investment (770,000) --
Other (147,620) --
------------- -----------
Cash Used In Investing Activities (7,253,488) (2,254,658)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on bridge loans (561,068) --
Proceeds from bridge loans 3,888,782 1,500,000
Proceeds from other long-term liabilities -- 1,500,000
Payments on other long-term liabilities -- (306,419)
Repayments of capital lease obligations (459,553) (2,583)
Funds for minority interests 4,176,862 --
Proceeds from exercise of stock options and warrants 134,834 --
Equity financing 63,633,479 --
------------- -----------
Cash Provided By Financing Activities 70,813,336 2,690,998
------------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 59,809,115 51,712
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 51,712 --
------------- -----------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 59,860,827 $ 51,712
============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 72
e-MedSoft.com
Notes to Consolidated Financial Statements
March 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Risk
e-MedSoft.com ("e-MedSoft" or the "Company") was initially organized in Nevada
on August 25, 1986, under the name of High Hopes, Inc., in order to evaluate,
structure and complete a merger with, or acquisition of, prospects consisting of
private companies, partnerships or sole proprietorships.
On January 7, 1999, e-MedSoft acquired the assets of TSI Technologies and
Holdings, LLC ("TSI") formerly known as Sanga e-Health, LLC for 41,417,176
restricted shares of the Company's common stock which represented 80 percent of
the then outstanding shares. This transaction was accounted for as a reverse
acquisition. Therefore, the income and cash flow statements included herein for
the four month period ended March 31, 1999 combine the operations of TSI from
its inception, December 1, 1998, through the acquisition date and the operations
of e-MedSoft after the acquisition through March 31, 1999. The balance sheet at
March 31, 1999 includes TSI's assets at the acquisition date at carry over
basis.
On March 19, 1999, the Company acquired all of the outstanding shares of e-Net
Technology LTD ("e-Net", formerly Palm Technology Holdings, Ltd). This
acquisition has been accounted for under the purchase method. On May 28, 1999,
e-MedSoft changed its year-end from May 31 to March 31. Accordingly, the results
of operations presented herein for the four month period ended March 31, 1999
reflect approximately 13 days of e-Net's operations.
On February 29, 2000, the Company acquired all of the outstanding shares of
VirTx, Inc. This acquisition has been accounted for under the purchase method
and the results of operations for the fiscal year ended March 31, 2000 reflect
approximately 31 days of VirTx's operations.
During the year ended March 31, 2000 the Company acquired a 60 percent interest
in an Australian company organized to market and distribute certain of the
Company's software products in Australia and Asia under a licensing agreement.
In March 2000, the Company's subsidiary in Australia merged with Capricorn, an
inactive Australian company listed on the Australian stock exchange. The merger
was considered a reverse acquisition with Capricorn as the surviving company.
Capricorn changed its name to B2B, Net Technologies, Ltd. Concurrent with this
transaction B2B completed an Australian public offering and raised approximately
$3.4 million for the funding of working capital. As a result of these
transactions, the Company owns 45 percent of B2B and has an irrevocable two-year
proxy to vote another 15 percent of B2B's shares that are owned by another
stockholder. Therefore, the income and cash flow statements included herein for
the year ended March 31, 2000 combine the operations of the Australian
subsidiary from its inception date, August 10, 1999, through the merger date and
the operations of B2B after the acquisition through March 31, 2000. The balance
sheet at March 31, 2000 include B2B's assets at the acquisition date at carry
over basis.
e-MedSoft acquired and has continued to develop an Internet-based information
and transaction platform application and software designed to facilitate and
streamline interactions among physicians, payers, suppliers and patients.
However, the Company's revenue and income potential from its Internet solutions
business is unproven. For the four month period ended March 31, 1999, the
Company generated all its revenue from e-Net's computer hardware and software
sales. For the year ended March 31, 2000 primarily all of its revenue was from
e-Net's computer and hardware sales. The Company's business plan includes
significant cash investments for the implementation and rollout of its
Internet-based health care management system, the expansion of its customer base
and the integration of newly acquired entities. Management believes that the
cash equivalents at March 31, 2000 are sufficient to support these capital needs
over the next 12 months. The Company may also require additional funding to
support future business ventures and acquisitions. In addition to being subject
to all the risks of an early stage enterprise, the Company is subject to
numerous other risks, including rapidly changing and evolving standards, an
unproven business model, future lack of capital and other risks.
F-9
<PAGE> 73
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated. In addition, certain reclassifications of previously reported
amounts have been made to conform with the current year presentation.
Accounting Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents include money market investments that are redeemable upon
demand. The Company places its cash equivalents with high quality financial
institutions, however, the funds invested in the money market accounts are not
FDIC insured and at times, the funds in the operating accounts may exceed the
FDIC insurance limits.
F-10
<PAGE> 74
Accounts Receivable
Accounts receivable consists primarily of trade receivables from the sale of
hardware and software to the Company's customers. The Company continually
reviews its trade receivables for collectability and provides reserves as
needed. The credit risk associated with accounts receivable is limited due to
the diversity of the accounts over a significant number of customers with no
single customer representing more than 10 percent of the total balance.
Inventory
Inventory, which consists of purchased computer and software products, is stated
at the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method. Inventory primarily consists of finished goods.
Other Receivables
Other receivables primarily consist of amounts due to e-Net from a major
supplier for reimbursement of certain promotional and marketing costs.
Fair Value of Financial Instruments and Concentration of Sales and
Credit Risk
The carrying amounts reported in the balance sheets for cash, receivables,
accounts payable and accrued liabilities approximate fair value because of the
immediate or short-term maturity of these financial instruments. The carrying
value of the Company's debt and capital leases approximate their fair value
because of the short maturities and/or interest rates which are comparable to
those available to the Company on similar terms. The Company's U.K. subsidiary,
e-Net, had two customers whose sales represented a significant portion of
e-Net's net sales for the year ended March 31, 2000. Sales to these customers
were 13.6 percent and 5.6 percent of net sales for the period ended March 31,
2000. e-Net also had two significant suppliers that amounted to 43 percent and
41 percent of purchases for the period ended March 31, 2000. One of these major
suppliers is e-Nets strategic partner, Sun Microsystems and the Company believes
that the risk of losing this vendor is remote. However, the Company continually
monitors its risks by identifying alternative suppliers. As a result, the
Company believes that the loss of one or both of these suppliers would not have
a material adverse effect on the Company's financial position or results of
operations.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method based on the estimated useful life of the related asset.
Useful lives are generally three to six years except for leasehold improvements
and equipment acquired under capital leases which are amortized over the shorter
of the remaining lease term or the estimated useful life of the related asset.
Goodwill
Goodwill represents the excess of cost over the fair value of net tangible and
identifiable assets acquired and is amortized using the straight-line method.
Goodwill related to the acquisition of e-Net is amortized over a ten year life.
Goodwill related to the acquisition of VirTx is amortized over a seven-year
period. The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of undiscounted future net
cash flows over the remaining life of the goodwill to determine if impairment
has occurred. Assets are grouped at the lowest level for which there are
identifiable cash flows that are largely independent from other asset groups.
The Company uses discounted future expected net cash flows to determine the
amount of impairment loss.
Software Development Costs
The Company is internally developing software and acquiring software that it
plans to market to providers, payers, suppliers and consumers through licensing
of software and through hosting service as an application service provider.
Costs incurred related to the development of software to be licensed prior to
technological feasibility have been expensed. Under Statement of Financial
Accounting Standards ("SFAS") No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed", once the Company concludes
that technological feasibility is obtained, all subsequent development costs are
capitalized and reported at the lower of unamortized cost or net realizable
value. Software development costs incurred related to software to be used
internally as part of a hosting arrangement have been capitalized in accordance
with Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Internally Developed or Obtained for Internal Use". Software
development costs expensed are included in research and development expenses in
the
F-11
<PAGE> 75
accompanying consolidated statements of operations and were approximately
$1,515,000 and $39,000 for the fiscal year ended March 31, 2000 and the four
month period ended March 31, 1999, respectively. During the year ended March
31, 2000, the Company incurred salary and contractor costs of approximately $2.2
million that were capitalized in accordance with SFAS No. 86 and SOP 98-1, as
applicable, and reflected on the consolidated balance sheets.
F-12
<PAGE> 76
Recognition of Revenues
The Company's products and services are provided based upon purchase orders and
contractual agreements. Revenue from the sale of hardware and software is
recorded upon delivery, installation and acceptance of the equipment at the
customer site. Revenue from services is recorded upon performance. Revenue from
maintenance contracts is recognized on a straight-line basis over the contract
period. The revenue components for the fiscal year ended March 31, 2000 and the
four month period ended March 31, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Hardware and Software $43,452 $2,555
Services 1,331 95
Maintenance 1,199 -
------- ------
$45,982 $2,650
======= ======
</TABLE>
Research and Development
Research and development costs mainly consist of salaries, consultant fees, and
equipment costs for the internal development of new software and Internet
products in the United Kingdom and in the United States. During the year ended
March 31, 2000 the Company expensed approximately $1.5 million in development
costs and capitalized approximately $2.2 million. 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 the existing Internet-based health care
management system. (See software development costs above)
Income Taxes
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for
Income Taxes," which uses the liability method to calculate income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be realized or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
Translation of Foreign Currencies
Assets and liabilities of the Company's foreign subsidiaries are translated at
the current exchange rates, and the effects of these translation adjustments are
reported as a separate component of stockholders' equity. Revenues and expenses
of foreign subsidiaries are translated at the average exchange rates that
prevailed over the applicable period.
Basic and Diluted Loss Per Share
In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed by dividing the net earnings available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net earnings for the period by the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares, consisting of incremental common shares issuable upon
the exercise of stock options and warrants are excluded from the diluted
earnings per share calculation if their effect is anti-dilutive.
A summary of the shares used to compute net loss per share is as follows:
<TABLE>
<CAPTION>
Year Ended Four Months Ended
March 31, 2000 March 31, 1999
-------------- -----------------
<S> <C> <C>
Weighted average common shares
used to compute basic net loss
per share.............................. 56,345,463 38,061,371
Effect of dilutive securities........... -- --
---------- ----------
Weighted average common shares
used to compute diluted net
loss per share......................... 56,345,463 38,061,371
========== ==========
</TABLE>
For the year ended March 31, 2000 and the four months ended March 31, 1999,
options and warrants to purchase 5,715,167 and 1,734,429 shares of common stock,
respectively, were excluded from the computation of diluted loss per share as
such options and warrants were anti-dilutive.
F-13
<PAGE> 77
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which was amended by SFAS No. 137. The
Company is required to adopt this new standard in April 2001 for its year ending
March 31, 2002. SFAS No. 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. Because the Company currently holds no
derivative financial instruments and does not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material impact on
the Company's financial condition or results of operations.
In December 1999, the SEC staff released Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition," to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. Changes in
accounting to apply the guidance in SAB No. 101 may be accounted for as a change
in accounting principle. Management has not yet determined the complete impact
of SAB No. 101 on the Company; however, management does expect that application
of SAB No. 101 will not have a material effect on the Company's revenue
recognition and results of operations.
2. BUSINESS COMBINATIONS AND JOINT VENTURES
Acquisition of Health Care Management System
On January 7, 1999, the Company acquired from TSI, the rights to a JAVA-based,
on-line healthcare management system in exchange for 41,417,176 restricted
shares (post-split) of the Company's common stock. In addition, in exchange for
finder's fees and services, the Company issued 2,553,144 restricted shares of
the Company's common stock and 1,035,429 warrants to purchase restricted shares
of the Company's common stock exercisable at $.25 per share over five years. As
a result of these transactions, TSI owned approximately 80 percent of the then
outstanding shares and is considered the acquiring company. This transaction is
considered a reverse acquisition that resulted in a capital reorganization.
Accordingly, the Company's assets have been reflected at book value and the
acquiring company's assets at acquisition date have been reflected at their
carryover basis. There has been no goodwill or intangible assets recognized for
this acquisition in the financial statements. No significant costs were incurred
in preparing the software for commercial use prior to December 1, 1998. In
connection with this transaction, the Company completed a 5 for 1 forward stock
split having a record date of January 4, 1999, which has been reflected for all
data presented.
Acquisition of e-Net Technology LTD
On March 19, 1999, the Company completed the acquisition of all of the issued
and outstanding stock of e-Net Technology Ltd. ("e-Net")(formerly Palm
Technology Holdings LTD), a U.K. based company, for approximately $7,600,000
consisting of $2,200,000 in cash and $5,400,000 in stock. e-Net is a diversified
computer services company, providing training, technical support, computer
software and computer hardware to a broad range of customers. This acquisition
has been accounted for under the purchase method and therefore, the financial
statements presented herein include the operations of e-Net from the acquisition
date.
The Company purchased the shares of e-Net pursuant to a Share Acquisition
Agreement, which was originally entered into on July 22, 1998 between e-Net's
shareholders and Sanga International ("Sanga"). (During the period, Sanga was a
member of e-MedSoft's principal stockholder, TSI, and it ceased being a member
on July 30, 1999.) At the close, the Company paid $2,200,000 in cash. Of this
amount $1,500,000 was borrowed and the balance was paid out of working capital
(see Note 5). In addition, TSI contributed and transferred 3 million of its
restricted shares to Sanga for consideration of Sanga's assignment of all rights
and obligations under its agreement. These shares have been valued by an
independent appraiser at $5,400,000. The following table details the allocation
of the e-Net purchase price:
F-14
<PAGE> 78
<TABLE>
<S> <C>
Purchase price $7,590,102
Acquisition costs 65,336
----------
Adjusted purchase price 7,655,438
Add: e-Net's negative equity 428,002
----------
Goodwill $8,083,440
==========
</TABLE>
The Company considered other potential intangible assets for which it may be
appropriate to assign value such as franchise agreements, leases and customer
lists. The 10-year amortization of goodwill represents management's best
estimate of the future benefit of this acquisition.
The following pro forma information, for the four months ended March 31, 1999,
gives effect to the acquisition of e-Net as if such transaction had occurred at
the beginning of the Company's operations on December 1, 1998 (unaudited):
<TABLE>
<S> <C>
Net sales $8,596,644
Operating expenses 8,933,552
Amortization of goodwill 269,629
Net loss $ (851,148)
Net loss per share $(.02)
</TABLE>
The pro forma information does not include amortization of financing costs of
$361,754 incurred in connection with the transaction since these costs are
considered to be one time only costs.
In May 1999, the Company's U.K. subsidiary acquired a small Internet financial
services business. This transaction was accounted for under the purchase method.
The goodwill resulting from this acquisition was approximately $32,000. During
the last quarter of 2000, the Company disposed of this subsidiary and therefore
any remaining goodwill was expensed.
Acquisition of B2B.net Technology LTD
In fiscal 2000 the Company acquired a 60 percent interest in an Australian
company to distribute certain e-MedSoft products in various territories
including Australia and Asia. The Company paid one Australian dollar for the
shares and has entered into a software marketing and license agreement with the
subsidiary whereby the Company received $250,000 and will receive royalty
payments in return for an exclusive non-transferable right to use, reproduce and
exploit certain of the Company's software, including the right to grant
sublicenses, in the defined territories. In March 2000, 100 percent of the
subsidiary's outstanding shares were exchanged for 100 percent of the
outstanding shares of Capricorn, an inactive Australian company listed on the
Australian stock exchange. Capricorn was the surviving company and changed its
name to B2B Net Techonologies, Ltd. ("B2B") Concurrent with the exchange of
shares, B2B completed an Australian public offering of approximately $3.4
million for the funding of working capital. As a result of these transactions,
e-Med's equity ownership was reduced from 60 percent to 45 percent. A 15 percent
shareholder of B2B has issued to e-MedSoft an irrevocable proxy to vote its
shares in B2B for the next two years. Therefore, the financial statements of B2B
have been consolidated and reflected in the financial statements herein. As of
March 31, 2000 the subsidiary had not yet commenced the distribution of product
and therefore, no revenues have been generated to date.
Preferred Provider Agreement with National Century Financial
Enterprises
F-15
<PAGE> 79
In February 2000, the Company entered into a seven year Preferred Provider
Agreement with National Century Financial Enterprises to provide its services
and software solutions with respect to all electronic needs of NCFE and to have
exclusive marketing access to all of NCFE's clients for the provision of
e-MedSoft's products. In addition, the agreement provides for a proprietary
Master Portal wherein all of NCFE's and e-MedSoft's products and services will
be marketed and sold to NCFE's and e-MedSoft's customers. e-MedSoft will
receive fees for its services based on agreed upon fee schedules and negotiated
project fees. e-MedSoft issued 9.5 million shares to NCFE in consideration for
NCFE 1) entering into the agreement, 2) cancelling approximately $4.8 million of
e-MedSoft's debt 3) providing $1 million of equity financing and 4) providing an
additional $4 million in financing that will convert into equity upon the
ability of NCFE to sell $4 million worth of e-MedSoft stock at a share price in
excess of $9.50 per share. The Company is also required to file a registration
statement to register these shares. The value of the shares issued was
approximately $113 million based on the then current market price of
e-Medsoft.com stock on issuance date. This value has been allocated as a
1)reduction of debt 2)financing receivable reflected in equity and 3) value of
NCFE's distribution channel and an inducement for NCFE to enter into the
agreement representing deferred contract cost. The value of the NCFE
distribution channel and deferred contract cost with a combined value of
approximately $104 million was supported by an independent appraisal. The fair
market value of the assets acquired was based on the value of the equity
consideration as determined using an income approach valuation methodology. A
seven year forecast of revenues and costs was prepared with the resulting cash
flows reduced by working capital and capital expenditures. The net results were
then discounted to present value based on a weighted average discount rate of 25
percent. The components of the assets valued were based on their related revenue
streams and were approximately $120 million for NCFE to use e-MedSoft technology
and $36.1 million for the NCFE distribution channel. The total valuation of
these revenue streams was approximately $156.1 million. This valuation was in
excess of the market price value of the shares issued and therefore these assets
are reflected at the lower value of approximately $104 million. These assets
will be amortized on a straight line basis over the contract period once the
software is delivered and accepted by NCFE. At March 31, 2000, the Master Portal
was still in development and, therefore, the Company did not amortize any of the
assets into expense.
Acquisition of VirTx, Inc.
In February 2000, e-Medsoft.com acquired privately held VirTx, Inc., 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 table details the allocation of the
VirTx purchase price:
<TABLE>
<S> <C>
Purchase price $30,181,521
Acquisition costs 35,000
----------
Adjusted purchase price 30,216,521
Add: VirTx negative equity 773,033
----------
Goodwill $30,989,554
==========
</TABLE>
F-16
<PAGE> 80
The following pro forma information gives effect to the acquisition of VirTx as
if such transaction had occurred at December 1, 1998 (unaudited):
<TABLE>
<CAPTION>
Year Ended Four Months Ended
March 31, 2000 March 31, 1999
<S> <C> <C>
Net sales $ 46,765,039 $ 2,787,416
Operating expenses 56,572,648 3,431,027
Amortization of goodwill 4,058,156 737,847
Net loss $(15,290,519) $(1,881,524)
Net loss per share $(0.27) $(.05)
</TABLE>
Acquisition of Software License and Joint Venture with Quantum Digital
Solutions Corporation
In March 2000, we acquired an exclusive 10-year license, with an option to
extend another 20 years, from Quantum Digital Solutions Corporation ("Quantum
Digital"), previously known as CypherComm, Inc., for application of their
security encryption and data scrambling technology. We intend to embed the
security technology into all of our application services and will seek to
develop a separate subsidiary ("Securus") that will focus on selling security
solutions to the health care industry. In return for the license, Quantum
Digital will receive 25 percent of Securus profits, plus warrants to purchase up
to 25 percent of Securus equity at $0.01 per share in the event of a sale of any
Securus equity securities. Pursuant to the agreement, we issued to Quantum
Digital approximately 1.4 million shares of our common stock for the right to
purchase up to 15 percent of the outstanding common stock of Quantum Digital for
an aggregate cash purchase price of $15 million, either in a single transaction
or in tranches over a period of up to five years. As of March 31, 2000, the
Company has purchased .75 percent of Quantum Digital's common stock for
$750,000. We will also issue Quantum Digital a 10-year warrant to purchase an
additional 1 million shares of our common stock at an exercise price of $20 per
share following the introduction of a commercially distributable product using
Quantum Digital's technology and receive a seat on Quantum Digital's board of
directors. In addition we have established a jointly owned technical lab for
further development of the encryption technology to fit various markets. We will
fund the lab jointly with Quantum Digital. At March 31, 2000, the Company has
reflected approximately $29.1 million on the balance sheet which represents $25
million for the value of the shares issued to obtain the option to acquire
equity in Quantum, $750,000 paid upon partial exercise of the option to acquire
equity interest and approximately $3.3 million in present value of other
commitments made by the Company for the acquisition of the option. The Company
made a preliminary analysis of the relative values of the acquired assets and
allocated $2.8 million to the value of the technology license and software and
$26.3 million to the value of the equity option.
An independent outside appraisal is in process which will determine the final
price allocation. The value of the license and software and the value of the
equity option will be adjusted when the valuation is completed. The Company does
not expect the impact of such adjustment to be material.
3. SOFTWARE LICENSE/ACQUISITIONS
On January 23, 1999, the Company approved and ratified the termination of the
Software License Agreement which was entered into on December 2, 1998 between
TSI and Sanga for the sub-licensing of the healthcare management system's
software ("Software") to end-users thereof. The effect of this termination was
the assignment and transfer from Sanga to the Company of all right, title and
interest under or with respect to all of Sanga's contractual rights and
privileges arising from their agreements with various healthcare providers for
the sub-leasing of the Software. In connection therewith, previous funding
received by Sanga from such healthcare agreements was transferred to the
Company. The funding received by Sanga was based on an agreement between NCFE
and a member of TSI, to
F-17
<PAGE> 81
provide an initial funding of $1.5 million for accounts receivable to be derived
from signed Master Agreements and Memorandums of Understanding. The Company
reflected these funds as other long-term liabilities of $1,193,581 at March 31,
1999. In February, 2000, this debt was converted to equity in conjunction with
NCFE's preferred provider agreement described in Note 2 above.
On September 1, 1999, the Company acquired from University Affiliates IPA ("UA")
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 agreed to
finance certain costs to further develop the software. During the year ended
March 31, 2000, the Company incurred approximately $3.7 million in development
costs of which $2.2 million were capitalized. 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.
4. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2000 and 1999 consisted of the following:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Computer equipment $ 1,359,114 $ 552,238
Office equipment, furniture and fixtures 736,117 236,195
Automobiles 1,330,533 537,923
----------- -----------
3,425,764 1,326,356
Less accumulated depreciation (822,462) (17,493)
----------- -----------
Property and equipment, net $ 2,603,302 $ 1,308,863
=========== ===========
</TABLE>
Property and equipment included assets acquired under capital lease obligations
with a cost of approximately $1,060,883 and $915,496 at March 31, 2000 and 1999,
respectively.
5. DEBT AND CAPITAL LEASES
During the four month period ended March 31, 1999, the Company borrowed $750,000
from Trammel Investors, LLC ("Trammel") and $750,000 from Donald H. Ayers for
the acquisition of e-Net. These loans were evidenced by secured promissory notes
totaling $1,750,000 ("bridge financing"). Trammel's note was $250,000 more than
the amount of its loan as payment of a finders fee and certain other costs. The
Company also agreed to pay an origination fee to each lender in the amount of 15
percent of the amount of the promissory notes with such fees to be payable in
fifteen equal monthly payments commencing April 19, 1999. In connection with
this financing the Company issued to each lender five year warrants to purchase
250,000 shares of the Company's common stock at $3.85 (average closing bid of
the Company's stock during the five trading days before March 19, 1999). In
addition, TSI, the Company's majority stockholder, guaranteed the loans and
transferred to each lender one million restricted shares of the Company's common
stock as an inducement to make the loans. The Company also entered into a
registration rights agreement that provides certain registration rights to the
lenders with respect to the two million shares and the shares underlying the
warrants. The Company obtained an independent valuation of these shares. The
warrants have been valued by the Black Scholes option-pricing model. In line
with these valuations the $1,500,000 received from the lenders was allocated
between debt and paid in capital. This allocation was based on the total
estimated value
F-18
<PAGE> 82
of notes, shares and warrants received by the lenders. As a result, $1,212,693
was allocated to paid in capital for the shares transferred and warrants issued
and $287,307 was allocated to bridge financing debt. The difference between the
amount allocated to debt and the actual notes and fees payable resulting from
this transaction was $1,725,193. At March 31, 1999 that amount was reflected as
deferred financing costs that accrete to the bridge financing debt of $1,750,000
and finance costs payable of $262,500. In addition debt was assumed in the
acquisition of e-Net, which included capitalized leases and a line of credit
with the Bank of Wales. At March 31, 2000 and 1999, the maximum draw under the
line of credit was 1.5 million pounds (approximately $2.4 million) and 1.2
million pounds (approximately $1.9 million), respectively. At March 31, 2000
there was approximately 994,000 pounds or $1.6 million available under this
line. Subsequent to year end, the line of credit was increased to 2.0 million
pounds (approximately $3.2 million) and extended to June, 2001. The credit
facility is secured by the assets of the U.K. operations and contains certain
financial and non-financial covenants.
During the fiscal year ended March 31, 2000, the Company renegotiated the terms
of this bridge financing. As a result, the $750,000 note payable to Don Ayers
was exchanged for 150,000 warrants to acquire 150,000 shares of the Company's
common stock at $.01. The warrants were valued at $505,738 and reflected as an
increase to paid in capital. The difference between the debt exchanged and the
value of the warrants was recorded as an extraordinary gain of $357,152. The
payout terms on the remaining note to Trammel for $1,000,000 was extended 24
months to May 19, 2001. The Company made a $300,000 principal payment to Trammel
to obtain this extension. The remaining unpaid origination fees of $120,000, in
connection with the original transaction were waived by the debt holders.
Accordingly, all remaining deferred financing costs of $1,243,439 was amortized
and reflected in interest expense.
During the four months ended March 31, 1999, the Company received $1,500,000
from NCFE. These advances were provided in accordance with its agreement to
provide an initial funding for accounts receivable to be derived from signed
Master Agreements and Memorandum of Understanding. The Company repaid
approximately $306,000 of this liability at March 31, 1999.
During the fiscal year ended March 31, 2000, the Company entered into a
financing arrangement with NCFE to fund the Company's operations in an amount
not to exceed $5,500,000. The obligation, which was secured by the Company's
assets, boar interest at prime (9 percent at March 31, 2000) plus 1 percent and
was due one year from the draw date or on the date the Company successfully
obtained refinancing for the amounts loaned under the financing arrangement,
whichever was the earlier date. The Company borrowed $3,500,000 under this
agreement.
In February 2000, the Company entered into a Preferred Provider Agreement with
NCFE, whereby all of the debt payable to NCFE was converted into equity.
During the year ended March 31, 2000 the Company received approximately
$1,277,000 from National Trust Properties, Inc. ("NTP"), a related party as
described below, as interim funding of its operations. In consideration for
approximately $888,000 of the funding provided by NTP to the Company, the
Company issued 287,021 shares of its common stock based on the trading price of
the stock at the dates the funds were received. The remaining balance of the
funds received of $389,000, was recorded as related party debt. During December
1999 the Company repaid $250,000 of this debt leaving a balance at March 31,
2000 of approximately $139,000. This debt bears interest at prime plus 1 percent
and is due within one year from the funding date.
Debt at March 31, 2000 and 1999 is as follows:
F-19
<PAGE> 83
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Bridge financing secured by the Company's assets,
interest at prime, due May 19, 2001 $ 688,932 $ --
Bridge financing secured by the Company's
assets, 12% interest, due May 19, 1999 and related
origination fees -- 2,012,500
Related party debt, interest at prime plus 1% 138,782 --
Line of credit, interest at 2.5% above bank base rate (6% at March 31, 2000,
average rate of 8%), with
a minimum interest of 6%, expiring June 2001 807,180 967,425
Capital leases, interest at various rates ranging
from 9% to 11%, expiring from 2001 through 2004 1,060,883 581,684
Other long-term liability -- 1,193,581
---------- ----------
Total debt 2,695,777 4,755,190
Less current portion (1,888,943) (1,783,323)
---------- ----------
Long-term portion $ 806,834 $2,971,867
========== ==========
</TABLE>
The five year debt maturity schedule is as follows:
Year ending March 31:
<TABLE>
<CAPTION>
Long-term Capital
Debt Leases Total
<S> <C> <C> <C>
2001 $1,567,366 $ 321,577 $1,888,943
2002 67,528 366,933 434,461
2003 -- 296,788 296,788
2004 -- 75,585 75,585
2005 -- -- --
---------- ---------- ----------
$1,634,894 $1,060,883 $2,695,777
========== ========== ==========
</TABLE>
6. OPERATING LEASE COMMITMENTS
At March 31, 2000, the Company had operating lease obligations for office space,
primarily branch offices, in England expiring at various dates through 2009 and
in California, Florida and Australia expiring at various dates through 2004. The
minimum aggregate annual rentals were $624,343, of which $553,287 and $11,500 is
reflected in the Company's statement of operations for the fiscal year ended
March 31, 2000 and the four months ended March 31, 1999, respectively.
Subsequent to year-end, the Company entered into a lease agreement for
additional office space in Florida which expires in 2004. The annual rental for
the Florida office space is approximately $81,816.
In addition, in accordance with its agreement with Quantum Digital, the Company
has committed to the payment of Quantum Digital's leased space that they will
occupy commencing in November, 2000. The minimum annual rental for this lease is
$493,140.
Future minimum lease payments on noncancelable operating leases, adjusted for
the above subsequent events, is as follows:
F-20
<PAGE> 84
Year ending March 31:
<TABLE>
<S> <C>
2001 $ 984,002
2002 1,203,156
2003 1,131,937
2004 1,035,753
2005 781,431
Thereafter 2,996,985
----------
$8,133,264
==========
</TABLE>
7. DEFERRED FINANCING
Deferred financing costs resulting from the acquisition bridge financing (see
Note 5) was amortized over the life of the bridge financing. During the year
ended March 31, 2000 and the four months ended March 31, 1999, $1,243,439 and
$361,754 was reflected in financing costs, respectively.
8. RELATED PARTY TRANSACTIONS
The Company has transactions with related parties, primarily as a result of the
realignment of its operations in connection with the acquisition and development
of the healthcare management system. At March 31, 1999, the Company had related
party receivables of $193,263. There were no related party receivables at March
31,2000.
In December 1998 NCFE, one of our strategic partners, transferred $750,000 to
Sanga in accordance with its agreement to provide an initial funding of $1.5
million for accounts receivable to be derived from signed Master Agreements and
Memorandum of Understanding. On January 23, 1999, Sanga assigned and transferred
all right, title and interest with respect to all of Sanga's contractual rights
and privileges arising from its agreements with various healthcare providers to
the Company. Additionally, the rights held by Sanga in and to its funding
agreement with NCFE were assigned to the Company. In connection with these
activities, the previous funding received by Sanga from such healthcare
agreements was legally transferred to the Company and was included in other
long-term liabilities at March 31, 1999. Subsequent to and arising out of this
assignment, Sanga transferred $604,970 of the NCFE funding to the Company. The
remaining balance of $145,030 was reflected as a related party receivable from
Sanga at March 31, 1999. During the fiscal year ended March 31, 2000, Sanga
filed for bankruptcy and this receivable was written off. In February 2000, NCFE
entered into a Preferred Provider Agreement with the Company and converted the
debt to equity.
The Company's President, Chief Executive Officer and Chairman of the Board also
served as President and Chief Executive Officer of Sanga through July 30, 1999
and is a Co-Manager of TSI, a principal stockholder of e-MedSoft.
During the four months ended March 31, 1999 and the year ended March 31, 2000,
HealthMed, a member of TSI, paid certain expenses on behalf of the Company and
TSI. In addition, the Company reimbursed HealthMed for certain of these expenses
and paid certain expenses on behalf of TSI. As of March 31, 1999 the Company had
a total receivable due from HealthMed and TSI of approximately $15,800. There
was no balance due at March 31, 2000.
In addition, prior to the Company's acquisition of e-Net, e-Net paid certain
expenses on the behalf of Sanga's U.K. operations. As of March 31, 1999, the
Company had a receivable of $32,433 in this regard. These amounts were
reimbursed to e-Net from the Company during the fiscal year ended March 31,
2000.
F-21
<PAGE> 85
During the year ended March 31, 2000, 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 stockholder is also an officer and
director (but not owner) of NTP.
9. STOCKHOLDERS' EQUITY
On January 7, 1999, the Company issued 43,970,320 restricted shares (post-split)
of the Company's common stock and 1,035,429 warrants to purchase restricted
shares of the Company's common stock for the acquisition of a healthcare
management system. This transaction resulted in a reverse acquisition with TSI
as the acquiring company (see Note 2). In connection with this transaction, the
Company completed a 5 for 1 forward stock split having a record date of January
4, 1999 increasing the shares outstanding by 6,240,920. The 5 for 1 forward
stock split is reflected in the Company's outstanding shares.
In March 1999, the Company issued 45,000 shares of restricted stock as payment
for consulting services. The fair market value of these restricted common shares
has been expensed as general and administrative expense.
During fiscal 2000, the Company amended its Articles of Incorporation to
increase its authorized shares to 100,000,000 shares of $.001 par value common
stock and 5,000,000 shares of $.001 par value preferred stock. The preferred
stock has rights and privileges as determined by the Company's Board of
Directors. No preferred shares were outstanding at March 31, 2000 or 1999.
During the year ended March 31, 2000, the Company raised approximately $63.6
million in net funds through the sale of 8,155,021 restricted shares of its
common stock. Private placements in December 1999 and March 2000 raised $67.1
million of the gross proceeds through the sale of 7,568,000 restricted shares
and warrants to purchase an additional 3,568,000 restricted shares of common
stock. The warrants carry an exercise price of $4.00. The gross proceeds from
these sales were reduced by approximately $4,988,000 in private placement
commissions and expenses. In addition to the fees received, the private
placement agent received warrants to purchase 350,000 restricted shares of
e-Med's stock at $5.00 per share and warrants to purchase 1,300,000 restricted
shares of e-MedSoft stock at $.01 per share. TSI Technologies Holding, LLC,
(formerly Sanga e-Health, LLC) a major shareholder of the Company, has agreed to
contribute 1,300,000 restricted shares of the Company's stock for the exercise
of the 1,300,000 warrants. In return for TSI contributing the 1,300,000
restricted shares the Company agreed to issue TSI 500,000 warrants at the market
price on grant date. The Company had previously issued warrants to the private
placement agent in May, 1999 to purchase 5,177,145 shares of common stock at
various exercise prices. These warrants were subsequently cancelled. In a
separate transaction 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 for no additional
consideration upon the completion and acceptance of software being developed for
the Company. At March 31, 2000 the Company had not received or accepted the
software being developed.
During the year ended March 31, 2000 the Company received approximately
$1,277,000 from NTP, a related party as described above, as interim funding of
its operations. In consideration for approximately $888,000 of the funding
provided by NTP to the Company, the Company issued 287,021 shares of its common
stock based on the trading price of the stock at the dates the funds were
received.
10. WARRANTS, STOCK OPTIONS AND OTHER COMPENSATION ARRANGEMENTS
Warrants
F-22
<PAGE> 86
At March 31, 1999, the Company had issued 1,585,429 warrants to purchase
1,585,429 restricted shares of the Company's common stock. The purchase price of
the warrants ranged from $.25 to $3.85 over a five year period with an aggregate
purchase price of $2,196,357. Of these warrants, 1,035,429 were issued in
connection with the acquisition of the Internet based health care management
software and 500,000 were issued in connection with the funding of the e-Net
acquisition. In addition, the Company issued warrants to purchase 50,000 shares
of the Company's common stock at $.25 to a consultant in exchange for
professional services. The Company recorded an expense of $225,000 related to
this issuance.
During the year ended March 31, 2000, in addition to the warrants issued through
the raising of equity financing (see Note 9), the Company issued warrants to
purchase 150,000 shares of common stock at $.01 each in satisfaction of a
$750,000 note payable (see Note 5). The Company also agreed to issue 50,000
warrants to purchase 50,000 shares of its common stock at $2.00 for professional
services rendered. The value of the 50,000 warrants was approximately $90,300
and was amortized during the year.
Information relating to warrants in 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Year Ended Four Months Ended
March 31, 2000 March 31, 1999
-------------- -------------
<S> <C> <C>
Beginning balance 1,585,429 --
Granted 4,618,000 1,585,429
Exercised (1,216,429) --
Cancelled (19,000) --
--------- ---------
Outstanding 4,968,000 1,585,429
========= =========
</TABLE>
Stock Options
1999 Stock Compensation Plan
In February 1999, the Company's Board of Directors approved the establishment of
the 1999 Stock Compensation Plan (the "1999 Plan"). The 1999 plan was approved
by the Company's stockholders in February 2000. The total number of shares of
common stock subject to options under the 1999 Plan is 5,000,000, subject to
adjustment in the event of certain recapitalizations, reorganizations and
similar transactions. Options may be exercisable by the payment of cash or by
other means as authorized by the Board of Directors.
The 1999 Plan also provides that the Board may issue restricted stock pursuant
to restricted stock right agreements that will contain such terms and conditions
as the Board determines.
The Company has granted stock options to officers and employees. The options
expire in 10 years from date of grant, and vest over a three year period. The
Company has elected to follow APB No. 25, "Accounting for Stock Issued to
Employees", in accounting for its employee stock options. Accordingly, no
compensation cost has been recognized for the 1999 option plan. Had the
determination of compensation costs been based on the fair market value at the
grant dates for awards under these plans, consistent with the method of SFAS No.
123, "Accounting for Stock-Based Compensation", the Company's net loss would
have been $10,297,408 and $910,560 and basic and diluted loss per share would
have been $0.18 and $0.02 for the fiscal year ended March 31, 2000 and the four
months ended March 31, 1999, respectively.
2000 Nonqualified Stock Option and Stock Bonus Plan
F-23
<PAGE> 87
In March 2000, the Company's board of directors approved the establishment of
the 2000 Nonqualified Stock Option and Stock Bonus Plan. The Company's board of
directors believes that the 2000 Plan encourages employees, officers, directors,
and consultants to acquire an equity interest in the Company and provides
additional incentives and awards and recognition of their contribution to the
Company's success and to encourage these persons to continue to promote the best
interest of the Company.
The 2000 Plan allows the Company's board of directors to grant stock options or
issue stock bonuses to the Company's employees, officers, directors, and
consultants. Options granted under the 2000 Plan will not qualify under Section
422 of the Internal Revenue Code of 1986 as an incentive stock option. As a
result, there was no stockholder approval required to make the plan effective.
The 2000 Plan also provides that the Company's board of directors, or a
committee, may issue restricted stock pursuant to restricted stock right
agreements containing such terms and conditions as the Company's board of
directors deems appropriate.
The total number of shares of common stock subject to the Company's options and
grants of restricted stock under the 2000 Plan may not exceed 3.5 million
shares, subject to adjustment in the event of certain capitalizations,
reorganizations, and similar transactions. Options may be exercisable by the
payment of cash or by other means as authorized by the board of directors.
The Company's board of directors may amend the 2000 Plan at any time, provided
that the board of directors may not amend the 2000 Plan to adversely effect the
rights of participants under the 2000 Plan, without stockholder approval. There
were no options granted or outstanding under this plan at March 31, 2000.
Other Option Issuances
During the year ended March 31, 2000, the Company issued 302,500 options to
purchase 302,500 shares of its common stock at $1.00. The value of these options
was approximately $529,000 and is being amortized over the vesting periods of
twelve to eighteen months. The Company expensed approximately $185,700 for the
year ended March 31, 2000.
Information relating to all stock options during 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------
Options Option Price
Available Number of Per Share
for Grant Shares Average
---------- --------- ------------
<S> <C> <C> <C>
Balance at inception,
February 21, 1999 5,000,000 -- --
Granted (209,000) 209,000 $ 2.56
Exercised -- -- --
Forfeited 60,000 (60,000) $ 2.56
--------- -------- ------
Balance at March 31, 1999 4,851,000 149,000 $ 2.56
--------- -------- ------
Available under 2000 plan 3,500,000 -- --
Granted (354,000) 354,000 $ 4.16
Granted outside of plans -- 302,500 $ 1.00
Exercised -- (33,333) $ 1.00
Forfeited 25,000 (25,000) $ 2.56
--------- -------- ------
Balance at March 31, 2000 8,022,000 747,167 $ 2.76
========= ======== ======
</TABLE>
F-24
<PAGE> 88
The following table summarizes information concerning outstanding and
exercisable options at March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Contractual Price Price
Number Life (in per Number per
Range of Exercise Outstanding Years) Share Exercisable Share
----------------- ----------- ------ ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.00--$1.00 269,167 5.00 $1.00 70,556 $1.00
$2.06--$2.75 337,000 9.55 $2.54 184,000 $2.54
$4.08--$4.28 16,000 10.00 $4.14 - -
$6.25--$7.75 125,000 10.00 $6.94 - -
------- ----- ----- ------- -----
747,167 8.00 $2.76 254,556 $2.11
</TABLE>
As of March 31, 1999, none of the outstanding options were exercisable.
The fair value of each option grant is estimated on the date of grant by using
the Black Scholes option-pricing model. The following weighted average
assumptions were used:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Expected dividend yield ...................... 0% 0%
Expected volatility .......................... 100% 110%
Weighted average risk-free interest rates .... 6.02% 5.55%
Expected option lives (years) ................ 3 3
Weighted average fair value
of options granted during
the period ................................... $2.70 $1.76
</TABLE>
Employment Agreements
During the year ended March 31, 2000, the Company entered into an employment
agreement with its Chairman and Chief Executive Officer for an initial term of
three years beginning January 15, 1999. The agreement, which was amended in
January 2000, provides for a base salary, bonus and other benefits. The
agreement also provides for a $2.5 million payment to the Executive in the event
of a "change in control" of the Company as defined. As part of the amendment,
the Executive waived his rights to shares previously earned for his first year
of employment under the original agreement in exchange for a $500,000 bonus. The
amended agreement provides that the Executive Officer earns 5,000 stock options
for shares of the Company's common stock, at no cost to the Executive, for each
month of employment and additional options to purchase shares if the Company
meets certain sales or net income targets. The price of the options earned based
on meeting targets will be determined by the executive at the grant date. For
the fiscal year ended March 31, 2000 the Company expensed approximately $699,000
under this agreement for stock compensation.
The Company entered into an employment agreement with the Company's Executive
Vice President and Chief Technical Officer. The initial term of the agreement
expires in January 2002 and will automatically renew for additional one year
periods unless terminated. If the Company terminates the officer's employment
without cause or if the officer terminates his employment as a result of the
Company's material breach of the agreement, the officer will receive full
compensation for the remainder of the initial term plus a severance payment
equal to 12 months pay. If the Company terminates his employment with cause, the
officer will receive compensation for the remainder of the initial term.
F-25
<PAGE> 89
The officer also has the right to receive 150,000 common shares of our stock
without any required payment and 40,000 stock options. The stock vests ratably
over a three-year period, and the options vest over a one year period. For the
fiscal year ended March 31, 2000, the Company expensed approximately $126,000
under this agreement for stock compensation.
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Current:
Domestic ...................... $ - $ -
Foreign ....................... 360,630 138,228
Deferred ........................ 168 700
------- ---------
Provision for income taxes ...... $360,798 $ 138,928
======= =========
</TABLE>
Loss before income taxes is net of approximately $1,089,881 and $448,153 of
income related to the Company's U.K. operations for the year ended March 31,
2000 and the four months ended March 31, 1999, respectively.
The components of the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Net operating loss $4,711,828 $ 709,462
Depreciation 49,738 14,555
---------- ---------
4,761,566 724,017
Valuation reserve (4,747,179) (709,462)
---------- ---------
Net deferred tax asset $ 14,387 $ 14,555
========== =========
</TABLE>
F-26
<PAGE> 90
A reconciliation of the provision for income taxes to the amount computed at the
federal statutory rate is as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Federal income tax at statutory rate $(3,286,214) $(307,570)
State income tax, net of federal benefit (574,121) (52,958)
Foreign taxes at rates less than domestic
rates 34,916 13,444
Change in valuation reserve 4,037,717 485,462
Permanent differences 148,500 550
----------- ---------
$ 360,798 $ 138,928
============ =========
</TABLE>
The net operating losses start to expire in 2012. Because of a change in
ownership of the Company, future utilization of these loss carryovers has been
limited, and consequently, the deferred tax asset relating to domestic
operations has been fully reserved.
12. SEGMENT INFORMATION
The Company derives 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
current fiscal period ended March 31, 2000 and the four month period ended March
31, 1999, the Company derived primarily all of its net sales from its operations
in the United Kingdom. Approximately 95 percent and 100 percent of revenues was
primarily from computer hardware and software sales for 2000 and 1999,
respectively.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on operating earnings of the respective business segments, as such there
is no separately identifiable statements of operations data below operating
loss.
The Company's net sales from external customers, operating income and the
long-lived assets at March 31, 1999 and March 31, 2000, classified by geographic
area, were as follows (in thousands):
<TABLE>
<CAPTION>
United United
States Kingdom Australia Total
------ ------- --------- -----
<S> <C> <C> <C> <C>
Four Months March 31, 1999
Net Sales ................... $ -- $ 2,650 $ -- $ 2,650
Operating income (loss) .... (800) 411 -- (389)
Long-lived assets .......... 9,418 1,309 -- 10,727
Fiscal Year March 31, 2000
Net Sales ................... $ 941 $ 45,041 $ -- $ 45,982
Operating income (loss) .... (9,261) 1,252 (162) (8,171)
Long-lived assets .......... 179,942 1,927 771 182,640
</TABLE>
13. CONTINGENCIES
F-27
<PAGE> 91
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. The Company is
involved in a pending litigation regarding a lawsuit brought against 16
defendants, including the Company, by Icon Capital Corporation in the Superior
Court of the State of California for the County of Los Angeles, which is a
dispute between a small minority shareholder of Sanga International, Inc. and a
shareholder of the Company over stock in the Company. After evaluating the
matter with the Company's legal counsel, management is of the opinion that the
litigation creates no material or significant risk of exposure to the Company.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly data for the year ended March 31, 2000 was as follows:
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
Year ended March 31, 2000
Net Sales ............ 4,443,251 8,868,529 12,633,046 20,037,590
Operating Loss ....... (1,796,479) (1,806,958) (1,828,066) (2,739,240)
Net Loss ............. (2,528,416) (1,912,539) (2,190,227) (3,034,152)
Loss per share ....... (0.05) (0.04) (0.04) (0.05)
</TABLE>
15. STATEMENTS OF CASH FLOWS
The Company had the following supplemental and non-cash activities each year:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
Interest $ 396,619 $ 3,150
------------- -----------
Income taxes $ 78,043 $ --
------------- -----------
NON-CASH TRANSACTIONS
Transfer of restricted stock for acquisition of
VirTx $ 30,181,521 $ --
Issuance of restricted stock for technology license and
investment in Quantum Digital 25,000,000 --
Assumption of lease commitment for investment in
Quantum Digital 3,315,000 --
Issuance of restricted stock for a deferred contract
and distribution channel 103,051,610 --
Issuance of restricted stock for settlement of debt 4,760,890 --
Transfer of restricted stock for acquisition
of e-Net -- 5,400,000
Transfer of restricted stock for inducement
to lend -- 1,212,693
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
lease 945,457 --
------------- -----------
$ 172,228,378 $ 6,612,693
============= ===========
</TABLE>
16. SUBSEQUENT EVENTS
In April 2000, the Company entered into a 30-year management agreement and a
preferred provider agreement with PrimeRX.com, Inc. (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.
In May 2000, the Company acquired Illumea Corporation in exchange for
approximately 1.3 million shares of the Company's common stock, valued at
approximating $11 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 will be accounted for under
the purchase method and any excess
F-28
<PAGE> 92
of the purchase price over the fair market value of identifiable assets acquired
will be reflected as goodwill.
In June 2000, the Company acquired VidiMedix for assumption of approximately
$6.2 million in debt, payable in approximately 380,000 shares of common stock,
approximately 336,000 warrants at a purchase price of $8.63 and approximately
$2.9 million in cash. In addition, the Company has committed to issue additional
common stock 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 will be accounted for under the
purchase method and any excess of the purchase price over the fair market value
of identifiable assets acquired will be reflected as goodwill.
Also in June 2000, the Company acquired Resource Healthcare 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 Healthcare provides pharmaceutical and infusion services
to long-term care, assisted living and residential care facilities throughout
Nevada. Services offered by Resource Healthcare include consulting, training,
billing, supplies management and facility systems development. This acquisition
will be accounted for under the purchase method and any excess of the purchase
price over the fair market value of identifiable assets acquired will be
reflected as goodwill.
F-29
<PAGE> 93
CARPENTER KUHEN & SPRAYBERRY
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Virtx, Inc.
Camarillo, California
We have audited the accompanying balance sheet of Virtx, Inc. as of December
31, 1999 and the related statements of operations, stockholders' deficit and
cash flows for the period from January 27, 1999 (date of inception) to
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Virtx, Inc. as of December
31, 1999, and the results of its operations and cash flows for the initial
period then ended in conformity with generally accepted accounting principles.
/s/ Carpenter Kuhen & Sprayberry
Oxnard, California
April 5, 2000
F-30
<PAGE> 94
VIRTX, INC.
BALANCE SHEET - DECEMBER 31, 1999
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS:
Cash $ 50,971
Accounts receivable (net of allowance
for doubtful accounts of $0) 102,985
Inventory 94,729
Financing fees (net of $88,889 of
accumulated amortization) 444,445
--------
Total current assets 693,130
PROPERTY AND EQUIPMENT, AT COST:
Computer equipment $138,805
Furniture and fixtures 89,879
Office equipment 28,468
Leasehold improvements 6,636
Software 4,309
--------
268,097
Less - Accumulated depreciation (25,872) 242,225
-------- --------
DEPOSITS 24,235
--------
$959,590
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE> 95
VIRTX, INC.
BALANCE SHEET - DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 205,429
Accrued payroll expenses 308,436
Billings in excess of costs and
estimated earnings on uncompleted
contracts 210,511
Accrued interest 24,106
Deposits 12,185
Notes payable - stockholders 159,012
Notes payable (net of unamortized
discount of $79,311) 720,689
----------
Total current liabilities 1,640,368
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' DEFICIT:
Common stock - $0.0005 par value
Authorized - 10,000,000 shares
Issued and outstanding - 6,163,334
shares $ 3,082
Additional paid-in capital 628,200
Retained deficit (1,312,060)
-----------
Total stockholders' deficit (680,778)
----------
$ 959,590
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE> 96
VIRTX, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 27, 1999 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<S> <C>
REVENUE $ 758,194
COST OF REVENUE 766,024
-----------
Gross margin (7,830)
GENERAL AND ADMINISTRATIVE EXPENSES 1,227,114
-----------
Loss from operations (1,234,944)
INTEREST EXPENSE 77,116
-----------
Net loss $(1,312,060)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE> 97
VIRTX, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM JANUARY 27, 1999 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Deficit
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance -
January 27,
1999 (date
of inception) -- $ -- $ -- $ -- $ --
Sale of stock 2,650,000 2,650 -- -- 2,650
Stock issued
for property
and equipment 125,000 125 -- -- 125
2-for-1 stock
split 2,775,000 -- -- -- --
Detachable
stock warrants
issued in
connection with
notes payable -- -- 15,173 -- 15,173
Common stock
issued in
connection with
notes payable 533,334 267 533,067 -- 533,334
Common stock
issued in
connection
with notes
payable 80,000 40 79,960 -- 80,000
Net loss -- -- -- (1,312,060) (1,312,060)
--------- ------ -------- ----------- -----------
Balance,
December 31,
1999 6,163,334 $3,082 $628,200 $(1,312,060) $ (680,778)
========= ====== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE> 98
VIRTX, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 27, 1999 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,312,060)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Non-cash items included in net income:
Depreciation and amortization 130,623
Net change in operating assets and liabilities 538,718
-----------
Net cash used in operating activities (642,719)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (267,972)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable - stockholders 159,012
Borrowings on notes payable 800,000
Issuance of common stock 2,650
-----------
Net cash provided by financing activities 961,662
-----------
NET INCREASE IN CASH 50,971
CASH, JANUARY 27, 1999 (DATE OF INCEPTION) --
-----------
CASH, END OF PERIOD $ 50,971
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE> 99
VIRTX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 27, 1999 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
(1) Summary of Accounting Policies
This summary of accounting policies of Virtx, Inc. (the "Company") is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are the representation of management who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles.
a) Basis of Accounting
The Company reports on the accrual method of accounting. Revenue on
fixed-price contracts is recognized on the percentage-of-completion method for
financial statement purposes. The percentage-of-completion method used is
based on costs incurred in relation to total estimated costs. This method is
used because management considers costs incurred to be the best available
measure of progress on these contracts. Because of the inherent uncertainties
in estimating costs, it is at least reasonably possible that the Company's
estimates of costs and revenues will change in the near-term. Revenue from
maintenance contracts is recognized on a straight-line basis over the contract
period.
b) Business Activity and Concentrations of Credit Risk
The Company is a December year-end corporation incorporated in the
state of Delaware. It provides video, voice and data communications equipment
and services to the healthcare industry.
The Company maintains its cash balances in a bank in Ventura County.
Periodically throughout the year the Company has maintained balances in excess
of federally insured amounts. At December 31, 1999, the Company had uninsured
balances of $0.
c) Major Customers
The Company had one major customer that accounted for approximately
86% of total revenues for the period ended December 31, 1999. At December 31,
1999, accounts receivable from this customer totaled approximately 26% of
total accounts receivable.
d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting year. Actual results could differ from those estimates.
e) Inventory
Inventory, consisting of raw materials, is stated at the lower of
cost or market and is determined on a first-in, first-out basis.
F-36
<PAGE> 100
f) Property, Equipment, and Depreciation
Property is recorded at cost. Depreciation of property and equipment
is provided using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
<S> <C>
Computer equipment 5 Years
Furniture and fixtures 7 Years
Office equipment 5-7 Years
Leasehold improvements 7 Years
Software 3 Years
</TABLE>
Expenditures for maintenance and repairs are charged against
operations as incurred.
(2) Financing Fees
As discussed in Note 6(b), financing fees incurred with the acquisition of the
Company's debt were paid by issuing 533,334 shares of the Company's common
stock with a fair market value of $1.00 per share. The loan fees have been
deferred and are being amortized over the life of the debt.
(3) Billings, Costs and Estimated Earnings on Uncompleted Contracts
Billings, costs and estimated earnings on uncompleted contracts for the year
ended December 31, 1999, are as follows:
<TABLE>
<S> <C>
Costs incurred to date on uncompleted
contracts $ 760,298
Gross (loss) recognized (2,448)
---------
757,850
Less - Billings to date (968,361)
---------
$(210,511)
=========
Included in the accompanying balance
sheet under the following captions:
Billings in excess of costs and estimated
earnings on uncompleted contracts $(210,511)
=========
</TABLE>
F-37
<PAGE> 101
(4) Notes Payable - Stockholders
<TABLE>
<S> <C>
Note payable to Calvin Carrera, a stockholder,
due on April 1, 2000, with interest calculated
at 10% annually, compounded daily, unsecured. $ 62,663
Note payable to Murray Firestone, a stockholder,
due on April 1, 2000, with interest calculated
at 10% annually, compounded daily, unsecured. 45,500
Note payable to Calvin Carrera, a stockholder,
due on April 1, 2000, with interest calculated
at the applicable federal rates, unsecured. 22,425
Note payable to Jim Elder, a stockholder, due
on April 1, 2000, with interest calculated at
the applicable federal rates, unsecured. 19,946
Note payable to Murray Firestone, a stockholder,
due on April 1, 2000, with interest calculated
at the applicable federal rates, unsecured. 8,478
---------
$ 159,012
=========
</TABLE>
(5) Notes Payable
Notes payable to the following companies/individuals, due in October 2000,
with interest compounded annually at 10%, unsecured. The notes become fully
due and payable if, before the stated due dates, the Company consummates
equity financing of at least five million dollars. The notes were issued at a
discount of $95,173. The discount results in an imputed interest rate of
24.85% and is being amortized using the effective interest rate method over
the lives of the loans. The $95,173 discount consists of the fair market
value of 80,000 shares of the Company's common stock and 133,328 warrants to
purchase common stock that were issued with the notes payable.
<TABLE>
<CAPTION>
Unamortized
Principal Discount Net
--------- ------------ ---------
<S> <C> <C> <C>
Augustine Fund, L.P. $400,000 $39,655 $360,345
Devonshire Management Corporation 100,000 9,914 90,086
Harvey Bibicoff 100,000 9,914 90,086
Paul Soll 100,000 9,914 90,086
Rock Bay Management Group 100,000 9,914 90,086
-------- ------- --------
$800,000 $79,311 $720,689
======== ======= ========
</TABLE>
F-38
<PAGE> 102
(6) Commitments and Contingencies
a) Operating Leases
The Company leases its office under an operating lease that expires
June 30, 2002. Rent expense under this lease for the period ended December
31, 1999 was $44,255.
Minimum future rental payments under this non-cancelable operating
lease are:
<TABLE>
<S> <C>
Years ending December 31, 2000 $ 70,620
2001 70,620
2002 35,310
--------
$176,550
========
</TABLE>
The Company leases office equipment under an operating lease that
expires May 31, 2004. Rent expense under this lease for the period ended
December 31, 1999 was $3,283.
Minimum future rental payments under this non-cancelable operating
lease are:
<TABLE>
<S> <C>
Years ending December 31, 2000 $ 5,628
2001 5,628
2002 5,628
2003 5,628
2004 2,345
--------
$ 24,857
========
</TABLE>
b) Consulting Agreement
The Company entered into a consulting agreement during the year ended
December 31, 1999 with Strategic Capital Consultants, Inc. (the "Consultant"),
under which the Consultant will provide to the Company management, financial
consulting, and advisory services. In consideration of the services to be
provided for the Company by the consultant, the Company agreed to issue shares
of the Company's common stock and pay amounts in cash in accordance with the
following terms:
i) 533,334 shares will be issued and 10% of the gross proceeds will
be paid in cash simultaneously with, and as a condition of the closing of a
bridge financing of at least $250,000, where the Company has received such
funds from a party introduced to the Company by the Consultant.
ii) 533,332 shares will be issued simultaneously with the closing of
a reverse merger between the Company and another publicly traded entity
introduced to the Company by the Consultant.
iii) 533,332 shares will be issued and 13% of the gross proceeds
will be paid in cash simultaneously with the closing of a private placement of
the Company's securities of at least $5,000,000 with a party introduced to the
Company by the Consultant.
F-39
<PAGE> 103
The consulting agreement expires in September 2000. During the year
ended December 31, 1999, 533,334 shares of stock were issued to Strategic
Capital Consultants and $80,000 was paid in consulting fees in accordance with
Paragraph (i) above.
As explained in Note 2, such costs incurred are being amortized over
the life of the debt.
(7) Stock Split
On September 23, 1999, the Board of Directors authorized a 2-for-1 stock
split, thereby increasing the number of issued and outstanding shares to
5,550,000 and decreasing the par value of each share to $0.0005.
(8) Outstanding Warrants
During the year ended December 31, 1999, the Company issued detachable
warrants in connection with the issuance of debt. Upon surrender of a
warrant, the holder is entitled to purchase one share of the Company's common
stock at a strike price of $3 per share. The warrants were exercisable
immediately upon issuance. At December 31, 1999, there were 133,328 warrants
outstanding. The warrants will expire in October 2004.
The stock warrants are valued at $15,173, or $.1138 per share. The fair value
of the stock warrants was determined using the Black-Scholes option pricing
formula. The following assumptions were used in determining the fair value of
the warrants:
<TABLE>
<S> <C>
Stock price $1.00
Expected annual volatility 58.99%
The risk-free interest rate 6.47%
Dividend yield 0.00%
Expected life 30 months
</TABLE>
The fair value of the stock warrants is treated as a component of the discount
on the related notes payable, which is amortized using the effective interest
rate method over the life of the notes.
(9) Income Taxes
Deferred Income Taxes
The difference between the financial statement and tax bases of assets
and liabilities is determined annually. These differences result from the use
of the accrual basis percentage-of-completion method of accounting for
financial statement purposes and the completed-contract method of accounting
for tax purposes, the use of different depreciation methods for financial
statement and tax return purposes, accrued interest expense, accrued payroll
expenses and net operating loss carryovers. Valuation allowances are
established, if necessary, to reduce deferred tax asset accounts to the
amounts that would be more likely than not be realized. At December 31, 1999,
the valuation allowance totaled $506,956. Income tax expense is the current
tax payable or refundable for the year, plus or minus the net change in the
deferred tax asset and liability accounts. At December 31, 1999, the Company
had a federal net operating loss carryover of $1,018,774, which expires in
2019, and a California net operating loss carryover of $1,017,974, which
expires in 2007.
F-40
<PAGE> 104
Total income tax expense differs from the expected tax expense (computed
by multiplying the United States federal statutory rate of approximately 35
percent by net income) as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax benefit $(446,100)
State tax benefit (115,986)
Non-deductible expenses 1,772
Valuation allowance 560,314
---------
$ --
=========
</TABLE>
The Company's total deferred tax assets, deferred tax liabilities, and
deferred tax asset valuation allowances at December 31, 1999 are as follows:
<TABLE>
<S> <C>
Total deferred tax assets $ 560,314
Deferred tax valuation allowance (560,314)
---------
Net deferred tax asset $ --
=========
</TABLE>
(10) Profit Sharing Plan
The Company has a qualified profit sharing plan with a deferred compensation
provision. All employees are eligible and are enrolled in the plan on the
first payroll of the month following his or her hire date. An employee may
contribute any amount up to 20% of pay on a before-tax basis. The Company's
contributions are discretionary and are determined annually by the Board of
Directors. The Company did not make any contributions during the period ended
December 31, 1999.
(11) Issuance of Stock for Property and Equipment
The Company issued 125,000 shares of common stock to Carespace, LLC, along
with $35,000 to purchase furniture, fixtures and computer equipment on
February 26, 1999.
F-41
<PAGE> 105
(12) Statement of Cash Flows - Supplemental Disclosures
The net change in operating assets and liabilities shown on the statement of
cash flows consists of the following:
<TABLE>
<S> <C>
(Increase) Decrease:
Accounts receivable $(102,985)
Inventory (94,729)
Deposits (24,235)
Increase (Decrease):
Accounts payable 205,429
Accrued payroll expenses 308,436
Billings in excess of costs and
estimated earnings on uncompleted
contracts 210,511
Accrued interest 24,106
Deposits 12,185
--------
$538,718
========
Operating activities reflect:
Interest paid $ 34,494
========
Income tax paid $ -
========
Non-cash investing and financing transactions:
Purchase of property and equipment $268,097
Issuance of common stock (125)
--------
Cash paid for purchase of property
and equipment $267,972
========
Issuance of common stock $ 3,082
Increase in additional paid-in capital 628,200
Financing fees (533,334)
Discount on notes payable (95,173)
Property and equipment (125)
--------
Cash received for issuance of
common stock $ 2,650
========
</TABLE>
F-42
<PAGE> 106
(13) Subsequent Events
Merger
On February 21, 2000, the Company entered into an Agreement and Plan of
Merger and Reorganization with e-MedSoft.com, a Nevada Corporation, and Virtx
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
e-MedSoft.com.
e-MedSoft.com is in the health care information services industry.
e-MedSoft.com 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 e-MedSoft.com acquired from TSI
Technologies and Holding, LLC, the rights to a JAVA-based, on-line health care
management system. On March 19, 1999, e-MedSoft.com acquired all of the
issued and outstanding stock of e-Net Technology 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.
In accordance with the merger agreement, Virtx Acquisition Corporation
was merged with and into Virtx, Inc. As a result of the merger, the separate
corporate existence of Virtx Acquisition Corporation ceased and Virtx, Inc.
continued as the surviving corporation of the merger. As a result of this
merger, e-MedSoft.com owns all the issued and outstanding stock of Virtx, Inc.
and shall have full legal control over Virtx, Inc.
The 6,163,334 issued and outstanding shares of Virtx, Inc. common stock
prior to the merger were converted into 1,854,276 restricted shares of
e-MedSoft.com common stock.
After the date of the merger and through April 5, 2000, e-MedSoft.com
provided Virtx, Inc. with $290,000 to pay off shareholder loans, accrued
payroll expenses and other operating expenses.
This merger was not as a result of the consulting agreement discussed in
Note 6(b).
F-43
<PAGE> 107
================================================================================
You should rely on the information contained in this prospectus. We have not
authorized anyone to provide you with information that is different. The
information in this prospectus may only be accurate on the date of this
document. This document may be used only where it is legal to sell these
securities.
___________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary ..................................................... 2
Risk Factors ........................................................... 5
Price Range of Common Stock ............................................ 13
Dividend Policy ........................................................ 13
Selected Financial Data ................................................ 14
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations ............................................................ 20
Business ............................................................... 25
Management ............................................................. 40
Certain Transactions ................................................... 52
Description of Capital Stock ........................................... 53
Principal and Selling
Shareholders .......................................................... 47
Plan of Distribution ................................................... 57
Legal Matters .......................................................... 59
Experts ................................................................ 59
Where You can Find More
Information ........................................................... 59
Index to Financial Statements .......................................... F-1
</TABLE>
23,886,000 Shares
e-MedSoft.com
Common Stock
_________________
PROSPECTUS
_______, 2000
________________
================================================================================
<PAGE> 108
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the
offering described in the Registration Statement. All such expenses are
estimates except for the SEC registration fee and NASD and American Stock
Exchange filing fees.
<TABLE>
<S> <C>
SEC registration fee ............................. $ 54,694
Accountants' fees and expenses ................... 100,000
Legal fees and expenses .......................... 100,000
Printing and engraving expenses .................. 40,000
Miscellaneous fees ............................... 5,306
--------
Total ........................................ $300,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Our restated articles of incorporation provide that none of our directors
or officers shall be personally liable to us or our stockholders for monetary
damages for any breach of fiduciary duty by such person as a director or
officer, except that a director or officer shall be liable, to the extent
provided by applicable law, (1) for acts or omissions which involve
intentional misconduct, fraud, or a knowing violation of law, or (2) for the
payment of dividends in violation of restrictions imposed by Section 78.300 of
the Nevada GCL. The effect of this provision in our restated articles of
incorporation is to eliminate the rights of us and our stockholders, either
directly or through stockholders' derivative suits brought on behalf of our
company, to recover monetary damages from a director or officer for breach of
the fiduciary duty of care as a director or officer except in those instances
provided under the Nevada GCL.
In addition, we have adopted provisions in our bylaws that require us to
indemnify our directors, officers, and certain other representatives against
expenses, liabilities, and other matters arising out of their conduct on our
behalf, or otherwise referred to in or covered by applicable provisions of the
Nevada GCL, to the fullest extent permitted by the Nevada GCL.
Section 78.751 of the Nevada GCL provides that a corporation may
indemnify our directors and officers against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by the director or officer in connection with an action, suit or
proceeding in which the director or officer has been made or is threatened to
be made a party, if the director or officer acted in good faith and in a
manner which the director or officer reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal proceeding, had no reason to believe the director's or officer's
conduct was unlawful. Any such indemnification may be made by the corporation
only as ordered by a court or as authorized in a specific case upon a
determination made in accordance with the Nevada GCL that such indemnification
is proper in the circumstances.
II-1
<PAGE> 109
Indemnification may not be made under the Nevada GCL for any claim,
issue, or matter as to which the director or officer has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action
or suit was brought or other court of competent jurisdiction determines that
in view of all the circumstances of the case, the director or officer is
fairly and reasonably entitled to indemnity for such expenses as the court
deems proper.
To the extent that a director or officer of a corporation has been
successful on the merits or otherwise in defense of any action, suit, or
proceeding or in defense of any claim, issue, or matter therein, the director
or officer must be indemnified under the Nevada GCL by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred by the
director or officer in connection with the defense.
Item 15. Recent sales of Unregistered Securities.
During December 1998, we issued a total of 800,000 shares of common
stock (as adjusted for the 5-for-1 forward split) to two persons as
consideration for outstanding loans that they converted. Their shares were
issued in reliance on the exemption provided by Section 4(2) of the Securities
Act.
On January 7, 1999, we issued 41,417,176 shares of common stock to TSI in
connection with the acquisition of certain rights to a JAVA-based online
healthcare management system. With respect to this transaction, we relied on
Section 4(2) of the Securities Act. TSI executed a Stock Acquisition and
Technology Agreement in which it represented that it was acquiring the shares
for investment only and not for the purpose of resale or distribution. In
connection with the foregoing transaction, we issued a total of 2,553,144 shares
to two persons as finder's fees, and we issued 1,035,429 warrants to one person
as a finder's fee. These shares and warrants were issued in reliance on the
exemption provided by Section 4(2). The appropriate restrictive legend was
placed on all certificates and stop transfer orders were issued to the transfer
agent.
During March 1999, we issued 45,000 restricted shares to a person as
consideration for a consulting agreement. These shares were issued in
reliance on the exemption provided by Section 4(2). The appropriate
restrictive legend was placed on the certificate and stop transfer orders were
issued to the transfer agent.
During September 1999, we issued 1,721,973 shares of our common stock to
an entity as partial consideration for the purchase of a computer software
technology. In this transaction, the entity that acquired the shares was an
"accredited investor." With respect to this transaction, we relied on Section
4(2) of the Act. The entity was provided with information on our 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.
II-2
<PAGE> 110
In November 1999, we also sold 300,000 shares of our common stock to an
entity in exchange for $600,000 in cash. With respect to this sale, we relied
on Section 4(2) of the Act. The investor was given access to complete
information concerning our company. The appropriate restrictive legend was
placed on the certificate and stop transfer orders were issued to the transfer
agent.
During December 1999, we sold 3,568,000 units, each unit consisting of
one share of common stock and one warrant to purchase common stock, to
approximately 103 accredited investors at a purchase price of $2.00 per unit.
Each warrant is exercisable to purchase one share of common stock at $4.00 per
share until December 31, 2004. In connection with such sales we paid to Sutro
& Company, Inc. a 7% cash commission and Sutro was reimbursed $181,614 for
expenses.
With respect to these sales, we relied on Section 4(2) of the Act, and
Rule 506 of Regulation D promulgated thereunder. The investors were given a
copy of a private placement memorandum containing information concerning our
company, a Form D was filed with the SEC and we complied with the other
applicable requirements of Rule 506. All investors signed subscription
agreements in which they represented that they were purchasing the units for
investment only and not for the purpose of resale and distribution. The
appropriate restrictive legends were placed on the certificates and stop
transfer orders were issued to the transfer agent.
During February 2000, we issued 9,500,000 shares of common stock to two
entities in connection with the agreement we entered into with National Century
Financial Enterprises, Inc. We relied on Section 4(2) of the Act. Each of the
entities receiving shares was an "accredited investor" and each entity executed
a document with standard investment representations. These entities were also
provided with full disclosure regarding our company. The appropriate
restrictive legends were placed on all certificates and stop transfer orders
were issued to the transfer agent.
During March 2000, we issued 1,854,276 shares to the shareholders of
Virtx, Inc. in connection with our acquisition of Virtx. We relied on Section
4(2) of the Act and Rule 506 of Regulation D. The Virtx shareholders were
provided with full information regarding our company, a Form D was filed with
the SEC, and we complied with the other applicable requirements of Rule 506.
All Virtx shareholders signed a letter of acceptance in which they represented
that they were acquiring the shares for investment only and not for the purpose
of resale or distribution. The appropriate restrictive legends were placed on
the certificates and stop transfer orders were issued to the transfer agent.
In March 2000, we issued 1,405,363 shares to Quantum Digital Solutions
Corporation (formerly known as Cyphercomm) in connection with a license
agreement we entered into with Quantum Digital. During the three months ended
March 31, 2000, we also issued a total of 1,216,429 shares of our common stock
to six persons who exercised previously issued warrants. With respect to these
sales, we relied on Section 4(2) of the Act. Each of the persons/entities
executed a document with standard investment representations. These
persons/entities were also provided with full disclosure regarding our company.
The appropriate restrictive legends were placed on all certificates and stop
transfer orders were issued to the transfer agent.
During March 2000, we sold 4,000,000 shares of our common stock, to
approximately 50 accredited investors at a purchase price of $15.00 per share.
In connection with such sales we paid to Sutro & Company, Inc. a 7% cash
commission and Sutro was reimbursed $106,386 for expenses.
With respect to these sales, we relied on Section 4(2) of the Act, and
Rule 506 of Regulation D promulgated thereunder. The investors were given a
copy of a private placement memorandum containing information concerning our
company, a Form D was filed with the SEC and we complied with the other
applicable requirements of Rule 506. All investors signed subscription
agreements in which they represented that they were purchasing the units for
investment only and not for the purpose of resale and distribution. The
appropriate restrictive legends were placed on the certificates and stop
transfer orders were issued to the transfer agent.
Item 16. Exhibits.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Exhibits
<S> <C>
3.1 Restated Articles of Incorporation (1)
3.2 Bylaws (2)
5 Opinion of Greenberg Traurig, LLP
10.0 Stock Acquisition and Technology Transfer Agreement dated
December 22, 1998, between MedTech, Inc. (formerly "High
Hopes, Inc.") and Sanga e-Health LLC. (3)
</TABLE>
II-3
<PAGE> 111
<TABLE>
<S> <C>
10.1 Loan and Security Agreement dated March 19, 1999, among the
Registrant, Trammel Investors LLC and Donald H. Ayers (4)
10.2 Registration Rights Agreement among the Registrant, Trammel
Investors LLC and Donald H. Ayers (4)
10.3 Waiver, Rescission and Termination of Software License
Agreement between Sanga e-Health LLC and Sanga Corporation
dated December 2, 1998 (1)
10.4 Assignment of Rights Under Financing Agreements (1)
10.5 Agreement with Donald H. Ayers dated June 14, 1999 (1)
10.6 Agreement with Trammel Investors LLC dated May 15, 1999 (1)
10.7 Asset Purchase Agreement dated September 1, 1999 among Sanga
e-Health LLC, the Registrant, and University Affiliates IPA,
Inc. (5)
10.8 Software License and Services Agreement dated September 1, 1999
between the Registrant and University Affiliates, IPA, Inc.(5)
10.9 Registration Rights Agreement dated September 1, 1999 between
the Registrant and University Affiliates, IPA, Inc. (5)
10.10 Agreement and Plan of Merger and Reorganization dated February
21, 2000, among the Registrant, Virtx Acquisition Corporation,
and Virtx, Inc. (6)
10.11 Acquisition and Joint Venture Agreement dated March 18, 2000,
between Cypher Comm, Inc. and the Registrant (7)
10.12 Management Services and Joint Venture Agreement dated April 6,
2000, between PrimeRx.com, Inc. and the Registrant, as
modified (8)
10.13 Master Preferred Provider Agreement between the Registrant and
PrimeRx.com, Inc. (8)
10.14 Agreement dated April 7, 2000 between the Registrant and the
shareholders of PrimeRx.com, Inc. (8)
10.15 Agreement and Plan of Merger and Reorganization, dated April
18, 2000, among the Registrant, Illumea Acquisition
Corporation, and Illumea Corporation. (9)
10.16 Agreement and Plan of Merger and Reorganization, dated June 6,
2000, among the Registrant, Vidimedix Acquisition Corporation,
and Vidimedix Corporation. (10)
21 List of Subsidiaries (11)
23.1 Consent of Greenberg Traurig, LLP (included in Exhibit 5)
23.2 Consent of Carpenter Kuhen & Sprayberry
23.3 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
II-4
<PAGE> 112
_______________
* Previously filed.
(1) Incorporated by reference to the Exhibits to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1999, as filed on
September 15, 1999.
(2) Incorporated by reference to the Exhibits to the Registrant's Form S-18
Registration Statement (No. 33-8420-D)
(3) Incorporated by reference to the Exhibits to the Registrant's Current
Report on Form 8-K dated January 7, 1999.
(4) Incorporated by reference to the Exhibits to the Registrant's Current
Report on Form 8-K dated March 19, 1999.
(5) Incorporated by reference to the Exhibits to the Registrant's Current
Report on Form 8-K, as filed on September 16, 1999.
(6) Incorporated by reference to the Exhibits to the Registrant's Current
Report on Form 8-K, as filed on March 10, 2000.
(7) Incorporated by reference to the Exhibits to the Registrant's Current
Report on Form 8-K, as filed on April 3, 2000.
(8) Incorporated by reference to the Exhibits to the Registrant's Current
Report on Form 8-K, as filed on May 2, 2000.
(9) Incorporated by reference to the Exhibits to the Registrant's Current
Report on Form 8-K, as filed on May 23, 2000.
(10) Incorporated by reference to the Exhibits to the Registrant's Current
Report on Form 8-K, as filed on June 28, 2000.
(11) Incorporated by reference to the Exhibits to the Registrant's Annual
Report on Form 10-KSB, as filed on June 30, 2000.
(b) Financial Statement Schedules.
The Registrant has not provided any financial statement schedules because the
information called for is not required or is shown either in the financial
statements or the notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the
underwriter, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE> 113
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1), or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Jacksonville, State of Florida, on July __, 2000.
E-MEDSOFT.COM, INC.
By: /s/ John F. Andrews
John F. Andrews
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ John F. Andrews Chairman, President, and Chief July __, 2000
John F. Andrews Executive Officer (principal
executive officer)
/s/ Margaret A. Harris Chief Financial Officer July __, 2000
Margaret A. Harris (principal accounting officer)
/s/ Sam J. W. Romeo Director July __, 2000
Sam J. W. Romeo
/s/ Masood Jabbar Director July __, 2000
Masood Jabbar
/s/ Mitchell J. Stein Director July __, 2000
Mitchell J. Stein
/s/ Donald H. Ayers Director July __, 2000
Donald H. Ayers
/s/ W. Cedric Johnson Director July __, 2000
W. Cedric Johnson
</TABLE>
<PAGE> 115
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Number Exhibits
<S> <C>
5 Opinion of Greenberg Traurig, LLP
23.2 Consent of Carpenter Kuhen & Sprayberry
23.3 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
