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As filed with the Securities and Exchange Commission on May 15, 2000
SEC Registration No. 333-_______
U.S. SECURITIES AND EXCHANGE COMMISSION
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
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(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
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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(2) Price(2) Fee
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(3) 19,818,000 shares $7.90625 $156,686,062.50 $41,365.12
Common Stock(4) 500,000 shares $7.90625 $ 3,953,125.00 $ 1,043.63
Common Stock(5) 3,568,000 shares $7.90625 $ 28,209,500.00 $ 7,447.31
---------- -------- --------------- ----------
Total 23,886,000 shares $7.90625 $188,848,687.50 $49,856.06
</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) Such shares are being registered for resale from time to time by certain
selling stockholders.
(4) 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.
(5) 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.
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.
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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 MAY 15, 2000
- --------------------------------------------------------------------------------
P R O S P E C T U S
23,886,000 Shares
E-MEDSOFT.COM
Common Stock
This prospectus relates to the sale of up to 19,818,000 outstanding shares
of e-MedSoft.com common stock and 4,068,000 shares of common stock issuable upon
the exercise of warrants 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 May 9, 2000, the last reported sale price of our common stock as
reported on the American Stock Exchange was $7.9375 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 services 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 2000 organizations. NCFE is
implementing an e-MedSoft portal service pursuant to a seven-year exclusive
joint venture 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 joint venture with National Century Financial
Enterprises, or NCFE, in February 2000. The joint venture 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 joint venture arrangement.
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 VirTx and may issue up to an additional
1.9 million shares 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 acquired an exclusive license from Quantum Digital
Solutions Corporation (previously known as CypherComm, Inc.) 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
will seek to develop a separate entity that will focus on selling security
solutions to the health care industry. Pursuant to the license 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 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.
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.
Our recent acquisitions and joint ventures have brought us many healthcare
clients and 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 joint venture with NCFE to develop an
interactive health care "money" distribution network on the Web;
- acquired VirTx, a leading provider of secure collaborative medical
networks;
- acquired a 10-year exclusive license from Quantum Digital for its
patented security encryption and data scrambling technology;
- entered into a joint venture with PrimeRX to provide pharmacy
management services; and
- acquired Illumea, which develops and markets Internet-based remote
inspection and image sharing solutions.
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 December 31, 1999, we had
accumulated losses of approximately $7.5 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
- developing additional applications.
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 and operating
income from e-Net, our U.K. subsidiary, and we 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;
- develop and deploy new applications;
- 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 joint ventures. We
acquired e-Net in March 1999 and have recently acquired two multimedia companies
(VirTx 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 April 30, 2000, we had over 150 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. and
Exodus Communications, Inc.;
- health care e-commerce and portal companies, such as Healtheon
Corporation 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.
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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 by the year 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
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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, or at all.
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 24 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 April 30, 2000, stock options to acquire 1,133,167
shares at a weighted average exercise price of $6.54 are outstanding. In
addition, as of April 30, 2000, warrants to acquire 5,768,000 shares of our
common stock at a weighted average exercise price of $3.12 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 April 30, 2000, we have outstanding 75,722,865 shares of common stock. Of
these shares, 68,721,715 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 also have demand and piggyback registration rights enabling them to
register up to 26,057,973 of their shares for sale under the Securities Act. If
holders sell a large number of shares in the public market, our stock price
could fall materially. We are seeking to obtain agreements by certain selling
stockholders to limit the timing and number of shares of common stock sold
pursuant to this prospectus.
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 10, 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 11, 2000) 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 ........................ 7.00 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
</TABLE>
On May 9, 2000, the closing price of the Common Stock on the American Stock
Exchange was $7.9735. As of May 11, 2000 there were a total of 658 record
holders of our common stock and approximately 2,000 beneficial owners of our
common stock.
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 four months ended March 31, 1999, and the predecessor
business for the period June 1, 1998 to January 7, 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.
The consolidated financial data for the nine months ended December 31, 1999 are
derived from our unaudited consolidated financial statements included elsewhere
in this prospectus and, in our opinion, include all adjustments (consisting only
of normal recurring adjustments) necessary for the fair presentation of the
financial position and results of operations for the period presented.
Historical operating results are not necessarily indicative of results in the
future, and the results for the interim period are not necessarily indicative of
the results that may be expected for the entire year.
<TABLE>
<CAPTION>
Predecessor
Business Four Months Nine
--------------- Ended Months Ended
Period From ---------- December 31,
to June 1, 1998 March 31, 1999
January 7, 1999 1999 (1) (unaudited)
---------------- ---------- -------------
(in thousands, except per share data)
<S> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net sales ........................ $ - $ 2,650 $ 25,945
Operating costs and expenses:
Cost of sales .................. - 1,999 20,276
Software development costs ..... - 39 1,341
Sales and marketing ............ - 188 2,704
General and administrative ..... 5 767 5,951
Depreciation and amortization... - 46 1,104
------ -------- --------
5 3,039 31,376
------ -------- --------
Operating loss.................... (5) (389) (5,431)
Interest expense ................. (1) (377) (1,714)
Other income ..................... - -- 1
------ -------- --------
Loss before income taxes and
extraordinary income ............ (6) (766) (7,144)
Extraordinary income ............. - -- 357
------ -------- --------
Loss before income taxes and
minority interest ............... (6) (766) (6,787)
Tax benefit (expense) ............ - (139) 147
Minority interest, net of tax .... - -- 9
------ -------- --------
Net loss ......................... $ (6) $ (905) $ (6,631)
====== ======== ========
Basic and diluted loss per share.. $ 0 $ (0.02) $ (0.12)
====== ======== ========
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average weighed shares
outstanding ..................... 7,052 38,061 53,203
====== ======== ========
Consolidated Balance Sheet Data:
Cash and cash equivalents ........ $ 190 $ 6,407
Working capital .................. (1,642) (927)
Total assets ..................... 17,463 32,695
Long-term obligations, net of
current portion ................. 2,972 2,267
Stockholders' equity ............. 6,113 13,487
</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 FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are derived
from the historical financial statements of e-MedSoft.com, VirTx, Inc. and
PrimeRX.com, Inc. and give effect to the acquisition of VirTx, Inc. by the
registrant on February 29, 2000 and give effect to the management services and
joint venture agreement between e-MedSoft.com and PrimeRX. The unaudited pro
forma combined balance sheet as of December 31, 1999 and the unaudited pro forma
combined statements of operations for the nine months ended December 31, 1999
and the four months ended March 31, 1999 reflect the acquisition of VirTx and
the PrimeRX as if the transactions had occurred on December 31, 1999 for the
unaudited pro forma combined balance sheet and at the beginning of each period
for the unaudited pro forma combined statements of operations. The unaudited pro
forma combined financial statements do 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 financial statements should be read in conjunction
with the historical consolidated financial statements of e-MedSoft.com, the
financial statements of VirTx and the consolidated financial statements of
PrimeRX together with the related notes thereto.
16
<PAGE> 19
Unaudited Proforma Combined Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
Acquired Companies Proforma Adjustments(1) Proforma
e-MedSoft ------------------------- Combined
(unaudited) Virtx, Inc. PrimeRX.com Virtx, Inc. PrimeRX.com (unaudited)
----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash $ 6,406,570 $ 50,971 $ 407,673 $ - $ - $ 6,865,214
Accounts Receivable, net 6,904,285 102,985 7,427,597 - - 14,434,867
Inventory 1,436,503 94,729 4,025,577 - - 5,556,809
Receivables from Related
Parties 297,903 - - - - 297,903
Other Current Assets 914,739 444,445 157,415 (444,445)(2) - 1,072,154
----------- ----------- ------------ ----------- ----------- ------------
15,960,000 693,130 12,018,262 (444,445) - 28,226,947
----------- ----------- ------------ ----------- ----------- ------------
Property, Plant and
Fixtures, net 1,862,773 242,225 2,380,596 - - 4,485,594
Other Assets
Goodwill 7,477,447 - 5,217,499 30,586,055 (2) (5,217,499)(6) 38,063,502
Other Assets Under Management - - - - 7,997,743 (5) 7,997,743
Software System Investment 7,325,106 - - - - 7,325,106
Other Assets 70,092 24,235 349,434 - - 443,761
----------- ----------- ------------ ----------- ----------- ------------
TOTAL ASSETS $32,695,418 $ 959,590 $ 19,965,791 $30,141,610 $ 2,780,244 $ 86,542,653
=========== =========== ============ =========== =========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 9,859,970 $ 205,429 $ 4,960,151 $ - $ - $ 15,025,550
Accruals and Other
Liabilities 1,974,936 555,238 872,774 - - 3,402,948
Bank Credit Facility 806,184 - - - - 806,184
Current Maturities of
Debt/Capital leases 4,246,307 - 2,374,110 - - 6,620,417
Notes payable - 879,701 - (720,689)(2) - 159,012
----------- ----------- ------------ ----------- ----------- ------------
16,887,397 1,640,368 8,207,035 (720,689) - 26,014,111
----------- ----------- ------------ ----------- ----------- ------------
Long Term Liabilities
Capital Leases 783,987 - 953,388 - - 1,737,375
Long-term debt 288,932 - 4,234,170 - - 4,523,102
Other long-term liabilities 1,193,581 - - - - 1,193,581
Advances from shareholders - - 9,351,442 - - 9,351,442
----------- ----------- ------------ ----------- ----------- ------------
2,266,500 - 14,539,000 - - 16,805,500
----------- ----------- ------------ ----------- ----------- ------------
Minority Interest in
Consolidated Subsidiary 54,454 - - - - 54,454
Shareholders' Equity
Common Shares 57,871 3,082 2,045 1,854 (3) (2,045)(6) 59,725
(3,082)(4) -
Paid in Capital 20,962,359 628,200 474,555 30,179,667 (3) (474,555)(6) 51,142,026
(628,200)(4) -
Retained Earnings (Deficit) (7,533,163) (1,312,060) (3,256,844) 1,312,060 (4) 3,256,844(6) (7,533,163)
----------- ----------- ------------ ----------- ----------- ------------
13,487,067 (680,778) (2,780,244) 30,862,299 2,780,244 43,668,588
----------- ----------- ------------ ----------- ----------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $32,695,418 $ 959,590 $ 19,965,791 $ 30,141,610 $ 2,780,244 $86,542,653
=========== =========== ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited proforma combined
financial statements
17
<PAGE> 20
Unaudited Proforma Combined Statement of Operations
For the Nine Months ended December 31, 1999
<TABLE>
<CAPTION>
Acquired Companies(7)
------------------------- Proforma Adjustments(1) Proforma
e-MedSoft Virtx, Inc. PrimeRX.com Combined
(unaudited) (unaudited) (unaudited) Virtx, Inc. PrimeRX.com (unaudited)
----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 25,944,826 $ 620,341 $ 35,707,712 $ -- $ -- $ 62,272,879
------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses
Cost of sales 20,276,340 626,747 26,374,812 -- -- 47,277,899
Research and development 1,341,095 -- -- -- -- 1,341,095
Sales and marketing 2,703,805 -- -- -- -- 2,703,805
General and Administrative 4,847,599 1,003,348 9,786,721 135,000(8) -- 15,772,668
Non cash compensation 1,103,337 -- -- -- -- 1,103,337
Depreciation and amortization 1,104,153 -- -- 3,277,077(9) -- 4,381,230
Other Operating Costs -- -- 169,387 -- -- 169,387
------------ ------------ ------------ ------------ ------------ ------------
31,376,329 1,630,095 36,330,920 3,412,077 -- 72,749,421
------------ ------------ ------------ ------------ ------------ ------------
Loss from operations (5,431,503) (1,009,754) (623,208) (3,412,077) -- (10,476,542)
Interest & Other expense 1,712,327 63,095 334,792 (132,732)(10) -- 1,977,482
------------ ------------ ------------ ------------ ------------ ------------
Loss before income taxes,
extraordinary item and
minority interest (7,143,830) (1,072,849) (958,000) (3,279,345) -- (12,454,024)
Extraordinary income 357,152 -- -- -- -- 357,152
------------ ------------ ------------ ------------ ------------ ------------
Loss before income taxes
and minority interest (6,786,678) (1,072,849) (958,000) (3,279,345) -- (12,096,872)
Income Taxes 146,875 (655) (7,500) -- -- 138,720
Minority Interest, net of tax 8,620 -- -- -- -- 8,620
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (6,631,183) $ (1,073,504) $ (965,500) $ (3,279,345) $ -- $(11,949,532)
============ ============ ============ ============ ============ ============
Net income (loss) per share $ (0.12) $ (0.22)
Average Weighted Shares
Outstanding 53,202,779 1,854,276 - - - 55,057,055
</TABLE>
The accompanying notes are an integral part of these unaudited proforma combined
financial statements
18
<PAGE> 21
Unaudited Proforma Combined Statement of Operations
For the Four Months ended March 31, 1999
<TABLE>
<CAPTION>
Acquired Companies(7)
------------------------- Proforma Adjustments(1) Proforma
e-MedSoft Virtx, Inc. PrimeRX.com Dr(Cr) Combined
(unaudited) (unaudited) (unaudited) Virtx, Inc. PrimeRX.com (unaudited)
----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 2,649,563 $ 137,853 $ 7,454,156 $ -- $ -- $ 10,241,572
------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses
Cost of sales 1,998,505 139,277 5,840,006 -- -- 7,977,788
Research and development 38,619 -- -- -- -- 38,619
Sales and marketing 188,340 -- -- -- -- 188,340
General and administrative 767,017 222,966 1,997,737 30,000(8) -- 3,017,720
Depreciation and amortization 46,303 -- -- 728,239(9) -- 774,542
------------ ------------ ------------ ------------ ------------ ------------
3,038,784 362,243 7,837,743 758,239 -- 11,997,009
------------ ------------ ------------ ------------ ------------ ------------
Operating Loss (389,221) (224,390) (383,587) (758,239) -- (1,755,437)
Interest & Other expense 376,468 14,021 33,224 (29,496)(10) -- 394,217
------------ ------------ ------------ ------------ ------------ ------------
Pre tax income (loss) (765,689) (238,411) (416,811) (728,743) -- (2,149,654)
Provision for taxes 138,928 145 -- -- -- 139,073
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (904,617) $ (238,556) $ (416,811) $ (728,743) $ -- $ (2,288,727)
============ ============ ============ ============ ============ ============
Net income (loss) per share $ (0.02) $ (0.06)
Average Weighted Shares
Outstanding 38,061,371 1,854,276 -- -- -- 39,915,647
</TABLE>
The accompanying notes are an integral part of these unaudited proforma combined
financial statements
19
<PAGE> 22
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
GENERAL
1. The adjustments included in the unaudited pro forma combined financial
statements 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. We accounted for the PrimeRx agreement
as if PrimeRx were a consolidated subsidiary. PrimeRx's assets and liabilities
were recorded at their book value as of the date of the PrimeRx agreement. There
can be no assurance that the actual adjustments will not differ significantly
from the pro forma adjustments reflected herein.
2. The following table details the allocation of the VirTx purchase price:
<TABLE>
<CAPTION>
<S> <C>
Virtx purchase price $30,181,521
Acquisition costs 0
-----------
Adjusted purchase price $30,181,521
Add: Virtx negative equity 680,778
Deferred financing
fees written off 444,445
Less: Notes payable
converted to equity (720,689)
-----------
Goodwill $30,586,055
===========
</TABLE>
The allocation of the purchase price of VirTx is preliminary and will be
finalized upon completion of asset valuations. In addition, we are still
evaluating certain obligations of VirTx prior to the acquisition and further
adjustments to the preliminary purchase price may result.
The goodwill will be amortized using the straight-line method over a period of
seven years.
3. Reflects the issuance of 1.854 million restricted shares of our common
stock to the former stockholders of VirTx, Inc.
4. Reflects the elimination of Virtx's historical stockholders' equity
balance.
5. Represents the excess of the cost of the PrimeRx management contract
(none) over PrimeRx's net assets.
6. Reflects the elimination of PrimeRx's historical goodwill and negative
stockholders' equity.
7. The unaudited combined pro forma statement of operations includes our
unaudited operations for the nine months ended December 31, 1999 and the four
months of operations ended March 31, 1999 that were derived from our audited
March 31, 1999 consolidated financial statements. The statements of operations
for VirTx included in the pro forma is for the nine months ended December 31,
1999 and for the period from January 27, 1999 (date of inception) to March 31,
1999. The statements of operations for PrimeRx included in the pro forma is for
the nine months ended December 31, 1999 and for the four months of operations
ended March 31, 1999.
8. Represents the increase in executive compensation as a result of the
acquisition.
9. Represents the amortization of goodwill using the straight-line method
over a period of seven years.
10. Represents the savings in amortization of deferred financing costs and
interest on notes payable.
20
<PAGE> 23
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.
GENERAL HISTORY
e-MedSoft was initially organized in Nevada on August 25, 1986, in order to
evaluate, structure, and complete a merger with, or acquisition of, prospects
consisting of private companies, partnerships, or sole proprietorships.
On January 7, 1999, we acquired from TSI Technologies and Holdings, LLC
("TSI"), formerly known as Sanga e-Health, LLC, the rights to a JAVA-based,
online health care management system in exchange for 41,417,176 restricted
shares (post-split) of our common stock. In connection with this transaction,
the Company completed a 5 for 1 forward stock split having a record date of
January 4, 1999. In addition, as consideration for finder's fees, we issued
2,553,144 restricted shares of our common stock and 1,035,429 warrants to
purchase restricted shares of our common stock exercisable at $.25 per share
over five years. As a result of these transactions, TSI owned approximately 80%
of the outstanding shares. The merger is considered a reverse acquisition that
results in a capital reorganization. The assets and equity of TSI have been
recorded on our financial statements at their carryover basis. Accordingly, we
recognized no goodwill or intangible assets in connection with this acquisition.
On March 19, 1999, we acquired all of the issued and outstanding stock of
e-Net Technology Ltd., formerly known as Palm Technology Holdings Ltd. e-Net, a
U.K. based company, is a diversified computer services company, providing
consulting services, training, technical support, computer software, and
computer hardware to a broad range of customers. This acquisition was accounted
for under the purchase method.
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 period ended December 31, 1999, 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, we acquired a managed care computer
technology to service a network of over 2,500 physicians and two multimedia
companies 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.
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,
21
<PAGE> 24
interest income and expense were minimal. The financial statements included in
this prospectus present the historical unaudited information for the nine months
ended December 31, 1999, the audited financial statements for the four months
ended March 31, 1999, and the audited financial statements of the predecessor
company for the period June 1, 1998 through the date of the reverse acquisition
on January 7, 1999.
NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998 PRO FORMA
The following analysis compares the operating results for the nine months
ended December 31, 1999 to pro forma information for the nine months ended
December 31, 1998, which gives effect to the acquisition of e-Net as if such
transaction had occurred at the beginning of that period (in thousands)
(unaudited):
<TABLE>
<CAPTION>
Pro Forma
12/31/99 12/31/98
-------- ---------
<S> <C> <C>
Net Sales ............... $25,945 $14,400
Operating Expenses ...... 31,376 15,095
Operating Loss .......... (5,431) (695)
</TABLE>
NET SALES
Net sales for the nine months ended December 31, 1999 were $25.9 million
compared to pro forma net sales for the nine months ended December 31, 1998 of
$14.4 million. Orders in process for the delivery of hardware at December 31,
1999 of approximately $5.0 million and at December 31, 1998 of approximately
$1.7 million were not included in revenue for these periods. Net sales increased
approximately $11.5 million for the nine months ended December 31, 1999 compared
to the nine months ended December 31, 1998. This increased resulted primarily
from our U.K. subsidiary's focus on the Internet marketplace and our strong
relationship with Sun Microsystems. At the beginning of the year, e-Net obtained
a higher preferred vendor status with Sun Microsystems, thereby increasing our
market share for the sale and distribution of Sun hardware. In addition, during
the period, e-Net successfully launched, sold and has implemented our new
enterprise java beans e-commerce software product. e-Net has now finalized 14
new contracts for esparto, of which seven have been implemented. e-Net is also
Sun Microsystems' first U.K. ASP, which allows us to provide complete end to end
e-business solutions to our clients. We currently have 11 clients using this ASP
service. Essentially all sales were generated by the U.K. subsidiary from sale,
service and installation of computer systems.
COST OF SALES
Cost of sales for the nine months ended December 31, 1999 were $20.3
million compared to pro forma cost of sales of $11.1 million for the same period
in 1998. The increase in cost of sales was primarily due to the higher sales and
distribution of Sun Microsystems hardware. Cost of sales as a percent of net
sales increased slightly from 77.4% for the pro forma nine month period ended
December 31, 1998 to 78.1% for the nine months ended December 31, 1999. 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.
22
<PAGE> 25
RESEARCH AND DEVELOPMENT COSTS
Research and development costs mainly consist of salaries and equipment
costs of the internal development of new software and Internet products in the
United Kingdom and in the United States. During the nine months ended December
31, 1999 we expensed approximately $1.3 million in development costs and
capitalized approximately $857,000. Approximately $924,000 of these development
costs were incurred in the United Kingdom for the development of new Internet
products and software and approximately $417,000 of these costs were incurred 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 product once such
software product is in service.
SALES AND MARKETING COSTS
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, and Europe. Sales and marketing costs for the nine months ended
December 31, 1999 increased approximately $1.1 million in the United Kingdom to
$2.3 million as compared to $1.2 million pro forma for the nine months ended
December 31, 1998. 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 $410,000 in sales and marketing costs for the nine-month period
ended December 1999 as a result of the marketing of our Internet-based health
care management system.
GENERAL AND ADMINISTRATIVE/NON CASH COMPENSATION COSTS
General and administrative costs of approximately $4.8 million for the nine
months ended December 31, 1999 mainly consist of salaries, facility costs, and
professional fees. Non-cash compensation costs of approximately $1.1 million for
the nine months ended December 31, 1999 represents compensation paid to
employees and consultants through the issuance of shares, warrants, and options.
Approximately $4.2 million of these combined costs for the nine months ended
December 31, 1999 were related to our reorganization and infrastructure
development 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 of approximately $1.1 million for the nine
months ended December 31, 1999 includes depreciation of equipment of
approximately $495,000 and the amortization of goodwill of $609,000. We are
amortizing goodwill over a five to ten-year period.
FINANCE COSTS
Finance costs of approximately $1.7 million for the nine-month period ended
December 31, 1999, include 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 June 30, 1999, all deferred financing
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costs have been amortized. In addition, finance costs include interest expense
on our bridge debt and e-Net's credit facility.
EXTRAORDINARY INCOME
Extraordinary income represents the gain we recognized resulting from the
issuance of warrants in satisfaction of debt.
FOR THE PERIOD FROM INCEPTION TO 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 has entered into several contracts and strategic
partnerships to implement and roll out the Internet based health care management
system, no revenues for the period ended March 31, 1999 were generated from the
sale of these services. Depending on the terms of the contracts, revenues from
these contracts will begin to be recognized upon the customer's acceptance,
installation and operation of the system. In addition, the Company will
recognize subscription revenues on a monthly basis for sales made over the
Internet. The revenues of $2,650,000 for the period ended March 31, 1999 reflect
approximately thirteen days of operations consolidated from the U.K. subsidiary
that was acquired on March 19, 1999.
COST OF SALES
The cost of sales represents the U.K. subsidiary's cost of hardware and
software products plus the cost of installation and delivery. Cost of sales for
e-Net were approximately $1,999,000 or 75% of revenues. For the period, there
are no cost of sales related to the sale of the Company's U.S. Internet based
healthcare management system. However, it is anticipated that cost of sales for
this product will include the cost of product delivery, customer service and
systems maintenance. While the cost of providing Internet services should
generally be minimal, installations of large operations such 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.
SOFTWARE DEVELOPMENT
Development costs of approximately $39,000 represent development of
software in the U.K. and enhancement of the Company's internet based health care
management system.
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SALES AND MARKETING
Sales and marketing costs of approximately $188,000 include $139,000 for
the U.K. operations that consisted primarily of salaries and travel costs of the
U.K.'s sales force, marketing literature and advertising. In addition,
approximately $49,000 of these costs reflect the U.S. operation's outside
marketing costs related to the Company's Internet health care management system.
GENERAL AND ADMINISTRATIVE
General and administrative costs of approximately $767,000 include general
office costs, executive and administrative salaries and professional fees. These
costs were approximately $701,000 and $66,000 for the operations in the U.S. and
U.K., respectively. General and administrative costs in the U.S. include
$380,000 of non-cash compensation expense.
DEPRECIATION AND AMORTIZATION
Depreciation of approximately $17,000 related solely to the depreciation of
equipment and vehicles in the United Kingdom. Amortization of approximately
$29,000 represents the Company's amortization of goodwill as a result of the
acquisition of e-Net. The Company is amortizing the goodwill over a ten-year
period.
FINANCE COSTS
Finance costs of approximately $377,000, include $6,000 of interest from
the debt and capital leases in the United Kingdom. The remaining expense of
$371,000 is mainly a result of the amortization of deferred financing incurred
in connection with the financing of the e-Net acquisition. Subsequent to March
31, 1999, the Company entered into agreements with the lenders to exchange a
portion of the debt for warrants and extend the remaining portion over two
years.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had approximately $6.4 million in cash and a
working capital deficit of $927,000. During the period ended December 31,
1999, we used cash in operating activities of approximately $1.4 million,
primarily due to the net loss from the period of $6.6 million, partially offset
by increases in accounts payable and accrued liabilities of $5.3 million. We
used cash in investing activities of approximately $3.1 million, primarily due
to a $2.9 million investment in software acquisition and development. 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
quarters ended December 31, 1999 and March 31, 2000 we raised approximately $7.1
million and $55.7 million, respectively, 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 an underwritten
offering for approximately $6.0 million Australian 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, subsequent to the quarter ended December 31, 1999,
converted its debt into equity and revised their commitment to us for an
addition $5 million in financing in lieu of the remaining $2 million on their
old commitment. In addition, we received approximately $1.5 million from third
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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 24 months for the implementation and rollout of our
Internet-based health care management system and the expansion of 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.
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BUSINESS
OVERVIEW
We offer comprehensive portal services 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 innovative 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. 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 acquisition and joint venture strategy.
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
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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%
of annual health care expenditures, it is the cost of care itself, approximately
85% 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 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
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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 an internet platform and a
comprehensive suite of products and services to the health care industry that is
relevant, customized, and cost-effective for end users. Our strategy includes
the following key elements:
Capitalize on the rapidly emerging 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 innovative 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, 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
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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, and Quantum Digital.
Pursue usage-based business model. We are offering network-based
transaction and information services on a service fee 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 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 acquisition of e-Net, Illumea, and
VirTx and our joint ventures with NCFE, PrimeRX, and Quantum Digital 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 as well as new product development. 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
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only enable our customers to utilize the existing data repository and to
maintain the management capabilities of 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 an end-to-end service capability;
- 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 and
also provides our clients with the most up to date technology and
functionality;
- 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
on any client is needed to interact.
PRODUCTS AND SERVICES
We offer comprehensive portal services 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 joint ventures have supported this
development. We group our products and services as follows:
- e-MedSoft Pharmacy Services
- e-MedSoft Financial Services
- e-MedSoft Medical Business Services
- e-MedSoft Collaborative Multi-Media Services
- e-MedSoft Commerce Services
- e-MedSoft Professional Services
E-MEDSOFT PHARMACY SERVICES
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We provide a broad range of pharmacy managed care services for the health
care industry. Our goal is to provide a one-stop pharmacy management solution to
our clients. Our solutions encompass pharmacy distribution capabilities across
multiple channels and integrated with managed care systems. We also provide
proprietary solutions for the management of pharmacy services, comprehensive
auditing capabilities, and drug utilization evaluations. Our solutions provide
physicians and managed care clients with a wide range of services related to
their pharmacy environment.
In addition, we will be providing a comprehensive solution for the health
care industry that includes clinical information on diagnosis, drug information,
and patient education. The solutions will enable our clients to make more
informed decisions and provide better patient care. 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 APPLICATIONS
We provide customized portal services for physician-based payor
organizations, clinics, and physicians offices. e-MedSoft's managed care
services are designed to combine unique application requirements for patient and
practice management system 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 provider 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
provider 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.
In addition, we anticipate launching a new credentialing service in June
2000. The product is designed to bring benefit to both managed care
organizations and physician practices. Our credentialing service offers a more
cost-effective, accurate, and efficient process for granting practitioner
privileges.
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 portal will include account receivables financing, lease
acquisition, loan acquisition, self-pay financing, and merger and acquisition
assistance. The portal 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.
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NCFE, known as the innovator in the securitization of health care
receivables, is the largest provider in the United States with relationships
with over 2,000 health care organizations. NCFE created the first multi-seller
healthcare receivables program to receive AAA credit ratings.
E-MEDSOFT COLLABORATIVE 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, 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.
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.
E-MEDSOFT COMMERCE SERVICES
e-MedSoft commerce services encompasses two product suites. The first is a
unique application commerce architecture developed by e-MedSoft called
e-MedConnect for business-to-business applications in the health care market.
The second is a physician-based group purchasing organization (or GPO) called
Medoris, dedicated to repackaging valuable GPO content into an easy to use
ergonomic platform using the benefits of the Internet.
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 innovative 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
Medoris 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
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relating to products, services, transactions, and market trends. Medoris
currently connects over 400 vendors and 20,000 physicians.
E-MEDSOFT PROFESSIONAL SERVICES
Expert personnel are available for training, consulting, integration, and,
where needed, the installation of our application software. Experienced
analysis, design, development, and testing assistance along with project
management expertise are available to complement our customers' internal
information technology (IT) staff. Our project managers can coordinate
resources, ensure project quality, and continually communicate project status
through executive briefings, change management strategies, and multi-level
communications plans of key project and design milestones. Additionally, our
installation staff can install hardware and software, assist in building
databases, or supplement our customers' technical and IT staff.
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. Our direct sales force
targets significant 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.
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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 conduct campaigns often 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:
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 21, 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 jointly develop 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' top
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
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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 $3.0 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, providing a full suite of health care information services
that connect NCFE's 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 organizations
(over 2,000), producing hundreds of thousand of transactions each day.
University Affiliates is a non-profit organization working in conjunction
with the University of Southern California (USC) School of Medicine, USC
physicians, and its 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 a joint venture 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.
OUR TECHNICAL PLATFORM
The underlying technologies of our portal include state-of-the-art 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
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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 has 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 maintain a fully redundant systems
architecture operating in our data centers. These centers are in
operation seven days a week, 24 hours a day, 365 days a year.
High availability for these operations is assured through the
use of
* uninterrupted power supply equipment;
* 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 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
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are performed on a daily basis and a full system backup is performed
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 intend to 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. 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
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 (IPA's 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
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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, 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.
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
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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 a 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 April 30, 2000, we employed over 500 employees and 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 managerial
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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.
FACILITIES AND OFFICES
1300 Marsh Landing Parkway Suite 106
Jacksonville, FL
20750 Ventura Boulevard Suite 202 8A Kings Parade
Woodland Hills, CA Cambridge, England
Barclays Venture Centre
Sir William Lyons Road
Coventry, England
3 Riverside Court 57 Great Eastern Street
Riverside Road London, England
Bath, England
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
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 with Sanga International. 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 Vice
President of Technology and Customer Services since January 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 since March
1999. From 1993 until March 1999, Ms. Harris worked as an independent
contractor/consultant providing financial services to various companies
including the following: HemaCare Corporation July 1993 until July 1994;
American Outpatient Services, Corp. 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.
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 highly regarded
technology consultant to Fortune 100 companies.
SAM J. W. ROMEO, M.D. has served as a member of our board of directors
since September 1, 1999. Dr. Romeo, who has more than 30 years of experience
in the health care field, currently serves as the President and 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 1, 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. The audit committee is comprised
of John F. Andrews, Masood Jabbar and Dr. Sam J.W. Romeo. The audit committee
will review the 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.
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.
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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 years ended March 31, 2000, 1999, and 1998 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 Andrews, Chief 2000 $500,000 $540,104 931,225 --
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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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Marshall A. Gibbs ... -- -- -- -- -- -- --
Margaret A. Harris .. 180,000 22.3% $2.50 $2.50 10/31/2004 124,327 274,730
- --------------------
</TABLE>
Potential gains are net of the exercise price, but before taxes associated with
the exercise. The amounts represent hypothetical gains that could be achieved
for the respective options if exercised at the end of the option term. The
assumed 5% and 10% rates of stock price appreciation are provided in accordance
with the rules of the Securities and Exchange Commission and do not represent
our estimate or projection of the future price of our common stock. Actual
gains, if any, on stock option exercises will depend upon the future market
prices of our common stock.
YEAR-END OPTION VALUES
The following table provides information respecting the options held by our
Chief Executive Officer and our two other most highly compensated executive
officers as of March 31, 2000. The executive officers did not exercise options
during fiscal 2000.
Aggregated Option Exercises in Last Fiscal Year
and Option Values As Of March 31, 2000
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End(#) at Fiscal Year-End($)
----------------------------- ----------------------------
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
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, which 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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<PAGE> 49
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 has the right to receive shares of our common stock
without any required payment upon the occurrence of the following events:
* 5,000 shares for each month he is employed.
* 50,000 shares for each quarter in which our gross revenues exceed $7
million.
* an additional 175,000 shares for each quarter in which our gross
revenues exceed $20 million.
* an additional $350,000 for each quarter in which our gross revenues
exceed $50 million.
In addition to the above, Mr. Andrews is entitled to receive a percentage
of our net profit before taxes as follows:
* 1% of net profits before taxes for each quarter our profit exceeds $1
million, plus
* 2% of net profits before taxes for each quarter our profit exceeds $3
million, plus
* 3% of net profits before taxes for each quarter our profit exceeds $10
million, plus
* 4% of net profits before taxes for each quarter our profit exceeds $20
million.
In the event there is a change in control of our company, Mr. Andrews has
the right to terminate his employment agreement and receive a $2.5 million
payment.
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
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stock. The stock and stock options are exercisable over a three-year period,
vesting equally on an annual basis.
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.
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<PAGE> 51
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the shares of
our common stock beneficially owned as of April 30, 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) 26,661,460 35.2% -- 26,661,460 35.2%
Marshall A. Gibbs(6) 90,000 * -- 90,000 *
Margaret A. Harris(7) 75,000 * -- 75,000 *
Masood Jabbar 500,000 * -- 500,000 *
W. Cedric Johnson(8) 1,405,363 1.9% -- 1,405,363 1.9%
Sam J. W. Romeo, M.D. -- * -- -- *
Mitchell J. Stein(9) 26,581,460 35.1% -- 26,581,460 35.1%
All directors and executive
officers as a group (7
persons)(10) 28,731,823 37.9% -- 28,731,823 37.9%
5% Stockholders:
TSI Technologies, LLC(11) 26,581,460 35.1% -- 26,581,460 35.1%
HealthMed Inc.(12) 26,581,460 35.1% -- 26,581,460 35.1%
Sanga International(13) 9,000,000 11.9% -- 9,000,000 11.9%
National Century Financial
Enterprises, Inc.(14) 4,750,000 6.3% 4,750,000 -- *
HealthCare Capital, LLC(14) 4,750,000 6.3% 4,750,000 -- *
Other Selling Stockholders:
Janus 2,000,000 2.64% 2,000,000 -- *
Trammel Investors 1,250,000 1.65% 1,250,000 -- *
</TABLE>
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<PAGE> 52
<TABLE>
<S> <C> <C> <C> <C> <C>
Don Ayers 1,250,000 1.65% 1,250,000 -- *
PrimeRX.com 750,000 1.0% 750,000 -- *
CalPERS 500,000 * 500,000 -- *
Paramount 500,000 * 500,000 -- *
Aries Master Fund 697,454 * 697,454 -- *
Medical Technology Trust 400,000 * 400,000 -- *
Deltec 175,000 * 175,000 -- *
Jacob Wizman 300,000 * 300,000 -- *
DCF 150,000 * 150,000 -- *
Aries Domestic Fund, L.P. 280,666 * 280,666 -- *
JMG Capital Partners LP 250,000 * 250,000 -- *
JMG Triton Offshore Fund Ltd. 250,000 * 250,000 -- *
Yitzhak and Sela 200,000 * 200,000 -- *
Ziff Asset Management 100,000 * 100,000 -- *
JMG Capital 100,000 * 100,000 -- *
Larry Hopfenspriger 175,000 * 175,000 -- *
Generation Capital Associates 150,000 * 150,000 -- *
Moldow Family Trust 150,000 * 150,000 -- *
Dresdner 65,200 * 65,200 -- *
James Tindall 120,000 * 120,000 -- *
Roger Shanafelt and Carolyn
Shanafelt 100,000 * 100,000 -- *
Glaser Family Trust 100,000 * 100,000 -- *
Roger Richter 100,000 * 100,000 -- *
Arthur Golding Trust UA DTD
6/26/73 100,000 * 100,000 -- *
Sutro Venture Fund 34 LLC 100,000 * 100,000 -- *
Michael Gorsky 100,000 * 100,000 -- *
Salovich Irrevocable Trust 100,000 * 100,000 -- *
Steve Mizel 100,000 * 100,000 -- *
Generation Capital Associates 100,000 * 100,000 -- *
Sorochak 1995 Trust 100,000 * 100,000 -- *
Moldow Family Trust 100,000 * 100,000 -- *
Steve Thomsen 100,000 * 100,000 -- *
Paul Gonyea 75,000 * 75,000 -- *
Russell Reiner 75,000 * 75,000 -- *
Larry Hopfenspinger 35,000 * 35,000 -- *
Dr. David Goldenberg 33,333 * 33,333 -- *
Larry Hopfenspriger 65,000 * 65,000 -- *
Paul Guezand 30,000 * 30,000 -- *
Michael Mora 56,000 * 56,000 -- *
Ivan Rafowitz 52,000 * 52,000 -- *
HFIC, Inc. 50,000 * 50,000 -- *
Scott A. Sorochak 1995
Trust Agreement UA DTD
5/3/95 50,000 * 50,000 -- *
Anders Hainer 50,000 * 50,000 -- *
Dan Rooke 50,000 * 50,000 -- *
Michael C.S. Thompson Living
Trust 50,000 * 50,000 -- *
Brian Jamison 50,000 * 50,000 -- *
G&K Venture Technologies Partners 50,000 * 50,000 -- *
Robert Falls Intraviovos Trust
DTD 4/20/93 50,000 * 50,000 -- *
Arnold S. Nelson Living Trust
UA DTD 9/23/82 50,000 * 50,000 -- *
Peter Scocimara 50,000 * 50,000 -- *
Pemaxrina Investors LLC-Peter
Scocimara 50,000 * 50,000 -- *
Jeremy Verba 50,000 * 50,000 -- *
</TABLE>
50
<PAGE> 53
<TABLE>
<S> <C> <C> <C> <C> <C>
Patzakis Family Partnership 50,000 * 50,000 -- *
Adrian Johnson 50,000 * 50,000 -- *
Jacob Wizman 50,000 * 50,000 -- *
John Paisley 50,000 * 50,000 -- *
Sorochack 1995 Trust 50,000 * 50,000 -- *
Marshall A. Gibbs 50,000 * 50,000 -- *
Jeffrey Childers 50,000 * 50,000 -- *
Thomas Hardy 50,000 * 50,000 -- *
IS Investments, Inc. 50,000 * 50,000 -- *
Natalie Wizman 50,000 * 50,000 -- *
Larry Hopfenspriger 50,000 * 50,000 -- *
Tim Wysaske 50,000 * 50,000 -- *
David & Kathleen Peterson 25,000 * 25,000 -- *
Roger Shanafelt 25,000 * 25,000 -- *
Joshua S. Goodman 45,000 * 45,000 -- *
Trevor Colby 40,000 * 40,000 -- *
Rigney/Friedman Property
Management, Inc. 40,000 * 40,000 -- *
Carrey Family Trust 40,000 * 40,000 -- *
Charles Moldow 20,000 * 20,000 -- *
HFIC, Inc 20,000 * 20,000 -- *
John Gregory Dommel 33,000 * 33,000 -- *
Amit Sela 16,500 * 16,500 -- *
Michael Gorsky 16,500 * 16,500 -- *
Israel Gotay 30,000 * 30,000 -- *
Shukartsi Living Trust 30,000 * 30,000 -- *
Garson Soe 30,000 * 30,000 -- *
Trevor Colby 30,000 * 30,000 -- *
SV@34 15,000 * 15,000 -- *
Witherbee Foundation 15,000 * 15,000 -- *
Jose I. Moralejo, Jr. 27,000 * 27,000 -- *
Michael Gorsky 27,000 * 27,000 -- *
Viana Partners L.P 13,466 * 13,466 -- *
Dickey Family Trust UA DTD
10/1/78 25,000 * 25,000 -- *
Howard Leiter 25,000 * 25,000 -- *
Bong Suh 25,000 * 25,000 -- *
David Peterson 25,000 * 25,000 -- *
Kathleen Peterson 25,000 * 25,000 -- *
The Mandel Company 25,000 * 25,000 -- *
Doug Baron 25,000 * 25,000 -- *
Mel Markman 25,000 * 25,000 -- *
Michael Jacobs 25,000 * 25,000 -- *
Elias Family Trust 25,000 * 25,000 -- *
Richard Caruso 25,000 * 25,000 -- *
James E. Vasser Jr. 25,000 * 25,000 -- *
Seminary Investments 25,000 * 25,000 -- *
Paul Gonyea 25,000 * 25,000 -- *
Barbara Linson 25,000 * 25,000 -- *
Sandra Myers 25,000 * 25,000 -- *
Michael Siebert 25,000 * 25,000 -- *
Ethel Danto 25,000 * 25,000 -- *
Chris & Debra McClelland 25,000 * 25,000 -- *
Levin and Katz 25,000 * 25,000 -- *
Hammers and Prochello 25,000 * 25,000 -- *
Patricia McNamara 25,000 * 25,000 -- *
Douglas Burke 25,000 * 25,000 -- *
Dr. Paul Marut 25,000 * 25,000 -- *
Craig Golding 25,000 * 25,000 -- *
Robert Falls 12,500 * 12,500 -- *
Aries Domestic Fund II, L.P. 21,880 * 21,880 -- *
Rafael Diaz-Yoserev 20,000 * 20,000 -- *
Juan M. Lombillo 20,000 * 20,000 -- *
Dagoberto J. Garces 20,000 * 20,000 -- *
</TABLE>
51
<PAGE> 54
<TABLE>
<S> <C> <C> <C> <C> <C>
Gema Rosello 20,000 * 20,000 -- *
Lynn Rossom 20,000 * 20,000 -- *
John Paisley 20,000 * 20,000 -- *
Trevor Colby 20,000 * 20,000 -- *
William Tuttle 20,000 * 20,000 -- *
Ren Xu 20,000 * 20,000 -- *
Goodfriend and Conrad 20,000 * 20,000 -- *
Aaron Goddard 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 15,000 * 15,000 -- *
Peter Scocimara 6,667 * 6,667 -- *
Maida Santander 10,000 * 10,000 -- *
Armando Chapelli 10,000 * 10,000 -- *
Carrie Kwok 10,000 * 10,000 -- *
Brenda Jarvar 10,000 * 10,000 -- *
Dianne Sattler 10,000 * 10,000 -- *
Mark and Alison Tunney 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 8,000 * 8,000 -- *
Arthur Golding 4,000 * 4,000 -- *
Christopher Condy 4,000 * 4,000 -- *
Alan Glazer 7,000 * 7,000 -- *
Michael Thompson 3,500 * 3,500 -- *
Richard Weiss 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 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 -- *
- ---------------------
</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 April 30, 2000 that the person will have the right to
acquire within 60 days of April 30, 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 April 30, 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.
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<PAGE> 55
(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 80,000 shares of
our common stock that Mr. Andrews has the right to have issued to him pursuant
to the terms of his employment agreement within 60 days.
(6) Includes 40,000 shares underlying stock options held by Mr. Gibbs
exercisable within 60 days and 35,000 shares issuable to Mr. Gibbs pursuant to
the terms of his employment agreement within 60 days.
(7) Represents shares underlying stock options held by Ms. Harris exercisable
within 60 days.
(8) Includes 1,405,363 shares held by CypherCom, Inc. for which Mr. Johnson
serves as President.
(9) Includes 26,581,460 shares of common stock held of record by TSI
Technologies and Holdings LLC (TSI).
(10) Includes 80,000 shares of our common stock that Mr. Andrews has the right
to have issued to him pursuant to the terms of his employment agreement within
60 days of April 30, 2000 and 75,000 shares of our common stock that Ms. Harris
has the right to acquire pursuant to stock options exercisable within 60 days of
April 30, 2000.
(11) The address for TSI is 20750 Venture Boulevard, Suite 320, Woodland Hills,
California 91364.
(12) Includes 26,581,460 shares of common stock held by TSI, in whom HealthMed
holds a controlling interest. HealthMed is located at 20750 Ventura Boulevard,
Suite 320, Woodland Hills, California 91364.
(13) The address for Sanga International is c/o Watson C. Gale, Gowling, Strathy
& Henderson, Suite 2600, 160 ElginStreet, Ottawa, Ontario K1P 1C3.
(14) The address for National Century Financial Enterprises, Inc. and HealthCare
Capital, LLC is 6125 Memorial Drive, Dublin, Ohio 43017.
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
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<PAGE> 56
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
54
<PAGE> 57
in our company is in our best interests and provides additional incentives and
motivation toward superior performance for these employees.
55
<PAGE> 58
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 Sanga e-Health our parent, 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 joint venture 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 joint venture agreement, NCFE
entered into a Preferred Provider Agreement with us and agreed to cancel more
than $4.5 million of debt and committed to fund an additional $5 million, in
exchange for 9.5 million shares of our common stock. In addition, NCFE also
agreed to launch a joint marketing effort exclusively with us.
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock includes 100 million shares of common stock
and five million shares of preferred stock. As of April 30, 2000, there were
75,722,865 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> 60
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> 61
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 April 30, 2000, we had 75,722,865 outstanding shares of common stock.
Of these shares, 68,721,715 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 21,939,973 outstanding shares of common stock and
warrants to purchase up to 4,118,000 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 19,818,000 outstanding shares
59
<PAGE> 62
and 4,068,000 shares underlying outstanding warrants. Holders of an additional
2,121,973 shares and warrants to purchase up to 50,000 shares have certain
piggyback registration rights and may elect to request that we include these
shares for registration in this registration statement.
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.
60
<PAGE> 63
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
61
<PAGE> 64
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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<PAGE> 65
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.
The audited financial statements of PrimeRX as of December 31, 1999 and
1998 and for the years then ended included in this registration statement on
Form S-1 have been audited by PricewaterhouseCoopers LLP, independent 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 auditing and accounting.
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."
63
<PAGE> 66
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
UNAUDITED INTERIM FINANCIAL STATEMENTS DECEMBER 31, 1999
<S> <C>
Consolidated Balance Sheets at December 31, 1999
(unaudited) and March 31, 1999 ......................... F-1
Consolidated Statements of Operations (unaudited)
for the Three Months and Nine Months ended
December 31, 1999 ...................................... F-2
Consolidated Statements of Cash Flows (unaudited)
for the Nine Months ended December 31, 1999 ............ F-3
Notes to the Consolidated Financial Statements at
December 31, 1999 (unaudited) .......................... F-4
AUDITED FINANCIAL STATEMENTS MARCH 31, 1999
Financial Statements for e-MedSoft.com as an acquired entity of Sanga e-Health,
LLC on January 7, 1999. The following consolidated financial statements reflect
the operations of Sanga e-Health from its inception, December 1, 1998 through
the acquisition date and the operations of the Company from the acquisition date
through March 31, 1999 -
Report of Independent Public Accountants................ F-10
Consolidated Balance Sheet, March 31, 1999 ............. F-11
Consolidated Statement of Operations for the four
months ended March 31, 1999............................. F-12
Consolidated Statement of Stockholders' Equity
and Comprehensive Income (Loss) for the four months
ended March 31, 1999.................................... F-13
Consolidated Statement of Cash Flows for the four
months ended March 31, 1999............................. F-14
Notes to Consolidated Financial Statements ............. F-15
Closing Financial Statements of e-MedSoft.com for the period from June 1, 1998
through the acquisition date of January 7, 1999 -
Report of Independent Public Accountants................ F-28
Statement of Operations for the period June 1,
1998 to January 7, 1999................................. F-29
Statement of Stockholders' Equity for the period
June 1, 1998 to January 7, 1999......................... F-30
Statement of Cash Flows for the period June 1,
1998 to January 7, 1999................................. F-31
</TABLE>
64
<PAGE> 67
<TABLE>
<S> <C>
Notes to Closing Financial Statements................... F-32
PRIMERX.COM, INC. AND SUBSIDIAIRES (FORMERLY PRIMEMED
PHARMACY SERVICES GROUP, INC.)
REPORT ON AUDITED CONSOLIDATED FINANCIAL
STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
Report of Independent Accountants ......................... F-34
Consolidated Balance Sheets ............................... F-35
Consolidated Statements of Operations ..................... F-36
Consolidated Statements of Shareholders' Deficiency ....... F-37
Consolidated Statements of Cash Flows ..................... F-38
Notes to Consolidated Financial Statements ................ F-39
</TABLE>
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-56
Assets - December 31, 1999 ................................ F-59
Liabilities and Stockholders' Deficit - December 31, 1999.. F-60
Statement of Operations for the Period from
January 27, 1999 (Date of Inception) to December 31,
1999 ...................................................... F-61
Statement of Stockholders' Deficit for the Period
from January 27, 1999 (Date of Inception) to
December 31, 1999 ......................................... F-62
Statement of Cash Flows for the Period from January 27,
1999 (Date of Inception) to December 31, 1999 ............. F-63
Notes to Financial Statements for the Period from
January 27, 1999 (Date of Inception) to December 31,
1999 ...................................................... F-64
</TABLE>
65
<PAGE> 68
e-MedSoft.com
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ -----------
(unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 6,392,110 $ 51,712
Restricted cash 14,460 138,435
Accounts receivable, net 6,904,285 4,181,285
Other receivables 337,184 1,062,133
Inventory 1,436,503 713,002
Related party receivables 297,903 193,263
Prepayments and other 481,156 381,591
Deferred taxes 96,399 14,555
----------- -----------
15,960,000 6,735,976
Long-Term Assets:
Property and Equipment, net 1,862,773 1,308,863
Goodwill, net of amortization 7,477,447 8,054,630
Software system investment 7,325,106 -
Deferred financing, net of amortization - 1,363,439
Other 70,092 -
----------- -----------
16,735,418 10,726,932
----------- -----------
TOTAL ASSETS $32,695,418 $17,462,908
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 806,184 $ 967,425
Accounts payable 9,859,970 6,017,183
Accrued liabilities 1,836,154 412,405
Taxes payable - 165,280
Related party debt 138,782 -
Current maturities of bridge financing 3,900,000 650,623
Current maturities of capitalized leases 346,307 165,275
----------- -----------
16,887,397 8,378,191
Long-Term Liabilities:
Capital leases 783,987 416,409
Bridge financing 288,932 1,361,877
Other long-term liabilities 1,193,581 1,193,581
----------- -----------
2,266,500 2,971,867
Minority Interest in Consolidated Subsidiary 54,454 -
Shareholders' Equity:
Common shares 57,871 51,816
Paid in capital 20,962,359 6,951,312
Accumulated deficit (7,535,800) (904,617)
Accumulated other comprehensive income 2,637 14,339
----------- -----------
13,487,067 6,112,850
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $32,695,418 $17,462,908
=========== ===========
</TABLE>
F-1
<PAGE> 69
e-MedSoft.com
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended 12/31/99 Ended 12/31/99
-------------- --------------
<S> <C> <C>
NET SALES $12,633,046 $25,944,826
OPERATING EXPENSES:
Cost of sales 9,868,282 20,276,340
Research and development 454,533 1,341,095
Sales and marketing 1,056,466 2,703,805
General and administrative 1,834,164 4,847,599
Non cash compensation 850,021 1,103,337
Depreciation and amortization 397,646 1,104,153
----------- -----------
Total Operating Expenses 14,461,112 31,376,329
----------- -----------
OPERATING LOSS (1,828,066) (5,431,503)
OTHER INCOME (EXPENSE):
Interest expense (211,399) (1,713,766)
Other income (1,458) 1,439
----------- -----------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY INCOME (2,040,923) (7,143,830)
EXTRAORDINARY INCOME - 357,152
----------- -----------
LOSS BEFORE INCOME TAXES AND MINORITY
INTEREST (2,040,923) (6,786,678)
TAX BENEFIT (EXPENSE) (157,924) 146,875
Minority Interest, Net of Tax 8,620 8,620
----------- -----------
NET LOSS $(2,190,227) $(6,631,183)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (.04) $ (.12)
=========== ===========
AVERAGE WEIGHTED SHARES OUTSTANDING 54,678,902 53,202,779
</TABLE>
F-2
<PAGE> 70
e-MedSoft.com
Consolidated Statement of Cash Flows
Nine Months Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $(6,631,183)
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on exchange of debt for warrants (357,152)
Non-cash equity compensation 1,103,337
Deferred income taxes (81,844)
Depreciation 494,664
Amortization of goodwill 609,489
Amortization of deferred financing 1,243,440
(Increase)decrease in current assets:
Accounts receivable (2,723,000)
Inventory (723,501)
Prepayments and other receivables 574,630
Increase (decrease)in current liabilities:
Accounts payable and accrued liabilities 5,291,392
Income taxes (165,280)
-----------
Cash Used in Operating Activities (1,365,008)
-----------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in software (2,856,944)
Additions to property and equipment (247,406)
Business acquisition (31,526)
-----------
Cash Used in Investing Activities (3,135,876)
-----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from interim bridge financing 3,327,714
Payments on financing leases (264,707)
Net change to credit facility (161,590)
Funds from equity financing 7,939,865
-----------
Cash Provided by Financing Activities 10,841,282
-----------
INCREASE IN CASH 6,340,398
CASH AT THE BEGINNING OF THE PERIOD 51,712
----------
CASH AT THE END OF THE PERIOD $ 6,392,110
===========
NON-CASH TRANSACTIONS:
Issuance of warrants for payment of debt $ 505,738
Issuance of shares for acquisition of software 4,468,162
Property and equipment purchased through capital leases 812,594
-----------
$ 5,786,494
===========
</TABLE>
F-3
<PAGE> 71
e-MedSoft.com
Notes to Consolidated Financial Statements
December 31, 1999
(Unaudited)
1) CONDENSED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by e-MedSoft.com
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted as allowed by such
rules and regulations, and e-MedSoft.com believes that the disclosures are
adequate to make the information presented not misleading. Operating results for
the three and nine months ended December 31, 1999, are not necessarily
indicative of the results that may be expected for the year ending March 31,
2000. While management believes the procedures followed in preparing these
financial statements are reasonable, the accuracy of the amounts are in some
respects dependent upon the facts that will exist, and procedures that will be
accomplished by e-MedSoft.com later in the year. These financial statements
should be read in conjunction with the March 31, 1999 audited financial
statements and the accompanying notes thereto, and the Forms 8-K filed by the
Company on March 19, 1999 and September 1, 1999.
The management of e-MedSoft.com believes that the accompanying unaudited
condensed financial statements contain all adjustments (including normal
recurring adjustments) necessary to present fairly the financial position of
e-MedSoft.com and subsidiaries at December 31, 1999 and the results of their
operations and their cash flows for the periods presented.
2) BUSINESS COMBINATIONS
On March 19, 1999, the Company completed the acquisition of all issued and
outstanding stock of e-Net Technology Ltd. ("e-Net", formerly Palm Technology
Holdings Ltd.), a U.K. based company. This acquisition has been accounted for
under the purchase method and therefore, the financial statements presented
herein include the operations of e-Net from the acquisition date. The following
information presents pro forma information for the prior three and nine month
periods ended December 31, 1998 of e-Net as if such transaction had occurred at
the beginning of the period (unaudited):
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
<S> <C> <C>
Net Sales $ 4,297,998 $14,400,256
Operating Expenses 4,391,838 14,488,311
Amortization of Goodwill 202,222 606,666
Interest Expense 66,737 214,419
Loss Before Income Taxes $ (362,799) $ (909,140)
</TABLE>
F-4
<PAGE> 72
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 and is
being amortized over a 5 year period.
During the nine months ended December 31, 1999, the Company acquired a 60%
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 will receive $250,000
and 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. The financial statements of the
subsidiary have been consolidated as of December 31, 1999 and consist of minor
expenses, cash and minority interests. As of December 31, 1999 the subsidiary
had not yet commenced the distribution of product and therefore, no revenues
have been generated to date.
3) COMPANY FUNDING
During the third quarter ended December 31, 1999, the Company raised
approximately $7.1 million in gross funds through the sale of 3,568,000
restricted shares of its common stock 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 $684,000 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
stockholder 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. We previously
issued warrants to the private placement agent in May, 1999 to purchase
5,177,145 shares of our 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.
During the nine months ended December 31, 1999 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 agreed to issue shares of its common stock based on the trading price of
the stock at the dates the funds were received. As of December 31, 1999, the
Company has an obligation to issue 287,021 shares to NTP. The remaining balance
of the funds received through December 31, 1999, of $389,000, was recorded as
related party debt. During December 1999 the Company repaid $250,000 of this
debt leaving a balance at December 31, 1999 of approximately $139,000. This debt
bears interest at prime plus 1% and is due within one year from the funding
date.
During the second quarter, the Company entered into a financing arrangement with
a strategic partner to fund the Company's operations in an amount not to exceed
$5,500,000. The obligation, which is secured by the Company's assets, bears
interest at prime plus 1% and is due one year from the draw date or on the date
the Company successfully obtains refinancing for the amounts loaned under the
financing arrangement, whichever is the earlier date. The Company had borrowed
$3,500,000 through December 31, 1999.
F-5
<PAGE> 73
4) SOFTWARE ACQUISITION
On September 1, 1999, the Company acquired from University Affiliates IPA ("UA,"
an affiliate of University of Southern California School of Medicine) a managed
care computer software technology for approximately $6,500,000, including a cash
payment of $2,000,000 and the issuance of 1,721,973 shares of the Company's
common stock with an approximate value of $4,500,000. In addition, the Company
entered into a ten-year contract with UA for exclusive access to UA's network of
more than 2,500 physicians. The agreement includes revenue sharing of UA's
network and exclusive use of the technology in connection with UA's expansion of
its physician network. In addition, the Company has agreed to finance certain
costs to further develop the software.
5) DEFERRED SOFTWARE DEVELOPMENT COSTS
During the nine months ended December 31, 1999, the Company incurred
approximately $2.2 million in development costs. In accordance with SOP 98-1 the
Company capitalized approximately $857,000 of these costs in the third quarter.
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.
6) WARRANTS AND STOCK OPTIONS
During the third quarter ended December 31, 1999, the Company granted 249,000
options to its employees to purchase 249,000 shares of the Company's stock at
prices ranging from $2.06 to $6.25. 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.
During the nine months ended December 31, 1999, the Company agreed to issue
50,000 warrants and 302,500 options to purchase 352,500 shares of its common
stock. The value of these warrants and options was approximately $619,400 and
will be amortized over the vesting periods of twelve to eighteen months. The
Company expensed approximately $104,000 and $129,000 for the three and nine
months ended December 31, 1999.
7) BASIC AND FULLY DILUTED LOSS PER SHARE
In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed by dividing the net earnings available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net earnings for the period by the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares, consisting of incremental common shares issuable upon
the exercise of stock options and warrants are excluded from the diluted
earnings per share calculation if their effect is anti-dilutive.
F-6
<PAGE> 74
A summary of the shares used to compute net loss per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
12/31/99 12/31/99
-------- --------
<S> <C> <C>
Weighted average common shares
used to compute basic net loss
per share........................ 54,678,902 53,202,779
Effect of dilutive securities..... -- --
---------- ----------
Weighted average common shares
used to compute diluted net
loss per share..................... 54,678,902 53,202,779
========== ==========
</TABLE>
As of December 31, 1999, options and warrants to purchase 7,659,429 shares of
common stock were outstanding. These common stock equivalents were excluded from
the computation of diluted loss per share for the three and nine months ended
December 31, 1999 as such options and warrants were anti-dilutive.
8) SEGMENT INFORMATION
e-MedSoft.com derives its net sales from two operating segments: (1) transaction
and information services, primarily healthcare, delivered over the Internet,
private intranets or other networks and consulting contracts related to these
services and (2) the sale and installation of hardware and software products.
During the three and nine month periods ended December 31, 1999, the Company
derived primarily all of its net sales from its operations in the United
Kingdom, primarily from computer hardware and software sales.
The accounting policies of the segments are the same as those for financial
reporting purposes and the Company evaluates performance based on operating
earnings of the respective business segments.
The Company's net sales from external customers for the three and nine month
periods ended December 31, 1999 and the long-lived assets at December 31, 1999,
classified by geographic area, were as follows (in thousands):
<TABLE>
<CAPTION>
United United
States Kingdom Total
------ ------- -----
<S> <C> <C> <C>
Net Sales:
Three months ended 12/31/99...... $ 150 $12,483 $12,633
Nine months ended 12/31/99....... 183 25,762 25,945
Long-lived assets at 12/31/99.... 14,961 1,774 16,735
</TABLE>
The Company's U.K. subsidiary, e-Net, had three customers who's sales
represented over 5% of its net sales each for an aggregate of 37.2% for the nine
month period ended December 31, 1999.
9) RELATED PARTY TRANSACTIONS
During the nine month period ended December 31, 1999, the Company received
funding from National Trust Properties, Inc. for the issuance of shares and debt
as described above. The Company's board member and a beneficial shareholder,
Mitchell J. Stein, is also an officer and director (but not owner) of NTP.
F-7
<PAGE> 75
10) COMMITMENTS AND CONTINGENCIES
The Company has national and international operations which, occasionally,
result in litigation which 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. An example of an
immaterial matter is the pending litigation that involves 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.
Icon was a small minority shareholder in the now defunct Sanga International,
Inc. ("Sanga"), and Sanga was one of the two entities that initially were
involved in developing the health care system prior to the Company's acquisition
of that system. In essence, Icon is attempting to overturn a settlement
agreement entered into during July 1999 among Sanga and certain shareholders,
officers and directors of Sanga which provides how certain assets of Sanga,
including the 9,000,000 shares of the Company's common stock that Sanga
perfected under the settlement agreement, will be treated as between the
creditors and shareholders of Sanga. The Company believes that the creditors and
shareholders of Sanga disagree with Icon's position. The Company has actively
asserted that Icon is not the actual or rightful owner of any Sanga shares. In
fact, a bankruptcy court already has issued an order to show cause against Icon
for contempt of the bankruptcy stay arising from Icon's filing of its state
court action against the Company and others. An application for a contempt order
also is being sought in the state action against Icon for its willful failure to
appear at depositions. A motion to dismiss has also been brought against Icon
and Hall. The Company has also sued Hall and Icon for breach of contract, and
Hall and Icon defaulted and failed to file an answer to the complaint. The
Company is confident it will obtain judgment against Hall and Icon.
11) SUBSEQUENT EVENTS
Subsequent to quarter end, 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 current clients for the
provision of e-Med's products. In addition, the agreement provides for a
proprietary Master Portal wherein all of NCFE's and e-Med's products and
services shall be able to be marketed and sold to all of NCFE's and e-Med's
customers. e-Med 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-Med'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-Med
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 effect
of this transaction will be accounted for in the fourth quarter of 2000.
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, the Company issued
approximately 1.9 million shares of our common stock to VirTx and may issue up
to an additional 1.9 million shares pursuant to an earn-out arrangement. This
F-8
<PAGE> 76
transaction will be accounted for as a purchase and the Company estimates that
the majority of the purchase price will be allocated to goodwill and other
intangible assets.
We concluded a $60 million private equity offering in March 2000. We sold 4
million shares of our common stock at $15 per share. After payment of investment
fees and expenses, we netted approximately $55.7 million. We believe this
financing will assist us in continuing our growth and executing our business
strategy.
In March 2000, we acquired an exclusive 10-year license from Quantum Digital
Technology (previously known as CypherComm, Inc.) for application of that
company's 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 ("Newco Med") that will focus on selling security
solutions to the health care industry. In return for the license, Quantum
Digital will receive 25% of Newco Med profits, plus warrants to purchase up to
25% of Newco Med equity at $0.01 per share in case of certain equity financing
of Newco Med. 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. 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 for further
development of the encryption technology to fit various markets. We will fund
the lab jointly with Quantum Digital.
In April 2000, we entered into a 30-year management agreement and a preferred
provider agreement with PrimeRx.com, Inc., formerly known as PrimeMed Pharmacy
Services, Inc., a pharmacy management services company. PrimeRx.com offers a
variety of managed care pharmacy services that enable its clients to more
effectively manage their pharmacy benefits. PrimeRx.com'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.com also operates
more than 40 pharmacies across 9 states serving more than 1,000,000 managed care
enrollees. In connection with this agreement, we have management control and are
financially responsible for the obligations and commitments of PrimeRx.com.
In May 2000, we acquired Illumea Corporation in exchange for approximately 1.3
million shares. Illumea develops and markets Internet-based remote inspection
and image sharing solutions in the medical and life sciences industries. This
transaction will be accounted for as a purchase and the Company estimates that
the majority of the purchase price will be allocated to goodwill and other
intangible assets.
We established a majority owned master reseller for the AustralAsia region
called B2B.Net Technology Ltd. (B2B.Net). B2B.Net will act as a direct reseller
of our products in Australia and as an agent for sub-reselling in other
AustralAsia regions.
B2B.Net recently completed a reverse acquisition of an Australian Stock
Exchange company and at the same time has completed an underwritten offering
for approximately $6.0 million Australian 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.
F-9
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of e-MedSoft.com:
We have audited the accompanying consolidated balance sheet of
e-MedSoft.com (a Nevada corporation) and subsidiaries as of March 31, 1999, and
the related consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and cash flows for the four months ended March 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of e-MedSoft.com and
subsidiaries as of March 31, 1999, and the results of their operations and their
cash flows for the four months ended March 31, 1999 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
September 10, 1999
F-10
<PAGE> 78
e-MedSoft.com
Consolidated Balance Sheet
March 31, 1999
<TABLE>
<CAPTION>
ASSETS
Current Assets:
<S> <C>
Cash $ 51,712
Restricted cash 138,435
Accounts receivable, net of allowance
for doubtful accounts of $89,271 4,181,285
Other receivables 1,062,133
Inventory 713,002
Related party receivables 193,263
Prepayments and other 381,591
Deferred taxes 14,555
-----------
6,735,976
-----------
Long-Term Assets:
Property and equipment, net 1,308,863
Goodwill, net of amortization of $28,810 8,054,630
Deferred financing, net of amortization of
$361,754 1,363,439
-----------
10,726,932
-----------
$17,462,908
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 967,425
Accounts payable 6,017,183
Accrued liabilities 412,405
Income taxes payable 165,280
Current maturities of bridge financing 650,623
Current maturities of capitalized leases 165,275
-----------
8,378,191
Long-Term Liabilities:
Capital leases 416,409
Bridge financing 1,361,877
Other long-term liabilities 1,193,581
-----------
2,971,867
Stockholders' Equity:
Common shares, $.001 par value,
100,000,000 shares authorized,
51,816,470 issued and outstanding 51,816
Paid in capital 6,951,312
Accumulated deficit (904,617)
Accumulated other comprehensive income 14,339
-----------
6,112,850
-----------
$17,462,908
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-11
<PAGE> 79
e-MedSoft.com
Consolidated Statement of Operations
For The Four Months Ended March 31, 1999
<TABLE>
<CAPTION>
<S> <C>
NET SALES $ 2,649,563
OPERATING EXPENSES:
Cost of sales 1,998,505
Software development costs 38,619
Sales and marketing expense 188,340
General and administrative 767,017
Depreciation and amortization 46,303
-----------
Total Operating Expenses 3,038,784
OPERATING LOSS (389,221)
OTHER INCOME (EXPENSE):
Interest expense (376,889)
Other 421
-----------
LOSS BEFORE INCOME TAXES (765,689)
TAX PROVISION 138,928
-----------
NET LOSS $ (904,617)
===========
BASIC AND DILUTED LOSS PER SHARE $ (0.02)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 38,061,371
==========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-12
<PAGE> 80
e-MedSoft.com
Consolidated Statement of Stockholders'
Equity and Comprehensive Income (Loss)
For The Four Months Ended March 31, 1999
<TABLE>
<CAPTION>
Common Shares Accumulated
Amount Other
(.001 Paid-In Accumulated Comprehensive Total
Number par value) Capital (Deficit) Income (Loss) Equity
--------- ---------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Opening Balance,
TSI
December 1, 1998 - $ - $ - $ - $ - $ -
Recapitalization
of e-MedSoft 7,801,150 7,801 2,476 - - 10,277
Common stock issued
for acquisition
of TSI assets 43,970,320 43,970 (43,970) - - -
Shares issued
for services 45,000 45 155,113 - - 155,158
Issue of warrants
for services - - 225,000 - - 225,000
Common stock con-
tributed by TSI
for acquisition
of e-Net - - 5,400,000 - - 5,400,000
Common stock
contributed by
TSI for loan
inducement - - 1,212,693 - - 1,212,693
Comprehensive income
(loss):
Operating losses of
TSI through
acquisition,
January 7, 1999 - - - (33,533) - (33,533)
Operating losses of
e-MedSoft for the
period January 8,
1999 to March 31,
1999 - - - (871,084) - (871,084)
Translation
adjustment - - - - 14,339 14,339
----------
Comprehensive Income
(Loss) - - - - - (890,278)
---------- ------- ---------- --------- ------- ----------
Balance,
March 31,
1999 51,816,470 $51,816 $6,951,312 $(904,617) $14,339 $6,112,850
========== ======= ========== ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-13
<PAGE> 81
e-MedSoft.com
Consolidated Statement of Cash Flows
For The Four Months Ended March 31, 1999
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $ (904,617)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 17,493
Amortization of goodwill 28,810
Amortization of deferred financing costs 361,754
Issuance of shares and warrants for services
provided 380,158
(Increase)decrease in current assets:
Accounts receivable (1,304,693)
Inventory 6,713
Prepayments and other 78,665
Related party receivables (185,567)
Increase in current liabilities:
Accounts payable and accrued liabilities 1,043,300
Income taxes payable 93,356
----------
Cash Used In Operating Activities (384,628)
----------
CASH FLOWS FROM INVESTING ACTIVITIES--
Net cash paid for acquisition of e-Net (2,254,658)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge financing for acquisition
of e-Net $1,500,000
Proceeds from other long-term liabilities 1,500,000
Payments on other long-term liabilities (306,419)
Net decrease in capital leases (2,583)
----------
Cash Provided by Financing Activities 2,690,998
----------
INCREASE IN CASH 51,712
CASH AT THE BEGINNING OF THE PERIOD -
----------
CASH AT THE END OF THE PERIOD $ 51,712
==========
SUPPLEMENTAL CASH FLOW DATA--Cash paid during the year for:
Interest $ 3,150
Income taxes $ -
NON-CASH TRANSACTIONS
Transfer of restricted stock for acquisition
of e-Net $5,400,000
Transfer of restricted stock for inducement
to lend 1,212,693
----------
$6,612,693
==========
</TABLE>
F-14
<PAGE> 82
e-MedSoft.com
Notes to Consolidated Financial Statements
As of March 31, 1999 and For The Four Months Then Ended
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Risk
e-MedSoft.com ("e-MedSoft" or the "Company") was initially organized in Nevada
on August 25, 1986, under the name of High Hopes, Inc., in order to evaluate,
structure and complete a merger with, or acquisition of, prospects consisting of
private companies, partnerships or sole proprietorships.
On January 7, 1999, e-MedSoft.com acquired the assets of 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% of the
then outstanding shares. This transaction was accounted for as a reverse
acquisition. Therefore, the statements included herein combine the operations of
TSI from its inception, December 1, 1998, through the acquisition date and its
assets at the acquisition date at carry over basis. In addition, the statements
include the operations of e-MedSoft after the acquisition through March 31,
1999.
On March 19, 1999 the Company acquired all of the outstanding shares of e-Net
Technology LTD ("e-Net", formerly Palm Technology LTD). This acquisition has
been accounted for under the purchase method. On May 28, 1999, e-MedSoft.com
changed its year-end from May 31 to March 31. Accordingly, the results of
operations presented herein for the four month period ended March 31, 1999
reflect approximately 13 days of e-Net's operations.
e-MedSoft.com acquired and has continued to develop an Internet-based
information and transaction platform application and software designed to
facilitate and streamline interactions among physicians, payers, suppliers and
patients. However, the Company's revenue and income potential from its Internet
solutions business is unproven. For the period ended March 31, 1999, the Company
generated all its revenue from e-Net's computer hardware and software sales. In
addition to being subject to all the risks of an early stage enterprise, the
Company is subject to numerous other risks, including rapidly changing and
evolving standards, an unproven business model, lack of capital and other risks.
Principals of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, e-Net. All significant intercompany transactions
and accounts have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities, and the reported amounts of revenues and expenses.
Actual results could differ from those estimates.
F-15
<PAGE> 83
Accounts Receivable
Accounts receivable consists primarily of trade receivables from the sale of
hardware and software to the Company's customers. The Company continually
reviews its trade receivables for collectibility and provides reserves as
needed. Concentration of credit risk with respect to accounts receivable are
limited due to the diversity of the Company's client base.
Inventory
Inventory, which consists of purchased computer and software products, is stated
at the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method for the Company's foreign inventory. The Company did not have any
domestic inventory at March 31, 1999.
Other Receivables
Other receivables primarily consist of amounts due to e-Net from a major
supplier for reimbursement of certain promotional and marketing costs.
Fair Value of Financial Instruments and Concentration of Credit Risk
The carrying amount reported in the balance sheet for cash, accounts receivable,
accounts payable and accrued liabilities approximates fair value because of the
immediate or short-term maturity of these financial instruments.
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization and
depreciation. Depreciation is computed using the straight-line method over the
estimated useful life of the related asset, generally three to six years.
Leasehold improvements and equipment acquired under capital leases are amortized
over the shorter of the remaining lease term or the estimated useful life of the
related asset.
Goodwill
Goodwill related to the acquisition of e-Net is amortized over a ten year life.
The Company continually evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. When
factors indicate that goodwill should be evaluated for possible impairment, the
Company uses an estimate of the related facility's undiscounted cash flow over
the remaining life of the goodwill in measuring whether the goodwill is
recoverable.
Software Development Costs
The Company is internally developing software that it plans to market to
providers, payers, suppliers and consumers. All costs incurred related to the
development of the software have been expensed. Once the Company concludes that
technological feasibility is obtained, all subsequent development costs will be
capitalized and reported at the lower of unamortized cost or net realizable
value. Software development costs are included in operating expenses in the
accompanying consolidated statement of operations.
F-16
<PAGE> 84
Recognition of Revenues
The Company's products and services are provided based upon purchase orders and
contractual agreements. Revenues from the sale of hardware and software are
recorded upon delivery and installation of the equipment at the customer site.
Revenues from services are recorded upon performance. To date, the Company has
derived no revenues from the sale of its web-based services.
Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS") 109, "Accounting for Income Taxes," which uses the
liability method to calculate defined income taxes.
Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries are translated at the current
exchange rates, and the effects of these translation adjustments are reported as
a separate component of stockholders' equity. Revenues and expenses of foreign
subsidiaries are translated at the average exchange rates that prevailed over
the applicable period.
Basic and Diluted Loss Per Share
In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed by dividing the net earnings available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net earnings for the period by the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares, consisting of incremental common shares issuable upon
the exercise of stock options and warrants are excluded from the diluted
earnings per share calculation if their effect is anti-dilutive.
A summary of the shares used to compute net loss per share is as follows:
<TABLE>
<CAPTION>
Four Months Ended
March 31, 1999
--------------
<S> <C>
Weighted average common shares
used to compute basic net loss
per share.............................. 38,061,371
Effect of dilutive securities........... --
----------
Weighted average common shares
used to compute diluted net
loss per share......................... 38,061,371
==========
</TABLE>
For the four months ended March 31, 1999, options and warrants to purchase
1,222,429 shares of common stock were excluded from the computation of diluted
loss per share as such options and warrants were anti-dilutive.
F-17
<PAGE> 85
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. 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 April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on Costs of Start-up Activities" ("SOP
98-5"), which is effective for fiscal years beginning after December 15, 1998.
SOP 98-5 requires that costs of start-up activities and organization costs be
expensed as incurred. The adoption of SOP 98-5 had no material effect on the
Company's financial position or results of operations.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income." For year-end
financial statements, SFAS No. 130 requires that comprehensive income, which is
the total of net income and all other non-owner changes in equity, be displayed
in a financial statement with the same prominence as other consolidated
financial statements. The Company displays the components of other comprehensive
income in the accompanying consolidated statements of stockholders' equity and
comprehensive income (loss).
2. BUSINESS COMBINATIONS
Acquisition of Health Care Management System
On January 7, 1999, the Company acquired from 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, SEH owned approximately 80% of the then
outstanding shares and is considered the acquiring company. This transaction is
considered a reverse acquisition that resulted in a capital reorganization.
Accordingly, the Company's assets have been reflected at book value and the
acquiring company's assets at acquisition date have been reflected at their
carryover basis. There has been no goodwill or intangible assets recognized for
this acquisition in the financial statements. No significant costs were incurred
in preparing the software for commercial use prior to December 1, 1998. In
connection with this transaction, the Company completed a 5 for 1 forward stock
split having a record date of January 4, 1999, which has been reflected for all
data presented.
Acquisition of e-Net Technology LTD
On March 19, 1999, the Company completed the acquisition of all of the issued
and outstanding stock of e-Net Technology Ltd. ("e-Net")(formerly Palm
Technology Holdings LTD), a U.K. based company, for approximately $7,600,000
consisting of $2,200,000 in cash and $5,400,000 in stock. e-Net is a diversified
computer services company, providing training, technical support, computer
software and computer hardware to a broad range of customers. This acquisition
has been accounted for under the purchase method and therefore, the financial
statements presented herein include the operations of e-Net from the acquisition
date.
F-18
<PAGE> 86
The Company purchased the shares of e-Net pursuant to a Share Acquisition
Agreement, which was originally entered into on July 22, 1998 between the
shareholders and Sanga International ("Sanga"). (Sanga was during the period a
member of e-MedSoft's principal shareholder, 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, SEH contributed and transferred 3 million of its
restricted shares to Sanga International for consideration of Sanga's assignment
of all rights and obligations under its agreement. These shares have been valued
by an independent appraiser at $5,400,000. The following table details the
allocation of the e-Net purchase price:
<TABLE>
<CAPTION>
<S> <C>
Purchase price $7,590,102
Acquisition costs 65,336
----------
Adjusted purchase price 7,655,438
Less: e-Net's historical net book value (428,002)
----------
Goodwill $8,083,440
==========
</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 goodwill is preliminary and subject to adjustment and the 10-year
amortization represents management's best estimate of the future benefit of this
acquisition.
The 10-year amortization represents management's best estimate of the future
benefit of this acquisition.
The following pro forma information, for the four months ended March 31, 1999,
gives effect to the acquisition of e-Net as if such transaction had occurred at
the beginning of the Company's operations on December 1, 1998 (unaudited):
<TABLE>
<CAPTION>
<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.
3. SOFTWARE LICENSE/ASSIGNMENT OF RIGHTS UNDER FINANCING AGREEMENTS
On January 23, 1999, the Company approved and ratified the termination of the
Software License Agreement which was entered into on December 2, 1998 between
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
F-19
<PAGE> 87
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 a
finance company and a member of TSI, to provide an initial funding of $1.5
million for accounts receivable to be derived from signed Master Agreements and
Memorandums of Understanding. The Company has reflected these funds as other
long-term liabilities.
4. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment $ 552,238
Office equipment, furniture and fixtures 236,195
Automobiles 537,923
----------
1,326,356
Less accumulated depreciation (17,493)
----------
Property and equipment, net $1,308,863
==========
</TABLE>
Property and equipment included assets acquired under capital lease obligations
with a cost of approximately $915,496.
5. DEBT AND CAPITAL LEASES
During the year the Company borrowed $750,000 from Trammel Investors, LLC
("Trammel") and $750,000 from Donald H. Ayers for the acquisition of e-Net.
These loans were evidenced by secured promissory notes totaling $1,750,000
("bridge financing"). Trammel's note was $250,000 more than the amount of its
loan as payment of a finders fee and certain other costs. The Company also
agreed to pay an origination fee to each lender in the amount of fifteen percent
of the amount of the promissory notes with such fees to be payable in fifteen
equal monthly payments commencing April 19, 1999. In connection with this
financing the Company issued to each lender five year warrants to purchase
250,000 shares of the Company's common stock at $3.85 (average closing bid of
the Company's stock during the five trading days before March 19, 1999). In
addition, TSI, the Company's majority shareholder, guaranteed the loans and
transferred to each lender one million restricted shares of the Company's common
stock as an inducement to make the loans. The Company also entered into a
registration rights agreement that provides certain registration rights to the
lenders with respect to the two million shares and the shares underlying the
warrants. The Company has obtained an independent valuation of these shares. The
warrants have been valued by the Black Scholes option-pricing model. In line
with these valuations the $1,500,000 received from the lenders has been
allocated between debt and paid in capital. This allocation is based on the
total estimated value of notes, shares and warrants received by the lenders. As
a result, $1,212,693 has been allocated to paid in capital for the shares
transferred and warrants issued and $287,307 has been allocated to bridge
financing debt. The difference between the amount allocated to debt and the
actual notes and fees payable resulting from this transaction is $1,725,193.
This amount has been reflected as deferred financing costs that accrete to the
bridge financing debt of $1,750,000 and finance costs payable of $262,500. In
addition debt was assumed in the acquisition of e-Net.
F-20
<PAGE> 88
During the four months ended March 31, 1999, the Company received $1,500,000
from one of the Company's strategic partners. These advances were provided in
accordance with its agreement to provide an initial funding for accounts
receivable to be derived from signed Master Agreements and Memorandum of
Understanding. The Company has repaid approximately $306,000 of this liability
at March 31, 1999. Repayment of the remaining balance will be based on the
collection of revenue from those certain contracts that secure this liability.
The Company anticipates repayment of such obligation to occur in the year ending
March 31, 2001.
Debt at March 31, 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Bridge financing secured by the Company's
assets, 12% interest, due May 19, 1999 and related
origination fees $2,012,500
Line of credit, interest at 2.5% above bank base
rate (5.5% at March 31,1999 and average rate),
with a minimum interest of 6%, expiring July 31,1999 967,425
Capital leases, interest at various
rates ranging from 9.75% to 11%, 581,684
expiring from 2000 through 2003
Other long-term liability 1,193,581
----------
Total debt $4,755,190
Less current portion $1,783,323
----------
Long-term portion $2,971,867
==========
</TABLE>
Subsequent to year-end, the Company renegotiated the terms of the bridge
financing. As a result, the $750,000 note payable to Don Ayers was exchanged for
150,000 warrants to acquire 150,000 shares of the Company's common stock at
$.01. This transaction will be reflected as a reduction of debt and an increase
to paid in capital. The payout terms on the remaining note to Trammel for
$1,000,000 were extended 24 months to May 19, 2001. The Company agreed to make a
$300,000 principal payment to Trammel to obtain this extension. The remaining
unpaid origination fees of $210,000, in connection with the original transaction
were waived by the debt holders.
The five year debt maturity schedule, adjusted for the above subsequent events,
is as follows:
Year ending March 31:
2000 $1,783,323
2001 $1,725,870
2002 $ 285,997
----------
$3,795,190
==========
Also, subsequent to year-end, the Company entered into a financing arrangement
with its strategic partner to fund the Company's operations in an amount not to
exceed $5,500,000. The obligation, which is secured by the Company's assets,
bears interest at prime plus 1% and is due one year from the draw date or on the
date the Company successfully obtains refinancing for the amounts loaned under
the financing arrangement, whichever is the earlier date. The Company borrowed
$2,500,000 through September 10, 1999.
F-21
<PAGE> 89
6. OPERATING LEASE COMMITMENTS
At March 31, 1999, the Company had operating lease obligations for office space,
primarily branch offices, in England expiring at various dates through 2005. The
minimum aggregate annual rentals were $250,000, of which $11,500 is reflected in
the Company's statement of operations since the e-Net acquisition date.
Subsequent to year-end, the Company entered into a lease agreement for office
space in California which expires in 2004. Also, the Company is negotiating an
agreement for additional lease space it currently occupies under an interim
agreement for $19,000 per month. The minimum annual rental for the California
office space is approximately $86,000.
Future minimum lease payments on noncancelable operating leases, adjusted for
the above subsequent events, is as follows:
Year ending March 31:
2000 $ 306,116
2001 265,356
2002 236,134
2003 206,912
2004 206,912
Thereafter 136,347
----------
$1,357,777
==========
7. DEFERRED FINANCING
Deferred financing costs resulting from the acquisition bridge financing (see
Note 5) will be amortized over the life of the bridge financing. During the year
ended March 31, 1999, $361,754 was reflected in financing costs.
8. RELATED PARTY TRANSACTIONS
The Company has transactions with related parties, primarily as a result of the
realignment of its operations in connection with the acquisition and development
of the healthcare management system. At March 31, 1999, the Company had related
party receivables of $193,263.
In December, 1998, a finance company, transferred $750,000 to Sanga in
accordance with an agreement to provide an initial funding of $1.5 million for
accounts receivable to be derived from signed Master Agreements and Memorandum
of Understanding. On January 23,1999, Sanga assigned and transferred to the
Company all rights, title and interest under or with respect to all of Sanga's
contractual rights and privileges arising from their agreements with various
healthcare providers for the sub-leasing of the Software. Additionally, the
rights held by Sanga International, Inc. in and to its funding agreement with
the finance company was assigned to the Company. In connection with these
activities, the previous funding received by Sanga from such healthcare
agreements was legally transferred to the Company and has been reflected as
other long-term liabilities. Subsequent to and arising out of this assignment,
Sanga International, Inc. transferred $604,970 of that funding to e-MedSoft.com.
The remaining balance of $145,030 is reflected as a related party receivable
from Sanga International, Inc. to the Company at March 31, 1999.
F-22
<PAGE> 90
The Company's President, Chief Executive Officer and Chairman of the Board also
served as President and Chief Executive Officer of Sanga International through
July 30, 1999 and is a Co-Manager of TSI, the majority shareholder of e-MedSoft.
During the period, HealthMed, a member to TSI, has paid certain expenses on
behalf of the Company and TSI. In addition, the Company has reimbursed HealthMed
for certain of these expenses and has 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.
In addition, prior to the Company's acquisition of e-Net, e-Net paid certain
expenses on the behalf of Sanga's U.K. operations. As of March 31, 1999, the
Company had a receivable of $32,433 in this regard.
9. STOCKHOLDERS' EQUITY
On January 7, 1999, the Company issued 43,970,320 restricted shares (post-split)
of the Company's common stock and 1,035,429 warrants to purchase restricted
shares of the Company's common stock for the acquisition of a healthcare
management system. This transaction resulted in a reverse acquisition with 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 financial statements presented herein.
In March 1999, the Company issued 45,000 shares of restricted stock as payment
for consulting services. The fair market value of these restricted common shares
has been expensed as general and administrative expense.
Subsequent to year-end, the Company amended its Articles of Incorporation to
provide that the Company has the authority to issue 100,000,000 shares of $.001
par value common stock and 5,000,000 shares of $.001 par value preferred stock.
The preferred stock has rights and privileges as determined by the Company's
Board of Directors.
10. WARRANTS AND STOCK OPTIONS
Warrants
In January 1999, the Company issued warrants to purchase 50,000 shares of the
Company's common stock at $.25 to a consultant in exchange for professional
services. The Company recorded an expense of $225,000 which represents the
Company's estimate of the fair market value of services rendered. Had the
Company valued the warrants using the Black Scholes option-pricing model, the
value of the warrants would have been comparable.
At March 31, 1999, the Company had issued 1,585,429 warrants to purchase
1,585,429 restricted shares of the Company's common stock. The purchase price of
the warrants ranged from $.25 to $3.85 over a five year period with an aggregate
purchase price of $2,196,357. Of these warrants, 1,035,429 were issued in
connection with the acquisition of the Internet based health care management
software and 500,000 were issued in connection with the funding of the e-Net
acquisition.
F-23
<PAGE> 91
In May 1999, the Company entered into a one year exclusive agreement with an
investment banking firm to provide numerous services to the Company including,
but not limited to, assistance to the Company on corporate developments and
financing strategies, identifying prospective investors and acquisition targets,
performing due diligence and valuation analyses of such targets. In connection
with this agreement, the Company issued three separate warrants of 1,725,715
each to purchase an aggregate of 5,177,145 shares of the Company's common stock.
The warrants were immediately exercisable at prices of $3.50, $5.00 and $7.00
per share. The warrants issued by the Company in favor of the investment banking
firm are cancelable by the Company in certain events arising out of
circumstances where the investment banking firm fails to abide by the terms of
its investment banking agreements with the company.
In June 1999, the Company issued warrants to purchase 150,000 shares of common
stock at $.01 each in satisfaction of a $750,000 note payable (see Note 5).
Stock Options
In February 1999, the Company's Board of Directors approved the establishment of
the 1999 Stock Compensation Plan (the "1999 Plan"). The 1999 plan has not yet
been submitted to the Company's stockholders for their approval. The total
number of shares of common stock subject to options under the 1999 Plan is
5,000,000 plus an annual increase on the first day of the fiscal year beginning
April 1, 1999, the lesser of 1,000,000 common shares or 4% of the outstanding
common shares on such date, subject to adjustment in the event of certain
recapitalizations, reorganizations and similar transactions. Options may be
exercisable by the payment of cash or by other means as authorized by the Board
of Directors.
The 1999 Plan also provides that the Board may issue restricted stock pursuant
to restricted stock right agreements which will contain such terms and
conditions as the Board determines.
The Company has granted stock options to officers and employees subject to the
approval of the 1999 Plan by the Company's stockholders. The options expire in
10 years on March 4, 2009, and vest over a three year period. The Company has
elected to follow APB No. 25 in accounting for its employee stock options.
Accordingly, no compensation cost has been recognized for option plans. Had the
determination of compensation costs been based on the fair market value at the
grant dates for awards under these plans, consistent with the method of SFAS No.
123, the Company's net loss would have been $(910,560) and basic and diluted
loss per share would have been $(0.02) for the four months ended March 31, 1999.
At March 31, 1999, the Company's officers and employees held 137,000 of the
Company's outstanding stock options of which none were exercisable. Information
relating to stock options during 1999 is as follows:
F-24
<PAGE> 92
<TABLE>
<CAPTION>
Option Price
Number of Per Share
Shares Average
--------- ------------
<S> <C> <C>
Shares under option at
December 1, 1998 - -
Granted 209,000 $ 2.56
Exercised - -
Forfeited (72,000) $ 2.56
------- ------
Shares under option at
March 31, 1999 137,000 $ 2.56
======= ======
</TABLE>
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>
<S> <C>
Expected dividend yield ......... 0%
Expected volatility ............. 110%
Risk-free interest rates ........ 5.55%
Expected option lives (years).... 3
Weighted average fair value
of options granted during
the period ..................... $1.76
</TABLE>
Subsequent to year-end, the Company entered into an employment agreement with
its Chairman and Chief Executive Officer for an initial term of three years
beginning January 15, 1999. The agreement provides for a base salary, bonus and
other benefits. The agreement also provides that the Chairman and Chief
Executive Officer earns 5,000 shares of the Company's common stock for each
month of employment and additional shares if the Company meets certain net sales
targets.
On September 9, 1999, the Company committed to issue 195,000 common shares at
$1.00 per share to certain members of management of e-Net in connection with
short-term financing obtained from such executives.
The Company's subsidiary, e-Net, contributed approximately $1,500 to a defined
contribution pension plan from the date of the acquisition through March 31,
1999.
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Current:
Domestic ...................... $ -
Foreign ....................... 138,228
Deferred ........................ 700
--------
Provision for income taxes ...... $138,928
========
</TABLE>
Loss before income taxes is net of approximately $448,153 of income related to
the Company's U.K. operations.
F-25
<PAGE> 93
The components of the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss $ 709,462
Depreciation 14,555
---------
724,017
Valuation reserve (709,462)
---------
Net deferred tax asset $ 14,555
=========
</TABLE>
A reconciliation of the provision for income taxes to the amount computed at the
federal statutory rate is as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal income tax at statutory rate $(307,570)
State income tax, net of federal benefit (52,958)
Foreign taxes at rates less than domestic
rates 13,444
Change in valuation reserve 485,462
Permanent differences 550
---------
$ 138,928
=========
</TABLE>
The net operating losses expire in 2012. Because of a change in ownership of the
Company, future utilization of these loss carryovers has been limited, and
consequently, the deferred tax asset has been fully reserved.
12. SEGMENT INFORMATION
In June 1997, SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information" was issued effective for fiscal years beginning after
December 15, 1997.
e-MedSoft.com derives its revenue from two operating segments: (1) transaction
and information services, primarily healthcare, delivered over the Internet,
private intranets or other networks and consulting contracts related to these
services and (2) the sale and installation of hardware and software products.
During the current fiscal period, the Company derived all of its revenues from
its operations in the United Kingdom, primarily from computer hardware and
software sales.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on operating earnings of the respective business segments.
The Company's revenues from external customers and the long-lived assets at
March 31, 1999, classified by geographic area, were as follows (in thousands):
<TABLE>
<CAPTION>
United United
States Kingdom Total
------ ------- -----
<S> <C> <C> <C>
Revenues ........................ $ - $2,650 $ 2,650
Long-lived assets ............... 9,654 7,794 17,448
</TABLE>
F-26
<PAGE> 94
The Company's U.K. subsidiary, e-Net, has three customers which sales represent
a significant portion of e-Net's net sales for the 13 days in the period ended
March 31, 1999. Sales to these customers were 24%, 15% and 11% of net sales for
the thirteen days in the period ended March 31, 1999. e-Net also had two
significant suppliers that amounted to 71% and 14% of purchases for the 13 days
ended March 31, 1999.
13. SUBSEQUENT EVENTS
On September 1, 1999, the Company acquired from University Affiliates IPA ("UA,"
an affiliate of University of Southern California School of Medicine) a managed
care computer software technology for approximately $6,500,000, including a cash
payment of $2,000,000 and the issuance of 1,721,973 shares of the Company's
common stock with an approximate value of $4,500,000. In addition, the Company
entered into a ten-year contract with UA for exclusive access to UA's network of
more than 2,500 physicians. The agreement includes revenue sharing of UA's
network and exclusive use of the technology in connection with UA's expansion of
its physician network. In addition, the Company has agreed to finance certain
costs to further develop the software.
F-27
<PAGE> 95
To the Stockholders and Board of Directors of e-MedSoft.com:
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of e-MedSoft.com for the period June 1, 1998 to January 7,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements of e-MedSoft.com referred to above
present fairly, in all material respects, the results of its operations and its
cash flows for the period June 1, 1998 to January 7, 1999 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
September 10, 1999
F-28
<PAGE> 96
e-MedSoft.com
Statement of Operations
For The Period June 1, 1998 to January 7, 1999
<TABLE>
<CAPTION>
<S> <C>
NET SALES $ -
OPERATING EXPENSES
Cost of sales -
Sales and marketing expense 812
General and administrative 4,607
-----------
Total Operating Expenses 5,419
OPERATING LOSS (5,419)
OTHER INCOME (EXPENSE)
Interest expense (937)
-----------
LOSS BEFORE INCOME TAXES (6,356)
TAX PROVISION -
-----------
NET LOSS $ (6,356)
===========
BASIC AND DILUTED LOSS PER SHARE $ (0.00)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 7,052,059
===========
</TABLE>
F-29
<PAGE> 97
e-MedSoft.com
Statement of Stockholders' Equity
For the period June 1, 1998 to January 7, 1999
<TABLE>
<CAPTION>
Common Shares
Amount
(.001 Paid-In Accumulated Total
Number par value) Capital (Deficit) Equity
--------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance,
May 31, 1998 7,001,150 $7,001 $529,146 $(561,110) $ (24,963)
Common stock
issued for
retirement of
debt 800,000 800 40,796 - 41,596
Net loss - - - (6,356) (6,356)
--------- ------ -------- --------- ---------
Balance,
January 7, 1999 7,801,150 $7,801 $569,942 $(567,466) $ 10,277
========= ====== ======== ========= =========
</TABLE>
F-30
<PAGE> 98
e-MedSoft.com
Statement of Cash Flows
For The Period June 1, 1998 to January 7, 1999
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,356)
Adjustments to reconcile net loss to net
cash used in operating activities:
(Increase) in prepayments and other
receivables (5,420)
Increase in accounts payable and
accrued liabilities 7,350
----------
Cash Used in Operating Activities (4,426)
----------
CASH FLOWS FROM FINANCING ACTIVITIES--
Proceeds from notes payable 4,000
----------
DECREASE IN CASH (426)
CASH AT THE BEGINNING OF THE PERIOD 617
----------
CASH AT THE END OF THE PERIOD $ 191
==========
SUPPLEMENTAL CASH FLOW DATA Cash paid during the year for:
Interest $ -
Income taxes -
NON-CASH TRANSACTIONS
Issuance of restricted stock for payment
of debt $ 41,596
</TABLE>
F-31
<PAGE> 99
e-MedSoft.com
Notes to Closing Financial Statements For the
Period from June 1, 1998 to January 7, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
e-MedSoft.com ("e-MedSoft" or the "Company") was initially organized in Nevada
on August 25, 1986, under the name of High Hopes, Inc., in order to evaluate,
structure and complete a merger with, or acquisition of, prospects consisting of
private companies, partnerships or sole proprietorships.
On January 7, 1999, e-MedSoft.com acquired the assets of 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% of the
then outstanding shares. This transaction was accounted for as a reverse
acquisition. Therefore, the closing financial statements included herein present
the operations of the Company from June 1, 1998 to January 7, 1999. The Company
had minimal activity for this period.
Per Share Information
In accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
"Computation of Earnings Per Share," basic earnings per share is computed by
dividing the net earnings available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing the net earnings for the period by
the weighted average number of common and common equivalent shares outstanding
during the period.
Common equivalent shares, consisting of incremental common shares issuable upon
the exercise of stock options and warrants are excluded from the diluted
earnings per share calculation if their effect is anti-dilutive.
A summary of the shares used to compute earnings per share is as follows:
<TABLE>
<CAPTION>
Period from
June 1, 1998 to
January 7, 1999
---------------
<S> <C>
Weighted average common shares
used to compute basic net loss
per share.............................. 7,052,059
Effect of dilutive securities........... --
---------
Weighted average common shares
used to compute dilutive net
loss per share......................... 7,052,059
=========
</TABLE>
F-32
<PAGE> 100
Income Taxes
As of January 7, 1999, e-MedSoft had net operating losses available for
carry-over to future years of approximately $560,000, expiring in 2012. Because
of changes in ownership of the Company, future utilization of these loss
carryovers has been limited, consequently the deferred tax asset of
approximately $224,000 has been fully reserved.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported period. Actual results could differ from those estimates.
2. STOCKHOLDERS' EQUITY
In December 1998, in conjunction with the anticipated acquisition of TSI's
Internet based health care management system, the Company's Board of Directors
approved a 5 for 1 forward stock split for stockholders of record on January 4,
1999. All prior share information has been restated to reflect the stock split.
On December 24, 1998, e-MedSoft.com issued 800,000 shares (post-split) of the
Company's stock, for the retirement of debt and other liabilities, which, in
aggregate, amounted to $41,596.
3. REVERSE ACQUISITION OF E-MEDSOFT.COM
On January 7, 1999, the Company acquired the assets of TSI for 41,417,176
restricted shares of the Company's common stock. In addition, as consideration
for finder's fees and services, the Company issued 2,553,144 restricted shares
of the Company's common stock and 1,035,429 warrants to purchase restricted
shares of the Company's common stock. As a result of this transaction, TSI owned
approximately 80% of the then outstanding shares. This transaction was accounted
for as a reverse acquisition that resulted in a capital reorganization.
F-33
<PAGE> 101
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
PrimeRX.com, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' deficiency and cash flows
present fairly, in all material respects, the financial position of PrimeRX.com,
Inc. (formerly PrimeMed Pharmacy Services Group, Inc.) and Subsidiaries (the
"Company") as of December 31, 1999 and 1998, and the results of their operations
and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States. 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 of these financial statements in accordance with auditing
standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Las Vegas, Nevada
March 24, 2000, except for note 14 as to which the
date is April 7, 2000
F-34
<PAGE> 102
PRIMERX.COM, INC. AND SUBSIDIARIES
(FORMERLY PRIMEMED PHARMACY SERVICES GROUP, INC.)
CONSOLIDATED BALANCE SHEETS
As Of December 31, 1999 And 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 407,673 $ -
Accounts receivable, net of allowance for
doubtful accounts of $460,517 (1999) and $0
(1998) 7,427,597 1,798,390
Inventory 4,025,577 773,024
Prepaid expenses 157,415 33,915
------------ ------------
Total current assets 12,018,262 2,605,329
------------ ------------
Property and equipment (net) 2,380,596 540,842
------------ ------------
Other assets:
Goodwill and other intangibles, net of
accumulated amortization of $186,637 (1999) 5,217,499 -
Deposits and other assets 349,434 100,074
------------ ------------
Total other assets 5,566,933 100,074
------------ ------------
$ 19,965,791 $ 3,246,245
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY:
Current liabilities:
Accounts payable $ 4,960,151 $ 823,598
Accrued liabilities 872,774 137,285
Current portion of long-term debt 2,109,293 366,923
Current portion of capital lease obligations 264,817 -
------------ ------------
Total current liabilities 8,207,035 1,327,806
Long-term debt, less current portion 4,234,170 34,221
Capital lease obligations, less current portion 953,388 -
Advances from shareholders 9,351,442 3,455,000
------------ ------------
Total liabilities 22,746,035 4,817,027
------------ ------------
Commitments and contingencies
Shareholders' deficit:
Common stock, $.01 par value, 400,000 shares
authorized, 204,500 (1999) and 188,000 (1998)
shares issued and outstanding 2,045 1,880
Additional paid-in capital 474,555 468,120
Accumulated deficit (3,256,844) (2,040,782)
------------ ------------
Total shareholders' deficit (2,780,244) (1,570,782)
------------ ------------
$ 19,965,791 $ 3,246,245
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 103
PRIMERX.COM, INC. AND SUBSIDIARIES
(FORMERLY PRIMEMED PHARMACY SERVICES GROUP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1999 And 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Sales $ 40,942,597 $ 9,118,080
Management fee income 908,393 -
------------ ------------
Total revenues 41,850,990 9,118,080
------------ ------------
Cost of sales (31,122,902) (7,136,111)
------------ ------------
Gross profit 10,728,088 1,981,969
------------ ------------
Operating expenses:
Payroll and related expenses 7,702,635 2,073,509
Selling, general and administrative 2,752,158 1,289,638
Occupancy expenses 946,776 224,627
Provision for pharmacy closings 169,387 -
------------ ------------
Total operating expenses 11,570,956 3,587,774
------------ ------------
Operating income (loss) (842,868) (1,605,805)
Interest expense, net (365,694) (10,632)
------------ ------------
Loss before income tax provision (1,208,562) (1,616,437)
------------ ------------
Income tax provision 7,500 -
------------ ------------
Net loss $ (1,216,062) $ (1,616,437)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-36
<PAGE> 104
PRIMERX.COM, INC. AND SUBSIDIARIES(FORMERLY PRIMEMED PHARMACY
SERVICES GROUP, INC.)CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
DEFICIENCY for The Years Ended December 31, 1999 And 1998
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------- ------ --------- ------------ --------
- ---
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997 1,400 $ 14 $ 99,986 $ (424,345) $ (324,345)
Stock split 38,600 386 (386) - -
Issuances of common stock 160,000 1,600 398,400 - 400,000
Repurchases of common stock (12,000) (120) (29,880) - (30,000)
Net loss - - - (1,616,437) (1,616,437)
Balances, December 31, 1998 188,000 1,880 468,120 (2,040,782) (1,570,782)
Issuances of common stock 16,500 165 6,435 - 6,600
Net loss - - - (1,216,062) (1,216,062)
Balances, December 31, 1999 204,500 $2,045 $474,555 $(3,256,844) $(2,780,244)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE> 105
PRIMERX.COM, INC. AND SUBSIDIARIES
(FORMERLY PRIMEMED PHARMACY SERVICES GROUP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1999 And 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (1,216,062) $ (1,616,437)
Adjustments to reconcile net loss to net
cash used in by operating activities:
Depreciation and amortization 588,710 56,355
Provision for doubtful accounts 460,517 -
Provision for pharmacy closings 169,387 -
Changes in operating assets and liabilities:
Accounts receivable (4,515,616) (1,409,954)
Inventory 674,210 (130,694)
Prepaids (90,127) (24,336)
Deposits and other assets (231,011) (77,777)
Accounts payable 2,820,557 533,333
Accrued liabilities 226,594 1,620
------------ ------------
Total adjustments 103,221 (1,051,453)
------------ ------------
Net cash used in operating activities (1,112,841) (2,667,890)
------------ ------------
Cash flows from investing activities:
Capital expenditures (755,862) (531,852)
Cash paid for acquisitions of pharmacies (7,845,846) -
------------ ------------
Net cash used in investing activities (8,601,708) (531,852)
------------ ------------
Cash flows from financing activities:
Proceeds from issuances of common stock 6,600 400,000
Repurchases of common stock - (30,000)
Proceeds from advances from shareholders 5,896,442 2,855,000
Proceeds from issuances of long-term debt 4,867,394 43,556
Repayments of long-term debt (616,419) (140,152)
Payments under capital lease obligations (31,795) -
------------ ------------
Net provided by financing activities 10,122,222 3,128,404
------------ ------------
Net increase (decrease) in cash 407,673 (71,338)
Cash, beginning of year - 71,338
------------ ------------
Cash, end of year $ 407,673 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-38
<PAGE> 106
PRIMERX.COM AND SUBSIDIARIES
(Formerly PrimeMed Pharmacy Services Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business:
PrimeRX.com, Inc. was incorporated in August 1998, as PrimeMed Pharmacy
Services Group, Inc., a Delaware corporation. In March 2000, the name was
changed to PrimeRX.com, Inc. (hereafter referred to as "RX").
RX is a holding company and at December 31, 1999, had no business
activities other than its investment in subsidiaries (collectively, the
"Company"). The Company is focused on serving the pharmacy needs of various
managed care providers that are at-risk under capitated arrangements. The
Company owns and operates (and manages for others), pharmacies located in or
near medical groups and clinics, independent physician associations, physician
practice management organizations, federally qualified community health
centers, correctional facilities, long-term care facilities and outpatient
hospital pharmacies.
At December 31, 1999, the Company owned and operated 32 pharmacies, and
managed nine additional pharmacies that are owned by managed care providers.
The pharmacies are located in California, Florida, Georgia and Nevada. RX's
subsidiaries, all of which are wholly owned, consist of the following:
* PrimeMed Pharmacy Services, Inc. ("Services") Services was
originally incorporated in 1996. Services owns and operates ten pharmacy
locations and provides management services for nine other pharmacies for which
it receives management fees as more fully described under "Revenues".
Services also completed the acquisition of one pharmacy location in October
1999 (See Note 3).
* Network Pharmaceuticals, Inc. ("Network") Network was acquired by RX
in February 1999, at which time it owned and operated thirteen pharmacies.
Subsequent to its acquisition, in October and November 1999, Network completed
two acquisitions, consisting of eight pharmacies and one pharmacy,
respectively (See Note 3).
* PrimeMed of Inland Empire, Inc. ("Inland Empire") Inland Empire was
formed in January 1999 to acquire the assets of a single pharmacy location
(See Note 3).
* PrimeMed RX.com, LLC (Rx.com) Rx.com was formed in August 1999.
Rx.com is developing an Internet web site and expects to utilize the Internet
to sell a variety of pharmaceuticals including (i) prescription and
over-the-counter medication (ii) clinic and physician medical supplies, and
(iii) other health and beauty products. Through December 31, 1999 Rx.com has
been engaged in start-up activities and has generated no revenues.
2. Summary of Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of RX and
Services for all years presented. The accounts of Network and Inland Empire
are included in the accompanying financial statements from February 1999 (per
Note 1) and January 18, 1999, respectively, the dates of acquisition (see Note
3). The accounts of Rx.com are included from its inception in August 1999.
All intercompany accounts and transactions are eliminated in consolidation.
F-39
<PAGE> 107
Revenues
Revenue is derived primarily from the sale of pharmaceuticals.
Additionally, the Company collects management fees in connection with the
services mentioned above. These fees generally consist of a per-prescription
processing fee and a monthly base fee intended to cover certain overhead
allocations. The Company is also entitled to an additional fee of up to 10%
of the sales of a managed outlet plus a stipulated share of remaining profit,
if any.
The Company recognizes sales upon delivery of products to its
prescription customers, which generally occurs at the Company's pharmacy
locations. The Company also delivers products to customer locations, in
which case sales are recognized upon delivery. All sales are final upon
customer receipt of products.
The Company fills prescriptions for patients of managed care providers
and similar organizations. At the time prescriptions are requested by
customers, the Company obtains a computerized verification of a patient's
insurance coverage and the amount that the Company will be paid by the
insurance company or other third party for the prescription. The Company
records revenue and a corresponding amount receivable from the insurance
company or other third party when both the electronic verification has been
received and the filled prescription has been delivered to the customer.
Inventories and Cost of Sales
Inventories are valued at the lower of cost or market, cost being
determined utilizing the specific identification method. Cost of sales
includes product cost, net of vendor rebates, discounts and allowances.
Cash Equivalents and Concentrations of Credit Risk
For purposes of the statements of cash flows, the Company considers all
short-term investments purchased with an original maturity of three months or
less to be cash equivalents.
As of December 31, 1999, the Company had cash and cash equivalents on
deposit with various major financial institutions that were in excess of FDIC
insured limits. The concentration of credit risk in these uninsured deposits
is mitigated by the Company's policy of placing such deposits with financial
institutions of high credit rating. Historically, the Company has not
experienced any loss of its cash and cash equivalents due to such
concentration of credit risk.
Property and Depreciation
Property, equipment and purchased software are recorded at cost.
Depreciation and amortization are computed for financial reporting purposes
utilizing primarily the straight-line method over the estimated useful life of
the related assets, which range from 5 to 15 years, or for leasehold
improvements and property under capital lease, the base lease term or
estimated useful life, if shorter. Upon retirement or disposal of assets, the
cost and accumulated depreciation are eliminated from the accounts and the
resulting gain or loss is included in income. Maintenance and repairs are
charged to earnings when incurred.
F-40
<PAGE> 108
Goodwill and Other Intangibles
Identifiable intangible assets are carried at cost and consist of
goodwill and non-compete agreements with sellers of businesses or assets
purchased by the Company (see Note 3). Goodwill, which represents the excess
of acquisition cost over the net assets acquired in business combinations, is
amortized on a straight-line basis over 15 years. Non-compete agreements are
amortized on a straight-line basis over the terms of the respective agreements
which range from three to five years. Amortization expense charged to
earnings amounted to $0 and $215,637 in 1998 and 1999, respectively.
Debt Issue Costs
Costs associated with the issuance of debt are deferred and amortized
over the life of the related indebtedness using the straight-line method,
which approximates the effective interest method.
Pharmacy Opening Costs
Pharmacy opening costs, consisting primarily of incremental labor,
supplies and occupancy costs directly related to the opening of specific
pharmacies are expensed as incurred.
Pharmacy Closing Costs
The Company provides an allowance for estimated costs and losses to be
incurred in connection with pharmacy closures. Such costs are recognized when
a pharmacy is specifically identified, costs can be estimated and closure is
planned to be completed within the next twelve months. The Company has
identified three such pharmacies at December 31, 1999. The allowance for
store closing costs is included in accrued expenses in the accompanying
financial statements, and consists primarily of future rents to be paid over
the remaining terms of the master lease agreements. Future rents will be
incurred through the expiration of the non-cancelable leases, which run
through August 2003. The allowance for pharmacy closing costs was $0 and
$83,880 at December 31, 1998 and 1999, respectively. The Company also charged
directly to expense the book value of assets to be disposed of in connection
with pharmacy closures of $0 and $85,507 for the years ended December 31, 1998
and 1999, respectively.
Valuation of Long-Lived Assets
Long-lived assets and certain identifiable intangible assets held and
used by the Company are reviewed for impairment whenever events or changes in
circumstances warrant such a review. The carrying value of a long-lived or
intangible asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the
cost to dispose.
F-41
<PAGE> 109
Computer Software Development Costs
Costs for development of internal use computer software are expensed as
incurred during the preliminary project stage. Once a computer software
project has reached the preliminary project stage, application development has
commenced, and management believes it is probable that the project will be
completed, qualifying costs are capitalized and are amortized over the life of
the related software once it is placed in service. Qualifying costs include
primarily payroll and payroll-related costs for employees who are directly
associated with the project, and external direct costs of materials and
services consumed in developing or obtaining internal use software.
Training costs, maintenance costs and other post-implementation costs are
expensed as incurred. There were no internal software development costs
incurred during 1998. The total amounts charged to operations and capitalized
by the Company during 1999 were $255,000 and $262,000, respectively, and
relate primarily to the development of the Rx.com Internet web site.
Income Taxes
Through December 31, 1999, the Company was an S corporation for federal
income tax purposes and, as a result, incurred no corporate federal income
taxes. As a result of the 1999 Acquisitions (see Note 3), the Company has
operations in numerous states, and certain of those states impose minimum S
corporation income taxes. Accordingly, the 1999 tax provision includes the
minimum S corporation income taxes payable to those states.
Effective January 1, 2000, the Company was converted to a C corporation.
In connection with the election of C corporation status, the Company will be
subject to corporate income taxes at the federal and state level. Deferred
tax assets and liabilities will be recognized for the expected future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities will be measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates will be
recognized in income in the period that includes the enactment date.
The election of C corporation status on January 1, 2000 will result in
the recognition in the Company's financial statements of a net deferred tax
asset of approximately $140,000 for future deductible expenses relating
principally to bad debt reserves.
Use of Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
The Company has chosen to account for stock-based compensation using the
intrinsic value method. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the market price of the Company's stock at
the date of grant over the amount an employee must pay to acquire the stock.
Disclosure is provided of the pro forma impact on net income for the
difference between the intrinsic value and fair value methods (see Note 11).
F-42
<PAGE> 110
3. Acquisitions:
During 1999, the Company completed a series of acquisitions
(collectively, the "1999 Acquisitions"), as more fully described below:
* Network Pharmaceuticals
On February 28, 1999, RX acquired all of the common stock of Network,
an operator of 13 pharmacies primarily located within medical office buildings
of practicing physicians in Southern California and Las Vegas, Nevada. The
Company acquired Network for a total cost of approximately $6.2 million, which
included assumption of approximately $1.7 million in liabilities for accounts
payable and other accrued expenses of the pharmacy operations. There are no
contingencies associated with the purchase. The purchase was financed through
a combination of cash, advances from the Company's majority shareholder, and
loans from a bank (the Network Term Loan and Network Revolver, as more fully
described in Note 8).
The purchase price was allocated to the assets acquired based on their
estimated fair values, and approximately $3.2 million was allocated to trade
accounts receivable, inventories, fixed assets and other assets. The excess
of the purchase price over the fair value of the net assets acquired
(goodwill) was approximately $3.0 million and is being amortized on a
straight-line basis over a period of 15 years.
* Talbert Pharmacies
On October 22, 1999, Network acquired certain assets from Talbert
Medical Group, Inc. ("Talbert") relating to eight pharmacy locations operated
by Talbert and located within office buildings of practicing physicians in
Southern California (the "Talbert Pharmacies"). Talbert is unrelated to the
Company, but does continue to manage the medical groups which are served by
the Talbert Pharmacies, and has given Network the right of first refusal to
acquire pharmacies within any future locations operated by Talbert.
Network acquired the assets of the Talbert Pharmacies for a total cost
of approximately $2.8 million, which included a five-year non-compete
agreement with the sellers of Talbert at a cost of $250,000. There are no
contingencies associated with the purchase, and no liabilities were assumed.
The purchase price was allocated to the assets acquired based on their
estimated fair values, and approximately $0.8 million was allocated to
inventories and fixed assets. The excess of the purchase price over the fair
value of the net assets acquired (goodwill) was approximately $1.8 million and
is being amortized on a straight-line basis over a period of 15 years. The
non-compete agreement was capitalized as an intangible asset and is being
amortized on a straight line basis over the life of the agreement.
* Other Acquisitions
In January 1999, RX formed Inland Empire to acquire the assets of a
pharmacy located in the Inland Empire area of Southern California. In
November 1999, Network acquired the assets of a pharmacy located in Cathedral
City, California. In October 1999, Services acquired the assets of a pharmacy
location that had been under a management contract with Services. Upon closing
the acquisition, the management contract was cancelled.
F-43
<PAGE> 111
The total purchase prices for these acquisitions were approximately
$0.6 million, there are no contingencies associated with the purchases, and no
liabilities were assumed. The purchase prices were allocated to the assets
acquired based on their estimated fair values, and approximately $0.3 million
was allocated to inventories and fixed assets. The excess of the purchase
prices over the fair value of the net assets acquired (goodwill) was
approximately $0.3 million and is being amortized on a straight-line basis
over a period of 15 years.
The 1999 Acquisitions were accounted for by the purchase method of
accounting for business combinations. Accordingly, the accompanying
consolidated statements of operations do not include any revenues or expenses
related to these acquisitions prior to the respective closing dates. The
following unaudited information presents the Company's consolidated operating
results on a pro-forma basis for the years ending December 31, 1998 and 1999,
assuming that the acquisitions occurred on January 1, 1998. Pro forma
adjustments include the following: (a) amortization of goodwill; (b)
depreciation based on the allocation of purchase price to the fixed assets;
(c) interest expense associated with the additional borrowings that occurred
as a result of the 1999 Acquisitions; and (d) the elimination of certain
non-recurring charges related directly to the 1999 Acquisitions.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues $60,784,000 $51,188,000
=========== ===========
Net income (loss) $ (457,000) $(2,240,000)
=========== ===========
</TABLE>
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
4. Supplemental Cash Flow Information:
Supplemental disclosures of cash flow information for the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash paid during the year for:
Interest $ 368,957 $ 9,180
========== ========
Noncash investing and financing activities:
Fixed assets financed through notes
payable and capital leases $1,312,029 $ -
========== ========
Financed inventory purchased (see Note 8) $1,587,983 $370,571
========== ========
</TABLE>
F-44
<PAGE> 112
5. Accounts Receivable:
Accounts receivable consists of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Trade account receivable $6,808,483 $1,741,677
Amounts due from managed pharmacies 1,054,234 7,573
Other accounts receivable 25,397 49,140
---------- ----------
7,888,114 1,798,390
Less: allowance for doubtful accounts (460,517) -
---------- ----------
$7,427,597 $1,798,390
========== ==========
</TABLE>
The Company does not hold collateral to secure payment of its accounts
receivable resulting from pharmaceutical sales. However, the majority of
these receivables are for reimbursement of prescription charges and are due
from large healthcare organizations. Management provides an allowance for
estimated potential losses. Exposure to credit loss is limited to the
carrying amount.
Amounts due from managed pharmacies include management fees earned and various
advances to enable the managed pharmacies to acquire inventory. The Company
generally does not require collateral on these receivables. Exposure to
losses on amounts due from managed pharmacies is principally dependent on the
financial condition of the sponsoring managed care organization. The Company
monitors its exposure for credit losses and maintains allowances for
anticipated losses.
6. Property and Equipment:
Property and equipment is comprised of the following at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Leasehold improvements $ 577,122 $ 52,565
Furniture, fixtures and equipment 2,537,090 550,462
---------- ---------
3,114,212 603,027
Less: accumulated depreciation and
amortization (733,616) (62,185)
---------- ---------
$2,380,596 $ 540,842
========== =========
</TABLE>
Depreciation expense of $351,837 and $56,355 was charged to expense for
the years ended December 31, 1999 and 1998, respectively.
F-45
<PAGE> 113
7. Accrued Expenses:
Accrued expenses consist of the following as of December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Accrued payroll and related expenses $586,616 $ 96,410
Other accrued expenses 286,158 40,875
-------- --------
$872,774 $137,285
========= ========
</TABLE>
8. Long-Term Debt:
Long-term debt consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Network Term Loan, collateralized, with
interest at the bank's prime rate plus
0.75% (a total of 9.25% at December 31,
1999); principal and interest payable
monthly through March 1, 2004 (see
"Network Loans" below). $2,812,500 $ -
Network Revolver, consisting of a
collateralized revolving credit agreement
with interest at the bank's prime rate
plus 0.5% (a total of 9.0% at December 31,
1999); interest only payable monthly
through maturity on March 1, 2001
(see "Network Loans"). 1,000,000 -
Network Installment Loan, consisting of
a series of non-revolving draws under
a collateralized credit agreement with
interest at the bank's prime rate plus
0.5% (a total of 9.0% at December 31,
1999); principal and interest payable
monthly through March 1, 2005 (see
"Network Loans"). 342,394 -
Inventory notes payable to suppliers,
collateralized by inventories, with
interest at the bank prime rate plus
1.0% (a total of 9.5% at December 31,
1999); principal and interest payable
monthly and maturing at various dates
from December 31, 2000 through March 1,
2001 (see "Inventory Notes Payable" below) 1,682,939 354,654
Subordinated term loan payable to a bank,
collateralized by substantially all of
the assets of Services, with interest at
the bank's prime rate plus 1.25% (a total
of 9.0% at December 31, 1999); principal
and interest payable monthly through
April 3, 2003. 365,125 -
</TABLE>
F-46
<PAGE> 114
<TABLE>
<S> <C> <C>
Other notes payable, collateralized by
certain equipment of the Company, with
interest at rates ranging from 7.5% to
10.25%; principal and interest due in
monthly installments through April 6, 2004. 140,505 46,490
---------- ----------
6,343,463 401,144
Less, current portion (2,109,293) (366,923)
---------- ----------
$4,234,170 $ 34,221
========== ==========
</TABLE>
Network Loans
On March 1, 1999, in connection with the consummation of the Network
acquisition described more fully in Note 3, the Company entered into a credit
and security agreement with City National Bank ("CNB") for a term loan of
approximately $3.1 million (the "Network Term Loan"). Concurrently with this
agreement, Network entered into a credit and security agreement with CNB for a
short-term revolving credit loan (the "Network Revolver") of $1.0 million for
working capital purposes. On August 16, 1999, the credit and security
agreements were amended to allow for a $0.4 million non-revolving multiple
installment term note (the "Network Installment Loan"). At December 31,
1999, the Company had fully utilized its borrowing capacity under these
agreements.
On February 14, 2000, the credit and security agreements were further
amended to: (a) extend the maturity date of the Network Revolver to March 1,
2001, (b) amend certain covenants and waive certain covenant violations for
the period ending December 31, 1999 without penalty, and (c) increase the
amount of borrowings available under the Network Installment Loan to $2.5
million.
The credit and security agreements governing the Network Term Loan,
Revolver and Installment Loan (collectively the Network Loans) contain
restrictive covenants which include, among other things, (a) limitations on
the incurrence of indebtedness, liens, leases and sale-leaseback transactions,
(b) limitations on capital expenditures, and (c) maintenance of a minimum
tangible net worth and various liquidity-related ratios. The Network Loans
are senior to, and have priority over, all other indebtedness of the Company.
The Company's principal and interest obligations under the Network Loans have
been unconditionally guaranteed by the Company's majority shareholder.
Inventory Notes Payable
As more fully described in Note 13, the Company is a party to a Master
Vendor Agreement with the Bergen Brunswig Drug Company ("BBDC"). In
connection with this agreement, the Company also entered into a loan agreement
(the " BBDC Loan Agreement") to finance inventory purchases. On December 1,
1999, in connection with the Company's increase in inventory levels resulting
from the Talbert Acquisition (see Note 3), BBDC loaned the Company
approximately $1.1 million. In January 2000, BBDC loaned the Company
approximately $0.5 million, which the Company used to payoff certain trade
accounts payable, notes payable, and related accrued interest obligations
owing to the Company's former primary supplier of inventories. As a result of
this transaction, amounts owing to the former supplier at December 31, 1999
have been classified as inventory notes payable under the BBDC agreement.
Amounts owed under notes payable to the former supplier totaled approximately
$0.4 million at December 31, 1998.
F-47
<PAGE> 115
As part of the BBDC Loan Agreement, BBDC has committed to providing
ongoing inventory financing for existing and planned pharmacy locations.
Maximum draws under the Loan Agreement for the years ended December 31, 2000,
2001, and 2002 are limited to $2.0, $2.0, and $1.0 million, respectively. The
January 2000 refinancing of amounts owed to the former supplier is not
considered a draw under this agreement.
Each borrowing under the BBDC Loan Agreement is evidenced by a separate
short-term note, collateralized by substantially all of the inventory of the
Company, and guaranteed by the majority shareholder of the Company. Each
borrowing typically requires no cash payments for three months, with principal
and interest (at the bank prime rate plus 1.0%) then payable monthly for the
next twelve months.
Under the terms of the BBDC Loan Agreement, the Company is subject to
several restrictive covenants, which include, among other things, (a)
limitations on the incurrence of indebtedness, liens, and leases, (b)
maintenance of insurance sufficient to indemnify BBDC in the event of
inventory damage or stoppage of the Company's operations, (c) maintenance of a
minimum tangible net worth and various liquidity-related ratios, as defined in
the Loan Agreement, and (d) maintenance of a minimum level of inventory (see
Note 13).
As of December 31, 1999, the estimated maturities of long-term debt are
as follows:
<TABLE>
<S> <C>
2000 $2,109,293
2001 2,212,861
2002 962,512
2003 865,924
2004 192,873
Thereafter -
----------
Total $6,343,463
==========
</TABLE>
9. Advances from Shareholders:
Advances from shareholders consist primarily of non-interest bearing
advances from the Company's majority shareholder. As more fully explained in
Note 12, approximately $7.4 million of the $9.4 million in advances
outstanding at December 31, 1999 were converted to preferred stock in February
2000.
Subsequent to December 31, 1999, the Company borrowed a total of
$1,800,000 from the Company's majority shareholder in the form of
due-on-demand notes payable bearing interest at 6.875% per annum. The
proceeds are being used for working capital purposes.
The Company's majority shareholder has committed not to demand repayment
of the remaining advances or the due-on-demand notes if it would result in
the inability of the Company to pay its obligations as they become due in the
ordinary course of business. Accordingly, the Company has classified the
advances as a non-current liability at December 31, 1999.
F-48
<PAGE> 116
10. Related Party Transactions:
The Company makes sales of pharmaceutical inventories to a company which
is controlled by RX's majority shareholder. Sales are made at terms that
management believes are no less favorable than the Company would be able to
realize from third parties. Commencing in 2000, the Company began purchasing
certain products from the related company because it has purchasing
arrangements with certain vendors that management believes are more favorable
than would otherwise be available to the Company.
For the years ended December 31, 1999 and 1998, the Company recorded
revenues of approximately $134,000 and $50,000, respectively, from the related
company. Amounts due from the related company at December 31, 1999 and 1998
were approximately $68,000 and $41,000, respectively.
11. Employee Benefit Plans:
The Company provides various health, welfare and disability benefits to
its full-time employees which are funded primarily by Company contributions.
The Company does not provide post-employment or post-retirement health care or
life insurance benefits to its employees.
Retirement Plans
The Company sponsors 401(k) plans which are available to all employees of
the Company who are at least 21 years old and have completed one year of
continuous service. Participant contributions are subject to certain
restrictions as set forth in the Internal Revenue Code. The amount of
matching contributions made by the Company for the benefit of participants is
determined annually at the discretion of the Company. The Company made no
matching contribution to the plans during the years ended December 31, 1998
and 1999.
Stock Option Plan
In February 2000, the Company's Board of Directors (the "BOD") approved a
written stock option plan which formalized a previously verbal stock option
plan orally adopted at the time the Company was formed in Delaware in 1998
(the "1998 Plan"). The objectives of the 1998 Plan include attracting and
retaining the best personnel, providing for additional performance incentives,
and promoting the success of the Company by providing officers and employees
the opportunity to acquire common stock. Independent contractors are also
eligible for options, although none have been granted to independent
contractors through December 31, 1999.
A Stock Option Committee of the BOD administers the 1998 Plan. No option
can extend for a term of more than ten years from date of grant (five years
for any employee who, at the date of grant, owns more than 10% of the total
combined voting power of all classes of stock). Vesting is subject to
acceleration upon a change in control of the Company, as defined in the 1998
Plan agreement. Either incentive or non-qualified options may be granted
under the 1998 Plan. However, only employees may receive incentive stock
options and no employee may be granted an incentive stock option if he or she
holds exercisable options with a fair market value in excess of $100,000 at
the date of grant. The holder of an option does not receive any of the rights
of a stockholder with respect to the Common stock subject to the option
agreement.
F-49
<PAGE> 117
Unless otherwise determined by the BOD, the option price per share shall
not be less than the fair market value of the shares (as determined by the
BOD) on the date the option is granted. The option price per share shall not
be less than 110% of the fair market value for any employee who, at the date
of grant, owns more than 10% of the total combined voting power of all classes
of stock.
Under the 1998 Plan, the Company is authorized to grant options for up to
2,000,000 common shares, of which 609,500 shares have been granted through
December 31, 1999 (all amounts have been adjusted for the recapitalization in
February 2000. See Note 12). The grants were made under unilateral, verbal
arrangements by the Company's majority shareholder during 1998 and 1999,
typically at the employees' date of hire. Since the majority shareholder
controlled both the BOD and a majority of the voting rights of the
stockholders, approval of the BOD and the stockholders was considered
perfunctory. Accordingly, the options have been accounted for as of the dates
of verbal grants. Activity in the Company's stock options for 1998 and 1999
(reflecting the verbal grants described above) is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of shares(1) Price
<S> <C> <C>
Outstanding at January 1, 1998
Granted - $ -
Exercised 304,500 0.01
Canceled - -
------- -----
Outstanding at December 31, 1998 304,500 0.01
Granted 305,000 1.03
Exercised - -
Canceled - -
------- -----
Outstanding at December 31, 1999
(held by 17 optionees) 609,500 $0.52
======= =====
Options exercisable at:
December 31, 1998 57,847 $0.01
======= =====
December 31, 1999 202,681 $0.21
======= =====
</TABLE>
All of the stock options issued in 1998 and 1999 were granted at exercise
prices which are either equal to or above the fair market value at the date of
grant, vest over a three year period, and expire ten years after the grant
date. Fair market value was determined by the Company's BOD by taking into
account the then-current financial condition of the Company, including the pro
forma effects of planned and completed acquisitions. Since the exercise
prices were considered to be representative of the fair market value, no
compensation expense has been recognized in the accompanying financial
statements.
F-50
<PAGE> 118
As more fully disclosed in Note 2, the Company accounts for stock options
using the intrinsic value method. Pro forma information regarding net income
(loss) is required by accounting principals generally accepted in the United
States as if the Company had accounted for its stock option plan under a fair
value based method. The fair value for these options was estimated at the date
of grant using the minimum value method (which is appropriate for valuing
options of companies without publicly traded stock) with the following
weighted average assumptions: risk free rate of return of approximately 5.0%,
expected life of options of 5 years and no dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the respective vesting periods of the options. On a
pro forma basis, the Company's net operating results would have been reduced
by approximately $0 and $12,000 for the years ended December 31, 1998 and
1999, respectively.
12. Capital Stock:
The following describes the status of the Company's capital stock and the
details of capital stock transactions during the years ended December 31, 1998
and 1999:
Stock Authorization
At December 31, 1999, the Company was authorized to issue 400,000 shares
of common stock, par value $0.01 per share ("Common stock") and 50,000 shares
of preferred stock, par value $0.01 per share ("Preferred stock").
Subsequent to year-end and in contemplation of the 2000 Recapitalization
(as more fully discussed below), the Company amended its Certificate of
Incorporation to increase the total Common stock and Preferred stock
authorization to twenty million shares and five million shares, respectively.
Equity Transactions In 1998 And 1999
At January 1, 1998, the Company had 1,400 shares of Common stock
outstanding. On January 22, 1998, the Company's Board of Directors and
stockholders approved a stock split effected in the form of a stock dividend,
increasing the outstanding shares of Common stock from 1,400 to 40,000 shares.
Share amounts in the notes to financial statements reflect the impact of the
stock split.
During 1998, the Company's existing majority stockholder converted
amounts owed by the Company under previously made cash advances into 160,000
shares of Common stock at a price of $2.50 per share. Also during 1998, the
Company repurchased and retired 12,000 shares of Common stock at a price of
$2.50 per share, from a former officer of the Company, under the terms of the
Company's shareholder agreement.
In January 1998, the shareholders of RX entered into an agreement (the
"Agreement") which provided for certain restrictions and provisions related to
the purchase and/or sale of their respective shares of RX's stock. The
Agreement requires the shareholders to offer their shares on a first-refusal
basis to the Company and other shareholders before selling their stock to a
third party. Additionally, the Agreement sets a required call by the Company
and repurchase price for the stock under certain circumstances, such as the
termination or resignation of a shareholder. The repurchase price uses an
amount to be agreed-upon annually by the shareholders. If no amount can be
agreed upon by the shareholders, the repurchase price will be based upon
estimated fair market value of the Company's stock at such time.
F-51
<PAGE> 119
On February 1, 1999, the Company issued 16,500 shares of Common stock to
three officers of the Company, at a price of $0.40 per share. The amount paid
was considered by management of the Company to be representative of the fair
market value of the Company's Common stock at the time. Such determination
was made by taking into account the then-current financial condition of the
Company, its lack of profitability to date, its negative shareholder equity, a
general lack of sources of working capital (other than advances from the
majority shareholder), and the level of the Company's indebtedness. Since
the amount paid was considered to be representative of the fair market value,
no compensation expense has been recognized in the accompanying financial
statements.
Recapitalization in 2000
In February 2000, the Company's Board of Directors and Shareholders
approved a recapitalization of the Company. The outstanding 204,500 shares of
Common stock, and $7.4 million of advances due to shareholders were converted
into 9,202,500 new shares of common stock, par value $0.01 per share (the "New
Common stock") and 735,144 shares of Series A preferred stock (the "Series A"
stock).
The Series A stock is senior to the New Common stock with regards to
rights to receive distributions upon dissolution, liquidation or winding up
(collectively "termination") of the Company. Upon such Termination, the
holders of the Series A stock are entitled to be paid out of the assets of the
Company an amount of $10.00 per Series A share, as adjusted for any stock
dividends, combinations, splits and the like (the "Original Liquidation"
price). After payment of the Original Liquidation price, any remaining
assets, if any, are available for distribution to the holders of the New
Common stock.
The Company has the option to repurchase the Series A stock at any time
at the Original Liquidation price. In addition, the Company is obligated (at
the option of each holder of the Series A stock) to repurchase such shares in
2005, or earlier upon a change in control (as defined) of the Company, also at
the Original Liquidation price. Because this redemption feature is not within
the control of the Company, the Series A stock is not considered a full equity
security. Accordingly, the $7.4 million carrying value of the Series A stock
will be reflected on the Company's balance sheet in the "mezzanine" between
liabilities and stockholders' equity.
13. Commitments and Contingencies:
Regulation and Licensing
The Company's pharmacy business is subject to extensive federal, state
and local regulations and licensing requirements. Such regulations cover
diverse matters like the confidentiality of patient records, record-keeping
and security requirements, restrictions on referrals and advertising for drug
products, third-party payments for prescription drugs, and online pharmacies.
The failure to adhere to, obtain or renew any required regulatory approval or
licenses could adversely affect the continued operation of the Company's
business. In addition, the managed care organizations that contract for the
Company's services are also subject to federal, state and local regulations
and licensing requirements. The failure by these institutions to comply with
these regulations or to obtain or renew any required licenses could adversely
affect the Company's business.
F-52
<PAGE> 120
Master Vendor Agreement
In July 1999, The Company entered into a three-year Master Vendor
Agreement (the "MVA") with the Bergen Brunswig Drug Company ("BBDC") to
purchase substantially all of the Company's pharmaceutical inventories from
BBDC at a unit cost based upon volume. The MVA provides for a two-year
renewal option.
While the MVA is non-exclusive, the nature of the support services and
related equipment provided by BBDC ensures considerable reliance on BBDC. In
addition, related lending agreements (See Note 8) require that the Company
maintain inventory levels purchased from BBDC at all times of at least $2.0
million or 130% of the amounts owed to BBDC, whichever is higher.
Lease Commitments
The Company leases its office and pharmacy facilities and a substantial
portion of its pharmacy equipment. Generally, office and pharmacy leases
provide for minimum rentals and the payment of utilities, maintenance,
insurance and taxes. Certain of these leases also provide for contingent
rentals based upon a percentage of sales in excess of a stipulated minimum.
The majority of lease agreements are for base lease periods ranging from 2 to
10 years, with two or more renewal options for periods commensurate with the
original lease terms. Operating lease rental expense was $863,353 and
$227,507 for the years 1999 and 1998, respectively.
The following property included in the accompanying financial statements
was leased under capital leases as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Furniture, fixtures and equipment $1,250,000 $ -
Less, accumulated depreciation (26,000) -
---------- ------
$1,224,000 $ -
========== ======
</TABLE>
F-53
<PAGE> 121
Future net minimum rental payments which are required under capital and
noncancellable operating leases that have initial or remaining terms in excess
of one year are as follows as of December 31, 1999:
Years Ending December 31, 1999
<TABLE>
<CAPTION>
Operating Capital
Leases Lease
<S> <C> <C>
2000 $1,411,458 $ 381,540
2001 1,339,308 381,540
2002 1,218,246 381,540
2003 1,055,066 349,745
2004 807,531 -
Thereafter 807,565 -
---------- ----------
Total minimum lease payments $6,639,174 $1,494,365
==========
Less, amount representing interest (276,160)
----------
Present value of future minimum
lease payments 1,218,205
Less, current portion (264,817)
----------
Obligation under capital lease $ 953,388
==========
</TABLE>
14. Subsequent Events:
On April 7, 2000, the Company entered into agreements with e-MedSoft.com
("e-Med") under which (i) e-Med has assumed management control of the Company
(the "Management Services Agreement") and (ii) e-Med will become a provider of
software and all related services used in the Company's operations (the
"Preferred Provider Agreement"). In addition, the shareholders of the Company
have been granted a ten-year option to exchange up to 33% of the common stock
of the Company for up to 3,000,000 shares of common stock of e-Med (the
"Option Agreement"). In the event that the Company conducts an initial public
offering or experiences a change in control (as defined), e-Med may require
the shareholders to exchange their shares.
The Management Services Agreement between the Company and e-Med provides
that e-Med will have complete authority and discretion in the management and
control of the Company's business for a period of 30 years. In exchange for
its management services, e-Med will receive a portion of any net profits from
the Company's businesses it manages as follows: (i) 25% of net profits up to
$5,000,000; (ii) 50% of net profits from $5,000,000 to $15,000,000; (iii) 60%
of net profits from $15,000,000 to $30,000,000; and (iv) 70% of net profits
over $30,000,000. The computation of net profits is cumulative for the
duration of the agreement and not on an annual basis. If e-Med acquires at
least a seventeen percent interest in the Company, the net profits number will
be reduced such that e-Med will receive twenty-one percent less than it would
have otherwise received, and if e-Med acquires at least a thirty-three percent
interest in the Company, the net profits number would be reduced such that
e-Med will receive forty-one percent less than it would have otherwise
received. Additionally, the chairman of e-Med has been named to the board of
directors of the Company.
F-54
<PAGE> 122
Under the terms of the Preferred Provider Agreement, e-Med will provide
the Company with computer software applications and related services for a
period of thirty years, whereby e-Med will receive its standard fees, less an
8% discount. In addition, the Company and e-Med will establish a master portal
on the Internet for the sale of the Company's services to its customers, and
e-Med will receive fees based on customer usage of the master portal. The
minimum usage fee will initially be $15,000 per month.
F-55
<PAGE> 123
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-57
<PAGE> 124
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-58
<PAGE> 125
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-59
<PAGE> 126
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-60
<PAGE> 127
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-61
<PAGE> 128
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-62
<PAGE> 129
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-63
<PAGE> 130
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-64
<PAGE> 131
(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-65
<PAGE> 132
(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-66
<PAGE> 133
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-67
<PAGE> 134
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-68
<PAGE> 135
(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-69
<PAGE> 136
(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-70
<PAGE> 137
================================================================================
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 .....................................................
Risk Factors ...........................................................
Price Range of Common Stock ............................................
Dividend Policy ........................................................
Selected Financial Data ................................................
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations ............................................................
Business ...............................................................
Management .............................................................
Certain Transactions ...................................................
Description of Capital Stock ...........................................
Principal and Selling
Shareholders ..........................................................
Plan of Distribution ...................................................
Legal Matters ..........................................................
Experts ................................................................
Where You can Find More
Information ...........................................................
Index to Financial Statements ..........................................
</TABLE>
23,886,000 Shares
e-MedSoft.com
Common Stock
_________________
PROSPECTUS
_______, 2000
________________
================================================================================
<PAGE> 138
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 ............................. $ 49,856
Accountants' fees and expenses ................... 100,000
Legal fees and expenses .......................... 100,000
Printing and engraving expenses .................. 25,000
Miscellaneous fees ............................... 15,144
--------
Total ........................................ $290,000
========
</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> 139
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 Sanga
e-Health LLC 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. Sanga e-Health
LLC 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> 140
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 the three months ended March 31, 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> 141
<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.
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, 200 between the Registrant and the
shareholders of PrimeRx.com, Inc. (8)
21 List of Subsidiaries
23.1 Consent of Greenberg Traurig, LLP (included in Exhibit 5)*
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Price Waterhouse Coopers LLP
23.4 Consent of Carpenter Kuhen & Sprayberry
24 Power of Attorney of Directors and Executive Officers*
27.1 Financial Data Schedule for Fiscal Year Ended March 31, 1999
27.2 Financial Data Schedule for nine months Ended December 31,
1999.
</TABLE>
II-4
<PAGE> 142
_______________
* To be filed by amendment.
(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.
(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> 143
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> 144
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 May 15, 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 May 15, 2000
Executive Officer (principal
executive officer)
/s/ Margaret A. Harris Chief Financial Officer May 15, 2000
Margaret A. Harris (principal - accounting officer)
/s/ Sam J. W. Romeo Director May 15, 2000
Sam J. W. Romeo
/s/ Masood Jabbar Director May 15, 2000
Masood Jabbar
/s/ Mitchell J. Stein Director May 15, 2000
Mitchell J. Stein
/s/ W. Cedric Johnson Director May 15, 2000
W. Cedric Johnson
</TABLE>
<PAGE> 145
Index to 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)
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.
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, 200 between the Registrant and the
shareholders of PrimeRx.com, Inc. (8)
21 List of Subsidiaries
23.1 Consent of Greenberg Traurig, LLP (included in Exhibit 5)*
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Price Waterhouse Coopers LLP
23.4 Consent of Carpenter Kuhen & Sprayberry
24 Power of Attorney of Directors and Executive Officers*
27.1 Financial Data Schedule for Fiscal Year Ended March 31, 1999
27.2 Financial Data Schedule for nine months Ended December 31,
1999.
</TABLE>
<PAGE> 146
_______________
* To be filed by amendment.
(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.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
AS independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Los Angeles, California
May 12, 2000
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement Form S-1 filed
by e-MedSoft.com of our report dated March 24, 2000, except for note 14, as to
which the date is April 7, 2000, relating to the financial statements of
PrimeRX.com, Inc. (formerly PrimeMed Pharmacy Services Group, Inc.) and
Subsidiaries, which appear in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Las Vegas, Nevada
May 11, 2000
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-1, our
report dated April 5, 2000, relating to the financial statement of VirTx, Inc.,
for the period from January 27, 1999 (date of inception) to December 31, 1999.
/s/ Carpenter Kuhen & Sprayberry
Oxnard, California
May 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF EARNINGS FOUND ON PAGES F-3 AND F-4 OF THE COMPANY'S
FORM 10-KSB FOR THE TEN MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 51,712
<SECURITIES> 0
<RECEIVABLES> 5,243,418
<ALLOWANCES> 0
<INVENTORY> 713,002
<CURRENT-ASSETS> 6,735,976
<PP&E> 1,308,863
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,462,908
<CURRENT-LIABILITIES> 8,378,191
<BONDS> 0
0
0
<COMMON> 51,816
<OTHER-SE> 6,061,034
<TOTAL-LIABILITY-AND-EQUITY> 17,462,908
<SALES> 2,649,563
<TOTAL-REVENUES> 2,649,563
<CGS> 1,998,505
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,040,279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 376,889
<INCOME-PRETAX> (765,689)
<INCOME-TAX> 138,928
<INCOME-CONTINUING> (904,617)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (904,617)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and statements of operations found on pages 3 and 4 of the Company's Form
10-QSB for the year to date, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,392,110
<SECURITIES> 0
<RECEIVABLES> 7,241,469
<ALLOWANCES> 0
<INVENTORY> 1,436,503
<CURRENT-ASSETS> 15,960,000
<PP&E> 1,862,773
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,695,418
<CURRENT-LIABILITIES> 16,887,397
<BONDS> 0
0
0
<COMMON> 57,871
<OTHER-SE> 13,426,559
<TOTAL-LIABILITY-AND-EQUITY> 32,695,418
<SALES> 25,944,826
<TOTAL-REVENUES> 25,944,826
<CGS> 20,276,340
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,099,989
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,713,766
<INCOME-PRETAX> (6,786,678)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,631,183)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
