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 SEPTEMBER 30, 1997
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 INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER 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 NOVEMBER 13, 1997 IS 53,636,502.
PAGE 1 OF 25 PAGES
EXHIBIT INDEX PAGE 24
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PHYSICIAN COMPUTER NETWORK, INC.
1997 FORM 10-Q
TABLE OF CONTENTS
-----------------
Page
----
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS 3
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Earnings
Three Months Ended September 30, 1997 and 1996 4
Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12
Results of Operations 15
Financial Condition and Liquidity 19
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 22
ITEM 2. Changes in Securities 22
ITEM 3. Defaults upon Senior Securities 22
ITEM 4. Submission of Matters to a Vote of Security Holders 22
ITEM 5. Other Information 22
ITEM 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
INDEX TO EXHIBITS 24
2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PHYSICIAN COMPUTER NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
--------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,988,391 $ 34,291,166
Accounts receivable, net of allowance for doubtful
accounts of $4,628,000 at September 30, 1997, and
$3,428,000 at December 31, 1996 36,123,007 21,102,878
Inventories 8,326,988 5,798,153
Prepaid expenses and other 5,134,390 2,974,490
Deferred tax asset 2,933,000 2,933,000
Total current assets 58,505,776 67,099,687
Intangible assets, net of accumulated amortization
of $20,984,000 at September 30, 1997
and $14,826,000 at December 31, 1996 79,650,404 69,076,020
Property and equipment, net 8,118,718 6,234,295
Investment in minority interest 2,200,000 -
Investment in joint venture 2,561,464 2,015,888
Other assets 6,411,924 5,739,428
--------------- --------------
Total assets $ 157,448,286 $ 150,165,318
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable and long term-debt $ 7,751,517 $ 9,087,931
Current portion of obligations under capital leases 574,773 289,229
Accounts payable 5,787,040 6,183,103
Accrued expenses and other liabilities 7,071,539 6,301,576
Customer deposits 654,832 1,043,072
Unearned income 7,495,642 13,068,726
--------------- --------------
Total current liabilities 29,335,343 35,973,637
Long-term debt, net of current portion 14,983,893 4,672,118
Obligations under capital lease, net of current portion 1,253,289 612,650
--------------- --------------
45,572,525 41,258,405
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized:
Series A convertible preferred stock 200 shares
outstanding at September 30, 1997 and December 31,1996 2 10
Common stock, $0.01 par value, 75,000,000 shares authorized,
54,389,790 shares issued and outstanding September 30, 1997
and 52,982,484 shares issued and outstanding
at December 31, 1996 543,898 529,825
Additional paid-in capital 196,127,331 193,281,643
Accumulated deficit (74,100,470) (84,904,565)
Treasury stock, at cost 2,325,000 shares (10,695,000) -
--------------- --------------
Shareholders' equity 111,875,761 108,906,913
--------------- --------------
Total liabilities and shareholders' equity 157,448,286 150,165,318
=============== ==============
<FN>
See accompanying notes to the consolidated financial
statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PHYSICIAN COMPUTER NETWORK, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
-------------------- --------------------
<S> <C> <C>
Revenues:
Software license fees $ 7,792,912 $ 7,390,537
Hardware revenue 6,765,287 6,081,013
Maintenance, communication fees, and other 11,582,038 11,839,806
-------------------- --------------------
26,140,237 25,311,356
Cost of Revenues:
Hardware 4,150,660 3,232,330
Software, maintenance, communication fees,
and other 7,314,543 6,956,507
11,465,203 10,188,837
-------------------- --------------------
Gross margin 14,675,034 15,122,519
Operating expenses:
Research and development 2,004,445 1,480,023
Selling and marketing 2,583,997 2,522,039
General and administrative 3,348,510 2,695,443
Amortization of acquired intangible assets 1,840,250 1,935,268
-------------------- --------------------
9,777,202 8,632,773
-------------------- --------------------
Interest (income) expense:
Interest income (171,821) (237,127)
Interest expense 438,919 208,496
-------------------- --------------------
267,098 (28,631)
-------------------- --------------------
Income before income tax expense, loss on equity investment,
and extraordinary item 4,630,734 6,518,377
Income tax expense 972,464 1,368,045
-------------------- --------------------
Income before loss on equity investment and extraordinary item 3,658,270 5,150,332
Loss on equity investment, net of income tax benefit (398,529) (662,020)
-------------------- --------------------
Net income available to common shareholders 3,259,741 4,488,312
==================== ====================
Primary and fully diluted earnings per common share before and after
extraordinary item $ 0.06 $ 0.08
==================== ====================
Primary weighted average number
of common shares outstanding 54,767,727 56,579,959
==================== ====================
Fully diluted weighted average number
of common shares outstanding 55,007,917 56,673,925
==================== ====================
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PHYSICIAN COMPUTER NETWORK, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
-------------------- --------------------
<S> <C> <C>
Revenues:
Software license fees $ 22,511,260 $ 20,583,605
Hardware revenue 18,642,326 17,964,711
Maintenance, communication fees, and other 34,888,893 29,658,248
-------------------- --------------------
76,042,479 68,206,564
Cost of Revenues:
Hardware 11,885,024 10,987,162
Software, maintenance, communication fees,
and other 19,584,962 16,634,876
31,469,986 27,622,038
-------------------- --------------------
Gross margin 44,572,493 40,584,526
Operating expenses:
Research and development 6,192,211 3,702,899
Selling and marketing 7,641,360 6,177,599
General and administrative 9,764,857 7,967,659
Amortization of acquired intangible assets 5,431,910 5,252,347
-------------------- --------------------
29,030,338 23,100,504
-------------------- --------------------
Interest (income) expense:
Interest income (394,730) (454,837)
Interest expense 985,540 1,546,903
-------------------- --------------------
590,810 1,092,066
-------------------- --------------------
Income before income tax expense, loss on equity
investment, and extraordinary item 14,951,345 16,391,956
Income tax expense 3,139,584 3,441,408
-------------------- --------------------
Income before loss on equity investment and
extraordinary item 11,811,761 12,950,548
Loss on equity investment, net of income tax benefit (1,361,105) (1,479,670)
-------------------- --------------------
Income before extraordinary item 10,450,656 11,470,878
Extraordinary item:
Gain on extinguishment of debt, net of taxes 353,439 -
-------------------- --------------------
Net income available to common shareholders 10,804,095 11,470,878
==================== ====================
Primary and fully diluted earnings per common share:
- ----------------------------------------------------
Before extraordinary item $ 0.19 $ 0.22
Extraordinary item $ 0.01 -
After extraordinary item $ 0.20 $ 0.22
==================== ====================
Primary weighted average number
of common shares outstanding 55,363,458 53,341,935
==================== ====================
Fully diluted weighted average number
of common shares outstanding 55,478,176 53,341,935
==================== ====================
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PHYSICIAN COMPUTER NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
--------------------- ---------------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 10,804,095 $ 11,470,878
Adjustments to reconcile net income to net cash provided by
(used) in operating activities:
Depreciation and amortization 7,711,345 7,110,168
Provision for inventory obsolescence 538,996 -
Gain on sale of assets (6,597) (148,093)
Provision for doubtful accounts 1,200,000 450,000
Bad debt write off - (166,977)
Extraordinary gain on extinguishment of debt (353,439) -
Non-cash provision for income tax 2,794,230 2,949,649
Loss on equity investment 1,361,104 1,479,670
(Increase) decrease in assets:
Accounts receivable (13,862,876) (4,852,442)
Inventories (3,422,569) (905,613)
Prepaid expenses and other assets 453,585 769,601
Increase (decrease) in liabilities, net
Accounts payable trade (1,300,268) (1,714,446)
Accrued expenses and other liabilities (1,437,436) (5,569,177)
Customer deposits and unearned income (6,129,306) (4,560,035)
--------------------- ---------------------
Net cash provided by (used in) operating activities (1,649,136) 6,313,183
--------------------- ---------------------
Cash flows provided by (used in) investing activities:
Purchase of equipment (3,809,617) (1,202,926)
Proceeds from disposal of equipment 7,077 (390,954)
Acquisition of licensing rights
and other intangible assets (5,268,457) (1,246,883)
Purchase of businesses, net of cash acquired (8,678,105) (12,567,295)
Investment in minority interest (2,200,000) -
Investment in joint venture and related costs (2,268,492) (4,716,961)
--------------------- ---------------------
Net cash used in investing activities (22,217,594) (20,125,019)
--------------------- ---------------------
Cash flows provided by (used in) financing activities:
Principal payments of long-term debt (678,701) (1,704,798)
Principal payments of notes payable (415,882) (3,225,408)
Net proceeds from issuance of line of credit 7,810,365 -
Principal payments under capital lease obligations (582,180) (548,118)
Purchase of treasury stock (10,695,000) -
Net proceeds from issuance of common stock,
preferred stock and warrants 125,353 41,773,008
--------------------- ---------------------
Net cash provided by (used in) financing activities (4,436,045) 36,294,684
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents (28,302,775) 22,482,848
Cash and cash equivalents,
beginning of period 34,291,166 15,516,883
--------------------- ---------------------
Cash and cash equivalents,
end of period $ 5,988,391 $ 37,999,731
===================== =====================
<FN>
See Note 8 for supplemental disclosure of cash flow information.
See accompanying notes to the consolidated financial statements.
</TABLE>
6
<PAGE>
PHYSICIAN COMPUTER NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The information presented at September 30, 1997 and 1996 and for the
periods then ended is unaudited, but includes all adjustments 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
and nine month periods ended September 30, 1997 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 contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
Beginning in 1993, the Company instituted a strategy of developing and
expanding its business by acquiring practice management software and related
businesses having an installed base of physician practice customers and by
acquiring and developing a common software platform to which such customers
could migrate over time. In execution of this strategy, the Company acquired
eleven (11) companies from September 1993 to September 1997, two of which were
completed in 1996 and three of which were completed in 1997:
- - On July 2, 1996, the Company acquired substantially all of the assets of
the medical practice management software business and certain other software
businesses of CUSA Technologies, Inc. (the "CTI Business") (see Note 3).
- - On September 10, 1996, the Company acquired Wismer-Martin, Inc.
("Wismer-Martin"), through a merger of a wholly-owned subsidiary of the
Company with and into Wismer-Martin, with Wismer-Martin as the surviving
corporation of such merger (See Note 3).
- - On April 1, 1997, the Company acquired the assets of the Healthcare
Division of Data Systems of Texas, (the "DST Business") (see note 3).
- - On April 29, 1997, the Company acquired the assets of the medical
practice management software business of Software Banc, Inc. (the "SBI
Business") (see Note 3).
- - On September 23, 1997, the Company acquired Printed Products Group, Inc.
("Solion") through a merger of a wholly-owned subsidiary of the Company with
and into Solion, with Solion as the surviving corporation of such merger (see
Note 3).
The Consolidated Balance Sheets and the Consolidated Statements of Earnings
for the
7
<PAGE>
nine months ended September 30, 1997 are inclusive of the CTI Business and
Wismer-Martin for the entire period, the DST Business from April 1, 1997, the
SBI Business from April 29, 1997, and Solion from September 23, 1997. Any
significant intercompany transactions have been eliminated.
2. EARNINGS PER COMMON SHARE
Net income per common share for the three and nine month periods ended
September, 1997 and 1996 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") have been included in the
calculation of weighted average number of common shares outstanding.
On March 31, 1997, the Company exercised an option it held and purchased
from IBM Credit Corporation ("ICC") 2,325,000 shares of its Common Stock at a
price of $4.60 per share. The repurchase of the shares from ICC is considered
in the weighted average number of common shares outstanding for the three and
nine month periods ended September 30, 1997 (see Note 7).
3. ACQUISITIONS
Purchase of the CTI Business - On July 2, 1996, pursuant to an asset
purchase agreement, the Company, through a wholly-owned subsidiary, purchased
the CTI Business from CUSA Technologies, Inc. for: (i) $9,200,000 in cash;
and, (ii) the assumption of $4,130,526 in liabilities and cancellation of debt
owed by from CUSA Technologies, Inc. to PCN.
Purchase of Wismer-Martin, Inc. - On September 10, 1996, the Company
acquired Wismer-Martin, a provider of practice management systems and
healthcare information systems located in Mead, Washington, pursuant to a
merger agreement, for: (i) $1,980,000 in cash; (ii) 935,000 shares of PCN
Common Stock valued at $9,365,895; and, (iii) the assumption of $4,733,154 in
liabilities.
Purchase of the DST Business - On April 1, 1997, the Company acquired the
assets of the DST Business from Data Systems of Texas, a reseller of the
Company's hardware and software products with offices in Waco and Austin,
Texas, for: (i) $1,070,000 in cash; (ii) $600,000 in notes payable; and, (iii)
the assumption of $167,982 in liabilities.
Purchase of the SBI Business - On April 29, 1997, the Company acquired
the SBI Business from Software Banc, Inc. of Milwaukee, Wisconsin for
$2,613,222 in cash and the assumption of $75,000 in liabilities.
8
<PAGE>
Purchase of Solion - On September 23, 1997, the Company acquired the
Solion Corp., a national supplier of printed products and computer supplies
primarily to the Healthcare Industry located in Westwood, Massachusetts for
(i) $3,125,000 in cash; (ii) 450,990 shares of PCN Common Stock valued at
$3,125,000; and, (iii) the assumption of $2,103,344 in liabilities.
The acquisitions of the CTI Business, Wismer-Martin, the DST Business,
the SBI Business and Solion were accounted for by the purchase method of
accounting and, accordingly, the acquired assets and liabilities have been
recorded at their fair values at the date of purchase.
The following unaudited pro forma financial information represents the
combined results of operations of the Company, the CTI Business, and
Wismer-Martin as if those acquisitions had occurred as of January 1, 1996
after giving effect to certain financing transactions completed in 1996. The
unaudited pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the Company, the CTI
Business, and Wismer-Martin constituted a single entity during such periods
nor does it represent a basis for assessing future performance.
Had the DST Business, the SBI Business and Solion acquisitions been
consummated on January 1, 1996, the Company's results of operations would not
have been materially affected for the purpose of pro forma disclosures.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996:
<S> <C>
Operating Revenues $79,236,263
Net Income $ 9,347,473
Earnings per Common Share $ 0.16
</TABLE>
4. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
Computer hardware and peripherals $ 5,963,945 $ 3,377,694
Customer maintenance parts 2,363,043 2,420,459
$ 8,326,988 $ 5,798,153
============== =============
</TABLE>
9
5. INVESTMENT IN MINORITY INTEREST
On June 13, 1997, the Company invested $2,200,000, including expenses, in
the convertible preferred stock of HCC Communications, Inc. (Healthcare
Communications, Inc. or "HCC"), a practice management software provider
located in Lincoln, Nebraska. The investment represents 19.9% of the voting
securities of HCC and is, therefore, accounted for using the cost method of
accounting for investments. The Company reviewed the investment for
impairment as of September 30, 1997 and determined that no impairment had
occurred during the period from the date of investment until September 30,
1997.
6. RESTRUCTURING PLAN UPDATE
<TABLE>
<CAPTION>
<PAGE>
1995 RESTRUCTURING PLAN
- ---------------------------------------------------------------------
<S> <C>
Balance at December 31, 1996 $86,156
1997 Activity:
Cash outflows from reduction in workforce and lease termination costs $86,156
=======
Balance at September 30, 1997 $ -
=======
</TABLE>
7. SHAREHOLDERS' EQUITY
On September 23, 1997, as part of the acquisition of Solion, the Company
issued 450,990 shares of its Common Stock at a price of $6.929 (See Note 3).
On March 31, 1997, the Company exercised an option it held and purchased
from IBM Credit Corporation 2,325,000 shares of its Common Stock at a price of
$4.60 per share.
On February 11, 1997, options to purchase 894,000 shares of Common Stock
at an exercise price of $9.188 per share were granted pursuant to the
Company's 1993 Incentive and Non-Incentive Stock Option Plan. In addition,
30,000 shares of Common Stock at an exercise price of $11.25 per share were
granted and 181,235 stock options were forfeited due to expiration or
termination. During the first nine months of 1997, a total of 31,020 stock
options were exercised. There were 775,000 stock warrants exercised during
the period by ICC which were included in the 2,325,000 shares repurchased by
the Company. As a result, the cumulative number of stock options and warrants
outstanding as of September 30, 1997 was 9,940,331.
During the first nine months of 1997, 800 shares of the Convertible
Preferred Stock, issued on October 20, 1995 pursuant to Regulation S under the
Securities Act of 1933, were converted into 151,646 shares of common stock in
accordance with the terms of the Convertible Preferred Stock.
10
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
-------------- --------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 707,000 $ 1,576,000
Cash paid for income taxes $ 456,000 $ 261,000
</TABLE>
Supplemental non-cash operating, investing, and financing activities were
as follows:
Capital lease obligations of $1,502,885 were incurred during the nine
months ended September 30, 1997 and none were incurred for the nine months
ended September 30, 1996.
In connection with the Data Systems of Texas acquisition in April 1997,
the Company issued $600,000 in notes payable and assumed liabilities in the
aggregate of $167,982 (See Note 3).
In connection with the Software Banc, Inc. acquisition in April 1997, the
Company assumed liabilities in the aggregate of $75,000 (See Note 3).
The Company realized an extraordinary gain, net of taxes, of $353,439 on
the extinguishment of a note payable to a supplier of inventory that was
assumed as part of its acquisition of Versyss Incorporated. The terms of the
note called for principal to be forgiven, and a credit against interest
payments provided, if the Company exceeded certain annual purchase
requirements with the supplier according to provisions of the master agreement
with the supplier.
On September 23, 1997, the Company pursuant to a merger agreement with
the Solion Corp., issued 450,990 shares of PCN Common Stock valued at
$3,125,000 and also assumed liabilities in the aggregate of $2,103,344 (See
Note 3).
11
<PAGE>
ITEM 2. MANAGEMENT'S 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, 1996.
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 availability
of financing for future acquisitions; 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, 1996.
Company Overview
- ----------------
The Company is a leader in developing, marketing and supporting
practice management software products for physician practices. The Company's
overall business objective is to become the leading provider of integrated
practice management and clinical information software products to office-based
physicians, thereby becoming a major link for the electronic exchange of
information between physician practices and other health care providers and
organizations. In furtherance of this objective, since September 1993, the
Company has acquired ten practice management software businesses which, along
with new system sales, 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 101,000, making the Company one of
the largest providers of practice management software products in the United
States. The Company plans to migrate a substantial majority of its customers
to its most advanced practice management software product, the PCN Health
Network Information System, during the next several years. In an effort to
rapidly and cost-effectively supplement its practice management software
product offerings with knowledge-based clinical products and services, in
January 1996, the Company and Glaxo Wellcome, Inc. ("Glaxo Wellcome") formed a
joint venture. The joint venture, HealthPoint G.P. ("HealthPoint"), was formed
to develop and market clinical information technology products and services
that will provide the clinical information needed at the point of patient care
and assist physicians and other health care providers practice medicine more
efficiently. In December 1996, HealthPoint made commercially available its
first product, HealthPoint ACS, a product developed for medical offices to
enable physicians to, among other things, manage the clinical information
required for treatment at the point of care.
12
<PAGE>
The Company's practice management software products, which, among other
things, automate physician scheduling and generate patient billings, insurance
claims billings and other financial reports, include interactive communication
software that links physician practices with hospitals, Medicare/Medicaid
carriers, commercial insurance carriers, claims clearinghouses, clinical
laboratories, pharmacies, HMOs and other health care organizations who have
established electronic communication links under agreement with the Company
(collectively, "Connecting Service Providers"). The PCN Health Network
Information System is designed to become the common practice management
software platform used by a substantial majority of the Company's physician
practice customers and, as an integrated unit with HealthPoint's products, is
expected to provide physicians with comprehensive financial, administrative
and clinical applications. The PCN Health Network Information System will
primarily manage the business elements of the physician's practice and
HealthPoint's software products and services will primarily provide physicians
with clinical applications and functionality intended to assist physicians in
the clinical aspects of their practices.
Strategy. The Company's objective is to establish a large installed base of
physician practice customers who use the PCN Health Network Information System
integrated with HealthPoint's clinical information products, thereby becoming
an important link for the electronic exchange of information between physician
practices and other health care providers and organizations. The Company's
strategy for achieving its objective has and will continue to include: (i)
increasing the usage of the PCN Health Network Information System by
continuing to acquire practice management software businesses having an
installed base of physician practice customers; (ii) migrating both the
Company's existing and newly acquired practice management software customers
to the PCN Health Network Information System during the next several years;
(iii) marketing and licensing the PCN Health Network Information System, both
directly and through independent resellers, to additional physician customers,
in particular, large group practices; (iv) marketing HealthPoint's clinical
information system products and other services to the Company's installed base
of PCN Health Network Information System customers, as well as customers of
the Company's other practice management software products; and (v) providing
new and enhanced services, including new Connecting Service Providers, through
the PCN Health Network Information System and HealthPoint's clinical
information technology products.
Acquisition History. The Company has completed the acquisition of eleven (11)
companies since September 1993. The most recent include the following:
On July 2, 1996, the Company acquired the CTI Business , a reseller of
the Company's hardware and software products and a direct provider of certain
other practice management systems and equipment to sites having an aggregate
of approximately 4,000 physicians, for $9,200,000 in cash, the assumption of
approximately $4,130,000 in liabilities and the cancellation of debt owed by
CUSA Technologies, Inc. to PCN.
13
<PAGE>
On September 10, 1996, the Company, acquired Wismer-Martin, a provider,
through a direct sales force, of practice management and healthcare
information systems, and related equipment, to sites having an aggregate of
approximately 4,000 physicians for $1,980,000 in cash, 935,000 shares of PCN
Common Stock valued at approximately $9,366,000 and the assumption of
approximately $4,737,000 in liabilities.
On April 1, 1997, the Company acquired the assets of the Healthcare
Division of Data Systems of Texas, a reseller of the Company's hardware and
software products with offices in Waco and Austin, Texas, for: (i) $1,070,000
in cash; (ii) $600,000 in notes payable; and, (iii) the assumption of
approximately $168,000 in liabilities.
On April 29, 1997, the Company acquired the assets of the medical
practice management software business of Software Banc, Inc. of Milwaukee,
Wisconsin for $2,613,222 in cash and the assumption of approximately $75,000
in liabilities. SBI is a regional provider, through a direct sales force, of
practice management systems and related equipment to sites having an aggregate
of approximately 3,000 physicians.
On September 23, 1997, the Company acquired Printed Products Group, Inc.
("Solion") for $3,125,000 in cash, 450,990 shares of the Company's Common
Stock valued at $3,125,000, and the assumption of $2,103,344 in liabilities.
Solion is a national supplier of printed products and computer supplies
primarily to the healthcare industry.
Investment in Minority Interest. On June 13, 1997, the Company invested
$2,200,000, including expenses, in the convertible preferred stock of HCC
Communications, Inc. ("HCC"), a practice management software provider located
in Lincoln, Nebraska. The investment represents 19.9% of the voting
securities of HCC and is, therefore, accounted for using the cost method of
accounting for investments. HCC's software products primarily utilize an
Apple/Macintosh operating system. The Company has an option to purchase 100%
of the common stock of HCC at any time between June 13, 2000 and June 13, 2002
at a price derived from a formula based on revenues. In conjunction with the
Company's investment in HCC, HCC became a value-added reseller of PCN's Health
Network and HealthPoint products on an exclusive basis.
HealthPoint Overview. In January 1996, the Company and Glaxo Wellcome,
through wholly-owned subsidiaries, formed HealthPoint, a joint venture
partnership, to design and market clinical information technology products and
services. These products and services 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
operates independently of the partners' operations. 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, oversees
the venture's operations. The Company has agreed to, generally, use its best
efforts to 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 September 30, 1997, the Company had
contributed approximately $6.2 million, with the remainder to be contributed
proportionately by the partners in semi-annual installments as needed by the
venture through December 31, 1998.
14
Any losses incurred by HealthPoint are 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 shared equally by
the partners.
RESULTS OF OPERATIONS
- -----------------------
THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Revenues - Revenues for the three months ended September 30, 1997 were
$--26,140,237 an increase of $828,881 or 3% over revenues of $25,311,356 for
the three months ended September 30, 1996.
The Company's software license fees are derived primarily from the sale
of licenses for the PCN Health Network Information System and the Company's
other practice management software products. Revenues from software license
fees increased by $402,375 or 5% from $7,390,537 in the third quarter of 1996
to $7,792,912 in the third quarter of 1997 as a result of increased sales of
licenses for the PCN Health Network Information System from both migrations
and new system sales and, to a lesser extent, increased software license sales
related to the acquisition of Wismer-Martin at the end of the third quarter of
1996. Hardware revenues increased by $684,274 or 11% from $6,081,013 for the
quarter ended September 30, 1996 to $6,765,287 for the quarter ended September
30, 1997 due to an increase in new system sales experienced in the third
quarter of 1997.
Maintenance, communication fees and other revenue decreased by $257,768
or 2% from $11,839,806 in the third quarter of 1996 to $11,582,038 in the
third quarter of 1997. The decrease is due primarily to a reduction of
hardware maintenance revenue principally brought about by an increase in sales
of new hardware, generally sold with manufacturer warranties of up to three
years, to existing hardware maintenance customers as part of migration system
sales in 1997, as compared to 1996.
15
<PAGE>
Cost of revenues - Cost of revenues as a percentage of total revenues
increased from 40% in the third quarter 1996 to 44% in the third quarter of
1997 primarily due to the increased cost of software and maintenance resulting
from the investment in infrastructure the Company has made in 1997 to support
the roll-out of the HealthPoint ACS product and the related sales effort.
Cost of software, maintenance, communication fees and other revenue,
which includes the costs of labor for installation, software support, hardware
maintenance and training, increased by $358,036 or 5% from $6,956,507 in the
third quarter of 1996 to $7,314,543 in the third quarter of 1997 primarily
relating to (i) the increased sales of the PCN Health Network Information
System, (ii) increased maintenance costs associated with higher maintenance
revenue related to the acquisitions of the CTI Business, Wismer-Martin, the
DST Business and the SBI Business, and (iii) additional costs incurred by the
Company to install, train and support the HealthPoint ACS product.
Cost of hardware increased by $918,330 or 28% from $3,232,330 for the
three months ended September 30, 1996 to $4,150,660 for the three months ended
September 30, 1997 primarily as a result of increased hardware sales in the
third quarter of 1997.
Operating Expenses - Operating expenses increased $1,144,429 or 13% from
$8,632,773 for the three months ended September 30 1996 to $9,777,202 for the
three months ended September 30, 1997. The increase in operating expenses can
be attributed to the following:
Research and development costs increased by $524,422 or 35% from
$1,480,023 in the third quarter of 1996 to $2,004,445 in the third quarter of
1997 primarily due to (i) the investment in new technology and product
development, and in particular, development with respect to the integration of
HealthPoint ACS and the PCN Health Network Information System; (ii) the
acquisition of Wismer-Martin at the end of the third quarter of 1996; and,
(iii) the acquisitions of the DST Business and the SBI Business in the second
quarter of 1997. Increases in expenditures related to core products were
partially offset by savings realized from the elimination of development
charges associated with non-core products.
Selling and marketing expenses increased by $61,958 or 2% from $2,522,039
in the third quarter of 1996 to $2,583,997 in the third quarter of 1997
primarily as a result of increased headcount attributable to Wismer-Martin,
the DST Business and the SBI Business acquisitions, all of which employ a
direct sales force, partially offset by continued efficiency savings realized
from the elimination of duplicate marketing program costs.
General and administrative expenses increased by $653,067 or 24% from
$2,695,443 in the third quarter of 1996 to $3,348,510 in the third quarter of
1997 due to
(i) additional headcount and increased facility and occupancy costs
attributable to the acquisitions of Wismer-Martin at the end of the third
quarter of 1996 and the DST Business and the SBI Business in 1997, and (ii)
the increased costs associated with the Company's investment in infrastructure
to support the roll-out of the HealthPoint ACS product; partially offset by
savings resulting from the centralization of certain operations, the
elimination of duplicate responsibilities and other functional downsizing.
16
<PAGE>
Amortization of acquired intangible assets decreased by $95,018 or 5% as
a result of a reduction of $410,827 of amortization expense incurred in the
third quarter of 1996 related to previously acquired intangible assets that
were fully amortized prior to the beginning of 1997, partially offset by
$315,809 in additional amortization expense related to Wismer-Martin, the DST
Business, the SBI Business and Solion acquisitions.
Interest income decreased by $65,306 or 28% from $237,127 in the third
quarter of 1996 to $171,821 in the third quarter of 1997, primarily due to the
Company's use of its cash resources for acquisitions, capital expenditures and
to buy back 2,325,000 shares of its own Common Stock.
Interest expense increased by $230,423 or 111% from $208,496 in the third
quarter of 1996 to $438,919 in the third quarter of 1997 primarily as a result
of the debt service assumed as part of the CTI Business, Wismer-Martin, the
DST Business, the SBI Business and the Solion acquisitions.
The Company recorded a provision for income taxes of $972,464 for the
quarter ended September 30, 1997, a decrease of $395,581 or 29% from the
$1,368,045 provision recorded in the third quarter of 1996, reflecting an
estimated annual effective tax rate of 21% for both periods. On a cash basis,
the Company expects to pay at a rate substantially less than the 21% estimated
annual effective rate.
The loss, net of income taxes, on the equity investment in HealthPoint,
which represents the Company's share of the loss incurred by the joint
venture, consisting primarily of start-up and development costs, decreased by
$263,491 or 40% from a loss of $662,020 in the third quarter of 1996 to a loss
of $398,529 in the third quarter of 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues for the nine months ended September 30, 1997 were $76,042,479,
an increase of $7,835,915 or 11% over revenues of $68,206,564 for the nine
months ended September 30, 1996. 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 $1,927,655 or 9% from $20,583,605 for the nine
months ended September 30, 1996 to $22,511,260 for the nine months ended
September 30, 1997. Hardware revenue increased $677,615 from $17,964,711 for
the nine months ended September 30, 1996 to $18,642,326 for the nine months
ended September 30, 1997 primarily as a result of increased new system sales.
Maintenance, communication fees and other revenue increased by $5,230,645 or
18% from $29,658,248 for the nine months ended September 30, 1996 to
$34,888,893 for the nine months ended September 30, 1997 due primarily to the
increase in software license sales and the acquisition of the more hardware
and software maintenance-intensive CTI Business, Wismer-Martin, DST Business
and SBI Business.
17
<PAGE>
Cost of revenues increased $3,847,948 or 14% from $27,622,038 for the
nine months ended September 30, 1996 to $31,469,986 for the nine months ended
September 30, 1997. Cost of hardware increased $897,862 or 8% from
$10,987,162 to $11,885,024 primarily due to the increased computer hardware
sales. Software, maintenance, communication fees and other costs of revenue,
which include the costs of labor for software support, hardware maintenance
and training, increased $2,950,086 or 18% from $16,634,876 to $19,584,962
primarily as a result of the increased software and maintenance sales and the
additional costs incurred by the Company to install, train and support the
HealthPoint ACS product.
Operating expenses increased $5,929,834 or 26% from $23,100,504 for the
nine months ended September 30, 1996 to $29,030,338 for the nine months ended
September 30, 1997. Research and development, selling and marketing, and
general and administrative expenses increased by $2,489,312, $1,463,761, and
$1,797,198, respectively. The increase in operating expenses is primarily due
to additional headcount, as well as increased facilities and occupancy costs,
attributable to (i) the acquisitions of Wismer-Martin, the DST Business and
the SBI Business, and, (ii) the investments in infrastructure the Company has
made in 1997 to support the roll-out of the HealthPoint ACS product; both of
which were partially offset by savings resulting from the centralization of
certain operations, the elimination of duplicate responsibilities and other
functional downsizing.
Amortization of acquired intangible assets increased by $179,563 or 3% as
a result of $1,476,287 in additional amortization expense related to
Wismer-Martin, the DST Business, the SBI Business, and Solion acquisitions,
partially reduced by $1,296,724 of amortization expense incurred in the first
nine months of 1996 related to other previously acquired intangible assets
that were fully amortized prior to the beginning of 1997.
Interest income decreased $60,107 or 13% from $454,837 for the nine
months ended September 30, 1996 to $394,730 for the nine months ended
September 30, 1997, primarily due to the Company's use of its cash resources
for acquisitions, capital expenditures and the buy back of 2,325,000 shares of
its own Common Stock. Interest expense decreased $561,363 or 36%, from
$1,546,903 for the nine months ended September 30, 1996 to $985,540 for the
nine months ended September 30, 1997, primarily as a result of the decrease in
debt service due to the conversion, in full, of a convertible note held by
Equifax, Inc., offset by debt services assumed as part of the Wismer-Martin,
the DST Business, the SBI Business, and Solion acquisitions.
18
<PAGE>
The Company's provision for income taxes decreased by $301,824, or 9%,
from $3,441,408 for nine months ended September 30, 1996 to $3,139,584 for the
nine months ended September 30, 1997 reflecting an estimated annual effective
tax rate of 21% for both periods. On a cash basis, the Company expects to pay
at a rate substantially less than the 21% estimated effective rate.
The Company recorded a loss on its equity investment in HealthPoint of
$1,361,105, net of taxes, for the nine months ended September 30, 1997
representing the Company's share of the loss incurred by the joint venture,
primarily as a result of start-up and development costs.
Financial Condition & Liquidity
- ----------------------------------
At September 30, 1997 the Company had available cash and cash
equivalents of $5,988,391 and working capital of $29,170,433 compared to cash
and cash equivalents of $34,291,166 and a working capital of $31,126,050 at
December 31, 1996. The decrease in cash and cash equivalents can be
attributed to the following:
Net cash used in operating activities was $1,649,136 for the nine
months ended September 30, 1997 compared to net cash provided by operating
activities of $6,313,183 for the nine months ended September 30, 1996
primarily due to: (i) an increase in accounts receivable related to the
timing of sales orders and cash collections in the third quarter of 1997;
(ii) an increase in inventory position in support of anticipated HealthPoint
ACS sales; and (iii) payment of accrued expenses and other liabilities.
Accounts receivable are typically collected within sixty days of the date of
sale. The Company believes that cash will be provided from operations in the
fourth quarter of 1997.
Cash used in investing activities was $22,217,594 in the third
quarter of 1997 and primarily consisted of: (i) $8,678,105 used for
acquisitions; (ii) $5,268,457 used to acquire licensing rights and other
intangible assets; (iii) $3,809,617 in capital investment in equipment; (iv)
$2,200,000 used to acquire a minority interest in HCC; and, (v) $2,268,492 of
scheduled cash investments in HealthPoint.
Cash used in financing activities in the third quarter of 1997 was
$4,436,045 primarily related to the payment by the Company of $10,695,000 to
ICC for the repurchase of 2,325,000 shares of the Company's Common Stock at a
price of $4.60 per share, net of $7,810,365 in net proceeds issued from the
Company's line of credit.
Significant payment obligations of the Company during the remainder
of 1997 include: (i) the payment in October 1997 of $5,875,000 in
principal amount under the promissory note issued in connection with the
Versyss acquisition, together with accrued and unpaid interest thereon; and
(ii) capital contributions required to be made by the Company to HealthPoint.
19
<PAGE>
On September 10, 1997, the Company entered into an agreement (the "Credit
Agreement") with Lehman Commercial Paper Inc., as the arranger and syndication
agent, Fleet Bank, N.A., as the administrative agent, and a group of banks and
financial institutions pursuant to which it established a senior secured
revolving credit facility of $110,000,000. The term of the revolving line of
credit is four years. The line of credit is available to provide financing
for acquisitions, working capital and general corporate purposes. In
conjunction with entering into the Credit Agreement, the Company terminated
its $15 million revolving credit facility previously established with Fleet
Bank, N.A. on June 4, 1997 without penalty.
The Company expects that its operating cash flow, combined with the
availability of funds under the credit facility, will be sufficient to fund
the Company's working capital requirements (including research and
development) through at least 1998 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. Accordingly, the
Company may in the future be required to seek additional sources of financing,
including borrowing and/or the sale of equity securities. If additional funds
are raised by issuing equity securities, further dilution to shareholders may
result. No assurances can be given that any such additional sources of
financing will be available on acceptable terms or at all.
At September 30, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $66,000,000 which expire in
1999 through 2009. This includes approximately $15,000,000 of net operating
loss carryforwards from Versyss and $4,500,000 from Wismer-Martin 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 utilize its net
operating losses in the future. As a result, the Company is limited each year
as to the amount of pre-ownership change net operating losses that can be
utilized. However, it is the opinion of management that the losses will be
fully utilized prior to expiration of the carryforward period.
Impact of New Accounting Pronouncements In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128 , Earnings Per Share ("SFAS
128"). This statement is effective for financial statements issued for periods
ending after December 15, 1997 and will require companies to change the way
they calculate earnings per share ("EPS"). Primary EPS will be replaced by
Basic EPS which excludes dilution and is calculated by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Fully Diluted EPS will be replaced by
Diluted EPS which reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. In addition, SFAS 128 also
requires dual presentation of Basic and Diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the Basic EPS computation
to the numerator and denominator of the Diluted EPS computation.
20
<PAGE>
If SFAS 128 was adopted as of September 30, 1997, EPS would have been as
follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------- -------------------
<S> <C> <C>
3 Months:
- -----------
Basic EPS $ 0.06 $ 0.09
Diluted EPS $ 0.06 $ 0.08
9 Months:
- -----------
Basic EPS $ 0.21 $ 0.24
Diluted EPS $ 0.20 $ 0.22
</TABLE>
21
<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 23
B. Reports on form 8K:
On September 12, 1997, the Company filed a report on From 8-K (Item 5
Other Events) to report that it had entered into a credit agreement with
Lehman Commercial Paper Inc., as the arranger and syndication agent, Fleet
Bank, N.A., as the administrative agent, and a group of banks and financial
institutions pursuant to which it established a senior secured revolving
credit facility of $110,000,000. The term of such revolving credit facility
is four years. The facility is available to provide financing for
acquisitions, working capital and general corporate purposes.
On September 25, 1997, the Company filed a report on Form 8-K (Item 2
Acquisition or Disposition of Assets) to report that it acquired Solion, a
national supplier of printed products and computer supplies primarily to the
healthcare industry, for $6,250,000, of which $3,125,000 was paid in cash and
$3,1250,000 was paid by delivery of 450,990 shares of the Company's common
stock.
22
<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: November 14, 1997 By: /s/ John F. Mortell
--------------------
John F. Mortell
Executive Vice President and
Chief Operating Officer
Date: November 14, 1997 By: /s/ Thomas F. Wraback
----------------------
Thomas F. Wraback
Senior Vice President and
Chief Financial Officer
23
<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. 25
24
<TABLE>
<CAPTION>
EXHIBIT 11
PHYSICIAN COMPUTER NETWORK, INC.
COMPUTATION OF INCOME PER SHARE
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997
------------------- --------------------------------- ------------------
<S> <C> <C> <C>
INCOME
- --------------------------------------------
Net Income before extraordinary item $ 3,259,741 $ 4,488,312 $ 10,450,656
Extraordinary gain -- -- 353,439
------------------- --------------------------------- ------------------
Primary and fully diluted net income $ 3,259,741 $ 4,488,312 $ 10,804,095
=================== ================================= ==================
PRIMARY SHARES
- --------------------------------------------
Weighted average Common Stock outstanding 51,715,363 52,351,619 52,120,605
Common Stock issuable upon the exercise
of outstanding options and warrants 2,971,568 4,085,483 3,102,536
Common Stock issuable upon the
conversion of Preferred Stock 80,796 142,857 140,317
------------------- --------------------------------- ------------------
Weighted average Common Stock
outstanding as adjusted 54,767,727 56,579,959 55,363,458
=================== ================================= ==================
FULLY DILUTED SHARES
- --------------------------------------------
Weighted average Common Stock outstanding 51,715,363 52,351,619 52,120,605
Common Stock issuable upon the exercise
of outstanding options and warrants 3,215,959 4,179,449 3,218,670
Common Stock issuable upon the
conversion of Preferred Stock 76,595 142,857 138,901
------------------- --------------------------------- ------------------
Weighted average Common Stock
outstanding as adjusted 55,007,917 56,673,925 55,478,176
=================== ================================= ==================
PRIMARY:
- --------------------------------------------
Income before extraordinary item per share $ 0.06 $ 0.08 $ 0.19
Gain from extraordinary item per share -- -- 0.01
------------------- --------------------------------- ------------------
Net income per share $ 0.06 $ 0.08 $ 0.20
=================== ================================= ==================
FULLY DILUTED:
- --------------------------------------------
Income before extraordinary item per share $ 0.06 $ 0.08 $ 0.19
Gain from extraordinary item per share -- -- 0.01
------------------- --------------------------------- ------------------
Net income per share $ 0.06 $ 0.08 $ 0.20
=================== ================================= ==================
EXHIBIT 11
NINE MONTHS ENDED
SEPTEMBER 30,
1996
------------------
<S> <C>
INCOME
- --------------------------------------------
Net Income before extraordinary item $ 11,470,878
Extraordinary gain --
------------------
Primary and fully diluted net income $ 11,470,878
==================
PRIMARY SHARES
- --------------------------------------------
Weighted average Common Stock outstanding 48,554,796
Common Stock issuable upon the exercise
of outstanding options and warrants 4,349,827
Common Stock issuable upon the
conversion of Preferred Stock 437,312
------------------
Weighted average Common Stock
outstanding as adjusted 53,341,935
==================
FULLY DILUTED SHARES
- --------------------------------------------
Weighted average Common Stock outstanding 48,554,796
Common Stock issuable upon the exercise
of outstanding options and warrants 4,349,827
Common Stock issuable upon the
conversion of Preferred Stock 437,312
------------------
Weighted average Common Stock
outstanding as adjusted 53,341,935
==================
PRIMARY:
- --------------------------------------------
Income before extraordinary item per share $ 0.22
Gain from extraordinary item per share --
------------------
Net income per share $ 0.22
==================
FULLY DILUTED:
- --------------------------------------------
Income before extraordinary item per share $ 0.22
Gain from extraordinary item per share --
------------------
Net income per share $ 0.22
==================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,988,391
<SECURITIES> 0
<RECEIVABLES> 40,751,007
<ALLOWANCES> 4,628,000
<INVENTORY> 8,326,988
<CURRENT-ASSETS> 58,505,776
<PP&E> 36,314,606
<DEPRECIATION> 28,331,606
<TOTAL-ASSETS> 157,448,286
<CURRENT-LIABILITIES> 29,335,343
<BONDS> 0
0
2
<COMMON> 543,898
<OTHER-SE> 111,331,861
<TOTAL-LIABILITY-AND-EQUITY> 157,448,286
<SALES> 18,642,326
<TOTAL-REVENUES> 76,042,479
<CGS> 11,885,024
<TOTAL-COSTS> 31,469,986
<OTHER-EXPENSES> 29,030,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 985,540
<INCOME-PRETAX> 14,951,345
<INCOME-TAX> 3,139,584
<INCOME-CONTINUING> 11,811,761
<DISCONTINUED> 0
<EXTRAORDINARY> 353,439
<CHANGES> 0
<NET-INCOME> 10,804,095
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
