<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-19666
PHYSICIAN COMPUTER NETWORK, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 22-2485688
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 The American Road
Morris Plains, N.J. 07950
(Address of principal executive offices) (Zip Code)
(201) 490-3100
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of Registrant's Common Stock, $.01 par
value, as of May 13, 1996 is 51,172,125
Page 1 of 26 Pages
Exhibit Index page 25
<PAGE>
PHYSICIAN COMPUTER NETWORK, INC.
1996 FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS...................... 3
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995.............. 3
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995........ 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995........ 5
Notes to Consolidated Financial Statements.......... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................. 17
Results of Operations............................... 19
Financial Condition and Liquidity .................. 20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings...................................... 23
ITEM 2. Changes in Securities.................................. 23
ITEM 3. Defaults upon Senior Securities........................ 23
ITEM 4. Submission of Matters to a Vote of Security Holders.... 23
ITEM 5. Other Information...................................... 23
ITEM 6. Exhibits and Reports on Form 8-K....................... 23
SIGNATURES..................................................... 24
INDEX TO EXHIBITS.............................................. 25
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PHYSICIAN COMPUTER NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
------------ -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $9,814,855 $15,516,883
Accounts receivable, net of allowance for doubtful
accounts of $864,000 at March 31, 1996, and
$764,000 at December 31, 1995 21,466,925 19,466,446
Inventories 4,622,647 4,598,954
Prepaid expenses and other 1,607,176 1,093,306
Deferred tax asset 1,650,000 1,650,000
------------ -----------
Total current assets 39,161,603 42,325,589
Intangible assets, net of accumulated amortization
of $8,575,000 at March 31, 1996
and $6,840,000 at December 31, 1995 52,741,240 53,701,055
Property and equipment, net 3,976,749 3,976,195
Investment in joint venture 3,009,082 -
Other assets 4,020,991 256,998
------------ -----------
Total assets $102,909,665 $100,259,837
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable:
Other $9,513,571 $9,080,000
Related party 750,000
Current portion of long term-debt 40,486 100,160
Current portion of obligations under capital leases 77,164 327,770
Accounts payable 4,600,581 4,935,601
Accrued expenses and other liabilities 14,163,270 17,024,828
Customer deposits 3,086,807 3,504,980
Unearned income 14,617,925 15,608,705
------------ -----------
Total current liabilities 46,099,804 51,332,044
Long-term debt, net of current portion:
Other 22,470,636 18,924,000
Obligations under capital leases, net of
current portion 327,985 806,255
------------ -----------
Total liabilities 68,898,425 71,062,299
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized:
Series A convertible preferred stock, 6,350 shares
outstanding at March 31,1996 and 15,750 shares
outstanding at December 31,1995 64 157
Common stock, $.01 par value, 75,000,000 shares authorized,
44,795,241 shares issued and outstanding at
March 31,1996 and 42,937,147 shares issued
and outstanding at December 31, 1995 447,952 429,371
Additional paid-in capital 131,209,375 129,728,821
Accumulated deficit (97,646,151) (100,960,811)
------------ -----------
Shareholders' equity 34,011,240 29,197,538
------------ -----------
Total liabilities and shareholders' equity $102,909,665 $100,259,837
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
PHYSICIAN COMPUTER NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---------------- ------------------
<S> <C> <C>
Revenues:
Software license fees $ 5,917,722 $ 3,218,988
Hardware revenue 5,900,907 702,255
Maintenance, communication fees and other 9,208,319 2,536,619
---------------- ------------------
21,026,948 6,457,862
Cost of Revenues:
Hardware 3,756,539 331,860
Software, maintenance, communication fees and other 5,038,353 1,014,064
---------------- ------------------
8,794,892 1,345,924
---------------- ------------------
Gross margin 12,232,056 5,111,938
Operating expenses:
Research and development 1,111,487 439,320
Selling and marketing 1,704,769 286,686
General and administrative 4,084,531 2,721,938
---------------- ------------------
6,900,787 3,447,944
---------------- ------------------
Interest (income) expense:
Interest income (59,508) (62,544)
Interest expense 695,118 428,883
---------------- ------------------
635,610 366,339
---------------- ------------------
Income before income tax expense, loss on equity
investment and extraordinary item 4,695,659 1,297,655
Income tax expense 986,000 27,000
---------------- ------------------
Income before loss on equity investment and
extraordinary item 3,709,659 1,270,655
Loss on equity investment, net of taxes (395,000) -
---------------- ------------------
Income before extraordinary item 3,314,659 1,270,655
Extraordinary item:
Loss on extinguishment of debt - (180,000)
---------------- ------------------
Net income $ 3,314,659 $ 1,090,655
---------------- ------------------
---------------- ------------------
Primary and fully diluted earnings per common share
before and after extraordinary item $0.07 $0.03
---------------- ------------------
---------------- ------------------
Primary weighted average number of common
shares outstanding 49,864,464 39,357,748
---------------- ------------------
---------------- ------------------
Fully diluted weighted average number of
common shares outstanding 50,102,432 40,319,287
---------------- ------------------
---------------- ------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
PHYSICIAN COMPUTER NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $3,314,659 $1,090,655
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,253,488 666,541
Amortization on loan discount - 60,000
Gain on disposition of equipment (3,524) (36,167)
Provision for doubtful accounts 150,000 -
Non-cash compensation expense 15,000 15,000
Non-cash provision for income taxes 846,000 -
Loss on equity investment 395,000 -
Extraordinary loss on extinguishment of debt - 180,000
(Increase) decrease in assets:
Accounts receivable (2,150,479) (2,056,976)
Inventories (23,693) (343,331)
Prepaid expenses and other assets 513,424 338,946
Increase (decrease) in liabilities, net
Accounts payable (335,020) 436,889
Accrued expenses and
other liabilities (2,412,556) (326,001)
Customer deposits and unearned income (1,408,953) (121,068)
----------- -----------
Net cash provided by (used in) operating activities 1,153,346 (95,512)
----------- -----------
Cash flows used in investing activities:
Purchase of equipment (424,648) (194,497)
Proceeds from disposal of equipment 3,524 36,167
Acquisition of licensing rights
and other intangible assets (1,132,578) (514,488)
Investment in joint venture and related cost (3,564,082) -
----------- -----------
Net cash used in investing activities: (5,117,784) (672,818)
----------- -----------
Cash flows provided by (used in) financing activities:
Principal payments of
long-term debt (1,146,000) (16,050,000)
Principal payments of
notes payable (1,638,756) -
Net proceeds from issuance of notes payable
and long-term debt, other 10,000,000
Principal payments under
capital lease obligations (28,876) (72,684)
Net proceeds from issuance
of common stock, preferred stock and
exercise of stock options 1,076,042 22,358,680
----------- -----------
Net cash provided by (used in) financing activities (1,737,590) 16,235,996
----------- -----------
Net Increase (decrease) in
cash and cash equivalents (5,702,028) 15,467,666
Cash and cash equivalents,
beginning of period 15,516,883 2,512,047
----------- -----------
Cash and cash equivalents,
end of period $9,814,855 $17,979,713
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
PHYSICIAN COMPUTER NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The information presented at March 31, 1996 and 1995 and for the
periods then ended is unaudited, but includes all adjustments (consisting
only of normal recurring accruals) which the management of Physician Computer
Network, Inc. ("PCN" and together with PCN's subsidiaries, the "Company")
believes to be necessary for the fair presentation of results for the periods
presented. The results for the three month period ended March 31, 1996 may not
necessarily be indicative of results to be expected for the full year. It is
suggested that these consolidated financial statements, note disclosures and
other information be read in conjunction with the consolidated financial
statements and related notes of the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
Beginning in 1993, the Company instituted a strategy of developing and
expanding its business by acquiring practice management software businesses
having an installed base of physician practice customers and of acquiring and
developing a common software platform to which such customers could migrate
over time. In execution of this new strategy, the Company acquired two practice
management software entities, Calyx Corporation ("Calyx") of Brookfield,
Wisconsin on September 23, 1993 and Wallaby Software Corporation ("Wallaby")
of Mahwah, New Jersey on December 31, 1993, pursuant to separate stock
purchase agreements. On March 11, 1994, the Company purchased substantially
all of the assets of the doctor's office practice management business (the
"DOM/2 Business") of IBAX Healthcare Systems . On November 15, 1994, the
Company purchased the Acclaim software maintenance and support business (the
"Acclaim" Business) from Sentient Systems, Inc. On April 24, 1995, the
Company, through a wholly-owned subsidiary, Practice Management Systems Corp.
("PMSC"), acquired substantially all of the assets of Practice Management
Systems, Inc., a business which developed and sold practice management
software products and related equipment, maintenance and support to physician
practices (the "PMS Business") (See Note 3). On October 27, 1995, the
Company acquired Versyss Incorporated ("Versyss"), through the merger of a
wholly-owned subsidiary of the Company with and into Versyss, with Versyss as
the surviving corporation of such merger (See Note 3). The Consolidated
Balance Sheets and the Consolidated Statements of Operations are inclusive of
Calyx, Wallaby, the DOM/2 Business, the Acclaim Business, PMSC and Versyss
for the three months ended March 31, 1996 and are inclusive of Calyx,
Wallaby, the DOM/2 Business and the Acclaim Business for the three months
ended March 31, 1995. All significant intercompany transactions have been
eliminated.
6
<PAGE>
2. NET INCOME PER COMMON SHARE
Net income per common share for the three months ended March 31, 1996
and 1995 is determined by dividing net income by the weighted average number
of shares of the Company's common stock, par value $0.01 per share ("Common
Stock"), outstanding during the period. The assumed exercise of dilutive
stock options and warrants and the assumed conversion of outstanding shares
of the Company's Series A convertible non-dividend paying preferred stock
(the "Convertible Preferred Stock") has been included in the calculation of
weighted average number of common shares outstanding. The conversion of a
$10,000,000 principal amount five year promissory note (the "Equifax Note")
of the Company, purchased by Equifax Inc. ("Equifax") on February 15, 1995,
which note bore interest at a rate of 6% per annum and was converted into
1,932,217 shares of the Company's Common Stock at a conversion price of
$5.175 (See Note 6), is considered an other dilutive security but is not
included in the weighted average number of common shares outstanding used in
the calculation of fully diluted income per share for the three months ended
March 31, 1996 and 1995 as such inclusion would be anti-dilutive.
7
<PAGE>
3. ACQUISITIONS
PURCHASE OF VERSYSS. On October 27, 1995, the Company acquired all of
the issued and outstanding capital stock of Versyss, a private company
located in Needham Heights, Massachusetts, pursuant to a merger agreement,
for: (i) $12,333,000 in cash; (ii) $11,750,000 in the form of a two year
promissory note bearing interest at the rate of 11% per annum issued by
Versyss, as the surviving corporation of the merger, to the Versyss
Liquidating Trust, a liquidating trust formed for the benefit of the former
shareholders of Versyss and; (iii) the assumption of $45,797,000 in
liabilities.
PURCHASE OF THE PMS BUSINESS. On April 24, 1995, PMSC, a newly formed,
wholly-owned subsidiary of the Company, acquired substantially all of the
assets of the PMS Business, a practice management software business located
in Needham, Massachusetts, for: (i) $2,861,003 in cash; (ii) $2,000,000 in
the form of a one year promissory note from PMSC to Practice Management
Systems, Inc. ("PMSI"), the seller of the PMS Business, which note bears
interest at the rate of 10% per annum; and (iii) the assumption of $3,009,163
in liabilities.
The Versyss and PMS Business transactions were accounted for by the
purchase method of accounting and, accordingly, the acquired assets and
liabilities have, with the help of an appraiser, been recorded at their fair
values, at the date of purchase.The consideration (including acquisition
costs) and the allocation of purchase price for each acquisition are
summarized by significant asset category below:
<TABLE>
<CAPTION>
Versyss PMS
------------ -----------
<S> <C> <C>
CONSIDERATION:
Cash 12,333,000 2,861,003
Notes Payable 11,750,000 2,000,000
Liabilities assumed 45,797,000 3,009,163
Legal and accounting costs 702,629 79,371
------------ -----------
Total purchase price $70,582,629 $7,949,537
------------ -----------
------------ -----------
ALLOCATION OF PURCHASE PRICE:
Tangible assets including receivables,
inventories, and equipment 13,985,000 2,206,150
Acquired technology in process 14,516,000 -
Physician supplier base (amortized
over seven years) - 483,151
Profit on future support and update agreements
(amortized over four years) 820,281 267,750
Acquired software products
(amortized over three years) 3,101,000 179,089
Profit on support and update agreements
(amortized over one year) 852,602 123,785
Other intangible assets
(amortized over fifteen years) 37,307,746 4,689,612
------------ -----------
Total $70,582,629 $7,949,537
------------ -----------
------------ -----------
</TABLE>
8
<PAGE>
The following unaudited pro forma financial information represents the
combined results of operations of the Company, Versyss and PMSC as if both
acquisitions had occurred as of January 1, 1995 after giving effect to
certain financing transactions completed in the first and third quarters of
1995 and are exclusive of the $14,516,000 charge for the acquired technology
in process as this charge is non-recurring and unusual and relates directly
to the acquisition of Versyss. The unaudited pro forma financial information
does not necessarily reflect the results of operations that would have
occurred had the Company, Versyss and PMSC constituted a single entity during
such periods nor does it represent a basis for assessing future performance.
<TABLE>
<S> <C>
Three Months Ended March 31, 1995:
Operating Revenues $23,197,652
Income before Extraordinary Item $588,843
Net Income $408,843
Income per Common Share before Extraordinary Item $0.01
Net Income per Common Share $0.01
</TABLE>
4. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Computer hardware and peripherals..... $3,197,951 $3,120,969
Customer maintenance parts............ 1,424,696 1,477,985
---------- ------------
$4,622,647 $4,598,954
---------- ------------
---------- ------------
</TABLE>
9
<PAGE>
5. RESTRUCTURING PLAN UPDATE
In the fourth quarter of 1995, after the completion of the Versyss
acquisition, management completed a review of the Company's operations,
together with the newly acquired PMSC and Versyss operations, and announced a
restructuring plan (the "1995 Restructuring Plan") designed to eliminate
duplicate administrative responsibilities, consolidate warehousing and
distribution of the Company's products and streamline other core businesses
in order to improve operating efficiencies and increase shareholder value.
The Company recorded a restructuring charge aggregating $3,922,450, partially
offset by a recovery of $850,000 from a change in estimated requirements
previously charged against operations as part of the restructuring accrual
recorded in 1993 (see below). The 1995 Restructuring Plan provision included
$2,509,950 for lease termination costs (principally commencing in July 1996)
and $1,412,500 for severance and other employee reduction-related costs. The
1995 Restructuring charges do not include additional costs associated with
the consolidation of operations such as re-training, consulting, purchases of
equipment and relocation of employees and equipment. These costs will be
charged to operations or capitalized, as appropriate, when incurred. The
implementation of this plan commenced in December 1995 and it is anticipated
to be completed by the end of 1997. Since implementation of the 1995
Restructuring Plan, the 1995 accrual has decreased by $771,812, principally
due to expenditures related to headcount reduction from the consolidation and
centralization of financial and administrative functions at the Company's
corporate headquarters in Morris Plains, NJ, the centralization of
purchasing, warehousing and order fulfillment at the Company's Torrance, CA
service center and other functional downsizings.
<TABLE>
<S> <C>
1995 RESTRUCTURING PLAN
1995 Provision................................. $3,922,450
Cash outflows from reduction in workforce...... 771,812
----------
Balance at March 31, 1996 $3,150,638
----------
----------
</TABLE>
10
<PAGE>
In the fourth quarter of 1993, after completing the Calyx and Wallaby
acquisitions, the Company implemented a restructuring plan (the "1993
Restructuring Plan") designed to reduce costs, improve operating efficiencies
and increase shareholder value. The Company recorded a restructuring charge
aggregating $3,165,000, for which no tax benefit was available, for the
consolidation of offices and facilities, where appropriate, the
centralization of administrative and overhead functions and certain other
employee reduction-related costs. The charge included $1,770,000 for lease
termination costs, $192,000 for the write-off of related equipment and
leasehold improvements, $210,000 for office relocation and consolidation
costs, and $993,000 for severance and other employee-related costs. The
Company anticipated that efficiencies related to the restructuring, primarily
in the form of reduced facility and labor-related costs, would be phased in
by the end of 1995. Since implementation of the 1993 Restructuring Plan, the
1993 accrual has decreased by approximately $2,629,000, of which $1,779,000
was principally due to expenditures related to the lease termination and
consolidation of the Company's then corporate headquarters in Mahwah, New
Jersey in 1994 and the resultant centralization of certain financial and
sales administrative functions previously performed at the Brookfield,
Wisconsin location. However, as of March 31, 1996, certain restructuring
charges related to other lease termination costs have not yet been paid. The
table below summarizes the activity of the 1993 Restructuring Plan:
<TABLE>
<S> <C>
1993 RESTRUCTURING PLAN
1993 Provision......................................................$3,165,000
1994 Activity:
Reduction in workforce, lease termination costs and
other cash outflows.............................................. 975,000
Write-off of equipment and leasehold improvements.................. 165,000
----------
Balance at December 31, 1994........................................ 2,025,000
1995 Activity:
Reduction in workforce, lease termination costs and
other cash outflows.............................................. 572,000
Additional write-off of equipment and leasehold improvements...... 27,000
Non-cash recovery from change in estimated requirements.......... 850,000
----------
Balance at December 31, 1995........................................ 576,000
1996 Activity:
Reduction in workforce, lease termination costs and
other cash outflows.............................................. 40,000
----------
Balance at March 31, 1996........................................... $536,000
----------
----------
</TABLE>
11
<PAGE>
6. SHAREHOLDERS' EQUITY
During the first quarter of 1996, 9,400 shares of the Convertible
Preferred Stock, issued on October 20, 1995 pursuant to Regulation S under the
Securities Act of 1933, were converted into 1,342,852 shares of Common Stock
in accordance with the terms of the Convertible Preferred Stock.
For the three months ended March 31, 1996, options to purchase
an additional 495,000 shares of Common Stock at an exercise price of $12.625
per share were granted pursuant to the Company's 1993 Incentive and
Non-Incentive Stock Option Plan and 1,027,175 stock options were forfeited
due to expiration or termination. During the first quarter of 1996, 567,942
stock options were exercised. There was no stock warrant activity during the
period. As a result, the cumulative number of stock options and warrants
outstanding was 9,144,163 as of March 31, 1996.
On May 10, 1996, the Company completed the public offering of
5,600,000 shares of its common stock at a price of $10.00 per share of which
3,667,783 shares were sold by the Company and 1,932,217 shares were sold by
Equifax. (See Note 10).
7. SIGNIFICANT TRANSACTIONS
HEALTHPOINT G.P. JOINT VENTURE. In January 1996, the Company and
Glaxo Wellcome Inc. ("Glaxo Wellcome"), through wholly-owned subsidiaries,
formed HealthPoint G.P. ("HealthPoint"), a joint venture partnership, to
design and market clinical information technology products and services.
These products and services are expected to consist of computerized patient
records software products, clinical network capabilities and data analysis.
HealthPoint is a general partnership owned equally by a wholly-owned
subsidiary of the Company and a wholly-owned subsidiary of Glaxo Wellcome and
will operate independently of the parent companies. A management committee
comprised of management of the wholly-owned subsidiaries of Glaxo Wellcome
and the Company, as well as a representative of HealthPoint's management,
will oversee the venture's operations. The Company has agreed to, generally,
use its best efforts to exclusively distribute HealthPoint's products and
services to the Company's customers on an exclusive basis. Both the Company
and Glaxo Wellcome have contributed product and development assets to
HealthPoint and will contribute at least $50 million in cash to the venture,
of which $43 million will be contributed by Glaxo Wellcome and $7 million
will be contributed by the Company. Of such amounts, as of March 31, 1996,
Glaxo Wellcome had contributed approximately $13.4 million and the Company
had contributed approximately $2.7 million, with the remainder to be
contributed proportionately by the partners in semi-annual installments as
needed by the venture through December 31, 1998. In addition, the Company
has incurred approximately $864,000 of costs related to its investment in
HealthPoint. Any losses incurred by HealthPoint will be allocated between
Glaxo Wellcome and the Company in proportion to their respective cash
contributions (approximately 85% to Glaxo Wellcome and 15% to the Company),
while profits will, generally be allocated equally between the partners. For
the three months ended
12
<PAGE>
March 31, 1996, the Company's share of the loss as incurred by HealthPoint
during such period primarily consisting of start-up costs allocable, was
$500,000.
EQUIFAX. On January 25, 1995, the Company entered into an Exclusive
Marketing Agreement (the "Marketing Agreement") with Equifax Healthcare EDI
Services, Inc. ("Equifax EDI"), an "all payer" electronic claims
clearinghouse and a wholly owned subsidiary of Equifax, to establish "PCN
Link", a communication link between Equifax EDI and users of the Company's
practice management software products. Pursuant to the Marketing Agreement,
the Company agreed to generally promote Equifax EDI to users of the Company's
practice management software products as the exclusive provider of electronic
data interchange services, including claims processing and electronic
eligibility and credit and check authorization. During the term of the
Marketing Agreement, Equifax EDI agreed to make its electronic data
interchange services available to the Company's physician practice customers
and to pay to the Company an agreed upon percentage of the gross revenues
earned by Equifax EDI for providing such services to users of the Company's
practice management software products.
On February 15, 1995, pursuant to the terms of the Convertible
Subordinated Note Purchase Agreement between the Company and Equifax (the
"Note Purchase Agreement), Equifax, the parent company of Equifax EDI,
purchased the Equifax Note, a five year convertible subordinated promissory
note of the Company, bearing interest at a rate of 6% per annum, payable
quarterly (see Notes 8 and 10). The Equifax Note was convertible into shares
of Common Stock at a conversion price of $5.175. On May 10, 1996, in
accordance with the terms of the Note Purchase Agreement, Equifax converted
the Equifax Note in full into 1,932,217 shares of Common Stock and sold all
such shares as part of the Company's public offering of shares of Common
Stock consumated on May 10,1996 (the "1996 Public Offering") (See Note 10).
On January 12, 1996, the Company and Equifax entered into an amended
and restated Marketing Agreement which, among other things, limited the
exclusive coverage of the services provided by Equifax EDI to claims
submission and related services, on-line eligibility and benefit inquiries
for indemnity plans, credit card and check guarantee and verification
services and electronic remittance services. In connection with such
amendment, which has an initial term of four years, the Company agreed to
share with Equifax EDI certain of the costs and expenses associated with the
further development and enhancement of PCN Link. Accordingly, the Company
will reimburse Equifax for one third of certain of Equifax's development
costs with respect to PCN Link up to $250,000 per year for four years.
Further, the Company agreed to pay to Equifax $125,000 per month for
forty-eight months in order to permit the Company to offer, as a marketing
incentive, free one-year introductory service, with certain limitations, to
physician practices who subscribe to the services offered under the Marketing
Agreement (see Note 8).
13
<PAGE>
8. NOTES PAYABLE AND LONG-TERM DEBT
In January 1996, the Company and Equifax EDI amended and restated the
Marketing Agreement. As a result, the Company is obligated to pay $125,000
per month to Equifax EDI over a period of four years. The obligation was
recorded at the net present value of the payments discounted at 11.5% per
annum (See Note 7). Also in January 1996, the Company made the final payment
to the Wallaby selling stockholders.
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Term indebtedness payable to Versyss
Liquidating Trust due annually in October
1996 and 1997 at 11% $11,750,000 $11,750,000
Convertible subordinated note payable to
Equifax, Inc. due February 2000 at 6%
(see Notes 11 and 12) 10,000,000 10,000,000
Subordinated term notes due monthly March
1995 through February 2001 at 8% assumed
from Versyss acquisition 2,022,000 2,004,000
Term indebtedness payable to PMSI due
April 1996 at 10% (See Note 3) 2,000,000 2,000,000
Term indebtedness payable to IBM due
October 1997 at prime plus 2.5% (10.75%
at March 31, 1996) assumed from Versyss
acquisition 1,500,000 1,500,000
Debt portion of Equifax Marketing Agreement 4,712,207 -
Term idebtedness payable to non-employee
Wallaby selling stockholders, due January
1996 at 7% - 750,000
Other 40,486 100,160
----------- -----------
32,024,693 28,104,160
Less: notes payable-current 9,513,571 9,080,000
----------- -----------
22,511,122 19,024,160
Less: current portion of long-term debt 40,486 100,160
----------- -----------
Long-term debt $22,470,636 $18,924,000
----------- -----------
----------- -----------
Long-term debt, related party:
Term idebtedness payable to Wallaby selling
stockholder employed at the Company,
due January 1996 at 7% - $750,000
----------- -----------
- 750,000
Less: current portion of long-term debt - 750,000
----------- -----------
Long-term debt, related party $ - $ -
----------- -----------
----------- -----------
</TABLE>
The term indebtedness to PMSI was paid in full on April 24, 1996.
On May 10, 1996, in accordance with the terms of the Note Purchase
Agreement, Equifax converted the Equifax Note in full into 1,932,217 shares
of Common Stock and sold all such shares as part of the 1996 Public
Offering (See Note 10).
14
<PAGE>
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
---------- --------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $376,000 $573,000
Cash paid for income taxes..................................... $121,000 $79,000
</TABLE>
Supplemental non-cash operating, investing and financing activities
were as follows:
* In January 1996, the Company and Equifax EDI amended and restated the
Marketing Agreement. Pursuant to the amended and restated Marketing
Agreement, the Company is obligated to pay $125,000 per month to Equifax EDI
over a period of four years. The Company recorded an asset and obligation of
$4,791,290, equal to the net present value of the payments discounted at
11.5% per annum (See Notes 7 and 8).
* Capital lease obligations of $427,344 were incurred during the three
months ended March 31, 1995. None were incurred for the three months ended
March 31, 1996.
10. SUBSEQUENT EVENT
On May 10, 1996, the Company completed the public offering of
5,600,000 shares of its Common Stock at a price of $10 per share. Included
within the shares of Common Stock sold pursuant to the 1996 Public Offering,
were 1,932,217 shares issued by the Company to Equifax upon the conversion in
full of the Equifax Note. As a result of the sale by the Company of the
remaining 3,667,783 shares sold as part of the 1996 Public Offering, the
Company received net proceeds of $34,843,938. The following Unaudited
Pro forma Condensed Consolidated Balance Sheet as of March 31, 1996 which
reflects the proceeds received pursuant to this public offering and the
conversion in full of the Equifax Note.
15
<PAGE>
10. SUBSEQUENT EVENT (continued)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1996
<TABLE>
<CAPTION>
Adjustments Increase/(Decrease)
ASSETS Giving Effect to
-------------------------------
PCN Equifax
Historical Offering Conversion Pro Forma
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $9,814,855 $34,843,938 $44,658,793
Accounts receivable, net 21,466,925 21,466,925
Inventories 4,622,647 4,622,647
Prepaid expenses and other 1,607,176 1,607,176
Deferred tax asset 1,650,000 1,650,000
------------ ----------- ----------- -------------
Total current assets 39,161,603 34,843,938 74,005,541
Intangible assets, net 52,741,240 52,741,240
Propert and equipment, net 3,976,749 3,976,749
Investment in joint venture 3,009,082 3,009,082
Other assets 4,020,991 4,020,991
------------ ----------- ----------- -------------
Total Assets $102,909,665 $34,843,938 $ - $137,753,603
------------ ----------- ----------- -------------
------------ ----------- ----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable:
Other $9,513,571 $ 9,513,571
Related Party - -
Current portion of long-term debt 40,486 40,486
Current portion of obligation
under capital leases 77,164 77,164
Accounts payable 4,600,581 4,600,581
Accrued expenses and other liabilities 14,163,270 14,163,270
Customer deposits 3,086,807 3,086,807
Unearned income 14,617,925 14,617,925
------------ ----------- ----------- -------------
Total current liabilities 46,099,804 46,099,804
Long-term debt, net of current portion:
Other 22,470,636 ($10,000,000) 12,470,636
Obligations under capital
leases, net of current portion 327,985 327,985
------------ ----------- ----------- -------------
Total liabilities 68,898,425 (10,000,000) 58,898,425
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock 64 64
Common stock 447,952 $36,678 19,322 503,952
Additional paid-in capital 131,209,375 34,807,260 9,980,678 175,997,313
Accumulated deficit (97,646,151) (97,646,151)
------------ ----------- ----------- -------------
Shareholders' equity 34,011,240 34,843,938 10,000,000 78,855,178
------------ ----------- ----------- -------------
Total liabilities and shareholders'
equity $102,909,665 $34,843,938 $ - $137,753,603
------------ ----------- ----------- -------------
------------ ----------- ----------- -------------
</TABLE>
16
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements, related notes and other financial
information included elsewhere in this Quarterly Report on Form 10-Q and the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
The following discussion and analysis includes certain forward-looking
statements. Forward-looking statements in this report are made pursuant to
the safe-harbor provisions of the Private Securities Litigation Reform Act of
1995. Persons reading this report are cautioned that such forward-looking
statements involve risks and uncertainties that could cause the Company's
actual results to differ materially from the forward-looking statements.
Factors that could cause actual results to differ materially from the
forward-looking statements include, without limitation, the effect of the
Company's acquisition strategy on future operation results; the uncertainty
of acceptance of the Company's new product and migration strategy; the
Company's relationship with HealthPoint G.P.; the effects of government
regulation on the Company's business; competition; and the matters referred
to in the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
COMPANY OVERVIEW
The Company is a leader in developing, marketing and supporting practice
management software products for physician practices. The Company's products
include software which, among other things, automates physician scheduling
and general patient billing, insurance claims billing and other financial
reports.
Beginning in 1993, the Company instituted a strategy of developing and
expanding its business by acquiring practice management software businesses
having an installed base of physician practice customers and of acquiring and
developing a common software platform to which such customers could migrate
over time. In order to implement this strategy, the Company strengthened its
management team and abandoned its prior strategy of growth primarily through
the licensing of practice management software, together with computer
hardware, to new physician customers at low prices. The objective of such
strategy had been to develop a network which would generate revenues
primarily from advertising fees paid by pharmaceutical companies. Since
September 1993, the Company has increased the number of physicians associated
with sites which have purchased the Company's practice management software
products from approximately 2,000 to approximately 80,000, thereby making the
Company one of the largest providers of practice management software products
in the country.
ACQUISITION HISTORY. On September 23, 1993, the Company acquired Calyx, a
company which develops and has sold practice management software products to
sites having an aggregate of approximately 9,000 physicians, for $4,050,000
in cash and notes, as well as the assumption of certain liabilities. On
December 31, 1993, the Company acquired Wallaby, a company which develops and
has sold practice management software products to sites having an aggregate
of approximately 20,000 physicians, for $12,500,000 in cash and notes, as
well as the assumption of certain liabilities. On March 11, 1994, the
Company acquired the DOM/2 practice management
17
<PAGE>
software business, a business which has sold practice management software
products to sites having an aggregate of approximately 9,000 physicians, for
$1,024,000, as well as the assumption of certain liabilities. On November
15, 1994, the Company acquired the Acclaim Business, a business which has
sold practice management software to sites having an aggregate of
approximately 6,000 physicians, for $1,200,000 in cash and notes, as well as
the assumption of certain liabilities.
On April 24, 1995, the Company acquired the PMS Business, a business
which develops and, through its own direct sales force, has sold practice
management software products and related equipment, to sites having an
aggregate of approximately 6,000 physicians, for approximately $4,861,000 in
cash and notes, as well as the assumption of certain liabilities. On October
27, 1995, the Company acquired Versyss, a business which develops and,
through both a direct sales force and through a network of independent
resellers, has sold practice management software products and related
equipment to sites having an aggregate of approximately 30,000 physicians.
The purchase price of such acquisition consisted of $12,333,000 in cash,
$11,750,000 in the form of a promissory note and the repayment or assumption
of approximately $45,800,000 in liabilities. Versyss also provides
integrated information systems to certain industries other than health care,
including the construction, timber, fuel oil and publishing businesses.
HEALTHPOINT G.P. JOINT VENTURE. In January 1996, the Company and Glaxo
Wellcome, through wholly-owned subsidiaries, formed HealthPoint G.P., a joint
venture partnership, to design and market clinical information technology
products and services. These products and services are expected to consist
of computerized patient records software products, clinical network
capabilities and data analysis. HealthPoint is a general partnership owned
equally by a wholly-owned subsidiary of the Company and a wholly-owned
subsidiary of Glaxo Wellcome and will operate independently of the parent
companies. A management committee comprised of management of the
wholly-owned subsidiaries of Glaxo Wellcome and the Company, as well as a
representative of HealthPoint's management, will oversee the venture's
operations. The Company has agreed to, generally, use its best efforts to
exclusively distribute HealthPoint's products and services to the Company's
customers on an exclusive basis. Both the Company and Glaxo Wellcome have
contributed product and development assets to HealthPoint and will contribute
at least $50 million in cash to the venture, of which $43 million will be
contributed by Glaxo Wellcome and $7 million will be contributed by the
Company. Of such amounts, as of March 31, 1996, Glaxo Wellcome had
contributed approximately $13.4 million and the Company had contributed
approximately $2.7 million, with the remainder to be contributed
proportionately by the partners in semi-annual installments as needed by the
venture through December 31, 1998. In addition, the Company has incurred
approximately $0.9 million of costs related to its investment in
HealthPoint. Any losses incurred by HealthPoint will be allocated between
Glaxo Wellcome and the Company in proportion to their respective cash
contributions (approximately 85% to Glaxo Wellcome and 15% to the Company),
while profits will, generally be allocated equally between the partners.
In March 1996, HealthPoint introduced its first product, HealthPoint
ACS, which is expected to be commercially available during the second half of
1996. HealthPoint ACS, which is designed to interface (and is expected to be
integrated) with the PCN Health Network
18
<PAGE>
Information System, is developed for medical offices to enable physicians to,
among other things, manage the clinical information required for treatment at
the point of care.
PUBLIC OFFERING OF COMMON STOCK AND EQUIFAX NOTE CONVERSION. On May 10, 1996,
the Company completed the issuance and sale of 3,667,783 shares of Common
Stock pursuant to the 1996 Public Offering. As a result of such sale, the
Company received net proceeds of approximately $34,843,938. In addition, on
May 10, 1996, Equifax converted its $10,000,000 principal amount five year
convertible subordinated promissory note of the Company in full into
1,932,217, shares of Common Stock at a conversion price of $5.175, pursuant
to the terms of the Note Purchase Agreement, and sold all such shares as
part of the 1996 Public Offering.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1995
Revenues for the three months ended March 31, 1996 were $21,026,948, an
increase of $14,569,086 or 226% over revenues of $6,457,862 for the three
months ended March 31, 1995. Revenues from software license fees, which are
derived primarily from the sale of licenses for the PCN Health Network
Information System product and the Company's other practice management
software products, increased by $2,698,734 or 84% from $3,218,988 for the
three months ended March 31, 1995 to $5,917,722 for the three months ended
March 31, 1996. Hardware revenue increased $5,198,652 or 740% from $702,255
for the three months ended March 31, 1995 to $5,900,907 for the three months
ended March 31, 1996 primarily as a result of the acquisitions of Versyss and
the PMS Business, both of which sell computer hardware peripherals and
complete systems (hardware and practice management software). Maintenance,
communication fees and other revenue increased by $6,671,700 or 263% from
$2,536,619 for the three months ended March 31, 1995 to $9,208,319 for the
three months ended March 31, 1996 due primarily to the acquisitions of
Versyss and the PMS Business, both of which also generate service fees for
software support and hardware maintenance.
Cost of revenue increased $7,448,968 or 553% from $1,345,924 for the
three months ended March 31, 1995 to $8,794,892 for the three months ended
March 31, 1996. Cost of hardware, including installation costs, increased
$3,424,679 or 1,032% from $331,860 to $3,756,539, primarily due to increased
computer hardware sales resulting from the acquisitions of Versyss and the
PMS Business. Software, maintenance, communication fees and other costs of
revenue, which include the costs of labor for software support, hardware
maintenance and training, increased $4,024,289 or 397% from $1,014,064 to
$5,038,353, primarily as a result of the increased sales of the Company's
recently acquired Versyss and PMS Business practice management software
products and services.
Total cost of revenues increased as a percentage of total revenues from
21% for the three months ended March 31, 1995 to 42% for the three months
ended March 31, 1996 primarily as a result of the higher mix of hardware
sales.
19
<PAGE>
Operating expenses increased $3,452,843 or 100% from $3,447,944 for the
three months ended March 31, 1995 to $6,900,787 for the three months ended
March 31, 1996. Research and development, selling and marketing, and general
and administrative expenses increased by $672,167, $1,418,083, and $1,362,593,
respectively. The increase in operating expenses can be attributed to the
acquisitions of Versyss and the PMS Business which resulted from increased
headcount, as well as increased facilities and occupancy costs.
Interest expense increased $266,235 or 62%, from $428,883 for the three
months ended March 31, 1995 to $695,118 for the three months ended March 31,
1996, primarily as a result of debt issued in March and October of 1995 in
connection with the acquisitions of Versyss and the PMS Business, the
assumption of Versyss' debt obligations and the recording of the debt portion
of the amended and restated Equifax Marketing Agreement in January 1996.
The Company recorded a provision for income taxes of $986,000 for the
three months ended March 31, 1996, reflecting an estimated annual effective
tax rate of 21%. In the comparative period ended March 31, 1995, the Company
recorded a 2% effective alternative minimum rate, income tax provision of
$27,000. On tax accounting basis, the increase in the Company's effective
tax rate in 1996, as compared to 1995, reflects the annual limitation on the
Company's ability to utilize net operating loss carryforwards against current
period income as a result of previous changes in ownership of the Company (see
Financial Condition and Liquidity below). The Company will realize the
benefit of Versyss' net operating loss carryforwards as a reduction in
goodwill. As a result, although benefiting the Company on a cash basis,
utilization of Versyss' net operating loss carryforwards against current
period income does not reduce the income tax provision. On a cash basis, the
Company expects to pay at a rate substantially less than the 21% book rate.
The Company recorded a loss on its equity investment in HealthPoint of
$395,000, net of taxes, for the three months ended March 31, 1996
representing the Company's share of the loss incurred by the joint venture,
primarily as a result of start-up costs.
FINANCIAL CONDITION & LIQUIDITY
At March 31, 1996 the Company had available cash and cash equivalents of
$9,814,855 and a working capital deficit of $6,938,201 compared to cash and
cash equivalents of $15,516,883 and a working capital deficit of $9,006,455
at December 31, 1995. The decrease in cash and cash equivalents can be
attributed to cash used in investing and financing activities, partially
offset by cash generated from operations.
Net cash provided by operating activities was $1,153,346 for the three
months ended March 31, 1996 compared to net cash used in operating activities
of $95,512 for the three months ended March 31, 1995. The increase in cash
provided by operating activities was achieved primarily from the Company's
improved results of operations for the three months ended March 31, 1996,
partially offset by payments of accrued expenses related to the Versyss
acquisition.
20
<PAGE>
Cash used in investing activities was $5,117,784 for the three months
ended March 31, 1996 compared to $672,818 for the three months ended March
31, 1995 and primarily resulted from: (i) the initial cash contribution of
$2,678,000 to HealthPoint in connection with the formation of the joint
venture; (ii) approximately $1,300,000 in cash payments related to capital
expenditures and other charges primarily associated with the formation of
HealthPoint; and (iii) $1,132,578 used to acquire licensing rights and other
intangible assets.
Cash used in financing activities for the three months ended March 31,
1996 was $1,737,590 primarily related to principal payments of various
long-term debt, notes payable and capital lease agreements, partially offset
by cash generated from the exercise of stock options.
Significant payment obligations of the Company subsequent to March 31,
1996 include: (i) the payment in April 1996 of the $2,000,000 promissory note
issued in connection with the acquisition of the PMS Business, plus accrued
and unpaid interest thereon, which obligation was paid in full on April 24,
1996; (ii) the payment in October 1996 of $5,875,000 in connection with the
Versyss acquisition, together with accrued and unpaid interest thereon;
(iii) up to approximately $4,300,000 in capital contributions required to be
made by the Company to HealthPoint; and (iv) the payment of $125,000 per
month to Equifax EDI in accordance with the terms of the Amended and Restated
Marketing Agreement, dated January 12, 1996 between Equifax EDI and the
Company.
On May 10, 1996, the Company completed the public offering of 5,600,000
shares of its Common Stock at a price of $10 per share. Included within the
shares of Common Stock sold pursuant to this public offering were 1,932,217
shares of Common Stock issued to Equifax upon conversion by Equifax in full
of the Equifax Note. The Company received net proceeds of $34,843,938 from
the sale of the remaining 3,667,783 shares of Common Stock issued pursuant to
this public offering, and will receive the benefit of the elimination of
$600,000 per annum in interest payments under the Equifax Note. The Company
expects that its operating cash flow, together with the proceeds from the
sale of Common Stock pursuant to the 1996 Public Offering will be
sufficient to fund the Company's working capital requirements and permit the
Company to continue its acquisition strategy. However, the Company's ability
to continue to pursue its acquisition strategy will be affected by the extent
and pace at which the Company utilizes its available resources for
acquisitions.
On March 31, 1996, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $65 million which expire over
the next 14 years. This includes approximately $11,000,000 of net operating
loss carryforwards from Versyss which are subject to separate return
limitation year rules. The Company believes it has previously experienced
ownership changes, which, under the provisions of Section 382 of the Internal
Revenue Code of 1986, as amended, have resulted in a significant annual
limitation on the Company's ability to use net operating losses in the
future. Net operating loss carryforward limitations, combined with
recognizing the benefit from utilizing Versyss net operating loss
carryforwards against goodwill, has resulted in the Company increasing its
provision for income taxes to an effective tax rate of 21% (as compared to
the alternative minimum tax rate applied in
21
<PAGE>
1995). However, as a result of certain tax accounting preference items
available to the Company and the utilization of Versyss net operating loss
carryforwards, the Company's cash effective tax rate is estimated to be in
the range of 2% to 6% for 1996.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. - None
ITEM 2. CHANGES IN SECURITIES. - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. - None
ITEM 5. OTHER INFORMATION. - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - See Index to Exhibits on page 24
B. Reports on Form 8-K:
On January 8, 1996, the Company filed a report on Form 8-KA amending its
current report on Form 8-K dated October 27, 1995, in order to provide the
required financial information associated with its acquisition of Versyss.
On February 2, 1996, the Company filed a report on form 8-K, (Item 5 -
Other Events) to report that the Company and Glaxo Wellcome Inc. entered into
agreements relating to the formation of HealthPoint.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
PHYSICIAN COMPUTER NETWORK, INC.
(Registrant)
Date: May 14, 1996 By: /s/John F. Mortell
---------------------------
John F. Mortell
Executive Vice President and
Chief Operating Officer
24
<PAGE>
INDEX TO EXHIBITS
All exhibits listed below are filed with this Quarterly Report on Form 10-Q:
EXHIBIT NO. PAGE
- ----------- ----
11 Computation of Income Per Share. 26
25
<PAGE>
EXHIBIT 11
PHYSICIAN COMPUTER NETWORK, INC.
COMPUTATION OF INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCOME (LOSS)
Net income before extraordinary item $3,314,659 $1,270,655
Extraordinary ( loss ) - (180,000)
----------- -----------
Primary amd fully diluted net income 3,314,659 1,090,655
PRIMARY SHARES
Weighted average Common Stock outstanding 44,239,022 37,304,120
Common Stock issuable upon the exercise
of outstanding options and warrants 4,675,969 2,053,628
Common Stock issuable upon the
conversion of Preferred Stock 949,473 -
----------- -----------
Weighted average Common Stock
outstanding as adjusted 49,864,464 39,357,748
----------- -----------
----------- -----------
FULLY DILUTED SHARES
Weighted average Common Stock outstanding 44,239,022 37,304,120
Common Stock issuable upon the exercise
of outstanding options and warrants 4,913,939 2,053,628
Common Stock issuable upon the
conversion of Preferred Stock 949,473 -
----------- -----------
Weighted average Common Stock
outstanding as adjusted 50,102,434 39,357,748
----------- -----------
----------- -----------
Primary:
Income before extraordinary item per share $0.07 $0.03
Loss from extraordinary item per share - -
----------- -----------
Net Income per share $0.07 $0.03
----------- -----------
----------- -----------
Fully Diluted:
Income before extraordinary item per share $0.07 $0.03
Loss from extraordinary item per share - -
----------- -----------
Net Income per share $0.07 $0.03
----------- -----------
----------- -----------
</TABLE>
26
