<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission File Number: 1-15587
E-MEDSOFT.COM
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 84-1037630
---------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1300 Marsh Landing Parkway, Suite 106, Jacksonville, Florida 32250
------------------------------------------------------------------
(Address of principal executive offices including zip code)
(904) 543-1001
--------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No___
As of July 24, 2000, 80,320,986 shares of common stock, $.001 par value per
share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes__ No X
<PAGE>
INDEX
Page No.
PART I. FINANCIAL INFORMATION ..................... ........ 3
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets at June 30, 2000
(unaudited) and March 31, 2000 ........................ 3
Consolidated Condensed Statements of Operations for the
Three Months ended June 30, 2000 and 1999 (unaudited).. 4
Consolidated Condensed Statements of Cash Flows for the
Three Months ended June 30, 2000 and 1999 (unaudited). 5
Notes to the Consolidated Condensed Financial Statements
at June 30, 2000 (unaudited) ............................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. 12
PART II. OTHER INFORMATION ................................ 17
ITEM 1. LEGAL PROCEEDINGS ............................ 17
ITEM 2. CHANGES IN SECURITIES ........................ 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES .............. 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ............................. 17
ITEM 5. OTHER INFORMATION ............................ 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............. 17
SIGNATURES ................................................. 18
EXHIBIT 27 FINANCIAL DATA SCHEDULE
2
<PAGE>
e-MedSoft.com
Consolidated Condensed Balance Sheets
June 30, March 31,
2000 2000
------------- -------------
(unaudited)
ASSETS
Current Assets:
Cash & cash equivalents $ 32,434,958 $ 59,860,827
Accounts receivable, net 28,596,456 17,261,883
Accounts receivable from affiliates, net 6,654,709 739,499
Other receivables 4,769,219 1,927,310
Inventory 6,557,549 1,106,960
Other current assets 1,173,280 1,559,956
------------- -------------
80,186,171 82,456,435
Long-Term Assets:
Property and Equipment, net 7,998,005 2,603,302
Goodwill, net 92,606,847 37,867,333
Investments 28,285,000 26,285,000
Technology license fee 2,800,000 2,800,000
Deferred software costs 12,119,496 8,640,202
Distribution channel 36,100,000 36,100,000
Deferred contract 67,462,914 67,462,914
Other assets 2,423,223 881,467
------------- -------------
249,795,485 182,640,218
------------- -------------
TOTAL ASSETS $ 329,981,656 $ 265,096,653
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 3,548,361 $ 807,180
Accounts payable 23,523,271 21,269,973
Accrued liabilities 6,858,167 4,443,805
Other current liabilities 982,655 582,191
Current maturities of long-term debt and
capital leases 4,477,800 942,981
------------- -------------
39,390,254 28,046,130
Long-Term Liabilities:
Capital leases 2,090,966 739,306
Bridge financing 5,378,054 67,528
Other long-term liabilities 3,356,901 3,063,700
------------- -------------
10,825,921 3,870,534
Commitments and Contingencies
Minority Interest 11,324,672 4,176,862
Stockholders' Equity:
Common shares 80,208 75,735
Paid in capital 287,494,052 244,495,796
Stock subscription (5,000,000) (5,000,000)
Accumulated deficit (14,076,857) (10,569,951)
Accumulated other comprehensive (loss)
income (56,594) 1,547
------------- -------------
268,440,809 229,003,127
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 329,981,656 $ 265,096,653
============= =============
The accompanying notes are an integral part of these consolidated condensed
balance sheets.
3
<PAGE>
e-MedSoft.com
Consolidated Condensed Statements of Operations
For the Three Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
----------- -----------
NET SALES
Non affiliates $32,547,178 $ 4,443,251
Affiliates 6,507,951 --
----------- -----------
Total Net Sales 39,055,129 4,443,251
----------- -----------
COSTS AND EXPENSES:
Cost of sales 26,594,788 3,629,499
Research and development 977,218 247,959
Sales and marketing 2,779,508 611,775
General and administrative 10,263,584 1,276,598
Non-cash compensation 182,517 129,380
Depreciation and amortization 2,435,975 344,519
----------- -----------
Total Costs and Expenses 43,233,590 6,239,730
----------- -----------
OPERATING LOSS (4,178,461) (1,796,479)
OTHER INCOME (EXPENSE):
Interest expense (375,341) (1,335,277)
Interest income 696,311 --
Other (65,686) 3,577
----------- -----------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY
INCOME AND MINORITY INTEREST (3,923,177) (3,128,179)
EXTRAORDINARY INCOME -- 357,152
----------- -----------
LOSS BEFORE INCOME TAXES AND MINORITY
INTEREST (3,923,177) (2,771,027)
TAX BENEFIT 184,764 242,611
MINORITY INTEREST, NET OF TAXES 231,507 --
----------- -----------
NET LOSS $(3,506,906) $(2,528,416)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.05)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 78,959,514 51,834,107
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
e-MedSoft.com
Consolidated Condensed Statements of Cash Flows
Three Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
------------ ----------
Net Cash Used in Operating Activities $(15,834,648) $ (293,161)
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash
acquired (2,985,387) (31,526)
Capital expenditures (2,364,765) (70,463)
Investment in software (3,015,601) --
Other Investments (2,936,371) --
------------ ----------
Cash Used in Investing Activities (11,302,124) (101,989)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on bridge loans (2,314,392) --
Proceeds from bridge loans 2,317,764 638,932
Decrease to credit facility -- (165,024)
Repayments of capital lease obligations (193,520) (72,816)
Other (98,949) --
------------ ----------
Cash (Used In) Provided by Financing
Activities (289,097) 401,092
------------ ----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (27,425,869) 5,942
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD 59,860,827 51,712
------------ ----------
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD $ 32,434,958 $ 57,654
============ ==========
NON CASH TRANSACTIONS
Issuance of restricted stock and
warrants for acquisitions $ 43,303,649 $ --
Property and equipment purchased
through capitalized leases 323,482 391,969
------------ ----------
$ 43,627,131 $ 391,969
============ ==========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
e-MedSoft.com
Notes to Consolidated Condensed Financial Statements
June 30, 2000
(Unaudited)
1) CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by e-MedSoft.com
(the Company or e-MedSoft) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted as allowed by such rules and regulations, and e-MedSoft
believes that the disclosures are adequate to make the information presented
not misleading. Operating results for the three months ended June 30, 2000
are not necessarily indicative of the results that may be expected for the
year ending March 31, 2001. While management believes the procedures followed
in preparing these financial statements are reasonable, the accuracy of the
amounts are in some respects dependent upon the facts that will exist, and
procedures that will be accomplished by e-MedSoft later in the year. These
financial statements should be read in conjunction with the March 31, 2000
audited financial statements and the accompanying notes thereto, the Forms 8-K
filed by the Company on April 5, 2000, May 5, 2000 and June 16, 2000 and the
S-1 filed by the Company on July 21, 2000.
The management of e-MedSoft believes that the accompanying unaudited
consolidated condensed financial statements contain all adjustments (including
normal recurring adjustments) necessary to present fairly the financial
position of e-MedSoft.com and subsidiaries at June 30, 2000 and the results of
their operations and their cash flows for the periods presented.
2) BUSINESS COMBINATIONS
Prior Year Acquisition
In February 2000, e-MedSoft acquired privately held VirTx, Inc. (VirTx), a
leading provider of secure collaborative medical networks that are able to
support the implementation of multimedia telemedicine, telehealth, and
telescience collaboration. In connection with the transaction, the Company
issued approximately 1.9 million shares of e-MedSoft's common stock to the
VirTx shareholders and may issue up to an additional $23 million in shares
pursuant to an earn-out arrangement. This transaction has been accounted for
as a purchase resulting in approximately $31 million of goodwill. The goodwill
determination is preliminary and subject to adjustment. The Company is
amortizing the goodwill over a seven year period which is managements' best
estimate of the future benefit of this acquisition. The following pro forma
information for the three months ended June 30, 1999, gives effect to the
acquisition of VirTx as if such transaction had occurred at April 1, 1999
(unaudited):
Net sales. . . . . . . . . . . . . . . . $ 4,650,031
Costs and expenses . . . . . . . . . . . 7,334,733
Amortization of goodwill . . . . . . . . 1,302,873
Net loss . . . . . . . . . . . . . . . . (3,987,575)
Net loss per share . . . . . . . . . . . (.07)
6
<PAGE>
Current Year Acquisitions
In May 2000, the Company acquired Illumea Corporation (Illumea) in exchange
for approximately 1.3 million shares of the Company's common stock, valued at
approximating $10 million. Illumea develops and markets Internet-based remote
inspection and image sharing solutions in the medical and life sciences
industries. FiberPix, Illumea's first application, enables multiple
simultaneous users to view interactively a microscope's high fidelity images
in real time over the Internet. For example, pathologists can view tissue
samples without traveling to a hospital. This acquisition has been accounted
for under the purchase method.
In June 2000, the Company acquired VidiMedix for assumption of approximately
$6.2 million in debt and liabilities. Of this amount, approximately $3.3
million was repaid with approximately 380,000 shares of common stock and
warrants to purchase approximately 336,000 shares of common stock at an
exercise price of $8.63 per share. In addition, the Company has committed to
issue up to an additional $6 million in shares of common stock to the
VidiMedix shareholders as an earn out payment based on VidiMedix achieving
certain sales targets over the next fiscal year. VidiMedix provides network
medicine solutions that enable physicians to deliver remote examination,
diagnosis, and treatment to patients via secure, private and collaborative
interactions using advanced Internet and Web technologies. This acquisition
has been accounted for under the purchase method.
Also in June 2000, the Company acquired Resource Healthcare (Resource) for
approximately $1.5 million in cash and $1 million in common stock. In addition
the Company has committed to issue additional common stock with a value of
$500,000 as an earn out payment based on Resource achieving certain earning
targets over the next fiscal year. Resource provides pharmaceutical and
infusion services to long-term care, assisted living and residential care
facilities throughout Nevada. Services offered by Resource include consulting,
training, billing, supplies management and facility systems development. This
acquisition has been accounted for under the purchase method.
The following table details the allocation of the purchase price of these
acquisitions (in thousands):
Illumea VidiMedix Resource
------- --------- --------
Purchase Price . . . . . . . . . . $10,284 $ 5,762 $ 2,517
Less: Net Equity of Entity . . . . 335 (2,029) 576
------- ------- -------
Goodwill . . . . . . . . . . . . . $ 9,949 $ 7,791 $ 1,941
======= ======= =======
The goodwill determination is preliminary and subject to adjustment. Goodwill
resulting from the acquisitions of Illumea and VidiMedix is amortized over a
7-year period. Goodwill resulting from the acquisition of Resource is
amortized over a 15-year period. The amortization periods are based on
management's best estimate of the future benefit of these acquisitions.
The operating results included in the period ended June 30, 2000 for these
entities were not material, therefore, pro forma information is not presented
herein.
7
<PAGE>
Other Business Agreements
In April 2000, the Company entered into a 30-year management agreement and a
preferred provider agreement with PrimeRx.com, Inc. (PrimeRx previously known
as PrimeMed Pharmacy Services, Inc.), a pharmacy management services company.
PrimeRx offers a variety of managed care pharmacy services that enable its
clients to more effectively manage their pharmacy benefits. PrimeRx's
customers include physician offices and clinics, independent physician
associations, physician practice management organizations, managed care health
plans, nursing homes, correctional facilities, and community health centers.
PrimeRx also operates more than 40 pharmacies across 9 states serving more
than 1 million managed care enrollees. The agreement provides for an option to
exchange up to 33 percent of PrimeRx stock for 3 million e-MedSoft shares. On
April 12, 2000, the Company acquired 29 percent of PrimeRx for 2,640,000
shares of the Company's common stock. The agreement gives full control over
PrimeRx operations to the Company. Accordingly, the Company has consolidated
the operations of PrimeRx for the three month period ended June 30, 2000 and
has included 100 percent of its losses as e-MedSoft is responsible for funding
PrimeRx's operations. The Company has reflected its 29 percent investment
and the negative equity at acquisition date as goodwill of approximately $32
million. The goodwill will be amortized over the management contract term of
30 years. The following pro forma information for the three months ended June
30, 1999, gives effect to the consolidation of PrimeRx as if such transaction
had occurred at April 1, 1999 (unaudited):
Net sales. . . . . . . . . . . . . . . . $ 14,641,775
Costs and expenses . . . . . . . . . . . 17,064,986
Amortization of goodwill . . . . . . . . 516,361
Net loss . . . . . . . . . . . . . . . . (2,939,572)
Net loss per share . . . . . . . . . . . (.05)
3) DEFERRED SOFTWARE DEVELOPMENT COSTS
During the three months ended June 30, 2000 and 1999, the Company incurred
approximately $4.0 million and $248 thousand in development costs,
respectively. In accordance with SOP 98-1 and FASB 86, the Company capitalized
approximately $3 million and $0 of these costs during the three months ended
June 30, 2000 and 1999, respectively. Such deferred costs along with acquired
software costs will be amortized over a three to seven year life once the
related products are in service or available for sale.
4) WARRANTS AND STOCK OPTIONS
During the three months ended June 30, 2000, the Company granted 1,472,750
options to its employees to purchase 1,472,750 shares of the Company's stock
at prices ranging from $7.00 to $11.06. These options were granted in
accordance with the Company's stock option plan with exercise prices based on
the market price of the Company's stock at time of grant. These grants are
subject to Board of Directors approval.
8
<PAGE>
5) BASIC AND FULLY DILUTED LOSS PER SHARE
In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed by dividing the net earnings available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
by dividing the net earnings for the period by the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares, consisting of incremental common shares issuable
upon the exercise of stock options and warrants are excluded from the diluted
earnings per share calculation if their effect is anti-dilutive.
A summary of the shares used to compute net loss per share is as follows:
Three Months Ended June 30,
2000 1999
----------- -------------
Weighted average common shares
used to compute basic net loss
per share.............................. 78,959,514 51,834,107
Effect of dilutive securities........... -- --
---------- ----------
Weighted average common shares
used to compute diluted net
loss per share......................... 78,959,514 51,834,107
========== ==========
As of June 30, 2000 and 1999, options and warrants to purchase 7,461,917 and
7,049,574 shares of common stock were outstanding, respectively. These common
stock equivalents were excluded from the computation of diluted loss per share
for the three months ended June 30, 2000 and 1999 as such options and warrants
were anti-dilutive.
6) SEGMENT INFORMATION
e-MedSoft derives its net sales from three operating segments: (1) transaction
and information services, primarily healthcare, delivered over the Internet,
private intranets or other networks and consulting contracts related to these
service, (2) the sale and installation of hardware and software products and
(3) pharmacy services.
The accounting policies of the segments are the same as those for financial
reporting purposes and the Company evaluates performance based on operating
earnings of the respective business segments.
The Company's financial information by business segment are summarized as
follows (in thousands). The "Other" column includes corporate related items
and other expenses not allocated to reportable segments, including assets
relating to goodwill and certain other intangibles and the amortization of
such assets.
9
<PAGE>
<TABLE>
Internet Product Pharmacy Other Total
-------- --------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Three Months June 30, 2000
Net Sales $ 6,755 $14,874 $17,426 $ -- $ 39,055
Operating Income (Loss) Before
Depreciation and Amortization 1,023 184 (1,074) (1,875) (1,742)
Depreciation and Amortization 121 165 334 1,816 2,436
Total Assets 55,420 24,196 20,884 229,482 329,982
Capital Expenditures 1,722 146 413 84 2,365
Three Months June 30, 1999
Net Sales $ -- $ 4,443 $ -- $ -- $ 4,443
Operating Income (Loss) Before
Depreciation and Amortization (219) (378) -- (855) (1,452)
Depreciation and Amortization -- 133 -- 212 345
Total Assets 36 8,000 -- 8,599 16,635
Capital Expenditures -- 45 -- 25 70
</TABLE>
The Company's net sales from external customers, operating loss and
depreciation and amortization for the three month periods ended June 30, 2000
and 1999 and the long-lived assets at June 30, 2000 and 1999, classified by
geographic area, are summarized as follows (in thousands):
United United Aus-
States Kingdom tralia Total
------ ------- ------ -----
Three Months June 30, 2000
Net Sales $ 24,171 $14,872 $ 12 $ 39,055
Operating Loss Before Depre-
ciation and Amortization (1,298) (196) (248) (1,742)
Depreciation and Amortization 2,246 188 2 2,436
Long-Lived Assets 246,770 2,086 940 249,796
Three Months June 30, 1999
Net Sales $ -- $ 4,443 $ -- $ 4,443
Operating Loss Before Depre-
ciation and Amortization (894) (558) -- (1,452)
Depreciation and Amortization 204 141 -- 345
Long-Lived Assets 7,877 1,622 -- 9,499
The Company's U.K. subsidiary, e-Net, had five customers who's sales, on an
individual basis, represented over 5% of e-Net's net sales for an aggregate of
56.4 percent for the three month period ended June 30, 2000. e-MedSoft U.S.
operations, excluding pharmacy services, had two customers who's sales, on an
individual basis, represented over 5% of e-MedSoft's net sales for an
aggregate of 96.5 percent for the three month period ended June 30, 2000.
7) CONTINGENCIES
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
10
<PAGE>
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.
8) RELATED PARTY TRANSACTIONS
During the three months ended June 30, 2000, the Company recorded revenue of
$855 thousand from consulting and software services provided to a company
related to a director of the Company. During the same period the Company also
recorded approximately $5.5 million in revenue from another entity, also
related through a member of the board of directors, for project management,
infrastructure development, e-business implementation and planning and other
consulting services. Approximately 20 percent of these services were provided
prior to March 31, 2000 but not recognized into revenues until acceptance by
the customer in the first quarter of fiscal 2001. The Company recorded these
related party receivables based on its best estimate of the amount ultimately
to be realized. As of June 30, 2000, these billings are outstanding,
increasing the total receivable from the two related entities to approximately
$11.5 million. Company management, in consultation with its legal counsel,
believes that the billings are collectible and expects to collect these
outstanding receivables during the second and third quarters of fiscal 2001.
9) MINORITY INTEREST
The Company recorded minority interest relating to its subsidiary in Australia
and its management contract with PrimeRx of approximately $4.0 million and
$7.3 million, respectively. The PrimeRx minority interest represents the
right of 735,144 series A preferred shareholders in PrimeRx. This series A
preferred stock has a $10 per share liquidation preference on the net assets
of PrimeRx (as adjusted) upon a change in control and is otherwise redeemable
at the option of the preferred shareholders by 2005. The Australia subsidiary
minority interest represents the rights of shareholders of the Australia
subsidiary held through the Austrialian stock exchange.
10) SUBSEQUENT EVENT
On August 12, 2000, the Company's Board of Directors approved the repurchase
on the open market of up to 2 million shares of its common stock over the next
eighteen months.
11
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements in this Report that relate to management's expectations,
intentions or beliefs concerning future plans, expectations, events and
performance are "forward-looking" within the meaning of the federal securities
laws. These forward-looking statements include assumptions, beliefs and
opinions relating to the Company's business and growth strategy based upon
management's interpretation and analysis of its own contractual and legal
rights, of management's ability to satisfy industry and consumer needs with
its technologies, of healthcare industry trends, and of management's ability
to successfully develop, implement, market and/or sell its network transaction
processing services, software programs, clinical and financial transaction
services, and e-commerce systems to its clientele. Management's
forward-looking statements further assume that the Company will be able to
successfully develop and execute on its strategic relationships. Actual
results or events could differ materially from those anticipated in the
forward-looking statements due to a variety of factors, in addition to those
set out above, including, without limitation, acceptance by customers of the
Company's products, changing technology, competition in the health-care
market, government regulation of health care, the Company's limited operating
history, general economic conditions, availability of capital and other
factors.
OVERVIEW
We began operations with the acquisition of the Internet-based health
care management system on January 7, 1999 and the subsequent acquisition of
e-Net on March 19, 1999. During the following fiscal year ended March 31, 2000
and the first quarter of 2001, we have continued the development, upgrading,
testing, and implementation of our health care management system. In addition,
in accordance with our strategy to develop or acquire additional technologies,
during fiscal 2000 we acquired a managed care computer technology to service a
network of over 2,500 physicians and a multimedia company to provide various
telemedicine technologies. During the first quarter of 2001 we have expanded
our multimedia technology with two additional acquisitions. During fiscal 2000
we entered into several contracts and strategic partnerships to implement and
roll out various Internet-based health care management systems and to provide
other products including "e-financing" distribution networks. In our first
quarter of 2001 we entered into a 30-year management agreement and preferred
provider agreement with a pharmacy management services company, further
expanding our outreach to the healthcare community.
RESULTS OF OPERATIONS
The results of operations presented herein reflect our and our
subsidiaries' consolidated net sales and expenses. The financial statements
included herein present the unaudited financial statements for the three
months ended June 30, 2000 and 1999. In addition, we have included in the
comparisons below the unaudited pro forma financial information for the three
months ended June 30, 1999 to include the acquisition of VirTx, Inc. and the
consolidation of PrimeRx as if these transactions occurred on April 1, 1999.
Other acquired business during the quarter are not included in the pro forma
financial information herein as their operating results included in the period
ended June 30, 2000 were not material.
12
<PAGE>
Information presented in the table below is unaudited (in thousands):
June 30, June 30,
------------------- Pro forma
2000 1999 1999
-------- -------- ----------
Net sales $ 39,055 $ 4,443 $ 14,849
Costs and expenses:
Cost of sales 26,595 3,629 11,565
Research and development 977 248 554
Sales and marketing 2,779 612 1,367
General and administrative 10,263 1,276 3,011
Non cash compensation 183 129 129
Depreciation and amortization 2,436 345 1,836
-------- -------- --------
43,233 6,239 18,462
-------- -------- --------
Operating loss (4,178) (1,796) (3,613)
Net loss $ (3,507) $ (2,528) $ (4,399)
NET SALES
Net sales for the three months ended June 30, 2000 increased 779% as
compared to June 30, 1999 reported sales and increased 163% compared to 1999
pro forma sales. The increase in reported net sales for June 30, 2000 was
approximately $34.6 million and $24.2 million compared to actual and pro forma
results for June 30,1999, respectively. The increase in reported revenues
resulted from the inclusion of $17.4 million in sales from our pharmacy
services, $10.4 million increased revenues from our U.K. subsidiary and $6.8
from U.S. Internet services and related consulting. Essentially all sales
generated by the U.K. 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. Sales from the U.S. operations were mainly through services
provided to our strategic partners which we have entered into contracts or
agreements. These companies are considered related parties since certain
officers of these entities are members of the Company's Board of Directors.
COSTS AND EXPENSES
Cost of Sales
Cost of sales (excluding depreciation and amortization) for the three
month period ended June 30, 2000 consist of the cost of providing hardware and
software, the cost of pharmaceuticals sold through our pharmacy services and
the cost of providing our Internet healthcare management system. During the
reported period ended June 30, 1999, cost of sales primarily consisted of
hardware and software. Cost of sales for the current quarter decreased as a
percent of net sales from 78 percent for the pro forma period ended June 30,
1999 to 68 percent. The reduction in cost of sales is due to the additional
sales from Internet and related consulting services provided in the first
quarter of 2001, which carry a lower cost of sale component. In addition, a
portion of the U.S. sales relating to Internet and business consulting
services were provided by executive management whose compensation is not
reflected in the cost of sales.
13
<PAGE>
Research and Development
Research and development costs mainly consist of salaries, consultant
fees, and equipment costs of the internal development of new software and
Internet products in the United Kingdom and in the United States. During the
three months ended June 30, 2000 and 1999 we expensed approximately $977
thousand and $248 thousand in development costs, respectively, and capitalized
approximately $3 million and $0, respectively. These development costs were
incurred in the United Kingdom for the development of new Internet products
and software and in the United States for new Internet products and additional
solutions to be integrated with our existing Internet-based health care
management system. Pro forma research and development costs of $554 thousand
for the prior year period include costs incurred for the development of
multimedia technology. The costs incurred and capitalized to deferred software
will be amortized into expense over the useful life of the resulting software
products once such software products are in service or available for sale.
Sales and Marketing
Sales and marketing costs consist primarily of costs for salaries,
travel, advertising, marketing literature, and seminars. These costs reflect
our business plan to increase markets and customers throughout the United
States, United Kingdom, Australia, and Europe. Sales and marketing costs for
the three month period ended June 30, 2000 increased over the reported and pro
forma results for June 30, 1999 by approximately $2.2 million and $1.4
million, respectively. Of the increase in reported sales and marketing costs
$850 thousand was in the United Kingdom as the result of increasing our sales
force to implement e-Net's planned market penetration into the Internet market
as well as for the sale of hardware and software. In addition, the U.S.
operations incurred approximately $1.3 million in additional sales and
marketing costs for the period ended June 30, 2000 as a result of the
marketing of our Internet-based health care management system. However, these
costs as a percentage of net sales decreased from 9.2 percent to 7.1 percent
when comparing the pro forma 1999 costs to the June 30, 2000 costs. The
change in sales mix resulting from increased sales in pharmacy services and
Internet related consulting has contributed to this decrease as these type of
sales do not require as much marketing efforts as product sales.
General and Administrative, including Non Cash Compensation
General and administrative costs mainly consist of salaries, facility
costs, and professional fees. Non-cash compensation costs represents
compensation paid to employees and consultants through the issuance of shares,
warrants, and options. These combined costs increased for the three months
ended June 30, 2000 by $9.0 million and $7.3 million over the reported and
proforma amounts for June 30, 1999, respectively. Approximately $5.1 million
of the costs for the current quarter were related to the pharmacy operations
and approximately $4.3 million related to expansion of our U.S. Internet
operations in accordance with our business plans and infrastructure
development. These costs, which include legal fees, accounting fees, and other
consulting fees, also represent our efforts to broaden our financial and
investment market visibility for future financing opportunities for our
operations and planned expansion as well as establishing good communication
channels with our shareholders.
14
<PAGE>
Depreciation and Amortization
Depreciation and amortization for the period ended June 30, 2000 includes
depreciation of equipment of approximately $656 thousand and the amortization
of goodwill of $1.8 million. Compared to reported and the pro forma quarter
results in 1999, these amounts reflect an increase of approximately $514
thousand and $438 thousand for depreciation of equipment, respectively, and
$1.6 million and $162 thousand for the amortization of goodwill, respectively.
During the last quarter of fiscal 2000 and the first quarter of fiscal 2001 we
acquired three multimedia companies that resulted in approximately $49 million
in goodwill. This goodwill is being amortized over a seven-year period. We
also entered into a 30-year management contract with a pharmacy services
company and acquired approximately 29 percent of its stock. We are
consolidating this company and have, therefore, recorded the investment and
negative equity at the acquisition date of approximately $32 million as
goodwill. This goodwill is being amortized over a 30-year period consistent
with our management contract term. In addition, we acquired a pharmacy
services company in the first quarter of this year that resulted in
approximately $2 million of goodwill. This goodwill is being amortized over a
15-year period. The goodwill recorded in March 1999 for the acquisition of
e-Net is being amortized over a ten-year period. The amortization periods are
based on managements' best estimate of the useful lives of the businesses
acquired.
OTHER INCOME (EXPENSE)
Other income (expense) includes interest expense, interest income, and
other income. These costs and income on a combined basis have decreased in the
current period compared to prior year. Interest expense, of approximately
$1.3 million for the quarter ended June 30, 1999, included approximately $1.2
million of amortization of deferred financing costs incurred as a result of
the bridge financing obtained for the acquisition of e-Net. In addition,
interest costs include interest expense on our bridge debt and e-Net's credit
facility. During our third and fourth quarter of 2000, we raised approximately
$63.6 million of net proceeds through the sale of our common stock. As a
result of the cash flow, we have recorded interest income for the three months
ended June 30, 2000 of approximately $696 thousand.
EXTRAORDINARY GAIN
The extraordinary gain of approximately $357,000 in the period ended June
30, 1999 is due to the recognition of the gain associated with the exchange of
bridge debt and its related origination fees and interest payable for the
issuance of warrants.
LIQUIDITY
Since inception, the operating costs of the Company have been funded by
its operations, sale of equity, its credit facility, and through loans from
private investors. As of June 30, 2000, the Company had working capital of
approximately $40.8 million, including cash of $32.4 million. During the
period ended June 30, 2000, we used cash in operating activities of
approximately $15.8 million, primarily due to the net loss from the period of
$3.5 million, and by the net change in operating assets and liabilities of
$15.0 million partially offset by depreciation and amortization expense of
$2.4 million. We used cash in investing activities of approximately $11.3
15
<PAGE>
million, primarily due to $3.0 million investment in software development and
$8.3 million in capital expenditures, investments and business acquisitions.
The $27.4 million use in cash was in accordance with our business strategy and
plans for acquisitions and their required integration into our Company.
Additional investments and capital expenditures were also required to
implement our contracts and rollout our healthcare management system.
On August 12, 2000, the Company's Board of Directors approved the
repurchase in the open market of up to 2 million shares of our common stock
over the next eighteen months.
We believe that our current cash balances along with our current credit
facilities and operations will be sufficient to support our capital needs over
the next 12 months to continue the implementation of our plan. 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 would have an adverse effect on the
Company's financial position and results of operation.
16
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
RECENT SALES OF UNREGISTERED SECURITIES. During the three months ended
June 30, 2000, the Company had three transactions involving the sale of
unregistered securities of its common stock:
1. During April 2000, the Company issued 1,280,174 shares of its common
stock to the shareholders of Illumea Corporation in connection with the
acquisition of Illumea.
2. During June 2000, the Company issued 379,575 shares of its common
stock and warrants to purchase 336,216 shares of common stock at $8.63 per
share in exchange for the cancellation of certain indebtedness of VidiMedix
Corporation in connection with the acquisition of VidiMedix.
3. During June 2000, the Company issued 113,372 shares of its common
stock to one person in exchange for certain assets of Resource Healthcare LLC.
With respect to the sales made in items 2 and 3 above, the Company relied
on Section 4(2) of the Act. Each of the persons/entities receiving shares was
an "accredited investor" and each person/entity executed a document with
standard investment representations. These persons/entities were also
provided with full disclosure regarding the Company. The appropriate
restrictive legends were placed on all certificates and stop transfer orders
were issued to the transfer agent.
With respect to the shares issued in connection with the acquisition of
Illumea, the Company relied on Section 4(2) of the Act and Rule 506 of
Regulation D. The Illumea shareholders were provided with full information
regarding the Company, a Form D was filed with the SEC, and the Company
complied with the other applicable requirements of Rule 506. The appropriate
restrictive legends were placed on the certificates and stop transfer orders
were issued to the transfer agent.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27 Financial Data Schedule Filed herewith
electronically
17
<PAGE>
(b) REPORTS ON FORM 8-K. The Company filed a Form 8-K dated April 5,
2000, reporting information under Items 5 and 7 concerning certain agreements
entered into with PrimeRX.com, Inc. and its shareholders. The Company filed a
Form 8-K dated May 5, 2000, reporting information under Items 2 and 7
concerning the acquisition of Illumea Corporation. The Company also filed a
Form 8-K dated June 16, 2000, reporting information under Items 2 and 7
concerning the acquisition of VidiMedix Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
e-MedSoft.com
Date: August 16, 2000 By:/s/ Margaret A. Harris
Margaret A. Harris, Chief
Financial Officer and
Authorized Officer
18
<PAGE>
EXHIBIT METHOD OF FILING
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
