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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
(Amendment No. 1)
Filed Pursuant to Section 13, or 15(d) of
The Securities Exchange Act of 1934
August 7, 1996 (July 2, 1996)
Date of Report (Date of earliest event reported)
PHYSICIAN COMPUTER NETWORK ,INC.
(Exact name of registrant as specified in charter)
New Jersey
(State of other jurisdiction of incorporation)
0-19666
(Commission File Number)
22-2485688
(IRS Employer Identification No.)
1200 The American Road
Morris Plains, NJ 07950
(Address of Principal Executive Offices)
(201) 490-3100
Registrant's Telephone Number, including area code
Page 1 of 26 Pages
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Items 7(a) and (b) of the registrant's Current Report on Form 8-K dated
July 9, 1996 as amended by the Current Report on Form 8-K/A dated August 7, 1996
are hereby amended in their entirety to read as follows:
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(a) Financial Statements of Business Acquired:
On July 2, 1996, a newly formed, wholly-owned subsidiary of Physician
Computer Network, Inc. (the "Company") acquired substantially all of the
assets of the medical practice management software business and the
commercial software business of CUSA Technologies, Inc. (the "CTI
Business") pursuant to an asset purchase agreement dated as of July 2, 1996
for $10,100,000 in cash.
The March 31, 1996 Financial Statements of the CTI Business (with
Independent Auditors' Report thereon) follow hereafter.
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KPMG
The Global Leader
CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Financial Statements
March 31, 1996
(With Independent Auditors' Report Thereon)
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KPMG Peat Marwick LLP
60 East South Temple
Suite 900
Salt Lake City, UT 84111
Independent Auditors' Report
Board of Directors and Stockholders
CUSA Technologies, Inc.:
We have audited the accompanying balance sheet composed of certain assets and
liabilities of the medical and commercial divisions of CUSA Technologies, Inc.
as of March 31, 1996 and the related statements of operations and cash flows for
the nine-month period then ended. 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.
As discussed in notes 1 and 9 to the financial statements, on July 2, 1996, the
Company sold substantially all of the assets and certain liabilities of its
medical and commercial divisions pursuant to an asset purchase agreement. The
accompanying balance sheet presents the assets that would have been sold and
liabilities that would have been assumed had the sale been completed on March
31, 1996. The statements of operations and cash flows present all operations for
the nine-month period then ended.
In our opinion, the accompanying financial statements present fairly, in all
material respects, certain assets and liabilities of the medical and commercial
divisions of CUSA Technologies, Inc. as of March 31, 1996 and the results of
their operations and their cash flows for the nine-month period then ended in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
July 19, 1996
[LOGO] Member Firm of
Klynveld Peat Marwick Goerdeler
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Balance Sheet
March 31, 1996
Assets
------
Current assets:
Trade accounts receivable, net of allowance
for doubtful accounts of $676,550 $ 1,951,810
Inventories 130,043
Prepaid expenses and other assets 42,860
------------
Total current assets 2,124,713
Property and equipment, at cost 1,454,062
Less accumulated depreciation and amortization (718,355)
------------
Net property and equipment 735,707
Software development and acquisition costs,
less accumulated amortization of $530,011 (note 2) 1,359,908
Excess of purchase price over fair value
of net tangible and identifiable intangible
assets acquired, less accumulated amortization
of $666,183 (note 2) 9,020,559
Other assets 65,637
------------
$ 13,306,524
============
Liabilities and Division Equity
-------------------------------
Current liabilities:
Accounts payable to Versyss, Inc. $ 849,760
Accrued liabilities 183,654
Customer deposits 278,126
Notes payable to Versyss, Inc. 97,686
Deferred revenue 2,601,404
------------
Total current liabilities 4,010,630
Division equity (notes 3, 4, 5, and 8) 9,295,894
Commitments and contingent liabilities (notes 7 and 9)
------------
$ 13,306,524
============
See accompanying notes to financial statements.
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Statement of Operations
Nine months ended March 31, 1996
Revenues:
Hardware and software sales $ 5,407,003
Support and maintenance services 4,699,967
------------
Total revenues 10,106,970
------------
Cost of goods sold:
Hardware and software sales 2,672,999
Support and maintenance services 3,560,067
------------
Total cost of goods sold 6,233,066
------------
Gross profit 3,873,904
Product development costs 534,847
Selling, general, and administrative expenses 4,836,614
Corporate overhead allocation (note 3) 726,055
------------
Operating loss (2,223,612)
Other income (expense):
Interest expense (note 3) (127,225)
Other expense, net (120,650)
------------
Loss before credit in lieu of income taxes (2,471,487)
Credit in lieu of income taxes (note 5) (750,840)
------------
Net loss $ (1,720,647)
============
See accompanying notes to financial statements.
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Statement of Cash Flows
Nine months ended March 31, 1996
Cash flows from operating activities:
Net loss $(1,720,647)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 885,779
Provision for bad debts 289,417
Minority interest in earnings of subsidiary 1,323
Net changes in operating assets and liabilities
net of effects of purchases of businesses:
Trade accounts receivable (337,361)
Inventories 693,587
Prepaid expenses and other assets 15,716
Accounts payable to Versyss, Inc. (397,907)
Accrued liabilities and customer deposits 256,309
Deferred revenue 521,984
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Net cash provided by operating activities 208,200
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Cash flows from investing activities:
Purchase of property and equipment (14,245)
Software development costs (537,476)
Increase in other assets (15,507)
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Net cash used in investing activities (567,228)
-----------
Cash flows from financing activities - intracompany
transactions with CUSA Technologies, Inc., net (note 4) 359,028
-----------
Net change in cash --
Cash at beginning of period --
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Cash at end of period $ --
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See accompanying notes to financial statements.
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Notes to Financial Statements
March 31, 1996
(1) Description of Business Operations and Summary of Significant Accounting
Policies
(a) Description of Business Operations
The principal business operations of the medical and commercial
divisions (collectively, "the Divisions") of CUSA Technologies, Inc.,
and its subsidiaries (CTI) is the development, sale, and support of
computer software technology and related hardware sales and
maintenance for the healthcare and certain other commercial industries
in the United States.
(b) Basis of Presentation
As described in note 9, substantially all of the assets of the
Divisions were acquired and certain liabilities were assumed by
Physician Computer Network, Inc. (PCN) on July 2, 1996. The
accompanying balance sheet presents the assets that would have been
acquired and the liabilities that would have been assumed by PCN had
the sale been completed on March 31, 1996. The statements of
operations and cash flows present all operations of the Divisions from
July 1, 1995 to March 31, 1996. The Divisions had no separate legal
status or existence, and their resources were controlled by CTI. The
excess of assets over liabilities is presented as "Division Equity" in
the accompanying balance sheet. In the normal course of business, the
Divisions had various transactions with CTI, including various expense
allocations such as allocations for corporate services, overhead,
occupancy, and interest expense. The financial statements of the
Divisions have been prepared from the consolidated records of CTI and
may not necessarily be indicative of the conditions that would have
existed if the Divisions had operated as a separate entity.
(c) Revenue Recognition
Revenue on hardware and software sales is generally recognized upon
shipment. A portion of the revenue is deferred on certain sales when
the Company has a significant obligation for future services. Software
support and hardware maintenance services are billed in advance.
Revenue from software support and hardware maintenance is deferred and
recognized ratably over the maintenance period (generally one year).
Revenue for other goods and services is recognized when the goods are
shipped or when the services are rendered.
(d) Cost of Goods Sold
Cost of goods sold includes the amortization of software development
and acquisition costs ($201,231 for the nine months ended March 31,
1996) and costs related to software support and hardware maintenance,
installation, and training (such as personnel costs, travel, and
lodging).
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Notes to Financial Statements
(e) Cash
The Divisions maintain no separate cash accounts. All sources of
revenue associated with the Divisions are collected by CTI, and all
costs and expenses associated with the Divisions are paid on its
behalf by CTI.
(f) Financial Instruments
The carrying value of the Divisions' financial instruments at March
31, 1996 approximate fair value.
(g) Inventories
Inventories, which consist principally of computer hardware held for
resale and for maintenance services, are stated at the lower of cost
or market. Cost is determined using the first-in, first-out method.
(h) Property and Equipment
Property and equipment consist principally of furniture and equipment,
and are stated at cost. Depreciation and amortization are provided for
in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives, principally three to
seven years.
(i) Intangible Assets
All research and development costs incurred by the Divisions in the
development and acquisition of computer software to be sold to
customers is charged to expense until the technological feasibility of
the software is established. After technological feasibility has been
established, software development and acquisition costs are
capitalized until the software is available for general release to
customers. Software development and acquisition costs are recorded at
the lower of unamortized historical cost or estimated net realizable
value. Software development and acquisition costs are amortized on a
product-by-product basis using the straight-line method over useful
lives of three to five years.
The excess of purchase price over fair value of net tangible and
identifiable intangible assets acquired in certain business
acquisitions is amortized on the straight-line method over fifteen
years. Amortization expense for the nine months ended March 31, 1996
is $431,137. On an ongoing basis, management reviews the valuation and
amortization of the excess purchase price to determine possible
impairment by comparing the carrying value to the undiscounted
estimated future cash flows of the related businesses.
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Notes to Financial Statements
(j) Income Taxes
CTI accounts for income taxes under the asset and liability method,
under which taxes are recorded based upon the tax rate at which the
items of income and expense are expected to be settled in the
Company's tax return.
The results of operations of the Divisions are included with the
operations of CTI for purposes of filing federal and state income tax
returns. Current and deferred income tax assets and liabilities
related to the assets and liabilities of the Divisions, which are not
separate legal rights or obligations of the Divisions, are recorded on
CTI's balance sheet through the division equity account. A charge or
credit in lieu of income taxes is provided in the statement of
operations related to the operations of the Divisions.
(k) 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 period. Actual results could differ
from those estimates.
(2) Business Acquisitions
During the nine months ended March 31, 1996, CTI acquired the following
entities which have operations included in the Divisions. In each
acquisition where CTI issued its stock as part or all of the purchase
consideration, the stock has been valued at the average of the bid and ask
prices on the date of closing, less an appropriate discount for
restrictions on marketability.
Preferred Health Systems, Inc.
Effective October 1, 1995, CTI acquired 100 percent of the equity interest
in Preferred Health Systems, Inc. (PHS), a software development company. In
connection with the acquisition, CTI issued 75,000 shares of restricted
common stock (valued at $262,500) in exchange for all of the outstanding
stock of PHS. PHS is the owner and developer of a fourth generation
language software application for managed healthcare organizations. Results
of operations of PHS are included in the financial statements of the
Divisions since October 1, 1995. The acquisition has been accounted for
using the purchase method and the excess of purchase price over fair value
of net tangible assets acquired, was allocated to software development and
acquisition costs, and is being amortized over five years.
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Notes to Financial Statements
(2) Business Acquisitions (continued)
Medfo Systems of America, Inc.
Effective January 1, 1996, CTI acquired 100 percent of the equity interest
in Medfo Systems of America, Inc. (Medfo). Medfo is a business engaged in
the distribution and support of software, principally in the healthcare
industry. In connection with the acquisition of Medfo, CTI issued 40,267
shares (valued at $134,089) of its restricted common stock and agreed to
issue options to the former owner and the employees of Medfo to acquire
150,000 shares of its common stock at fair market value as of the closing
date. Results of operations of Medfo are included in the financial
statements of the Divisions since January 1, 1996. The acquisition has been
accounted for using the purchase method and the excess of purchase price
over fair value of net tangible and identifiable intangible assets
acquired, representing the customer base of Medfo, is being amortized over
fifteen years.
The former owner of Medfo is also an officer and shareholder of CTI. Prior
to the acquisition, Medfo and the medical division of CTI jointly conducted
business pursuant to a subcontract and assignment agreement under which CTI
provided software, hardware, and other resources to customers of Medfo, for
which CTI earned revenues. CTI had also advanced Medfo $256,312 for its
business operations prior to the acquisition.
Automated Solution, Inc.
Effective February 1, 1996, CTI acquired 100 percent of the equity interest
in Automated Solutions, Inc. and Automated Systems of Arizona, Inc., and 40
percent of the equity interest in Automated Solutions of California, Inc.
(collectively, ASI). ASI is a business engaged in hardware and software
distribution and related support services, principally to the healthcare
and certain commercial industries. In connection with the acquisition of
ASI, CTI issued 50,000 shares (valued at $200,000) of its restricted common
stock to the former owner of ASI and agreed to settle certain liabilities
of the former owner of ASI in the approximate amount of $114,000 related to
his prior purchase of the stock of ASI. CTI also agreed to issue options to
the former owner and the employees of ASI to acquire 70,000 shares of its
common stock at fair market value as of the closing date. Results of
operations of ASI are included in the financial statements of the Divisions
since February 1, 1996. The acquisition has been accounted for using the
purchase method and the excess of purchase price over fair value of net
tangible and identifiable intangible assets acquired, representing the
customer base of ASI, is being amortized over fifteen years.
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Notes to Financial Statements
(2) Business Acquisitions (continued)
Source Computing, Inc.
Effective February 1, 1996, CTI acquired 100 percent of the equity interest
in Source Computing, Inc., Medical Clearing Corporation, and certain assets
of a proprietorship, all of which were under common ownership
(collectively, Source). Source is a business engaged in the development,
distribution, and support of software, principally in the area of practice
management and electronic claims processing for the healthcare industry. In
connection with the acquisition of Source, CTI issued an aggregate of
160,000 shares (valued at $640,000) of its restricted common stock and
agreed to pay an aggregate of $300,000 in cash, of which $125,000 was paid
at closing. CTI also agreed to issue options to the former owners and the
employees of Source to acquire 25,000 shares of its common stock at fair
market value as of the date of closing. Results of operations of Source are
included in the financial statements of the Divisions since February 1,
1996. The acquisition has been accounted for using the purchase method and
the excess of purchase price over fair value of net tangible and
identifiable intangible assets acquired, representing the customer base of
Source, is being amortized over fifteen years.
Assuming all of the acquisitions completed during the nine months ended
March 31, 1996 described above had occurred on July 1, 1995, the Division's
unaudited pro forma results of operations for the nine months ended March
31, 1996 would have been approximately as follow:
Total revenues $ 12,030,671
============
Net loss $ (3,218,258)
============
The unaudited pro forma results of operations are not necessarily
indicative of the actual results that would have been achieved had the
aforementioned acquisitions taken place at July 1, 1995 and are not
necessarily indicative of future results.
(3) Related Party Transactions
CTI has allocated to the Divisions various expenses it incurred for
corporate services, overhead, occupancy, and interest costs. The amount
included in the corporate overhead allocation is comprised principally of
expenses related to accounting, legal, human resources, and marketing,
which management believes to be related to the operations of the Divisions.
Such expenses principally include salaries, payroll taxes, benefits,
travel, rent, telephone, professional fees, and depreciation. Rent expense
allocated to the Divisions for the nine months ended March 31, 1996 was
approximately $550,000. The costs have been allocated on the basis of
various factors which take into consideration revenues, numbers of
employees, and space occupied. Management believes that the amounts
allocated to the Divisions have been computed and charged to the Divisions
on a reasonable basis.
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Notes to Financial Statements
(4) Division Equity
Division Equity represents the excess of assets over liabilities in the
balance sheet, and is composed of CTI's acquisition cost of the assets in
the Divisions, the cumulative earnings or losses of the Divisions, net
transactions with CTI related to costs and expenses incurred by the
Division but paid by CTI and cash generated by the Divisions which was
collected by CTI. Also included in division equity are changes for all
liabilities of the Divisions which are not separate legal obligations of
the Divisions or are not being assumed by PCN.
Changes in division equity for the nine months ended March 31, 1996 are as
follows:
Balance at July 1, 1995 $ 8,032,814
Net loss (1,720,647)
Intracompany cash transactions with CTI 359,028
Excess of fair value of assets acquired by CTI over
liabilities assumed related to the Divisions 2,624,699
------------
Balance at March 31, 1996 $ 9,295,894
============
(5) Income Taxes
The credit in lieu of income taxes consists of the following for the nine
months ended March 31, 1996. The credit in lieu of income taxes that is
categorized as current represents the current losses of the Divisions for
income tax purposes that have been utilized by CTI in the current period to
offset other taxable income. The credit in lieu of income taxes that is
categorized as deferred primarily represents the current losses of the
Divisions that are available for carry forward to offset future taxable
income of CTI.
Current:
Federal $ (14,682)
State (1,727)
Deferred:
Federal (657,122)
State (77,309)
------------
$ (750,840)
============
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Notes to Financial Statements
(5) Income Taxes (continued)
Differences between the amount of the credit in lieu of income taxes at the
statutory federal income tax rate of 34 percent and the Divisions'
effective tax rate of 30.4 percent for the nine months ended March 31, 1996
are as follows:
Credit at federal statutory rate $ (840,306)
State income tax credit, net of federal tax effect (98,859)
Amortization of certain intangible assets 166,299
Nondeductible portion of meals and entertainment 22,026
------------
Credit in lieu of income taxes $ (750,840)
============
Deferred taxes are calculated based upon differences between financial
statement and tax bases of assets and liabilities of the Divisions. The
following deferred taxes related to the assets and liabilities of the
Divisions were recorded by CTI through the division equity account at March
31, 1996:
Deferred tax assets:
Net operating losses $ 1,985,618
Allowance for uncollectible accounts 257,089
Accrued vacation 57,621
Other, net 22,333
Less valuation allowance (230,000)
------------
2,092,661
------------
Deferred tax liabilities:
Capitalized software costs (479,377)
Depreciation of property and equipment (44,007)
------------
(523,384)
------------
Net deferred tax assets $ 1,569,277
============
CTI has allocated net operating loss carryforwards of approximately
$5,200,000 for income tax purposes to the Divisions. These net operating
losses expire in certain years through 2011. The utilization of
approximately $1,900,000 of these net operating losses obtained from the
acquisition of businesses is subject to limitation under the Internal
Revenue Code Section 382, consequently a valuation allowance of $230,000 at
the beginning and the end of the period has been provided.
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Notes to Financial Statements
(5) Income Taxes (continued)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax assets, CTI will
need to generate future taxable income of approximately $5,500,000 prior to
the expiration of the net operating loss carryforwards in 2011. The
estimated taxable gain on the disposition of the Divisions is in excess of
$9,000,000, which will be taxable in the fiscal year ended June 30, 1997.
Furthermore, results of operations for certain divisions of CTI not
disposed of have historically been profitable since their acquisitions.
Accordingly, management believes it is more likely than not that CTI will
realize the benefits of these deferred tax assets, net of the existing
valuation allowances at March 31, 1996.
(6) Retirement Plan
CTI sponsors a retirement plan under Section 401(k) of the Internal Revenue
Code. To participate an employee must meet certain minimum age and length
of service requirements. Company contributions to the 401(k) plan are at
the discretion of the Board of Directors. The Company made no contribution
to the 401(k) plan during the nine months ended March 31, 1996.
(7) Contingent Liabilities
CTI is involved in certain legal matters related to the operations of the
Divisions in the ordinary course of business all of which are the
responsibility of CTI. In the opinion of management and legal counsel, such
matters will not have a material effect on the financial position or
results of operations of the Divisions.
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CUSA TECHNOLOGIES, INC.
Medical and Commercial Divisions
Notes to Financial Statements
(8) Supplemental Cash Flow Information
As described in note 2, CTI has completed certain business acquisitions
during the nine months ended March 31, 1996. A summary of the noncash
impact of such acquisitions on the statement of cash flows of the Divisions
is as follows:
Fair value of assets acquired $ 3,224,990
Liabilities assumed (600,291)
------------
Transactions recorded through division equity $ 2,624,699
============
No separate disclosure is made of cash paid for interest and income taxes
as these amounts are included within the net intracompany transactions with
CTI.
(9) Subsequent Events
In June 1996, management of CTI committed to dispose of the business and
assets of the Divisions. On July 2, 1996, CTI entered into an asset
purchase agreement with PCN whereby PCN agreed to acquire substantially all
of the assets and assume certain liabilities of the Divisions. Terms of the
purchase agreement provided for the purchase of certain specified assets
for $10,100,000, payable as follows: 1) $4,500,000 at closing, 2)
cancellation of $1,500,000 note payable to PCN incurred on June 13, 1996,
3) $3,150,000 within five business days of receipt of audited financial
statements, 4) $200,000 due upon transfer of certain assets of one of the
subsidiaries of CTI which were subject to a court ordered receivership at
the date of closing, and 5) $750,000 within five business days of receipt
of certain other financial reports. The final payment of $750,000 is
subject to adjustment downward if accounts receivable, net of reserves,
does not exceed a certain amount, or if deferred revenue exceeds a certain
amount. Certain trade accounts receivable, and property and equipment
involved in the sale were pledged as collateral against certain notes
payable owed by CTI. In connection with the sale, the note holders released
their security interest in the assets.
On July 2, 1996, pursuant to the asset purchase agreement PCN assumed 1)
the balances of the liabilities related to accounts and notes payable to
Versyss, Inc., a subsidiary of PCN, deferred software support and hardware
maintenance obligations, accrued liabilities, and customer deposits
associated with the Divisions, 2) a real property lease for office space in
Virginia with a present annual lease commitment of $137,208 per year
through October 1999 (to be adjusted annually for changes in the consumer
price index), and 3) certain leases of personal property which are not
significant to the financial statements.
Under the asset purchase agreement, CTI agreed to purchase from PCN not
less than $2,000,000 of hardware and software products during each
twelve-month period commencing July 1, 1996, up to an aggregate of
$10,000,000.
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(b) Pro Forma Financial Information:
The Unaudited Pro Forma Condensed Consolidated Statements of Operations and
Unaudited Pro Forma Condensed Consolidated Balance Sheet give effect to (i) the
acquisition by PCN of the CTI Business, (ii) the proposed acquisition by PCN of
Wismer-Martin, Inc. ("Wismer-Martin") pursuant to an agreement and plan of
merger dated June 20, 1996, and, (iii) the completion by PCN on May 10, 1996 of
the public offering of 6,440,000 shares of its Common Stock at $10.00 per share
(the "1996 Offering"), of which 1,932,217 shares were issued by PCN to Equifax,
Inc. ("Equifax") upon the conversion in full of the five year, $10,000,000
principal amount convertible subordinated promissory note issued to Equifax on
February 15, 1995 (the "Equifax Note"). In addition to the above, the Unaudited
Pro Forma Condensed Consolidated Statement of Operations for the year ended
December 31, 1995 also gives effect to PCN's February 1995 public offering of
PCN Common Stock, the October 1995 Regulation S offering of PCN Common Stock and
convertible preferred stock and the acquisitions of Versyss, Inc. ("Versyss")
and the Practice Management Systems Corp. Business (the "PMS Business") and the
related financings.
These statements have been prepared from the historical consolidated
financial statements of PCN, the CTI Business and Wismer-Martin and should be
read in conjunction with: (i) PCN's Annual Report on Form 10-K for the year
ended December 31, 1995 and PCN's Quarterly Report on Form 10-Q for the period
ended March 31, 1996, (ii) the financial statements of the CTI Business enclosed
herein, and, (iii) Wismer-Martin's Annual Report on Form 10-KSB for the year
ended June 30, 1995 and Wismer-Martin's Quarterly Report on Form 10-KSB for the
period ended March 31, 1996.
The unaudited pro forma information assumes that the transactions for which
pro forma effects are shown occurred on January 1, 1995 for the Unaudited Pro
Forma Condensed Consolidated Statements of Operations and on March 31, 1996 for
the Unaudited Pro Forma Condensed Consolidated Balance Sheet. The pro forma
financial information gives effect to the acquisition transactions under the
purchase method of accounting based on the assumptions and adjustments described
in the accompanying notes. It should be understood that the Pro Forma Condensed
Consolidated Financial Statements do not necessarily reflect the actual
consolidated financial position or results of operations since, among other
factors, actual expenses may be lower or higher than amounts assumed or
estimated. Such pro forma information is not necessarily indicative of the
results which would actually have occurred had the transactions been in effect
for the period or on the date indicated or which may occur in the future.
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Adjustments Increase/(Decrease) Giving Effect to
-----------------------------------------------------------
Versyss/PMS
PCN PMS Versyss Acquisition
Historical (a) Acquisition (b) Acquisition (c) Adjustments
-------------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Revenues $ 41,805,342 $3,067,872 $44,398,000
------------ ---------- ----------- -----------
Costs and Expenses:
Cost of revenues 16,288,953 1,341,797 27,532,000
Research and development 2,219,223 563,221 1,806,000
Selling and marketing 3,038,069 371,739 5,340,000
General and administrative 13,238,269 1,187,924 8,690,000 $ 3,864,532 (d)
Acquired technology in process 14,516,000 (14,516,000)(e)
Restructuring 3,072,450
Write-down of assets and other charges 1,477,000
------------ ---------- ----------- -----------
53,849,964 3,464,681 43,368,000 (10,651,468)
Interest (income) expense:
Interest income (577,039) (12,615)
Interest expense 1,451,604 2,183,000 901,903 (f)
------------ ---------- ----------- -----------
874,565 (12,615) 2,183,000 901,903
Income (loss) before income tax expense
(benefit) and extraordinary item (12,919,187) (384,194) (1,153,000) 9,749,565
Income tax expense (benefit) (1,419,000) 13,145 168,000
------------ ---------- ----------- -----------
Income (loss) available to common
shareholders before extraordinary
item $(11,500,187) $ (397,339) $(1,321,000) 9,749,565
============ ========== =========== ===========
Earnings (loss) per Common Share:
Before extraordinary item $(0.29)
============
Weighted average number
of common shares outstanding 40,068,406 2,622,781 (g)
============ ===========
<CAPTION>
Adjustments Increase/(Decrease) Giving Effect to
-----------------------------------------------------------------------------
Wismer-Martin
1996 Equifax Wismer-Martin Acquisition
Offering Conversion Acquisition (j) Adjustments
--------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Revenues $10,021,490
--------- --------- ----------- -----------
Costs and Expenses:
Cost of revenues 4,103,747
Research and development 545,608
Selling and marketing 1,714,104
General and administrative 3,057,950 1,075,831 (l)
Acquired technology in process
Restructuring
Write-down of assets and other charges
--------- --------- ----------- -----------
9,421,409 1,075,831
Interest (income) expense:
Interest income (27,514)
Interest expense $(525,000)(i) 343,319
--------- --------- ----------- -----------
(525,000) 315,805 0
Income (loss) before income tax expense
(benefit) and extraordinary item 525,000 284,276 (1,075,831)
Income tax expense (benefit) 1,021
--------- --------- ----------- -----------
Income (loss) available to common
shareholders before extraordinary
item -- 525,000 $ 283,255 $(1,075,831)
========= ========= =========== ===========
Earnings (loss) per Common Share:
Before extraordinary item
Weighted average number
of common shares outstanding 4,507,783 (h) 1,932,217 (i) 935,000 (m)
========= ========= ===========
<CAPTION>
Pro Forma CTI Business Pro Forma
Before Acq. of CTI Business Acquisition After Acq. of
CTI Business Acquisition (k) Adjustments CTI Business
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $99,292,704 $12,467,346 ($2,667,432)(n) $109,092,618
----------- ----------- ----------- ------------
Costs and Expenses:
Cost of revenues 49,266,497 4,880,221 (2,120,608)(n) 52,026,110
Research and development 5,134,052 1,377,086 6,511,138
Selling and marketing 10,463,912 2,125,033 12,588,945
General and administrative 31,114,506 4,172,287 965,322 (l) 36,252,115
0 (583,900)(o) (583,900)
Acquired technology in process 0 0
Restructuring 3,072,450 3,072,450
Write-down of assets and other charges 1,477,000 1,477,000
----------- ----------- ----------- ------------
100,528,417 12,554,627 (1,739,186) 111,343,858
Interest (income) expense:
Interest income (617,168) (617,168)
Interest expense 4,354,826 4,354,826
----------- ----------- ----------- ------------
3,737,658 0 0 3,737,658
Income (loss) before income tax expense
(benefit) and extraordinary item (4,973,371) (87,281) (928,246) (5,988,898)
Income tax expense (benefit) (1,236,834) (1,236,834)
----------- ----------- ----------- ------------
Income (loss) available to common
shareholders before extraordinary
item $(3,736,537) $ (87,281) $ (928,246) $ (4,752,064)
=========== =========== =========== ============
Earnings (loss) per Common Share:
Before extraordinary item $(0.07)(p) $(0.09)(p)
=========== ============
Weighted average number
of common shares outstanding 50,066,187 50,066,187
=========== ============
</TABLE>
- ----------------
See accompanying notes to the unaudited pro forma condensed consolidated
statements.
-19-
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Three Months Ended March 31, 1996
Adjustments Increase/(Decrease) Giving Effect to
------------------------------------------------
PCN 1996 Equifax Wismer-Martin
Historical Offering Conversion Acquisition (j)
----------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Revenues $21,026,948 $2,282,639
----------- --------- --------- ----------
Costs and Expenses:
Cost of revenues 8,794,892 1,018,914
Research and development 1,111,487 140,291
Selling and marketing 1,704,769 351,035
General and administrative 4,084,531 660,710
----------- --------- --------- ----------
15,695,679 2,170,950
Interest (income) expense:
Interest income (59,508) (22,931)
Interest expense 695,118 (150,000)(i) 24,309
----------- --------- --------- ----------
635,610 (150,000) 1,378
Income (loss) before income tax expense
and loss on equity investment 4,695,659 150,000 110,311
Income tax expense 986,000 0
----------- --------- --------- ----------
Income before loss on equity investment 3,709,659 150,000 110,311
Loss on equity investment, net of taxes (395,000) 0 0
----------- --------- --------- ----------
Net income (loss) $ 3,314,659 $ 150,000 $ 110,311
=========== ========= ========= ==========
Primary and Fully Diluted earnings (loss) per Common Share:
Earnings (loss) per Common Share $0.07
===========
Primary weighted average number
of common shares outstanding 49,864,464 4,507,783 (h) 1,932,217 (i)
=========== ========= =========
Fully Diluted weighted average number
of common shares outstanding 50,102,434 4,507,783 (h) 1,932,217 (i)
=========== ========= =========
<CAPTION>
Wismer-Martin Pro Forma CTI Business
Acquisition Before Acq. of CTI Business Acquisition
Adjustments CTI Business Acquisition (k) Adjustments
----------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Revenues $23,309,587 $ 3,013,872
---------- ----------- ----------- --------
Costs and Expenses:
Cost of revenues 9,813,806 1,499,315
Research and development 1,251,778 519,186
Selling and marketing 2,055,804 879,798
General and administrative 247,708 (l) 4,992,949 1,801,893 214,580 (l)
0 (145,975)(o)
---------- ----------- ----------- --------
247,708 18,114,337 4,700,192 68,605
Interest (income) expense:
Interest income (82,439) 0
Interest expense 569,427 0
---------- ----------- ----------- --------
0 486,988 0 0
Income (loss) before income tax expense
and loss on equity investment (247,708) 4,708,262 (1,686,320) (68,605)
Income tax expense 986,000 0
---------- ----------- ----------- --------
Income before loss on equity investment (247,708) 3,722,262 (1,686,320) (68,605)
Loss on equity investment, net of taxes 0 (395,000) 0 0
---------- ----------- ----------- --------
Net income (loss) $(247,708) $ 3,327,262 $(1,686,320) $(68,605)
========== =========== =========== ========
Primary and Fully Diluted earnings (loss) per Common Share:
Earnings (loss) per Common Share $0.06(p)
===========
Primary weighted average number
of common shares outstanding 935,000 (m) 57,239,464
========= ===========
Fully Diluted weighted average number
of common shares outstanding 935,000 (m) 57,477,434
========= ===========
<CAPTION>
Pro Forma
After Acq. of
CTI Business
<S> <C>
Revenues $26,323,459
-----------
Costs and Expenses:
Cost of revenues 11,313,121
Research and development 1,770,964
Selling and marketing 2,935,602
General and administrative 7,009,422
(145,975)
-----------
22,883,134
Interest (income) expense:
Interest income (82,439)
Interest expense 569,427
-----------
486,988
Income (loss) before income tax expense
and loss on equity investment 2,953,337
Income tax expense 986,000
-----------
Income before loss on equity investment 1,967,337
Loss on equity investment, net of taxes (395,000)
-----------
Net income (loss) $ 1,572,337
===========
Primary and Fully Diluted earnings (loss) per Common Share:
Earnings (loss) per Common Share $0.03(p)
===========
Primary weighted average number
of common shares outstanding 57,239,464
===========
Fully Diluted weighted average number
of common shares outstanding 57,477,434
===========
</TABLE>
- ----------------
See accompanying notes to the unaudited pro forma condensed consolidated
statements.
-20-
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 1996
ASSETS
Adjustments Increase/(Decrease) Giving Effect to
---------------------------------------------------------------------
Wismer-Martin
PCN 1996 Equifax Wismer-Martin Acquisition
Historical Offering Conversion Acquisition (j) Adjustments
------------ ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,814,855 $41,902,164 (q) $ -- $ 540,404 $(1,980,000)(j)
Accounts receivable, net 21,466,925 904,814
Inventories 4,622,647 130,869
Prepaid expenses and other 1,607,176 36,786
Deferred tax asset 1,650,000
------------ ----------- ------------- -------------- -----------
Total current assets 39,161,603 41,902,164 1,612,873 (1,980,000)
Intangible assets, net 52,741,240 3,367,911 11,494,722 (j)
(3,367,911)(r)
Property and equipment, net 3,976,749 1,343,068 450,000 (s)
Investment in joint venture 3,009,082
Other assets 4,020,991 62,437
------------ ----------- ------------- -------------- -----------
Total Assets $102,909,665 $41,902,164 $ -- $ 6,386,289 $ 6,596,811
============ =========== ============= ============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 9,513,571 $ --
Current portion of
long-term debt 40,486 34,937
Current portion of obligation
under capital leases 77,164 36,097
Accounts payable 4,600,581 344,776
Accrued expenses and other liabilities 14,163,270 384,045 250,000 (j)
Customer deposits 3,086,807
Unearned income 14,617,925 1,731,334
------------ ----------- ------------- -------------- -----------
Total current liabilities 46,099,804 2,531,189 250,000
Long-term debt, net of current portion:
Other 22,470,636 (10,000,000)(q) 786,456
Obligations under capital
leases, net of current portion 327,985 65,455
------------ ----------- ------------- -------------- -----------
Total liabilities 68,898,425 0 (10,000,000) 3,383,100 250,000
Shareholders' Equity:
Preferred stock 64 --
Common stock 447,952 45,078 (q) 19,322 (q) 16,321 (16,321)(t)
9,350 (m)
Additional paid-in capital 131,209,375 41,857,086 (q) 9,980,678 (q) 4,881,193 (4,881,193)(t)
9,340,650 (m)
Excess purchase price of acquired subsidiary -- (2,533,308) 2,533,308 (t)
Retained earnings (Accumulated deficit) (97,646,151) 638,983 (638,983)(t)
------------ ----------- ------------- -------------- -----------
Shareholders' equity 34,011,240 41,902,164 10,000,000 3,003,189 6,346,811
------------ ----------- ------------- -------------- -----------
Total liabilities and shareholders'
equity $102,909,665 $41,902,164 $ -- $ 6,386,289 $ 6,596,811
============ =========== ============= ============== ===========
<CAPTION>
ASSETS
Pro Forma CTI Business Pro Forma
Before Acq. of CTI Business Acquisition After Acq. of
CTI Business Acquisition (k) Adjustments CTI Business
------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
Current Assets: $50,277,423 $ -- $(10,100,000) (k) $40,177,423
Cash and cash equivalents 22,371,739 1,951,810 24,323,549
Accounts receivable, net 4,753,516 130,043 4,883,559
Inventories 1,643,962 42,860 1,686,822
Prepaid expenses and other 1,650,000 1,650,000
Deferred tax asset ------------ ----------- ----------- ------------
80,696,640 2,124,713 (10,100,000) 72,721,353
Total current assets
10,380,467 11,334,573 (k)
Intangible assets, net 64,235,962 (10,380,467)(r) 75,570,535
5,769,817 735,707 6,505,524
Property and equipment, net 3,009,082 3,009,082
Investment in joint venture 4,083,428 65,637 4,149,065
Other assets ------------ ----------- ----------- ------------
$157,794,929 $13,306,524 $(9,145,894) $161,955,559
Total Assets ============ =========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities: $ 9,513,571 $ 97,686 $ 9,611,257
Notes payable
Current portion of 75,423 75,423
long-term debt
Current portion of obligation 113,261 113,261
under capital leases 4,945,357 849,760 5,795,117
Accounts payable 14,797,315 183,654 150,000 (k) 15,130,969
Accrued expenses and other liabilities 3,086,807 278,126 3,364,933
Customer deposits 16,349,259 2,601,404 18,950,663
Unearned income ------------ ----------- ----------- ------------
48,880,993 4,010,630 150,000 53,041,623
Total current liabilities
Long-term debt, net of current portion: 13,257,092 13,257,092
Other
Obligations under capital 393,440 393,440
leases, net of current portion ------------ ----------- ----------- ------------
62,531,525 4,010,630 150,000 66,692,155
Total liabilities
Shareholders' Equity: 64 64
Preferred stock
Common stock 521,702 521,702
Additional paid-in capital 192,387,789 192,387,789
0 0
Excess purchase price of acquired subsidiary (97,646,151) 9,295,894 (9,295,894)(t) (97,646,151)
Retained earnings (Accumulated deficit) ------------ ----------- ----------- ------------
95,263,404 9,295,894 (9,295,894) 95,263,404
Shareholders' equity ------------ ----------- ----------- ------------
Total liabilities and shareholders' $157,794,929 $13,306,524 ($9,145,894) $161,955,559
equity ============ =========== =========== ============
</TABLE>
- ----------------
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
-21-
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) Includes the operations of the PMS Business from April 24, 1995, the date
of acquisition (see note (b) below) and the operations of Versyss from
October 27, 1995, the date of acquisition (see note (c) below).
(b) Reflects the operations of the PMS Business from January 1, 1995 to April
24, 1995. On April 24, 1995, a wholly-owned subsidiary of PCN acquired
substantially all of the assets of the PMS Business for $4,861,000, of
which $2,861,000 was paid in cash and $2,000,000 was paid in the form of a
one year 10% interest bearing note (which note was paid in full on April
24, 1996). In addition, PCN assumed $3,009,000 of certain liabilities of
the PMS Business, primarily related to software support and hardware
maintenance agreements.
(c) Reflects the operations of Versyss from January 1, 1995 to October 27,
1995. On October 27, 1995, PCN acquired all of the issued and outstanding
capital stock of Versyss, pursuant to a merger agreement, for $12,333,000
in cash and $11,750,000 in the form of a two year, 11% interest bearing
note.
(d) Reflects the prorated amortization of the PMS Business and Versyss acquired
intangible assets, with the exception of Acquired technology in process,
based on the estimated useful lives established in the table in Note 3 to
the Consolidated Financial Statements of PCN as previously disclosed in
PCN's Annual Report on Form 10-K for the year ended December 31, 1995.
Included within PCN Historical is $421,365 of PMS Business-related
amortization expense for the period of April 24, 1995 to December 31, 1995,
and $722,735 of Versyss-related amortization expense for the period of
October 27, 1995 to December 31, 1995. The pro forma acquisition
amortization adjustment therefore consists of the following:
<TABLE>
<S> <C>
Amortization of PMS acquired intangible assets (Jan. 1 to April 24, 1995) ............. $ 210,692
Amortization of Versyss acquired intangible assets (Jan. 1 to October 27, 1995) ....... 3,653,840
-----------
Total adjustment ...................................................................... $ 3,864,532
</TABLE>
(e) With the help of an appraiser, PCN allocated $14,516,000 of the purchase
price of the Versyss acquisition to Acquired technology in process which
was recorded as an expense in the year ended December 31, 1995. This charge
is non-recurring and unusual and, as it relates directly to the
acquisition, is excluded from the unaudited pro forma consolidated
statement of operations.
(f) Reflects accrued interest expense on the following acquisition-related
indebtedness:
<TABLE>
<S> <C>
10% Interest on $2,000,000 note issued in connection with the acquisition of the PMS
Business (Jan 1 to April 24, 1995) .................................................................... $ 66,667
11% Interest on $11,750,000 note issued in connection with the Versyss
acquisition (Jan. 1 to Oct. 27, 1995) ................................................................... 1,077,083
------------
Subtotal .............................................................................................. $ 1,143,750
Less: Interest paid to Mr. Jeffry M. Picower (the "Investor") which would have been
avoided if the February 1995 Offering had occurred on January 1, 1995 ................................... (241,847)
------------
Total adjustment to interest expense related to the acquisitions of
Versyss and the PMS Business ....................................................................... $ 901,903
============
</TABLE>
(g) Reflects the increase in the weighted average number of shares of Common
Stock outstanding after giving effect to (i) the issuance of 6,250,000
shares of Common Stock pursuant to PCN's February 1995 public offering and
(ii) the issuance of 1,902,748 shares of Common Stock pursuant to the
October 1995 Regulation S offering.
(h) Reflects the increase in the weighted average number of shares of Common
Stock outstanding after giving effect to the issuance of the 4,507,783
shares of Common Stock sold by PCN pursuant to the 1996 Offering.
(i) Reflects the reversal of interest expense incurred on the Equifax Note and
an increase in the weighted average number of shares of Common Stock
outstanding after giving effect to the conversion of the Equifax Note into
1,932,217 shares of Common Stock.
-22-
<PAGE>
(j) Reflects the operations of Wismer-Martin for the year ended December 31,
1995 and the three months ended March 31, 1996 and the balance sheet of
Wismer-Martin as of March 31, 1996. On June 20, 1996, PCN and Wismer-Martin
signed a definitive agreement whereby PCN will acquire all of the issued
and outstanding capital stock of Wismer-Martin for $1,980,000 in cash and
935,000 shares of Common Stock of PCN. The number of shares is subject to
adjustment depending on variations in the Market Price during the fifteen
(15) trading days ending on the third business day prior to the
consummation of the transaction. If the aggregate Market Price of the Stock
Consideration is less than $9,350,000 ($10.00 per share) on the third
business day immediately preceding the consummation of the transaction (the
Closing), then the Stock Consideration shall be increased to equal such
number of shares of PCN Common Stock as has an aggregate market value of
$9,350,000. Likewise, if the aggregate Market Price of the Stock
Consideration is greater than $11,453,750 ($12.25 per share) on the third
business day immediately preceding the Closing, then the Stock
Consideration shall be decreased to equal such number of shares of PCN
Common Stock as has an aggregate market value of $11,453,750. In addition,
if the Market Price of PCN Common Stock on the third business day
immediately preceding the Closing is less than or equal to $9.00 per share,
then, at PCN's option, in lieu of the Cash Consideration and the Stock
Consideration, the "Merger Consideration" shall be an amount equal to the
Cash Option of $14,000,000.
Assuming the Cash Option is not exercised, the purchase price is allocated
as follows (assuming a $10.00 price per share of PCN Common Stock):
<TABLE>
Consideration (including liabilities assumed):
<S> <C> <C>
Cash $ 1,980,000
PCN Common Stock issued 9,350,000
Liabilities assumed 3,383,100
Accounting and legal costs 250,000
------------
Total Purchase Price $ 14,963,100
============
Allocation of Purchase Price:
Accounts Receivable and Inventory $ 1,035,683
Property, equipment and other assets, including cash 2,432,695
Intangible assets:
Profit on support and update agreements (1 year life) 85,000
Profit on future support and update
agreements (4 year life) 537,000
Acquired software products (3 year life) 494,000
Other intangible assets (includes customer list,
and goodwill) (15 year life) 10,378,722
------------
Total Intangible assets 11,494,722
------------
$ 14,963,100
============
</TABLE>
-23-
<PAGE>
(k) Reflects the operations of the CTI Business for the year ended December 31,
1995 and the three months ended March 31, 1996 and the balance sheet of the
CTI Business as of March 31, 1996. On July 3, 1996, PCN purchased
substantially all of the assets of the medical practice management software
business and certain other software businesses of CUSA Technologies, Inc.
for $10,100,000 in cash. The purchase price is allocated as follows:
<TABLE>
<S> <C> <C>
Consideration (including liabilities assumed):
Cash $ 10,100,000
Liabilities assumed 4,010,630
Accounting and legal costs 150,000
------------
Total Purchase Price $ 14,260,630
============
Allocation of Purchase Price:
Accounts Receivable and Inventory $ 2,081,853
Equipment and other assets, including cash 844,204
Intangible assets:
Profit on support and update agreements (1 year life) 107,000
Profit on future support and update
agreements (4 year life) 599,000
Other intangible assets (includes customer list
and goodwill) (15 year life) 10,628,573
------------
Total Intangible assets 11,334,573
------------
$ 14,260,630
============
</TABLE>
(l) Reflects the prorated amortization of the acquired intangible assets of
Wismer-Martin and the CTI Business, based on the useful lives established
in notes (j) and (k) above.
(m) Reflects the increase in the weighted average number of shares of Common
Stock outstanding after giving effect to the issuance of 935,000 shares of
Common Stock, valued at $10.00 per share, pursuant to the acquisition of
Wismer-Martin by PCN. If the Market Price of PCN Common Stock on the third
business day immediately preceding the Effective Time was $9.00 per share,
then the Stock Consideration would be increased to 1,038,889 shares. The
resulting increase of 103,889 shares of Common Stock would not change pro
forma earnings per share for the three months ended March 31, 1996 and
would not change the pro forma loss per share for the year ended December
31, 1995. If the Market Price of PCN Common Stock on the third business day
immediately preceding the Effective Time is less than or equal to $9.00 per
share, then, at PCN's option, in lieu of the Cash Consideration and the
Stock Consideration, the "Merger Consideration" shall be an amount equal to
the Cash Option of $14,000,000 and, therefore, no shares of PCN Common
Stock would be issued. If this situation should occur, and PCN exercised
its option to pay $14,000,000 in cash in lieu of the Cash Consideration and
Stock Consideration, the resulting decrease of 935,000 shares of Common
Stock would not change pro forma earnings per share for the three months
ended March 31, 1996 and would not change the pro forma loss per share for
the year ended December 31, 1995.
(n) Represents the elimination of revenue and cost of sales related to sales
transactions between Versyss and the CTI Business prior to the acquisition
of Versyss by PCN.
(o) Reflects the elimination of the amortization of intangible assets recorded
in the historical results of operations of the CTI Business.
(p) For the year ended December 31, 1995, the assumed exercise of certain
outstanding options and warrants have not been included in the calculation
of unaudited pro forma loss per common share as they are anti-dilutive,
thus making unaudited pro forma primary and fully diluted loss per common
share the same. For the three months ended March 31, 1996, the assumed
exercise of dilutive options and warrants and the assumed conversion of
outstanding shares of PCN's Series A convertible non dividend-paying
preferred stock has been included in the calculation of the primary and
fully-diluted weighted average number of common shares outstanding.
(q) The following table details the net proceeds from the 1996 Offering and its
effect on the Unaudited Pro Forma Condensed Consolidated Balance Sheet at
March 31, 1996:
-24-
<PAGE>
<TABLE>
<CAPTION>
Long-term
debt, net of
current Common Paid-in
Cash portion Stock Capital
----------- ------------- ------- -----------
<S> <C> <C> <C> <C>
Gross Proceeds from the issuance of
4,507,783 shares of Common Stock
at $10.00 per share $45,077,830 $45,078 $45,032,752
1996 Offering Expenses, including
underwriting discounts
and commissions (3,175,666) (3,175,666)
Conversion of $10,000,000 Equifax Note
into 1,932,217 shares of Common Stock $(10,000,000) 19,322 9,980,678
----------- ------------ ------- -----------
Total pro forma adjustment $41,902,164 $(10,000,000) $64,400 $51,837,764
=========== ============ ======= ===========
</TABLE>
(r) Represents the elimination of intangible assets related to capitalized
proprietary software costs recorded by both Wismer-Martin and the CTI
Business which had no fair market value to PCN.
(s) Represents the estimated fair value adjustment to the net book value of the
Wismer-Martin land and building assets.
(t) Reflects the elimination of the prior ownership of Wismer-Martin and the
CTI Business.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1934, the Registrant
has duly caused the Report to be signed on its behalf by the undersigned
thereunto duly authorized.
PHYSICIAN COMPUTER NETWORK, INC.
(Registrant)
Date: August 7, 1996 By: /s/John F. Mortell
-----------------------------
John F. Mortell
Executive Vice President and
Chief Operating Officer
